diff options
Diffstat (limited to '41936-0.txt')
| -rw-r--r-- | 41936-0.txt | 20623 |
1 files changed, 20623 insertions, 0 deletions
diff --git a/41936-0.txt b/41936-0.txt new file mode 100644 index 0000000..18b285f --- /dev/null +++ b/41936-0.txt @@ -0,0 +1,20623 @@ +*** START OF THE PROJECT GUTENBERG EBOOK 41936 *** + +Note: Images of the original pages are available through + Internet Archive/American Libraries. See + http://archive.org/details/principlesofpoli00perrrich + + +Transcriber's note: + + Text enclosed by underscores is in italics (_italics_). + + Text enclosed by tilde characters is transliteration of + Greek (~dragma~). + + + + + +PRINCIPLES OF POLITICAL ECONOMY. + + * * * * * + + PROFESSOR PERRY'S WORKS ON + POLITICAL ECONOMY. + + + 1. INTRODUCTION TO POLITICAL ECONOMY. Fifth + Edition. 12mo. 357 pp. Price, $1.50. + + 2. PRINCIPLES OF POLITICAL ECONOMY. 8vo. 585 + pp. Price, $2.00. + + 3. POLITICAL ECONOMY. Twenty-First Edition. Crown + 8vo. 600 pp. Price, $2.50. + + * * * * * + + +PRINCIPLES OF POLITICAL ECONOMY + +by + +ARTHUR LATHAM PERRY, LL.D. + +Orrin Sage Professor of History and Political Economy in +Williams College + + + _"No task is ill where Hand and Brain + And Skill and Strength have equal gain, + And each shall each in honor hold, + And simple manhood outweigh gold."_ + WHITTIER. + + + + + + +New York +Charles Scribner's Sons +1891 + +Copyright, 1890, +by Arthur Latham Perry. + + + + + Dedication. + + TO MY PERSONAL FRIEND OF LONG STANDING + + J. STERLING MORTON + + OF NEBRASKA + + A FRIEND OF THE PEOPLE ALSO + + FOUNDER OF ARBOR DAY + + + + +PREFACE. + + +It is now exactly twenty-five years since was published my first book +upon the large topics at present in hand. It was but as a bow drawn at +a venture, and was very properly entitled "Elements of Political +Economy." At that time I had been teaching for about a dozen years in +this Institution the closely cognate subjects of History and Political +Economy; cognate indeed, since Hermann Lotze, a distinguished German +philosopher of our day, makes prominent among its only _five_ most +general phases, the "industrial" element in all human history; and +since Goldwin Smith, an able English scholar, resolves the elements of +human progress, and thus of universal history, into only _three_, +namely, "the moral, the intellectual, and the productive." + +During these studious and observant years of teaching, I had slowly +come to a settled conviction that I could say something of my own and +something of consequence about Political Economy, especially at two +points; and these two proved in the sequel to be more radical and +transforming points than was even thought of at the first. For one +thing, I had satisfied myself, that the word "Wealth," as at once a +strangely indefinite and grossly misleading term, was worse than +useless in the nomenclature of the Science, and would have to be +utterly dislodged from it, before a scientific content and defensible +form could by any possibility be given to what had long been called in +all the modern languages the "Science of Wealth." Accordingly, so far +as has appeared in the long interval of time since 1865, these +"Elements" were the very first attempt to undertake an orderly +construction of Economics from beginning to end without once using or +having occasion to use the obnoxious word. A scientific substitute for +it was of course required, which, with the help of Bastiat, himself +however still clinging to the technical term "Richesse," was discerned +and appropriated in the word "Value"; a good word indeed, that can be +simply and perfectly defined in a scientific sense of its own; and, +what is more important still, that precisely covers in that sense all +the three sorts of things which are ever bought and sold, the three +only Valuables in short, namely, material Commodities, personal +Services, commercial Credits. It is of course involved in this +simple-looking but far-reaching change from "Wealth" to "Value," that +Economics become at once and throughout a science of Persons buying +and selling, and no longer as before a science of Things howsoever +manipulated for and in their market. + +For another thing, before beginning to write out the first word of +that book, I believed myself to have made sure, by repeated and +multiform inductions, of this deepest truth in the whole Science, +which was a little after embodied (I hope I may even say _embalmed_) +in a phrase taking its proper place in the book itself,--_A market for +Products is products in Market_. The fundamental thus tersely +expressed may be formulated more at length in this way: One cannot +Sell without at the same instant and in the same act Buying, nor Buy +anything without simultaneously Selling something else; because in +Buying one pays for what he buys, which is Selling, and in Selling one +must take pay for what is sold, which is Buying. As these universal +actions among men are always voluntary, there must be also an +universal motive leading up to them; this motive on the part of both +parties to each and every Sale can be no other than the mutual +satisfaction derivable to both; the inference, accordingly, is easy +and invincible, that governmental restrictions on Sales, or +prohibitions of them, must lessen the satisfactions and retard the +progress of mankind. + +Organizing strictly all the matter of my book along these two lines of +Personality and Reciprocity, notwithstanding much in it that was +crude and more that was redundant and something that was ill-reasoned +and unsound, the book made on account of this original mode of +treatment an immediate impression upon the public, particularly upon +teachers and pupils; new streaks of light could not but be cast from +these new points of view, upon such topics especially as Land and +Money and Foreign Trade; and nothing is likely ever to rob the author +of the satisfaction, which he is willing to share with the public, of +having contributed something of importance both in substance and in +feature to the permanent up-building of that Science, which comes +closer, it may be, to the homes and happiness and progress of the +People, than any other science. And let it be said in passing, that +there is one consideration well-fitted to stimulate and to reward each +patient and competent scientific inquirer, no matter what that science +may be in which he labors, namely, this: Any just generalization, made +and fortified inductively, is put thereby beyond hazard of essential +change for all time; for this best of reasons, that God has +constructed the World and Men on everlasting lines of Order. + +As successive editions of this first book were called for, and as its +many defects were brought out into the light through teaching my own +classes from it year after year, occasion was taken to revise it and +amend it and in large parts to rewrite it again and again; until, in +1883, and for the eighteenth edition, it was recast from bottom up for +wholly new plates, and a riper title was ventured upon,--"Political +Economy,"--instead of the original more tentative "Elements." Since +then have been weeded out the slight typographical and other minute +errors, and the book stands now in its ultimate shape. + +My excellent publishers, who have always been keenly and wisely alive +to my interests as an author, suggested several times after the +success of the first book was reasonably assured, that a second and +smaller one should be written out, with an especial eye to the needs +of high schools and academies and colleges for a text-book within +moderate limits, yet soundly based and covering in full outline the +whole subject. This is the origin of the "Introduction to Political +Economy," first published in 1877, twelve years after the other. Its +success as a text-book and as a book of reading for young people has +already justified, and will doubtless continue to justify in the +future, the forethought of its promoters. It has found a place in many +popular libraries, and in courses of prescribed reading. Twice it has +been carefully corrected and somewhat enlarged, and is now in its +final form. In the preface to the later editions of the "Introduction" +may be found the following sentence, which expresses a feeling not +likely to undergo any change in the time to come:--"I have long been, +and am still, ambitious that these books of mine may become the +horn-books of my countrymen in the study of this fascinating Science." + +Why, then, should I have undertaken of my own motion a new and third +book on Political Economy, and attempted to mark the completion of the +third cycle of a dozen years each of teaching it, by offering to the +public the present volume? One reason is implied in the title, +"_Principles of Political Economy_." There are three extended +historical chapters in the earlier book, occupying more than +one-quarter of its entire space, which were indeed novel, which cost +me wide research and very great labor, and which have also proven +useful and largely illustrative of almost every phase of Economics; +but I wanted to leave behind me one book of about the same size as +that, devoted exclusively to the Principles of the Science, and using +History only incidentally to illustrate in passing each topic as it +came under review. For a college text-book as this is designed to +become, and for a book of reading and reference for technical +purposes, it seems better that all the space should be taken up by +purely scientific discussion and illustration. This does not mean, +however, that great pains have not been taken in every part to make +this book also easily intelligible, and as readable and interesting as +such careful discussions can be made. + +A second reason is, to provide for myself a fresh text-book to teach +from. My mind has become quite too thoroughly familiarized with the +other, even down to the very words, by so long a course of instructing +from it, for the best results in the class-room. Accordingly, a new +plan of construction has been adopted. Instead of the fourteen +chapters there, there are but seven chapters here. Not a page nor a +paragraph as such has been copied from either of the preceding books. +Single sentences, and sometimes several of them together, when they +exactly fitted the purposes of the new context, have been incorporated +here and there, in what is throughout both in form and style a new +book, neither an enlargement nor an abridgment nor a recasting of any +other. I anticipate great pleasure in the years immediately to come +from the handling with my classes, who have always been of much +assistance to me from the first in studying Political Economy, a fresh +book written expressly for them and for others like-circumstanced; in +which every principle is drawn from the facts of every-day life by way +of induction, and also stands in vital touch with such facts (past or +present) by way of illustration. + +The third and only other reason needful to be mentioned here is, that +in recent years the legislation of my country in the matter of cheap +Money and of artificial restrictions on Trade has run so directly +counter to sound Economics in their very core, that I felt it a debt +due to my countrymen to use once more the best and ripest results of +my life-long studies, in the most cogent and persuasive way possible +within strictly scientific limits, to help them see and act for +themselves in the way of escape from false counsels and impoverishing +statutes. Wantonly and enormously heavy lies the hand of the national +Government upon the masses of the people at present. But the People +are sovereign, and not their transient agents in the government; and +the signs are now cheering indeed, that they have not forgotten their +native word of command, nor that government is instituted for the +sole benefit of the governed and governing people, nor that the +greatest good of the greatest number is the true aim and guide of +Legislation. I am grateful for the proofs that appear on every hand, +that former labors in these directions and under these motives have +proven themselves to have been both opportune and effective; and I am +sanguine almost to certainty, that this reiterated effort undertaken +for the sake of my fellow-citizens as a whole, will slowly bear +abundant fruit also, as towards their liberty of action as +individuals, and in their harmonious co-operation together as entire +classes to the end of popular comforts and universal progress. + + A. L. PERRY. + + WILLIAMS COLLEGE, + November 25, 1890. + + + + +TABLE OF CONTENTS + + + PAGE + CHAPTER I. + VALUE 1 + + CHAPTER II. + MATERIAL COMMODITIES 80 + + CHAPTER III. + PERSONAL SERVICES 181 + + CHAPTER IV. + COMMERCIAL CREDITS 271 + + CHAPTER V. + MONEY 361 + + CHAPTER VI. + FOREIGN TRADE 451 + + CHAPTER VII. + TAXATION 540 + + INDEX 587 + + + + +PRINCIPLES OF POLITICAL ECONOMY. + + + + +CHAPTER I. + +VALUE. + + +The first question that confronts the beginner in this science, and +the one also that controls the whole scope of his inquiries to the +very end, is: What is the precise subject of Political Economy? Within +what exact field do its investigations lie? There is indeed a short +and broad and full answer at hand to this fundamental and +comprehensive question; and yet it is every way better for all +concerned to reach this answer by a route somewhat delayed and +circuitous, just as it is better in ascending a mountain summit for +the sake of a strong and complete view to circle up leisurely on foot +or on horseback, rather than to dash straight up to the top by a +cog-wheel railway and take all of a sudden what might prove to be a +less impressive or a more confusing view. + +The preliminary questions are: What sort of facts has Political +Economy to deal with, to inquire into, to classify, to make a science +of? Are these facts easily separable in the mind and in reality from +other kinds of facts perhaps liable to be confounded with them? Are +they facts of vast importance to the welfare of mankind? And are the +activities of men everywhere greatly and increasingly occupied with +just those things, with which this science has exclusively to do? Let +us see if we cannot come little by little by a route of our own to +clear and true answers for all these questions. + +If one should take his stand for an hour upon London Bridge, perhaps +the busiest bit of street in the world, and cast his eyes around +intelligently to see what he can see, and begin also to classify the +things coming under his vision, what might he report to himself and to +others? Below the bridge in what is called the "Pool," which was +dredged out for that very purpose by the ancient Romans, there lie at +anchor or move coming and going many merchant-ships of all nations, +carrying out and bringing in to an immense amount in the whole +aggregate tangible articles of all kinds to and from the remote as +well as the near nations of the earth. All this movement of visible +goods, home and foreign, is in the interest and under the impulse of +Buying and Selling. The foreign goods come in simply to buy, that is, +to pay for, the domestic goods taken away; and these latter go out in +effect even if not in appearance to buy, that is, to pay for, the +foreign goods coming in. At the same hour the bridge itself is covered +with land-vehicles of every sort moving in both directions, loaded +with salable articles of every description; artisans of every name are +coming and going; merchants of many nationalities step within the +field of view; and porters and servants and errand-boys are running to +and fro, all in some direct relation to the sale or purchase of those +visible and tangible things called in Political Economy _Commodities_. +Moreover, vast warehouses built in the sole interest of trade on both +sides the river above and below the bridge, built to receive and to +store for a time till their ultimate consumers are found, some of +these thousand things bought and sold among men, lift their roofs +towards heaven in plain sight. Doubtless some few persons, like our +observer himself, may be on the spot for pleasure or instruction, but +for the most part, all that he can see, the persons, the things, the +buildings, even the bridge itself, are where they are in the interest +of _Sales_ of some sort, mostly of Commodities. What is thus true of a +single point in London is true in a degree of every other part of +London, of every part of Paris and of Berlin, and in its measure of +every other city and village and hamlet in the whole world. Wherever +there is a street there is some exchange of commodities upon it, and +wherever there is a market there are buyers and sellers of +commodities. + +If the curiosity of our supposed observer be whetted by what he saw on +London Bridge, and if the natural impulse to generalize from +particulars be deepened in his mind, he may perhaps on his return to +America take an opportunity to see what he can see and learn what he +can learn within and around one of the mammoth cotton mills in Lowell +or Fall River or Cohoes. Should he take his stand for this purpose at +one of these points, say Lowell, he will be struck at once by some of +the differences between what he saw on the bridge and what he now sees +in the mill. He will indeed see as before some commodities brought in +and carried out, such as the raw cotton and new machinery and the +finished product ready for sale, but in general no other commodities +than the cotton in its various stages of manufacture, and those like +the machinery and means of transportation directly connected with +transforming the cotton into cloth and taking it to market. + +But he sees a host of persons both within and without the mill, all +busy here and there, and all evidently bound to the establishment by a +strong unseen tie of some sort; he sees varying degrees of authority +and subordination in these persons from the Treasurer, the apparent +head of the manufactory, down to the teamsters in the yard and the +common laborers within and without; he will not find the owners of +the property present in any capacity, for they are scattered +capitalists of Boston and elsewhere, who have combined through an act +of incorporation their distinct capitals into a "Company" for +manufacturing cotton; besides their Treasurer present, whose act is +their act and whose contracts their contracts, he will see an Agent +also who acts under the Treasurer and directly upon the Overseers and +their assistants in the spinning and weaving and coloring and +finishing rooms, and under these Operatives of every grade as skilled +and unskilled; and lastly he will observe, that the direct +representatives of the owners and all other persons present from +highest to lowest are conspiring with a will towards the common end of +getting the cotton cloth all made and marketed. + +What is it that binds all these persons together? A little tarrying in +the Treasurer's office will answer this question for our observer and +for us. He will find it to be the second kind of Buying and Selling. +At stated times the Treasurer pays the salary of the Agent, and his +own. He pays the wages of the Overseers and the wages of all the +Operatives and Laborers,--men and women and children. Here he finds a +buying and selling on a great scale not of material commodities as +before, but of personal services of all the various kinds. Every man +and woman and child connected with the factory and doing its work +sells an intangible personal service to the "Company" and takes his +pay therefor, which last is a simple buying on the part of the unseen +employers. Here, then, in this mill is a single specimen of this +buying and selling of personal services, which is going on to an +immense extent and in every possible direction in each civilized +country of the world, and everywhere to an immensely increased volume +year by year. Clergymen and lawyers and physicians and teachers and +legislators and judges and musicians and actors and artisans of every +name and laborers of every grade sell their intangible services to +Society, and take their pay back at the market-rate. The aggregate +value of all these services sold in every advanced country is probably +greater than the aggregate value of the tangible commodities sold +there. At any rate, both classes alike, commodities and services, are +bought and sold under substantially the same economic principles. + +The inductive appetite in intelligent persons, that is to say, their +desire to classify facts and to generalize from particulars, almost +always grows by what it feeds on; and our supposed observer will +scarcely rest contented until he has taken up at least one more +stand-point, from which to observe men's Buying and Selling. Suppose +now he enter for this purpose on any business-day morning the New York +Clearing-House. He will see about 125 persons present, nearly one half +of these bank clerks sitting behind desks, and the other half standing +before these desks or moving in cue from one to the next. The room is +perfectly still. Not a word is spoken. The Manager of the Clearing +with his assistant sits or stands on a raised platform at one end of +the room, and gives the signal to begin the Exchange. No commodities +of any name or nature are within the field of view. The manager indeed +and his assistant and two clerks of the establishment who sit near him +are in receipt of salaries for their personal services, and all the +other clerks present receive wages for their services from their +respective banks, but the exchange about to commence is no sale of +personal services any more than it is a sale of tangible commodities. +It is however a striking instance of the buying and selling of some +valuables of the third and final class of valuable things. + +At a given signal from the manager the (say) 60 bank messengers, each +standing in front of the desk of his own bank and each having in hand +before him 59 small parcels of papers, the parcels arranged in the +same definite order as the desks around the room, step forward to the +next desk and deliver each his parcel to the clerk sitting behind it, +and so on till the circuit of the room is made. It takes but ten +minutes. Each parcel is made up of cheques or credit-claims, the +_property_ of the bank that brings it and the _debts_ of the bank to +which it is delivered. Accordingly each bank of the circle receives +through its sitting clerk its own _debits_ to all the rest of the +banks, and delivers to all through its standing messenger its own +_credits_ as off-set. In other words, each bank buys of the rest what +it owes to each with what each owes to it. It is at bottom a mutual +buying and selling of debts. There is of course a daily balance on one +side or the other between every two of these banks, which must be +settled in money, because it would never happen in practice that each +should owe the other precisely the same sum on any one day; but +substantially and almost exclusively the exchange at the +Clearing-House is a simple trade in credit-claims. Each bank pays its +debts by credits. A merchant is a dealer in commodities, a laborer is +a dealer in services, and a banker is a dealer in credits. Each of the +three is a buyer and seller alike, and the difference is only in the +kind of valuables specially dealt in by each. In all cases alike, +however, there is no buying without selling and no selling without +buying; because, when one buys he must always pay for what he buys and +that is selling, and when one sells he must always take his pay for +what he sells and that is buying. This is just as true when one credit +is bought or sold against a commodity or a service, and when two or +more credits are bought and sold as against each other, as it is when +two commodities or two services are exchanged one for the other. + +But the Clearing-House is not by any means the only place where +credits or debts (they are the same thing) are bought and sold. Every +bank is such a place. Every broker's office is such a place. Every +place is an establishment of the same kind where commercial rights, +that is, claims to be realized in future time and for which a +consideration is paid, are offered for sale and sold. The amount of +transactions in Credits in every commercial country undoubtedly +surpasses the amount in Commodities or that in Services. + +Now our supposed observer and classifier, having noted on London +Bridge the sale of material commodities, and in the Lowell Mill the +sale of personal services, and within the New York Clearing-House the +sale of credit-claims, has seen in substance everything that ever was +or ever will be exhibited in the world of trade. He may rest. There is +no other class of salable things than these three. Keen eyes and minds +skilled in induction have been busy for two millenniums and a half +more or less to find another class of things bought and sold among +men, and have not yet found it or any trace of it. This work has been +perfectly and scientifically done. The generalization is completed for +all time. + +The _genus_, then, with which Political Economy deals from beginning +to end, has been discovered, can be described, and is easily and +completely separable for its own purposes of science from all other +kinds and classes and _genera_ of things, namely, Salable things or +(what means precisely the same) Valuable things or (what is exactly +equivalent) Exchangeable things. In other words, the sole and single +class of things, with which the Science of Political Economy has to +do, is Valuables, whose origin and nature and extent and importance it +is the purpose of the present chapter to unfold. We have fully seen +already that this Genus, Valuables, is sub-divided into three +_species_, and three only, namely, Commodities, Services, Credits. A +little table here may help at once the eye and the mind:-- + + ECONOMICS. + + _The Genus_ _Valuables_ + + { _Commodities_ + _The Species_ { _Services_ + { _Credits_ + +If only these three species of things are ever bought and sold, then +it certainly follows that only six kinds of commercial exchanges are +possible to be found in the world, namely these:-- + + 1. _A commodity for a commodity._ + 2. _A commodity for a personal service._ + 3. _A commodity for a credit-claim._ + 4. _A personal service for another service._ + 5. _A personal service for a credit-claim._ + 6. _One credit-claim for another._ + +Though the kinds of possible exchanges are thus very few, the +exchanges themselves in one or other of these six forms and in all of +them are innumerable on every business day in every civilized country +of the globe. And this point is to be particularly noted, that while +buying and selling in these forms has been going on everywhere since +the dawn of authentic History, it has gone on all the while in +ever-increasing volume, it is increasing now more rapidly and +variously than ever, and moreover all signs foretell that it will play +a larger and still larger part in the affairs of men and nations as +this old world gains in age and unity. + +Damascus is one of the very oldest cities of the world, and its very +name means a "_seat of trade_." We are told in the Scriptures, that +Abraham about 2000 years before Christ went up out of Egypt "very rich +in cattle, in silver, and in gold," and the only possible way he could +have acquired these possessions was by buying and selling. He +afterwards purchased the cave and the field in Hebron for a family +burial-place, and "weighed unto Ephron the silver which he had named +in the audience of the sons of Heth, four hundred shekels of silver, +current money with the merchant." We may notice here, that there were +then "merchants" as a class, that silver by weight passed as "money" +from hand to hand, and that in the lack of written deeds to land, as +we have them, sales were "made sure" before the faces of living men, +who would tell the truth and pass on the word. Abraham indeed seems to +have given the pitch for the song of trade sung by his descendants, +the Jews, from that day to this; for Jacob, his grandson, was a +skilled trafficker, not to say a secret trickster, in his bargains; +and wherever in the Old World or the New the Jews have been, _there_ +have been in fact and in fame busy buyers and sellers. + +But the Jews have had no special privileges in the realm of trade; on +the contrary, they have always been under special disabilities both +legal and social. Even in England, the most liberal country in Europe, +they were exiled for long periods, maltreated at all points of contact +with other people, more or less put under the ban of the Common and +the Statute law, often outrageously taxed on their goods and persons, +and studiously kept out of the paths of highest public employment even +down to a time within the memory of living men.[1] Yet so natural is +the impulse to trade, so universally diffused, so imperative also if +progress is in any direction to be attained, that the English and all +other peoples were as glad to borrow money, that is, buy the use of +it, of the persecuted Jews, as the latter were to get money by buying +and selling other things, and then to loan it, that is, sell the use +of it, under the best securities (never very good) for its return with +interest, that they could obtain. Happily, the mutual gains that +always wait on the Exchanges even when their conditions are curtailed, +of course attended the mutilated exchanges between Jews and +Christians: otherwise, they would not continue to take place. + +Christianity, however, as the perfected Judaism, gradually brought in +the better conditions, the higher impulses, and the more certain +rewards, of Trade, all which, we may be sure, were designed in the +divine Plan of the world. What is called the Progress of Civilization +has been marked and conditioned at every step by an extension of the +opportunities, a greater facility in the use of the means, a more +eager searching for proper expedients, and a higher certainty in the +securing of the returns, of mutual exchanges among men. There have +been indeed, and there still are, vast obstacles lying across the +pathway of this Progress in the unawakened desires and reluctant +industry and short-sighted selfishness of individuals, as well as in +the ignorant prejudices and mistaken legislation of nations; but all +the while Christianity has been indirectly tugging away at these +obstacles, and Civilization has been able to rejoice over the partial +or complete removal of some of them; while also Christianity directly +works out in human character those chief qualities, on which the +highest success of commercial intercourse among men will always +depend, namely, Foresight, Diligence, Integrity, and mutual Trust; so +that, what we call Civilization is to a large extent only the result +of a better development of these human qualities in domestic and +foreign commerce. + +Contrary to a common conception in the premises, the sacred books of +both Jews and Christians display no bias at all against buying and +selling, but rather extol such action as praiseworthy, and also those +qualities of mind and habits of life that lead up to it and tend too +to increase its amount, and they constantly illustrate by means of +language derived from traffic the higher truths and more spiritual +life, which are the main object of these inspired writers. It is +indeed true that the chosen people of God were forbidden to take Usury +of each other, though they were permitted to take it freely of +strangers, and that they were forbidden to buy horses and other +products out of Egypt, for fear they would be religiously corrupted by +such commercial intercourse with idolaters; but there is nothing of +this sort in the law of Moses that cannot be easily explained from the +grand purpose to found an agricultural commonwealth for religious +ends, in which commonwealth no family could permanently alienate its +land, and in which it was a great object to preserve the independence +and equality of the tribes and families. Throughout the Old Testament +there is no word or precept that implies that trade in itself is not +helpful and wholesome; there were sharp and effective provisions for +the recovery of debts; there were any number of exhortations to +diligence in business, such as, "_In the morning sow thy seed, and at +evening withhold not thy hand_"; King Solomon himself made a gigantic +exchange in preparation for the temple with King Hiram of Tyre, by +which the cedars of Lebanon were to be paid for by the grain and oil +of the agricultural kingdom; chapter xxvii of the prophet Ezekiel is a +graphic description of the commerce of the ancient world as it +centered in the market of Tyre, a description carried out into detail +both as to the nations that frequented that market and as to the +products that were exchanged in it,--"_silver, iron, tin, lead, +persons of men, vessels of brass, horses, horsemen, mules, horns of +ivory, ebony-wood, carbuncles, purple work, fine linen, corals, +rubies, wheat, pastry, syrup, oil, balm, wine of Helbon, white wool, +thread, wrought iron, cassia, sweet reed, cloth, lambs, rams, goats, +precious spices, precious stones, splendid apparel, mantles of blue, +embroidered work, chests of damask, and gold_"; and chapter xxxi of +Proverbs describes the model housewife in terms like these,-- + + "_The heart of her husband trusteth in her, + And he is in no want of gain. + She seeketh wool and flax, + And worketh willingly with her hands. + She is like the merchants' ships; + She bringeth her food from afar. + She riseth while it is yet night, + And giveth food to her family, + And a task to her maidens. + She layeth a plan for a field and buyeth it; + With the fruit of her hands she planteth a vineyard. + She perceiveth how pleasant is her gain, + And her lamp is not extinguished in the night. + She putteth forth her hands to the distaff, + And her hands take hold of the spindle. + She maketh for herself coverlets; + Her clothing is of fine linen and purple. + She maketh linen garments and selleth them, + And delivereth girdles to the merchants._" + +Still more explicit and instructive are the words and spirit of the +New Testament. There cannot be the least doubt that the whole +influence of Christianity is favorable to the freest commercial +exchanges at home and abroad, because these depend largely on mutual +confidence between man and man, of which confidence Christianity is +the greatest promoter. It may be conceded at once that our Lord +"_overthrew the tables of the money-changers and the seats of them +that sold doves_" within the sacred precincts of the temple, but +this, not because it is wrong to change money or sell doves, but +because that was not the _place_ for such merchandising; so He himself +explained his own action in the sequel; provincial worshippers coming +up to Jerusalem must needs have their coins changed into the money of +the Capital, and must needs buy somewhere the animal victims for +sacrifice; but the whip of small cords had significance only as to the +_place_, and not at all as to the _propriety_, of such trading. + +One of our Lord's parables, the parable of the Talents, sets forth in +several striking lights the privilege and duty and reward of diligent +trading. "_Then he that had received the five talents went and traded +with the same, and made them other five talents._" And when this +servant came to the reckoning, and brought as the result of his free +and busy traffic "_five talents more_," the prompt and hearty approval +of his lord--"well done, thou good and faithful servant"--becomes the +testimony of the New Testament to the merit and the profit and the +benefit of a vigorous buying and selling. For this servant could not +have been authoritatively pronounced good and faithful if the results +of his action commended had been in any way prejudicial to others. The +truth is, as we shall abundantly see by and by with the reasons of it, +that any man who buys and sells under the free and natural conditions +of trade, benefits the man he trades with just as much as he benefits +himself. But the parable has a still stronger word in favor of +exchanges. There was another servant also entrusted with capital by +his lord at the same time, when the latter was about to travel "_into +a far country_." We are expressly told that distribution was made "_to +every man according to his several ability_," and thus this servant +was only entrusted with a single talent, the size of the capital given +to him being in just proportion to the size of the man,--the smallest +share falling of course to the smallest man. But he had the same +opportunity as the two others. The world was open to him. Capital was +in demand, if not in those parts then in some other, to which, like +his lord, he might straightway take his journey. But when his time of +reckoning came, and he had nothing to show for the use of his capital, +he upbraided his lord as a hard man for expecting any increase, and +brought out his bare talent wrapped in a napkin, saying, "_I was +afraid, and I went and hid thy talent in the earth_." His wise lord at +once denounced this servant as "_wicked and slothful_," insisted that +his money ought to have been "_put to the exchangers_," and said +finally in a just anger "_cast ye the unprofitable servant into outer +darkness_." + +It is moreover in incidental passages of the Scriptures, in which the +methods of business are commended to the searchers after higher +things, that we see their high estimate of those methods and gains. +"_Buy the truth, and sell it not; buy wisdom and understanding_" +(Prov. xxiii, 23). "_Buying up for yourselves opportunities_" (Col. +iv, 5). "_I counsel thee to buy of me gold refined by fire, that thou +mayest be rich; and white garments, that thou mayest be clothed; and +eye-salve to anoint thine eyes, that thou mayest see_" (Rev. iii, 18). +"_But rather let him labor, working with his hands at that which is +good, that he may have to give to him that is in need_" (Eph. iv, 28). +"_But if any one provideth not for his own, and especially for those +of his own house, he hath denied the faith, and is worse than an +unbeliever_" (1 Tim. v, 8). + +Now, the universal test and proof of any truth is its harmony with +some other truths. Does an alleged truth fall in with and fill out +well some other demonstrated and accepted proposition, or a number of +such other propositions? If so, then that truth is _proved_. Human +reason can no further go. The mind rests with relish and content in a +new acquisition. To apply this to the case in hand,--if men were +designed of their Maker to buy and sell to their own mutual benefit +and advancement, if mankind have always been buying and selling as +towards that end and with that obvious result, and if the Future +promises to increase and reduplicate the buying and selling of the +Present in every direction without end, and all in the interest of a +broad civilization and a true and lasting progress; and if, in harmony +with these truths, the written revelation of God in every part of it +assumes that buying and selling in its inmost substance and essential +forms be good and righteous and progressive, and suitable in all its +ends and methods to illustrate and enforce ends and methods in the +higher kingdom of spiritual and eternal Life;--then these coördinate +truths will logically and certainly follow, (1) that Trade is natural +and essential and beneficial to mankind; (2) that it constitutes in an +important sense a realm of human thought and action by itself, +separate from the neighboring realm of Giving, and equally from the +hostile realm of Stealing; and (3) that a careful analysis of what +buying and selling in its own peculiar nature is, a thorough +ascertainment and a consequent clear statement of its fundamental +laws, and a faithful exposure of what in individual selfishness and in +subtle or open Legislation makes against these laws, _must be of large +consequence to the welfare of mankind_. + +Accordingly, let us now attempt such Analysis and Ascertainment and +Exposure. This is precisely the task that lies before us in this +book--just this, and nothing more. The term, "Political Economy," has +long been and is still an elastic title over the zealous work of many +men in many lands; but in the hands of the present writer during a +life now no longer short, the term has always had a definite meaning, +the work has covered an easily circumscribed field, and so the present +undertaking concerns only Buying and Selling and what is essentially +involved in that. This gives scope and verge enough for the studies of +a life-time. This has the advantage of a complete sphere of its own. +Terms may thus be made as definite as the nature of language will ever +allow; definitions will thus cover things of one kind only; and +generalizations, although they may be delicate and difficult, will +deal with no incongruous and obstinate material. + +1. The grandfather of the writer, an illiterate but long-headed +farmer, was able to give good points to his three college-bred sons, +by insisting that they look "_into the natur on't_." What, then, are +the ultimate elements of Buying and Selling? What are the invariable +conditions that precede, accompany, and follow, any and every act of +Trade? Of course we are investigating now and throughout this treatise +the deliberative acts of reasonably intelligent human beings, in one +great department of their common foresight and rational action. We +have consequently nothing to do here with Fraud or Theft or Mania or +Gift. Acts put forth under the impulse of these are direct opposites +of, or at best antagonistic to, acts of Trade. They tend to kill +trade, and therefore they are no part of trade. These, then, and such +as these, aside, we will now analyze a single Act of Exchange at one +time and place,--which will serve in substance for all acts of +exchange in all times and places, and just find out for ourselves what +are the Fundamentals and Essentials of that matter, with which alone +we have to do in this science of Political Economy. + +Incidental reference was had a little way back to an Exchange once +made between King Solomon of Jerusalem and King Hiram of Tyre. Let +that be our typical instance. (a) _There were two persons_, Solomon +and Hiram. Those two, and no more, stood face to face, as it were, to +make a commercial bargain. They made it, and it was afterwards +executed. The execution indeed concerned a great many persons on both +sides, and occupied a long period of time; but the bargain itself, the +trade, the exchange, the covenant, concerned only two persons, and +occupied but a moment of time. It made no difference with the bargain +as such, with the binding nature of it, with the terms of it, with the +mutual gains of it, that each person represented a host of others, +subordinates and subjects, who would have to coöperate in the carrying +of it out, because each king had the right to speak for his subjects +as well as for himself, for commercial purposes each was an agent as +well as a monarch, the word of each concluded the consent and the +action of others as well as his own. Nor did it make any, the least, +difference with this exchange or the advantages of it, that each party +to it belonged to, was even the head of, independent and sometimes +hostile Peoples. Commerce is one thing, and nationality a totally +different thing. The present point is, in the words of the old +proverb,--"It takes two to make a bargain." And it takes _only_ two to +make a bargain. When corporations and even nations speak in trade, +they speak, and speak finally, through one accredited agent. We reach, +then, as the first bit of our analysis of Trade, the fact, that there +are always two parties to it, "the party of the first part and the +party of the second part." + +(b) _There were two desires_, Solomon's desire for cedar-timbers to +build the temple with, and Hiram's desire for wheat and oil with which +to support the people of his sterile kingdom. "_So Hiram gave Solomon +cedar-trees and fir-trees according to all his desire: and Solomon +gave Hiram twenty thousand measures of wheat for food to his +household, and twenty measures of pure oil._" The desire of each +party was personal and peculiar, known at first only to himself, but +upon occasion became directed towards something in the possession of +the other, and each at length became aware of the desire of the other, +and also of his own ability to satisfy the want of the other. If +Solomon could have satisfied his desire for timber by his own or his +subjects' efforts directly, this trade would never have taken place; +if Hiram or his subjects could have gotten the wheat and oil directly +out of their narrow and sandy strips of sea-coast, this trade would +not have taken place; and so there must be in every case of trade not +only two desires each springing from a separate person, but also each +person must have in his possession something fitted to gratify the +desire of the other person, and each be willing to yield that +something into the possession of the other for the sake of receiving +from him that which will satisfy his own desire, and so both desires +be satisfied indirectly. + +Here is the deep and perennial source of exchanges. Men's desires are +so many and various, and so constantly becoming more numerous and +miscellaneous, and so extremely few of his own wants can ever be met +by any one man directly, that the foundation of exchanges, and of a +perpetually increasing volume of exchanges, is laid in the deep places +of human hearts, namely, in Desires ever welling up to the surface and +demanding their satisfaction through an easy and natural interaction +with the ever swelling Desires of other men. Here too is a firm +foundation (a chief foundation) of human Society. Reciprocal wants, +which can only be met through exchanges, draw men together locally and +bind them together socially, in hamlets and towns and cities and +States and Nations, and also knit ties scarcely less strong and +beneficent between the separate and remotest nationalities of the +earth. It is certain that an inland commercial route connected the +East of Asia with the West of Europe centuries before Christ, and that +a traffic was maintained on the frontier of China between the Sina and +the Scythians, in the manner still followed by the Chinese and the +Russians at _Kiachta_. The Sina had an independent position in Western +China as early as the eighth century before Christ, and five centuries +later established their sway under the dynasty of Tsin (whence our +word "China") over the whole of the empire. The prophet Isaiah +exclaims (xlix, 12), "Behold! these shall come from far; and behold! +these from the North and from the West; _and these from the land of +Sinim_." The second bit of our analysis leads to Desires as an +essential and fundamental element in every commercial transaction. + +(c) _There were two efforts_, those of the Tyrians as represented by +King Hiram and those of the Israelites as represented by King Solomon. +It was no holiday task that was implied in the proposition of Solomon +to the party of the other part,--"_Send me now cedar-trees, fir-trees, +and algum-trees out of Lebanon; for I know that thy servants are +skilful to cut timber in Lebanon; even to prepare me timber in +abundance, for the house which I am about to build shall be +wonderfully great._" On the other hand, the efforts insolved on the +part of the people of Israel in paying for these timbers, and for +their transportation by sea from Lebanon to Joppa, were equally +gigantic. Solomon's offer in return for the proposed service of the +Tyrian king was in these words,--"_And behold, I will give to thy +servants, the hewers that cut timber, twenty thousand measures of +beaten wheat, and twenty thousand measures of barley, and twenty +thousand baths of wine, and twenty thousand baths of oil._" + +The reason why two efforts are always an element in every act of +traffic, however small or however large the transaction may be, is the +obvious reason, that the things rendered in exchange, whether they be +Commodities, Services, or Credits, invariably cost efforts of some +kind to get them ready to sell and to sell them, and no person can +have a just claim to render them in exchange, who has not either put +forth these efforts himself or become proprietor in some way of the +result of such efforts. Efforts accordingly are central in all trade. +Every trade in its inmost nature is and must be either an exchange of +two Efforts directly, as when one of two farmers personally helps his +neighbor in haying for the sake of securing that neighbor's personal +help in his own harvesting, or an exchange of two things each of which +is the result of previous Efforts of somebody, as when a man gives a +silver dollar for a bushel of wheat. The third bit of the present +analysis brings us to Efforts, perhaps the most important factor in +the whole list. + +(d) _There were also two reciprocal estimates_, the estimate of King +Hiram of all the efforts requisite to cut and hew and float the +timber, as compared with the aggregate of efforts needed to obtain the +necessary wheat and barley and wine and oil in any other possible way; +and the estimate of King Solomon of all the labors required to grow +and market these agricultural products, as compared with what would +otherwise be involved in getting the much-wished-for timbers. Such +estimates invariably precede every rational exchange of products. It +is not in human nature to render a greater effort or the result of it, +when a lesser effort or the result of it will as well procure the +satisfaction of a desire. Efforts are naturally irksome. No more of +them will ever be put forth than is necessary to meet the want that +calls them forth. No man in his senses will ever put more labor on +anything, with which to buy something else, than is necessary to get +that something else by direct effort or through some other exchange. +Here we are on ground as solid as the very substance of truth can make +it. The Jews of Solomon's time were too shrewd and sparing of irksome +labor to devote themselves for years to the toils of the field and of +the vat to get by traffic the materials for their temple, if they +could have gotten those materials by a less expenditure of toil in any +other way. Those Phoenicians of Tyre and Sidon, the born merchants of +the East, the founders of commercial Carthage in the West, if they +could have extorted from the reluctant sands of their coast the +cereals and the vines and olives requisite for their own support with +only so much of exertion as was needed to get that to market with +which to buy them, would never have taken the indirect in preference +to the direct method. They took the indirect, because it was the +easier, and therefore the better. + +It may, accordingly, be laid down as a maxim, that men never buy and +sell to satisfy their wants but when that is the easiest and best way +to satisfy them. It saves effort. It saves time. It saves trouble. It +divides labor. It induces skill. It propels progress. But in order to +determine which may be the easier way, requires constant _estimates_ +on the part of each party to a possible trade. Shall I shave myself or +go to the barber? Before I decide, I estimate the direct effort in the +light of the effort to get that with which to pay the barber for his +service. If I trade with him, it is because I deem it easier, cheaper +in effort, more convenient in time. Trade means comparisons in every +case--comparisons by both parties--and in the more recondite and +complicated cases, elaborate comparisons and often comprehensive +calculations involving future time. + +Now these estimates inseparable from exchanges, and these +calculations which are a factor in all the far-reaching exchanges, are +mental activities. They quicken and strengthen the _minds_ of men. +Trade is usually, if not always, the initial step in the mental +development of individuals and nations. Desires stir early in the +minds of all children; efforts more or less earnest are the speedy +outcome of natural desires; direct efforts, however, to satisfy these +soon reach their limits; it is now but a step over to simple +exchanges, by which the desires are met indirectly; exchanges once +commenced tend to multiply in all directions, and the estimates that +must precede and accompany these are mental states,--the more of them, +the greater the mental development, the higher the education; +consequently, commerce domestic and foreign is a grand agency in +civilization, a constant and broadening impulse towards progress in +all its forms; and Christianity, as we have already seen, is friendly +to commerce in its every breath. Those, therefore, who talk and preach +about Trade as tending to _materialism_, do not know what they are +talking about. Because Commodities are material things, and because a +portion of the trade of the world concerns itself with commodities, +these shallow thinkers jump to the conclusion that trade is +materialistic. _It is just the reverse._ Let us hear no more from +Professor Pulpit or Platform that buying and selling is antagonistic +to men's higher intellectual and spiritual culture, because the +present careful analysis has brought us indubitably to mental +Estimates and prolonged comparisons, which are activities of Mind, as +the fourth and a leading factor among the radical elements of Sale. + +(e) _There were two renderings_, King Hiram's rendering at Joppa the +desired cedars from the mountains of Lebanon, and King Solomon's +rendering in return at Tyre the food products grown in his fertile +country. These renderings were visible to all men. Unlike the desires +and the estimates, which were subjective and invisible; the actual +exchange of the products, the culmination of the previous efforts, the +stipulated renderings by and to each party, were outward and +objective--"known and read of all men." This is the reason why public +attention is always strongly drawn to this particular link of the +chain of events which we are now unlocking and taking apart, while +other links of the series, that are just as essential, almost wholly +escape observation. The ports and the markets are apt to be noisy and +conspicuous, when the desires and the estimates and the satisfactions, +without which in their place there would be no market-places, work in +silence, and leave no records except the indirect one of the +renderings themselves. + +It is of great moment to note here, that each of the two parties to an +exchange always has an advantage over the other, either absolute or +relative, in the rendering his own product, whatever it may be, as +compared with his present ability to get directly or through any other +exchange the product he receives in return. Take the example in hand. +Cedars and sandal-wood were natural to Mount Lebanon; there were no +other workmen in those regions of country that could "_skill to hew +timber like unto the Sidonians_"; the Mediterranean afforded a level +and free and easy highway from its northern coast to the Judean +seaport at Joppa; and all these natural and acquired facilities put +King Hiram into a posture of advantage in the rendering of timber, not +only over the Jews, but also over all the other peoples in the basin +of the midland sea. Still this advantage, great as it was, could only +be made a real and palpable gain to themselves, the proprietors of the +timber, by means of some exchange with somebody else, by which some +wants of their own greater than their present want of timber, could +be supplied by means of the timber. They had more of that commodity, +and more skill to fashion and transport it, than their present and +immediately prospective needs could make use of; and the only way in +which they could practically avail themselves of their advantages, +was, to sell their surplus timber and buy with it something that they +needed more. Otherwise their very advantage perished with them. God +has scattered such a diversity of blessings and capacities and +opportunities over the earth on purpose, that, through traffic, on +which his special benediction rests, the good of each part and people +may become the portion of other parts and peoples. + +So, on the other hand, of the southern neighbors of the Tyrians. There +the earth brought forth by handfuls. There was an abundance of corn in +the land, even to the tops of the mountains. Its fruit did indeed +shake like Lebanon. But there were no cedars there, no fir-trees, no +sandal-woods. How short-sighted, then, and futile, would it have been +for the Jews, to try to hang on in their own behoof to all the natural +advantages that God had given to them, and to say, We will not part +with the direct results of any of them, we will build treasure-cities +as they did in Egypt, we will store up all the fruits of these fat +years against the possible coming of some famine years in the time to +come. That is anything in ordinary times but the divine plan. It is +anything but the letter and spirit of the divine injunction: "_Him +that keepeth back corn the people curse; but blessing shall be upon +the head of him that selleth it_" (Prov. xii, 26). Had they talked and +acted thus, no temple could then have been built in Jerusalem, and the +people of that generation would have lost the moral and religious +impulse and uplifting of their service and sacrifice. Their grain +would have become worthless from its very abundance, and would have +decayed on their hands. They would have missed a great gain for +themselves, and would have snatched away from their neighbors to the +northward a providential opportunity for an equal gain. + +The general truth must not be lost sight of here, even in passing, +that all trade whatsoever is based upon a Diversity of relative +Advantage as between the parties exchanging products. If, for example, +the Hills of Judah and the Mountains of Israel had been covered with +timber suitable for building the temple, and the coasts of Tyre and +Sidon and the foot-hills of Lebanon had been fertile stretches of +arable land, this particular trade would never have been thought of +and could never have been realized. There would have been no gain in +it for either party, and unless there be a valid gain for both parties +at least in prospect, no trade will ever spring into being, because +there would be no motive, no impulse, no reason, in it. Unless the +Jews could get the timber easier by raising grain to pay for it, and +the Tyrians get the oil and wheat and barley easier by cutting and +floating timber to pay for them,--no trade; but the greater easiness +to each actually came about, because each had an Advantage both +natural and acquired over the other in his own rendering, and the +mutual gain of the trade was wholly owing to that circumstance. So far +as that matter went, the Tyrians had no cause to envy their neighbors +the superior soil of the south, for they reaped indirectly but +effectively a part of those harvests for themselves; and the Jews had +no reason to be jealous of their northern neighbors on account of the +noble forests crowning their mountains, because through trade they +secured easily to themselves a share of that vast natural advantage. +Diversity of Advantage both natural and acquired is the sole ground of +Trade both domestic and foreign; and consequently by means of trade +the peculiar advantages of each are fully shared in by all. + +It is perhaps less obvious but surely equally true, that the greater +the relative diversity of advantage as between two exchangers, the +more profitable does the exchange become to each. If the Vale of +Sharon had been twice as fertile as it was, and the cedars of Lebanon +twice as large and lofty as they were, the easier and better would +Israel have gotten its timber, and the more secure and abundant would +have become the food of Tyre and Sidon; and, therefore, the more +unreasonable, or rather the more absurd and wicked, would have been +any envy or jealousy of either of the superior advantages at any point +or points of the other. So universally. By the divine Purpose as +expressed in the constitution of Nature, in the structure of Man, and +in the laws of Society, Trade in good measure and degree imparts to +each the bounties of all, arms each with the power of all, and impels +each by the progress of all. + +One other important matter is closely connected with these two +Renderings, which is the fifth bit in succession of our present +analysis, namely this, that traffic renderings always make necessary +new and better routes of travel and transportation. It is mainly for +this reason, that persons and things have to be carried to distances +less or greater in order to consummate these Renderings of home and +foreign commerce, that roads by land and routes by sea have been +sought for and found, made and made shorter, improved as to method and +facilitated as to force, from the dawn of History until the present +hour. It was to get the goods of India, and so find a market for the +goods of Europe, that the earliest land routes between the two were +tried and maintained. The ground-thought of Columbus, meditated on for +years, was to discover a new commercial way to India; Magellan with +the same intent sailed westward through the Straits that wear his +name, and so circumnavigated the globe; repeated searches mainly with +the mercantile view, never long intermitted, have attempted ever since +the North-West or the North-East passage to India; Vasco da Gama in +1497 boldly accomplished the East passage, and thus changed for all +the Continents the channels of trade; the West now trades with all the +East through the Suez Canal, dug for that express purpose; and the +words, "Panama" and "Nicaragua" are upon everybody's lips, simply +because through Central America is the shortest and safest route for +men and goods to and from all the Oceans. + +Quite recently Dr. W. Heyd has announced through the Berlin +Geographical Society the discovery of two commercial routes from India +to the West not hitherto described. Trebizond (on the Black Sea) and +Tana (at the mouth of the Don) were the chief distributing points. +Through Tana passed westward the pepper and ginger and nutmeg and +cloves; and the price of spices is said to have doubled in Italy, when +the Italians were for a time shut out of Tana in 1343. The chief +overland route from India to Tana ran through Cabul to Khiva by the +Oxus, and then by land through Astrakhan. The other route to Trebizond +passed through Persia, and came out by Tabriz to the Black Sea. It may +perhaps be pardoned, if a far homelier, more modern, and even local, +illustration be given of the present point, that trade makes roads. +The western wall of Williamstown is the mountain range of the +Taconics, whose general height is about 2000 feet above tide water at +Albany. Within the limits of this town are four natural depressions or +passes over this range, which is also the watershed between the Hoosac +River on the east and the Little Hoosac on the west. About the +beginning of this century, the population was quite sparse in both +these valleys, while the impulse to travel and traffic over the +barrier was sufficient to build (wholly at local expense) wagon roads +over each of the four passes, one of which soon after became a +turnpike between Northampton and Albany; and another was built mainly +to accommodate the medical practice on the west side of the mountain +of Dr. Samuel Porter--a Williamstown surgeon of local eminence. So +soon as railroads were constructed to run down these parallel valleys +(railroads themselves are perhaps the best illustration of the point +in hand), the mountain roads were relatively deserted, and only two of +them are now open to transient travel.[2] + +Lastly, (f) _There were two satisfactions_, the satisfaction of the +southern king in actually obtaining the excellent timbers, without +which the cherished national temple could not have gone up; and the +satisfaction by the northern king in the easy receiving of the +abundant food products for the daily maintenance of his court and +kingdom. The simple story of these commercial transactions between Jew +and Tyrian indicates clearly enough, what might have been anticipated +and what always happens in such circumstances, not only a mutual +satisfaction at the completion of each specific exchange, but also a +general relation of contentment and peace in consequence of +advantageous commercial intercourse. "_And Hiram, king of Tyre, sent +his servants unto Solomon; for he had heard, that they had anointed +him king in the room of his father; because Hiram was ever a lover of +David. And it came to pass, when Hiram heard the words of Solomon, +that he rejoiced greatly, and said, Blessed be the Lord this day, +which hath given unto David a wise son over this great people; and +there was peace between Hiram and Solomon; and they two made a league +together._" + +It is plain to reason and to all experience, that mutual Satisfactions +are the ultimate thing in exchanges. Our present analysis can go no +further, for the reason, that we have now reached in Satisfactions the +end, for the sake of which all the previous processes have been gone +through with. Persons do not engage in buying and selling for the mere +pleasure of it, but always for the sake of some satisfactions +derivable to both parties from the issue of it. Ordinary +self-inspection and foresight and industry being presupposed, the +issue of exchanges is just what was expected by the two persons, the +satisfaction of each follows as a matter of course, and stimulates to +new exchanges in ever-widening circles. + +Since the desires of all men, which the efforts of other men can +satisfy through exchange, are indefinite in number and unlimited in +degree, there is no end of human Satisfactions to be reached along +this road of reciprocal trade; and since the very object of all trade +and the actual result of all trade (the exceptions are infinitesimal) +is to multiply and reduplicate continually mutual Satisfactions among +men; we can see right here what a loss and wrong it is, what a wanton +destruction of possible human happiness it is, what a bar to progress +among men in comforts and powers it is, for nations to impede and to +prohibit commerce by legislation! As we shall see more fully in a +later chapter, Governments can have no moral or constitutional right +to restrict the trade of their people, except in the sole interest of +revenue or health or morals. + +Such is the constitution of the universe, that a really good thing is +usually cognate with and inseparable from a good many other good +things. Buying and selling, as we have now clearly seen, springs right +out of the nature of men in the circumstances in which they are +providentially placed on the earth, and ends in the satisfaction of +innumerable wants common to all men. This makes trade a thoroughly +good thing in itself; and consequently it is intimately associated +with many other good things. The scriptural instance, that we have +been examining, gives a neat illustration of this: "_and there was +peace between Hiram and Solomon; and they two made a league +together_." The mutually profitable exchange of commodities led to a +feeling of amity between the two neighboring kings; the feeling of +amity led to a treaty of Peace between the two adjacent nations; and +the "_league_" so ratified not only kept out war from their borders, +but also permitted the unhindered continuance of profitable exchanges +between them. + +So it is always. Peace waits on Commerce. Good-will among the nations +is strengthened by the ties of interest and profit among their +citizens. The mercantile classes as such are always averse to war, +because war is the natural enemy of exchanges. Thus traffic leads to +peace and tends to maintain it, and peace preludes increased +prosperity, and commercial prosperity under freedom is wholly friendly +to mental and moral progress, and Christianity walks before and all +along this line of individual and national blessing. The commercial +treaty of 1860 between France and England has tended powerfully, +perhaps more powerfully than any other single cause, to keep those +formerly inter-belligerent nationalities in peace and amity ever +since. + +We will now put into a little table the final results of the present +analysis of Buying and Selling. The ultimate elements seem to be +these: + + 1. _Two Persons._ 4. _Two Estimates._ + 2. _Two Desires._ 5. _Two Renderings._ + 3. _Two Efforts._ 6. _Two Satisfactions._ + +The thoughtful reader will note in this table the fact, that three of +these elements are objective, that is, outward and visible; and the +other three are subjective, that is, inward and invisible. Persons, +Efforts, Renderings, are seen and known of all men; Desires, +Estimates, Satisfactions, can be directly known only to the persons +who feel and make them. This is a peculiarity of Political Economy, +that has been far too little observed even when it has been observed +at all. Objective and subjective elements in it meet and mingle in +each transaction. Indeed, they alternate, as is shown in the table +above: first a Seen, and then an Unseen, Element throughout. It is +this commingling of outward and inward, visible and invisible, that +makes all the difficulty and gives all the fascination in Political +Economy. Whatever carries us into the steady though billowy play of +universal human nature is at once difficult and fascinating. + +Quite contrary, however, to a common impression, the _certainty_ both +of action and prediction in all the other Sciences as well as in +Economics lies rather in the unseen elements than in those that are +seen. Take for an example the calculation of an eclipse: it is not so +much from what is visible in the heavens and on the earth that the +astronomer infers and predicts to the instant the shadow of one orb +thrown upon another, as it is from the wholly hidden but ever-enduring +forces of gravitation constantly relating these orbs one to the other. +So it is of the Sciences generally; progress is made in them and +certainties are reached in connection with them, "_while we look not +at the things which are seen, but at the things which are not seen; +for the things which are seen are but for a time; but the things which +are not seen are everlasting_." Invisible Desires and Satisfactions +felt in connection with Exchanges are among the most constant elements +of human nature; they, as it were, give birth to the relatively more +transient (though visible) data of Efforts and Renderings; while +inferences and conclusions and even predictions may be securely drawn +from all of these, giving a solid ground for Political Economy to +stand on,--almost as solid as the ground of the chief Physical +Sciences. + +2. We will next examine the inmost nature and the outward +manifestations of _Value_. "Value" is by much the most important word +in the Science of Economics; and we must, therefore, comprehend it +thoroughly, root and branch. Nearly all the writers in English have +used in place of this the word "Wealth" and those in other languages +some equivalent and equally concrete word; but the present writer +fully satisfied himself some twenty-five years ago, that it is +impossible to use that word to any advantage in economical +discussions, owing to its inherent ambiguities and concrete +associations in the minds of men. He utterly discarded the word at +that time, and has found not the least occasion to pick it up again +since, and believes now that his substitution of the word "Value" in +place of it will ultimately be seen to have been his greatest +contribution to that Science, to which he devoted his life. + +Even professed and excellent logicians, like John Stuart Mill, found +the word "Wealth" an insoluble element in the science of Economics; he +commenced his great work by writing, that it was not really needful to +_define_ the word which nevertheless he laid at the foundation of his +discussions, that "every one has a notion sufficiently correct for +common purposes of what is meant by Wealth"; he goes on, however, to +give at least a half-dozen definitions of the word, no two of which +are at all consistent with each other, only one of which embodies a +clear and scientific conception, and even to this one he himself does +by no means coherently adhere throughout his treatise. No wonder, that +this great man died thoroughly dissatisfied with his own work in +Economics, and wishing for longer life in which to recast and improve +it! No wonder, too, that the crowd of writers both English and +American, many of them able and thoughtful and otherwise logical, who +have been content to continue to use this irreducible and utterly +unscientific word at the bottom, have made a mess of it! + +In dropping the word, "Wealth," accordingly, Political Economy has +dropped a clog, and its movements are now relatively free and certain; +and it is all the more incumbent on the Science for that very reason +to define the good word that it substitutes for a bad one with +absolute clearness, to explain it through and through until it become +quite transparent, and then always to use it in its defined and +economical sense, and none other, even though the same word be +properly enough used in other senses in common speech and in other +than scientific relations. Exactly that is what we are now going to +attempt to do in a simple and consecutive order. + +(a) Perhaps it will help us to find out precisely what Value _is_ by +seeing as clearly as possible at the outset what it is _not_. It is +not _easy_, and never can be made so, to teach and to learn distinctly +what Value is in its ultimate nature and constant changes. Here is the +one unavoidable difficulty that lies at the very threshold of +Political Economy; and this difficulty, which is not found as in the +case of "Wealth" in the meaning of the word but in the complex +character of that which the word describes, once overmastered, and one +walks thereafter with ease and pleasure throughout the economic +domain. It would be wrong and cruel to deny that just here is one hard +place in the road for teacher and pupils to get over. It arises wholly +from the nature of the subject, as we shall soon see, and not at all +from the insufficiency of the word, Value. We have already seen fully, +that Buying and Selling in each and every transaction is complex and +relative, involving twelve elements every time; that Desires and +Estimates and Renderings are especially relative,--each party to a +trade desires something in possession of the other, estimates that +something relatively to something in his own possession, and finally +renders to the other his own something for the sake of receiving the +other's something. Now everybody is used to all this and practically +understands it perfectly, but it is complicated and reciprocal +nevertheless, and Value, which is the single birth of the two +Renderings, though perfectly intelligible to him that takes pains, is +not a thing to be seized once for all at a passing trot. + +Value, then, is _not_ a quality of single things, belonging to them as +if by nature, as hardness is a quality of a rock or gravity is an +attribute of gold; because all physical qualities in physical things, +all that which makes or helps to make anything such as it is, may +be learned by a study of the things themselves by themselves; a +careful examination and analysis of the mechanical and chemical +properties of any physical thing will discover all its distinguishing +characteristics, all that makes it that particular thing in +distinction from all other things; but it is plain already, that the +_Value_ of anything (if it have value) cannot be found out by studying +that particular thing by itself alone; the questioning of the senses +however minute, the test of the laboratory however delicate, can never +determine how much anything is _worth_, because that always implies a +comparison between _two_ things, or more strictly a comparison between +two Renderings in exchange. Value is not an attribute of single +things: not even if the things be physical and tangible. + +Now two other kinds of things are bought and sold besides physical and +tangible things, namely, personal services and commercial credits; and +it is very plain, that Value cannot be a quality of any one personal +service rendered, as looked at by itself, such as the service of a +physician towards a fever patient, because the service in and of +itself might be the same whether rendered to his own child or the +child of one of his patrons, while in the former case there would be +no value, and in the latter there would be; and so too the very name +"commercial credit" implies an exchange of two Renderings, out of +which Value always emerges, and not at all an attribute of one credit +considered by itself. Value is no more a characteristic of single +intangible services and claims than it is of single intangible +commodities rendered. + +And what makes all this still more certain is, that Value even in +physical things, and perhaps still more in services and claims, is all +the while changing under demand and supply, now rising and then +falling, while the physical properties of things, that make them what +they are, are fixed and unchangeable. A gold eagle, for example, has +certain primary qualities as gold, without which it would not be gold; +it is hard and heavy and colored: gold is gold the world over and in +all ages: Value is not one of these primary qualities, nor even a +secondary quality, nor any quality at all, of gold as such; because +circumstances are readily conceived and have often occurred, in which +gold has no Value even in exchange; for instance, among a crew +abandoned at sea, a bag of gold belonging to one of the sailors might +not buy even a biscuit belonging to another; all the natural qualities +of the gold are present,--it is still yellow and weighty and +solid,--but its Value has escaped altogether. Gold is always 19 times +heavier than water: specific gravity is a _quality_ and is constant in +all physical things: Value is not a quality in this sense at all, +inasmuch as it is something that is constantly changing, rising or +falling, and not infrequently disappearing altogether, leaving no +sign. + +Ignorance of this vastly important truth has pecuniarily ruined +thousands upon thousands of the people of this country during the last +20 years. They have gone into the mining of metals, gold and silver +and copper, sometimes as individuals and more often as companies +gathering in the driblets of investors, under the notion that if they +could only get these metals out of the ground their Value would be +just as secure and fixed as their physical qualities. They found out +their mistake in bitterness of spirit. For example, the Value of an +ounce of silver has gone down and down and down as the quantity of +silver excavated has increased under zealous digging, in accordance +with the universal and pitiless law of Supply and Demand. So of +copper. And both these great monetary interests went to Congress and +secured the passage of laws designed to lift artificially the Values +that were sinking naturally under increased Supply, the silver men by +a law requiring the United States to buy and mint at least $2,000,000 +in silver each month whether the silver dollars were needed or not, +and the copper men by a law imposing a tariff-tax on foreign copper +that has actually lifted the price two cents a pound on the average of +the whole 20 years above the average price of copper in the markets of +the world. + +Take another illustration of disappearing Values, this time in lands, +long supposed to be the most stable in value of all human possessions. +Whole tiers of farms in the writer's native town in New Hampshire, and +for that matter all over New England as well, that in his boyhood +supported large families, and when sold usually brought a fair price, +are now abandoned of their owners as wholly or comparatively +worthless, and are allowed to grow up into forest again, without a +sign of present human habitation upon them. Value is something that +needs to be studied carefully, if it is to be fully understood. + +(b) Perhaps the origin of the word, "Value," will throw some light +upon its nature and changes. Etymology can never be safely despised in +scientific discussions, although words are perpetually changing their +meaning in the mouths of men. No science can afford to build upon the +transient meaning of a word; and yet it is clearly possible so to use +words as to reach and describe ultimate and unchanging facts in +science; and some knowledge of the original meaning of words is always +a help in getting at those definitions and analyses of facts that are +permanent in science. Let us hold fast to the cheering truth +exemplified on all sides of every science, that a just analysis and +exact description of ultimate facts in any department of knowledge are +for all time, in spite of the transient meaning of current words. + +The present word is derived from the Latin VALERE, _to pass for, to be +worth_. There is a strong hint of a _comparison_ in the original +meaning of the word, and the current use of it both in Latin and +English develops the hint into a certainty. In common language, when +the Value of anything is asked for, the answer always comes in the +terms of something else. If the question be, How much is it worth? the +answer is, So many dollars or cents. Now the cents or dollars are very +different things from those whose value is thus inquired after; and so +we see again from another point of view that Value is a relative +matter, since it clearly implies a comparison between two distinct +things; and, if so, it is clearly enough not a quality of any one +thing, and of course it would be useless to try to ascertain the Value +of anything by a study of that thing alone. Etymology thus easily +brings us up to our present vital question, and will assist us to +solve it completely. + +(c) _What is Value?_ Plainly it is the result of a comparison +instituted between two things, using the word, "things," here in its +broadest sense. But who institutes the comparison? And who is +competent to announce the result of it in Value? A comparison is +required in order to ascertain the length of a stick of timber in feet +and inches, and a carpenter's square is the instrument by which the +comparison is made, and it makes no difference in the result whose the +square is or whose the stick of timber is, since the square and the +stick have in common the physical quality of length, and a simple +comparison of square with stick determines the length of the latter, +and one man in this case may determine the result by himself alone, +and it is not needful that he be the _owner_ of either of the things +compared. + +But it is a different kind of comparison from this that issues in +Value. Let us suppose an exchange of a bushel of wheat for a mason's +trowel: there is no common physical quality, as length, between the +wheat and the trowel; and it is evident, that no _one_ man can measure +in any form one of these two commodities by means of the other. It is +a peculiar kind of comparison that is involved in any and every trade; +and the first peculiarity of it is, as we have already seen in another +connection, that it always requires "two persons" to make it; and each +of the two persons must always be the virtual _owner_ of one of the +two things exchanged. A thief may indeed go through the motions of +selling a stolen horse, but as he is not the owner of the horse there +can be no sale, and the actual owner may take his horse wherever he +finds it even in the hands of an innocent third party. In other words, +there must ever be "two efforts" also, two legitimate efforts giving a +valid claim of ownership to each of the two parties in the exchange. + +And there is a second distinctive peculiarity in that comparison that +ends in Value, namely, the two things to be exchanged are not compared +directly with each other at all, as square and stick are compared, +but in the light of the "two desires" with which we are already +familiar, and in that of the "two estimates" resulting therefrom. The +owner of the wheat desires a trowel, and the owner of the trowel +desires a bushel of wheat; the former estimates the effort it has +already cost him to procure the wheat in a sort of comparison with the +effort that it would otherwise cost him to procure the trowel, and he +does not trade unless the trowel seem more and better to him than does +the wheat; the latter estimates the effort it has cost him to procure +the trowel in a sort of comparison with the effort it would cost him +to procure otherwise the wheat that he wants, and he does not trade +unless the wheat then and there seem more desirable than the trowel, +which he already has; and these two relative estimates of the two +owners must _coincide_, that is, the owner of the wheat must think +more of the trowel than of the wheat, and the owner of the trowel must +think more of the wheat than of the trowel, before these two parties +can ever trade. So of all traffic whatsoever. + +Now the third and last distinctive peculiarity of that kind of +comparison out of which Value emerges is this,--an _action_ is +necessary in order to complete the comparison. Desires and estimates +may have been never so busy, but no Value can ever be born until an +outward action takes place in the "two renderings" of our former +analysis. Then first we come out upon plain and solid ground. We leave +the play of the subjective elements, which yet are essential in the +premises, and touch firmly objective realities. _The trowel-maker +passes over his tool in the sight of men to the wheat-grower in firm +possession and ownership, and takes in return for it from him the +grain, which the latter passes over to the former for the sake of +receiving the trowel._ The two "satisfactions" follow as a matter of +course, and that whole transaction as a commercial exchange and as +the sole subject of Political Economy is ended. + +_But where is the "Value," of which we have been in search?_ The +answer is easy and certain and unevadible. _The Value is in the +Renderings, and nowhere else._ The value of the trowel is the wheat, +that is actually given in exchange for it; and the value of the wheat +is equally the trowel, for the sake of getting which the wheat was +rendered. What was the Value of King Hiram's cedar-timbers? The oil +and wheat actually returned in pay for them. What was the Value of the +oil and wheat sent northward by King Solomon? The timbers rendered in +direct exchange for the same. This is not merely the only possible +answer to the question, _What is Value?_ but it is also a perfectly +complete and satisfactory answer. Common language here corresponds +exactly with scientific language. "How much did the horse cost?" "One +hundred dollars." The dollars have nothing whatever in common with the +horse, except that they express his Value at the time; the horse has +nothing in common with the dollars, except that it expresses the Value +of the dollars at the time. It is just as exact to say, it means +precisely the same thing to say, the dollars are worth the horse, as +to say, the horse is worth the dollars. + +In general terms, the Value of anything is something else received in +return for it, when each owner renders the one _for the sake of_ +getting the other. This is the whole of it, so far as any specific +valuable thing is concerned. We shall indeed need after a little, and +shall have no trouble in finding, an abstract and universal definition +of "_Value_," as an abstract and scientific term perfectly +circumscribing the field of Economics. Here and now we are dealing +with the simpler concrete question, What is the value of any specific +valuable thing? The unvarying answer is, Some other specific valuable +thing already exchanged for the first! There may be expected value, +estimated value, but actual value there is none, until a real exchange +has settled how much the value is. The value of anything is something +else already exchanged for it. Value is not simply a relation +subsisting between two things, the result of a careful comparison +between them, but rather an actual fact established in connection with +them. The universal formula of Value is _quid pro quo_, in which +formula _quid_ stands for one of the valuables and _quo_ for the +other, and _pro_ unfolds the motive of each owner for the reciprocal +receiving and rendering. + +Here a caution is needful. Because nobody can tell what the value of +anything is until something else has been put over against it in order +to get it and actually received therefor, and because the only +possible way to express the value of either is in the terms of the +other,--the trowel is worth the wheat and the wheat is worth the +trowel,--one must not therefore jump to the conclusion that the value +of either is settled for all time or even for any future time. It is +only settled for _this_ time. In Economics as in Christianity, Now is +the accepted time. There is nothing fixed in Values, and never can be +from the nature of the case, because Desires are personal to +individuals, and Efforts fluctuate with times and persons, and +Estimates that wait on these vary from necessity, and the Renderings +of to-day may not be the chosen renderings of other persons in the +same articles to-morrow. Value is not a quality at all, still less is +it a permanent quality, of anything; it is a relation established +between two things when these are in the hands of two given persons; +but now when these are in the hands of two different persons, whose +views are pretty sure to differ from the former, and a new relation is +sought to be established between these in the old way of Estimates, +is it strange that a new balance is struck, and Value is expressed in +quite different terms? + +One of the chief charms of Political Economy is the open secret, that +it deals not with rigidities and inflexible qualities and mathematical +quantities and the unchanging laws of matter, but with the billowy +play of desires and estimates and purposes and satisfactions, all of +which are mental states, and all of which are subject in the general +to ascertainable laws, though laws of a quite different kind from +those of Mechanics. Values come and they go. Within certain limits and +under certain conditions they may be anticipated and even predicted, +but never with the precision of an eclipse or the result of a known +chemical combination. There is a useful and fascinating Science of +Value, as we shall see indubitably by and by in the present chapter; +but it is a science that deals primarily with _persons_ and only +secondarily with _things_, with mind and not with matter, with the +general undulations of the sea and not with the crests of the waves. +And all this is so, because Values are relative, because the +announcements in the market-place to-day may stand listed differently +to-morrow and very differently next year, and because old values may +disappear altogether and many new ones come in, all in accordance with +the incessant changes in the wants and labors and fashions and +projects of men. + +We are now in a good place to see once for all the sharp distinction +there is between Utility and Value. These two are often confounded to +the deep detriment of our Science; and no clear thinking is possible +in Economics without drawing this line sharp, and then holding it +fast; for the hazard of this confusion is all the greater, because +Utility is always connected with Value, although it is a totally +different thing from Value. We will see. Utility is the simple +capacity of anything to gratify the desire of anybody. This is at +once the etymological as well as the popular signification of the +word. It is derived from the Latin _utor_, to make use of, a word that +is often conjoined in Latin with _fruor_, to enjoy; so much so, that +the two verbs are often put together, _utor et fruor_, and also often +without the conjunctive, _utor fruor_. Utility, then, is a quality of +innumerable things. Anything that is _good for_ anything, anything +_useful_, anything that has the power to still _the desires_ of any +person, has Utility. But multitudes of things that have this capacity +to gratify human desires are never bought and sold, and therefore can +have no Value, since nobody will give anything for them. The air we +breathe, the water we refresh ourselves with from spring or brook, the +light of the sun and moon and stars, the fragrance of the flowers, the +mountain prospect that delights the eye,--all these, and thousands +more, possess the highest utility, but no value whatsoever. They are +free. They are the bounty of God. They are never bought and sold. They +are a vast class of things by themselves, with which Political Economy +as such has nothing to do. + +Nevertheless the element of Utility comes into every case of Value, +because the element of Desire comes into every case of Value, and +whatever merely satisfies the Desire of any person is Utility, whether +that capacity be the direct gift of God or whether the Efforts of men +have been employed to bring it about. It is just here that we see the +precise function of our "two efforts" in each case of Value, in +distinction from mere Utility in all cases: much of utility is +absolutely free, no effort of men having been put forth to secure it, +for example, the fragrance of the wild rose; much more of utility is +the commingled bounty of Nature and the gratuitous effort of men, for +example, the fragrance of the domestic rose brought by the householder +himself into his own yard for the gratification of his own family; +while by much the most of utility is commingled free gift of God and +the compensated efforts of men, for example, the fragrance of the bank +of roses cultivated and cared for by the hired gardener. It is +important for our purposes to discriminate carefully the three kinds +of Utility: (1) what is wholly disconnected from the efforts of men, +and comes freely from the hand of God; (2) what is mingled with the +unpaid efforts of men, so that the satisfaction of the desire comes +partly from Nature and partly from unbought effort; and (3) the +compound utility that is partly free gift and partly the result of +compensated labor. The last is the only kind of Utility that stands in +any connection with Value. + +And even this is very different from Value. Utility in all three of +its forms--now free, now onerous, now partly bought--is always a +quality of one thing by itself, going straight to the satisfaction of +some desire, and there an end. It is simplicity itself compared with +Value, which is always a resultant of several things, and is +specifically a relation of mutual purchase established between two +"renderings," each of which expresses the value of the other, in each +of which is embodied an "effort" made by each of the two "persons" +rendering, and each of which excites a "desire" and an "estimate" +before being passed over in ownership to another, and a "satisfaction" +afterwards. + +The utility in every valuable rendering comes partly from free Nature +and partly from compensated effort, but it is remarkable, that a +principle, with which we are to become very familiar later on, namely, +Competition, eliminates for the most part from all influence upon +Value that portion of the Utility that is the free gift of God. The +great Father never takes pay for anything, and never authorizes +anybody to take pay in his behalf; and, moreover, has arranged things +so, that it is exceedingly difficult for any person to extort anything +from another person on the strength of anything that God has made, and +man has not improved. Take, for example, ten horses of any general +grade, brought into the same market by their ten owners for sale. +These men did not make these horses, but they have cared for and +trained them, or at least have become proprietors by purchase or +otherwise of the results of such care and training. The Utility in +each horse is compound, consisting partly of what God has done for him +and partly of what man has done for him,--the two parts inextricably +interwoven,--and all ten are offered now for sale. Each of the owners +would indeed be glad to get something for his horse on the ground of +what God has done to make him sound and strong and fleet, in addition +to a fair compensation for what he (and his predecessors) has done in +raising and breaking him; but the cupidity of all is likely to be +thwarted by the ultimate willingness of some to sell their horses for +a price covering the element of human "efforts" involved, and the +action of these tends to fix a general rate for the whole ten, and +thus the gratuitous element is eliminated from influence on Value. +Even if the ten owners should combine for a higher price, there are +doubtless a plenty of horses of that general grade elsewhere, some of +whose owners are content to get back an equivalent for their own and +others' "efforts" expended on their horses; and so the action of these +tends to fix the general price for horses of that kind for that time +and place at a point not above a fair estimate of the onerous human +elements involved; thus throwing out by the action of competition all +effect of natural Utility upon the Value of horses then and there. So +of all other products of that kind. + +It is true, that in certain unique cases, in which competition has +little or no play, because there is only one or a very few owners of +such unique products, one cannot certainly say that free Utility may +_not_ influence the Value to lift it above the gauge of human efforts +involved; but such cases are rare, and relatively unimportant; and the +tendency is immensely strong, under the natural and beneficial +condition of things, for Values to graduate themselves through the +reciprocal estimates and renderings of commerce, down to the actual +and onerous contribution of _men_ to that Utility that underlies +Value. + +Thus we are brought again and again from differing points of view to +the "two renderings" as central and determinative in Value, and also +more specifically to the "two efforts" of persons rather than any free +contribution of Nature as constituting that portion of the compound +Utility, whose function it is to gratify the "two desires" that +precede the realization of Value,--that portion of the utility in any +rendering that must be _compensated for_ by the other rendering. Now +in order to reach in a moment more our final definition of "Value," a +definition, it is believed, that will cover all the cases and take the +life out of endless disputes, we need a scientific term to carry +easily and exactly the meaning of any economic _rendering_. Let that +word be SERVICE. We must have it in its generalized meaning, to cover +the renderings of all the three kinds, in distinction from the term +"personal services," which we have already used and shall continue to +use to designate one class only of things exchanged, in +contradistinction to "commodities" and to "credits," the other two +classes. + +VALUE IS THE RELATION OF MUTUAL PURCHASE ESTABLISHED BETWEEN TWO +SERVICES BY THEIR EXCHANGE. + +We offer this definition of "Value" to our readers in much confidence, +that they will find it exact and adequate and altogether trustworthy. +No one of them, however, is precluded from attempts to improve it in +breadth and brevity and beauty; and all are invited to pick logical +flaws in it, whether of ambiguity or superfluity or deficiency. Many +minds and many hands in many lands have left their impress on parts of +this definition, for example, Aristotle in Greece and Bastiat in +France and Macleod in Great Britain; the present writer thinks, that +he has bettered the definition of Bastiat, namely, "_Value is the +relation of two services exchanged_," by precisely _defining_ the +relation as one of mutual purchase; and he is sure, that he has +improved the definition of Macleod, namely, "_The value of any +economic quantity is any other economic quantity for which it can be +exchanged_," by making his definition at once more abstract and more +general and more definite, and also by escaping the slight implication +in the word, "quantity," that only material things are exchanged in +economics. + +The immense importance of securing _first_ a clear and correct +Definition of "Value," which is the foundation-word and the +circumference-word of Political Economy, and _then_ of using that term +and all other scientific terms in the Science in their defined senses +only, will certainly be appreciated by those who have wandered in the +wide wilderness of the discussions on the undefinable word, "Wealth," +and especially by those who have reflected most upon the vast and +illimitable significance of economic Exchanges on the welfare of +mankind. Associate Justice Miller of the Supreme Court of the United +States, not an Economist in the technical sense, referred in 1888, in +words that are worth remembering, to "_the philosophical maxim of +modern times, that of all the agencies of civilization and progress of +the human race commerce is the most efficient_." In August of that +year John Sherman of Ohio, a man far enough from being a technical +Economist, said in the Senate of the United States, that "_it is +almost a crime against civilization_" to maintain commercial barriers +between Canada and the United States. + +There were tokens a plenty in the year of Grace just referred to, that +the Science of Value in all the lands of the civilized world, and +particularly in the United States, was drawing to itself a new and +more popular esteem. It was seen more clearly and felt more deeply +than ever before, that this science has a weighty word for every man +and woman and child in the world; that there are certain Rights in +every one inherent and inalienable to buy and sell for his own +advantage; that most if not all of the Governments, under the lead of +comparatively few selfish and powerful men, were infringing upon these +Rights, and robbing under the forms of Law the masses of their +citizens to immense amounts for the special benefit of these very men; +that the only sure defences of the people against these abuses of all +kinds were in the maintenance and diffusion of the scientific and +consequently disinterested principles and maxims of a sound Political +Economy; that such a science was only friendly to the broadest rights, +to universal gains, to illimitable increase in human comforts and +powers, to international fellowship, to peace on earth and good-will +among men; that, accordingly, a science of such scope and tendencies +must be encouraged and cultivated and improved; that what had been +crude in it, and narrow, and merely national, must be sloughed off; +that the English and insular and special speculations of a century +ago, which regarded "Wealth" as consisting of material things only, +excepting however considerable portions of Adam Smith's immortal book, +were antiquated and unusable; that the Science had really moved into a +broader and still a well-circumscribed field, new and more permanent +foundations were being laid, and fresh contributions from all +countries should be welcomed; and that the time had fully come, when +the accepted truths of this Science, like those of the other developed +sciences, should be practically and steadily applied to the betterment +of mankind. Under these broadening and inspiriting and uplifting +conditions Political Economy, as never before, thanked God and took +courage. + +3. Having now a satisfactory definition of Value, and knowing +accordingly just what Valuables are in clear distinction from all +other things in the world, we must examine with some care two or three +of the most general facts and laws and limits of Value, before we pass +in the next following chapters to study in detail each of the three +kinds of Valuables, namely, material Commodities, personal Services, +commercial Credits. + +(a) Since Value in general is the relation of mutual purchase between +two Services, and consequently the specific value of either can only +be expressed by the other,--one Valuable being always measured by the +Valuable exchanged against it,--it follows as a matter of course that +such a thing as a general Rise or Fall of Valuables is an +impossibility. The rise of one valuable involves of necessity a fall +in the other, as the fall of one implies the rise of the other. If the +articles exchanged be bushels of wheat and dollars of silver, and if a +bushel buys a dollar to-day, then wheat is worth a dollar a bushel; +but if wheat rises next week, so that a dollar will not buy a full +bushel, that is precisely the same thing as saying, that the dollar +has fallen in its purchasing-power as compared with the wheat. Such +specific changes in the purchasing-power of one Valuable over another +are incessant throughout the commercial world, and a merchant's +sagacity consists in anticipating these so far as possible and in +availing himself of them alertly and prudently; but each one of us +must needs see clearly and hold firmly in mind, that each fall in the +purchasing-power of a Valuable means a corresponding rise of power in +the other Valuable,--if the first buys more of the second than before, +then the second must buy less than before of the first; and, +consequently, a general rise of Valuables is a contradiction in terms, +and so of course is a general fall of Valuables. + +This brings us to _Price_. Price is Value reckoned in money; and this +is the only difference in the meaning of the two terms. When one +valuable is sold against another, even when one of the two is money, +each is the _Value_ of the other: Value is the general and universal +term in Economics. When any other valuable is sold against money, the +amount of money it buys is called its _Price_: Price is a specific and +restricted term in Economics. Since we shall study Money thoroughly in +a later chapter, and there explain the origin and extent of its +functions throughout, it is only in order to remark here, that it is +for convenience' sake, that is, to make easy the comparison of +valuables one with another, that Value in commerce is commonly reduced +to Price. Money becomes a sort of measure, by means of which to +compare all other valuables with each other. In order to ascertain the +Price of a Valuable, it only needs to be sold once against money; but +in order to ascertain the Value of a Valuable, it would need to be +sold once against all other valuables whatsoever. This last is clearly +impracticable; and so Value for practical purposes is reduced to +Price. The General is made Particular for convenience. Hence we have +"Prices current," but never Values current. + +Now it will be plain to all, how there may easily be and often is a +general rise or fall of Prices while a rise or fall of Values is +impossible. Price is a relative word as much as Value is, but it does +not relate to so many things. Price is specific, and Value universal. +Both equally involve buying and selling, but one sale of a single +valuable against money leads to Price, while ten thousand sales of the +same valuable against other than money would not conduct to complete +Value. That would require a sale of this valuable against all other +valuables in the world, and a complete statement of the comparative +results. + +General, or at least universal, changes of Prices in rise or fall in +any given country are due to general and great changes in the Money +current there. Subordinate changes in other valuables, money being +supposed to remain uniform, will of course vary their Prices; but it +is impossible that such changes should affect equally or even +generally all the various and numberless valuables of a whole country; +while some are coming easier, others are coming harder, while some are +more desired than formerly others are less desired, and this will +bring in of course altered prices, some higher and some lower; but a +general rise of all prices, or a general fall in the same, can only +come about by great changes of some kind in the circulating medium, +that is, the money, of the country. For example, in the United States, +between 1862 and 1878 inclusive, a government paper promise, called +_greenbacks_, was the current money of the country; owing to its +excessive issue, and to some doubt in the minds of the people whether +the paper would ever be redeemed in gold, it soon became depreciated +as compared with gold, the premium on which over the paper money +varied at different times from 1 to 185 _per centum_; as all other +valuables were then sold against greenback money, which had declined, +their prices naturally rose in some sort of proportion as the medium +fell; general _values_ remained much as before, but general _prices_ +were much enhanced; and when, after the resumption of specie payments +in January, 1879, gold became again the standard medium, general +prices declined in full accordance with the same universal principle +reversed. + +(b) Prices, as we have now seen, are only a subordinate form of +Values: the universal law that regulates all the variations of them +both, within certain fixed limits to be examined shortly, is called +the LAW OF SUPPLY AND DEMAND. This is perhaps the most comprehensive +and beautiful law in Political Economy. We shall look at it now only +in outline: the filling in will be the pastime and profit of all that +is to come. + +"Demand" is a technical term in Economics, and accordingly needs to be +defined, and then always used in its defined sense. So is "Supply." +_Demand is the "desire" of a "person" for something in the hands of +another person, coupled with the possession of something else capable +of buying that something._ Mere desire has no function in Political +Economy: hungry and penniless children passing by the stalls of a +great market, have no influence on the prices or values of the viands, +on which they cast their eager glances: only desires accompanied by +"efforts" competent to excite the desires and to pay for the efforts +of another are a Demand. Supply is the same thing as Demand looked at +from the other side. Supply is the correlative of Demand. The Supplyer +is a person, who has in his possession something desired by the +Demander, and who in turn desires something in the hands of the +Demander, when both are willing to exchange their "renderings." There +is no economical difference in the position of the Demander and the +Supplyer. Each is equally a Demand and a Supply with reference to the +other. It is the old and ever-recurring case of Value, the +propositions being here stated in their most universal terms. + +For simplicity's sake, however, and for convenience, without altering +the substance of the definitions a particle, the valuables when looked +at as a Demand are practically reduced in all markets to their +equivalent in Money, so that Money offered or ready to be offered +against any other exchangeable thing constitutes what is called in +commercial language a Demand; and this is sufficiently accurate as +well as current, although it must always be remembered that each +valuable in any market in reality constitutes a Demand for another, +and is equally a Supply in reference to that other. _Supply is any +exchangeable thing offered for sale against any other exchangeable +thing._ For example, corn in any market is at bottom a Demand and a +Supply at once for every valuable offered in that market at that time, +say, ploughs for one thing; but in the talk of the market, the +presence of corn there, or its being ready to be immediately brought +there and offered in exchange for money, constitutes what is called a +Supply of corn; money offered, or ready to be offered, in exchange for +corn, constitutes what is called a Demand. + +On this account Money seems to play a much more important part in +trade than it actually does play; the corn is sold in the terms of +money, that is, for dollars and cents as denominations of Value; +convenience dictates such a reduction of general Value to this +particular form of it, because this is found to make easier the +ultimate exchange; but there is not one chance in a hundred, as trade +runs nowadays in the larger markets, that this seller of corn will +take his pay for it in actual money whether metallic or paper; money +is never an ultimate product, but only an intermediate one; this +seller of corn wants perhaps a plough or some other farming implement, +and ten to one he will take for his corn a bill or order in some form +on the seller of ploughs, and it will be corn for a plough, each +becoming a Demand and a Supply for the other, though money or rather +its denominations has acted as an agent in bringing about the final +trade; the details of all this in manner and result will be as plain +as day when we come to study "Money" and "Credits" in following +chapters; while the essential point to be noted here is, that all +Valuables are a Demand and Supply as towards one another. In other +words, the world over, A MARKET FOR PRODUCTS IS PRODUCTS IN MARKET. + +What, then, is Market-Value returned in the terms of Money? And what +is the universal Law of it? + +Market-value is the present rate of exchange between dollars and cents +and any other valuable, that can be fairly graded in a class made up +of valuables similar to itself; and the law of market-value is the +equation of Supply and Demand, that is, the current rate is adjusted +when money enough is offered to take off within the usual times the +valuables on hand and offered for sale. If Demand for any reason +become quickened, and the Supply be not increased, there is +competition among buyers for the stock in market, and the market-rate +rises or tends to rise. If, on the other hand, Demand become sluggish, +the Supply remaining the same, there is a like competition among the +sellers to dispose of their stock, and market-value sinks or tends to +sink. So far it is the simple action on Value of the element of one +"desire" expressing itself through a money-demand, the elements of +"desire" and of "efforts" expressing themselves through Supply being +supposed to remain stable, and the pulsations in the market-rate +follow accordingly. + +How far can this simple action go? Demand increasing, Supply remaining +as before, market-rate rises: how far can it rise from this cause? +Here we must remember that Demand not only acts upon Value, but also +Value reacts upon Demand. As Value rises, the number of those whose +means or inclinations enable them to purchase at the new rate is +constantly diminished: there are ten persons who may wish an article +at one dollar, of whom not over four will wish it at two dollars, and +perhaps only one at three dollars. Every rise in market-rate then, +under the impulse of enlarged Demand, tends to cut off a part of that +Demand, that is, to lessen the number of those who will purchase at +the increased price; and the rate consequently can only rise to that +point, whatever it be, where an equalization takes place between the +Supply and Demand, between the quantity of flour, for example, offered +at the enhanced rate, and the quantity of money in the hands of those +willing to exchange it for flour at the higher rate. + +Just so in the reverse way, when Demand is slackened, Supply +continuing as before, the market-rate is sure to decline; but +declining rates tend strongly in turn to increase the demand by +bringing the article within the range of a larger number of +purchasers; Society is like a pyramid, each lower stratum is broader +than the one above; and so the decline of rates under a weaker Demand +is arrested by a stronger Demand coming from a wider circle of buyers, +and a new market-rate is determined at the point of equalization +between the new Demand and the old Supply. Thus every rise or fall of +Demand tends to check itself, and will check itself in all the great +classes of valuables, even without any variations in the Supply; +everything oscillates under the variations of Demand; while the point +of stable equilibrium, if we may use the expression of anything so +unstable as Market-value, is always the equation of Supply and Demand. + +But all considerable variations of market-rate are commonly checked at +an earlier point than the one just indicated by variations in the +Supply. A sharper Demand carries up the market-rate, and a higher +market-rate commonly acts upon Supply to enlarge it, and an increased +Supply too checks the rise of market-rate. _Per contra_, a slacker +Demand lowers market-rates, and lowered rates often lessen the Supply +by the action of holders and speculators,--holders withdrawing their +stock for a better market, and speculators buying now when the article +is cheap to store away until it shall be dearer. Thus rise of +market-rate from Demand growing stronger is checked doubly; first, by +curtailing the number of would-be buyers, and second, by enlarging the +Supply: the fall of market-rate from Demand growing weaker is checked +doubly; first, by increasing the number of consumers of a now cheaper +article, and second, by a diminution of Supply by the action of +holders and speculators. This double and harmonious working of the law +of the Equalization of Demand and Supply is one of the most +comprehensive and beautiful laws in Political Economy. + +Besides this, we must note the effect on Value of conditions in Supply +only, Demand being supposed to continue steady. There are three +classes of valuables in respect to the law of their Supply. (1) When +the Supply is scant, and cannot be increased at all, as is the case +with choice antiques and certain gems and paintings by the old +masters, their value may rise to any point under the action of Demand, +there is and can be in such cases no market-rate, and the individual +value will be struck at the point of equalization of the demand then +existing with the supply there offered. For instance, the French +Government paid, in 1852, 615,300 francs for a painting by Murillo, +which had belonged to Marshal Soult. The genuine Murillos are +comparatively few, and their number cannot be increased, and their +merit causes a strong "desire" to possess them, and their value rises +in connection with the limitation of Supply to a point beyond which no +one purchaser can be found. When this painting was offered in Paris +for sale, many "persons" of course were anxious to buy it, there was +but one painting, there could be but one purchaser, value rose under +the influence of a sharp Demand, the rise could not be checked by any +duplication of the Supply, and the equation was complete and the value +for that sale determined when one party distanced all other +competitors and offered a sum greater than any one else would give. +The same principle controls all sales of this sort, and is practically +the principle of the _Auction_, whose very name indicates its nature +in this regard, that Demand becomes restricted to one party, and that +the highest bidder. + +(2) When the Supply, instead of being absolutely limited, can only be +increased with difficulty or after the lapse of time, similar but less +extreme results will be observed. Let us suppose, that pianos are +selling in some rural community at $300 each, that there are twenty +persons in the place who want a piano immediately, that there are but +fifteen pianos on hand, and that the number cannot be increased for +half a year. The market-rate will certainly rise above $300. How much +above? To that point, at which only fifteen of the twenty will be +willing to purchase at the new rate. The equation of Supply and Demand +will be reached by a rising rate which cuts off five competitors. This +is the principle, working only roughly in practice through the +estimates and good judgment of dealers and purchasers. A better +illustration of this second class of cases is, perhaps, the Grains and +other agricultural products. When these have been gathered, there is +no more home supply for a year; and any deficiency in the crops will +raise their market-rate, not at all in the ratio of the deficiency, +but according to the relations of the diminished Supply to a new +Demand. Since the abolition of the Corn-Laws in England in 1846, and +the resulting ease of grain-imports from abroad, a deficiency of home +crops has no such effect on the price of cereals as it had before that +time; when, according to Tooke's History of Prices, an expected +falling-off of one third in the crops often doubled and sometimes +quadrupled the usual prices; which shows that the world ought to +become one country in respect to all food supplies, as indeed happily +it is now for the most part, each country allowing them to be +distributed freely everywhere in accordance with this law of Demand +and Supply. Speculation is more busy in grain, in cotton, and in such +things generally, because a new Supply can only be had once a year; +early information is eagerly sought at the trade centres in regard to +the prospects of the growing crops, and has its influence one way or +the other on current prices; but the world is so wide and all the +parts of it now so closely connected together by steamship and +telegraph, that the prices of the great food staples are remarkably +uniform over the earth, and Speculation has not the chance it once had +to count and "corner." + +(3) In the only remaining and by far most comprehensive class of +cases, in which the Supply of Commodities and Services and Credits can +be readily and indefinitely increased to meet enhanced Demand, and +easily withdrawn from market and stored when Demand declines, each +rise and fall of market-rate tends to be speedily checked through the +mere action of Supply; and the doubly and harmoniously working Law but +just now referred to keeps Value in this class of cases comparatively +steady all over the world. + +(c) It only remains in this branch of the general discussion on Value, +to indicate the Limits, within which all oscillations of Value are +contained. These extreme limits are specially to be found in the +element of Value which we have called "Efforts." We have clearly seen +already, that "efforts" (or Labor) are not, as has been often +asserted, the cause of Value, but only one of several constituent +causes; if Labor be asserted to be the sole cause of Value, the +inquiry becomes instantly pertinent, what is the cause of the value of +Labor; yet we know, that "efforts" always stand in preconnection with +value, and, the mutual "desires" being presupposed, there must always +be Limitations of Value lying partly in the efforts made by the person +serving and partly in the efforts saved to the person served. In every +valuable transaction, each of the parties is reciprocally serving and +served, and it is clear, that the two would not exchange "renderings" +unless the service which each renders to the other is less onerous +than the "efforts" which each would have to make if each served +himself directly. For example, it takes a certain effort for me to +bring water from the spring for the use of my family; I am willing to +pay a neighbor for bringing it for me, but I should not be willing to +make a greater effort for him in return than the effort is to bring it +myself; neither should I be willing to make an effort for him in +return which I regarded just as onerous as the bringing the water +myself; and unless there is some service which he will accept less +onerous to me than that, I shall continue to bring the water. On the +other hand, he will surely not render the service to me of bringing +the water, unless it be less onerous to him to do so than the doing +that for himself which I am ready to do for him. + +This principle, applicable to all exchanges whatsoever, draws on the +one side the outermost line, beyond which Value never can pass. It may +be asserted with confidence, that no person will ever knowingly make a +greater effort to satisfy a desire through exchange, than the effort +needful to satisfy it without an exchange. Therefore, it follows, +that all exchanges lessen onerous efforts among men relatively to the +satisfaction of their desires, and tend to lessen these more and more +as exchanges multiply in number and variety, otherwise the exchanges +would not take place. + +Moreover, within this outermost Limit of Value, which is made by the +comparative onerousness of the respective "efforts," there is a second +limitation of a similar kind to be found specially in the element +which we have called "estimates." The estimate of each exchanger is +based at once on his own effort about to be rendered and on his desire +for the return service offered: the element of effort in the case of +both being considered for the time as fixed, Value will vary according +to the varying desire of each for the return service of the other, +affecting of course the "estimate" of each, and furnishing also a +secondary Limit of Value. To pursue the same illustration, suppose I +regard the effort required to bring the water myself as 10; that there +are several persons, who would be glad to do that service for me at a +return service which I consider as 8; that there are two persons, who +are willing to do it for something which I estimate at 6; and that +there is only one person, who will do it for a return service which I +regard as 5. It is evident, that the extreme limits of that service to +me are 10 and 5. Higher than 10 it cannot go, lower than 5 it cannot +sink. But why have I before me three possible classes of renderers? +Because the persons in each class, while estimating their own efforts +alike in the proposed rendering to me, have varying "desires" as +towards a possible rendering from me to them, and consequently put +differing "estimates" upon the possible transactions. The man who will +bring the water for 5 has for some reason (no matter what) a stronger +desire for the return than anybody else, and I should of course +employ him so long as he would serve me on those terms; if he decline +the exchange, I fall back on one of the two persons in the class above +him, and Value rises now from 5 to 6, and will be steadier there than +it was before; if each of these in turn should give out, I should fall +back upon the larger class ready to serve me at 8, and Value would be +very steady at that rate, because there are numerous competitors; and +by no possibility could it rise above 10. Between 10 and 5 the value +may fluctuate, but it cannot overpass these Limits in either direction +under existing circumstances. + +Therefore we may conclude, that the _maximum_ Value of any Service in +exchange will be struck at the point where the recipient will prefer +to serve himself, or go without the satisfaction, rather than make the +exchange; and the _minimum_ Value of any Service in exchange is struck +at the point below which the recipient cannot get himself served even +by him who most highly estimates the return service offered. + +(4) We come now to the last and most important Inquiry in this initial +chapter, namely this, _Can there be, and is there, a strict Science of +Buying and Selling? Is there a Science by itself, clear and certain, +that covers and controls Valuables?_ + +Here we must go slowly, if we would go surely. We must first find out +exactly what a Science is in general, and then ascertain in particular +whether Political Economy bears all the marks and stands all the tests +of the other genuine Sciences. What is a Science? + +_A Science is the body of exact definitions and sound principles +educed from and applied to a single class of facts or phenomena._ + +The very first condition, accordingly, of any science is, that there +be a single class of facts, objective or subjective, that can be +separated from all other classes of facts, in the mind by a +generalization and in words by a definition, and that such +generalization and definition be clearly made and held; the second +condition is, that the class of facts so circumscribed and defined be +open to some or all of the logical processes of construction, of which +the most important are Induction and Deduction; the third condition +is, that the subordinate definitions and working principles within the +inchoate Science be all educed from and applied to these circumscribed +facts in strict accordance with these well-known logical processes; +and the last condition is, that these definitions and principles have +gradually become "_a body_," in which there is an organic arrangement +of parts, all being placed in a just order and mutual interdependence. +There is no old Science, and there can be no new Science, in which +these four conditions do not meet and become blended; and the beauty +of it is, that this Definition applies to any Science in all stages of +its growth. No one of all the Sciences is as yet completed; but just +so soon as any correct definitions and principles are drawn from and +applied to any _class_ of things clearly circumscribed as such, and +these definitions and principles are orderly arranged in a _body_, +there is an incipient Science; and its progress towards perfection +will proceed in precisely the same manner in which its foundations +have been laid; new facts and principles and definitions will +gradually be discovered, and these when reapplied to the class of +things out of which they have sprung, will lead to corrections and +adjustments and enlargements of the Science; and no matter how far +these logical processes may be carried, the general Definition with +which we start will also be found ample at the end of the journey. + +All of the Sciences without exception have been developed into their +present position in just this manner; and they fall easily into three +great classes, namely, the Exact, the Physical, and the Moral +Sciences. The ground of this triple classification is partly the +distinct subject-matter in the three classes of Sciences, and partly +the distinctive prominence of one or more of the logical processes of +construction in each. + +Thus, the class of the Exact Sciences consists only of the formal +Logic, and pure Mathematics. These two are distinct from all other +sciences, because their logical method of procedure is wholly +Deductive. Deduction is the process of the mind, by which we pass from +a _general_ truth to a _particular_ case under it, that is to say, +from _more_ to _less_ inclusive propositions. Stuart Mill argues at +much length in his book on Logic, that even the axioms of pure +Mathematics are originally gained by Induction, while others claim +that the truth of these axioms is perceived _intuitively_, but no +matter how this point is decided, the construction process of the Pure +Mathematics is from the General to the Particular. So it is also with +the Aristotelian logic, whose Major Premise, whether only _supposed_ +to be true or intuitively _perceived_ or inductively _proved_ is +always General in its terms. This is the form of Aristotle's +Syllogism:--All sinners deserve to be punished; John is a sinner; and +therefore, John deserves punishment. + +Physical Sciences are those concerned with the classifications and +laws of action belonging to material substances. There are a great +circle of these, of which Astronomy, Botany, and Chemistry, may serve +as examples. They have been mostly developed since the time, and in +accordance with the methods, of Lord Bacon; who, in strong reaction +against the Deductive logic of Aristotle, exalted Induction or the +mode of generalizing from _particulars_, as the true way of building +up Sciences; and, as the subject-matter of each of the physical +sciences is well open to observation and experiment, to Induction and +Deduction, and to corrective verifications, both inductive and +deductive, the new method proved remarkably pregnant and successful. +Each of these sciences has a distinct _Class_ of objects or phenomena +to which its attention is directed; the class is circumscribed by the +scientific Conception and Definition; its devotees as a rule are +skilled in using the Baconian tools; and consequently, its conclusions +receive the confidence and control the action of men. All of the +Physical Sciences are constantly enlarging "the body of exact +definitions and sound principles" connected with their several classes +"of facts or phenomena." + +Moral Sciences are those concerned with the classifications and laws +of action belonging to beings having Thoughts and Desires and Will. +The most developed of these sciences at present are Metaphysics, +Ethics, and Economics. Each of these is concerned with a single class +of phenomena, which may be exactly conceived of and defined, and is +open to the logical processes by which alone Sciences can be built up. +But Induction cannot march up with quite so sure a stride, nor +Deduction descend with so large degrees of certainty, in relation to +_persons_ endowed with free-will, as in relation to physical +substances held firm in the grip of unvaried law. Still, the doubt +always attaches far more to the actions of an _individual_ than to the +actions of the _masses_ of men. It is much easier to know human nature +in general, than one man in particular, because many Inductions guided +by observation and History make it almost certain how masses of men +will act under a given set of conditions, while any one _may_ act in a +contrary way. Deduction, accordingly, cannot hold quite the same place +in the Moral Sciences so far as individuals are concerned, as it holds +in the Physical and Exact Sciences; but this lack is perhaps more +than made up by other advantages. _Experience_ in the moral sciences +corresponds to _Experiments_ in the physical sciences. Then there is +the great advantage of _Introspection_; since each man has within +himself the means of interpreting and testing the inductions of +Metaphysics, Ethics, and Economics. Then also there is the great +resource of _Feigned Cases_, which, provided only they be cases +possible to occur, open up to Reasoning a new means of proving and +correcting. Besides these, which it enjoys in common with them, +Economics, as we shall soon see, possesses one other great advantage +over and above the rest of the Moral Sciences. + +Since, then, Political Economy deals primarily with Persons, and only +quite secondarily with Things, it is, under the definition and on +every ground, a "moral science"; yet it must not be confounded in the +least with what is sometimes called the science of Morals, or Ethics. +There is one word that marks and circumscribes the field of Ethics, +and that word is _Ought_; there is one word also that marks and +circumscribes the field of Economics, and that word is _Value_. Now, +the idea of _obligation_, on which ethical science is founded, and the +idea of _gainful exchange_, on which economical science is founded, +are totally distinct ideas. The imperatives of ethical obligation rest +upon the consciences of men, and Duty is to be done at all hazards; +guilt is incurred if it be neglected; while pecuniary gains and +losses, however large, do not, or at least ought not, weigh a feather +against an intuition of Right and Wrong. Economics, on the other hand, +does not aspire to place its feet upon this lofty ethical ground; no +man is ever under any moral obligation to make a trade; he properly +makes it or not, according to his present sense of its gainfulness to +himself; and so economic science finds a solid and adequate footing +upon the expedient and the useful. Ethics appeals only to an +enlightened conscience, and certain conduct is approved because it is +Right, and for no other reason; Economics appeals only to an +enlightened self-interest, and exchanges are made because they are +mutually Advantageous, and for no other reason; each of the two +Sciences, therefore, has a basis and sphere of its own, and the +grounds of the two are not only independent, but also incommensurable. + +We will now apply _seriatim_ to Political Economy the four fundamental +conditions belonging to all recognized Sciences, and so determine for +ourselves whether it be not a strict science, and thus worthy in its +leading propositions of all acceptation. + +(a) Every science must have to begin with a definite Class of facts, +which lie in an easily circumscribable field, and which are not likely +to be confounded with other facts of a differing nature. Economy has +such a class of facts, that lie in such a field, and that cut +themselves off by sharp lines from all other things. _Valuables_ is +its class of things. It has nothing to do with any other class of +things. Its field is Value, or Sales, or Exchanges. This field is +perfectly definite. Sales are never confounded with gifts, and are +never confounded with thefts. They have a distinctive character of +their own. They have always been in the world, will always be in the +world in ever-multiplying volume, and no one ever mistakes their main +features for anything else. Anything whatsoever that is salable, or is +about to be made so, comes within the view of Economics, and +scientifically it cares for nothing else. While it finds its field +definite, it also finds it broad. It has no wish to encroach on other +sciences, nor will it tolerate any encroachments on its own. Before +anything is sold, or is being made ready to sell, it cares nothing +what other science employs itself upon that thing; after the thing is +sold, Economy loses its interest in it, and other sciences may take it +up if they choose. Valuableness is the one quality that constitutes +the Class of things with which the Science is conversant, and it +claims complete jurisdiction over all things just so far forth as they +have this one quality, and no farther. Now there _is_ in the actual +world such a Class of things; its exterior boundaries have been +exactly ascertained by a long series of Inductions and Deductions, +tentative, corrective, and confirmatory; and accordingly, Political +Economy has now in full possession the first grand condition of a +Science. + +(b) This great class of facts, thus reached by logical Generalization +and grasped and held by a mental Conception and fixed by an adequate +verbal Definition, is remarkably open to all the logical processes of +reasoning, by which alone sciences are constructed, and thus possesses +in full measure the second grand condition of the Sciences. Not one +logical resource is denied to the economists: all the tools of the +scientific workshop are at their hands. Let us now catalogue these in +their order. + +(1) _Induction._ This is the logical and universal process, by which +the mind naturally passes up from a certain number of observed cases, +in which a certain quality appears, to a Generalization, which is a +conception of the mind followed by a statement in words to the effect, +that _all possible cases_ of that kind will exhibit the quality +already observed in _the few cases_. It has as its basis a confidence +in the resemblances and uniformities of Nature; it proceeds upon the +axiom that Nature throughout is consistent with herself; and this +confidence has been ten thousand times justified in the issue, when it +is found that Nature preordained the Sciences by causing grand +analogies to run through each department of her works, including man +and his works. The structure of the human mind corresponds with these +objective resemblances; it seizes upon them, and delights in them, and +naturally and joyfully infers and concludes that what has been +observed of _a part_ may be safely affirmed of _the whole_ of that +kind; accordingly, the world over, when certain things are found to be +true in a considerable number of cases, the mind leaps over space and +time to a whole class, and frames for itself a general rule or +principle, which binds all the cases into one bundle, and thereafter +confidently affirms what is known to be true of some to be probably +true of all. This is inductive Generalization; and the strength and +the joy of it is well expressed by Descartes: "_I have thought that I +could take as a just generalization that which I very clearly and +vividly conceived to be true._" + +Experience in Economics corresponds to Experiment in the Physical +Sciences, and furnishes to Induction all the fuel it can ask for to +feed its logical furnace and to forge the chains that bind the Cases +to the Classes. Personal experience in buying and selling, local +experience in buying and selling, and national experience in buying +and selling, with all that belongs to these, the records of which are +full to overflowing, afford to the inductive inquirer in Economics an +inexhaustible supply of material. Instances abound. Particulars may be +gathered up one by one on every hand and linked into the inductive +chain. If any doubt be felt about the strength of any one of these +chains, another one may at once be linked in terms drawn from another +field of Experience with a view to test the strength of the first. +Most fortunate from this point of view is the United States, because +here there are States with substantive powers of control over most +matters of trade within their borders, as well as a Nation with +sovereign powers of control over some points of trade within the +country as a whole. This feature has given birth to commercial +experiments as well as commercial experience of all kinds; and +Induction rejoices in all these abundant materials for generalization +thus furnished free of cost to Science, though unfortunately not free +of cost to the People. + +(2) _Deduction._ This is a logical process exactly the reverse of the +first, in that it descends from a generalized statement reached by the +inductive process to some particular, or subordinate class of +particulars, ostensibly covered by the general maxim. Induction +examines a number of particulars, and then makes a leap, it may be a +long leap, over all intervening particulars, to its Generalization +clamping them. The main use of Deduction is to make sure of any one of +these overleaped particulars, which may come into importance, and thus +confirm the generalization, or correct it. It is not strictly true, +what is often alleged against deductive reasoning, that there is +nothing _new_ in its result, that the Induction had already passed +through that particular in rising to its Generalization, and therefore +to descend to any particular link to examine that, is something +useless. The exact truth is, that it _is_ useless to examine again +deductively the very particulars that were carefully studied +inductively, but on the other hand there is always much actually +untraversed territory between these already examined particulars and +the inductive generalization, and Deduction is often very useful in +carrying us down to questionable points in this territory. Even Lord +Bacon, who scorned the syllogism, admits this: "_Axioms duly and +orderly formed from particulars easily discover the way to new +particulars, and thus render sciences active._" + +We will illustrate this by a reference to Franklin's famous induction +to prove the identity of lightning with electricity. Only one +experiment, and that a very rude one, was needful in this case; +although usually many experiments, or the careful observation of many +particulars, are necessary in inductions; but the generalization +having been gained, Deduction had a chance to try its hand; it had +long been observed that electricity could be conducted from point to +point, and if electricity and lightning be identical, then lightning +can be so conducted; therefore, deduced Franklin, a pointed iron rod +elevated above buildings will harmlessly conduct lightning from the +clouds into the ground. Deduction gave mankind the lightning-rod, and +so made one point of science "_active_," as Bacon phrased it; and it +is noticeable, that Turgot's felicitous epigram turns on the deductive +rather than the inductive side of Franklin's experiment: _Eripuit +coelo fulmen sceptrumque tyrannis._ + +Let us catch up another illustration from the science of Botany, to +show how Deduction may strengthen and sharpen an inductive result. The +botanists say, that apple-tree blossoms are always five-petaled, +because blossoms from a large number of apple-trees in various +localities have been observed to have just five petals to the blossom; +so far, they affirm inductively, and indeed securely; but they have +also reached by means of another induction a much broader law of +plant-life, namely, that outside-growers, when they have petaled +flowers at all, always have them five-fold; now apple-trees are +outside-growers; and therefore, deductively also, and conclusively +beyond shadow of question, apple-tree blossoms are five-petaled. + +Political Economy is just as open to Deduction as it is to Induction, +and the two continually are reaching each other the hands of +economical reasoning, not always indeed pursuing each a separate and +distinct path to the end, as in the botanical instance just adduced; +because in practice the two processes mingle constantly, and neither +is carried out in full and due form, since premises used by the mind +are often dropped in the statement, and shortened forms of expression +take the place of long-drawn-out formulas. But all good reasoning in +Economics, as in all other sciences, is analyzable into one or other +of these two processes, both based alike on the uniformities of Nature +and the structure of the human mind. + +Deduction has not quite the same scope and certainty in Economics as +in the Physical Sciences, because any one _may_ act contrary to the +vastly probable action of many individuals; still, it is a safe and +potent process in economics, since it may descend securely from the +larger masses to the smaller, even though perchance the individual +escape, because of the simplicity and universality and certainty of +the impulses that lead men to exchange. John Bascom gives the reason +well, why both Induction and Deduction have so firm a grasp upon this +science: "_Between one dollar and two dollars a man has no choice, he +must take the greater; between one day and two days of labor he must +take the less; between the present and the future he must take the +present. This is not a sphere of caprice, nor scarcely even of +liberty; the actions themselves present no alternative, and, if an +alternative giving an opportunity for choice does arise, it arises +from some partial or individual impulse, from some one of those +transitory and foreign influences, which, while rippling the surface, +neither belong to nor affect the current of the stream._" + +(3) _Introspection._ Everybody buys and sells, and almost everybody +watches the action of his own mind enough to see what are his +_motives_ in buying and selling, and soon comes to know also that the +other party has corresponding motives. Even the child knows perfectly, +that it takes two to make a bargain, that each party renders +something to the other, that each is glad to part with something for +the sake of receiving something from the other, and that this higher +esteem put by each on what is taken from the other makes for each the +gain of the trade. A very little introspection tells anybody, that +were this higher esteem wanting in the minds of either of the two, the +trade would not take place at all. Everybody within the pale of +_compos mentis_ knows, that, were his own desire for the rendering of +another to increase, he himself would offer more of his own rendering +rather than forego the trade; and he rightly infers, that what is true +of himself is true of all other men; and so, every seller rightly +tries to display his wares in such a way as to increase the desire of +buyers for them; knowing full well from his own experience in buying +that, other things being equal, they will be willing to render him +more for them in consequence. + +The phrase above, "rightly infers," is based upon the truth, that all +men are remarkably alike in certain great departments of action; and +that, in no department are they so nearly alike as in this of buying +and selling. Introspection, therefore, an easy self-knowledge open to +all persons alike, and a personal experience in these matters that +everybody gains, give most trustworthy answers to Inductive inquiry +along these lines. Trade is natural and gainful, as any person can +see, who stops to ask himself why he has made, or is about to make, a +given trade; and if natural and gainful to _him_, equally so for +precisely the same reasons to the party of the other part; hence no +law or encouragement is needed to induce any persons to enter upon +traffic; and any law, or artificial obstacle, that hinders any two +persons from trading, who would otherwise trade, not only interferes +with an inalienable right that belongs to both, but also destroys an +inevitable gain that would otherwise accrue to both. Political +economy is very fortunate, accordingly, in being able to make its +appeal to the common sense of all men, giving sound starting-points +through self-knowledge possessed by all men, guiding to safe steps by +means of Induction all who like to generalize and prove, and +especially breaking up current fallacies by asking the potent +question, "How would you like it yourself?" + +(4) _Feigned Cases._ There are two kinds of these, namely, those which +might be realized in actual fact, and those which never can be so +realized. The acute mind of the Greeks marked in their flexible +language a decided difference between the class of suppositions that +might possibly become facts, and another class of suppositions +impossible to become facts, by developing a distinct form of expression +for each. This distinction must always be borne in mind by those who +use or note in economical discussions the expedient of Feigned Cases. +Reasoning is always legitimate and often pregnant from suppositions, +whenever these are such as might readily become facts of experience, +because in that case the argument proceeds upon recognized and +inductive resemblances; but otherwise, no inference at all can be drawn +from them, because it is an universal truth in Nature and in Logic, _ex +nihilo nihil fit_, out of nothing nothing can come. In plausible +suppositions impossible to become facts is a nest of logical fallacies, +that need to be watched. A good illustration may be found in the +Monetary Conference at Paris in 1881. Delegates were there from all the +nations of Europe, from the United States, and even the distant India. +Some of these in their eagerness for a factitious ratio of value +between gold and silver forgot the important distinction now in hand, +and argued of the good results to flow from the realization of a +supposition, _which in fact never could be realized_. Mr. Evarts voiced +the French and American delegates in this declaration: "_Any ratio now +or of late in use by any commercial nation, if adopted by an important +group of states, could be maintained; but the adoption of a ratio of +15-1/2 silver to 1 of gold would accomplish the principal object with +less disturbance in the monetary systems to be affected by it than any +other ratio._" The fallacy in this passage is in the words, "could be +maintained," which are a supposition, and what is much worse, a +supposition contrary to fact, from which all arguing is nugatory. Why +it is contrary to fact will be seen at length in the following chapter +on Money. + +On the other hand, a supposition that may clearly become a fact is a +substantive thing, and logical inferences may be drawn from it, just +as geometrical inferences may be drawn from a _supposed_ circle: the +circle on the page is not a _perfect_ circle--no such circle was ever +drawn--but _suppose_ it perfect, as it might possibly be, and argument +becomes at once valid. Let us take another Monetary Conference at +Paris in 1867 as an illustration: its judgment as voiced by Mr. +Ruggles of New York was taken with logical propriety, when the great +benefits of an international coinage of gold alone were argued and +announced, because, while that was then a mere conjectural project, it +was possible any day by mutual agreement among the nations to become a +reality. An international coinage of gold is a simple question of +equivalence of _weights_ in the coins of different countries: an +equivalence of _values_ as between gold and silver coins for any great +length of time is neither simple nor possible. + +(5) _Results measurable in numbers._ The four preceding logical +processes of proof and construction Political Economy is glad to share +with the other Moral Sciences, but this fifth and last one it has to +itself alone, and this is its chief scientific advantage over them, +and is consequently the main reason why it is already more advanced +and more symmetrically developed than any of them. In common with them +it has important subjective elements, such as Desires, Estimates, and +Satisfactions; in marked advantage over them it has also objective +elements, that can be weighed and measured and even hardened into +statistics. Economics has an ever ready objective test, which mere +mental and ethical and other moral processes never can have from their +very nature. The _result_ of each and of all economic transactions may +be measured by money, and put down in a ledger, and published to the +world in the form of statistics. An economic blunder, whether in +legislation or in private action, pretty soon proves itself to be such +by the lessened gains of somebody, and these losses can be stated +arithmetically; and similarly, an economic improvement evidences +itself at once by increased gains coming to somebody; while it may +take years and years to work out the results of an ethical mistake, +and even then their amount can only be guessed at. + +Theories in metaphysics can only be tested by the _Reason_ of men, and +reasonable men without apparent bias of motive take opposite views of +Sensations and Intuitions and Volitions; while theories in economics, +which can be even better tested by the _Reason_, have an additional +and almost immediate and constantly recurring test through men's +pockets and the tables of the Census. The people indeed sometimes +deceive themselves, and are also too often deceived by others, in +these matters of buying and selling; but it is none the less of the +utmost consequence to this Science, that all the results of good and +bad practice in Economics work themselves at last into a definite +shape, into facts and figures that cannot lie. It is not, as in Ethics +and Metaphysics, that tendencies and potencies only are ascertained, +but everything speedily drifts into results measurable in numbers, +which stand out like landmarks against the sky. It is just for this +reason, as both the schools of the Roman lawyers admitted, namely, +that we have in all cases the Return-Service as the outward expression +and measure of the Desire and Effort of him who renders the service, +and because it makes no difference which of two services exchanged be +regarded as the return-service, that our Science is reared on the firm +ground of objective realities, notwithstanding the strong subjective +elements that have a constant part in it. + +(c) The third condition of a recognized Science is, that the logical +processes appropriate to its class of facts have been already +carefully applied to them and a certain number of "exact definitions +and sound principles" have been already "educed from and applied to" +them. We do not hesitate a moment to claim, that this condition also +is fairly and fully met by Political Economy, and that this is a +"Science" under the definition from every point of view, and +particularly from this third point of view; and a few examples will +now be given as a specimen merely of the logical work already achieved +in Economics. First, Induction more or less busy for two thousand +years has given at last an exact and acceptable definition of the +Science, and impliedly an exact description of the class of facts with +which it is conversant, namely, the Science of Sales, or what is +exactly equivalent, the Science of Value; and Deduction at all points +along this slow road has helped to correct and to broaden successive +imperfect inductions, which an inquisitive and tentative and cautious +spirit--the mainspring of Constructive Science--has instituted from +time to time. + +Second, precisely the same processes often repeated have ascertained +beyond question, that there are only three classes of Valuables and +the exact differences between them, and that, consequently, only six +cases of Value are possible to happen. + +Third, so many nations at different times in all ages have lowered the +standard of their Money under a misapprehension of its nature and in a +vain hope of profit, and a general scale of rising prices following +each attempt of this kind having been several times observed and no +instance to the contrary, Economists came by Induction to assert the +proposition, that falling Moneys cause rising Prices; the proposition +stood secure on inductive grounds alone; but so soon as a perfect +definition of Money, namely, a Measure of Services, had at last been +reached both inductively and deductively, it became at once a safe +Deduction from the definition, that rising Prices must succeed a +falling Measure. Thus assurance became doubly sure. + +Fourth, Introspection gives each buyer and seller such firm possession +of _his own motive_ in buying and selling, that he naturally and +inductively concludes on the ground that men are substantially alike, +that the _motive is similar_ in the party of the other part; each +further step of experience in traffic assures him of this beyond a +doubt,--each wants to get and does get something from the other of +more consequence to him than what he gives; every attempted deviation +from rectitude in trade so far forth throws the trader out from +opportunity to trade; opportunity to trade is nothing in the world but +_a market_; a market is nothing in the world but men with products in +their hands, desiring to buy other products with these; the more men +anywhere with the more products in their hands of all sorts to buy +with, the better market everywhere for other men (the more the better) +with other products of all kinds to buy with; all the appropriate +logical processes in action and reaction, all the commercial +experience of all men everywhere, and all the true statistics of +traffic ever gathered, do but assure the inductive assent to one of +the best and broadest of all the Generalizations in Economics, namely +this: _A market for products is products in market._ + +(d) Are the definitions and principles already logically educed from +and applied to the great class of Valuables orderly arranged in "_a +body_"? This is the only inquiry that remains, in order to determine +whether Political Economy is already a "Science" in the strictest +sense of that term. It is admitted, that a jumble of even just +definitions and principles do not constitute a science, but only these +when placed in a just order and interdependence. A "body" implies an +organic arrangement of parts. It has been well said of the human body, +that all its parts are reciprocally means and ends; the same may be +said of every living organic body, whether vegetable or animal; and +the same may be said in the way of analogy of every developed and +recognized Science. All the definitions and propositions and +illustrations in any science should be so arranged, as to show the +mutual relations and reciprocal dependence of all the parts, and as to +display the whole in harmony and symmetry. + +It is as certain as anything in the future can be in science, that new +principles will be discovered in Economics as Time and Inquiry go on, +and that these will find their place little by little in a fuller and +more rounded "body" than is at present possible; while it is also as +certain as anything in the future of science can be, that the Outline +of economics is already perfectly drawn, that the great class of +Valuables will never be enlarged nor be better described, that the +category of Commodities, Services, Credits, is completed for all time, +and that the analysis of each act of trade into two Desires and two +Efforts and two Estimates and two Renderings and two Satisfactions +will never yield additional elements. Political Economy is already a +body of exact definitions and sound principles educed from and +applied to a single class of facts. This body will indeed be enlarged +by a future and finer scientific construction, the arrangement and +interdependence of its parts will be better exhibited, the form and +filling up of the Science within the outline already determined is +sure to become more compact, more robust, and more beautiful, as the +decades and centuries go by; while, as in the human body throughout +all the changes of its growth and mature life, that future body of +economic science in all its stages towards perfection will be but the +continuation and fuller development of the present "body" of Political +Economy. + +FOOTNOTES: + +[1] Green's Short History of the English People, p. 591. + +[2] See on this general topic, Mommsen's Provinces of the Roman +Empire, _passim._ + + + + +CHAPTER II. + +MATERIAL COMMODITIES. + + +Valuables fall naturally and exactly into three classes, Commodities, +Services, and Credits. The reasons are obvious at first glance, why +articles falling in the first class occupied the thoughts and the +efforts of men almost exclusively for the first thousand years of +recorded history. Commodities appealed to the senses of men: they are +visible, tangible, weighable. Some form of personal slavery existed +everywhere, and largely withdrew attention from personal services +bought and sold; and there was not apparently sufficient personal +confidence between man and man in the earlier ages to allow much +development of credits, whose ground is personal trust and whose +sphere is future time. Commodities, on the other hand, fitted by the +efforts of some men to satisfy the immediate wants of other men, all +ready for delivery, to be exchanged against other commodities +similarly fitted and at hand, took the field apparently in the +earliest ages of recorded Time, gradually became very large in volume, +opened new routes of travel and transportation, and served to connect +in a rough and ready way neighboring tribes and even neighboring +nations. + +_Commodities are the class of Valuables comprising material things, +organic and inorganic, fitted by human efforts to satisfy human +desires._ Cattle were probably among the first things to become +valuable, that is, salable; and it is certain, that they became very +early in many quarters of the world a sort of Money or standard of +comparison among other things exchangeable, and indeed they continue +to be such in some quarters to this day. Near the middle of the sixth +book of the Iliad occur these lines:-- + + "Then did the son of Saturn take away + The judging mind of Glaucus, when he gave + His arms of gold away for arms of brass + Worn by Tydides Diomed,--_the worth + Of fivescore oxen for the worth of nine_." + +Gold and silver also became valuable in the ordinary way in very early +times, and later became Money or a medium in exchanging other things; +and much later other metals came into use as commodities and then too +as money; for the Latin word for money, _pecunia_, derived from +_pecus_, cattle, seems to imply some original equivalence in value +between the bronze stamped with the image of cattle and the cattle +themselves. Parcels of land subdued and improved by human hands were +probably bought and sold in some portions of the world as early as +anything was,--at any rate very early. Land-parcels are a commodity +under the definition. Another passage from Homer, towards the end of +the seventh book of the Iliad, displays some of the commodities in +common use during the heroic age in Greece:-- + + "But the long-haired Greeks + Bought for themselves their wines; some gave their brass, + And others shining steel; some bought with hides, + And some with steers, and some with slaves, and thus + Prepared an ample banquet." + +The earliest detailed record of a commercial transaction in +commodities, is the purchase by Abraham of the field and cave in +Hebron, more than 2000 years before Christ. It is narrated at length +in Genesis xxiii. Long before this purchase, however, it is said of +Abraham that he "went up out of Egypt very rich in cattle, in silver, +and in gold." This formal sale to him in Hebron of the field and cave +of Machpelah is in all its parts instructive to us, and full of signs +of the drift of those times. It was "_in the audience of the sons of +Heth, before all that went in at the gate of his city, that the field +and the cave were made sure unto him for a possession. And Abraham +weighed unto Ephron the silver which he had named in the audience of +the sons of Heth, four hundred shekels of silver, current money with +the merchant._" In the lack of written and recorded deeds to +land-parcels, as we have them now, the sale of them was "_made sure_" +before the faces of living men, who would tell the truth and pass on +the word. The market-place in those days was "_at the gate of the +city_," where the judges also used to hold their courts, the place +most frequented of all, and sales were made "_before all that went +in_" thither; "_in the audience of the sons of Heth_" was the silver +weighed out, and the field made sure in exchange. Then there were +"merchants" as a class; silver passed by weight rather than by tale, +although it had already passed beyond a mere commodity and had become +money, "_current money with the merchant_"; and even at this day the +Bank of England takes in and pays out gold and silver by balance +rather than by count, though they be in coined money: it is the more +accurate method. + +The author of the book of Job, believed to be of great antiquity, and +certainly true to nature and to fact in its essential parts, knew very +well the modes in which the ancient mines were wrought, and the worth +of the commodities extracted:-- + + "Truly there is a vein for silver, + And a place for gold, which men refine. + Iron is obtained from earth, + And stone is melted into copper. + Man putteth an end to darkness; + He searcheth to the lowest depths + For the stone of darkness and the shadow of death. + From the place where they dwell they open a shaft; + Forgotten by the feet, + They hang down, they swing away from men. + The earth, out of which cometh bread, + Is torn up underneath, as it were by fire. + Her stones are the place of sapphires, + And she hath clods of gold for man. + The path thereto no bird knoweth, + And the vulture's eye hath not seen it; + The fierce wild beast hath not trodden it; + The lion hath not passed over it. + Man layeth his hand upon the rock; + He upturneth mountains from their roots; + He cleaveth out streams in the rocks, + And his eye seeth every precious thing; + He bindeth up the streams, that they trickle not, + And bringeth hidden things to light." + +The prophet Ezekiel, who wrote in the sixth century before Christ, +incidentally described in his chapter xxvii the commerce in +commodities, that then centered in the city of Tyre on the eastern +Mediterranean. "_All the ships of the sea with their mariners were in +thee to traffic in thy merchandise: many islands were at hand to thee +for trade: with silver, iron, tin, and lead, they traded in thy fairs: +they brought thee for payment horns of ivory and ebony-wood._" Among +the commodities besides these exchanged in that market, are mentioned +by the prophet horses and mules and lambs and rams and goats, wine of +Helbon and white wool, fine linen and embroidered work, and riding +cloths and mantles of blue and chests of damask and thread, wheat and +pastry and syrup and oil and balm, precious spices and cassia and +sweet reed, and gold and carbuncles and corals and rubies. These old +Phoenicians of Tyre colonized Carthage, and thus bore a vast trade in +commodities to the West, going overland into the heart of Africa for +dates and salt and gold-dust and slaves, and by sea through the +Pillars of Hercules northward to the British Isles for the sake of the +trade in tin. + +The amount of transactions in commodities, the first class of +Valuables, has been constantly increasing, under natural impulses +which we shall have shortly to describe, from the dawn of authentic +History down to the present moment; and figures are baffled in +expressing to our minds the sum of these transactions even in a single +country, still more their aggregate in the commercial world. The +foreign trade of every country is almost exclusively in commodities, +and is only a small fraction of its domestic trade in the same; and +so, when we remember that the foreign trade of the United States, for +example, under a commercial system designed and adapted to curtail +such trade, amounted in 1889 to about $1,600,000,000, and the foreign +trade by Great Britain the same year to about 4,000,000,000, we gain a +glimpse, we touch as it were the hem of the garment, of the gigantic +traffic of the world in commodities alone. + +_The Production of Commodities is the getting them ready to sell and +the selling them._ + +1. We must look first at the REQUISITES of such production. They are +three, _Natural Agents_, _Human Efforts_, _Reserved Capital_. The +following lines of Whittier touch incidentally on these three +requisites, and may serve us as a general introduction to them:-- + + "Speed on the ship!--But let her bear + No merchandise of sin, + No groaning cargo of despair + Her roomy hold within. + + "No Lethean drug for Eastern lands, + No poison-draught for ours: + But honest fruits of toiling hands, + And Nature's sun and showers!" + +Natural Agents include not only "Nature's sun and showers," but also +all the forces and fertilities and materials of free Nature, that men +may and do avail themselves of in preparing commodities to exchange +with the commodities of other men. Of higher rank in Production than +these natural agencies are the Efforts of men in molding them so as to +answer other men's Desires, of which efforts the "toiling hands" of +the poet are a symbol. They include also the inventive brains and +eloquent tongues and the skilful manipulations of every name. The +poet's "ship" is an instance of capital, which is always a result of +previous toil reserved to help on some future sales. These three +elements, Nature, Labor, Capital, conspire in all production of +commodities. Nature comes first with her free forces and materials; +and then present toil aided by the results of past toil in the form of +capital does all the rest in getting commodities ready to sell and +selling them. Let us now note each of these three a little more +closely. + +(a) Natural Agents. The most important point about these is, that they +are the free gifts of God, and continue so throughout the +complications and transformations wrought on them and through them by +Labor and Capital, until the material commodity of whatever kind is +finally sold, and so passes out of the purview of our Science. Many of +the gifts of God, like the air we breathe and the light in which we +recreate ourselves and the water of refreshment drunk from spring or +brook, do not connect themselves in any way with commodities bought +and sold, and nobody ever thinks of them as salable at all; but it has +seemed and still seems to many, as if the natural fertility in a +land-parcel, the water-fall along the course of river or stream, the +timber-growth which the hand of man planted not, the deposit of gold +or coal in the bowels of the earth, and other such-like cases in which +natural gifts _do_ connect themselves with human services and then are +sold, lifted the Value of the things sold above the point to which the +mere human efforts, whether past or present, would raise it. In point +of fact, this seeming is not a reality, as will fully appear in the +sequel. God is a Giver, and never a Seller; and he has arranged it so +in his great world of gifts, that, however much shrewd men may try to +monopolize these gifts and then dole them out to other men for pay, +they are always practically thwarted in the attempt. God himself never +takes pay for anything, and has never authorized anybody to take pay +in his behalf; and when this role of Seller of free gifts, which have +cost him nothing and which he has not improved, is taken up by any +one, he is shortly crowded off the stage in shame by other actors true +to Nature. + +This is the place for a grand induction. When we study in detail the +free gifts of God to this world and its inhabitants, we find they come +and keep coming _in great classes_. This is one of the uniformities of +Nature, on whose solid ground men tread and stride in safe inductive +reasoning. Can a farmer get pay in the price of his grain for the +original fertility of his field, which neither he nor his fathers nor +his neighbors have bettered or made more available? Doubtless he would +be _glad_ to do so, doubtless he _would_ do so, were it not for the +primary fact, that such fertilities as his are in a _class_ of fields, +that other men in more or less proximity to him raise grain on other +fields, whose original fertility is equal to that in his field; and +some of these other men in common competition with the rest as sellers +will be willing to part with _their_ grain for a price which will be a +fair equivalent for the onerous human services rendered in getting +their grain ready to sell and selling it; and the free action of +_these_ men as sellers will tend to fix a general market-rate for +grain then and there, at which rate _all_ must sell whether they will +or nill; and where now is the effect on price of God's free gift? It +is still free. + +Here is a fine water-fall on the bounding river, the banks are low at +this point, just the place for mill and factory, the weight of God's +free water will turn the wheels, a hamlet will grow up around +them--perhaps a city,--can the riparian owner charge a fancy price for +site of dam and mill? He might under some circumstances; but the same +river doubtless, above, below, rolling over similar geological strata, +leaps and falls at other points also; there are other owners of +mill-privileges within hail; besides, there are other streams and +tributaries in the region round about; and water has a knack of +dropping to the lower levels. God's gifts are broad in classes; +competition naturally has free play; natural agents are an essential +factor in commodities; so and more so are human efforts; but Values +tend perpetually and powerfully under natural competition between men +as sellers to proportion themselves to the onerous human efforts +involved, and to eliminate completely from all influence on themselves +the broad and bountiful gifts of Providence. + +What has been observed to be true in respect to two or three or more +of the classes of God's free gifts _to_ men, or _in_ men, may almost +certainly be inferred to be true of all such classes. Therefore, +inductively, _such free gifts have no effect on Values to lift them, +their influence being eliminated by human competition_. Of course, if +there be unique cases of remarkable gifts, falling in no class, +subject consequently to no competition, one cannot say confidently +that the free element in conjunction with the onerous element may not +make the return-service greater than it would be otherwise. It may, +or it may not, make it greater. There is no living principle at work +in such cases, that makes it certain, that the return-service will +_not_ be greater. Still, unique cases, if they exist, are of little or +no consequence in Economics. They are most remarkably few, at all +events. Where come in the solitary gifts, that may later be connected +with Valuables, on the round earth as God fashioned it? Gold, silver, +diamonds, copper, coal, tin, amber, spice-shrubs, chinchona-trees, and +all such things, have been scattered too widely and liberally for +individuals to monopolize them, or even combinations of men unless +they be assisted by law. Where even are the unique cases of God-given +talent or genius in men themselves, such as may become connected with +Valuables of the second class? Daniel Webster had his competitors in +the Court-room and in the Senate, Ben Jonson did not let Shakspeare +have it all his own way on the stage, and even "Milton's starry +splendor" did not make Paradise Lost sell well. + +We must just note here in passing the supreme importance in an +economical point of view of untrammelled competition in the sale of +commodities. It is the divinely-appointed means, and the only possible +means, of preventing wide-spread injustice through Monopoly. Nothing +else in the world can be made effective to estop men from robbing +their fellow-men through exchanges artificially restricted; from +charging more in the market for their wares than a just compensation +for their own efforts; from enriching themselves by impoverishing +their neighbors; from worsening the quality of their wares offered for +sale; and from relying upon the artificial restrictions put on their +competitors, rather than on their own skill and enterprise and the +goodness of their goods, for a market. The Common Law of England holds +monopolies to be illegal, and the reasons given (11 Coke, 84) are, +first, because the price of the commodity will be raised; second, +because the quality of the commodity will not be so good and +merchantable as it was before; and third, because they are apt to +throw many working people out of employment. It is nothing less than a +crime against Civilization, than a sin against the clear ordinance of +God, than an artificial obstruction to individual and national +Progress, to put up bars and barriers by law for the purpose of +cutting off competition, whether domestic or foreign, either by +putting disabilities in the path of any or through monopoly +tariff-taxes, in the buying and selling of useful commodities +anywhere. + +(b) Human Efforts. Every way unlike the free forces and materials of +Nature, indispensable as these are in the production of commodities, +is the second requisite in such productions, namely, the onerous +efforts of men. Persons are very different from things, from powers, +from lifeless materials. Persons act from motives only. Minds lie back +of bodily exertions, impelling and guiding them. Such efforts as are +needful to mold materials into commodities are only put forth in view +of, and for the sake of, a remunerative return; and only rational +beings, acting under motives whose goal is in the future, capable of +foresight and of adapting means to ends, can put forth such efforts. +No degree of training can make even the most intelligent animals +capable in any degree of that kind of exertion, which we call _Labor_; +and there is no improvement whatever in the methods of animals in +reaching their instinctive ends,--the beaver builds his dam and the +bee gathers and deposits the honey exactly as bees and beavers did +ages ago. + +In the strictest sense, accordingly, there is no such thing as +physical labor, because the mental must coöperate with the physical +even in the lowest forms of human exertion; and in the same sense +there can be no such thing as exclusively mental labor, for the bodily +powers conspire more or less in the highest intellectual efforts that +are ever sold. Nevertheless, both the phrases, physical labor and +mental labor, are convenient and not harmful, whenever on the one side +the bodily powers seem to be predominant in the effort, and on the +other the intellectual. + +It is now to be noticed, that all that men can do, when they labor +physically, is _to move something_. When a man works with his hands or +his feet or his whole body, all that he does or can do, is to begin a +series of motions or resistances to motion, for this good reason, +human muscles in their very structure are capable only of starting +motion and stopping motion. All the marvellous results of physical +effort in all the world have flowed from so simple a matter as the +contraction and expansion of muscle; and the world of materials is so +cunningly constructed, that, when these are moved into right position +by human hands, or by some form of capital itself the result of +previous human handling, the free powers of Nature do all the rest, +and valuable commodities are the good outcome. For one example, when +the woodman fells a tree for sale, he brings a series of motions +(_labor_) to bear upon the trunk, by means of his sharp axe +(_capital_), and then the power of gravitation (_nature_) seizes the +tree and brings it crashing to the earth. For a second illustration, +wool and cotton have by nature a certain tenacity of fibre, and what +is more to the point, a certain _kinkiness_ of fibre easily +interlinking one with another indefinitely in length; men move these +separate fibres in certain relations to each other by an instrument +(_capital_) called a spindle, and the result is thread; then other men +move these threads into relations with each other by means of an +implement (_capital_) called a shuttle, and the outcome is a web of +cloth; lastly, the tailor moves his shears through the cloth, and then +his needles, and the issue is a coat, a commodity, the valuable for +which all these processes were gone through with, and by the sale of +which all the onerous factors therein are compensated. + +Now, since human muscles are soon wearied in action, and since motion +is the only thing required of men in the production of commodities, +they naturally look around for outside help in this matter; and the +first help they lighted on for moving things was the domestic animals, +the ox and ass and horse, doubtless domesticated in the very +beginnings of society; and as these can be used in so many different +places, and for such a variety of purposes, and are so cheaply reared, +they are exceedingly useful as a motive power, and will probably never +be superseded as such. Inanimate auxiliaries in moving things into +right position for the production of commodities, such as the +water-wheel and wind-mill, were undoubtedly brought into use much +later; and much later still, steam and electricity and other more +subtle and recondite natural agents. All of these helps, whether +animate or inanimate, do but cause simple motions of the same kind as +those caused by the human hand. The most ponderous engine merely +reduplicates that which the arm of a child is capable of; while in +point of delicacy and firmness of touch, perhaps no machinery can +subdivide and apply this motion so skilfully as the human fingers can. +It is said that some of the lace made wholly by hand is finer and more +delicate than any yet woven by machinery, although the introduction of +machinery into lace-making has cheapened lace products in general to a +small fraction of their former cost. + +What we commonly call "_Power_," then, by whatever instrumentality +furnished, is simple auxiliary motion, additional to that of physical +human Labor. Commodities are produced in unlimited quantity and +variety by such labor, assisted by the free forces of nature applied +by means of animals and implements, which are capital. But such labor +is irksome as well as wearisome, and is never expended except in view +of a reward, which is secured only from the sale of the finished +commodity. + +(c) Reserved Capital. We must examine the nature of Capital with care, +and follow its varied forms without confusion, because it is the only +other factor besides labor in the production of commodities, that has +to be paid for out of their sale. + +Simplest cases are always the best in economical discussions. Let us +take for illustration a recently observed case from the gold hills of +North Carolina. All the methods are strongly primitive, but all the +elements of production are present. A negro woman is the laborer, the +bits of gold scattered in the soil are the free gift of nature, a +bored log to divert the water from the mountain stream, and a tin pan +in which to gather and wash the sand and gravel, are two crude forms +of capital; free gravitation also brings the water through the log, +and free gravity carries down the particles of gold to the bottom of +the washing-pan, and many other agencies of free nature coöperate in +this very simple case of production; and besides the log and the pan, +there are doubtless some other forms of capital, at least the whittled +plug to stop at need the flow of water through the log. The chief +factor in these processes of production is still the laborer, the +motions of her hands in stirring the sand and picking out the precious +bits at the bottom of the pan are the chief motions, the labor is both +physical and mental,--no animal could be trained to adopt means to +ends like this negro woman. + +It is her capital that now engages our attention. _Any Valuable +outside of man himself reserved to assist in the production of further +valuables is Capital._ The idea of growth and increase inheres in the +very word, which is derived from the Latin noun, _caput_, a head, a +source, and gives intimation in its etymology of its scientific +meaning. The word, _caput_, is often used in classical Latin for a sum +of money put out at interest, and its derivative, _capitale_, is also +used in the same sense, at least in mediæval Latin; and from this form +of the word have come into English not only _Capital_, but also by +corruption _Cattle_ and _Chattels_. Flocks and herds were at one time +the principal riches of our Saxon ancestors, and also the principal +means of _increasing_ their riches, and in process of time the same +root-word came to be spelled differently as applied to animate or +inanimate things of value; while the notion implied in the Latin +_caput_, and in the English _source_, came along in all three of these +words; and hence the careful definition of Capital above given. + +It makes no difference whether the colored woman bored her own log by +means of an item of capital already existing, namely, an auger, or +hired another person to bore it for her, or bought the log already +perforated, it is an article of Capital, a valuable kept to increase +future valuables; she might doubtless sell it for something to a +new-comer wishing to operate other sand in the neighborhood, but she +keeps it to help herself gather more gold for ultimate sale, she +practises what we call in Economics _abstinence_ and must have her +reward for this in the form of _profits_ from the ultimate sale of her +commodity, gold, as well as a reward for her labor in the form of +_wages_ from the same source. As one person furnishes both the labor +and capital in this case, there is no actual division of the gross +return into wages and profits, as there always must be when separate +parties furnish the two essential factors, both of which must be +remunerated by the sale of the commodity. What is thus true of the +log, is equally true of the tin-pan, and even of the plug also, if it +be capable of repeated use and cost something of labor and the help of +a previous item of capital, namely, the jack-knife. Our negro woman of +the South is a small capitalist as well as a rude laborer, and +practises _abstinence_ as well as puts forth _exertion_, and +consequently is entitled to receive _profits_ as well as _wages_ in +the return she gets for her gold-dust when she sells it. + +We are now beginning to see what the nature of Capital is, and what +the motives are for employing it. In the production of commodities +Capital is always something that makes easier to the producers the +getting ready to sell and the selling of future commodities. The +capital always spares more or less of onerous and irksome human +exertion. It always mediates between some free force of Nature and +some otherwise more onerous effort of men. The sole motive to employ +capital in any one or in all of its multitudinous forms from the +simplest to the most complex is to throw off upon the ever-willing +shoulders of Nature some part of the irksome effort that would +otherwise come to the easily-wearied muscles of men. Nature is "good," +to use a commercial term, for all she can be made to carry of men's +work, through implements devised and machinery contrived to apply, to +commodities in every stage of their transformation and transportation +till the last, the ever-present potencies of this physical world. +These potencies cost nothing. The implements and machinery cost much +in present labor and previously created capital. The ultimate sale of +commodities must make return for all the forms of capital employed in +their production, in the shape of Profits, the reward of +_abstinence_; and for all the forms of direct labor employed in their +production, in the shape of Wages, the reward of personal _effort_. + +The beaver gnaws down the tree with his teeth from generation to +generation in precisely the same manner; but man is a being more nobly +endowed than the beaver, and no sooner had he occasion to fell trees, +than something of the nature of an axe suggested itself to his +ingenuity. It is true, that his earliest attempts at axe-making were +probably of the rudest sort, but just as soon as anything was devised, +whether of flint or shell or metal, that rendered easier the felling +of a tree, Capital made a beginning along that line of obstacles. Our +chief interest in studying the implements of the successive so-called +Ages of Stone and Bronze and Iron, is to witness the increasing +degrees of ingenuity displayed by those pre-historic men. Among the +more gifted races, progress in this direction was perhaps more rapid +than we are wont to think it was, since Tubal-Cain, the first +artificer of record, is said to have "_hammered all kinds of +implements out of copper and iron_" (Gen. iv, 22). Lucretius, writing +in the century before the Christian era, put down the following lines +in vigorous Latin, as translated by Mason Good:-- + + "Man's earliest arms were fingers, teeth, and nails, + And stones, and fragments from the branching woods; + Then copper next; and last, as later traced, + The tyrant iron." + +We are at no loss, then, to explain the origin of Capital and its +motives. Tools are invented and employed for no other reason than +this, that, by means of their help, the human efforts are lessened +relatively to the given satisfactions. Since it requires tools to make +tools, the progress of this branch of capital must have been +relatively slow at first; but, since every advance in mechanical +contrivance makes still further advances easier, there is a natural +tendency, which facts abundantly exemplify, to a more and more rapid +progression in the number and perfection of all implements of +production. The same motive that impelled to the first invention, has +impelled to the whole series of inventions since, and will constantly +impel to further inventions till the end of time. Every step of this +progress gives birth to a larger and still larger proportion of +satisfactions relatively to efforts; marks an increasing control on +the part of man over the powers of Nature; and gives promise for the +time to come of greater advantages still in both of these directions. +The powers of Nature, such as those which make the grain grow, bring +the tree down, turn the water-wheel, impel the locomotive, and send +the message round the world, all stand ready to slave in the service +of man; but in order to make their aid available for human purposes, +there must be a plough, an axe, a wheel, an engine, an electric +machine; and it is because capital brings gratuitous natural forces +into service, and the more so as capital progresses, that the Value of +those commodities produced by the aid of capital tends constantly to +decline as compared with those commodities, in the production of which +capital conspires less. + +It is already plain, that the class, Capital, is a smaller and a +peculiar sub-class under the great class, Valuables; nothing can +become Capital until it first become a Valuable, and then be +_capitalized_ by a distinct act or intention on the part of the owner +to reserve it in his own hands as an aid in further production, or +transfer it to other hands to be so used, he meanwhile receiving +profits as the reward of his abstinence; only a _transferable_ +valuable, accordingly, can become Capital in any case, that is to say, +it must be either a Commodity or a Credit, since personal services, +though they may be sold, cannot be put over into the hands of another +to be used in production, and therefore cannot become Capital in any +case; and the chief peculiarity of this sub-class, Capital, is, unlike +the three great classes of Valuables, each of which is utterly +distinct from the other two, so that a Commodity can never become a +Credit or a personal Service either of the others, that Capital as a +class has extremely flexible limits, and consequently certain +Commodities and Credits may easily enough be Capital to-day, and fall +back to-morrow into their respective classes of mere Valuables and the +next day come out from the class Non-Capital into the class Capital +again. The same commodities and credits may be capital at one time, +and non-capital at another, though they must be valuable all the time, +or cease to be commodities and credits. When it is said that a young +man's talents and skill are his "capital," the word of course is used +in a metaphorical sense, and the meaning is, that skill and talents +are _like_ capital in some respects. Popular language is not +scientific. + +Cicero wrote long ago: "Optimum et in privatis familiis et in +republica vectigal est parsimonia." _Abstinence is the best means of +revenue as well in private families as in the State._ The source of +Capital in a distinct act of will saving or sparing from present use +(_parsimonia_) a valuable commodity or credit, and the quick nature of +Capital as adding to itself (_vectigal_) in profits, are both brought +out in this Latin maxim, which is rather an expression of an old and +ingrained Roman sentiment than anything original with Cicero. It is +the very nature as well as the very name of "Capital" to increase +itself by rapid increments. It is as well the Stream as the Source. +For example, any sum of money soon doubles itself when put out at +compound interest, because the original sum increases day and night +until it be repaid. It is of the essence of every form of Capital _to +make growth_, because its sole purpose as such is to become an aid to +future and further production. A trowel in the hands of a mason, which +is capital, pays for itself every day he works with it, and perhaps +every hour of the day, in the increased production wrought by means of +it. The wheel, which free water turns, though a costly implement, +repays that cost a hundred fold in the additional bushels of wheat +turned into flour through its aid as capital. So of all implements. So +of all machinery. So of all means of transportation: ships, canals, +railroads. + +There was a strange prejudice in ancient and mediæval times against +this natural increase of capital out of its own bowels, as it were, +owing probably to this dictum of Aristotle: "_For usury is most +reasonably detested, as the increase of our fortune arises from the +money itself, and not by employing it for the purpose for which it was +intended._" In 1360, a French bishop, Nicole Oresme, repeats the error +of Aristotle under the same rhetorical image: "_It is monstrous and +contrary to Nature that a barren stock should give birth, that a thing +sterile in its whole being should fructify and be multiplied from +itself, and such a thing is money._" Even Shakspeare catches up the +old figure: "_Is your gold and silver ewes and rams?_" Shylock +answers: "_I cannot tell; I make it breed as fast._" In the light of +the three requisites of Production, in the light of the purpose and +wisdom of God in arranging the active forces of this world, the +prejudice in question disappears, and intelligence rejoices in the +ever-increasing use of Capital as the handmaid of Labor, in the quick +and sure reward of him who practises abstinence, in the production of +commodities constantly made easier and cheaper in all directions, in a +scale of comforts for the masses of men assuredly rising, in a +divinely appointed force lifting like Christianity itself upon the +otherwise sagging condition of mankind. + +Capital assumes but two economical forms, namely, Circulating Capital +and Fixed Capital. _Circulating Capital is all those capitalized +products, whether commodities or credits, the returns for the sale or +use of which are derived at once and once for all._ All circulating +capital will be found in one or other of the following sub-forms: (1) +raw materials; (2) wages paid out in view of an ultimate profit; (3) +completed products on hand for sale; and (4) products bought and held +for the sake of resale. The crucial test of circulating capital is the +question, Are the returns to be secured by the single use or single +transfer of that particular product? Tools, for example, in the hands +of him who has manufactured them for sale is circulating capital. +_Fixed Capital is all those capitalized products, which are purchased +or held with a view of deriving an income from their delayed and +repeated use._ All fixed capital will probably be found in one or +other of the sub-forms following: (1) tools and machinery in use; (2) +buildings used for productive purposes; (3) permanent improvements in +land parcels; (4) investments in aid of locomotion and transportation; +(5) products rented or retained for that purpose; and (6) the national +money considered as a whole. + +2. We will next look at the essential CONDITIONS of the production of +Commodities. These are also three, as are the Requisites, namely, +_Association_, _Invention_, _Freedom_. More or less will men make and +sell to one another commodities in any state of society, in which +there is permitted any considerable degree of association of men with +men locally or commercially, in which is encouraged in any way the +universal spirit of invention or the desire to get hard things done +easier, and in which some degree of liberty of action and security of +property and equality of privileges is guaranteed; but it is very +plain, that the production of commodities will increase in all +directions and become the greatest in that age and country when and +where are allowed the closest ties of human association both in place +and in commerce, the freest scope and largest rewards of inventive +genius, and the highest possible degree of liberty and security and +equality of rights. Let us illustrate from a state of things in the +southern half of the United States during the first half of the +nineteenth century. For the most part the land owners lived on +isolated plantations widely separate from one another, these +plantations were cultivated by gangs of slaves, a system that tends to +bring all manual labor into contempt, the poor whites scattered in +hamlets felt themselves above the slaves and beneath the masters, +intercourse between the three classes was little, opportunity to +better essentially their condition was denied to all three alike, +there were but few cities sprinkled over the vast territory and these +relatively small, the only commodity produced on a large scale was raw +cotton, the simple device for ginning this had been invented in the +decade preceding by a college boy from Connecticut, the agricultural +implements were of the rudest kind, even the coarse shoes for the +slaves were bought at the North;--in short, the degree of association +and invention and freedom was each so low, that the production of +commodities was exceedingly small, even as compared with what that +production became in one quarter of a century after the abolition of +slavery. + +(a) Association. If we may continue for purpose of illustration our +childhood trust in the story of De Foe, Robinson Crusoe came to lead a +very tolerable life upon his desolate island by means of his own +industry directed so as to satisfy his own wants by his own efforts. +He did everything for himself, and had no opportunity to buy anything +or sell anything. The whole course of such an isolated life could +never develop the idea of Value, would require no such word as +Commodities or suggest their production, and such a man while solitary +upon his island could not possess Property in the true sense of that +word. Association is the first main condition of Production, because +of the natural obstacles interposed between the isolated man and the +supply of his various wants. If any one man try to surmount a +considerable number of these natural obstacles, he must miserably +fail, because his powers are not adequate to the task; and hence it +follows, that, in a state of isolation, _men's wants exceed their +powers_; but now let the same man devote himself to overcome a single +class of obstacles, for instance, those in the way of procuring +suitable clothing, and his powers are adequate to this, he soon +acquires skill in it, he learns to avail himself of the free help of +Nature and the facilitating processes of art, he is able to realize +large products along his line, and is now ready to offer his surplus +in exchange with other men, who meanwhile have been giving themselves +each to another class of obstacles, have concentrated efforts and +skill upon them, have succeeded by the help of Nature and art in +surmounting them, and are now ready to offer their surplus commodities +in exchange for others; and, the exchanges beginning to be made in all +directions, men find that they thus obtain vastly greater +satisfactions for their various desires than they could possibly get +by direct efforts: so that we may even say, that, in a state of +society through association, _men's powers tend to overtake their +wants_. + +Without association with his fellow-men, there is no creature so +helpless, so unable to reach his true end, as is man; and therefore it +is, that the impulse to association is one of the strongest of our +natural impulses. Men come together, as it were by instinct, into +society; and, thus associating themselves together, it is soon +discovered, not only that there are various desires in the different +members of the community, which are now readily met by coöperation and +mutual exchange, but also that there are very different powers in the +different individuals in relation to those obstacles which are to be +surmounted. The tastes and aptitudes of different men are very +diverse. There is a great diversity in natural gifts. One man has +physical strength, another mechanical ingenuity, a third a +philosophical turn, and a fourth a bent and genius for traffic. Now, +then, Nature speaks in as loud a voice as she can utter, in favor of +such a degree of association and exchange as shall allow a free +development of these varying capacities, while they work upon the +obstacles to the gratification of men's wants, which lie appropriately +opposite to them. + +Men must come together either locally or commercially, must learn each +other's wants, must compare with each other powers and tastes and +opportunities, must come to have some confidence in each other, and +then they will begin by rendering mutual services back and forth to +experience the better satisfactions and the new strength that +exchanges bring. Whatever improves the character of men, and thus +leads to greater confidence among them, will enlarge their commerce, +and knit closer and wider ties of association and production. +Neighborhood associations and productions soon create a surplus to be +exchanged for something else with other neighborhoods; parts of single +nations however remote from each other find a relative diversity of +advantage and an increasing profit in connecting themselves by the +ties of trade; and the separate nations learn, though late, that they +are only one great family for the grand ends of production and +progress. Even within the single nation, there is a strong tendency +for particular trades to localize themselves in one spot, as for +instance, the manufacture of skin gloves has centered itself for the +United States in Gloversville, N. Y.; and so in the great cities that +are centres of distribution, for example, the wholesale grocers of St. +Paul are on one street, the dry goods houses of Boston are in close +proximity, and the booksellers of New York are tending towards each +other in place. + +Now, this broad association as between persons and nations, instead of +detracting at all from the individuality and power of each, is the +very thing that brings out the individuality and intensifies the power +of each; because it is only thus that full scope is given to the +exercise and development of each peculiar power whether of the +individual or the nation. Hence the strong tendency everywhere visible +in the world of commerce towards Specialties: the old single trades +and vocations and professions are constantly breaking themselves up +into parts, and each man is taking up that for which he is naturally +best fitted and has specially trained himself, and all to the great +advantage of individuality and personal power and progress. Mr. Carey +is certainly right in his principle (much insisted on in all his +books), that the degree of individuality depends on the degree of +association, each advancing hand in hand with the other; and he is as +certainly wrong in lacking confidence in the natural forces at work +tending to the highest degree of association and consequently to the +highest degree of individuality. These forces are immensely strong. +Men come together as it were by instinct, being conscious of +individual feebleness; personal interest is soon seen to follow the +bent of social attraction; a just sense of personal dignity and +importance in being a substantive part in the ongoings of society +enormously strengthens the impulse to association and individuality; +the progress of each and all in achievement and elevation still +further knits the ties of union; and lastly, a strong feeling of +social justice, of what is _due_ to others as well as to one's +self,--that every man has an inalienable right to his full +_opportunity_ and all that that implies, to buy and sell and get gain, +to life and liberty and the pursuit of happiness. When motives and +powers and potencies such as these, proven to be universal by broad +and constant inductions, fail as economical forces to secure +association and individuality, then it will be time to look around +with Mr. Carey for some inferior and factitious force. + +(b) Invention. This is the second main condition in the production of +commodities; because production is processes, getting something ready +to sell and selling it; and Nature stands ever ready with her free +agencies to facilitate these processes, just so far as the inventive +brain of man can contrive to unite the two. Invention is the marriage +of a gratuitous force to an onerous process, and the fruit of that +union is an easier way and multiplied utilities. There are some in +every considerable community, and more in every community enlarged by +the natural association but just now described, who have the knack of +contrivance, who find their joy in finding a new power in Nature or +some new application of an old power; were it not for unhindered +association and free exchange, the individuality of these would be +effectually repressed, and they would have to drudge for their daily +bread; but the importance of inventors is well understood in every +progressive community, and under advanced exchanges their livelihood +is guaranteed by those who hope to profit by its results while their +work is maturing; and Production rejoices and grows strong and throws +out unnumbered hands to make instant use of the new power and the +easier processes, in order to multiply commodities in number and +variety. + +As an illustration of all this, the reader will be interested in a +brief account of the series of Inventions made in Great Britain during +the last third of the eighteenth century, in consequence of which the +Cotton Industry was established in that country in such preëminence as +has to this day baffled the attempts of all other countries even to +approximate it. + +We catch our first glimpse of Cotton in the pages of Herodotus, who +wrote more than 400 years B.C. in relation to India as follows: +"_There are trees, which grow wild there, the fruit whereof is a wool +exceeding in beauty and goodness that of sheep. The natives make their +clothes of this tree-wool._" This passage is interesting, as showing +that the first comparison of cotton with wool exhibited their +resemblance in whiteness and in _kinkiness_, which latter quality +enables them both to be spun into yarn; as showing also, that the +Hindoos very early both spun and wove cotton, and then made it into +clothes; and as showing lastly, the appropriateness of the original +name given to cotton in Europe, namely, "tree-wool," a name by which +the Germans still designate it (Baumwolle). If the extreme East +furnishes the first notice of cotton, the extreme West follows it next +in order. When the Spaniards discovered Central and Southern America +in the first quarter of the sixteenth century, they reported that they +found the Mexicans clothed in cotton cloth. + +But wool was the staple of England. Parliament and people were jealous +of cotton, lest it might prove a rival to wool, and actually +prohibited the introduction of printed calicoes (so called from +Calicut in India whence they were exported). The taste, however, for +calicoes increased in spite of the prohibition, which was afterwards +intermitted for a revenue duty on plain cotton, which was then rudely +printed on blocks in London, Manchester, and elsewhere; but the +prohibition of Parliament against wearing printed calicoes was first +repealed in 1736. Fifteen years later the United Kingdom imported only +2,976,610 lbs. of raw cotton, and exported only £45,986 of cotton +goods; in one century the import of cotton became 500 times larger +than that, and the export of cottons 1300 times larger than that; and +this prodigious result was due mainly to three or four inventions +occurring within short times of each other, by means of which the free +forces of nature took the place of the onerous efforts of men. + +John Hargreaves, a poor weaver in the neighborhood of Blackburn in +Lancashire, was returning home from a long walk, in which he had been +purchasing a further supply of yarn for his own loom. Spinning at that +time only admitted of one thread spun at a time by one pair of hands, +one of which turned the wheel and thus made the single spindle rapidly +revolve, and the other hand pulled gently upon the "roving" attached +to the spindle and thus drew it out to the requisite tenuity twisted +into yarn. The "carding," then effected by rude instruments called +hand-cards, by means of which the fibres of the cotton were +disentangled and straightened and laid parallel with each other; and +the "roving," a process by which the short fleecy rolls stripped off +the hand-cards were applied to the spindle and made into thick threads +only slightly twisted, were the two preparatory operations for the +spinning. All these operations were slow and clumsy, and the +consequent expensiveness of the yarn formed a great obstacle to the +establishment of the cotton manufacture in England. The improvements +made in the loom of that period by Kay, father and son, had shortly +before doubled the power of each weaver, and the spinners could not +keep up in furnishing material to the weavers. + +As Hargreaves entered his cottage from this excursion to get yarn to +keep his loom agoing, his wife, Jenny, accidentally upset the spindle, +which, as was her wont, she was diligently using. Her husband noticed +that the spindle, which was now thrown into an upright position, +continued to revolve just as when horizontal, and that the thread was +still spinning in his wife's hands. The idea immediately occurred to +him, that it might be possible to connect a considerable number of +upright spindles with the revolutions of one wheel, and thus multiply +the power of each spinster. "_He contrived a frame in one part of +which he placed eight rovings in a row, and in another part a row of +eight spindles. The rovings, when extended to the spindles, passed +between two horizontal bars of wood, forming a clasp which opened and +shut somewhat like a parallel ruler. When pressed together this clasp +held the threads fast; a certain portion of roving being extended from +the spindles to the wooden clasp, the clasp was closed, and was then +drawn along the horizontal frame to a considerable distance from the +spindles, by which the threads were lengthened out and reduced to the +proper tenuity; this was done with the spinner's left hand, and his +right hand at the same time turned a wheel which caused the spindles +to revolve rapidly, and thus the roving was spun into yarn. By +returning the clasp to its first situation and letting down a piercer +wire the yarn was wound upon the spindle._" + +The powers of Hargreaves' machine soon became known among his ignorant +neighbors, notwithstanding his strenuous efforts to keep his admirable +invention a secret, and these neighbors naturally enough concluded +that a contrivance, which enabled one spinster to do the work of +eight, would throw many people out of employment. A mob broke into his +house and destroyed his machine. Hargreaves retired in disgust to +Nottingham, where by means of the friendly assistance of one other +person he was enabled to take out a patent for his invention, which he +called in compliment to his industrious wife the "_Spinning-Jenny_." +This invention gave a new impulse to the cotton manufacture, but had +it been unaccompanied by other improvements, no purely cotton goods +could have been made in England; because the yarn spun by the new +jenny, like that previously spun by hand, was not fine enough nor hard +enough to be used as warp, and linen or woollen threads had +consequently to be employed for that purpose. + +In the very year, however, in which John Hargreaves, the poor weaver, +migrated to Nottingham, Richard Arkwright, a poor barber's assistant, +took out a patent for his still more celebrated machine for spinning +by rollers. In one respect Arkwright was much worse off than +Hargreaves: the latter had a helpmate meet for him, the former had a +wife who is said to have destroyed the models her husband had made and +to have opposed him in every step of his career. But Arkwright was not +deterred from his life pursuit by the poverty of his circumstances or +the scandalous conduct of his wife. After many years of intense and +opposed devotion to the possible application of a simple principle he +had conceived in his mind, namely, that of spinning by means of +rollers revolving at varying rates of rapidity, he succeeded in +contriving and patenting his memorable machine, which, more than any +other one invention, localized and concentrated in England the +gigantic cotton-industry of the world. Arkwright's idea and +achievement was to pass the coarse thread drawn out from the rovings +over two pairs of rollers in succession, the first of which revolving +slowly fined the thread down evenly and gradually, and then this +thread was passed over a second pair of rollers turning with a high +velocity and drawing out the line into any requisite tenuity. Thus a +cotton thread was spun capable of being used as warp. Cotton cloth as +such could now be manufactured in England. + +From the circumstance that the mill, at which Arkwright's machinery +was first erected, was driven by water power, the machine received the +inappropriate name of the "water-frame"; and the thread spun on these +rollers was commonly called the "water-twist." The old mode of carding +the cotton by hand now furnished the "rovings" too slowly to meet the +wants of the new spinning-jenny and the new water-frame; and these +great inventions would consequently have proven comparatively useless, +had not a more efficient and rapid process of carding the cotton +superseded just at the right time the old system of hand-carding. +Lewis Paul introduced revolving cylinders for carding the raw cotton +into rovings preparatory to spinning, in partial imitation perhaps of +Arkwright's principle of spinning the rovings by the rotatory motion +of rollers. Paul's machine consisted "_of a horizontal cylinder, +covered in its whole circumference with parallel rows of cards with +intervening spaces, and turned by a handle. Under the cylinder was a +concave frame, lined internally with cards exactly fitting the lower +half of the cylinder, so that when the handle was turned, the cards of +the cylinder and of the concave frame worked against each other and +carded the wool. The cardings were of course only of the length of the +cylinder, but an ingenious apparatus was attached for making them into +a perpetual carding. Each length was placed on a flat broad riband, +which was extended between two short cylinders, and which wound upon +one cylinder as it unwound from the other._" + +While the foregoing series of inventions placed an almost unlimited +supply of cotton yarn at the disposal of the weaver, the machinery as +yet introduced was still incapable of providing yarn fit for the +finest grades of cotton cloth. The "water-frame" indeed spun abundant +twist for warps, but it could not furnish the finest qualities of +yarn, because these were too tenuous to bear safely the pull of the +rollers while they wound themselves on the bobbin. Samuel Crompton, a +young weaver living near Bolton, possessed the ingenuity needful to +remove this difficulty. He succeeded in combining in one machine, +which from its nature is happily called the "mule," the several +excellences of Hargreaves' spinning-jenny and Arkwright's water-frame. +Copying after the latter, the mule has a system of rollers to reduce +the roving; copying after the former it has spindles without bobbins +to give the twist; and the thread is stretched and spun at the same +time by the spindles after the rollers have ceased to give out the +rove. "_The distinguishing feature of the mule is that the spindles, +instead of being stationary, as in both the other machines, are placed +on a movable carriage which is wheeled out to the distance of +fifty-four or fifty-six inches from the roller beam, in order to +stretch and twist the thread, and wheeled in again to wind it on the +spindles. In the jenny, the clasp which held the rovings was drawn +back by the hand from the spindles; in the mule, on the contrary, the +spindles recede from the clasp, or from the roller-beam which acts as +a clasp. The rollers of the mule draw out the roving much less than +those of the water-frame, and they act like the clasp of the jenny by +stopping and holding fast the rove, after a certain quantity has been +given out, whilst the spindles continue to recede for a short distance +farther, so that the draught of the thread is in part made by the +receding of the spindles. By this arrangement, comprising the +advantages both of the roller and the spindles, the thread is +stretched now gently and equably, and a much finer quality of yarn can +therefore be produced._" + +The ingenuity of Hargreaves, Arkwright, and Crompton had been +exercised to provide the weaver with yarn, and had now indeed provided +him with more yarn than he could use; the spinster had beaten the +weaver, just as the weaver had previously beaten the spinster; and the +making of cotton cloth seemed likely to continue sluggish, because the +yarn could not be woven any faster than a skilled workman could weave +it with Kay's improved fly-shuttle. In the summer of 1784, a Kentish +clergyman named Edmund Cartwright, being in conversation with some +Manchester gentlemen, one of whom observed that, "as soon as +Arkwright's patent expired so many mills would be erected and so much +cotton spun that hands would never be found to weave it," replied, +"Arkwright must then set his wits to work to invent a weaving-mill." +Notwithstanding the unanimous opinion expressed by the Manchester +gentlemen, that such a weaving-machine was wholly impracticable, the +clergyman himself within three years had invented and brought into +successful operation the "_power-loom_." Subsequent inventors improved +the idea which Cartwright originated, and before 1834 there were not +less than 100,000 power-looms at work in Great Britain alone.[3] + +Substantially the same machinery invented for carding and spinning and +weaving cotton was very shortly and successfully applied to the +carding and spinning and weaving of wool, because the wisdom of Nature +imparted to them both the same sort of tenacity of fibre, the same +capacity in that fibre to be spun into a thread of indefinite length +by means of the little loops or kinks easily interlocking contiguous +fibres into a single thread, which two obvious resemblances gave an +identical name to the animal and vegetable products otherwise so +different from each other. + +The spirit of Invention, one of the chief conditions in the production +of material commodities, thus simply illustrated along the line of a +single manufacture, may serve us for a sample of similar improvements +taken and taking place in scores upon scores of other lines of effort +and production. The principle is the same in all cases past and +present and still to come, namely this, to throw the strain from the +mind and muscles of men upon the forces and agencies of free Nature, +with which the world around us is crowded in our behalf, and which are +waiting to slave in the service of mankind without rest and without +fatigue,--without money and without price. + +(c) Freedom. By far the most important of all the conditions, under +which the production of material commodities goes broadly forward, is +liberty of action on the part of the individual; because, wherever +such liberty is conceded, association and invention and all other +needful conditions follow right along by laws of natural sequence. By +liberty of individual action is meant the practical right of every man +to employ his own efforts for the satisfaction of his own wants in his +own way, whether directly or through exchange. Each man's right of +individual freedom is limited of course by every other man's right to +equal freedom, which the first man is not at liberty to infringe; and +also, in certain few and limited respects, by what is sometimes called +the "general good," the judge of the application of which must be the +government under which the man lives. With these limitations, which +are few in number and never serious in degree when rightly applied, +and which limit in common all other rights whatsoever, the right of +every man to buy and sell and get gain is just as fully a right as the +right of breathing. It stands on the same impregnable ground. It is a +natural and self-evident and inalienable right, with which each man +has been endowed by his Creator, to put forth efforts for his own +well-being and for those dependent upon him, either directly or by +means of efforts exchanged with other men equally free; and he is a +slave in spirit and position, who tamely submits to have his own +rights of buying and selling curtailed, or to stand by and see the +rights of his fellow-citizens similarly curtailed, unless such act of +interference and curtailment on the part of his Government be +justified by a solid proof that some other public or private rights, +which are at least as well based as his own, would be endangered by +the exercise of his own. + +In what cases may a Government properly step in to regulate or +prohibit the buying and selling of its citizens? Hundreds of +inductions extending through hundreds of years have been carefully and +logically conducted in order to reach a just and comprehensive answer +to this question; and in all probability the cases have been +inductively ascertained for all time, and they are these: _such buying +and selling may be controlled and prohibited, as are proven to be +contrary_ (1) _to the public Morals_, (2) _to the public Health_, (3) +_to the public Revenue_. All other buying and selling may be safely +assumed to be both profitable to the parties to it, and also useful to +the Commonwealth in general; and any interference with it by public +authority is a high-handed infringement of natural rights, a blow +aimed at the life and source of property. These wrongful strokes at +private rights, this restriction on the freedom of individuals to +exchange products for their own welfare, is now mostly confined in +civilized countries to the region of Taxation. Within this region the +wrongs are still frightful. Judge Cooley, in his "Principles of +Constitutional Law," states the matter as follows: "_Constitutionally +a tax can have no other basis than the raising of revenue for public +purposes; and whatever governmental action has not this basis is +tyrannical and unlawful. A tax on imports, therefore, the purpose of +which is not to raise a revenue, but to discourage and indirectly +prohibit some particular import for the sake of some home +manufacturer, may well be questioned as being merely colorable, and +therefore not warranted by constitutional principle._" + +Formerly, governments interfered almost beyond belief with the freedom +of their people in all industrial and commercial action; dictating +what should and what should not be grown and manufactured, what should +and what should not be exported and imported; decreeing by +proclamation or enacting by statute, the number of apprentices each +artisan might employ, and the years during which these must serve as +such, and the conditions under which they might then work as +journeymen; the materials to be used in woven fabrics, and even the +widths and other minor features of such fabrics, were prescribed in +the foremost of the European nations; in the reign of St. Louis of +France, a "Book of Trades" was issued under royal authority and is +still extant, which organizes minutely and subjects to cumbersome +rules more than one hundred separate industries as then practised; +England was the country of the great trading "Companies," and of all +of these the same may be said as Adam Smith said of the Turkey Company +formed in 1579, namely, it was "a strict and oppressive monopoly"; +among others there were the African Company established in 1530, the +Russia Company beginning its operations in 1553, the East India +Company chartered on the very last day of the seventeenth century and +going out of existence in our own time, and the Hudson's Bay Company, +chartered in 1670 and so having the sole control in trade of a region +forty times larger than all England; while the colonial system +prevailing for two centuries in all the countries of Western Europe +regulated the commerce and controlled the manufactures in the colonies +with a single eye to the benefits of the mother country, as those were +conceived of under the wretched Mercantile system. + +Happily, since governments have become more enlightened than formerly, +they are perceiving for the most part that they have not the least +right to interfere in those ways or in any ways with the natural right +of their people to make and grow freely all material commodities, and +to buy and sell these freely in the best markets wherever these +markets are to be found; and they are also perceiving, that by such +interference incalculable losses of property and indefinite +retardations of progress are caused to their people, as well as +weakness to themselves as governments through a more difficult +gathering of taxes and a harder maintenance of prestige and power. + +The only motive to a mutual exchange of services, whether in one or in +all of their three kinds, that is to say, to a free production of +commodities and services and credits, is always and everywhere the +mutual benefit of the two parties exchanging. After all the processes +have been gone through with and the exchanges are consummated, all the +parties are richer than before, that is, they have more +_satisfactions_, otherwise the processes and exchanges would instantly +cease. Therefore, a universally free production benefits everybody, +and harms nobody. Moreover, under a system of free production, every +man is allowed under the stimulus of self-interest to work away at +those obstacles to the gratification of human desires which he feels +himself best able to overcome, to follow the bent of his own mind, and +to avail himself of all those free helps in his peculiar work which +Nature offers to him. Under these circumstances, obstacles give way +in all directions; the amount of material products produced is vastly +augmented, the number and variety and excellence of personal services +proffered are indefinitely increased, and credits compelling the +Future to pay tribute to production are multiplied; the diversified +and rapidly increasing desires of all persons in such a community are +readily met through profitable exchanges; while all peculiar +facilities natural and acquired are taken immediate advantage of, the +diversities of relative advantage in production become marked in all +directions, and a new day of industrial and commercial prosperity is +ushered in. Because under freedom all men are sure to dispose of their +industrial efforts to the best advantage, they have the strongest +possible motives to put them forth; since they can purchase with them +what they will and when they will, and where they will. Thus freedom +leads to extended association, and also to the invention of machinery +and all labor-saving appliances. + +3. We are now in position to understand thoroughly the ultimate +GROUNDS of the production of material commodities. We have seen, that +these commodities have been multiplying in number and variety and +excellence ever since the beginnings of history, that they are +everywhere multiplying now at a rate hitherto unprecedented and +undreamed of, and that improved and improving methods of +transportation by land and sea are now carrying these back and forth +to the ends of the earth. What is the _principle_, under which these +things have been done, are now being done, and are certain to be done +in the time to come? + +The physical and moral obstacles, that Nature has interposed to the +gratification of the multitudinous and constantly increasing desires +of men, are so great in all directions, that the powers of the +individual man are utterly unable to surmount any considerable number +of them; while at the same time, the physical and moral powers, +adapted under sufficient motives to overcome these obstacles, are very +diverse in the different individuals of mankind. Not only is there a +surprising diversity in original gifts, but also the powers acquired +by gradual concentration of personal effort upon one set of obstacles +become exceedingly diverse, as does moreover familiarity in the use of +the gratuitous forces of nature which lend their aid towards +overcoming these particular obstacles. As the result of one or two or +all of these, one man naturally comes to have a vast advantage over +others in his particular branch of business, whatever that may be; +each of these others by precisely the same means comes to have a +legitimate advantage over the first in his own branch of effort, +whatever that may be; and if, as always happens practically, the first +has desires which the varied efforts of the others can satisfy, and +they too desires which his efforts can satisfy, nothing more is +necessary to profitable exchanges between them than this diversity of +relative advantage at different points. + +It is solely because a given effort irksome in itself put forth for +another person, in view of and for the sake of a return-service from +him, realizes more of satisfaction to both parties than when put forth +for one's self directly, that commercial exchanges ever take place +among men. The sole ground of these, the principle underlying them +everywhere, is DIVERSITY OF ADVANTAGE BETWEEN DIFFERENT MEN AND +BETWEEN DIFFERENT NATIONS IN DIFFERENT RESPECTS. All exchanges +whatsoever depend on diversity of relative advantage in the production +of commodities or services or credits as between the persons +exchanging; and this diversity of relative advantage exists by God's +appointment primarily among individual men as such, and only +secondarily on the ground of the varied soil and climate and position +and natural gifts of different parts of the earth. Reserving these +secondary considerations, which are quite secondary in importance +also, to a later detailed discussion, it is very clear and of central +consequence in our science that a diversity of relative advantage in +different things displays itself as between the individuals of every +community and country large and small. There is no hamlet in any land +in which one man has not an advantage over his neighbors in the making +of clothes, another in the making and setting of horse-shoes, a third +in the building of houses, a fourth in the curing of diseases, and +another in the keeping a school; while each of those neighbors has +undoubtedly some advantage or other over each of these in some trade +or means of livelihood. As a natural result of this diversity any two +of these villagers may profitably exchange their respective efforts +with each other, provided of course each has a desire for the product +of the other, to the manifest lessening of the effort of each +relatively to the satisfaction of each, and the more so as the +relative superiority of each to the other in his own trade is the +greater. + +This point will repay some pains in minute illustration. If the +blacksmith can make and set horse-shoes only a trifle better than the +tailor could do this if he tried, and the tailor can make coats only a +little better than the blacksmith could make one if he chose, there +will be but a slight benefit to each in their changing works with one +another. For the sake of definiteness, let us say, that the tailor's +capacity for making coats is 6, and his capacity in making and setting +horse-shoes is 5; and also that the blacksmith's capacity for shoeing +horses is 6, and his ability in making coats is 5. Each has a relative +superiority to the other of 1 in his own trade; and if they exchange +efforts, as they probably would under these circumstances, there is +only an advantage of 2 to be divided between them. + +Now let us suppose (what might easily become a fact), that the tailor +by exclusive and augmented attention to the conditions of his own +craft carries up his capacity for making coats to 15, the blacksmith's +efficiency in both the trades remaining the same as before. There will +now be an increased motive to both the artisans for exchanging +products with one another, and a larger gain to each than before as +the result of such exchange. The diversity of relative advantage as +between the two has now gone up from 2 to 11. The tailor can now make +a coat much better and quicker than before; and though the blacksmith +owing to his inertness can neither make nor set horse-shoes any better +than before, still less make coats any better, he will after all by +still trading with the tailor reap a part of the benefit of the +latter's increased efficiency in making coats; the new coat is at once +better and costs less than the previous one; the tailor is still less +inclined than before to leave his new and greater advantage over the +blacksmith to set himself to shoeing his own horse; even on the old +terms the blacksmith can do that 1 better than he himself can, and +rather than forego the trade he will naturally offer the blacksmith +somewhat better terms than before, or in other words will feel +impelled to share with the blacksmith a part of the proceeds and +rewards of his own now superior skill and diligence. The trade began +on the sole basis of a relative diversity of advantage as between the +two mechanics, each in his own craft; this relative diversity, without +which no exchange ever takes place between any two persons, has now +gone up as between these two from 2 units of advantage to 11 units of +advantage; how will these 11 units be divided in this case? Nobody can +tell exactly how they will be divided. Two things about it, however, +are _certain_ at least in their tendencies and potencies. The +blacksmith is sure to get some part of the extra fruit of his +neighbor's new push and spirit, while the tailor is sure to get as his +own reward by much the larger part of the whole blessed 11. + +We must by no means omit to notice the logical inference from this +instance, nor fail to make the proper inductive generalization from a +sufficient number of similar instances. It is this: no man can make +any essential improvement in any of the methods of producing material +commodities, without at the same time benefiting other people as well +as himself. Under natural law, which is no respecter of persons, he +can by no possibility selfishly take to himself the entire fruits of +his own growing skill and vigor. The only way in which he can gather +in at all the fruits of these is to sell their proceeds in the open +market. To broaden his own market for now better and more abundant +goods he must offer them to everybody on somewhat better terms than +formerly--and the better the terms the broader the market--and he can +well afford to do this, because the goods now cost him less of irksome +human effort. Every improvement in the production of commodities is +precisely of that complexion. The issue of every invention, of every +improved process of every kind, is, so far forth, a cheaper product. +And this public gain follows, must follow, individual enterprise at +single points, even when the great mass of exchangers remain at the +old stage of sluggishness. Whatever increases at one point even, and +_a fortiori_ at two points, the diversity of relative advantage as +between any two exchangers, is of benefit to them both, and the +greater this relative diversity becomes the greater the benefit to +both. + +Now let us see how the matter stands, when tailor and blacksmith at +the same time feel and obey the impulses to a more skilled and +vigorous artisan life. Suppose the blacksmith too carries up his +efficiency in his own trade to 15, just as the tailor has done, the +potency of each in the trick of the other remaining as before at 5; +under these circumstances when the two come to trade with each other, +each has a relative superiority over the other of 10, and there is an +advantage of 20 points to be divided between the two; the trade is now +ten times more profitable to each than it was at the outset, when +there was only an aggregate of 2 units for the division between two +parties; and accordingly the motive to an exchange and the gain of an +exchange as between tailor and blacksmith are ten times greater than +they were before. Therefore we lay down the principle, as inductively +ascertained and as universally applicable to all exchanges, that the +greater the relative superiority at different points as between the +parties exchanging, the more beneficial and profitable do the +exchanges become to all the participators in them. If this principle +be just, and we may well flatter ourselves that it will be found to be +just, it follows, that every man who has anything to buy or sell, is +directly interested in the highest success of his fellow-exchangers, +that every trade finds its own advantage in the success of all other +trades, and that all discoveries and inventions by which Nature is +made to pay tribute to art is, restrictions apart, so much clear gain +to the world at large. In the light of sound and broad principles, +what David Hume called the "Jealousy of Trade" is simply silly. + +The mainspring that impels all buyers and sellers to quicken their +movements and to improve their methods and thus and otherwise to +cheapen their costs of production, is the natural press of +_competition_. Somebody else is offering this product, or will offer +it, for less than we are now selling it for, and we must contrive +some way by shortened times or cheaper processes or a quicker zeal not +to be beaten in this market-race, is the silent argument ever making +itself felt on the mind and hand of the producer. Such natural action +always increases the general diversity of relative advantage as among +buyers and sellers. + +But, on the other hand, whatever lessens or threatens to lessen this +natural and most beneficial stress of competition among producers of +similar commodities at home or abroad, necessarily lessens the motive +on the part of these producers to excellence of quality in their goods +and to cheapness of their cost, because it makes less the diversity of +relative advantage as between these producers and those producers of +other commodities against which the first exchange. The units of +advantage that would otherwise be divided between the exchangers are +diminished; the motives to trade and the rewards of trade are thus +lessened to each pair of parties subject to such diminution of +competition, and consequently to the community, or nation, or family +of nations, as a whole; and accordingly this is the precise place for +us to look into the nature and effects of _Monopoly_, so called, and +to perceive once for all, that Monopoly is the enemy of mankind. + +Monopoly is a word derived from two Greek words, which mean when +combined _selling alone_, that is, the privilege of selling one's +commodity free from the competition to which it is naturally subject +by other sellers than the privileged one. Monopoly is thus artificial +restraint imposed on some buyers and sellers for the supposed benefit +of other buyers and sellers. It is wholly unnatural. It is usually +enjoyed under the forms of law. Its beneficiaries commonly cajole or +extort from Government by hook or by crook the exclusive privilege of +selling certain commodities in a designated market. Their motive is +purely selfish: it is simply and solely to get for themselves a +return-service artificially enhanced by selling commodities in a +legally restricted market. The effect in the first instance usually +corresponds to their expectations. The public are at their mercy so +far as the designated commodities are concerned. + +The general story of monopolies is a dreary stretch of record of human +greed and wrong on the one hand, and of wide-spread poverty and +suffering and slowly-gathering resistance on the other. We will look +at only two instances at present in the long account, premising that, +the motives of greed and grab are the same in all instances, and the +results of wrong and hate on the part of those oppressed by them are +the same also in all instances. Let Macaulay (I, 40) tell us something +of the first instance selected for illustration. "_But at length the +Queen took upon herself to grant patents of monopoly by scores. There +was scarcely a family in the realm which did not feel itself aggrieved +by the oppression and extortion which this abuse naturally caused. +Iron, oil, vinegar, coal, saltpetre, lead, starch, yarn, skins, +leather, glass, could be bought only at exorbitant prices. The House +of Commons met in an angry mood. It was in vain that a courtly +minority blamed the Speaker for suffering the acts of the Queen's +Highness to be called in question. The language of the discontented +party was high and menacing, and was echoed by the voice of the whole +nation. The coach of the chief Minister of the Crown was surrounded by +an indignant populace, who cursed the monopolies, and exclaimed that +the prerogative should not be suffered to touch the old liberties of +England. There seemed for a moment to be some danger that the long and +glorious reign of Elisabeth would have a shameful and disastrous end. +She, however, with admirable judgment and temper, declined the +contest, put herself at the head of the reforming party, redressed +the grievance, thanked the Commons in touching and dignified language +for their tender care of the general weal, brought back to herself the +hearts of the people, and left to her successors a memorable example +of the way in which it behooves a ruler to deal with public movements +which he has not the means of resisting._" + +Perhaps some one of my readers may suggest, that these are the words +of a Whig-Liberal, and may thus exaggerate the cause of the people as +against the monopolists. Well, then, let us hear the words of a high +Tory-Loyalist, the historian Hume (IV, 335, 350), in relation to the +same monopolies. "_The active reign of Elizabeth had enabled many +persons to distinguish themselves in civil and military employments; +and the Queen, who was not able from her revenue to give them any +rewards proportioned to their services, had made use of an expedient +which had been employed by her predecessors, but which had never been +carried to such an extreme as under her administration. She granted +her servants and courtiers patents for monopolies; and those patents +they sold to others, who were thereby enabled to raise commodities to +what price they pleased, and who put invincible restraints upon all +commerce, industry, and emulation in the arts. It is astonishing to +consider the number and the importance of those commodities which were +thus assigned over to patentees. Currants, salt, iron, powder, cards, +calf-skins, felts, pouldavies, ox-skin-bones, train oil, lists of +cloth, potashes, anise-seeds, vinegar, seacoals, steel, aquavitæ, +brushes, pots, bottles, saltpetre, lead, accidences, oil, calamine +stone, oil of blubber, glasses, paper, starch, tin, sulphur, new +drapery, dried pilchards, transportation of iron ordnance, of beer, of +horn, of leather, importation of Spanish wool, of Irish yarn; these +are but a part of the commodities which had been appropriated to +monopolists. These monopolists were so exorbitant in their demands, +that in some places they raised the price of salt from sixteen pence a +bushel to fourteen or fifteen shillings. Such high profits naturally +begat intruders upon their commerce; and in order to secure themselves +against encroachments, the patentees were armed with high and +arbitrary powers from the Council, by which they were enabled to +oppress the people at pleasure, and to exact money from such as they +thought proper to accuse of interfering with their patent. The +patentees of saltpetre, having the power of entering into every house, +and of committing what havoc they pleased in stables, cellars, or +wherever they expected saltpetre might be gathered, commonly extorted +money from those who desired to free themselves from this damage or +trouble. And while all domestic intercourse was restrained, lest any +scope should remain for industry, almost every species of foreign +commerce was confined to exclusive Companies, who bought and sold at +any price that they themselves thought proper to offer or exact._" + +"_The Government of England during that age, however different in +other particulars, bore in this respect some resemblance to that of +Turkey at present: the Sovereign possessed every power, except that of +imposing taxes; and in both countries, this limitation, unsupported by +other privileges, appears rather prejudicial to the people. In Turkey, +it obliges the Sultan to permit the extortion of the pashas and +governors of provinces, from whom he afterwards squeezes presents and +takes forfeitures: in England, it engaged the Queen to erect +monopolies, and grant patents for exclusive trade; an invention so +pernicious, that had she gone on during a tract of years at her own +rate, England, the seat of riches, and arts, and commerce, would have +contained at present as little industry as Morocco or the coast of +Barbary._" + +But, some one will say, Hume and Macaulay are historians, writing +long after these events took place, and may likely have been too +favorable in their judgment to freedom of trade domestic and foreign. +It is indeed true, that both of them were firmly convinced that +freedom of trade is an inalienable right as well as an unspeakable +blessing to all men everywhere. So, then, let us go back to +contemporaries. Let us hear the eye and ear witnesses of the +grievances complained of in 1601. Robert Cecil was then prime minister +of Queen Elizabeth. He and his father had had more to do in granting +the monopolies than any other persons in the realm except the Queen. +Said he from his place in the Commons on the 25th of November: "_I +say, therefore, there shall be a proclamation general throughout the +realm, to notify Her Majesty's resolution in this behalf. And because +you may eat your meat more savory than you have done, every man shall +have salt as good and cheap as he can buy it or make, freely without +danger of that patent which shall be presently revoked. The same +benefit shall they have which have cold stomachs, both for aqua vitæ +and aqua composita and the like. And they that have weak stomachs, for +their satisfaction, shall have vinegar and alegar, and the like, set +at liberty. Train oil shall go the same way; oil of blubber shall +march in equal rank; brushes and bottles endure the like judgment. +Those that desire to go sprucely in their ruffs, may at less charge +than accustomed obtain their wish; for the patent for starch, which +hath so much been prosecuted, shall now be repealed. The patents for +calf-skins and felts, for leather, for cards, for glass, shall also be +suspended, and left to the law._" + +Five days later one hundred and forty members of the House were +formally received by Elizabeth in person, the Speaker having been +instructed to convey their thanks to her majesty; and, after the +Speaker's address, he with the rest knelt down, and the Queen gave her +answer as follows: "_Mr. Speaker, you give me thanks, but I doubt me, +I have more cause to thank you all, than you me: for had I not +received a knowledge from you, I might have fallen into the lap of an +error, only for lack of true information. Since I was queen, yet never +did I put my pen to any grant, but that upon pretext and semblance +made unto me that it was both good and beneficial to the subjects in +general, though a private profit to some of my ancient servants who +had deserved well; but the contrary being found by experience, I am +exceeding beholding to such subjects as would move the same at first. +I have ever used to set the last judgment-day before mine eyes, and so +to rule as I shall be judged to answer before a higher judge. To whose +judgment-seat I do appeal, that never thought was cherished in my +heart that tended not to my people's good. And now if my kingly bounty +hath been abused, and my grants turned to the hurt of my people, +contrary to my will and meaning; or if any in authority under me have +neglected or prevented what I have committed to them, I hope God will +not lay their culps and offences to my charge. Though you have had, +and may have, many princes more mighty and wise, sitting in this seat, +yet you never had, or shall have, any that will be more careful and +loving._"[4] + +These were the last words of Elizabeth to the Commons of England. She +died in a little more than a year. In a little less than a year before +the death of her successor, the famous Act of Parliament of 1624 +declares, that all monopolies, grants, letters patent for the sole +buying, selling, and making of goods and manufactures, shall be +thereafter wholly null and void. Though this Act, and many others, was +violated more or less in the next reign, it effectually secured in the +long run the freedom of industry in England; and in the opinion of +excellent authorities, has done more to excite the spirit of invention +and industry, and to accelerate the progress of commerce in that +country, than any other law on the statute book. + +Our second instance of Monopolies shall be drawn from the state of +things in the United States in this year of Grace, 1890. The +monopolies of to-day are secured by means of an instrument called a +Tariff, which, later on in these pages, will be fully discussed in its +history, inmost nature, and invariable effects. Here it will suffice +to say, that a tariff is nothing in the world but a combination of +Taxes, which taxes the people of the country, on which the tariff is +imposed, are obliged to pay in one form or another. The only word ever +uttered by a tariff, the only word a tariff from its own nature can +utter, is, _Thou shalt pay_! The ostensible reason for levying these +taxes is the constitutional one of getting money into the national +Treasury,--"_to pay the debts and provide for the common defence and +general welfare of the United States_"; but the real purpose of laying +these tariff-taxes at present is only secondarily and remotely the +ostensible and constitutional one; because, on the authority of +Professor Taussig of Harvard University, there is not a single one of +over 4000 items of taxes in this tariff, that is designed primarily to +get money into the treasury from the pockets of the people, but every +one of them is designed more or less and more rather than less to +raise the price of domestic goods to our own people artificially by +keeping out of the country by means of these taxes on them the foreign +goods, which would otherwise come into a profit. In other words, there +is no purely revenue-tax in our immense tariff at present, but every +item in the enormous list is a so-called and mis-called +"protective"-tax. + +By this shutting off from domestic goods the natural competition of +corresponding foreign goods by means of such tariff-taxes, a monopoly +is created at the instance and for the sole benefit of certain classes +of privileged home-producers. They can sell alone (monopoly) just so +far as other sellers are kept out by these heavy taxes. The goal of +all their striving is to get an artificially-enhanced price for their +own products at the cost of their countrymen by means of a market +restricted to themselves through obstacles excluding foreign sellers. +The end proposed by these shrewd manipulators is realized in fact. +Domestic prices are lifted on so-called "protected" goods. This is the +first effect of the monopoly. It has often been alleged, and with +great vehemence by the late Horace Greely, that competition among the +domestic producers of such wares will lower their price again to the +natural point; but if this is so, what _motive_ have the individual +producers to work so assiduously in elections and lobbyings to get on +and keep on these tariff-taxes? Again, Mr. Greely, and all others of +like association, forgets the admirable generalization of Robert +Stephenson,--"_Where combination is possible, competition is +impossible._" Combination among producers to keep up prices is always +possible in a market restricted by law. This has been proven on a +large scale in the United States during each of the past thirty years: +combinations among coal operators to keep up the prices of "protected" +coal by restricting the annual output of their collieries; +combinations among carpet and other woollen manufacturers to maintain +high prices of their fabrics by restricting their workmen to certain +hours per day or to certain months per year; have been among the +commonest of industrial events in all this interval. Within a very few +years past there has come into almost universal vogue among these +monopolists a new kind of combination called "_Trusts_,"--again +abusing a good word by making it cover an abominable purpose,--which +are probably illegal at Common Law, which only become possible under +monstrously unjust tariff laws, and which work wide-spread wrong among +the masses of the people. + +A second effect of this monopoly (as of all monopolies) is to worsen +the quality of the goods sold in an artificially restricted market. +The historian Gibbon noticed this fact more than a century ago, and +said: "_The spirit of monopolists is narrow, lazy and oppressive. +Their work is more costly and less productive than that of independent +artists; and the new improvements so eagerly grasped by the +competition of freedom, are admitted by them with slow and sullen +reluctance._" Alfred Lapoint, United States consul in Peru, warned the +State Department at Washington in 1883 of this poor quality of our +manufactures, which were then trying to find a South American market. +He wrote: "_It is my duty to indicate that great carelessness prevails +with our manufacturers; for instance, I was called upon to purchase in +the United States a steam pump and boiler, which I ordered from one of +the most famed manufacturers, and when it arrived, not alone was the +boiler inadequate for the pump, but actually after two months' work +the upper tube sheet split in three parts, a proof of its bad quality +and construction._" As men are, a natural competition among buyers and +sellers is just as needful to keep up the quality of goods as to keep +down their price. Good quality always costs more of effort and skill +and capital than bad quality: why should producers continue to furnish +good quality to a market from which a free competition in good +qualities is excluded by law? Every tendency of human nature, as well +as every relevant fact in history, attests, that poor wares at high +rates invariably attends upon tariff-monopolies. Shoddy takes the +place of wool. Cheaper crowds out better material. Skilled workmanship +is displaced by unskilled. Processes of manufacture are hastened in +time, and left incomplete to the damage of the goods in order to save +capital. Monopoly is always and everywhere the foe of excellence. + +A third effect of tariff-monopoly is to prevent the sale abroad of +domestic goods to the same extent and amount as foreign wares are kept +out by these monopoly-taxes. This vital and fundamental result is +almost always overlooked. If a man or a nation refuse to _buy_ of a +proffered customer, they cannot by any possibility _sell_ to him; +because buying and selling are reciprocal and synchronous; because it +takes two to make a bargain; because material commodities, for the +most part, ultimately, exchange against each other; and because the +only motive a foreigner ever has to bring his goods _hither_, is to +take in exchange for them our domestic goods at a profit, and carry +these _hence_. To forbid entrance to foreign goods is to forbid exit +to domestic goods. Monopoly-tariff-taxes, therefore, so far forth, +destroy the market for home products, without creating or tending to +create, any other market for them. Such taxes, accordingly, cause a +dead loss all around,--to the foreign producer who wants to buy our +products with his own, to the home producer who wants to sell his own +products against those, and even to the government also as a +tax-collector, which can get no revenue on foreign goods excluded by +monopoly-taxes. + +There is a final and deeper point of view, from which all such +monopolies are wholly condemnable. _They lessen of necessity,--from +their own nature and inexorable operation_,--THE DIVERSITY OF RELATIVE +ADVANTAGE AS BETWEEN EXCHANGERS, on which diversity, as we have now +seen, the whole fact and gain of exchanges depend. Taxes on raw +materials, for example, whether actually paid on them or used to +enhance the price of other corresponding materials as in the +tariff-taxes, increase the costs of all products into which such taxed +materials enter, and so restrict the market of the home-producer by +lessening his relative advantage as compared with the relative +advantage of the foreigner over him. He cannot sell so well, perhaps +cannot sell at all, his cost-enhanced products. Monopoly-taxes on +industrial processes of any kind, on the means of transportation, have +similar effects on the cost of products; and of course, similar +effects in lessening Diversity, in restricting markets, and in +destroying the life of Trade. + +Before quitting this subject, it may be well for us briefly to +classify Monopolies. + +(a) Patent Rights. In the great parliamentary Statute of 21 James I, +which declared the exclusive privileges to use any and to sell any +merchandise to be contrary to the ancient and fundamental laws of the +realm, and all grants and dispensations for such monopolies to be of +none effect, two exceptions had been made; the first, in favor of +Patents for fourteen years to the true and first inventors of new +manufactures within the realm; and the second, in favor of the grants +by Act of Parliament to any Company for the enlargement of foreign +Trade, of which the East India Company chartered on the last day of +the last year of the sixteenth century became the most famous and the +longest-lived. Open letters or letters _patent_, as they were called, +giving to inventors exclusive authority to vend for a limited time any +chattel or article of commerce, of which a _model_ could be made +showing the point and application of what was claimed to be _new_; and +Copyrights, which grant an exclusive property also for a limited time +to authors and discoverers of something new and useful, of which a +model cannot be made, or, as it is phrased in the Constitution of the +United States, "_the exclusive right to their respective writings and +discoveries_"; are a part of the results among all English-speaking +peoples of the two exceptions in this famous and beneficent Act of +Parliament. + +In the United States a patent lasts for 17 years, and is not reissued +except by a special act of Congress; a copyright lasts for 28 years, +and may be renewed by the author, his widow, or children, for 14 years +longer. In the constitution of the new German Empire of 1871, this +protection of intellectual property (_der Schutz des geistigen +Eigenthums_) is expressly included in the matters which are to be +dealt with by the _Reichstag_ or imperial parliament. + +Now while patents and copyrights are a monopoly under the definition, +they are quite distinct in their purpose and spirit from the +monopolies already described. On the whole, Society does well in +trying to protect, by law, inventors and thinkers in the sole use and +benefit of their respective products for a brief and specified time. +There are large difficulties in the way of reaching this end +practically, as is proven by the endless and expensive lawsuits in +such cases, but the postulate on which it is attempted is sound, +namely, that otherwise citizens would have less motive to think and to +invent; since in that case only the public-spirited and the rich could +or would devote themselves to an important branch of the public +progress. A patent or copyright is merely a return service which +Society renders for a service received. It violates no man's right of +property, as an ordinary monopoly does, but on the other hand is a +provision to protect for a time a new right of property created by the +thought and efforts of a deserving class of men. The phrase, +"intellectual property," used above in translating from the German, is +not well chosen, since we have amply learned that anything is property +that can be bought and sold, that simple rights of many kinds are +constantly on sale in the market, and consequently that patents and +copyrights are at once proper and property because they are a +technical return-service for other services ready to be rendered to +the community. + +(b) Revenue Rights. Once at a court ball, Napoleon the First noticed a +lady very richly dressed and wearing splendid diamonds, and on asking +for her name, ascertained that she was the wife of a tobacco +manufacturer of Paris; whereupon it occurred immediately to the quick +mind of the French ruler, that the State might just as well have those +great profits as an individual; and the sale of tobacco in all its +forms became accordingly a State monopoly in the interest of taxation, +and so it has continued to this day, and yields now about 400,000,000 +francs a year. Other nations have adopted to some small extent this +mode of indirect taxation of their people. By legally cutting off the +competition of all private dealers in the taxed article, and by +preventing to the utmost of their power its being smuggled into the +country, Governments are enabled to sell the article at a price +enhanced artificially by the monopoly; but all that the people are +made to pay _extra_ under the monopoly, saving the costs of +maintaining it, goes directly into the treasury of the State; and, so +far forth, becomes an unobjectionable mode of taxation. Under all +forms of taxation, the aim should clearly be, that the Treasury +receive all that the People are made to pay, except the cost of an +economical collection. + +(c) Tariff Monopolies. The United States has never undertaken, like +France and Germany, to vend directly and exclusively an article taxed +by themselves for the sole purpose of revenue; but unfortunately they +have undertaken and still maintain (1890) monopolies a thousand times +more unjust and objectionable than any such revenue-monopoly can be; +they have laid distinct tariff-taxes upon thousands of foreign +articles, not with the design of getting revenue from them, but with +an avowed and realized design of _preventing_ revenue by means of +these taxes, since they have made the taxes so high and onerous as to +be in many cases absolutely prohibitory of the entry of the goods, and +in all cases more or less prohibitory of such entry. Revenue can only +be gotten on goods that come in, while the very intent and result of +these taxes is to shut the foreign goods out on which they are levied, +so as to give certain domestic producers (who have themselves secured +this legislation) the monopoly of the home market in these goods. + +This is the very core of public wrong-doing. This is the worst form of +monopoly that ever existed in a civilized country. Queen Elizabeth's +monopolies, which so roused the ire of the Parliament of 1601, were +nothing in enormity as compared with these tariff-taxes. Civilization +long ago sloughed off such direct grants of personal privilege as were +forbidden forever by the Act of 1624, and accordingly there is no need +of mentioning these in the present classification. Tariff-taxes for +other ends than pure revenue are the worst monopolies in existence, +because (1) they compel the people to pay under ostensible taxes many +times more than the Treasury gets from them in actual revenue; (2) +they are wholly deceptive in their terms, and their operation is +clothed in disguises difficult to strip off; (3) they are always put +on at the instance and under the pressure of the man (or men) who +expects thereby to raise the price of his own wares at the expense of +his countrymen; (4) they create under legal forms however +unconstitutional privileged classes in the community; (5) their first +effect is invariably to make the rich richer and the poor poorer; (6) +their ultimate effect is to impoverish the privileged classes +themselves by taking away from them the natural spur of competition +and self-dependence, in consequence of which their own goods become +poor, and their zeal flags, and they come to lean still more heavily +on monopoly-supports; (7) they destroy the market for domestic goods +to precisely the same extent as they cut off the market for foreign +goods, and (8) their whole retinue of evils is wrapped up in the great +fact, that the _Diversity of Relative Advantage_ is thereby diminished +both as among domestic producers of commodities and as between foreign +and domestic producers. + +The expression, "natural monopoly," is sometimes used of those, who, +under freedom, and using to the utmost their natural gifts and +acquired skill, have distanced all local competitors, and may be said +to control the market in their own interest, furnishing the best goods +at the cheapest rates. This is in no proper sense of the term a +"monopoly." Production has no complaint to make of any such +pre-eminence in excellence and opportunity. It harms nobody and +benefits everybody. Exchange rejoices over every man and woman and +child, who so puts his head and heart and hand into his own peculiar +product as to outstrip all others in that one line in point of ease +and excellence, and so be able to offer a service at once better and +cheaper than any one else can offer it then and there; and when all +men and women and children, so far as they are employed commercially, +come to possess a "natural monopoly" each in his own specialty, then +Exchanges become as profitable and progressive as possible then and +there, because the ever-blessed diversity of relative advantage has +its utmost limit. + +4. We come now to consider the natural LIMITS, if any such there be, +to the Production of material commodities. This point has been much +discussed. For example, Dr. Chalmers, a Scotch clergyman of great +intelligence, profoundly moved by the condition of the poor in +Glasgow, published in 1822 an interesting but not over-sound treatise +entitled "Political Economy," in which the proposition is maintained, +that the universal market is strictly limited, and therefore that, +were it not for the unproductive consumption of the rich and +luxurious, and the equally unproductive consumption of national wars, +there would soon be a general glut of material commodities, and +consequently Production would have to cease for the lack of a vent for +its products. Pretty soon we shall be able to detect the enormous +fallacy in this proposition. On the other hand, in 1803, Jean-Baptiste +Say, a very competent French economist, in chapter xv of his +well-known treatise, fully developed this very important proposition, +if true, namely, _that production may go on indefinitely in all +directions without ever a fear of reaching a general glut of +products_. + +What is a market? What is a limited market? What is an illimitable +market? A market, as we have already seen in substance, is nothing in +the world but certain _persons_ somewhere with return-services in +their hands desirous to part with these in order to get, that is, to +buy, some other services offered in exchange. Each set of services is +equally a market in relation to the other set. _A market is always +persons having something in their hands to sell._ Buyers and sellers +are equally a market in relation to each other. Whenever anybody goes +forth to buy, he must of course take with him something with which to +pay for what he wants to buy, that is to say, he must become a seller +the very instant he becomes a buyer; and whenever anybody wants to +sell something, he must of course want something already in the hands +of somebody else, in which to take his pay, that is, he becomes a +buyer the moment he becomes a seller. This helps us to see perfectly +what a market is. Defined in the terms of persons, _a market is two +men, each glad to get the product of the other, and to render in +return his own product_; defined in the terms of things, _a market for +products is products in market_. + +Now, what can limit the universal market for material products? +Clearly, it can only be limited either in the element of _Desires_ or +in the element of _Return-Services_. But the desires of all men, even +of one man, which the efforts of other men may satisfy, have never yet +come to a stand-still. Who ever heard of even one man, who was in +possession of all the products of all kinds, that he wanted? Even if +there were one such man somewhere, there are millions upon millions of +other men, whose desires for products such as the efforts of other men +can furnish are unlimited in number and infinite in degree. It is not +possible, therefore, that there should be a lack of human desires +anywhere, that could put any bound to the production of commodities or +hinder in the least its ever-swelling march. + +If only two things can limit the universal market, and if there never +has been and never can be any lack on the part of some men of Desires +which the efforts of other men can satisfy through exchange, can there +ever be any lack in the second element of a market, namely, in +Return-services? It is not meant to be asserted, that there are not +definite limitations at any one time or place, or in the whole world +at any given period, in the capacities of men then and there to +produce material commodities, with their knowledge of things and +powers of invention; but what _is_ meant to be asserted is this, that +wherever Production is most busy and universal in response to the +desires of some men somewhere, _there_ will be the greatest plenty of +return-services, with which to pay for the services of these "some +men somewhere" offered in response to the desires of the first set of +producers. Therefore, no general glut of products is possible to +occur. The more and the more _kinds_ of commodities produced anywhere, +the better market _that_ for the more and the more kinds of +commodities produced somewhere else. The nearer Industry may seem to +be about to come to the goal of a limit, the farther off from that +goal it is in reality. The aggregate of human industrial powers has +indeed a potential limit at any one moment, but the knowledge of +things and the power of invention and the means of transportation are +enlarging every moment of time; so that, that potential limit never +can become an actual limitation. Human industry will go on enlarging +and diversifying itself so long as the world shall stand. + +Let us put this vastly important argument in other and briefer words: +the Desires of men which the Efforts of other men can satisfy through +exchange are unlimited in number and indefinite in degree; and +therefore, mutual industrial efforts can continue to be put forth in +exchange, until these unlimited and indefinite desires of all men are +all met,--a goal which clearly never can be reached. + +This proposition demolishes at a stroke the fallacy, that pervades Dr. +Chalmers' book but just now alluded to; and, what is more to the +present point, demolishes equally fallacies current and prevalent in +the United States at this hour. What our national industries need and +all they need, what they always needed and all they ever will need, is +a quick market for their products; products in market is the only +market for products; but the United States for 30 years past has been +putting vast obstacles in the shape of formidable taxation in the way +of the presence of products from abroad in our domestic market, and +consequently and inexorably the market for domestic products has been +lost in foreign countries, to the immense and irreparable damage of +domestic producers as well as to the foreign producers themselves. + +No general glut of exchangeable products is possible to take place in +this world under natural liberty and just law, because under these the +diversity of relative advantage and consequently the profitableness of +commercial exchanges is all the time widening everywhere, tending to +bring the whole earth into a commercial and blessed union. + +On the other hand, while a general glut of products is impossible to +occur under a decent freedom, a partial glut in respect to certain +commodities in certain places is very common. Through want of +foresight as to a prospective demand, or miscalculation as to its +probable amount, particular services are sometimes offered in too +great abundance or of a kind not now adapted to the chosen market, and +in respect to these the market may truly be said to be glutted. This +frequently happens with editions of books; more copies are printed +than can be sold at paying prices. Also, when the fashion changes, +which is after all less capricious than is commonly supposed, the +goods that were fashionable but are so no longer, are very apt to be +somewhere in excess of the demand for them. Nothing can then hinder a +partial or total loss in their value in the hands of their last +holders. Precautions, however, may well be taken to avoid losses of +this character, through the cultivation of foresight, and by studying +as accurately as possible the nature of human desires and the not +altogether irregular changes that have been observed to take place in +them. This constitutes the art of mercantile sagacity; and the most +successful producers in all the departments of exchange are those who +best develop this attainable sagacity, who adapt their particular +services closest to the existing and to the coming demands; who, to +excellence in the substance of their products, add taste and +attractiveness to their form; and who, as the result of this, tend +rather to lead the fashions of the many than to follow in their wake. +It cannot be wrong to repeat here in substance, what has indeed been +said already in another connection, that Production as a general rule +is no dead level of monotonous exertion,--no going forth and coming +back on precisely the same track,--since its sphere is Life with all +its wants and Man with all his desires; since there is scope and verge +enough for the development of ingenious minds in almost all of its +departments; and since its ultimate goal is beyond the ken of man. + +5. We must now study with considerable pains the ultimate facts and +the essential functions of LANDS in connection with the Production of +material commodities. This has always been the most vexed question in +our Science; but it is approaching, even if it has not already +reached, a satisfactory and final solution. The present writer +believes that his own studies and researches have thrown some original +and important light upon the perplexing problem of the Value of lands +and of their produce. His present readers are surely entitled to his +clearest possible presentation of all the facts and principles of this +radical question. + +The French "physiocrats" of a hundred years ago, founders of the first +School in Political Economy, excellent men for the most part as well +as good economists in general, thought, that lands were property in a +peculiar and eminent sense, that they were the ultimate source of all +values but their own, and that consequently lands should bear the +weight of the national taxes. English economists, constituting with +their followers in other countries the second School in our Science, +while not going to the length of the physiocrats, still maintained +that the value of lands and of the produce of lands were distinct in +important respects from all other values whatever. In our own time and +country, Henry George, though belonging for the most part to the third +economic School, is a great stickler for a single tax on lands in lieu +of all other taxes. We must, then, concentrate all the lights we can +gather on these points of dispute and difficulty. + +(a) _The presumption in science is always against the existence of a +few outlying cases, whenever the induction has been long and carefully +conducted by many persons, and the generalization appears on all other +grounds to be sound and comprehensive._ All induction proceeds upon +the premise, that Nature is _uniform_ in those essential resemblances +that constitute a _class_ of things in science. Nature has so often +justified confidence in her essential resemblances even under the +greatest differences in external circumstance and apparent diversity, +that the presumption becomes immensely strong in her favor, whenever a +generalization patiently gathered from many particulars seems to cover +the whole ground concerned except a few obstinate-looking items, that +have not yet been closely studied. Two to one these items also will +presently fall into their predestined place. We have already seen +abundant grounds for believing, that Values arise from human services +rendered and received: is it at all likely, considering the nature of +scientific generalization and the history of all the more advanced +sciences, that in Political Economy, lands and their produce should be +found to constitute an outlying exception to the law of all other +valuable things? + +(b) There is one vital distinction to be made at the outset and held +to throughout the discussion, namely, that, between all lands as a +_physical thing_, which God made and gave to all men in common +without any effort of their own, and some lands now as a _valuable +thing_, in all probability made such through the action of human +desires and human efforts brought to bear upon what _was_ merely +physical but what has now _become_ valuable. The failure to +distinguish between _lands_ as such and _valuable lands_ as such, has +always wrought confusion and mischief in the land problem. The two +things are utterly different and incommensurable. There are vast +stretches of lands on the surface of the earth, to which no _value_ +ever attached or ever will attach. They are lands, and that is all. +Political Economy has nothing to say of them, and nothing to do with +them. Because they are never bought or sold, because they never give +birth to "produce," they lie wholly outside the field of Value. Then +there are immense areas of lands now valuable, that were once as +valueless as the first class. With these Political Economy has a great +deal to do, and also with the way in which they passed from valueless +to valuable. Then there is a third class of lands, that have not yet +been studied as they ought and till recently have not been studied at +all, namely, those known to have been valuable at one time, but which +have now lost their value either wholly or in large measure. There are +such lands as these in every State of our Union, and in every +civilized country beneath the sun; and Political Economy has already +learned something, and is destined to learn much more, about the +processes by which lands pass from out the first great class into the +second, and from the second into the third. Valueless, Valuable, +Unvalued,--these three words describe to the economist all the lands +of the world. + +(c) If we may trust the simple record in Genesis, the whole earth was +given of God to the whole race, under the direction that they +"_replenish and subdue it_." All the lands were then certainly +valueless, although some of them were doubtless possessed of Utility, +that is, a capacity to gratify human desires through a direct +appropriation, which is a very different thing from Value, which last +is the rendering and receiving of equivalents as between two persons. +It seems very plain, that under this word, "Subdue," and under the +human services implied in that, came in the first idea of ownership in +land. When a family or tribe commenced the work of subjugation upon a +piece of land, when they enclosed it, settled on it, tilled it, in any +way whatever improved it by their own toil, then _could_ first the +idea of ownership dawn upon their minds, then first began that land to +be capable of value, since now that family might reasonably say to +another, If you want this field, you must give us an equivalent for +what we have expended on it to improve it. If the transfer took place, +what was it that was sold? What was it that was paid for by the party +of the second part? It could not be the inherent quality of the soil, +it could not be anything that the first family had gratuitously +entered upon, because similar free land with all its inherent +qualities lay open to occupation on every hand, and the second family +would surely say, For as much effort as you have put upon your land to +better it, we can make other free land as good as yours, consequently +we can give you no more at the most than a fair equivalent for your +efforts already expended. If the parcel were sold, therefore, the +_value_ of it must have been determined, not by the _gratuitous_ +elements involved but the _onerous_ elements involved. The physical +thing, land, which cost nothing, has now become the valuable thing, +land, through a series of human efforts expended of such kind as call +out human desires for the results reached, and justify the rendering +of return-services for them; and that which the buyer pays for is +never the free _old_ but always the onerous _new_; new utilities, +that cost something, have been added to and intermixed with old +utilities, that cost nothing; and solely in consequence of this +expenditure of efforts on the part of some men, answering to the +desires and calling out the efforts of other men, do parcels of land +pass out from the first great class into the second great class. So +far as it can be gathered from the nature of the case, and from the +known steps of past experience, this is the simple and rational +process by which valueless lands become valuable, and _less_ valuable +become _more_ valuable lands. + +(d) This line of proof, strong in itself, is strengthened by observing +how land-parcels gradually and practically pass out from the second +into the third class of lands,--from the Valuable into the Unvalued. +As it is only human Efforts wisely bestowed upon valueless lands or in +some connection with them, that ever make these valuable, so it is, +that these Efforts intermitted for a time, or less wisely bestowed, or +reckoned less in harmony with the present and prospective desires of +other men, invariably cause a loss of value in valuable lands; and, if +such neglect or unwisdom of effort continue long enough, nothing is +more certain, than that lands so treated will lose their value +altogether, nobody will give anything for them, they will drop out +from the second class into the third by the same path (only in inverse +order), by which they crept at first from valueless to valuable. Under +the writer's own observation in different parts of New England, whole +tiers of farms once valuable and productive have lost that character +either wholly or for the most part, taxes can no longer be collected +from them, nobody will really give anything for them in exchange, they +are abandoned of their former owners, they are left to lie waste or to +grow up into forest again. It follows from all this beyond a doubt, +and the logical issue is one of vast consequence to mankind, that +Value is no attribute of matter, no inherent quality of lands as such +wherever situated, but it comes and goes, it is a relation of mutual +purchase between human services rendered and received. + +(e) Land-parcels becoming valuable in the way but just now indicated, +and so long as they continue valuable, that is, salable, are +technically _Commodities_, according to our triple division of all +Valuables. They belong in this grand division, that we are specially +studying in this chapter, for the same reason as a horse does or a +steam-engine does. Men did not originally make the land as a congeries +of matter, neither do men make horses, nor do they make the iron ore +out of which most parts of the steam-engine is made; but men do modify +bits of the land as God made it, they subdue it, they improve it in +manifold ways, they make it _desirable_ in the eyes of other men, and +thus or otherwise they come into possession of it, gain for themselves +a right to sell it, prepare it to be sold and sell it, on the same +principle as men raise and break and train horses and prepare them to +be sold and sell them, and just as men by many processes transform the +iron ore into a steam-engine and sell that. Ricardo, in his famous +doctrine of Rent, says a good deal about "the original and +indestructible powers of the soil"; but as a matter of fact, _there +are no such powers_, since the elements and properties that constitute +land are all the time changing under chemical and other action; and +even if there were such powers, it would still be impossible to +separate what God did for the land from what men have done in order to +fit it to be sold; and what men have ever been authorized to take pay +from other men for what God did in the creation of the world? The +simple truth is, that Value is never of God's creation but only of +men's exertion. There never was any land anywhere fit for cultivation +and sale without more or less expenditure of human labor and reserved +capital upon it; and the "powers" of the land, whatever they are, +instead of being "indestructible," are in a constant process of +wearing out, and require a constant application of labor and capital +to keep up their fertility. Valuable pieces of land, accordingly, like +all other commodities, derive their _utility_ partly from the free +contribution of Nature, and partly from the onerous contribution of +men; but, on the other hand, they derive their _value_, whether the +value be then increasing or diminishing, wholly from human desires and +corresponding efforts. + +(f) It is but a step from this impregnable position to another, +namely, that Henry George is wholly wrong in his view, that there is +Value in lands as God made them and gave them to men in common; and +consequently, wholly wrong in his doctrine, that a single tax on land +values would be just and equal to land owners, and might well be made +to take the place of all other taxes on all other persons. He says: +"_If we are all here by the equal permission of the Creator, we are +all here with an equal title to the enjoyments of his bounty._" What +bounty? If he means the original utility which God put into all lands +in common, and which certain men have done nothing to better, there is +nobody to dispute his proposition. But he does not mean that, because +there is nothing of any significance that could come out of that. What +he means is, that it is God and not man who makes lands valuable. He +makes no distinction between Utility and Value in lands. He lumps the +two together in one, and calls the aggregate the Creator's "bounty." +He goes on to say: "_There is on earth no power which can rightfully +make a grant of exclusive ownership in land._" Well! Is there any +power on earth which can rightfully deny to any man or family the +proprietorship of his own exclusive _efforts_, nobody's else rights +being infringed thereby? Or can deny to him or them the _results_ of +such efforts, however embodied? When valueless lands are made valuable +by human efforts expended to that end, does not the "value" belong to +those who made it? When valuable lands have been made more valuable +than they were by the efforts and foresight of their owners, the +rights of others untouched, does not the "increment" belong to those +who have created it? The truth is, if Henry George's powers of radical +analysis had been at all equal to his remarkable power of rhetorical +presentation, the world would never have been treated to his popular +and imposing land-fallacies. Prudhon's "Property is theft," and +George's "Single tax on land," rest on the same basis of socialism. + +(g) All valuable land-parcels are material Commodities, made to be +such by onerous human efforts of some sort expended upon or in some +connection with the free Utilities furnished by Nature; the utilities +are one thing in origin and function, and the values are a very +different thing both in origin and function; and the present point is, +that nearly all valuable lands everywhere are Capital also, that is to +say, products reserved to aid in a further and future production. +Capital is a relatively small class under the immensely large class +Values. Capital is by no means coincident with Commodities, since vast +lines of the latter are consumed with no reference to a further +production by means of their use. But capital is always either +commodities or claims, and valuable bits of land are always +commodities and nearly always capital; because all tillage and pasture +lands, all forests grown for wood and timber, and lands of all sorts +rented or held for resale at a higher price, are capital under the +definition, are "_products reserved as an aid to further production_." +The peculiarity of all farming lands is this, they are themselves +commodities, in whose creation God's free gifts and men's onerous +labors have conspired; and they are held in reserve by their owners as +capital, for the sake of producing by their means with the help of +more of God's free gifts further valuable commodities, such as grain, +and fruit and timber. Farms in their highest reach of previous culture +still need for crops the sun and the rain. Indeed the sun is the most +useful and powerful force in the world. Oh! how it warms and lifts and +quickens! Give it and the rain and the dew but a fair chance on lands +properly prepared for them, and endless fields blossom like the rose +and are white to the harvest! + +Agriculture always has been and always will be the vocation of the +masses of mankind. Under a fair freedom, and a decent law, and a +reasonable industry, Agriculture is always profitable; because it is +natural, that is, designed by God for the welfare of mankind; because +it lies at the basis of all other industries,--most of the food of +mankind, most of the raw material of all manufactures, most of the +subject-matter of all national and international commerce,--come out +of the farms of the world; because it has been ordered so in the +nature of things, that, under a tolerable freedom, a given amount of +agricultural products tends constantly to buy, that is, to pay for, +more and more of almost all kinds of manufactured products, for a +reason to be explained shortly, thus tending strongly to uplift the +farming masses in a scale of comforts; and because there is no other +main line of human activities so constantly and so prodigiously and so +gratuitously assisted by Natural Agents as is Agriculture. As Milton +has profoundly expressed it in the "Hymn to the Nativity," the Sun is +indeed to Mother Earth "_her lusty paramour_." But at this very time +of writing a wail is coming up in ever deepening tones from Italy and +France and Germany and Russia and especially the United States, that +a colossal blunder in legislation common to all these countries now, +say rather a colossal crime of the powerful few against the humble +many, in the shape of tariff-monopolies, neutralizes in large part +these natural advantages of agriculture, makes farming unprofitable +and farmers unable to pay their taxes, diverts young men in increasing +numbers from the farms to the towns, plasters the lands over with +mortgages, shuts out from their natural markets the products of the +land, thus depressing their price, and shuts off from farmers by +outrageous taxes their natural supplies, thus augmenting their price. +Farmers in all these countries are revolving between the upper and the +nether millstones. Count Giusso, ex-Mayor of Naples, and now a deputy +from that city, has just made a speech in the Italian Parliament, +which sets forth in strong terms the great depression in Agriculture, +and the critical condition of the public finances, brought about by +the new policy of protectionism there. He says: "_The Utopian idea of +creating an industrial Italy on the ruins of an agricultural Italy, +has been a colossal error big with disastrous results. We have +preferred the shop to the land; we have preferred the coal we do not +possess to our Italian sun; we have preferred the motive force of +steam to the most powerful motive force in the universe, the sun; and +we are naturally suffering the sad consequences._" Exports increased +in Italy in 1888 by $24,000,000, and imports by $42,000,000; and the +Count quotes the cry coming up from one end of the Peninsula to the +other: "_Give us the means of selling our products, and we will pay +the taxes._" England is the only considerable country in the world, +whose customs-revenue increased in the fiscal year 1888-89 over the +year before; this English increase was over 5 _per centum_, which +means an increase both in imports and exports, whose movements are +almost absolutely free so far as England is concerned; while in all +the countries mentioned above, which are under a different system in +that respect, there was a _deficit_ of revenue from tariff-taxes as +compared with the year before, and a _decrease_ in both exports and +imports. + +(h) If nearly all bits of valuable lands be capital, as we have just +seen strong grounds for believing, then it follows of course, _that +the Rent of leased lands whether for buildings or harvests is the same +in nature with the Interest on money loaned, and is the measure of the +service rendered by the owners to the actual users of the Capital_. +This proposition, seen in its radical proofs and in its logical +corollaries, takes the very life out of Henry George's land-theories, +and out of the popular remedies thereto annexed. The writer firmly +believes also, that this proposition in the grounds of it and in the +inferences from it might have been used by Mr. Gladstone and his +followers with telling effect in the animated discussions of the Irish +land-question in the British Parliament during the decade 1880-90. In +the debates on the Irish Land Bill passed in 1881, the representatives +of the land-owners in Ireland held to their right to take all the rent +they could extort by the help of the law; on the other hand the +representatives of the Irish rent-payers held to their right as +cultivators and maintainers to withhold rent in large part or +altogether; and Mr. Gladstone, as representative of the nation, while +insisting on the right of the owners to certain rents, insisted +equally on the right of the cultivators to certain important +privileges in the soil. Our present proposition with those that spring +out of it, though it was not used by Gladstone, as it might well have +been to smooth his pathway through the roughness of that legislation, +yet justifies at one and the same time the discontent of the Irish +rent-payer, the claim of the Irish land-holder to an assured rent of +some sort, and the fundamental principle of the Irish Land Bill of +1881. That bill gives a certain modified ownership and control to the +actual cultivators and maintainers of the soil. That is right. + +The principle of land-values herewith enunciated, their uprise and +increase and frequent decay also in all land-parcels, justifies +completely the concessions to tenants in that bill; while the old and +still commonly accepted English principles of land, and the false yet +famous doctrine of Rent promulgated by Ricardo at the beginning of the +century, are wholly against Gladstone and his concessions in that +bill. Let us now see whither simple analysis and logical processes +will quickly bring us in this whole matter. Valuable land was once +valueless, and always remained so, until, by virtue of human efforts +expended upon it or in some direct connection with it, coupled with +the desires of certain other men for that land or its produce, +accompanied with a readiness on the part of these men to render some +equivalent for it or its use, first imparted value to that particular +patch; moreover, it has been found in practice ten thousand times, +just as one would expect, knowing the origin of value in general, +that, unless human efforts are further and constantly expended on or +in connection with that piece, and unless desires of other men +continue to turn towards it in the way of exchange, its value will +silently and inevitably escape from it; therefore, whoever has come +into possession of that valuable piece of land by purchase or +inheritance, and foregoes the use of it in favor of another as a +tenant, is morally and commercially entitled to the stipulated return +for that use, _which is rent_; but also, if that other, aside from the +current use which is always a wearing-out process, contributes in any +way to the continuance and increase of the value and fertility of the +land, then and so far he gains rights in the land and becomes a sort +of joint owner of it, since what he has done in the way of maintenance +and improvement is inextricably mingled with what the other owners or +users have done, and is of the same nature with that; and, therefore, +the modified ownership of certain tenants recognized in Gladstone's +bill is in strict accordance with ultimate justice, as it is also in +strict accord with right, that the legal owner should continue to +receive a return in the shape of rent for all the fertility and +opportunity actually contributed by him, and no more. The discontent +of the Irish peasantry has largely come from an instinct or +intelligence more unerring than the economics of the land-owners, +namely, that they are called on to pay rent for what they themselves +have _contributed_ in addition to the rent for what they have +_received_. The true origin of value in land, and the only way in +which value in land is kept up, seems to have penetrated deeper into +the minds of Irish tenants than into the minds of many British +statesmen. + +(i) If the bulk of all valuable land-parcels be capital, as it is, +then one might expect beforehand to find _a law of diminishing +returns_ from such lands, agricultural labor and skill remaining the +same; because, all capital is tools made such by the expenditure of +human efforts on changeable material, and then by the practice of +_abstinence_, and tools from their very nature are always wearing out. +Increase of efforts in connection with any form of capital unimproved +by new inventions and uninvigorated by fresh skill, though they may +indeed increase the aggregate return, cannot, for the reason just +given, _secure an increase proportioned to the increase of the +efforts_. The English writers generally, and Mr. Ricardo in +particular, justly lay much stress on this proposition, although they +have not taken lands to be capital, and have proven the law of +diminishing returns in a different way from ours, and consequently +have not set the propositions of land in their best and most ultimate +relations. Their method of proving the law, however, is short and +conclusive: If by doubling the efforts upon a piece of land, double +the produce could be secured, and by quadrupling it, quadruple, and so +on, there would be no reason why any man should ever cultivate more +than a square acre, or even a square rod. He has a strong motive to +confine his culture to a small space, just so long as the amount of +produce is in the ratio of the efforts expended, because there is less +locomotion of tools and fertilizers and crops. The fact that he +extends his culture from one acre to another, and then to distant +acres, notwithstanding the inconvenience and expense of +transportation, is an irrefragable proof of the proposition in +question. Increase of agricultural efforts and expenditures on a given +space of land will secure a larger amount of produce, but as a general +law, _the increased amount will not be proportioned to the increased +expenditure_. + +It is through this law of diminishing returns, that the Creator has +secured the gradual occupation, by men, of almost the whole earth. +There is a strong and natural tendency to leave the old acres to +advance upon new, the old countries to emigrate to new, whenever the +returns begin to bear a more unfavorable ratio to the labors bestowed. +The farmer will advance from the first to the second acre as soon as +he thinks that more produce can be obtained from it by a given amount +of efforts than can be gotten by a like expenditure of additional +efforts upon the first acre, allowance being made for the increased +inconvenience; and so, cultivation has gradually extended itself and +men have become dispersed over the whole earth. Other principles +leading to dispersion have undoubtedly co-operated, but this is the +fundamental one, operative at all times, changing the course of +population, and consequently of empire. + +(j) It follows from the points already made, _that all permanent +improvements in agriculture retard the operation of the law of +diminishing returns_. The recent introduction of the silo, for +example, upon the long-used and wearing-out farms of New England +promises, if the public law would quit throwing in obstacles, to help +restore the fertility of many of them. The discovery of new and more +available fertilizers, the invention of better agricultural +implements, the light thrown by chemistry upon agriculture, the +consequent adoption of better methods of culture and rotation of +crops, the more perfect adaptation to the various soils of the kinds +of produce sought to be raised from them,--all these and similar +improvements tend to increase the ratio of produce to the labor, and +to disguise the law just established. The lands that are now under +cultivation may be made, under more skilful modes of culture to yield +indefinitely more than at present, and the vast still uncultivated +lands of the world may come to render an incalculable quantity of food +to the world's population; but yet, as improvements are naturally less +continuous in this than in most other departments of production, as +invention has much less play, as there is less opportunity for the +division and co-operation of laborers, _as nothing can materially +shorten the time during which the fruits of the earth must ripen_, it +is certain that possible improvements will never override the law of +diminishing returns; and, consequently, _that the value of +agricultural produce tends constantly to rise relatively to +manufactured products generally_. + +(k) The last point to be made under the general topic we are now +discussing, is, _that the best tenure of lands in the interest of the +production of material commodities is the fee simple in the hands of +the actual cultivators_. This is the old Teutonic holding; but special +circumstances in the British Islands have gradually changed these +small holdings once cultivated by the hands of their free owners into +large estates, the parts of which are leased out at will or for a term +of years to tenants or "farmers" as they are there called, who, in +turn, being small capitalists, as the land-owners are large +capitalists, furnish the stock and hire the laborers and thus become +the actual cultivators, and even often sublet parts of their own +leased holdings to tenants of the next degree below, who can furnish +less stock and can hire fewer laborers. The word "farmer" as used in +the United States has a quite different meaning from that it bears in +Great Britain; it means here a man cultivating his own fields with his +own funds in his own way, and it means there a man cultivating +another's fields with his own funds in a way and on terms made a +matter of contract between the two; and these two modes of culture are +so distinct that they are not likely to lie alongside of each other to +any great extent for a very long time in the same country. Since her +great Revolution, and under the action of the law requiring the equal +partition of every man's landed estate among all his children, France +has had for the most part the small holding tilled by the owner's own +hands, instead of the great estates of the old _régime_, the average +being about 14 acres to each owner, and nearly one fourth of the +entire population being proprietors of land either in town or country; +in the United States the plough is guided almost wholly by the man who +owns the soil he tills; while in Great Britain the original peasant +proprietor has almost entirely disappeared. Each system has its +advocates and arguments. + +The question at bottom is, whether capital in the form of tillable +land is more _effective_ when held in large masses and loaned out to +men, who possess small capitals in another form than land, and are +willing to apply these for a return upon that land, or when held in +small masses and used as capital by the owners themselves, who also +own some capital in another form than land and are willing to apply +this to their own profit upon their land. We hold, that the latter +method is better than the former, both for the maintenance and +improvement of the land itself as capital and also for the current +production of commodities from it, because, (1) when one owns the farm +he works, from the very nature of permanent ownership he takes a +greater interest in it, perhaps he has inherited it from his fathers, +perhaps he has bought it and paid for it at the hardest, at any rate +it is his own, and as all men work from _motives_ and the energy of +the work is proportioned to the constant press of the motives, then +must the owner of the capital, whose abstinence _makes_ it capital, be +under the strongest possible motive at once to improve his capital and +also to make the current produce from it as great as possible, since +the capital itself and all it yields is his own; moreover, (2) +ownership improves the moral _character_ of the cultivators, it tends +to make them industrious, thrifty, frugal, independent, hopeful of the +future, anxious to give their children better privileges than they +themselves had, and it would seem as if the masses of men are educated +by nothing so much, at least by nothing more, as and than by the +_ownership_ of land, wherever such tenure is possible and easy to the +masses; and (3) the outward testimony is abundant from many lands, +that the peasant proprietor _is_ a happier and more virtuous man, a +more productive and progressive one, than the mere tenant and +farm-laborer, while there is much perhaps less conclusive testimony +that leased lands are inferior in point of improvements and +productiveness to the same lands when cultivated by their owners and +to contiguous or at least similar lands still so cultivated. + +It is a cognate point yet worthy of separate mention, that a general +division of lands into farms only moderately large and approximately +equal is most favorable to the largest aggregate production. Such a +division takes place of itself wherever the lands are held in fee +simple, and the cost of land-transfers is slight, and there are no +such obstacles as slavery or primogeniture, as has happened +practically in New England and in the Middle and Western States, and +as is now happening of its own accord more or less at the South. The +Greek writer, Aristotle, quoted some centuries before Christ from "the +African," probably some Carthaginian writer on agriculture, the now +familiar saying, "_the best manure for the land is the foot of the +owner_." This homely word long attributed to Dr. Franklin, who stole +it for his "Poor Richard's Almanack" more than a century ago, is based +on the sound principle, that personal supervision to be most effective +must be limited in its sphere, and that the best agricultural skill +becomes weak when it attempts to exhibit itself on too broad a +surface. Because a man can cultivate 100 acres better than any of his +neighbors, it does not prove that he will cultivate 50 acres +additional to them better than a neighbor of inferior skill, who is +the owner of these 50 and no more. When the freeholds are small and +nearly equal a wide competition among the farmers comes naturally into +play, success is seen to depend upon personal efforts of intelligence +and will, and interest and hope become the motives to the most +productive cultivation. There is a high pleasure in possession and in +self-guided exertion, and an impulse is broadly felt over the whole +region to get as much as possible out of the land and at the same time +to keep good and ever improve its condition. To protect and advance +his own interests, to attend upon the seasons, to watch and wait, to +foresee and plan and labor,--all this develops the farmer, and gives +him energy and independence; and wherever there is a broad basis of +such independent yeomanry to lean back upon, when heavy taxes are to +be raised and strong blows of battle are to be struck, the national +safety and position are assured. + +6. We come now in the last place to consider the _Costs of Production_ +of material commodities of all sorts. Valuable patches of land, all +prepared for Production in its several kinds, are the most important +Commodities in the world, and the largest also in volume of Value. +What did it cost "_to subdue_" the present tillable lands of this +country? How much did it cost to get ready for grazing the broad +pastures? To make accessible the forests that yield the timber? To +open up the mines also and bring them into "touch" with the +population? These questions are of great consequence, not that the +actual past cost of any class of these more permanent "commodities" in +the commercial world will be any safe guide to their present value, +since cheaper and cheaper means of subduing the rugged forms of Nature +are all the while coming into play, and all things that did cost more +once tend pitilessly to fall to what similar things cost now; and +since also it is never "efforts" alone that determine the value of +anything, but efforts in conjunction with the "desires" of other men. +Still, the _amount_ of efforts expended at any given time upon these +more stable commodities to make them productive, that is, their cost +of production, is always gauged in general by an _estimate_ of what +the "desires" for them will be when completed; and this makes their +cost of production a sort of loose measure of their value at the time. +The main reason, however, why the cost of production of these primal +commodities, namely, valuable land-patches, whatever may be expected +to be produced from them afterwards, is so important, is, that as a +general rule, the less the cost of any commodity meeting a universal +want _the wider and surer is its market_. The larger the circle of the +buyers of anything the more certain its sale; because, the world over, +the men of small incomes are manifold larger in number than the men of +large incomes. Society is like a pyramid: the lowest course of masonry +is the longest and widest,--has the most stones or bricks in it,--and +ever fewer towards the top. + +If we reckon valuable lands as the _primary_ commodities, then the +_secondary_ commodities will be of two classes, namely, (1) the +_produce_ of these valuable lands, whether animal or vegetable or +mineral, such as cattle and cereals and coal; and (2) vendible +material products obtained by human efforts from non-valuable land and +sea, such as furs and fish. This division of material commodities into +primary and secondary, and the distinction among secondary commodities +according as their source is costly and costless, has never before +been drawn in Political Economy; and it is fully believed, that the +thoughtful reader and student will pretty soon perceive its advantages +in helping clear up one of the most confused and perplexing sections +of our Science, namely, that which relates to the causes and measures +of _Rent_. We are now to inquire into the elements of the _cost of +production_ of each of these three classes of commodities; and we may +find ourselves surprised at the simplicity and certainty of these +elements. + +_1._ We will now look into the Cost of Production of valuable +land-patches themselves, the first and most important class of +commodities. Here, as everywhere else in Valuables, we discover +certain free gifts of Nature, without whose presence indeed the value +could never come into being, but which are not _constituents_ of the +value, because they are gratuitous, given of God, and because the +natural competition among buyers and sellers inevitably flings out +from all effect on value of the otherwise possible action of these +free and bountiful gifts, as have been already fully illustrated in +chapter first. No piece of land ever yet had one particle of Value +until human efforts of some sort had been expended on it or in some +connection with it, for two excellent reasons, first, no man would +ever even _think_ of saying to another in reference to such a piece of +land "Give me something for it and I will pass it over to you," and +second, even if he did think of such an absurdity the other would +reply "Why should I give you anything for something to which you have +not the least claim, especially as I can take for nothing just such +pieces all around here?" It must be remembered, not only that God gave +the whole earth to all mankind without distinction, but also that his +bountiful hand scattered all peculiar kinds of patches in great number +upon each of the Continents. There is a plenty of Utility (gratuitous) +in land-parcels just as God made them, but no possibility of Value +(onerous) till other hands than His have touched and benefited them. + +What, then, are the onerous elements that enter into the value of +land-parcels and constitute their Cost of Production? There are only +two such elements, namely, _Cost of Labor and Cost of Capital_. To +find out exactly what "Labor" is, and what there is in it entitling +and assuring its reward in "Wages," will be the task and perhaps also +the pleasure of the next chapter; but it will suffice for the present +discussion to say, that Labor is human exertion put forth for the sake +of a commercial return. Lands can by no possibility be brought out of +a state of nature into a state of value without the expenditure of +Labor; and the actual or estimated cost of this labor, accordingly, is +the first constituent of the Cost of Production of valuable lands +considered as Commodities. Labor, however, can not apply itself to +free lands in order to make them valuable without the co-operation of +another onerous element, namely, Capital, in some of its many forms. +For example, if forest lands are to be made tillable, the trees must +first be cut down, and this will require besides the muscular exertion +of the laborer something in the way of an axe, which is capital, the +result of previous labor reserved to assist in further production: if +native prairie is to be subdued to a valuable commodity, something of +the nature of a plough must be employed in the process, and horses or +a steam engine to propel it, and a plough and horses are capital, and +still require fresh labor to make them useful in production. But +capital always costs something; and, therefore, the cost of the +Capital enters in as a second constituent into the cost of production +of Land-Commodities. But these two costs are all. We shall search in +vain for any other onerous element in the cost of producing +commodities. There are two variables only in the Cost of Production, +which itself is the sum of the two subordinate costs. + +(a) And now let us analyze first the Cost of Labor in this connection, +and then second the Cost of Capital, and we shall soon reach radical +and unchangeable ground, and find in the sum of these two an aggregate +Cost of Production, and also all of the variables that can ever enter +into such Cost. It is plain to reason, that only by Labor non-valuable +land-pieces ever did or ever can become valuable. Captain John Smith +understood this in 1607 at Jamestown as well as anybody understands it +now: there were 48 gentlemen, and only 12 tillers of the soil, among +the 105 colonists, who originally landed there: "_nothing is to be +expected hence_," he wrote of the new country, _but by_ "_labor_:" new +supplies of laborers, aided by a wise allotment of land-parcels to +each colonist, secured after five years of struggle the lasting +fortunes of Virginia: "_men fell to building houses and planting +corn_": the very streets of Jamestown were sown with tobacco; and in +fifteen years the colony numbered 5000 souls. + +Now the cost of Labor is analyzable into three variables only, namely, +(1) the _efficiency_ of the labor; (2) the _rate_ of nominal wages +paid; (3) the cost to the employer of _that valuable_, in which the +wages are paid. Let us see: what an employer wants _is to get things +done_; consequently, if an employer hire two men to work for him at +the same rate of wages, and if one be twice as efficient a laborer as +the other, the _cost_ of the labor of the first is only one half the +cost of the labor of the second: therefore, a _high rate of wages_ +does not mean _a high cost of labor_ whenever and wherever the +laborers are very efficient. As a rule, it is found, that the cost of +labor in reference to a given product is _the least_ in those +countries, like the United States and Great Britain, in which the +rates of nominal wages are _the highest_; because, it is found also, +that a high _efficiency_ of laborers accompanies both as a cause and +as an effect high rates of wages. + +Secondly, there are striking differences in the rates of nominal wages +paid for a day's work in the same general employment in different +parts of the same country, and especially in different countries. The +agricultural laborer in the west of England, say in Wiltshire, gets +about 10_s._ per week, while in the north of England, say +Nottinghamshire, laborers at the same general work get about 16_s._ +per week. Walker in his Wages-Question gathers from the best +authorities many such statements as these: "On the Grand Trunk Railway +in Canada the French-Canadian laborers received 3_s._ 6_d._ a day, +while the Englishmen received from 5_s._ to 6_s._ a day, but it was +found that the English did the greatest amount of work for the +money." "In the quarry at Bonnieres, in which Frenchmen, Irishmen, and +Englishmen were employed side by side, the Frenchmen received 3, the +Irishmen 4, and the Englishmen 6, francs a day; and at those different +rates the Englishman was found to be the most advantageous workman of +the three." "The statistics of the iron industry in France show, that +on the average 42 men are employed to do the same work in smelting pig +iron as is done by 25 men on the Tees." "In India, although the cost +of daily labor ranges from 4-1/2_d._ to 6_d._ a day, mile for mile, +the cost of railway work is about the same as in England." Thus it is +plain, that a _high rate of wages_ does not import a _high cost of +labor_, but rather the reverse. A vast mass of current fallacies are +disposed of in a moment by this truth seen in its grounds. The United +States have shown in the past the highest rates of nominal wages in +the world, and at the same time have shown the lowest costs of labor +to the employers, because as a rule the laborers here have been more +efficient than elsewhere. England has the highest rates of wages and +the lowest costs of labor in Europe for the same reason. The degree of +_efficiency_ shown by different laborers is the second variable in a +cost of labor. + +Thirdly, if that valuable, whether money or other, in which wages are +paid, varies in cost to the employer, then the cost of the labor paid +for by that valuable, efficiency of the laborers, and nominal rate of +pay remaining the same, will of course be varied thereby. We shall +learn hereafter in the chapter under that title, that the value of +"Money" is by no means invariable even in one country, just as we have +already learned the variable nature of all other values; and, too, +wages are not always paid in money, though they are commonly reckoned +in the terms of money; and accordingly, the third and last variable +in a cost of labor is the cost to the employer of that valuable, +whatever it be, in which the wages are paid. Assuming, as we may, that +given wages are paid in money, then any country that has for any +reason a more abundant money than another may clearly pay higher rates +of nominal wages than that other without making its costs of labor any +higher than in that. The United States, for example, has usually had a +very abundant money (not always of the best kind), which of course has +tended to make higher the current prices of all commodities, and this +has enabled capitalist-employers to pay higher nominal rates of wages, +without at all enhancing relatively the costs of labor, and also +without really benefiting the laborers. + +(b) We will now analyze second the Cost of Capital in this connection, +as the only other element of cost in the Cost of Production of +Commodities in general, and particularly now in the cost of making +worthless land-pieces valuable so as to be used in further production. +Here too we find three variables, no one of which can be safely +neglected any more than the other three in the reckoning that has for +its object a prospective cost of production. These are, first, _the +current rate per centum_; second, _the time for which the capital is +advanced_; and third, _the liability of that form of capital to slow +or rapid wearing out_. For instance, under the first variable, the +rate per centum of capital, if the rate at Amsterdam be 3 and that at +New York be 7, if the cost of labor be equal in the two cities, if the +time of advance be one year, and if there be no liability of the +capital to wear out; then any commodity made at Amsterdam with an +outlay of $100 may be sold at a profit for $103, while a similar +commodity made at New York with the same outlay cannot be sold for +less than $107. All other things being equal, a _low rate per centum_ +of capital in any country gives that country an advantage in the +markets of the world for selling its commodities over other countries +offering similar commodities where the rate is higher, because its +cost of their production is less. Of course also such a country can +subjugate its wild lands and make them valuable at less cost than the +other countries. + +To illustrate the operation of the second variable, the time for which +the capital is advanced, let the same suppositions be continued, +except that the _time of advance_ at New York be extended to four +years. Then the commodity may be sold at and from Amsterdam, as +before, at $103, but the corresponding commodity at and from New York +for not less than $131, so far as mere cost of production determines +the prices. This point is also well shown up in the case of wine, +which, to reach its perfection, requires to be kept a number of years, +for, if it be genuine and ripe, its cost of production has been by so +much enhanced by its delay in reaching the market. If the time of +advance be long, and the rate _per centum_ high at the same time, the +cost of capital from the two causes combined multiplies the cost of +the product; and consequently, only countries in which the _rates_ are +low can successfully engage in enterprises requiring a large capital +to be invested for _long periods_ before returns are realized. One +million of Dutch capital at 3% a year, expecting to realize returns +only after 20 years, may be remunerated by products selling for +$1,806,111; but American capital under like circumstances, except that +the rate here is 7%, must have a return of $3,869,685, or lose by the +operation. + +To illustrate the action of the third and last variable, we must +observe, that all forms of capital wear out, but some forms much +faster than others, and that this makes a difference in the +sinking-funds that must be reserved out of the gross profits of the +capital in order to replace the principal whole. This difference will +at once affect the cost of capital, and so of production, and so +indirectly the ultimate value of the product. Suppose there are two +commodities, which we will call A and B, produced in two different +establishments, in each of which is invested a capital of $11,000, in +one of which is used a machine that costs $1000 and is wholly worn out +by one year's use, and in the other a machine costing the same sum, +which will last, however, for ten years. Suppose further, that the +rate _per centum_ of profit be 10, and the time consumed in completing +each of the two products be one year. Now there is a marked difference +in the Cost of Capital in the two establishments, and this difference +will indirectly but immediately appear in the Value of the respective +products. For, to A must be charged not only $1100, the interest on +the whole capital at the current rate, but also another $1000, +wherewith to replace the machine already worn out by a single year's +use. A, accordingly, cannot be sold without loss for less than $2100. +B, however, will cost less and can be sold for less at the usual +profit. Because, to it must be charged, as before, $1100, current rate +of profit on the capital invested, and only $100 (really less than +that for an obvious reason) to replace the durable machine after ten +years' use. The capitalist, therefore, can sell B for $1200, and make +something over the current rate of profit. + +Since the cost of capital invariably resolves itself into these three +variables, every capitalist in order to become successful as such must +give strict attention to all three of these points. To any one who +projects the making of valueless into valuable land, or valuable into +more valuable land, by the expenditure of capital upon them for that +purpose, it becomes a matter of prime importance for him to inquire +how long a time the whole process will take, how much he must allow +_per annum_ for the cost of all the implements employed, and +especially how complete in action and duration are these costly +implements. The _durability of machinery_, whatever the name it bear +and whatsoever the work it do, is at once the most significant and the +most neglected point in the actual and prospective Production of our +time and country; and no condemnation can be too severe upon a policy +of public law, such as now prevails, whose whole tendency and actual +effect is to worsen the quality and lessen the durability of all +commercial implements whatsoever, from the needle to the locomotive. +The same abominable public policy increases the cost and decreases the +durability of all agricultural implements, like the axe and the +plough, designed and adapted to transform valueless and non-productive +into valuable and food-producing lands. + +_2._ Now, having fully seen the elements of the cost of reducing land +itself from a natural into a valuable and productive form, what next +are the elements of the cost of production of those material +commodities produced for sale _by the aid_ of these subdued and now +productive lands? Commodities so produced constitute the second class +in the law of their Cost of Production. And a vastly important class +it is. The food of the world, so far as that food is purchased as the +product, whether animal or vegetable, of valuable lands; the fuel of +the world, so far as that fuel is bought from owned and accessible +forests and mines; the clothing of the world, so far as the fabrics +come from the cultivated cotton and flax and wool and skins offered +for sale; the shelter of the world, so far as the wood and brick and +stones and lime are drawn from valuable lands and quarries; and the +warehouses and the temples and the theatres of the world, built, as +they are, out of the products of costly and rentful lands: these all, +and many more like these, constitute a class of commodities immense in +their volume, whose cost of production has in it an element peculiar +and additional to that of the first class already analyzed, and to +that of the third class also soon to be considered. + +This peculiar and additional element in the cost of production of +these things, class second of commodities, is called RENT. +Interminable have been and still are, especially in the British +Islands, the definitions and discussions upon Rent: they have boxed +the compass of economical nomenclature: they have run up and down the +entire gamut of possible expression on such a theme. David Ricardo, +the Anglo-Jewish Banker, formerly announced, near the beginning of +this century, that "_Rent is that portion of the produce of the earth, +which is paid to the landlord for the use of the original and +indestructible powers of the soil._" Two objections lie with fatal +weight against this definition and all that is involved in it: first, +there _are_ no "indestructible powers of the soil," either "original" +or acquired, since the universal verdict of all agriculture has been +and still is, that the "powers" of all soils are continually wearing +out, and need to be constantly renovated by fertilizers and +manipulations of all sorts; and second, even if there were such +"original and indestructible powers," it would be impossible to +separate them from the additional "powers" acquired by means of the +capital expended to bring that land from the state of nature to its +present state, and the landlord has had nothing to do with any +"powers" of the land except those conferred by his own labor and +capital upon it, and can by no possibility put himself into a position +where he can _enforce_ any claim of his own for a return from any +"original powers" of any land-parcel whatever. The simple truth is, +and it illumines the whole subject of agriculture and its products, +that the value of land-parcels and also the value of the transient use +of them, or _Rent_, hang wholly on the onerous human efforts involved +in them, and not at all on original and gratuitous utilities. Science +has only to unfold the plan of God and its actual and beneficent +workings. "_In the sweat of thy face shalt thou eat bread._" All that +God furnishes to men in order to get a living and in order even to get +rich is Opportunity. The opportunity is ample. The call to a +partnership in Effort as between God and men is loud and constant. The +world with all its powers, free lands with all their utilities, the +change of seasons, the blessed sun and the blessed dew and rain, the +constant disintegration of rocks beneath the soil and the gradual +clothing with lichens and moss and verdure of the rocks above in +preparation for a new soil, and the wonderful chemistry of the vast +laboratory of Nature, all work night and day without fee or reward in +the service of mankind. But men themselves must not intermit their +labor. All values are of _their_ creation and maintenance. If they +cease or relax their labor upon land-pieces so only made valuable and +rentful, then will the value and the rent begin to slip away +inexorably, and no prayers and no regrets will avail to call them +back. + +Now, then, since commodities of the second class in the cost of their +production must respond not only to the _current_ cost of Labor and +Capital in bringing them to market, but also something additional in +the way of Rent to the _past_ cost of the implement, the land-parcel, +without whose contributing agency present results could not be gained; +_Rent is the Rendering for the present use of a Valuable made such by +past Labor and Capital._ Land-parcels leased for agriculture; mines +and the access to them leased for the production of metals and +minerals; and forests whose growth has been permitted by the past +_abstinence_ of their owners; all properly yield a rent; because these +forms of capital, whose existence is due to past labor and capital, +are present contributors to products, whose sale must compensate not +only present labor and the use of current capital, but also the use of +these more permanent forms of capital long ago created. + +A competent authority estimated in 1881, that the land-parcels of the +United Kingdom of Great Britain were worth £3,000,000,000; and there +were at the same time 6,000,000 of inhabited houses, excluding +factories and business premises and tenements renting for £20 and +under. Most of these lands and houses are rented by their owners to +the actual occupiers on the just principle explained above, inasmuch +as the lease-system is the prevailing one in that country. According +to the Census of 1880, there were 4,008,907 so-called farms in the +United States in that year. Most of these are held in fee simple, and +are tilled by their owners; but just so far as land-patches and +forests and mines are leased in this country, their products must +provide in their price of sale for current rents, as well as current +costs of present production. This is just as it should be, and just as +it must be, if Capital is to take this form of assisting the processes +of future production. + +But this form of Capital, as well as all other forms of the same, is +perpetually wearing out, that is to say, is gradually losing its power +to contribute as at first to the present and future processes of +production. This loss is in the very nature of things,--in the very +nature of all Capital. The great Father never intended that His +children should cease from work. He has ordered all things so, that +they cannot cease from work, and continue to live in any comfort and +progress. Value, as we have already thoroughly learned, is not a +quality that can be put into anything _to stay there_: it is a +recurring relation of mutual services between man and man; and each of +these services of the three kinds involves recurring Efforts. Capital +is a form of Value; and, consequently, it cannot possibly take on a +shape not subject to the _law of diminishing returns_. This is +deductive proof. And precisely the same result is reached by +Induction. Men have noticed and recorded the fact at all times, and +have made provision for it in their pecuniary calculations, that tools +and machinery need to be repaired and then replaced, that the current +interest on moneyed capital tends to decline from generation to +generation in all progressive countries, and also that lands and other +forms of real estate so lose their productive and rental power unless +cared for in renovation that men migrate and emigrate in consequence. + +How much Rent shall the tenant pay to the landlord for the present use +of the latter's old lands? Or in other words, how much shall be added +to the going price of the product on account of the diminishing return +due for the use of the old landed capital? This is a hard question to +answer: probably the hardest question that is ever asked in practical +Economics. Mr. Gladstone wrestled with it as complicated with a larger +political question in passing the Irish Land Bill of 1881. Another +honest athlete, Mr. Parnell, wrestled with it upon the same +parliamentary arena. Scores of able and practical statesmen in Great +Britain, and elsewhere, have struggled to reach a practical answer to +this question; and scores of able and theoretical economists in all +countries have striven to reach a theoretical answer to it. Most of +these answers have been inharmonious, and many of them contradictory, +with each other. The Land Bill of 1881 created a parliamentary +Commission, whose duty and authority it was, to visit the Irish +counties in person, to gain information in detail, to take sworn +testimony of all the parties concerned, and then to lift or lower +rents according to their discretion. The discontent of the Irish +tenants in general was considerably mollified by the action of this +Commission; while the debates and wrangles of the parliamentary +session of 1889, and the persistent agitations for Home Rule (an +agitation at once political and economical), show that the results of +the work of that Commission were not wholly satisfactory. + +(a) It is easy enough to see why the solution of this general problem +is so extremely difficult. The new is mixed in with the old. The +result of the old labor and capital is a productive piece of land; the +current labor and capital is expended upon the same piece to make it +more productive; the same sort of thing is done now that was done +then, and the results of the two are now thoroughly intermixed; there +were original free utilities in soil and growths and deposits, but +these had and have no value and can never yield rent; the old labor +and capital improved the soil by clearing and drainage and +fertilizers, and made the growths and deposits more valuable and +accessible, so that even the old onerous was more or less transformed +into the original gratuitous; and now the new onerous, the fresh +cultivation and fertilization and betterments generally, in soils and +roads and buildings, are inextricably commingled with former +betterments of the same general kind and with the original free gifts +of Nature. No wonder the Commission of 1881 found difficulty in +determining what was what and which was which! No wonder that Irish +tenants on long leases quarrel with their landlords about the +betterments, how much is new, how much is old! It is clear, that when +the lease is ended, the landlord ought to compensate the tenant for +all that portion of the latter's betterments, which is not already +worn out; it is equally clear, that the tenant ought to be willing to +pay a fair rent for the use of the unexpended betterments of the +landlord and his predecessors; while there is room and verge enough +for endless disputes between them as to the respective amounts of +these, and consequently as to the amounts of rent and of its +remissions. + +These difficulties and intricacies do not belong to the _principles_ +of the Science of buying and selling, which are in the main clear and +certain in their action, but are incidents of determining in certain +cases _what that is_, which is bought and sold. Parties in interest in +all kinds of buying and selling are sometimes compelled to go to the +courts in order to have the Law decide what their respective rights +are as buyers and sellers; but this is no fault of Political Economy +as a science, or of trading as an art; two men in all cases make their +own bargain, according to their own estimate of the respective +rendering and receiving of each; if the uncertainties of language, the +misconception on the part of one or both of the terms agreed upon, and +the misapprehension of some of the circumstances of the case, breed +confusion and litigation, all this cannot be justly charged to the +science of Political Economy. + +Nevertheless, it is into these incidental intricacies and +uncertainties, that Henry George's now famous theory of landed rents +and the taxation of them, strikes its roots. Instead of building his +structure upon firm and open ground, so that thoughtful men can see +that his basis is solid and scientific, Mr. George dashes at once into +a thicket and lays his foundations with quickness and assurance where +all is dark and doubtful, or at best where all is rather incidental +than fundamental and demonstrable, and pretty soon displays a +superstructure that appears attractive both without and within, +through whose airy halls he knows how to conduct to their delight the +credulous and discontented, and on whose walls hang plausible pictures +calculated to invite and hold the attention of the masses. Let the +perfect integrity and rhetorical ability of Mr. George be freely +conceded; let it be freely conceded also, that he teaches in his books +and lectures a great deal of vastly important industrial truth in a +popular way so as to accomplish great good, such, for example, as the +imperative need of greater simplicity in taxation, and the +indisputable right of the people to their liberty in buying and +selling; yet it must at the same time be owned, that he has never yet +found out exactly what _Value_ is in general, consequently what are +the causes of value in lands, and what are the nature and grounds of +Rent. Something more of patient and radical analysis at the outset, +and of logical and scientific unfolding afterwards, would have made +Henry George one of the chief benefactors of his age. + +(b) It is also very easy to see, that the current price of produce, +that is, what is gotten in return for the sale of what is gotten out +of the land-parcels, must have a dominant influence upon what can be +paid as rent for the use of the parcels. Unless the return from the +produce be sufficient to reward at current rates the present labor and +capital employed upon the parcel, the parcel will not continue to be +cultivated at all, otherwise men would act without a motive for +action, which they never do; unless, therefore, the price of produce +be more than high enough to repay current wages and profits, there +will be nothing left for Rent; and, consequently, the amount of the +rent that can continue to be paid for lands will be _the difference +between the going price of what is produced from them and the current +expenses of cultivating them_. Here, as everywhere else within the +domain of Exchange, Competition exerts its beneficent action. If one +dealer, or ten, endeavors to put a price upon the produce more than +enough to pay current wages and profits with a fair margin for the +diminishing rate of rent, there are a plenty of others, dealers in the +same grade of produce, who will be content with a fair return for +present and past expenditure of labor and capital; and the action of +these will effectually debar the others from exorbitant rates. The +price of produce, accordingly, under free competition, is the divinely +appointed regulator of landed rents. It regulates also, though more +indirectly, the current rates of wages and profits in agriculture. + +Very different from this is Ricardo's doctrine of Rent. He makes +everything turn on the Cost of Production of the Produce, which is +Effort, ignoring the ever-varying demands for the produce, which is +Desire. His doctrine, too famous and too long received for us to pass +by in this connection, though now superannuated, was for substance, +this: there are some lands in every country whose produce just repays +the expenses of cultivation, and consequently yields no margin for +rent; and the cost of production on these rentless and poorest lands +under cultivation, will determine the price of the produce; and as +there can be but one price in the same market, the produce raised on +more fertile land will be sold for the same price, and this price, +besides paying the cost of cultivation, will yield a rent rising +higher according as the land is more fertile; so that the rent paid on +any land is always a measure of the excess of productiveness of that +land over the least productive land under paying cultivation; and +therefore, an increased demand for food in consequence of increased +population, and the higher price resulting, will force cultivation +down upon still poorer soils, or compel a higher culture for less +remunerative returns on the old soils, according to the law of +diminishing returns, which in either case will raise the rents on all +the soils above that grade that just repays the expenses of +cultivation; so that it is the sole interest of landlords, as such, +that population should be dense and food high, their interest being +directly antagonistic to that of the other classes of the community. + +(c) Finally, in this connection, it is easy enough to see, what were +the motives on the part of the landlords, and what were the results on +the part of the masses, of Great Britain, in putting on and keeping on +the infamous Corn Laws, so-called, which were repealed forever in +1846. The Corn Laws forbade the importation of foreign cereals under +heavy pecuniary penalties. The simple purpose of the landlords then +governing England was to raise the price of their grain by shutting +off Competition of foreigners by means of these prohibitory +tariff-taxes. It was Protectionism pure and simple. It was designed to +raise the price of bread to the masses of their countrymen, and often +did raise it to the point of their starvation. But we have just seen, +that the higher the price of the produce, the wider the margin for +Rent for the lands that produce it. The Corn Laws of England enriched +the landlords at the expense of all other classes and to the +starvation of many of the poor. As has been well said, this was the +most successful of all the many expedients that have been tried, "_to +fertilize the rich man's land by the sweat of the poor man's brow_." +The words of Daniel O'Connell, spoken Sept. 28, 1843, in his +parliamentary fight against the high-tariff Corn Laws, were surfeited +with truth and righteousness: "_But what is the meaning of +'Protection'? It means an additional sixpence for each loaf; that is +the Irish of it. If the landlord had not the protection, the loaf +would sell for a shilling, but if he has protection, it will sell for +one and sixpence. Protection is the English for sixpence; and what is +more, it is the English for an extorted sixpence. The real meaning of +'Protection,' therefore, is robbery,--robbery of the poor by the +rich._" + +At the present moment and for twenty-five years past, the public laws +of the United States ostensibly relating to Taxes, have had an immense +influence upon the value and rents of the agricultural lands of the +country to depress them; because these laws have put up nearly or +wholly impassable barriers to the coming in of those foreign goods, +against which the farmers would naturally and profitably and +inevitably have sold their surplus agricultural produce; by destroying +the foreign market for farm products, these laws do in effect destroy +a large part of the value of the farms of the country, and of what +would otherwise be the rentals of a part of them; the Constitution of +the country expressly forbids any taxation whatever of Exports, but +these laws have precisely the same effect on the value of farm +products if they were themselves forbidden to be exported, because +those goods for which these would be otherwise exchanged for a profit +are forbidden to be imported. _A market for products is products in +market._ Thus these wretched laws lower the price of farm products, +and consequently the value of farms and of their rents, and impoverish +the farmers who are nearly one-half of the entire population of the +country. + +While these paragraphs are being written, comes the intelligence of +the formation of the "North American Salt Company," whose purpose is +in their own language "_to unify and systematize the salt interests of +the United States and Canada_," and to this end "_arrangements have +been completed for the purchase and control of nearly all the existing +salt properties of the North American continent_." As this is a fair +instance out of some thousands, in which a tariff-tax has the designed +effect to lift or lower values which deeply concern the people, let +us look at it for a moment. On the average of the past twenty-five +years the tariff-tax on salt has in general doubled the cost of that +necessary of life to the whole people of the United States. When +Canada had no such tax, American makers of it sold salt sometimes to +the Canadians 40% less than they would sell it to their own +countrymen. On the basis of this United States tariff-tax (it would +never have been dreamed of without it) this new company comes forward +with a scheme of international monopoly to control in their own +interest the price of a prime necessity of life. They propose to issue +stock and bonds to the amount of $15,000,000, with which to buy up +"the existing salt properties"; and they frankly avow in the +prospectus from which we are quoting, that profits of $2,000,000 a +year on their capital are justified by the present outlook. Whence are +these immense profits to come? Out of the pockets of the masses of the +American people bound hand and foot in the meshes of a legal monopoly, +which they themselves allow themselves to be ensnared in! In a similar +but more outrageous way, are bound up at the present moment in the +secret so-called "Trusts" about forty more of the necessaries of life; +each one of which, unless it be the "Standard Oil Trust," has its +footing in a so-called "protective" tariff-tax, and would collapse +instantly on the repeal of that! + +It was necessary in order to complete our study of the second class of +material commodities, namely, those produced from valuable and rentful +lands, to glance in passing at the frequently disturbing effect on +these, aside from their cost of production, of sinister laws plausibly +imposed upon an unsuspicious people in the interest and at the +instance of a privileged few. + +_3._ It only remains in this chapter, devoted to the discussion of +material Commodities in their three economic classes, to conclude +with a glance at the third class, namely, those material valuables +that are obtained from free and unowned sources, such as masts cut in +the wilds of America on both oceans two and three hundred years ago, +and fish caught on the Banks of Newfoundland, and furs gathered to +such profit in the north by the Hudson's Bay Company, and salt +evaporated in the tropics by a free sun from old ocean's brine. + +These, and all such things as these, have a cost of production +determined only by the cost of present labor and capital, and +consequently a grade of value determined only by present Demand and +Supply, unentangled for the most part by questions of rent and prior +claim and taxation and nationality. All these things, accordingly, are +relatively cheap, except as the element of Scarcity, and on that +account of strong Desire, may sometimes come in to enhance the value. +No man can tell the time exactly when French fishermen from the coasts +of Brittany ventured over to the Banks of Newfoundland in their frail +barks for the abundant cod in those waters, and went back home again +at the close of the season freighted with plenty of a free and cheap +food for their families and countrymen; or when it was that rude men +calling themselves English followed these in their western track for +the same general purposes, to become thereby hardy seamen on deeper +seas, such as those who gained long afterwards the naval victories of +Nelson; and we have all read in the fascinating pages of Irving the +ventures and adventures of John Jacob Astor, the attraction of free +furs in the Northwest of America, the hazards and the history incident +to obtaining them, and the immense profits gained by their sale in the +markets of the old world. + +FOOTNOTES: + +[3] Baines' History of the Cotton Manufacture, as condensed and quoted +in Walpole's History of England, Vol. I. + +[4] Charles Knight's History of England, III. 292 _et seq._ + + + + +CHAPTER III. + +PERSONAL SERVICES. + + +There are three kinds of things only ever bought and sold in this good +world of ours. In the preceding chapter we have conned carefully the +first kind, material commodities, in their three subdivisions of +land-parcels and products of such parcels and products of free land +and sea. In the present chapter we come to study the second kind of +valuable things, personal services, which we shall also find +subdivisible into three classes. We have treated of Commodities first, +because their value in its grounds and changes is more easily +understood than that of the other two kinds, while in point of _time_ +Services might well enough have been considered first, since it is +these that manipulate into value the originally rude forms of Nature. +The main difference between the two is this: in Commodities the +attention is naturally drawn to tangible _things_ offered for sale, +such as lands and wheat and fish; while in Services the attention is +strongly drawn to _persons_ offering them for sale, such as the common +laborer and the skilled artisan and the professional artist. This +distinction, though obvious and useful as between commodities and +services, is not after all radical; because Economics is a science of +Persons from beginning to end; inasmuch as the services precede and +are merged in the commodities, and inasmuch as the Desires (personal) +of some men for the renderings of other men antedate and underlie all +exchanges whatsoever. + +Personal Services are technically named _Labor_ in the science of +Political Economy. This nomenclature is old and familiar, and will +probably always persist on that account, but it is not of itself of +the happiest, and it gives birth to some ambiguities and many +fallacies. Let us look at these for a moment, before we pass to the +definition and discussion of what is commonly called Labor, but what +is better described by the term, Personal Services. + +Contrast will help us a little here. Commodities can always be +measured by some _Standard_ outside of themselves: for example, +land-parcels are measured into acres and fractions thereof by a +surveyor's compass and chain; metals and cereals are weighed into +centners and parts thereof by scales of some sort; and sugar is not +only weighed at the custom-house, but tested as to other qualities by +the polariscope. Now land, wheat, sugar, and all other commodities, +have an existence separate from the standards that measure them, and +whether they are bought or not they continue for a time essentially +the same. They exist _per se_. They were indeed brought into existence +on purpose to be sold, and if they cannot be sold, similar things +additional will not then and there be brought into the market, but +these things themselves are there separate from the seller and +separate from the buyer. Not so with personal services. They do not +exist _per se_. They are not separate from the seller, and they cannot +come into existence without a buyer. _Skill_ is something the artisan +cannot part with, nor can he sell the service to which the skill gives +rise till the buyer be present with the return-service in his hands. +The Laborer of any class cannot put his "service" on exhibition, and +then wait for a buyer, as the commercial drummer sells goods by +sample. The doctor, for example, must have his _patient_ before he can +show his skill. The buying and selling of personal services, +accordingly, is more intimate and ultimate than the buying and selling +of commodities: it brings people more closely together: it depends +much more on traits of _character_ and on acquired _skill_. + +Right here we may see clearly the main objection to the term, "Labor," +as commonly used, and the bad fallacy to which it gives birth. "Labor" +is indeed in form and origin an _abstract_ term as much as "service" +is, with this difference, that the word "service" radically implies +the person serving and another person served at the same instant; but +the term "Labor" has long been taking on itself in the mouths of men a +_concrete_ meaning, as if it might be something separate from the +laborers, as in the common phrase "Labor and Capital," which has +already done a world of mischief and is likely to do a good deal more, +because it seems to imply, that the two are alike in independent +self-existence, and that they stand over against each other on equal +terms for a fair bargain or for a free fight. This is not the case, as +we shall see more fully later; since capital is something separable +from the capitalist, always a commodity or a claim, always +transferable, always valuable or else it will not be "Capital." Some +of the German economists, and particularly John Conrad of Halle, have +avoided this difficulty by a clean nomenclature. They say +"_Labor-givers_" and "_Labor-takers_," instead of Laborers and +Capitalists, and especially instead of "Labor and Capital," thus +emphasizing the personal element in both terms, and also leaving +themselves free to define and use the term "Capital" as distinct from +any particular capitalist, while the term "Labor" cannot be defined +and used as distinct from any given laborer. This precise point, +though probably new, is of very considerable consequence in the true +doctrine of Wages. + +We are compelled by the exigencies of the English language and the +still stronger fetters of economical custom to continue to use the +terms "Labor" and "Laborers" in their technical sense, and in +connection with the scientific terms "Capital" and "Capitalist"; but +we shall always use each of these words in the same meaning, and free +them as far as possible from the fungous accretions that have fastened +upon them in the course of time. + +_Personal effort of any kind put forth for another in view of a +return-service and for the sake of it is labor._ + +_Laborers are persons rendering their peculiar services to other +persons for a commercial reward._ + +_The valuable received by a laborer for his service rendered is +Wages._ + +These definitions exclude from our circle of view all Efforts of +anybody put forth for other than commercial reasons; and they include +all Efforts of everybody, from the President to the scrub, put forth +under the inducement of a return-service or Wages. No good end seems +to be reached by trying to distinguish, as Francis Walker does in his +"Wages-Question," between the "Wages-class" and the "Salary-class," +because there appears to be no scientific or other economical +difference between Wages and Salary. Each is a return-service for +another service rendered, and that is all there is to it. The whole +class of Laborers, accordingly, in any civilized and progressive +country, is immensely large and becoming constantly larger. Excluding, +of course, from this class all persons in so far as they render +so-called moral services to others, which are in their very nature +_free_, such as those that spring from duty and courtesy and +benevolence, and these happily are also an immense and fast-augmenting +class, though our Science has nothing to do with them directly, the +number of those persons in every community and in every rank of every +community, who sell personal services of some sort in distinction +from commodities and credits, is pretty nearly as large as the _per +capita_ population of adults and competents within that circuit. It +must be borne in mind, that the same persons whose primary business it +may be to sell commodities or credits, often sell services also in +some subordinate or incidental way; and also, that the same persons, +who are dispensing on the one hand their gifts and moral renderings +freely, are frequently of the busiest in selling on the other hand +their personal services for pay. In other words, the sellers of +Services cannot be discriminated _as to their persons_ from other +sellers, or even from downright _givers_; but the _action_ itself, and +the law of it, is quite distinct in the three cases of selling, and +utterly diverse in the one case of giving. + +Now, can we sub-classify within this vast class of service-sellers, so +as to help us understand better the class as a whole, and so +especially as to help us understand better the Law of Wages within the +entire class? We have just criticised Walker in a friendly spirit for +attempting to draw lines of demarcation within this wide field: can we +draw any useful ones ourselves less open to criticism than his, and +such as rest back upon fair differences in nature and form? Walker +makes his distinctions turn on certain peculiarities in the +return-services: can we make ours turn better and clearer on certain +peculiarities in the services themselves? We can at least try. Hard +and fast lines cannot be drawn here, we admit. The exterior lines +around Commodities and around Services and around Credits are each +sharp and firm; and so is the deep-fixed circle that includes all +three of these alike as Valuables; but _within_ the smaller circles +the lines of needful division are somewhat more shadowy, though we +leave with confidence to competent Economists the triple lines but +just now drawn within the sphere of material Commodities. + +A rude classification among "Laborers," then, yet one useful and +indeed indispensable, may be made into (1) Common Laborers, (2) +Skilled Laborers, and (3) Professional Laborers. + +Common Laborers are those, whose services may be acceptably rendered +by an ordinarily competent person after a little patient practice and +instruction, without anything corresponding to an _apprenticeship_ as +a preliminary to their selling their service. Farm hands, teamsters, +porters, waiters, miners, 'longshoremen, railroad laborers, and many +more belong to this first class. Owing to the ease with which this +class can be recruited at any time from growing boys and emigrating +foreigners and from those who may have essayed the class above and +fallen back, the Supply here is kept constantly large relatively to +the Demand for such services, and consequently Wages are always the +lowest and steadiest in this lowest class of Laborers. + +Skilled Laborers are those, who have had to pass through something +equivalent to an apprenticeship in order to be able to offer their +services for sale. These, as a class, present some considerable points +of difference from common laborers. Their numbers are fewer, for the +reason, that relatively few parents can afford to give their children +the time and money needful for them to learn a trade, or to become +skilful in any art requiring prolonged education; as a result of this +lessened press of competition among themselves, and because being +intelligent and consequently mobile they are able to insist better on +their claims and distribute themselves to points where their services +are in more demand; and because they are likely to be subject to a +stronger Demand than common laborers, on account of the close +connection of their services with special accumulations of Capital; +the Wages of skilled laborers will infallibly rule higher than those +of common laborers. Artisans in general constitute this second class +of laborers. + +Professional Laborers are those, who have received a technical +education,--something more than an apprenticeship,--expressly to fit +them to render difficult and delicate services to their fellow-men for +pay, and who possess besides the requisite character and talents and +genius to enable them to succeed. Clergymen, physicians, lawyers, +literary men, artists, actors, and many more, render professional +services loosely so-called. The obstacles at the entrance of this path +occasioned by the lack (1) of appropriate natural gifts, or (2) of the +requisite industry and character, or (3) of the means of suitable +education and training, practically exclude so many persons, that the +competition in the higher walks of professional life is not such as to +prevent a very large remuneration for services rendered. The demand +for these is often peculiarly intense, as well as the supply +peculiarly limited. When great interests of property, of reputation, +of life, are at stake, it is felt that the best men to secure these +must be had at almost any price. Fees and rewards for services of +great delicacy, of great difficulty, of great danger, are paid by +individuals and corporations and nations without grudging. +Comparatively few men reach the highest points of excellence in their +respective professions, and they have in consequence a natural +monopoly in these fields of effort, and receive for their labor a very +high rate of Wages. For example, Daniel Webster often took a fee of +$1000 for a single plea in court; Paganini, a like sum for an hour's +playing on a violin; and Jenny Lind, at least as much for an evening's +singing in a concert, because there was in each case a strong demand +for a peculiar service and only one person in the world who could +render that service in the circumstances to the same perfection. But +the objections which lie with such force against artificial +monopolies, cannot be urged at all against a natural monopoly; for, if +the road to excellence be open to all, and no artificial obstructions +thrown in the way of any, there is no blame but rather praise for him +who distances all competitors, and asks and receives for services of +peculiar excellence a large remuneration. Exchange rejoices in all +diversities of advantage that are the birth of freedom, but reprobates +with all her force advantage that is gained by artificial +restrictions, because artificial restrictions always infringe on +somebody's right to render services for a return; and the right to +render services for a return is the fundamental conception in the +Right of Property. + +Is it open for us, to gain a somewhat deeper and clearer sense of +_what that is exactly_ that is rendered in these three classes of +personal Services, before we pass to the considerations which +determine in all cases their Value? It is plain, that what common +Laborers sell for the most part, if not exclusively, is _muscular +exertion_ of some kind, guided by the mind as trained in habit, and +aided by appropriate implements, all designed to meet the desire and +so call forth the return-service of the purchaser; it is equally +plain, that skilled Laborers with scarcely any more exceptions than +before sell the same sort of physical exertions, or motions, this time +guided by mental action of a higher grade and wider scope, and aided +also by more elaborate tools working towards the desires and +consequent returns of a set of buyers more scrupulous and exacting +than the first set; and it is plain enough, that some of the highest +professional services, for instance the surgeon's, though not by any +means the mass of such services, are essentially of the same kind as +the two former, namely, muscular motions, guided by the most intimate +and exact knowledge of things, and aided too by instruments the most +scientific and expensive. In many of the professional services the +physical element sinks to a minimum, while the intellectual and moral +factors come to the front and take up the chief attention; it will be +found, however, that the physical factor is always present in some +degree, as, for example, in the counsel's plea before the court, and +in the physician's visit on his patient; and in almost all cases, if +not in all, some implement or other plays its part in the process of +professional service before it ends, as Cicero used a pitch-pipe or +tuning-fork to gauge his voice in his great pleas for Roman clients. + +Precisely what is rendered, then, in all cases of Personal Services in +each of their three loose kinds, is _muscular motion conjoined with +mental effort and both these assisted by habit and by some form of +what we call Capital_. The Services are therefore _Personal_ in the +highest sense. The Mind and Body of the Laborer conspire to render +them. The most sagacious animal can never be trained to render one of +them. They are wholly _human_. Nevertheless the muscular part in the +rendering--motion and resistance to motion--is just what tools and +machinery can be made to take the place of in large measure but never +in whole measure, because tools may not be taught _to think_. It may +seem sometimes as if machinery were about to take the place of human +hands in some classes of Production; but it will be found in the +ultimate issue, as it has been found in every stage of the process, +that human hands and human minds in action are absolutely essential at +every point of the Exchanges among men. Men are so made and Society is +so organized, that they need increasingly for their comfort and +progress the personal services of their fellow-men, and can render +their own in exchange for these; and consequently, there never can +fail (under freedom) a MARKET for Personal Services of the three +kinds. + +Having now seen as closely as possible what that is which is rendered +in personal services, let us pass to the principles which determine +their remuneration. That is, we will now inquire carefully into the +Value of personal services. We have learned already, that Demand and +Supply in their action and reaction upon each other determine in all +cases the value of Commodities for the time being; and we shall find +it to be equally the dictate of all reason, and the outcome of all +experience, that Demand and Supply decide too in all cases on the +value of all Services and all Credits then and there. Shall we look +first at the considerations that issue in the Demand for personal +services, and then at those other considerations that limit the Supply +of them? + +1. Demand is never the mere desire for anything, but desire coupled +with the ability to pay for it at rates satisfactory to the present +holder. The Demand for Services, therefore, is made by the prospective +purchasers of them; and the purchasers, of course, are those who +desire them and are willing to pay for them at current rates. It will +be easiest and surest for us to study the Demand for Services in each +of the three classes of them in succession. + +(1) The Demand for Common Laborers has several points of difference +from that for Skilled, and from that for Professional, Laborers. It is +scarcely ever intense. It is mostly disconnected from large +accumulations of Capital. The desire is usually for immediate +gratification, without any other end in view. It is frequently for +such a service, as, if a renderer may not be conveniently and cheaply +found, one is inclined to do for himself. For instances: if the barber +be not accessible and reasonable and tolerably skilful, a man will +certainly shave himself, provided he have not yet attained the +independence and the luxury of wearing a full beard; and the ordinary +housewife, if the cleanly and tractable domestic does not come into +sight, will do her own work with casual assistance. It is this +important fact, that common services among men and women in common +life may in many cases be dispensed with altogether, and in many other +cases substitutes be found for them, in connection with the other +important fact, that common laborers learn their art quickly and +easily, and consequently are present everywhere in large numbers, that +makes the Wages of such laborers uniformly low. The Demand is moderate +and the Supply is large. + +(2) The Demand for Skilled Laborers is steadier and stronger than for +Common, because in general the desire for these is not for immediate +gratification, but for an ultimate satisfaction to arise from the +commercial coöperation of these laborers with their employers, who are +capitalists, in connection with accumulations of capital, the end in +view being the production of commodities for sale at a profit. Here +comes in a new motive on the part of capitalists to buy the personal +services of laborers. The motive is simple and intelligible and +commendable, but its nature and operation is popularly and grossly +misapprehended. + +Capital is the result of Abstinence from the present use of a Valuable +in gratification, for the sake of a future increase of it through +Production. But Abstinence is always irksome in itself. It must have +its prospective reward in an increase, a profit, or it will never +transform itself from a mere valuable into a capitalized product. Now, +the owner of the valuable, having transformed it into capital from +this motive, is under a commercial necessity to hire laborers, in +order by their help to make his capital yield a profit. Capital lying +idle decreases in _value_ even, to say nothing of its yielding no +increase to itself; and the motive of the capital-owner, accordingly, +is strong and constant to buy the services of laborers, to marry +these services with his own capitalized products, and thus to produce +commodities for sale, whose value shall be greater than the present +value of the capital and the services combined. Here we reach in the +minds and motives of a large class of men an ultimate Demand for +laborers, and specially for skilled laborers, which is as true and +constant to its legitimate end of Profit as the needle is true and +constant to the pole. + +At this point it is very evident, that, if the fair expectation of the +capitalists be realized in a steady profit, and the larger the circle +of capitalists and the more of capitalized products to each the better +for all concerned, the Demand for laborers will become steady, and +will be likely to steadily increase, because there will then be a +constant motive on the part of all capitalists as such to put back a +part or all of their yearly profits into capitalized products, and +thus the Demand for laborers will become more intense, and the rates +of Wages so far forth must be enhanced. The steady Demand for the +services of the laborers hinges upon the steady Profits of the +capitalists, and there is no antagonism between the interests of these +two classes of buyers and sellers, but rather a complete identity of +interest between them. + +We are looking now solely at what constitutes the Demand for laborers +of the second class. As always, so here, there is Desire first and +then a ready Return-service. The Desire of employers of this class is +for a Profit on their capital, and the return-service for the laborers +is present as a part of these capitalized products. This part of the +capital we call Wages-Portion. It is already in hand or provided to be +in hand when the wages fall due. Of course it is expected, that the +current wages will ultimately come out of the current joint-production +of the laborers upon the capitalized products set apart for that +purpose by the capitalist. But if the profits fail to the capitalists +at the end of that industrial-cycle, whether it be two months or +twenty-four, then Desire will fail or be weakened to hire laborers for +the next cycle, and the return-services or Wages-Portion with which to +pay them for another cycle will be lessened of necessity. Both +elements in Demand are curtailed by the falling-off of Profits. There +is at the same instant less desire to buy services and less ability to +pay for them. It is of the very nature of capitalized products to wear +out in the process of production; if there be not net profits at the +end of the cycle for the capitalists, it shall go hard but there will +be less wages for the laborers during the next cycle. This is not a +matter of sentiment or of philanthropy, but of eternal law, which God +has ordained and the devices of men cannot frustrate. Capitalists and +laborers are joint partners in the same concern. Under industrial and +commercial freedom their interests are identical. Both are buyers and +sellers to each other at the same instant; and, as always when both +parties are alike benefited and satisfied with a trade, both will +cheerfully and profitably continue the connection. The Demand of each +class for the product of the other will continue unabated. Profits and +wages reciprocally beget each other. + +But still it is not altogether true, what has sometimes been stated by +economists, that capitalists are under the same sort of pressure to +buy their services as the laborers are to sell them. Capital is a +Valuable already created by the mutual desires and efforts of two +persons, and is now the exclusive property of one of them, and has +also been set apart by him through an act of will to be thereafter an +aid to some future production under the motive of a new value to +accrue thereby. The capital has now become secondary to and separated +from the person who owns it. He very seldom understands the real +nature and operation of it. He commonly imparts to it in his +imagination a more substantive and persistent existence than it +actually possesses. He is frequently more or less stuck up as towards +his neighbors and employees in consequence of his possession of it. +The very fact that he has capitalized it for future operations shows +that he is independent of it as a means of present livelihood. The +personal services of the laborers, on the other hand, stand in very +different relations to _them_. Their personal services may indeed be +_valuable_, but they cannot be _capitalized_. As laborers they have +nothing else to sell. Unless they sell their services now, these have +no existence even, still less can they have any value. It is only by a +mischievous figure of speech, that the skill of laborers is sometimes +spoken of as their "Capital." Therefore, the laborers are under a +certain remote yet inherent disadvantage as sellers of their personal +services, when compared with the capitalists as buyers of them. This +disadvantage, however, though apparent in the nature of things, and +under certain circumstances disastrous to the laborers, may disappear +practically under another and natural state of things; and it is every +way to be desired by both classes alike that it should disappear in +practice. + +Whenever there is a broad and constant and profitable market for all +the commodities the capitalists and the laborers can jointly +produce,--that is to say, whenever profits are steady and remunerative +and wages are high and growing in their purchasing-power,--the Demand +for skilled laborers must always be such as puts the laborers on a +footing of equality as over against the capitalists, because under +such circumstances the purchasers of services are many and eager, two +bosses will be likely to be bidding for one skilled laborer, and then +wages are always growing in dollars and each dollar growing in +effective purchasing-power. + +It is of the last importance in this connection to notice, that +everything in Profits and Wages turns in the last resort upon the +breadth and freedom of MARKETS. It is out of the return-service +received from the _sale_ of the commodities produced jointly by the +capitalists and laborers, that both wages and profits must ultimately +be paid. There is no other possible source of them. When the Market +fails, everything fails that leads up to a market. Particularly fails +the Demand for laborers for the next industrial cycle, and of course +drops also the prospective wages for that cycle. The public folly and +universal loss of shutting off foreign markets for our own commodities +by lofty tariff-barriers, as has been conspicuously done by the United +States for thirty years past, follows of course from this radical +truth; and the Wages of laborers, instead of being lifted by +tariff-taxes, as has been so often falsely and wickedly asserted, are +inevitably _depressed_ by them, because they effectually forbid to +capitalists and laborers their best and freely chosen _markets_ for +the sale of their joint products. + +Another vastly important matter, constantly affecting the Demand for +laborers of the second class, is the Competency or otherwise of the +practical managers of the Capital invested in industrial enterprises. +Capital cannot manage itself. It is of itself wholly inert. It is +always either a Commodity or a Credit. Conscious of their inability to +handle wisely their own bits of Capital, or else taught it through a +bitter experience, by far the larger number of individual owners of it +loan it to others to manage; they invest it in some industrial +corporation, in a bank or a mill or a railroad. Some one person, or at +least a small body of persons, must practically manage now all +specific accumulations of capital. It is they in their capacity of +manipulating-capitalists, who constitute in large measure the Demand +for laborers. But such managers, who are at once skilful and +long-headed and honest, do not grow upon a chance bush. They are rare. +Most of them in this country at least have been those, who started in +a small way in the control of their own earned or small-inherited +properties, and rose through practice and knowledge and conscience to +the ability to handle profitably to all concerned large masses of +Capital. In the hands of such men, given a tolerable chance by public +law and private circumstances, both Profits and Wages are sure to come +in satisfactorily. They are Captains of Industry. They are an honor to +human nature. They are a blessing to the whole community. They have no +need and no will to ask to be bolstered up in their business by unjust +taxes enforced upon a whole people. + +Such men sometimes have sons or _protégés_, who possess similar +capacities and similar integrity, and these by experience become able +to carry on the business to similar successful issues. This is happy, +but it is unusual. More commonly, in the second, and pretty certainly +in the third, generation, the line of royal succession fails. There +comes in a lieutenant rather than a captain of Industry. Likely enough +he mistakes the nature of capital, and thinks that it will go along of +itself without that eternal vigilance that is the one price of its +maintenance and increase; likely enough he lacks the touch and rule of +men, and his laborers become demoralized and refractory; more likely +still he thinks he sees other operators around him getting quicker +rich by speculating in enterprises outside the legitimate business, +and takes some of his own and of what is not his own and throws it out +of its proper channels; and, as the result of one or all of these, +things soon go wrong, profits and wages fall off, poor work is done +and finds slow sale, and Demand for laborers (which is their +life-blood) slackens or goes out in that establishment. No wonder the +Paper-makers in their annual gathering at Saratoga of 1889, resolved +as the main outcome of their meeting, that they would bring up their +sons (or somebody's sons) to succeed them in their business by a +thorough practical training in the paper-mill itself, beginning early +and continuing long. Industrial higher education in this or some other +form is the secondary hope of manufacturing business in the United +States, the primary hope being in a decent commercial liberty to buy +their supplies and to sell their products in the best markets wherever +these are to be found. + +There is one other important item that bears directly upon the Demand +for laborers of the second class, and consequently upon their Wages, +namely, the constant introduction of more and better Machinery. At +first blush it would seem, and it has often been stated so, that the +use of machinery takes just so much work from human hands, reduces by +so much the Demand for laborers, and tends to lessen by so much their +wages. All this is the opposite of the truth; but before we explain +_why_ it is the opposite of the truth, let us attend carefully to the +truth itself, as stated in 1889 by the highest living authority on +these special points, Sir Edwin Chadwick, the octogenarian pioneer in +sanitary and economic reforms. Fifty-six years ago Chadwick joined +with his colleagues of the English Factory Inspection Board in +recommending reduced hours of labor and other improvements which have +now become general in England. In a paper recently read before the +Political Economy Club, he calls attention to the greatly increased +production which follows improved machinery and shortened hours. + +He says: "_Spinning machines which formerly turned 8000 in a minute, +now turn 11,000; and in Lancashire not more than half the hands are +now employed to produce the same amount with new machinery as were +employed on the machinery of 1833. As an example of the extent of +the reduction of hands by these improvements, it may be mentioned that +one large family of cotton spinners in Manchester, which 40 years +ago employed 11,000 hands, could not now muster one half that +number._ YET THE MILL POPULATION HAS INCREASED, AS WELL AS THE GENERAL +POPULATION, THE HANDS DISCHARGED BEING ABSORBED IN OTHER EMPLOYMENTS. +_At the beginning of the century the cost of spinning a pound of yarn +was a shilling. The pound of that same yarn is now spun for a +half-penny by hands earning double wages for their increased energetic +attention and skill. It is now found, however, that the strain of the +increased responsible attention cannot be so long sustained as the +slow, semi-automatic pace by the old working of the old mills with the +long hours. Hence there is a tendency to a further voluntary reduction +of the working hours in the best mills, first to nine hours. In one +mill, in which 2000 men are employed a voluntary reduction has been +effected to about eight hours with a more equable production; and I +have heard of other examples. As showing the cost of working with +inferior hands and loose regulations, a recent report from the +Manchester Chamber of Commerce states that 20s. worth of bundled +yarn may be produced at a cost of from 2d. to 3d. per pound less +in Manchester than in Bombay, notwithstanding the hours of working +are 80 hours per week, while in Manchester they are only 50. At +the present time Lancashire, with its short hours, will meet Germany +or any other country, in neutral markets, in the world. In Germany the +spinners and weavers still work 13 hours a day as they once did in +England; France has only come down to 12 hours; whereas the English +rate has long been 10 hours, and may soon be 9 or even 8. And +this reduction improves the health of the wage-workers, while the +reduced cost of production allows them higher wages; yet Germany with +its long hours and high tariff maintains a system_ OF LOW PAY, DEAR +PRODUCTION, HIGH COST OF DISTRIBUTION, AND LIMITED SALES." + +The accuracy of these important statements of fact is confirmed on +every hand. Committees of British spinners and weavers have repeatedly +visited the United States, and then reported to their fellows at home, +that wages, all things considered, were equal for spinners and weavers +in Great Britain and the United States, and in some cases and respects +higher in the former. Many times before his late lamented death, +John Bright publicly testified that wages in England during his +parliamentary life had risen in general 50%, and in some of the +manufacturing lines 100%. A few months before these statements of +Chadwick were made, Sir Richard Temple reported to his section of the +British Association, "_That the average earnings per head in the United +Kingdom, taking the whole population without division into classes, is +£35, 4s., and exceeds the average of the United States, which is £27, +4s., and of Canada, which is £26, 18s., and of the Continent, which is +£18, 1s.; while it falls below that of Australia, which is £43, 4s. per +head._" + +According to this, the average earnings in Great Britain per head of +the population are 30% higher than in the United States, and 81% +higher than on the Continent of Europe. Truly, Britain is a prosperous +and profitable country so far as average earnings of the whole people +by the year is concerned. Sir Richard goes on in the same statistical +paper to show, that the average annual profit on British Capital is +14%, and that Capital yields about the same rate for the United +States. + +Now, can we easily give the grounds on which the introduction of more +and better machinery, instead of displacing laborers, tends to lift +and actually does lift the wages of those concerned, who continue to +work with their hands and heads? We will try it. + +(a) It takes the hands and heads of laborers to invent and construct +and keep in repair the machinery itself, that is often supposed to +displace laborers, and so far forth opens a vent for the more +profitable employment of some of the laborers, who before performed +the cruder and more repetitive and automatic parts of the processes, +which parts alone machinery can be made to perform. + +(b) Machinery always lessens the cost of a given amount of production, +otherwise there would be no motive for its introduction. But, other +things being equal, the lessened cost of a commodity broadens the +market for its sale. The cheaper a useful commodity is offered, the +more the buyers of it the world over. The more and the better the +machinery brought in, the more and the cheaper the commodities +produced and the broader and better the markets to be supplied; and, +therefore, the more and the more skilful the hands needed to tend the +machinery and to market the products. + +(c) The more commodities thus created by men and machines, and the +wider the markets found for them over the earth, the more laborers are +required to extract and prepare and transport the raw materials for +the now augmenting commodities, and also to ship and distribute the +finished products. As Chadwick says, notwithstanding the strictly +_factory_ hands have diminished one half in one place, "yet the _mill_ +population has increased, as well as the general population, the hands +discharged being absorbed in other employments." + +(d) These improvements in machinery, and the consequent refinements in +the skill of the laborers, cheapen also of course the commodities +consumed by the laborers themselves, and therefore a given rate of +wages, to say nothing of a rate sure to enlarge under these +circumstances, now secures for the laborers a higher grade of +comforts. + +More and better and more durable machinery, consequently, so far +forth, tends at once to enhance the rate of laborers' wages and +increase the purchasing power of the unit in which wages are paid. + +To return now to the main line of discussion under the present head, +we have shown by proof positive that there is nothing either in new +machinery introduced, or in higher wages paid in connection with such +machinery, or in shortened hours made possible by these two, to lessen +the Demand of Capitalists for the personal services of Laborers; +because, there is nothing in all these, commercial and industrial +freedom being presupposed, to lessen the Profits of the Capitalists, +which profits are the sole motive actuating them as such. That high +wages and short hours are rather an advantage to Profits in connection +with skilled laborers and fine machinery, than a disadvantage when +compared with long hours and low pay and poor implements, is clearly +shown by Chadwick in the passage quoted comparing England with English +Bombay, where the working hours are 60% more and the wages greatly +less and the cost of the machinery very little; "twenty shillings' +worth of bundled yarn may be produced at a cost of from 2_d._ to 3_d._ +less in Manchester than in Bombay"; call it 2-1/2_d._ less; that is, +it costs the Bombay spinner more than 1% per pound of yarn more to +spin it than it costs the Manchester spinner! For truth and decency's +sake, then, let us have done with the gabble in this country about the +advantages of "pauper labor" over skilled, of low wages over high, of +cheap machinery over dear! + +The penetrating reader will perceive, that the root of this whole +matter lies in the breadth and quickness of the _Markets_, in which +the commodities produced by the laborers and capitalists may be sold +against other commodities, and against Services and Credits; if the +markets of the world are free to all to buy in and to sell in, which +seemingly two things are precisely one and the same thing, then the +Demand of Capitalists for the services of laborers to create and +market salable commodities wherever these may be wanted, can +apparently never slacken on the whole; because, the desires of men +which the efforts of other men may satisfy commercially, are +indefinite in number and unlimited in degree; and, therefore, the +Wages of the skilled laborers, the commercial freedom of the nations +being presupposed, are likely to be on the whole on a steady rise +throughout the world; and the amount and excellence of the machinery +on a similar rise, since Capitalists can always under these +circumstances see their Profits looming up ahead of them,--the profits +of an endlessly diversified and marketable Production. + +The chief reason at any rate, and almost the only reason in common +sight, why little England has surpassed in commercial prosperity of +every sort every other nation on the globe during the past forty +years, as evidenced by these statistics of Sir Richard Temple and +other abounding proofs on sea and land, is in the fact, that her +statesmen of the last generation came to perceive clearly, and then +helped the people to see, that a market for products is products in +market; that her traditional tariff-barriers to keep foreign goods out +kept in equally domestic goods that wanted to get out for a profit, +and so down went the tariff-barriers little by little, accursed alike +by God and Englishmen, never to be set up again around the shores of +the land of Cobden and Bright and Elliott; and to-day we read, that +the average annual Earnings per head of the entire population of the +United Kingdom, men and women and children, English and Irish and +Scotch, are $176, while the annual average Profits of Capital within +the three kingdoms is 14%. + +(3) In the last place here, we must now look at the Demand for the +personal services of Professional laborers. These are persons, who +have done something more with reference to their life-work than serve +an apprenticeship to a trade, or acquire some mechanical skill in +connection with some kind of machinery. An Education rather than an +Apprenticeship is implied in Professional laborers. Knowledge of the +bodies and of the minds of men; acquaintance with some one section at +least of the general laws that pervade the universe; some confidence +(the more the better) in God, who created and governs the world; are +all requisite to a reasonable success on the part of Professional +laborers. The Demand for their services, and of course also the Return +made to them for such services, will largely depend on such superior +knowledge and confidence acquired by such persons, and involved in +their services. Clergymen, physicians, lawyers, statesmen, literators, +actors, teachers, and scientific experts, may serve as our chief +examples of Professional laborers. + +(a) "All that a man hath will he give for his life." When men fall +sick, or those fall sick who are dear to them, they send for the +doctor. Scarcely any trait of human nature is more universal than +this. And the trait puts honor on human nature, because it implies a +relatively high estimate of the worth of life in the mind of the +patient, and also a relatively high confidence in a certain class of +one's fellow-men. As Society progresses, and as Christianity deepens +the sense of the worth of the individual life, and knits a stronger +tie of confidence between man and man, a change is slowly coming over +the relations between physicians and their patients; people do not +wait to fall sick before they send for the doctor, so much as they +formerly did; some individuals and families are establishing +connections with a medical adviser, who studies their constitutions +and habits of life beforehand, guides them in general sanitation, and +thus both he and they are better ready for curatives in times of +illness. Gladstone has long had such an attendant, with the best of +results as he thinks, and strongly commended such action to John +Bright, but too late to save the latter from what was thought to be +premature death in consequence of imprudent and ill-advised handling +of his health. In a few cases in England and the United States an +annual salary is paid a physician for general care of the family's +health, whether sickness befall or not, instead of the more usual fees +on consultation and attendance. Dr. Munn of New York receives such an +annual salary from Mr. Jay Gould. But in whatever way medical services +are paid for, the Demand for them is constant and intense. The motive +to buy them is immediate and personal, not mediate and remote, as in +the case of capitalists and laborers of the second class. + +It is to be noticed further in respect to physicians, and indeed in +respect to all professional laborers much more than in respect to +other laborers, that much knowledge has been gained by them for its +own sake, out of pure love for it, rather than for the sake of merely +selling their services as laborers; while this does not diminish in +the least the commercial character of their services, it tends to +beget on the part of the buyers of them a stronger confidence in the +men who render them, so that the Demand for such services and +consequently the pay for them is enhanced by the trust reposed in the +laborers on the ground of something acquired by them for other than +selling purposes, and which indeed _cannot be sold_; and superior +_character_ also, as well as superior knowledge, which is wholly +_moral_ in its basis and not mercantile at all, affects the Demand for +the services of the possessor of it to increase it, on the ground of a +naturally stronger trust in him as a professional laborer, and at the +same time tends to increase his Wages by limiting the circle of those +who can offer in competition such services on the background of such +superior knowledge and character. + +(b) Lawyers do not meet such a universal Demand in the nature of +things as do physicians. Said Jonathan Smith of Lanesborough in the +Massachusetts Convention of 1788: "We have no lawyer in our town, and +we do well enough without." Still, one hundred years after that time +there were about 70,000 lawyers in the United States, and Lanesborough +itself had had in the meantime at least three distinguished ones. The +interests of property and of reputation, and the constitutional rights +of individuals as over against the claims of Government, so far as +these may be conserved through the agency of lawyers, are by no means +so constant and imperative as are the interests of life and health. +Yet lawyers are in legitimate request in all civilized countries. A +Latin legal maxim announces the obvious truth: _It is the interest of +the Commonwealth that there should be an end of disputes and +litigations._ Beyond question courts and counsel are wholesome on the +whole for the individual and for the commonwealth. But the extremely +complicated and unsatisfactory condition of American Law at present, +owing to the fact that we have a none too simple United States Law +with its three grades of courts and judges, and considerably divergent +bodies of Law in each of 42 States, and owing also to the fact that +our law in general is drawn almost at random from two pretty distinct +Sources, the Common Law of England and the Civil Law of Rome, +multiplies the number of lawyers relatively to the population out of +all proportion to such ratio in other countries, and tends to make the +lawyers as a class too conservative of old and drawn-out processes to +the extent of opposing obvious betterments and simplifications. Said +David Dudley Field, President of the American Bar Association, in +August, 1889, at Chicago: "_So far as I am aware, there is no other +country calling itself civilized where it takes so long to punish a +criminal, and so many years to get a final decision between man and +man. Truly we may say, that Justice passes through the land on leaden +sandals. One of our most trustworthy journalists asserts that more +murderers are hung by mobs every year than are executed in course of +law. And yet we have, it is computed, nearly 70,000 lawyers in the +country. The proportion of the legal element is, in France, 1:4762; in +Germany, 1:6423; in the United States, 1:909. Now turn from the +performers to the performance. It appears that the average length of a +lawsuit varies very much in the different States; the greatest being +about 6 years, and the least 1-1/2. Very few States finish a litigation +in this shorter period. Taking all these figures together, is it any +wonder that a cynic should say that we American lawyers talk more and +speed less than any other equal number of men known to history?_" + +Mr. Field then repeated his well-known argument for Codification, +ascribing the law's delays to the chaotic condition of the law, and +maintaining that it is the first duty of a government to bring the +laws to the knowledge of the People. "_You must, of course, be true to +your clients and the courts, but you must also give speedy justice to +your fellow-citizens, more speedy than you have yet given, and you +must give them a chance to know their laws._" + +Owing to the immense difficulties in the way of any one person +mastering the various branches of the law in this country, it is +falling more and more into specialties, and lawyers are devoting +themselves to some one of its many branches, the main division line +being between "Law" and "Equity" technically so-called; and whenever +one becomes eminent along any line, his compensation is apt to be very +large owing at once to a large Demand and to a small Supply at that +point, while the average compensation of the lawyers as a whole class +is meagre enough, because there are too many of them, and the people +have become very suspicious of the law's meshes and delays. + +(c) The grounds for the unabating Demand in Christian countries for +religious teachers and preachers, let us rather say, for spiritual +guides, lie deep down in the nature of man. If there be one +proposition about men more incontestable than another, it may be this, +that men are made in the image of God, and that there is among men in +general an irrepressible striving to maintain and deepen this image. +The touch between man and man and between man and God is such at this +point, that men can help each other in this striving, and that they +_feel_ that they can help each other. This is the chief reason why +some men are constantly consecrating themselves to the Christian +ministry, and other men as constantly soliciting these to become their +pastors and teachers. Those more enlightened in divine things and more +spiritually minded offer themselves, as it were, not commercially but +morally, to the unenlightened and less advanced as guides and helpers. +It is, as it was with Wolfe and his men at the Heights of Abraham: +those who got first to the top tarried a little to help those up who +came after. And the most striking thing about it is, that the masses +of men at bottom are as desirous to be uplifted as the choicer spirits +among them are desirous to help the work forward. Ministers are still, +and always will be (human nature is unchangeable), eagerly called; +chapels and churches and cathedrals are still going up all over the +earth; worship and petition and aspiration are ever ascending on the +great world's altar stairs towards heaven, guided and inflamed by the +chosen and choosing men of God,--"_when priests on grand cathedral +altars praise_!"[5] + +It is a monstrous perversion of language to maintain, that a clergyman +in rendering such services as these is selling his religion. It is +true, that he is selling under Demand services to the appropriate +rendering of which his own personal piety contributes one large +element, and thorough confidence in him on the part of his people as a +good and earnest man contributes another large element; but the piety +and the spiritual power and the worthy example are not nourished for +the sake of selling the services, but for their own sake in personal +worth and worthiness, and these things must not be confounded with the +services that are sold. Accordingly, while the clergyman's vocation is +sacred, and belongs to the sphere of religion, his salary belongs to +the sphere of exchange, and its determination, in harmony of course +with the higher impulses, is a business transaction. This distinction +ought to be better understood than it is; and both clergymen and +people need to be reminded that the spiritual things belong to one +sphere, and the temporal things to another. The amount of a minister's +salary, and the time and mode of its payment, are matters of pure +business; and the minister himself is to be blamed if he does not +attend to them, and insist on them, on business principles. + +In the professions generally, and particularly in the ministerial +profession, while, if we confine our attention to those persons who +both have the requisite gifts of Nature and have been also thoroughly +trained, we shall find a high rate of compensation on the two grounds +of a strong Demand and a limited Supply, we must bear in mind too the +counter-working influences which tend to increase the competition and +thus decrease the compensation, namely, the respectability which +attends them, the desire of knowledge for its own sake which is gained +in connection with them, the instruction wholly or in part +gratuitously offered to those in course of preparation for them, and +the desire to do good without regard to pecuniary reward which +actuates many who enter upon them. + +(d) Physicians and lawyers and clergymen serve primarily individuals, +or at most relatively small groups of individuals, and of course look +for their pay to those whom they have served. It is different with +Statesmen, the fourth class of professional laborers that we need to +look at in an economic view. Statesmen worthy of the name serve at +least a whole nation, and to the nation as such must they turn for +their pecuniary rewards. And such men have never turned in vain to +those whom they have benefited as a whole. Bismarck is the best modern +instance of a Statesman, who has received from a grateful country +immense money-measured remunerations for immense political services +rendered. The Demand for the services of Statesmen rests in the deep +consciousness of men organized politically into a Nation, that they +need, especially in trying times, a Man of the highest natural gifts, +and of the broadest attainments and of the loftiest political +integrity to plan and act for them in emergencies, as they are +conscious that they cannot plan and act for themselves organically. +This does not mean, that the one ever knows essentials better than the +many: he does not. This does not mean, that the true objective of a +nation's march is ever discerned more clearly, or rather _felt after_ +more eagerly, by one man than by the many men concerned: it is not. +Still less does it mean "_a man on horseback_." But it does mean this: +a Nation (as the very name implies) is made up of the thoughts and +hopes and throbbings and dim forecastings and half-formed purposes of +multitudes constituting a unit (born together for one destiny on +earth); and the true Statesman is one of themselves, sharing with them +at once the traditions of the past and the perspectives of the future; +one, with the instinct and the intellect to gather up and embody the +general feeling and the general will; one, who has gained in some way +the confidence of the masses who are willing for the time being to +entrust to him the guidance of their affairs, and to empower him to +plan and act for them as their champion and deliverer; and one, who +(because he _is_ one) can better seize the propitious moments for +declaration and negotiation and public action, yet who never forgets +that he is nothing but an _agent_ for others, and is as ready to lay +down responsibility at the public will as to assume it at the public +will. + +Washington was such a statesman, and Lincoln. Even Bismarck, under +monarchical and later imperial environment, disclaims anything +substantive and original in his own action: he did what he could not +help doing: he followed the instincts of Prussia, and his own; and +became the means of fulfilling as they gradually ripened the longings +of the other German people for unity and order. Such a statesman was +Chatham in England, and Cavour in Italy. Now, such services as these, +done for a whole people, always deserve and usually receive, though +not expressly bargained for beforehand, yet implied in the public +devotion of one party and the general _consensus_ of the other, +extraordinary honors and emoluments. This is right, even on purely +Economic principles. The services of great statesmen to their country +in great epochs and emergencies are at once a gift and a sale, they +are both patriotic and economic, there is equally a national Demand +for them and a grateful recognition of them, the Supply is always +exceedingly rare and the reward often exceedingly great; and it is to +be put down to the lasting credit of the science of Economics, that +its peculiar motives and results may mingle in and harmonize with the +motives and results of the higher moral impulses, such as those of +Patriotism and Religion, as in the cases of the Soldier and Statesman +and Clergyman. There was no rational ground for the hesitation of +Garibaldi to receive from the Parliament of Italy in 1875 an annual +pension of 50,000 lire. + +(e) There is a single class more of Professional laborers, loosely +so-named, which should be noted before we dismiss the subject of +Demand for laborers to pass to consider the Supply of them, namely, +Literators and Artists and Actors of the highest rank. Statesmen +primarily serve the individual nation that selects and rewards them, +though their influence may indirectly uplift other nations also; but +the great Writers and Painters and Actors, whatever may be their local +habitation and name at first, soon come to belong to the world at +large and to derive their revenue from many lands, because the highest +Art is cosmopolitan in its own nature, and the best characterization +of men as such cannot but be the property of Mankind. Shakspeare is no +longer English, nor Angelo Italian, nor Mozart German, nor even +Bernhardt French. Deep as are the scars and the sea that separate +nation from nation, there is something deeper still in the innate +recognition by man of man as depicted by the great Masters in immortal +lines. There is, accordingly, a sort of Demand in the inmost soul of +Humanity as such for these living and lofty touches and delineations +of itself, whencesoever they may come. There is not indeed nor can +there be, as in most other cases of sale, a bargain made beforehand +between these preordained sellers of the rarest services and their +silent yet waiting purchasers, yet there is after all an antecedent +and an assured understanding between them. They are in touch even +across the sea. The master strikes his chord, and the audience, fit, +though few and scattered, listens and applauds _and makes return_. + +Is the principle of "International Copyright," so-called, correct? Let +us look narrowly before we pronounce. At present this good country of +ours makes itself a mocking and a by-word even to its own intelligent +and art-loving citizens by putting a tariff-tax of 30% on paintings +and statuary by foreign artists, not at all to get revenue thereby, +but to "protect" domestic artists in their inferior work by +artificially lifting the price of their wares. So far is carried this +jealousy of foreign works of art, that when the artists generously +loan them for exhibition on our national occasions, they are put under +bonds _not to sell them on this side_ without previously paying the +tariff-tax, which is graciously intermitted during the Exposition. +This is Restriction. This is Protectionism pure and simple. This is +legally excluding the Better in order to give a forced currency to the +Worse. Now, domestic Copyright restricts the sale of any book to one +publisher in his interest and in that of the author. The book now in +the reader's hand is thus copyrighted. This legal arrangement between +authors and publishers and their public may be perhaps logically +defended, it may even be for the public weal on the whole, though in +many cases it doubtless raises the price of good books, which would +have been published without any such artificial encouragement. The +copyright, however, like all patent-rights also, soon expires by +limitation of time, and the public thereafter have the unrestricted +use of what is really their own. + +For what is sometimes called "literary property" is not property in +the strict sense of the word. A book is not like a plough or a house. +Its contents even when most original have been but colored, as it +were, and rearranged and reinforced by the author's individual mind. +Its substance always comes out of the common stock. It cannot be the +author's own, as the bushel of wheat is the farmer's, who sowed the +seed on his own land and threshed it in his own barn and carried it to +market in his own wagon. The rights of the individual and the rights +of the Community commingle more or less in private property of every +kind, at least to the extent that the latter may tax the property if +needful for the common wellbeing, as it is bound also legally to +secure it to the owner when threatened by others; it is no part of the +purpose of the present book to draw the wavering line in general +between the rights of individuals and the rights of their Government +as towards them; but the distinction between common property and +copyrighted property is plain enough to everybody, and the Law puts +emphasis on the distinction by making the one quickly terminable and +the other continual. So then, when the Government under which the +author resides, has given him a limited copyright within its own +jurisdiction, it would seem as if the individual right in the premises +had been sufficiently recognized alongside of the undoubted right of +the Whole to the ultimate use of the labors of their own citizen. + +When, however, it comes to International Copyright, which is an +attempt to secure to authors of one country artificial privileges +under restriction in selling their wares in all other countries, the +argument breaks down. Even for the one country, in which the author +lives and is taxable, the argument is not very strong, and hardly +binds advanced public opinion either as to the grounds of it or even +the practical benefits of it on the whole. By the attempted extension +of it to all countries, its reasonableness disappears. Taxation cannot +extend beyond the jurisdiction of the country taxing; and it certainly +seems as if a legal privilege, beyond common law privileges, ought not +by extension through the formal action of other countries to exempt +from taxation (in case it were needful) the results of the original +privilege. The purpose of International Copyright is not the blessed +one as announced to the world by James Smithson, "_the increase and +diffusion of knowledge among mankind_," but directly and artificially +by means of legal restrictions the "increase" of the prices of books +and of other "knowledge" to the masses of "mankind," and the +"diffusion" of these extra prices as between authors and publishers. +Protectionism does not seem to be one whit more respectable in this +form than in the form of tariff-taxes on foreign works of art. + +2. We have already seen in our first chapter the proofs of the +proposition, that the Value of anything whatsoever bought and sold is +determined by the Demand for it and the Supply of it then and there +present. Also we have now seen at considerable length the main phases +and grounds of the Demand for each of the three classes of Personal +services bought and sold among men. The next topic in order is the +Supply of personal services in the various markets. Here it will not +be necessary to distinguish particularly the three classes of +Services, inasmuch as the circumstances governing the Supply in each +are substantially similar. + +In Economics generally we have to deal chiefly with Persons, and only +subordinately with Things; when we come to the Supply of personal +services, answering to the Demand for them on the part of other +persons, this point becomes conspicuous; and it is here, if anywhere, +within the realm of our science, that we need to devote a word to a +singular doctrine, that has been famous for nearly a century under the +term of _Malthusianism_. Thomas Robert Malthus, 1766-1836, was an +English clergyman and teacher, a wide traveller and keen observer of +men, one who divided his time during a long life between cure and +chair and the libraries of the Universities, published in 1798 his +"_Essay on the Principles of Population as it affects the Future +Improvement of Society_"; in this and in subsequent editions enlarged +and enriched, he brought out with its proofs the core of his startling +pronouncement, that the human race is found to increase in numbers in +something like geometrical progression, while the means of subsistence +for them on any given area of agriculture can only increase in +something like arithmetical proportion; the United States was then +doubling its population in 25 years, and he calculated that, at this +rate, the inhabitants of any country in five centuries would increase +to above a million times their present number, which would give +England in that time more than twenty million millions of people, or +more than could even get standing-room there; for this natural +tendency of the law of human fecundity to outstrip the results of the +law of returns from land, he saw no remedy except in checks to +population, which he divided into _the positive_ and _the preventive_, +the first of which, such as war and famine and disease, increase the +annual number of deaths; and the second of which, such as prudence in +contracting marriage and temperance after marriage, diminish the +number of births; and Malthus and his followers, among whom the famous +Thomas Chalmers was prominent, were at great pains to inculcate upon +the laboring classes the duty of later marriages and fewer children, +as an indispensable condition of their rise in comforts, and of "the +future improvement of Society." + +These discussions have attracted great attention almost to the present +day, and have been supposed to be very pertinent to the subject of +wages, and thus to be an important part of Political Economy; but when +one looks more closely, the force of that spring of population which +the Creator has coiled up in the nature of man, as contrasted with the +weakness of that power by which the earth brings forth sustenance for +man, is seen to be a topic in Physiology and not in Political Economy +at all. Political Economy presupposes the existence of Persons able +and willing to make exchanges with each other, before it even begins +its inquiries and generalizations. How they come into existence, the +rate of their natural increase, and the ratio of this increase to the +increase of food, however interesting as physiological questions, have +clearly nothing to do with our Science. Each adult human being is as +much constituted by Nature to receive personal services as to render +them, in Economics each without exception receives when and because he +renders, and all alike are naturally able to become capitalists also; +economical laws present no obstacles, that we can see, to all men +becoming _rich_, as we use that term; the town or city in which many +people are growing rich simultaneously, is the best place in the world +for other people to go to get rich in, and not at all towns in which +other people are getting poorer; most men are unwilling, some perhaps +may be unable, to fulfil the moral conditions of growing rich; while, +we may depend upon it, the famines of the world have been caused more +by the indolence and want of foresight of individuals, and especially +by the monstrous maladministrations of Governments, than by any law of +the increase of population. + +Experience too has shown, that the strong impulse in mankind towards +procreation is not too strong for the purpose intended by the Creator; +that HE who is the author of the impulses is author also of natural +counterworkings of them; that, as men under moral and religious +training come more and more under the influence of reason and +affection, the preventive checks to population come silently and +effectually into operation; and that, taking the world at large, food +and comforts have more than kept pace with the stride of population, +since its inhabitants as a whole were plainly never so well fed and +clothed and housed as now. The abstract antagonism of the law of the +increase of population with the law of the increase of food, or what +we prefer to call the law of diminishing returns from Land, may be +admitted, if one chooses to insist on it; but any practical _tendency_ +of these to come into collision, as the world is and is to be, is +confidently denied. When Malthus wrote, and long afterwards, England +was under the dominance of Protectionism; the wretched Corn-laws +forbidding the importations of foreign grain, in order that the +domestic growers might sell to their countrymen at artificial prices, +and thus grow the richer as bread became the dearer, were only +repealed in 1846; and the demonstrated ability of Great Britain under +free trade to draw on the fertility of the whole world for the +steadily and increasingly cheap maintenance of her people, +demonstrates the irrelevancy of Malthusianism to the Science of +Economics. + +The Supply of personal services at any time or place in answer to the +Demand for them, is affected by several important circumstances, which +we shall now proceed to consider in their order. + +(a) The _agreeableness_ or disagreeableness of rendering a given set +of services will affect the Supply of laborers at that point, and help +to determine the rate of Wages paid to them; because the more +agreeable employment will attract the larger number of laborers, will +experience in consequence the press of competition, and the rate of +wages then and there will be lessened thereby. The more disagreeable +employment will feel less the pressure of numbers, and will secure, +other things being equal, a higher rate of remuneration in +consequence. Among the elements which, in spite of diversity of +tastes, make any employment agreeable or disagreeable to the laborers, +are (1) the less or greater exertion of physical strength required, +(2) the healthfulness or unhealthfulness of the service, (3) its +cleanliness or dirtiness, (4) the degree of liberty or confinement in +it, (5) the safety or hazard of the employment, (6) the esteem or +disrepute of it in public opinion. To illustrate each of these in +order, the stone-mason, the glass-blower, the scavenger, the factory +operative, the worker in a powder-mill, the smuggler, will each +receive a larger compensation owing to the peculiar element of +disagreeableness involved in his own personal service; and he will be +able to demand and secure the higher rate through the action of this +disagreeableness upon the Supply of such laborers. Of all these +elements, public opinion is perhaps the most operative; and if this be +favorable to an employment, and some social consideration be attached +to it, and only common qualifications be required for it, the wages in +it will infallibly be low. This is doubtless the main reason why so +many young women prefer to teach, rather than be employed in mills or +shops or offices, and why the wages of female teachers have been so +remarkably low; although each of the elements of agreeableness +specified above may also contribute something towards the same result. +If a business be decidedly opposed to public opinion, it must hold out +the inducement of a large reward, or nobody will engage in it. This +explains the abnormal gains of the slave-trade, the liquor-business, +of gambling-houses, and of lotteries. + +(b) The _easiness_ or difficulty of learning to render acceptably a +given set of personal services, will have a quick and constant +influence on the Supply of these services, and of course also on the +rate of the return paid for them. The elements of this Difficulty in +general are time, expense, lack of natural gifts, want of foresight on +the part of those concerned, and lack of push and persistency on the +part of the learner himself. To put a boy apprentice to a trade, for +example, requires on the part of the parents a foresight, an ability +to get on without his immediate help, and sometimes also an amount of +money for his board and clothes which all parents do not possess; many +boys too, who must acquire their skill to sell personal services when +they are young, if at all, find on trial that they do not like the +trade, or have not the requisite gifts, or fail in the appropriate +patience and propulsion; and the consequence is, that the Supply of +laborers along that particular line is lessened, and the right to +demand and the ability to secure a higher rate of wages than is +accorded to common laborers accompany the small supply, through the +reduction of numbers which these obstacles at the entrance occasion +and the consequent weakness of competition. This is one principal +ground of the difference in the wages of skilled and unskilled +laborers; the other being, as we have seen, the stronger and more +constant Demand for the former, owing to the impulse imparted by +Capital. All these points of difficulty at the outset apply still more +strongly in the case of professional laborers, serving more +effectually to thin out the ranks of these, and pushing upward still +higher the gauge of compensation for the successful competitors. + +(c) The _constancy_ or inconstancy of prospective employment in a +given business, is a consideration that affects the Supply within it, +and then the wages. If the services be of such a character, that they +can only be carried on during nine months of the year, the wages of +the renderers will be greater by the day or the month than they would +be, provided the services were in order during all the twelve months. +The laborer is apt to look at the aggregate earnings of the year, and +will hardly take up a trade which affords employment but a part of the +time, unless some compensation can be found in the higher wages for +that time. This is the chief reason why the wages of the mason and +house-painter, in this climate at least, are higher than those of the +blacksmith and carpenter. The coachman, also, may stand by his horses +half the day or night with no call for his services, and must have, +therefore, a proportionably higher fare from those whom he does +transport. In general, it is found that men prefer a constant +rendering with a lower rate of pay, than an inconstant one with a +prospect of larger wages for the particular jobs actually done; and +because the many prefer that, those who take up with the other are +able to secure a higher relative rate of pay in their less eligible +vocation. It must be noticed, however, as counterworking this, that +some men have desire for intervals of leisure in their business, and +for opportunity to make these intervals subservient to some avocation +or other means of livelihood. + +(d) The _probability of success_ or the opposite in any line of +personal services, is a circumstance that has some influence on the +rate of wages paid in it, through the action of this probability on +the numbers of those who enter upon it. If ultimate success be +doubtful, fewer persons will naturally engage in such a business, and +those who dare in it and succeed, will probably reap a very high +reward. So, also, those who take jobs by the contract, and therein +assume more or less of risk, are commonly paid at a higher rate for +their services than those who do similar work by the day. It is true, +that this is owing partly to the fact that the contractor usually puts +in his own capital more or less, and must therefore be paid profits as +well as wages, and also that the wages of superintendence are due to +him in addition to ordinary wages; still, there is a residuum of +difference, which can only be accounted for by the risk he runs of a +successful issue of his contract. The general variation in Supply and +wages from this fourth cause, would certainly be greater than it is, +were it not for the overweening confidence which men in all +generations seem to have in their own good luck. This excess of +worldly faith is always seen in the rush which is made for newly +discovered mining regions. It was seen to perfection in 1889 in the +uncontrollable advance of thousands _into_, and their almost immediate +exit _out of_, the then just opened territory of Oklahoma. The +facility with which lottery tickets are sold even yet in many +countries proves the prevalence of this over-confidence. It is +demonstrable beforehand on the doctrine of Chances, that no person can +rationally buy _any_ lottery ticket at its advertised price, because +if that person should buy all the tickets advertised he would +certainly lose money, since the sum of the prizes is always less than +the sum of the prices. Otherwise the projectors of the lottery would +always lose money. + +(e) The _mobility_ or immobility of laborers as a class acts powerfully +upon the Supply of them at any one time and place, and consequently +upon the rates of wages then and there. In some countries, notably in +the United States, laborers as a class move from place to place with +considerable facility under the action of Demand for personal services. +According to the Census of 1870, 7,500,000 of the native population +dwelt in other States than those in which they were born. Many of +these, doubtless, had left their native region to obtain more fertile +land, and many also to obtain more remunerative employment as laborers. +The native American, more than most other persons, is not only willing +to move from place to place in the hope of bettering his condition, but +is also willing to change his occupation from time to time in the same +hope. There is more freedom of movement locally, and less fixedness of +occupation on the part of laborers and others, in this country than in +any other industrial country. Even foreign immigrants here,--factory +operatives, miners, and other laborers,--seem to catch after a while +the spirit of the country in both these respects. There is one +considerable advantage in all this, namely, competition becomes more +uniform in all places, an unusual demand for laborers at any one point +is easily met, and wages neither rise so high nor fall so low at +special points as they otherwise would. But there are considerable +disadvantages in all this too, chiefly these, the services of laborers +floating locally or changing the kind of their labor can never become +so excellent as service more _steady_ in place and time; and, +especially, thorough apprenticeships, or whatever may be equivalent to +these, are held in too little esteem by public opinion, and are too +little requisite in order to obtain transient employment. To meet the +obvious pressure of these disadvantages, an admirable device is now +being hit on, namely, to introduce into our public schools something in +the way of "manual training" for the various trades. Public +institutions also, some of them on a great scale, as the Cooper Union +in New York and a more recent munificent foundation in Philadelphia, +have been established on purpose to train boys and girls both in eye +and hand to render skilfully those artisan services of the various +kinds which will always be in demand among men, and which have +certainly deteriorated among us owing in part to the disuse of the old +apprenticeship-system. + +In Europe, on the other hand, the laborers as a class are far less +mobile than here; and in Asia still less so. There is said to be no +country in Europe in which the proportion of foreigners to the native +population exceeds _three per centum_. In England, which is a small +country, the difference in Wages between the northern and southern +counties is very remarkable. Professor Fawcett is authority for the +statement, that an ordinary agricultural laborer in Yorkshire during +the winter months earns 13 shillings a week, while a Wiltshire or +Dorsetshire laborer doing similar work during the same number of hours +earns but 9 shillings. The contrast in general between the Wages of +English agricultural laborers and those paid in mills and mines and +furnaces is still more striking. And so more or less, in respect to +the Value of Commodities: competition is yet by no means perfect in +distributing these so as to make their price uniform in the same +country or even in the same county; but the immobility of laborers for +an obvious reason is much greater than the immobility of goods. While +laborers should certainly be free to go wherever their services may be +in greater Demand, the natural reluctance of most men to leave their +native haunts, enables each of the nations to work out its freely +chosen ends without wholesale interference from abroad. If China +should precipitate itself upon the United States, or India upon +England, as the mere _economical_ impulse might indicate, it would be +disastrous to the western nations; but men are everywhere under other +influences besides the economical one, although this is strong and +distinct and pervasive; Political Economy deals with men as they _are_ +all things considered, and with Buying and Selling as this actually +takes place over the world, or rather as it would take place if +factitious economical restraints were removed; and Providence has +other great ends in view besides commercial prosperity, vital as that +is to all other progress, and often holds one impulse in check by a +stronger one. + +(f) _Custom_, with its cognates Prejudice and Fashion, has still a +good deal to do with the Supply of laborers in certain departments of +effort, and of course with the rates of wages in them. In former times +in this country and in the older countries particularly, Custom and +decree were dominant in determining, for example, the current fees of +lawyers and doctors, competition coming in to decide how many such +fees a professional laborer should get, rather than the amount of each +particular fee. The shares of the produce going respectively to the +agricultural tenant and to the landowner, were specially under the +dominion of Custom; as the mode (now decadent) of taking farms "_at +the halves_," once universally prevalent in New England, sufficiently +shows. In certain other matters relating to land and trade, Custom has +long been gradually hardening into express law, as, for instance, the +famous "Ulster Right" in Ireland. Prejudice, which is only another +name for Custom, has some voice still in adjusting rates of wages, as +may be seen in women's wages crowded down apparently to a point +unreasonably low as compared with the wages of men; and also in the +rate of John Chinaman's wages in those parts of the United States +where he ventures to offer his services in the teeth of public opinion +and hostile legislation. It may be spoken with general truth and +satisfaction, that competition seems now to be breaking down mere +custom and prejudice in all directions, and may perhaps in the good +time coming reign supreme over the economic field; while Fashion, +which bears indeed on one side of its shield the motto "custom," +carries too on the other the bold word "competition," and this second +side is likely to be presented to the public mostly in the future, +because, they who lead the styles in any department whatsoever will +always offer their services to Society at an advantage to themselves, +that being one form of competition, and their rate of compensation +will be legitimately higher than the average rate of their fellows, of +which a good instance was the marked worldly prosperity during the +decade of the Eighties of Worth, the man-dressmaker of Paris. + +(g) _Legal Restrictions_ are another cause acting on wages, by acting +directly on the Supply of laborers. Laws inhibiting or promoting +immigration; laws appointing the fees and salaries of officials; +tariff-taxes, whether prohibitory or only restrictive; laws creating +privileged classes of any kind, which is only another designation for +laws restricting the rights of the masses; unequal modes of taxation, +whether adopted in ignorance or by design; all have a direct and +powerful agency upon the distribution of laborers, upon the supply of +them at given points, and upon the rates of their wages. Governments +are coming, however, much more freely than formerly, but never through +their natural choice and drift as governments, only by the gradual and +oft-disappointed compulsion of their citizens, to leave all these +matters Economical except the wages of their own servants and those +commodities which they choose to tax, to the simple and safe action of +Supply and Demand. + +(h) _Voluntary Associations_ for that avowed purpose were a mediæval, +and have come to be again a modern, agency in adjusting the Supply of +laborers to their respective markets, and in regulating the wages of +various classes of them. The Guilds of the Middle Ages, and +particularly the old guilds of London, had a remarkable history, upon +which we can not here even touch. Their local importance is +sufficiently attested by the fact, that the City Hall of London is to +this day the "Guildhall." King Edward III. humored the civic feeling +of his time by becoming himself a member of the Guild of Armorers. "A +seven years' apprenticeship formed the necessary prelude to full +membership of any trade-guild. Their regulations were of the minutest +character; the quality and value of work was rigidly prescribed, the +hours of toil fixed from daybreak to curfew, and strict provision made +against competition in labor. At each meeting of these guilds their +members gathered round the Craft-box, which contained the rules of +their Society, and stood with bared heads as it was opened. The warden +and a quorum of guild-brothers formed a court which enforced the +ordinances of the guild, inspected all work done by its members, +confiscated unlawful tools or unworthy goods; and disobedience to +their orders was punished by fines, or in the last resort by +expulsion, which involved the loss of right to trade. A common fund +was raised by contributions among the members, which not only provided +for the trade objects of the guild, but sufficed to found chantries +and masses, and set up painted windows in the church of their patron +saint. Even at the present day the arms of the craft-guild may often +be seen blazoned in cathedrals, side by side with those of prelates +and kings."[6] + +The Trades-Unions and Brotherhoods of the present day cannot plead the +provocations and justifications of their mediæval predecessors. It +cannot be denied, however, that they have some provocations and +justifications in the bad example set before them by the various +combinations (implied or explicit) of the Wages-payers as a class. If +the Wages-payers combine, then the Wages-takers would seem to have no +resource but in combination. Both alike are wrong in this. Both alike +oppose in this the spirit of Political Economy, which is ever the +spirit of Freedom, and is ever against such factitious associations +for such purposes, because they tend to destroy the independence of +personal action on the part of both payers and takers of wages, and +tend also to bring all the workmen of any one general grade down to +one level of effort and reward. + +(i) Lastly, we must note the influence of _Casual Events_ upon wages, +as these events affect the Supply of laborers. For example, in 1348, a +terrible plague, called the Black Death, invaded England and swept +away more than one-half of its population. "Even when the first burst +of panic was over, the sudden rise of wages consequent on the enormous +diminution in the supply of free labor, though accompanied by a +corresponding rise in the price of food, rudely disturbed the course +of industrial employments; harvests rotted on the ground, and fields +were left untilled, not merely from scarcity of hands, but from the +strife which now for the first time revealed itself between Capital +and Labor" (Green). The landowners of the country districts, and the +craftsmen of the towns, not understanding the law of Wages as an +invariable resultant of the Demand and Supply of laborers, were +scandalized by what seemed to them the extravagant demands of the new +labor-class. Parliament equally ignorant with the People of the +natural economic law, enacted as follows: "_Every man or woman of +whatsoever condition, free or bond, able in body, and within the age +of threescore years, and not having of his own whereof he may live, +nor land of his own about the tillage of which he may occupy himself, +and not serving any other, shall be bound to serve the employer who +shall require him to do so, and shall take only the wages which were +accustomed to be taken in the neighborhood where he is bound to serve +two years before the plague began._" Afterwards, the runaway laborer +was ordered by Parliamentary enactment to be branded in the forehead +by a hot iron, and the harboring of the country serfs in the towns, in +which under their civic rules a serf keeping himself a year and a day +was thereafter free, was rigorously forbidden. These acts of +Parliament, and many more of the same kind, were powerless to keep +down wages to the old standard, but were powerful to keep up ill-blood +and social discontent. They prepared the way for agitators like John +Ball, for the poet-agitator Piers Ploughman, and for the great Peasant +Revolt of 1381. John Ball's famous rhyme condensed the scorn for the +nobles, the longing for just rule, and the resentment at oppression, +of the peasants of that time and of all times:-- + + "When Adam delved and Eve span, + Who was then the gentleman?" + +A hundred years after the Black Death the wages of a common English +laborer--we have the highest authority for the statement--commanded +twice the amount of the necessaries of life which could have been +obtained for the wages paid under Edward III. + +3. Having now seen fully the varied action of Supply and Demand upon +the Value of personal services in their three kinds, we come at length +to the most important general point in this chapter, namely, that in +the second class of Services, those purchased in connection with the +use of _Capital_, WAGES ARE ALL THE TIME ENLARGING RELATIVELY TO +PROFITS. We have seen clearly already, that Cost of Labor and Cost of +Capital are the only onerous elements in the cost of Commodities; +because, while Natural Agents are all the time assisting and assisting +more and more effectively in such production, they work without +weariness or decay and without fee or reward. The reward of laborers +is Wages, and the reward of capitalists is Profits; and we are now to +demonstrate, that the part of their joint products falling to laborers +as wages is all the while increasing as compared with the remaining +part falling to capitalists as profits. This truth is of the deepest +significance, and of the most cheering character; because men are more +important in the universe than things; and because the number of men +who sell their services as laborers is vastly greater than the number +of men who sell their services as capitalists. + +It is another indisputable and exhilarating truth for the masses of +mankind, that the Value of each item or article of those products +created by the joint action of laborers and capitalists is ever +becoming less and less as measured by any relatively fixed standard as +Money; so that, while wages as thus measured becomes a larger and +larger aggregate as compared with the aggregate of profits, and is +shared of course by a much larger number of people, those commodities +looked at as a collection of items for which the wages of these many +is usually expended for their own comforts, are becoming all the time +cheaper and cheaper to everybody, owing to the ever-enlarging and +wholly gratuitous action of natural forces. + +For the sake of simplicity in the argument on this great point, we +will first look at what the facts are through recent illustrations +gathered by other parties for a wholly different purpose, and then +give in detail the economical grounds for these patent and universal +facts. Take for example, from Poor's Railroad Manual for 1889 a table +showing in a graphic way the steady reduction in freight charges per +ton per mile from 1865 to 1888 of seven representative Eastern trunk +railroad lines, namely, the Pennsylvania, Fort Wayne and Chicago, New +York Central, Michigan Central, Lake Shore, Boston and Albany, and +Lake Erie and Western; and of six leading Western roads, namely, the +Illinois Central, St. Paul, Burlington and Quincy, Chicago and +Northwestern, Rock Island, and Chicago and Alton. The following are +the figures:-- + + RATE CHARGES PER TON PER MILE (IN CENTS). + + +------+----------+----------++------+----------+----------+ + | Year.| Eastern. | Western. || Year.| Eastern. | Western. | + +------+----------+----------++------+----------+----------+ + | 1865 | 2.900 | 3.642 || 1877 | .971 | 1.664 | + | 1866 | 2.503 | 3.459 || 1878 | .898 | 1.476 | + | 1867 | 2.305 | 3.175 || 1879 | .764 | 1.279 | + | 1868 | 2.132 | 3.151 || 1880 | .869 | 1.389 | + | 1869 | 1.860 | 3.026 || 1881 | .763 | 1.405 | + | 1870 | 1.593 | 2.423 || 1882 | .756 | 1.364 | + | 1871 | 1.478 | 2.509 || 1883 | .829 | 1.310 | + | 1872 | 1.504 | 2.324 || 1884 | .740 | 1.220 | + | 1873 | 1.476 | 2.188 || 1885 | .636 | 1.158 | + | 1874 | 1.332 | 2.160 || 1886 | .711 | 1.111 | + | 1875 | 1.161 | 1.979 || 1887 | .718 | 1.014 | + | 1876 | .985 | 1.877 || 1888 | .609 | .934 | + +------+----------+----------++------+----------+----------+ + +This reduction of rates in the case of the group of Eastern roads has +amounted to 79 _per centum_, and in the Western group to 73 _per +centum_, in the twenty-four years. Not less remarkable than the extent +of this decline in freight charges per mile is its uniformity. Both +groups show a wonderful steadiness in the progress of rate reductions. +Starting at quite different points as to territorial development, they +have yet travelled at a nearly equal pace in the same direction. This +shows the operation of causes at once steady and universal. Statistics +can never of themselves yield us _causes_; but they guide the way to +them; at any rate, they prevent any radical misinterpretation of them. +The great and overshadowing cause here of the cheaper freights per +ton, as everywhere else of cheaper rates at the junction of efforts +by capitalists and laborers, is of course the perpetual and augmenting +and ever-gratuitous assistance of natural forces at every point. + +While the rates of freight per ton have decreased more than +three-quarters in less than one-quarter of a century in the case of +these 13 railroads on the whole average, the entire cost of the +operation of these roads in this interval of time has not been +diminished to any appreciable extent, as also stated by the same +Manual. The main item in all the operation-expenses of railroads is +the wages paid to the laborers of all grades; and the laborers are +quite as well paid now on these 13 roads as they were in 1865, proper +allowances being made for the changed and changing standards in the +national Money. If, on a broad view, railroad employees of all grades +have lost nothing as such in their wages in this interval; and the +general public, including these laborers and also the capitalists +concerned, have greatly gained, how can we account for the immensely +lessened freight-charges while the whole operation-expenses continue +substantially as before? + +There is only one rational account to be given of this. And it is +trustworthy. All known facts jump with it, and nothing substantial can +be urged against it. The gains to the masses including the capitalists +and the laborers _have come out of the capitalists as such_. This is +apparent as well as real. Cost of Labor and Cost of Capital is the +whole cost. If the whole cost of moving one ton of freight from Boston +to Chicago is 3/4 less than it was 1/4 of a century ago, the cost of +the labor being the same at the two points of time, then the +conclusion is inevitable, that the _cost of the capital_ at the second +point is less than it was at the first point. With this conclusion all +facts agree. All the laborers connected with a railroad from highest +to lowest must be paid at any rate, or else the trains will certainly +cease to move, whether the stockholders receive any dividend or not on +their capital invested. The original _stock_--the capital that built +the roads--of many if not of most the railroads in the country, has +been annihilated, a new indebtedness in another form called _bonds_ +having taken the place of it. Even the nominal dividends of +dividend-paying roads have declined in the interval from 10 or 8 to 5 +or 4 _per centum_ in the general, that is, 50 _per centum_. It is +perfectly evident on every hand, that there is something in the nature +and progress of things, that makes for wages as contrasted with +profits: wages hold on and relatively enlarge, profits decline or go +out altogether. + +Fortunately we are not left to generalities here, however plain and +certain these may be. One of the 13 railroads specified above, the +Illinois Central, made a remarkable exhibit in its own annual Report +of 1887, showing the cost of its locomotive service for each year of +the thirty years preceding. This cost per mile run had fallen from +26.52 cents in 1857 to 13.93 cents in 1886. This reduction had been +effected wholly on the _Capital_ side of the account, by inventions +and improvements of all sorts in the _machinery_ of locomotion; while +the wages of the engineers and firemen had risen in the period from +4.51 cents to 5.52 cents per mile run. The cost of the labor had risen +both relatively and absolutely while the cost of the capital had +declined both absolutely and relatively. In 1857 the engineers and +firemen had received as wages 17% of the entire cost of the locomotive +service, but in 1886 they had received 39% of that total cost. The +table is as follows:-- + + I. C. R. R. CO. + + PERFORMANCE OF LOCOMOTIVES. RELATION OF WAGES TO TOTAL COST PER MILE + RUN. + + ------------------------------------------------------------------------ + | Cost of wages | Total cost|| | Cost of wages |Total cost + Years.| of engineers | per ||Years.| of engineers | per + |and firemen per | mile run. || | and firemen per |mile run. + | mile run. | || | mile run. | + ------+----------------+-----------++------+-----------------+---------- + | Cents. | Cents. || | Cents. | Cents. + 1857 |Gold. { 4.51 | 26.22 || 1872 |Currency. { 5.77 | 21.76 + 1858 | { 3.97 | 19.81 || 1873 | { 5.84 | 21.10 + 1859 | { 3.81 | 20.78 || 1874 | { 6.02 | 19.57 + 1860 | { 3.96 | 20.17 || 1875 | { 6.03 | 19.57 + 1861 | { 3.84 | 18.92 || 1876 | { 5.79 | 18.81 + 1862 |Currency.{ 3.85 | 17.42 || 1877 | { 5.54 | 17.21 + 1863 | { 3.93 | 22.28 || 1878 | { 5.46 | 15.29 + 1864 | { 5.56 | 33.52 || 1879 |Gold. { 5.41 | 14.15 + 1865 | { 5.65 | 37.44 || 1880 | { 5.41 | 14.95 + 1866 | { 5.78 | 32.67 || 1881 | { 5.54 | 16.58 + 1867 | { 6.18 | 29.62 || 1882 | { 5.09 | 15.82 + 1868 | { 6.11 | 27.57 || 1883 | { 5.35 | 15.57 + 1869 | { 5.88 | 25.49 || 1884 | { 5.28 | 14.45 + 1870 | { 5.95 | 25.15 || 1885 | { 5.49 | 15.02 + 1871 | { 5.72 | 21.50 || 1886 | { 5.52 | 13.93 + ----------------------------------------------------------------------- + + In 1857 the engineers and firemen received 17-201/1000 per cent. of + total cost. + + In 1865 the engineers and firemen received 15-91/1000 per cent. of + total cost. + + In 1867 the engineers and firemen received 20-865/1000 per cent. of + total cost. + + In 1886 the engineers and firemen received 39-627/1000 per cent. of + total cost. + +These illustrations from the railroads are plainly indicative of a +general truth of the utmost importance in Political Economy, namely, +_that all increase of Capital and all inventions and improvements in +its practical application, while it redounds to the benefit of +capitalists as a class, redounds in a still higher degree to the +benefit of laborers as a class_. Let us now attend for a moment to the +convincing Proof of this truth in two phases of such proof, and also +to a cheering conclusion that follows it. + +(a) As any country grows older in time and richer through abstinence, +and as the whole world thus grows older and richer, the tendency +there and everywhere towards a general decline in the rate _per +centum_ for the use of capital becomes patent and universal. The rate +of interest on money loaned, and the rate of profits on capital used, +tend all the while to go down as and because capital accumulates. No +one will dispute this as a simple fact of history. And no economist +will dispute, that this is just what we might expect beforehand as a +corollary from the admitted proposition, that, other things being +equal, an increased Supply of anything means a lessened Value for any +specific part of it. Three centuries ago in England the legal rate of +interest was 10%, while now the current rate is about 4% in that +country, and has been considerably lower than that in Holland, +although in both countries and everywhere else there are temporary +interruptions and reactions in the constant tendency now being +considered. During the first years of mining operations in California, +from 8% to 15% per month with security of real estate was paid for the +use of money, which enormous rates long ago declined to rates not much +higher than those paid in the States along the Mississippi River, and +in these also the rates are all the while approximating those current +in the older Eastern States, whose own rates too are slowly declining. +But, while there is a less rate of profit or interest on each 100 +invested, there are many more hundreds capitalized; consequently, +there is an absolute gain to capitalists as a class, at once in the +aggregate amount of the capital and in the aggregate sum of the +profits from it, since no capitalist would have a motive to capitalize +further under the smaller rates of profit, unless the aggregate of +profits under the new conditions were greater than under the old +condition of higher rates; and, as much of this accumulating capital +in order to become productive must now be offered to laborers in the +form of wages, we might almost pronounce beforehand, that it would +prove both an absolute and also a _relative_ gain to laborers as a +class. And so it is. + +(b) Let us take to figures. An hypothesis or supposed case, whenever +it may easily become an overt fact, may be reasoned from just as +logically and securely as the overt fact itself. Let $100,000,000, +while the rate of profit is 6%, and $500,000,000, when the rate has +fallen to 4%, be expended in payment of simple wages. So far forth as +that one element of cost goes, the value of the products to be divided +yearly between capitalists and laborers will become respectively +$106,000,000 and $520,000,000. In the first case, $6,000,000 is +profits and $100,000,000 is wages; in the second case, $20,000,000 is +profits and $500,000,000 is wages. Here is an absolute gain to the +capitalists, since profits have gone up from $6,000,000 to +$20,000,000, and so are more than _three_ times as great as before. +But wages have gone up both absolutely and relatively to the rise of +profits. They have risen from $100,000,000 to $500,000,000, and are +_five_ times as great as before. Profits have risen as in the ratio +1:3+, but wages in the ratio of 1:5. This arithmetical example is put +for the sake of illustration merely, but the principle of it holds +good in every case, in which the rate _per centum_ goes down in +consequence of the increase of capital in business; and, therefore, +the advantages of ever-enlarging Capital are even greater to laborers +as a class than to the capitalists themselves. Most assuredly, if the +capitalists take less out of each hundred of the swelling hundreds now +than before, the laborers must take more out of each hundred than +before. Profits and Wages are reciprocally the _leavings_ of each +other, because the aggregate products created by the joint agency of +Capitalist and Laborer are wholly to be divided between the two. There +can be no other _claimant_ even. + +(c) This demonstration is extremely important in Political Economy, +and consequently in Social Life; for it proves beyond the possibility +of a cavil, the Value of personal services tends constantly to rise, +not only as compared with the Value of the material commodities which +by the aid of capital they help to create (a truth we have seen +before), but also as compared with the Value of the use of its +co-partner capital itself; and therefore, that there is inwrought into +the very substance of things in this world a tendency towards an +equality of economical condition among men. God has ordered it, and +men cannot radically alter it. Self-interest is indeed the mainspring +of movement in the economic world; but the beauty of it and the wonder +of it is, that no man can labor intelligently and productively under +the influence of self-interest without at the same time benefiting the +masses of men. His fair exchanges benefit the parties of the other +part as much as they benefit himself. His very savings productively +employed are poor men's livings. Only under the blessed freedom of +universal Buying and Selling, subject only to the taxation of a good +Government for public purposes purely, can these broad benefits +designed by a wise Providence be fully realized in action; and the +power of individual greed and corporate privilege and governmental +perversion to thwart the beneficent though complicated workings of +these laws of Capital and Labor towards the common weal and universal +progress of mankind is shortlived and soon punished. + +4. How comes it about, then, if these laws of mutual inter-dependence +between capitalists and laborers are so well-placed and Providentially +balanced, that there always have been and are still so many +misunderstandings and ill-feelings and actual collisions between +employers and skilled laborers, whose interests are at bottom one and +whose relations ought to be so cordial? This is the last topic in our +Chapter on Personal Services. Here we must look around narrowly and +tread carefully. But there is a path. We can find it if we will. It +leads through many short-comings in men's characters and through much +ignorance of plain economical truths and past unreasoning jealousies +and aggregated action on the part of both classes, and over the +needful distinctions between impulsive selfishness and a true +self-interest back to the same old laws of God laid down at once in +the constitution of things and in the constitution of men. + +Labor-troubles are almost as old as Civilization. The Greek poet +Euripides in his play of the "Supplicants" both indicates facts as +they were then, and points out a future hope in which we may share, +that these middle classes by a better harmony preordained and mutually +beneficial may yet "save the State":-- + + "In each State + Are marked three classes: of the public good + The rich are listless, all their thoughts to more + Aspiring; they that struggle with their wants, + Short of the means of life, are clamorous, rude, + To envy much addicted, 'gainst the rich + Aiming their bitter shafts, and led away + By the false glosses of their wily leaders. + 'Twixt these extremes there are who save the State, + Guardians of order, and their country's laws." + +At Rome and in the Roman Empire, instead of the usual voluntary union +of capitalists and laborers for the mutual advantage of each other, +the laborer was owned by the capitalist, and the true relations +between the two were thoroughly disguised and wretchedly distorted. +Business in all its branches came to be carried on by means of slaves; +the lands were tilled by slaves; slaves became the artisans of the +country; the money-lenders and bankers of the centre scattered +branch-banks in the towns under the direction of their slaves and +freedmen; the Company that leased on speculation the Customs-Taxes +from the State had their slaves and freedmen levy these taxes at each +custom-house; the contractor for buildings bought architect-slaves; +and the merchant imported his goods in ships of his own manned by his +slaves or freedmen, and then sold the same at wholesale or retail by +the same means. In this way a gigantic system of unnatural traffic was +built up and extended. In this way the very name "laborer" became +tainted by the vile system of slavery of which he was a part, and the +distinction itself between capitalist and laborer was obliterated. +"Roman mercantile transactions fully kept pace with the contemporary +development of political power, and were no less grand of their kind." +"The Roman _denarius_ followed up closely the Roman legions." "It is +very possible that, compared with the suffering of the Roman slaves, +the sum of all negro suffering is but a drop" (Mommsen). + +We want now to examine critically the CAUSES of these constantly +recurring labor-troubles, the true economical REMEDIES for them, and +in connection with these the futility of the remedies popularly +recommended for low Wages and the disputes between employers and +employed of the second class. + +(1) There is an extremely common misapprehension on the part of both +labor-givers and labor-takers as to the real _nature_ of the +transaction between them. Both parties forget, or rather neither party +is ever fully instructed, that it is a case of pure Buying and +Selling. There is never any _obligation_ of the moral sort between +buyers and sellers. The relation itself is purely economical. Moral +considerations indeed cover this relation from above, just as they +cover all other relations between man and man in human Society; and +any two individuals standing over against one another as buyer and +seller, also stand over against each other in higher and broader +relations as man and man; but it works confusion and mischief as +between both, whenever relations differing in their nature and +operation and reward are not separated from each other in the mind of +each relator, and whenever each does not act in the particular +relation according to the nature and rules of that relation alone. +When A hires B to work in his factory, this new relation is economical +not moral; there were moral relations between the two before this +relation was knit, and will be again after this has been broken, and +indeed are while this continues; but the economical relation is one +thing, and the others a very different thing; they are so different, +that they cannot be blended in mind or motive to any advantage to +either individual or to either set of relations; and any degree of +confusion as between the relations has always wrought mischief as +between the individuals, because instead of seeing either set of +relations in its own clear light, they now see both in a commingled +twilight. + +What is the economical relation? This. A desires the personal service +of B in his factory purely for his pecuniary benefit, and assumes his +own ability to make all the calculations requisite for determining how +much he can (profitably to himself) offer B for his service; and B, +who knows all about his own skill, how it was acquired and how much it +has cost, wants to sell his service to A for the sake of the pecuniary +return or wages. There is no obligation resting upon either. Man to +man, each in his own right. There is no benevolence in the heart of +either, so far as this matter goes. Benevolence is now an +impertinence. It is a question of honest gain in broad daylight. +Benevolence is blessed in its own sphere, but there is no call for it +here and now. If it comes in an unbidden guest, it comes in to mar and +to distort. It is an incongruity. "_I never knew a Jew converted but +it spoilt him_," was the word of one deeply versed in human nature and +in Christian experience. Conversion is good, and its field is broad; +but the Jew _as such_ is incongruous with it. Good is benevolence and +wide its field, but Buying and Selling does not need it. Its own +motives are independent of it, and sufficient without it. + +A clouded understanding of this vital distinction has always played +its part in Labor-troubles. Buyers and Sellers of personal services +are always on a plane of perfect equality as such exchangers, and no +one can be more independent than either of them except the hermit in +his cell. Which must look out for the interest of the other beyond the +terms implied in the trade itself? Which is the superior party? Which +should take off his hat, the other remaining covered? The truth is, +and all experience and all analysis brings us up abreast of it, that +the two parties to a trade of any kind stand on a footing of absolute +equality towards each other then and there in the economical relation +about to be knit, and any conception in the mind of either that he has +the other "at his mercy" in either the good or bad sense of that +phrase, disturbs and destroys the proper conditions and balances of +the exchange in hand; and, what is more to the point, it implies that +each party has _not_ all he can do to fulfil in the letter and in the +spirit what is always implied in the terms of a trade deliberately +entered upon by two parties. When B agrees to work for A at skilled +labor in his factory for a year at $15 per week, he makes a good deal +of a contract; and virtually pledges to A not only the motions of his +hands for that period of time, but also the vigorous attention of his +mind to that service and to the general interests of his employer so +far as these come under his own eye and supervision. Nor is this all: +he virtually pledges himself to B to coöperate with the least possible +friction in all plans for betterment in his division of the work, and +to cordially coalesce with all other employees for the general ends of +the business without too much of self-assertion and without too little +of courtesy to others. To fulfil this contract in all its spirit +rounds up the circle of B's economical obligations to A. He will +practically have all he can do, so far as A is concerned, and in +consistency with all his various duties to others, to make good to him +at all points his simple business pledges. Benevolence, the interests +of a common citizenship, and the reciprocal ties of religion, lie +wholly outside. + +A will practically have all he can do, so far as B is concerned, to +fulfil in the letter and in the spirit his economical obligations to +him, without troubling himself to see whether B is going to vote the +same party ticket that he himself votes, and without confounding +either B's poverty or prosperity with his own obligation to be polite +to him at all times and to pay him promptly his weekly stipend. So +long as B renders in letter and in spirit what he has agreed to +render, and A returns in the same way what he has promised to return, +the less either thinks and talks and acts about the other in all the +other relations of life, the better hope of good success to both in +this relation. Church relations and social relations and political +relations are all of consequence in themselves; but when any of these +begin to get mixed up with labor-relations, there is soon a muss and a +mess. Incongruous things, things no way vitally connected with that, +often come in to disturb and destroy a simple matter of mutual +renderings. + +(a) The first practical remedy for difficulties arising under this +first head, is a clearer separation in the mind of both parties to a +trade of what really belongs to Buying and Selling from what belongs +to all other departments of activity. More common sense is needed at +this point, more simple analysis, more daylight, more personal +independence, more introspection as to motives, more power in making +distinctions, and a more practical separation of what is clear and +fixed from what is complex and obscure in human relations. Metaphysics +may yet lie in cloud-land, Ethics may not yet have drawn its outer and +interior lines so strong and deep as it will, Sociology also is a vast +field of complexities, but truth to tell Economics has no mysteries to +speak of. I buy and sell for my own advantage, which proves in the +nature of things to be for the equal advantage of my compeer. It is my +business and my compeer's business and every other man's business who +buys and sells, to pick that action out in its motive and result from +the great mass of dubious actions, and to set it up in its own light, +to rejoice in it as the clearest thing in social action, to claim it +as God's own plan so far forth for our comfort and progress, and then +to see to it that no preposterous hand mixes it up with perplexities +or theologies or other abominations--muddying with a tentative pole +the stream of our clear brook! In this country at least, in its +ignorance of common things and common science, the pulpit often +fulminates against the gains of exchange as "materialism," and mixes +up buying and selling with "worldliness," and only half permits its +deluded hearers the privileges of the market, and illustrates again in +modern times such teaching as is denounced to St. Timothy,--"_some +swerving turned aside to vain babbling, desiring to be teachers of the +Law, understanding neither what they say, nor whereof they affirm_." +"Let every shoemaker stick to his last." Those who have looked into +it with any care have found, that Exchange in all its natural +outgoings is not answerable to these pulpit charges, nor is contrary +to the letter or spirit of the biblical precepts, but on the other +hand is in full harmony with the claims of Conscience and with all the +inbreathings and aspirations of Christianity. + +(b) The second practical remedy for the labor-difficulties arising +from the want of thorough understanding by both parties of the real +nature of hired renderings of the second class, is fair _common +honesty_. More of an easily accessible intelligence, more of +penetration and separation as to social relations in general, meets +the first point; but quite as needful as this simple intellectual +process, is the still simpler moral habit of doing just what one has +agreed to do, without evasions and without diminutions. Labor +difficulties take their origin more often, perhaps, in some clouded +moral action of one of the parties, than in a clouded mental +apprehension. Men are too conscious as men of their own temptations, +to be lax in their pledged renderings and of their own shortcomings at +this point, not to be suspicious of each other as buyers and sellers, +for fear the party of the other part is about to withdraw something +either in quantity or quality of what he has promised to render; there +is almost always something or other to give color to such a suspicion, +and it grows by what it feeds on; frank explanations are not had at +the outset, and a good understanding is not come to, as it doubtless +might be in nine cases out of ten; and the little cloud, at first no +bigger than a man's hand, by and by becomes black and threatening, and +bursts at last in a strike or lock-out of large proportions. An open +honesty that is such and seems such, that is not beyond the aim and +reach of common men, that is taught in scores of forms in "Poor +Richard's Almanack," and that each man ever likes to meet with and so +ought ever to put forth, is in fact a preventive of conflicts between +laborers and employers, and would if properly manifested have +prevented multitudes of such actual conflicts. Here is the main, +almost the sole, point of contact between strict Ethics and the +Economics. What buyers and sellers, that is to say, the whole +practical world, needs, is not disquisitions on Morals from Press or +Pulpit, but an inner ear to hear the true click of Conscience, and the +quick and open answer in honest action. + +(2) A second general cause of the Labor-troubles of the past and +present has been a strong tendency to neglect the special +_preparation_ for their peculiar functions by both capitalists and +laborers. A successful employer of laborers year in and year out to +their advantage and his own is always one who has been _trained_ to +that function by special preparations. He is a living man with all the +limitations of living men: he has to deal with many living men with +all their imperfections: he has to deal also, and constantly, with +what is in its own nature dead, namely, Capital, always either a +commodity or a claim: to animate and invigorate these dead forms of +value, to put them into vital connection with living men who shall +enhance their value, and thus to become a leader to living men as +towards swelling interests, demands unusual native gifts and a special +long-continued training. When one looks from without upon such an +establishment as this in full action, it seems automatic, it seems as +if almost anybody with a clear head could continue to direct it; and +when this "captain of industry" departs this life, perhaps his son or +some previous subordinate, without the proper gifts and at least +without the peculiar training, assumes the post of direction. For a +little everything seems to go on as before. As sure as fate, however, +a friction will soon develop here, and a misunderstanding there, +there will be whisperings among the men, some breath of suspicion will +be likely to cloud the borrowing-power, opening difficulties of any +kind such as loss of credit or a weakening of the usual markets are +apt to throw a new operator more or less off his base, and gathering +labor-troubles of any sort commonly find such a man unprepared for +lack of suitable training and experience to ward them off or to make +timely concessions to the men or to minimize the evil results when +these become inevitable. + +Also labor-troubles are quite as likely to arise from the want of +character and training and considerateness of the employees towards +the capitalists. The relations are reciprocal and they are also in +their very nature delicate. One poor workman however good his +disposition, one unfaithful overseer no matter how great his possible +skill, may mar the current product in such a way as to lose it the +market and cost the establishment the present profit. The strength of +a chain is the strength of its weakest link. It is a matter of immense +difficulty at any time, and emphatically so at the present time to +organize a working force in factory from top to bottom so as to have +it go forward as a unit as towards the marketing of the product, +without bad workmanship at some point and unskilful supervision at +another; because the laborers as a rule have not given themselves time +to learn thoroughly their special parts, because they are not content +to remain steady at one thing and at one place, and because they do +not practically recognize even if they perceive it that their own +permanent interests are exactly coincident with the permanent +interests of their employers. Just now in this country the public Law +robs the manufacturers (at their own behest) of their best markets at +home and abroad, makes it difficult or impossible for them through +wanton taxation of their raw materials to create a good quality of +goods for any market, and so multiplies frictions and failures and +losses along the whole line of production. The lack of what may be +called Apprenticeship on the part of skilled laborers, the consequent +difficulty of rising from one gradation of effort to a higher and +better-paid one, the restlessness of native laborers under such +disabilities, the rapid admixture of foreigners, the lack of coherence +throughout in point of intelligence and apparent identity of +interests, together with the instability and haphazardness of the +resources and personal training of the employers as a class, gives +birth to Labor-troubles which are at the same time Capital-troubles, +to read the daily record of which makes one sick at heart. + +(a) The only possible and practicable remedy for this state of things, +so far as the employers are concerned, is in a more conservative +attitude of capitalists as a class about passing over their resources +to the hands of men who have not proven their ability to handle them +wisely by a full course of training in the management of practical +affairs. By a wretched policy in this country at present Capital is +prohibited from building and from buying ships, with which to navigate +the oceans; from selling domestic manufactures in foreign markets; and +also from a profitable agriculture, which may sell its products abroad +and take its pay back. Consequently Capital, eager in its own nature +to be invested to a profit somehow somewhere, has rushed without due +circumspection into the hands of domestic operators, who have not been +half fitted for their task, who have knitted relations with laborers +without being able to secure their permanent respect or to control +their services, and who have lost to their owners in multitudes of +cases the entire capital intrusted to them. If capitalists had had +during the last quarter of a century one-half of their natural and +proper chance to invest their money to a profit, there would not have +been such a reckless investment through incompetent hands in building +mills and foundries in this interval of time, and such wholesale +losses in connection with them. When capital comes to be at liberty to +turn right or left according to its own will in view of a prospective +profit, factory companies and projectors cannot draw resources from +the public for their operations, without demonstrating to the owners +the trained and tried capacity of the practical operators, who will +buy the materials and hire the laborers and market the products. + +(b) The practical remedy for the inexperience and instability and +unskilfulness of laborers as tending towards labor-troubles of all +kinds and degrees, is only to be found in a want of market for such +services. In a natural and wholesome state of things, such as would +exist in the United States were it not for national laws tampering +with Trade and with Money, the questions asked an applicant for +skilled work by any labor-taker would be, "_What have you learned to +do? How long and for what pay do you want to do it? What do you want +to reach next, when the present job is done?_" When employment turns +on good answers to such questions as these, and when the questions +themselves are put in good faith, there will be an end of Strikes and +Lockouts. Untrained and restless hands will get nothing to do in mills +and factories. Apprenticeship in its various forms will come back into +vogue, and will probably be made a part of the course in public +schools. The division and gradation of laborers will be carried out +further than it ever yet has been. Laborers will then be _organized_ +in the best sense of that word, and to the best advantage of +capitalists. The permanent Supply of skilled laborers will be +constantly adjusting itself to a permanent and increasing Demand for +them. And it requires no millennium for such a state of things to +come in. It requires nothing but an ordinary and enlightened and +beneficent selfishness on the part of capitalists to adjust itself to +the ordinary selfishness of laborers sure to become enlightened and +beneficent to the best and ever-growing interests of both parties. +This is not the spoken word of Morality, still less is it the divine +word of Religion, it is only the common programme of a common-sense +Political Economy. + +(3) The third and last general cause of misunderstandings and +embittered disputes as between laborers and capitalists is partly +economical and partly moral, and consequently the remedy for it is +partly moral and partly economical. The Past projects itself down into +the Present partly with blessings and partly with curses. In the old +times under Slavery and Feudalism the laborer always came forward to +his task with a taint upon him. Sometimes the taint attached to his +birth, and at all times it attached to his calling. Slavery in all its +forms always makes manual labor degrading. The courtly Cicero +_apologizes_ in a letter to his friend for his open sorrow over the +death of his favorite slave; and in several passages of his treatise +on Morals he follows his Greek teachers, Plato and Aristotle, and +declaims in a pitiful way against the noble rights of laborers. "_All +artisans are engaged in a degrading profession._" Again, "_there can +be nothing ingenuous in a workshop_." When trade and commerce are +carried on on a small scale, "_they are to be regarded as +disgraceful_"; when on a large scale, "_they must not be greatly +condemned--non admodum vituperanda_!" (I, 42.) + +Serfdom once existed in England, and threw its shade over free +laborers there long after itself had disappeared. A class of indented +servants pervaded all the New England Colonies, and a clause of the +New England Confederation of 1643 provided for their forced rendition +from Colony to Colony, and passed over almost verbally into the +Constitution of the United States of 1787 as applicable to the slaves +of the South. In this way in all parts of this country manual laborers +came to be more or less off color, and this has continued in a +continually lessened degree till this time. When those who work with +their hands are looked down upon by those who do not, two sets of +feelings are apt to be engendered equally unfortunate to the two +classes that entertain them. The non-manual workers, the employers, +are more or less puffed up with pride and a sense of superiority +(there are beautiful exceptions) as towards their laborers, and the +latter in their turn are apt to develop alongside an unmanly servility +and an apparent deference, a sort of secret breasting up of hostility +and defiance, which is sure to manifest itself when labor troubles +come on even when it has not helped to brood these troubles into life. +The parties then are not well placed as towards each other to +negotiate and to compromise and to coalesce in a future harmony. The +party of the first part is too proud to yield to their inferiors, and +the party of the second part is too bitter to be sweetened. Who is +sufficient for these things? And what is the remedy for them? + +(a) So far as employers are concerned, their natural though +unreasonable and provoking arrogance may well be reduced by the +economical reflection, that the laborers are exactly as necessary to +production as the capitalists are, that the two stand on a precise +level so far as the product goes, that each is one blade of the shears +and the other the other and that it takes both blades to cut anything, +that while the laborers are sellers in the open market the capitalists +are likewise sellers and that the same ultimate purchaser furnishes +the market for both sets of sellers, that as sellers they are only +equal in position, that buying and selling is a levelling as well as +an uplifting process the world over, and that as such co-equal +partners in one indivisible operation all haughtiness on one side and +all undue humility on the other is nothing but obstacle as towards the +common end; and also by the moral and social reflection, that their +laborers are just such men as themselves in motive and action, that +the two are very likely to exchange places with each other before very +long, that riches are extremely liable to take to themselves wings and +fly away, that Christianity is no respecter of persons, that humanity +deems nothing human alien from itself, that morality puts the golden +rule upon the fore-front of its precepts, and that whatever may unite +any body of men in a legitimate purpose of achievement along any line +of human action multiplies the power of each individual and exalts his +standing and responsibility as such individual and thus reduplicates +the reward of his individual action. + +(b) So far as the employees are concerned, in any temporary sense of +dependence or even of injustice, there is open to them the economical +reflection (and it will do them good to bring it home) that their best +route to the respect and favor and feeling of equality of their +employers is through the excellence of the service they render them +and the courtesy (not servility) with which they render it, that as +every capitalist becomes such by means of abstinence they may +themselves by saving become capitalists, that there is nothing in the +nature of their work or its relations to capital to cause them to hang +down their heads, that handsome is that handsome does, that the +opportune offer of the present capital to work on gives them a chance +to exhibit their skill and to earn a living, that the capitalists are +just as dependent on them as they upon those, and that as single +sellers of a valuable personal service they daily confront on a +footing of equality the sellers of a valuable product so created; and +there is open to them also the moral and social reflection fortified +by constant observation and experience, that no matter where a man +begins it is the end that crowns his work, that life to all is a +series of stepping-stones, that manly qualities are appreciated +everywhere, that character tells in the lowest position however high +and low are reckoned, that the poor gain and hold friends quite as +well as the rich, that there was a certain poor wise man that saved +the city by his wisdom and gained a lasting record in consequence, +that the poor and the rich are constantly changing places in this +world, and that there is no respect of persons with God. + +We may see now what we are to think of some popular remedies +constantly recommended for low Wages. A brief discussion of what is +false will give us a stronger hold of what is true. The chapter will +close with relevant reference to three current remedies. + +1. It is being dinned into the ears of the present generation, that +Government has large functions in the ongoings of business, that it +ought sometimes to interfere to better the rate of Wages, at least to +designate a minimum below which they shall not go, and that Government +should hold itself ready to undertake directly to carry on certain +branches of business under certain circumstances. This scheme goes +under the high-sounding name of _Nationalism_. Richard T. Ely, +Professor of Political Economy in Johns Hopkins University, is one of +the most prominent representatives at present of this school of +thought. In his Introduction to Political Economy just published +(1889), he lays down this principle: "_When for any class of business +it becomes necessary to abandon the principle of freedom in the +establishment of enterprises, this business should be entirely turned +over to Government, either local, state, or federal, according to the +nature of the undertaking._" He begins his book by attempting to +hammer in the "lesson" that as Civilization improves, coöperation +takes the place of individualism. The golden age of individualism, he +says, is among the wild tribes of Australia. They never coöperate with +each other in their economic efforts, or in anything else. No one +expects anything from his neighbor, and every one does unto others as +he thinks they would do to him. The life there is one prolonged scene +of selfishness and fear. But as civilization comes in, he says, +individualism goes out, and coöperation takes its place. The fine old +Bentham principle of _laissez faire_, which most English thinkers for +a century past have regarded as established forever in the nature of +man and in God's plans of providence and government, is gently tossed +by Dr. Ely into the wilds of Australian barbarism. + +There are some propositions that are _certainly_ true, and one of them +is, that no man can write like that, who ever analyzed into their +elements either Economics or Politics, who ever gained a clear +conception of the sphere of either science in its relation to the +other, or who ever saw distinctly the relations of either to the +nature of Man. The sole motive in Buying and Selling is the gain of +the individual, each for and by himself. That always was the motive, +is now, and always will be. No complications of modern business, no +complexities of credit, no combinations of capitalists or laborers, +ever altered or ever can alter one particle the motives of men in +buying and selling. In a natural and progressive state of things, +Individualism, instead of going out, comes more and more into play, +through the Division of Labor and the falling of all sorts of services +more and more into specialties. To talk glibly, as Professor Ely does, +about Government taking up easily and carrying on in a better way and +to better ends branches of pure business as they are dropped or +forced from the hands of Individuals, is ignorance at once and alike +of the real nature of Government and of Business. Let us look at a few +of the native incongruities and logical fallacies of this +nationalistic position. + +(1) What is human Government? Is there anything substantive and +continuous in its _personnel_ and purposes, as there is in the +government of God? Is government anything more, can it be anything +more, than a transient Committee of the citizens charged and changed +to do in certain few particulars the changing will of a Majority? +Government is indeed a necessity, as men are, to restrain the lawless, +and to shape the ends of the law-abiding; but it has to be +administered, if at all, by precisely the same kind of men as the rest +are, chosen for brief periods, their duties sharply prescribed by +constitution or custom, and impeachments or other punishments provided +for them when they transgress. One President of the United States and +one Judge of its Supreme Court have already been solemnly impeached by +the sovereign people themselves. + +Government, then, is an _Agent_, and nothing more. Even nationalists +will not contend for the divine right of kings. And the duties of +every decent government on earth are _political_ in their character. +The agents are chosen and dismissed with a direct reference to that +kind of action. Politics has a sphere wholly distinct from Economics. +The true and only end of politics is the greatest good of the greatest +number, so far as that end can be mediated by governmental agents of +the people. Individualism as such does indeed sink out of sight under +a true Politics, and the inalienable rights of one are maintained for +the sake of and in consistency with the greater rights of all. But +Economics is all individuals from beginning to end. "_It takes two to +make a bargain._" Only two. Each of the two has his own motive, +estimates for himself, gives and takes for himself, and enjoys alone +his own gain. All this is involved in the very idea of _Property_, +which is derived from _proprius_, and which means _one's own_. How +illogical, then, and incongruous, to suppose, that a set of limited +human agents briefly trained to purely _political_ action, and liable +to be turned out of office by every change in party administration, +can be competent at the same time and in addition to perform +_economical_ functions for the people! + +Notice, too, that governmental agents in all good countries are +already _overburdened_ with their mere political duties. Work is +behindhand in every portfolio, on every court calendar, and in every +legislative body, in Christendom. How absurd it is, therefore, to talk +about throwing upon shoulders, already overburdened, additional loads +of a different kind, for which shoulders and heads are wholly +unfitted! + +Why not, then, inquires our nationalist innovator, organize new +bureaus to undertake in their behalf the buying and selling of the +people? Ah! Who pays the taxes needful for the support of the present +_political_ bureaus? And who would have to pay the taxes needful for +the support of the new _economical_ bureaus? Besides not having any +substantive existence of its own Government has not one cent of money, +except what the people voluntarily pay in taxes out of their own +personal gains, in order to maintain their own agents to do certain +political things for them, which they cannot do as well for themselves +directly; and when it comes to the cold question for the people +themselves to answer, whether they will organize a new set of hired +men to do their trading for them, and pay them for doing this out of +aggregate gains certainly to be vastly diminished by the process, our +nationalistic leaders will perhaps find out that the people have +common sense, whether the said leaders have it or not. + +But the damning difficulty with this governmental business association +is, after all, in the inevitable _lack of motive_ on the part of the +hired men doing the buying and selling. It is an honor to human +nature, that hired men never have and never can have the zeal and +enterprise of principals and owners to forecast and to perform and to +lay up; because it shows that man is a rational animal, made in the +image of his Maker, always acting under the pressure of personal +motives, and always estimating what is his own more highly than what +belongs to another. Business motives act in their fulness only on the +individual, whose is the effort and whose is the return. Any policy +whatever on the part of Government, which lessens the number and the +eagerness of individual operators in favor of great artificial +combinations resting in the shadow of the Law, lessens of necessity +the gains of exchanges, and the progress of the nation, because it +lessens of necessity the press of motive on the many to work and save. + +Government, accordingly, is quite too far off in every respect from +the business, that is to say, from the buying and selling of the +people, to undertake any branch of it when "it becomes necessary to +abandon the principle of freedom in the establishment of enterprises." +It will then be high time to "abandon" the "enterprises" themselves. +If the "principle of freedom" cannot compass the "establishment of +enterprises," is it likely that the "principle" of secondary and +irresponsible agents can do it? To show the people how to make their +bargains, how to buy and sell and save and spend, is a function +government is not fitted for, was not established to perform, and +never undertook without making a botch of it. + +In the Preamble of the Constitution of the United States there is a +careful and complete and elegant enumeration of the purposes, which +the body of the instrument was designed to attain. These purposes are +six. No one of them contains even a hint of any purpose to enter upon +the "establishment of enterprises," still less of any necessity "to +abandon the principle of freedom." The last of these six purposes is +phrased: "AND TO SECURE THE BLESSINGS OF LIBERTY TO OURSELVES AND OUR +POSTERITY." The liberty to buy and sell freely was precisely that +"liberty" of the Colonies which was most threatened and infringed by +the British Government, to vindicate that special "liberty" was the +chief cause of the American Revolution, and "to secure the blessings" +of that and other forms of similar "liberty" was the final purpose of +the Constitution of the United States. + +It is true indeed that the Constitution empowers Congress, a creature +of the People, "_to establish Post Offices and Post Roads_"; but the +purpose of this was _political_, and not pecuniary; it was to bind all +the States together in one Union of intelligence and intercourse; it +was to keep the outlying and distant parts in touch with the central +and seaboard; it is not in any sense a "business" enterprise; the +department of the mails is not now and never has been, for any length +of time, self-supporting; and it illustrates through and through in +its "Star route frauds" and other contracts, in its appointment and +removal of postmasters, and in the sickening dependence of primal +Service of the people on partisan and corrupting impulses, many of +them inherent evils of the much-vaunted Nationalism. + +But besides all these vital and political objections to the assumption +on the part of government of any direct industrial functions whatever, +there remains two other fundamental objections, of which the first is, +that our national government has received no powers to any such end, +and is emphatically prohibited in the Constitution itself from +exercising them:--"THE POWERS NOT DELEGATED TO THE UNITED STATES BY +THE CONSTITUTION, NOR PROHIBITED BY IT TO THE STATES, ARE RESERVED TO +THE STATES RESPECTIVELY OR TO THE PEOPLE." + +(2) The second remaining objection is, that such proposed action of +government could have no tendency at all either to enlarge the +Wages-portion, or to increase the industrial efficiency of the +laborers, or to diminish the number of competitors at any one point of +the wages-scale. As a matter of fact, such governmental action would +have precisely the opposite effect at each of these three vital points +of wages: employers would have less motive to swell the wages-portion, +laborers less motive to improve their capacity, and more motive to +congregate locally. Suppose, that at some given point in the scale of +wages, free and intelligent competition has been had on both sides, +and that the average rate of wages as thus determined proves one +dollar per day for each laborer. Suppose further, that everybody +outside the employers thinks this is quite too little, and that +government accordingly issues a decree that wages at that point must +be thereafter one dollar and a half per day. That decree can have no +tendency at all to enlarge the _wages-portion_ of those particular +employers, because _that_ has already been determined for the next +industrial cycle by the general productiveness of the cycle last past, +and by the last division under free competition between wages and +profits; if, therefore, the decree were carried out, as it never +practically could be, the result would be that only two-thirds of the +laborers previously employed could be employed then at all, and the +remaining third would certainly be worse off than before; and besides +the Division of Labor being necessarily lessened, production would be +less profitable to the employers, and the next wages-portion would +certainly be less than the one before, and thus the outcome of the +_remedy_ would be worse than the _disease_. Now let alone the +artificial interference of government, and all natural accessions to +Capital at that point, all investment of profits in an enlarged +business, all saving from expenditure for the sake of further +production, tend strongly of their own accord to enlarge the +wages-portion, and thus, the number and intelligence of the laborers +continuing as before, are sure to raise the rate of wages. Or, if +there be no accessions to Capital, or other influence swelling the +wages-portion, and the number of laborers be diminished at that point, +as by migration to new fields of effort or enlistment in armies, the +competition of wages-givers for laborers will be quickened, and the +rate of wages will rise. Reversed conditions will of course give +reversed results. + +2. A second popular remedy for low Wages, not only proposed, but also +for a long time brought into practical action, is Labor-Unions in +their various forms and with their manifold methods of operation upon +employers. It is important to note here and to remember, that the +Guilds of the mediæval times, from which the modern Trades-Unions have +borrowed something of form and much of nomenclature, were in substance +extremely different from their modern imitators. Those were +combinations of Masters with their journeymen and apprentices and +dependents in order to control the entire manufacture and sale of a +certain class of products, from the name of which the Guild usually +took its own name, as "Cloth-workers' guild," "Shoemakers' guild," and +so on. Whittier, himself a shoemaker in his boyhood, apostrophizes the +latter guild in words which more or less describe them all:-- + + "Ho! workers of the old time styled + The gentle Craft of Leather! + Young brothers of the ancient guild, + Stand forth once more together! + Call out again your long array, + In the olden merry manner! + Once more on gay St. Crispin's day, + Fling out your blazoned banner!" + +These masters thus organized with their laborers were the capitalists +of their time, and in this vital matter differed from the Unions of +to-day, which are made up of laborers as such organized to confront, +and if need be, to antagonize, capitalists. A royal charter was +indispensable to the legal existence of those craftsmen. It took money +for them to start their guilds, and in progress of time most of them +became very rich. "A common fund was raised by contributions among the +members, which not only provided for the trade objects of the guild; +but sufficed to found chantries and masses, and set up painted windows +in the church of their patron saint. Even at the present day the arms +of the craft-guild may often be seen blazoned in cathedrals side by +side with those of prelates and kings." This radical difference +between the two must always be borne in mind in all arguments and +inferences drawn over from the mediæval "unions" to those of the +present day. + +Two points may be freely conceded to these labor-organizations before +we pass to the economic objections to them. In the first place, the +employers _set the example_ for the employees in a tacit if not open +combination as against the employees in their own interest and +emolument. The so-called "protective" tariff, for instance, is nothing +in the world but a strongly-linked combination of certain rich +capitalists to extort from the masses (their own laborers included) +artificially lifted prices for the necessaries of life; and the +certain result of shutting out imports by tariff-taxes is the +shutting in of would-be exports, to the certain lowering of general +wages in a country, because there is a lessened demand for laborers in +consequence. For a second good instance of combinations as against +employees on the part of employers, take the well-known understanding +among manufacturers of the same sort of goods in the same general +locality, that laborers discharged from one establishment shall not be +hired in any of the rest; and that if the general voice call for a +"shut down," or for three-fourths time or less, all in that line of +goods shall comply. How can laborers be blamed for organizations in +their own behalf when they find themselves confronted as individuals +with an organization of employers? + +Then, too, it must be acknowledged, that, had it not been for united +action of some sort on the part of the laborers, the unreasonable +hours of fifty years ago in mills and factories would probably not +have been shortened to this day. Capitalists as a class are +conservative of methods, as well as of ends. The cotton and woollen +manufacturers of Berkshire County, for example, who may doubtless be +taken as a fair sample of the manufacturers of New England, stiffly +refused the demands of their work-people that the hours might be +reduced from an average of 14 throughout the year to an average of 11. +When the late Civil War was going on, and the manufacturing became +extremely profitable, and the mills were more or less depleted by +enlistment, and the remaining hands felt more independent from the +consequent rise of wages, the combined demand in one mill for fewer +hours was reinforced by simultaneous demands for the same in other +mills in the neighborhood (the time and manner having been agreed upon +beforehand), and visits in force by the work-people from mill to mill +completed the desired reform. The mill-owners were sullen and +indignant, and submitted of necessity. The work-men were right. The +reform was imperative. Credit must be given to them for the good they +have done acting as a body on this and other occasions. + +On the other hand, all this is not _business_. All this is contrary to +the very old, and the very good adage, that it takes _two_ to make a +bargain. If we express this adage in the language of our science, it +will take some such form as this: When two men have mutual services to +exchange, let them come to a fair agreement as to the terms on which +they will exchange. Certainly, let each make the best terms he can, +but let the bargain always be free. If one party, who happens to have +the power to do it, uses anything like compulsion upon the other, it +ceases so far forth to be a bargain at all, and becomes a sort of +robbery, of which in some cases courts will take cognizance. Now, +workmen bring a certain valuable service to the market, just such a +service as the capitalist wants, and he has to offer just such a +service as they want, namely, wages: let the two parties come to a +free and fair agreement on the terms of their exchange; let each +workman by all means make the very best terms he can, insisting to the +last penny on all he can get elsewhere, for the value of his service +is determined, as other values are determined, by what it will bring: +let the employer do just the same on his side, and so let a fair +bargain for the time present be struck. This is a very good kind of +_striking_, and the more intelligence and skill and self-respect a +workman has, the better prepared he is to strike the bargain and +secure his just due by and for himself alone; and this gives a good +chance for every man who has any peculiar gift, who may have surpassed +his fellows in diligence and skill, to secure a proportionate reward +now and to go on higher in future; all this gives opportunity for +_diversity of relative advantage_, which, as we have seen, lies at the +basis of all exchange, which itself starts in individualism and +naturally proceeds in a still higher individualism to the end. This is +the only way for a laborer of talent and diligence to secure fully +what belongs to _him_ as a man and a workman. If he cannot get from a +given employer what he thinks he ought to get, what he thinks the +service is worth in another market, let him exercise his perfect right +to quit and go elsewhere. All this is fair and aboveboard and +individual and progressive. + +Everybody knows that there is a kind of _striking_ now in vogue wholly +different from this, in that it brings a sort of compulsion into play. +_A fair bargain should be broken, if at all, just as it was made, with +the two parties face to face, and everybody else aloof; and a new +bargain should be made, just as the old one was, with the two parties +face to face, and everybody else aloof._ But a combination among +workmen to leave an employer in the lurch, and especially a +combination which forces into its ranks by cajoling or menaces those +who are unwilling to join it, as is so commonly the case in Strikes, +is not only contrary to the inmost nature of a bargain, but is also of +itself a sort of confession of the injustice of the claim. If the +claim be just so far as _all_ the individuals are concerned, there is +no occasion to extort it. If the value of the service rendered by each +be equal to the sum demanded, and especially if this can be obtained +elsewhere, which is the only gauge of the value of any service +anywhere, there is no need of conference and combination and +conspiracy. Of course, this radical argument against Strikes implies +that employers of that grade have not entered into a combination not +to hire dissatisfied laborers from other establishments; if they have, +then the agreement can be turned with equal force against the +employers themselves, for _they_ are resorting to means outside the +nature of a bargain, means of the same nature as a Strike. Let, then, +each workman tell his employer the present facts just as they are, and +if this appeal prove ineffective to secure his commercial right, let +him go quickly where he can get the most for his service. That this is +not done, that means of the nature of a threat are brought to bear +upon the employer, that the justice of the claim is not relied on in a +case where more than anywhere else justice can enforce itself, that +free and full explanations are not had, that no notice is given, that +great damage is expected by their action to accrue to the +employer,--all this seems to forget that the transaction between +employers and employed is a case of pure exchange, a simple bargain of +one service against another service. + +The above is the universal and fundamental objection to Strikes. _The +remedy for economical evils, real or supposed, must ever be found in +economical considerations._ The strong but foolish tendency of the +times is to mix up things that are quite distinct; to try to apply to +the evils of Trade the rules of Morals, which is a useless task; to +appeal to Politics in matters of pure Bargain; and to resort to Force +to cure the evils that flow from the wholly voluntary action of +individuals. This is like the doctor who would cure bodily ailments by +mental and spiritual recipes. It has all the absurdities of the late +famous "Mind-cure." The mind is indeed higher than the body, but +bodily maladies must be treated as such, or the patient will die; the +imperatives of Ethics are certainly superior to the profitables of +Economics, but the latter are well able to take care of themselves on +their own ground; Religion is loftier than Morals, but it becomes a +very poor substitute for morals in the daily routine of life. +_Similia similibus curantur._ Economical evils can only be removed by +a better Economics better applied. Strikes are an outside and +irrelevant remedy for low Wages. + +A bad principle works badly in practice of course; the principle that +underlies strikes is so opposed to the fundamental nature of exchange, +that we might know beforehand that it would work badly; and as a +matter of fact, it does work badly enough both upon employers and +employed, because strikes are certain to embitter the relations +between the two classes, which ought always to be cordial and free, +and especially, because strikes must work on the minds of the +capitalist to lessen the Wages-Portion for the next industrial cycle. +Fortunately, we possess authentic statistics gathered about Strikes by +the Massachusetts Bureau of Statistics of Labor, and published in +detail in the Report of December, 1888. The information given is exact +in relation to five principal States, and approximate in relation to +the other parts of the United States. We will copy first the table +exhibiting the Losses in six years on account of Strikes of both +Employers and Employees, and the outside assistance received by the +latter:-- + + EMPLOYEES' LOSS AND ASSISTANCE AND EMPLOYERS' LOSS IN THE FIVE + PRINCIPAL STATES ON ACCOUNT OF STRIKES AND + LOCK-OUTS FOR 1881-1886. + + +------------------------+-------------+------------+-------------+ + | STATES. | Employees' | Employees' | Employers' | + | | Loss. |Assistance. | Loss. | + +------------------------+-------------+------------+-------------+ + | _Strikes._ | | | | + | Illinois, | $6,636,208 | $238,452 | $5,251,829 | + | Massachusetts, | 4,200,489 | 266,708 | 1,970,881 | + | New York, | 8,581,784 | 726,696 | 5,966,421 | + | Ohio, | 6,378,757 | 415,568 | 2,793,427 | + | Pennsylvania, | 12,890,346 | 781,338 | 3,897,757 | + | Other parts of the | | | | + | United States, | 13,127,139 | 895,795 | 10,821,238 | + | +-------------+------------+-------------+ + | THE UNITED STATES, | $51,814,723 | $3,324,557 | $30,701,553 | + +------------------------+-------------+------------+-------------+ + +The large percentage of establishments represented in this table, in +which the strikes were ordered by labor-organizations, is particularly +noticeable. In New York 94.26% of the establishments had strikes which +were ordered, in Illinois 83.96%, in Massachusetts 81.91%, and in the +United States 82.24%. The "walking-delegate" so-called became the +principal personage in all these strikes; he brought the orders to the +men from the "central-union" of their special organization, and became +in most cases the sole means of communication between the two. "_You +are the strike_," exclaimed the Lord Mayor of London the other day to +Mr. Burns, the walking delegate of the dock-laborers now on strike in +that city. That the daily bread and home comforts of tens of thousands +of men depend on the secret and irresponsible decision of a little +knot of agitators, sending out their verbal and often ambiguous +written orders by a walking-delegate or two, is one of the +monstrosities of Strikes often witnessed in the United States. The +laborers sometimes do not know even the causes of the strike. There +has been great want and suffering for three months past among the +striking coal-miners in the State of Illinois; and a brief editorial +in the "Springfield Republican" of Aug. 24, 1889, describes the state +of things so justly, that we quote it:-- + +"Ex-Congressman William L. Scott, who owns coal mines at Spring +Valley, Ill., has offered to pay 75 cents a ton for mining to the +strikers who in their destitution have been subsisting for some time +on public charity. This is 2-1/2 cents a ton more than the miners have +asked for, but it is coupled with the condition that each man must +seek work individually and not through some outside union committee. +Although the men have been reduced to a state of abject want it is +said the conditions imposed will prevent a settlement. In that case we +may conclude that a few well-fed walking delegates are acting for the +men and not they for themselves. It is a strange time to quibble over +such a matter. The worst and most oppressive enemy of labor is the +parasite who lives upon its distresses." + +A strike is a state of war, and like war, there are two parties to it, +and it cannot be expected that the party of the other part should not +strike back. The "_lock-out_" is the counter-stroke of the capitalist +to the "_strike_" of the laborer. Lock-outs, however, are +comparatively infrequent. Capitalists, as a rule, are conservative and +forbearing. Massachusetts took the statistics of lock-outs as +carefully as those of strikes, and the following is the table:-- + + +------------------------+------------+------------+------------+ + | STATES. | Employees' | Employees' | Employers' | + | | Loss. |Assistance. | Loss. | + +------------------------+------------+------------+------------+ + | _Lock-outs._ | | | | + | Illinois, | $533,497 | $5,374 | $347,065 | + | Massachusetts, | 952,310 | 136,626 | 550,675 | + | New York, | 3,150,123 | 392,316 | 845,262 | + | Ohio, | 848,829 | 231,870 | 493,100 | + | Pennsylvania, | 712,956 | 77,038 | 237,735 | + | Other parts of the | | | | + | United States, | 1,960,002 | 262,814 | 988,424 | + | +------------+------------+------------+ + | THE UNITED STATES, | $8,157,717 | $1,106,038 | $3,462,261 | + +------------------------+------------+------------+------------+ + +Like war too, strikes and lock-outs are wasteful and demoralizing to +both parties. Why should there be a resort to force to settle an +industrial dispute any more than to settle any other private dispute? +Will such a resort be long tolerated by public opinion in civilized +countries? The Legislature of Massachusetts in 1886 provided for a +State Board of Arbitration for the settlement of differences between +employers and employees. The statute was crude in some respects, and +the basis of it not very firmly fixed in the nature of things, but the +Bureau of Labor reports that it has been justified by the results in +its practical application during the short time of its operation. The +broad truth is, that the value of Commodities and the value of Credits +is now left to the safe action of Demand and Supply under free +competition in every country in Christendom: why should not the value +of Services be left to the same safe and inexorable action? +Governments gave up long ago all idea of regulating directly or +indirectly the prices of merchandise and the prices of commercial +claims of all kinds: will they not shortly give up also all idea of +regulating directly or indirectly the rates of Wages? They will. The +three kinds of things bought and sold are on an exact level in the +nature of things, so far as Government is concerned. Wages are +abundantly able to take care of themselves in the ordinary way, as +goods do, and stocks and bonds; and an enlightened Public Opinion is +fast coming to see, that a man's personal service rendered needs no +more the oversight of the State in its sale than his horse, or note of +hand at interest. Strikes, and lock-outs, and all extraordinary courts +or boards to settle quarrels between a labor-giver and a labor-taker +as such, since it is a case of ordinary buying and selling, are +foredoomed to pass out in the good time coming. + +Towards this good end works strongly the common _futility_ of strikes +and lock-outs. Carroll D. Wright, chief of the Bureau of Labor in +Massachusetts, now the head of the National Bureau of Labor, in his +State Report for 1880, gave a succinct account of all strikes in that +State from their beginning in 1830. They were 159 in all, of which 109 +were unsuccessful, 18 apparently successful, 16 compromised, 6 partly +successful, and 10 "result unknown." In Great Britain during the year +1878, there occurred 277 strikes, of which 256 were failures, 17 were +compromised, and only 4 were successful. The following table taken +from the Massachusetts Report of 1888, gives on a broad scale the +results of Strikes in the United States for six years:-- + + GENERAL SUMMARY OF STRIKES IN FIVE PRINCIPAL STATES FOR 1881-1886. + + _Percentages._ + + +--------------+-------+---------+-------+-----+--------+-------+-------+ + | CLASSIFI- | Illi- |Massa- | New |Ohio.|Pennsyl-|Other |THE | + | CATIONS. | nois. |chusetts.| York. | |vania. |Parts |UNITED | + | | | | | | |of the |STATES.| + | | | | | | |United | | + | | | | | | |States.| | + +--------------+-------+---------+-------+-----+--------+-------+-------| + | _Strikes._ | | | | | | | | + |Ordered by | | | | | | | | + | labor organ- | | | | | | | | + | izations, | 83.96 | 81.91 | 94.26 |71.21| 61.59 | 73.06 | 82.24 | + |Establish- | | | | | | | | + | ments closed | 70.70 | 79.10 | 51.01 |81.21| 70.11 | 57.57 | 60.13 | + | | | | | | | | | + |Causes: | | | | | | | | + |Against | | | | | | | | + | reduction of | | | | | | | | + | wages, | 5.35 | 6.23 | 2.50 |20.73| 22.65 | 8.61 | 7.77 | + |For change of | | | | | | | | + | hour of | | | | | | | | + | beginning | | | | | | | | + | work, | - | - | 3.86 | - | - | 0.05 | 1.61 | + |For increase | | | | | | | | + | of wages, | 41.54 | 35.28 | 39.09 |52.42| 46.97 | 45.01 | 42.32 | + |For increase | | | | | | | | + | of wages and | | | | | | | | + | reduction of | | | | | | | | + | hours, | 17.85 | 0.50 | 9.37 | 1.85| 1.06 | 4.96 | 7.59 | + |For reduction | | | | | | | | + | of hours, | 18.35 | 42.71 | 24.31 | 5.32| 5.32 | 17.23 | 19.48 | + |For reduction | | | | | | | | + | of hours and | | | | | | | | + | against being| | | | | | | | + | compelled to | | | | | | | | + | board with | | | | | | | | + | employer, | - | - | 7.32 | - | - | 2.19 | 3.59 | + |Other causes, | 16.91 | 15.28 | 13.55 |19.68| 24.00 | 21.95 | 17.64 | + | | | | | | | | | + |Results: | | | | | | | | + |Succeeded, | 54.16 | 35.28 | *51.05|49.44| 32.60 | 42.69 | *46.52| + |Succeeded | | | | | | | | + | partly, | 10.33 | 45.93 | *8.14| 8.87| 17.57 | 17.27 | *13.47| + |Failed, | 35.51 | 18.79 | *40.65|41.69| 49.83 | 40.04 | *39.95| + +--------------+-------+---------+-------+-----+--------+-------+-------+ + + * In 15 establishments the results were not ascertained. + +3. The third popular remedy for low Wages, which has at least the +merit of being in the line of economical considerations, as the other +two are not, is "Co-operation." The interest in this proposed remedy +is much less both in Europe and in the United States than formerly, +owing to the failures that have mostly attended the attempts to put +the scheme into practice, although there have been some remarkable +successes also, particularly in England. The idea of Co-operation is +this, namely, that certain laborers within given classes combine of +their own accord, (1) _either to purchase their necessaries in common +and at wholesale, hence at cheaper rates because avoiding all profits +of the middlemen_; or (2), _more especially to engage in the joint +production of the commodities they are familiar with, the laborers +furnishing the capital also from their little hoards or borrowing it +on the strength of their individual or associated credit, managing the +business themselves, all being co-partners, and of course all sharing +pro rata the entire profits of the concern_. + +All this is well; and in countries where laborers have been under +traditional disabilities, it may be in some cases very promotive of +their self-respect, activity, frugality, and general welfare; but any +one can see that no new economic principle is involved in the plan. As +in all other production, so here, there must be (1) capital from some +source, (2) steady and skilful labor, and (3) superintendence or +management of the business. It is at the third point that schemes of +co-operation have mostly broken down. The faculty of good management +is rare; the organizing and executive ability needful to carry through +any scheme of co-operation will not come upon call; if any of the +co-operators chance to possess it, the scheme may succeed, although he +who is conscious of having it will prefer to use it for his own gain +in his own way, to say nothing of the practical impossibility of any +man's working with the same spirit when the gain or loss is to be +largely another's as when it is to be wholly his own; moreover, it has +been well said, "it is impossible _to hire_ commercial genius or the +instincts of a skilful trader"; so that, while there is no trouble +about the workmen uniting the character of capitalist and laborer in +their own persons, and no doubt that they will work harder and more +skilfully while sharing profits as well as receiving wages, it is +still true, that the difficulty of securing a real "captain of +industry," and thus a perfect organization and management of the +whole business, puts the scheme of co-operation out of the question +as a means of raising wages, or promoting the general welfare of +laborers. + +In this country, where there is nothing to hinder any laborer from +becoming a capitalist, where the savings-banks are open to the +smallest gains, where nothing is more common than for two or more +workmen to organize a firm to carry on some branch of business, where +most of the present capitalists proper were formerly laborers proper, +and where the shares of most of the joint-stock companies are open to +everybody who has the means to buy them, there is only one +consideration that seems to justify any special jealousy of laborers +as such towards capitalists as such; and that is the fact, that +Legislation, every now and then, sometimes on a small scale and then +on a gigantic one, now by means of corporate charters and then by +other means more indirect and effective, _does confer certain +extraordinary privileges upon capitalists_. So long as capitalists and +laborers rest upon their natural rights and positions, neither can get +any undue advantage of the other; and just so far as each recognizes +their identity of economic interest and the consequent reciprocity of +obligation and effort, the prosperity of each will help build up the +other; but, on the other hand, so far forth as any advantages are +given to capitalists by special laws, either of State or Nation, these +become necessarily unjust to laborers, and ultimately also injurious +to capitalists; and in this case, the laborers, seeing just what it is +that hurts them, _ought to combine together and to strike, not capital +(their best friend), but a piece of perverted legislation (their worst +enemy)_. + +FOOTNOTES: + +[5] O'Reilly's Poem, at Plymouth, 1889. + +[6] Green's Short History of the English People, p. 144. + + + + +CHAPTER IV. + +COMMERCIAL CREDITS. + + +Political Economy is the Science of Sales; and because it _is_ the +science of sales, its definitions and principles must cover equally +all cases of sales actually occurring or possible to occur. We have +seen repeatedly, that only three kinds of things are ever bought and +sold, or ever will be, and these are Commodities and Services and +Claims. The first two kinds have been fully elucidated already in the +two preceding chapters, and it belongs to the present chapter to +explain and illustrate clearly the peculiarities of the third kind of +things salable. Ours is the only science that has to do with the +motives and facts and economic results of all sales as such. + +The discussions of the present chapter will proceed orderly through +the following topics:-- + + _The Nature of Credit._ + _The Forms of Credit._ + _The Advantages of Credit._ + _The Disadvantages of Credit._ + +1. Certain things are essential in every sale of anything, and of +course are common to all sales of everything, such as two persons and +two desires and two estimates and two renderings; while there are +certain _peculiarities_ in the sale of things belonging to each of the +three special classes of things salable; for example, in the sale of a +commodity there is a rendering of a tangible object that has been +prepared for sale in past time, and in the sale of a service a +rendering of an intangible something wholly in the present time; while +in the sale of a credit there are likewise two peculiarities, one of +them relating to future time and the other to a special trust felt in +a person by some other person. We must now study these two +peculiarities with care; and, mastering these, we shall be master of +the Nature of Credit. + +a. Some sales are consummated at once, the things exchanged and the +ownership in them are mutually passed over then and there, the +reciprocal satisfactions are entered upon immediately, and there is at +once an economical end. + +For example, one neighbor sells another a peck of green peas and takes +in pay a peck of new potatoes, both vegetables may be cooked for +dinner in the respective families the same day, and the commercial +transaction is all over. But there are other exchanges, an immense +class of them, different from these in this respect, that though the +transaction considered as a mere case of value created and measured is +then and there ended, yet considered as to the nature of that +preliminary exchange which implies and requires another future +exchange to consummate it, it is not then and there ultimately closed, +but one (or both) of the parties then exchanging relies on the good +faith of some one else to fulfil in the future a pledge expressly or +impliedly made in the prior exchange. Commonly some external evidence +of the pledge is created and passed at the time, but this is not +essential to the validity of the pledge itself. For example, A buys 50 +bushels of wheat of B, and B takes in pay for it A's note of hand at +six months for $75. The note is not the pledge, but it is a legal and +convenient proof of it. As a case in Value, the wheat is sold for the +pledge and the pledge is the equivalent of the wheat. Each party +rendered the other then and there satisfactory equivalents. All our +definitions apply here perfectly. + +Still a further and future exchange was contemplated by both parties +at the time of making this exchange, and as a silent part of it. A +takes what is now his own wheat, and B takes as an equivalent for what +was his wheat a right to demand of A in six months an equivalent for +the present equivalent (the pledge) for the sake of which B rendered +the wheat. The note of hand is the evidence of this pledge, and it +belongs absolutely to B. It is his property. He may keep it till +maturity and then sell it to A for its face, or he may sell it at once +to a bank for its face less the discount for six months. Discount is +the difference between the face and the present price of a note of +hand. The first peculiarity, then, of Credit is, that it always +involves the element of future time. But it involves this secondarily, +and not primarily. In other words, a present equivalent is always +rendered by both parties in every commercial transaction; but the +present equivalent in the case of a credit transaction is the right to +demand something of somebody sometime in the future. This distinction +is very important, as we shall see clearly when we come to treat of +Banking, though it is generally ill-understood at present. Valuables, +when they exchange at all, exchange once for all. But there is one +kind of valuables, namely, claims, which, when subject to exchange, +imply and require another and a future exchange, not necessarily +between the parties to the first exchange, but between _some_ two +parties; and not, speaking strictly, to _consummate_ the first +exchange, because that took and gave its own satisfactory equivalents; +but, as involving both time and trust, the credit sale must in the +nature of things be followed by another sale of one of the three +kinds. + +We see, accordingly, that in Credit our science of Economics takes +partial possession of future time for certain purposes of its own. +Exchange sets its throne and reigns pre-eminently in present time; but +its sceptre extends also over past time, so far as all capital is +concerned, and so far as all material commodities (the result of past +work) are exposed for sale in the present; and its right hand of rule +goes forth also to grasp the future, under limitations indeed both as +to the stretch of time covered and as to the character of the persons +concerned, but still there is there a fair domain and a broad domain, +and a realm on the whole winning a wider and wider circuit. It is one +of the proud boasts of Political Economy as a science, as it is too +one of the exalted traits of human nature, that the lordly impulse to +buy and sell does not confine itself to what the Past offers in all +its accumulated valuables, nor to what the Present unfolds in the +unlimited desires and efforts of congregated men, but reaches out also +into the Future, and makes that pay tribute more and more into the +vast treasury of its Gains. And this too is legitimate. Man is at once +and all the time actor and historian and prophet. The future is not +wholly unknown. Given the one assumption, that Earth and Men go on as +heretofore, Exchange knows well enough, and better and better, whom of +the coming men to trust and for how long a time. The doctrine of +averages and of probabilities comes along to guide and to enhearten +the investor. Any thoroughly established government of to-day can +borrow all the money that it wants on its public pledge to repay the +principal fifty years hence. England has borrowed millions of pounds +sterling, giving no day certain in the future for its repayment. These +funds are called "Consolidated Annuities": the interest on them is +paid on a day nominated in the bond: the principal is to be paid when +the borrower chooses, or never. + +b. The other and final peculiarity of Credit is, that it always +involves on the part of one person a commercial confidence in some +person _as such_. The term, Credit, is derived from the Latin CREDO, +_I believe_, and the corresponding term, Debt, from DEBEO, _I owe_. +Thus the personal element and the future element are wrapt up in the +very origin of the words. There is no credit without debt, and no debt +without credit. The very words imply a _belief_ of one of the two +parties in a commercial promise made by the other, and also an +_obligation_ acknowledged by this party as due to the first. There is +a basis for credit in human nature. Faith in each other to a certain +extent is natural to men. Whatever enlarges the intellectual +foresight, and especially the moral character of men, opens a broader +and surer field for Credits. Civilization, so-called, and Christianity +certainly, deepens and broadens the natural trust of man in man. +Despite all the instances of broken faith, and they are too many; +despite the shocks and cautions that come every now and then to every +man who trusts much in his fellow-men; experience itself justifies and +rewards an ever-growing commercial trust. It is one of the noble +things in international commerce, as we shall see, that men trust each +other across the oceans, and lay millions of value upon the faith of a +single firm. As the core of the Christian religion is confidence in a +_Person_, so the very substance of credits is a natural and in general +well-grounded faith in _persons as such_. + +A Credit, then, may be defined to be _a Right to demand something of +somebody_; and a Debt to be _an Obligation to pay something to +somebody_. What always lies, accordingly, between creditors and +debtors, are Rights coupled with Obligations; and these are +_Property_, just as much as anything is and for the same reason, since +they always may be, and usually are, bought and sold by other parties +as well as the original parties. In these Rights or Claims, +therefore, arises a commerce, domestic and foreign, immense in extent +and amount, and the Rights themselves take their undisputed place on +an equality with tangible Commodities and personal Services. + +Having thus reached an ultimate and satisfactory definition of Credit, +we must still pursue a little further our present object, namely, to +obtain a clear conception of the _nature_ of this great class of +Valuables, by drawing two or three distinctions between Credit-Rights +and some other rights very apt to be confounded with them. + +(1) The distinction between credit-rights and other rights is well +rooted in the Latin language and in the Roman law, while the +corresponding English terms are quite ambiguous and need to be used +with great caution. In Latin, a true debt is called a _Mutuum_, +because it lies between two persons, a creditor, and a debtor, and is +a credit-right independent of the question of fact whether the debtor +has now the thing rendered to him or not, indeed whether he has +anything at all to pay with or not; on the other hand, a thing merely +lent, when the very thing lent is to be returned to its owner, who has +not in the meantime parted with his property to the other, is called +in Latin a _Commodatum_. The English tongue has but the one word, +_Loan_, for the two very distinct operations: for the loan of a book, +for instance, which is to be returned after use, and which may be +legally reclaimed by the owner if he chance to find it anywhere, that +is, the Latin _commodatum_; and for the loan of money, or other such +measurable thing, which is to be returned _in kind_ only, and which +may _not_ legally be reclaimed except through some action of the +borrower, since the ownership of that thing rendered has passed over +to him completely, that is, the Latin _mutuum_. The same ambiguity of +course inheres in the corresponding English word, _Borrow_. The +English language is relatively poor in words expressing nice legal +distinctions. + +Now, as a true debt is a claim on a _person_ and never on a _thing_, +the Roman Law is true to the nature of things and to the vital +distinctions of our science, when it names the right to which a +_mutuum_ gives birth as a _jus in personam_, that is to say, a right +against the person; while it names the legal obligation arising out of +a _commodatum_ as a _jus in re_, that is to say, a right to the very +thing. So strongly is this doctrine, namely, that the security of a +true debt lies against persons and not against things, intrenched in +the Roman Law, that debts or credits are even termed "_nomina_," +_names_, in that law, as when Ulpian says, "_Nomina eorum qui sub +conditione vel in diem debent et emere et vendere solemus_": We are +accustomed to buy and sell DEBTS payable on a certain day and at a +certain event. The fundamental law of the present national banks of +the United States explicitly recognizes this old and good distinction +by requiring the banks to loan money on _personal_ security only, that +is to say, no tangible things, not even real estate, may be taken as +_original_ security for any loan. + +(2) Henry Dunning Macleod, who has cast fresh light on the nature of +Credit, draws another distinction that lies on the threshold of the +subject, namely, that between paper documents conveying titles to +_specific things_, such as a bill of lading, for example, and those +conveying _credit-rights_, such as a bank-note, for example. Bills of +lading describe the goods, go out with the goods, are a title to the +goods, and have no value separate from the goods; bank-notes have +nothing to do with any specific pieces of property anywhere, are in no +proper sense a title to anything whatever, but a general _claim_ for +something upon some person somewhere that awaits his action for its +validity and realization. For instance, a grain-dealer in Chicago +sells 1,000 bushels of No. 2 wheat to a party in New York, and ships +the grain to that point by rail: two kinds of paper documents arise in +connection with this transaction, which are quite diverse in their +nature and course of operation: one is a _bill of lading_, that goes +along with the wheat, and gives the person named in the bill a +complete title to 1,000 bushels of wheat of a certain description, and +the holder of the bill takes the wheat and asks no favors of anybody; +and the other is a _bill of exchange_, drawn by the grain-dealer in +Chicago on the consignee of the wheat in New York, which bill of +exchange is sold at once by the creditor in Chicago to a banker there, +provided the banker has commercial confidence in the two names on the +bill and a sufficient motive in the shape of a discount for buying it: +thus the bill of lading has in it neither element of Credit, neither +Time nor Trust, while the bill of exchange has both of these elements +in it. + +(3) Attention should be called to a third distinction of the same +general nature, as between relations very different in themselves and +yet extremely liable to be confounded with each other. Let us take a +common instance: a customer of a bank takes a package of valuables of +any kind to his banker, such as bonds and bills payable and jewels and +plate, and asks him to take care of it for the present in his vault, +subject of course to a return to him or any one else to his order at +any time: no property in these valuables passes over to the banker, it +is not a deposit in the ordinary banking sense, the relation of debtor +and creditor does not arise as between banker and depositor, the +banker becomes Trustee or Bailee of the package, and is bound to +exercise common vigilance in the care of it, but if it be burned or +stolen extraordinarily the loss is the customer's and not the +banker's. But now, on the other hand, when a customer deposits in the +banking sense money or bills payable with his banker, the property in +the money and bills passes over to the banker instantly, the relation +of debtor and creditor arises, the depositor receives a credit on the +banker's books in return for the money and bills rendered, the +exchange as a mere case of value is consummated to the profit of both +parties, but the return-service to the depositor is _the right to +demand equivalents of the banker at some future time_. In other words, +it is a case in Credit. + +(4) As this general distinction is vital, we shall lose nothing in the +end if we make even a fourth exemplification of it. The United States +Treasury receives silver dollars of its own minting from any person +who chooses to place them there, and gives out in token what are +called "Silver certificates" to the same amount, entitling the bearer +to take out the dollars again at will, and thus the certificates being +more convenient than the dollars and just as valuable become a part of +the money of the country. The Treasury is bound to exercise due care +in the keeping of these silver coins, and to return them to the +holders of certificates on demand, just as the elevator and railroad +companies are under legal obligations to show diligence in keeping and +transporting the wheat of our former example; but the United States is +not _debtor_ to the holders of these certificates any more than the +elevator company is _debtor_ to the wheat shipper, and consequently +there is no element of Credit in these certificates. Just so of the +later gold certificate. On the other hand, the so-called greenbacks +issued by the United States are also a part of the money of the +country, but they are _credit_-money, inasmuch as they are a _promise_ +to pay to the bearer some time in the future so many dollars. The +Treasury has never kept up any special fund of gold and silver, with +which to redeem the greenbacks. They rest back for their value on the +good faith of the country. The United States is _debtor_ to the +bearers, and these in turn are _creditors_, and the legal-tender +quality of the greenbacks does not alter their character as a form of +pure credit. Both the elements of good faith and future time inhere in +the greenbacks, as they do also in the bonds of the United States, +while in the certificates neither of these elements appears. + +However, circumstances easily conceivable and which were actually +realized in the case of the famous Bank of Amsterdam, founded in 1609, +might make the United States a debtor and the holders of the silver +certificates creditors in the commercial sense of those terms. The +Directors of the Bank of Amsterdam, towards the close of the second +century of its beneficent existence, loaned out to the Dutch East +India Company and to the City of Amsterdam large parts of the bullion, +on which its certificates ("bank money") were based, unknown to the +public, which felt unlimited confidence in the bank, and the result +was in 1795, when the French invaded Holland and the facts became +known, that bank money which had previously borne a premium of 5% fell +at once to a discount of 16%, although the bullion that remained and +the debts due the Bank were fully equal to redeem the certificates and +were used for that purpose. So, if the United States should use, +clandestinely or otherwise, the silver dollars for other purposes than +to redeem the certificates on demand, the latter would undoubtedly +both in law and fact be transformed from mere token-money (as now) +into credit-money valid as against the United States as debtor, like +the greenbacks at present. + +Have we now compassed our first object? Do we fully understand, from +the foregoing descriptions and distinctions, the _Nature_ of Credit? +If so, we are prepared to look narrowly into its _Forms_. + +2. Credit-rights are commonly, but not always, recorded upon paper; +but it is important to observe, that the paper-document is the mere +evidence of the right, and not the right itself, which lies back of +the paper as substance to shadow, and persists intact even were the +paper lost or destroyed. These paper instruments of Credit are +commonly contemplated as of two kinds, Promises to pay and Orders to +pay, but there is not at bottom any radical difference between these, +the Right as between two persons is not affected by this superficial +difference, as we shall see, and the present enumeration of +credit-forms will proceed independently of it. + +_a._ Book Accounts. A charge in a trader's books is both a current and +a legal evidence that the person charged has received a certain +service, and has virtually promised to render the sum charged as a +return-service. Book accounts are the most common of the forms of +credit; and if the person charged fails of his own accord to complete +the exchange thus commenced, the law, in the absence of any proof to +make the charge suspicious, collects it, if possible, and forcibly +completes the exchange. The convenience of this form of credit is so +great, that it is not likely ever to be disused; and as between people +who deal much with each other is very useful, inasmuch as their +respective book accounts are set against each other in settlement, and +only balances are required to be cancelled in money. It is for the +benefit of both creditors and debtors, however, even when the same +parties are both creditor and debtor, that such credits should be +short in time and such settlements frequent, since in book accounts +there is no interest on charges however long they run, and since in +this way only can the creditor realize the full gain of the exchange, +and the debtor keep fair his mercantile name. If it be difficult or +impossible to follow strictly the excellent financial maxim, "Pay as +you go," the next best thing to that is, "Go and pay." The gains of an +exchange are lessened, or its terms become more onerous, just in +proportion as delay in its completion is experienced or expected. Book +accounts are subject also to this disadvantage as compared with other +forms of credit, that their number and amount as against any person +are less likely to become publicly known, and therefore he is more +likely to be trusted in this form by others beyond the point of his +solvency and their safety. + +_b._ Promissory Notes. These differ from Book accounts in that they +are always either expressly or virtually on interest, and are +consequently negotiable. They are issued by individuals, corporations, +and Nations. If the principal be deemed secure, that is, if there be a +thorough trust on the part of the holder in the maker of the note, the +time of the payment of the principal becomes a matter of comparative +indifference, because the interest is compensation for delay, and is +often the motive on the part of the holder for rendering that service +of which the note is evidence. Indeed a long obligation, other things +being equal, is commonly preferred to a short one, and bears a higher +price. When a note is sold (negotiated) by the original holder it +becomes payable to the purchaser, or to each subsequent purchaser in +turn, and thus may run a devious round, may play a part in many +commercial transactions, may be set off by the transient holder +against a debt owed by him and thus cancel that, and when itself is +cancelled by ultimate set-off or by any other mode of payment the last +holder takes the return for the service originally rendered by the +first holder. The promissory notes of individuals are frequently +discounted by Banks in a manner to be presently explained. These are +always for short times, and are debts bought by banks on the personal +security of the names upon the notes. The notes are founded on the +relation of debtor and creditor, which is always a personal relation, +and so differ in their nature from a _mortgage_, which is a qualified +_title_ to a specific piece of property, usually real estate. A note +secured by a mortgage is, as it were, absorbed into the mortgage, and +becomes another thing from a common promissory note, or _commercial +paper_, as it is called. A mortgage rests therefore on other grounds +than a commercial trust in the good faith of a _person_. + +Corporations also issue promissory notes, and as such issuers become +in a sense _moral persons_ entitled to confidence according to the +character and purposes of the individual corporators and the financial +means and methods of the corporation itself. It is an old saying, that +"corporations have no souls"; economists as such have no need to +pronounce on that proposition; the fact is enough for them, that the +short notes of corporations are often discounted by bankers on the +same ground as the notes of individuals are discounted; and that their +long-time obligations, commonly called _Bonds_, are all the time +bought and sold in the market like commodities. Many of the Railroad +bonds, of which immense quantities are in the markets of the world, +rest back also for their security upon _Mortgages_ of the real estate +of the corporations made over to Trustees to hold for the assurance of +the holders of the bonds. The personal obligation of the corporators +is thus reinforced, much as a common mortgage reinforces the note or +bond, to secure which the mortgage is executed. Whenever _all_ the +real estate of a railroad company becomes subject to a mortgage, when +there are previous partial mortgages or liens, these latter take +precedence in due order of any subsequent pledges or bonds secured by +what is properly called the _consolidated mortgage_. Such a mortgage +has recently been executed by the Northern Pacific Railroad Company +for $160,000,000. Railroad Bonds so fortified in proper and legal +terms possess the highest possible credit-security to their holders. +When no such consolidated or "blanket" mortgage has been put on the +property, first and second and third mortgages sometimes support bonds +of primary and secondary and tertiary validity; and sometimes +so-called _Income-bonds_ are issued, with or without mortgages behind +them, for the payment of the interest on which bonds the net earnings +of the corporations are specifically pledged. Frequently also simple +long-time bonds resting on corporation security only are negotiated +without difficulty. + +It must be constantly borne in mind, that certificates of Stock in +railroad and all other similar corporations are not credit-documents +at all, but are mere evidences of so much proportional _ownership_ in +the corporate property. They are not interest-bearing documents at +all, although they may draw interest or rather dividends, if the +property be prosperous. They are somewhat like deeds to land, in which +no element of credit inheres. + +Nations too are moral persons in the same loose though binding sense +as corporations, and as such often issue promissory notes on interest, +commonly called in this country Bonds, in Great Britain Funds, and in +some countries Stocks. These are always pure credit. Nations give no +mortgages. Yet they often borrow at a less rate of interest than the +most solvent individuals or corporations can, as is seen by the fact, +that British consols carry but 3%, and yet bear a premium in the +present market. The term, "consols," is a popular contraction of +"consolidated annuities," the Act to create which at 3%, out of a then +confused mass of public debts at various rates of interest passed +Parliament in 1757. The maximum of the British debt was +$4,500,000,000 in 1815, and has now decreased to $3,467,787,960. + +The United States also sold its bonds at 3% for a small premium in +1882. It had borrowed of its own citizens in 1862-65, both inclusive, +about $2,500,000,000 on its bonds at different rates of interest and +at different times of repayment: some of these bore gold interest at +6% annually, Government reserving the right to pay the principal in +five years and pledging itself to pay it twenty years from date, and +so these bonds were called "Five-twenties"; others bore gold interest +at 5%, becoming payable at ten and demandable at forty years, and so +were called "Ten-forties"; and still others bore greenback interest at +7-30/100%, the principal payable in greenbacks at three years, or +fundable in gold sixes, at the option of the holders, and these were +named "Seven-thirties." Over $90,000,000 of this last kind of bonds +were subscribed for by the American people in the course of a single +week in the spring of 1865. The whole of our national debt issued +prior to 1865 was made payable on a day certain; the so-called +"consols" of 1865 and 1867 and 1868 were payable _not more_ than forty +years from date; while all the bonds authorized from 1870 to 1882 were +Consols proper, whose peculiarity is, that they never fall due so as +to become a claim for the principal against the Government, but after +a day fixed or on a condition fixed are payable "at the pleasure of +the United States."[7] + +The separate States of our Union, as sovereign in their own sphere +quite as much as the national Government is sovereign in its sphere, +have unlimited power to contract debts for State purposes through +their regularly constituted authorities; and consequently to issue +promissory notes or bonds to liquidate such debts. New York commenced +in this way in 1817 the magnificent enterprise of the Erie Canal, to +connect the great Lakes with the city of New York by an inland +water-way for commerce, and the completion of this in 1825 made the +State the "Empire State," and the city the undisputed commercial +metropolis of the Union. In a similar way Massachusetts undertook in +1862 the completion of the Hoosac Tunnel for a railway lengthwise of +the State; and although the process became unduly expensive, and great +abuses sprang up in connection with it, no one now questions that the +pecuniary and moral resources of the State have been augmented, on the +whole, by contracting the debt and providing by taxation for the +liquidation of both interest and principal. The credit of +Massachusetts, that is, the ability to borrow money at low rates of +interest, has been at times greater than that of the United States; +mainly because the State in 1862 and onwards refused to avail itself +of a depreciated national paper-money (greenbacks) made legal tender +for all debts, with which to pay the interest on its then existing +State debt, but persisted throughout (alone of the States) to pay that +interest so soon as due in gold coin. On the other hand, several of +the States of the Union at different times, and under more or less of +provocation and justification, have made a partial or entire +repudiation of certain portions of their public debts, justly damaging +to their individual credit, and even to the good name abroad of the +whole people of the United States. + +Counties and cities and towns may also issue interest-bearing bonds +for public improvements, which have a _quasi_ governmental character, +but only under conditions and to a maximum amount prescribed by a law +of the State. + +_c._ Bank Bills. These are a form of promissory notes not on interest, +and thus differ from the notes of ordinary corporations, and from the +bonds of nations and states and municipalities; but the issuing Bank +offers, as a sort of compensation for the privilege of circulating +notes not on interest, to convert them into coin, that is, to pay them +instantly on the demand of any holder. It is this proffered and +immediate convertibility into coin that enables the promissory notes +of a bank to circulate as money, while the notes of other corporations +and individuals equally solid and solvent do not circulate as money. +It must be borne in mind, however, that this offer to convert them +into the legal and ultimate coin-money does not essentially alter the +nature of Bank Bills; they are a form of commercial credit; and +although they are commonly issued against another form of such credit, +namely, against the interest-bearing promissory notes of individuals +and corporations who resort to the bank for discount, this only +complicates the exchange without changing its nature. It is a common +instance of exchanging one form of credit for another form which +happens to have a greater currency or validity than the first, and for +this superiority of the bank credit the individual credit pays an +interest, in other words, is discounted; and such exchanges of one +form of paper credit for another, with or without a premium, may go on +indefinitely; especially as _credit-money_ in the form of bank bills, +such paper may serve as a medium in many exchanges; but ultimately, +and before the entire series of transactions is closed, such bank +bills are to be redeemed in coin, or taken in by the banker in payment +of some debt due to him, in both which cases they are extinguished as +an instrument of Credit. + +The Bank of England keeps out in circulation on the average +£25,000,000 in bank bills. It has been computed, that the average +length of life of a Bank of England bill between its issue and +redemption is about three days; and no bill once redeemed or received +back over the counters of the Bank is ever issued again. It is then +placed on file for record only. The joint-stock and private banks of +England and Wales circulate on the average rather more than £4,000,000 +of bank bills of their own; and no bank bill of any kind is legal in +England and Wales of a less denomination than £5. The ten Scotch banks +and their branches keep out in bills about £5,000,000; six out of the +nine Irish banks and their branches issue on the average not far from +£10,000,000; but both the Scotch and Irish banks are allowed to put +out £1 bills. + +Bank bills, as a form of paper credit not on interest, but ostensibly +redeemable in coin on demand of the holder, have been issued in the +United States by more parties and to a larger extent and with more +recklessness as to redemption than in any other country. Omitting all +reference to Colonial issues, and confining the outlook to the first +century under the Constitution, let us note, that when the present +national government went into operation in 1789, the "Bank of North +America" in Philadelphia and the "Bank of New York" in New York and +the "Bank of Massachusetts" in Boston had been opened for business, +and all three were State banks issuing bills convertible into coin, +though each confined its business mostly to the city in which it was +located. Two years later under the auspices of Alexander Hamilton, +then Secretary of the Treasury, the first "United States Bank" went +into operation at Philadelphia under a charter from Congress that was +to run twenty years with a capital stock of $10,000,000. At first no +bills were issued by this bank of a less denomination than $10; the +money was popular and was converted on demand; the Bank was +prosperous, and paid dividends to stockholders never falling below 8% +and frequently rising to 10% annually; as the time approached for the +charter to expire, the stockholders were anxious for a renewal of +their privileges; but the opposition to them in Congress was now +strong, owing mainly to the increase in the number of State banks from +3 to 88; and accordingly the recharter was defeated in the House by +one vote, and in the Senate also, by the casting vote of the +Vice-President, and the Bank was obliged to wind up its affairs in +1811. + +Then came in a sort of mania for the creation of new State banks, +under the hope that these, now there was no National Bank, might +obtain the Custody and temporary use of the national funds, and +especially might furnish the country with paper money in the shape of +State bank bills. The number of banks went up to 246 in 1816. So many +bank bills were put out, and became so much distrusted, and so many +were presented for redemption, that the banks could not respond in +coin, and in the fall of 1814, there was a general stoppage of specie +payment in all the banks of the Country excepting those in New +England. General resumption of specie payment by the banks did not +take place till 1819. New York bank bills went down to 90%, those of +Philadelphia to 82%, those of Baltimore to 80%, and those of Pittsburg +to 75%. + +Under these circumstances the Second Bank of the United States went +into operation in January, 1817, also with a charter to run twenty +years, with a capital stock of $35,000,000, of which the national +Government subscribed one-fifth. The new Bank helped indeed the State +banks to resume specie payments, as was a part of the purpose, but it +pushed its own bills into circulation with such eagerness, that it is +thought $100,000,000 of them were in the hands of the people, before +the first year was out. In this way the Bank fell into difficulties. +Its bills were distrusted. Coin came to bear a premium over them of +10%. President Jackson began his famous contest with the Bank seven +years before its charter was to expire, and took care that it went out +of being the same year that he went out of office, in 1837, namely. + +The next year the State banks increased in number to 675, and +continued to increase till 1862, when there were over 1500 of them, +and when the issue of the "Greenbacks" by the national Government +interfered with what had been their exclusive issuing of the paper +money after 1837. In 1857, before the commercial panic of that year, +the aggregate of their bills stood at $214,000,000, the largest it +ever reached. These bills were nominally convertible into coin at the +will of the holders, but they were never actually so convertible for +any great length of time. The ratio of their volume to the specie +reserved to redeem it was always a very high ratio. For instance, the +average for the whole country in January, 1863, was 4:1; in Rhode +Island 12:1; and in Vermont 28:1. Such a paper money can be called +convertible only by a stretch of courtesy. + +It was wisely determined by the People to abandon this loose form of +paper money, and in 1863 went into operation the present national +banking system, under which originally $300,000,000 of bank bills were +authorized to be issued in the aggregate, but this limit was extended +in 1870 to $354,000,000, and the Act of 1875 removed all restrictions +on the total amount, while there have always been restrictions on the +amount that can be issued by any _one_ bank in the system. By the law +of 1882, national banks may withdraw their bills by depositing lawful +money in the Treasury to take them up, and then take back the +proportionate amount of the bonds held for the security of the bills. +There were outstanding Dec. 26, 1883, $341,320,256 of these national +bank bills, but their volume declined under the law of 1882 to +$151,702,809 on Oct. 4, 1888. These bills were from the first +redeemable in greenbacks, which were themselves, however, +irredeemable in gold and silver till New Year's, 1879, since which +time till the present all the paper money of the United States of both +kinds has been convertible into coin at the will of the holder. + +_d._ Bank Deposits. We are studying in order the forms of commercial +Credits, and we have now come to that one which is central in the +operations of Banking, and accordingly this is the place for us to +understand clearly what a Bank is, who a Banker is, and what are the +motives actuating at once the Banker and his Customers. A BANK IS AN +INSTITUTION FOR THE CREATION, MANAGEMENT, AND EXTINCTION OF CREDITS. +Money of any kind plays a very subordinate part in the general +operations of banks, which live and move and have their being in the +sphere of pure Credits. _Bankers are buyers and sellers of credits._ +As merchants are dealers in commodities, so bankers are dealers in +credits, buying (1) some credits with other credits, (2) some credits +with money, and (3) money also with credits. Before unfolding these +three operations of bankers in their motives and profits, a glance +backward to the origin of banks would be a help to us in grasping +their nature and benefits. + +The word "bank" meant originally a mass or pile or ridge of earth, as +we still say, a _sand-bank_, and the _banks_ of a river. When first +applied to commercial transactions, the word had a different meaning +from what it has at present, although the idea of _credit_ has inhered +in it from the first: in 1171, the Republic of Venice, being at war, +ordered a forced loan from its citizens, and promised to pay interest +on it at 5%; and certificates were issued for the sums paid in, and +public commissioners were appointed to manage the payment of the +interest and the transfers of the certificates, which were made +negotiable. The Italian word applied to such a public loan is _monte_, +but as the Germans were then strong in Italy, the German equivalent +word, _bank_, came to be used alongside of it and instead of it. It +meant this common contribution of the citizens to the wants of the +State, represented by the mass of the certificates, and came to be +applied also to the _place_ where the commissioners paid the interest +and transferred the shares. Two other such loans were contracted there +afterwards, and an English writer, in 1646, quoted by Macleod, speaks +of the "_three bankes of Venice_," meaning these three public debts, +including the evidences of them and the place where they were managed. + +The Bank of England also was in its origin in 1694 an incorporation of +those persons willing to subscribe to a public loan in time of stress, +as "The Governer and Company of the Bank of England." The subscribers +to a loan of £1,200,000 became an association, or bank, on the +condition that the Government should pay interest to the lenders at 8% +annually, and also £4000 a year in addition for the management of the +bank, that is, of this debt of £1,200,000 which was the sole capital +stock of the new Company, which was authorized to issue an equivalent +amount of bank bills to circulate as money. The capital stock was of +no use, so far as redeeming these bills was concerned, the +stockholders must furnish other money for that purpose besides what +they have loaned to the State, but the ownership of so much of the +public debt divided among the shareholders, made the Bank respectable, +and tended to give public credit to its bills, which at first were +paid promptly in coin on demand, and thus the Bank, by increasing the +volume of money and by showing confidence in the stability of the +State, strengthened the revolutionary position of William and Mary, +and consequently the Whigs were the friends and the Jacobites the +enemies of the Bank. This function of issuing bills or promissory +notes designed to circulate as money, thus begun and still continued +by the Bank of England, is much less important in modern banking than +the other two functions of receiving Deposits and making Discounts, +but it was the function on which the turn began to be made from the +older to the newer modes of Banking. All that is needful to be said on +this tertiary or money-issuing function of Banks has been already +urged under the last head. + +The two Banks of the United States in succession, as they were more or +less modelled after the Bank of England, gave the same prominence to +the function of issuing paper money, under the belief that government +bonds afford the best security for the redemption of bank bills, an +idea that underlies our present system of National Banks also; and, +moreover, those two great banks began to teach the people of the +United States something of the mysteries of _Deposit-banking_, the +point that we have now in hand. One-fifth of the capital stock of the +first Bank, $2,000,000 out of $10,000,000, was subscribed by the +national Government; and besides, the proceeds of the national taxes +as they were paid in were passed over to the Bank as _Deposits_, that +is to say, the Bank bought this money of the Government, paying for it +with a Credit; and then properly used the money as its own in paying +expenses and in discounting paper. Bank deposits do not belong to the +depositors, but to the bank; which has thus bought money with credit; +and when Andrew Jackson suddenly removed from the second Bank of the +United States the national moneys deposited there, and placed them "in +the custody," as he expressed it, of certain selected State banks, +these amounted at the moment to $10,000,000, and the discount line +resting in part on these deposits was at the time over $60,000,000, he +removed them under a strong misapprehension _of the nature of such +deposits_; and their _removal_ affected credit, and disarranged +business to a remarkable degree, and caused intense excitement all +over the Union. Depositing those national moneys with the Bank was a +_trade_ between the Government and the Bank for the time being. The +Government took in return for the moneys a Right to demand of the Bank +in future by cheque or otherwise sums at its convenience to the +aggregate of the sums deposited; the moneys became the property of the +Bank to be used at its discretion in its ordinary business; the +Government took its return-service for the moneys in a Credit, that +is, a right to draw out at its convenience in the future corresponding +sums; there was a commercial understanding in that case between the +Government and the Bank underlying the buying and selling involved in +the Deposit, as there always is between depositors and their banks; +the banks are always bound to order their business in such a way as to +be able to respond to every depositor's call for money, when it comes; +but banks in general find practically that a cash reserve of one-third +of their Deposits is ample to answer the current demands of their +depositors, and the remaining two-thirds may be safely used in +discounting short-time commercial paper to their own profit; Deposits, +accordingly, are not placed "in the custody" of the banks receiving +them; they are really bought by the banks of their customers, who +receive in return certain privileges and credits that they prefer to +the "custody" of their own moneys; and under these general motives on +both sides, there has grown up in all commercial countries an immense +line of Bank Deposits so-called, and perhaps we may say that the +principal function of banks at present is to buy these deposits with +their Credit, and then to handle them in further operations to the +convenience of their customers and to their own gain. + +Under our present national banking system the Government is still a +depositor of public moneys in some of the banks designated as +"depositaries." At the close of the fiscal year, 1888, there were 290 +of such depositary national banks, and the Treasurer held United +States bonds of the face value of $56,128,000 and the market value of +$68,668,182 in trust for these banks to secure public moneys lodged +with them. This system of national deposit with the banks began in +1864. The total held by the banks June 30, 1888, was $58,712,511, an +increase during the year of $35,395,633. + +But our concern is especially with the Bank Deposits of individuals, +with their motives in making these, and with the motives and the +methods of the bankers in handling them. In order to draw the +confidence of the people in its locality, a bank must not only be, but +also _seem_ to be, well-to-do and prosperous. Most bankers find it to +their account to become known owners of public stocks; and in many +cases, as in the present national banks of this country, are required +by law to own such stocks, and this gives them a kind of credit and +public standing scarcely to be reached by the ownership of ordinary +property. Thus the Bank of England held at the outset £1,200,000, and +now holds £15,000,000 of securities, mostly of the public debt of +England. As merchants begin by laying in stocks of goods of the kinds +they purpose to deal in and offering them for sale, so bankers begin +by bringing together money and credits of their own in order to +attract to themselves in the way of buying and selling the money and +credits of other people. In order to deal successfully in credits the +banker must have _credit_, that is, he must have the reputation of +having property of his own, and of being an honest and careful manager +of his own affairs and of the affairs of others so far as they are +intrusted to him. Each of our present national banks, now (1890) 3150 +in number, must have by law a paid-up capital of not less than +$100,000, and in cities of 50,000 people their capital must not be +less than $200,000 each, except that in places having less than 6000 +inhabitants banks with not less than $50,000 capital _may be_ +organized at the discretion of the Secretary of the Treasury. The main +purpose of all this is to secure strong financial organizations fitted +to draw the confidence of the communities in which they are placed, +and in this manner and by means also of constant national supervision +to attract the Deposits of the people to the banks. + +Now, as was said a little while ago, perhaps the central function in +banking is for the banker to receive his customer's money and also his +credits falling due, and to render to him in return for these _a +credit_, that is, a right to demand from himself an equal sum at a +future time or times. The evidence of this right is entered on the +banker's books, and usually too on the customer's passbook, and thus +becomes what is called a DEPOSIT. The ownership of the money and of +the credits deposited passes over completely from the customer to the +banker. It is a complete case of buying and selling to the mutual +profit of the parties. The banker has the right to do just what he +pleases with his deposits, and the customer has a right to draw +cheques on his credit as and when he pleases; only the banker's entry +of the transaction on his books is a virtual and a legal _promise_ to +pay that amount to his customer, and therefore he must be ready to +respond to his customer's call, whenever the latter demands, not his +own money, but so much of his banker's money. _A deposit, accordingly, +is not the very thing deposited, but a credit._ It is the banker's +promise and the depositor's property. It is in this way that a banker +buys ready money with a credit. + +The motive, then, that leads the depositor to intrust his money to the +banker is the desire, not to have that specific money kept safely for +him, for he lost possession of it absolutely when it passed the +counter, he _sold_ it and took his pay in something else, but rather +to have the unquestioned right to call on the banker for such sums +(not to exceed the deposit in the aggregate) and at such times as may +suit his own convenience. He has such confidence in the integrity and +solvency of the banker, finds it so practically convenient to have +dealings with him, and comes to have certain minor privileges at the +bank in other relations over non-depositors, that he quite prefers a +credit on the banker to the possession of the money itself. + +The corresponding motive of the banker to receive his customer's funds +on these terms is that he finds by experience (his own and others'), +that he can safely use a large portion of these moneys deposited in +other operations in credit profitable to himself, and at the same time +be practically sure of meeting all his customer's calls for money as +they are made. Every good banker finds out, that many of his customers +wish always to leave a balance in his hands; that while some of them +are constantly drawing cheques on him for cash, others of them are as +constantly depositing with him in cash; and that consequently he can +properly and safely use a large part of the money he has purchased +with his credit to purchase other credits with. Deposit-banking, +therefore, is not only convenient and profitable for the depositor, +but also excellent and profitable for the banker. + +Besides these two parties benefited, there is a gain, too, for the +community at large in deposit-banking; inasmuch as a new capital as +such has been thereby created, a series of new values, which would not +otherwise have existed at all. Were there no deposit-bank in that +locality, every man now a customer of it would of course keep his own +reserves for himself for prospective contingencies: now, all these +little reserves are aggregated in the bank, the convenience of them +for each customer's contingencies is just as great as if he kept his +own in his own safe or wallet, but the banker finds that he can use, +say two-thirds of the whole, and still answer each customer's call. +Here is a new capital. Here are scattered valuables brought together +to be loaned out to a profit, which were otherwise barren and useless +for the time being. Industry is quickened in a wide circle, products +are created and brought to market, wages are paid and profits are +gained, in direct consequence of bringing together under favorable +auspices for safe loaning the little hoards and driblets of many +individuals, which were practically useless in isolated hands. + +It may easily be objected at this point, that it is entirely possible +that any banker might be called upon to pay off all his +deposit-liabilities at once in money, which, if it happened, would +break him of course; so it is abstractly possible that all the lives +insured in a Life Insurance Company might terminate in one day, in +which case no Company in the world could meet its obligations; and so +it is abstractly possible that all the houses insured in a Fire +Insurance Company might be burned up in a single night, which, if it +happened, would cause the collapse of the soundest company; but in all +these cases of possibility there is a _certainty_ that the possibility +will not become a fact. _Ex nihilo nihil fit._ A supposition +practically impossible to become a fact can yield no logical inference +whatever. The Greek language has a special grammatical form for a +hypothesis impossible to be realized in fact: would that the English +had also such a form of speech! It would save us a mess of bad +reasoning. If, however, any banker may have misjudged for his locality +at any time the proper ratio of reserves kept to deposits received, +and be crowded in consequence, he must sell some of the securities +bought with the excess, or borrow money on them. + +Surprisingly large is the amount of bank deposits in all the leading +commercial nations of the world. The average public and private +deposits of the Bank of England, on which no current interest is paid +by the Bank, amounts to about £40,000,000 all the time. The ten +joint-stock banks of London carry about £80,000,000 in private +deposits, of which those to remain some time _draw_ an interest, but +those lodged on current accounts and on call _draw_ none. Scotland has +carried deposit-banking further and to greater advantage than any +other country in the world. There are now no private banks in +Scotland, but the ten joint-stock banks with their numerous branches +scattered to every village in the land hold constantly about +£70,000,000 as individual deposits, on which current interest is +allowed, and so the habit of keeping one's account with a banker has +become universal with the people. No one thinks of keeping money to +any amount in his house or about his person, and consequently +house-breaking and highway robbery have almost ceased. Bankers even +attend all the great fairs in the country to receive deposits and to +pay off cheques. Credit in this form and in another form soon to be +described treads its utmost verge in Scotland. Although in the United +States the custom of keeping deposits with bankers and drawing cheques +against them has not gone nearly so far as in Scotland, and not nearly +so far as it will go in the immediate future, yet the aggregate of +individual deposits in the national banks alone, Oct. 4, 1888, was +$1,350,320,861, an increase in just seven years of 26%. + +_e._ Bank Discounts. The credits that are discounted by bankers may be +either the promissory notes of individuals and corporations already +characterized, or the Bills of Exchange soon to be characterized, but +the entire function of discount is so peculiar, that the paper +subjected to it ought to be enumerated in a classification of the +instruments of Credit. The discounting of commercial paper is the +second essential function of banking, as the buying and handling of +deposits is the first; and it is more in accordance with genuine +_banking_ to pass the price of the paper discounted to the seller's +credit in the form of a deposit, that is, to buy one credit by +creating another, than to pay the money over the counter at once, and +thus to buy credits with money. Those who do the latter are called +_bill-discounters_ rather than bankers, but most of our bankers do +both, though there is a tendency towards the separation of the two in +this country also. + +Manufacturers and wholesale merchants usually sell their goods _on +time_, as it is called, say three or six months. Debts are thus +created, or to say the same thing in other words, Credits are thus +given. The manufacturer or wholesaler is creditor and the jobber or +retailer is debtor. But a debt is property; and the creditor in this +case wishes to avail himself of his property at once for further +production; so he either takes a Promissory Note from his debtor, or +draws a Bill of Exchange upon him, and this piece of property is ready +for sale. Neither piece mentions _interest_ expressly, but the face +sum virtually covers it as contemplating discount. Banks have been +organized for the express purpose of buying for their own profit and +for the convenience of business such pieces of property; some banker, +accordingly, buys this particular piece, that is to say, this creditor +passes over to this banker the commercial right to demand payment from +this debtor at the end of three months, and receives in return from +the banker either money direct or so much of the banker's credit, that +is, a deposit in favor of the creditor on the banker's books. For +furnishing this creditor either with ready money or a more available +credit in lieu of his mercantile paper, the banker charges of course +_a percentage_. This is _Discount_. _Discount is the difference +between the face and the price of the paper._ This percentage called +discount is the chief source of profit in ordinary banking. It is +virtually compound interest on the sum advanced till the maturity of +the paper, when the banker realizes from the debtor its full face. + +The following is a common form of a bankable note:-- + + $1,000 WILLIAMSTOWN, Mass., Nov. 10, 1889. + + Three months after date I promise to pay to the order of + JOSHUA SWAN, one thousand dollars, payable at the + Williamstown National Bank, value received. + + Due Feb. 10/13. LEANDER ALLEN. + +When Swan has put his name on the back of this note, that is in bank +phrase, has _indorsed_ it, in token that he thereby at once sells and +guarantees it to the bank, it is then discounted on the strength of +the two _names_, Allen and Swan. As Allen technically takes the +advance from the bank for his own benefit, he is technically expected +to take up the note when it matures, and if he do not, the bank falls +back on Swan, who is equally bound with Allen to see that it is paid +at the proper time. Two names are nearly always, not always, requisite +to a note acceptable for discount at a bank; and more names merely +strengthen the note, since it is discounted on the combined validity +of all the names upon it. + +One obvious advantage of discount is, that it tends to make all +capital active and thus productive. It enables the banks to sell their +credit and make a gain, to use a part of their money deposits to buy +mercantile paper with, and so get a bank interest on them; it enables +dealers in commodities to realize in cash _minus_ the discount the +sum of what they have sold _on time_; and by means of _accommodation_ +notes or bills, which only differ from the others in that there is no +_actual_ debt between the parties, business men may swell the volume +of their business temporarily, and non-business people may borrow +small sums for convenience or emergencies. Bankers have not always +credit enough or money enough from their depositors to buy in either +mode all the good paper that is offered to them, in which case, they +raise the rate of discount unless the law forbids, or by easy evasions +even when the law forbids; or else accommodate regular customers and +large depositors first, or buy of all that are "good" a certain +proportion only. + +The discount line of 3140 national banks reporting Oct. 4, 1888, was +$1,674,886,285.29. + +It is thus through the purchase of discountable notes for money, that +banks derive their partial character as money-lenders. Also, such +reserve sums as they do not wish to invest in negotiable paper, on +account of the time involved before such paper matures, banks +frequently loan _on call_ to those customers who have good collateral +securities to pledge for the repayment of such loans. The terms of +such a contract give the bank full authority to sell such collateral +"_at the Brokers' Board or at public or private sale, or otherwise at +said bank's option, on the non-performance of this promise, and +without notice_." So far forth banks become direct money-lenders. It +ought also to be added, that promissory notes with a single name (or +more) are often discounted by banks partly on the strength of +collateral securities deposited to fortify the names upon the notes. + +_f._ Bills of Exchange. A Bill of Exchange is a written instrument +designed to secure the payment of a distant debt without the +transmission of money, being in effect a setting-off or exchange of +one debt against another. It is in form and in several technicalities +different from a promissory note, inasmuch as it is an _order to pay_ +instead of a _promise to pay_, and inasmuch as the maker of a note is +always _debtor_ and the drawer of a bill of exchange is always +_creditor_; but all this makes practically very little difference +between the two as instruments of Credit, since nearly all bills of +exchange come into banks in the way of ordinary business, either for +discount or collection, and as the banks care nothing except for +_names_, the _form_ of the purchasable paper is a matter of +indifference to them. The following is the essential form of an inland +bill of exchange:-- + + $3,000 PITTSFIELD, Mass., Oct. 16, 1889. + + Four months after date pay to the order of JOHN KENT three + thousand dollars, value received, and charge the same to + account of + + To ELI TRIPP, Boston, Mass. DAN STORRS. + +In the case of this bill, which may serve as a sample of thousands, +Storrs is the _drawer_, who is creditor in relation to Tripp, and +Tripp is _drawee_, but Storrs is debtor in relation to Kent, who is +the _payee_. A bill of exchange is the sale of a debt, in such a way +that two debts are so far forth set off against each other, and both +transactions are closed without sending any money at all. Tripp owes +Storrs, and Storrs owes Kent, and so Storrs pays Kent by an order on +Tripp. As this is a bill at four months, Kent will doubtless send it +to Tripp for his _acceptance_, as it is called, that is, his +acknowledgment that he owes Storrs to that amount, and that he will +pay the sum to the holder of the bill when it becomes due. An +acceptance is written on the _face_ of a bill, and an indorsement upon +the _back_ of the note: the initials are sufficient for the name of +an acceptor, but the full business name is usual for an indorser. + +Thus a bill of exchange is the formal sale of a debt, in order to +liquidate thereby another debt, when the parties to the transaction +live in different and distant places. Storrs does business in +Pittsfield, and Tripp in Boston, and it is a matter of comparative +indifference where Kent lives, unless there is trouble at the time of +collection, for he will perhaps negotiate this bill again, that is, +make use of it to pay some debt that he himself owes. It is not often +that the same person, as Tripp, happens to owe another person in a +distant town, as Storrs, the same amount as Storrs owes another person +somewhere, as Kent; but by two bills of exchange, one drawn by each +creditor on his own debtor, and then each set off against the other, +through the simple and beautiful expedient of bank balances, +substantially the same advantages are reached as if it always happened +so. Many bills of exchange are drawn _at sight_, as it is called, in +which case the payee presents it for payment to the drawee, there is +no acceptance and no discount, and a bill of this kind becomes the +same as a cheque. + +Time bills, however, are usually discounted: the payee indorses his +claim over to a fourth party by name, or, by what is called an +indorsement _in blank_, that is, by merely writing his own name on the +back of the bill, makes it payable to bearer: when banks buy these +bills for discount, it is on the joint credit of acceptor and drawer +and payee, and in that order of validity and precedence: a promissory +note may be protested by a bank without notice to the maker, but a +bill of exchange cannot be without notice to the drawer: a promissory +note has two parties to it, a debtor and a creditor; while a bill of +exchange has three parties to it, two creditors and a debtor. + +Inland bills of exchange, both time bills and sight bills, are very +convenient in settling debts between distant places without the +costly, and more or less hazardous, transmission of money back and +forth; besides this, time bills possess the very useful function of +enabling a debt due from one person to avail the creditor as a means +of obtaining credit from a third party in discount; and in addition to +these two points of benefit, it is plain, that the common use of bills +of exchange in all their forms releases from use large amounts of +money that would else be needful in trade. The less money in use in +any country beyond a certain point, the better, because, if coin, it +costs much to mint and maintain it, and if paper, it is difficult to +make and sustain it of full value. + +Bankers sometimes change what they call "exchange" for settling debts +between distant places in the same country; in some cases there may be +a sound reason for this, in other cases there is none, but in all +cases it adds a little to the profits of the banks for handling the +bills of exchange; the principle of charging an "exchange" is +this,--when one place as Chicago draws more bills on another place as +New York than suffice to cancel the bills drawn at that time by New +York on Chicago, the point _at_ which the larger indebtedness lies is +the point for sending drafts _to_ which banks naturally charge a +percentage; perhaps the idea, which is actually realized in foreign +exchange, that money may have to be sent to liquidate such a balance, +may have brought in the custom of charging "exchange" in such cases; +and there are instances aside from such a supposed balance, in which +there may be an extra cost of collection in some form to the bank, +that may justify an "exchange" charge; but there is another principle +counterworking and often neutralizing entirely this alleged doctrine +of a "balance" of debt as between two distant places, namely, that the +chief settling place and commercial centre of a country, such as New +York is, draws towards itself from the whole circuit with such force, +everybody wanting a balance there and having occasion to send funds +thither, that drafts on such a place are apt to bear a premium without +any reference to its comparative indebtedness at the time. + +Very similar to these inland bills in their nature and course and +usefulness are Foreign Bills of Exchange, which, as a vastly important +topic, especially in its relations with Foreign Trade, we must now +study minutely and completely. Commercial relations between two +countries, let us say, for instance, France and England, always give +rise to a mutual indebtedness of their merchants; if these reciprocal +debts were all to be paid by the actual sending of money to and from, +there would have to be a constant and expensive and more or less +hazardous outward and inward flow of the precious metals in respect to +each country; all which necessity is neatly obviated by the use of +reciprocal bills of exchange, and coin is only transmitted to settle +the balances on whichever side there may happen an excess of debt at +the time. French dealers are always sending goods to England, and +English dealers goods to France; and for what they send to England the +French merchants draw bills of exchange on the parties to whom the +goods are consigned, and the English merchants draw similar bills on +their debtors in France; then these bills are bought up by bankers or +brokers in either country, and virtually exposed again for sale +through new bills drawn against them to any parties who may have debts +to pay in the other country. Thus bills on London, in other words, on +English debtors, are always for sale in France; and bills on France, +that is, on French debtors, are always for sale in London; the +reciprocal debtors of the two countries, therefore, instead of sending +coin to cancel their debts, buy and transmit these bills. + +Let us take a sample instance. Pierre & Co. of Paris send a cargo of +wine worth £1000 in English money to John Barclay of London. Barclay +thus becomes indebted to the Paris firm to that amount, and Pierre & +Co. draw at once, so soon as the cargo is despatched, a bill in francs +to the equivalent of £1000. If they themselves have no debt to pay in +London, they will sell this bill immediately to a Paris banker or +broker (if the exchange be then at par) for its full face _minus_ +interest for the time it has to run, say two months; this broker is +now ready to sell this bill again, or what is the same, his own bill +drawn on the strength of it, to anybody in Paris who may have a debt +to pay in London; and the party in London who receives it in +liquidation of a French debt to him, presents it at maturity to John +Barclay for payment. Thus one bill of exchange serves the ends of two +creditors and one debtor: Pierre & Co. get their pay for the wine, the +London party gets his pay for goods, and Barclay pays his debt, by +means of it. A bill drawn in London for a cargo of hardware sent to +Paris is similarly negotiated with a London broker or banker, and +finds its way similarly to France in payment of some English debt owed +there, and ends its course when it reaches the French firm on which it +was originally drawn. + +We are now in position to understand clearly what is meant by the _par +of Exchange_ in its commercial (not coinage) import. The merchants in +Paris, who have debts due to them from London, draw bills of exchange +for the amount of these debts; and, through the agency of middlemen, +go into the market to sell these bills to other Paris dealers who have +debts to pay in London. If the former class have a larger amount to +sell than the latter have occasion to buy, in other words, if there be +a larger amount of debts due from London to Paris than from Paris to +London, then the natural competition of the sellers in Paris of the +bills on London will lower their price somewhat in that market +(Paris), in order, as usual, that the Supply and Demand may be +equalized there. In this case the par of exchange is disturbed, a bill +on London for £100 in francs may not sell for over £99, and the +exchange is then said to be 1% _against_ London, or, which is the same +thing, 1% _in favor_ of Paris. + +The _par of Exchange_, accordingly, between two countries, depends on +the substantial equality of their commercial debts. In the above +example, if the exchange as against London in favor of Paris continue +long, and especially if the premium of 1% on bills drawn in London on +Paris be sufficient to cover the expense of the transmission of specie +from London to Paris, gold will begin to flow from London to Paris, +because the debtors there may find it cheaper for themselves to buy +and send gold than to pay the high premium on bills; and thus the +equilibrium of payments and the commercial par may be restored. Also, +this par tends to restore itself, without any sending of specie, in +this other perfectly natural and effectual way: if bills on Paris are +at a premium in London, for the same reason that they are so will +bills on London be at a discount in Paris; therefore, there will be a +direct encouragement to the extent of the premium for _exportation_ of +goods from England to France, because on every cargo thus sent bills +can be drawn and sold in London for a premium; while the more bills on +Paris thus offered in London, the more the premium disappears of +course, and the par will be restored so soon as the bills on Paris +substantially equal the bills on London offered in Paris; and at the +same time, so long as the discount on London bills continues in Paris, +there is a direct _discouragement_ to further exportations from France +to England, because the bills drawn in virtue of such cargoes can +only be sold below par, and this too tends to _restore_ the par in the +commercial sense of the term. + +Here is another instance of a magnificently comprehensive law, by +which Nature vindicates her right to reign in the domain of Exchange. +It is through this natural and beneficent law of automatic +compensations, stimulating exportations on the one side and slackening +them on the other, that most of the casual disturbances of the +commercial par as between two countries are easily and perfectly +rectified. + +While this great law is in full possession of our minds, let us note +in passing how artificial restrictions by one country on the +importation of goods from another, commonly called "Protectionism," +affects this commercial par as between those two countries. Besides +stopping absolutely a mass of otherwise profitable exportations and +importations for both countries, it makes less profitable to the +country imposing the restrictions whatever foreign trade _does take +place_ between them in spite of the restrictions. Suppose England, as +is the fact, opens her ports freely to the commodities of France, +while France puts restrictions in the shape of heavy taxes upon +importations from England; more French goods are likely under these +circumstances to seek English ports than English goods to seek French +ports, because they are more welcome; consequently, more bills of +exchange drawn on London will naturally be offered in Paris than bills +on Paris in London, and will so far forth be sold at a discount, while +the London bills drawn on Paris will be sold at a premium; in other +words, the comparatively few goods that do get out of a "protected" +country, realize less to their owners than the natural value, because +the bills drawn on them are extremely apt to be sold below par! With +this course of things all known facts agree. Since the United States +became conspicuously a "protected" country a quarter of a century ago, +it has been at rare intervals and for short periods that bills drawn +here on London have been at par. They have been usually much below +par. The equivalent of £1 sterling in United States money is $4.8665; +and when bills on London sell for less per pound sterling than $4.86, +they are at a discount in New York or Boston; and exporters here are +direct losers to the extent of the discount. + +If, however, notwithstanding the beautiful action of this great law of +commerce, the disturbance in the commercial par as between two +countries continues obstinate, it indicates one of several things as +true of the country, whose bills of exchange drawn on another persist +in a considerable discount; (1) it has come to be a pretty steady +debtor country as towards the other, by sending thither its national +or State or corporation bonds, whose interest and ultimately principal +also must sooner or later be remitted in exports _extra_ to the +exports needed to pay for the current imports of goods; (2) it has +either naturally or by persistence in a bad public policy little or no +shipping of its own, so that freights both ways have to be paid to +foreigners in the form of exported goods _extra_ to those exported to +pay for those imported in transient trade, which of course increases +the number and face of the bills drawn _in_ the luckless country _on_ +the lucky country or countries; (3) it has made the vast and fatal +mistake of excluding by legal barriers of taxes put on for that +purpose the goods of foreigners, whose only motive in coming is to +take off corresponding goods of the deluded country's own to the +profit of both, and so these last-mentioned goods must seek a foreign +market (if at all) at reduced rates, their natural market having been +destroyed by national law; and (4) it may have made the national money +in which the bills drawn on it are liable to be paid an inferior +money, either transiently by mere abundance or permanently by worsened +quality, which is well illustrated in the instance of Amsterdam as +cited in a preceding chapter, and which can only be remedied by +raising the standard of the money to the level of the best. + +Very little, if anything, can be inferred as to the prosperity of a +country or even as to the real condition of its "exchanges" in this +technical sense of the term, by the transient movements of gold to and +from the commercial countries, in their present complex relations as +gold-producing and non-gold-producing countries and as debt-settling +and non-debt-settling centres. Gold moves back and forth in obedience +to several other impulses than to settle the balances in an +international trade of Commodities. Gold-producing countries of course +export gold just as they would any other native product. If for any +reason gold becomes relatively more abundant in one country than in +other commercial countries around it, general prices will rise in that +country in consequence; which means, that gold is then and there the +cheapest article that the people of that country can export to pay +their commercial debts with. Also, the imports which a nation pays for +in gold, or in bills of exchange bought above par, are often bought +with a high profit. Creditor nations, nations that have managed to +make themselves settling-places for the world's commercial debts, and +nations that welcome imports without impediment from every quarter of +the earth (and England may serve as a sample for all these three), +will largely pay for imports in gold or in bills bearing a premium. + +It is a thousand pities, that technical terms which are quite +misleading unless one remembers their origin and exact significance, +have come to be intrenched in commercial language too strongly to be +dislodged at this late day, as the common terms to express the state +of the "exchanges" as between two countries. These terms are +"_against_" and "_in favor of_." The old Mercantile system, which has +left other unsavory progeny behind it besides this, in order to keep +and heap gold and silver in a country, encouraged exports in every way +and discouraged imports, in order that the "_balance of trade_," as +the phrase ran, that is, the difference in volume between exports and +imports, might come back to the country in gold and silver; and this +foolish and now thoroughly exploded notion gave rise to the terms in +question; exchanges were then said to be "against" a country when the +record seemed to show more imports than exports, as if that implied +that the imports were too great for a "balance" in gold and silver; +and were said to be "in favor of" a country when its export-line was +greater than the line of imports, as implying a favorable balance to +be met by a specie-import in future. The false "System" is gone +forever, but the "terms" still abide in commercial language, and +confuse the minds more or less (more rather than less) of everybody +who tries to make these terms a vehicle of thought. We have now +described the causes and courses of international bills of exchange +without resorting to these technicalities, which imply movements of +gold and silver which do not actually take place under the conditions +supposed; for example, the exchanges were "in favor" of the United +States in 1874-77, there being an apparent trade balance of +$164,000,000 in 1877 and a still larger in 1876 and a larger one in +the two years preceding, but the import of specie was small in all +those years, averaging about $25,000,000 a year, and the rest of the +excess of exports went to pay interest due to foreigners, freights on +the cargoes both ways, and so on. It is difficult to use without +abusing the terms "against" and "in favor of" in this connection, and +the reader is cautioned not to employ them; although "discount" and +"premium" on international bills of exchange are matters extremely +important to observe and to know the grounds of. Were there no +counterworking principle, bills of exchange drawn _on_ capitalist and +creditor countries, like Great Britain, whose imports are apt to be +strongly in excess of the exports, and whose public policy is wise +enough to put no obstacles in the way of the free receipt of imports, +would be at a _discount_ in countries sending exports thither. + +This counterworking principle, already illustrated as to inland +exchange in the case of New York, is best seen internationally in +connection with London, which is the settling-place of the world's +commerce. When the Romans dredged the Thames and made "the pool" just +below London Bridge, they took the first steps towards making that +town a commercial centre; since a market for products is products in +market, the busy exchange of commodities there has quickened in every +age the accumulation of capital and the increase of population; +previous to the Dock Laborers' Strike in 1889, about 100 vessels +entered the port of London every day, which received about one-half of +the total customs revenue of the United Kingdom, and sent out about +one-fourth of its exports; the business of out-of-the-way and +semi-civilized countries has somehow (and it would not be hard to tell +why) centered in London, as well as the business of originally British +Colonies everywhere and of all other commercial countries; +accordingly, debtors and creditors abound there, bills of exchange +concentre there, and debts due from everywhere are payable _there_; +and therefore, because bills on London are good all over the world, +the Demand for them counterworks the natural cheapness of the bills +drawn on exports _thither_ as compared with the natural dearness of +the bills drawn there on exports _thence_. + +Another thing must be borne in mind in comparing the merchandise +accounts of any country, namely, that whenever the "exchange" is +sufficient to cover the cost and risk of the transmission of gold, +gold itself is likely to go freely from the country, in which bills +drawn on exports are at a premium, or to use for once the old +hazardous phrase, "_against_" which the exchanges have turned, and +bills will be drawn on that gold, as upon common merchandise, and sold +of course for the sake of the premium; or, if a decidedly higher rate +of discount prevail in a neighboring country, gold will naturally go +thither from the lower-rate lands, because lenders in the latter will +desire to realize the higher rate of current interest on money, and +bills will be drawn on this gold as well, which will tend to lower the +premium on bills there; unless, then, the premium _and_ the difference +in interest abroad will justify the speculation, the gold will not +stir; although, if the difference in interest abroad were very +considerable and promised to continue for some time, the bills on the +gold might sell at a discount and still leave a profit to the senders; +but the home bankers can always stop a drain of gold of this kind by +raising their own rates of discount. + +This casual mention of bankers leads on to the weighty point, that the +whole business of foreign exchange is falling more and more into the +hands of the bankers, because bills drawn _by_ and _upon_ well-known +bankers naturally have a better credit than ordinary commercial bills, +the names upon which are less widely and favorably known. Accordingly, +persons sending cargoes of cotton, say, or of any other valuables, +from New York to Liverpool, arrange with their bankers in New York to +have the proceeds of the cargoes put to the _bankers'_ credit in +London, and then these bankers draw bills on the London bankers, which +will bring a higher price in New York than a common commercial bill, +because many remitters and most travellers prefer bankers' bills, +which, though they cost more, pay better and buy better abroad. +Commercial bills are still bought and sold in every commercial town, +but bankers' bills are more and more taking their place; and the +quotations usually give the current price of each. + +London is so prominent as the settling-place of the world's +transactions by means of bills drawn on and by London bankers, partly +on account of the commercial predominance of England, partly from +excellent banking customs there, and mainly because an immense mass of +cheap loanable capital exists there, which even foreigners may borrow +at London rates, provided only that they can get credit there, that +is, leave to draw on a London banker, to whom of course remittances +must be made as fast as he accepts their bills. Besides, the Bank of +England, as the principal bank in Great Britain, and as closely +connected with the Government, acts as a bank of support to the public +and private Credit of that country. It does a regular business as a +bank of deposits and discounts, but it means to keep its rate of +discount somewhat above the rate demanded by the other bankers in +London, so as not to come into competition with them much in their +ordinary business, and be able to act as a bank of support to them and +all others in times of pressure. All banks have about so much credit +to sell, _and no more_; most banks sell in ordinary times about all +the credit they have, because their profits depend on that; but if the +Bank of England did this, it would become useless in periods of panic. +In point of fact, that Bank just begins to sell its reserve credit, +when the credit of the bankers below is exhausted. When they are at +the _end_ of their rope, there is generally an abundance of slack rope +still in the great Institution above. + +Now, as gold can be drawn out of the Bank of England by the cheques of +depositors as well as by the presentation of its own notes for +redemption, the Rate of Discount becomes a matter of prime importance +in the management of the Bank. The whole line of deposits is a line of +liabilities to pay out gold, if the depositors demand it; and, as +deposits come largely through discounts, whenever there is a strong +tendency to draw out gold so as to weaken the reserves of the Bank, +the directors have an effectual remedy by raising the rate of +discount. The higher the _price_ the Bank charges for its credit, the +fewer, so far forth, will be its customers, and the smaller its line +of deposits, and the less likely a continuous drain of gold from its +vaults. The Bank of England is managed throughout by so simple a +manner as the turning back and forth of this magic screw of Discount. + +Besides the use of the term "Par of Exchange" in the broad commercial +sense in which we have now been examining it, as indicating the +substantial equality of international debts as between two countries +by the current prices of bills of exchange, there is another and +subordinate sense in which the phrase is employed, namely, as denoting +the _relative value_ of the coins of one nation in the coins of +another. Thus, our present gold dollar contains 23.22 grains of pure +gold; the English pound sterling contains 113.001 grains; +consequently, there are $4.8665 to the English pound; and this is the +"par of exchange" (in the secondary sense) between the United States +and Great Britain. Between the United States and France the "par" is +$1 to 5.18 francs, since the franc is 19.29 of our cents. An English +shilling equals 24.33 of our cents, the new German "mark" is 23.82 +cents, and the new Scandinavian "crown" equals 26.78 cents. + +_g._ Bank Cheques. In substance indeed and even in form, Cheques are +Bills of Exchange, but the two have such differing legal incidents, +and run so different a course towards extinguishment, that for our +purposes in this treatise they should be put under a separate +discussion. Bills of exchange are expressly drawn "at sight" or for a +day certain, when they become payable by the drawee: cheques _say_ +nothing about "sight" or any future date, though they are _really_ +drawn at sight, and are payable to bearer on demand: they must, +therefore, be presented for payment within the shortest reasonable +time (all things considered), in order that the holder may legally +claim against the drawer should the banker fail meantime: a cheque is +held as the payment of a debt until it be dishonored on presentation: +the banker bears the risk of the forgery of the drawer's name, unless +his mistake be made easier by the drawer's carelessness in drawing: a +cheque is not payable after the drawer's death. The parties to cheques +are the Drawer, who is a depositor with some banker; that banker thus +becomes the Drawee; and the person named in the cheque is the Payee, +who can indorse his own right over to another person by name or in +blank to bearer. When a cheque is drawn in this way by one _banker_ +upon another, it is usually called in this country a _Draft_. + +Formerly in England, and in other countries as well, each considerable +dealer kept his own strong box, and when he had occasion to make +payments, told down the solid cash upon his own counter. Afterwards, +the goldsmiths of London solicited the honor of keeping in their +vaults the spare cash of the merchants, and these in their payments +among each other came to employ orders or cheques drawn on the +goldsmiths, and at the shops of the latter the principal payments in +coin were effected. The later introduction of Banks brought along with +it the custom, now continually widening in commercial countries among +all classes of the people, of keeping one's funds with some banker, +and making payments by written orders or cheques upon him. When the +person making the payment and the person receiving it keep their money +with the same banker, there is no need of any money at all passing in +the premises, the sum being merely transferred in the banker's books +from the credit of the payer to the credit of the receiver. The banker +is quite willing usually to do this business for nothing, and even +sometimes to allow the depositors a low rate of interest on all +balances remaining in his hands, in consideration of the privilege +involved of loaning such proportion of the aggregate of these sums as +he deems safe to other parties at a higher rate of interest. + +In the larger cities, by an arrangement called the "Clearing-house," +substantially the same benefits are secured as if all the depositors +of the city kept their cash at the same bank; inasmuch as all the +cheques drawn on each of the different banks, and passing in the +course of the business day into other banks, are assorted before +evening at all the banks, and adjusted the next morning through the +clearing-house, and the credits and debits of each bank are set off as +far as possible against each other, leaving only small balances to be +settled in money. + +The London Bankers' Clearing-house was established in 1775; in 1864, +the Bank of England was admitted to it; and since then, the +Clearing-house itself, and all the bankers and firms using it, keep +accounts with the Bank of England, and the balances, formerly settled +by money, are now adjusted by simple transfers of account on the +books of that great Bank. This carries out the grand principle of the +Clearing further than it has yet been carried in this Country, +although the United States Sub-Treasury not very long ago joined the +New York Clearing-house, while the practical details of the Clearing +are simpler and better in New York than in London. The average +clearings in the London house (and there are besides many other +clearing-houses in the United Kingdom) were £5,218,000,000 a year for +1875-80, and the amounts cleared frequently rose to £20,000,000 a day; +which, if paid in gold coin, would weigh about 157 tons and require +about 80 horses to carry it; and if paid in silver coin would weigh +more than 2500 tons and require 1275 horses. This is stated on the +excellent authority of the late Professor Jevons. + +The total business of the 23 clearing-houses of the United States in +1880 was over $50,000,000,000; the New York Clearing-house did 65% of +that business for that year; and the average daily clearings there for +the fiscal year 1879 were $76,167,983. + +We will now describe mainly from personal observation the New York +Clearing-house, which was established in 1853, premising that the +principle is the same, though the details may be different, in all +other clearing-houses wherever located. Business men in New York, as +elsewhere, usually pass in to their bankers as a deposit all the +cheques and current credits received in the course of a business day. +It is the custom for everybody to draw his own cheque _on_ his banker +to make payments with, and to pass in _to_ his banker the cheques he +receives from others. Say there are sixty clearing-banks in New York +City. Each of these banks sorts out after business hours every day all +the cheques it has received that day drawn on each of the other banks +into separate parcels ready for the clearing the next morning. Each +bank has, then, fifty-nine parcels _to deliver_, which represent the +property of that bank, and are a _claim_ upon the other banks; and +also _to receive_ fifty-nine parcels, which represent the property of +the other banks, and are a claim upon _itself_. + +Before ten o'clock in the morning sixty messengers, each having +fifty-nine parcels to deliver, appear at the clearing-house, each +reporting to the manager at once for record the amount of "exchange" +he has brought, which is entered of course as _credit_ to his bank; +and then all take their positions in order in front of the sixty +desks, which occupy the floor of the house, behind which sit sixty +clerks, each representing one of the banks. Each messenger stands +opposite the desk of his own bank, with his fifty-nine parcels already +arranged in the exact order of the bank-desks before him. Of course no +messenger has anything to deliver to the clerk of his own bank. Each +clerk inside his desk has a sheet of paper containing the names of all +the other banks arranged in the same order as the desks, with the +amounts carried out upon it which his messenger has just brought to +each. All these are entered in his credit column. Each messenger +carries also a slip of paper ready to be delivered with each parcel to +each clerk, on which is entered the amount of the cheques he now +brings to each bank. Of course the amount delivered _to_ each bank is +_debit_ to that bank, just as the amount brought _by_ each is _credit_ +to that bank. + +A signal from the manager, who stands on a raised platform at one end +of the room with his two or more clerks before him, and each messenger +steps forward to the next desk in front of him, delivers his parcel +and also the slip that goes with it, which latter the clerk signs with +his initials and hands back to the messenger as his voucher for the +delivery; and then each messenger advances to the next desk,--the +whole _cue_ moving in order,--at which precisely the same things take +place as before, and so on, until the circuit of the room is made, and +each comes opposite again the desk of his own bank, having passed to +each its "exchange" and taken a receipt for each delivery. This +process takes about ten minutes; when each clerk, who had on his sheet +to start with the _credit_ due to his bank, has now the _data_ +(fifty-nine items) by which to calculate the _debit_ of his bank. The +difference between the aggregate of cheques _received_ and _brought_ +by his bank is the balance due _to_ or _from_ the clearing-house as to +that bank. + +All the clerks report to the manager the amounts _received_ by each, +and as his proof-sheets hold already the amounts _brought_, if the two +columns add up alike, no mistake has been made, and the general +clearing is over. Thirty-five minutes are allowed the clerks to enter, +report, and prove their work. Fines are imposed for errors discovered +after that time. The Clearing-house gives tickets of debit or credit +to all the banks, and the debit ones must pay in lawful money before +half-past one, and the credit ones will get their due from the manager +immediately after. The largest sum ever cleared in New York in one day +was $206,034,920.51 on Nov. 17, 1868, and the smallest $8,357,394.82 +on Oct. 30 of the panic year, 1857. + +_h._ Crossed Cheques. About twenty years ago there was instituted in +London what is called the Cheque-Bank, which is designed to bring the +benefits of the credit-system in the form of cheques more easily to +all classes of the people. The cheques issued by this institution are +so different in character and in course from common bank-cheques, and +are in some respects so new in principle, that we must give to them a +separate heading and a full explanation. + +The Cheque-Bank is a stock company in London under that style, which +has entered into relations with nearly all the banks and bankers of +the United Kingdom, and with many Colonial and foreign banks also, by +which Cheque-Books are furnished for sale by the Cheque-Bank through +these associated banks, which also agree to cash the cheques, every +cheque in which books indicates by printed and indelible perforated +notices upon the forms what the utmost sum is against which that +cheque can be drawn; the aggregate of these perforated sums is the +price for which each book is sold less 1-1/5 penny for each cheque in +it, of which the penny is for the Government stamp required and the +one-fifth for the profits of the Cheque-Bank; and all these cheques in +books of different sizes and amounts are drawn in form _on_ the +Cheque-Bank, and _Crossed_, that is, _only made payable through a +banker_. It is one security against fraud that each cheque bears on +its face the utmost sum for which it can be used, and another is that +it can only be taken up by a banker and thus settled ultimately +through the clearing-house. The Crossed Cheques Act of Parliament in +1876 makes any obliteration of the crossing or essential alteration of +a cheque _felony_ at law. + +Cheque-crossing is of two kinds, _special_ and _general_; when any +particular banker's name is written between two transverse lines, in +which form alone crossed cheques differ from ordinary ones, that makes +that cheque payable by him only; when the words "_and Company_" or +"_and Co._" are written between these lines, that makes the cheque +payable only through _some_ banker, that is, the cheque is crossed +_generally_; and when two parallel transverse lines simply are drawn +across the face of a cheque, with or without the words "not +negotiable," that cheque is legally deemed to be _crossed_ and crossed +_generally_. When a cheque is uncrossed, the lawful holder may cross +it either generally or specially; when it is crossed generally, he +may at his option cross it specially; and whether crossed generally or +specially he may add the words "not negotiable." All this facilitates +greatly the _collection_ of cheques by set-off through the clearing; +and has a direct bearing on the fortunes of the Cheque-Bank. + +The Cheque-Bank publicly guarantees the payment of all the cheques in +all its cheque-books to the maximum amount for which each cheque may +be drawn; and it may well do this, for no cheque-book is sold except +for money, and the money is ready in the hands of some banker to pay +every cheque when presented; any banker or other person will give cash +for them, or take them in payment for goods or other services, or if +they are drawn for a sum larger than the debt due will give back the +charge to the bearer; and if the cheques be actually drawn for less +than the maximum perforated on them, the Bank itself will give +additional cheques for the balance. The ultimate payment, then, of +these cheques is as sure as anything in the future can be; the buyer +of a cheque-book knows, that the money is already in deposit to pay +them, and that the government-stamps on them have already been paid +for, while the receiver of an ordinary cheque cannot know beforehand +that the drawer has money in deposit against it. Moreover, the holder +of an ordinary cheque must use due diligence in presenting it for +payment as soon as possible, or delay it at his own risk, while the +holder of these has no motive whatever for haste,--time does not +deteriorate them. All money received for cheque-books is left in the +hands of the bankers who sell them, or transferred to other bankers in +order to meet the cheques presented elsewhere, and accordingly an +interest is paid by the bankers to the Cheque-Bank, on the balance of +deposits thus held, and this interest, together with the one-fifth of +a penny for each cheque, is the only source of profit to the +Cheque-Bank. Of course, the longer these cheques remain out before +presentation, the more profitable to the Cheque-Bank; and their +average length of life has been heretofore not far from ten days. + +Since these cheques are crossed _generally_ (not specially) with the +words "and Co.," that is to say, since they can ultimately be taken up +only by some banker, they have a more _generalized_ character than +common bank-cheques, they are safer to carry and keep than so much +money would be, there is no difficulty in shopping or paying wages by +means of them, they are very much the same in their nature as bank +bills are, and might easily in certain circumstances become _money_ +just as bank bills in some circumstances are money. Each of the +associated banks keeps an account of course with the Cheque-Bank, but +is not obliged to keep a separate account with the purchasers of +cheque-books, which is a great relief to the banks. In this way the +Cheque-Bank extends the use of cheques in the lieu of money to a great +multitude of small transactions, and relieves the other banks from +what would otherwise be a great deal of troublesome accounting and +collection. The ingenuity and the utility of this comparatively new +form of Credit cannot be questioned for one moment; the promoters of +the Bank intended that their cheques should be received by the people +as a substitute for cash and for Post Office orders, and such has been +the effect, many railway and other companies having long ago agreed to +receive them as cash, and the people generally regard them as cheaper +and more convenient than postal orders and even for many purposes than +cash. + +_i._ Cash Credits. As the Cheque-Bank in the sense as just explained +has been thus far in the history of Credit peculiar to England, so we +have now to look to Scotland only for an exemplification of a form of +Credit hitherto confined to that country. It is a national +characteristic of the Scotch to be "canny," that is, they _can_, a +word from the old Teutonic _können, to be able_; and, as a +consequence, Scotch Banking has long been famous the world over; and +the one peculiarity of it, with which we are now concerned, goes back +certainly to 1729, as we happen to know from a minute of the Directors +of the Bank of Scotland under that date. That bank was chartered by +the old Scotch Parliament in 1695, one year after the chartering by +the English Parliament of the Bank of England, and under substantially +the same title as that, namely, "The Governor and Company of the Bank +of Scotland." It began to establish branches in different towns of the +realm in 1696, and began to issue bank notes for £1 (a privilege +denied to the Bank of England) in 1704; and it began also at a very +early period to exhibit the two main peculiarities of Scotch banking, +namely, (1) to receive deposits _on interest_ and (2) _to grant credit +on cash accounts_, or, as they have come to be called less properly, +Cash Credits. + +This second peculiarity, which has proved extremely beneficial to +Scotland, is for substance this, to create a drawing account in favor +of a deserving customer, who has made as yet no deposits in the bank, +but who draws out money and pays it in from time to time just like an +ordinary depositor, and instead of receiving interest on the daily +balance to his _credit_ (old Scotch fashion), he pays interest on the +daily balance to his _debit_. These accounts are called Cash Credits. +They are not intended to be dead loans, but quick accounts; and they +are not granted except to persons in business, or to those who are +frequently drawing out and paying in money. The individual who has +obtained such a credit is enabled to draw the whole sum, or any part +of it, when he pleases, replacing it, or portions of it, when he +pleases, according as he finds it convenient, interest being charged +only upon such part as he draws out. + +David Hume in his Essay of the Balance of Trade, published in 1752, +makes this nice point in favor of Cash Credits: "If a man borrows +£5000 from a private hand, besides that it is not always to be found +when required, he pays interest for it whether he be using it or not. +On the other hand, his Cash Credit costs him nothing, except during +the moment it is of service to him; and this circumstance is of equal +advantage as if he had borrowed money at a much lower rate of +interest." The Cash Credit is always for a limited sum, seldom under +£100, given upon the customer's own security, and that in addition of +two or three individuals approved by the bank, who become sureties for +its payment. Of course, only those banks can furnish such credits +which possess a surplus of credit more than they can sell in the +ordinary way, and these credits are safe and useful only in small +communities, in which men are well known to each other. Some friends +of the parties thus accommodated always guarantee the bank against +loss; but the losses have proved to be insignificant, the gains to be +marvellous; and this form of credit issued on the basis of no previous +transaction in the way of deposits illustrates better than any other +the radical principle, that Credit is Capital. + +The Report of a Committee of the House of Lords made in 1826 on Scotch +and Irish banking describes very clearly and fully the system of Cash +Credits: "There is also one part of their system, which is stated by +all the witnesses to have had the best effects upon the people of +Scotland, and particularly upon the middling and poorer classes of +society, in producing and encouraging habits of frugality and +industry. The practice referred to is that of Cash Credits. Any person +who applies to a bank for a Cash Credit is called upon to produce two +or more competent sureties, who are jointly bound; and after a full +inquiry into the character of the applicant, the nature of his +business, and the sufficiency of his securities, he is allowed to open +a credit, and to draw upon the bank for the whole of its amount, or +for such part of it as his daily transactions may require. To the +credit of the account he pays in such sums as he may not have occasion +to use, and interest is charged or credited upon the daily balance, as +the case may be. From the facility which these Cash Credits give to +all the small transactions of the country, and from the opportunities +which they afford to persons who begin business with little or no +capital but their character to employ profitably the minutest products +of their industry, it cannot be doubted that the most important +advantages are derived to the whole community. The advantage to the +banks that give these Cash Credits arises from the call which they +continually produce for the issue of their paper, and from the +opportunity which they afford for the profitable employment of part of +their deposits. The banks are indeed so sensible that, in order to +make this part of their business advantageous and secure, it is +necessary that their Cash Credits should be operated upon, that they +refuse to continue them unless this implied condition be fulfilled. +The total amount of their Cash Credits is stated by one witness to be +£5,000,000, of which the average amount advanced by the banks may be +one-third." + +There are only ten Banks doing business in Scotland, and the Bank of +Scotland, the oldest of these, had 86 branches in 1875, and the +average number of branches of the other nine is very nearly the same +with that. + +_j._ Circular Credits. These are a device of bankers to enable +travellers and merchants of one country to obtain credit and cash in +foreign countries in sums to suit their convenience, not to exceed in +the aggregate the limit mentioned in the credits drawn. These credits +assume different forms and are called by different names, but they are +all at bottom foreign Bills of Exchange. They are Orders to pay. They +are drawn by Bankers at home upon Bankers abroad. They are bought by +travellers and others, because they are safer to carry than so much +money would be, and much more convenient. In nearly all of those forms +the credits are available for no one else than the payee, whose name +is upon the form as well as the names of the bankers who are the +drawees, and so the credits are not liable to be stolen, although they +may be temporarily (not ultimately) lost. Purchasers of such credits +can obtain money on them in all of the principal cities of the world +in just such sums as they need. They have ultimately to pay for no +more credit than they actually use, because the drawer will pay back +to the payee, in case he has bought and paid for the entire credit +drawn, the cash difference; while on the other hand, arrangements can +always be made beforehand, by which money need not be deposited with +the banker at home any faster than it is actually called for abroad; +and while also a good customer of the bank drawing the credit, one who +keeps ordinarily a good line of deposits, may pay for whatever credit +he has used when he returns from his trip. + +There is one kind of these foreign credits that deserves separate +mention, since it has come of late years into quite general use, +namely, "Circular Notes," as they are called. These are sight bills of +exchange, each drawn for a relatively small amount, say £10, and +multiplied in number to the requirements of the buyer, and drawn by +one domestic banking-house, say Kountze Brothers of New York, on one +foreign banking-house, say Union Bank of London, the names of drawer +and drawee only being upon the "notes," the payee or buyer being +expected to indorse each note in the presence of the Correspondent +making the payment. The notes, therefore, are not negotiable except by +the signature of the payee himself from time to time as he needs the +proceeds. This makes them safer than so much money to carry: if +stolen, they could do the thief no possible good. At the same time the +drawer of the notes furnishes the payee a circular letter addressed to +his banking correspondents all over the world, just as in an ordinary +Letter of Credit, containing the name and also the personal signature +of the payee, but unlike the ordinary Letter making no reference to +the amounts of credit furnished, and there are no indorsements of any +kind by the correspondents on this circular letter, which the payee is +cautioned in print on the back _to keep separate_ from the Circular +Notes covered by it. One of these letters runs as follows, the name of +the payee being entered in manuscript and also in autograph:-- + + "TO OUR CORRESPONDENTS, + + GENTLEMEN, + + THIS LETTER WILL BE PRESENTED TO YOU BY GRACE PERRY, WHO IS + RECOMMENDED TO YOUR KIND ATTENTION, AND IS SUPPLIED WITH OUR + CIRCULAR NOTES, THE VALUE OF WHICH PLEASE FURNISH AT THE + CURRENT RATE FOR SIGHT BILLS ON LONDON, WITHOUT ANY EXPENSE + TO US. AFTER YOU HAVE EXAMINED THIS LETTER, PLEASE RETURN IT + TO THE BEARER, IN WHOSE HANDS IT WILL REMAIN UNTIL THE + EXPIRATION OF THE CIRCULAR NOTES." + +These Circular Notes approximate in certain respects in kind towards +the cheques of the Cheque-Bank of London: both are bought at the +outset and paid for in full on the spot; and both are drawn _upon one +Bank_, which is the ultimate Drawee and Payer. In two essential +respects, however, the notes differ from the cheques: the cheques are +payable to Bearer without any indorsement by anybody, and so have a +much more _generalized_ purchasing-power than the notes, which have to +be indorsed by the payee (not named indeed in the notes but in the +letter accompanying them), as they are negotiated in a way preliminary +to their ultimate payment by the single bank on which they are drawn; +and also the notes, like all other foreign bills of exchange, are +subject in their value to the fluctuations of International Exchange, +while the cheques in their value are independent of commercial +exchanges "in favor" or "against" any country, and entitle the bearer +to so many pounds sterling in value according to English coinage +without any possible discount or premium. These London Cheques, +accordingly, approach much nearer to the character of Money than any +other form of Credit yet devised, except Bank bills undoubtedly +convertible; and already take their place as one of the _media_ in the +international trade, and are sold in New York by authorized agents of +the Cheque-Bank, as they have long been by such agents in all English +and Colonial and in many foreign cities. + +These _Ten_ are the principle instruments in Credit-Exchanges +throughout the world; and we pass now, as proposed, to the next +section of our subject, namely, the Advantages of Credit. + +3. As introducing these advantages and also as illustrating them, we +call attention first to the antiquity of many of the forms of Credit, +a point upon which much fresh light has been cast by recent +discoveries in, and ability to decipher the cuneiform writing of, the +ancient Assyria and Babylonia. It is to the credit of Credit, that the +earliest of civilized men seem to have perceived its nature, to have +seized upon its powers, and to have realized for themselves some of +its advantages. Credit is natural and legitimate. The moderns have +invented new forms of it, and have tested its capacities to the +utmost, but the ancients know it well in several of its instruments, +and vindicate their own insight into the recesses of Exchanges by +tablets and documents now known and read of all men. + +In an earthenware jar found some years ago in the neighborhood of +Hillah, a few miles from Babylon, were discovered many clay tablets +inscribed with records relating to banking, and, what is more, to +banking as carried on for generations by a single family or firm, +which the cuneiform archæologists have translated as "Egibi & Co." +These tablets are now deposited in the British Museum. Those who can +read them say, that the founder of this banking-house, Egibi, probably +lived in the reign of Sennacherib, about 700 B.C. This family has been +traced in banking transactions during a century and a half, and +through five generations down to the reign of Darius. They were the +Rothschilds in the region of the Euphrates: they acted in a sort as +the national bank of Babylon. + +The Tigris is always associated with the Euphrates and forever will +be. Nineveh on the former river, like Babylon on the latter, has +yielded from its tablet-records information as to the use of credit in +the more northern capital of Assyria. "Within the palace of +Asshur-bani-pal, the Sardanapalus of the Greeks, who reigned at +Nineveh from 668 B.C., Layard discovered what is known as the Royal +Library. There were two chambers, the floors of which were heaped with +books, like the Chaldean tablets already described. The number of +books in the collection has been estimated at ten thousand. The +writing upon some of the tablets is so minute that it cannot be read +without the aid of a magnifying-glass. We learn from the inscriptions +that a librarian had charge of the collection. Catalogues of the +books have been found, made out on clay tablets. The library was open +to the public, for an inscription of Asshur-bani-pal says, "_I wrote +upon the tablets_; _I place them in my palace for the instruction of +my people._" The Assyrian tablets embrace a great variety of subjects; +the larger part, however, are lexicons and treatises on grammar, and +various other works intended as text-books for scholars. Perhaps the +most curious of the tablets yet found are notes issued by the +Government, and made redeemable in gold and silver on presentation at +the King's treasury. Tablets of this character have been found bearing +date as early as 625 B.C. It would seem from this that the Assyrians +had very correct notions of the promise-character of paper (tablet) +money" (Myers). + +In the Metropolitan Museum of Art in New York are Babylonian tablets +bearing distinct records of credit transactions that took place in the +reign of Nebuchadnezzar. The earliest tablet is of the year 601 B.C. +On it are memoranda of loans of silver made by Kurdurru as follows: "1 +mina of silver to Suta, 1 mina to Balludh, 1/2 mina to Buluepus, 5 +shekels to Nabu-basa-napsate, and 5 shekels to Nergal-dann;--total, 3 +minas, 5 shekels of silver." There are more than 50 similar tablets in +this collection; the latest dated, "Babylon, 18th day of 14th year of +Darius," that is, B.C. 505. M. Lenormant, who can read them, divides +these credit documents into five principal types. 1. Simple +obligations; 2. Obligations with a penal clause in case of +non-fulfilment; 3. Obligations with the guarantee to a third party; 4. +Obligations payable to a third person; and 5. Drafts drawn upon one +place, payable in another. These last are letters of Credit. They +contain the names of several witnesses. They are evidently negotiable, +but from the nature of things could not pass by indorsement, because +when the clay was once baked nothing new could be added, and under +these circumstances the name of the payee was often omitted. It seems +to follow from this peculiarity, that the drawee must have been +regularly advised by the drawer. One of the credits in this most +interesting collection had 79 days to run. + +The main elements of their civilization came to the Greeks, and +especially to the Greek cities in Asia Minor demonstrably from the +Eastward; the Greek West proved itself quick to catch up the thoughts +and the modes of the East; accordingly, Isocrates in his plea against +the banker, Pasion, describes a formal bill of Exchange bought by +Stratocles in Athens, payable in Pontus, and guaranteed principal and +interest by Pasion; the practical Romans were pupils of the Greeks in +all such matters, and so it came about in course of time, that Cicero +wrote as follows in a letter to Atticus,--"Let me know, if the money +my son needs at Athens can be sent him _by way of exchange_, or if it +be necessary for it to be taken to him,--_permutarine possit an ipsi +ferendum sit_"; and after that the Jews and the Lombards carried the +Letter of Credit all over the world. + +It goes without saying, when the most civilized and advanced people of +the world were the first to adopt and have been since the quickest to +expand the use of Credit, that there must be pretty obvious and very +solid advantages from such use and expansion; and we must now note and +weigh a few of these advantages. + +(1) There are young men in every advanced community in the world who +have integrity and industry and skill, but little or no _Capital_; and +when such men are enabled to borrow money, as by the Scotch system of +"cash accounts" or otherwise, to start themselves in business or to +enlarge a business already in successful operation, the general +interests of Production as well as their own personal interests, are +greatly subserved by such credit; because in all probability much +capital thus passes out of hands which are _less_ into hands which are +_more_ able to use it _productively_. Those who are best able to make +capital _tell_ by increase are generally those who are most desirous +to obtain it, and frequently those who can offer the best security for +its replacement. Nothing, therefore, is to be said against, but +everything in favor of, such a loaning of capital as shall bring it +under safe conditions from the hands of the idle and the aged, from +those indisposed or incompetent to use it productively, into other +hands at once competent and honest. Such credits as these are a +benefit and only a benefit to all the parties concerned, and to +Society at large. The active operators retain something of profit +after replacing the capital with current interest upon it; the lenders +receive more than if their capital remained idle, or they employed it +themselves; and Society is benefited by a more complete development, +and rapid circulation, of Services. Despite all the instances of +broken faith, it is still an honor to human nature, that men do so +gain by good character the confidence of their fellows, that they are +and ought to be trusted with capital on their simple word or note; and +it is the glory of free political institutions, that under their +influence more than elsewhere, young men do rise by the help of so +slight a stepping-stone as this, in crowds, to the high places of +opulence. + +In the important point of view, that thus all of the available capital +of a community is brought out into productive activity, too much can +scarcely be said of Savings-Banks, which take the surplus earnings of +the poor, and not only keep them safely, but pay a fair interest on +each deposit, and loan the aggregate at a higher rate on choice +securities, thus stimulating frugality in a wide circle of depositors, +and at the same time aiding Production by opportune loans to the best +class of borrowers. In the year 1881, there were $443,000,000 invested +in savings-banks in the State of New York, and $230,000,000 in the +small State of Massachusetts. + +In this first category of the advantages of Credit, come also the +ordinary bank discounts, made for short periods only, holding the +debtor to the strictest rules of payment, only professing and only +enabled to help customers over the transient hard places in their +business, and _not_ to furnish the funds on which the business is +mainly conducted. Loans drawn from the banks on interest should never +be put into the form of fixed capital, and should only be a _part_ of +the quick or circulating capital, since only the passing necessities +of a business having an independent basis and movement of its own, can +safely be met by bank discounts. The cash credits of Scotland are +quite different both in what they are and in what they imply from the +short and sharp discounts of the banks of our own country. + +So far as the capital stock of banks is made up, as it usually is, of +a large number of comparatively small subscriptions, there is the +great advantage just spoken of, of calling a multitude of otherwise +idle sums into activity in production; and so far as no undue +privileges, unjust to other corporations and individuals, are accorded +to banks by law, there is no branch of industry more legitimate and +beneficial than banking. It is no essential part of the functions of a +bank, that it manufacture and issue paper money; that feature is +always rather a source of weakness than a ground of strength; the +money the bank circulates should always be the national money; and if +that too, unfortunately, should be credit-money, the element of credit +in the _money_ should be sharply discriminated in the public mind from +that other and quite different element of credit by which the bank +_loans_ it to its customers. + +(2) There is another class of advantages in Credit, which do not +depend so much on the transfer of Capital from less to more productive +hands, as on the facilities which credit affords in economizing the +general operations of Exchange. Here the advantages are derived from +the convenience of _settling accounts_ arising out of exchanges, +rather than from the _character_ of the exchanges themselves. Look a +moment, for example, at foreign Bills of Exchange. They serve to +settle up the accounts arising from the Commerce of two or six +Continents, with but little transmission of money from any, and with +but very little loss of time. Commercial bills drawn in New York on +London have been usually payable at sixty days' sight; the New York +merchant despatching a ship is able to realize at once the value of +her cargo, minus interest for the time his bill has to run; since +bankers' bills have so largely taken the place of "commercial" bills, +the time is much shortened thereby, and this is one reason why +bankers' bills bear a higher price in the market; the merchant or +sender is indeed still liable in part to see that his bill is +ultimately paid by the drawee; but the commercial integrity of the +leading houses and leading banks in all countries is with justice so +firmly believed in and acted on, that on the whole but little anxiety +springs from this source. It is one of the noble things in +international commerce, that men trust each other across the oceans, +and lay millions of value on the faith of a single firm. + +Inland bills of exchange equally facilitate settlements within the +country itself; and cheques, which are of the same essential nature as +inland bills, contribute to the same end even more simply and surely, +passing readily in payments wherever the parties are known, and +through credit and set-off doing the work of money more conveniently +and economically than, and within certain limits just as safely as, +money itself could do it. The face of a cheque drawn to the amount of +his deposit in favor of another depositor in the same bank is +transferred in the banker's books from the credit of the drawer to +that of the payee by the stroke of a pen, no money at all passes in +the premises, while the banker is released from one debt by creating +another of equal amount, the drawer is released from one debt by +another to be transferred to the payee, and the payee is paid by the +drawer by the former's receipt of another debt more acceptable to him. + +(3) Besides the two essential functions of all banks, namely, the +receiving of deposits and the discounting of bills, most of them +perform a variety of other legitimate operations in Credit, which must +be classed among the advantages of Credit. They buy and sell debts of +all sorts. They make collection of debts for their customers. They +sell their own drafts on distant places. Since 1863, our national +banks have done an immense business in handling the debt of the United +States: they were instrumental in diffusing the national bonds among +all classes of the people: they collect for their customers the +coupons at maturity: they have been and still are the factors of the +government in exchanging, for those who desire it, one species of bond +for another; and the entire debt of the United States has been several +times changed, mainly through the agency of the banks, from bonds at +high rates of interest and for short times of maturity to bonds at +lower rates and for longer times. + +(4) The fourth, and probably the chief, advantage of Credit is the +fact, that a new purchasing-power is created by means of it, a new +Valuable, something additional to all existing before in the world of +Values. One can buy other things with Credit, as well as with material +Commodities and personal Services. Credit, therefore, becomes a +Salable under the two peculiar limitations already explained, those of +future Time and personal Confidence, just as Commodities become a +Salable under the peculiar limitations belonging to _them_; and, what +is more to the present purpose, just as some Commodities (all of them +salable) become Capital under the action of the abstinence of their +owners, so some Credits (all of them salable) become Capital under the +action of the Abstinence of their owners. Some commodities and some +credits are expended, that is, sold, for the immediate gratification +of their owners, without ever a thought of a future increase to +accrue; but also, some commodities and credits are reserved by their +owners for use in further production, that is, for future buying and +selling; and the motive in all such cases is the same that creates all +Capital everywhere, namely, the increase to accrue as the result of +such abstinence; and, consequently, we lay down the postulate with all +confidence, and enumerate it as one of the main advantages of Credit, +that some Credits are CAPITAL, with all the powers in production of +that potent agent already exemplified. + +It is only fair to apprise the reader right here, that almost all +Economists deny that any new capital is created through Credit. These +deny _in toto_ that the relation of debtor and creditor involves +anything more than the exchange between the two parties of certain +_titles to tangible goods_. Let the reader now hear, and then judge +for himself. Bonamy Price of Oxford University, a professed Economist +and a teacher of acknowledged ability, writes as follows:[8] +"_Omitting the capital which a joint stock company puts into a bank, +the banker possesses no capital, except his premises and any coin that +may be in them, however much commercial and monetary literature may +ascribe capital to banks. Lines and names in ledgers, cheques at the +Clearing-house, debts due to depositors, debts due upon bills by +borrowers, are neither wealth nor capital. They are words and nothing +more. Incorporeal property, under which these kinds of written words +are summed up, is not wealth; it is merely a collection of +title-deeds, but from which the reality is absent. The corpus is not +in those deeds, but the right to acquire that property, even before +possession is obtained, is itself a property. If a title-deed or a +mortgage is declared to be actual wealth by Political Economy, then +the sooner it is consigned to the waste-basket, the better._" + +This passage shows how the word, "wealth," tangles men up +inextricably, who, by discarding it utterly, might have become clear +thinkers and useful expositors. It also shows, that Professor Price +never analyzed Valuables into their three kinds, never thoroughly +mastered in a preliminary way the Idea that underlies Economics, never +precisely understood what Money is, and certainly never found out the +radical nature of Credit. Nevertheless, the passage just quoted really +concedes the whole matter in the present dispute,--"the right to +acquire that property, even before possession is obtained, is itself a +property,"--that is all that we claim, namely, that rights are +property, and that new rights (which are property) are created by +Credit, and that some of these new property-rights thus created may +become and do become a new Capital. These new rights, however, this +new and acknowledged "property," are not "_titles_" to any specific +valuables whatever, as Price supposed; "_a title-deed or a mortgage_" +is a totally different thing from a Credit, since the one always +describes and gives a qualified title to _some specific and tangible +thing_, while a credit-right is always a claim against _a person_; the +Roman law drew this distinction perfectly, a credit-right was a _jus +in personam_, while a title-right was a _jus in re_; the common Latin +language as spoken and written marked the difference by separate +words, a credit-right or true debt was a _Mutuum_, while a title-right +or thing loaned was a _Commodatum_; and the Law of our present +national banks explicitly recognizes this universal and fundamental +distinction, by requiring the banks to loan money _on personal +security only_, that is to say, no tangible things whatever, not even +real estate, are allowed to be taken as _original_ security for any +loan. Banks deal only in true debts,--_mutua_,--and when they keep +custody of concrete valuables--_commodata_--for their customers, it is +as trustees or bailees and not at all as debtors. + +Our late Oxford friend was far too well informed in general to +contend, that a cheque, for example, is "the right to acquire +possession" of any _specific_ property anywhere; the drawer has indeed +deposited money with the banker on whom the cheque is drawn, but that +money became the banker's money the moment it was deposited and no +longer his own; the cheque, accordingly, is a general claim on the +banker, and not at all on any special fund in the banker's hands; it +follows, therefore, that the excess of the banker's average deposits +over his average reserves to secure them, is a new creation of Credit, +a new resource of Production, a new Purchasing-power now available to +the banker not previously and practically available to anybody, a new +Valuable which he proposes to use and does use for the sake of profits +accruing, consequently a new Capital. + +Now let us listen to the objections to this view by a practical +banker, J. H. Walker, of Worcester, Mass., in a little book of his on +Banking published in 1882: "_A man always borrows something of +intrinsic value. What he borrows is not a piece of paper, whatever may +be on it, but a farm, a house, a factory, or a part of them; a store, +a mine, or goods. No man can borrow or lend anything else. The +borrower gets from the lender what puts him in possession of the +things he seeks, and it must be some one of these things. So of all +money (except coin). It has no value in itself. It adds nothing to the +capital of the world. It purports to be and is only a title to +property, a convenient device for transferring the ownership of +property._" + +This author is led astray by the worse than useless adjective +"intrinsic," having never yet learned that there is only one kind of +value in the world of Economics, namely, purchasing-power; he sees men +as trees walking through the haze cast over paper-money by John Law in +the last century, as if paper-money must be "_based_" on something +tangible and specific; he makes a narrow and false assumption that the +only objects ever bought or borrowed are corporeal "things," denying +that the debts in which alone he deals as a banker are _realities_ as +much as any "thing" can be; and it all comes in his case, as in the +case of hundreds of others, from a totally inadequate analysis of +Valuables into their three separate and virtually independent kinds, +namely, Commodities and Services and Promises. Mr. Walker, although he +writes a book on purpose to do this, can not explain at all under his +view the Deposits and Discounts of his own bank, and would be as dumb +as an oyster when confronted with the "Cash Credits" of Scotland. + +(5) The fifth advantage of the use of Credit, and the last one to be +mentioned in this connection, is, that it dispenses with the use and +wear of large amounts of expensive Money. It is perfectly certain that +Credit answers many of the purposes of Money. Suppose A has bought of +B $100 worth of goods, and B has bought of A $125 worth of goods. +Three ways are open to close up these transactions. A may pay B and B +may pay A _in money_. This would take $225. A may pay B in money, and +B may send that back with $25 more. This would take $125. Or A and B +may mutually balance their credit-books, and B pay the difference in +account. This would take but $25. It is clear then, that, as one or +other of these general methods prevails in practice, the quantity of +expensive money required to do the business of a country is very +different. Just so in international trade. Foreign bills of exchange +lessen enormously the quantity of metallic money that would otherwise +have to be transported. + +It is not strange that some thinkers and writers, seeing these +unquestionable benefits of Credit even within the peculiar sphere of +Money itself, have come, like Herbert Spencer and many more, to think +and teach that Credit might answer _all_ the purposes of money. Credit +_does_ take the place of money in part. Can it take the place of money +entirely? Let us see. We have defined Credit as _a right to demand +something of somebody_, and Debt as _an obligation to render something +to somebody_; the denominations of Money are certainly needful in +order _to measure_ this right or obligation; and how can the +denominations of money be established or maintained at all separate +from the use of _some_ money itself as a circulating medium? Moreover, +great as is the undoubted power of Credit, vast as are these five +advantages from its current use, still, each particular piece or form +of Credit waits for something beyond itself; it waits for its own +_extinction_ in future time; which can only come about in one of three +ways, (a) by _set-off_ against another debt with or without a balance, +(b) by _renewal_ which creates a new debt and extinguishes the old, +(c) by its _payment_ in money; and now how can these extinctions come +about without the current use of some money, at least to settle the +balances at the clearing-house? + +Furthermore, there have always been heretofore in all commercial +countries longer or shorter periods, called "crises" or "panics," +during which there was a popular reluctance to accept in exchange the +ordinary instruments of Credit. Money, and much of it, was then found +to be indispensable. Indeed the very advantages of Credit itself, +which have now been explained at length, are dependent on this, that +there be alongside of it to sustain and limit it, _a current and legal +measure of Services in metallic form_, in whose denominations Values +may be reckoned, in whose coins the balances of Credit may be struck, +and whose presence secured everywhere by natural laws alone may enable +_fulfilment_ to join hand in hand with _promise_. If ever Credit +should try to usurp the whole domain of Money, a tolerable standard of +Value or measure of Services would be no longer possible, Credit +itself would lose its foothold, and the vast balloon of Promise, +sailing for awhile through the blue, the joy of projectors and the +wonder of credulous spectators, would of a sudden descend to the earth +collapsed and ruined. + +4. There are too some disadvantages inhering in Credit. This admitted +fact makes no valid argument against the use and extension of it; +because there are disadvantages connected with all human devices +whatever,--with all means contrived to reach earthly ends--and even a +child may discover many of these; some objections lie against +everything, and against everybody, and the practical question always +is, Which preponderates, the good or the evil? In respect to Credit +there can be no doubt, that the good outweighs the evil many fold; +still, in accordance with the purpose in this book of both writer and +readers to look on both sides of each significant point in Economics, +we will now give attention to the chief disadvantages inhering in the +nature of Credit. + +(1) In the first place, when credit is much given by dealers to +ordinary retail buyers, the reverse results take place from those but +just now characterized as happening under bank credits, namely, +capital passes out from the hands of productive operators into hands +less able and less willing to use it in further production. Indeed, in +most such cases it ceases to be capital, and is expended in immediate +gratification. It is much easier for the average man of fair character +within the present customs of Society to "get trusted" than to pay "as +he goes." Such a man is even called "easy-going." He almost always +over-estimates his resources for the future, and under-estimates his +obligations at the present. It is always a disadvantage in the long +outlook for both parties when such men easily and largely "get +trusted." Let us take a sample case: when an industrious artisan or +efficient merchant has given credit for six months or a year to +dilatory customers, it is so much withdrawn for so long a time from +his active capital; and in order to make up his consequent loss of +profit to the average and expected rate, there must be an addition to +the prices of his wares sold to other parties; and, besides, some bad +debts belong to such a system, and there must be additional prices +somewhere to compensate for this; and thus the customers who pay +promptly bear a part of the burden of the delinquents, who at least do +not wholly escape, inasmuch as they ultimately (if they pay at all) +pay a price enhanced by their own delay. Thus, if the current and +expected profit on his capital be 12%, and the artisan or merchant +sells and gets returns four times a year on the average, something +less than 3% profit may be charged to each article on the average; +while if he only gets returns at the end of the year, at best 12% must +be put on everything at the average, and in reality considerably more, +because of the bad debts that stick like a burr to that way of doing +business. Hence the excellent maxim, "Quick sales and small profits." + +(2) There is a greater inherent _uncertainty_ in values connected with +credits than in those connected with commodities, or than with those +connected with personal services. We have already seen repeatedly that +Value has its sphere of operations in the Past, in the Present, and in +the Future. There is some uncertainty connected with what _has been +done_ in reference to value, since the market may prove to have been +miscalculated, and the commodities to have become unsuitable; there is +perhaps more uncertainty connected with what _is now being done_ in +reference to value, because the services bargained and being paid for +may prove to be less steady and skilful than was supposed; but in the +very nature of the case there is still greater uncertainty connected +with what _is to be done_ in relation to its value, because in the +first two cases some at least of the conditions are already fixed, +while in the last one all of them are at least open to hazard. There +is sufficient certainty in all three of the grand divisions of Time to +justify, and probably to reward, operations in each in reference to +value under the peculiar limitations and conditions of each, but +credits are naturally more sensitive in the law of their value than +either commodities or services. + +(3) Largely in consequence of what has just been expressed under the +last head, credit-exchanges are more likely than commodities-exchanges +or than services-exchanges to become unduly multiplied and +consequently to fail of ultimate realization. The majority of men are +sanguine in relation to the future. Unless they are in actual contact +with their limitations, they are apt to belittle the rigidity and +inevitableness of such limitations. As the outcome of this, promises +are apt to overpass the powers of fulfilment. No more bales of cotton +of any one year's crop can be actually delivered to buyers, than have +been actually grown and marketed; the services of no more men in any +capacity can be contracted for and rendered, than there are men able +and willing to work; here are impassable limits; but the field of the +future is buoyant with possibilities; and hence credits, whose sphere +is the future, though legitimate and potent under the proper +conditions, lie in a field whose limits are invisible, and within +which _Hope_ is ever a tempter to overdoing. + +Is speculation proper? Certainly; if by the word "speculation" is +meant the buying of anything with an expectation based on rational +probabilities of being able to sell it again under different +conditions at a higher price. Speculation in this sense is both proper +and beneficial to the immediate parties to it, and to the general +public as well, because the values of things thus bought and sold +neither fall so low nor rise so high as they otherwise would do, which +is a public gain. Speculators as a rule buy on a falling market, +_which tends to lift it_, and sell on a rising market, _which tends to +lower it_. It is better for all concerned, that the necessaries and +conveniencies of life should bear as steady a market as is possible in +the nature of things, summer and winter, year in and year out; and the +ports of every nation should be open with the slightest possible +hindrance in the way of tax to the corresponding necessaries and +conveniencies from abroad, whenever combinations and "corners" attempt +to lift their prices beyond the level determined by a natural and free +Supply in contact with the current Demand. + +Credits occupy the field of Probabilities; that is to say, +probabilities seeming to be such to men of sharp insight and +cultivated forecast. When such men _on such grounds_ buy and sell +"futures" in cotton or corn; when they buy and sell stocks either +"short" or "long"; when they seem to themselves to perceive a sound +reason for lurching over from the "bulls" to the "bears," or _vice +versa_; and when they really think that what they are wont to deal in +has touched bottom in price, and they buy now in view of a rise, +Economics has nothing to say in blame of any or all of these +operations, for they are the same in substance and motive as all other +buying and selling; but nevertheless, it has this to say, that all +these operations in credit-futures lie adjoining to and in dangerous +proximity with another field, for operations within which it has +nothing _but_ blame to utter. Gambling occupies the field of Chance. +There is a great difference between chances and probabilities. +Political Economy has no trouble in drawing a fast and hard line +between them. + +But practically the operators in credit-futures experience an immense +difficulty in keeping within this line of rational probabilities. The +coolest heads are apt to become heated, and to lose sight of +distinctions, in the close air of the Stock Exchange and the offices +circumjacent. Some operators openly confess they know nothing which +way the index of reason points, by buying "straddles," as they are +significantly called. A friend and old-time pupil, who has for years +been accustomed to these excitements in New York, said recently to the +writer,--"_The Stock Exchange is a great gambling hell, and that's all +there is of it!_" In buying and selling of all kinds, both sides gain: +in gambling of all kinds, what one side gains the other side loses: +therefore, under a sound money, healthful public opinion, and good +law, gambling never can become formidable. In every lottery scheme, no +matter how honestly managed, the sum of the _prices_ of the tickets is +greater than the sum of the _prizes_ offered, otherwise nothing would +be left for the profits of the managers; therefore, he would be a very +foolish man, who should buy all the tickets of a given lottery with +the certainty of drawing all the prizes; and _he_ is a still more +foolish man, who should take his _chance_ of drawing all the prizes by +buying two or ten tickets. + +(4) Another and a principal Disadvantage of Credit is seen in its +usual action on _prices_ through increased Demand, and its consequent +tendency to bring about Commercial Crises. Any man's whole +purchasing-power is made up of three items: first, the property in his +possession; secondly, the values that are owed to him; and thirdly, +his credit. He can buy services of the three kinds with these three +valuables; and the sum of his power to buy is exactly measured by the +aggregate of these three valuables under his control. But while the +first two, his property and debts due, are limited and ascertainable, +the third (his credit) is indefinite and undeterminable beforehand. +Being based upon _confidence_, which is itself sensitive and variable, +a man's credit at one time may be vastly greater than at another, +compared with his other two means of purchase; and if he have the +reputation of doing a safe and regular business, and is favored by +circumstances, he will find himself able sometimes to buy on credit to +an extent out of all expected proportion to his other capital. When, +therefore, credit is offered and received for commodities, it has the +same influence upon their prices as when money is offered and received +for them. It follows, consequently, that there is likely to be a +general rise of prices whenever there is an extension of credit for +the purpose of purchasing; indeed, when money only is used to buy +with, there can not be a _general_ rise of prices, because while more +money may be spent on some things, and they rise in price, there would +be less money for other things, and _they_ would rather fall in price; +but when credit is used freely in addition, and increased purchases go +on in all departments at once, there is apt to be a rise of prices as +to all commodities and a universal spirit of speculation. + +At such times, and while prices are still rising, men _seem_ to be +making great gains; everybody wishes to extend his operations by +means of all his money and all his credit; and forms of indebtedness +are multiplied on every hand. By and by it begins to be perceived in +certain quarters that the matter has been overdone; speculative +purchases cease; banks become particular whose paper they discount; +men find it difficult to sell their debts due in order to provide for +their debts owed; they fall back on the sale of their commodities, but +when holders are anxious to sell, prices always fall; a panic now sets +in, more irrational, if possible, than the previous overconfidence; +their inflated credits and commodities collapse in the hands of their +holders; sales at great sacrifices are inadequate to meet the mass of +maturing debts contracted when confidence was high; men fail, and must +fail; the banks cannot help them, or think they cannot; and so +wide-spread commercial disaster comes in. + +Such commercial crises swept over the United States in 1837, 1857, and +1873; and will doubtless recur in the time to come. They always arise +from disordered credits, and though not necessarily connected with +credit-money, are much more likely to come in connection with that. +The more strong and conservative the Banks maintain their ordinary +condition, the more powerfully can they operate to prevent or abate a +panic. They ought always to be on the shore and never in the stream. +From the very nature of banks and of the motives that create and +operate them, they are apt to sell for a profit in ordinary times +about all of the credit they safely can; unless, then, they foresee a +stringency some time ahead, and curtail their loans, and otherwise +keep their position strong in reserves and deposits, they will be +powerless to help even their most deserving customers when the panic +sets in; even then by a special association with other banks in the +same city for reciprocal support during a crisis, as was happily +brought about in New York some years ago, something may be done for +their common constituency and good customers to help them out of +trouble by discounts continued to them; especially as it is not money +so much that is needed to allay a panic, nor even credit actually +given, as it is a general knowledge that abundant credit can and will +be given either by some pre-eminent bank, like the Bank of England in +London, or by an association of banks for that special purpose, like +the agreement just referred to as entered into temporarily by the +banks of New York city. As a panic becomes imminent anywhere, some +Bank or banks there ought to be in a position to extend their +discounts freely, at a high rate of interest indeed, so as to +discriminate between customers urgent for and deserving of discounts, +and another class whose need of accommodation is not so sore, and a +third class who are sure to fail if the Panic stalks forward. + +A permission given of the Government to the Bank of England to +overpass under these circumstances the Discount-limits laid down by +the Bank Act of 1844, has on three several occasions acted like a +charm to still the ragings of a commercial storm. On each of these +occasions, 1847, 1857, and 1866, the Bank was forbidden by the Privy +Council to discount for less than 10%. + +As the inclined plane of rising prices is slowly ascended before a +Crisis, so the fall of general prices afterwards seems to be rather +gradual also till the lowest point of them is reached, from which +another ascent is apt to commence. The following table taken from the +_New York Public_ of the first week of November, 1881, is instructive +on both these points. Taking the prices in 1860 of 43 articles of +prime necessity, which constituted then and afterwards about 3/4 of +the commerce of the country, as the normal standard or 100, the table +gives the comparative gold prices of the same for four years previous +to 1873 and for seven years subsequent, as follows:-- + + 1869 116 + 1870 118 + 1871 120 + 1872 122 + 1873 113 + 1874 115 + 1875 107 + 1876 100 + 1878 81 + 1879 98 + 1880 103 + 1881 111 + +(5) A penultimate Disadvantage of Credit may be noted in the facility +which it offers for contracting great national Debts. There are +certain aspects, under which a Nation may be properly regarded as a +moral person, and as such person may pledge the public faith for the +present and the future, becoming a debtor to its own people or to +foreigners, and thus a public debt may be made a sort of mortgage on +the national property and income. Now, it cannot be fairly denied, +that incidental advantages may spring up in connection with such a +national debt: for example, the bonds, which are its evidences, may +open up to the people a convenient form of investment for presently +inactive capital, and for trust funds of all kinds; there can be +little doubt that certain classes of persons holding these national +obligations are won thereby to a stronger patriotism and become better +friends to stability in government, although this consideration +applies mainly to new governments and to those temporarily endangered; +both England and the United States now make a portion of their public +debt the basis of a national system of Banking, but it is perhaps +questionable whether this can be justly put among the incidental +benefits of the Debts; and again "a moderate debt adds to the credit +of a Nation, and its ability to raise money in an emergency, for +bankers and capitalists are more ready to take such securities as they +are in the habit of dealing in" (Sidney Homer). + +On the other hand, the burdens of a National Debt are very apparent: +for example, the annual _interest_ charge to the Union at the close of +our late civil war was $150,000,000, which gradually declined by the +lowering of the interest-rate and by the paying off of principal to +$61,368,912 for the fiscal year ending June 30, 1881; between March, +1869, and August, 1873, the United States paid $378,015,065 on the +principal of its public debt; the collection of the Internal Revenue +alone of the national government cost for the fiscal year 1867, +$7,712,089; and in each of the two years, 1870 and 1881, a little over +$101,500,000 was paid out to reduce the principal of the Debt. All +those vast sums came out of the industry and income of individuals; +and taxation to any degree as all this implies is a mighty disturbance +to industry, and gives rise to an army of officials who eat out a +considerable percentage of all they collect. Moreover, the various +expedients of taxation, which are always practically unequal in their +operation, are apt to give rise to irritation and political agitation, +and even sometimes to threats of repudiation, especially when the +occasion has gone by under which the debt was contracted, and another +generation is called upon to pay off a debt it had no agency in +creating. + +Here the vexed question arises, how far has one generation _the right_ +to throw upon succeeding ones the burdens of a National Debt? The true +answer to this question is, _it has a very limited right indeed_. The +opposite doctrine implies tacitly when not openly, that the succeeding +generations will have no occasion for extraordinary expenses of their +own, and, therefore, may rightfully be made to contribute to the +extraordinary expenditures of this generation. But it is pure +assumption to take for granted, that the next generations will not +have, of some kind or other, as much occasion for an extraordinary +effort in the way of defence or of improvement as the present +generation has had. It is a common but harmful illusion to estimate +what has now to be done as of much more importance than what will have +to be done. Therefore, to throw the present burden forward on another +generation of men, who are likely to have to make their own special +exertion, just as great and just as imperatively called for, is a +procedure unwarranted by past experience. The view that has long +prevailed in practice, that a great War-debt, for example, might be +easily and justly cast upon posterity, has again and again given rise +to needless and expensive wars; _those_ have been called upon to pay +the piper, who perceived the utter inutility of the expenditure; and +thus bitterness has been added to burden. + +Besides, the men to fight the battles, and the capital by which to +feed, clothe, and furnish them the munitions of war, _must come from +that generation_; and there is always great injustice in the +manipulations of a great debt ostensibly incurred to obtain this +capital, and the debt itself is usually in large part rather a +memorial of the war than of the means by which its expenses were +actually defrayed. + +The generation of American citizens not yet wholly passed off the +stage was called on in the Providence of God to suppress a Civil War +of enormous proportions, and to eradicate a social institution that +was thoroughly bad; the expense of doing this was many fold enhanced +by timorous counsels in the field, by class legislation in Congress, +and by wretched financiering in the Cabinet; but the Debt, vast as it +was, and needlessly incurred as a large portion of it was, has already +in good part been paid off and must be entirely paid off by the +generation that incurred it. That this great task may be thus +completed, will require (1) an economical administration of the +national Government; (2) an avoidance of intervention in the affairs +of our Neighbors, and of entangling alliances with Foreigners; (3) a +free Commercial System, under which the taxes shall be adjusted only +towards the most productive revenue; and (4) a constant and onerous +home Taxation. + +(6) The final Disadvantage of Credit is this, that it is apt to +confuse the minds of men as to its own nature, from its apparent +resemblance to something else, which is at bottom wholly unlike it. +The people of the United States have suffered greatly from this +confusion, and are likely to suffer from it still more in the time to +come, both in their property and progress at home and in their good +name abroad; and it becomes all good citizens, and especially all +those called upon to pronounce on the Law of the Land, to know +thoroughly the radical difference between a _Credit_ and a +_Quittance_, and so to escape the contagious confusion that has +entered and stirred up the popular, and even the judicial, mind of +this country. All through the present chapter has been insisted on and +illustrated the point, perhaps to the weariness of the reader, that +Credit is always essentially the _Promise_ of one person to another, +and that whatever is thus _Promised_ is necessarily and fundamentally +different from the Promise itself. To confound those two things as if +they were or could be made one and the same thing, is in thought +illogical and in practice execrable. + +And yet it must be allowed, that there is somewhat in the nature of +Credit, that makes this confusion plausible, or else it never would +prevail; and also that there is something more still to make it +plausible in the nature of Money, which last point can only be cleared +up in the next following chapter under that title. + +Mr. E. G. Spaulding of Buffalo, in his copious and excellent History +of the Legal Tender Act, "all of which he saw and part of which he +was," as the chairman of the subcommittee of the Ways and Means at +the time the Act was passed, demonstrates the extreme reluctance of +everybody concerned to give a forced circulation, that is, a +compulsory legal-tender quality, to the first batch of Treasury Notes +to the amount of $150,000,000 in February, 1862. We have already noted +in another place in this chapter, that two successive batches of +similar Notes, each to the same amount as the first, were issued +within less than a year. These Notes then and since called Greenbacks, +bore at the time four essential features: first, they were both in +terms and in reality _national Promises_ to pay to the bearer gold +dollars of the then and present standard of weight and fineness, +because there is no other possible meaning to the words "THE UNITED +STATES WILL PAY TO THE BEARER FIVE DOLLARS"; second, in addition to +their being a forced loan from the people to the amount of notes +authorized, they were given a _forced circulation_ as money by means +of the clause, "_and shall also be lawful money and a legal tender in +payment of all debts public and private within the United States +except duties on imports and interest on the national bonds_," which +clause still recognizes gold dollars as the only universal and +standard money; third, the notes were made _fundable_ in sums of fifty +dollars, "or some multiple of fifty dollars," in six-per-centum gold +bearing bonds of the United States, then called 5-20's, again in this +clause recognizing the radical difference between the legal-tender +paper promises as money and the gold dollars promised in them, in +which gold money the interest and principal of the bonded debt must +still be paid; and fourth, these notes were publicly known and +acknowledged by the Issuer and the receivers to be presently +_irredeemable_, since the Government did not have, and did not pretend +to have, any coin with which to redeem them, and everybody knew that +they were made a legal-tender _because_ they were irredeemable. + +These prompt recognitions of the impassable gulf between a Promise and +what is Promised, were confirmed by all that happened afterwards. The +notes, notwithstanding they were legal tender and all bonds of the +United States could at first be bought with them at par, almost +immediately began to droop as compared with gold. The daily quotations +showed a pretty steady decline for two years. On Jan. 15, '64, gold in +greenbacks was 100:155; April 15, 100:178; June 15, 100:197; June 29, +100:250, that is, 40 cents to the dollar; and July 11, 100:285, or 35 +cents to the dollar in gold, their lowest point. From this depth they +slowly rose with many fluctuations back and forth from many causes for +14 years. Jan. 1, 1879, they became redeemable in gold, and have so +continued till the present time. + +When the Civil War was all over, and these startling vicissitudes of +the paper money were measurably forgotten; though no prominent man, +when they were passed, thought the Legal-Tender Acts constitutional; +the paper money began to be popular; the distinction between a promise +and its fulfilment began to fade out of the minds of the people; there +had always been bank bills circulating as money in the country; these +had been called "dollars" equally with the coin; and in December, +1869, a test case, Hepburn _versus_ Griswold, was decided by the +Supreme Court on the question, whether Congress had the constitutional +authority to make anything but gold and silver lawful money in +satisfaction of _contracts entered into before the first legal-tender +Act was passed_. The question, Can Congress make such notes a legal +tender for contracts made _after_ the passage of the Act? was not +involved in this case; but it was very clear from the Opinion of the +court delivered by Chief Justice Chase, that the majority of the +justices regarded the Act as being unconstitutional in its +application to contracts made _after_ as well as _before_ the Act was +passed. Upon the special question before the Court, the justices were +divided in opinion; five, including the Chief Justice, agreed that the +Act was invalid so far as it made the notes a legal tender on +_contracts executed prior to its enactment_; and the three other +judges were of the opinion that it was valid. Of course, the Decision +of the Court was rendered by a majority of two, that the Act was +unconstitutional. Chase, Nelson, Grier, Clifford, and Field +constituted the majority; Miller, Swayne, and Davis, the minority. + +Salmon P. Chase was one of the greatest men of the great period of the +Civil War. He was Secretary of the Treasury at the time the greenbacks +were issued, and they were issued at his instance and advice, but he +was opposed to the clause that made the notes a legal tender. He never +expressed the opinion that the Legal-Tender Acts were constitutional, +nor did he expect that the notes, of which these authorized the issue, +would ever become a permanent national money. This is evident from the +fact that the notes were made _fundable_ at his instance, not so much +with the view of keeping up the value of the notes by giving them a +present market in bonds, as with the view that they would help the +sale of the bonds and would be absorbed by them as soon as the price +of the bonds was above par in greenbacks. Afterwards Mr. Chase thought +that this _fundability_ of the notes into bonds would so far take up +the notes as to stand in the way of the negotiation of further +necessary loans to the Government, and at his instance this provision +of the law was repealed. Consequently, there was nothing inconsistent +between his position as Secretary and his later position as Chief +Justice. He was undoubtedly right in both of these positions. The +making the greenbacks legal tender did not probably add one particle +to their purchasing-power, but rather the reverse, because that +feature implied a doubt on the part of Congress itself as to the +validity and currency of such national promises-to-pay. That he was +also right in his judicial opinion and decision, however subsequently +overruled in his own Court, may be safely left to the inevitable +future appeal to common sense and to the common principles of +constitutional interpretation. + +This judgment in Hepburn _versus_ Griswold was favorably received by +the country at large, as being just in the line of the great decisions +of Chief Justice Marshall, and as being exactly in accordance with +Amendment X of the Constitution, namely, "THE POWERS NOT DELEGATED TO +THE UNITED STATES BY THE CONSTITUTION, NOR PROHIBITED BY IT TO THE +STATES, ARE RESERVED TO THE STATES RESPECTIVELY, OR TO THE PEOPLE." +The State of Massachusetts particularly, which has always maintained +and still maintains a strong doctrine of State Rights as over against, +though in harmony with, the Rights of the United States under the +Constitution, applauded this judgment as sound in law and politics, +and as righteous altogether. But the then administration of General +Grant, inexperienced alike in law and politics, and linked in +entangling alliances with the great corporations of the country, +received the Decision with marked dissatisfaction; and it was +especially offensive to the huge railroad companies, whose bonds had +been executed prior to Feb. 25, 1862, inasmuch as it made the +principal and interest of these bonds payable in coin, which they had +hoped to pay off in the depreciated greenbacks, made legal tender for +all debts. + +The Administration lost no time in trying to bring about by fair means +or foul, a reversal of this unwelcome decision. E. R. Hoar of +Massachusetts, at that time attorney-general in Grant's Cabinet, was +the principal agent in accomplishing this end by means so +discreditable that he lost in consequence his popularity in +Massachusetts and all chance of further political preferment. The +means chosen and put into effect was the appointment by the President +of two new judges, Strong and Bradley, the first to take the place of +Grier, resigned, and the second appointed under a law increasing the +number of judges to nine, whose opinions on the point at issue were +known beforehand, and who were selected to serve on that very account. +"_It was no secret, indeed it was a matter of public notoriety, that +these justices were appointed in order that the decision of 1869 +might be reversed. Their opinions in regard to the constitutionality +of the Legal-Tender Acts had been clearly and publicly expressed. It +was therefore pretty well known what the decision would be when the +question was again presented._" (Hugh McCulloch.) + +The second Legal-Tender case, accordingly, that of Knox _versus_ Lee, +decided in December, 1870, reversed the judgment of a year before, _no +new points therefor being raised either by the new judges or by +counsel in the new trial_, the Chief Justice and his three former +associates still adhering to their original opinions. It was then five +judges to four, the special question being, Is it constitutional to +make promises-to-pay a legal tender on contracts executed before the +promises were issued? The judicial answer was in this case, Yes; +provided Congress regarded such action as a necessary means of +preserving the Government in time of War, or any other period of +extraordinary emergency. That is to say, _bona fide_ creditors were +constitutionally bound to receive depreciated notes as legal tender in +satisfaction of contracts entered into when no notes were in +existence; to receive on contracts specifically calling for +"_dollars_" the depreciated notes of the Government merely promising +to pay "_dollars_," but on which the "_dollars_" could not be +obtained! What is that, but the monstrous incongruity that _a promise_ +is the same thing legally as its _fulfilment_? What is that but +judicial blindness as to the _nature_ of Credit? What is it but the +old confusion between _names_ and _things_? What is it, finally, but +the dazed and hazy vision, pardonable perhaps in the popular mind but +half-opened to radical distinctions, but unpardonable in learned men +professing to lay down the law in a civilized country? + +It is scarcely needful to add, that the Supreme Court of the United +States suffered in the judgment of good citizens by that transaction; +that the best legal and financial opinion of the country yielded +little respect to a decision _thus secured_; and that intelligent +people do not believe that constitutional law _can_ sanction what +contravenes at once common sense and common morality. + +Judge Field (and his memory the country will not willingly let die), +one of the majority in the first decision, and writing the opinion of +the dissenting minority in the second, used this strong but just +language, "_It follows, then, logically, from the doctrine advanced by +the majority of the Court as to the power of Congress over the subject +of legal tender, that Congress may borrow gold coin upon a pledge to +repay gold at the maturity of its obligations, and yet in direct +disregard of its pledge, in open violation of faith, may compel the +lender to take, in place of the gold stipulated, its own promises; and +that legislation of this character would not be in violation of the +Constitution, but in harmony with its letter and spirit. What is this +but declaring that repudiation by the Government of the United States +of its solemn obligations would be Constitutional?_" + +FOOTNOTES: + +[7] John Jay Knox's United States Notes. + +[8] Practical Political Economy, 1877, p. 452. + + + + +CHAPTER V. + +MONEY. + + +The subject of Money presents few difficulties, or rather none of any +depth, to one who has thoroughly mastered the subject of Value. To all +others the difficulties are insuperable. Essay after essay and volume +after volume has been written in this country upon Money, by men who +would have become good economists and good monetaries, if they had +only begun their inquiries at the right place and followed them in the +right direction. As we saw in the last chapter that it is impossible +for anybody to understand the subject of Credit without first +comprehending the matter of Value, so we shall see in this chapter +that in the order of Nature Value precedes Money, and that the latter +can only be learned in the light of the former. The logical reason for +this in general is, that Money itself is always a Valuable, and comes +to its function as money only through a comparison of itself with +other Valuables. + +The thin difficulties that confront the student of Money, who has +reached the topic along the proper highway cast up for economical +inquiries, arise apparently from two sources; and we will begin our +present discussion by first looking at these in their order. + +In the first place, Money is the only Valuable that may belong to two +out of the three possible categories into which Valuables may be +scientifically thrown. All Valuables are either Commodities, or +Services, or Credits. These categories never change places. Once a +Commodity always a commodity, so long as value can be predicate of it; +a personal Service can never take on any other valuable form; and a +Credit is ever a credit, and nothing else, until it is annihilated by +Fulfilment. Now Money is the only Valuable that ever appears in two of +these forms. The same Dollar indeed cannot be both a Commodity and a +Credit; but some Dollars are a Commodity cut out from gold and silver, +and some other Dollars (so-called) are a Credit issued by Government +or parties responsible to government; while Money as a general term +properly enough covers both kinds of Dollars, the Commodity-Dollar and +the Credit-Dollar. In other words, Money is of two kinds, and only two +kinds, either a Piece of valuable metal stamped as to weight and +fineness by the image and inscription of Cæsar,--a Commodity; or a +Promise to pay to somebody some of these pieces,--a Credit. This +unique peculiarity of Money, by which, always a Valuable, it may +appear and does appear in two out of three possible predicaments of +Valuables, makes a little difficulty at the outset of its discussion, +and requires continued care in formulating its scientific +propositions. + +In the second place, a more considerable difficulty, and yet a slight +one still, is found in the fact that the choices and the legislations +of men have more to do in shaping the propositions of Money than in +most other economical propositions. It is true, that Nature and men +coöperate in the determination of every case of Value whatsoever; +while there is a difference in the cases, though perhaps not a +distinction, in respect to the fixedness and universality of the +natural laws involved, in contrariety to the purely human impulses +concerned. The Providential elements in Economics, both the social and +the physical, are of course relatively fixed and unchangeable, +otherwise Science could not grapple with and classify them; and so +also are those principles of Human Nature related to exchanges, which +may be said to be _universal_ in their character,--such as, for +example, the preference to receive a larger rather than a less +return-service, and to render a smaller rather than a larger effort; +and at the same time there are other principles of human nature +related to exchanges much more _variable_ in their character than +these, such, for instance, as the nation's choice of the kind of Money +it will use, or the kind of Taxation it will impose. It certainly +follows from this, that some Economical laws must be more _general_ +than others, owing to a less variation in the human impulses concerned +in them: it follows, for example, that the law of landed rents, or the +law of the approach of the price of raw materials to that of the +finished products, is more universal in its terms of generalization +than most of the propositions of Money and Taxation can be. + +It seems like a paradox, that those parts of Economics in which the +human elements of variable choice may predominate over the relatively +fixed laws of nature and of mind, should be just the parts hardest for +men to catch clearly and hold firmly; because, we naturally think, +that difficulty and mystery are rather to be found in those +departments in which an Infinite Mind has been at work upon an +infinite plan, and that there is no such profundity in the works of +men; but after all, even those natural laws like Gravitation, which +are clear and universal as laws, if they be such as the devices of men +have to do with, such as may be modified and in a certain sense +controlled by human actions, become from that very circumstance liable +to some difficulty and perhaps to some mystery. Now all the truths of +Money, and as we shall see in the final chapter all the truths of +Taxation also, belong to this class of less general generalizations; +still, it is scarcely less than foolish to say, that Money is such an +elusive and ideal agent that nobody can understand it. That is the +language of indolence and lack of penetration. Money is wholly a +matter of man's device, though it comes into constant contact with +something greater and more fixed than itself; it was invented, just as +any other instrument is invented, to accomplish a certain economical +purpose; and it would be strange indeed if men by taking pains could +not perfectly comprehend what men themselves have wholly devised. We +hope, accordingly, in the following paragraphs to clear up completely +to all intelligent readers the whole doctrine of Money. The key to +unlock all the superficial difficulties (and there are no others) is +this: Money is always a Valuable before it becomes money, and +continues a valuable independently of the fact that it _is_ money; +and, it is always one or other of two kinds, either itself a Commodity +or a Promise to pay a commodity. In this chapter, we will not begin +with definitions and justify them afterwards, but will come up to them +step by step, and, as it were, justify them beforehand. + +1. Economical Exchanges may begin, be profitable to both parties, and +go forward to a certain extent, without the use of any money at all. +As a matter of fact and probably for a long time, while the +Civilizations were gathering their inchoate forces for a further +progress, men exchanged one Service directly for another without the +intervention of any medium. This form of trade is called Barter. King +Hiram of Tyre furnished to King Solomon of Judea a certain quantity of +cedars from Mt. Lebanon for the building of the new Temple at +Jerusalem, and Solomon in return furnished to the Tyrians a certain +quantity of wheat and oil, Judea being a fertile agricultural country +with no forests, and Tyre a wooded country with no farms. This may +well serve us as an instance of Barter, although Money had been in +current use in those regions a thousand years before, as is seen in +the purchase by Abraham of the cave and field of Machpelah, for which +he weighed out "_four hundred shekels of silver, current money with +the merchants_." + +It is obvious, however, that while Barter is a good deal better than +no exchanges at all, there are inherent and immense difficulties in +that form of trade. + +(a) Under Barter trade is extremely limited in its _personnel_. Only +those parties can engage in it, each of whom is in position to render +to the other just such a Service as the other is in direct and +immediate need of, and each of whom also wants another Service in kind +and quantity exactly what the second man has to render. It is not +enough under these conditions, that a man should have some Service to +sell, but he must also find some other man, who not only wants that +specific service but who also has some service to render in return +just such as the first man wants. If A has wheat which he wishes to +exchange for a coat, he must first find a party desiring wheat and +also having a coat to sell, and moreover who wants just as much wheat +as will pay for a coat, no more and no less; if he wants more, he may +have nothing to render for the excess which A is willing to accept; if +less, A may have nothing besides wheat with which to help pay for the +coat. Even in the simpler states of Society the inconveniences of thus +hunting up a specific market for each specific service are very great, +and in more advanced states of civilization would become intolerable, +if it were possible (as it is not) for Society to become advanced +under such conditions. + +(b) Barter presents insuperable obstacles to trade in point of +_place_. While men still exchanged in kind, as it is called, and knew +no other mode, the purchasing-power of any Service was necessarily +confined to that locality, and would not be parted with except in view +of a return service actually there present in the same place. There +could be no commercial contact without a local contact. The ultimate +parties to every exchange must come together face to face. There could +be no middle-men or distributors. The market was circumscribed to the +hamlet. + +(c) Buying and selling under the scheme of Barter is also wretchedly +limited in point of _time_. The fruit-dealer, for example, must +dispose of his product quickly, or it perishes on his hands. So of +many other commodities. If they are to be sold at all, they must be +sold quick. The ultimate buyer must be on hand in time. As the result +of these three concomitants of Barter, ten thousand things that are +now bought and sold to profit never came to a market or thought of a +market, exchanges were so limited in time and place and variety, human +associations were so hampered, and the development of all peculiar +talents so impeded, that one of the initial steps in the progress of +all Civilization has been to hit upon some expedient to lessen these +intrinsic difficulties, and so to facilitate Exchanges. + +2. The Invention of Money was nothing in the world but the tentative +selection by certain people in a certain locality of some Commodity +then and there _valuable_, that is, capable of buying _some_ things +then and there, and gradually giving to that commodity by general +consent the capacity of buying _all_ things then and there salable. +The commodity thus slowly becoming money, whatever it was, had and +must have had a _limited_ purchasing-power to start with, because no +instance to the contrary has ever been shown, and still more because +that peculiar comparison between _two_ things that lies at the bottom +in each single case of Value is exactly the same kind of comparison +that holds between money and the _many_ things which money purchases; +given a _valuable_ in common use as a starting-point, and the +transition is easy and natural to a _generalized_ valuable, that is, +to a recognized money; the relation of mutual purchase between the +commodity and _some_ other things was a common fact to begin with, the +making it money was merely the common consent that thereafter it +should have a general purchasing-power within the circuit; so that as +a simple result, whenever anybody had anything to exchange, he might +first exchange it for this selected product, which was valuable before +but is now generally valuable, and then with this money-product in +hand he could buy whatever he might want at any time or place within +the circuit. + +It is impossible from the very nature of Value, impossible from that +comparison of two distinct Services, that precedes every Exchange, as +well under Money as under Barter, that anything except a valuable +anterior to and independent of its becoming money, could ever have +become money at all. Money makes no alteration in any law of Value, +but only substitutes for convenience' sake in every transaction in +which it plays a part, a general for a specific purchasing-power; a +book, for example, has a specific purchasing-power, since there is +somebody who wants it, and is willing to give a sum of money for it; +and the owner of the book by the sale of it parts with a product which +has only the power to purchase something from a few persons, and +receives a product in return which has the power to purchase something +from all persons; it is not true to say that the money is worth more +than the book, because they are just worth each other, as is +demonstrated by the sale; but it _is_ true to say that the seller of +the book has substituted in the place of a limited purchasing-power, +of which he was proprietor, a general purchasing-power, of which he +has now become proprietor; that is, that the command of the money, +which has no larger value than the book had, does carry along with it +a superior command over purchasable articles generally. In one word, +Value in the form of money is in a more available shape for general +buying and selling than value in any other form. This is the exact and +ultimate expression for all the truth there is in the common vague +remark, namely, that Money is something different from all other +Valuables; it _is_ different from them in just one respect, namely, +while they have the power of buying some things from some persons, it +has the power derived from the _consensus_ of Society to buy all sorts +of things from all sorts of persons. + +This simple change or substitution, which seems in itself so little +and easy and natural, has changed in its ever-enlarging results the +face of the world! It makes the valuable now selected to be money seem +to the minds of men to be a very different thing from what it was +before, although the change in itself is slight indeed. It removes +most of the inconveniences of Barter as by a stroke of the hand. So +soon as a commodity selected to become money by one people comes to be +acceptable as such to all other peoples, as is the case with gold, the +advantages of its use are vastly multiplied to all. Experience has +shown many times over, and reflection will explain to any one, how +that there is no other machine that has economized labor like money; +no other instrument that plays so deep and broad a part in Production; +no invention whatever, unless it be the invention of letters, which +has contributed more to the civilization of mankind. Money makes vast +distances relatively indifferent; for it is sufficient to constitute a +market for any valuable that it is practically wanted anywhere on the +round globe, the middle-man paying the seller for it in money +transports it thither, and receives back his investment with a profit +from the ultimate buyer. So, also, money generalizes any +purchasing-power in point of time. The dealer, exchanging his +perishable products for money, may keep its power of purchase locked +in this form as long as he lists, putting an interval at his own +pleasure between selling and buying, and with this generalized power +in his pocket he may buy when he will and what he will and where he +will. Money, too, makes any purchasing-power portable, divisible, and +loanable. A man may carry the value of his farm in his purse, and may +divide it up for a thousand different purchases, and especially is +able to loan it in this form in order to receive it back again with +interest at a future day. + +3. It is important to notice in the next place, that, whatever made +the commodity selected as money originally desirable and valuable, it +has now become desirable and valuable for other and wider reasons. The +tobacco of Virginia, for example, in the early days of that Colony, +became valuable at first on account of the demand for it as a narcotic +both there and in England; but as soon as it was made a legal money in +the Colony by the general consent already described, its value +depended in part upon another set of causes. Of course Demand and +Supply still controlled its value just as before, only certain parties +who had not desired it before as a mere _commodity_ thereafter desired +it as a current _money_. Its convenience and necessity as money +widened the circle of those parties willing to receive it and glad to +render a return for it. It is true, that many now received it only +because they could pay it out again to buy something else with; but +that made no difference so far as Value is concerned; it was valuable +before under a certain limited demand, and continued valuable under an +additional and broader demand; we cannot certainly say, that it became +_more_ valuable under this new and wider demand, because we do not +know how the then combined demand affected the Supply. We may probably +say, that the value became _steadier_ if not _larger_, under the +double demand than under the previous single one; and the vital point +to mark and remember is, that the _value of money_, previously +valuable as a commodity only, is still maintained under the law of +Demand and Supply, just as all other values are, the only peculiarity +being this, namely, as a generalized valuable and consequently a +potent social agent money is in demand by everybody who has anything +else to sell. + +It follows from this in necessary sequence, that Money as such, +whatever may have been the ground of its original value as a +commodity, _is always received as money in order to be parted with_. +It is not bought for its own sake to be used and enjoyed, as most +other things are, but is only bought to be sold again. Men will sell +everything to buy it, with the sole intent to sell it again to buy +something else; and the odd thing about it is, that everybody buys it +to sell again, not at all as the speculator buys grain to sell it +again at a higher price by the bushel or centner, but, the money +remaining constant in their minds, they sell for it something they +care less about in order to buy with it something they care more +about. Money, therefore, becomes a _medium_ in men's exchanges. The +word "medium" in this proposition is to be taken in its etymological +and strict sense, as something that comes between two extremes and +serves also to relate them to each other. This is not the ultimate +characteristic of Money, as we shall see, nor can a final definition +be founded here, but it is a good step towards ultimates to see that +money is exchanged for other things as a means and not as an end, that +it is a great help in exchanging all other valuables but is never +exchanged for itself in an ultimate transaction. + +Small boys, indeed, sometimes swop cents; but men, the miser excepted, +who is under a deplorable fallacy of the senses, use and estimate +money mainly as the _medium_ that facilitates the real exchanges of +Society. What is actually and ultimately exchanged is the wheat, the +cloth, the lumber, the furniture, the commercial service of every +kind, and Money is but the instrument making those exchanges easy, +which might perhaps go on in part without it, though with difficulty +and loss. In short, money is somewhat like a railroad ticket. +Transportation to a given place is what is really bought when one pays +for a railroad ticket. The proof of the purchase is the bit of paper +exhibited. That comes in as a _medium_ between the traveller and the +railroad company; and while it facilitates the real exchange, it also +partly disguises it. This comparison holds good in the main feature, +but in two respects the resemblance fails: Money is not a specific +ticket for a single purpose, as the pasteboard is, but is a general +ticket (so far as it goes), for all purposes of purchase; and +secondly, Money really stands as a value in its own right (so far as +any single thing can so stand) at the same time it is serving as a +_medium_, while the railroad ticket does not. Still, we are all +desirous to get money, not for the sake of the money itself, but for +the sake of those things which the money will buy. We part with money +freely and constantly for those things which we care more about. What +we exactly care for is what our money will buy, is the conscious +command over all services and commodities which the possession of +money insures to us. If we could give our own commodity or service or +claim, whatever it may be, and receive directly in return the claim or +commodity or service which we want, whatever that might be, there +would be no need of money at all; but this is always inconvenient, and +generally impossible; and, therefore, we introduce a middle term, and +money is found to be a good mean to help exchange the two extremes. + +4. We are now getting on towards a just conception and a true +definition of Money, though two or three more points must still be +noted as preparatory to that consummation. As a result of the fact +already reached, that money serves as a _medium_ in men's exchanges, +it follows of course that the power of money as such a medium is +multiplied by what has been called _rapidity of circulation_, that is, +a brisker use of the volume already in circulation will reach the same +end as the increase of its volume. As in mechanics, so in money, the +whole power is the product of mass and velocity. Money also is like +any other tool, the more constant its use the more profitable its +agency. The quick movement of a small mass, accordingly, is better +than the torpid movement of a large mass, both in what it saves of +expense, and in what it presupposes of the general conditions of +exchange. The value of the money-volume of any country is a small +fraction of the aggregate value of those products which the money +helps directly to exchange; and a very small fraction indeed of the +aggregate value of all the products which it helps indirectly to +exchange through Credit by means of its _denominations_. We shall see +better a little farther on, that Money works not only as a medium +direct, itself exchanged against other Services, but also as +furnishing those denominations of Value, like the _dollar_, which are +always used in bargaining; and also used in all cases of Credit, in +which settlement is not made by money but by offsetting one piece of +indebtedness against another, and these denominations can arise only +from the use of money as a direct medium. Therefore, we may say that +the hub and the spokes and the rim of the wheel of exchange consist of +personal services and commercial credits and all material commodities +except money, while, to borrow the famous comparison of Hume, "Money +is but the grease which makes the wheel turn easier." It would be a +vast mistake to suppose, as some of the ancients did, that the grease +is really the wheel. + +While Money thus facilitates the revolution of the wheel of Exchange, +it follows too from its nature as a medium, that the dimensions of the +wheel as a whole are vastly greater than they would have been but for +the Money. Money indeed helped to exchange the products that already +existed and were coming into existence at its first invention, but by +far the largest part of products since have come into existence +largely through the agency of Money. We get quite too low a view of +the functions of this potent agent, if we think of it merely as an aid +in circulating products, that would have existed whether or no; some +products would certainly have existed whether or no, and money would +surely be of great use and convenience in helping bring these to the +ultimate consumers; but this is a partial and wholly inadequate view +of the function of Money as a medium of exchange. The fact that such a +medium is in universal circulation, and that the present holders of it +are ready to exchange it against any sort of Services adapted to +gratify their desires, exercises a kind of creative power, and brings +a thousand products to the market which would otherwise never have +come into existence. Since money will buy anything, men are on the +alert to bring forward something which will buy money; and since +Money is divisible into small pieces, an incredible number and variety +of small services are brought forward to be exchanged against these +pieces, for example, into railroad cars and fares of all sorts, which +services we have no reason to suppose would ever be brought forward at +all were it not for the strong attraction of the money. + +5. From this last point of view we may gain another closely connected +with it, namely, that Money must be a very important part of the +_Capital_ of the world. We have already thoroughly learned that +Capital is any product outside of man himself from whose use springs a +pecuniary increase. Now any one may see that the monetary medium of +any country is the most active and the most essential and the most +profitable of all those instruments reserved in aid of further +production. The axe, the plough, the spindle, the loom, the wheel, the +engine, are all instruments, are all Capital, and they each aid +respectively some part or parts of the processes of Production; but +Money is a form of Capital which stimulates and facilitates all the +processes of Production without exception. Just as we have seen that +Money is a form of Value generalized, so is it also a form of +generalized Capital, that is to say, it is an instrument capable of +aiding all processes of Production in every department, while every +other capitalized instrument is capable of aiding but few processes in +one department. Without Money, for instance, there could be no +thorough Division of Labor, because there would be no adequate means +of estimating or rewarding each one's share in a complicated process. +By means of Money all services small or great contributing towards a +common product are neatly measured, and may be paid for by some one, +who thereby becomes proprietor of the whole product; or, if the +contributors choose, they may wait till the product itself is sold, +and then the money received is divisible without loss to each +contributor, according to the service rendered. Thus the influence of +Money as Capital pervades the whole field of Exchange from centre to +circumference, facilitating every transfer and stimulating new +transfers. + +Now then, if Money be, as it is, a peculiar kind of Capital, since it +is a Medium in all Exchanges, the question becomes pertinent, How much +of it is wanted? Clearly, only _so much_ as will serve the _purposes_ +which such a medium is fitted to subserve; there should be enough +fairly to mediate between the Services actually ready to be exchanged +then and there, and also enough fairly to call out other Services +proper and profitable in the then circumstances of Society, and whose +only obstacle to a profitable exchange then and there _is a lack of a +facilitating medium_. All increase of the volume of money beyond this +point, which the very nature of Money itself marks out as the +boundary, leads to a diminution of Value of every part of it, to a +consequent disturbance of all existing monetary contracts, to a +universal rise of prices which are illusory and gainless, to +unsteadiness and derangement in all legitimate business, and to a +spirit of restless enterprise and speculation which seeks to draw off +the excess of money in untried and reckless experiments. The only real +subjects of Exchange are mutual efforts, mutual services, as these are +expressed in Commodities and Services and Credits, and money is the +instrument merely that comes in between the real exchanges to +facilitate them; and, therefore, it seems to be perfectly conclusive +on this point to remark that the quantity of money needed in any +country or the whole world is limited by the number of the services +ready to be exchanged, to make easy the exchange of which is the good +purpose and sole end of Money. + +The physical and mental powers of man, which alone can give birth to +commercial services, when considered as they must be in this +connection as belonging to a given number of men at a given time and +place, are strictly limited of course; and although the presence of +money then and there is both a stimulus and an aid to all these men to +bring forward services of all sorts to the market, there are obvious +restrictions both in their powers and in their circumstances; and the +quantity of money needed among them is just that quantity which will +fairly act as a medium in exchanging the services which they are able +and willing to render to each other. All increase in the quantity of +money beyond that point would have, and could have, the only effect of +increasing the nominal Prices of Services, without making the services +themselves any greater in number or better in quality. + +It is with Money exactly as it is with any other form of Capital, +allowance being made for the fact that Money is a kind of generalized +capital. To illustrate, How many ships does a commercial nation need +to employ? As many as will fairly take off its exports and bring in +its imports. Ships are wanted for one definite purpose; and when +enough are secured to answer that purpose, all additions will lessen +the Value, that is, the purchasing-power, of ships generally. So of +all instruments whatever. Enough is as good as a feast. Enough is +better than more. In regard to every form of Capital, and consequently +in regard to Money as such, the point of sufficiency is determined by +the quantity of work to be done. And as no law of Congress is required +to determine how many ships are best to do the transportation for the +people of the United States, so no legislation is needed to fix the +amount of Money that is best for the same people, or for any people. +As the people find out for themselves how many steam-engines they want +to do their work of the year, so they find out without any aid from +their legislators how much money they want to make their exchanges of +the year. The less Law and the more Liberty on all such points the +better for all concerned. + +Let the reader notice in passing, as a corollary from what has just +been shown, that when forms of Credit like bank cheques come into +growing use to make payments with and settle balances, they displace +to a large extent commodity-moneys, like gold and silver, which would +otherwise have to be employed. Speculations, and even scientific +discussions, over the needful amounts of gold and silver for money in +the United States, have usually overlooked this essential +consideration of displacement; and one result of this has doubtless +been too large a coinage of the precious metals, to the hazard of +their stable value, and especially to the hazard of the permanent +maintenance of the gold standard. Men forget in their zeal for Money +that it is nothing but a Tool, and that the multiplication of tools +beyond the amount of work to be done by means of them always makes the +tools a drug; and they are apt to forget also that the cheaper and +more convenient substitutes for metallic moneys, namely, forms of +Credit, are all the time and more and more taking the place of the +older moneys, which, nevertheless, must still be kept at the +foundation, though a lessened quantity of them be needful for +circulation. + +6. We must now carefully sink our analysis one grade deeper, in order +to reach the bottom characteristic of Money, and so to formulate an +ultimate definition of it. + +The only quality common to all valuable things is the fact that they +are all _salable_; and if these various and multitudinous valuables +are ever to be made in any way commensurable with each other, it must +be by means of one of their number assumed as a _standard of +comparison_ with the rest. Comparisons can only turn on points of +_likeness._ The single respect in which all valuables whatsoever +resemble each other is their common possession of purchasing-power, be +it more or less. Therefore, as a yardstick, itself possessed of +length, _and because it is possessed of length_, if assumed as a +standard of comparison with other objects that have length, may be +used to measure all such objects whatsoever, and may accurately +express in units or fractions of itself the simple length of anything +and everything; so, any valuable may be selected as a _standard_ with +which to compare all other valuables, and by means of the terms of +which to express numerically the reciprocal relations between all +valuables whatsoever. This is just what is done whenever any valuable +is selected as Money; and this is the exact and single purpose of such +selection. + +What is the precise change, then, in the valuable chosen as Money when +it becomes money? This: it was a valuable before, else it could not by +any possibility serve the present purpose, but now it has become a +_standard_ valuable, with which other valuable things may be compared +in the single point of their _value_. Valuables are now commensurable. +That is all. But that is a great deal. As we have already learned to +the nail, Valuables are all Services; and now some one Service has +been selected from the rest, capable in its very nature of _measuring_ +all the rest, and so capable of becoming immensely _useful_ to +mankind. + +What, accordingly, is the bottom characteristic of Money? And where +shall we find the terms for an immutable definition of it? _The core +of Money is this quality of being a Measure of Services, taken on in +addition to the usual and universal qualities constituting anything a +Valuable._ This additional quality arises under the choices and action +of men, just as the ordinary qualities constituting anything a +valuable arise under the choices and action of men. But it is an +_additional_ quality, distinctly conferred, and vastly important. The +valuable chosen as Money was a Service to start with, was constantly +rendered as such then and there, and was consequently fitted by +qualities already possessed to assume a further and a _unique_ +quality, namely, the capacity to measure and express relatively to +itself all other valuable Services whatever. + +As each and every Valuable is the outcome of a _comparison_ instituted +by two persons as between two things, as is thoroughly unfolded in the +first Chapter, it is not at all strange, rather it is natural and +inevitable, that there should arise in connection with Valuables as a +whole class some such further _comparative_ measure, as Money is now +shown to be; because, without some such common measure of Services in +general, itself a Service of the same kind, it would be inconvenient, +not to say impossible, to carry on any considerable traffic anywhere. +For instance: a baker has only loaves of bread, and wishes to buy a +hat, a horse, a house. How many loaves shall he give for each? Unless +there be some common Service, in the terms of which these differing +Valuables can be expressed, and by means of which they can be brought +into commercial relations with each other, it would be an awkward +piece of business to effect even the _three_ exchanges; and every time +the baker wished to buy another article, there must be a rude and slow +calculation from independent data, in order to decide upon the terms +of the exchange. Let now some Common Service be introduced, in the +terms of which each of these values can express itself independently, +and the difficulty disappears in an instant. "My loaves are worth ten +cents each," says the baker. "My hat is worth ten dollars," says the +hatter. Their saying so does not indeed _make_ it so; that matter is a +preliminary; but each has come to that approximate conclusion by a +relatively easy comparison of two Services, his own and another common +one; and if the loaves will duly bring ten cents and the hat ten +dollars, the terms of their own exchange are one hundred for one, and +there is no need of parleying. So of the rest; so of everything that +is ever bought and sold. Money becomes by common consent a Measure of +them; because it measures them, it makes the interchange of them a +very facile matter; because it measures them, it easily becomes a +medium between them; and, accordingly, because the money rendered is +itself a Service, it is a natural and universal measure of all other +Services. + +MONEY IS A CURRENT AND LEGAL MEASURE OF SERVICES. With this final +definition of "Money" the writer is more than willing to take all the +risks. It was new when propounded many years ago in one of the +editions of his earlier book. All subsequent testings of it in form +and substance have but confirmed the original confidence in it. The +word "legal" in this definition is not always to be pressed to its +utmost signification, but denotes anything sanctioned by law or usage +_equivalent to law_. The other words are to be taken in their full and +technical meaning. It is believed that, while this definition is short +and simple, it just covers the whole ground and no more. It is not +enough that a certain valuable be "legal" as Money; it must also be +"current" in order to be a true money. In the United States between +1862 and 1879, to take an example, gold coins, though legal tender all +the time for all debts public and private, were not "current" in the +full sense of that term, and hence were _not_ the Money of the +country. Till the last-mentioned date, the gold dollar of 25-4/5 +grains standard fine was required by law to pay customs-taxes with and +the interest on the public debt, and was used to a small extent in a +few branches of private business, and was not otherwise in the hands +of the people. These dollars, accordingly, were not strictly money, +but bore a premium over the "current" money of the country. To be +Money, then, a Valuable must be recognized as money by law or custom +as strong as law, and also circulate among all classes of the people +as a medium in their exchanges. + +But we are bound to observe that Money becomes a _medium_ in men's +exchanges, because it first became a _measure_ in their Services. Some +economists think that these two functions are separate, and are of +equal rank; but it is easy to see that one only is original, and that +the other is derived from that. Even Aristotle perceived that Money is +a Measure, inasmuch as he defined property "_anything that can be +measured by money_." We may be pretty sure, in opposition to Professor +Jevons, in his Money and the Mechanism of Exchange at page 13, who +thinks there are _four_ characteristics of Money, that Money as such +has but _one_ primary characteristic difference from other forms of +Value, namely, this _measure_-quality, this _standard_-quality, this +publicly recognized function as a _common measure_ to which all other +valuables are constantly referred. This additional attribute put upon +a money-valuable by law or custom is not what _makes_ it valuable, +since an ounce of uncoined gold standard fine is worth within a very +small fraction as much as an ounce of gold coins, but it makes the +money a far more convenient instrument to purchase with, inasmuch as +money, having now the attribute of making all other valuables easily +commensurable with itself, becomes at once something which everybody +is ready to receive, because everybody knows in general what its power +will be to purchase all other things. In other words, Money becomes a +_medium_ in exchanges just because it has already become a _measure_ +of Services in general; and there are not consequently two prime +functions of Money, still less four, but only one. This view seems to +simplify the whole subject of Money very much; and we may be sure that +it will be found to be scientifically correct, and that we shall find +many means of testing its accuracy as we go on. + +To maintain, as we do, that "Money is a measure of Services," is much +better than to say, in connection with many economists, that "Money is +a Measure of Value." That phrase is objectionable because Value is +always relative to two Services exchanged for each other; and to say +that money is a measure of that _relation_ is neither so simple nor so +ultimate as to say that it is a measure of each of the Services +entering _into_ that relation. The Services may be conceived of and +spoken of separate from the Value into which they merge, although they +come into existence solely for the sake of that resultant Value, and +it is more exact and final to propound that Money, itself a Service, +is a measure of all other Services considered as constituent elements +of the Values into which they fall. We are not without strong hopes, +accordingly, that competent economists will concede, that here is a +radical improvement in the nomenclature of our Science. + +In the place of our expression and definition, and the foregoing +explanation consequent upon its use, President Walker in his Money, +pages 280 _et seq._, prefers the mathematical and excellent phrase, +"_the common denominator in exchange_"; Professor Bonamy Price, in his +Practical Political Economy, page 363, shows his fondness for the +formula (and it is a good one), "_the tool of exchange_"; and Henry +Dunning Macleod, in his Elements of Banking, page 17, insists with +much less reason, that "_Money is the representative of Debt_." He +says: "The quantity of money in any country represents the amount of +Debt which there would be if there was no money; and consequently +when there is no debt there can be no money." The unfortunate use by +some countries of a paper money, which is indeed a form of debt, gives +some plausibility to the notion that Money is a representative of +Debt; and perhaps the fact that Money is often used to pay debts +previously contracted, and that debts are almost always contracted in +the terms of Money, may give some additional plausibility to this +view; but as Macleod himself goes on to say that "no substance +possesses so many advantages as a metal for money," and that "all +civilized nations therefore have agreed to adopt a metal as money, and +of metals, gold, silver, and copper have been chiefly used," we do not +see how he can logically hold that a gold dollar, or a gold sovereign, +whose value is as substantive and independent as that of any Valuable +in the world can be, becomes through coinage and circulation "a +representative of Debt." Instead of saying as he does, "where there is +no debt there can be no money," it may be confidently asserted on the +other hand, where all transactions are settled at once in solid money +there can be no debt. + +7. Having thus looked into the nature of Money, and seen what is its +one essential characteristic, and its one obvious and universal +function as the result of that, it will help us now in our further +discussion, to examine some of the material commodities that have +served as Money at different times and places. + +_Cattle_ appear to have been the earliest money of which there remains +any record. Homer, near the middle of the sixth book of the Iliad, +indicates in the following lines that oxen were an incipient money in +the Heroic age:-- + + "Then did the son of Saturn take away + The judging mind of Glaucus, when he gave + His arms of gold away for arms of brass + Worn by Tydides Diomed,--the worth + Of fivescore oxen for the worth of nine." + +We cannot certainly infer, when it is said in Genesis that "Abraham +departed out of Egypt very rich in _cattle_ and silver and gold," that +any of these were anything more than articles of valuable merchandise; +but on the other hand it is certain from the Latin name of Money, +_Pecunia_, which is derived from the root _pecus_, which means +"_cattle_," that Cattle were the Money of the early Romans; and Pliny +writes expressly that King Servius Tullius stamped the first bronze +money of Rome with the _image of cattle_, undoubtedly indicating by +that some equivalence in current value between the two. At any rate +cattle have been used as Money among pastoral peoples very widely in +place and in time, and are still so used in various parts of Africa. + +In the region of the Euphrates and Tigris the precious metals became +money in very remote antiquity; for the art of coining, and all other +arts, came thence westward to the Greek cities of Asia Minor, and to +Greece itself, and we learn that Pheidon, King of Argos, coined silver +money on a scale derived from the East in 869 B.C.; and a better proof +still is the fact that burnt clay tablets are found in the Royal +Library at Nineveh, discovered by Layard, which are really +credit-money, notes issued by the Government, and made redeemable in +gold and silver money on presentation at the king's treasury. Tablets +of this character are extant bearing date as early as 625 B.C. But the +gold and silver money must have been circulating a long time in their +own right as valuables, before such a credit-money, such a +promise-money, as those tablets are, could have originated in +connection with them. Abraham, who himself migrated from "Ur of the +Chaldees" about 2000 years B.C., not long after reaching the +Mediterranean, "weighed unto Ephron the silver which he had named in +the audience of the sons of Heth, four hundred shekels of silver, +current money with the merchant." This is expressly said to be "money" +and "current money." Perhaps it was coined money. At any rate, it was +cut and piece money. It was indeed weighed out, and not counted out. +This is still the more accurate and speedy manner, when the facilities +for the weighing are present. The Bank of England at this day weighs, +and not counts, the coins received and paid out. The Romans first +coined silver money in 269 B.C., and gold money in 207 B.C., and gold +coins were stamped in Greece about the time of Alexander the Great, +say 333 B.C. + +Other metals than those called precious were also early used as money. +Long before Pheidon's silver coinage in Greece, _copper skewers_ were +used as money in that country, of which six made up a _drachm_, which +was afterwards both a coin and a unit of weight, the coin being worth +about 17 cents of our money, and the weight being about 66 grains +avoirdupois. The word drachm is derived from ~dragma~, _a handful_; +and the sixth part of it, called an _obol_, from the Greek word +meaning a _spit_, became also both a coin and a weight, all which +makes it evident that these were used in connection with roasting +meat, and that one skewer or obol was originally a unit both of value +and of weight. In Adam Smith's day, in certain districts in Scotland, +_nails_ were still used as small money, which is a forcible reminder +of these old Greek skewers. Iron became money in Sparta; money of lead +was known to the ancients, and is still current in the Burman empire; +the earliest Roman coins were of copper, which were cast rather than +stamped, for no die would have sufficed for pieces so large and heavy, +and the _denarius_ was the unit divided into ten _asses_, the +_denarius_ being nearly the equivalent of the Greek _drachma_ whether +of copper or silver, because the Romans reckoned from the first the +ratio of copper to silver as 250:1; bronze is a mixture of copper and +tin, and brass of copper and zinc, and copper coins with both these +admixtures--used for the purpose of hardening the copper, it being a +general law of metals that a mixture of two is harder than +either--have been very common in ancient and modern times; Sicilian, +Roman, and old British coins of tin alone are known to have been +struck; and Herodotus makes the statement that the Lydians of Asia +Minor were the first to make a coinage of _electrum_, which, as some +claim, was a mixture of gold and silver, and of which ancient +specimens are still existing. + +Cowry _shells_ are still used in the East Indies, and also in Africa +in the place of small coins, and have sometimes been imported into +England from India to be exported in trade to the coast of Africa, +being reckoned in Bengal at about 3200 to a silver rupee, which is +about 46 of our cents. The New England Indians also used beads or +shells of periwinkles (white) and of clams (black), of which 360 made +up a belt of _wampum_, as they called it, the black being counted +worth twice as much as the white; and the English colonists accepted +the wampum in their exchanges with the Indians, regarding a string of +white as equal to five shillings, and a string of black to ten +shillings, and afterwards made it legal tender among themselves for +small sums, and even counterfeited it. Cakes of _tea_ have passed as +money in India, and elsewhere; and it is said, that at the great +annual fair at Novgorod, in Russia, the price of tea has first to be +determined before the prices of other things can be settled upon, +since that is a kind of standard of Values in that great mart. _Salt_ +has been current money in Abyssinia; _cod-fish_ in Ireland and +Newfoundland; and _beaver-skins_ in New Netherlands, New England, and +the western parts of America. + +We do not here try at all to give a full list of the things that are +known to have been used in the early states of society as money; and +there would be no ground for surprise in any list, however large and +varied, when we remember how great is the need of some such form of +value generalized in order that exchanges may grow to any considerable +size and vigor. Two points only need now to be noted, (1) that the +tendency everywhere has been sooner or later to come to the metals as +the best form of money, and among the metals to reach gold and silver +as the only ultimately satisfactory materials for Money; and (2) that +no instance has ever been found in the whole stretch of inquiry over +all the earth, of anything becoming a Money that had not been +previously a Valuable. We might be perfectly sure of this beforehand, +without any search at all among the moneys of primitive times and +states of civilization, because, from the _very nature of the case_ +nothing could ever serve the purpose of Money except what was already +a valuable to make the comparison with,--nothing could ever possibly +serve as a measure of services except a service. It has several times +been claimed, that actual exceptions to this law have been +historically discovered, but when the alleged exceptions have been +closely scrutinized they have been found to be apparent only. To take +two or three of the most plausible examples: the Carthaginians had a +kind of leather money, which originally enclosed bits of the precious +metals, and circulated in virtue of them, though they afterwards came +to circulate as bits of leather only, as counters and pledges, in a +way that will be explained later. According to the Venetian traveller, +Polo, China had in the thirteenth century a money made of the bark of +the mulberry tree, cut into round pieces and stamped with the name of +the sovereign, which money it was death to counterfeit or to refuse to +take in any part of the empire. If we had the whole history of this +money, it would surely ally itself either with the other +commodity-moneys now being treated, or with the modern credit-moneys +made legal tender to be treated hereafter. It is just as certain as +anything can be, that these circles of stamped bark did not start out +as money in their own right. The French writer, Montesquieu, asserted +that there was in use in the last century among the people of the +coast of Africa, what he called "an ideal money," "a sign of value +without money," the unit of which was called a _macoute_, which was +subdivided in ideal tenths, called _pieces_. This statement was +startling, as implying a denomination without the thing denominated, +as implying a standard of value which had no basis in a valuable +thing. It was afterwards discovered, however, that this money of +account had its origin, just as we should suppose it must have had, in +an actual _macoute_, a piece of stuff, a fabric, which they had used +first as a commodity-money, and afterwards its _name_ as a money of +account. A valuable thing may become money, and then its name may +become a _denomination_ of value, and still later a bit of leather or +a bit of paper may be called by the same name, and in a certain sense +take the place of the same thing. All this will be as clear as day +pretty soon. + +8. Contrary to what has often been affirmed by Economists, the real +measure of Services is the service itself, the _thing_-dollar and not +the _denomination_-dollar. The denominations are used in bargainings +and calculations as representatives of the money itself, and thus +indeed in a secondary sense serve as _measures_; but the subtle +connection between the thing and its name, between money and its +denominations, and the differences between the two, need to be clearly +unfolded, because most of the current fallacies about money take their +rise just at this point. An illustration will best serve us here. The +original measure of Services in France and England and Scotland was +the pound weight of silver. No coin of that weight was ever struck; +but the pound of silver was cut into 240 coins called pence. Twelve of +these pence were called a _solidus_ or shilling. Thus, as applied to +silver, the symbols lb. and £ denoted equivalent weights, the former +of uncoined metal, the latter of metal coined. But in course of time, +more "pence" than 240, and at last in Elizabeth's reign 744 "pence +were coined out of a lb. of silver." Yet all the while 240 of these +pence were called a £. £ and lb., both a contraction of the Latin +_libra_, were no longer equivalent. The lb. of weight continued +stable; the £ of money had dwindled to less than one-third. Yet the +_name_ pound continued to attach to 240 pence, although the pence +embodied a less and less quantity of silver. Each actual penny had +less silver in it, and though it was still called a penny as before, +the _denomination_, though spelled and sounded as before, represented +less silver, and therefore less _value_, than before. The +denominations, then, always follow the fortunes of the coins, whose +names they are, to the frequent loss and shame of the unthinking, who +suppose the same _name_ must represent the same _thing_. Unfortunately +it does not. + +Take another illustration. In 1834 the gold eagle of the United States +was reduced in weight from 270 to 258 grains troy, and the alloy +increased from one part in 12 to one part in 10. These changes took +out more than 6 parts of gold from every 100 parts in all the gold +coins of the country. Yet all these coins bore the same names as +before. The things denominated changed, but the denominations changed +not. Other things remaining equal, the coins lost six _per centum_ of +their purchasing-power, or in other words, general prices rose in that +proportion; the _measure_ became so much smaller; and the names, +_eagle_, _dollar_, outwardly unchanged, varied simultaneously and +equally with the change in the coins. + +Also, coins are liable to change in their function as a measure of +general Services from unavoidable changes in the general +purchasing-power of the precious metals themselves. If for any reason +an ounce of gold will buy less of general Services than formerly, of +course the coins cut from that gold will buy less than formerly; and +this change in the _measure_ is followed instantly and inevitably by a +corresponding change in the meaning, though not in the spelling, of +the _denomination_. Not so with all other tables of denominations. +These have a _basis_ independent of the things which they help to +measure. The French _metre_, for example, is not variable by the +lengths or breadths or heights of the things it measures, but is an +invariable unit of length the world over; so is one of Troughton's +inches; but this feature does not hold at all of the denominations of +Money; because _sovereigns_, _dollars_, _marks_, _francs_, are +denominations of _Value_, which is itself a variable relation. Such +denominations, consequently, are _not_ an independent standard to +which values themselves can be referred, as lengths are referred to +metres and inches, but vary with the varying purchasing-power of the +coins themselves. The "_dollar_," as a denomination, means more or +less, just according as the "DOLLAR," as a coin, buys, that is, +measures, more or less. + +Still, essential as is the point now made to any just understanding of +the subject of Money, it is vastly important for all the interests of +Exchange that the accepted measure of Services be as little liable to +fluctuations as possible, especially in all cases in which lapse of +time is involved before the exchange is fully consummated. An +inflexible standard there cannot be from the very nature of the +measuring, but also from the very nature of all measuring, the +money-standard should be and should be kept as nearly inflexible as it +possibly can be. For the same reason in kind, only multiplied a +thousand-fold in force, that the bushel-measure should be of the same +capacity in sowing-time and in harvest-time, to sell and buy by, +always a bushel, no more and no less; and the yard-stick an inflexible +measure of length, always 36 of Troughton's inches, no more and no +less; so, as far as it is possible in the nature of Values, ought the +current measure of Services, and hence its denominations, to +represent, year in and year out, a uniform degree of purchasing-power. + +9. This brings us logically to the historical fact, that, no matter +what measure of services any people may have adopted in their +primitive times, there has always been a steady force at work tending +to displace these in favor of gold and silver. This has become the +universal result the world over among all advanced peoples. Governor +Bradford in his History of Plymouth Colony gives a quaint account of +the origin of money among the Pilgrims, and in connection with that of +the fee-simple in lands: "_The Pilgrims began now highly to prize corn +as more precious than silver, and those that had some to spare began +to trade one with another for small things, by the quart bottle and +peck; for money they had none, and if any had, corn was preferred +before it. That they might, therefore, increase their tillage to +better advantage, they made suit to the governor to have some portion +of land given them for continuance and not by yearly lot, for by that +means that which the more industrious had brought into good culture +(by such pains) one year came to leave it the next and often another +might enjoy it; so as the dressing of their lands were the more +sleighted over and to less profit; which, being well considered, their +request was granted._" + +The neighboring Colony of Massachusetts, settled about ten years +later, used Bullets for small change, reckoning them at a farthing +apiece, and made them legal tender for debts of less than one +shilling; for larger exchanges Wampum and Beaver-skins were long used; +but the steady force just spoken of induced Massachusetts in 1652 to +supplant these with a silver coinage of her own, called the Pine-tree +shillings and sixpences and threepences and twopences. This mint +existed (sometimes idle) for over 30 years, but all the pieces coined +bore the dates of 1652 or 1662. In 1691, the two Colonies were forced +into one government through a new charter granted by William and Mary; +and after lengthened trials of inferior moneys, not needful to be +described now, Massachusetts determined in 1749 to have no other than +silver money circulate in the Colony, and became thereafter till the +Revolution the so-called "Silver Colony," and business rapidly and +steadily revived and enlarged in consequence of the change, and in +contrast with the rest of New England. + +Gold and silver, thus ever urging their way in to take the place of +tentative and transient standards, and ever coming back again to stay +if displaced for a time by cheaper and changeable moneys, have never +been anywhere of equal value, weight for weight. An ounce of gold has +always been more valuable than an ounce of silver. Probably in the +Euphrates country where coinage began, and certainly in Asia Minor +deriving thence its weights and measures, gold was strictly the +standard with silver as subsidiary to that; in Greece, when Philip's +victories established a double standard there, gold was reckoned +relatively to silver as 1:12-1/2; in the Roman world, where silver had +been the standard after 217 B.C., Augustus Cæsar legalized gold as a +co-standard in the ratio of 1:12; in 1717 a double standard was +established in Great Britain, gold being rated in the coinage as +1:15-1/5 of silver, but in 1816 by a law still in force, gold was made +the sole standard for the United Kingdom, the legal use of silver +being limited to 40s. in any one payment; in France the legal relation +of gold to silver was fixed in 1803 as 1:15-1/2, and so continued till +1876; in the United States the ratio first established, in accordance +with the recommendation of Alexander Hamilton as Secretary of the +Treasury, was 1:15, but in 1834 this was changed to the relation of +1:15.98, and so it remains to this day; in 1871, the new German Empire +adopted the sole gold standard, and limited silver to the amount of 20 +_marks_ in any one forced payment, still allowing the old silver +_thaler_ to circulate at the rate of three marks to a thaler; and +since 1875, the Scandinavian Union permits gold alone to be coined for +private persons, and limits the debt-paying power of silver to 20 +_crowns_. A crown is 26.78, and a mark 23.82, of our standard cents. + +Moreover, the relative value of gold in silver never continues the +same for any great length of time, even after the law has sought to +ascertain and fix it. Indeed, any law fixing the ratio between the two +has very little, if any, effect towards maintaining the ratio. Demand +and Supply determine the value of the precious metals each in each at +any one time as absolutely as they decree the value of Hindoo rice in +silver. France managed to maintain her legal ratio at 1:15-1/2 for 73 +years, because all the conditions were on the whole favorable; but +when the Germans threw a portion of their silver on the world's market +in hopes to reach the single gold standard, and the mines of Nevada +poured forth on the same market their millions of silver, the ratio +could no longer stand, the right of private individuals to have silver +coined for them was taken away in behalf of the government, and only +the five-franc silver pieces continued to be legal-tender to all +amounts, the other silver coins becoming then (1876) only legal to pay +debts to the amount of fifty francs. A franc is 19.29 of our standard +cents. + +And this brings us to notice what are called _subsidiary coins_. +France, England, Germany, and the United States have debased their +smaller silver coins in weight, so that the _nominal_ value of these +coins is from 7 to 15% above their _bullion_ value. For example, two +halves, four quarters, ten dimes, of our silver since 1875 weigh 385.8 +grains, which is also the exact weight of the French five-franc piece, +while our standard silver dollar weighs 412-1/2 grains, both 9/10 +fine, so that our "subsidiary" silver is debased in weight 6.48%. +There are three advantages in thus treating the smaller silver: (1) +there is so much clear profit to the Government minting them, thus +lessening taxation; (2) a security to the peoples that they shall not +lose their convenient small change by export to neighboring countries; +and (3) this scheme allows a very considerable rise in the market +value of silver without tending to throw the subsidiaries out of +circulation. As these are never legal-tender except to very small +amounts in domestic trade, there are no serious objections to their +use in limited quantities. The English can pay debts in their silver +to the amount of £2, and we in ours to the extent of $5. Coins of +copper and of other inferior metals are also _subsidiary_ in principle +and motive. Our 5-cent and 3-cent nickel pieces are 75 parts copper +and 25 parts nickel, and the 1-cent piece is 95 parts copper and 5 +parts tin-zinc; and debts of 4 cents can be paid in 1-cent pieces, of +60 cents in 3-cent pieces, and of 100 cents in 5-cent pieces. + +10. The steady experience of civilized men for two milleniums and a +half seems to demonstrate, that gold and silver constitute the best +Money; and we must now investigate the reasons, one by one, _why_ +they are the best money. The reasons appear to be three. Of these the +first is by much the most important. + +(1) The first and main reason why gold and silver make the best money +is to be found _in their comparatively steady general Value_. Since +Money is a Measure of all other valuables, its success as a measure +must depend on its own _steadiness_ of value, and gold and silver meet +this test better than anything else. Money is a valuable, and not in +any sense a _representative_ of value; except as to the subsidiaries, +a coin does not owe its value at all to the _stamp_ impressed upon it +or to the _law_ authorizing it, since the metal in it is worth as much +out of the coinage as in it; coin-values arise under the same +conditions as all other values, and are variable by any change in any +one of the four elements which alone can vary the value of anything; +and it would seem that nothing more is needed in order to remove the +last vestiges of the dark cloud which has so long overhung this +subject of Money, than to familiarize ourselves first of all, as we +have already done, with the true doctrine of Value in general, and +then to hold fast the truth exemplified on every hand, that the value +of Money is just like every other value. Let us examine then, first, +why the value of gold and silver is so steady. + +(a) On account of the comparatively steady Demand for these metals. +Gold and silver are wanted for two general purposes: first, to be used +as money, and second, to be used in the arts; and the usual estimate +is, that about 2/5 of the aggregate quantity in the world is in the +form of money, and the other 3/5 in the form of plate and utensils and +ornaments. Now, so far as the element of Desire controls Value, the +purpose for which any article is desired is a matter of indifference. +The aggregate desire for it for all purposes, accompanied with the +offer of something with which to buy it, constitutes the Demand; and +the more universal the desire, no matter for what use, the steadier +the Demand and so far forth the steadier the Value. It is a point +still too little noticed, that the combined demand for the precious +metals for all uses is what helps determine their general value, and +not the demand for them as coin alone; just as the value of barley is +regulated partly by the demand for it for food, and partly by the +demand for it for malting purposes. Hence an ounce of bullion of the +standard fineness destined for the smelting-pot of the artisan is +worth within a very trifle as much as an ounce of coined money. + +For example, by the law of the Bank of England an ounce of standard +gold (11/12 fine) is coined into £3 17s. 10-1/2d., and the Bank is +obliged to buy all bullion and foreign coins of the standard fineness +offered to it at £3 17s. 9d. per ounce,--a difference of only three +half-pennies. Now, gold and silver are so indispensable in the form of +money, so beautiful in the form of ornaments, so well adapted to serve +the purposes of luxury and love of distinction, and so really useful +in the arts, that the Demand for them is constant and well-nigh +universal; and should there be in the progress of civilization a +lessened demand for them for purposes of personal ornamentation and +luxury, and a less quantity be required for coins on account of the +multiplied use of cheques and other credit-forms, as seems likely in +both cases, a greater quantity will doubtless be required for all the +other uses old and new, and so, as the Demand in the past has been +steady, and probably steadily increasing, there is every reason to +expect the same course of things for the time to come. Moreover, it +contributes to the steadiness in value of the gold and silver coin, +that there is at hand at all times, in the form of plate, a reservoir +from which a chance chasm in the coin may be replenished, or an extra +demand for it answered. + +(b) On account of their tolerably uniform Cost of Production. Not +Desires only but Efforts as well determine Value. Supply is the +correlative of Demand; and when to a steady demand there answers a +steady supply realized under conditions of pretty uniform difficulty, +there will be as a matter of course a pretty steady Value. Nature +herself, that is to say, God himself, has indicated in a manner not to +be mistaken the intention, that these precious metals should be the +Money of the nations. They are scattered all over the earth, and so +scattered that the cost of their production has been on the whole +pretty steady ever since civilization and commerce began in earnest. +God is a God of order throughout all His works. Corresponding to the +nature and necessities of men is the whole structure of the outward +world. Science builds only on these predetermined lines of Order. +Induction is only possible where original Resemblances run through +great departments of phenomena. To be enabled to buy and sell to any +considerable extent in order to meet their subjective wants, men must +have an objective measure of mutual Services, and this measure must be +a valuable steady in its purchasing-power: very well; such a possible +measure was all provided for beforehand, when the foundations of the +earth were laid. + +The precious metals have always been obtained in one or other of two +ways: by surface diggings and washings, and by rock-mining. Both were +employed in the very beginnings of Civilization. There is a +description in the book of Job (chapter xxviii) of the way in which +the ancient mines were wrought, and of the worth of the ores: + + "Truly there is a vein for silver, + And a place for gold, which men refine. + Iron is obtained from earth, + And stone is melted into copper. + Man putteth an end to darkness; + He searcheth to the lowest depths + For the stone of darkness and the shadow of death, + From the place where they dwell they open a shaft. + Forgotten by the feet + They hang down, they swing away from men. + The earth, out of which cometh bread, + Is torn up underneath, as it were by fire. + Her stones are the place of sapphires, + And she hath clods of gold for man. + The path thereto no bird knoweth, + And the vulture's eye hath not seen it; + The fierce wild beast hath not trodden it; + The lion hath not passed over it. + Man layeth his hand upon the rock; + He upturneth mountains from their roots; + He cleaveth out streams in the rocks, + And his eye seeth every precious thing; + He bindeth up the streams, that they trickle not, + And bringeth hidden things to light." + +These methods and difficulties in rock-mining, thus poetically and +beautifully delineated, have been substantially the same from that +early day to the present time; and, consequently, there have been but +two or three striking changes in the general value of gold and silver +in the commercial world during the last 500 years, at least changes +owing to easier and larger Supply. The discovery of the mines of +Potosi in 1545, and the large influx of silver into Europe from those +and other American sources, together with the irrational stimulus +thereby given to the working of European mines under the false +impression not even yet wholly dissipated that Value can be clutched +bodily in mining, so increased the stock of silver, that its value as +measured in grain or other commodities declined in Europe in 70 years +after 1570 to about 25% of its previous purchasing-power. Adam Smith +expresses the opinion in his Wealth of Nations, that silver did not +perceptibly fall before 1570, nor continue to fall further after 1640. +The discovery of gold deposits on the Pacific coast of the United +States in 1848, and a similar discovery in Australia in 1851, enlarged +the annual supply of gold for the world from $40,000,000 in 1848 +(_Chevalier_), to an average of $136,000,000 for the five years ending +in 1859 (_Jevons_); and the latter writer estimated the fall of gold +in general commodities from 1845 to 1862 at about 15%. But with +exceptions like these, and similar ones are perhaps not likely to +recur, the precious metals have always maintained and seem likely to +maintain in the future a considerable uniformity of Value, as +estimated by their power to purchase other valuables, so far forth as +Cost of Production goes to determine their value. Even the great +changes just noted in the cost of the metals issued only gradually in +a rise of Prices, which many were able to foresee and thus to provide +for, but by which many more were caught and brought into distress and +even pauperism. The two classes that suffer the most under a fall in +the Value of Money are the wages-receivers and the holders of long +annuities and other similar obligations. + +(c) On account of their Quantity. The amount of gold and silver in +circulation in the commercial world, to say nothing of the quantity so +easily brought into circulation from the reservoir of plate, is so +vast, that it receives the annual contributions from the mines much as +the ocean receives the waters of the rivers, without sensible increase +of its volume, and parts with the annual loss by detrition and +shipwreck, as the sea yields its waters to evaporation, without +sensible diminution of volume. The yearly supply and the yearly waste +are small in comparison with the accumulations of ages; and, +therefore, the relation of the whole mass to the uses of the world, +and the purchasing-power of any given portion, remain comparatively +steady. It is probable, that production at the mines might cease +altogether for a considerable interval without very sensibly enhancing +throughout the commercial world the value of gold, as it is certain, +from experience, that a production very largely augmented only very +gradually and after a considerable interval of time diminishes its +value. The mass of the precious metals has been aptly compared with +the heavy balance-wheel in mechanics, which preserves an equable and +working condition of the machinery under any sudden increase of the +power, and even when the power is for a moment withdrawn. + +Just at this point a caution is needful. Because it is affirmed that +the great amount of the precious metals is a ground of their firm +value, it must not be supposed that we are going beyond our general +doctrine, and introducing another element, namely, Quantity, besides +the four elements, which, as we have so often alleged, can alone vary +the value of any Service. Quantity, in itself, is not an element +capable of varying the value of anything, but taken in connection with +durability, it is an element of what might, perhaps, be called with +propriety the _Inertia_ of Value, and tends to keep the +purchasing-power of gold and silver where it is. _Value and Steadiness +of Value are two distinct ideas._ The present value of an ounce of +gold is decided by four things alone, two Desires and two Efforts; but +other elements besides these may help determine that that ounce of +gold shall have ten years from now a purchasing-power approximately +the same as now. It will depend of course in the last analysis upon +the relation of the then Demand to the then Supply; yet the vast +quantity of the precious metals in existence, combined with their +durability, prevents those fluctuations in the Supply which are so +destructive to a steady value. It is not with them as with the fruits +and the cereals, whose value varies perpetually with the seasons, and +which are so perishable that they must be sold quick or never. Gold +and silver are almost indestructible, and the existing mass is not +liable to be lessened except by wear and accident, and in so far as +the annual production from the mines exceeds the yearly waste there is +a natural provision made for the natural increase of Demand to supply +the wants of the world for money and for the arts without much +disturbing the relation of the Demand and the Supply; and so Quantity +in connection with durability helps preserve to them a tolerably +steady value from generation to generation. + +(d) On account of their Fluency. Gold and silver are in demand the +world over. Having great value in comparatively small bulk, they are +easily transported from Continent to Continent; and whenever from any +cause they become relatively in excess in any country, and so lose +there a portion of their previous purchasing-power, there is an +immediate motive in profits to export them to other countries, in +which their power in exchange is greater, and thus the equilibrium +tends to restore itself. The proposition is, The value of gold and +silver is kept pretty steady throughout the commercial world by the +facility with which they are carried from points where they are +relatively in excess to points where they are relatively in +deficiency. In any country or place where the precious metals are +temporarily in excess, the prices of general commodities as measured +in them will rise of necessity, because the unit of measure is smaller +than it was; and for the same general reason, the country temporarily +lacking in these will experience in consequence a fall of general +prices. There is, therefore, a private gain in carrying these metals +to those countries in which their power of purchase is the greatest +owing to the lack of them, because more commodities can be obtained +in exchange for them than at home; and private motives here coincide, +as indeed they generally do, with public welfare, since what the +traders do in carrying gold and silver abroad with an eye to their own +interest only, helps maintain at home and abroad the steady value of +these commodities. + +This law of the distribution of the precious metals by Commerce, and +the equilibrium of their general value resulting therefrom, is as +natural and beautiful as the law which preserves the level of the +ocean, or that which balances the bodies of the planetary system. This +has come at length to be recognized by the nations, and the laws which +used to forbid by heavy penalties the exportation of gold and silver +are all swept away, and these metals are now free to go and do +actually go wherever they can obtain the most in exchange. It is +absurd to suppose that their owners would carry them out of a country +unless they were worth more abroad than at home; and, therefore, the +prejudice which still exists in this country (the relics of itself) is +a senseless prejudice. The gold is not given away, it is _sold_, and +sold for more than it will buy at home; otherwise nothing in the world +could start on its foreign travels. There is the same kind of gain in +this as in all other exchanges of commodities, with this great +incidental advantage in addition, that its general value is by this +means kept pretty uniform throughout the commercial world. + +Unluckily for the darker and middle Ages, so far as they took their +cue and thought from the Romans, the latter, in the teeth of the sound +view of Aristotle, looked upon Money as something quite different from +other forms of salable things, looked upon it in short as an _end_ in +itself, as something to be gained and not readily to be parted with. +If this were the right view of Money, as it is not, then the policy to +spring from it might well be,--Get all the money possible into the +country, and let as little as possible out! Just this came to be the +policy of the Romans. In one of his Orations, Cicero says, "_The +Senate solemnly decreed both many times previously, and again when I +was consul, that gold and silver ought not to be exported._" The other +and the true opinion, that money is bought and sold like any other +valuable, and that its sole peculiar function is as a _means_ to +further sales, was indeed held and argued at Rome, as we learn +incidentally from a passage in the Institutes of Justinian; but the +false though plausible opinion, that money is _ultimate_, and not +_mediate_, is said in the same passage "to _have prevailed_"; and +accordingly this superficial view of money, and that it "_ought not to +be exported_," constitute what may be called the Bullion Theory, and +it is the first general theory of Sales ever promulgated. The Romans +brought it forth, and other nations took it from them. It could never +stand in the light of Reason, and still less amid the exigencies of +practical Commerce. + +It is an illustration of the continuity of human thinking as well in +wrong as in right directions, that the second main theory of Sales, +which has long been styled the Mercantile Theory, is a prolongation +and expansion of the first. _That_ gave an undue weight to gold and +silver over other goods in trade, and forbade their export: _this_ did +the same thing too, but also tried to swell the exports of other goods +beyond the worth of current imports, _so as to get back a balance in +gold and silver_: both alike interfered with the international fluency +of the precious metals, to the constant detriment of all parties to +the restrictions. The common principles of both Theories may be thus +expressed: _Gold and silver are the things to get; they are worth +more than what they will buy; therefore let us get all of these in +that we can, and let as little of them out as we can; and let us work +all our trade so, that others shall have to give us a balance back in +gold and silver._ These false postulates and inferences wrought +centuries of woe in the world of commerce, because all the leading +nations became devotees simultaneously to this scheme of each shrewdly +plundering the rest. The germs of this Mercantile Theory appear first +in France, when Phillippe le Bel, in ordinances of 1303 and 1304, put +his hand in as king to mend the movement of trade, to forbid the +export of gold and silver, to fix the price of wheat and to forbid its +export, and to lessen imports by prohibitions of them. "_Considering +that our enemies might profit by our provisions, and that it is +important to leave them their merchandise, we have ordered that the +former should not be exported nor the latter imported._" The famous +Colbert, who laid down many financial maxims that are good, thought +nevertheless, that he could so manage the foreign trade of France that +she should get the better of her neighbors, and embodied his plan in +the tariff of 1664. We will let him state his plan in his own words: +"_To reduce export duties on provisions and manufactures of the +Kingdom; to diminish import duties on everything which is of use in +manufactures; and to repel the products of foreign manufactures by +raising the duties._" The principle of the Mercantile Theory was never +better or briefer expressed than by Ustariz, a Spaniard, in 1740: "_It +is necessary rigorously to employ all the means that can lead us to +sell to foreigners more of our productions than they will sell us of +theirs, as that is the whole secret and the sole advantage of trade._" +Too many nations knew the "whole secret" at the same time, and +accordingly the "sole advantage" to any became exceedingly small. +England was as deep in the sloughs and wars and losses of this false +system as any of the rest. + +It may be laid down as an axiom, that no country will ever export for +the sake of buying other things those things which are more needful +for its own welfare at home. So long as human nature continues what it +is, what it always was, what it always will be, no persons in any +nation will ever export gold and silver except to buy therewith other +valuables then and there more important to them and consequently to +their country. There need not be the slightest fear that any nation +which cultivates its own commercial advantages under freedom will ever +lack for a day a sufficient _quantum_ of the precious metals; because +under freedom these metals will always go, and go in just the right +proportions, to and from those countries which produce and offer in +exchange those desirable Services which other countries want. The +greater the enterprise and skill, the keener the development of all +peculiar and presently available resources, the more honorable and +free the commercial system, so much the surer is any nation whether it +be a gold-bearing country or not, of securing all the gold and silver +which it needs. This is so, because _there_ will be a good market to +buy in, an abundance of good and cheap goods will be there, and they +who have gold will resort thither to buy. But such a free and +enterprising nation will also want to buy other things besides gold +and silver, and other things than those itself can make or grow to +advantage, and when enough of the precious metals is secured for money +and the arts, the residue will be exported, perhaps to the very +countries from which it originally came, in payment for some products +which _those_ countries have an advantage in producing. + +The United States, for example, is a gold- and silver-bearing country, +and exported in the years 1850-60, both inclusive, $502,789,759 in +coin and bullion, according to the official Report on the Finances, +1863; and during the same period imported from other countries +$81,270,571 in coin and bullion. Where was the famous and fallacious +"balance of trade" in that case? The United Kingdom, on the other +hand, is not a gold- and silver-producing country at all, but it is +the central market of the world for the precious metals all the same, +its imports and exports of them are immense in all directions, because +it is an enterprising country within the lines of Nature in +agriculture and manufactures and commerce, and is not afraid to allow +its people to buy and sell freely with all the world. Where lies in +the technical sense the "balance of trade" between Great Britain and +the rest of the world? Who can tell? All that is known, and all that +is worth knowing, is, that all that trade is immensely profitable to +all the parties to it wherever situated. + +Now, there is always a double advantage in these free movements of +coin and bullion in exportation and importation. In the first place, +more and better commodities are secured to the countries exporting, +whether they be gold-bearing or not, than the gold could have bought +in those countries, otherwise it would not have been carried abroad, +that being the sole motive that stirs it from its present haunts; and +in the second place, the benefit to the countries importing is the +market for their own commodities created by the gold brought in, for +we must never forget that a market for products is products in market, +is a benefit also in naturally and easily filling up a chance +deficiency in the quantum of coin there, and incidentally too a +benefit to the world as tending to keep _in equilibrio_ the +purchasing-power of the metals everywhere. This last is especially +seen when new and pregnant sources of supply are opened in any +country. For example, in the United States about the middle of the +century the stock of gold was more than doubled in ten years' time; +unless by much the larger part of this had been carried abroad in +commerce, it would have inevitably depreciated the whole mass and +disturbed the prices of everything; but by causing the new gold to +impinge on the whole world's stock, the shock of the new production on +the measure of Services, though perceptible, was reduced and deadened. +The world's mass of the precious metals is comparatively torpid +beneath the action of an accretion which would break down by its +weight the metals of a single nation. Therefore, in conclusion on this +topic, the Fluency of gold and silver, by which they pass easily in +commerce to those places where their present value in exchange is +greatest, or to such countries as India and China which have shown for +centuries a wonderful power to absorb the metals of the West, and +return as easily when the conditions are reversed, or when a larger +use of paper-credits releases some portion of the coin, tends +powerfully to make their general value uniform throughout the world, +and consequently to make them the best medium of Exchange and the best +measure of Services. + +(e) On account of this Circumstance, that every general rise or fall +in the value of gold and silver tends quickly to check itself. This +principle, indeed, is applicable more or less to the value of all +commodities, but owing to their quantity and durability and fluency +pre-eminently applicable to the value of the precious metals. The +check is double in either direction. First, let us suppose that the +purchasing-power of an ounce of gold or silver be rising: then, +production will be stimulated at all the mines, and the more +stimulated as the rise is more; and this new and enlarged Supply will +tend to check a farther rise, and unless the permanent Demand has been +in the meantime intensified, to bring back the value to the old point; +moreover, when there is a rise in the value of the coin, a less +quantity is required to do the same amount of business; and the demand +for gold which causes the rise tends to be checked by the rise itself, +because a lessened quantity is needed for money-use in consequence of +the rise. If the exchanges mediated by money have become permanently +greater than before, then of course the Demand will continue greater +than before, and the rise in value may be maintained. + +And just so, _mutatis mutandis_, of a fall in the purchasing-power of +the coin. The production of the metals is thereby slackened at the +mines, and the lessened Supply tends naturally to enhance the value; +and if the same amount of business is to be done as before, there is a +stronger demand for money while the fall continues, and this new +Demand helps also to bring back the old value. All this is in the +interest of a steady value. + +(f) On account, lastly, of this Circumstance, that a stronger Demand +for Money is met in either one of two ways, by increasing the stock of +coin, or by an increased rapidity of circulation of that on hand. It +is exceedingly fortunate that a brisker demand for money, especially +if it be but temporary, does not necessarily enlarge the Supply or +alter the value, but only hurries round the existing money. +Oscillations in the Demand are responded to by a slower or a more +rapid circulation. This tends admirably to keep the value of the +existing-stock of money steady within certain limits. Ignorance of +this principle, or indifference to it, has caused mighty mischiefs in +the United States. In General Grant's administration, for instance, +the cry that a larger _volume_ of money was needed "_to move the +crops_" was disastrous in its results. The truth is, that the volume +of Money in the United States was then, and has been ever since, by +much too great, considering its character, as we shall see by and by. +The multiplying and fructifying nature of Rapidity of Circulation has +never been understood by our national financiers. When, however, +enterprises are multiplying and Exchanges are being permanently +increased in number and variety, then there must be a larger volume of +money, and this larger amount is secured in the ways already +indicated, with perhaps slight disturbances of value, but the +temporary ebbs and flows of business should have no effect at all on +the mass of money, but only on its movement, and its value +consequently would scarcely be disturbed. + +These Six grounds appear to be satisfactory and sufficient to account +for the superior steadiness of the value of gold and silver, so far as +their value is determined by considerations relating to these metals +themselves. We now proceed to the two reasons additional to this why +gold and silver constitute the best Money. + +(2) The second general reason why gold and silver make the best money +is found in the fact _that Governments have little to say or do about +the Value and Quantity and Mode of Circulation of such Money_. In +respect to Credit-Moneys, like our own Greenbacks and national +Bank-Bills, the Government has everything to say. When we remember how +governments are constituted, that they are only a transient Committee +of the citizens for special purposes; of what sort of persons they +commonly consist; the variety of subjects they are obliged to consider +during short periods of office; the absence for the most part of +expert knowledge among them; the enormous blunders they have made in +the past in all financial measures; and that those who know the most +about their action in the past and present in such matters have the +least confidence in their ability to act wisely; the better we shall +see the strength of the grounds of this second reason. In all +essential respects money of gold and silver regulates itself. These +metals came to be money and continue to be money in the main sense +independent of the enactments of any Government. The people chose +them: they choose them still. As we have seen, coins do not owe their +value to the stamp of the Government, since the metal in them is worth +within a trifle as much before coinage as after. Coinage publicly +attests the quantity and quality of the metal in the coin, and that is +all. Of the value of their coins governments say nothing. They can say +nothing. That depends on men's judgments, and not on edicts at all. No +law of the United States can add directly an appreciable fraction to +the value of a gold dollar. The law makes it consist of 25-4/5 grains +troy of gold 9/10 fine, the mint so stamps and attests it, and +thereafter it takes its own chance as to value. + +Some Governments charge a little something for coining for their +People, and some do not. What is charged is called _seignorage_. +England coins gold for all comers at a seignorage of .032%, which is +practically a free coinage. France charges for gold .216%; and by the +law of 1874, the United States charge nothing for coining gold. It is +left to the People to say _how much_ money they will have coined; and, +having received it back from the mint, they may do just what they +please with it; they may hoard it, they may melt it, they may sell it +at home in purchase, and they may export it in foreign trade, at will. +Now, it is a great gain, an immense relief, to have a Money with which +the Government has nothing to do except to mint it; a money that asks +no favors, needs no puffing, never deceives anybody, knows how to take +care of itself, is always respectable and everywhere respected. + +(3) The last general reason why gold and silver make the best Money is +to be found in their physical peculiarities, in accordance with which +they are (a) _uniform in quality_, (b) _conveniently portable_, (c) +_divisible without loss_, (d) _easily impressible_, and (e) _always +beautiful_. + +Pure gold and pure silver, no matter where they are mined, are exactly +of the same _quality_ all over the earth. Not so with iron and coal +and copper. Gold is gold, and silver is silver. The gold mined to-day +in California differs in no essential respect from the gold used by +Solomon in the construction of the Temple, and the silver out of the +Nevada mines is the same thing as the silver paid by Abraham for the +cave of Machpelah. Nature with her wise finger has thus stamped them +for the universal money; and a universal coinage, that is, coins of +the same degree of fineness, and brought into easy numerical relations +with each other in respect to weight, and current everywhere by virtue +of universal confidence in them, though bearing the symbols preferred +by the nation that mints them, is one of the dreams and hopes of +economists, that will be realized in some + + "Fair future day + Which Fate shall brightly gild." + +Gold and silver are sufficiently _portable_ for all the purposes of +modern Money. Their weight is little relatively to their value. A +thousand dollars in gold are not indeed carried so easily as a Bill of +Exchange or a Bank-note; and expedients are easily adopted, and have +been in use since the days of the Romans (really since the later days +of the Assyrians), by which the transfer in place of large masses of +coin is for the most part obviated; and these expedients have all been +explained at length in the foregoing chapter on Commercial Credits. +But for the ordinary exchanges for which they are designed, gold and +silver coins are portable enough. The writer has carried across the +ocean, incased in a glove-finger and borne in a vest-pocket, a troy +pound of English sovereigns, worth about $230, scarcely conscious of +their weight though easily reassured of their presence by a touch of +the hand. The experience of those countries, like France and Germany, +in which the Money has been and is still mostly metallic, has not +pronounced it onerous on account of its weight; and, at any rate, it +is better to accept all the other immense advantages of gold and +silver money, together with some inconvenience as to weight, if one +chooses to insist on that, than to adopt substitutes every way +inferior as money, except that they are lighter in our purses. They +are unfortunately "lighter" in other respects also. + +Moreover, gold and silver differ from jewels and most other precious +things, in that they are _divisible_ without any loss of value into +pieces of any required size. The aggregate of pieces is worth as much +as the mass and the mass as much as the pieces. This is a great +advantage in Money, because for the convenience of business a +considerable variety of coins is required, and the proper proportion +of each kind to the rest is a matter of trial, and if any kind be +minted in excess of the demand nothing more is required than to remint +in other denominations, and the whole value is thus saved to the +country in the most convenient form. + +Then, gold and silver are easily _impressible_ by any stamp which the +Government chooses to put upon them. Indeed in their natural state +they are too soft to retain long the impress of the die. Accordingly +for coinage purposes they are always alloyed with another metal, +chiefly copper, since by a chemical law whenever two such metals are +mixed together the compound is harder than either of the two +ingredients. Most of the Nations now use in their gold and silver +coins 1/10 alloy, but England still adheres to her ancient rule of +1/12 only. So compounded coins receive readily and retain for a long +time with sharp distinctness the legend and other devices chosen for +them to bear. In monarchical countries the head of the reigning +sovereign is usually stamped upon the current coins; in all countries +national emblems of some sort; quite recently some of the coins of the +United States have been made to bear the appropriate legend "In God we +trust"; so that patriotic and even religious associations are +connected with the national Money. Although the alloys harden the +coins, yet after long usage they will lose a part of their weight by +abrasion, and Governments usually indicate a short weight, after +coming to which the coins are no longer a legal tender for debts. Thus +an English sovereign weighs 5 pennyweights 3-171/623 grains, +containing 113-1/623 grains of fine gold, and when it falls below 5 +pennyweights 2-3/4 grains, it loses its legal-tender character. + +Lastly, gold and silver when coined into Money are objects of great +_beauty_. This is no slight recommendation of these metals for the +money of the world. They are clean. They are beautiful. People like to +see them, and to handle them, and to have them. Their perfectly +circular form, the device covering the whole piece, the milled and +fluted edges, the patriotic emblem, whatever it be, the religious or +other legend, and their bright color, are all elements in their +beauty. The educating power over the young of a good coinage well kept +up, æsthetically, historically, and commercially, is a matter of +consequence to any country. A whole people handling constantly such +money cannot fail to receive a wholesome development thereby. The new +German coinage, for example, in contrast with the old moneys of the +German States, furnishes a good illustration of all this. The new +German coins from highest to lowest are very beautiful, and have +already tended and will tend more and more, other things being equal, +to a true German nationality. + +11. Silver is much inferior to gold as a metal for Money, for this +main reason, that it has proved itself much less steady in its general +_value_; and its value is less steady, because it is subject to +greater changes in its Supply and greater variations in its Demand. As +an example touching Supply, we cite the fact, that the annual silver +product of the world _doubled_ in the third quarter of this Century, +rising from an average of $40,000,000 yearly, 1851-61, to $80,000,000 +in 1875; and that Nevada alone yielded in 1876 as much as the whole +world yielded twenty years before. Then, too, Demand, that is, +effective public opinion, does not hold to silver as it does to gold +for a standard of Values. The action of England in 1816, of the United +States in 1853, of Germany in 1871, of Scandinavia in 1874, and of the +Latin Union in 1876, _in legally making gold the sole standard of +Services and silver subsidiary to that_, of course affected more or +less the Demand for silver as Money, and thus varied its value. We +have at hand the data to demonstrate the effect of these two causes +combined: the average price of silver in gold from 1833 to 1874, in +the London market, which is the bullion market of the world, was for +the 40 years just about 60 pence per ounce, never falling below 58-1/2 +and never rising to 63. At 60 pence per ounce (444 grains of pure +silver, standard English silver being .925 fine) the ratio of gold to +silver is 1:15.716. But between May, 1875, and July, 1876, when both +the above causes had come into full action, silver dropped in the +London market to 47 pence per ounce, a fall of 21%, and a ratio of +gold to silver of 1:20. The price gradually rose again to about 53 +pence per ounce, and remained in that general neighborhood till 1882, +between which date and 1890 the _sagging_ process went on to the +general result of 25% discount as compared with the old average of 60 +pence in gold per ounce of silver. + +These facts settle the question adversely to the fitness of silver to +become an independent Measure of Values. When, however, it is designed +that gold and silver shall circulate together in some numerical +relation to each other as Money, it becomes needful that Government +shall fix as well as it can, not the general value of either but the +relative value each in each for the time being. But this specific +value, too, goes on to regulate itself independently of government +edicts. No matter how well the work is done at first by ascertaining +the actual ratio in which they are exchanging in a free market, it +will certainly require revision from time to time. This is what is +called _Bimetallism_. The reader will now perceive the fundamental and +ineradicable difficulty with the bimetallic system, which has led by +bitter experience nearly all the European nations to abandon it. It +especially becomes us to understand how the United States have fared +in a century's attempt to keep _in equilibrio_ as a conjoint and legal +Measure of Services both gold and silver in a fixed numerical +relation. + +Alexander Hamilton as the first Secretary of the National Treasury, +entering upon excellent preparatory work done both by Robert Morris +and Thomas Jefferson, guided the action of Congress in establishing +the Mint in 1792, and really determined the weight and fineness of the +first federal coins and their relative value each in each, the silver +coins being struck in 1794 and the gold ones in 1795. The silver +dollar was copied from the Spanish milled dollar of commerce, which +contained 371.25 grains of pure silver, and that has been the exact +content of our national silver dollar from that day to this. The +halves and quarters and dimes were exactly proportioned in weight and +fineness to their units. Hamilton supposed that gold was then worth in +Europe 15 times as much as silver, and advised consequently that the +gold dollar should contain 24.75 grains pure, and that both dollars +should be alloyed at the English rate of 1/12, thus making the silver +dollar weigh 405 grains and the gold dollar 27 grains; but Congress, +while enacting the gold dollar just as the Secretary recommended, +preferred to _alloy_ the silver dollar by 44.75 grains instead of +33.75, thus making its weight 416 grains. Alloy is of no account in +value. + +From the ratio of 1:15 fixed by the act of Congress in accord with +Hamilton's opinion as to the relative value of gold in silver to be +maintained in the coins, unforeseen and important consequences +followed, since that was not the true ratio of their value at the time +in the markets of the world; an ounce of gold was worth more at that +time than 15 ounces of silver, and, accordingly, was worth more out of +the coinage than in it, and was therefore exported in preference to +silver in payment of foreign balances, especially after France had +changed the relative legal value to 1:15-1/2, which happened in 1803; +and of course the gold refused to circulate here under those +circumstances, being _undervalued_ in the coinage, thus giving a neat +illustration of the economical law to be unfolded under the next +numerical heading, namely, that the cheaper money will always push the +dearer out of the circulation. Not till 1834 was the attention of +Congress so strongly drawn to this fact and consequence, as to secure +an enactment to remedy it; and this coinage law of 1834 rated gold to +silver as 1:15.98. The weight of the gold dollar was at the same time +reduced from 27 to 25.8 grains, and the alloy increased from 1/12 to +1/10. These changes of 1834 increased the relative legal valuation of +gold in silver 6.53%. But this in turn was going too far in the +opposite direction; gold was not worth 1:15.98 in the bullion markets +of Europe; France was holding steady her ratio of 1:15.50; and, +consequently, the commercial current of the metals was now reversed, +silver passing in preference to Europe to liquidate the balances of +trade, and gold beginning to come to the United States, where it would +buy more than 3% more silver than in Europe. + +Three years after the above changes, that is, in 1837, the standard of +9/10 fine instead of 11/12 was applied by law to silver also, and this +altered fineness made a change in the weight of the silver coins +necessary, if the ratio of 1:15.98 was to be maintained between the +gold and silver. Accordingly, the weight of the silver dollar, and of +two halves, four quarters, and so on, was reduced from 416 grains to +412-1/2, that is to say, less alloy was put into the silver coins, but +the fine silver to the dollar was kept just as it was, namely, 371.25 +grains. Since 1834 there has been no change in the gold dollar and its +multiples, and since 1837 there has been no change in the silver +_dollar-piece_, and the legal ratio of value between gold and silver +in our coins is still 1:15.98, since the silver dollar of 1878 and +onwards to 1890 corresponds in weight and fineness with the dollar of +1837. + +Still, notwithstanding the pains taken and the changes made from time +to time to keep the two metals in legal _equilibrio_, there never has +been any considerable period in the century now drawing to a close, +during which gold dollars and silver dollars have circulated freely +and indifferently in the United States. Sometimes it has been the one +kind, and sometimes the other kind, but never both kinds at the same +time. The present writing is in the spring-time of 1890: both kinds of +dollars are legal tender for all debts public and private in the +old-time ratio; the national Government professes to be indifferent +whether it pay out gold or silver in redemption of its paper-moneys, +but after all, with the exception of the Pacific States and a few +special branches of business in the cities of the East and of the +Middle, gold coins are not now in common circulation, the bank drawers +crowded with silver dollars feel little of the weight and see little +of the shine of the gold coins, and if any of these chance to be paid +out to ordinary bank-customers they are pretty certain to return in +speedy deposit. The theoretical bimetallism of the United States has +been a practical though alternate monometallism with various +incidental and concurrent disadvantages and losses. + +By 1853 these disadvantages of a long-attempted double Measure of +Services made legal tender for all debts had become plain enough to +everybody, for experience had demonstrated that the Value of gold and +silver each in each was not constant but constantly variable; and +Congress then wisely determined to make Gold alone the legal tender, +except in sums below $5. In connection with this great change in the +coinage, a lesser one was introduced at the same time, namely, to +reduce the weight of the silver half-dollar and its subdivisions, so +that their nominal value in the coinage should be considerably above +their metallic value, and their exportations be thus prevented. +Accordingly, the half-dollar was reduced in weight from 206-1/4 to 192 +grains, and the smaller coins proportionally. This was in imitation of +the English legislation of 1816, and brought into this country a +_subsidiary_ silver coinage, which still continues, and of which a +nominal dollar's worth weighed 6.91% less than the Silver Dollar, +which was not mentioned one way or the other in the law of 1853, but +which was then worth about three cents more than the gold dollar, and +was of course wholly out of circulation. + +Through the influence of the late Samuel B. Ruggles, these subsidiary +silver coins were brought in 1875 into harmony with the silver-system +of France and the Latin Union. Their five-franc silver piece which is +also 9/10 fine, weighs just 25 _grams_ or 385.8 _grains_; a dollar's +worth of our subsidiary silver, as we have just seen, weighed 384 +grains; and it was, therefore, needful to add only a slight fraction +of weight to our smaller silver coins in order to knit a real +connection between them and much of the European silver. Two halves, +four quarters, ten dimes of our silver since 1875, are debased in +weight (not in fineness) 6.47% as compared with the standard silver +dollar. A more important coinage connection with Europe was knit +through our first five-cent nickel pieces, each of which weighs just +five _grams_, and five of which laid along in order measure exactly a +_decimetre_ in length. These were the first official applications of +the Metric System on the part of the United States. The nickel pieces, +both the five-cent and the three-cent, are 75 parts copper and 25 +parts nickel; and the one-cent piece is 95 parts copper and 5 parts +tin-zinc. Debts of 4 cents can be legally paid in one-cent pieces, of +60 cents in three-cent pieces, of 100 cents in five-cent pieces, of +500 cents in _subsidiary_ silver, and of any amount in gold coins or +in silver _dollars_. + +12. _A money inferior in general value will, so long as it circulates +locally, drive a superior money out of the circulation._ This +proposition is a fundamental and universal one in monetary Science. +The only exception to it is found in _token-coins_, and in subsidiary +silver so far as that has the _token_-quality, that is, so far as its +_nominal_ is above its _bullion_ Value. The main motive in coining +tokens is to make sure for its own local uses of a nation's small +change. Token-money is worthless for export, is only designed for the +smaller exchanges, is legal tender only for very small sums, and is +acceptable only on local and conventional grounds. The exception +aside, the above proposition is a pervading and controlling Law of +Finance and has been illustrated over and over again in every Age and +Nation. It is as solid as the substance of truth can make it, although +it looks at first sight like a paradox. We naturally think that what +is excellent all round tends rather to displace what is inferior in +spots, but with Money the exact reverse is the law; and the perfect +coin of full weight, instead of driving out the light and the debased +pieces, is always itself driven out of the circulation by them. + +The reason for this becomes obvious the moment we ponder the nature of +Money. Money is always a Valuable, taking on in addition under Law or +Custom the function of serving as an instrument of Exchange. As money, +nobody wants it except to buy with, and so long as the Government and +the community treat light coin and full coin as of equal value, +receiving them indifferently in payment of debts and of taxes, it is +clear that nobody will give in payment of debts and of taxes that +which is really worth more so long as that which is really worth less +will go just as far. The inferior pieces will abide in a market where +they will fetch just as much as the superior pieces, while the +superior pieces will take on a form or migrate to a place in which +some advantage can be gained from their superiority. Thrown into the +crucible, or exported in commerce, this superiority immediately +manifests itself; and therefore into the crucible or into the channels +of foreign trade it might be confidently predicted beforehand that +such money would be thrown, and all experience testifies with one +voice that exactly those are the destinations of such money. + +Aristophanes, the Greek comic poet, in the 5th century before Christ, +seems to have been the first writer who noticed that good coins of +full weight are apt to be crowded out of the circulation by the +lighter and poorer pieces, and he, mistaking the cause of this, +satirized his countrymen unmercifully for preferring bad coins to +good, and demagogues, like Cleon, to honorable citizens for rulers. +The following are the verses:-- + + "Oftentimes have we reflected on a similar abuse, + In the choice of men for office, and of coins for common use; + For your old and standard pieces, valued and approved and tried, + Here among the Grecian nations, and in all the world beside, + Recognised in every realm for trusty stamp and pure assay, + Are rejected and abandoned for the trash of yesterday; + For a vile, adulterate issue, drossy, counterfeit, and base, + Which the traffic of the city passes current in their place! + And the men that stood for office, noted for acknowledged worth, + And for manly deeds of honor, and for honorable birth; + Trained in exercise and art, in sacred dances and in song, + All are ousted and supplanted by a base, ignoble throng; + Paltry stamp and vulgar metal raise them to command and place, + Brazen counterfeit pretenders, scoundrels of a scoundrel race, + Whom the State in former ages scarce would have allowed to stand + At the sacrifice of outcasts, as the scapegoats of the land." + +Sir Thomas Gresham, financier of Queen Elizabeth and founder of the +Royal Exchange and of Gresham College in London, was the first thinker +to understand fully and explain scientifically what Aristophanes and +others had noticed as a fact, and what in its explanation may hence +properly be called "_Gresham's Law_." We will append a few historical +illustrations of the fact and the law as instructive in many ways. + +(a) The City of Amsterdam founded its famous Bank in 1609, because no +other way seemed to open of preventing the clipped and worn foreign +coins then and for a long time circulating in that great Mart of Trade +from driving out completely the good money of full weight, which the +Mint of the City had been constantly pouring in. The Bank was devised +as a municipal Institution with this intent; it was a Bank of Deposit +only; it took in all the old coins at their _bullion_ value only; and +then had them reminted at full weight; it gave the depositors credit +on its books in the terms of the _new_ money for all of the _old_ they +chose to bring in; it then adjusted accounts between merchants and all +other of its customers by mere transfers on its books; the City +required all debts falling due in Amsterdam to be paid in the new +"bank-money," which took away all uncertainty from Bills of Exchange +drawn on Amsterdam, which were previously liable to be paid in the +clipped and worn coin, and were therefore sometimes at as much as 10% +discount in other cities; this simple requirement brought these +foreign bills to par, and kept them there; the full-weighted money now +stamped by the city Mint abode in the circulation, being now the sole +Measure of Services there; and thus it became the interest and +convenience of every business man in Amsterdam to have these simple +dealings with the Bank, which in turn enjoyed unlimited credit in the +commercial world for almost two hundred years. + +(b) The great English Recoinage of 1696 was completed under the +imperatives of Gresham's Law. Graphically does Macaulay describe the +causes and the effects of this in his 21st Chapter. The old silver +coins had been stamped under the hammer; few of them were perfectly +circular; the edges were neither milled nor fluted; the legend was not +so near the edge as that the letters were impaired by a little +clipping; it was easy to pare off a pennyworth or two, and then pass +the coins along; it was profitable to do it, and in vain that +Elizabeth enacted that the clipper must suffer the penalties of high +treason; nearly all the coin of the realm became mutilated, and about +1660 a new process of coinage was brought in. A mill worked by horses +fabricated the new coins on better principles. They were exactly +round, and the edges were inscribed with a legend, and they were all +of just and equal weight. They were thrown out to pass current with +the hammered money, and it seems to have been expected that they would +soon come to displace it. But they did not. Both were received at +first without distinction by the individual traders and by the public +tax-gatherers. But the milled money soon came to be scarce, and the +old money grew constantly worse. The lighter the old coins became, the +scarcer became the new ones; for who would pay two ounces of silver +when one ounce was legal tender? The new money was melted, was +exported, was hoarded, but circulate it would not. At length the +lightest pieces began to be refused by some people, and other people +demanded that their silver should be paid to them by weight and not by +tale, and there was wrangling over every counter, and a dispute at +every settlement, and the coin was really so diverse in its value that +there was no longer any measure of value in the kingdom; business was +in utmost confusion, society was by the ears, poor people were +unmercifully fleeced, and shrewd ones grew enormously rich; and the +Jacobites secretly exulted in the hope of being able to avail +themselves of the prevailing discontent to overthrow the scarcely +established revolutionary government of William and Mary; when, by the +joint counsels of two such philosophers as Locke and Newton, and two +such statesmen as Somers and Montague, the government took the bold +resolution of recoining all the silver of the kingdom. An early day +was fixed by Parliament after which no clipped money could pass except +in payments to Government, and a later day after which it could not +pass at all. + +(c) Gresham's Law has had beautiful illustrations in the monetary +history of the United States. We have already seen the reason why the +first silver dollars of 1794 could not compete in currency with the +gold coins of 1795,--the silver was under-valued in the legal ratio +1:15,--it would have been much nearer the European market at 1:15.5. +There was another reason operative in the same direction from the +beginning, which did not, however, come to the notice of the +Government till ten years later. Only 321 silver dollar-pieces were +coined in the year 1805; and May 1, 1806, there stands an order from +President Jefferson to the Director of the Mint,--"_that all the +silver to be coined at the Mint shall be of small denominations, so +that the value of the largest pieces shall not exceed half a dollar_." +The presidential reason given for this order is,--"_that considerable +purchases have been made of dollars coined at the Mint for the purpose +of exporting them, and that it is probable that further purchases and +exportations will be made_." The coinage of silver dollars thus +suspended was not resumed for 30 years. What was the matter with these +dollars? Nothing, only they were too valuable. Hamilton had adopted +for his new dollar the exact weight in fine silver of the normal +Spanish-Mexican dollar, then and for a long time the unit of the +thriving West India commerce; clipped and worn coins of this popular +stamp had slipped into circulation in large numbers throughout the +United States, and driven out the new and good pieces in accordance +with a principle much better understood now than then; the President's +order itself was not very intelligent, inasmuch as two halves, four +quarters, or ten dimes, were then equal in weight and purity with the +dollar-pieces, and as a matter of fact were almost (if not quite) +equally driven out by the smaller Spanish-Mexican coins. The +"four-pences" and "nine-pences" ("York shilling") of that coinage were +almost exclusively the small change of New York and New England during +the first half of this century. The "dimes" and "half-dimes" of our +own mintage, though long legalized, were but slowly naturalized. The +coin-changes of 1853, already described, gave a fair chance for the +first time to our smaller silver coins. + +The last native illustration of Gresham's Law will force us to +anticipate here the discussion under the next numerical heading, so +far as to assume that there is such a thing as paper money, and that +the Law now in hand works in connection with that as well as with +diverse forms of metallic money. In 1862, Treasury notes, commonly +called Greenbacks, made a legal tender for debts though not bearing +interest, were issued by the national Government to the amount of +$450,000,000. Of course, under these circumstances they depreciated in +value as compared with the gold dollars, which gold dollars _they were +unfulfilled promises to pay_. Just so soon as the greenback dollars +fell fairly below the gold dollars in value, the latter left the +channels of trade in a very few days' time. Down sank the greenbacks +gradually below the _subsidiary_ silver coins in value, and the latter +obediently and utterly abandoned the commercial field. At last the +greenbacks went down even below the level of the copper cents, which +at that time cost the government about half a cent each, and this +invariable law of money swept the circulation bare of coppers, and the +people had to resort for their smallest change to postage-stamps and +shin-plasters and other abominations. Happily, the country survived to +see these processes exactly reversed, and the old law confirmed on its +other side. When, after a considerable interval, the paper dollar +appreciated to the proper height, it was interesting to watch the +copper cents put in a prompt re-appearance; after a still larger +appreciation of the paper, back came in abundance the subsidiary +silver; and as the day of the redemption of the paper drew near, +silver dollars and gold dollars greeted smilingly their old +acquaintances of the street. + +13. So far we have treated only of Coin-Money in its two forms, +_substantive_ and _subsidiary_. The latter may now be dismissed as of +little consequence in itself, and as already elucidated fully: the +latter is the only Money that stands in its own right as a +_commodity_, and the only Money that can give birth to the +_Denominations_ of Value, such as sovereigns, dollars, marks, and +francs. _What is a Dollar?_ A dollar is 25-4/5 grains of a metal +compound coined, of which nine parts are pure gold and one part a +hardening alloy. It is a definite _quantity_ of a thing definitely and +legally described. It is a visible and tangible and well-known +_commodity_. Government is competent, if it pleases, to alter the +quantity of gold that shall constitute a dollar, although the People +will quickly and roughly readjust the prices of Services to a changed +measure of them; it is competent even to make a dollar out of silver, +as our Government has tried to do (for the most part vainly) for a +century, though it is _not_ competent to cause both dollars to +circulate as such at the same time; but civilized and advanced +Governments are not practically competent to make a Dollar out of +anything else than gold and silver. + +Money is a current and legal Measure of Services; for the end and in +the way in which Money alone originates and becomes current its +material must be a valuable commodity; and after centuries of +experiments and exclusions no civilized People now tolerate any other +commodity in this relation than gold or silver. Such a selected +commodity becoming in the manner already explained an actual medium +passing from hand to hand in Exchanges, impresses its _name_ on the +minds of men as an ideal _measure_ of services, which measure they can +use, and do constantly use, without handling at the time the commodity +itself. But these ideal-dollars, these denomination-dollars, need to +be kept in check by a constant recurrence to actual, palpable +thing-dollars. The denomination only comes into existence in +connection with the use of the thing, cannot possibly exist +independently of it, and needs constantly to be reduced to it (as it +were by actual contact) in order to be useful as a measure. Just as +men talk about inches, and calculate by inches, in thousands of cases +in which no actual inch is used as a measure, and in every case of +doubt, dispute, or difficulty have recourse to the actual inch, and +thus the ideal inch is kept steady in the minds of men by frequent +reference to the outward standard; so the mental measure of services, +which men insensibly acquire from the use of the objective measure, +needs to be kept true by actual and frequent contact with that +measure. + +But besides this Thing-Dollar and its Denomination, which always go +together like a man and his shadow, there is one other kind of Money, +namely, the Promise-Dollar. We must now attend to this. What is a +Dollar-Bill? How does it read? It is always a Promise of some Issuer +to pay to bearer One Dollar, that is to say, this legal and definite +quantity of a precious metal. There is no mystery here. There can be +none. A Dollar is a tangible and weighable commodity. A Dollar-Bill is +a Promise to render this commodity to bearer on demand. The difference +is the same in kind as that between a bushel of corn and a man's +promise to his poor neighbor to give him a bushel if he will come for +it. It depends on the _man_, on his ability and character, how much +the corn-promise is worth; and so it depends on the _issuer_, on his +ability and character, how much the coin-promise is worth. The Issuer +may be of such standing as to be able to secure for his promises that +they become "a current and legal measure of Services"; and if so, they +become Money under the definition. + +There is, then, such a thing as Paper-Money, though many high +authorities are reluctant to concede, that any mere promises can be +money at all. For ourselves we cannot refuse the courtesy of the term +"money" to paper-promises-to-pay-coin, which our Country makes a legal +tender for all debts, public and private. The making them legal +tender, however, does not alter their nature one particle. They are +still promises,--and nothing more. Their _Value_ depends in all cases +upon the character and resources of the Issuer; their _Currency_ may +be quickened (at some rate of value) by their being made a legal +tender. Nothing can by any possibility become a Money unless it first +be a Valuable. The essential characteristic of Money is its possession +of a _generalized_ purchasing-power. The Value of a promise depends on +one set of causes, with which we are now very familiar,--the same +causes on which the value of everything depends; the Generalization of +any purchasing-power into money depends upon another set of causes, of +which the action of a Government in legislation may be one. + +Paper-Money, as now defined, may be issued by Banks with or without an +indirect government sanction, or through the direct action of +Government. The Bank of England has been issuing since 1694 +paper-money under a series of Charters granted by the Government, +which becomes thereby in a manner responsible to the bearers for the +redemption, that is, the fulfilment, of the direct promises of "The +Governor and Company of the Bank of England"; since 1863 the so-called +National Banks of the United States have issued promises-to-pay, +designed to circulate as money, under the direct authority and +quasi-endorsement of the national Government; and since 1862 that +Government has been putting out directly its own promises commonly +called "greenbacks." These last have rested and now rest for their +value solely on the good faith of the People as between themselves. +By a separate and additional act of legislation, which it is +mischievous as well as unscientific to confound with the original +promise-legislation, this particular paper-money was and is legal +tender for debts, which collateral circumstance whether wise or unwise +neither changes the nature nor lessens the obligation of the original +promise to pay coin. No so-called Decision of the Supreme Court can +abolish or abridge a natural and scientific distinction. Money is at +bottom of two kinds only: the first kind is an intermediate and +equivalent merchandise, COIN; and the second kind is Promises to pay +this to a bearer on demand, PAPER MONEY. + +The only way to make any promise respectable is to fulfil it in due +time. The only way to make Paper Money a decency is to hold sacred in +action the promise that distends it. The United States undertook in +1862 and onwards to make its own plain promises respectable by a +different method, namely, by legally asserting in substance that the +_promise_ is its own _fulfilment_, and needs no other; and in this +persistent undertaking encountered a miserable failure throughout; +because the People also persisted in _estimating_ the promise solely +in the light of the _prospect_ of its literal fulfilment. The +greenbacks at one time lost two-thirds of their normal value under the +working of such estimation. This question of the relation of two kinds +of Money to each other is a question of Economics, and not of +Constitutional Law; or rather, it is a question of common sense and +common honesty, and the judgment upon it of nine men learned in the +Law is no whit better than the judgment of nine other intelligent men. + +As Money is analyzable into two varieties only, Coin and Paper, so +Paper Money falls into two classes, Convertible and Inconvertible. A +convertible paper money consists of promises that are always _kept_ +by the issuer according to their terms, that is to say, that are paid +in specie at the will of the holder. An inconvertible paper money is +only another name for unfulfilled promises. Is it any wonder that +unfulfilled promises to pay invariably become less valuable than +_that_ which they promise to pay? They are valuable to start with, +else they could not become money, and they are valuable because men +suppose the promise will be kept: they are commonly valueless to end +with, because men lose faith in the fulfilment of a promise long +delayed. This is the simple secret of the depreciation of +inconvertible money so soon as the amount of it passes a certain +limit, and so soon as a certain time has elapsed after its issue and +the issuer shows no signs of keeping his word. As money is only a +measure of Services, and as possible Services are limited at any one +time and place, and consequently as the amount of money needed for +healthful business is limited also, a steadily convertible paper +money, provided the limit of quantity be not overpassed, will +constitute a tolerable money. But this limit of quantity is apt to be +overpassed, whether the paper money be convertible or inconvertible, +and especially in the latter case, because the temptation to issue +promises to pay in excess of the means of promptly redeeming them +always besets the issuer on account of the _gain_ to him in such issue +at least for a time. This temptation has been yielded to first or last +by every nation, and probably by every corporation, that has ever +issued paper money. The Bank of England has been on the whole the best +managed Bank of Issue in the world, and its Bills (Promises) have +gained the most confidence and the widest circulation. This is because +they have been kept by the Issuers _convertible_ from the beginning, +with the exception of two comparatively brief intervals of time. As +already related under the last general proposition, the silver coins +of the realm were much worn and clipped when the Bank was established +in 1694, the Bank, however, had received them on deposit of customers +at their full nominal value; but after the Recoinage began in 1696, it +was obliged under the law to redeem its Bills in new coin of full +weight, that is, for perhaps 9 ounces of silver received, it was now +bound to pay 12. Consequently its enemies, the Jacobites, made a "run" +upon the Bank by collecting up its Bills to a large amount and +presenting them for payment. The Bank was obliged to suspend payment, +at first partially, and then generally. In February, 1697, the Bills +were 24% below par. The Promises could not be kept, and therefore they +drooped in value according to man's estimation of the probability of +their becoming again _convertible_, which happened in the course of +that year under a new charter and privileges from Government to the +Bank. + +Just 100 years after the first suspension of specie payments, in 1797, +when the War of the French Revolution made such demands upon the +English for money, the Bank broke its solemn promises the second time, +and did not formally resume payments until 1821. Government and the +business men of London did their best to hold up the credit of the +notes during the suspension, _but they were not made a legal tender +for debts_. Government received them at par for taxes, and provided +that business payments in notes would be held as payments in cash if +offered and accepted as such. Debtors, having tendered bank notes, +which the creditor refused, had certain privileges before the law +which other debtors had not. The notes therefore had a _quasi_ +legalization, but not a forced circulation. The bank was also +authorized at this time to issue £5, £2, and £1 notes. Cautiously +issued at first, bank paper continued at par for several years after +the suspension, which proves that when government possesses the +monopoly of issuing paper money, and carefully limits its quantity, +and both receives and pays it out at par, it may keep an inconvertible +paper at par, or even by sufficiently limiting its quantity carry it +above par. But this truth does not make an inconvertible paper a good +money, because it does not make it a self-regulating money, and +because government is not wise and firm enough to fix and maintain a +proper limit. Though Parliament intended in successive acts to confirm +to the Bank of England the monopoly of banking by enacting that no +partnership of more than six persons should take up money on its own +bills, yet the common law assured to private persons and smaller +partnerships the right to do this; and private bankers multiplied +after the suspension, since they were allowed to pay their notes in +Bank of England notes. Thus the quantity of paper money gradually +increased till in August, 1813, the Bank of England notes were at 30% +discount in gold. + +The United States, both as Colonies and as a Country, have had varied +and instructive experience with inconvertible paper Money. We will +glance at two or three specimens only. The first issue of Treasury +Notes, commonly called Greenbacks, given by Congress the quality of +legal tender for all debts, public and private, except duties on +imports and interest and principal of the national bonds, was made in +April, 1862, and was justified in Congress and out solely as a war +measure. An aggregate of $450,000,000 was put out in all, of which +$87,000,000 were afterwards taken in, and the balance was still +circulating in 1890. In one month after the first issue of +$150,000,000, these greenbacks began to droop in value as compared +with gold; in four months, when the second batch of $150,000,000 was +authorized, their depreciation was already marked and firm; and in +nine months, when President Lincoln reluctantly gave his approval to +the third issue of the same amount in order to pay off the soldiers +and sailors, he uttered a solemn protest against the policy of thus +inflating the current money, which, he said, "_has already become so +redundant as to increase prices beyond real values, thereby augmenting +the cost of living to the injury of labor, and the cost of supplies to +the injury of the whole country_." In March, 1863, $50,000,000 of +paper promises for fractions of a dollar were authorized, redeemable +in sums of not less than three dollars in greenbacks, and receivable +for all dues to the United States less than five dollars, except for +duties on imports. Subsidiary silver coins have since taken the place +of these fractionals. In July, 1863, the greenback dollar had lost +one-quarter of its nominal value; in July, 1864, it had lost almost +two-thirds of its nominal value, as its lowest point was reached in +that month, namely, 35 cents as compared with the gold dollar; in +July, 1865, it had risen to 70 cents; in July, 1866, it stood at 66 +cents, just two-thirds of a dollar proper; and from that time it +slowly rose, with many fluctuations, till New Year's, 1879, when it +became legally and actually redeemable in gold and silver. Its +variations for the sixteen years, however, cannot be counted by the +number of years, nor even by the number of days; for they were +numerous on each business day, and, as Comptroller Knox says, "_can +only be numbered by tens of thousands_." What a Measure of Services +that was! + +Between 1863 and 1879 the Bills of the new national Banks were +redeemable in the greenbacks only, that is to say, one species of +national promises-to-pay were paid on demand by another species of +similar promises, both alike inconvertible into coin; and, as a +natural consequence, the bank-bills bobbed up and down in value in +servile obedience to the inconvertible legal tenders. + +Massachusetts Colony was the first constituent of the present United +States both to mint silver, and to issue irredeemable promises to pay +it. Under the false impression that only Money made inferior to +Sterling would stay in the Colony, Massachusetts began to mint in 1652 +silver shillings and sixpences and threepences purposely debased in +weight (including seigniorage) 22% below sterling. The silver for +these coins came in mostly from the trade with the West Indies, to +which were now shipped peltry, fish, various forms of lumber, beef, +pork, pease, cattle, and horses, for which they took mainly sugar, +molasses, rum, and silver. "_They would have brought more silver and +less rum and other merchandise, had the first been in greater request +at home._" (Bronson.) John Hull, the mint-master took out 15 pence out +of every £ for his own pay, and grew rich by the process. That was +over 6%. In 1662, a twopenny piece was added to the series, and the +mint existed (sometimes idle) for over 30 years, but all the pieces +coined bore the dates of 1652 or 1662. This paucity of dates is +commonly and perhaps properly accounted for on the ground that coining +in the colony was contrary to the prerogative of the Crown; but it is +to be added that John Hull was not a man to get new dies so long as +the old ones would answer his purpose. The law forbade the exportation +of these pieces under the penalty of thereby forfeiting one's whole +visible estate; because, though this money was much worse than +sterling, there was a worse money than this circulating in the colony, +and Gresham's law began to crowd it from the first, and to some extent +it was both smuggled out and clipped down. But it furnished a sort of +standard, nevertheless, and tended to keep the later money within +distant sight of the silver, and became the reason why in New England +there were six shillings to the dollar. The Spanish pillar dollar, +which was the standard in the West Indies, was worth 4_s._ 6_d._ +sterling; and in 1672 a law was passed in Massachusetts allowing these +dollars to circulate at 6_s._ provincial, which was a discount on the +home pieces of 25%. Ever after there were six shillings in a dollar in +New England. Hull's money is called the "pine-tree" coinage, and was +the only coin money minted in the country till after Independence. + +Also in 1690 Massachusetts set the first example, which was imitated +20 years later by the other New England Colonies and by New York and +New Jersey, of issuing "Bills of Credit" to meet the expenses of the +two disastrous Expeditions against the French in Canada. Those Bills +were not made legal tender in private payments, and pains were taken +to keep up their credit, but they were depreciated from the first, and +came to be very much depreciated. Massachusetts and Connecticut made +their bills receivable for taxes at a premium of 5%, laid special +taxes for their redemption, and from time to time called in portions +of the issues. In 1718 Connecticut enacted that a debtor tendering +these bills should not be liable to legal execution on his estate or +person for the payment of that debt, an expedient, as we have seen, +resorted to by England in the great Bank restriction of 1797-1821. +These early New England bills bore no interest, were not loaned out by +the colony, and were a convenient though dangerous means of +anticipating the income of future taxes; but after 1712 a paper money +scheme originating in South Carolina came into favor in the colonies, +which was, to open loan-offices for the issue of colony bills on the +mortgage of land, the interest on which helped to pay the colony +expenses, the principal of which at first, and on being paid back and +re-loaned, furnished a capital to borrowers, while the bills +themselves furnished a money for the people. Pennsylvania had the best +luck with this scheme of all the colonies which tried it: as early as +1729 Benjamin Franklin became thoroughly possessed of John Law's +notion, that paper money may be "based" on land or other valuables, +saying in a pamphlet of that year that "_bills issued upon land are in +effect coined land_": Pennsylvania bills nevertheless were at 46% +discount in 1748. Some of the later colony bills bore interest, some +were of a "new-tenor," so-called, designed to take up the old +ones,--Virginia in 1755 made hers a legal tender for debts,--some were +issued in bounties for Indian scalps and for various manufactures and +fisheries, but all ran one road of depreciation and gave birth to one +set of results. Connecticut managed her issues the best of the +colonies, and yet Bronson says of the state of things in that colony +in 1749, "_Trade was embarrassed and the utmost confusion prevailed: +no safe estimate could be made as to the future, and credit was almost +at an end: no man could safely enter into a contract which was to be +discharged in money at a subsequent date: prudence and sagacity in the +management of business were without their customary reward._" + +John Law, a shrewd Scotchman, born in Edinburgh in 1671, son of a +goldsmith, with an innate talent for finance and well educated, was +the first to give scientific form and color to the false theory that +paper money _represents_ commodities of some sort, and may be issued +to an amount equal to the value of these. "_Any goods that have the +qualities necessary in money may be made money equal to their value. +Five ounces of gold is equal in value to £20, and may be made money +to that value; an acre of land is equal to £20, and may be made +money equal to that value, for it has all the qualities necessary in +money._" The fallacy in these words of Law is patent enough to any one +who will stop to think a moment about the _nature of Money_. Because +land, for example, has value, it does not follow that it has "_all +the qualities necessary in money_"; and, as a matter of fact, it lacks +the precise quality necessary in money, because, though it has +purchasing-power, it cannot from its very form and nature become _a +generalized and current_ purchasing-power. Money is indeed a valuable +thing, but that does not prove that all valuable things can be money. +With this radical vice of Law's view was wrapped up another, namely, +that there may be in any country as much paper money as the sum of the +values of all its valuable things. Now, we have learned perfectly, +what escaped the acute intellect of John Law, that Money is only a +valuable _measure_ of all other salable Services; and therefore, that +the amount of it that can be made useful at any one time and place is +strictly limited, and bears very little relation to the sum of the +values present at that time and place. + +Scotland fought shy of Law's idea when he published it there in 1705, +and so did Paris the first time he visited that city, in which and in +other cities he gambled successfully and talked finance to princes and +statesmen fascinatingly; but when he returned to Paris in 1715 with +his ill-gotten fortune, he gained the ear of the Regent Duke of +Orleans, who permitted him to found a bank there, in which were +incorporated some sound principles of monetary science as well as the +prime fallacy of his system. The bank bought a portion of the State +Debt, just as the Bank of England had done, and laid in also a fair +stock of coin, and thereupon issued a paper money. For a couple of +years, or so, the bank surpassed all hopes, for Law had touched a +spring till then but little known in France, the potent spring of +Credit. But his whole thought, meditated on for years, could not be +expressed through a private bank. The State should be a banker; it +should collect all its revenues into a central bank, and attract the +money of individuals to it as deposits; besides, the State has public +property of vast value, on the strength of which paper money can be +emitted and made legal tender; and thus the State, instead of +borrowing, should lend to all on easy terms and the profits thus +accruing would lessen or abolish taxes. Nor was this all. The State +should also be a merchant; the whole nation should form a commercial +company, a body of traders, whose common treasury should be the State +bank. Commerce by individuals creates great wealth; why should not the +organized commerce of a State make everybody rich? The discounts of +the bank, and the profits of the trade, would surely provide for the +public service without taxation. These vast ideas were actually +carried out. Law's bank became the Royal Bank, issuing a paper money +guaranteed by the State and resting back upon the value of all +national property. The money was receivable in taxes, nominally +redeemable in coin, and made a legal tender. It actually bore at one +time 5 and 10% premium over gold and silver. People were anxious to +exchange their coin for notes. Meanwhile a commercial company was +formed in connection with the bank, to which the State ceded at first +the monopoly of the commerce of Louisiana and of the Canada beaver +trade for twenty-five years, and the soil of Louisiana forever; under +the auspices of which NEW ORLEANS was founded, and named from the +Regent, the patron of the grand system; and in succession, the +monopoly of tobaccos, the rights of the Senegal Company, of the East +India Company, of the China Company, and of the Barbary Company; +until, having almost all the commerce of France outside of Europe in +its hands, it entitled itself the COMPANY OF THE INDIES. Its shares +rose from a par value of 500 francs to 10,000 francs, more than forty +times their value in specie at their first emission. To support such +speculations, which completely turned the heads of all classes of the +people, the amount of paper money reached at last the sum of +3,071,000,000 francs, 833,000,000 more than had been legally +authorized to be emitted. The collapse of this most gigantic bubble of +history was terrific. Before the close of 1720, the shares of the +Company could be bought for a louis d'or, or twenty shillings +sterling, and the paper money of course became worthless. + +The ghost of John Law reappears gibbering and chattering in some human +shape once in a generation or two in all civilized countries. In +March, 1890, Senator Stanford of California, himself reputed to be +worth $30,000,000, propounded the question in the Senate of the United +States, whether it were not advisable for the Government to issue +legal-tender notes on the basis of the real estate of the country. His +interrogative argumentation implied, (1) that there was a scarcity of +Money causing great hardship to individuals and depression to +business, (2) that if national bank bills are properly issued on +government bonds it is equally proper to base legal tenders on real +property, (3) that there is no natural and strict limitation to the +amount of Money in a country at any one time, and (4) that as far as +he knows there may well enough be as much money in amount as the +estimated value of the real estate. All this is John Lawism pure and +simple. All this utterly ignores the nature of Money as a valuable +measure of all other Services. It also ignores the truth, that an +advancing country needs less rather than more Money in amount as it +advances, because cheques and other forms of non-money Credits are +constantly increasing both absolutely and relatively. It is because +this Senator's monetary notions seemed to correspond with those of a +majority of the Senate, that it is perhaps proper to give them here a +moment's attention. + +These supposed legal-tender notes would be secured by a government +lien on land and buildings, and by the direct credit of the Government +as well; just as the national bank bills are secured by the bonds of +the nation held in reserve for that purpose, and also by the direct +image and superscription of Cæsar upon every bill. People holding +mortgaged real estate could accept a non-interest bearing government +lien instead of a 6% or 8% private mortgage, that is, could pay off +their mortgages with the legal tenders given them by the Government, +the latter taking the lien or new mortgage; and people owning real +estate clear could, if they chose, execute a perpetual mortgage to the +Government, that is, give up the fee simple to their lands, and +receive legal-tender notes to the full amount in return. This would at +least relieve the "scarcity" of Money! The volume of national Money at +that moment was in round numbers $1,400,000,000; the assessed +valuation of the real property of the country was at the same moment +at least $15,000,000,000; so that, on this scheme, perhaps +$10,000,000,000 of additional legal-tender Money could be issued! Here +is paternalism and socialism and John Lawism all combined. Here is a +Government of strictly limited and carefully enumerated powers, under +a written Constitution as precise as language can make it, containing +the solemn declaration that all "powers not delegated to the United +States are reserved to the States respectively or to the People," +owning or soon to own not only the railroads and the telegraphs but +also the major part of the lands of a free country, and going into the +mortgage business on the heroic scale! + +If this honorable Senator and his like-minded colleagues were +tolerably familiar with the financial history of their country, and +perhaps they were, they would have known that this precise scheme had +had a practical trial in Rhode Island, just before the adoption of +the national Constitution. The Legislature authorized the issue of +$500,000 in scrip-money based upon the value of the real estate of the +farmers of the Colony. The law required a mortgage for twice the +amount of scrip-money based upon it, and it was therefore supposed the +money would be as good as gold or better. But somehow or other the +merchants of the towns could not see the matter in that light. The +depreciation of the scrip-money began at once, and the prices of wares +ran up in a way that should have set business in active motion, +according to all the views of the "scarcity" school. It was therefore +enacted by the Legislature, that anybody who refused to accept the +scrip at its face value should be fined $500 and lose the right of +suffrage! They made it a legal tender! But business refused to boom. +The merchants shut up their stores, the farmers could not market their +crops, and idleness and rioting set in all over the State. Then the +farmers organized a boycott against the towns, and food became scarce. +Meanwhile the mortgage legal tenders would not pass at the best for +over 16 cents to the dollar! There was more of "enforcing" +legislation, and appeal to the courts, but nothing could boost the +mortgage-money. The chief result of the experiment was, that Rhode +Island gained in this way the title of "Rogues' Island." + +No matter how good the cause, how patriotic the People, an +inconvertible paper money is sure to run down at the heel. In June, +1775, one week after Bunker Hill, the Continental Congress voted to +emit $2,000,000 in "Bills of Credit" issued on the faith of the +"Continent." Eleven separate Colonies, New Hampshire and Georgia +issuing none, began about the same time their revolutionary issues of +the same sort, amounting in all during 1775-83 to $209,524,776. The +vice of such irredeemable scrip is, there is no economical limitation +of the Supply. The middle of 1777, when Burgoyne was prosperously +advancing from Canada towards New York, saw a general fall of the +notes both Continental and Colonial, and of course and in consequence +a universal rise of the prices of other products. At the close of that +year, the average depreciation from silver was not far from 3 to 1; at +the close of 1778, it was not far from 6 to 1; at the end of 1779, it +was about 28 to 1; the Continental press then rested, after +$200,000,000 nominally had been put out, but actually about +$40,000,000 more than that, a usual if not universal accompaniment of +such issues. When the stuff dropped out altogether in the spring of +1781, the country found no more lack of silver for Money than +Massachusetts had found in 1749, when and after she redeemed her +outstanding bills of credit at 11 for 1 in sterling silver, £138,649 +of which, the share falling to her from the capture of Louisburg, was +shipped to the Colony in coin, and she became for the next 25 years +the "Silver Colony." Assuming that only $200,000,000 Continental had +been issued, Thomas Jefferson carefully estimated that the Nation +realized from them $36,367,720 in specie value, or 18% of the nominal +value. + +14. Whether the Money of any Nation be coin or paper or both, when +once it is in the hands of the People, Government has properly nothing +to say _about the rate of interest at which one person loans this +money to another_. Usury Laws so-called, prohibiting the lender from +taking more than a prescribed rate % for the use of money loaned, +under penalties sometimes of the entire interest and sometimes of the +entire debt have disfigured the statute-books of all Nations and of +all the States of this Union. Such laws cannot justify themselves for +a moment in the light of sound principles of Political Economy. Their +origin may be explained by a reference to two false views, now +happily exploded. + +(a) The laws of Moses forbade to the Israelites the taking from one +another any _interest_ on money loaned, but at the same time it +allowed them to take such interest freely of strangers; the permission +in the one case going to show that there is nothing in the taking of +interest that is unjust or sinful, and the prohibition in the other +being readily explainable from the general purpose of the municipal +regulations of Moses, which was to found an agricultural and not a +trading commonwealth, in which every family was to possess land that +could not be permanently alienated or sold, in which it was a great +object to maintain the personal independence and equality of these +families, in which the law for the recovery of debts was very summary +and effective, lessening the risk of losing the principal, and which +was to be and was sedulously separated in its usages from the +surrounding nations. It has been well understood for a long time that +the municipal code of Moses was local and peculiar, not necessarily +applicable at all to the circumstances of other States, and in no +sense binding on the conscience of legislators; and yet there +doubtless sprang from the prohibition referred to a prejudice against +interest, and this prejudice was perhaps deepened in the Middle Ages +and onwards by the conduct of the Jews themselves, who, in addition to +their sin of persistently growing rich in spite of the endless +disabilities laid on them by the people of Europe, always demanded, in +accordance with the permission of their great lawgiver, a good rate +_per centum_ of interest from those strangers to whom they became +money-lenders. The Jews were everywhere hated, and consequently the +usury which they practised was hated also. The fundamental absurdity +of forbidding in trading communities the taking of interest on sums +loaned to a borrower which he was at liberty to use for his own +profit, deterred the nations from going to the length of prohibition, +unless it might be in the case of the hated Jews. There is a clause of +Magna Charta, interesting as showing how early the children of Abraham +became the money-lenders of Europe, to the effect that, during the +minority of any baron, while his lands are in wardship, no debt which +he owes to the Jews shall bear any interest. + +(b) Governments formerly deemed themselves competent to determine and +fix the _general_ purchasing-power of their own money. Even the +Constitution of the United States uses this language: "to coin money, +_regulate the value thereof, and of foreign coins_." There was +formerly, and there is still to some extent, a curious and harmful +confusion in the public mind in respect to this term, "the value of +money." In the only proper sense of the term the _value of money_ +means its power of purchasing services in general, and the value of +money is _high_ when a given sum of it will purchase much of general +services, and _low_ in the contrary case; and a high or low value of +money in this true sense depends on a very distinct set of causes from +those which determine the high or low rate of interest on money +loaned; nevertheless, so long as governments supposed that they could +regulate the former, it is very natural that they should also suppose +that they could regulate the latter; and although all intelligent +governments have given over the idea of being able to regulate the +general value of the money they furnish to the people, many of them +still adhere to the notion, equally false with the other, that they +_are_ able to regulate the loanable value, or the rate of interest, at +least to prevent any more than their prescribed maximum rate from +being taken. A few simple considerations will sufficiently condemn all +usury laws. + +(1) It is at once needless and invidious to deny by law to +money-lenders, who offer just as honorable and useful services to +society as any other class of men, the privilege of selling _their_ +service for what it will bring in the market, while other men in every +department of business are allowed to exchange their services on the +best terms they can make without interference or control. Let us see +precisely the nature of the transaction when one man loans money to +another. It is a clear case of value. The lender does a service to the +borrower, and for this service justly demands a compensation. The +service is this: The lender might himself use the money to gratify his +own desires. It is his money; he may use it, as he pleases, for his +own gratification. Or he may himself employ it productively, and, at +the end of the period, receive back his principal with the customary +rate of profit. If he surrenders this advantage to the borrower, if he +passes over to him the right to use this money, say, for a year, he +practises what we call in Political Economy _abstinence_. For this +abstinence he has a right to claim a reward, precisely as the man has +a right to claim a reward who foregoes working for himself in order to +work for another. This reward of abstinence is _interest_. The +money-lender foregoes an advantage. He performs a service for the +borrower; and, therefore, the right to interest stands on just as +unassailable ground as the right to wages. Moreover, the loanable +value of money varies under Supply and Demand just like other values; +there are always those who want to borrow, and always those who want +to lend; both parties must be assumed to know their own minds, and to +be equally competent to make their own bargains; it is a case of +mutual exchange for a mutual benefit, like all other trade; and the +current rate of interest is determined at any one time by the actual +free exchanges between borrowers and lenders. Now for any government +to try to compel a lender by law to take only 6% when his money is +worth 8, is a direct violation of the rights of property. It is a +forcible and pernicious interference with the freedom of contracts. It +is based on the false premise that the loanable value of money is +uniform, and that government is competent to determine what it is. No +value is uniform. And no government is competent to determine even the +maximum price of money loaned, any more than the maximum price of +commodities. + +(2) Usury laws are almost uniformly _disregarded_, both by the +governments which make them and by the people for whom they are made. +Indeed, such laws cannot be enforced in a commercial community. Common +sense is outraged by a law which requires a man to part with his +property at less than the actual value; and when common sense is +against a law, it stands a slim chance of observance. If the legal +rate be six, and the actual worth be eight, who lends at six? Not the +banks. They require deposits of their customers, the use of whose +money shall make up to them the difference between the legal and the +actual rate. The modes of evasion are various, but they are adequate +and universal. Besides, governments themselves have shown a noteworthy +inconsistency in this matter, which incidentally proves the +unsoundness of their whole action. While announcing pains and +penalties to those who take more than a given rate, they are careful +never to bind themselves down to any given rate. Governments are +always more or less borrowers, and if usury laws are necessary in +order to help borrowers in a pinch, there ought to be a clause in the +organic law of every country, forbidding the government to pay and its +lenders to take any more than a certain rate per cent. There is no +such clause in any organic law. Governments wisely follow the natural +market, and borrow low when they can, and pay high when they must. In +the last months of Mr. Buchanan's administration, the United States +paid 12% on a public loan, and could get but little at that. Sauce for +the goose is sauce for the gander, and if usury laws are good for the +citizens, some solid reason ought to be rendered why they are not good +for the government. The truth is, they are not good for either, since +natural laws are perfectly competent to regulate the rate of interest, +and do regulate it substantially in spite of a factitious, +impertinent, and mischief-making interference. + +(3) If Usury laws were _not_ disregarded, they would be even worse in +their effects than they are now. We must suppose that their aim is to +aid borrowers, and make it easier for them to contract loans. But are +borrowers, as a class, any more deserving of the fostering care of +government than are lenders? Even if it could make its interference +effective, as it cannot, is there any reason why government, leaving +these borrowers to make all other bargains, sales, and transfers +according to their best skill and judgment, should rush to their +rescue only when they propose to borrow money? If they are competent +to do their other business for themselves, government pays their +capacity a poor compliment in undertaking to help them in the single +matter of making loans; and the borrowers in turn have reason to pray +to be delivered from their friends, since they, of all others, would +be the men especially injured if all the lenders obeyed the usury +laws. Suppose that a borrower is in great need of a loan, and that for +some reason his credit is now a little weak. Many men would be willing +to loan him at 9%, which affords a margin for the extra risk, but at +6, which we will suppose the maximum allowed by the law, he cannot +borrow a dollar, because his credit is not quite equal to the best. +If, therefore, the lenders obey the law, he, and such as he, must +fail. And because it is unlawful to take over 6% he will be obliged to +pay those who are willing to violate the law 10 or 12, to compensate +them for the risk and odium of such violation, while, under freedom, +he could borrow at 8. Moreover, if the loanable value of money at the +time be actually 9, while the law only allows 6, many men will attempt +to use their own capital productively, who would otherwise loan it, in +order to realize the high rate; and this action of theirs still +further restricts the loan-market and makes it more difficult to +borrow. If, then, the purpose of government be to aid borrowers, no +means could be more unskilfully chosen for that end than to pass usury +laws, since such laws, so far as they are obeyed, have necessarily the +opposite tendency; and even when violated redound to the disadvantage +of borrowers, so long as the laws themselves are popularly regarded as +of any legal or moral force. + +In 1716, the Bank of England, as a great loaning institution, was +exempted from the operation of all usury laws: why the bank only, and +not other people as well, the Act of Parliament does not state. In +1867, the State of Massachusetts repealed all its usury laws, though +6% is to be understood in the absence of special agreement, and the +result has been entirely satisfactory to all classes of the people. +Rhode Island had done this previously, and Connecticut did it +subsequently, and both have experienced equal satisfaction in the +result. Other States will soon follow in their lead; and this relic of +ignorance and prejudice will pass away. Adam Smith left the Wealth of +Nations disfigured by the concession that governments might properly +enough pass usury laws; but it is gratifying to be able to add that he +was convinced of his error in that by Bentham's book on Usury, and +fully acknowledged his conviction in the spirit of a genuine lover of +truth. We conclude, then, that usury laws are needless, since +interest, like all other prices, will perfectly adjust itself. They +are disregarded, since lenders will loan or withhold their money +according to their own keen sense of interest. They are pernicious, +since they infringe the rights of property, and tend to prevent weak +borrowers from having a fair chance in the market. + +The present writing is at midsummer, 1890; and, in order to complete +the entire discussion so far as this country is concerned, it is +needful to add, that, between 1878 (when specie payments were resumed) +and 1890, the circulating medium of all kinds is proven by official +statistics of the highest authority to have increased from +$805,793,807 to $1,405,018,000, or more than 57 _per centum_. This +circulating medium consists of six formal kinds; namely, gold, silver, +greenbanks, bank-bills, gold-certificates, and silver-certificates. +Each of these differs in important respects from each of the rest, but +all come alike under our fundamental classification of Moneys, as +either an intermediate merchandise or promises to render it. This +increase is way beyond any increase in the population of the country, +and way beyond any apparent or proven increase in the national +business; while at the same time the banking facilities of the +country, which always spare the use of Money by substituting cheques +therefor in the wholesale business and in a large share of the retail +business also, have been increasing in equal measure. The number of +national banks, especially in the West and South, has been +multiplying. The use of cheques has been enlarging in every commercial +community in the land. Yet up to the present time all of this vast +volume of Money has been kept at par with gold, and consequently at +the highest state of efficiency for commercial purposes. + +What about the immediate future? Science is not prophecy except in a +quite subordinate sense. Congress is loudly threatening at this very +moment to more than double the enforced monthly coinage of silver +dollars at the public expense for the sole benefit of a comparatively +few miners of silver. If this threat be executed upon a long-suffering +people of tax-payers, who will have no one to blame but themselves if +they tolerate the outrage, Science is willing to venture the +prediction, that the monetary standard here will drop from gold to +silver within a twelvemonth or two; that general prices will rise much +beyond the appreciation of money implied in that drop, though they +will be illusory and gainless; that prudent debtors will hold high +carnival for a time at the expense of their creditors; that the +country will become as empty of gold as a contribution-box is of other +money between Sundays; that foreign trade (soon to be explained), +already in a sickening decline, under restrictions and prohibitions, +will hasten to a practical demise; and that the United States, at once +the laughing-stock and the victim to the superior intelligence of +other nations, will come through alternate fever and chills to a +position of common sense and ultimate recovery. + + + + +CHAPTER VI. + +FOREIGN TRADE. + + +Wonderful is the continuity in the growth of any great Science, and +equally so the persistency of any radical error that once gets fairly +imbedded within it. As we saw fully in the last chapter Money is +nothing in the world but a convenient, intermediate, equivalent, and +easily measurable merchandise; but almost as soon as men began to +analyze Sales and to generalize from their data, a notion nestled way +down in their work, that Sales against Money were somehow or other +different from Sales against other merchandise; and thence sprang up, +particularly among the Romans, what we have called the Bullion Theory. +The broad and the true view was held indeed from the beginning, and +was maintained even among the Romans, as we learn from an interesting +passage in the Roman Law,--"_Sabinus and Cassius think Value can dwell +in another thing than money too, whence is that which was commonly +said, Buying and Selling is carried on in the exchange of goods, and +that view of purchase and sale is very old; but the opinion of +Procullus has deservedly prevailed, who says, Exchange is a particular +kind of transaction different from Selling._" + +Science has indeed sloughed off this old and vital error, and most of +its sequels; but Public Opinion in many countries is full of it still; +and Legislation, in our own country at least, is all the time trying +or threatening to transmute merchandise (say silver) into money, as +if that could raise its value or change its nature. + +It was but a single step from the Bullion Theory to the Mercantile +System. If money be somehow different from and better than +merchandise, then each nation should strive to handle its foreign +trade so as to get back from other nations more money than it renders +to them in exchange: in other words, each nation must try to sell to +the rest more goods than it takes goods back in pay, so as to have a +"_balance_" come in of gold and silver. How natural the transition +from Bullionism to Mercantileism! And it was a step of genuine +progress too. Goods are good, and there is profit in their exchange; +but gold is somehow better than goods, and we must manage somehow to +get a "balance" in that! If this position had only been sound, and one +nation only been in possession of the precious secret, how nicely it +might have worked for that nation! But all the leading Nations of +Europe made the transition from Bullionism to Mercantileism at one and +the same time, and they vexed and impoverished each other for three +half-centuries, and went to war with each other besides, under the +double illusion, (1) that gold could be practically gotten in that +way, and (2) that if gotten it were one whit better than the goods for +which it would have been at once spent. + +Economics as a Science is now free from every taint of Mercantileism +also, but it lingers on more or less in half-informed minds, and in +the less-experienced nations; and the system itself merged itself +three half-centuries ago into another, which is not another, namely, +into Protectionism. If nation A must sell more goods to nation B than +it takes back in goods, so as to get the coveted "balance" in gold +from B, would it not help that cause along to put obstacles in the way +of restrictions or prohibitions against the introduction of goods +from B to A? Less goods, more gold, argues A. A forgets that the same +mental processes are going forward in B's mind towards the same +conclusion in relation to A. Now, cogitates A, what kind of goods from +B had we better restrict or prohibit? A, by the way, consists of some +millions of individuals, some of whom are always on the watch to get +their axes ground at the government grindstone. What kind of goods +shall we prohibit from B? Why, of course, those kinds which we are now +making or growing. We can supply these for ourselves. It does not +escape the notice of these makers and growers, that the restriction or +prohibition of similar goods from B will raise the price at home of +their own goods. Scarce is ever costly. On go the restrictions, +ostensibly at first in behalf of an imaginary "balance" in gold, which +fragile reason soon passes out of mind in the presence of a very real +reason for such restrictions, namely, artificial high prices for +certain domestic goods, paid indeed by the entire home community to +the comparatively few makers or growers of the goods now "protected," +as the current phrase is. Mercantileism has passed over into +protectionism. The feeble friends of a "balance" have now become the +strong friends of a "monopoly." Personal greed to grow rich at the +expense of one's own countrymen thus becomes the single or combined +force that puts on and keeps on and piles up the so-called +"protective" restrictions and prohibitions. + +Scientifically Protectionism is as dead as Mercantileism and +Bullionism. There is not an Economist in Christendom, of any +international or even national reputation, who now undertakes fairly +and squarely by means of analysis and induction, to propound or defend +a scheme so contrary to common sense and common honesty as this is, +and which, universally applied, would annihilate the commerce of the +world. But many of the nations are still tinctured more or less by the +old subtlety, and powerful classes within them and specially within +the United States, classes grown rich and powerful by what is nothing +else than public plunder, are strenuous and successful advocates, not +in open discussion and fair debate but by clandestine and corrupting +methods and combinations, to maintain in the light of the nineteenth +century an outworn and decrepit "something" worthy only of the dark +ages. The old and foolish cry for a "balance of trade" is merged now +in the United States into the insane and hateful clamor for the +destruction of public trade in the behalf of private gain. + +This is the sole reason why we must now undertake a careful chapter on +Foreign Trade. There is no reason in the nature of things, or in the +nature of trade, why Foreign Commerce should be treated of separately +from Domestic Commerce. The two are precisely alike in all their +principles and in all their results. In one as in the other, in every +case and everywhere, there are (1) two persons, each of whom has a +Service in his hands to sell against a Service in the hands of the +other; (2) two reciprocal estimates, by which each owner concludes +that he prefers the Service of the other to his own; (3) two mutual +renderings, by which each Service comes into the possession, present +or prospective, of the new owner; and (4) two personal satisfactions +as the result of all, constituting the ultimate motive and the sole +reward of Buying and Selling. + +There are two possible differences in certain cases between Domestic +and Foreign trade, both superficial and but barely worth the mention +here. Foreign countries engaged in trade _may_ be more remote from +each other than places exchanging products within the same country. +The distances, however, between Bangor selling ice to New Orleans for +sugar, and Boston selling boots and shoes to San Francisco for fruits +and wine, are much greater than those between Liverpool and St. +Petersburg, or those between Stockholm and Palermo; so that, it may be +said in general, that the trade between all the European countries +confronts less distances, and presumably less costs of transportation, +than the trade within the United States. And another thing is to be +said in this connection: Foreign trade as a general rule is conducted +by water-routes, and domestic trade under the same rule is carried on +by land-routes; and, therefore, the costs of transportation by the +latter are much more expensive. + +The other possible difference is more considerable, and considerably +more in favor of Foreign as compared with Domestic trade. We have +learned perfectly already, and the point is fundamental, that all +trade proceeds on the sole basis of a relative Diversity of Advantage +as between the two parties exchanging. This relative superiority of +each exchanger over the other at different points depends in domestic +trade partly upon divergent natural gifts to individuals, partly upon +their concentration of mind or muscle or both on a single class of +efforts each, and partly upon the use and familiarity in the use of +the gratuitous helps of Nature aiding that class of efforts. But in +foreign trade there are commonly some additional grounds of Diversity, +since the various countries of the earth have received from the hands +of God a diversity of original gifts, in climate, soil, natural +productions, position, and opportunity. And besides these original +international differences, there has been developed of course in the +history of the inhabitants of these countries a diversity of tastes, +aptitudes, habits, strength, intelligence, and skill to avail +themselves of the forces of Nature around them. International trade, +accordingly, is somewhat more broadly and firmly based than the home +trade can be, inasmuch as these international differences are apt to +be more inherent and less flexible than domestic differences between +individuals; it is on these diversities, original, traditional and +acquired, that international commerce hangs; it could never have come +into existence without them; and it would cease instantly and +completely were they to fade out. Men engage in foreign trade,--not +for the pleasure of it,--but for the sake of the mutual gain derivable +to both parties; they desist from it so soon as that mutual gain +disappears; and there is no gain in any series of exchanges, unless +each party has a superior power in producing that which is rendered, +compared with his power in producing that which is received. + +With these few preliminaries, we pass now, in the first place, to +unfold in order the COMMON AND UNIVERSAL PRINCIPLES OF FOREIGN TRADE. +For the sake of illustrating these, we will now take a simple supposed +case, a trade between England and France in cottons and silks, and +follow it through clearly to the end. + +1. When will it be mutually profitable for England, that is, for +certain English merchants, to send cottons to France to buy silks +with, and for France, that is, for certain French traders, to send +silks to England to buy cottons with? Money and all other commodities +except these two, silks and cottons, are wholly out of the question +now and should be wholly out of our minds the while, though for +simplicity's sake we shall use the _denominations_ of money for +comparing the respective efforts, translating pounds and francs into +dollars. The answer is easy: the trade will be mutually profitable, +when efforts bestowed in France upon silks will procure through +exchange with England more of cottons than the same amount of efforts +bestowed in France upon cottons will produce of cottons directly; +_and_ then, when efforts bestowed upon cottons in England will +procure more of silks through exchange with France than the same +amount of efforts bestowed in England upon silks will produce of silks +directly. It is not a question of the absolute cost of either +commodity to the parties producing it, or of a comparison of those +absolute costs at all, but a question of the relative cost of that +produced in either country compared with what would be the cost of the +other commodity were it to be produced in that country. So long as +there is a difference of relative efficiency in the production of the +two commodities in the two countries, so long, setting aside the costs +of carriage, may there be a profitable exchange of the two. A demand +in each country for the product of the other is of course presupposed +in the illustration. + +Suppose now, that Efforts in England on certain cottons be gauged at +$100, and that Efforts in France on certain silks be gauged at $80, +and that these finished commodities then exchange even-handed against +each other: is that a losing trade for England and a gainful trade for +France? That is more than we can tell yet. That depends upon the +further decisive question, whether the Efforts gauged at $100 if +expended in England in the manufacture of silks will procure as many +and as good silks as the same obtain in exchange with France; and +whether the Efforts gauged at $80 if expended in France on cottons +directly will secure as many of them as if expended on silks directly +and then traded off for cottons. In effect the Frenchmen ask, Can we +get more and better cottons by working on silks and then trading them +off for English cottons than we can get by equivalent Efforts in +working on cottons at home? Likewise the Englishmen ask, Can we get +more and better silks by working on cottons at home and then trading +with France for silks than we can get by trying to make silks +directly? France by climate and soil and habitudes is better adapted +to silks than cottons: England by virtue of the same is better adapted +to cottons than silks. + +2. How does the Diversity of relative Advantage practically work in +foreign trade? Let us suppose that while the cottons cost $100 in +England, it would cost $120 to manufacture there as good silks as can +be made in France for $80; and that while the silks cost but $80 in +France, it would cost $96 to make cottons there as good as the English +can make for $100. On this supposition France can make both the silks +and the cottons at a cheaper absolute cost than England can. What of +it? Does that destroy the motive and the gain of an exchange between +the countries in these two articles? Let us see. By an exchange with +England, France gets for $80 in silks, cottons which would otherwise +cost her $96, which is a handsome gain of 20%; while England gets for +cottons costing her $100 silks which would otherwise have cost her +$120, which is another handsome gain of 20%. Although France can make +each commodity for less absolute money than England can make either of +them, there is a Diversity of relative Advantage; and, therefore, +there might be in this case, as there is actually in many such cases, +a very profitable trade. The efficiency of France in making silks +relatively to the efficiency of England in making silks is in the +ratio of 80 to 120, namely, a difference of 50%; while the aptitudes +of France in making cottons relatively to that of England in making +the same is only in the ratio of 96 to 100, namely, a difference of +4-1/6%. So long as England offers in cottons a good market for French +silks, how utter the folly and large the loss of France in going to +work to make cottons! + +In the majority of cases, doubtless, foreign trade takes place in +articles, in the production of one of which each of the respective +countries has an absolute advantage over the other; but an every way +advantageous trade may be carried on in commodities, in the production +of _both_ of which one nation shall have an absolute superiority over +the other, provided only that this superiority be _relatively diverse_ +in the two commodities, as has just been shown. This is an effectual +answer to the ignorant clamor of some, we take it, who make objection +to importing articles which might be made at home for the same sum of +money as foreigners expend in making them; admitted, that they might +be so made, does it follow that the country importing them would get +them as cheaply by making them itself? _By no means does that follow._ +Let no nation, then, be in haste to drop a trade, because it thinks it +can make the goods received in exchange as cheaply as the other nation +makes them, so long as it has an advantage absolute or relative over +the other in making the goods rendered in exchange; and when that +advantage ceases, it may be sure, that the trade will drop of itself; +because it always takes _motives_ to make the mare go. + +3. What are the extreme limits of the Value of cottons and silks in +the case supposed, and when will a third nation be able to undersell +either in the ports of the other? This is the answer: the extreme +value of French silks in English cottons will be 80 and 96; they +cannot fall below 80 because they cost the French that to manufacture +them; they cannot rise above 96, because at that rate the French can +make cottons, and there would be no motive, that is, no _gain_, in +their exchanging for cottons. Nations, that is to say, individuals, +will never get themselves served at a greater effort than that at +which they can serve themselves. If a given effort does not realize +more through exchange than it would do directly, then that exchange +ceases of necessity, as fire goes out for lack of fuel. The extreme +limits of the value of English cottons in French silks will be 100 +(lowest) and 120 (highest) for reasons precisely similar in the case +of the English. Therefore, the highest profits possible to both +nations under the conditions of the trade are 20% each. France would +be glad to take the cottons at a return of 80 in silks, at which rate +her gain would be 20%, and she cannot under any circumstances offer +quite 96, at which rate her gain would disappear. + +No third nation, accordingly, in a trade of silks for cottons can +expel the French from the English ports, until it is prepared to offer +nearly 96 (or more) in silks in return for English cottons; that is to +say, until its efficiency in making silks relatively to that of +England in making them presents a greater difference than the +difference of efficiency between France and England in making silks, +which is a difference of 50%. England would be glad to take the silks +from France at a return of 100 in cottons, at which rate her gain also +is 20%, and she cannot possibly offer quite 120 in cottons, because at +that rate her gain would wholly vanish. England could be undersold in +the French ports, when somebody is ready to offer nearly 120 (or more) +in cottons against the French silks, whose _quantum_ in the exchange +may vary from 80 towards 96. Here is the whole doctrine of one nation +underselling another in the ports of a third nation. Silks stand here +for sample of all French commodities of whatever name and cottons for +all English goods whatsoever; and England and France stand in the +illustration for any and all nationalities. Any nation obtains any +share or a greater share in the commerce of the world solely in virtue +of a greater relative efficiency in producing _something_ valuable, as +compared with some other nation's power in producing something _else_ +that is valuable. + +4. How does the varying play of International Demand affect the value +of articles in foreign trade? The answer is clear and easy: if the +demand for French silks in England just answers to the demand for +English cottons in France, so that the silks offered by France just +pay for the cottons offered by England, then, cost of carriage aside, +the gains of the trade will be equally divided between the two sets of +merchants, and each will realize 20% profits, because neither will +have any motive to lower the value of its commodity below its highest +value. The Frenchmen from their point of view will offer 80 in silks +and take 96 in cottons: the Englishmen from their standpoint will +offer 100 in cottons and get 120 in silks. Demand and Supply are +equalized at a point of value most favorable to both parties, and one +really determined by the relative cost of production. + +This case of equalization, though possible, is likely rarely to occur +in practice. On any terms of exchange first offered, there is likely +to be a stronger demand in one country for the product of the other +than in this country for the product of that. This will of course lead +to a change of Value, and a new division of Profits. The product for +which the demand is less will find its market sluggish, and in order +to tempt further and brisker exchanges will be compelled to offer more +favorable conditions. He who enters a market in quest of what is +_more_ in demand with a service which is _less_ in demand, will have +to lower his terms, or not trade. The equalization of Supply and +Demand will only be reached in this case, by quickening the demand for +the commodity now less in demand through an offer of better terms in +trade. Thus, if the demand for French silks in the English ports be +slack, in comparison with the demand for English cottons in France, at +the rate of exchange first established, say, 80 for 96, the French +merchant has no resource, if he wishes to continue the trade, but to +agree to give more silks, for the same amount of cottons, say, 85 for +96. If this actual reduction prove sufficient to cancel the account +in cottons with the account in silks, then the trade will proceed on +this new basis for a while, because the equalization of demand and +supply has been reached through a new valuation of the two +commodities, and there is now consequently a new division of the +profits. France gains less than 13% by her trade with England, while +England gains 27% in her trade with France. + +Under these new terms of exchange, it is quite possible that silks may +again become heavy in reference to cottons, and a new decline take +place in their relative value. If the French are obliged in +consequence to offer 90 for 96, in order to obtain the cottons they +want, their own profits will sink to 6%, while the same causes will +lift the English profits to 35%. If, in any contingency, the French +were driven by the state of the market to concede something near to 96 +in silks for 96 in cottons, the trade would cease in that case, just +as every transaction ceases when the motive for it ceases. We must +remember of course, that the cottons of England are just as likely to +become slack in reference to silks, as the silks are relative to the +cottons; and when this happens, the English dealers will have to lower +their terms, and thus surrender a larger share of the profits to the +French. By this ceaseless play of Supply and Demand, within the +outermost limits drawn by the relative Cost of Production at the time, +is the Value of commodities determined in Foreign Trade; and no degree +of complication in the variety of articles, or in circuitous +exchanges, affects, for substance, these fundamental principles. + +5. What are the causes deciding the exportable articles of any nation, +and their order of precedence in Export? Watch a little at this point, +and the true answer will loom up steady and certain. If, instead of +one article, say cottons, England sends two or ten kinds of goods to +France in payment for silks or wines or whatnot, she will of course +send in preference that commodity in which her own commercial efforts +are relatively most efficient, so long as the French demand will +receive it, because her own profits will be the greatest on that; +then, when obliged to lower terms on that down to the point of +relative advantage at which her next available article stands, she +will send that next in quantities regulated by the demand for that; +and so on down to the end of the list of possible exportables to +France. France is guided as to her exportables to England by precisely +the same principles and prospects of profit. So of all commercial +nations whatsoever. No matter whether the articles be one or many; no +matter whether the trade be a direct or indirect trade; the profits in +international commerce depend in all cases, first, upon the ratio of +the cost of what is rendered to what would otherwise be the cost of +what is received, secondly, upon the relative intensity of the two +Demands. + +It follows logically and necessarily from all this, that what a nation +purchases by its exports, it purchases by its own most efficient +Production, and consequently at the cheapest possible rate to itself, +and at the highest possible profit to its merchants. Under a decent +freedom of international choice and action, of sale and delivery, only +_those things_ are ever exported, for the procuring of which a nation +possesses decided advantages relatively to other nations, and +relatively to its own advantages in producing directly what is +received in return; and hence, the return cargoes, no matter what they +have cost their original producers, are purchased by this nation as +cheaply as if they had been produced by its own most advantageously +expended Effort. This is a wholly impregnable position; and the +advocates of restricting and prohibiting Foreign Trade are challenged +to try their hand a little or a good deal (as best suits them) at its +bristling defences. + +It follows also from the discussion under this head, what shallow +thinkers are they, who deem it needful that each nation should be able +"_to compete_" with other nations in every branch of production. Why +are they not consistent enough to apply their favorite catchword, +"_compete_," to domestic exchanges also, and require that the +clergyman shall have artificial and governmental facilities for +"_competing_" with the lawyer, the tailor with the blacksmith, the +farmer with the manufacturer, the publisher with the author? Will +folks never learn that _all_ Exchanges, domestic as well as foreign, +hang on relative superiority at different points, and that any Nation +trying to make its success in production equal at all points would be +just as stupid as an artisan trying to learn and practice all the +trades at once? Suppose the said nation to succeed, what then? It +would supply its wants at a certain low average efficiency of effort; +whereas, by a thorough development of all its own peculiar resources, +it could command by exchange the products of the whole world at a cost +not exceeding that of its own most productive and efficient Exertion. +The precious metals, whether produced at home or obtained from other +nations by another series of exchanges, whether coined or in the form +of bullion, stand here in the same relations as other commodities, and +are frequently the most profitable articles that a nation can export. +In one word, whatever justifies individuals in selecting diverse paths +of production according to their capacities and opportunity, the same +(and even more) justifies the Nations in fully drawing out their own +best capabilities under the conditions in which God has placed them; +and then, exchanging what costs them little for what would otherwise +cost them much, in enjoying all that the world offers at the least +possible expenditure of irksome effort. Such wise and wide action +promotes the common good of all the nations, and makes the best of all +accessible to all, and arms each with the power of all; while the +narrow and senseless policy of drawing into one's own shell after +putting up barricades against one's neighbors, by lessening everywhere +the Diversities of relative Advantage, so far forth incapacitates all +for profitable and progressive Exchanges. + +6. How do new improvements in machinery and other enhanced facilities +of Production in one country affect its foreign trade? A cheering +response will be drawn out, if we now apply this question to the +conditions of our old trade in silks and cottons. Suppose France by +new methods of silk culture to become able to make the silk which +before cost $80 for $50, cottons in France and silk and cottons in +England remaining in natural cost as before, does France alone gain +the entire advantage of the increased cheapness of silk? Wait a +minute, and we will see. The production of silk in France is greatly +quickened by the cheaper methods, more is produced, more is carried to +England to buy cottons with, but at the old rate of 80 for 96, the +English will not take any more silks, and the French who can now +abundantly afford it, since their nominal 80 is really 50, will offer +more silks for 96 in cottons, in order to tempt a brisker and broader +sale. They offer, say, 96 in silks for 96 in cottons, and if that +reduction of Value of silks in cottons be enough for the equalization +of the respective Demands, the trade will proceed on that basis, at +least for a time; and as there is now a larger difference of relative +advantage than before, there will be, as always in such cases, larger +profits to be divided between the two parties. The 96 now in silks to +the English is really only 60 in cost to the French, so that the +French gain in the trade is largely increased; because they now get +for what costs them 60 what would otherwise cost them 96, a clear gain +of 60%. Before the new methods of silk culture were introduced they +could gain but 20% at the utmost. + +But the English have also reaped largely from the ingenuity and +diligence of their neighbors. Before, they gained only 20% in the +exchange at best; but now they get for what cost them $100 that which +would otherwise cost them $144, a handsome profit of 44%. Indeed, it +might easily happen, through the incessant changes in International +Demand, that even a larger share of the benefit of the French +improvements should accrue to the English than to the French +themselves; the share of the French all the while being large, and +much larger, than if, greedily endeavoring to keep all the benefit, +they should refuse to trade at all. Thus we reach again from another +outlook, a grand and universal doctrine of Exchange, _that each party +is benefited by the progress and prosperity of the other_. Indeed, the +only possible way in which all nations can share in the thrift and +enterprise and improvements of each other, is through mutual +international exchanges; and when each nation sees to it that it have +a few commodities at least for which there is a strong demand among +foreigners, and in the production of which themselves have a strong +superiority, it may rest assured that it buys all it buys from abroad, +gold included, at the cheapest rate to itself, and shares a part of +the prosperity of every nation with which it trades. + +7. Which party in foreign trade pays the Costs of Carriage, or do each +pay them in equal proportion? It is plain, that the aggregate cost of +transportation to the foreign markets is just so much added to the +Cost of Production, and is a deduction of so much from what would +otherwise be the whole gain of the Commerce; but it is plainly not +true, that each party necessarily pays the whole of his own freights; +and, therefore, that the party carrying bulky articles is at a +disadvantage compared with the other. He may or may not be at a +disadvantage on that account. That will depend on the effect of the +new expense for freight, however divided, on the Demand in each +country for the product of the other. We will suppose, that in the +outset England pays the whole cost of carrying cottons to France, and +France the whole cost of sending silks to England; but as cottons are +many times more bulky than silks proportionably to value, a larger +bill of freights would fall of course to England; and cottons would +therefore fall in value relatively to silks; but cottons and silks +have both risen absolutely, that is, with reference to any given +effort, or with reference to a money standard. + +Suppose now that France, instead of 80 for 96, has to render 82 for +96; and England, instead of 100 for 120, now has to give 105 for 120. +The French gain in the trade is reduced from 20 to nearly 17%, and the +English gain from 20 to nearly 14%; but it is by no means certain, +that the commerce would go on precisely on these terms; the enhanced +value of silks might well deaden the demand for them in England, more +than the relatively less enhanced value of cottons in France would +affect the demand for them. Silks have risen in England 5%, but +cottons have risen in France only 2-1/2%; it is therefore very likely +that thereafter the demand for cottons will be stronger than the +demand for silks, and if so, the French will have to offer better +terms, or, what is the same thing, to be obliged to pay a part of the +English freights; so that there is nothing in the true state of the +case to justify the conclusion jumped at by some people, that they +who carry heavy goods are at a disadvantage compared with those who +carry light goods. That will depend wholly upon the Equation of +International Demand as between the two kinds of goods. Nothing in the +nature of things hinders, that each party shall in effect pay the +freights of the other, or one even really pay the freights of both. + +8. Lastly, what is the effect upon international commerce of the +constant play of the Par of Foreign Exchange. This is a point of great +importance, that has been but little discussed in this connection, +because it has not been popularly understood or scarcely even +popularly explained. In the light of the full unfolding of "Credits" +in our Fourth Chapter, and in the light of these simple principles now +under discussion, there will be no great difficulty to any intelligent +reader in fully understanding this matter of Foreign Exchange,--a +matter never before so vital to the commercial interests of the United +States as now. For the sake of general illustration we will take the +"Exchange" as between the United States and Great Britain, since the +same fundamental principles apply as between all commercial countries. + +When merchants export goods, say from New York to London, or _vice +versa_, they do not wait for their pay till the goods be actually +marketed abroad, but draw at once Bills of Exchange to the amount of +the home value of the goods on the parties to whom the goods are sent, +and then put these bills on present sale with brokers or middlemen at +home. There thus becomes a market or prices current in New York for +commercial bills drawn on London, and similarly a market in London for +bills drawn on New York. The New York exporter, accordingly, is not +certain of getting in money the full face of his bill _minus_ interest +for the time it has to run, because a great many such exporters may +have thrown their similar bills upon the market the same day, which +always tends so far forth to depress the price of the bills in +accordance with an universal law of Economics. Scarce is ever costly: +plenty is ever cheap. + +Who buys these bills when exposed for sale in New York? Who wants +them? Clearly, only those who have commercial debts to pay in London. +A bill of exchange drawn in New York on London is nothing but a debt +due from somebody in London to anybody whom the drawer in New York +chooses to make the payee. The debtor lives in London, and it is every +way cheap and convenient for all parties, that he settle his debt with +a creditor living in London. So it happens, that parties in London who +have sold goods in New York and drawn bills on them for present +payment, expose those bills for sale in London to the parties who have +debts to pay in New York. If now, London or those whom London +represents in these transactions, have sold but few goods to New York +or to those whose business is settled in New York relatively to the +amounts sold by New York to London, then London bills will be +relatively scarce as compared with the New York bills drawn on London. +In other words, New York has more debts to pay in London than London +has in New York, and, consequently, the parties in London who want +bills to pay New York debts with, have to buy them in a relatively +scarce market. They have to _bid_ for them, as it were. The effect of +this is always to carry up the price of that, for which the buyers are +many and the sellers relatively few. So, under perfectly natural +causes, London bills on New York come to a premium; that is to say, +the London sellers get more than the face of their bills drawn, and +the trade with New York becomes _extra_ profitable to them. + +Suppose London bills of Exchange on New York are selling for 101, +thus giving 1% extra profit to English exporters; for precisely the +same reasons that they are so selling, New York bills on London are +selling in New York for 99, thus subtracting 1% from what would +otherwise be the gains of the New York exporters to England under the +common principles of Foreign Trade. It is evident, therefore, that the +causes of the course of the international Par of Exchange are an +essential part of the principles of foreign Commerce; and whatever +tends to derange or upset the natural course of the Par, as a constant +or constantly recurring cause, must receive careful attention in a +book like the present. We have begun at the very beginning of this +matter, and we are now going to follow it up to the very end. + +The Diversity of relative advantage in the Production of the two +commodities exchanged, is the first and chief ground of mutual Profit +in foreign trade; the varying Intensity of relative Desire on the part +of each exchanger for the product of the other, is the second and +secondary ground on which foreign trade must go on; and the third and +final difference as between the two parties, which goes to make or mar +the profit of each of them in the trade, is the current Price of the +Bill of Exchange drawn by each creditor on his debtor abroad. It is +plain that these three things must always be taken into account +simultaneously by prudent exporters and importers, in order to +estimate the prospect of a profitable trade then and there; and it is +plain also, that one or even two of these three differences of +relative advantage might fade out for a time, and a profitable trade +still proceed, provided the other two or one of these differences were +sufficiently pronounced. For example, to take an extreme case, silks +from France might still go to England for cottons to the advantage of +both countries for a time, though "exchange" were exactly at "par" +between them and the "demand" for silks were precisely met by the +"demand" for cottons, on the strength of a marked and persistent +diversity in relative cost of production of the two textiles. + +Here is another of the trinities of Political Economy. Here is +complication indeed, but a complication regulated and beautified by +inflexible laws of Nature and the scarcely less inflexible laws of +human Motives. + +So far the argument has proceeded on the supposition of a common +standard of Value, say gold, between England and France, London and +New York, and by implication all other commercial countries. Commerce +rejoices in, and progresses by, a common measure of Values. By an +experience of 2000 years the world has proven gold to be the best +international Measure. From a simple comparison of the weights of pure +metal in the standard coins of the nations is established a fixed +monetary "par" as between them. Thus the dollar of the United States +contains 23.22 grains of pure gold, and the English pound sterling +contains 113.001 grains of the same; consequently, there are $4.8665 +to the £ sterling, and this is and has been since 1834 the monetary +"par" between the United States and Great Britain. Similarly, the par +between France and the United States is $1 to 5 fr. 18 centimes, since +the franc is 19.29 cents gold for gold. The monetary par, accordingly, +as between any two nations using the gold standard, is a matter easily +ascertained and kept in mind; while the constantly variable prices +current of Bills of Exchange are reckoned in and from this monetary +par. Thus, if a commercial bill drawn in New York on London sells for +$4.8665 _minus_ current interest for the time it has to run, English +"exchange" with us is said to be at "par"; if it sell for more than +that, exchange is technically said to be "_against_" us, although the +excess in price is just so much additional profit to the American +exporter; and if it sell for less than that, exchange is said to be in +our "_favor_," although the difference is just so much subtracted from +the gains of the American exporter. + +The close of the second week in July, 1890, found in New York +"Sterling exchange dull but firm, with actual business at $4.84-3/4 +for 60-day bills and $4.89 for demand bills: the posted rates were +$4.85-1/2 and $4.89-1/2 respectively." Exchange, accordingly, had +turned "against" the United States, that is to say, American exporters +could get a little more for their bills on London than the monetary +par. Under such circumstances it may be cheaper to send the gold to +liquidate a British debt than to buy bills and send _them_. Just this +happened last week: $2,000,000 in gold went (mainly under this +impulse) from New York to London. There is a limit, therefore, to any +further rise in the price of "exchange," when it reaches in an upward +direction the then present cost of sending gold to foreign creditors. +The limit in the downward direction to the price of exchange is the +last margin of profit to the exporter as such. Thus, when the New York +exporter can only get, say, $4.83 for his sight bill of exchange on +London, his loss in the trade so far forth is 1%; and it may be +doubtful, whether his possible gains at the other two points, namely, +relative cost of production and relative intensity of demand, will +overbalance this certain loss and leave a sufficient margin of profit. + +This chance of profit or loss from casual turns in the commercial +"exchanges" is a very small matter in foreign trade in comparison with +the other two grounds of possible profit or loss. The main thing for +every commercial nation to see to is, that it have at least a few (the +more the better) commodities in general use throughout the world, _in +the cost of the production of which it has a relative advantage over +all competitors, and the demand for which by foreigners is relatively +intense and constant_. And it will never come amiss for any nation +with these two crucial advantages to keep a sharp watch over a class +of its own citizens, lest they, shrewdly and greedily, for special +reasons of their own, get laws passed the result of which can only be +_to increase the costs of production of these few exportables, and at +the same time lessen the foreign demand for them_. ETERNAL VIGILANCE +IS THE PRICE OF LIBERTY OF COMMERCE. + +As a general rule for the last half century commercial "exchanges" +have been "against" Great Britain, that is, her exporters have been +able to get more than "par" for goods sent abroad in the price of the +bills drawn on them, and her commerce has been _profitable_ to her so +far as this cause is concerned; which during the same interval of time +the "exchanges" have been "in favor" of the United States, that is, +her exporters have been obliged to sell their bills drawn for less +than "par," and her commerce so far forth has been _unprofitable_ to +her. We may only briefly indicate here the causes of this state of +things. + +(a) Great Britain has been during this period a vast loaner of Capital +to other countries, and particularly to the United States; while the +United States has been a vast borrower of Capital, particularly from +Great Britain. The interest on these loans from Britain, and the +principal also so far as it has been repaid, has been constantly +remitted thither in goods for the most part, and bills of exchange +drawn on these goods have been sold at all ports, and particularly at +New York; the abundance of these bills has tended of course to lower +their price at the place of sale, and so far forth to heighten in +effect the relatively less abundant British bills drawn on exports +thence; and the _creditor_ country for this reason is apt to sell its +bills above "par," and the _debtor_ country its bills below par. It +makes no difference at this point how the borrowed funds have been +invested by the borrowing country, since the interest and the +principal must be repaid at some time chiefly in the manner just +indicated. + +(b) With the exception of a dozen or two articles customs-taxed for +simple revenue, Great Britain in this period has kept her ports +absolutely open to imports from all the world, and of course to all +imports from the United States, which has tended to swell the volume +of imports into that country, and the volume of foreign bills drawn on +them, particularly of United States bills; while the United States +during the same time has excluded imports by customs-taxes designed +for that very purpose, to the number of over 4000, and in many cases +to a height of tax involving prohibition of import. The Constitution +of the United States expressly forbids customs-taxes upon exports, so +that goods may indeed go out freely, so far as tariff-barriers are +concerned; but as the only impulse that ever carries goods _out_ is to +get _back_ more desirable goods in pay, and as these return-goods are +greatly restricted or virtually prohibited by the United States, the +Constitutionally-free exports are not large enough to help much in +keeping down below "par" the price of bills of exchange drawn here. It +should also be said that Great Britain is restrained in her exports to +the United States by the latter's legal unwillingness to receive them, +which tends of course to keep the price of bills drawn on the exports +she can and does send still more above "par." + +(c) The enormous customs-taxes in the United States on ship-building +materials and on almost everything else have practically destroyed the +ocean merchant-marine of the country. The bulk of the Freights, +therefore, on what foreign commerce there is left to us under the +Chinese-wall policy of our Government,--the bulk of the freights both +ways,--has to be paid to foreigners, mostly to the British, and these +payments too are made in exportable goods, which wretched fact (looked +at in its causes) increases exports hence relatively to imports +hither, and of course diminishes _pro tanto_ the current price of +mercantile bills drawn here. So far as these _extra_ exports to meet +freight charges are carried to England, they tend to lift there in the +usual way the price of bills drawn on British exports. It is a million +pities, no matter from what point of view one looks at it, that the +present governing classes of this country totally misapprehend the +Nature of foreign trade, and by short-sighted legislation minimize its +Benefits to the people. + +So far we have been unfolding the causes and courses of foreign +exchange on the hypothesis, that both the nations exchanging employ +the same standard in measuring Values. While the present paragraphs +were in process of composition, the President of the United States +signed (July 14, 1890) the so-called "Compromise Silver Bill," which +is to go into operation after thirty days, and the effect of which in +the judgment of some of the best economists and financiers of the +country _may be_ to bring down the national measure of Values from the +gold dollar to the silver dollar. We are bound at this point, +therefore, to explain the action and reaction on the course of the +"exchanges," of a monetary standard lower in general value than the +standard prevailing in the commercial world. We have all the data +needful for clearing up this matter completely, at once in the +inflexible laws of Money and in the actual experience of several of +the Nations. For example, England has the gold standard, and India the +silver standard; there is an immense commerce between the two +countries; silver is merchandise and not money in London, and gold is +merchandise and not money in India; every cargo, accordingly, to and +from either has to have its value "changed" through the price of +current bills into the current money of the other country; the price +of silver in gold in London (average) between 1852 and 1867 was 61-1/3 +pence per ounce; at 60 pence per ounce the ratio of gold to silver is +1:15.716; between 1875 and 1882 silver drooped (with many +fluctuations) in the London market, bearing about the average of +52-1/3 pence per ounce, which is a ratio with gold of 1:18; during the +first half of 1890 the price of silver in London was as nearly as +possible 43 pence per ounce, which is a ratio with gold of 1:21.93; so +that, the prices of India bills in London and of London bills in +Bombay have yielded up to the careful observer all the secrets of the +"exchanges" between high-standard and low-standard countries. + +But we have no need to go out of our own country for illustrations of +all this. Between May, 1862, and January, 1879, the "Greenback Dollar" +was the measure of current Values. It was depreciated every day of +that interval as compared with the gold dollar, and it fluctuated in +the comparison more or less nearly every business day. The New York +importer bought his foreign goods for gold, paid the customs-taxes on +them in gold, and then sold them against greenbacks. How much must he +charge for his goods in order to make himself whole? The current +premium in gold over greenbacks was posted every day, and perhaps +every hour, but was that a safe guide to greenback prices for our +importer? Wholesales are rarely for immediate realization in money, +and even if they were, the money would have to be rechanged into gold +in the future for repurchases abroad. In the uncertainty of greenback +values, the importer must _insure himself_ in his prices to-day +against a possible further depreciation next week, or next month. In +other words, _he must speculate in the prospective gold premium_. +Suppose his industrial cycle to be one month. If he sell his foreign +goods in greenbacks to-day as these stand in comparison with gold, and +greenbacks fall still lower before the month is out, he will lose +money in those transactions; if greenbacks should rise in the +interval, he would gain money, because he could get more gold for them +in the next turn. To the credit of human nature be it said, that in 9 +cases out of 10 a merchant will raise the present prices of his goods +in order to make himself as sure as possible in a case where all is +uncertain. There can be no reasonable doubt that in the fifteen years +of depreciated greenback units, retail prices to ultimate consumers +were lifted 10% above the average reckoning of goods in greenbacks +from this cause alone. + +In regard to exports at that time the facts and principles are still +clearer. These exports were sold in Europe for gold. But the bills of +exchange drawn on them were sold in New York for greenbacks. Take +wheat, for example, of which there was a large export in all those +years. The New York broker or banker in buying these bills was obliged +to make the conversion from greenbacks to gold. He had to estimate as +well as he could what the value of greenbacks would be when the +gold-bill became payable in London. In other words, he had to +speculate in greenbacks, because he had to take the risk of their +declining or advancing value for an interval of time, say, one month. +He would not take this risk without virtually making a charge +sufficient in his judgment to cover it, and leave him a good profit in +any case. This charge came out of the price of the wheat ultimately +paid to the growers thereof. The bill of exchange was sold in New York +or Chicago in order to get present pay for the farmers who furnished +the wheat, and present profit for the commission-merchants or +middlemen. But the bill brought less greenbacks than the quoted +premium on gold would warrant for that day, on account of the risk, +the uncertainty, the speculation. Therefore, less went to the farmers +for their wheat per bushel or centner. _The masses of the people lose +the immense losses of that depreciated money._ And during these very +years also the Government put customs-taxes to a then unheard-of +height on imports from abroad, not primarily for the sake of the +revenue to come from the taxes, but chiefly with a view to keep +certain foreign goods out of the country altogether, in order that +_some_ citizens might be able to sell their own product _to the rest_ +at artificially enhanced prices. Thus the natural market abroad for +wheat and pork and petroleum and other provisions was enormously +lessened by the prohibition of imports,--a market for products is +products in market,--at the same moment when the actual prices for +products exported were still further diminished by the action of +depreciated money on the par of commercial exchange. + +Our neighboring Republic of Mexico has had for a long time the +so-called bi-metallic standard of Money, the same as the United States +have had.[9] When the great fall of silver in gold took place in the +London market as indicated above, gold was rapidly exported from +Mexico, and soon disappeared from circulation, in accordance with +Gresham's Law. For many years now the simple silver standard has +prevailed in Mexico. Its entire working in foreign trade through the +"exchanges" has been sufficiently demonstrated; and as there is more +than a possibility, more even than a bare probability, that the United +States under the law of 1890, and other and earlier extremely +complicated laws of Money, may drop from bi-metallism to silver +monometallism in the near future, in the way of premonition and +warning to our own people we may fitly close our discussion of foreign +"Exchanges" by briefly stating what of hazard and disaster under the +silver standard is now going forward among our neighbors to the +southward. + +The effect of estimating Mexican transactions in silver money, while +all the nations with which they trade estimate theirs in gold, is seen +in an artificial enhancement of prices to the Mexicans on all their +imports, and an artificial depression of prices to them on their +exports. Look first at imports. There is of course a current discount +on Mexican silver as compared with the gold in which the imported +goods are bought. This discount is now over 20% throughout the +commercial world, the London price of silver in gold giving the key to +that song. But this is not all by any means; the discount is variable +from day to day and from month to month; in changing his gold prices +present into silver prices future, the Mexican importers must insure +themselves. This necessitates a speculation in the future of silver. +What the risk may be will depend somewhat on the activity of the +silver market: if silver be rapidly fluctuating in price, the importer +will add more to his silver prices additional to the current premium +on gold, than if silver be comparatively stable; but in all cases he +will add enough to cover all prospective risks. It is quite likely +that five _per centum_ is added on the average to wholesale prices by +Mexican importers on this ground alone, which addition with all the +usual increments must be borne by retail and ultimate prices. + +Now look at Mexican exports. The larger part in value of these exports +is silver in some form, mostly in the form of silver dollars. But +these silver dollars are merchandise in London, and quite variable in +price there, as has already been shown; and bills of exchange drawn on +this silver in any form, and sold in Mexico to parties remitting gold +values to London, are subject to constant depression on account of the +uncertainty as to the value of silver in gold when the bills reach +London. It follows from this, that the use of the silver standard in +Mexico actually depresses the value of silver there. By means of the +"exchanges" both ways, silver tends to be still further depreciated in +comparison with gold, retail prices of all importables enhanced in +silver, and the chief exportable (silver) depressed in value all the +while! Truly, the Mexicans are between the upper and nether +millstones. Poor Money never pays. + +In confirmation of this fact that Mexico has not lifted the relative +value of silver by making it the sole Measure of Value, we have the +corresponding fact that the herculean efforts of the United States +since 1878 to advance the value of silver to a parity with that of +gold in the legal ratio of 1:15.98, have issued in the constant +relative decline of silver here; and, what is more surprising, in an +almost constant increase of the yearly production of silver here. The +following table tells the whole instructive story: the figures are +official: commercial "fine ounces" are .915 of technically "fine" +silver. + + +------+--------------+-------++------+--------------+-------+ + | Year.| Production |Average|| Year.| Production |Average| + | |(fine ounces).|Price. || |(fine ounces).|Price. | + +------+--------------+-------++------+--------------+-------+ + | 1878 | 34,960,000 | $1.15 || 1884 | 37,800,000 | $1.11 | + | 1879 | 31,550,000 | 1.12 || 1885 | 39,910,000 | 1.06 | + | 1880 | 30,320,000 | 1.14 || 1886 | 39,440,000 | .99 | + | 1881 | 33,260,000 | 1.13 || 1887 | 41,260,000 | .97 | + | 1882 | 36,200,000 | 1.13 || 1888 | 45,780,000 | .93 | + | 1883 | 35,730,000 | 1.11 || | | | + +------+--------------+-------++------+--------------+-------+ + +These Seven, then, are the essential Principles of Foreign Trade, +brought out, it is hoped, as clearly and consecutively as the relative +and complicated nature of the transactions will allow; in the light +of these Principles it is very clear, that Foreign Trade is just as +legitimate as, and may be more profitable than, Domestic Trade; that +it rests on the same ultimate and unchangeable grounds in the +constitution of Man, and in the Providential arrangements of Nature; +that the Profit of it is mutual to both parties, or it would never +come into being, or, coming into being, would cease of itself; that to +prohibit it, or restrict it, otherwise than in the interest of Morals, +Health, or Revenue, must find its justification, if any at all, wholly +outside the pale of Political Economy; and that for any Government to +say to its citizens (of whom Government itself is only a Committee), +who may wish to render commercial services to foreigners in order to +receive back similar services in return, that such services shall +neither be rendered nor received, is not only to destroy a Gain to +both parties, but also to interfere losingly with a natural and +inalienable Right belonging to both. + +If the reader pleases, we will turn now, in the second place, to the +METHODS AND MOTIVES IN VOGUE TO RESTRICT AND PROHIBIT FOREIGN TRADE. +The instrument for this purpose is called a _Tariff_. The origin of +the word Tariff, its nature and kinds, will throw much light upon what +has been a vexed question, but is one easily solvable, and indeed long +ago resolved. + +1. Origin.--When the Moors from Africa conquered Spain in the year of +our Lord 711, they fortified the southernmost point of the peninsula +where it juts down into the Straits of Gibraltar, and by means of +their castle and town, called in their Barbary language _Tarifa_, +compelled all vessels passing through the Straits to stop and to pay +to these Moorish lords of the castle a certain part (determined by +themselves) of the value of the cargoes. This payment appears to have +been blackmail pure and simple; it was certainly extorted by force; +and whether there were any pretence of a return-service in the form of +promised exemption from further pillage or not, that made no real +difference in the nature of the transaction. Eleven centuries later, +the United States demonstrated what they thought about similar +extortions on American commerce practised in the same waters by the +descendants of these same Moors, by despatching Commodore Decatur with +a strong fleet to Algiers and Tunis and Tripoli; to which piratical +states they had already paid in twenty-five years two millions of +dollars in "tribute" or "presents" for exemptions of their +Mediterranean commerce from plunder; who captured the pirate ships and +compelled the terrified Dey of Algiers (and the rest) to renounce all +claim thereafter to American "tribute" or "presents" of any kind. The +word _Tarifa_, accordingly, in English and other modern languages, a +word which seems to be very dear to some men's hearts, does not appear +to have had a very respectable origin, though that is not sufficient +of itself to condemn the thing described by the word. That will depend +upon its nature and purposes. + +2. Its nature.--There never was one particle of doubt on the part of +those compelled to pay the Moorish demands at Tarifa, or on the part +of the United States compelled to pay "tribute" to the Algerines for a +quarter of a century, about the _nature_ of the transaction. The sign +at Tarifa was _minus_, and not _plus_. To the credit of those pirates +let it be said, that they never pretended to take what they took for +the _benefit_ of those from whom they took it. They took it for their +own benefit. The action was abominable, but it was aboveboard. There +was no deceit and no pretence about it. Both parties knew perfectly +what was going on. What was delivered was just so much _out_ from what +would otherwise have been the _gains_ of the voyage. And the truth +is, the thing, tariff, is always true to the origin of the word, +tariff, so far as this, that a tariff always _takes_, and never +_gives_. The only phrase a tariff speaks, or can speak, is, _Thou +shalt pay_! There is lying open on the table of the writer at this +moment a stout volume of 417 pages, printed, with nearly as many more +interleaved, entitled Tariff Compilation, published by the United +States Senate in 1884, containing every item of all the tariffs passed +by Congress from 1789 to the present time. One may read this volume +from beginning to the end, or he may read it from the end backwards to +the beginning, or he may begin in the middle and read both ways, and +all he will find between the covers is a series of _Demands_ made upon +somebody to _pay_ something. These demands, of course, are made upon, +and realized from, the citizens of the United States, who are the only +people under the authority and jurisdiction of the Congress. A tariff, +then, may be correctly defined as _a body of takings or taxings levied +upon the people of any country by their own government on their +exchanges with foreigners_. How anybody can intelligently suppose that +a body of _taxes_, which their own countrymen will have _to pay_, can +be so cunningly adjusted as to become to them a positively productive +agent, a blessing and enrichment to the payers, a spur to the progress +of their Society, _they_ may be properly called upon to explain who +pretend to believe such an absurdity in the nature of things. + +3. Its kinds.--There are two kinds of Tariffs under our general +definition, very diverse from each other in their respective purposes, +principles, incidence, and results. + +(1) There is a tariff for Revenue. The sole purpose of a revenue +tariff as such is to get money by this mode of indirect taxation out +of the pockets of the People for the coffers of the Government, in +order to be then expended, governmentally, for the general benefit of +those who have paid the money in for that single end. The underlying +thought of this kind of tariff, a tariff for revenue only, is, that +the Government itself shall get all the money which the people are +obliged to pay under these taxes, except the bare cost of collecting +them; that only _such_ taxes shall be levied at all as will come +bodily and readily into the general Treasury for public uses; and no +intelligent and justice-loving people will long tolerate tariff-taxes +laid with any other intent than the economical support of their +government, or laid in any other way than shall bring into the +Treasury all that is taken out of the People. A Revenue Tariff, +therefore, may be properly defined as _a schedule of taxes levied on +certain imported goods with an eye only to just and general taxation_. + +There are three vital principles on which a revenue tariff as such +must always be levied. (a) As the sole object is to get money for the +national treasury, and as money can only be gotten as the foreign +goods taxed are allowed _to come in_, such taxes must be levied at _a +low rate_ on each article taxed, so as not to interfere essentially +with the bringing in of that class of goods with a profit to the +importers, and not at all to encourage the smuggling of them in. (b) A +varied experience of all the commercial nations has shown, that it is +not needful in order to derive a large and growing revenue to lay even +low rates on _all_ goods imported, but only on certain classes of +them, so as to burden at as few points as possible the successful +ongoing of international exchanges; since the prosperity ever induced +by commercial freedom enables a country to import and to pay for in +its own quickened products vast quantities of the articles subjected +to the tax, so that large revenues come from low rates levied at few +points. Here we lay bare the ground of a great income in the +exemption of the bulk of imports from any tax at all. (c) Custom-taxes +should be laid wholly or at least mainly on articles procured from +abroad, and not also produced at home; for otherwise the incidence of +the tax on the portion imported will necessarily raise the price also +of that portion made or grown at home; and thus the people will pay +_more_ money in consequence of the tax than the Government _gets_ from +the tax in revenue. Three points, then, in a revenue tariff, namely, +_low duties on few articles, and these wholly foreign_. + +The best modern example of a purely revenue tariff is that of Great +Britain since 1860. All duties are on one or other of the following +sixteen items, namely, Beer, Cards, Chiccory, Chocolate, Cocoa, +Coffee, Fruit, Malt, Pickles, Plate, Spirits, Spruce, Tea, Tobacco, +Vinegar, and Wine. Of these, Spruce yielded no revenue in 1880; Cards, +Malt, Pickles, and Vinegar, yielded in the aggregate that year only +£1.491; leaving the other eleven items to furnish practically all the +customs revenue; but of these Coffee and its three substitutes with +Beer and Plate, furnished only £337.258, so that, the remaining five +articles yielded £18.915.489, or 98% of the whole income in 1880. In +other words, Fruit, Spirits, Tea, Tobacco, and Wine, brought in all +but 2% of the customs-taxes of Great Britain in 1880. In 1890, the +duties on certain Wines and Spirits having been lifted, there was a +large surplus of revenue over the Estimates, which has just been +devoted to the enlargement of the Navy. Every other European +commercial country had a deficit that year as compared with its +Estimates of the year preceding. The figures are not now at hand for +an exact statement, but there can be little reasonable doubt that the +"Five Articles" rendered at least 98-1/2% of the tariff-taxes of +England last year. If there be also some domestic production of any +article taxed by the British tariff, a corresponding excise-tax on +that part produced at home, which part would otherwise be raised in +price by the tariff-tax to no advantage of the Revenue, enables that +Government to get easily all that the people are made to pay in +consequence of the tariff-tax on the imported part. + +(2) There is a tariff under Protectionism so-called. The ruling aim in +this second kind of tariff is not at all to obtain income for +Government in order to promote the general good, but on the contrary +by means of heavy taxes on _foreign_ articles to raise the prices of +corresponding _domestic_ ones for the exclusive benefit of a few +producers of these home goods at the expense of all home buyers of +them. If these special tariff-taxes be so high and complicated as to +keep out altogether the foreign articles, and so the Treasury realize +nothing at all from the taxes on them, so much the more +"protectionist" do they become, and so much the better pleased are the +special domestic producers with the entire monopoly of the home market +at their own prices. Such taxes are prohibitory and protectionist at +the same time. Prohibition is the perfection of Protectionism. A +Protectionist Tariff, accordingly, may be justly defined as _a body of +taxes laid on specified imported goods with a single eye to raise +thereby the prices of certain home commodities_. + +The vital points of a protectionist tariff are also three, but these +are the exact opposites and antipodes of the three points of a revenue +tariff, so that it is self-contradictory and impossible to combine in +one tariff-bill the two sets of contrary elements. A revenue tariff +with incidental protectionism is a solecism. (a) If a tariff-rate is +to be protectionist in character, that is, competent to raise the +price of home products, it must be _high_, so as either to exclude +altogether the corresponding foreign products, in which case there is +no revenue at all, or else to make their price by means of the duty +added reach the point at which the home producers plan to sell their +own, in which case there will be very little revenue. For instance, +when the Bessemer steel companies asked in 1870 for two cents a pound +tariff-tax on foreign steel rails, they called it in terms in their +"confidential" statement to the Ways and Means "_exceptional +protection_," and admitted in so many words that they expected to +supply the home market entirely, and so the Government would get +_nothing_ in revenue and the people be compelled to pay $44.80 _extra_ +for their home steel rails per ton. It is a little bit of comfort to +think, that they only obtained $28 per ton, or 1-1/4 cents per pound, +which was not quite prohibitory, so that the Government got a little +revenue on steel rails, and the people paid for some years only about +_double_ for their rails what they were worth in a free market! To +reach its end a protectionist tariff-tax must be _high_ of necessity. + +(b) No system of protectionist tariff-taxes can be entered upon or +continued in any country except by means of many persons who all alike +want their special products artificially lifted in price by +legislation, and who are obliged _to combine_ in order to get and keep +what they want, so that protectionist taxes on a few things only were +rarely or never found in a tariff; so contrary are such taxes to the +common sense and common interests of man, that only strong +combinations of many special interests can begin or maintain them, +whence there must be _many_ taxes if any under this strongly selfish +scheme; and by an actual count of them by the writer in 1868 there +were found to be 2317 distinct rates of tax assessed on different +foreign articles in the Tariff of the United States, which was +strikingly in contrast with the Revenue Tariff of Britain in point of +the number of things taxed. So needful is log-rolling to the +maintenance of protectionism, that the passage of the "knit-goods +bill" in the summer of 1882, for example, was contingent on the +contemporaneous passage of the famous "River and Harbor bill" of that +year. + +(c) While Revenue Taxes select by preference things wholly imported, +Protectionist Taxes are placed of course on such foreign goods as are +also and especially made or grown at home, otherwise their plain and +sole purpose would be thwarted, which completes the contrast between +the two kinds of tariffs. For illustration, Tea and Coffee are the +best things possible to tax in a tariff for revenue, because (1) they +are in universal consumption, and (2) they are wholly imported, and +taxes upon them do not raise the price of anything else, and so the +Government gets all that the people pay under them; for this very +reason the taxes upon Tea and Coffee, which had yielded for years some +$20,000,000 of revenue yearly, were thrown off in 1872 under +protectionist leadership, by the deceptive cry of "_a free breakfast +table_," in the subtle interest of commercial bondage; seeking to give +the impression on the one hand that everything on the breakfast table +was to be free, whereas nothing on it or around was to be free except +the two beverages mentioned, and on the other hand that the removal of +these two taxes was a great boon to the people, whereas the motive for +the removal of these was _to continue_ on the people burdens tenfold +heavier. Eighteen years have rolled away since then, and Tea and +Coffee are still upon the free list; the incompatibility of the two +kinds of tariff-taxes is demonstrated in the fact, that there has not +been for years a single tax primarily for revenue in the United States +tariff,[10] the opposite protectionist idea having logically wrought +itself out there; and the same incompatibility is shown in the +British tariff, in which there has been no protectionist tax since +1860. Each aim logically carried out completely excludes the other +aim. + +The best and worst specimen of a protectionist tariff that the world +has ever seen, has been in operation in the United States for thirty +years, 1861-1890. Its inner history is not yet fully known by the +public, but enough is known to expose the motives and to condemn the +action of all those, whether constituents or congressmen, who knowing +what they were doing, contributed to build up gradually that mass of +incongruities and iniquities, under which the entire agricultural +class of the country (nearly one-half of the people) has become +impoverished, by much the larger part of the farming lands of the +Union covered by heavy mortgages, and the ocean-marine of a naturally +nautical people almost totally destroyed. Attempts more or less +successful have been made at various times and at different points to +conceal from the Public the impulses really behind the provisions of +this tariff, and even the amount and the mode of the incidence of its +taxes; many of the most protectionist taxes have been complex, +combining upon the same article _specific_ and _advalorem_ rates, as +for instance, upon blankets "_50 cents per pound and 35% advalorem_," +so that it was difficult or rather impossible for the common reader or +buyer to ascertain how much the tariff-tax really was; much of the +language of the tariff-bills has been to the last degree involved and +uncertain, often leading to perplexing disputes and costly litigations, +and sometimes covering up a half-hidden purpose; importers have been +bribed, as it were, in cases of doubtful legality, to pay the maximum +rates demanded, by the prospect and promise that the extra sums if +ultimately found by the courts illegal should be repaid bodily _to +them_ and not to the people who in the mean time had bought and paid +for the goods thus enormously enhanced in price, and millions of the +people's money have gone back in that way to importers and to spies and +informers; a careless wording in tariff-descriptions has again and +again covered goods not designed to be touched, as the lastings and +rubber webbings of the shoemakers to the consternation of that great +interest, which asked for no protectionist privilege for itself, but +wanted its raw materials at their natural price; and the iron industry +of Pennsylvania was bitterly angry at Secretary Sherman, who construed +a line of the tariff relating to cotton ties used at the South more +favorably to the planters than to the iron-workers, although the latter +were strongly privileged at every point of the tariff (even at this) in +the teeth of the interests of the consumers of iron, and the later +honorable ambition of the Secretary to become a candidate for the +Presidency of the United States was largely thwarted in consequence by +the hostility of these miserable and revengeful monopolists. + +There were fifty descriptions of iron and steel taxed by the tariff in +1879, and the average rate of tax on these at that time was 77% +_advalorem_, and this was about the average rate for the thirty years +under the consideration. On special articles of prime necessity and +universal consumption, as steel rails, the tax varied under the rate +of $28 per ton put on in 1870 from 85% to 100% _advalorem_; and the +purpose of this particular tax was plainly seen in an average price of +domestic steel rails in this country $24.44 a ton higher than in +England for better rails under a longer guarantee for the eleven +years, 1870-80; in other words, 87% of the tax paid on the smaller and +better part imported was added to the average price of the larger and +worser part produced at home during those eleven years. That the +English rails were better and even regarded as cheaper under their +guarantee with the $28 a ton added to their price, is proven by the +fact that the N. Y. Central railroad company relaid their tracks with +the English rails, and were putting them down in Detroit in plain +sight of simultaneous track-laying across the river in Canada, where +the same kind of English rails were costing $28 a ton less. Every +passenger and ton of freight carried by steel-track roads in the +United States in this interval contributed his and its share to make +up to the roads this _extra_ price paid for steel rails. In 1883 the +tariff-tax on steel rails was reduced to $17 per ton. That this +enormous artificial price of iron and steel products under +tariff-taxes redounded wholly to the profit of the capitalists +concerned, and not at all to the benefit of the laborers concerned, is +shown by the Census of 1880, which gives $393 as the average pay for +that year of the persons employed in the iron and steel industries of +the country; and the late Senator Beck of Kentucky demonstrated on the +floor of the Senate, _nemine contradicente_, that only 8.8% of the +value of the products of the Bessemer steel industry in 1881 went to +the laborers employed in it, while 66.9% of the same went to the +capitalists as profits. Let the thoughtful reader remember at this +point, that iron and steel products are only one of an indefinite +number coddled and privileged by the tariff at the expense of the +masses of consumers. + +It is impossible to tell exactly _how much_ more the people of the +United States were compelled to pay for their commodities under +tariff-taxes, whose ground-thought was to compel them to pay more and +the more the better, than the Treasury received as the direct product +of these taxes during 1861-90, but an approximation can be made within +the truth whose results are fitted to startle the minds of all good +citizens. For convenience' sake only, and because the official +figures are complete for the shorter period, let us take for +comparison the twenty years, 1863-82. The annual average tariff-income +for those 20 years was in round numbers $158,000,000; but the +ground-thought of the tariff-scheme in all those years was not to get +an income for Government, but factitious prices for capitalists +privileged by law; and during the last half of the time there were no +tariff-taxes on Tea and Coffee, which had been before the principal +revenue taxes. If, now, we may fairly suppose, that for each _one_ +foreign article paying a tax into the Treasury there were _four_ +domestic articles raised each in price as much as the foreign article +paid in customs-tax, then it follows, that the People paid in each of +those 20 years under customs chiefly protectionist, $632,000,000, or +$12,640,000,000 in all, no penny of which went into the Treasury of +the United States. That this supposition of 4:1 is wholly reasonable, +appears partly from the known proportion (officially reported) between +Domestic and Imported as to several leading articles, for example, of +steel rails in 1880 the Domestic was 20 times the Imported, and the +People paid 19 times more under the tax than the Treasury got; and on +woollen blankets in 1881 the Treasury took in less than $2000, while +the People paid in the _extra_ price of blankets more than 1000 times +that sum that year; and on iron and steel goods of all kinds the +average tariff-taxes were about 77% in that interval of time and the +vast bulk of the iron and steel goods consumed was boasted to be of +domestic production. + +Let us confirm these striking results by another more than reasonable +supposition taken from the opposite quarter. The census of 1870 gave +$4,232,000,000 as the value of home manufactures for that year, which +we may fairly take as the average of the 20 years under consideration; +now, if we throw off one-third of those home products as not affected +by the tariff at all, and reckon that the rest were only raised in +price 22%, which was only one-half of the average rate of tax on +dutiable goods,--the average rate on these was officially pronounced +in 1880 at 44%,--then almost precisely the same results will follow as +before: two-thirds of $4,232,000,000 is $2,880,000,000, and 22% on +that sum is $633,600,000. An acknowledged statistical expert of +national reputation, Mr. J. S. Moore, calculated from data quite +diverse from our own, that the People paid $1,000,000,000 in the one +year, 1882, _extra_ to the sum reaching the Treasury that year, under +protectionist tariff-taxes. We see, then, clearly the _methods_, by +which Protectionism reaches its ends, and we cannot but conclude, that +these methods issue in monstrously unjust burdens on the masses of the +People. + +It remains, under this second general head, to examine the _motives_ +of those men, who have gotten the protectionist tariff-taxes put upon +the different classes of imported goods in this country. Fortunately +we have data of unquestionable authority, covering the entire first +century of our national existence, which prove these two propositions: +first, _that no protectionist tax has ever been_ PUT ON _by our +Congress from the first day until this day except at the instance and +under the pressure of the very men personally and pecuniarily +interested to secure thereby an artificial rise of price for their own +domestic wares_; and second, _that these very men have been almost, if +not quite, as active and determined_ TO KEEP OFF _protectionist taxes +on other goods used by them in their processes of production, whether +raw material, machinery, or accessories_. These two propositions, +taken together, demonstrate beyond a cavil the motives of the +protectionists as a class. Of course, they have had their dupes and +tools. Out of their own mouths and out of their own actions are they +to be judged. One hundred years is long enough of time in order to +display perfectly the motives of a prominent and persistent class of +men, under that Government of the world, whose key-note is Exposure, +and under that maxim of the world, Actions speak louder than words. + +Thomas H. Benton, a United States Senator from Missouri for 30 years, +1820-50, himself in all that time a prominent leader and debater, and +always an indefatigable investigator, published an _Abridgment of the +Debates in Congress from 1789 to 1856_ in 15 large volumes. Each +important tariff Debate for the first 70 years of our national history +is distinctly brought out in these volumes, and the impulses and +motives behind each leading speaker may be discerned as clear as day. +The present writer has been over these debates with great care, and +has mastered them in their substance and motives on both sides; and he +has been besides a deeply interested reader and excerptor of all +Congressional tariff-debates for more than 30 years just past; and now +invites his present readers to take a cursory glance over this broad +field, and satisfy themselves as to the motives personal and associate +of the protectionist debaters from the first to the present time. + +Because the new Constitution prescribed that "_all bills for raising +revenue shall originate in the House of Representatives_," the main +debates on the first tariff-act of 1789 were in that branch of the +national Legislature. Nothing could be simpler or sounder than the +basis of the new tariff as proposed by Madison, the acknowledged +leader in the debates, namely, the so-called Revenue System of 1783, +as adopted by the old Congress, and ratified by all the States in +succession, excepting New York. That was, small specific taxes on +eight articles, namely, Wines, Spirits, Tea, Coffee, Cocoa, Molasses, +Sugar, and Pepper. In the earlier part of the discussion no other end +than revenue was mentioned in connection with the taxes. Madison +said: "_I own myself the friend of a very free system of commerce: if +industry and labor are left to take their own course they will +generally be directed to those objects which are most productive, and +that in a manner more certain and direct than the wisdom of the most +enlightened legislature could point out; nor do I believe that the +national interest is more promoted by such legislative directions than +the interests of the individuals concerned._" It is significant of +after times that the first word in this debate respecting any other +word than revenue through the tariff-taxes came from Pennsylvania; and +equally significant, that the next and strongest words for something +else than revenue came from Massachusetts; and more significant than +either was the junction of the two States in influence and votes when +it came to the final adjustment of the actual tariff-rates. +Pennsylvania had already gotten well forward in the manufacture of +iron and steel products, particularly of nails, and wanted +"_encouragement_," that is, protectionist taxes upon the foreign +products corresponding. Said Hartley of Pennsylvania: "_I am therefore +sorry that gentlemen seem to fix their mind to so early a period as +1783; for we very well know our circumstances are much changed since +that time: we had then but few manufactures among us, and the vast +quantities of goods that flowed in upon us from Europe at the +conclusion of the war rendered those few almost useless; since then we +have been forced by necessity, and various other causes, to increase +our domestic manufactures to such a degree as to be able to furnish +some in sufficient quantity to answer the consumption of the whole +Union, while others are daily growing into importance. Our stock of +materials is, in many instances, equal to the greatest demand, and our +artisans sufficient to work them up even for exportation. In these +cases, I take it to be the policy of every enlightened nation to give +their manufactures that degree of encouragement necessary to perfect +them, without oppressing other parts of the community._" + +Massachusetts was not a whit behind Pennsylvania in asking for +discriminations in her own favor at the obvious expense of the rest of +the country. New England rum was made out of molasses, and Jamaica rum +was its competitor in public favor; distillers in the neighborhood of +Boston and Salem wanted therefore a _high tax_ on Jamaica rum, and a +_low one_ on the imported molasses used in the home manufacture. +Madison was willing to discourage rum-making and rum-selling both in +the interest of temperance, and proposed a tax of eight cents a gallon +on molasses and fifteen cents on Jamaica rum, which called out this +indignant burst from Goodhue of Massachusetts: "_Molasses is a raw +material, essentially requisite for the well-being of a very extensive +and valuable manufacture. It ought likewise to be considered a +necessary of life. In the Eastern States it enters into the diet of +the poorer classes of people, who are, from the decay of trade and +other adventitious circumstances, totally unable to bear such a weight +as a tax of eight cents would be upon them. I cannot consent to allow +more than two cents. Massachusetts imports from 30,000 to 40,000 +hogsheads annually, more than all the other States together. Fifteen +cents, the sum laid on Jamaica spirits, is about one-third part of its +value: now eight cents on molasses is considerably more: the former is +an article of luxury, therefore that duty may not be improper; but the +latter cannot be said to partake of that quality in the substance, and +when manufactured into rum is no more a luxury than Jamaica spirits._" + +The Senate in the First Congress sat with closed doors, and was thus +more open than the House to the influence of interested petitions +which soon began to pour in upon it, asking for amendments to the +House bill in the line of protectionism; and through such amendments +the Massachusetts and Pennsylvania members, with a few other members +similarly inclined, partially carried their points into the first +Tariff. The tax on molasses was fixed at 2-1/2 cents a gallon, and on +Jamaica rum at ten cents a gallon; nails were taxed one cent per pound +imported; and an accepted Senate amendment classed Hemp and Cotton +together as two products of the soil worth "encouraging," hemp at 3/5 +of a cent per pound and cotton at three cents a pound; yet hemp +constantly "encouraged" to this day at the cost of ship building and +other industries has never risen to the rank of a staple. Coal was +also taxed protectionistly, at the instance of Virginia, then the +coal-producing State. Note the three universal features of +Protectionism in the original application of it to the United States; +(1) the purely selfish call to tax one's neighbor in order to lift the +price of one's own wares (nails), (2) the equally selfish resistance +to such a tax as falls on one's raw materials (molasses), and (3) the +final log-rolling among those legally privileged at different points +(Massachusetts and Pennsylvania and Virginia). + +Take a second instance of the same general point from our second +Tariff, passed in 1816. Two Massachusetts young men, Lowell and +Jackson, brothers-in-law, had started a modern cotton-mill in Waltham, +near Boston, in 1813, and constructed in it, with the help of an +ingenious mechanic named Moody, a power-loom; as soon as the war with +England was over, and Congress in consequence began to talk about a +new Tariff, Lowell went to Washington, and by personal influence with +Mr. Calhoun, then the leading man in the House, with Mr. Lowndes his +colleague from South Carolina, who afterwards reported the new bill, +and with other members of Congress, contributed largely to the +introduction into this Tariff of protectionist features towards +_cottons_. Lowell struck strong at the start. He represented +(doubtless with entire honesty) to Calhoun and Lowndes, both from a +cotton-planting State, that a domestic market for raw cotton _in +addition_ to the foreign market would raise the price of that +agricultural staple. Both were easily convinced that such would be the +case, although both found ample reasons afterwards for altering their +opinion in that regard. Lowell, the "cotton city" on the Merrimack, +founded in 1821, was named from the successful lobbyist of 1816. +Lowndes reported a tax on cottons of 33-1/3% _advalorem_, with a +proviso _that all cottons should be assumed at the custom-house to +have cost at least 25 cents to the square yard_. This was the famous +principle of the "_minimum_," a device to increase the protectionism +without _seeming_ to do so. + +The debate on this feature of the bill was a marvel in many ways. The +penetrating reader will not be at a loss for the reason of this. John +Randolph moved to strike out from the bill the proviso for the cotton +_minimum_, and argued at some length "_against the propriety of +promoting the manufacturing establishments to the extent and in the +manner proposed by the bill, and against laying up 8000 tons of +shipping now employed in the East India trade, and levying an immense +tax on one portion of the community to put money into the pockets of +another_." Calhoun rejoined: "_Until the debate assumed this new form, +he had determined to be silent; participating, as he largely did, in +that general anxiety which is felt, after so long and laborious a +session, to return to the bosom of our families. It has been objected +to that bill, that it will injure our marine, and consequently impair +our naval strength. How far it is fairly liable to this charge, he was +not prepared to say. He hoped and believed it would not, at least to +any alarming extent, have that effect immediately; and he firmly +believed that its lasting operation would be highly beneficial to our +commerce. The trade to the East Indies would certainly be much +affected; but it was stated in debate that the whole of that trade +employed but six hundred sailors. The cotton and woollen manufactures +are not to be introduced: they are already introduced to a great +extent; freeing us entirely from the hazards, and in a great measure, +the sacrifices experienced in giving the capital of the country a new +direction. The restrictive measures and the war, though not intended +for that purpose, have by the necessary operation of things turned a +large amount of capital to these new branches of industry. But it will +no doubt be said, if they are so far established, and if the situation +of the country be so favorable to their growth, where is the necessity +of affording them protection? It is to put them beyond the reach of +contingency._" + +Thus Calhoun goes on, making the greatest mistake of his life which he +regretted to his dying day, to give plausible reasons for his +insistence and his vote, but he does not even touch upon the _real +reason_. If he had detailed his conversations with Lowell, it would +have been far more to the point. His motive, like that of every other +man in Congress who has urged protectionist schemes, was the special +benefit of some of his constituents at the more or less concealed +expense of their countrymen. But, as always happens when men really +act from unavowed motives, he was suspected of having them; and he +guarded himself: "_He was no manufacturer; he was not from that +portion of the country supposed to be peculiarly interested. Coming as +he did from the South, and having in common with his immediate +constituents, no interest but in the cultivation of the soil, in +selling its products high, and buying cheap the wants and conveniences +of life, no motives could be attributed to him but such as were +disinterested._" But Randolph still charged, that the discussion +showed "_a strange and mysterious connection_" between this measure +and the National Bank bill which had just passed. This was a loophole +of escape for Calhoun: "_he wished merely to reply to the insinuation +of a mysterious connection between this bill and that to establish the +Bank. He denied any improper or unfair understanding, and could +challenge the House to support the charge._" + +A beautiful instance of the _confession_, which all protectionists +make in action when it comes to the pinch, that a rise of price is at +once the object and the result of protectionist tariff-taxes, is found +in the awkward attempt of Congress to relieve indirectly the burnt-out +citizens of Chicago in 1871. The great fire occurred in October of +that year. In the winter following a bit of legislation took place in +Congress in consequence, which is too instructive to be passed by +without notice, because in all the parts of it taken together we have +in epitome the motives and the processes and the prompt confessions of +Protectionism. Contributions were taken up all over the country, and +even in Europe, for the relief of the people of Chicago. As Whittier +puts it: + + "From East, from West, from South and North, + The messages of love shot forth, + And, underneath the severing wave, + The world, full-handed, reached to save." + +But cannot Congress do something to help rebuild the ruined city? +April 5, 1872, President Grant set his signature to a congressional +bill enacted to last one year only, and for the express benefit of +Chicago alone, _to exempt all building materials except lumber from +the operation of tariff-taxes_. As a public and emphatic confession on +the part of Congress, that tariff-taxes raise the prices of +protectionist goods, and that the remission of such taxes lowers the +prices of such goods and becomes a boon to the buyers, all this is +refreshing and satisfactory; but why was _lumber_, by much the most +important of the building materials needed, _excepted_ from the bounty +of the legislators to the unfortunates of Chicago? The bill applied to +Chicago only, and was to last but one year at best! The bill as drawn +and debated included _all_ building materials. Why was lumber +excepted? Because, while the bill was still pending, a special car +filled with the lumber-lords of Michigan and Wisconsin was rolled to +Washington in haste, and the potent influence of these men was +sufficient to cause the express exemption of their product from the +intended cheapening (for one year) of the building materials for +desolated Chicago. The brief official record of this curious +transaction will be found in U.S. Statutes for 1872, page 33. It needs +no comment but the obvious one, that here is the whole matter of +protectionism in a nutshell;--the motive, the open confession, the +greedy lobby determined to thrive on their neighbors' misfortunes, the +inhumanity, the spirit of monopoly, the infernalism,--a game of grab +from beginning to end! + +Shameless as the protectionist debates in Congress have been from the +start, in letting it be plainly seen, that the sole motive of their +efforts is an artificial rise of price in certain goods which their +fellow-citizens would be compelled under the law to pay, the debate in +the House of Representatives in the spring of 1883 was by far the most +shameless and avowed in this respect of any that ever transpired +there. In the last days of that debate all pretence of any action for +the good of the country at large dropped utterly out of the discourse: +the old fallacies and disguises and subterfuges of "home markets" and +"higher wages" and "commercial independence" were no longer put +forward even in word under the clash of selfish interests, and in the +eagerness to secure for their wares a factitious price to be paid by +their countrymen; proposed reductions in tariff-taxes were fought off +by these men, and in many instances still higher taxes were urged on, +under their unabashed avowal that, unless home prices were thus +stiffened and uplifted, they could not make and sell their wares at a +profit; one honorable member from New Jersey brought his pottery wares +upon the floor of the House, and tried to demonstrate to his +fellow-members that, unless these very goods were hoisted in price, by +taxes on his foreign competitors, he could no longer tread his clay +and work his wheels with profit to himself: in other words, he and +others like-circumstanced, by lobbying and log-rolling, persuaded +Congress to pass so-called laws to compel their countrymen _to hire +them to carry on what they publicly alleged were unprofitable branches +of business_. By their own confession, the only trouble with their +goods was, that they were inferior in quality and superior in price to +otherwise similar goods in the open market of the world. + +One more, and the latest instance, out of hundreds equally accessible +and equally conclusive, will suffice for a demonstration of the point +in hand. In the early summer of 1890, a Massachusetts member of the +House of Representatives, an avowed protectionist from an alleged +protectionist district of that State, waxed so warm in arguing against +a protectionist tax upon a certain raw material useful in tanning +leather, that he took off his coat and proceeded in his shirt-sleeves! +One would suppose, both from his zeal and the tenor of his speech, +that he was a veritable free-trader! But no! He had argued a hundred +times that protectionist taxes (to be paid by other people) were a +good thing for the payers, and enriched the whole country; but lo! it +turned out in this case that he himself was a buyer of this particular +material, and lo! he did not relish the tax-lifted prices caused by +the tariff. They were all wrong. They must be fought off at all +hazards, even in the hottest weather! This is a very respectable +gentleman, well thought of by his neighbors in Worcester County, but +his protectionism is _not_ respectable. It is chameleon-colored. It is +one thing in one light, and an opposite thing in another light. +Indeed, the protectionist congressman has never yet been discovered in +this country, who was fond of paying protectionist taxes himself, or +willing that his immediate and powerful constituents should pay them! +It has been proven many times over, that the very strongest friends of +a Free List in this broad land have been certain so-called +protectionist Senators and Representatives. + +From these few sample-examples, the reader of penetration will +perceive, that there is no element of logical coherence or moral +decency or even outward respectability in Protectionism. There is no +_principle_ in it or of it. It does not hang together. It walks in +darkness and not in light. It is full of deceit. It is fond of +disguises. It is contrary to common sense. It offends justice. +Morality frowns at it. It has no basis in any Science, least of all in +the Science of Buying and Selling, whose best impulses it feebly tries +to deny, and whose largest and most innocent gains it fain would +destroy. + +Next in order we will examine, in the third place, a few of the chief +FALLACIES AND FALSEHOODS, by which Protectionism has striven to give +itself a standing in the commercial world. In our day at least, these +are, without exception, afterthoughts and subterfuges. We have just +seen under the last head the real impulses, plain as a mountain peak, +which put on and keep on and pile up these taxes on the masses of the +people; but these real motives will not bear inspection and public +criticism, and so plausible reasons must be found or at least +propounded, which shall do the double duty of covering the real +reasons, and of seeming to convince while they only perplex the +victims of the scheme. These plausibilities we propose now to analyze +and to expose. The test of any alleged truth is its harmony with +acknowledged truths: the test of any propounded error is its +incongruity with and contradiction of acknowledged truths. On a +logical comparison, therefore, of any false proposition with any known +truth, the latter will be sure to fling out its flat contradiction and +floor the falsehood forever. Protectionism contradicts economic truths +at practically innumerable points, but we will now watch the +collisions at the principal points only. + +Fallacy A: _that a nation may still sell to foreign nations while +prohibiting the buying from them_. Protectionism is multiplied +prohibitions on the buying of goods from foreigners. Between four and +five thousand of such prohibitions deface our national Statute-book at +the present moment. All the while, however, the assumption underlies +this policy, and the express proposition is often heard in different +forms along the lines, that our citizens may still sell their products +to foreigners, nevertheless. England has _got to buy_ our cotton or +starve: the Continent _is compelled_ to take our pork products, for +they are the cheapest food in the world: how can China or India _help_ +taking the silver from our mines? Softly. Buying and selling from the +very nature of it is never compulsory, but always voluntary. A +commercial service is never rendered but in plain view of a +return-service to be received. The mental estimation of each buyer is +couched in the very terms of what is offered in return by each seller. +Buying and selling from its inmost nature is always one act of two +persons acting conjointly and inseparably to the advantage of each. +How, then, can the individuals of one country _sell_ anything to +individuals of another country without at the same instant _buying_ of +these in return? The act of selling is just as much buying as it is +selling, and the act of buying is just as much selling as it is +buying. As we have abundantly seen already, the introduction of Money +as a _medium_ in the transaction makes no difference in the _nature_ +of the exchange of commodities internationally. The postulate, +therefore, that the people of one country can continue to sell +products to the people of another while refusing to take their +products of some kind in return, is an _absurdity_ in the nature of +things and an _impossibility_ in the world of facts. _A market for +products is products in market._ + +All known facts confirm this irrefragable reasoning, and discredit +utterly the fallacy in hand. When France and Germany a few years ago +gave back to our protectionists a dose of their own medicine, and +prohibited American pork-products, ostensibly because they feared the +trichinæ but really to cajole their own farmers under the plea of +protectionism, their brethren in the faith have made up all sorts of +faces ever since, have wound up the respective diplomatic clocks to +strike twelve against the too presumptuous countries which ventured to +restrict American products in their ports, have protested and +proclaimed. What is the matter? Is not sauce for the goose sauce for +the gander also? Have not American protectionists shut out French and +German products 100:1 under the same plea now used on the Continent? +"_But we cannot sell our products abroad_," cry the angered Western +farmers. Of course they cannot, because restrictions on buying _are_ +restrictions on selling; and additional restrictions of the same kind +put on French and German buying are of course still further +restrictions on American selling. And the farmers are, as usual, the +victims both ways. + +To hear an ordinary American protectionist talk, one would think that +Great Britain is the enemy of mankind for admitting into her ports +practically without let or hindrance the goods of all the world. _Free +Trade England!_ Let us look a moment. England has to pay for all these +goods received from all quarters. In what does she pay? In her own +goods, of course. What is her market? The whole world. Is that market +ever slack on the whole? Never. Is she ever flooded with cheap goods? +The more she buys the more she sells of necessity. How much does she +sell _per capita_ of her people? More than twice as much as the United +States sells _per capita_. How can she sell so much of her own stuff? +Because she buys freely other stuff from all the world. What are the +limits to her capacity to sell her own goods to foreigners? Precisely +the limits of her willingness to take in pay other goods from +foreigners. Cannot these limits be overpassed in either direction? By +no possibility: when people can no longer pay for what they buy, the +buying ceases; and when they are not permitted to take their pay for +what they sell, the selling ceases. Is this free trade profitable to +Great Britain? Immensely so in every way. Whither has it carried up +her ocean-marine? To the topmost notch. Is capital abundant in England +in bulk, and are its loanable rates low? England is the richest +country in the world, and all nations resort thither to buy. What is +the source of this vast volume of Capital? The only source of Capital +is savings from the natural gains of Buying and Selling. + +Is Great Britain willing to take in goods from the United States? +Certainly, under the universal conditions of taking in foreign goods +at all. Is the United States willing to take in British goods in pay +for her own goods exported thither? She is not, except over +protectionist barriers averaging 47%. Is it a good thing for the +United States, that Great Britain takes in her goods freely? We should +suppose so! Does the former already sell to the latter and through the +latter more goods than to all the world besides? Much more. Could this +profitable trade be easily increased? It could be quadrupled in a very +short time. How? By simply according to our citizens a decent liberty, +which is their inalienable right. Would the United States like it to +be commercially treated by Britain exactly as the former treats the +latter? It would bankrupt the United States in six months. Would our +protectionists like it? It would make them howl. Is it the commercial +salvation of the United States that Britain is immovably for free +trade with her and the rest of the world? Nothing else saves her from +commercial ruin. Can the ghost of a reason be given, commercial or +other, why the United States should continue to fling double fists +into the face of British goods seeking a market and so making one? Not +a shadow of a shade of a good reason was ever given for such folly, or +ever can be. + +It is more than a pleasure to acknowledge at this point the great +service done by James G. Blaine, Secretary of State, during the summer +of 1890, to Country and Commerce, by his courageous avowal contrary to +his own personal record and to the vehement behest of his party, that +the economic principle just enunciated is sound, and should be at once +applied by the United States in connection with all the countries of +Latin America. In a letter to the Senate on the results of the recent +Pan-American Conference, he said: "_The Conference believed that while +great profit would come to all the countries, if reciprocity treaties +could be adopted, the United States would be by far the greatest +gainer._" The principle of reciprocity is the principle of free trade +applied by both parties to the trade. It is the sound principle, that +goods buy goods and pay for goods at the same instant to a mutual +profit. Manifold reiterations of this principle came from the +Secretary that summer, especially in vigorous protestations against +the McKinley tariff-bill then pending, alleging with truth that +"_there is not a line or a section in the bill which opens a market +for another bushel of wheat or another barrel of pork_." The +unequivocal statements of a favorite statesman have roused the +somewhat indifference of thousands of citizens, and make certain the +speedy prevalence in the United States of the unassailable doctrine, +that any People must buy freely if they would sell broadly. + +Fallacy B: _that tariff-taxes are needful in order to start infant +industries_. There is no analogy whatever between Child-bearing and +Child-growing and any form of Buying and Selling at any time, but the +deceit in the wretched simile has cost the world billions of dollars +of pure loss. To bring up infants from birth to maturity is indeed a +good deal of a task for the parents, but it is not in any sense an +economical task: the parents neither ask for nor receive a +return-service in kind: the transaction is wholly moral in its +character, and not economical at all: there is no party of the second +part in the premises: there is a free giving, and that is all. Buying +and Selling, on the contrary, has no infancy, and no maturity and no +old age. This particular Minerva springs at once full-grown and +full-armed from the brain of Jove. The conditions of Trading are +forever the same; with no reference to the age of the parties, the +antiquity of the industry, or any other such irrelevant thing. If any +person anywhere (old or young) has got something to sell, and finds +(directly or indirectly) any other person anywhere who wants his +wares and can pay for them,--all the conditions of mutual profit are +present, and everything else is an impertinence. + +Much more than this. Tariff-taxes have to be paid by somebody. Their +payment is inexorable at the custom-house, and interest and other +charges are added before the sum reaches the ultimate payer. But the +ultimate sum however made up is exactly so much _out_ of the +commercial gains of the payer. The sign is every time _minus_ and +_not_ plus. When egregiously high tariff-taxes are multiplied in +number, and all the additions are made to them, they become an +incalculably large sum, every cent of which _has to be paid_ out of +the gains of current Industry. Now, what a queer way that is to foster +industries! What a queer way to help start them! It takes Capital to +start new industries, and to carry on old ones; but tariff-taxes (with +all their accretions) take just so much _out_ from what would +otherwise naturally become Capital. That is to say, all Capital is +savings from the gains of Exchanges; and these gains are _reduced_ by +every tariff-tax that touches them directly or indirectly. Taxes from +their very nature can help nobody. They hurt everybody. What a device +this is to start new industries with, namely, to pick the pockets of +the very men, who are to start the industries, if they ever are to +start at all! Lower your reservoir to begin with, in order to give +head and force to your faucet flow! + +But this is not half of it. On what industries do the protectionist +taxes fall at first to weaken and discourage them? Of course on the +natural and profitable ones, which only ask to be let alone in order +to maintain a healthful life and growth. If, under natural conditions, +any industry is in existence, one may be perfectly sure it is +profitable, since Profit is the only thing in the world that can +start and build up an industry: when the profit ceases, the trade +ceases of necessity: the motive to it is _gone_. In behalf of what +sort of industries are these taxes ostensibly and plausibly levied? +Only, if we are to believe the protectionists, the weak and presently +unprofitable ones. _It is the infant industries that need the +nursing-bottle!_ That is to say, tax down and perhaps destroy the +_profitable_ industries, the industries that _pay_, that can paddle +their own canoe and no thanks to anybody, in order to bring forward +certain other industries, which by confession and open proclamation +are _unprofitable_, and can only _start_ by taxing their neighbors! Of +course, there is a cat in this meal, and we shall let her out of the +bag in plain sight presently; but we are taking now our friends, the +protectionists, at their own word, and exhibiting their marvellous +wisdom under the terms of their own choosing. What a blessed way for a +nation to grow rich, to smite down with high taxes the active and +enterprising and independent and therefore profitable industries with +one hand, and grope around with the other to find some poor and +inactive and unfrugal and naturally unprofitable industries, in order +to fetch forward these by means of the plunder filched from the +others! + +To go back for historical illustration to Washington's first +administration, when the first (extremely mild) protectionist taxes +were levied in this country, we have the highest authority for knowing +that many of the leading branches of manufactures were prosperous and +profitable. They had no artificial help in order to start, but on the +contrary had had continual discouragement for a century under the +miserable protectionist policy of the mother country. Washington +himself was inaugurated in a dark brown suit of woollen cloth of +American manufacture: so was John Adams inaugurated first +Vice-President of the United States about the same time in a garb of +wholly native manufacture.[11] This was in April, 1789. In November of +the same year, Washington returned to New York from his first tour in +New England "_astonished both at the marvellous growth of commerce and +manufactures in New England and the general contentment of its +inhabitants with the new government_" (Schouler, p. 117). Alexander +Hamilton, the first Secretary of the Treasury, in his famous Report to +Congress on Manufactures, in 1791, enumerated seventeen branches as +then thriving so as to fairly supply the home market, and settle into +regular trades. These were, skins and leather, flax and hemp, iron and +steel, brick and pottery, starch, brass and copper, tinware, +carriages, painter's colors, refined sugars, oils, soaps, candles, +hats, gunpowder, chocolate, snuff and chewing tobacco. It is plain +enough from the debates of the time as well as from the nature of the +case, that the protectionist taxes in our first two Tariffs, already +considered here in detail, although they were comparatively slight in +number and amount, fell in the way of discouragement on these +incipient yet independent manufactures as well as upon all the farmers +of the land. There can be but little rational question, that the +woollen industry was sounder at the core in 1789, when Washington was +inaugurated in native woollens, than in 1889, when Harrison was +inaugurated in the same, the ostentatious gift of a firm of +protectionist woollen manufacturers shortly afterwards adjudged to be +bankrupt and fraudulently so. + +The best point, after all, to make against this hollow fallacy, is the +practical one, that no industry whatever, whether "infant" or other, +has ever come in this country into an acknowledged self-sustaining +position under a whole century's tariff-taxes. Salt, hemp, coal, +cottons, woollens, nails, and iron and steel products generally, were +the chief articles protectionized at first, and have been +protectionized ever since, but no one of them all has ever come into a +condition of self-support according to the view of the privileged +beneficiaries. Each one of them was an old industry, and a relatively +rich industry, when it was taken under the "fostering care" of the +tariff-taxes, levied for their further enrichment on the masses of the +people; and it was only greedy and secret combinations among these for +that purpose, which put them at first and has kept them ever since in +the rank of public beneficiaries. The simple truth is, that diversity +of employments is rooted in human nature and in the circumstances amid +which God has placed men, and so far is it from being true that taxes +and restrictions are needful in order to foster manufactures, taxes +and prohibitions cannot prevent them from springing into life! They +are just as natural to men and to colonies as agriculture is. Indeed, +agriculture can scarcely take a step without them. The farmer must +have ploughs and carts and other implements; and, depend upon it, +there are some natural mechanics in that colony. Clothes are as +needful as food, and spinning and weaving in some form will begin at +once, and prohibitions will be powerless to stop them. + +Deadly to the fallacy in hand is the word of unquestionable History. +Any one may read in Palfrey and Bancroft and Hildreth such facts as +these, scattered all along through the noble volumes. The manufacture +of linen and woollen and cotton cloth was begun in Massachusetts in +1638, in Rowley, by some families from Yorkshire; and became so +remunerative in a couple of years that some acts of the General Court +designed to stimulate it were repealed. Brick-making and glass-works +and the manufacture of salt were all begun in Massachusetts before +1640. In 1643, the younger Winthrop established iron-works in +Braintree and Lynn, which after some losses were successfully +prosecuted. Within less than twenty years thereafter, tannery and +shoemaking had made such strides, that boots and shoes became articles +of export. That these were no fancy beginnings in manufactures, we may +strikingly learn from an Act of Parliament passed in 1698. Notice the +date. This law is a sample of many more:--"_After the first day of +December, 1699, no wool, or manufacture made or mixed with wool, being +the produce or manufacture of any of the English plantations in +America, shall be loaden in any ship or vessel, upon any pretence +whatsoever,--nor loaden upon any horse, cart, or other carriage,--to +be carried out of the English plantations to any other of the said +plantations, or to any other place whatsoever._" Thus the fabrics of +Massachusetts were forbidden to find a market in Connecticut, or to be +carried to Albany to traffic with the Five Nations. "That the country +which was the home of the beaver might not manufacture its own hats, +no man in the colonies could be a hatter or a journeyman at that +trade, unless he had served an apprenticeship of seven years. No +hatter might employ more than two apprentices. No American hat might +be sent from one plantation to another." In 1701 the three charter +colonies are reproached by the lords of trade "_with promoting and +propagating woollen and other manufactures proper to England_." In +1721 New England alone had six furnaces and nineteen forges, and there +were many others in Pennsylvania and Virginia. Parliament enacted in +1750 that no more mills should be erected in America for slitting or +rolling iron, or forges for hammering it, or furnaces for making +steel; and in certain cases, agents of the crown were authorized to +tear down such establishments as "_nuisances_." How far all the arts +of navigation had been carried in the Colonies before the Revolution, +every one may read in Burke's famous speech on Conciliation with +America. How far the products of the loom, the forge, and the anvil, +were already being exported, in spite of British legislation, to other +countries, any one may see in Lord North's last proposals and +concessions to ward off Independence. + +Protectionism having once fed its petted beneficiaries from the public +crib, that is to say, from taxes wrenched from the many to enrich the +few, invariably clamors for more and more rations for its pets from +the same public source. Not only does no industry become +self-supporting by its bite and its sup, but each becomes according to +its own facile representations and representatives, more and more +helpless in itself, more and more shameless in its demands, more and +more _entitled_ to public charity, and less and less inclined to +surrender one iota of past or present privilege. The daughters of the +horse-leech cry continually, Give! Give! The following schedule +relates to woollens mainly, but it is a fair sample of many other +protectionized classes of goods under the successive tariffs in this +country, in point of increased taxes on the people in their behoof. +While these lines are being written, the McKinley tariff-bill, +so-called, having passed the House, is pending in the Senate. It is +significant, that this piece of legislation, whether it be finally +enacted or not, proposes to open the second century of the United +States Protectionism by largely hoisting the tariff-taxes along the +main line. Infant industries indeed! + + ======================+=============================================== + | RATE OF DUTIES UNDER THE TARIFF OF + ARTICLES. +-----+-----+--------+--------+--------+-------- + |1791.|1859.| 1861. | 1864. | 1883. | 1890. + ----------------------+-----+-----+--------+--------+--------+-------- + | Per | Per | | | | + |cent.|cent.| | | | + Dress goods of cotton | 5 | 19 | 30 per | 55 per | 68 per | 88 per + and worsted, | | | cent.| cent.| cent.| cent. + costing 15 cts. | | | | | | + the sq. yd. | | | | | | + | | | | | | + Same, costing 20 | 5 | 19 | 30 " | 50 " | 60 " | 90 " + cents sq. yd. | | | | | | + | | | | | | + Same, all wool or | 5 | 24 | 30 " | 47 " | 77 " |100 " + of mixed materials, | | | | | | + costing 24 cents | | | | | | + sq. yd. | | | | | | + | | | | | | + Same, costing 30 | 5 | 24 | 30 " | 55 " | 70 " | 90 " + cents sq. yd. | | | | | | + | | | | | | + Same, costing 60 | 5 | 24 | 30 " | 45 " | 55 " | 70 " + cents sq. yd. | | | | | | + | | | | | | + Same, weighing over | 5 | 24 |25% and |40% and |40% and |50% and + 4 oz. sq. yd. | | | 12 cts.| 24 cts.| 23 cts.| 44 cts. + | | | per lb.| per lb.| per lb.| per lb. + | | | | | | + Ready-made clothing |7-1/2| 24 |25% and |40% and |35% and |60% and + | | | 12 cts.| 24 cts.| 40 cts.| 50 cts. + | | | per lb.| per lb.| per lb.| per lb. + | | | | | | + Tapestry Brussels |7-1/2| 24 |30 cts. |50 cts. |20 cts. |28 cts. + carpets | | | sq. yd.| sq. yd.| sq. yd.| sq. yd. + | | | | | and 30%| and 30% + | | | | | | + Tapestry velvet |7-1/2| 24 |50 cts. |80 cts. |25 cts. |40 cts. + carpets | | | sq. yd.| sq. yd.| sq. yd.| sq. yd. + | | | | | and 30%| and 30% + | | | | | | + Brussels carpets |7-1/2| 24 |40 cts. |70 cts. |30 cts. |40 cts. + | | | sq. yd.| sq. yd.| sq. yd.| sq. yd. + | | | | | and 30%| and 30% + | | | | | | + Druggets and bockings | 5 | 24 |20 cts. |25 cts. |15 cts. |20 cts. + | | | sq. yd.| sq. yd.| sq. yd.| sq. yd. + | | | | | and 30%| and 30% + | | | | | | + Silk goods, including |7-1/2| 19 | 30 per | 60 per | 50 per |Average + velvets and plushes | | | cent.| cent.| cent.|probably + | | | | | | 90% + | | | | | | + Woollen hosiery and | | | | | | + underwear: | | | | | | + Costing 32 cents | 5 | 24 | 30 " | 90 " | 77 " |214 per + per lb. | | | | | | cent. + Costing 42 cents | 5 | 24 | 30 " | 79 " | 79 " |175 " + per lb. | | | | | | + Costing 62 cents | 5 | 24 | 30 " | 62 " | 74 " |135 " + per lb. | | | | | | + Costing 82 cents | 5 | 24 | 30 " | 54 " | 82 " |120 " + per lb. | | | | | | + | | | | | | + Linen goods | 5 | 15 | 30 " |Average | 35 " | 50 " + | | | |37-1/2% | | + Cotton hosiery: | | | | | | + Costing 62-1/2 cents|7-1/2| 24 | 30 " | 35 per | 40 " |110 " + per doz. | | | | cent.| | + Costing 2.10 cents |7-1/2| 24 | 30 " | 35 " | 40 " | 76 " + per doz. | | | | | | + Costing 4.10 cents |7-1/2| 24 | 30 " | 35 " | 40 " | 64 " + per doz. | | | | | | + ======================+=====+=====+========+========+========+======== + +It is also significant in this connection to read an extract from the +Report of Mr. William Whitman, President of the National Association +of Wool Manufacturers, dated March 29, 1890, to the Stockholders of +the Arlington Mills, Massachusetts. "_I have been your Treasurer for a +consecutive period of twenty years. During this period the average +earnings have been_ 20-8/10 _per centum upon the capital. The earnings +of the last year were nearly three and a half times those of the year +previous, and there is every indication that the current year will be +the most profitable one in the company's history._" + +Fallacy C: _that a home market is better and broader than a foreign +market_. Professor Thompson of Pennsylvania has publicly and +repeatedly stated, that, by a persistent policy of Protectionism a +"home market" would be created for all the bread-stuffs that this +great country produces; and John Roach, the shipbuilder, expatiated at +length before the Tariff Commission of 1882 on the advantages the +farmer derives from the better "home market" already created by +Protectionism. To come nearer home in place and further down in time, +there was organized in Eastern Massachusetts with headquarters at +Boston in some connection with the national election of 1888, a +so-called "Home Market Club" of large proportions. It is generally +understood in the State, that a large minority, if not a majority, of +the members, are displeased with the McKinley Bill of 1890, declaring +that the mustard is carried to fanaticism in this bill, that neither +the "home market" nor any other can profit by such a series of +prohibitions. + +However this last may be, it is plain, that a ridiculous and most +harmful fallacy underlies all references to a "home market" in any +connection with foreign trade. It is simple Gospel charity to believe, +that Thompson and Roach and the founders of the Home Market Club and +all others, who repeat this wretched stuff, never stopped in their +thoughts long enough to inquire what a "market" really is, never +analyzed into its simple elements that composite thing called a +"market," but each and all in turn have taken up a catch-word +carelessly which seems on the surface to have some significance though +in reality it has none. + +All will agree, if they will stop to think, that a "market" is always +made up of _buyers_ with return-services in their hands. A bigger home +market than before consists only in more domestic buyers than before, +all ready with acceptable pay in all their hands. More persons than +before, more services-in-return than before. Now, if Protectionism +_can enlarge the home market_, it must be (1) either by increasing the +number of births or diminishing the number of deaths in a given time +in a given country. Precisely how big bundles of big taxes, which the +whole population must pay in one form or another and over and over +again, may be made to stimulate births or prolong lives, no reasonable +man can see, and it is not unreasonable to deny that a protectionist +can see it. But conceding that he can see and show this, his task is +then but half done, for he must proceed to see and show how these same +onerous taxes are able (2) to multiply the return-services in the +hands of this increased population! + +If he think at all, the protectionist is compelled to remember, that +his system is always and everywhere a series of prohibitions on +profitable trade. A profitable trade always gives birth to gains. It +always gives birth to Capital. It always gives birth to Plenty. That +is the nature of it, and the Divinely ordained blessing on it. But +when the greater part of these gains are artificially cut off, when +the possible capital is reduced in volume, when the scarcity comes in +which is the primary _purpose_ of Protectionism to create, it shall +go hard if there be even as many return-services as when the process +began. Not a better "home market," but a more meagre one, is the +inevitable issue of restrictions and prohibitions. + +If our protectionist try to get out of this snug place, in which he +now finds himself, provided he is able to feel the force of any logic +whatever, by claiming that his broader "home market" is to be made by +new immigrants with old-world values in their hands to buy with, he +certainly cannot escape by this route, because (1) he must in order to +do this see and show what there is in big taxes enormously multiplied +to invite immigrants here at all; and (2) our typical protectionist is +scared to death by the _handiwork_ of foreign "pauper labor" wherever +exposed for sale, and of course he is not prepared to welcome the +pauper laborers themselves, of which class as described by him the +immigrants would mostly consist; and besides, the tariff would not +admit to our shores the old-world values, which would be the +immigrants' sole _return-services_ to help make up the new market! + +Within a week of the present writing, Senator Morrill of Vermont has +broached from his place the idea in debate, that the industries of the +United States can be so stimulated by protectionism as to cause the +consumption of all the agricultural products of the United States. +Well, when? The stimulus has been applied now just thirty years under +Mr. Morrill's own eye, and by a tariff called by Mr. Morrill's own +name, increasing its rates every little while, even in 1883, when the +public pretence was to diminish them; and agricultural products of all +kinds, including lard and pork and wool, have never been so "deadly +dull" as in this interval of high protectionism. Scores of thousands +of bushels of well-ripened Indian corn were burned for fuel in the +more western States and Territories the very last winter, because the +market for it was too poor to pay for its transportation to Chicago +over protectionized rails, and in cars built of tariff-cursed lumber, +every nail and bolt and screw in which doubled in price from the same +general causes. If Mr. Morrill were not in his dotage, or if in his +prime he had ever closely analyzed a single case of trade, foreign or +domestic, he would see that the abandoned farms of his own State +reckoned to be about one-third of the cultivated land on the eastern +slope of the Green Mountains to the Connecticut River,--Mr. Morrill's +own native region and residence,--abandoned farms for two years past +assiduously sought by State officials to be filled in if possible by +immigrants from Sweden virtually giving them the lands and +farm-buildings,--fling out their flat contradictions to this +senatorial drivel; that the constant decline for a quarter of a +century of the farming population in every State in New England gives +the lie to this miserable proposition; and that the constantly +increasing area of mortgaged farms in every agricultural State in this +Union is an overwhelming proof that the "home market" for farm staples +has been growing constantly worse for years under this boasted +protectionism. + +The year 1890 is likely to prove the pivotal point of time in the +swing of this whole proposition of Deceit, for two reasons, namely, +(1) it is the year of the decennial Census, in which at least a +half-hearted attempt is being made to bring out the aggregate area in +each State of the mortgaged farming lands, and nothing can prevent the +appearance in which of the lessening volumes of population in the +purely agricultural communities; and (2) the year has already been +marked by the political revolt from the party of protectionism of the +masses of the farmers in the Mississippi Valley, and their +organization into "Farmers' Alliances," naturally and demonstrably +hostile to all Restrictions on the sale of farmers' produce. + +Fallacy D: _that protectionism tends to raise the wages of general +laborers_. In our third chapter, the whole doctrine of Wages was +clearly and carefully laid down, and it is only needful now to remind +the reader of two or three of those fundamental principles. The +Labor-giver and the Labor-taker only touch each other at the old +points of reciprocal Desires and Renderings. There are two persons +standing in that relation each to each. A rate of Wages is always a +result of a Comparison. If the Labor-takers, whoever they may be, more +strongly desire the services of the Labor-givers, whoever they may be, +other things remaining as before, there will be a rise in the rates of +Wages, because Effects always follow the operation of Causes in +Economics, as in all other scientific spheres; and if the +Labor-takers, for any reason, desire less than before the services of +Laborers, other things being equal, the general rates of Wages will +decline of necessity. + +Now, what is the necessary effect of Protectionism upon the general +Demand for Laborers? How is the whole class of Labor-takers affected +by prohibitory tariff-taxes? Note every time, that it is the presently +and independently _profitable_ industries, the industries that ask for +nothing except to be let alone, that are struck and restrained by +these tariff-taxes; the fact that any industry is successfully going +forward under its own motives is sufficient proof of its own +profitableness; these are the industries, in every case, which are +curtailed by restrictive tariff-taxes, their former gains are lessened +of course and by design, and their _motives_ consequently to hire +Laborers to carry on these branches of business now taxed and +tormented are _lessened_; less Desire for Labor-givers gives laborers +less every time round; the so-called argument of Protectionists is, to +introduce alleged _unprofitable_ industries by means of taxing down +_profitable_ ones; and pray, what effect must that have upon the +general Desire to employ Labor-givers, and consequently what effect +upon general rates of Wages? + +Take one look further along this same line. Tariff-taxes of this +character are designed to keep out, and do keep out, foreign wares, +which are the natural and profitable market for domestic wares: how +will this forced exclusion affect the Demand for laborers to make or +grow the domestic wares whose market is now lost? And what is the +influence on the Wages of those whose services are now in lessened +Desire along the whole line? Causes produce their Effects everywhere +and every time. + +Dissatisfaction among, and actual disaster to, Labor-givers as a +class, have always followed the imposition of protectionist +tariff-taxes in this country, as a matter of plain observation and +record; have followed increasingly and more disastrously increased +restrictions and prohibitions on profitable trade; "Strikes" on the +one hand to resist a lowering or secure a lifting of Wages, "Lockouts" +on the other to bring laborers to terms, "Shut-downs" for pretended +repairs in order to gain time to tide over the gluts that always +accompany artificially restricted markets, semi-hostile relations +between Employers and Employed, interruptions to travel and +transportation, timidities of Capital fatal to new and enlarged +enterprises, have never characterized this country so strikingly as +during the quarter-century of Protectionism culminating in 1890. + +The following table accurately compiled by Editor Philpott of Iowa, +from the National Census, shows in remarkable figures the relatively +slow rate of progress of the Nation in thirteen essential items of +growth under the Morrill Tariff, as compared with the rapid rates of +progress in the leading lines under the Walker Tariff. _The comparison +lies in the per centum of increase over the previous decade of the +period_ 1850-60 _relatively to each of the two periods_ 1860-70 _and +_1870-80_: the average of the last two periods is taken for the sake of +an easier comparison of the progress of the one decade (Walker) with +the average of the two later ones (Morrill)._ + + +----------------------------------+------------+-------------------+ + | Lines of Progress. | 1850-1860. | Average each Ten | + | | | years--1860-1880. | + +----------------------------------+------------+-------------------+ + | Population | 35.5 | 26.2 | + | Wealth | 126.6 | 61.0 | + | Foreign commerce, aggregate | 131.0 | 45.6 | + | Foreign commerce, per capita | 70.3 | 15.2 | + | Railroads, aggregate | 240.0 | 69.0 | + | Railroads, per capita | 150.0 | 34.0 | + | Capital in manufactures | 90.0 | 66.0 | + | Wages in manufactures, aggregate | 60.3 | 58.2 | + | Wages in manufactures, per hand | 17.3 | 9.4 | + | Products | 85.0 | 69.6 | + | Value of farms | 103.0 | 23.6 | + | Farm tools and machinery | 62.0 | 27.7 | + | Live stock on farms | 100.0 | 17.3 | + +----------------------------------+------------+-------------------+ + +The State of Massachusetts has been diligently and scientifically +taking the Statistics of everything relating to Laborers as such for +many years; and we take now by way of confirmation of what has just +been written a few statements of fact from the official Reports. +_One-third of Massachusetts wage-earners were out of work one-third of +the time under the benign influence of Protectionism [1887]. Wages +went down in Massachusetts on the whole average 5 per centum 1872-83, +while in the same interval of time they went up 9 per centum in Great +Britain [1885]. Wages in Massachusetts advanced in 1830-60 (Walker) 52 +per centum and in 1860-83 only 28 per centum (Morrill). What is called +the needful cost of living increased in Massachusetts between 1860 and +1878 (Morrill) 14-1/2 per centum in spite of immense cheapenings in +costs of production and transportation [1885]._ + +The U. S. Government has been gathering for a long time important +Statistics relating to Laborers and their Wages and their Costs of +Living, not only in the decennial Censuses but also in Consular +Reports and in the Reports of a national Commission established for +that purpose. We excerpt a few relevant statements from these almost +at random. _Wages in free-trade England are from 50 to 100 per centum +higher than they are in any protectionized country on the Continent of +Europe. The aggregate Values of this country increased 1850-60 +(Walker) 126 per centum, and in 1870-80 (Morrill) only 80 per centum, +after reducing the census values of 1870 to a gold basis. Vessels +American-owned and American-built controlled three-fourths of our +foreign carrying trade in 1856, and less than one-sixth of it in +1886._ + +The Census of 1880 gives the total number of persons employed in the +great subdivisions of industry in the United States as follows:-- + + Trade and transportation 1,810,256 + Manufactures, mechanical and mining 3,837,112 + Professional and personal services 4,074,238 + Agriculture 7,670,493 + +The following table compiled from the censuses of the last four +decades will be found to yield food for thought in the light of the +present paragraphs. _It relates solely to manufactured goods at the +four successive epochs._ + + +-----------+--------------+--------------+--------------+--------------+ + | | 1850. | 1860. | 1870. | 1880. | + +-----------+--------------+--------------+--------------+--------------+ + |Value of | | | | | + | products |$1,019,109,616|$1,885,861,676|$4,232,325,442|$5,369,579,191| + |Value of | | | | | + | materials | 555,174,320| 1,031,605,092| 2,488,427,242| 3,395,823,547| + |Wages paid | | | | | + | out | 236,759,464| 378,878,966| 775,584,343| 947,953,795| + |Materials | | | | | + | to | | | | | + | products, | | | | | + | per cent | 54| 54| 58| 63| + |Wages to | | | | | + | products, | | | | | + | per cent | 22| 21| 18| 17| + |Average | | | | | + | wages | | | | | + | earned | $247| $289| $377| $346| + |Capital to | | | | | + | products, | | | | | + | per cent | 52| 53| 50| 50| + |Number of | | | | | + | establish-| | | | | + | ments | 123,029| 140,433| 252,148| 253,852| + |Average | | | | | + | hands | | | | | + | each | 7.79| 9.34| 8.16| 10.79| + +-----------+--------------+--------------+--------------+--------------+ + +Our manufactures were put down in the Census of 1880 as in value +$5,369,579,191. But this sum contains $1,670,000,000 that does not +strictly belong to manufactures, such as flouring, lumbering, +blacksmithing, sugar-refining, coffee-roasting, slaughtering, and a +few others. This sum being taken out, there is left in round numbers +but $3,700,000,000. This is not a great amount for 50,000,000 of +people, and for a land with such natural advantages for manufacturing +as our own. + +Fallacy E: _that the costs of Wages to employers and of Materials to +manufacturers somehow justify Protectionism_. The harmful confusion is +constantly made here between Rates of Wages and Costs of Labor--two +very diverse matters. Rates of Wages depend on a very different set of +circumstances from Costs of Labor. Failure to draw this distinction, +and a desperate desire to clutch even at a straw with which to bolster +up absurd Restrictions, have made a hotch-potch and a caricature of +attempted argument at this point. Rates of Wages have always been +relatively high in this country as compared with the countries of +Europe for two general reasons: (1) the country is new, with enormous +natural advantages of every sort, with comparatively few laborers +competing steadily with each other for work, large numbers of persons +passing constantly out of the employed into the employing classes; and +(2) there has almost always been from the first, and there is likely to +be again in the immediate future even if there be not at the present +moment, a Money in this country depreciated below the gold standards of +Europe, in which the rates of current wages are always reckoned, and +which makes them _seem_ to be higher than they actually are in +purchasing-power. On the other hand, Costs of Labor have always been, +and are now, low in this country as compared with Europe, for two +general reasons also: (1) all classes of laborers are more efficient +and skilled in this country than in Europe, working with more energy +more hours in the week, under less cost of superintendence, being as a +rule more temperate and healthful and educated persons, so that +employers _get more for what they give_ than do employers abroad; and +(2) the cost of that to the employers in which the laborers are paid, +whether money or other valuables, is always less here than abroad, +because the money usually is depreciated money which costs less in +commodities, and even if it be not, the current prices of general +commodities are higher here than there, so that the cost of wages paid +directly or indirectly in commodities is less here to employers. + +A second and distinct and wholly convincing proof, that the Cost of +Labor to employers has been less here than abroad during the first +century of our national existence, has been the unquestioned fact, +that the Rate of Profits has been higher. A constant stream of foreign +Capital has come hither for investment, drawn solely by the higher +rates of Profit. But if the rates of Profit have proven to be higher, +the costs of Labor must have been lower, because laborers and +capitalists divide the whole returns between them. Nobody else has any +claim upon the conjoint proceeds. _Profits are the Leavings of the +Costs of Labor._ If, therefore, these Leavings are larger in one +country than another, then of necessity the Costs of Labor are lower +in the first country. + +Now, Protectionists have had the effrontery (largely the result of +ignorance) to contend, that they are at a disadvantage as employers of +laborers on account of the rates of Wages they are obliged to pay to +them! _Exactly the reverse is the truth._ Instead of being at any +disadvantage at this point, it is a matter of absolute demonstration, +that American employers pay the smallest costs of Labor in the world! +Employers as such have no interest in the rates of Wages as such, but +only in the costs of Labor to themselves as capitalists. High rates of +Wages not only usually accompany low costs of Labor, but also are a +proof of them! The patient (not to say stupid) American People have +consented for thirty years past to be abominably taxed for the +exclusive benefit of a set of brazen mendicants, on the ostensible +ground, that the said public beggars were unfortunately placed in +comparison with European competitors, when the simple truth has been, +that they had a constant advantage in the best, and cheapest (in cost +to themselves), and steadiest and most intelligent (on the whole), +laborers in the world. + +What is the truth about raw materials in this country? Especially raw +materials in those branches of industry, which have been most steadily +protectionized from the first, like iron and copper, and cottons and +woollens? Can any reason be found for legislatively excluding foreign +products of these classes on the ground of any disadvantage of our +producers on the score of raw materials? Look at iron ore, for +example, now protectionized to the extent of 75 cents per ton. No +country in the world possesses such deposits in quantity and quality +and accessibility of iron ore as the United States of America. Vast +beds of the best ore in the world, especially in wide regions along +the whole course of the Tennessee River, lie directly upon the surface +of the ground; and the so-called "Iron Mountain" in Missouri is said +to have ore enough above the general surface of the country round to +supply the wants of the entire United States for two centuries! Yet +every ton of this ore is artificially lifted in price to the very +People to whom God gave it in exceeding abundance. The average cost of +mining, washing, screening, and loading upon steam freight-cars for +transportation to market, of brown-hematite ore at one of the Mines +in Tennessee during the summer and autumn of 1890, was 33 cents per +ton, with a constant downward tendency in cost as machinery was +multiplied and methods improved. This included the rent paid to the +owners of the land holding the ore-beds, and every other item of cost +carefully computed by the owner of the capital and manager at the +mines. This statement is made on the authority of the said owner and +manager over his own sign manual, with his consent given that it be +printed as at present in the interest at once of Science and +Righteousness. + +It has often been publicly stated by experts, that there is more coal +in deposit in the United States than in all the rest of the world put +together. Nevertheless, bituminous coal has been protectionized since +1874 to the extent of 75 cents per ton, and slack or culm (another +form of coal) 40 and 30 cents per ton. The bounty of God to the people +of this country has been so far forth thwarted by the greed of +mine-owners acting on the subservience of members of Congress to the +few rich combined for that purpose to the impoverishment of the +unorganized masses. Especially has every interest of New England both +popular and manufacturing been sacrificed to the short-sighted +selfishness of the mine-owners, because the British Provinces, just to +the northward, are full of bituminous coal waiting for a market +against New England goods. + +Limestone is a second indispensable requisite for the reduction of +iron ores. God has put the ore and the coal and the lime in unfailing +quantities in close proximity with each other throughout the entire +valley of the Tennessee. So small is the natural cost of making iron +in that favored region, that it has been transported this summer to +Savannah by rail (freights heightened by tariff-taxes on steel rails +and lumber), and then exported 3000 miles to Liverpool with good +profits to the makers by their own confession. + +Steel rails are protectionized at present to the extent of $17 per +ton, formerly $28 per ton. Fortunately, we have at present a competent +National Labor-Commissioner, heretofore in the service of +Massachusetts in the same capacity, Carroll D. Wright, who has just +made a Report to Congress on the comparative cost of producing steel +rails here and abroad. The following table is national and official +and indisputable. It shows the Element of Cost in one ton of steel +rails in Eleven distinct establishments, the first Two being located +in the United States, the next Seven in countries on the Continent of +Europe, and the last Two in Great Britain. The first column gives the +Cost of the Material in the several districts, the second the Cost of +Labor, and the third the total cost of the rails. + + +-----------------+-------------+-------------+-------------+ + | Distinct | Materials. | Labor. | Total Cost. | + | Establishments. | | | | + +-----------------+-------------+-------------+-------------+ + | 1 | $21.10 | $1.54 | $24.79 | + | 2 | 25.11 | 1.38 | 27.68 | + | 3 | 17.67 | 1.04 | 19.57 | + | 4 | 18.06 | 2.51 | 22.18 | + | 5 | 18.06 | 4.64 | 25.65 | + | 6 | 18.23 | 2.58 | 23.12 | + | 7 | 18.10 | 2.68 | 23.19 | + | 8 | 18.66 | 2.97 | 23.74 | + | 9 | 23.42 | 2.01 | 27.02 | + | 10 | 18.05 | 2.54 | 21.90 | + | 11 | 16.39 | 1.36 | 18.58 | + +-----------------+-------------+-------------+-------------+ + +The reader who knows how to read between the lines will observe the +strong confirmation of this table to the point already made in these +pages, namely, that the "pauper labor of Europe" costs much more at a +given point than the more highly paid labor of England and the United +States. Thus: the average Cost of Labor in a ton of rails in the two +latter countries is $1.70; the average in the seven Continental +countries is $2.63. The average total cost per ton in the nine foreign +countries is $22.77; the average in the two establishments here is +$26.23. It must be remembered, that the cost of the material and of +all the processes of manufacture here is greatly enhanced by the +device of the tariff-taxes: still the difference in cost is even then +only $3.46 per ton greater than the foreigners' cost: considering that +these foreign rails must be carried 3000 miles over sea, how comes it +that a tariff-tax of $28 or $17 per ton is needful in order to foster +rail-making in this country? Take off all the tariff-taxes the +rail-makers and transporters have _to pay out_, and could they not +well forego the additional taxes they now impose on their +fellow-citizens? Is there anything anywhere in the natural costs of +Materials and Labor here to put American manufacturers at any +disadvantage in their natural lines of business as compared with +foreigners in _their_ natural lines of industry? + +Fallacy F: _that artificial tariff-burdens placed at one point may +become a compensation for other such burdens placed at another point of +the same general line_. This fallacy has been luridly illustrated in +this country since 1867, when in the Wool and Woollens Tariff of that +year additional protectionism was accorded to Woollens ostensibly to +compensate the manufacturers for protectionism then first accorded to +raw wools. For a number of years the woollen manufacturers had succeeded +in persuading the wool-growers not to demand of Congress tariff-taxes on +raw wools, thus publicly confessing that such taxes raise the prices of +materials to the manufacturers thereof. But the wool-raisers argued +naturally, if protectionism be good for woollens, it must also be good +for wools; the truth was, it was equally baneful to both, and to every +other beneficiary of it in the long run; but the wool-workers had no +answer to the simple logic of the wool-growers,--they gave their case +away when they alleged that _they_ could not live without government +aid,--and so they were obliged to surrender to their already angered +brethren of the fleeces in 1867, and higher tariff-taxes were put on the +woollens in order to compensate the manufacturers for the anticipated +rise in the price of wools. Of course it was supposed that the patient +people would bear the now doubled burdens put upon them by _two_ +privileged sets of their fellow-citizens. If protectionist taxes made +the manufacturers rich, why should they not also enrich the rural +herdsmen? In short, why may not such taxes make everybody rich? + +There were those at the time, and the present writer was one of them, +who foresaw and foretold just what has actually happened, namely, that +both allies in this scheme of popular plunder were going in to their +own death as well as in to the impoverishment of their countrymen. How +would any level-headed man, capable of seeing beyond the point of his +nose, have prognosticated in the premises? Something like this: it +takes many kinds of wools mixed, say six or eight, to make the best +woollen cloths, and several kinds to make good cloths at all; the +United States could only furnish two or three kinds, and these in +quite limited quantities; the tariff-taxes would raise the price of +the foreign wools by just so much, to the detriment of the +manufacturers, who could no longer buy the foreign wools, needful for +good cloths, and must consequently drop down to inferior cloths in +their mills, using shoddy and cotton and what not: how will that +affect the market for native wools, especially the fine Ohio and +Vermont wools? Only as the manufacturers are prosperous in making good +cloths that find a quick and wide market at home, can the growers find +a good market for their wool; from these heavy taxes on their material +and machinery and lumber and dye-stuffs and so on, the manufacture +will surely droop, and employ itself on poor goods from cheap +materials, and the market for native fleeces will droop in +consequence, and the prices of home-wools will go down and down and +down of necessity. + +Precisely this has happened. The gold prices of wool were never before +so low in this country as since the unholy alliance of 1867, and as a +rule they have gone down lower and lower and lower. Why? Because the +manufacturers _could_ not, under the tax-laws of their country which +they themselves had egged on, make the cloths demanding the native +fine wools. Sheep-raising became unprofitable. Millions of +fine-woolled sheep were slaughtered in a few years for their pelts and +mutton in Ohio alone. The following official table from the Department +of Agriculture exhibits the relative number of sheep in thirteen +States of the Union, at the two epochs 22 years apart:-- + + +--------------+------------+------------+ + | States. | Feb. 1867. | Feb. 1889. | + +--------------+------------+------------+ + | Maine | 895,884 | 547,725 | + | Vermont | 1,335,980 | 365,770 | + | New York | 5,373,005 | 1,548,426 | + | Pennsylvania | 3,456,568 | 935,646 | + | Kentucky | 933,193 | 805,978 | + | Virginia | 700,666 | 435,846 | + | Missouri | 1,005,509 | 1,109,444 | + | Illinois | 2,764,072 | 773,468 | + | Indiana | 3,033,870 | 1,420,000 | + | Ohio | 7,159,177 | 4,065,556 | + | Michigan | 4,028,767 | 2,134,134 | + | Wisconsin | 1,664,388 | 793,146 | + | Iowa | 2,399,425 | 540,700 | + | +------------+------------+ + | | 34,750,504 | 15,475,839 | + +--------------+------------+------------+ + +The effect of the tariff-taxes on wools, accordingly, even during a +period when the population of the country increased 65 _per centum_, +has been _to diminish the number of sheep in the hands of the farmers +by more than one-half_. The wool clip in the entire country has indeed +increased since 1867, but it has been in Texas and on the free ranges +of the extreme boundaries of civilization in the West, where about one +pound in three of the gross fleece is clean wool, and the most +favorable estimate of the present clip would only suffice to clothe +about one-half of the people of the country. Does this look like +becoming "_independent_" of the rest of the world in the matter of +woollen clothing for our great People? Will our folks never learn that +there is nothing "_dependent_" in Buying and Selling, that the more +any individual or nation Buys and Sells the more _independent_ they +become of course, and that the hermit in his poverty-stricken cell is +the best image of Protectionism? + +The extra barriers heaped up in 1867 against foreign woollens not only +did not lessen their importation, but in connection with the +discouragements thrown upon the domestic manufacture as just explained +increased the importations; so that, in 1877, imports of woollen goods +stood at $25,000,000; and in 1882 had increased to $42,000,000, the +latter being an increase in one year, from 1881, of 34 _per centum_. +The people must be clothed at some rate, and many people will have +good cloth at any cost; and the whole result of this imbecile policy +of Prohibitions on wool and woollens has been demonstrated right +before our eyes, (1) to kill off the sheep, (2) to compel the +manufacture of poor goods, (3) to multiply foreign woollens in +domestic use, and (4) to double in general the cost of clothing the +American People. It is difficult to say whether the grangers as a +class, or the manufacturers as a class, or the consumers of woollens, +are more put out by this state of things. They are all in the slough +together, and have only themselves to thank for their condition. And +it is growing worse and worse. As a mere and small example, less than +one-half the amount of woollen machinery is now in operation in +Berkshire County, Massachusetts, that was running here 15 years ago; +and three-fourths of all the woollen manufacturers doing business in +the County have failed in the 20 years just now past. In one word, _it +is no compensation to one industry for artificial burdens piled upon +it, to pile corresponding burdens upon other industries affiliated +with it_. ALL LEGITIMATE INDUSTRIES EVERYWHERE ARE INTIMATELY +AFFILIATED WITH EACH OTHER. + +Fallacy G: _that because some kinds of prosperity sometimes accompany +and follow after Protectionism, therefore they are caused by it_. This +is at once the commonest and the hollowest of the forms of false +argumentation employed in this country to bolster up a monstrously +unjust Privilege. The rapid growth of Chicago, for example, in the ten +years following the first imposition of the Morrill tariff-taxes, was +often referred to, as if the Taxes caused the Growth. Admitting for +argument's sake, what would be the height of folly to admit in +reality, that these Taxes were _among_ the causes of that Growth, how +absurd to refer to one antecedent the result of one hundred or one +thousand antecedents! So of the growth of national population in the +twenty years following the Wool and Woollens Tariff of 1867: +population increased about 65 _per centum_ in that interval: +tariff-taxes on most of the necessaries of life increased in the same +interval just about in the same proportion: was there any tie of Cause +and Effect as between the rise of taxes and the rising tide of +population? Any _tendency_ in the one to bring the other? Because one +thing _follows_ another in point of time, is that any proof that the +second is the _result_ of the other in point of cause? + +In the old classification of Logical Fallacies this particular one was +called by the Romans "_post hoc ergo propter hoc_," that is, _after +something therefore on account of that thing_. The thoughts and the +speech of civilized men have always been full of some form of this +incongruity of inference; but it is the stock in trade, the staple and +body of protectionist argumentation. But it is utterly devoid of any +significance whatever. Unless some natural tie of connection can be +shown, as between precedent and consequent, unless it can be probably +shown that _nothing but_ the precedent could cause the consequent, +unless taxes are adapted in their very nature to increase riches, +unless repeated subtractions can be shown to be the same thing as +multiplied additions, then all this sickening talk of cheapening +prices and intensified activities and diffused popular blessings under +an odious scheme of subtle taxes that only _take_ and can never +_give_, is to be treated with a silent and pitying contempt, whether +used by the duped or the duping. A good instance of this empty form of +reasoning,--much better because more uniform than any one ever sought +to be applied in the realm of Trade,--would be this: the Day has +uniformly followed after the Night ever since the dawn of Time, and +therefore the Night is the cause of the Day! + +It has been indeed hard work to destroy the commerce utterly of a +great People by legal restraints however multiplied and by +mountain-barriers however piled up, and some prosperity has pushed +itself into prominence after all these and in spite of all these. +Behold! cry the logical protectionists, behold in such prosperity the +_effects_ of our beautiful legislation! Immeasurable areas of fertile +land to be had by all Immigrants for the asking; endless deposits on +every hand of coal and of all the useful and precious metals; primeval +forests and streams leaping with power from their mountain springs to +mill-wheel and intervale; commodious land-locked ocean harbors on +every side but one, and vast chains of inland "unsalted seas"; a +salubrious climate, and an ingenious, well-trained people; +self-organized and liberal governments, guaranteeing all rational +liberties to the people--but one; all these antecedents and +accompaniments go, as it were, for nothing in the minds and on the +tongues of some of our citizens, as causes of accruing prosperity, in +comparison with (as a cause) the commercial bondage at the one point +possible under our liberal and blessed institutions. + +These are seven of the fundamental Falsities of Protectionism. They +might easily be made seven times seven, and even seventy times seven. +But not one of them is to be forgiven. They are unpardonable sins +against Science and Liberty and Progress. Any radical and +comprehensive Falsehood, like Protectionism, practically contradicts +the Truth at innumerable points. The test of any proposed truth is its +harmony with other and acknowledged truths: the test of any suspected +error is its contradiction to such truths. Enough has now been said to +settle the place of any pretended right of a part of the people +commercially to enslave the other part, and ultimately themselves +also. + +It only remains in this chapter, in the fourth place, to indicate +briefly at a few points the course of OPINIONS in relation to +commercial Restrictions and Prohibitions in general, such as exist at +present in their most exaggerated forms within the United States, on +the part of those best entitled by study and intellect and opportunity +to form and formulate a candid judgment in such matters. + +In respect to the personal motive and circumstances of those combining +to frame such legal interferences with the natural liberty of their +contemporaries, and the inevitable results of them, we will quote +first from Sir Thomas More, a man of men, in his Utopia, written in +1516. "_The rich are ever striving to pare away something further from +the daily wages of the poor by private fraud, and even by public laws; +so that the wrong already existing, for it is a wrong that those from +whom the State derives most benefit should receive least reward, is +made yet greater by means of the law of the State. It is nothing but a +conspiracy of the rich against the poor. The rich devise every means +by which they may in the first place secure to themselves what they +have amassed by wrong, and then take to their own use and profit at +the lowest possible price the work and labor of the poor. And so soon +as the rich decide on adopting these devices in the name of the +public, then they become law. The life of the labor-class becomes so +wretched in consequence that even a beast's life seems enviable._" + +The utter folly of supposing that a Parliament or a Congress or a +Committee of either is fit to determine, or to have any voice in +deciding, what shall or what shall not be manufactured or grown, what +shall or what shall not be exported and imported, was never more +happily exposed than by Adam Smith in his Wealth of Nations, published +in 1776. "_The statesman who should attempt to direct private people +in what manner they ought to employ their capitals, would not only +load himself with a most unnecessary attention, but would assume an +authority which could be safely trusted not only to no single person, +but to no council or senate whatever, and which would nowhere be so +dangerous as in the hands of a man who had folly and presumption +enough to fancy himself fit to exercise it._" + +Alexander Hamilton, our first Secretary of the Treasury, and in some +respects the most brilliant of all our statesmen, has often been +claimed and referred to as a protectionist by those unfamiliar with +his writings; but the paragraph of those writings, or the phrase of +any authenticated conversation of his, has never been quoted and never +can be, because they do not exist, which proves him to have been a +"protectionist" in the modern, or any other proper, sense of that +word. On the contrary, his deliberate and well-founded opinion in the +premises is given at length in number XXXV of the Federalist, this +number printed early in 1788: "_Exorbitant duties on imported articles +serve to beget a general spirit of smuggling; which is always +prejudicial to the fair trader, and eventually to the revenue itself: +they tend to render other classes of the community tributary, in an +improper degree, to the manufacturing classes, to whom they give a +premature monopoly of the markets: they sometimes force industry out +of its most natural channels into which it flows with less advantage; +and in the last place, they oppress the merchant, who is often obliged +to pay them himself without any retribution from the consumer. When +the Demand is equal to the quantity of goods at market, the consumer +generally pays the duty; but when the markets happen to be +overstocked, the great proportion falls upon the merchant, and +sometimes not only exhausts his profits, but breaks in upon his +capital. I am apt to think, that a division of the duty between the +seller and the buyer more often happens than is commonly imagined. +There is no part of the administration of the Government that requires +extensive information, and a thorough knowledge of the principles of +Political Economy, so much as the business of taxation. The man who +understands those principles best, will be least likely to resort to +oppressive expedients, or to sacrifice any particular class of +citizens to the procurement of revenue. It might be demonstrated that +the most productive system of finance will always be the least +burdensome._"[12] + +Shrewd old Benjamin Franklin, impersonation of common sense and common +honesty, ridicules in his sly way the whole wretched business in the +columns of the "Pennsylvania Gazette" in 1789. "_I am a manufacturer, +and was a petitioner for the act to encourage and protect the +manufacturers of Pennsylvania. I was very happy when the act was +obtained, and I immediately added to the price of my manufacture as +much as it would bear, so as to be a little cheaper than the same +article imported and paying the duty. By this addition I hoped to grow +richer. But as every other manufacturer, whose wares are under the +protection of the act, has done the same, I begin to doubt whether, +considering the whole year's expenses of my family, with all these +separate additions which I pay to other manufacturers, I am at all the +gainer. And I confess, I cannot but wish that, except the protecting +duty on my own manufacture, all duties of the kind were taken off and +abolished._" + +In the first congressional debate on the Tariff after the new +Government went into operation, that is, in 1789, Fisher Ames of +Massachusetts, who had just before made the strongest plea against the +Molasses Tax, the raw material of New England rum, became also the +strongest stickler there for the protectionist view, that artificial +manufactures may properly enough fasten and fatten upon Agriculture, +like shell-fish upon ship-bottoms, and went to the root of the whole +matter of that inevitable antagonism in a few frank and radical words, +the best because the most truthful words that can be found upon that +side in the century that has followed. "_From the different situation +of the manufacturers in Europe and America, encouragement is +necessary. In Europe, the artisan is driven to labor for his bread. +Stern necessity, with her iron rod, compels his exertion. In America, +invitation and encouragement are needed. Without them, the infant +manufacture droops, and those who might be employed in it seek with +success a competency from our cheap and fertile soil._" + +Gouverneur Morris, one of the youngest and among the most gifted of +the Revolutionary statesmen, had a clear insight into Economic +realities. "_Whatever saves Labor rewards Labor._" "_Those who will +give the most for money, in other words, those who will sell cheapest, +will have the most money._" "_Taxes can be raised only from revenue: +push the matter further, and their nature is changed: it is no longer +taxation, it is confiscation._" + +FOOTNOTES: + +[9] See an excellent Essay on Mexican Finance by M. L. Scudder, Jr. + +[10] Public Statement of Professor Taussig of Harvard College. + +[11] See James Schouler's United States, p. 77 of Vol. I. + +[12] There were two other authors of some of the papers of the +Federalist, Madison and Jay; but Hamilton's authorship of number XXXV +was never questioned by anybody; he himself claimed it expressly with +his other numbers a few days before he was shot. + + + + +CHAPTER VII. + +TAXATION. + + +Political Economy is the Science of Buying and Selling. It must +include of course in its discussions the Motives, the Methods, the +Obstacles, the Rewards, relating to Sales, which are themselves first +to be defined as furnishing the sole Field of the Science. We have now +gone through with painstaking all of these topics in order, but we +have not yet fairly struck Taxation, which is indeed in all its forms +an obstacle to Sales, and in some of them the annihilation of Sales, +but which in its nature is something much more than an obstacle, +namely, a Condition of something higher than itself. In the very +strictest sense of the terms, Taxation is not a part of the Science of +Political Economy, because it is not an essential part of any one of +those natural processes by which men buy and sell and get gain. It is +rather a Condition through Government of the successful ongoing of all +those processes. There cannot be, therefore, a _science_ of Taxes, as +there is unquestionably a science of Sales. The facts of Taxes are +artificial and governmental, the facts of Sales are natural and +original. + +All forms of Production, as we have now seen, go forward in accordance +with positive natural forces and motives, which God has appointed, and +which men have a natural impulse to ascertain and generalize and +profit by; for it is Nature bids men work and save, buy and sell, +invent and transport, navigate and grow rich; but Nature has given no +whisper anywhere, at least that we can hear, about any Taxes. That is +the work of Society. That seems to be something negative, not +positive, so far as Buying and Selling is concerned. Taxation is +indeed something necessary to the social order, as men are; it +furnishes means of defence against greater evils than itself is; but +in itself considered, it is an economic evil, because it takes away +from exchangers a part of the gains of their exchanges; strictly +speaking, therefore, it cannot be made a part of Economic Science. + +But, on the other hand, as we shall see at length in the exposition +that follows, all the relations of Taxation from the beginning to the +end are so ultimately connected with Exchanges, are so founded on and +limited by Exchanges, its true principles are so exclusively +economical, and its abuses are so instantly and constantly harmful to +all the ongoings of natural and profitable Trade, that Taxation must +always be treated as if it were a part of Economics. The latter is a +science, the former is an art; but the art is almost exclusively +dependent upon the principles of this one science; and a comprehensive +treatise on the science, accordingly, must exhibit all its main +bearings upon those practical rules of Taxation, which are so vital to +the happiness and prosperity of any People. All scientific Economists, +therefore, have considered the subject of Taxes to lie within their +legitimate beat. They have, however, justified the inclusion upon very +different grounds, one from another; and so far as now appears, the +present writer was the first technical Economist to disclaim in the +name of his Science direct jurisdiction over Taxation. + +A careful discussion of a series of distinct though related Questions +belonging to Taxes will exhibit the whole practical matter in the +light of well-established principles of economical Science. + +1. What is the fundamental GROUND of Taxes? _Government_ is an +essential prerequisite to any general and satisfactory Exchanges, +since it contributes by direct effort to the security of person and +property; and justly claims, therefore, from each citizen a +compensation in return for the Services thus rendered to him. We do +not mean to say that government exists solely for the protection of +person and property, or that all the operations of government are to +be brought down within the sphere of exchange, for government exists +as well for the improvement as for the protection of society, and many +of its high functions are moral, to be performed under a lofty sense +of responsibility to God and to future ages; nor do we mean to say +that government has not also a deep ground for its existence, in +virtue of which it may on extraordinary occasions demand all the +property of all, and even the lives of some, of its citizens; but we +do mean to say that, whatever may be conceded as the ultimate ground +of government, the matter of taxation, by which government is +outwardly and ordinarily supported, and by which it takes to itself a +part of the gains of every man's industry, finds a ready and solid +justification in the common principles of Exchange. If, as far as the +tax-payer is concerned, the exchange does not seem to be voluntary, on +a closer analysis it is seen to be really voluntary; for in effect the +people organize government for themselves, and voluntarily support it, +and there is no government separate from the will of the people. + +In a very important sense, accordingly, a tax paid is a reward for a +service rendered. The service which government renders to Production +by its laws, courts, and officers, by the force which it is at all +times ready to exert in behalf of any citizen or the whole society +when threatened with evil in person or property, is rendered somewhat +on the principle of division of labor, one set of agents devoting +themselves to that work; and, notwithstanding some crying abuses of +authority which no constitution or public virtue has yet been found +adequate wholly to avert, is rendered on the whole economically and +satisfactorily. Taxes, therefore, demanded of citizens by a lawful +government which tolerably performs its functions, are legitimate and +just on principles of Exchange alone. + +2. What is the SOURCE out of which Taxes are actually paid? The answer +is, out of the gains of Exchanges of some sort. Gifts aside, and +thefts which are out of the question, no man ever did, no man ever +can, pay his taxes, except out of the gains of some sales which he has +already made. Even the man who lives wholly on the interest of his +money must make a true exchange in lending it (a credit transaction), +and must already have gotten his return-service in interest, before he +can pay his taxes; personal and professional servants must receive +their wages, the outcome of exchanges, before they can possibly pay +their taxes; and men can realize nothing for taxes or other payments +from their farms or foundries or stocks in trade except as they sell +either them or their products. The more sales, the more gains, and the +greater reservoir whence taxes may be drawn. Political Economy, as the +vindicator of sales, as the defender of all legitimate gains +whatsoever, is the best possible friend of tax-payers and +tax-gatherers as such. Whatever thought or force restricts sales, +makes it _pro tanto_ the harder to pay and collect taxes, so much the +harder for a government to keep its head above water and reach the +ends of its being. + +It follows from all this, by a necessary inference, that the annual +Taxes of any country must come out of the annual Earnings of the +people of that country, using the word "earnings" in its general and +proper sense. The greater the earnings _per capita_, the easier are +the taxes paid. Sir Richard Temple read an address not long since in +the Section of Economic Science and Statistics of the British +Association, some of whose results are not only interesting but also +astonishing. For instance, taking the whole population of the United +Kingdom (England, Scotland, and Ireland), without division into +classes, he demonstrates that the average of yearly earnings per head +of the population is £35 4_s._, or $171.28. This exceeds the average +earnings in the United States by 30%, £27 4_s._:£35 4_s._ It exceeds +also the average on the Continent of Europe by 95%, £18 1_s._:£35 +4_s._ It falls below that of Australia only, £43 4_s._:£35 4_s._, or +19% less. Canada's average earnings _per capita_ are $126.80, or 5% +less than those in the United States, £27 4_s._:£26 18_s._ According +to the same unimpeachable authority in the same paper, the annual +income from investments is in Great Britain and the United States as +nearly as possible one-seventh of the aggregate Property in each (all +kinds), or 14%. In Canada and Australia, 18% and 22% respectively. +Undoubtedly the most profitable country in the world at present is +Australia, and Great Britain stands next. The only apparent reason why +the United States, whose natural resources of every kind are vastly +superior to either, takes the third rank is, that profitable exchanges +here are forcefully suppressed by law, and that to an enormous extent, +neutralizing natural resources and glorious opportunities for easily +acquired and widespread gains. This violent suppression of commerce by +national legislation makes it just so much the harder for any man to +pay his taxes, whether these be due to Nation, State, or Municipality. +If the reservoir be diminished the flow from it through every pipe +becomes feebler. + +3. In what PROPORTION ought the individual citizens to contribute to +the fund annually necessary to be raised by Taxation? The usual +answer has been, that a man should be taxed according to his +_Property_. That is the radically correct answer, though most who have +given it have not understood clearly the meaning of the word +_property_. We have already seen that the ultimate idea of property is +the power and right to render services in exchange, and defined it as +_anything that can be bought and sold_. Robinson Crusoe, while +solitary upon his island, did not and could not have property, in the +true sense of that word. It is not the fact of appropriation that +makes anything property; it is not the fact that a man has made it or +transformed it, that makes anything property; it is not the fact that +a man may rightfully give it away, that makes anything property; but +it is the fact that a man has something, no matter what it is, for +which something else may be obtained in exchange, that makes that +something property, and gives government the right to tax it. In other +words, property consists in Values, in a purchasing-power, and not in +possession, or in appropriation, or in the esteem in which a man holds +anything he has as long as it is his own. + +The test of property is a sale; that which will bring something when +exposed for exchange is property; that which will bring nothing, +either never was, or has now ceased to be, distinctively property. +This view may not seem to be as novel as it is, or it may be +prejudiced by its very novelty, but at any rate it carries along with +it that strongest of the criteria of truth, that it simplifies and +illumines a confused section of the field of human thinking; and at +the same time justifies a practice which governments have reached, as +it were through instinct, the practice, namely, of taxing men who have +neither real estate nor chattels, on their incomes from industry and +from credits. + +To the general question, then, in what proportions shall the citizens +contribute in taxes to the support of government, the general answer +comes, that they ought to contribute _in proportion to the gains of +their exchanges_, of whatever kind they may be. The farm, the foundry, +the mill, the railroad, the real estate of every name; personal +property of every kind; and personal acquirements and efforts of all +descriptions, best appear, for the purposes of taxation, _through the +gains realized by means of them_. If, for any reason, any of these +become unproductive, taxes should cease to be derived from them; +indeed, must cease to be derived from them, because their owners can +no longer pay by virtue of them. It may be objected that lands, for +example, presently unproductive, may be held untaxed under this +principle, held for the sake of a prospective rise of price. Very +well; when they are sold at a profit, let the owner be taxed on that +profit: it will be time enough then, especially as men do not like to +hold unproductive forms of property. It may also be objected, that, +under this principle, wages, the result of personal and professional +exertion, would be taxed just the same as profits and rents, the +result of previously accumulated property. Very well; they ought to be +so taxed. Can anybody give a solid reason why they ought not to be so +taxed? One may say, that a professional man earning a large income, on +which taxes are paid the same as on a similar income of a land +proprietor, dying, leaves to his children no further means of earning, +while the land-proprietor, dying, does leave such means. Granted; but +the land income continues to pay taxes, while that professional income +does not! Other members of the profession will do the business which +the former one would have done had he lived, and they will pay taxes +on the income from it. What a man transmits to his children, whether a +great name or a great estate, has nothing to do with the amount of +taxes that he ought to pay while he lives. + +There is an illusion about lands and real property that needs to be +dissipated before men will understand clearly the whole matter of +Taxation. Without constant watchfulness and foresight, without +constant efforts in improvements and repairs, almost every form of +realized property will rapidly deteriorate and become unproductive. +Land even in Great Britain, where land is scarce, is only worth about +twenty-five years' rent; and without the exercise of intelligence and +will property ceases to be. _Property has its birth in services +exchanged; services exchanged give rise to gains; taxes can only be +paid out of these gains; they ought to be proportioned to the amount +of these gains without any reference to the class of exchanges +producing them; while the right to tax on the part of the government +is connected with a service rendered by government, and both grows out +of and is limited by the right to exchange on the part of the +citizens._ These considerations, though they may exclude the propriety +of a poll-tax, are consistent with most other forms of taxation, and +give unity to them. + +4. Does it not follow from all the preceding, that a single and +universal INCOME-TAX would prove the best form of what is in its own +nature a subtraction from the gains of the governed for the +maintenance of Government? If the approximate amount of Income could +in all cases be ascertained, and if no other form of tax were levied +upon the same persons, this would seem to be a perfectly +unexceptionable mode of Taxation. The only sources of Income are +three: Wages, Profits, Rents. It does not seem that gifts are +legitimately taxable; they lie outside the field of exchange; they +spring from sympathy, from benevolence, from duty; and while exchange +must claim all that fairly belongs to it, it must be careful not to +throw discouragements into the adjacent but distinct fields of +morals. Hence, it may well be questioned whether legacies, +bequeathments, gifts to charitable and educational institutions, and +gifts to individuals proceeding from friendship, gratitude, or other +such impulse, are properly subject to taxation. The property is +taxable in the hands of the donor, and may be in the hands of the +recipient, but the passage from one to the other ought to be +unobstructed by a tax. Gifts, then, excepted, and plunder, which is +out of the question, the sources of income are few and simple, and +there is no great difficulty in every man ascertaining about what his +annual income is. Because this income, exactly ascertained, exactly +measures the gains of his exchanges for that year, a tax upon that +income is the fairest of all possible forms of taxation, and might be +made with advantage, in time, to supersede all other forms. + +Superficial objections may be easily raised, and are raised constantly +in the United States, against any form of an income-tax. Reference is +often had to our national experience with such a tax during and just +after the late Civil War. The truth is, that tax was thrown on in +addition to, and in no proper relations with, a large number of other +national taxes of all sorts, good and bad; it was no possible +experiment in Taxation, because there was no opportunity of watching +its operation separate from that of other and confused forms; industry +of all kinds was demoralized by the war, and still more by a +depreciated and abominable paper money made legal tender for all +debts; and the tax became unpopular in influential quarters for +certain reasons not inherent in the nature of the tax, and was +discontinued in consequence. In order to be fairly tested, an +income-tax should either be exclusive, all other taxes being +intermitted for the time being; or at least levied simply in itself in +connection with a few other simple taxes, each of which can be watched +in its incidence and results separately from the others. + +Great Britain derives its national revenues almost wholly from five +sources; namely, (1) Excises, say £27,000,000 annually; (2) Customs, +say £20,000,000; (3) Incomes, say £12,000,000; (4) Stamps, say +£12,000,000; (5) Postals, say £9,000,000. The remaining, say +£10,000,000, come from miscellaneous sources. One feature of the +English Income-tax is, that it is varied from time to time according +to prevailing national needs, the rate having been lifted from 2_d._ +to 16_d._ per pound of income, according to estimated expenditures. In +1857, it realized in our money $80,255,000. In 1866, the largest year, +our own national income-tax realized $60,894,135. By varying the rate +to the pound of income according to the prospective wants of the +Exchequer, the English have found for about forty years their +income-tax to be the most uniform, unfailing, expansive, and +responsive to control, of all their fiscal expedients. + +The Prussians, too, are applying an income-tax as a means of raising +revenue with good success. There, as in England it is somewhat +complicated with other kinds of taxes, and cannot exhibit itself +altogether in its own nature as if it were _exclusive_, such as all +scientific economists would like to see it tried somewhere on a large +scale; and the Germans have a different method from the English, of +making the tax more or less flexible as circumstances vary. The +English change the _rate_ of the tax to the unit of income: the +Germans _graduate_ the tax to different classes of income-receivers. +For example, those persons having an income between 420 and 660 +_marks_ a year pay 84 pennies (_pfennige_) as income-tax; persons in +the next higher class pay 164 pennies a year; those in the class, +whose maximum income is 6000 marks, pay 44 marks and 80 pennies a +year; and all persons whose income does not rise above 420 marks are +not subject to this tax. On account of hard times a few years ago, +Bismarck brought it about, that all the classes included between 420 +and 6000 marks of income should be wholly exempted from one-quarter's +taxes. A _mark_ is 23.82 of our cents; and a _pfennig_ is +one-hundredth of a mark. + +Besides the complete harmony of an Income-tax with the general +principles of Taxation, as already unfolded, it has several specific +advantages over other forms of Taxes. + +a. It has no tendency _to disturb prices_. Were there no taxation +except on Incomes, and were all the incomes rightly ascertained, the +prices of everything would be just as if there were no taxes at all. +Taxation would then be like the atmosphere, pressing equally on all +points and consciously on none. It is through tricks wrought on +Prices, that the greatest and most widely spread injustices have been +done and suffered in this country during the past thirty years: a +depreciated Money, whether of paper or silver, raises some prices and +not others, and some prices before others, and thus distributes its +mischiefs unequally; protectionist tariff-taxes play of design +fantastic tricks with prices, raising some and depressing others, thus +working monstrous injustice on a vast scale; and almost all forms of +taxation become unequal and unjust through their diverse action on +Prices. But a universal Income-tax exclusive of all others, properly +levied and fully responded to by the payers, would have no influence +at all upon prices, could by no possibility work essential injustice, +and would be certain to be very productive without becoming +burdensome. + +b. A second great advantage of such an Income-tax in such a country as +this, would manifestly be, that all men would be obliged to keep exact +pecuniary accounts; more orderly methods of Business would generally +prevail; most men would know much better than they do now how they +stand themselves, and whom of others to safely trust; sudden +commercial failures, indeed failures at all, would be less frequent +and severe; and everything in the business world would be more +aboveboard and better known. + +c. A third advantage of such an Income-tax, and the chief, would be +its tendencies _to fiscal simplicity_. Complexities in the Exchequer +are always and in many ways expensive to the People. In this country, +where distinct taxes have to be paid, first to the local municipality, +then to the State, and last to the Nation, Income-taxes, were all +others abolished, would have this striking advantage, that the local +municipality might best ascertain the incomes of all its legal +residents once for all, no matter from what sources local or other the +incomes be derived; and, having collected its own local _per centum_, +the State and then the Nation would each have to collect an additional +_per centum_ on the same income for themselves. Or, better still, by +an amicable arrangement, neither party yielding up its inherent right +to tax, one set of officials might ascertain the incomes and also +collect the tax for all three governments once for all. It may be +long, it doubtless will be, before we shall ever come to such economy +and simplicity and fiscal beauty as this is; for the pride of +sovereignty is very strong both in State and Nation; each is jealous +of the powers of the other, each is fond of the pelf and patronage and +officialism connected with the gathering of the taxes, and each would +be disinclined to yield anything to the other; but the fact remains, +that, as it is of acknowledged moment to have the single Cæsar's image +and inscription on every piece of the national Money, so it is of +almost equal moment in point of cheapness and clearness and simplicity +to have the hand of Cæsar seen but once in taking in the Taxes. + +Objection has been often raised to any form of Income-tax from the +publicity of private affairs resulting from it. It was just this that +proved fatal to our own first experiment along this line of national +action. But there seems to be some confusion of ideas in connection +with this phrase, "publicity of private affairs," for really, so far +as taxation is concerned, there ought to be nothing "private" about +the amount of any man's income, or the aggregate of all forms of his +property, inasmuch as every man has a _right_ to know, that all his +neighbors are contributing _pro rata_ with himself to support that +Government, which is _common_ to him and them. There is nothing, at +least there should be nothing, "private" in connection with +Government; that is the one absolutely "_public_" thing of the world; +least of all should there be anything private in the matter of public +taxes, since in bearing up the burdens of Government all the citizens +are alike copartners, and in this view and for this purpose each has a +right to demand a look into the books of all the others. + +Another objection has often been raised, namely, that some men will +never give in a true return of their Income. Ah! but they can be made +to do so, as the forms are perfected, as fraudulent returns are +promptly punished by additional assessment and collection, and as the +memory and conscience of the payers are quickened by the action of a +healthful public opinion brought to bear through the annual +publication of the list of their returns. Men are not so isolated from +each other as that a man's neighbors do not know pretty well the +general amount of his income. There is the additional security of an +oath, of the fear of punishment, and of the wish to stand well with +one's class. At the worst, it may be said, that evasions and fraud +accompany also all other forms of Taxation. + +5. What is the difference between DIRECT and INDIRECT Taxes? This is +an old and proper division: we must now see what is the economical +basis of it. A direct tax is levied on the very persons who are +expected themselves to pay it; an indirect tax is demanded from one +person in the expectation that he will pay it provisionally, but will +indemnify himself in the higher price which he will receive from the +ultimate consumer. Thus an income tax is direct, while duties laid on +imported goods are indirect. There has been a great amount of +discussion on the point whether direct or indirect taxation be the +more eligible form; but the reader of penetration will perceive that +there is not at bottom any very radical difference between them; each +is alike a tax on actual or possible exchanges, with this main +difference, that men pay indirect taxes as a part of the price of the +goods they buy, without thinking perhaps that it is a tax they are +paying, and consequently without any of the repugnance that is +sometimes felt towards a tax-gatherer who comes with an unwelcome +demand. Thus indirect taxes are conveniently and economically +collected. Especially is this true of impost taxes; since one set of +custom-house officers may collect easily and at once the government +tax which is ultimately paid by consumers all over the country. The +taxes also levied by the present United States internal revenue law +are indirect taxes, whereby the government gets in a lump what is +afterwards distributed over many subordinate exchanges. The +countervailing disadvantage of indirect taxation, however, is, that +the price of the commodity is usually enhanced to an extent much +beyond the amount of the tax, partly because it is a cover under which +dealers may put an unreasonable demand, and partly because the tax, +having to be advanced over and over again by the intermediate dealers, +profits rapidly accumulate as an element of the ultimate price. + +Direct taxes are laid either on Income or Expenditure. As the +difficulty of a tax on a person's whole expenditure is much greater +than one on his whole income, inasmuch as the items are more numerous +and more diffused, it is only attempted to levy a few taxes on some +special items of expenditure, such as those on horses, carriages, +plate, watches, and so on; but as these do not reach all persons with +any degree of quality, they are so far forth objectionable. A +house-tax, levied on the occupier, and not on the owner, unless he be +at the same time the occupier, would be a direct tax on expenditure +every way unobjectionable. Taking society at large, the house a man +lives in and its furniture are probably the most accurate index +attainable of the size of his general expenditures. They are open to +observation and current remark; they are that on which persons rely +more perhaps than on anything else external for their consideration +and station in life; the tax could be assessed with very little +trouble on the part of the assessor; and it is well worthy the +attention of our State and National Legislatures, whether such a tax, +if more taxes should be needed, would not be more equal and more easy +of collection than any others now open; or whether it might not with +advantage take the place of some of the complicated and objectionable +taxes now laid. Direct taxes have this general advantage over +indirect, that they bring the people into more immediate contact with +the government that lays the taxes, and subject it to a quicker +supervision and more effectual curb, whenever its expenditures grow +larger than the people think it desirable to incur; perhaps they have +this general disadvantage over indirect taxes, especially over +imposts, that the number of officials required to assess and collect +them is larger, thus swallowing up a part of the proceeds of the +taxes, with this liability also of bringing the people into an +attitude of hostility to the government and to its contemplated +expenditures. But whether the taxes be direct or indirect, or +whatever be their form, except it be a poll-tax, which is questionable +at best, they are laid upon Exchanges, and are designed to withdraw +for the use of the government a part of the Gains of exchanges. + +6. Are CREDITS a legitimate subject of Taxation? The answer is very +easy. Unless this whole treatise from beginning to end be unsound, +Credits stand upon the same economical grounds as Commodities and +Services, and so may be taxed for the same reasons as those may be +taxed. Whatever is bought and sold is properly enough taxed, if the +needs of the government require it, and if such taxation would be +productive and not too unequal. As Values always spring from the +action of individuals, so the incidence of taxes is upon persons +rather than upon things; and the question is what can a man sell, or +what has he already sold, on the gains of which sale the government +may lay some claim? If I have a note and mortgage on my neighbor's +farm, I can sell it at any time to a third party; it pays me interest +_ad interim_, and I can collect it at maturity. Government therefore +properly taxes me for that credit in my possession. It is a part of my +property. The holders of the government bonds occupy an economical +position exactly similar. They have a lien on the national property +and income. The credits they hold are vendible commodities. They are a +paper bearing interest. They can be collected at maturity. They are +indeed exempted by law from municipal and State taxation. That was a +legitimate inducement held out to everybody alike to invest in the +bonds. But there is no reason why the nation, having withdrawn them +from town and State taxation, should not itself all the more subject +them to their fair share of the national burdens, unless indeed it be +claimed, as perhaps it fairly may be, that the exemption enables the +government to borrow at a just so much lower rate of interest. The +income at any rate derived from the bonds should be taxed as soon as +any other income is. It is no longer any ground of merit, even if it +ever has been, for persons to buy the government debt. It is a +mercantile transaction, and should be so considered in relation to +taxes. So of other mercantile credits. They are taxable. Massachusetts +has had a great deal of trouble of late years both in the Legislature +and otherwise about the taxation of mortgages on taxed Massachusetts +farms and other real estate. The question is intricate and full of +difficulty. Some things about it, however, are clear. The note and +mortgage is a different _piece_ of property, and a different _kind_ of +property, from the real estate. It is a peculiar sort of credit. The +owner of it is a different person from the owner of the real estate. +Either bit of property may change hands without changing the _status_ +of the other. The question of taxing the note and mortgage, like the +question of taxing the bonds, seems to hinge on the effect it would +have on the rate of interest of the obligation secured by the +mortgage. If the holder of the mortgage expects to have to pay a tax +upon it, he will try to get a higher rate of interest on his money +loaned and thus secured. Whether mortgagees taxed as such _can_ throw +off the tax upon the mortgagors in a higher rate of interest on the +money loaned is a point much disputed and at least doubtful. General +principles would lead us to favor the taxation of note and mortgages +in the hands of their holders, so long as such cumbersome forms of +taxing as prevail in Massachusetts are maintained. A universal +income-tax would solve this difficulty also in a moment of time. + +7. Has Political Economy anything to say about the RATE of taxes per +unit of that which is subject to tax? Yes; it has an important word to +say upon that point. From the very nature of Taxes in general, and in +order that they may be most productive in the long run, as well as +discourage as little as possible the Exchanges which would otherwise +go forward, the Rate of taxes ought always to be _low_ relatively to +the amount of Values exchangeable. A high rate of tax not infrequently +stops exchanges in the taxed articles altogether, and of course the +tax then realizes nothing to the government. As the only motive to an +exchange is the gain of it, the exchange ceases whenever the +government cuts so deeply into the gain as to leave little margin to +the exchangers. The greater the gain left to the parties, after the +tax is abstracted, the more numerous will the exchanges become, and +the greater the number of times will the tax fall into the coffers of +the government. In almost all articles, consumption increases from a +lowered price in even a greater ratio than the diminution of the rate +of tax; so that the interests of consumers and of the revenue are not +antagonistic but harmonious. On articles of luxury and ostentation, +and on those, such as liquors and tobaccos, whose moral effects are +clearly questionable, very high taxes may properly enough be laid, +because their incidence will hardly tend to diminish consumption, and +it would scarcely be regretted if it did; but with this exception, +duties and taxes should be levied at a low rate _per centum_ as well +for the interest of revenue as of consumers. It is to be added, +however, that the taxes even on these articles may be too high to meet +either a revenue or a moral purpose. The internal tax of two dollars a +gallon upon distilled spirits was of this character. Experience has +demonstrated that a less tax will produce more revenue, and the +drinking of whiskey, bad as that is, is less culpable than the endless +frauds on the government provoked by the high tax. + +8. What is the difference between SPECIFIC and ADVALOREM Taxes, and +why should the student take careful note of these both singly and +combined? These terms are used more particularly in relation to +Tariff-taxes, but there is nothing in the distinction itself so to +limit its application. A Specific tax is a tax of so many cents or +dollars on the pound, yard, gallon, or other _quantity_ measurable: an +Advalorem tax is a tax of so much _per centum_ on the invoiced or +appraised _money value_ of the goods subject to the tax. Specific +taxes, accordingly, are far simpler and steadier in their operation +than the others; it is easy to ascertain the weight or number or other +quantity of valuables, and then to apply a fixed ratio to them in the +way of tax; the payer knows or may know beforehand precisely how much +the tax will amount to, and consequently just how it is to affect the +profitableness of his current trade; and on these and other grounds +specific taxes are preferable to advalorem ones. To be sure, this form +of tax involves that high-priced grades of an article pay no higher +taxes than low-priced grades of the same, but this consideration is +largely overbalanced by those of convenience and productiveness. + +Advalorem taxes, on the other hand, are never calculable beforehand; +because Values from their nature are variable, and as a matter of fact +do constantly vary. Imported goods, for instance, bring with them the +invoice of the seller giving the values at the place of exportation. +But the importer is by no means sure that the tax will be levied upon +that valuation. The home valuation will of course be higher, otherwise +the goods would not be imported. Whenever it becomes the policy of a +country, as of the United States at present, to keep foreign goods +_out_ to the utmost extent possible under the law, which law is itself +devised on purpose to keep them out, there will always be suspicions +and charges of undervaluations at the place of export; there will +always be a motive on the part of the foreign seller or agent thus to +undervalue the goods in the interest of the importer, so as to lessen +his tax, and so increase the seller's market; such abnormal +tariff-taxes are the enemy of mankind in general, and, therefore, +there will be no end of deceits and evasions at both terminals of the +ocean-route, and "custom-house oaths" will become a by-word of course; +the importing, or rather the non-importing, country will keep in pay +an army of spies and informers on both sides of the water in order to +prevent what is called "frauds," and another army of "appraisers" at +its custom-houses in order to discredit the invoices, and to jump at a +valuation of the goods, on which the tax shall be levied; and +honorable merchants and importers, without any fault of their own, are +liable to get entangled in the miserable meshes of such goings-on, as +happened in a memorable case in New York a few years ago, and be +mulcted in fines (perhaps to immense amounts) one-half of which shall +go to the informer. + +There are too many practical difficulties connected with either of +these two forms of tax to make it proper to combine the two upon the +same article of merchandise. To combine them thus is one of the tricks +and traps of Protectionism. That makes it next to impossible for any +importer to tell beforehand what the two taxes will aggregate, and +quite impossible for any ultimate consumer to tell how much of his +price paid is due to the demands of his Government. Opening the +official tax-book at random, we quote as follows from a single page: +"Webbings, pound 50 cents, and 50 per cent"; "Buttons, pound 50 cents, +and 50 per cent"; "Suspenders, pound 50 cents, and 50 per cent"; +"Mohair cloth, pound 30 cents, and 50 per cent"; "Dress trimmings, +pound 50 cents, and 50 per cent." Besides these, on that same page, +there are 14 other articles under similar compound taxes, mostly at +50 cents a pound and 50 per cent additional, this as under the Tariff +as it was 1874-83; but all these 18 articles were put in 1883 at +"_pound 30 cents, and 50 per cent_." + +9. What are the economical reasons for an EXCISE or INTERNAL-TAX in +connection with Tariff-taxes for revenue? A tariff-tax, whether for +revenue or other purpose, raises the price by so much of the article +subjected to it and actually imported; now, if similar articles of the +same quality be made or grown at home, and be not subjected to a +corresponding tax, these will inevitably rise to the price of the +foreign, with the tariff-tax added, for there is no possible +competition or conceivable impulse that can keep it lower than that; +so that, in that case, the government gets in revenue, only the taxes +paid on the part imported, while the people are compelled to pay in +addition virtually the same taxes on all that part produced at home. +Why should not the government have the proceeds of the last as well as +of the first? The last is the direct result of the first. If now, a +corresponding excise-tax be put on the domestic product also, the +government will get in revenue all that the people are obliged to pay +in consequence of government-tax. This is just: the other is wantonly +unjust. + +Take an illustration, please. The national Census of 1890 gives the +Pig-iron production of the Census year as 9,579,779 tons of 2000 lbs. +each. This is an increase over the production of the Census year, +1880, of 255 _per centum_,--3,781,021:9,579,779. Fortunately the +present Census adds the net imports for the two years respectively, +with these results: the _per capita_ consumption of Pig-iron in 1880 +was 196 lbs., of which 126 was home production, and 70 of foreign +import; while in 1890 the consumption was 320 lbs. _per capita_, of +which 299 was domestic, and 21 foreign. That is to say, in 1880, 65% +of the pig-iron consumed in this country was of home production, and +35% was of foreign production. At that time the tariff-tax on imported +pig was $7 per ton. Government secured this tax on a little more than +one-third of what was consumed, while a small circle of citizens +banded together for that purpose secured for themselves this tax on +the remaining two-thirds of all pig-iron consumed that year, _and the +whole people paid the tax on the entire three-thirds_. As we shall see +fully a little further on, our national Government has no +constitutional or other right to tax the people one penny except to +supply its own needs as such; if, therefore, the $7 impost per ton +were put on as a legitimate tax, there should have been an _excise_ or +internal-tax to the same amount put on the pig-iron produced at home. +That would have cost the people no more, and the Government would have +gotten twice as much more as it did get from the tax. If there be an +axiom in Taxation, one point indisputable by any rational human being, +it is this: _The Treasury should receive all that the people are made +to give up under a public tax._ + +In 1890, this particular matter came to be much more flagrant. Only 21 +parts out of 320 parts were in that year foreign pig-iron; that is, a +little less than 7%, while 93% was domestic pig-iron; the tariff-tax +at that date was .3 of a cent per pound, or $6.72 per ton of 2240 +lbs.; the tax was sufficient practically to exclude foreign pig, +although the Scotch pig as more fluent is very much desired here in +some branches of the iron manufacture, particularly in making steel +rails; Government received the proceeds of its own tax on only +one-fourteenth of that, which really paid the tax on its whole +fourteen-fourteenths; where did the tax on the thirteen-thirteenths go +to? If this were a matter of genuine taxation, ought there not to have +been an _excise_ on the domestic corresponding to the _impost_ on the +foreign? + +Precisely that is what we do in the case of other articles not +_protectionized_. For example, in the fiscal year 1889, the excise or +internal-tax on "distilled spirits and wines" realized to the Treasury +$74,312,200, and the tariff-tax on the same realized $7,123,062, +total, $81,435,268; on "malt or fermented liquors" the same year, the +excise was $23,723,835, the impost only $663,337, total, $24,387,172; +and on "tobacco" the excise was $31,866,860, the impost $11,194,486, +total, $43,061,346. These figures are official. + +An ostentatious display of private figures and price-lists is often +made, with a design to show that the prices of home-made products +protectionized are not lifted so high to consumers or buyers as those +of foreign-made products with the tariff-taxes added. The main +sophistry in these figures is this: the pure assumption, that the +_quality_ of the home-made products alleged to be cheaper than the +tax-added price of the foreign, is _the same_ as that of the foreign. +Unluckily, things are often called by the same names, and even +described by the same technical terms, which are very different sorts +of things in reality. A subordinate sophistry in these figures, often +allowed to pass, but not requiring any sharp insight to detect, is, +that the selected price-lists are not the results of an average +extending throughout years, but are _picked_ at points when (owing to +other causes than the taxes) the current prices of protectionized home +products are lower than the average of the years. One easy way to +expose the putters-forth of these figures, as not themselves really +believing in them, is, gravely to propose to lower or remove the +tariff-taxes, which (it is alleged) do not have the effect to lift +much, if any, domestic prices. This simple experiment has several +times been tried, with ludicrous effect upon the figure-mongers; they +cannot spare one iota of present taxes on foreign products: if the +smallest fraction be removed, they can no longer make and vend their +wares; indeed, heavier tariff-taxes are needed at this very moment, in +order to lift the domestic prices higher; and, presto! another set of +figures are forthcoming at once to prove the disabilities, either in +respect to Labor or Capital, under which the poor protectionized +producers are staggering in order to keep the home market! + +Another complete refutation of the false position of the +protectionists, namely, that the domestics are not lifted in price on +the average to the price of the foreigns of the same quality with the +tariff-taxes added, is their utter failure and inability to project +any reason in the nature of things or the motives of men, why the +_home-prices should_ NOT _be thus lifted_! What impulse, pray, on the +earth or under the earth, can serve to depress them on the whole +average _below_ that point? Does any one say, that "domestic +competition" will depress and keep depressed the prices of home goods +of the same grade below the prices of the foreign taxes paid? Did this +astute objector ever hear of "domestic combination" to keep prices up +to the highest possible point? To shut down mills and factories, to +avoid depressing prices? To sell surplus stocks abroad for what can be +gotten for them, in order to make prices at home up to the usual +scarcity point? In July, 1890, the Boston Commercial Bulletin, the +special organ of Protectionism in New England, and special spokesman +for the wool-and-woollens industry, spoke thus of that industry, after +30 years of public hiring the growers and manufacturers to carry it on +with a _bonus_, just at a time when the worsted tariff-taxes had been +advanced, alleged custom-house frauds stopped, and still higher +tariff-taxes on their way from the so-called McKinley Bill in +Congress: "_The woollen goods industry was probably never in much +worse condition in this country. The slowness of its development may +be judged from the fact, that, despite an average yearly increase of +over a million in population, the increase in the number of wool cards +in this country is less than a hundred a year, while the proportion of +woollen machinery shut down between June 1 and September 1 bids fair +to be the largest ever known. The market is dull, deadly dull. The +large amount of silent machinery is making its presence felt. The +sluggish sales of wool are due to most of the big mills being closed. +Depression in business is the cause of so many woollen mills closing, +and the news comes this week of four woollen mills, three in the Bay +State and one in Pennsylvania, that will close for periods ranging +from two weeks to several months._" + +Not only is it true, that the purpose and usual effect of tariff-taxes +is to hoist the price of domestics protectionized up to the limit of +the corresponding foreigns with the taxes added, but it sometimes +happens that the home products are carried for considerable periods at +a level a good deal above that. A conspicuous instance of this, +commented on at the time by all the Boston papers, was brought to +notice a couple of years ago in connection with the steel beams +purchased by the city for the new and noble Boston Court-House. The +beams were bought in Belgium at $28 a ton, paid at the Boston +Custom-house "_one and one-fourth cents a pound_," that is, just $28 a +ton, making their cost to the city $56 a ton. But domestic steel beams +of the same general description were selling here at $73 a ton. Their +price had been raised here twice in one summer, about fifty cents a +ton each time. One of the conglomerated curses of cutting off by law +the natural competition in such products is, that the unnatural +competition still permitted by law is sluggish in coming into +operation, and the monopoly becomes even more such than was intended +by the law. + +The tariff-tax on steel rails is $17 a ton, formerly $28 a ton, +proposed in the McKinley bill to be reduced to $11.20 a ton. That +even this last is wholly needless, or any tax at all on steel rails, +is proven by the fact, that in March, 1890, Pittsburg rail-makers sold +5000 tons of rails at Vera Cruz at lower prices than the corresponding +European rails were offered for in Mexico. Another fact that proves +the same thing is this: James M. Swank, the mouth-piece of the +Pennsylvania iron and steel interests, describes the year 1885 as one +of unprecedented prosperity in the steel-rail industry, and gives a +formidable list of new establishments opened in that year. But steel +rails were much lower in that exceptional year than in any year before +or since. A tariff-tax of $5 a ton would have been in that year +absolutely prohibitory, for steel rails were worth less than $28 a ton +the greater part of that year. Yet that very year was the year of +greatest prosperity, Mr. Swank being the competent witness! But the +fact in general, which ought to overwhelm the iron and steel +protectionists with confusion, if they were capable of any such +emotion, is, that iron and steel in every form of both, owing to the +unprecedented bounty of God to this good land, costs less both in +labor and capital here than in any other country in the world. The +official figures of the current Census demonstrate this, authentic +statements of practical operators at the iron mines and furnaces and +foundries throughout the Tennessee Valley confirm it, and there is not +one particle of evidence to the contrary of any name or nature. + +Let the reader notice carefully the following quotation from a private +letter to the writer, dated July 30, 1890, written by a graduate of +this college, in whom all who know him have the fullest confidence: + +"_We began to open the mines here just three years ago this Fall, and +began shipping the following Spring. Our price for the ore was then +about $1.50 a ton, depending on the analysis. We mined in the +old-fashioned way--with picks and shovels--and I am safe in saying it +cost us all we got for it. I know I was continually making drafts on +my father to keep me out of debt. I did not figure on the cost at that +time--I was afraid of the figures. My only thought was how to reduce +the cost. We had a Steam Shovel in Pennsylvania, and I got my father +to send it to me for trial in this ore. We found we could use it to +advantage by using also plenty of powder, and I was soon able to buy +the second shovel. Of course that reduced the cost of production still +lower, and as there was a market for all I could do, I got the third, +and am now putting in the fourth, and the fifth is bought and to be +delivered inside of 60 days. This doubling up of the shovels made me +get locomotives to carry the ore in the mines instead of mules. I have +now two locomotives. You will understand how it would make a saving at +that point. It would require 15 mules to do that work, and it could +not be done so promptly._ + +_During the month of May we shipped about 14,500 tons with the use of +three shovels, and at a cost per ton for labor and fuel and powder of +33 cents. We have reduced the cost on a week's run, in good weather +and with no lack of empty cars, to 29 cents, but it never came lower +on the month's average than 33. I expect this Fall, with five shovels +instead of three, and two locomotives instead of one, to lower the +cost of production._ + +_Our average price at the mines is $1.20; we sell some higher. I have +just now taken a contract for 40,000 tons to be delivered between now +and the 1st of February, 1891, at $1.12-1/2. This is the lowest +contract price we have ever made, and likely that has ever been made +in this locality; but I did it to get into a different market. That +ore is to go to Nashville--a distance of 120 miles. The reason for +cutting the price to get the increased quantity I will not need to +explain to you. You taught it to me. The freight to Nashville is 75 +cents. To our other furnaces in Alabama, at Sheffield and Florence, +the freight is only 35 cents. What other contracts I have at present +are at $1.25._ + +_With three shovels we make from 600 to 800 tons a day. With one +shovel we made from 150 to 250 a day. The variation from day to day +depends on the quality of the material we handle._ + +_The ore is all washed and picked and screened before it is loaded on +the cars. A very important part of the work is the work done in the +washer. It requires very expensive machinery, and the wear and tear is +enormous._ + +_We pay unskilled laborers ten cents an hour, skilled men as high as +twenty-five. We work eleven hours a day. Our general foreman gets $100 +a month._" + +Sugar and Molasses brought in through the tariff in the fiscal year +1889, $55,995,137. The quantity of domestic sugar and molasses +relatively to the quantity imported is so small, that an excise upon +it in accordance with the general principle of these paragraphs is not +worth while, but would be far more just and rational than to offer +bounties to the domestic producers out of the taxes paid by the +consumers of foreign sugar. A "bounty" in this sense is at once an +abuse of a good word, and an abomination in point of fact. For any +Government, which is nothing but a Committee of all the citizens to +attend to certain joint concerns of all, to abstract money through +taxes from the pockets of a part of these citizens in order to reward +another part for carrying on an unprofitable branch of business, is +something equally repugnant to Economy and Equality. + +10. What, then, is the BOTTOM-PRINCIPLE in the Mode of Taxation? It is +this: _Relatively low taxes so adjusted on comparatively few things as +not to disturb natural prices_. The principle is simple: the problem +is difficult; but wonderfully less so the moment all attempts are +given up to foster any branch of industry whatever. Our legislators +are not called upon to foster any industries. It is out of their beat. +They cannot permanently do it, if they try; and they do immense harm +while they try. Their "bounty," instead of being a gift, as the word +imports, is a haphazard bestowment of other people's money extorted +from them by public taxes. The problem becomes simpler every year of +public experience under the practical design of so laying the public +burdens as to realize to the Treasury the most money with the least +possible interference with what would otherwise be the on-going of +Exchanges in all directions. So relatively simple and easy has the +English taxing system become, under this one leading design, that +Gladstone performed without difficulty the functions of Chancellor of +the Exchequer in conjunction with the far more arduous and complicated +duties of Prime Minister. + +_Low taxes on few things._ The opposite of this principle at either of +its two points becomes at once pernicious. High taxes in general +prevent exchanges altogether, by cutting in too deeply in the gain of +them, which is the sole motive to them; high imposts prevent +importations, and of course destroy the profitable exportations +consequent to, and conditioned on, such importations; high taxes even +on few things are apt to raise prices of other articles than those on +which they are directly levied, and so become objectionable always, +and unbearable whenever it is their purpose to raise such prices: +taxes on many things, and even on few things every time they change +hands, throw an indefinite burden on Exchange, whose weight cannot +well be calculated beforehand, either by the consumer or by the +government, through uncertainty as to the number of transfers. Once +for all, and then an end. Exchanges are indeed the only legitimate +subject of taxation, but not every specific and subordinate exchange. +An attempt to tax all sales whatever was followed in Spain, and will +be followed everywhere, by a sluggish indisposition to trade at all. +Let the amount of the tax be definite, and let everybody be sure that +when it is once paid government will produce no further claim, and +industry will go along under heavy taxes better than under those +nominally lighter to which uncertainty as to time or amount attaches. +All the more advanced governments have been simplifying of late years +their systems of taxation, and collecting their revenue at fewer +points, and under more tangible conditions, in order to interfere as +little as possible with a free industry and free exchange. + +The subsidiary principle is important, namely, that all taxes should +be collected by the government in as economical a manner as possible, +inasmuch as all direct and indirect costs of collection are so much +added to the burdens of the People. This covers two practical points: +(1) the number and efficiency of the tax-gatherers, and the whole +outward machinery of collection, such as the custom-houses, offices of +internal revenue, and so on. These, as they concern the whole people +equally, should be separated as far as possible from party politics, +and the inevitable corruptions thereupon attendant. All the fiscal +officers of the United States, from the Secretary of the Treasury down +to the lowest tide-waiter, are liable to be changed every four years, +and as a matter of fact are usually to a very large extent so changed, +to the great detriment of the service and ultimate expense of the +people, to say nothing of the moral losses and crevasses involved. +(2) The tax-money should be kept out of the pockets of the people as +short a time as possible, disbursement following quick upon collection. +It is poor policy to gather taxes at the beginning of the year which +will not be disbursed till the end of the year. Let the people use +their funds till they are wanted at the treasury; and if the taxes +do not then come in as fast as wanted, it is better to issue what +are called in England exchequer-bills, and in the United States +certificates of indebtedness, to be redeemed at the end of the year +from the proceeds of the taxes, than to let the people's money lie idle +in the treasury. The Secretary of the Treasury should have nothing to +do or say about the circulating medium of the country, or the loanable +price of the units of it, under any circumstances whatever. He is +neither competent enough in Knowledge nor enough established in +Integrity to be trusted with any such functions. + +11. Should there be any EXEMPTIONS from Taxation? If the necessities +of the State require it, government has the right to demand from all +persons who are capable of making exchanges, and who do make them, +something in the form of taxes. But it is every way better, when +possible, that people of very moderate means should be exempted +altogether from direct taxes; and the payment of indirect taxes is a +matter more in their own option, since they are at liberty to buy much +or little of those commodities subjected to an indirect tax. In the +State of Massachusetts, incomes not exceeding $2000 are exempted by +the law. If a house-tax should be levied, all houses below a certain +grade of style and comfort should be exempted, and the tax pass up by +easy gradations from those just taxed to the palatial residences of +the rich. In the present age of the world, the well-to-do citizens of +every country are able to bear without too great difficulty the +burdens of the government, and nothing tests better the degree of +civilization which a nation has reached than the care and solicitude +it displays for the welfare of its poorer citizens. + +12. Who pays the INDIRECT TAXES? At a court ball, Napoleon the First +once observed a lady noticeable as richly dressed and as wearing +splendid diamonds, and on asking her name, found that she was the wife +of a tobacco manufacturer of Paris; it occurred at once to the quick +mind of the French ruler, that the State might just as well have those +profits as an individual; and the sale of tobacco in all its forms +became accordingly a State monopoly, which now yields about +400,000,000 francs a year. That is indirect taxation. So is the +British and United States tariff and excise on tobacco. Producers and +dealers and bankers and companies add the tax demanded from them, and +sometimes more than the tax under color of it, to the price of their +wares. But it is not true that they can always realize the whole of +this enhanced price. Generally they can, sometimes they cannot. If the +article be one of necessity, or a luxury that has become equivalent to +a necessity, and there be no other source of supply than the taxed +one, then, as a rule, the tax falls wholly on the consumer, and is a +matter of indifference to the producer or dealer. But the usual effect +of an enhanced price is to lessen demand, and if the article is +dispensable, or its consumption can be lessened, or it can be obtained +elsewhere, the market will be sluggish under the tax, and producers or +dealers will be likely to tempt it by lowering prices, in other words, +by sharing the tax with consumers, and paying that share out of +profits. This is the principle. Producers and dealers would rather the +tax were off. Consumers generally, but do not always, pay the whole of +it. + +13. What is to be said about the DIFFUSION of Taxes? David A. Wells, +an admirable and indefatigable authority on all practical questions in +Economics, though perhaps less skilled in scientific classification +and generalizations, several years ago made somewhat prominent in +public discussion the tendency of Taxes _to diffuse themselves_. Much +more has been written about this than is actually known about it. By +Diffusion is meant that it does not make so much difference upon what +or upon whom a tax is originally levied, because the tendency of +things is to _diffuse it_, that is, to compel others to assist in +paying the tax. The result of much personal reading and reflection on +this point is the conclusion that taxes do not "diffuse themselves" +nearly so much as has been sometimes supposed; and that, at any rate, +it is a good deal better to take the taxes from those who ought to pay +them, than to lay them at random, and then to trust some unknown +forces to make them afterwards just. It is certain that _some_ unjust +taxes cannot be diffused; for example, the protective tariff-taxes +paid by the farmers upon articles of necessary consumption. These +taxes have no tendency to raise the price of the farmers' produce, for +_that_ is determined by the foreign market, to which large parts of +the produce are exported. For such taxes the farmers cannot reimburse +themselves. Taxes that affect no prices are the best of all; taxes +that affect prices the least are the next best; and taxes that are +_designed_ to affect prices are the very worst. + +14. What are the bearings of the UNITED STATES CONSTITUTION on the +whole matter of Taxation in this country? We have now seen pretty +fully, what the science of Economics has to say about the sources and +modes and results of tax-laying: but we are bound to tell also, what +the kindred but much less developed science of Politics, and +particularly what the Constitution of the Fathers, has to say upon the +same vitally important topics. + +(1) The first power granted by the People to Congress, which is simply +their agent, in that Instrument from which each of the three great +Departments of Government derives all its authority, is in these +words, exactly copied from the original and official parchment in +every particular: "_The Congress shall have Power to lay and collect +Taxes, Duties, Imposts and Excises, to pay the Debts and provide for +the common Defence and general Welfare of the United States; but all +Duties, Imposts and Excises shall be uniform throughout the United +States._" This grant of power, which stands first in order, is +followed by seventeen other express powers granted to Congress in the +same eighth Section of the first Article. + +There never has been any difference of opinion, and there cannot be +under such completely explicit language as this, among competent +Statesmen and Commentators, as to the exact meaning of this clause, +namely, Congress is given power to lay taxes in order to get money, +with which to pay the debts and provide for the common defence and +general welfare of the United States. That was the opinion and purpose +of every member of the Federal Convention, that framed the +Constitution in the summer of 1787; of Alexander Hamilton, who was +first called on as Secretary of the Treasury officially to interpret +it; of Daniel Webster, often called the "great expounder" of the +Constitution; of John Marshall, the great Chief Justice of the Supreme +Court; of Judge Story, the first copious and most distinguished +commentator upon the Text; of George Bancroft and George T. Curtis, +the learned and elaborate historians of the Text; and in short, of +everybody else, who has earned any right in any way to have an opinion +on any such matter of political interpretation. + +Why, then, has there been from the first until now, a feeble flutter +of butterfly wings around the clause, as if, somehow or other, it gave +Congress by hook or by crook some power or other to do something +_else_ than to lay taxes in order to get money for the maintenance of +the national Government? As if there lay concealed in the language +somewhere a power to lay taxes for a purpose precisely opposite to +that expressed in the text, namely, _nominal taxes designed to +prohibit any money being gotten under them_? And why did Hamilton +himself, whose wings were those of an eagle, sweep low and hover +uncertainly about these words, and so give color to the political +historians of our time to say: "_Once more laying hold of the "general +welfare" clause of the Constitution, Hamilton here argued, under color +of giving bounties to manufactures, as though Congress might take +under its own management every thing which that body should pronounce +to be for the general welfare, provided only it was susceptible of the +application of money. Though he limited this central discretion to the +application of money, and stated some restrictions rather vaguely, the +insidious tenor of his report was to show that the Federal power of +raising money was plenary and indefinitely great._" + +The true answer to these questions is a point of Grammar. The simple +English infinitive, unlike the simple infinitive of any other language +with which the writer is acquainted, _often expresses purpose_, as +well as the action of the verb without limitation of person or number; +so that, it is perfectly good English to say, "To lay taxes to pay," +when the only possible sense of it is, "To lay taxes _in order to +pay_." Greek, Latin, and German would use here with the infinitive the +particle expressing the purpose: the English language does not. It is +not true to say, that ambiguity enters this clause, through the common +and elegant use of the simple infinitive in English to express the +purpose; but it _is_ true to say, that superficial confusion has +entered here, and a mess of bad logic. What makes it absolutely +certain, beyond the possibility of a controversy, that Congress can +levy taxes only in order to get money by means of them, is, (a) that +is the only English of the clause; (b) the "debts" of the United +States can only be paid in money; and (c) if this be _not_ the +meaning of the clause, its meaning must then be plenary, and there +would be no need or place for the remaining seventeen powers, "and all +other powers vested by this Constitution in the Government of the +United States or in any Department or Officer thereof"; in other +words, any other interpretation of the taxing clause than the plain +one would destroy the Constitution root and branch; for, if Congress +have the general power "to pay the debts and provide for the common +defence and general welfare of the United States," all other possible +powers are included in this, and President and Court disappear, and +all other clauses of the Text are a nullity. + +If the above course of reasoning be sound, and he would be a bold +logician who should openly dispute it, then taxes laid for any other +end than revenue are clearly unconstitutional. The Supreme Court has +never passed upon this bald point, for it has never been mooted in +this form; but one would think, there can be little doubt how the +judges would decide in any "case" directly involving the +constitutional power of Congress to levy prohibitory tariff-taxes, +whose avowed or clearly inferrible design it is, _not_ to get money +with which to pay the debts and so on, but to cut off the possibility +of getting any money thereby. The general trend of the decisions of +the Supreme Court has wisely been, to leave in their interpretations +of the Text the widest margin of discretion to the Legislative branch +as to the best means of _raising_ revenue; but when it comes to face +the question of allowing as constitutional the best means of +_preventing_ revenue,--well, may we be there to see and hear! + +(2) There are prohibitions on Congress in the Constitution, as well as +powers conferred, and among these this: "_No tax or duty shall be laid +on Articles exported from any State._" This is a part of the third +great Compromise of the Constitution, and was a concession to the +southern and planting States to make more palatable to them the power +"to regulate commerce," that was expected to be used (and was used) in +behalf of the northern and navigating States. But the concession was +more nominal than real, as the southerners found out in time to their +vexation. To prohibit taxes on exports, and to leave in full vigor the +power to tax imports, though consonant with the then prevailing +delusion of Mercantilism, is no boon to commerce in general; because, +any restriction on buying products is equally and instantly a +restriction on selling products. Exemption from taxes on exports is a +good thing in itself, but the only reason for selling exports is to +take in profitable pay the imports naturally offered against them; and +if these be restricted or prohibited, the restriction or prohibition +applies instantaneously and inevitably to the would-be exports. A +reasonable liberty of exporting is nothing, unless accompanied by a +reasonable liberty of importing, because the imports pay for the +exports and the exports buy the imports. + +The southern States rejoiced for a time in this exemption-clause of +the Constitution, for their rice and cotton and indigo found no +obstacles in going out; but the only motive in sending them out was to +buy something with them to bring back; and after the snare of +Protectionism entangled the People in 1816, 1824, and specially in +1828, when the "Tariff of Abominations" was passed, the southern +people saw only too distinctly, that taxes on imports which they +wished to bring in were the same in effect as taxes on their own +exports would have been. Mr. Calhoun and the others were effectually +undeceived by the customary on-goings of commerce; and as the northern +statesmen unwisely and unpatriotically determined to crowd this iron +home in 1828, the party of the other part developed under great +provocation the doctrines of Nullification and Secession, which have +since caused a plenty of tears and bloodshed. One wrong ever begets +other wrongs. The wretched Greed of one section of the country was own +father to the wrongful Secession of the other section. + +The Farmers of this country have often been congratulated on their +privilege under the constitution of exporting their agricultural +products without a tax. The congratulation is hollow. Of what use is +it to go out free and come back manacled? The ultimate is always the +return-service. The farmers are cheated. Their agricultural exports +are falling off year by year solely in consequence of outrageous +tariff-taxes on imports. In 1881, farmers' produce was exported to the +amount of $730,394,943, and that was not one-half what it would have +been under a simple and adequate Tariff for Revenues; but in 1889, +these exports only reached $532,141,490, a falling off of nearly +$200,000,000. This decline was chiefly in meats and breadstuffs. No +wonder the farmers have been complaining of terribly hard times of +late years: no wonder they are organizing "Alliances" and other +machinery for reaching a remedy: they must see clearly first where the +disease lies: the truth is, they are tariff-taxed to death: their foes +are they of their own household: Vermont, a purely agricultural State, +is the only one in the Union, that has actually _retrograded_ in +property and population in the last census-decade: those excellent +people have hugged the Tariff-delusion to their ruin; their senior +Senator, whose name is unpleasantly connected with the national +tax-laws of a generation, has never yet in the course of a long and +reputable life gained a glimmer of the commercial truth,--if men +_will_ not buy they _can_ not sell. + +(3) The only other clause of the Constitution, which, as students of +Taxation, we are bound to examine, is the following: "_No Capitation, +or other direct, Tax shall be laid, unless in Proportion to the Census +or Enumeration herein before directed to be taken._" A capitation tax +is a poll-tax, which may be easily "proportioned" to the Census. It is +not clear, what is the meaning of the words "or other direct tax"; the +Supreme Court early struggled with that question, to this apparent +result, that _lands_, as the only form of property that can be +"proportioned" in their appraised value to population with any +considerable degree of accuracy, are the only "other" subject of +"direct" Taxation. However this may be, it is of considerable +consequence to note, that the term, "direct tax," as used in the +Constitution, does not correspond in its meaning to the significance +of the same term as employed in Economics. With us, a "direct tax" +means one demanded from and paid by the person on whom it is +ostensibly levied, and cannot be thrown off or forward on anybody +else; while an "indirect tax" is one which can be so thrown off or +forward. + +Attention is called to the distinction here, in order to show that an +Income-tax, while in the Economical sense it is a "direct tax," is not +such in the sense of the Constitution. Objections were urged against +the late Income-tax in this country, that it was a "direct tax," and +so, because it could not be proportioned to the population, was +unconstitutional. The point is not well taken. It remains, and will +remain, after the most searching scrutiny, that an universal +Income-tax, all other taxes being abolished, is the form most +consonant with the principles of Political Economy, and not at all +repugnant to the Constitution of the United States. + +15. Finally, are there any hints and guides to thought and +legislation in the matter of Taxation through an extremely brief +summary of the HISTORY of Taxes? So far as the Greeks are concerned, +they showed a practical good sense in their laws of Property in +general, and in their laws relating to Taxes in particular. The +natural march of industry and commerce was not hindered by taxation: +there was no forbidding the export of raw materials or specie; no +favoring of manufactures at the expense of agriculture; no hint of the +future Mercantilism in any efforts to preserve an artificial balance +of trade; and no taxes on imports except for purposes of Revenue. +These at Athens itself were usually 2% of the value of the goods, at +the ports of her subject-allies 5%, and exceptional cases of higher +rates than these were regarded as extortionate. + +The Romans also were sensible and moderate in their modes of Taxation. +They laid taxes for the sake of getting money for the public treasury, +and had no other end in view. They knew nothing of what has since +become famous under the name of "Protectionism." Their taxes were both +direct and indirect, but especially the latter. The chief direct tax +was the land-tax, that is, a claim to the tenth part of the sheaves +and of other field produce, such as grapes and olives; and also +pasture-money (_scriptura_) demanded of those who made use of the +public pastures and woods. In Macedonia and the other larger +Provinces, in lieu of the land-tax a fixed sum of money (_tributum_) +was paid to Rome each year by each community in its own way. The +grain-tenths and pasture-moneys were always farmed out to private +contractors or companies on condition of their paying fixed quantities +of grain or fixed sums of money. The chief indirect tax was +customs-duties. There never was at any time a general tariff for the +whole empire, but there were customs-districts, such as Italy, Sicily, +proconsular Asia, the province of Narbo in Gaul, and others, each +with a sort of tariff of its own, and some with special immunities. +Goods imported by sea into Italy, for example, not for the personal +use of the importer, were subject to a tax, which seems to have been +mainly a tax on luxuries, since pepper, cinnamon, myrrh, ginger, +perfumes, ivory and diamonds, are among the dutiable goods mentioned +in one of these tariffs. Sicily had a tariff-tax quite distinct from +this, since one-twentieth of the value of the goods (5%) was levied on +the frontier on _all_ imports and exports; and a similar tax of +one-fortieth was laid by the Sempronian law on the province of Asia. +These imposts, too, were leased to contractors, which gave, of course, +some chance of fraud and wrong. There were other temporary taxes, like +those, for instance, which Augustus laid of 5% on legacies and +inheritances, and of 1% on articles publicly exposed for sale. + +Green's History of England (I., 322 _et seq._) gives an outline of the +taxes there from the beginning of the monarchy. As land was almost the +only source of salable things in the early time, so it was almost the +only thing on which taxes were levied. Danegeld and scutage and feudal +aids fastened only on the land. "But a new principle of taxation was +disclosed in the tithe levied for a Crusade at the close of Henry +Second's reign. Land was no longer the only source of wealth. The +growth of national prosperity, of trade and commerce, was creating a +mass of personal property which offered irresistible temptations to +the Angevin financiers. No usage fettered the Crown in dealing with +personal property, and its growth in value promised a growing revenue. +Grants of from a seventh to a thirtieth of movables, household +property, and stock were demanded. The right of the king to grant +licenses to bring goods into or to trade within the realm, a right +springing from the need of his protection, felt by the strangers who +came there for purposes of traffic, laid the foundation for our taxes +on imports. Those on exports were only a part of the general system of +taxing personal property. How tempting this source of revenue was +proving, we see from a provision of the Great Charter, which forbids +the levy of more than the ancient customs on merchants entering or +leaving the realm. Commerce was in fact growing with the growing +wealth of the people." This passage shows, that, as a matter of fact, +_taxes_ have always hinged, and must hinge, on _trade_. + +A few facts in the most recent movements of national Taxation in the +United States may fitly conclude this Chapter and this Volume. Since +1867, Wool and Woollens have been the ass, upon whose breaking back +the most conspicuous burdens have been piled; and the "McKinley Bill" +so-called, still pending at the present writing in the Senate, heaps +up still higher the groaning loads. The following table shows how +futile is the attempt to keep out wools and woollens from such a +country as ours, even by the most exaggerated barriers:-- + + IMPORTS OF WOOLS AND WOOLLENS. + (Calendar Years.) + + -------------------------------------- + | Years. | Wools. | Woollens. | + |--------+-------------+-------------| + | 1886 | $17,403,099 | $43,995,641 | + | 1887 | 15,645,020 | 45,065,986 | + | 1888 | 14,542,244 | 49,984,298 | + | 1889 | 18,696,277 | 54,080,159 | + | 1890 |(fiscal year)| 56,582,000 | + -------------------------------------- + +Roger Q. Mills of Texas stated from his place in the House of +Representatives in 1888, that the United States grows but about +265,000,000 lbs. of wool yearly, while it takes about 600,000,000 +lbs. to clothe our own people. Why should more than half the wool +needed to clothe the people be taxed in such a way as to double (in +general) the cost of the people's clothing? And why should Benjamin +Harrison, now President of the United States, have said in that same +year, in view of these elsewhere unheard-of taxes, and in view of the +average climate of his country, that somehow it seemed to him _that +cheap clothing implied a cheap man_? In view of the enormous natural +demand for woollens, in order to keep comfortable day and night +64,000,000 of inhabitants, is it not strange, and must there not be +artificial causes for it in the kind and mode of national Taxation, +that the United States has but 16 sheep to the square mile, while +Germany has 92, France 111, and Great Britain 339? + +Senator John Sherman stated in his place in August, 1888, and again in +substance Sept. 2, 1890, that a line of custom-houses on our +joint-frontier with Canada was "_the height of nonsense, and almost a +crime against civilization_." Well might he say this in view of what +his colleague, Allison of Iowa, has recently said, namely, that the +Dominion bought in 1880 of the United States 8% of its brass goods, +86% of its copper manufactures, 94% of its cordage, 88% of its +gingham, 65% of its glasswares, 99% of its rubber goods, 94% of its +printing ink, 92% of wooden wares, 91% of tinware, 90% of wall-paper, +72% of paper wares, 98% of ploughs, 97% of engines, 99% of +sewing-machines, and 90% of miscellaneous machinery. + +The imports and exports of the United States for the last two fiscal +years are as follows:-- + + ------------------------------------------------------- + | | 1889. | 1890. | + |-------------------------+-------------+-------------| + |Imports, free |$256,487,078 |$265,588,499 | + |Imports, dutiable | 488,644,574 | 523,633,729 | + |Total | 745,131,652 | 789,222,228 | + |Exports | 742,401,375 | 857,824,834 | + |Gold and Silver {Imports | 28,963,073 | 33,976,326 | + | {Exports | 96,641,533 | 52,148,420 | + |Total Imports | 774,094,725 | 823,198,554 | + |Total Exports | 839,042,908 | 909,973,254 | + ------------------------------------------------------- + +There two or three noticeable points from this table. First, the large +relative increase of free imports over those of former years. Free +articles in 1867 were less than 5% of the whole; in 1882, 30%; and in +1890, 33.9%. The Free List, so-called, has indeed been enlarged in the +interval, but free goods tend naturally to swell over the taxed goods, +so that in 1890 the free were almost exactly one-half of the taxed. +Second, of the large total of merchandise exports, it is to be +sorrowfully noted, that more than 82% of the whole is made up of the +products of agriculture and forests and mines (not gold and silver); +while manufactures compose only 17.8%. What ails our manufactures, +that we cannot sell them abroad? We have been for 30 years under a +vaunted scheme warranted to develop manufactures,--expressly designed +and recommended to make them cheap and good,--under an elaborate and +artificial scheme that makes everything bend, even the backs of the +toiling millions, to foster and propel manufactures! But we do not +succeed in selling much of them abroad, except some fractions of them +to Canada. The ratio of them to the total of exports of merchandise +seems to be growing less: in 1889, 18.9%; in 1890, 17.8%. + +The simple truth is, that we are able to sell abroad even this +beggarly proportion of manufactures to the total exports of +merchandise, only in consequence of a shrewd device working within the +Grand Device, namely, the so-called "Free List." Some of the little +wheels within the big wheel revolve rapidly. Manufacturers do not like +to pay protectionist tariff-taxes _themselves_ any better than other +people like to pay them. They have by their own open confession in +overt act precisely the same opinion of their deadening influence, +that other people have. If, however, they can escape such taxes on the +things they have to buy, especially their raw material, and _keep_ +them on their own finished goods offered for sale in a monopoly +market, they would be happy. Hence, the Free List. Hear Senator Dawes +before the Paper-makers' Convention at Saratoga in 1887: "_There is +one other feature of tariff revision much discussed at the present +time which must not escape our attention, and that is free raw +material. No industrial policy will promote the highest prosperity of +both labor and capital in this country, which fails to lay down the +raw material at the door of the manufactory at the lowest possible +cost. In any new revision of the tariff this rule of preference for +our own raw material must be adhered to by those who do not propose to +give up the American for the indifferent policy in legislating between +ourselves and foreigners._ IT WILL BE FOUND, HOWEVER, TO ADD VERY FEW +RAW MATERIALS TO THE FREE LIST, FOR THE REVISIONS OF 1874 AND 1883 +HAVE ALREADY MADE FREE ALL SUCH NON-COMPETING RAW MATERIALS AS AT THE +TIME OF THE PASSAGE OF THOSE ACTS WERE ENTERING TO ANY CONSIDERABLE +EXTENT INTO THE CONSUMPTION OR PRODUCTION OF THE COUNTRY." + +Till now, we have been dealing in facts, and figures, and in careful +generalizations after the inductive manner: let us, at the very last, +indulge in a freak of fancy. Suppose for a moment, that all taxes of +every name could be abolished instantaneously, and the Governments, +like the Israelites, live on manna for forty years. What harm would +ensue? What industry would decline? Who would be impoverished? What +stimulus to work and save and grow rich would be weakened thereby? +Would not wages, and profits, and rents, all be lifted thereby, with +no damage to anybody? A child can see that Taxes from their very +nature are a burden, are a subtraction from income, are a _minus_ and +not a _plus_. Who, then, except from sinister motives, can imagine and +represent, that Taxes are a good in themselves, a positive blessing, a +spur to the progress of Society? + +Taxes of some sort there must be for the maintenance of Governments, +which are established for the good of all. Why, then, should not the +Taxes be just as few, just as simple, just as comprehensible, just as +universal and equitable, as is consonant with the single end of their +existence at all? + + + + +INDEX. + + + A. + + Abraham, 9, 384. + + Abstinence, 93, 191, 338, 445. + + Abyssinia, 386. + + Activities of men, 1. + + Actors, 4. + + Act of Parliament, 127. + + Act of 1624, 135. + + Adams's inauguration suit, 510. + + Administration, 358. + + Advalorem rates of tariff tax, 489, 558. + + Advantages of credit, 271. + + Advantages of discount, 302. + + African _macoute_, 388. + + "African, the," 158. + + Agent of the mill, 4. + + Age of iron, 95. + + Ages of stone, 95. + + Agreeableness of rendering, 218. + + Agriculture, 149, 538. + + Allison of Iowa, 582. + + Alloy, 416. + + America, 3. + + American capital, 166. + + Ames, Fisher, 538. + + Amsterdam, 165, 311, 421. + + Analysis, 15. + + Ancient Romans, 2. + + Annual earnings, 543. + + Apprenticeship, 186, 203. + + Arbitration, 266. + + Aristophanes, 420. + + Aristotle, 47, 98, 158, 248, 381, 402. + + Aristotle's Logic, 63. + + Arkwright, Richard, 108. + + Arlington Mills, 516. + + Artisans of every name, 2. + + Ascertainment, 15, 246. + + Asia, 19. + + Asia Minor, 333. + + Asia, pro-consular, 579. + + Association, 99. + + Assyria and Babylonia, 330. + + Astor, J. J., 180. + + Astronomy, 63. + + Auction, 57. + + Augustus Cæsar, 392, 580. + + Australia, 252, 399. + + Axe, 90. + + Axioms, 69. + + + B. + + Babylonian tablets, 332. + + Bacon, Lord, 63, 64. + + Bailee, 278. + + "_Balance of trade_," 312, 406, 452. + + Bales of cotton, 345. + + Ball, John, 228. + + Balloon of promise, 343. + + Bancroft, historian, 512, 573. + + Bangor, 454. + + Bank bills, 286. + + Bank defined, 291. + + Bank deposits, 291. + + Bank discount, 299. + + Bank messengers, 5. + + Banker defined, 6. + + "Bankers' bills," 315. + + Bank of Amsterdam, 280. + + Bank of England, 82, 287, 292, 350, 396, 448. + + Bank of Massachusetts, 288. + + Bank of New York, 288. + + "Bank of North America," 288. + + Bank of Scotland, 325. + + Banks of Newfoundland, 180. + + Barter, 364. + + Bascom, John, 71. + + Bastiat, 47. + + Beauty of gold and silver coins, 413. + + Beck, Senator, 491. + + Benevolence and impertinence in trade, 239. + + Bentham, Jeremy, 252, 448. + + Benton, Thomas H., 494. + + Berkshire Co., Mass., 260, 533. + + Berlin, 3. + + Berlin Geographical Society, 27. + + Bernhardt, 211. + + Bessemer Steel Co., 487, 491. + + Best money, 395. + + Best tenure of lands, 155. + + Betterments on land, 173. + + Bill-discounters, 300. + + Bill of exchange, 278, 300, 303. + + Bill of lading, 277. + + "Bills of credit," 435. + + Bimetallism, 415. + + Bismarck, 210. + + "Black Death," 227. + + Blacksmith's capacity, 118. + + Blades of the shears, 249. + + Blaine, Secretary, 507. + + "Blanket" mortgage, 284. + + Blunders in economics, 75. + + "Body," 78. + + Bombay spinner, 201. + + Bonnieres quarry, 164. + + "Book of Trades," 114. + + Borrow, 277. + + Boston Commercial Bulletin, 563. + + Boston Custom House, 564. + + Botany, 63. + + Bottom-principle in taxes, 567. + + Bounty of God, 43. + + Bradford, Governor, 391. + + Bradley, Mr. Justice, 359. + + Breadth of contracts, 241. + + Bright, John, 199. + + British colonies, 313. + + British Isles, 84. + + British Provinces, 527. + + British Revenue Tariff, 485. + + British statesman, 153. + + Brokers' board, 302. + + Broker's office, 6. + + Bronson, 434, 436. + + Brotherhoods, 226. + + Buchanan, James, 447. + + Bullets as money, 392. + + Bullion theory, 403, 451, 453. + + Bureau of Statistics, 264. + + Burman Empire, 385. + + Buying, 14. + + Buying and selling, 4, 15, 236. + + + C. + + Cakes of tea, 386. + + Calhoun, Senator, 497, 499. + + Calicoes, 105. + + Canada, 179. + + Capital, 92, 96, 246. + + Capital defined, 93. + + Capital wears out, 171. + + Capitalists as a class, 233. + + Capitalists of Boston, 4. + + Captains of industry, 196, 244. + + Carey, H. C., 103. + + Carpenter's square, 38. + + Carthage, 21, 84. + + Carthaginians, 387. + + Cartwright, Edmund, 111. + + Cases and classes, 68. + + "Cash accounts," 333. + + Cash credits, 324, 327. + + Cattle, 80. + + Cattle as money, 383. + + Causes of labor troubles, 238. + + Cavour, 210. + + Cecil, Robert, 126. + + Cedars, 23, 40. + + Census, 75. + + Central America, 27. + + Chadwick, Sir Edwin, 197, 200. + + Chaldean tablets, 331. + + Chalmers, Thomas, 137, 215. + + Chase, Chief Justice, 356, 357. + + Chatham, 210. + + Chattels, 93. + + Checks on market rate, 56. + + Chemistry, 63. + + Cheque-Bank, 321, 329. + + Cheques, 303, 317. + + Chevalier, 399. + + Chicago, 278, 477, 501. + + Chicago, fire in, 500. + + China, 19, 387. + + Chinese-wall policy, 474. + + Christianity, 22, 30. + + Christians, 10. + + Church relations, 241. + + Cicero, 97, 189, 248, 333, 403. + + Circular credits, 327. + + "Circular notes," 328. + + Circulating capital defined, 99. + + Civil Law of Rome, 206. + + Civil war, 353. + + Civil wars, 260. + + Civilization, 10, 89, 252, 366. + + Claims of conscience, 243. + + Classes of facts, 66. + + Classes of salable things, 7. + + Classes of valuable things, 5, 62. + + "Clearing house," 318, 321. + + Cleon, 421. + + Clergyman, 4. + + Clerks at the clearing, 320. + + Clifford, Mr. Justice, 357. + + Clog of economy, 33. + + "Cloth-workers' guild," 258. + + Coal, 497, 527. + + Cobden, Richard, 202. + + Codification, 206. + + Coffee and tea, 488. + + Cog-wheel railway, 1. + + Cohoes, 3. + + COIN, 429. + + Coined money of two kinds, 426. + + Coke, Lord, 89. + + Colbert, 404. + + Colonies of New England, 249. + + Columbus, 26. + + Commerce, 17, 402. + + Commercial credits, 49, 271. + + Commercial crises, 347. + + Commercial treaty of 1860, 30. + + _Commodatum_, 276, 340. + + Commodities, 2, 8, 20. + + Commodities defined, 80. + + Common law, 9, 88, 130, 205. + + "Company," 4. + + COMPANY OF THE INDIES, 438. + + "Compete," 464. + + Competition, 44, 121, 175. + + "Compromise Silver Bill," 475. + + Conditions of production, 99. + + Conditions of a science, 67. + + Conditions of trade, 15. + + Congress, 256, 288, 450. + + Connecticut, 100, 435. + + Conrad, John, 183. + + "Consolidated annuities," 274. + + Consols, 285. + + Constancy of employment, 219. + + Constitution of the United States, 133, 178, 256, 358, 444, 474, + 494, 572, 578. + + Constitutional law, 429. + + Continental Congress, 441. + + Cooley, Judge, 113. + + Co-operation, 268. + + Cooper Union, 222. + + Copper skewers, 385. + + Copyrights, 132. + + Core of money, 378. + + Corn laws, 58, 177, 217. + + Cost by railway mile run, 233. + + Cost of capital, 161, 165, 231. + + Cost of labor, 161, 231. + + Costs of carriage, 466. + + Costs of production, 159, 165, 397, 462. + + Cotton, 105. + + "Cotton City," 498. + + Cotton-gin, 100. + + Cottons and silks, 457. + + Coupons, 337. + + Court calendars, 254. + + Craft-box, 226. + + Craftsmen, 259. + + Credit, 372. + + Credit-claims, 6. + + Credit defined, 275. + + Credits, 8, 20, 58. + + Credits are capital, 338. + + Credits as taxable, 555. + + Crompton, Samuel, 110. + + Crossed cheques, 321. + + Current rate per centum, 165. + + Curtis, George T., 573. + + Custom, 224. + + Customs-taxes, 238, 474. + + + D. + + Damascus, 8. + + Davis, Mr. Justice, 357. + + Dawes, Senator, 584. + + Dawn of history, 8. + + Dealer in services, 6. + + Debits at the bank, 6. + + Debt, its etymology, 275. + + Debts of the bank, 6. + + Decatur, Commodore, 482. + + Decennial Census, 519. + + Deduction, 62, 69. + + Deductive sciences, 63. + + De Foe, 100. + + Demand acts upon value, 54. + + Demand and supply, 369. + + Demand defined, 52, 190. + + Denarius of Rome, 238, 385. + + Denomination-dollar, 388, 390. + + Denominations of money, 372, 388. + + "Depositaries," 295. + + Deposit-banking, 293, 295, 297. + + Deposits, 296. + + Descartes, 68. + + Desires, 18, 64, 75, 138. + + Detroit, 491. + + Dey of Algiers, 482. + + Diffusion of taxes, 571. + + Diminishing profits, 228. + + Direct taxation, 553. + + Disadvantages of credit, 271, 343. + + Discount, 273. + + Discount defined, 301. + + Diversity of advantage, 25, 102, 117, 131, 136, 262, 455, 458. + + Divine purpose, 26. + + Division of labor, 252, 257, 374. + + Dock laborers' strike, 313. + + Doctors' fees, 204. + + Doctrine of chances, 221. + + Doctrine of rent, 146. + + Dollar-bill, 427. + + "Dollars," 359. + + Domestic trade, 481. + + Dorsetshire laborer, 223. + + Drachm, 385. + + Drawee, 329. + + Drawer and bearer, 330. + + Duke of Orleans, 437. + + Durability of machinery, 168. + + Dutch capital, 166. + + Dutch East India Co., 280. + + Duty, 65. + + + E. + + Easiness of learning, 219. + + East India Co., 114, 132. + + Economics, 31, 40, 64. + + Efficiency, 164. + + Efforts, 20, 59. + + Efforts and renderings, 32. + + Egypt, 9, 11, 24. + + Electricity and lightning, 70. + + Elliott, Ebenezer, 202. + + Ely, Professor, 251. + + "Empire State," 286. + + English recoinage, 422. + + English shilling, 317. + + Enlarging wages, 228. + + Ephron, 9, 384. + + Equation of international demand, 468. + + Erie Canal, 286. + + Estimates, 22, 34, 39, 43, 60. + + Ethics, 64, 75. + + Etymology, 37. + + Etymology of "credit," 275. + + Euphrates country, 392. + + Euripides, 237. + + Europe, 9. + + Evarts, William M., 73. + + Exact sciences, 63, 65. + + "Exchange against," 314. + + "Exchange in favor," 315. + + Exchequer, 549, 568. + + Excise tax, 560. + + Exemption from taxes, 570. + + Experience and experiments, 65. + + Exports, 462. + + Exposure, 15. + + Ezekiel the prophet, 11, 83. + + + F. + + Fallacies of protectionism, 503. + + Fallacy A, 504. + + Fallacy B, 508. + + Fallacy C, 516. + + Fallacy D, 520. + + Fallacy E, 524. + + Fallacy F, 529. + + Fallen market rate, 55. + + Fall of valuables, 49, 77. + + Falsities of protectionism, 535. + + "Farmer," 156. + + "Farmers' Alliances," 519. + + Farmers of United States, 577. + + Fawcett, Professor, 223. + + Federalists, the, 537. + + Fees of preachers, 207. + + Feigned cases, 65, 73. + + Feudalism, 248. + + Field, David Dudley, 206. + + Field, Mr. Justice, 357, 360. + + Field of investigation, 1. + + Field of the science, 540. + + Fire Insurance Co., 298. + + First difficulty in money, 361. + + "Five articles," 485. + + "Five-twenties," 285, 355. + + Fixed capital defined, 99. + + Fluency of gold and silver, 401, 407. + + Foreign bills of exchange, 306, 336. + + Foreign trade, 454, 462. + + Forms of credit, 271. + + France and England, 30. + + France and England in trade, 456. + + Franklin, Benjamin, 436, 538. + + Franklin's experiment, 69. + + Fraud, 16. + + Freak of fancy, 584. + + "_Free breakfast table_," 488. + + Free list, 583. + + Freedom, 99, 112. + + French "francs," 316. + + French government, 56. + + French lands, 156. + + Fruit dealer, 366. + + Funds, British, 284. + + Future time in credit, 273. + + + G. + + Gambling, 347. + + Gangs of slaves, 100. + + Garibaldi, 211. + + General rise of prices, 348. + + Generalizations, 7, 67. + + Genesis, Book of, 143. + + _Genus_, 7. + + George, Henry, 142, 147, 151, 174. + + Georgia, 441. + + German Empire, 133. + + German "Mark," 317, 393, 413. + + Germans in Italy, 292. + + Gibbon, historian, 130. + + Gift, 16. + + Gifts of God, 85. + + Giving, 15. + + Gladstone, W. E., 151, 153, 172, 568. + + Glasgow, 137. + + Gloversville, 103. + + Glut of products, 140. + + Gold and silver divisible, 412. + + Gold and silver impressible, 412. + + Gold coins, 409. + + Gold eagle, 35. + + Gold eagle of United States, 389. + + Gold in greenbacks, 356. + + Goodhue of Massachusetts, 496. + + Gould, Jay, 204. + + Government a committee, 252, 481. + + Governments, 29, 267, 409. + + Gradual occupation of the earth, 154. + + Graduated income tax, 549, 550. + + Grains, 57, 87. + + Grand Device, 583. + + Grand Trunk Railway, 163. + + Grant, General, 358, 359, 408, 500. + + Gratuitous elements, 144. + + Gravitation, 363. + + Great Britain, 313. + + Greek cities, 384. + + Greek language, 298. + + Greeks, 73. + + Greeley, Horace, 129. + + Greenback dollar, 476. + + Greenbacks, 51, 280, 290, 409, 425, 432. + + Green Mountains, 519. + + Green's History, 9, 580. + + Gresham's Law, 421. + + Gresham, Sir Thomas, 421. + + Grier, Mr. Justice, 357. + + Ground of taxes, 542. + + Ground of trade, 25. + + Grounds of production, 116. + + Guild of Armorers, 226. + + "Guildhall," 226. + + Guilds of the Middle Ages, 258. + + + H. + + Hamilton, Alexander, 288, 393, 415, 511, 536, 573. + + "Handsome is that handsome does," 250. + + Hargreaves, John, 106. + + Harrison, President, 582. + + Harrison's inaugural suit, 511. + + Hartley of Pennsylvania, 495. + + Health, 113. + + Hebron, 9, 81, 83. + + Henry II., 580. + + Hepburn _vs._ Griswold, 356. + + Herodotus, 386. + + Heyd, Dr. W., 27. + + Hildreth, historian, 512. + + Hills of Judah, 25. + + Hindoo rice, 393. + + Hired men lack motives, 255, 208. + + History of taxes, 579. + + Hoar, Judge E, R., 358. + + Holland, 280. + + "Home Market Club," 516. + + Home Rule, 173. + + Homer, 81, 383. + + Homer, Sidney, 351. + + Hoosac River, 27. + + Hoosac Tunnel, 286. + + Horse-leech cry, 514. + + House-tax, 555, 570. + + Hudson's Bay Company, 114, 180. + + Hull, John, 434. + + Human efforts, 89. + + Human nature, 363. + + Hume, David, 121, 124, 326, 373. + + "Hymn to the Nativity," 149. + + + I. + + Ideal dollar, 426. + + Idle capital, 191. + + Iliad, 81, 383. + + Illinois Central Railway, 232. + + Impeachments, 253. + + Imports, 474. + + Improvements in machinery, 465. + + Income bonds, 284. + + Income tax, 547, 549, 578. + + Indented servants, 248. + + India, 26. + + Indirect taxation, 553, 570. + + Individuals _vs._ Government, 253. + + Indorsements, 304. + + Induction, 62, 397. + + "Infant industries," 514. + + Infinite Mind at work, 363. + + "In God we Trust," 413. + + Inland bills of exchange, 306, 336. + + Inquiry, 78. + + Internal taxes, 560. + + International demand, 460. + + "International Copyright," 212. + + International exchange, 330. + + Introspection, 65, 67, 71, 77. + + Invention, 99, 104. + + Invention of money, 366. + + Ireland, 386. + + Irish banks, 288. + + Irish Land Bill, 151. + + Irish leases, 173. + + Iron Mountain, 526. + + Iron in Tennessee Valley, 565. + + Irving, Washington, 180. + + Israelites, 584. + + Issuer and bearer, 355, 427. + + Italy, 150. + + + J. + + Jack-knife, 94. + + Jacob, 9. + + Jacobites, 292, 422, 431. + + Jamaica rum, 496. + + Jamestown, Va., 162. + + Jay, John, 537. + + "Jealousy of Trade," 121. + + Jefferson, Thomas, 415, 424, 442. + + Jerusalem, 12, 24. + + Jevons, Professor, 319, 381, 399. + + Jews, 9, 10, 21, 24, 240, 333, 443. + + Job, the Book of, 83, 397. + + Jonson, Ben, 88. + + Joppa, 22, 23. + + Judges, 4. + + + K. + + Kay, father and son, 106. + + Kentucky, 491. + + Key to unlock difficulties, 364. + + Kinds of tariffs, two, 483. + + Kinds of utility, 44. + + King Hiram, 11, 16, 364. + + King Philip's victories, 392. + + King Solomon, 11, 16, 364. + + _Kinkiness_, 105. + + "Knit-goods Bill," 488. + + Knox, Comptroller, 433. + + Knox _vs._ Lee, 359. + + Kountze Brothers, 328. + + + L. + + Labor, 182. + + "Labor and Capital," 183. + + Labor defined, 90, 161, 184. + + Laborers, 4, 184, 186. + + Laborers as a class, 233. + + Labor-troubles, 237. + + _Laissez faire_, 252. + + Land Bill, 1881, 172. + + Land parcels, 146, 170. + + Lands, 141. + + Lapoint, Alfred, 130. + + Latin Union, 414. + + Law, John, 341, 436, 439. + + Law of diminishing returns, 153, 172. + + Law of supply and demand, 52, 53. + + Laws of Moses, 443. + + Lawyers, 4. + + Layard, 331, 384. + + Legal rate of interest, 234. + + Legal ratio of gold and silver, 393. + + Legal restrictions, 225. + + Legal tender, 355, 356, 359. + + Legislators, 4, 270, 377, 451. + + Life Insurance Co., 298. + + Lightning-rod, 70. + + Limestone, 527. + + Limits of production, 136. + + Limits of value, 58. + + Lincoln, Abraham, 210. + + Lind, Jennie, 187. + + Liverpool, 455, 528. + + Loan, 276. + + Loaves of bread, 379. + + Locke and Newton, 423. + + Lockouts, 247, 266, 521. + + Locomotives, 233. + + Logic, 63. + + Logical fallacies, 534. + + London bills, 310. + + London bills of exchange, 469. + + London Bridge, 2, 3, 313. + + Lord Mayor of London, 265. + + Losses from depreciated money, 478. + + Louisiana, 438. + + Lowell, 3. + + Lowell and Jackson, 497. + + Lowell mill, 7. + + Lowell on the Merrimack, 498. + + Lowering rates of interest, 234. + + Lowndes, Congressman, 498. + + Low taxes on few things, 568. + + Lucretius, 95. + + + M. + + Macaulay, 123, 422. + + McCulloch, Hugh, 359. + + Macedonia, 579. + + Machinery, 197, 200. + + McKinley, 508, 516, 563, 581. + + Macleod, Henry Dunning, 47, 278, 292, 382, 383. + + Machpelah, 82, 365. + + Madison, James, 494, 537. + + Magellan, 26. + + Magna Charta, 444, 581. + + Major Premise, 63. + + Malthus, T. R., 215. + + Manager at the Clearing, 5, 320. + + Mania, 16. + + Market defined, 137. + + Market for products, 54. + + Market value, 54. + + MARKETS, 195. + + Marshall, Mr. Justice, 358, 573. + + Mason's trowel, 38, 98. + + Massachusetts, 286. + + Material commodities, 49. + + Maximum value, 61. + + Mechanics, 42. + + Mediterranean, 23. + + Mercantile sagacity, 140. + + Mercantile system, 115, 312. + + Mercantile Theory, 403, 452. + + Mercantilism, 576. + + Merchant defined, 6. + + Merchants as a class, 9. + + Messengers at the Clearing, 320. + + Metaphysics, 64, 75, 242. + + Methods and motives in foreign trade, 481. + + Methods of mining, 398. + + Metric system, 419. + + Metropolitan Museum, 332. + + Mexican exports, 479. + + Mexican imports, 479. + + Mexicans, 105. + + Mill, John Stuart, 32, 63. + + Miller, Mr. Justice, 47, 357. + + Mills, Roger Q., 581. + + Milton, 149. + + "Mind-cure," 263. + + Mint of Amsterdam, 422. + + Mississippi Valley, 519. + + Mobility of laborers, 221. + + Molasses, 496. + + Molasses tax, 538. + + Mommsen, 238. + + Monetary Conference at Paris, 73, 74. + + Monetary "par," 471. + + Money, 77, 361, 367. + + Money a measure, 380, 415. + + Money a "medium," 370. + + Money a tool, 377. + + Money, current, 51. + + Money defined, 380. + + Money divisible, 374. + + Money is capital, 374. + + Monopoly, 88, 122. + + Montesquieu, 388. + + Moody's "power-loom," 497. + + Moors from Africa, 481. + + Moral sciences, 63. + + Morals, 113, 248. + + More, Sir Thomas, 536. + + Morrill, Senator, 518. + + "Morrill Tariff," 521, 533. + + Morris, Gouverneur, 539. + + Morris, Robert, 415. + + Moses, 11. + + Motives of Protectionists, 493. + + Motives to trade, 77. + + Mountain view, 1. + + Mountains of Israel, 25. + + Mount Lebanon, 23, 364. + + Mozart, 211. + + Munn, Dr., 204. + + Murillo, 56. + + Muscular effort, 189. + + Musicians, 4. + + _Mutuum_, 276. + + Myers, P. V. N., 332. + + + N. + + Names on notes, 301. + + Napoleon, the First, 134, 570. + + Narbo in Gaul, 579. + + National Bank, 289. + + National Banks of United States, 428. + + National Debt, 351. + + National Labor Commissioner, 528. + + Nationalism, 251, 256. + + Nature, 102. + + Nature of Credit, 271. + + Natural agents, 85, 86. + + "Natural monopolies," 136. + + Nebuchadnezzar, 332. + + Nelson, Mr. Justice, 357. + + Nevada mines, 411. + + New England, 145. + + New Hampshire, 36, 441. + + New Jersey, 502. + + New Orleans, 438, 454. + + New Testament, 12. + + New York, 165, 477. + + New York Central Railway Co., 491. + + New York Clearing-House, 5, 7, 319. + + "New York Public," 350. + + Nickel pieces, 394. + + Non-capital, 97. + + North Carolina, 92. + + Nottinghamshire, 163. + + Novgorod, in Russia, 386. + + Nullification, 577. + + + O. + + Objective and subjective, 31. + + Objective realities, 76. + + Obligation in credit, 275. + + Ocean freights, 474. + + O'Connell, Daniel, 177. + + Ohio sheep, 530. + + "Oil Trust," 179. + + Oklahoma, 221 + + Old Testament, 11. + + Open ports of Great Britain, 474. + + Operatives, 4. + + Opinions on Protectionism, 535. + + Orders to pay, 328. + + O'Reilly's poem, 208. + + Oresme, Nicole, 98. + + Origin of capital, 95. + + Oscillations of demand, 408. + + "_Ought_," 65. + + Ounce of silver, 36. + + Our Lord, 12. + + Outlying cases, 142. + + Overseers of the mill, 4. + + Owners, 38. + + Oxford University, 338. + + Oxus River, 27. + + + P. + + Pacific States, 418. + + Paganini, 187. + + Palermo, 455. + + Palfrey, historian, 512. + + Paper-makers, 197. + + Paper-makers' convention, 584. + + Paper money, 427, 429. + + Par of Exchange, 307, 316. + + Par of foreign exchange, 468. + + Paradise Lost, 88. + + Parcels in the Clearing, 6. + + Paris, 3, 57. + + Paris bills of exchange, 470. + + Parliament, 284. + + Past time in commodities, 274. + + Patent rights, 132. + + Paul, Lewis, 109. + + Pauper labor of Europe, 528. + + Payer and payee, 329. + + Peace, 29. + + Peas and potatoes, 272. + + Peasant proprietor, 157. + + Peculiarities of Credit, 271. + + _Pecunia_, 81, 384. + + Pence and pound, 389. + + Pennsylvania, 436, 490. + + Personal services, 181. + + Personal slavery, 80. + + _Persons_ in credit, 275. + + Petals of flowers, 70. + + Pheidon, King of Argos, 384. + + Philip le Bel, 404. + + Philpott, editor, 521. + + Phoenicians, 21. + + Physical sciences, 32, 63, 64, 71. + + Physicians, 4. + + "Physiocrats," 141. + + Physiology, 216. + + Pierre and Company of Paris, 307. + + Piers Ploughman, 228. + + Pig-iron production, 560. + + Pilgrims, 391. + + Pillars of Hercules, 84. + + Pine-tree shillings, 392. + + Plato, 248. + + Pliny, 384. + + "Political Economy," 15, 174. + + Polo, the traveller, 387. + + "Pool," the, 2. + + Poor Richard's Almanack, 158, 243. + + Poor's Railroad Manual, 229. + + Popular remedies for low wages, 251. + + Portability of money, 411. + + Porter, Dr. Samuel, 28. + + Porters, 2. + + Portfolio of governments, 254. + + _Post hoc ergo propter hoc_, 534. + + Post Offices, 256. + + Potosi, silver of, 398. + + Pottery wares, 502. + + Pounds sterling, 310. + + "Power," 91. + + "Power-loom," 111. + + Preamble of the Constitution, 256. + + Present time in services, 274. + + President Jackson, 289. + + Press and Pulpit, 244. + + Price, 50. + + Price, Bonamy, 338, 382. + + "Prices current," 50. + + Prices of services, 375. + + Prices under taxation, 549. + + Principle of taxes, 546. + + Privy Council, 350. + + Probabilities, 347. + + Probability of success, 220. + + _Procullus_, 451. + + Production defined, 84. + + Products in market, 54. + + Profitable exchanges, 473. + + Profits, 94. + + Profits the leavings of wages, 235. + + Progress of civilization, 10. + + Promise to pay, 279. + + Promissory notes, 300. + + Property, 101, 275, 545. + + "Property is theft," 148. + + Proportion of taxes, 544. + + "Protectionism," 309, 453, 493. + + Protectionism is prohibition, 486. + + Proverbs, 12. + + Providential elements in Economics, 362. + + Prudhon, 148. + + Prussians, 549. + + Public opinion, 451. + + "Pulpit or Platform," 22. + + + Q. + + Quality of gold uniform, 411. + + Quantity of metals, 399. + + Queen Elizabeth, 123. + + Questions of taxes, 541. + + "Quick sales and small profits," 344. + + Quittance, 354. + + + R. + + Randolph, John, 498. + + Rapidity of circulation, 372, 409. + + Rate of interest in Holland, 234. + + Rate of taxes, 556. + + Rates of discount, 316. + + Ratio of gold and silver, 74. + + Raw materials, 526. + + Redemption of greenbacks, 291. + + Religion higher than morals, 263. + + Remedies for labor troubles, 238. + + Renderings, 26, 59, 76, 78. + + Rent, 160, 169. + + Rent defined, 170. + + Republic of Mexico, 478. + + Republic of Venice, 291. + + Requisites of production, 84. + + Return services, 138. + + Revenue, 113. + + Revenue rights, 134. + + Ricardo, David, 146, 153, 169, 176. + + Right and wrong, 65. + + Rise in market rate, 55, 77. + + Rise of prices, 408. + + Rise of valuables, 49. + + "River and Harbor Bill," 488. + + Roach, John, 516. + + Robinson Crusoe, 100. + + "Rogues' Island," 441. + + Roman coins, 385. + + Roman Law, 277. + + Roman mercantile transactions, 238. + + Roman taxes, 579. + + Romans, 313, 402, 579. + + Royal Bank of France, 438. + + Royal library at Nineveh, 384. + + Ruggles, S. B., 74, 418. + + Rupee, 386. + + Russia, 150. + + + S. + + _Sabinus and Cassius_, 451. + + Salary-class, 184. + + Salt, 178. + + San Francisco, 455. + + Sandal-wood, 23. + + Sardanapalus, 331. + + Satisfactions, 28, 75, 115. + + Savannah, 527. + + Savings banks, 270, 334. + + Saxon ancestors, 93. + + Say, J. B., 137. + + Scandinavian "crown," 317, 393. + + "Scarcity" of money, 440. + + Schouler, James, 511. + + Science as prophetic, 450. + + Science defined, 62. + + Science of buying and selling, 61. + + Science of value, 42. + + Scotch banking, 325. + + Scotch banks, 288. + + Scotland, 437. + + Scott, W. L., 265. + + Screw of Discount, 316. + + Scriptures, 9, 14. + + Scudder, M. L., 478. + + Secession, 577. + + Second difficulty in money, 362. + + Secretary of the Treasury, 296. + + Sempronian law, 580. + + Services, 7. + + Servius Tullius, 384. + + "Seven-thirties," 285. + + Shakspeare, 88, 98, 211. + + Shears, 91. + + Shekels, 9. + + Sherman, Senator, 48, 490, 582. + + Shoddy, 130. + + "Shoemakers' Guild," 258. + + Shut-downs, 521. + + Shuttle, 91. + + Shylock, 98. + + Sicily, 580. + + Silks and cottons, 457. + + Silo, 155. + + Silver certificates, 279. + + "Silver Colony," 392, 442. + + Silver dollar, 418. + + Six kinds of exchanges, 8. + + Skilled laborers, 186. + + Smith, Adam, 114, 385, 398, 448, 536. + + Smith, Captain John, 162. + + Smith, Jonathan, 205. + + Smithson, James, 214. + + Social relations, 241. + + Society, 5, 18. + + Sociology, 242. + + Solomon, 18. + + Somers and Montague, 423. + + Sons of Heth, 9. + + Source of taxes, 543. + + Sources of income, three, 547. + + South Carolina, 435, 497. + + Spain, taxes in, 569. + + Spanish-Mexican dollar, 424. + + Spanish milled dollar, 415. + + Spaulding, E. G., 354. + + Speaker of Commons, 126. + + Specialties, 103. + + Species, 8. + + Specific rates of tariff-tax, 489. + + Specific taxes, 558. + + Speculation, 476. + + Speculation proper, 346. + + Spencer, Herbert, 342. + + Spinning, 106. + + Spinning-Jenny, 108. + + "Springfield Republican," 265. + + St. Louis, 114. + + St. Petersburg, 455. + + St. Timothy, 242. + + Standard of comparison, 377. + + Stanford, Senator, 439. + + "Star Route Frauds," 256. + + State banks, 288. + + States and nation, 68. + + Statistics, 230. + + Statute law, 9. + + Stealing, 15. + + Steel beams, 564. + + Steel rails, 487, 490. + + Sterling exchange, 472. + + Stephenson, Robert, 129. + + Stock, 284. + + Stock Exchange, 347. + + Stockholm, 455. + + Storrs, Dan, 303. + + Story, Mr. Justice, 573. + + "Straddles," 347. + + Straits of Gibraltar, 481. + + Strikes, 247, 261, 521. + + Strong, Mr. Justice, 359. + + "Subdue," 144. + + Sub-forms of capital, 99. + + Subject of money clear, 361. + + Subject of Political Economy, 1. + + Subjective elements, 39. + + Subsidiary coins, 394, 418, 425, 433. + + Sub-treasury of United States, 319. + + Sugar and molasses, as taxed, 567. + + "Suppliants" of Euripides, 237. + + Supply and demand, 36, 445. + + Supply defined, 53. + + Supply of laborers, 219. + + Supreme Court, 575. + + Supreme Court of United States, 360. + + Suspension of specie payment, 431. + + Swank, James M., 565. + + Swayne, Mr. Justice, 357. + + Syllogism, 69. + + + T. + + Taconics, 27. + + Tailor's capacity, 119. + + Talents, Parable of, 13. + + Tariff, 128, 481. + + Tariff defined, 483. + + Tariff delusion, 577. + + Tariff for revenue, 483. + + Tariff Monopolies, 134. + + "Tariff of Abominations," 576. + + Tariff of United States, 487. + + Taussig, Professor, 128, 488. + + Taxation, 363, 540. + + Tea and coffee, 488, 492. + + Teachers, 4. + + Temple at Jerusalem, 364. + + Temple, Lord Richard, 199, 202, 544. + + "Thaler," 393. + + Theft, 16. + + Thing-dollar, 427. + + Third nation in trade, 459. + + Thompson, Professor, 516. + + Thoughts, 64. + + Ticket, a general, 371. + + Time of advance, 166. + + Tobacco of Virginia, 369. + + Tobacco taxes, 571. + + Tools, 95. + + Trade, 10, 72. + + Trades-unions, 226, 258. + + Treasurer of the mill, 4. + + Trebizond, 27. + + Tree-wool, 105. + + Troughton's inch, 390. + + Trust, 10. + + Trustee, 278. + + Tubal Cain, 95. + + Tunis and Tripoli, 482. + + Tyre, 11, 83. + + Tyrians, 19, 22. + + + U. + + Ulpian, 277. + + "Ulster right," 224. + + Ultimate elements, 30. + + Union Bank of London, 328. + + Unique cases, 46. + + United Kingdom, 171, 203, 393, 406. + + United States, 139, 165, 247, 288, 380, 405, 415, 450. + + United States Bank, 288, 289, 293. + + United States Money, 310. + + United States Treasury, 279. + + Universal income tax, 556. + + University, Johns Hopkins, 251. + + Unprofitable exchanges, 473. + + Unseen elements, 31. + + Unvalued lands, 143. + + "Ur of the Chaldees," 384. + + Usury laws, 442, 448. + + Utility, 144, 161. + + Utility and Value, 43, 147. + + + V. + + Vale of Sharon, 26. + + Valuable lands, 143. + + Valuables, 7, 49, 368, 378. + + Value, 32, 65. + + Value acts upon demand, 54. + + Value defined, 46. + + Value of cottons and silks, 459. + + Vasco da Gama, 27. + + Vermont, 577. + + Vermont wools, 530. + + Vice-President Clinton, 289. + + Virginia in 1755, 436. + + Vital principles of a protective tariff, three, 486. + + Vital principles of a revenue tariff, three, 483. + + Voluntary associations, 226. + + + W. + + "Wages," 161, 184. + + Wages-portion, 192, 257. + + "Wages-question," 163. + + Wages, the leavings of profits, 235. + + Walker, Francis A., 163, 184. + + Walker, J. H., 340. + + Walker's "Money," 382. + + "Walking-delegate," 265. + + Waltham, 497. + + Wampum, 386. + + War debt, 353. + + Washington, 210. + + Washington's inauguration suit, 510. + + Water from the spring, 59. + + Waterfall, 87. + + "Water-twist," 109. + + Ways and means, 355, 487. + + "Wealth," 32. + + "Wealth of Nations," 398, 536. + + Webster, Daniel, 88, 187, 573. + + Wells, David A., 571. + + West of Europe, 19. + + Whigs, 292. + + Whitman, William, 516. + + Whittier, 258, 500. + + Will, 64. + + William and Mary, reign of, 292, 392, 423. + + Wiltshire laborer, 223. + + Wolfe, General, 207. + + Wool, 105. + + Wool and woollen industry, 563, 581. + + Wool and woollens tariff, 529, 533. + + Wool manufacturers, 516. + + Worn-out farms of New England, 155. + + Wright, C. D., 267, 528. + + + Y. + + Yard-stick, 378. + + York shilling, 424. + + + Typography by J. S. Cushing & Co., Boston. + Presswork by Berwick & Smith, Boston. + + + * * * * * + + +Two Earlier Works + +By PROF. PERRY. + + INTRODUCTION TO POLITICAL ECONOMY. + + Revised Edition. 12mo, $1.50. + + POLITICAL ECONOMY. + + Eighteenth Edition. Rewritten and Enlarged. Crown 8vo, $2.50. + +Prof. Perry's most elementary text-book, Introduction to Political +Economy, presents the subjects of Value, Production, Commerce, Money, +Credit, and Taxation, in a way plain and easily grasped by young +minds, but at the same time scientifically exact. In his preface the +author says: "I have endeavored so to lay the foundations of Political +Economy in their whole circuit, that they will never need to be +disturbed afterwards by persons resorting to it for their early +instruction, however long and however far these persons may pursue +their studies in this science." + + "This work is not meant in any way to take the place of its + author's larger treatise, but rather to occupy a field which, + in the nature of the case, that work cannot occupy. It is not + an abridgment of that work but a separate treatise, intended + primarily for the use of students and readers whose time for + study is small, but who wish to learn the broad principles of + the science thoroughly and well, especially with reference to + the scientific principles which are involved in the practical + discussions of our time.... We need scarcely add, with + respect to a writer so well known as he, that his thinking is + sound as well as acute, or that his doctrines are those which + the greatest masters of political science have approved." + + --_The N. Y. Evening Post._ + + +_Prof. Perry's Advanced Work._ + + POLITICAL ECONOMY. + + Eighteenth Edition. + + _Rewritten and Enlarged, 1 vol., Crown 8vo. $2.50._ + +This book has passed through several revisions, to the most thorough +of which it was subjected in 1883. It has grown in size, in symmetry +and in maturity of thought and expression, so that it is a complete +exposition of the science, both historically and topically. The +distinctive feature of the work is its discarding the term _Wealth_ +and making _Value_ the subject of the science. Original light is +thrown on the vexed questions of Land, Money, and Credit, and the +whole trend of the book is on the side of sound currency and +unrestricted trade. + +Professor Perry's style is admirably clear and racy; his illustrations +are forcible and well chosen, and he has made a subject interesting +and open to the comprehension of any diligent student, which has often +been left by writers vague and befogged and bewildering. This work has +stood excellently the test of the class room, and has been adopted by +many of the chief educational institutions in this country. Among them +are Yale College, Bowdoin College, Dartmouth, Trinity, Wesleyan, +University of Wooster, Dennison University, Rutgers College, New York +University, Union College, Seton Hall College, Hampden-Sidney, and +many other colleges and normal and high schools. + + * * * * * + +CRITICAL NOTICES. + + "This edition has the marks of mature power and complete + grasp of the subject, and that finished style in which + thought and language have become perfectly adjusted to each + other. The statements and illustrations convey the thought + clearly and aptly."--_Boston Watchman._ + + "You have made an exceedingly valuable contribution to the + science of political economy. I am not a little surprised + that a college professor should have written a book so + intelligible to the common mind, and so eminently practical + and instructive. Accept my thanks for your kindness in + sending me the book, and my grateful acknowledgments as your + fellow-citizen for the service you have rendered the country. + It is, in my judgment, the ablest and most valuable work yet + published upon the science of which it treats. I do not see + where it could be improved in matter, or style, or + arrangement."--_Hon. H. McCullough, Secretary of the U. S. + Treasury._ + + "Your book interests students more than any I have ever + instructed from."--_President T. D. Woolsey, Yale College._ + + "So far as I have been able to read it, it seems to my humble + judgment remarkably clear, as well as well-timed and + sound."--_Hon. W. E. Forster, M.P., Leeds, Eng._ + + "The gem of your work is 'foreign trade.' It is the best + thing I have ever seen, the most clear and satisfactory. If + my friend Cobden were alive, he would send you his + congratulations and thanks."--_Hon. Amasa Walker, M.C., + Lecturer on Political Economy, Amherst College._ + + "As a manual for general reading and popular instruction, + Prof. Perry's book is far superior to any work on this + subject before issued in the United States."--_New York + Times._ + + "We cordially recommend this book to all, of whatever school + of political economy, who enjoy candid statement and full and + logical discussion."--_New York Nation._ + + "There is more common sense in this book than in any of the + more elaborate works on the same subject that have preceded + it. It is the most interesting and valuable one that has been + given to the American public on this important + subject."--_New York Independent._ + + "In all the portions of the book which we have read the + author shows himself to be a clear, strong, bold, and + generally sound thinker."--_New Englander._ + + "Prof. Perry has certainly produced one of the best + elementary treatises on political economy that we have ever + met with in any language."--_New York Commercial._ + + "Prof. Perry is a vigorous thinker, a clear and forcible + writer."--_Princeton Review._ + + +.*. _Full Descriptive Catalogue of distinguished works in all +departments of education sent free. Introductory and examination rates +furnished on application._ + + + CHARLES SCRIBNER'S SONS, Publishers, + 743 and 745 Broadway, New York. + + + + + * * * * * + + + + +Transcriber's note: + +Obvious typographical errors were corrected. Unusual spelling (for +example: estop, Shakspeare), grammatical usage, and hyphenation +variants present in the original (including co-operate and coöperate) +have been retained. + +Alphanumerical paragraph labels and their formats were inconsistent in +the original. These inconsistencies have been retained. + +P. 351, Table in original did not include data for 1877. + +P. 385, ~dragma~, original appeared in Greek script (script included +in html version) + +Several index entry page number references were incorrect--in some +cases up to 100 pages. These have been corrected. + +At the end of the advertisements, ".*." indicates an asterism. + +*** END OF THE PROJECT GUTENBERG EBOOK 41936 *** |