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diff --git a/41936-8.txt b/41936-8.txt deleted file mode 100644 index 1dd39b3..0000000 --- a/41936-8.txt +++ /dev/null @@ -1,21016 +0,0 @@ -The Project Gutenberg eBook, Principles of Political Economy, by Arthur -Latham Perry - - -This eBook is for the use of anyone anywhere at no cost and with -almost no restrictions whatsoever. You may copy it, give it away or -re-use it under the terms of the Project Gutenberg License included -with this eBook or online at www.gutenberg.org - - - - - -Title: Principles of Political Economy - - -Author: Arthur Latham Perry - - - -Release Date: January 28, 2013 [eBook #41936] - -Language: English - -Character set encoding: ISO-8859-1 - - -***START OF THE PROJECT GUTENBERG EBOOK PRINCIPLES OF POLITICAL ECONOMY*** - - -E-text prepared by Colin Bell, JoAnn Greenwood, and the Online Distributed -Proofreading Team (http://www.pgdp.net) from page images generously made -available by Internet Archive/American Libraries -(http://archive.org/details/americana) - - - -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. 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