MINING ROYALTIES AND THKTR EFFECT ON THE IRON AND GOAL TRADES REPORT OF AN INQUIRY MADE FOR THE TOYNBEE TRUliTEES W. \l SOKLEY, M.A. I'El.LOW fiP riUNITV OOLLEGK, C'AMBBUJG K MiOFESSOlt 01' I'Hli.OSOl'HV IN t NIVEJiSITV COLliEGJi, CA]ID3 IT KXAMIXEli IN PHILOSOl'in' AND POLITICAL ECONOMV « IX THK VICTORIA llVIVEliSlTV iSott&on HENRY FROWDE OXFORD DNIVEKSITY PEB8S WAKEHOUi^E AMEN CORNER, E.C. n 1S8!) Price Eighteen. Pence fetate CoUesc of %,\i,nvxVi}xxt at Cornell Mniberfiitp Hifirarp DATE DUE J IftTT AUBl 1 197/ CAVLORO PRINTED IN U.S.A. Cornell University Library HG S442.M6S7 Mining royalties, and tlieir effect on th 3 1924 014 008 415 A Cornell University 7 Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924014008415 MINING EOYALTIES AND THEIR EFFECT ON THE IRON AND COAL TEADES REPORT OF AN INQUIRY MADE FOR THE TOTNBEE TRUSTEES. ,.a^7T>^ W. K SOKLEY, FELLOW OP TEINITY COLLESE, CAMBEIDGB PROFESSOB OF PHILOSOPHY Hf TJNIVEBSITY COLLEGE, CARDIFF EXAMINER IN PHILOSOPHY AND POLITICAL ECONOMY IN THE VICTORIA UNIVERSITY JSott^ott HENRY FROWDE OXFORD UNIVERSITY PRESS WAREHOUSE AMEN CORNER, E.G. ^7 C3- ^^/yy/. e) 3 I/) CONTENTS. PAGE PBEFAOE V I. HiBTOBICAL . . I II. Desokiptive 6 III. Opinions of the Tbadb on the Incidence op Koyalties . . . i a IV. The Incidence OP EoYALTiES' 15 V. The Eppect op Eotalties on International Competition . . 22 VI. Peopobed Ebpobms 29 THE TOYFBEE TRUST. A sum of money, subscribed in memory of the late Arnold ToYNBEE, was vested in the ha/nds of Trustees, to he used at their discretion to promote' the delivery of lectures on economic questions, and the pursuit of researches into economic prollems hearing on the welfare of the people. The present Trustees are : A. H. D. AcLAND, Esq., M.P., Peof. Foxwell, P. Lyttelton Gell, Esq., SiE William Maekby [Treasurer), Peof. Maeshall, Aleeed MiLNEE, Esq. {Secretary), E. Spence Watson, Esq. Communications should he' addressed to , The Seceetaey of the Toynhee Trust, Clarendon Press, Oxford. The first economic worJc published under the auspices of the Trustees was Me. L. L. F. E. Peioe's 'Industrial Peace' {Mac- millan ^ Co.). The present essay is the second of the series. PREFACE. This Keport forms one of a series of publications on English industrial matters, to be issued from time to time by the Toynbee Trustees. The objects which the Trustees had in view in the memorial they have raised to Arnold Toynbee are explained in a letter quoted in Professor Marshall's preface to Mr. Price's 'Industrial Peace.' 'What finally decided us to choose the present form of the Trust was the desire to connect the memorial both with the study of political economy in its social aspects, to which he devoted the scholar-half of himself, and with his work among the artisan population of our great cities to which he gave the other, the missionary-half. These two characters, so inextricably blended in his disposition, his scheme of life, and his actual performance, and at the same time so characteristic of what is best in the social movement of our time among the educated classes, we hoped to commemorate by a series of lectures, to be delivered not at one place, but alternately at different great industrial centres, wher- ever there might seem to be a real demand for them — lectures dealing with political economy on its social side, at once instruc- tive and inspiring. They were to be, if I might use the phrase, pioneer lectures, breaking open the road in different places, along which others, if there was interest shown and zeal to turn that interest to good account, might subsequently march. The lecturers were to be the forerunners of the university extension movement in political economy, teaching it, always, in Toynbee's spirit ; and in sending them out we hoped to benefit both the industrial centres, which they were to visit and to enrich with the learning of the university, and the university itself, to which they would retui-n strengthened by that experience and touch VI PEBFACB. with actual life, the flesh and blood of economics, which could be gained nowhere else so well as in the industrial centres. The lecturer was thus to be both a teacher and a learner, bringing back fresh knowledge of a new kind to the seat of learning, in exchange for that which he had taken with him, or rather bring- ing back his old knowledge mellowed by experience. Hence the provision, which is an essential part of our scheme, that the lecturer shall not be overwhelmed with teaching and class-work, but shall be so amply supplied with means and with leisure as to be able to make a fresh contribution to economic science in the shape of a special study of some point illustrated by the in- dustrial life of the particular community in which he teaches.'^ The inquiry, of which the results are now published, was begun during a fifteen ' weeks' residence at- Middlesborough in the autumn of 1887. At the request of the Toynbee Trustees, I had undertaken to lecture at a group of towns in the neighbourhood, and, at the same time, to investigate some leading feature of the mining industry of the district. After some hesitation, I decided to inquire into the effects of Mining Eoyalties. The pressure of a fixed charge on production was keenly felt at the time, owing to the long-continued depression of trade ; and it therefore seemed important to ascertain the exact way in which royalty-charges are connected with prices and with the conditions of employment. No full statistics of the amount of royalties were obtainable. The conditions of mining leases are matters of private arrangement between landlord and employer, and do not attain the publicity which belongs to all the transactions of the employer with his workmen in fixing wages, and with the jconsumers in de- termining prices. But, through the kind offices of several friends, I was put in possession of a considerable number of facts bearing on the royalty question. This material, gathered on the spot in Cleveland, was afterwards supplemented by inquiries in other districts, and from published sources. Complete statistical detail is still wanting, and would undoubtedly be valuable. But the facts collected are, I believe, full and varied enough to check theoretical deductions, and to form the basis of an economic argument. I have judged it better to withhold the names of my authorities for unpublished facts. In some cases, this was made a condition ' Quoted in ProfesBor Marshall's preface to Mr. Price's 'Industrial Peace' (Macmillan, 1887). PREFACE. VU of my receiving information. But I wish to take this opportunity of expressing my obligations to those friends who have assisted me in carrying out and completing the inquiry : especially to Professor Foxwell, Dr. Spence Watson, and Mr. Aneurin Williams. My thanks are also due to the Council of the Eoyal Statistical Society, both for giving the following pages a place in. the Journal of the Society (March, 1889), and for allowing their re-publication in the present form. Parts of the present paper were read to the Economic Section of the British Association for the Advancement of Science, at the Bath Meeting, 1888, and an abstract of it is published in the Beport of the Association. W. E. SOELEY. UurvEKsiTT College, Caediff, April, 1889. MINING ROYALTIES. I. — Historical. The origin of property in mines, and of the royalties and other dues paid by the mine worker to the landlord, is involved in considerable obscurity. We are however able to enumerate the chief causes which have brought about the present state of the ownership of minerals in this country, though it is more difficult to trace the operation of these causes, and show how they combined to produce the result. The causes referred to seem to have been, in the main, these four : In the first place, the Roman law regulating property in land and mines, as subsequently modified by feudal ideas, and adopted in. England ; secondly, the customs (themselves sufficiently obscure in origin) which ruled in certain mining districts anterior to any statute law ; thirdly, encroachments upon customary rights, similar to those which brought about the enclosure of commons ; and, in the last place, the exclusive right claimed by the Crown to gold and silver and th« minerals containing them. In the Roman law we find both the assertion of Crown rights to minerals, and the admission, under certain conditions, of pro- perty in them as belonging to the owner of the surface. The seigneurial rights claimed by the Roman emperors over all lands whatever extended also to mines. The subject was, at most, the dominus uti or beneficial owner of mines as of the soil ; and from both a revenue might be raised foi' the State. In conquered countries, moreover, the Roman State succeeded to the status and rights of the conquered government, and thus, in countries such as Spain and Macedonia, obtained exclusive property (i.e., dominium utile as well as dom,inium stricPum,) in the mines of gold and silver. A claim to the exclusive possession of all minerals whatever was even inade by Tiberius. But the more moderate claim of the 2 Mining Royalties and their effect Emperor Gratian (36!7-83 a.d.) was that whicli became the final measure of imperial m.iiiiiig rights. The claim thus m.ade asserted first, the exclusive right to the full legal and beneficial ownership of all gold and silver mines ; and secondly, the right to receive a proportion of the produce of all other mines. This proportion was usually one-tenth, payable by the actual mine worker to the Crown directly. If the mine worker was also the owner (i.e., occupant) of the lands, he was owner also of the minerals subject only to such payment. If the mine worker was not the owner of the lands, then he had further to pay to the latter one-tenth of the produce : subject to the payment of such two equal tenth parts, the mine worker was the owner of the minerals.' What is noticeable here, in addition to the assertion of the Crown's right to a royalty on the output, is the limitation of the claim possessed by the (beneficial) owner of the soil to the owner- ship of the minerals. The necessity must have been early felt of regulating the conditions under which mines should be w^orked by others than the occupants of the surface. And by this regulation, they became the property of the worker, subject to the payment of a fixed part of the produce to the owner of the soil, and a similar payment to the Crown. To these regulations we may trace, if we please, the royal claim to minerals in England, the landlord's property in mines, and the royalty system. There is no good ground however for referring either to Roman law, or to the grant of the sovereign, the various local customs which regulated the early right of mining in this and many other countries, and which, at later periods, were confirmed or modified by statute law. The opinion of Mr. Bainbridge, indeed, seems to be that they were derived from the concession of crown rights. Speaking of the customary law of the lead mines of Derbyshire, he says : — " It would be difiicult to trace with accuracy the origin and " growth of those peculiar customs, but they may probably be " most correctly regarded as rights of the Crown, which were " from time to time expressly or impliedly conceded by the Crown " to the people of the country, and either subject or not subject " to certain renders to the Crown. Almost aU the old mining " codes of Europe whose provisions are opposed to the rights of " the owner of the surface, must have originated in the old " Roman law, or in the royal prerogative, or in the successful " assertion of high feudal privileges."" For this view, stated with growing confidence as the paragraph proceeds, there does not seem to be sufiB.cient evidence. The local ' Baintridge, " Law of Mines and Minerals," chap, vi, sec. 1, 4tli edit., 1878. ' " Law of Mines and Minerals," p. 138. on the Iron and Coal Trades. 3 customs referred to survive, in modified form, in this country in the Forest of Dean and parts of Cornwall, Devon, Derbyshire, and Wales. In spite of much divergency of detail they all seem to have sprung from a condition of affairs in which mining was free. Anyone who would — the first discoverer — ^usually had the right of marking out and working a certain area or certain lode, provided he conformed to the rules imposed by the local authorities. Similar rights existed in ancient and mediaeval Germany ; and the American mining customs, founded on the practice of the Spanish miners, betray similar characteristics. This freedom of mining (Berghau- freiheii), or right of anyone to work mines in his own or anotherls ground, has, with great probability, been connected with the original common ownership and common use of the mark.' The mining privileges of various districts were not derived, as Bainbridge supposes, from the royal concession of Crown rights to the people. On the contrary, the local customs now existing, so far as they indicate free mining, are in all likelihood the remnants of a widely extended condition of affairs which has been everywhere trans- formed, and, in most districts, entirely superseded, by the extension of the royal prerogative and of feudal tenure, and by the encroach, meats of private proprietors. Traces of the operation of this last cause may be found in the modern Enclosure Acts, in which the right to the mines is reserved to the lord of the manor. The spirit of English law is\ hostile to the older system of common property ; and the gradual disappearance of common rights in the soil and the monopoly by the strongest member of the community of its property as his individual posses- sion, which have been so frequently manifested in the changes of the ownership of the surface, seem to have been operative in the case of the ownership of minerals as well ; until, except in a few localities, in which the customary rights were never allowed to lapse altogether, the minerals under the soil came to be regarded as the private property of the owner of the surface, in the absence of express evidence to the contrary. This, indeed, is a maxim of English law : ctyus est solum, ejus est usque at caelum, et deinde usque ad inferos. The rights of the Crown, equally with the rights of the people, have gradually disappeared before those of the private proprietors. The rights claimed by the English Crown were at first extensive. " But in these early times," says Bainbridge,^ " the mines of tin " and lead and of gold and silver were, if not the only, at least " the principal, mines to which industry was directed ; and by the ■ ' Lenthold, Art. •' Bergreeht," in Holtzendorff's " Rechtslexicon," 3te Aufl., I, 286. * " Law of Mines and Minerals," chap, vi, sec. 2. a2 4 Mining Royalties and their effect " time that industry began to extend itself to mines of coal, iron, " and such like other baser substances, the spirit of liberty and of " private encroachinent, fostered and protected by the genius as " well as by the forms of English law, occasioned the assertion by ". individual landowners of rights that were exclusive of the Crown. " Whence it appears that in or about the year 1668, the respective " adverse rights of the Crown and of private landowners became " tlie subject of contention, and called for definition by the courts " of justice." The decision of the judges in this so-called "great " case of mines " (Queen v. Northumberland) was in effect " that " only the so-called royal mines [i.e., those of gold or silver] " belonged to the Crown, and that all the baser minerals belonged " to the individual landowner." This decision carried with it the right of the Crown to search for gold or silver; to enter upon private land, and carry on the operations necessary for obtaining 5 the precious metals. The judges who decided the case further held (by a inajority) that a mine of baser metal, if it contained any gold or silver, was a royal mine. But as gold and silver, when found in this country, are almost always found along with other metals, and as it was a prevalent superstition at the time that all other metals contain them,' this decision might have admitted of an indefinite extension of the Crown rights. The , uncertainty to which it gave rise, and which was found to inter- fere seriously with mining industry, was ultimately set at rest by statutes,* which confirmed the private ownership of mines con- taining copper, tin, iron, or lead (notwithstanding their being claimed to be royal mines), subject to a right of pre-emption of ' the minerals by the Crown. As the prices fixed for the Crown's I pre-emption have, in nearly every case, exceeded the selling price of the minerals since the passing of the Acts, the danger of royal interference, which had, at one time, been a serious obstacle to the working of minerals, ceased to exist. All minerals (except gold and silver) have thus in England come to be recognised as private jproperty as much as land ; and the recent case at Dolgelly in North Wales shows that the Crown rights to gold and silver, (though still maintained, are assessed in such a way as not to (interfere with the stimulus to private enterprise.' Up to a certain time the question as to the possession of minerals on the contirient of Europe seems to have been subject * Cf. Hunt, "British Mining," p. 127, 2nd edit., 1887. « 3 William and Mary, cap. 30 ; 5 William and Mary, cap. 6 ; 55 Geo. Ill, cap. 134. \ ' The royalty agreed upon is understood to be one-thirtieth of the output (see \ " Western Mail " for 30th May, 20th June, and 8th October, 1888) ; and Mr. Pritchard Morgan allows that "the Government was dealing with the whole \" question in a very fair and liberal spirit " (" Western Mail," 21st May, 1888 "). on the Iron and Ooal Trades. 5 to similar influences to those operative in this country. But the development of the law on the subject in every important mining country except Russia and England, was turned into a new direc- tion by the influence, direct or indirect, of the French mining legislation of 1789 and 1810. According to the latter law, which re-enacts the main provisions of that of 1789, minerals do not belong to the owner of the surface, or to anyone until conceded by the State. A State concession of minerals creates a new property different from and independent of that of the surface, and capable of transference like other properties. The system, it is to be noted, is not the same thing as one of State ownership. The mine belongs to no one until conceded by the State, or is only in the nominal possession of the State, which never works itjteelf^nor lets it at a competitive rent. When conceded to anyone it belongs to the concessionaire as absolutely as any other property does.* At the same time, the State may and commonly does exact, in return for the concession, certain dues from the concessionaire in the form of initial payment, rent, or royalty. These payments difEer consider- ably in different countries and different districts, and in different circumstances in the same country. But, subject to these charges, and with some differences of legal technicality, the ownership of minerals is vested in the State concessionaire in France, Germany, Belgium, Spain, Portugal, Sweden, Norway, and the greater part of Italy (namely, Sardinia and all upper and central Italy with the exception of the Tuscan provinces). - It has been already pointed out that, according to the claim made by the Emperor Gratian, the mine worker had to pay to the State one-tenth of the produce of the raine, and that a payment of the same amount had to be made by him to the landlord, if he was '■ not himself the owner (occupant) of the surface. The payment thus agreed in nature with the modern royalty. It rose and fell with the produce of the mine. But the earliest mineral leases in this country do not seem to have been of the same nature. Mr. Galloway, in his "History of Goal Mining," ' says that, "in the " earliest leases of which we find mention (such as those granted " by the monks of Tynemouth about 1330 a.d.) a certain rent per " annnm was alone reserved by the lessors, without any stipulation " as to the quantity of coal allowed to be worked for the same. " But the necessity of making the quantity of coal drawn from " the mine bear a fixed relation to the amount of rent paid, ' In some cases, however, the concession is limited. According to the law of Napoleon (of 9th August, 1808), in force in the Italian provinces of Modena and Reggio, concessions "are not granted for ever, hut only for a term not exceeding " fifty years, subject to renewal." — " Repm ts on M ining Be nts and Royaltie s, " Commercial," JfcJL dSS?), p . 21. ' London, 1882, p. 17. ~ 6 Mining Royalties and their effect " soon became felt, and as early as the middle of the fourteenth " century provisions were introduced for this purpose. At first this " was effected by simply limiting the quantity of coal which might " be worked. Thus in a lease of five mines at Whickham, made by " the Bishop of Durham in 1356, it was stipulated that the lessees " might not draw from each mine more than one heel (2 1 tons) per " day. The arrangement of limiting the quantity of coal to be " worked was the plan usually adopted in leases, until the introduc- " tion of the more improved modern method of having both a fixed " and a sliding, or tonnage rent, which makes the amount of rent " to be in exact proportion to the quantity of coal worked." The modern method, however, seems to have been long in being iiniversally adopted. Thus in 1748 the then Marquis of Bute leased extensive tracts of ironstone and coal fields (for ninety-nine or for a hundred years) to the firm now represented by the Dowlais Company, for the certain rent only of 100/. a year. After this lease had expired it was renewed on the royalty system, after prolonged and disastrous contention between the contracting parties. To show the superiority (from the landlord's point of view) of the modern method of assessment, it may be added that the amount actually paid to the landlord in the first year of the new lease was (if my information is correct) 20,oooZ., as against lOoL for each year under the old lease. II. — Descriptive. The payments made by the mine workers to the landlord in this country consist of : (1) a fixed or certain or dead rent, (2) a royalty or payment per ton of mineral worked, (3) in some cases, payments for instroke or outstroke, shaft, and wayleave. (1.) Certain or dead rent : — When a mine is leased, the landlord stipulates for a certain annual payment whatever quantity of mineral be worked, or even if the mine be allowed to stand idle ; otherwise his mine might be allowed to remain unworked through the mismanagement of the lessee, and the landlord be unable to obtain any income from his property. The certain rent is not charged in addition to the royalty payment. If the certain rent be i,oooi. and the royalty 6d., the first 40,000 tons worked in any year pay no royalty. Should less than 40,000 tons be worked, i.oooZ. must still be paid. But a clause in the lease usually admits of such short workings, or " shorts," being recovered, i.e., worked without additional royalty payment in some subsequent year. Sometimes shorts must be worked in the next year, sometimes in the next four or five, or ten years, sometimes in any subsequent year of the lease. Five years seems to be the period commonly allowed for working them. And on the Iron and Coal Trades. 7 this restriction of the period allowed for working shorts is felt as a grievance, especially in districts such as Cleveland, where the certain rents are high. In Cleveland, and perhaps in other districts, the certain rents are calculated on the principle of being equal to the total royalty yield of the mine, divided by the number of years of the lease, the mine being generally exhausted at the end of the lease. The importance of this part of the subject may be illustrated from the evidence of Mr. A. Hewlett before the Royal Com-mission on the Depression of Trade and Industry. The Wigan Coal and Iron Company, with about 200 leases, has (he says) overpaid in this way about 260,000/. ;'° and Sir Lowthian Bell says that for this fixed payment, and for keeping the mine free from water, and the machinery, &c., in good repair, he " could name " cases in which 20,oooZ., or 30,000/., a year would not suffice."" (2.) Royalties: — In a system which admits of the possession of minerals by others than those who work them, the royalty rent finds its obvious justification in the deterioration of the mine by each quantity of mineral removed. The royalty protects the landlord against the rapid exhaustion of the mine, as the certain rent protects him against its lying idle. The royalty is nearly always estimated at so much per ton or other quantity of mineral extracted. In south Yorkshire, however, the coal field is rented by the acre, an estimate being made of the quantity of coal which the acre is likely to yield. " Sometimes it is taken by what we call footage " rent, that is to say, so much per foot, whatever thickness it runs " to it is paid for accordingly."" A similar method is common in south Staffordshire. The tonnage or (in Northumberland and Durham) tentail rent, is, however, much more common. The royalties in different parts of the country vary largely with the quality of the mineral, the thickness of strata, freedom from " troubles," or faults in the strata, accessibility of markets, &c. Thus in Northumberland the present royalty on coal is usually about 4^. or ^^d. a ton, having diminished considerably of late ; that in south Wales is said to be about 9^.'' In south Stafford- shire, according to my information, " where payment is made on " the selling price at the pit's mouth, royalties vary between one- " eighth and one-fourteenth; when by the ton, from 6d. to lod.; " when by the foot thick per acre, from 12I. 10s. to 40/., and when " per acre all prices from 150Z. to 1,000/." The Cleveland ironstone '« Report, Q. 12,122 and 12,123. " Second Report, Appendix 1, p. ?S of pamphlet. " " Report of the Koyal Commission on the Depression of Trade," Q. 3127 — 3184 (Evidence of Mr. J. D. Ellis, chairman of John Brown and Co., and of the South Yorksliire Coal Association.) " Speech of Mr. W. Abraham, in the House of Commons, 14th May, 1886. 8 Mining Royalties and their effect is spoken of as paying a normal royalty of 6d. or 7A, but in many of the most ptoductive mines the royalty would seem to be much leas. Comparing Sir B. Samuelson's statement, quoted below, that in Cleveland the royalties in ironstone alone in 1886 amounted to more than i20,oooZ., with the quantity of Cleveland ironstone produced in that year (5,370,279 tons), the average royalty is found to be under ^\d. ; while for the rich haematite ores of Cumberland the normal royalty (according to the sliding scale arrangement in force there) is 2S., and as much as g.s. or io«. a ton royalty has been paid at the time of very high prices."* (3.) Wayleaves are of two kinds, which it seems important to distinguish : — (a.) When the way granted is over, or under the surface of, land which is not being mined; (6.) when it is through a mine which is being worked. The former requires separate considera- tion ; the latter may be treated along with shaft instroke and outstroke rents. These latter may be dealt with first. When a lease is taken, and the lessee sinks his shaft in the property of the lessor, neither instroke, wayleave, nor shaft rent is paid. Biit the same lessee may also take an adjoining royalty belonging to another owner. And it often happens, in such a case (either because the landlord objects to the surface of his property being defaced, or because the lessee is anxious to save the capital expenditure of a new shaft and buildings), that the mineral from the second royalty is brought through the first mine and up its shaft. In doing this the lessee has to pay a tonnage to the owner of the first royalty : first, for bringing the mineral through the barrier between the mines, called instroke, or from the other point of view, outstroke rent ; secondly, for the wayleave from the barrier to the shaft ; and thirdly, for bringing the mineral up the shaft. These items are commonly at or a little less than \d. a ton each (for coal) in Durham and Northumberland. The charges for the three processes (which are really only parts of one process) are usually combined into a single payment per ton. These payments are sometimes considered unfair and excessive. The question of their incidence will be discussed at a subsequent stage. But, for purposes of explanation, it may be as well to point out at present that a mine is deteriorated by its barrier from the surrounding property being removed. It is thereby rendered liable to be invaded by water or noxious gases from the neighbouring mine. That payment should be made for instroke or outstroke is therefore reasonable. Whether this should be in the form of a tonnage charge would seem to depend on whether the mine suffers » "Report of the Eoyal Commission on the Depression of Trade," Q. 2313 and 2314. (Evidence of Mr. I. T. Smith.) on the Iron and Coal Trades. 9 according to the amount of mineral brought through the barrier. But it certainly appears strange that the lessee should have to make an additional payment in the form of wayleave and shaft rent, for every ton of mineral he brings along the ways he has himself con- «tructed, and up the shaft he has himself sunk. The answer may of course be made, and must be allowed due weight, that the matter is one which has been settled by a contract to which the lessee has agreed. If payment were not made for shaft or way- leave, so much more might be charged for in stroke. Still it is deserving of notice that, in this matter, the lessee seems not to have been able to make a contract with the landlord in which each separate payment is in return for value received ; and the landlord would appear to have been able to dictate his own terms. The other kind of wayleave — that across or under ground which is not itself mined — differs in nature from the preceding. But, in this case, as in the former, the owner of the way is able to charge for it a price proportioned to the necessity of the buyer. It is evident, of course, that the tonnage charged bears no relation to value removed from the soil. The property is not deteriorated according to the amount of mineral carried. Instances are some- times quoted of the charges for wayleave weighing so heavily as to lead to the giving up of the working of a mine, while other cases are mentioned of a mine lying unworked on account of the unwil- lingness of a neighbouring proprietor to grant a wayleave. This, again, is of course a matter of contract in which the individual avails himself of the advantages of his situation. A penny a ton for leave to bring mineral underneath a field 40 yards across (yielding in the case referred to some 600Z. a year to the owner of the field), certainly appears to be an exorbitant rent, though it may be paralleled in many other cases of the " unearned increment " v^hich a valuable monopoly may yield. In addition to the above, which are payments foi* the minerals, the landlord is usually compensated by an additional payment for the use of, and injury done to, the surface. And for these he is generally able to secure favourable terms in the lease. ' Thus a lease of which I have had the details, and which is probably typical, gives double its agricultural value to the landlord for the use of the surface ; and the lessees further agree to restore the surface at the end of the lease, or pay the fee simple of the laud to the le|sor, who retains possession. Regarding the effects of this condition, I am informed by a correspondent in south Staffordshire that " the " liability to level and restore damaged surface is always cast on " the lessees, and about 30Z. an acre is usually paid by way of com- " pensation in lieu of levelling. The lessor almost invariably puts " the money in his pocket, and leaves the land waste; the result 10 Mining Royalties and their effect " being that we have round us many thousand acres of spoil banks, " which might be productive land, ntterly waste, to the loss of " capital, labour, local trade, and national wealth." There are no sufficient data for determining the exact amount of mineral rents and royalties in the United Kingdom ; and as long as secrecy is the rule of trade, it seems hopeless to look for them. But some estimates as to particular districts, and as to the whole kingdom, may be given. Sir B. Samuelson,'' who has the most accurate data to go upon, tells ns that, for the thirty-seven years from 1860 to 1886, the royalties paid on ironstone alone in the district of Middlesborongh (Cleveland) amounted to 2,900,000^. In 1886 they were over 1 20,oooL The royalties paid on the coal used in the manufacture of pig-iron for the same thirty-seven years were 2,450,0002. In 1886 they amounted to over 100,000/. That is to say, the royalties for coal and ironstone used in the manu- facture of Cleveland pig are at present over 220,000/!. per annum. A more detailed estimate, depending on the same data, is given by Mr. C. M. Percy.'" " The royalty on Cleveland ironstone leased " before 1870 would average <^d. per ton, and that leased during " the years leading up to 1874 would average 6d. per ton ; but as " Mr. Dennington [secretary of the Cleveland Mineowners' Asso- " ciation] says, practically all the valuable ironstone in the " Cleveland district had been leased previous to 1870. . . In " the fourteen years ending 1863 the Cleveland annual ironstone " output was 1 ,2 50,000 tons ; in the nine years ending 1872 the " Cleveland annual ironstone output was 3,358,000 tons ; and in " the fourteen years ending 1886, the Cleveland annual ironstone " output was 5,941,991 tons, making a total in thirty-seven years " of 130,909,946 tons, for which 3,ooo,oooZ. was paid in royalty. " From this 40,000,000 tons of Cleveland pig-iron was made, on " which the total amount of royalty paid on the ironstone, and the " coal (and the limestone reckoned at i-^d. a ton) has been i" 6,000,000^." 1 Mr. W. Abraham, again, says that the coal royalties in south Wales amount annually to 6oo,oooZ., taking the royalty at gd. a ton on an annual production of 16 million tons.'' And he further says that royalties of all kinds in the United Kingdom are com- puted at 36 million £ a year, — on what grounds I do not know. Mr. Percy's estimate of the whole coal royalties of the United Kingdom is that they amount to 5,500,000/., taking the average royalty at 8d. on a total annual production of 160 million tons; while as regards ironstone the average yearly production during ' " "Northern Echo," 6th November, 1887. " " Mine Rents and Mineral Eoyalties," pp. 20 and 21. Wigau, 1888. " Speech in House of Commons, 14th May, 1886. on the Iron and Goal Trades. 11 the last ten years has not been less than i6 million tons, " -whicli " at the very moderate estimate of 9c?. per ton on an average, " considerably exceeds an annual royalty payment of half a mil- " lion of money." ^' The estimates as to the average royalties on coal and iron ore have been already mentioned incidentally. The royalties in difTerent districts, however, differ so greatly that in default of more complete information those estimates cannot biit be somewhat rough. Thus the average royalty in south Wales on coal is probably nearly double that in Durham and Northumberland, where the miners are already in the region of the thin seams; and a similar difference holds of ironstone, where the royalties on the rich haematite ores of Cumberland or on the Scotch blackband are immensely higher than those on the poorer and phosphoric ores of Cleveland. Sir Lowthian BelP' has estimated that the royalties on a ton of pig iron for ironstone, coal, &c., amount in Cleveland to 3s. 6rf., in Scotland to 6s., and in Cumberland to 6s. 7,d., as compared with about 6d. a ton paid in Germany, 8c?. in France, and is. ^d. or IS. 4d. in Belgium. In the United States, where large tracts of mineral land have frequently been bought up by speculators, high competitive royalties of from 2s. to 3s. a ton are not uncommon. The royalties seem, however, to have varied considerably of late. Thus, Mr. I. T. 'Smith, of Barrow, tells the Royal Commission on the Depression of Trade*" that "the royalty that we pay now is " 2S. a ton, but during the last year or two in the Lancashire " district the royalties will only have been about is. 6d. a ton; so " that the cost upon a ton of pig iron during the last two or three " years has been only 4s. and not 6s." The following tables may present some of the above facts more clearly. Table A is a return submitted to the House of Commons, 22nd September, 1886, showing the gross amounts payable to the Ecclesiastical Commissioners for England in respect of royalties and other charges on mineral property during -five consecutive yearg. It is the only exact and detailed account of the amount of royalties, even within a limited district, with which I am acquainted. Table B gives some material for a comparison of average royalties in different districts. i« " Mine Rents and Mineral Koyalties," pp. 20 and 21. , " " Principles of the Manufacture of Iron and Steel, 1884," pp. 603 and 610. " Eeport, Q. 2443. b2 12 Mining Royalties and their effect Table A. — Amounts Payable to the Ecclesiastical Commissioners in the County of Durham. Mineral Rents, Royalties, Wayleaves, So. Year 1 3 3 4 and 5 6 7 8 Amount Due. Ending 31st March, Coal. Ironstone. I'ire Clay. Liniestone and Freestone. Lead Ore, &c. Waylcave and ' Wfltproonrse Kents. Instroke, Outstioke, Shaft, and Bayleave Kents. 1881.... '82.... '83.... '84.... '85.... £ «. 117,867 3 125,720 3 135.955 1 137,069 I 141,083 4 d: 6 •4 10 8 9 £ s.d 1,923 4 8 2,117 11 8 1,152 15 4 1,224 8 9 909 4 - £ s.d. 2,648 s - 2,708 3 - 2,277 2 2 2,222 9 3 2.183 5 9 £ s. d. 4,200 9 11 4,569 10 7 5,605 18 1 5,797 13 6 7,224 15 7 £ s.d. 6,636 9 1 2,624 6 2 1,587 6 f 2,706 2 3 1.145 - - £ s. d. 15,467 15 7 15,274 11 3 15,670 18 10 16,336 6 11 17,023 15 9 £ *. d. 15.772 2 - ii;,i68 I II 18,669 6 8 18,606 5 5 i8,ic6 10. 2 Table B. — Comparative Average Royalties in Selected Districts. Coal. Northumberland and T Durham J Soutli Staffordshu-e .... „ Yorkslbire Laoieashire South Wales Per Ton. 4id.« 6d. to led. 6d.^ ed.' Ironstone, Cleveland Cumberland and 1 Lancashire j Scotland — On clay band ,, black ,, Per Ton. Sid.' p Per Ton of Piff Iron ffor Ore, Coal, Limestone, &c.). 3s.' 6s. 3d.e 3s.f » Private information, and Mr. J. B. Simpson's evidence before the Eoyal Commission on the Depression of Trade (Q. 12357), that royalty is about one- twelfth of selling price in Durham, and that the average selling price (Q. 12447) is 4.!. yd. ■■ Mr. J. D. Ellis's evidenoeT)efore the same commission, Q. 3128. « Mr. A. Hewlett's evidence, Q. 12138. ■* Sir B. Samuelson's statement of amount of royalty paid in 1886 compared ■with output for that year. " Mr, I. T. Smith's evidence, Q. 2313—14 and 2443. f Sir 1j. Bell's evidence, Q. 3565.' e The same. Mr. I. T. Smith says 6s. 6d., Q. 2221. in. — Opinions of the Trade on the Incidence of Eoyalties. It may be of use at this stage to collect a few representative opinions regarding the elfect of mineral royalties from those who are engaged in the iron and coal industries. In the first place prominence should be given to the carefully weighed opinion of Sir Lowthian Bell. In the present depression, he says, " it is widely felt as a grievance that the landowners to " whom royalties are payable receive the full amount reserved by on the Iron and Coal Trades. 13 " the leases. It is contended that slioald the present low prices ' " continue, those engaged in mining in this country must be reduced " to bankruptcy, and a great industry must be extinguished, unle.' s " the receivers of royalties are willing to abate something of their " legal rights, which now give them about 3s. on every ton of the " cheapest kinds of pig iron made, or very nearly 10 per cent, on " the gross price of the manufactured article Even now " the owners of minerals in the le.ss favourably situated mines are " forced in a losing trade to make concessions to their lessee?, " though they are able, if they hold out for their full legal rights, " to see all the capital of the tenant made valueless, before the loss " begins to fall on themselves in respect of the royalty " The injustice, as it has been termed, is remarked on, of the work- " men having their wages reduced, and the railway companies their : " rates lowered, while the landowners remain unaffected It " would seem, therefore,'' he adds, " open to consideration whether, " by means of a sliding scale the payments to the landlord should " not be made dependent on the market value of the mineral, a " system which in some cases has already been adopted."^' For- carrying out this modification he thinks that legislation need not' be appealed to.^^ ~~-r~~-.. ~~Sgain, Mr. Adamson, in his presidential address to the Iron and Steel Institute, speaks of " the high royalties which have to "be paid for minerals in England" as one of the "two great " obstacles which stand in our way as compared with the position " of our foreign competitors." " At present," he say.s, " these " royalties are so heavy as to constitute a tax that precludes the " chance of competing successfully with some other countries."^' To the same effect Mr. 1. T. Smith testifies that "if we were " paying less in royalties, we should be better able to compete with " other countries ;"''* while Mr. J. B. Simpson remarks in h's evidence before the Royal Commission that mine owners', capital is absorbed by royalties, just as that of farmers is absorbed by agricultural rent." At the same time certain considerations have to be taken into account as modifying this very decided expression of opinion. There are especially two points in the evidence before the Royal Commission of a witness already quoted, Mr. I. T. Smith, which need consideration.''" The first point is practically this, that royalties are high, not only because landlords wish to get, but ^1 " Second Report of the Royal Commission on the Depression of Trade," Appendix I, pp. 7V and V8. » Report, q. 3562. 2' " Journal of the Iron and Steel Institute," 1887, p. 25. " " Report of the Royal Commission on the Depression of Trade," Q. 2322. " Ibid., Q. 12180. *« Q. 2318, 2358, and 2450. 14 Mining BoyalHes and- their effect because lessees are ■willing to give, high prices : " I have never " known a lessor ask more than he could get from somebody. The " amount of royalty demanded is the amount the owner finds he " can get if he has his property to lease I know that in " foreign countries the royalties are less, but I know the conditions " of our mines are stich that if we gave them, up there would be " fifty people glad to take them at the price we are paying ; there- " fore I cannot conceive there could be any conditions by which " the lessees, whoever they might be, could get them for any less " amount." The second point has reference to the growing power of foreign competition : " The expansion of the iron trade as " referring to steel in Germany has not been a question of royalty " during the last four or five years, so much as the discovery of a " process by which their own ore can be converted into steel." It is well known that an opinion adverse to the present royalty system is held by most representative bodies of miners. In answer to the question of the Royal Commissioners, "Are there " any special circumstances affecting your district to which the " existing condition of trade and industry therein can be attri- '■ buted ? " the depression is attributed (amongst nine other causes) to " the effect of excessive royalties " in the answers from the "West Bromwich, Oldbary, Tipton, and Corely Amalgamated Association of Miners. The West Cumberland Miners' Association reports still more decidedly that " high royalty rents, railway " carriage and land monopolies prevent their district from being "able to compete with others in several markets;" and that " owing to the high royalty rents the iron ore trade is doing only " about half it ought to do."" What the miners communicated to the Royal Commissioners is proclaimed by them with greater freedom and emphasis at public meetings. At a meeting of the Northumberland Political Reform Association on 17th September, 1887, a motion in favour of "the " entire abolition of royalty rents " was carried by a small majority, over a motfon that the miners declare themselves "not in favour " of the total abolition of royalty rents, but the abolition of " private ownership in minerals."''' No other proposals than these two, i.e., abolition or regulation, free mining (in some form) or State ownership, was even put to the meeting. Again, at a meeting of the South Wales Colliery Workmen's Federation on 12th June, 1888, a motion proposed by Mr. W. Abraham, M.P., was agreed to (though not without some more extreme expressions of opinion), to the effect " that this conference is of opinion that the royalty " rents question demands immediate attention, with the view of " Second Report, Appendix D, pp. 92 and 94. " " Newcastle Daily Chronicle," 19th September, 1887. on the Iron and Coal Trades. 15 " bringiiig about radical revision in tlie impost in the direction of " diminution and regulation, so as to remove the injustice so far as " it is an impediment upon the industry of , the country.'"'' To the above expressions of opinion it must now be added that the question of mining royalties, and of property in minerals generally, has (since the Birmingham meeting of the National Liberal Federation in 1888) received a place on the programme of the Liberal party. The objections thus made to the present royalty system may, I think, be fairly summarised under the three following heads : — 1 . That royalties being measured by a fixed sum of money per quantity of output, weigh with exceptional severity upon the trade whenever it is already in a depressed condition and prices are low. 2. That English trade is placed at a disadvantage, owing to heavy royalties, in competition with foreign countries where the royalty is low or where there is hardly any royalty. 3. That it is "unfair" or "unjust" for the landlord's rent to continue unimpaired when the wages of workmen are being reduced and the profits of employers disappear ; and even (as is frequently argued on platforms) that it is unjust for the landlord to claim any right to the minerals unjier his land^ seeing jie did not put them there. The opinions just quoted agree at any rate in this, that the present royalties are a burden upon English industry, and that their modification, or even entire abolition, would contribute towards improving the condition of trade. But there is no general agreement as to the practical methods to be adopted in the circumstances, nor even as to the actual incidence of the royalty payments and their effect upon wages, profits, and price. It seems even to be sometimes assumed that any reduction in the amount of royalties would go directly towards the cheapening of the raw material and manufactured goods. The large sums paid for mineral rents and royalties are calculated or estimated, and the industry of the country is then said to be taxed to the extent of 36 millions. How far and in what way the royalty affects the price is a question which, so far as I am aware, has not been investigated. It would seem better therefore to consider this question first before dealing with various matters of detail, and with the more complicated question of reform. IV. — The Incidence of Boyalties. The theory of mine rents is commonly treated by economists as an appendix to the theory of agricultural rent ; and I believe this method is in the main correct. But it is of the greatest import- 2» " South Wales Daily News," 13th June, 1888. 16 Milling Royalties and their effect ance to consider carefully how far the same general law can be ) formulated of the two cases. Now the theory of agricultural rent is perfectly precise, and. in a condition of affairs mled solely by free and active industrial competition, would hold perfectly of the actual facts. According to this theory, rent does not enter into the price of the product ; it is the price of the product that determines rent. In a perfect market there will be only one price for commodities of the same' quality, and that price will he fixed by the expenses of production of the commodity under the most unfavourable conditions — by that portion of the article which is produced with greatest difficulty or from the least fertile and advantageously situated land. Such least fertile land will pay iia rent, or a minimum rent which may be disregarded. But the expenses of the production there will fix the price of the product^ and the more fertile or better situated land will pay a rent corres- ponding to its greater advantages. Were rents to be abolished to- morrow by a stroke of the pen, the abolition would but enrich the tenants of the more fertile soils. The same amount of com and cattle would be required as before ; the conditions of production would be the same in the least advantageous circumstances. These would fix the price of the product ; food would not be cheaper, and wages would not be raised. The question thus arises : Is the rent of a mine determined in ! the same way as the rent of a farm ? Does it therefore not enter into the price of the product at all, so that its abolition would not cheapen coal and iron, but only enrich certain mining lessees, while its confiscation would not affect mining industry any more than the confiscation of any equal amount of other private pro- party ? Such questions may seem strange to those who agitate for the abolition of royalties or for the nationalisation of property in mines, and who are usually well acquainted with the facts of the trade, although they may not always be able to anticipate the effects of the changes they propose. Tet economists have been in th& habit of answering these questions in the affirmative. Thus Ricardo, who formulated the law of rent in the way in which it- is still stated, applies that law without distinction to mines as. well as farms. " Mines, as well as land," he says, " generally pay a rent to their owner ; and this rent, as well as the rent of land,,' is the effect, and never the cause, of the high value of their product. . . The return for capital from the poorest mine paying no rent, would regulate the rent of all the other pro- ductive mines. This mine is supposed to yield the ordinary profits of stock. All that the other mines produce more than this, will necessarily be paid to the owners for rent. Since this' principle is precisely the same as that which we have already' on the Iron and Coal Trades. 17 " laid down respecting land, it will not be necessary to enlarge " on it."'" With eqnal distinctness Bagehot says, "The prod^DO- " tion of valuable things on the surface of the ground is exactly " like the extraction of valuable things from beneath that surface ;" and " it is the worst mine which can in the long run be kept going " that in the long run determines the price of the produce.'"' Now it is easy to see that the " worst mine " cannot " in the : " long run be kept going," nor can any mine be kept going " in the " long run." In this obvious particular, at any rate, the mine differs from the farm. Mines differ in their fertility and advantages of situation ju.st as farms do. The price of mineral products will be regulated by their expenses of production in the worst mines which require to be worked to meet the dem.and, just as the price of agricultural produce is regulated by the expenses of produc- tion in the " worst farms " which require to be cultivated. But, because the '' worst farm " pays no rent, it does not follow that the "worst mine" pays none. The worst miue (or any mine) cannot be kept going " in the long run ;" the worst farm can. It improves ! by being cultivated, if cultivated in workman-like manner, or at least does not deteriorate. Landlords would rather have such land ; cultivated than lie waste. It may be said therefore to pay no rent. \ But a mine deteriorates by being worked. The landlord would rather have his mine lie idle and unopened unless he is to receive some distinct gain from its. being worked. Mining operations do not contribute towards the amenity of the neighbourhood, and by allowing his mine to be worked, the landlord loses a possible future source of income. It is evident therefore that the least fertile mine worked pays a rent. The landlord will not even work it himself, unless he looks for a return in the shape of rent. He will rather invest his capital in some other undertaking, and meanwhile preserve the beauty of his neighbourhood, and wait for the turn of trade which may give value to the mine. Hence as mines deterio- rate by being worked, the landlord will only let them at a rent; bearing some proportion to the amount of deterioration they suffer. Even the least fertile mine worked will pay a rent of this kind, ; and this rent will enter into the price of the product. ' The case may be put still more clearly, if we adopt the method of explaining the law of rent used in James Mill's " Elements o£ " Political Economy," and in Marshall's " Economics of Industry." The postulate of a least fertile land paying no rent may seem difficult of verification when we come to fit our theory to facts. But the theory admits of statement without this postulate. The tenant of a farm, who has capital at command, will apply succes- 30 i< Principles of Political Economy and Taxation/' chap, iii, " Works," p. 45. 31 "Economic Studies/' p. 127. 18 mining Royalties and their effect sive portions or " doses " of capital ,to the land until (owing to diminishing returns) tte last portion of capital thus applied will only just return in commodities the expenses of their production. This portion therefore will pay no rent. But the preyious doses of capital which yield in commodities more than the expenses of production of these commodities will pay that surplus as rent. On every farm, therefore, we may say, there is a margin or fringe of produce — that, namely, which is the result of the last application of capital and labour to the land, the application which it is only just worth the farmer's while to make — which pays no rent. But, in the case of mines, this does not hold. There the last portion of capital and labour applied (or rather its product) pays as large a share of rent as any other. The last ton of coal or ironstone raised pays the same royalty as the first. The royalty system thus prevents the theory of rent from holding true of mines as it does of agricultural land ; and the royalty system itself is rendered necessary by the fundamental difference between a farm and a mine, that the latter is, while the former is not, deteriorated by working. This is sometimes expressed by saying that in the case of mines a certain quantity of raw material is removed, and that the royalty is simply a payment for this raw material. No objec- tion need be taken to this mode of statement. It is adopted to avoid the error made by Ricardo and others in applying the economic theory of rent to mines. But we must not be content with the statement that the royalty is simply a payment for raw material removed. It is necessary to ask what determines the amount of this payment and its variations. The economic theorist may answer that, in the long run, in this as in other cases, the price will be determined by the expenses of production. But what we must note is this : In the market, mineral of the same quality sells at a definite sum. But this same mineral as it lay in the bowels of the earth was sold to entrepreneurs at very different sums. The theory of royalties must show what deter- mines the difference. The higher royalties are undoubtedly due to the peculiar advantages which particular mines have over the mines which can just be worked at a profit, in the same way as the rent of good farms exceeds that of the " worst farm " worked. So far the "rent theory" holds; so far, but no farther. For while the worst farm (which suffers no deterioration by working) pays no rent, the " worst mine " goes down in value with every ton of mineral removed, and therefore does pay a rent or royalty. For every ton of mineral worked, payment has therefore to be made ; and the obligation to pay this charge affects the price at which it is possible for the producer (say from the " worst mine ") on the Iron and Goal Trades. 19 to sell llie produce. This cannot be treated (as it may be in the case of agricultural land) as a minimum rent, which for purposes of theory may be regarded' as zero. Even a halfpenny a ton ■would amount to a considerable royalty rent, which could not be disregEirded for the purposes of a theory however abstract. And it need hardly be said that halfpenny royalties are not met with in English mines. We are entitled to conclude therefore that to some extent royalty does enter into price. The question is, to what extent ? The answer to this question, presents no theoretical difficulty. The price of the product depends upon the expense of production in the least advantageous circumstances — in the " worst mine," that is, which requires to be worked to meet the demand. Such worst mine pays a royalty, and this royalty payment enters into expenses of production, and goes to determine price. Royalties on other mines of the same kind so far as they exceed this minimum royalty (as it may be called) do not enter into expenses of production, and therefore do not affect price. For purposes of illustration, we may suppose that /^d. a ton is the minimum royalty for coal or ironstone. I cannot vouch for the accuracy of this supposition, but I do not think it will be found far from the mark. I do not know of any I'oyalty on ironstone (even in Cleveland) that goes below 4d ; and, although I have come across two leases in which the royalty on coal is less, one of these at any rate seems exceptional. It is in the lease of a Yorkshire mine containing ironstone, coal, limestone, and building stone, and for the three last of these minerals the royalty is 3d per ton (of zafcwt.). In the otlier lease referred to, the royalty is, 3jt?. per ton (of 20 cwt.). I do not think however that in supposing, for purppses of illustra- tion, that the minimum royalty is 4c?. a ton on both coal and iionstoiie, we shall be making an assumption very wide of the fact. For every ton of coal or ironstone raised and brought to market, we suppose the landlord to receive ^d. at least — much more from the more fertile mines, not less from the worst mines. The worst mine pays 4A for every ton it puts in the market. The price of the produce must therefore in the long run be sufficient to return this 4(?. to the mine worker, as well as his other expenses of pro- duction. This sum of ^d. will therefore enter into price as a part of the expenses of production. .But take another and more fertile mine, producing mineral of the same quality, where the royalty is (let us say) Sd. Does this royalty also enter into price ? The answer must be that in this case half of the royalty (what cor- responds to the minimum royalty) enters into price, and that the other half does not, being a payment to the landlord for the special 20 Milling Royalties and their effect advantages of this particular mine. Were 4