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THE WEALTH OF HOUSEHOLDS 
 
 DANSON 
 
HENRY FROWDE 
 
 Oxford University Press Warehouse 
 Amen Corner, E.C. 
 
(^hx&niion '^x&m Snics 
 
 THE 
 
 WEALTH OF HOUSEHOLDS 
 
 ' Iron Laws, in the end 
 Found golden.' 
 
 AT THE CLARENDON PRESS 
 1886 
 
 [ A// rights reserved ] 
 
The substance of this work was first put together, more 
 than twenty years ago, by way of using the experience of a 
 man of business in the education of his children. It was 
 afterwards recast, and delivered, as a series of lectures, at 
 Queen's College, Liverpool ; and was then printed. Being 
 out of print, it is now entirely re-written, as a text-book 
 — and with especial reference to some of the economic 
 questions of the day. 
 
CONTENTS. 
 
 Preliminary. Interest of political economy. — Its purpose — and 
 method. — A science, and art. — How founded. — Organized human 
 effort.— Wealth good.— How attainable — for all mankind. — Man 
 the motive power — in society, and for himself. — His means. — AH 
 equally interested. — Men differ — and government needed. — Mutual 
 service necessary. — Men fitted for mutual service. — Its benefits. — 
 Rights and duties. — Our wants and powers. — Primary impulses. — 
 Weakness of man. — The family. — Grain food. — Its value to civil- 
 ization. — Men not equal. — Agriculture. — How begun. — Capital 
 required. — Men differ in providence. — Position of wage-earners. — 
 Nature's wages annual. — Thrift removes poverty. — Present position 
 of the labourer. — All alike interested. — Poverty a common afflic- 
 tion. — Wealth a common benefit. — Evils of poverty. — Moral good 
 of wealth. — Political economy morally elevating. — Wealth neces- 
 sary to benevolence. — Favours honesty — and improves manners. — 
 Promotes mental culture. — Wealth riecessary to social progress. — 
 Political economy imperfect — but improving — under a sense of 
 common interest. — Duties of the wealthy . . paragraphs 1-55 
 
 Exchangeable Value. Comparative value. — Differing powers of 
 men. — Their use of property. — Value in exchange. — Productive 
 power. — Value in barter. — Service the basis of value. — Develope- 
 ment of exchange. — Buyers settle value. — Service spares effort. — 
 How price settled. — All exchange beneficial. — How exchange ex- 
 tended . .... paragraphs 56-69 
 
 Sources of Income. Income justified by service.' — Wages. — Rent. 
 — Interest. — Profit. — Alms and Theft. — Various sources of income 
 often combined. — Uses of the distinction paragraphs 70-78 
 
viii CONTENTS. 
 
 Wages. Subject difficult.— Wage-earner's view.— Wages a price.— 
 Needed for subsistence.— How settled, in practice.— Sympathy 
 with the wage-earner.— Net result.— Why wages necessary.— 
 Origin of capital.— The wage-earner's position.— Nominal and 
 real wages.— Higher wages may mean higher prices— or greater 
 productiveness.— Productive and unproductive labour.— Varying 
 value of labour.— Great personal skill.— Most skill implies capital. 
 —Effect of gratuitous teaching.— Value of honesty.— Purpose of 
 the employer.— How effected.— Capital supplies wages.— Effect 
 of forced rise of wages.— Limits of fluctuation.— Standard of 
 comfort— raised of late years.— Means of sustaining it.— Cost 
 of rearing children. — Increase of population. — Wages and profit. 
 Work more productive. — Higher profits higher wages. — ^True re- 
 lation of labour to capital. — Course of the capitalist. — Course of 
 the labourer. — Strikes and lock-outs. — How wages settled. — Ma- 
 chinery. — Machinery in the United States. — Conclusion 
 
 paragraphs 79-194 
 
 Profit. Definition. — Distinguished from Wages, Interest, and Rent. 
 — Instance. — How Profit distinguished. — Joint Stock Companies. 
 —Other definitions.— Adam Smith.— J. B. Say.— J. S. Mill.— 
 Profit earned by risk. — Tested by book-keeping. — No profit 
 without capital. — Profit of dealers. — Engrossers, Forestallers, 
 Regraters. — How the dealer serves the consumer. — Corn trade of 
 the world. — Competition of dealers. — Dealing, well done, causes 
 low prices. — Foreign commerce all dealing. — Markets ruled by 
 buyers. — Ignorance of buyers. — Manners in trade. — The labourer's 
 view of profit. — Co-operative production. — Modem schemes. — 
 Leclair's case. — Numerous partners obstructive. — Extra wages not 
 profits. — Subject needs wider discussion. — Results of experience. — 
 Investments for savings. — Dealing and gambling. — Speculation. — 
 Stocks and shares. — ^Use of speculation. — Rate of profit. — Highest 
 where risk new. — Other causes of variation. — Capital follows profit 
 
 paragraphs 195-300 
 
 Rent. Rent now ill defined. — Wider definition suggested. — Its 
 application. — Rent measured by time. — Loan of Consols. — When 
 
CONTENTS. ix 
 
 rent higher than interest. — Service rendered for rent. — Increased 
 rent of land. — Rent of machinery, and of ships. — Ricardo's theory 
 — where defective. — Allland-value dependent on locality. — Cause 
 of this. — Land not monopolised. — Land-rent the price of a local 
 advantage. — The return for rent. — Mr. George's theory 
 
 paragraphs 301-358 
 
 Interest. Definition. — Formerly forbidden. — Is interest just? — 
 and expedient? — Forbearance. — The labourer's viev?. — Right of 
 capital. — Interest a price. — Interest not alvifays seen. — Measured 
 by time. — Variation of rate. — How daily paid, in commerce. — 
 Use of money, and risk of its loss. — Government cannot control 
 interest ....... paragraphs 359-399 
 
 Commerce. Definition. — Development. — At home — and abroad. — 
 Foreign commerce. — Local causes. — Early progress. — Commercial 
 profit. — Instance : commerce' in tea. — Individual interest, and 
 co-operative action. — Moral effect. — Inspection of factories — and 
 mines — and ships. — Inspection should lead to instruction. — Work- 
 men their own best protectors . . . paragraphs 400-446 
 
 Capital. Definition. — Instance. — Borrowed capital. — Supply 
 of capital. — Demand for capital. — Interest prompts to saving. — 
 Wages paid out of capital. — Duties of the capitalist- employer. — 
 Foresight. — Recent experience. — Capital abundant, and new uses 
 needed. — Increasing intelligence — and higher sense of duty. — Trade 
 statistics. — All publicity good . . . paragraphs 447-478 
 
 Credit. Definition. — Uses. — Book-debts. — Promissory notes. — 
 Bank-notes. — "Paper-money." — In France, 1789. — In America, 
 1775. — Bank-notes, and — Bills of Exchange — and Book-debts. — 
 Credit transfers capital — but does not increase it. — Organization 
 of credit. — Credit also collects capital paragraphs 479-544 
 
 Money. Definition. — Value of money — how determined. — English. 
 — French. — Silver, and bronze. — Sovereigns, how coined. — Price 
 of gold. — Light gold coin. — Re-coinage of gold. — Gold and silver 
 best for coin. — Decimal coinage. — Size of coins. — Standard of 
 value. — Bi-metallism. — Coinage of the United States. — Our Indian 
 
X CONTENTS. 
 
 coinage.— Bank-notes not money.— Coining now honestly done.— 
 Our money a national fund.- Small notes in Scotland and Ire- 
 land paragraphs 545-582! 
 
 Banking. Definition. — Origin.— In Venice.— Use.— Deposits. — 
 Remittance.— Discount.— Postponed payment.— Use, to buyers 
 and sellers.— Instance.— Banking includes insurance.— Finance 
 banking.— Use to governments.— Bank of England.— Issue of notes. 
 —Banker's control of bills.— Due Ichiance of bills. — The money- 
 lender.— The money-broker.— The bill-broker. — Bankers do not 
 create capital.— Scarcity of capital.— Monetary pressure.— Mone- 
 tary ease.— Bankers only agents.— Interest of the banker.— Bankers' 
 accounts. — Banking economizes capital. — London the banking 
 centre of the world. — Banking of the home trade. — The clearing 
 house.— The clearing principle . . . paragraphs 583-679 
 
 Insurance. Definition. — Anticipation of risk. — Sources of certainty. 
 — Insurance of recent origin. — Unknown to the Greeks and Romans. 
 — Early traces. — In France. — Life insurance. — Marine insurance. — 
 Fire insurance. — Moral tendency. — Industrial effect. — Various 
 methods of insurance paragraphs 680-766 
 
 Competition. Definition. — Necessary to progress. — How justly 
 limited. — A free market. — Example of operation. — Due action of 
 the State. — Co-operative buying. — Co-operative production. — 
 Community of property. — View of the wage-earner — tested by 
 experience. — As between different countries. — Favours merit. — 
 Alleged oppressive action. — Hand-loom weavers. — Use 6f experi- 
 ence in direction. — Government interference noxious. — ^Distressed 
 needle-women. — Explanation . . . paragraphs 767-833 
 
 Taxation. Definition. — History. — Personal service. — Capital frees 
 the person. — Pecuniary taxation. — Ingenuity in taxation. — Perfect 
 taxation. — Adam Smith's rules. — Modes of taxing income — as it 
 is being made — as it is received — as it is expended. — Several taxes 
 necessary. — Exclusive taxation of land. — Revival of an old error. — 
 V Impdt unique. — Land-value has two elements. — Result of expe- 
 rience. — If applied to the United Kingdom — probable result. — 
 Effect of taxation distributed. — Conclusion paragraphs 834-926 
 
CONTENTS. xi 
 
 Pauperism. Definition.— Origin in England.— Causes of destitu- 
 tion.— Example of the wealthy.— Reason needed more than feeling. 
 —The provident taxed.— Private relief.— Public relief.— Need of 
 superintendence.- Two things aimed at.— Early legislation.— Law 
 of Elizabeth.— Relief in aid of wages.— Law of 1834.— Results of 
 experience. — Foreign methods.— Advantage of our system.— The 
 ™'"''^ paragraphs 927-984 
 
 Foreign Commerce. Definition.— Extent.— Growth.— Results.— 
 Ini88i, 1882,1883.— I785and 1883.— Relations with rest ofworld. . 
 — " Ships, Colonies, and Commerce." — Our naval power. — Colonial 
 possessions. — Early command of tropical produce. — Peace of 1783. 
 —Treaty with France, 1786.— Basis of comparison.— " Official" 
 values. — Trade accounts, in 1785. — Mode of comparison. — Our 
 foreign trade, 1785. — Subsequent growth, main causes. — Spinning 
 machinery. — Opposition to machinery. — Cotton. — Steam-power. — 
 Trade accounts: 1883. — "Declared" values. — Comparison of 1785 
 with 1883. — Our shipping in 1883. — Outward and homeward 
 freights. — Character of our foreign commerce. — We export manu- 
 factures — and import materials for manufacture, and food. — Our 
 highways by sea. — Foreign exchanges. — Free trade. — Our export 
 of coal. — "Fair "Trade .... /ara^ra/Aj 985-1055 
 
 Property in Land. Subject now popular. — Property in land im- 
 pugned. — Tenure of land. — The land of this country. — Urban and 
 rural population. — How land divided and held. — Nature of the 
 property. — How justly appropriated. — Not a monopoly. — Com- 
 pared with other property. — Unequally distributed. — "Natural 
 right" to land. — As to the future. — Duty of the government. — 
 Can the State retain the ownership ? — Land now easily obtained. — 
 Urban and rural labourers. — Disappearance of small freeholders. 
 — Labourers detached from the land. — Things seen, and things 
 not seen. — " Unearned increment." — Transfer of land. — Primogeni- 
 ture paragraphs 1056-1136 
 
 Socialism, Communism, and Nihilism. Individualism. — Beg- 
 gary. — Pauperism, — Socialism. — Property. — The aim of Socialism. 
 — Communism. — Ground of Socialism. — The facts.— Mode of fixing 
 
xii CONTENTS. 
 
 wages. — "Iron and cruel law." — Continental view. — Ferdinand 
 Lassalle. — His error. — Government control of capital. — Lassalle's 
 method. — Karl Marx, Communist. — Marr, Nihilist. — Net result. — 
 Problem suggested. — Mill's view. — Caimes's view. — Peasant farm- 
 ing. — Co-operative production. — Trades Unions. — Thrift. — The 
 evil, and — the remedy. — Daily wants, but annual harvests. — A 
 year's subsistence needed, — The wage-earner, how provided. — The 
 industrial system — leaves him a duty. — Slavery gone, freedom not 
 yet earned. — How alone attainable. — Subjection to capitalist gall- 
 ing. — Not necessary. — Removable. — Mode of removal. — The 
 needed condition. — This attainable — by saving. — State of wage- 
 earners misrepresented. — " Hopeless poverty." — True value of 
 labour. — What is desirable. — Not higher wages, but — more capital. 
 — Saving difficult. — Summary. — 'WTiat socialism proposes. — Its 
 probable effect. — The explanation, and the remedy. — Immediate 
 political danger. — Labourer no longer dependent. — Private charity, 
 — State charity limited. — Recent advances. — Repetition of past 
 error.^— Poor-law amendment, 1834. — Consequent suffering. — The 
 error. — Poverty not indigence. — Deputed relief — Public education. 
 — Probable results. — Dwellings of the poor. — Private benevolence. 
 —Supply and demand. — Habits obstructive. — Duty of the rich. — 
 Communism tried. — Results. — Economic success. — Communism 
 not equality.— Its method.— Individualism inherent in man.— 
 Individualism and sympathy . . paragraphs \\i']-\2i^ 
 
 INEEX .... . . ^a^,, 361-368 
 
THE 
 WEALTH OF HOUSEHOLDS. 
 
 I. PRELIMINARY.. 
 
 Political economy is not popular. Too much has been expected 
 from it. 
 
 But it is an old story. Men easily learned something of the orderly 
 motions of the stars ; and first sought from it a forecast of their fate, as 
 individuals. Of what use was it, if it would not tell them what they 
 most wanted to know ? 
 
 Then came some inkling of the changeable composition of the 
 substances of the earth ; and we tried to turn lead, or mercury, into gold. 
 To what end this wonderful power of change, if it would not give us 
 what we most wished to possess ? 
 
 Now we have learned something of the industrial powers and relations 
 of mankind. We can, certainly, so order them as to make much wealth. 
 Why can we not, so far as wealth will do it, make all men, at once, 
 contented and happy ? 
 
 The astrologer and the alchemist each had his day. Now the socialist 
 would make ' a new departure,' and have his. 
 
 Astronomy and chemistry have become permanent and undisturbed 
 possessions. Socialism is already on trial, in many forms. Meanwhile, 
 we may hope to build up political economy, by safer means, to higher 
 ends. 
 
 1. We all feel an interest in that which concerns us; and Interest of 
 we need learn but little of political economy to find that it Economy 
 concerns us all ; and all about equally. 
 
 2. Regarding wealth (or well-being) as the needful basis Itspurposes 
 of all human enjoyment and improvement, it seeks the best 
 
 way of attaining this. 
 
 3. Its ultimate purpose is to promote the wealth of man- andmethod. 
 
 E I 
 
PRELIMINAR Y. 
 
 A science^ 
 and art. 
 
 How 
 founded. 
 
 57. 
 109. 
 174. 
 
 kind : its immediate purpose to promote that of each nation ; 
 and this by promoting, as far as possible, the wealth of each 
 individual. And its method is to record, and to make 
 applicable by each generation, what experience has taught 
 to those who have gone before. 
 
 4. It may be termed a science, as we learn and verify it. 
 It is an art, as we take its precepts and apply them. 
 
 5. Like all science, it rests on reasonable inferences from 
 ascertained facts. As, for instance : — 
 
 I. A log of wood one man cannot lift may be easily lifted 
 by two. 
 
 II. Men differ in strength, and in skill ; and some, there- 
 fore, can do more, and also do it better, than others, in a 
 given time. 
 
 III. Work of different kinds is best done by different 
 persons ; and each kind by those best fitted for it. 
 
 IV. By combination of efforts, and in prior confidence 
 that several will work towards a common end, much may be 
 planned and executed, for the common benefit, which with- 
 out these aids would be impracticable. 
 
 V. But each man seeks his own welfare, before that of 
 any one else ; and, if this tendency be not complied with, he 
 will not willingly aid others. 
 
 VI. Willing aid is the most efficient form of aid : hence 
 slavery is a waste of human power. 
 
 VII. Men cannot well serve each other unless they believe 
 each other; and as some are known to be more truthful than 
 others, their services are more sought. 
 
 VIII. In a state of society, the welfare of every member 
 of it is of interest to, and is entitled to the sympathy of, every 
 other : because the general efficiency and welfare of the com- 
 munity is directly dependent upon that of each of its mem- 
 bers. AU gain, and all lose, by the gain and loss of each. 
 
 IX. There are, however— and probably always will be — 
 some who are radically discontented with the existing con- 
 stitution of society; and disposed to overthrow it. But even 
 
PRELIMINARY. 
 
 the anarchist has his use. He reminds us, at every step of 
 our progress, that what we have achieved is safe only while 
 defended by sound reason, and by adequate force. 
 
 6. These may be termed the methods of human effort. Organized 
 Their right guidance, in the production and distribution of f^'^" 
 wealth, constitutes political economy. 
 
 7. Is wealth, then, good ? Is it worth striving for ? Man- Wealth 
 kind has but one answer : it is. ^''°^- 
 
 8. Then how may it best be attained ? All human ex- How at- 
 perience concurs in saying that it will be best done by ''^'■"■''^^^' 
 enabling and inducing each man to act towards its attain- 
 ment under the motives which are, with most men, effectual. 
 
 9. The question before us, then, is how may wealth ht for all 
 attained by society at large, and by each of its members — manUnd. 
 how most easily and rapidly attained — how most securely 
 
 held — and how most readily applied to the production of 
 any desired effect. 
 
 10. Man, as he is, supplies the only motive power. Man the 
 
 11. Man, in society, because he is otherwise helpless ; and j,„^^y . j„ 
 man for himself, because he will act only when, and as, he society, and 
 is impelled by his own apparent interest. ■'"^ imsej. 
 
 12. Further, he must be industrious, or he will eflfect His means. 
 nothing — provident, or he will have no tools, nor any pro- 
 vision for the morrow — honest, or his neighbours will not 
 
 trust him — skilful, or his methods of labour will not im- 
 prove — thoughtful, or he will gain nothing by experience — 
 and sympathetic, or, in his efforts to learn, and to do, he 177. 
 will lack the best aid of his fellows. 
 
 13. It follows that, wealth being, by common consent. All equally 
 
 J J ^, , . ., „ J interested. 
 
 good; and these bemg its sources; we are all concerned 
 in discovering and making them fruitful — that in the pre- 
 valence, the improvement, and the free and energetic action 
 of these personal qualities, and in the removal of impediments 
 to their operation, we have all a most direct and powerful 
 interest. 
 
 B 2 3 
 
PRELIMINARY. 
 
 Men differ; 14. But these human qualities — the springs of wealth — 
 individual men possess in various degrees. Thus they are 
 variously fitted to become wealthy. Some possess them in 
 small measure, or not at all. And some are more ready 
 to take the wealth of others than to seek their own. 
 and gov- 15. Hence the need of a governing power : first, to give 
 eminent j-^.^^ gxercise to these qualities, wherever they exist; and then 
 to secure to their possessors, each in proportion to his pro- 
 ductive power, the due fruit of his labours. 
 
 Mutual 16. We may infer that society began in mutual service; 
 
 1^I3!^L„ for we see that it could not be carried on without it ; and 
 how best to provide for, and secure, this service, still embraces 
 every question the economist has to answer. And, in deal- 
 ing with it, he finds his only sure guidance in constant 
 attention to the known impulses of human nature. 
 
 Men fitted 17. Men are distinguished from all the lower animals by 
 for mutual , . - . .... - 
 
 service '■"^^'' fi'^ess to enter into, and mamtam the structure or, 
 
 a permanent and improveable society. They owe this fit- 
 ness not only to their ability to be useful to each other — 
 for this the ant and the bee possess — but to their power 
 to perceive a varying and exchangeable value in their 
 services. 
 
 18. It is to this power that we owe our progress ; and, to 
 the ignorance of most of us how best to use it, that we owe 
 most of the trouble we have in effecting our progress. 
 Its benefits. 19. The motive to exchange of service is a palpable, and 
 otherwise unattainable, increase, for all concerned, of well- 
 being, or wealth : an increase for all, and for each, in pro- 
 portion to the value he contributes to it. 
 
 20. The onward progress of society may be said to 
 originate in, and in great part to consist of, efforts to im- 
 prove the methods of this exchange. 
 
 Rights, and 21. On entering society, we receive rights, and we incur 
 
PRELIMINAR K 
 
 duties. Prior to society, there can be no rights. Might, 
 alone, then prevails : as, now, between nations. " Natural 
 right," therefore, is a phrase without meaning ; most used by 
 those who have none; and sometimes by those who have 
 one to hide. 
 
 22. When formed, society grows from its natural sources : Our wants, 
 the wants and powers of the individuals composing it. We '^" po'^ers. 
 seek, from it, protection ; and, in it, the development of our 
 powers, and the satisfaction of our wants. It is the first 
 business of those who rule to see that we have these. 
 
 23. Our first impulse is, clearly, to the preservation of the Primary 
 individual ; and the next to the continuation of the race. In '^"^t"^^"- 
 each the animal man has especial difficulty. 
 
 24. By nature, as an individual, he is weak : alike for Weakness 
 offence and defence. In a savage state his present needs "J '""'"' 
 seem always greater than his powers. And he is distin- 
 guished, in a very remarkable and significant manner, by the 
 
 long and feeble infancy of his progeny. 
 
 25. In order that children may be reared till they can pro- The 
 vide for themselves, even in the most favourable climate,-'''"'**^" 
 their parents must provide for them during a period about 
 
 ten times as long as is needed for any of the lower animals. 
 It follows, from this weakness, that the family must exist, in 
 order that the race may be continued. And in the family is 
 found the perpetually reproductive germ of society. In it, 
 but scarcely beyond it, we see mutual service without 
 exchange ; and therefore without estimate of value. The 
 family is maintained by the impulse of affection and habit ; 
 but it seems to lead inevitably to other and less close relations 
 between men. It impels us to society. 
 
 26. Probably in the earlier forms of society many more Grainfood. 
 children perished than were reared to maturity ; and we now 
 
 see that only under conditions favourable to the health of 
 children does the race increase in number. 
 
 27. During the period of which we have any history, such 
 favourable conditions have repeatedly occurred, and been 
 
 5 
 
PRELIMINARY. 
 
 civiliza- 
 tio7i 
 
 continued for a tiifle long enough to produce certain advanced 
 forms of civilization. And each of these periods has been 
 remarkably coincident with a habit of regular labour, and 
 Its value to with a general reliance upon agriculture for the supply of 
 food, through the common use of some description of grain. 
 
 28. Rice in the East, maize in the West, and wheat in 
 Europe, has each, in the course of history, been made 
 the food-foundation of a peculiar and extensive form of 
 society. 
 
 29. Marriage, then, and a regular and sufficient supply of 
 food, are the first rungs of the ladder by which men ascend 
 from the level of the brutes. They form the foundation of all 
 general and continuous human activity — of all such activity as 
 results in what we call civilization. When these first advances 
 are made, we pass into a condition of society which in no 
 essential particular differs from that we now see around us : 
 nor is any other, apparently, possible, 
 
 30. To say that men are born free and equal is to contra- 
 dict all we know of them. In fact, they are born more unequal 
 than any animal we know ; and the only freedom they have 
 yet had, or apparently can ever have, is such as they may 
 fight for, out of society, or agree for, within. 
 
 31. From their personal differences come like differences 
 of personal condition. 
 
 32. An instance, involving one of the principal economic 
 problems of our time, will make this clear. From depen- 
 dence, like that of the lion, or the ox, on the food nature, in 
 some climates, provides day by day — from desultory hunting, 
 fishing, and the gathering of such fruits and roots as grow 
 without culture — mankind advanced to general reliance on 
 annual crops. And if we mark how this was done — how it 
 is even being done in our own day — how, alone, it can be 
 done — we may see very clearly how the wage-earning classes 
 got into the position in which we now see them. 
 
 33. It is sometimes suggested that persons who cannot 
 otherwise find employment, should be placed on land not yet 
 
 6 
 
 Men not 
 eqital. 
 
 Agricul- 
 ture. 
 
 How 
 begun. 
 
PRELIMIN-ARY. 
 
 cultivated, and so enabled to live by agriculture. We see 
 that some do settle, thus, on new land. But we never see the 
 change effected without certain preliminaries; and among 
 these the most important is provision of a year's subsistence 
 in advance. And we may be sure that when mankind passed 
 from the hunting to the agricultural state — from daily earn- 
 ings to yearly earnings — they did not accomplish the change 
 without a Uke provision. Further, that this provision was not 
 made till the year's subsistence had, somehow, by somebody, 
 been earned. And, yet further, that those who had earned Capital 
 had refrained from consuming it. In fact, that some men "1"'-^^ ■ 
 had been provident — and that saving had already begun. 
 We may safely infer that it was not begun by all ; any more 
 than it is now done by all. 
 
 34. Had men been all equal — had they all equally 
 recognized the duties, and exercised the rights, incident to 
 a state of society — they would all have seen the need for, 
 and all joined in making this provision; and when the 
 resulting harvest was gathered, would have been equally 
 entitled to the crop. This was not so. It never has been Men differ 
 so. Men did, in fact, move forward from the ever- ^^^'^'" 
 imminent danger of starvation, in which they started, to the 
 security of stored harvests, under the guidance of, and with 
 
 the means provided by, the more thoughtful and provident 
 of their number. By far the greater number contributed 
 to this advance only as labourers under direction. They Position of 
 were not fitted to do more. And far too many of them '^^rners. 
 remain in this position still. They share the food-security 
 of a well-ordered community ; and they share many other of 
 its advantages. But, as mere earners of weekly wages, await- 
 ing a constant supply from others of the means of life, they 
 are still about as near to the condition of slavery as the 
 public opinion of their time will permit them to be. 
 
 35. Nature pays us our wages only once a year. This is Nature's 
 an inexorable law. And he who does not make provision for ^^^"^^^ 
 complying with it must either do without the harvest which 
 
 7 
 
PRELIMINARY. 
 
 Thrift 
 
 removes 
 
 poverty. 
 
 354. 
 
 Present 
 position 
 of the 
 labourer. 
 
 455. 
 
 distinguishes the civilized from the savage man, or depend 
 upon his more provident brother to aid him. 
 
 36. Thus he comes to wait upon the capitalist ; and too 
 often to see in him a mere task-master. He is discontented 
 with his position ; and his discontent is bitter in proportion to 
 his failure to see how it has come about. He is prone to 
 listen to any suggestion of a short way out of his trouble. 
 But there is, truly, only one: the one he has yet failed to 
 take, but which is now more open to him than it has ever 
 been before. He must, himself, become a capitalist. He 
 must be not only, what good workmen always are, industrious, 
 skilful, and honest; but also provident. He must learn to 
 face nature on her own terms, and for himself. He is but 
 one of mankind ; and from mankind at large, when they leave 
 the savage state, is exacted the provision of at least a year's 
 subsistence in advance. On no other terms can a civihzed 
 nation be kept in existence. Now of this common duty the 
 man who lives only on weekly wages has yet to do his share. 
 Others have hitherto done it for him. 
 
 37. It is true that in every generation, during modern times, 
 this defect has, by many of the wage-earning class, been made 
 good; and that, with the increased facilities for saving 
 afforded in our time, much is being done to enable the 
 labourer to become a capitalist. The earners of weekly 
 wages, in this country, are now in a position to command 
 from the capitalists who employ them, the full value of their 
 labour. This value is, in England, higher, generally, than 
 it has ever been before. It is increasing; and it is likely 
 to increase, because the labour for which it is paid is becom- 
 ing more productive. And the amount annually saved from 
 it, and invested, in various ways, though small in relation to 
 the number of hands from which it comes, already forms a 
 considerable portion of the floating capital of the kingdom. 
 We all have reason to rejoice that it is so. But it is an 
 obvious mistake to suppose that the condition of the mere 
 wage-earner with regard to the capitalist, involves injustice, or 
 
PRELIMINARY. 
 
 is anything more than the natural outcome of the inherent 
 difference and inequality of men : an error which those who 
 see it are bound to do what they can to correct. 
 
 38. For though we move only under the impulse of our All alike 
 own interest, and are as diverse and unequal as can well be ^"'^''"'^ • 
 conceived, in our powers, and even in our purposes, we are 
 united by a common bond of the strongest kind. We have, 
 
 in fact, a deep and abiding interest in the just success of 
 each other. 
 
 39. We all desire wealth for ourselves ; but we have also a Poverty a 
 real advantage in the wealth of others. Even the effects of "miction 
 the poverty we would all avoid, cannot be wholly escaped by 
 
 any of us, while it continues to afflict others. 
 
 40. The " Wealth of Nations " is not only a comprehensive 
 expression of the weaUh of individuals. It is also a measure Wealth a ■ 
 of the sources of wealth open to individuals : of the extent, '^^^"J^ 
 and the resources of the field open to their ability and industry. 
 
 And, in seeking wealth for ourselves, we cannot fail, in pro- 
 portion to our success, to open the way to it for others. It 
 is even so with the humblest of the efforts made in this 
 direction. 
 
 41. Poverty cripples us in the doing of our first duties ; Evils of 
 and others suffer because we do. The most urgent of all the ^ " ^' 
 duties of life must surely be that, the due performance of 
 which alone enables us to do the rest ; and before we can do, 
 
 or even attempt to do, any other, we must provide for our 
 lowest wants. The labour that provides food, clothing, and 
 lodging must precede all other labour ; and leisure, without 
 which culture or refinement is impossible, can come only of 
 some degree of wealth. Hence it may be said to be not 
 only the legitimate desire, but the first duty of every man to 
 be, to this extent at least, well off. Then, and then only, 
 can his existence have any considerable use, to himself or 
 to others. 
 
 42. Starvation, rags, and defective dwellings, are common. 
 They afiSict those who have to endure them, and they disgust the 
 
 9 
 
PRELIMINARY. 
 
 looker-on. They come of poverty, and they lead to ignorance, 
 intemperance, and crime. No man deliberately prefers ig- 
 norance, for himself, or for his children. But if the cost of 
 removing it be also the cost of necessary food, it vifill not be 
 removed. Intemperance is always more or less nearly con- 
 nected with deficient supply ; and moderation in use, as com- 
 monly, follows habitual abundance. Most of the crimes 
 punished by law have reference to the violent or fraudulent 
 acquirement of property. Add ignorance and defective 
 training, traceable, directly or indirectly, to past poverty, and 
 we have before us all the ordinary sources of crime. More 
 lying, probably, comes of lack of means than from all other 
 causes put together. We all know the bearing of the pro- 
 verb, " It is hard for an empty sack to stand upright." Poverty 
 is not vice ; but it leads to much. 
 
 Moral good 43. Wealth is not virtue ; but it tends to make virtue easy ; 
 
 oi wealth.. ^^^ j^^ absence more conspicuous and blameable. To 
 acquire wealth honestly, one must needs practise some of the 
 virtues most valuable to society — as industry, economy, and 
 forethought. To use it well is to elevate in the scale of being 
 all over whom we have influence. 
 
 Political 
 Economy 
 morally 
 elevating. 
 
 44. It has been said that the study of political economy 
 tends to harden the heart. But there is no evidence of it. 
 And it would indeed be strange if it were so — if either the 
 knowledge, or the use, of just means to attain an end we all 
 righteously desire, should tend to degrade our nature. What- 
 ever exceptions may have to be allowed for, nothing is better 
 established, in the homely wisdom of daily life, than that the 
 very presence of wealth, and, still more, its discreet use, tends 
 to a gentle, a moral, and a cultured life ; and especially to a 
 better consideration of the interests and the feehngs of others. 
 It gives greater importance to all the amenities and enjoy- 
 ments of social intercourse. It makes us more tolerant of 
 the lesser evils of life, and of the short-comings of others. 
 Avoidable evils are, by the wealthy, readily escaped ; and the 
 
PRELIMINAR Y. 
 
 unavoidable are by them more easily borne. And it is where 
 self is satisfied that it becomes least obstrusive. The savage 
 is selfish, because he is feeble ; and his selfishness comes to 
 the front because it is absolutely needed. His care, all given 
 to himself, is barely enough to preserve his existence ; and 
 as the lower animals, when they come together, and live in 
 herds, are observed to abandon their maimed and sick, and 
 even to hasten their end by ill-treatment, so, in the earlier 
 forms of human society, the young, the weak, and the sick, 
 are little cared for, and die rapidly. 
 
 45. It is not, among ourselves, the men whose means are Wealth 
 inadequate to their own support, and whose every waking "''"^'"'y 
 hour must be given to the dreary monotonous problem, lence. 
 "how to make ends meet," who can be expected to turn 
 
 aside to works of well-considered charity and mercy. We 
 must needs think even of " the good Samaritan " as of one 
 who had pence to spare. Nor are these works by such men 
 done. We expect them, and we find them, only where wealth 
 has given both leisure, for consideration of the wants of 
 others, and the means of supplying them. 
 
 46. Wealth, also, in very moderate measure, commonly 
 takes away, and in all cases reduces, the temptation to act 
 dishonestly, or even meanly, as regards property. The 
 exceptions are too well marked, and excite too much disgust, 
 
 to be common. What we call " crimes against property " Favours 
 are, as a rule, committed by those who have none. And, in '"^■'^' 
 all cases, wealth tends to improve its owners, by bringing 
 them under the influence of a more enlightened and elevated 
 form of public opinion. 
 
 47. In short, as much vice is certainly traceable to poverty, and 
 
 so much virtue, as certainly, comes of the softening and ^^^^^ 
 elevating influence of wealth. And an intelligent regard to 
 economy, as regards pecuniary matters, and to the value 
 of wealth, is very distinctly (promotive of that manly and 
 sympathetic cast of virtue which distinguishes our modern 
 civilization, when seen at its best. 
 
PRELIMINAR Y. 
 
 48. And all this is as true of nations as of individual men. 
 As soon as a nation fitted for intellectual advancement has 
 acquired, in an assured and settled form, the means of physical 
 well-being, its intellectual power seeks a new development, 
 
 Promotes and its morals take a higher tone. The sciences and the 
 mental cut- gj^g g^^j-g require, in those who cultivate them, and in those 
 who enjoy their productions, a condition free from the pres- 
 sure of want, and leisure unbroken by the mere struggle for 
 subsistence. Those who, having this condition, do not rightly 
 use it, become the prey of ennui- — a malady unknown to the 
 poor — or of vices more destructive than famine itself. 
 
 49. Only an industrious and provident people can ever 
 know the pleasures of the mind ; for they alone can have 
 leisure. A merely hunting or fishing people cannot escape 
 the sordid cares attending a constant struggle for mere ex- 
 istence. Even a purely pastoral or agricultural people is 
 similarly disabled. 
 
 50. It is only when its commerce with the rest of the 
 world has been developed to a considerable extent that a 
 
 69. nation attains any distinct idea of the earth, its form and 
 compass, the variety of its surface and its inhabitants, and of 
 their products and their wants ; and so learns to place itself 
 in conscious relation with the rest of the race, and thus to 
 reahze even the first fruits of the arrangement by which it 
 has pleased God to make all the nations of the earth, in 
 various degrees, necessary to the welfare and progress of 
 each other. It was only when Athens became the most 
 commercial and the wealthiest of the states of Greece, that 
 she reached that intellectual eminence the results of which 
 we all know something of. Augustus reigned in Rome, and 
 gave his name to the most learned and refined period of the 
 Roman power, at the time when the Roman people were 
 most wealthy, and safest from external danger. And, in 
 modern Italy, the age of Leo the Tenth also occurred just 
 when Italy was most wealthy. At the commencement of 
 the sixteenth century the people of that country were at once 
 
PRELIMINAR Y. 
 
 the most variously industrious, the most commercial, the 
 most intellectual, and the richest people in Europe. And at 
 this day, you find literature and the arts flourishing, and life 
 made noble, where, and only where, there is wealth ; and 
 you find wealth only where there is active and extensive 
 commerce. 
 
 51. Of late, it has become not uncommon to regard politi- 
 cal economy as something apart from what is called " the 
 Science of Society." But nobody doubts that to live well Wealth 
 we must first have the means of life ; or that to imperil these "/J^llial 
 cannot possibly serve " Society." The question, then, how progress. 
 these may best be had with ease, and distributed with justice , 
 comes first. How best expended must follow. Those who 
 would put aside political economy, the better to deal with 
 
 any social question, are as those who would ignore needful 
 means in order the better to reach the end. 
 
 52. As a nation, we may be said to have built to ourselves 
 a habitation. It is not so constructed, or yet so ordered, as 
 
 to satisfy all who are in it. Few houses are. But we may Political 
 say, with some confidence, that no nation yet has a better. ^j^Zr^ct 
 And however clear it may be to most of us that it requires, 
 and admits of, improvement, it were surely wise to have 
 regard to its structure, and materials, and to the feasible 
 scope for its improvement, before hastily meddling with its 
 foundations. 
 
 53. The science of political economy, like all other sciences, 
 is in course of evolution. But it is not of yesterday. It is 
 not to be dismissed because additional light shows that some 
 
 of its propositions need amendment. For thus does all but im- 
 science grow. Its fundamental truths are undisturbed, ■^"^'"'^' 
 though their scope be extended, and their application modi- 
 fied, by a better knowledge of facts. It is the science of 
 well-being. Its purpose is the production of that state for 
 every member of society. And he ill apprehends its nature 
 
 >3 
 
PRELIMINARY, 
 
 under a 
 sense of 
 com-mon 
 interest. 
 
 Duties 
 of the 
 wealthy. 
 
 who supposes that sound economy, as regards the produc- 
 tion and distribution of our wealth, can be at variance with 
 wisdom in its use. 
 
 54. Much is said, in our day, and it is imdoubtedly 
 desirable that much should also be done, to improve the 
 conditions of our industrial life. And, to this end, we are 
 called upon, not only to recognize the bonds of interest by 
 which every man, and every class, is bound to every other, 
 but also to display that active and intelligent sympathy with 
 all whose condition admits of improvement, which is the just 
 outcome of our common interest. 
 
 55. It becomes the wealthier, and the better informed of 
 us, not only to be just, but to be more than just, to the rest. 
 It especially behoves us to give them a good example. This 
 they may claim as of right ; and we must suffer if we do not 
 render it. And a yet more difficult duty attends the very 
 exercise of our sympathy for suflfering : it is to see that in 
 using our larger means to afford immediate relief, we do not 
 imperil the very- sources whence, alone, such relief can come. 
 
 14 
 
II. EXCHANGEABLE VALUE. 
 
 56. We observe that most of the lower animals acquire 
 property ; and that, to a limited extent, some of them accu- 
 mulate it. But they know nothing of comparative value ; Compara- 
 and they have not the idea of exchange. The lion, in his '^^^ '"'^"^■ 
 prey, and the bee, in his honey, each may see value ; but 
 neither sees value in exchange. That is only seen by men ; 
 
 and by them only when they come to deal with each other. 
 How they are led to it is worthy of attention. 
 
 57. Though nothing is so like a man as another man, yet Differing 
 
 , 1 , , t ■ 1 powers of 
 
 no two men are the same; and the closer you brmg them'^^„ 
 
 together, the more distinctly do their differences appear. We 
 
 enter society, and remain in it, to serve each other ; but the 
 
 more we learn of each other, the more apparent it becomes 5. 
 
 that, in our power to serve each other, we differ greatly. 
 
 And this difference is not diminished, but is increased, as 
 
 our powers are developed, and our faculties improved, by 
 
 the influence of society. The differences between savage 
 
 men are as nothing compared with those we see between 
 
 civilized men. And as it is the unvarying maxim of every 
 
 human workman that he is entitled to the produce of his 
 
 own labour, the wealth of men must vary, in some degree, 
 
 with their freedom, and the security of their property. 
 
 58. The use of property is, with men, not merely to con- Their use 
 sume it, or to keep it till some one else comes to take it. It 'ftfp^i'ty. 
 is also to have it in exclusive control — to preserve it, and 
 especially to be able to exchange it, at will, for something else. 
 
 And as soon as we perceive that one thing is more valued than 
 another, comparative value becomes the basis of exchange. 
 
 15 
 
EXCHANGEABLE VALUE. 
 
 Value in 59. Hence it is that we get the idea of value in exchange — 
 exchange. ^^ ^^^j^ (jgscription of value with which political economy 
 
 has anything to do. 
 Productive 60. If two men fell trees, while others fish ; and one gets 
 power. (jown, in the day, more timber than the other, he will expect, 
 and he will receive for it, more fish at night. This will be 
 the result of a free bargain. The fishermen, being moved by 
 like motives, will meet the woodmen on common ground. 
 He who, in either band, has produced most, will close the 
 day with most, whether he has been fishing or wood-cutting. 
 Thus it is that, under any system of free industry, men must 
 needs vary in wealth, as in productive power. 
 
 61. But how much fish for how much timber, will depend 
 on how much fish there is; for the fish will not keep, 
 Value in and the timber will. On the other hand, the timber is not 
 immediately wanted; and the fish is. So that no specific 
 value can be established, for either, till an agreement is come 
 to ; and this determines, for the occasion, the exchangeable 
 value of each commodity. With the aid of money, and of 
 markets, we have discarded mere barter, for purchase and 
 sale ; but the ultimate effect is the same. 
 
 e2. When a man has once recognized this quality in com- 
 modities and services, he has taken a long upward step — 
 has grasped the first principle of commerce. A clear con- 
 ception of comparative value — or value in exchange — is, 
 however, not common. The idea is so often allied with 
 something tangible, that most men deem the two insepar- 
 Service the able. They are not so. All value, in human estimation, has 
 value! reference to human service, as its foundation. We attribute 
 "value" to things tangible, because the presence of such 
 things most commonly indicates the means of service. But 
 the alliance is accidental, not essential. I am hungry, and 
 you feed me. I am cold, and you clothe me. I damage a 
 limb past all healing, and you save my life by skilfully cutting 
 it off. I am sad, and you cheer me with a song. All services 
 of undoubted value. The value of the first may be measured 
 i6 
 
EXCHANGEABLE VALUE. 
 
 by that of a loaf; and the second by that of a garment, as 
 the length of a piece of cloth may be measured by a yard 
 wand. The third, however, and also the fourth, has no tan^ 
 gible representative. But all four have exchangeable value ; 
 and, as forms of service, are commonly bought and sold. 
 
 63. Value, then, is really inherent only in service. Pro- 
 perty is anything to which is attached the right of exclusive 
 possession. It may have no value in exchange, and none 
 even to the possessor. Even skill, whether of value or not 
 to its possessor, has no value in exchange, except as the 
 basis of a saleable service. 
 
 64. The advantages of exchange are so palpable, that Develop- 
 a child may perceive them. It is true that its methods "^"^Imn^e. 
 are manifold and various, and, as they are now exemplified 
 
 in the great ports and marts of the world, afford an inex- 
 haustible fund of interest to the best informed men. But, in 
 the beginning, the process is extremely simple. Observe how, 
 as soon as two men unite their forces, they proceed to divide 
 their labour. If it be but in the lifting of a log, each will 
 lift one end. And of all the things which are daily done 
 among men, hardly one could be done without such unity of 
 purpose and division of effort. To act together is, in itself, 
 a form of exchange : an exchange of effort. To live at all, 
 men must live together. To improve their mode of living, 
 they must live in combination. 
 
 65. It is the peculiar characteristic of this form of value, 
 that though the cost is of essential moment to the seller, the 
 selling value depends entirely on the estimate formed of its 
 utihty by the person who is to be served. In practice, what Buyers 
 the producer thinks of his work is of no consequence ; every- ''^ '"'^ "^' 
 thing depends upon what the consumers think of it. 
 
 66. Observe how the idea is formed. Between the con- Service 
 ception and the gratification of a wish there lies the need "f^!^! 
 for an effort, (i) " I desire." (2) " I would have." (3) " I 
 must make an effort to obtain." He who spares me that 
 effort, or any part of it, so far serves me. 
 
 c 17 
 
EXCHANGEABLE VALUE. 
 
 How price 
 settled. 
 
 85. 
 
 All 
 
 exchange 
 
 beneficial. 
 
 38. 
 252. 
 
 How 
 
 exchange 
 
 extended. 
 
 50. 
 
 If each man could do for himself all that he needed to 
 have done, human isolation would be possible, and exchange 
 might be dispensed with. 
 
 67. The actual value, in exchange, of any article, or 
 service, is arrived at by the joint action of the buyer and 
 the seller ; but it is, in all cases, completed by the assent 
 of the buyer. His is the final act. The material expres- 
 sion of the result of this process is price. 
 
 68. All free exchange may be inferred to be beneficial ; 
 and to involve a double benefit; for each party' receives 
 something which, all things considered, he prefers tO' that 
 which he parts with. Hence the direct advantage o/ every 
 new facility given to the business of exchange: of all free 
 passage for men and goods; and of all increase of the 
 fulness, the rapidity, and the certainty of oral and written 
 communication among men. They all add to the fulness 
 and the freedom of exchange, and to the advantage reaped 
 by the persons ultimately served. 
 
 69. The first forms of exchange must, of course, have 
 arisen among persons in the same locality, and who were 
 personally known to each other. But these soon take a 
 more extended range. Commodities produced in one 
 locality are carried into another. Then it is found that this 
 carrying about of things, to find customers for them', can be 
 best done by men who apply themselves exclusively to it. 
 And thus the dealer, or merchant, appears. And, finally, 
 different nations are brought into the same combined form 
 of action ; and we see called into existence the present vast 
 and various apparatus of carriage, by land and water, and of 
 communication in writing : all these having for their end the 
 overcoming of the physical obstacle of distance, which it has 
 pleased the Almighty to interpose between men. They con- 
 tend with and reduce this obstacle in order that they may be 
 better fed, or clad, or housed ; and its reduction, by bringing 
 them nearer together, confers upon them a fuller and a higher 
 — because a more sociable and inter-dependent — form of life. 
 
 j8 
 
III. SOURCES OF INCOME. 
 
 70. In a well-ordered state, all legitimate forms of income Income 
 are justified by service rendered; and may be best dis--^"^'^^"^ *■'' 
 tinguished by the nature of the services for which they are 
 received. 
 
 7L These may be conveniently divided into four : — 
 
 I. Where one man labours for another, under the direction Wages. 
 of that other, we call the resulting payment Wages, Our 
 prime minister labours under the direction of parliament: 
 
 and he receives wages. It is the same with the agricultural 
 labourer. 
 
 II. Where one lends to, or places at the service oiRent. 
 another, for a given time, any article— as a field, a house, or 
 
 an opera-box — which is itself to be returned, the payment 
 received is Rent. 
 
 III. When the service rendered is a loan of anything Interest. 
 which is not itself to be returned, but for which a specified 
 
 and equivalent value is to be returned — as money — we call 
 the payment for it Interest; and 
 
 IV. When one man serves another, by placing capital at Profit. 
 risk for him, with a beneficial result, the gain obtained by 
 
 the service is called Profit. 
 
 72. The three last named forms of service can be rendered 
 only with the aid of capital. 
 
 73. Two other forms of income there are, which we would Alms and 
 all rather be rid of: Alms, and Theft. For these no service ^ " 
 
 is rendered. But they exist, and exist persistently, and in 
 various forms; and, while they exist, must not be passed 
 unnoticed. 
 
 c 2 19 
 
SOURCES OF INCOME. 
 
 305. 
 
 359. 
 
 74. These various forms of income, like the primary ele- 
 ments in chemistry, are seldom met with pure and simple. 
 
 Varims For instance, there are few forms of labour which do not 
 sources of jj^gjuje the supply by the labourer of some of the simpler 
 
 income rr j j _ i . i 
 
 often com- forms of tools. For these, strictly speakmg, he receives a 
 ''""''■ payment in the nature of rent. In practice, this passes 
 unheeded; but in theory it must be kept in view. 
 
 75. Rent very commonly includes some personal service 
 by the owner of the thing hired ; and sometimes this service, 
 having the greater value, gives the name to the payment made 
 for both. Thus the hire of a cab may include more wages 
 than rent ; and the owner of a house who lets it unfurnished, 
 and seldom sees it, and another, who lets his house in apart- 
 ments, and waits upon his tenants, may equally receive what 
 is called rent. 
 
 76. Interest enters into so many transactions that it is not 
 easy to find a service in which capital is concerned, the pay- 
 ment for which does not palpably include it. If we even 
 take credit from a baker, we do, in effect, take from him a 
 loan. We employ his capital, in the form of a postponed 
 payment ; and all postponed payments imply interest. 
 
 77. And, as all employment of capital, in business, implies 
 some risk of its loss, whoever prepares and holds commodi- 
 ties for our choice in purchase, or incurs expense in pre- 
 paring and holding himself ready to serve us, is entitled to a 
 profit, corresponding to the risk he thus incurs. 
 
 78. The use of these distinctions is to enable us to mark, 
 with precision, the economic basis of the several services we 
 render, and receive. It is not often that the analysis is needed 
 in practice ; but, when needed, it is essential that it should be 
 made clearly and accurately. And nothing so directly and 
 eflSciently aids us in determining the justice of a claim for 
 any service, as due and discriminate consideration of the 
 ground on which it can be sustained. 
 
 195. 
 
 Uses of 
 these dis' 
 iinctiojis. 
 
earner s 
 view. 
 
 IV. WAGES. 
 
 70. Wages would seem to be the most simple, and the Subject 
 most easy to settle, of all the forms in which one man pays ^■'^'"' 
 another for a service rendered. But it is not so in fact. 
 
 80. The receivers of wages are, as a class, the members of Wage- 
 society who are most needy, and whose knowledge and 
 power of thought are most limited. Discontent is an afflic- 
 tion to all of us ; and it is more common, and often more 
 bitter, with them than with others. They are apt, not un- 34. 
 naturally, when dealing with those who have more wealth, 
 
 and generally more intelligence than themselves, to suspect 
 that they are not fairly treated. And when they find things 
 pressing hardly upon them, they are apt, as we all are, to 
 look for the cause in others, rather than in themselves. 
 Hence, as their wages come from the hand of the capitalist, 
 whose interest it plainly is to buy the labour he seeks, as he 
 buys all else he needs, at the lowest available price, they 
 readily infer that, if they get less than they expect, they also 
 get less than is due to them. 
 
 81. It is therefore especially necessary to mark with pre- 
 cision what wages are; how they become necessary; and 
 how, and why they are paid. 
 
 82. It is not disputed that wages are a price — an agreed Wages a 
 payment — for labour done under direction. Nor is \tP""- 
 doubted, that, (as with all prices), their amount, and mode 
 
 of payment, can be justly settled only by agreement between 
 the payer and the receiver. But into any public discussion 
 of what wages should be, another consideration is almost in- 
 variably more or less introduced. 
 
WAGES. 
 
 Needed far 83. It is a settled rule of English policy that nobody must 
 subsistence. ^ allowed to Starve. Now, in this case, the article bought 
 is supplied by living men, who, for the most part, have httle 
 or no property, and who, if their wages be not enough, or be 
 90. not regularly provided, may starve. Tell us that the dealers 
 in sugar are being ruined by a sudden fall of prices, or that 
 there are more doctors, or more lawyers, than can possibly 
 find employment, and we hear it without much disturbance. 
 Not so when many who hve on weekly wages are unem- 
 ployed, or when they find their wages too low to maintain 
 them in comfort. 
 
 84. This consideration does not, probably, affect the rate 
 of wages ; but it affects the manner in which they are com- 
 monly considered ; especially by those who lean to the side 
 of the labourer. 
 How settled 85. Of course the employer of labour seeks to buy it, of 
 in practice. ^^ i^^^ -^^ wants, at the lowest cost — as he seeks to buy the 
 materials on which the labour is to be employed. And the 
 67. labourer seeks to obtain the highest price he can for his 
 labour. The result is, as with all prices, that the buyer pays 
 only that which he would rather pay than do without the 
 thing he seeks ; and the seller, in like manner, takes only 
 that which he would rather have than not sell. 
 
 But the capitalist is, in fact, the stronger party; and 
 33. though the Trades Unions give the workmen, as a body, 
 great strength, they do it at a heavy cost — a cost which 
 ultimately falls upon all parties concerned. Having to act as 
 an united body, or not at all, they must needs insist on a 
 rate of wages acceptable to such a body. This is an uniform 
 rate. The distinctions implied in paying each workman, 
 according to his industrial merit, would certainly produce 
 division. And if the men were divided, their power would 
 be lost. Hence they are driven, when acting together, to limit 
 the productive power of the best workmen, and to bring all, 
 115. as nearly as may be, to one common level of efficiency, and 
 of pay. 
 
TVAGES. 
 
 86. When a struggle, either to raise wages or to resist Sympathy 
 their reduction, does take place, public sympathy, being '""'"^ '^^ 
 more readily moved by impending distress for many families earner. 
 than by merely economic considerations, is apt to run with 
 
 the men, quite independently of the merits of the case. And 
 the general result of this method of settling the rate of wages 
 is to withdraw attention, especially that of the workmen them- 
 selves, from the causes which are really operative upon the 
 rate of wages; and, so far, to injure them. 
 
 87. As it is, the workman :may be said to get, pretty fairly, Net result. 
 the value of the service he renders ; but not of the service he 119. 
 could render ; and would, were he a free agent. 
 
 88. We have seen what wages are. Now, why are they 
 necessary ? 
 
 89. Because we live on a planet whose harvests are annual ; Why tvages 
 and because we have left what is called " the savage state." "^""'^''y- 
 It is, consequently, necessary that we shall have always in 
 
 store at least so much of the products of the earth, and of the 30-36. 
 various commodities derived from these, as will last at least 
 twelve months. Our passage into this condition was gradual. 
 It has been effected very slowly ; and it could not have been 
 effected at all if some of us had not, for a long period, 
 refrained from consuming all we earned — so that the needful 
 provision for it could be made. 
 
 90. Capital is the stored product of labour ; and capital Origin of 
 alone affords the means of maintaining our present con- "^^ " ' 
 dition. This of course came, first, into the hands of those 
 
 who saved it. It has been transmitted to others, and has 
 been widely distributed ; but it has hitherto remained in the 83. 
 hands of comparatively few. The rest, though many of 
 them have saved, and are saving, are not yet in a condition 
 to take their wages as Nature alone will pay them : that is to 
 say, annually. They must have them weekly ; and it is for 
 those who hold the capital — and who are, in fact, the owners 
 
 23 
 
WAGES. 
 
 The wage- 
 earner's 
 fosition. 
 
 35. 
 
 Nominal 
 and real 
 wages. 
 
 of the store on which all have to rely from year to year — to 
 pay them weekly ; taking, in return, a due proportion of the 
 labour all owe, in some shape, to the common work which is 
 paid for in the succeeding harvest. 
 
 91. He who can say no more for himself than that he 
 rises every morning ready to give " a fair day's work for a 
 fair day's wage," can, after all, say but little. He is dependent 
 for the food and shelter of each day on the past providence 
 of others. If he so faced Nature, he would perish. Yet he is 
 far from singular. To most of us, life is the life of to-day ; 
 and the wisdom that guides it the highest we grasp. 
 
 92. Wages are paid because they are the needful induce- 
 ment, to those who have only their labour to contribute, to 
 join regularly and efficiently in the doing of a common 
 duty. Every time the earth goes round the sun, another 
 harvest of its produce becomes available ; but available only 
 on condition that, with due provision of capital and of prior 
 care, the needful ploughing and sowing be done, and that 
 the harvest be duly gathered and stored. The prior care, 
 the provision of implements and seed, the culture, and the 
 care of gathering, and of storage, are in the action and 
 direction of a few. And upon these devolves, also, the duty of 
 supporting that large number whose labour, under direction, 
 is all they can themselves provide. And for this they are 
 entitled to just payment, payment settled by agreement. 
 
 93. It is usual to distinguish between nominal wages and 
 real wages. Wages are almost universally measured in 
 money ; but of course it i§ not the money, it is what the 
 money will buy, that the labourer has (or ought to have) in 
 view, when he makes his bargain. The same, however, may 
 be said of all prices. It is not the nominal money price that 
 any seller looks to. It is what that nominal price signifies in 
 the market : a given command of the services of others. 
 
 94. Nominal wages, then, are money wages. When the 
 pay of a given description of labour is, continuously, for a 
 
 24 
 
WAGES. 
 
 given period, five shillings a day, and the currency remains 
 unaltered, so that five shillings represent the same quantity of 
 gold, we say that, in England, the nominal rate of wages is 
 unchanged : the standard of value here being gold. 
 
 95. Real wages are measured by the purchasing power of 
 the sum the labourer receives. If, for instance, the nominal 
 rate remaining at five shillings a-day, the money price of the 
 commodities bought by the labourer come to be reduced by 
 one-third, his real wages would be said to be increased in the 
 same proportion. And so with any increase of the price of 
 the commodities he needs ; for this would reduce the effective 
 value of the five shillings. 
 
 96. Whence it is to be observed that as all industrial 
 enterprise has for its chief end the cheapening, or making 
 more easy to get, of all the means of subsistence and enjoy- 
 ment, but especially those means which are required by the 13. 
 greatest number of persons, it follows that the tendency of all 
 
 such enterprise, so far as it is successful, is to raise real 
 wages. Thus the labourer, even of the lowest class, in- 
 evitably shares the fruit of whatever commercial progress is 
 made by the society of which he forms a part. 
 
 97. While receiving wages measured by the productive Higher 
 value of his own labour, he is expending them in the produce ^^°^ 
 of the labour of others. And the more productive that higher 
 labour is, the greater the efiiciency of his own wages in the ' 
 market : for they fetch more. 
 
 98. Real wages can be maintained, or increased, only by 
 maintaining or increasing the efficiency of the labour for 
 which they are paid. The stream cannot bring down more 
 
 than its sources supply. And cheaper production is the only or greater 
 ultimate source of reduced price. The labourer has a right „„j 
 to form, and to adhere to, his own standard of comfort, in 40. 
 living; but he is equally bound, even by his own interest, to 
 do all he can to make it easy of attainment, not only to 
 himself, but also to others. 
 
 25 
 
WAGES. 
 
 99. Political economists commonly distinguish between 
 productive and unproductive labour ; and the distinction, as 
 they put it, is well founded; but the terms need better 
 definition than they have yet received, to adapt them to 
 practice. 
 
 100. Productive labour is said to be that which results in 
 bringing into existence at least as much capital as is con- 
 sumed in the operation about which the labour is employed. 
 And unproductive labour is that which fails to comply with 
 this condition. But, in practical life, it is not easy to give to 
 this distinction any very definite application. 
 
 Productive 101. Agricultural labourers we may class as productive — 
 'ductivl^'' seeing that, as a rule, one year with another, their labour 
 labour. replaces, if it does not materially augment, the fund from 
 which their wages are paid. But what shall we say of the 
 wages of a footman ? He consumes more ; and he does not, 
 apparently, produce anything. We may say the same, how- 
 ever, of the parson, and the doctor, and the lawyer. Yet 
 these all render valuable services; and common sense tells 
 us that their work, when well done, is well worth its cost. 
 The truth is, that all these may be said to be productive 
 workers — seeing that they aid in producing that kind of life 
 which mankind aim at, and exist for. But some of them are 
 not reproductive of the tangible means of maintaining such 
 life, or they contribute to such reproduction only in an in- 
 direct manner. The parson, the doctor, and the lawyer, 
 only help to maintain the health and good conduct of the 
 rest. But health and good conduct are needful to the 
 efBciency of all labour. The footman aids only in do- 
 mestic service ; but the fitness and sufficiency of domestic 
 service is, we may assume, as needful to the persons of that 
 class in which footmen are employed, as it is to the day 
 labourer. 
 
 102. So with the professions whose members aim only at 
 amusing mankind. Admitting that amusement is one of the 
 legitimate incidents of life, we can no more condemn the 
 
 26 
 
WAGES. 
 
 singer, or the player, as unproductive, than we can so stig- 
 matize the tailor, or the bricklayer. The use of amusement 
 in due measure, and the employment of servants for service, 
 and not for vain show, open another question. But it leads 
 to the same conclusion. Bricklaying is called a productive 
 occupation ; but if it be overdone, or if the walls it produces 
 lead only to the indulgence of a foolish whim, there is no 
 production, but destruction, of capital. So clothing is neces- 
 sary; but foppery in clothing is a folly. And so, when the 
 seeking of reasonable amusement degenerates into an idle 
 and vicious pursuit of pleasure, .the agents who minister to 
 such a course of life cease to be producers of healthy recrea- 
 tion, and become destroyers of the utility, and the dignity, 
 and even of the sources of human life. 
 
 103. But it does not follow that the ministers of vicious 
 or destructive service alone should be marked. It is the buyer 
 of the service who determines its use; and who is mainly 
 responsible for its being productive or destructive, in an 
 economical point of view. 
 
 104. You will observe that the wages paid to individuals Varying 
 differ very widely. But so do the services rendered in return. ^i^b"ur 
 These services embrace every description of effort which one 
 human being can be induced to make for another, under a 
 pecuniary motive, or under motives among which the ex- 
 pectation of a pecuniary reward has place. This is a wide 
 range ; and includes a very great variety of labour. One 
 man can handle a spade and a wheelbarrow ; and can do 
 nothing more. So many can do as much, that their services 
 may commonly be had for the lowest cost of the kind of 
 subsistence habitual in the class to which the man belongs. 
 Another has learned how to handle the tools of a special 
 trade, and can do the work of a joiner, or of a blacksmith. 
 These are less numerous.; and their wages are higher, and 
 are not so easily depressed. A third has learned book- 
 
 ="7 
 
WAGES. 
 
 keeping; and can so record the transactions of a merchant's 
 
 business as to make readily apparent, from time to time, the 
 
 pecuniary effect of his transactions. Here, also, the labourer 
 
 comes into closer association with the capitalist. This has 
 
 some influence on his mode of living, and so tends to 
 
 enhance his wages. A fourth has acquired the art of 
 
 surgery. A fifth is skilled in the negociation of some 
 
 particular class of mercantile contracts, or in estimating the 
 
 effect of certain risks commonly incurred, or in fixing the 
 
 value of certain important commodities, with reference to 
 
 their qualities. Another has acquired peculiar knowledge 
 
 and skill as an architect, or as a lawyer. And so on. For 
 
 the services of such men we pay different prices ; but prices 
 
 not varying more than the peculiar qualities which distinguish 
 
 the men. 
 
 Great per- 105. And here we come upon a common distinction in 
 sonal skill. , 
 
 the mode or payments for labour which, though not of much 
 
 practical importance, points to another distinction, without 
 appreciating which, we may fail to understand some of the 
 complaints sometimes made by labourers. The higher forms 
 of labour are not usually remunerated by reference to the 
 time occupied in rendering the service paid for. Such 
 service is, for the most part, required only occasionally. 
 Hence, it is paid for by reference to the personal skill dis- 
 played in rendering it. The service is specific: as the 
 pleading of a cause, the planning and construction of a 
 house, the painting of a portrait, or the singing of a song. 
 Fees, however, are still wages. Their form is traceable, not 
 to the skill involved, but to the occasional character of the 
 service. We so pay a porter who carries our luggage fifty 
 yards, as we so pay a barrister who speaks in defence of our 
 life or fortune. 
 Most skill 106. Also, it is to be observed that the higher (or more 
 Tapital. '^os'V) forms of labour often display such a predominance of 
 skill, acquired by the previous investment of capital and 
 labour in education, as to indicate that its fees are not alto- 
 28 
 
IVAG£S. 
 
 gather of the nature of wages, but include, also, a return of 
 capital sunk, with interest, and some profit. 
 
 107. From this point of view, however, we cannot quite 
 ignore the money cost of raising even the day-labourer to 
 maturity : for it is as ihuch entitled to consideration, in pro- 
 portion to its efiiciency, as the more costly rearing of the 
 lawyer or physician. In each case, the ultimate effect of the 
 labour depends on the acquired efficiency of the labourer; 
 and, in both, the due return is that obtained by sale of the 
 resulting service in the open market. Accordingly, it will be 
 observed that where the cost of training men for industrial 
 life, or any considerable part of such cost, is defrayed from 
 public funds (and is thus effected cheaply, or gratuitously), — sjia of 
 
 as where schools, or colleges, so supported, increase the supply gratuitous 
 
 r 7 o , , , , ■ , teaching. 
 
 or clergymen or of teachers, or make greater the technical 
 
 skill of workmen, — the inevitable result is to cheapen, in the 
 
 open market, the services thus made available. 
 
 108. Whatever is cheaply made, will be cheaply sold. The 
 low remuneration of needle-women (at one time a distressing 
 incident of our industrial life in England), and the perma- 
 nently low price of mere clerk's work, in our offices, may be 
 traced to the efforts made, in great part with public funds, to 
 teach needlework to all our girls, and reading and writing to 
 all our boys. Skill so acquired will sell for little ; and unless 
 backed with other productive power, will hardly help its 
 possessor in earning a living. In fact there are now, in 
 England, few labourers of any degree, who may not be said 
 to exhibit, in their skill, the result of some applied capital. 
 And this, as it adds to their productive power, adds to their 
 wages; but the effect is so general that we need to go to 
 some other country to see, clearly, what untaught labour 
 
 109. There is, besides strength and skill, a third quality in Value of 
 the labourer, for which we often pay largely ; and that is """"^i'- 
 well-proved integrity. And this, too, often comes, in great 5. 
 
 29 
 
WAGES. 
 
 part, of that home endowment, partly of nature, and partly of 
 training, which so often determines the ultimate value of a 
 man's services. 
 
 110. Were all men perfectly honest, of course the service 
 of mere honesty would have no exchangeable value. But 
 they are not so ; and accordingly the assurance that a man 
 may be confidently trusted always adds much to the value of 
 his labour ; and in some instances, where it is of great im- 
 portance that confidence should not be misplaced, this quality 
 bears a very high value. 
 
 111. Bearing in mind the two cardinal principles, (i) that 
 85. the value of a service is its value to those to whom it is ren- 
 dered; and (2) that this value varies from time to time, with 
 
 67. the relation of supply to demand, we have no diflBculty in 
 perceiving : First, how it is that the labour which many can 
 perform earns but low wages, or why some labourers, who 
 render services which cannot be dispensed with, and which 
 yet only a few can render, receive high wages ; and, 
 secondly, how wages vary. 
 
 112. The service of rude labour implies litde more than 
 brute force. That of the higher forms of skill implies mental 
 ability, improved by study and practice ; and that of trust, 
 wherever it occurs, implies an assurance of rectitude, which 
 can properly spring only from observation, by others, in those 
 who are paid for it, of a long and undeviating course of good 
 conduct. 
 
 113. Thus, we first see workmen arranged in groups, 
 according to the description of labour they can supply, from 
 the highest skilled down to the lowest mechanical employ- 
 ments. We then see, in each group, some more and some 
 less efficient. 
 
 fh^a" °^ ^^' ^'^^ *^ purpose of the capitalist in buying labour, as 
 ployer. '» buying anything else, is to select the best that he can get 
 at the price he is wilhng to pay. Hence, so far as he is free 
 30 
 
IVAG£S. 
 
 to do so, he chooses workmen by their efficiency; or, in other 
 words, by the productive value of their labour, or their fitness 
 for the purpose to which it is to be turned. And though 
 custom, in most forms of employment, fixes a rate of re- 
 muneration for a given amount of labour, which for the time 
 applies nearly equally to all men similarly employed, and the 
 action of Trades Unions too often gives a pernicious fixity to 
 this similarity of rate, yet, as the demand for labour of every 
 description is always varying, more or less, in relation to the 
 supply, this does not prevent wages being adjusted, in most 
 forms of employment, very nearly to the value of the labour 
 Usually given by each man. 
 
 115. The less efficient workmen may, readily, obtain em- jy^^, 
 ployment when trade is unusually brisk ; but a trial makes ^ff^i^t^d.- 
 apparent their real productive value ; and they are the first 85. 
 to be dismissed when the demand for their labour slackens. 
 
 So, priority, and greater fixity of employment, tend to give 
 the better workmen the higher wages in effect. 
 
 116. There are, in all trades, a number of men whose 
 labour is only worth the current rate of wages when there is 
 much to be done ; and who cannot, therefore, be said to earn 
 that rate on an average. 
 
 117. Further, not only the less efficient men, in all em- 
 ployments, but also the less valuable descriptions of labour, 
 are generally subject to much greater fluctuations of demand. 
 We often see, in the accounts of current prices for articles 
 of common use, such announcements as that " for medium 
 and low qualities there is littie demand, but for good and 
 prime qualities there is a fair demand, and prices are well 
 sustained." And it is with labour as with everything else 
 bought and sold in an open market. What is excellent, in 
 all things, is always more or less preferred. For the com- 
 monest uses, it is said to " go further," and to be " cheaper 
 in the end." 
 
 118. When agricultural wages, generally, were rising, I 
 heard a farmer complained of, by his neighbours, for always 
 
 31 
 
WAGES. 
 
 paying more than they did. Asked why, he answered, " It 
 brings me the best men, and they are always best worth their 
 
 pay." 
 
 119. The general law of wages may be best observed in its 
 operation upon large bodies of workmen, using only a mode- 
 rate amount of skill, and attached by such skill to particular 
 occupations. But here we have too often to allow for the 
 
 87. effect of artificial restrictions, introduced by the combined 
 action of the workmen ; for it is here that these restrictions 
 are most easily introduced, and made to work. Where per- 
 sonal skill varies, and is obvious, it will be paid for; and 
 those who have it will try to get their due. It is only where 
 men may be counted as "hands," and one is about as good 
 as another, that they will consent to work under conditions 
 reducing them to the same level ; and if their consent be 
 extorted, the effect will be to depress and discourage the 
 better men. It is obvious that, as a general rule, in each form 
 of employment, that rate of wages, at least, must, from time 
 to time, prevail, which is necessary to keep employed in it 
 the number and description of persons for whose labour there 
 is an effective demand. But the demand varies ; and so does 
 the supply. 
 
 120. It has been said that " when two masters run after 
 one man, wages rise; and when two men run after one 
 master, wages fall." This, however, does not take us to the 
 root of the matter. 
 
 Cafital 121. Capitalists pay wages because they see their way to 
 
 supplies profit by employing labour. But they can pay wages only so 
 
 far as they have capital : for wages mean ready money ; and 
 
 they will pay them only so far as they deem it consistent with 
 
 460. the expectation of profit. When a master, engaged in any 
 
 productive enterprise, agrees to give to a workman a certain 
 
 rate of wages, he always, more or less consciously, forms an 
 
 92. estimate of the " productive value " of what he expects the 
 
 man to do, or to produce. This must exceed, considerably, 
 
 32 
 
WAGES. 
 
 the sum he is to pay in wages, or there would be no margin 
 left for other outlay, and for his own profit. The wages he 
 will have to pay, week by week ; and he must rely wholly 
 upon the result of his own enterprise for getting back what he 
 thus pays, together with what, in the same enterprise, he 
 advances, ultimately, for rent, and interest, and what he expects 
 for the wages of his own labour, and for profit. 
 
 122. Two masters running after one man, means capital 
 enough to pay two sets of wages, placed at the disposal of 
 one labourer. He cannot earn both; but he can choose 
 which he will take, and he may make his choice depen- 
 dent upon an increase, in his case, of the current rate of 
 wages. 
 
 123. It comes to this, then : that when more labourers are 
 sought, there is, for the time, and in that place, an excess of 
 capital disposable for the purchase of labour in that particular 
 form of employment — an excess with reference to the number 
 of workmen who are at hand to earn it. 
 
 124. This may have arisen, either from an increase in the 
 amoimt of capital so disposable, or from a diminution in the 
 nxmiber of workmen : for we must remember that it is not 
 the absolute amount of either, but the relation of the two, that 
 produces the supposed effect. Wages, being a price, are 
 affected as are other prices. 
 
 125. When, on the contrary, two workmen run after one 
 master, we see an opposite state of things. The capital, then 
 and there disposable for the payment of wages, is deficient, 
 or the labour is redundant. 
 
 126. And this brings us to the most important of the prin- 
 ciples yet established in this branch of political economy : 
 that the general rate of wages has an ultimate and constant 
 dependence upon the relation prevailing, in each country, 
 from time to time, between capital and population — or, more 
 precisely, between the amount of capital, for the time being, 
 disposable for the payment of wages, and the number of 
 workmen seeking employment. And, as all workmen seek 
 
 D 33 
 
JVAGBS. 
 
 employment, andj as a rule, cannot live without it, this is 
 nearly equivalent to saying the number of available workmen 
 in the country — available for the purpose in view. 
 
 127. Whence we may infer that every addition, by saving, 
 to the capital of the country, seeking profitable employment, 
 no matter who makes the saving, as it goes to increase the 
 demand for labour, does, in effect, tend to raise wages. So 
 all new capital means demand for labour ; and every act of 
 waste, destroying capital, or preventing- its being saved, has a 
 contrary effect. Whence no man is so directly and certainly 
 served by all saving, no matter who makes it, as he who 
 lives by wages. On the other hand, every addition to the 
 number of persons seeking employment tends to lower 
 wages ; and every reduction of that number to raise them. 
 This side of the case is much more commonly seen. It is 
 not, however, often discreetly acted upon ; and has never been 
 less wisely acted upon than by the trading guilds of the- 
 Effect of middle ages, and, in some instances, by the Trades Unions of 
 fopj'ij"^ our own time. To prevent men going freely where their 
 labour is in demand, to prevent their acquiring skill, or to 
 forbid their accepting such wages as they think fit, or to 
 limit the work they may do in a day, is quite as unwise as 
 to prevent the free importation of corn — as much opposed to 
 the real interest of the labourer himself. It may, and some- 
 times does, undoubtedly, secure some object immediately 
 desirable. But it is a sacrifice of the future to the present. 
 Limits of 128. The rise and fall of wages under the relation of 
 fuctuatton. g^ppiy jg demand, however, has its limits. It is with wages 
 as with other prices : they rise and fall between two extreme 
 points; beyond either of which no variation of supply or 
 demand can force them. 
 
 129. And you will observe that ever as the rate of wages 
 approaches either of these limits, its progress in that direction 
 becomes more difiicult, and slower. 
 
 130. The highest point to which wages can rise is that at 
 which it ceases, for the time, to be profitable, in the estimation 
 
 3f 
 
TFAGSS. 
 
 of the capitalist concerned, to pay them : the lowest is that at 
 ■which the labourer will refuse to work. 
 
 131. The capitalist retires when his profit vanishes — the 
 labourer when he can no longer live as he is accustomed to 
 live, and chooses to continue to live. 
 
 132. " The standard of comfort " is, therefore, a matter of Standard 
 considerable interest. And it is gratifying to know that, {ji"/'^'""/'"' • 
 this country, it has been much raised within the last two 
 generations, and bids fair to hold, permanently, the highest 
 
 line it has yet reached. A parliamentary paper, published 
 some years ago, marked its rise with some degree of cer- 
 tainty. 
 
 133. Seventy years ago, in 1815, the number of paupers Raised of 
 maintained out of the rates in London was about 106,000. "^'^J'^'^"- 
 The number in 1875 was nearly the same; though the 
 population was about three-fold what it was in 1815. This, 
 
 no doubt, implied much improvement in the management 
 of the pauper class. But the point is this. The pauper 
 does not fix for himself the style of his living. It is fixed 
 for him by others ; and the common rule is that he shall not 
 live better than he would do if he worked for his living as a 
 labourer of the lowest class. Now, we find that the cost of 
 maintaining the 100,000 paupers of London in 1875 was 
 about five times as great as the cost of a similar number 
 in i8ig. And, on examining the accounts, it appears that 
 the excess arises almost entirely from the difference between 
 the ideas prevailing, at the two periods, as to what is really 
 necessary for the decent maintenance of even the poorest of 
 the poor. It is true that the inmates of workhouses are now 
 supplied with more house-room, and with purer air, and 
 food, and better medical attendance than, in the outer world, 
 they would choose to pay for. But there can be no doubt 
 that the standard of comfort, in all classes, has risen greatly, 
 in England, during the last seventy years. 
 
 134. Further, the rise is, as regards the chief necessaries 
 and the ordinary comforts of life, more distinctly apparent 
 
 D 2 35 
 
WAGES. 
 
 to those who are personally acquainted with the facts, in 
 the wage-earning class, than any other. 
 Means of 135. The Standard of daily comfort which men in large 
 ,y 2 tng Y)oAits have learned to consider necessary to a tolerable 
 existence, they do not readily give up. And the higher this 
 standard is, the more likely it is to be accompanied by in- 
 telligence enough, on the part of the workmen, to enable 
 them to effect their purpose. Various means are open to 
 them. They may leave more readily now the employment, 
 whatever it is, in which fallen wages mark the presence of 
 too many hands, or they may seek similar employment in 
 another locality ; or they may now, with but little effort, make 
 their way, while still young, to those outlying English Settle- 
 ments, in America and Australia, where so many of their 
 countrymen are finding a new and a freer form of life. 
 Cost of 136. With those who determine to do this, early marriage 
 
 7hiidrfn. ''i^o'^^s but litde of the danger sometimes attending it in 
 our English manufacturing districts. In this country, the 
 average cost of rearing a child, till it can provide for itself, 
 varies but little from a common standard. Experience proves 
 it to be about equal to a year's income of the family it is 
 born into. To bring a child into the world is, therefore, in 
 the economy of our daily hfe, to give a promissory note for 
 about that amount, payable in the years next coming. And 
 never is poverty more lamentable than when it falls on young 
 children; when it either crushes out parental affection, or 
 makes it helpless. 
 Increase of 137. It has been computed, from observation, that our 
 « ^on. j.g^^g^ jj- abundantly supplied with means of subsistence, can, 
 in the present state of the world, easily double its numbers 
 every twenty-live years ; and it certainly does so, in some 
 places, now. 
 
 138. It has been observed that there are to this rate of 
 progress only two checks: abstinence from propagation, 
 and want. Under the first, fewer children come into ex- 
 istence ; under the second, they perish before they come to 
 36 
 
maturity. And where some perish, more ate physicdiy 
 impoverished for life. 
 
 139. And the ultimate effect, while urging men, with the 
 keen spur of poverty, to much of the personal enterprise we 
 see, is also to bring about much more of the suffering endured 
 in the world than is commonly supposed. We see in the 
 excessive use of alcohol the cause of most of the wretched' 
 ness of the poor; and the craving for this stimulant 
 undoubtedly comes, in many cases, of the feebleness genet 
 rated by poor food and foul air, and of the endless care 
 that hangs over the life of a helplessly impoverished house- 
 hold. 
 
 140. It is only in civilized communities, and among those 
 classes who have adopted a certain standard of comfort in 
 living, which they are determined to retain, that we observe 
 any such prudential restraint as is implied in refraining from 
 marriage, either for part of the adult life, or altogether. But 
 these communities are the leaders of mankind. 
 
 141. When we acquire knowledge, and some wealth, and 
 enlarge and cultivate our faculties, the mere dread of going 
 downwards in the world moves us as our predecessors were 
 moved only by the actual descent; and it produces the 
 effect, I need hardly say, with far less suffering. 
 
 142. It has been observed that, on an average, those 
 classes of society, in this country, which may be termed 
 wealthy, usually marry later in life, and do not, on an aver- 
 age, leave children enough to replace them in the next 
 generation ; though, of the children born to them, they rea r, 
 by better care, a larger proportion than are reared of the 
 children of the poorer classes. 
 
 143. And it is, undoubtedly, from these classes, who put 
 no such restraint upon themselves, that is derived not only 
 all the increase of our population, but all that excess which 
 passes by emigration to America and Australia; and from 
 amongst them, also, trained in early contact with the deter- 
 rent evilp of poverty, comes, in every generation, a considerr 
 
 37 
 
WAGES. 
 
 able proportion of our best men of business. And to the 
 same source we have to look, also, for the observed increase 
 of the wealthier classes : for these do not, by natural increase, 
 even maintain their own numbers. 
 
 144. Thus the growing wealth of the country, the openings 
 we have for emigration, and the constant demand such a 
 community as ours furnishes for able and industrious men, 
 together, provide means of subsistence, and occasional avenues 
 to prosperity, for the annual addition thus made to our popu- 
 lation. In this respect we are a fortunate people. But our 
 progress in wealth, as a nation, is subject, like all human 
 progress, to occasional checks. And whenever such a check 
 comes, and the wages-fund of the country, so to speak, be- 
 comes, for the time, too small to provide well for all those 
 who, as they live only by wages, may be said to rely upon 
 capitalists to provide both employment and wages for them 
 from year to year, the consequent suffering, falling, though it 
 does, most heavily on the idle, the improvident, the ignorant, 
 and the helpless of our number, and so must be admitted 
 to fall, also, mainly where it has been originally earned, is 
 a fruitful source of discontent, and a just cause of national 
 dissatisfaction. 
 
 145. As a rule, then, we may say that any power the 
 labourers may have over the rate of wages, by refraining 
 from increasing their number by propagation, they do not 
 yet use. Perhaps they can hardly yet be expected to use it, 
 to any material extent. Then what other power have they ? 
 
 146. We have seen that wages depend, not only upon the 
 number of workmen, but also upon the relative abundance of 
 
 127. capital. Can they do anything, then, towards the increase of 
 capital ? Yes, much. In the first place, their own savings, 
 small as they are, and must be, individually, already do much, 
 and might do far more than they suppose. Their number is 
 so great, that were each man to save only so much as to have 
 a year's income in advance, at the age of thirty, an enormous 
 addition would be made to the wages-fund of the country ; 
 38 
 
WAGES. 
 
 for, however these savings were invested, they would come 
 into the market for capital. They could not be invested so 
 as to yield any return, without promoting some productive 
 enterprise ; and that means paying wages. If not used by the 
 workman himself, he gets interest for them ; and this interest 
 gives the command of the capital to some one who seeks 
 profit ; and this can be got only by employing labour. 
 
 147. How much may be done in this direction, is best 
 indicated by what has already been done. In England, alone, 
 the savings-banks, and the industrial, friendly, provident, and 
 building societies, already incorporated or registered, hold 
 funds amounting to about £167,000,000 sterling. And if 
 we add the unregistered societies, and those of Scotland and 
 Ireland, the amount cannot fall short of £200,000,000^- 
 This is almost equal to the annual value of the whole of the 
 real property of the United Kingdom. 
 
 148. Workmen of every description have also much in 
 their power, as regards the productiveness of their own 
 labour, and the success of the various productive operations 
 in which they are engaged. 
 
 149. Usually, they are possessed by the notion that they fVa^es and 
 have no interest whatever in adding to their employer's profit, t'''<'fi^- 
 unless such addition can be made to yield to them, directly, 
 
 an increase of wages. This is a very short-sighted, and a 
 pitiably erroneous view of the subject. Every addition to the 
 profit of a business, through the increased productiveness of 
 the labour employed in it, tends, in some degree, to bring 
 about an increase of wages, through the knowledge of the 
 employer that he gets the increase from the labour, and, to 
 retain it, must retain the labourer. But, assuming this 
 motive to be, as it too often is, ineffective, an increased rate 
 of profit, in any business, tends strongly to bring into that 
 business more capital : which means an increased demand for 
 the particular kind of labour employed in the business. And, 
 
 ^ Paper by Mr. Brabrook, Assistant Registrar of Friendly Societies, 
 Statistical Journal, Part I, vol. xlviii, Marpli, 1885. 
 
 39 
 
IVAGES. 
 
 though a portion of the additional capital may be taken from 
 other forms of employment, a portion also, and the first 
 portion, will be derived from the higher profit which the 
 workman has helped to create ; for it is always the hope of 
 profit which converts mere wealth, or savings, into productive 
 capital ; and wealth acquired in a business yielding unusual 
 profit is especially liable to this conversion. 
 
 150. It is not to be supposed that workmen can always 
 work harder than they do ; nor would it always, or, perhaps, 
 even often, be desirable that they should do so. It is not 
 harder, but more effective or productive and less wasteful 
 work, that is now in view. 
 Work more 151. Their work may be made more productive in various 
 productive. ^^^^ ^oz instance, by additional care and forethought ; in 
 the better disposition and saving of materials ; and, generally, 
 in that honesty and thoroughness of work, the frequent absence 
 of which gives point to the saying that " a master's eye will 
 do more than two pair of hands." He who, as a workman, 
 needs that eye, has not quite cast off the nature of the slave. 
 He is still of the nature of what, in Scripture, is termed a 
 "hireling" — one who "watcheth the shadow" for the hour 
 of his departure. He who does not need the master's eye — 
 having within a still better monitor — is, in his daily life, a 
 special benefactor of his own class. 
 
 152. But, more than in any other way, the workman may 
 help to raise wages by acquiring additional, or new skill. 
 They say, who know, that an American workman does, in a 
 day, on an average, about one and a half times as much as 
 an English one ; and the Englishman two or three times as 
 much as most continental workmen. If there be any truth 
 in this, there is a large margin for such increased productive- 
 ness in this country. It is certain that the yield of a day's 
 work depends much upon how it is done. All work is head- 
 work, more or less ; and the more head-work there is in it, 
 the better it pays. Skill and care, like civility, cost little, and 
 may bring much. If they double a man's wages, they do not 
 4° 
 
WAGES. 
 
 require him to eat more, or to wear more. And, after all, 
 the only just way to raise the price of any article would seem 
 to be to put more into it. 
 
 153. The workman may thus, in many instances, raise his 
 own wages in the employment he is already engaged in ; or 
 he may, by the acquirement of new skill, pass into another 
 and better paid form of employment. In either case he 
 benefits himself; and he also, by the same operation, benefits 
 others. His fresh skill, whether additional or new, means 
 fresh productive power. He has added to the aggregate 
 productiveness of the labour of the country, and to the 
 average rate of wages, without adding to the consumption 
 required to maintain this labour ; and, in so far as an in- 
 dividual labourer can do so, he has directly elevated the class 
 to which he belongs. 
 
 154. Another erroneous notion much prevalent with work- 
 men is, that if their employers make high profits, they are, 
 on the basis of that fact alone, entitled to increased wages. 
 
 155. But wages are not dependent upon profits ; and, if Higher 
 they were made so, they would have to await the event on f^iSier 
 which the profits depend. wages. 
 
 156. The profits in question are either past, or to come. 
 If past, the risk of the employer has been run ; and the 
 profits have by him been earned. If less profit, or no profit 
 had come, he would not have been indemnified out of wages. 
 If the profits are not yet made, the wage-earners, if they are to 
 share the profits, should also share the risk under which they 
 are to be earned. In other words, the payment of the wages 
 should be postponed till the venture is over, and they should 
 then share its fate. 
 
 157. In fact, however, any material increase or decrease 
 of profits always does tell upon wages, indirectly ; and in the 
 only way that is consistent with the imperative need of the 
 workman — to have his wages, whether there be profit or not, 
 upon what he is employed about. 
 
 158. Increased profits tend strongly, and through more 
 
 41 
 
WAGES. 
 
 than one channel, to cause an increased demand for labour, 
 especially in the occupation in which such profits are made ; 
 and thence to cause an increase of wages. 
 
 159. Much, however, depends on whether the increase of 
 profit is merely temporary, or is likely to be enduring. A 
 temporary increase of profit, like a temporary decrease, is 
 rather to be regarded as what in practice it is, as one of 
 those natural incidents of the position of the capitalist which 
 afford no ground for altering his relation to the labourer. 
 
 160. If an increase of the rate of profit be more than 
 temporary, or be very considerable, it is sure, if known, to 
 correct itself through the competition of other capitalists. 
 This competition is always present, and always active, in 
 proportion to the intelligence of those who are competing ; 
 and under a free state of trade, tends, first, by reducing the 
 price of the article produced, to give the resulting benefit to 
 the consumer. And among the consumers of every article 
 of general consumption we find many labourers. So far as it 
 may not be effective in this direction, it operates with certainty 
 in bringing more capital into the business ; and so raising 
 wages almost immediately. For it is much easier, where 
 any skill is required, to find more capital than more work- 
 men. If it does not thus raise wages, it must be because 
 the number of workmen is also increased in a corresponding 
 proportion. 
 
 161. In short, increased profits give no immediate right to 
 195. increased wages ; but if continued, they tend, inevitably, to 
 
 increase the rate of wages. 
 
 162. Now let us see what is the true relative position of 
 
 the capitalist and the labourer, under these laws. 
 
 True rela- 163. In the first place, we have to remember that the 
 
 ^labour to Capitalists compete with each other in supplying to the con- 
 
 capital. sumer the service he requires from them. They have, among 
 
 themselves, various amounts of capital, and various degrees 
 
 42 
 
IV AGES. 
 
 of skill in its use. They all seek profit ; and the general 
 result of free competition among them is so to distribute the 
 whole sum of profit earned, as that each is paid in proportion 
 to his capital and his skill. 
 
 164. Then the labourers compete with each other, in sup- 
 plying to the capitalist the labour he requires to carry out 
 his enterprises. 
 
 165. Each (the capitalist and the labourer) is at liberty to 
 take or to reject the terms offered to him by the other. It is 
 true that, as a rule, the capitalist, not being dependent for 
 his daily bread upon the earning of profit week by week, can 
 afford to stand out against what he may deem an excessive 
 demand on the part of the labourer, better than the labourer 
 can afford to stand out against vhat he may deem an insuffi- 
 cient rate of wages. 
 
 166. But this is only one of the natural and unalterable 
 results of varying wealth — of strength and weakness. The 
 men who live by weekly wages, and have no savings to 
 depend upon, though they derive, undoubtedly, great advan- 
 tages from the progress of civilization, cannot be said to have 
 yet taken much part in it. Some of the lower animals lay 
 by for the season when they cannot work ; and such men, 
 being even less provident, must be held to rank, in an 
 economic sense, even lower than such animals ; and they 
 have corresponding disadvantages. If they sometimes find 
 themselves at the mercy of the capitalist, they should re- 
 member that, with like conduct, they would, were there no 
 capitalists, have been still more at the mercy of those rigor- 
 ously enforced Divine laws by which food, clothing, and 
 shelter have been made absolutely necessary to our existence ; 
 and industry and more providence than the mere wage- 
 earner always displays, made hardly less necessary to our 
 obtaining them. Such ground as he has on which to 
 contend with the capitalist, and make with him a free bargain, 
 the workman owes entirely to the laws of society ; and his very 
 position, as we have supposed it, shows that of the virtues 
 
 43 
 
• WAGES. 
 
 34. 
 
 Course 
 of the 
 capitalist. 
 
 of forethought and self-denial, wherein the very foundations 
 of society are laid, he has not yet supplied his share. 
 
 167. Happily, in this country, neither the capitalist nor 
 the labourer is permitted to force upon the other his own 
 terms. Fortunately both are free ; and, as a nation, we are 
 quite alive to the expediency of keeping them so. 
 
 168. In this freedom, each acts under a common impulse : 
 his own opinion of his own interest ; and each wiU, invariably, 
 thrive in proportion to the energy of the impulse and the 
 intelligence displayed in the opinion. 
 
 169. Each has before him a legitimate course, which, if 
 taken, will certainly promote his own interest ; and also, as 
 certainly, though less directly, promote the interest of his 
 colleagues, and his opponents — and the public. 
 
 170. But each requires a considerable amount of intelli- 
 gence to perceive this. 
 
 171. As in most of the affairs of this world, so in this, 
 immediate interest and permanent interest do not always 
 point to the same road. Immediate interest may seem 
 plain enough ; but it often leads the wrong way. Permanent 
 interest is not so easy to see ; but when seen, it affords a 
 better guide. And the capitalists, being as a body the more 
 intelligent, do not so often go against their own real interest 
 as the labourers. 
 
 172. The course of the capitalist is directed by his desire 
 for profit. His legitimate course towards this end is to 
 diminish, as far as possible, and by efforts constantly 
 renewed, the obstacles to production : in other words, to 
 make the capital, the skill, and the labour he commands as 
 productive, in relation to their cost, as he can. In these he 
 sees the means of production. They cost him a certain 
 price. What he can prevail upon the consumer to give for 
 the commodity produced, beyond this price, constitutes his 
 profit. Other capitalists are at work in the same way, and 
 are appealing to the same consumers ; and ever as his profit 
 is increased, by additional skill or care, it is liable to be 
 
 44 
 
WAGES. 
 
 reduced by the competition of those who can display more of 
 these qualities ; and so can undersell him. 
 
 173. His legitimate course, however, is always plain, if he 
 has sense enough to see it. He must pay interest, rent, and 
 wages, according to the market price ; and his just profit is 221. 
 what he can make beyond the due return of these. And, 
 with a view to enhancing this profit, it is to his interest to 
 pay high wages. In paying interest and rent he has no 
 inducement to go beyonii the market price. In paying 
 wages he will, _if he be wise, look for the best workmen; 
 and rather pay more than the current rate of wages than not 
 have them. 
 
 174. All floating capital may be said to be in itself equally 
 effective. Its productive power depends wholly upon the 
 skill with which it is used. Not so with labour. That 
 varies, vtij greatly, in its fitness for any given purpose. It ! 
 is always guided by a will ; and he who works not willingly 
 works not well. The capitalist may gain by screwing 
 down rent, or interest ; but, if he knows what he is about, he 
 will never screw down wages, however exacting he may be 
 
 as to the return he gets for them. 
 
 175. The capitalist may act fraudulently towards the 
 labourer, and not pay what he has promised to pay; but 
 this is extremely unlikely. Credit is hardly ever given for 
 wages; and, as a rule, they are invariably paid. And the 
 law is always at hand to enforce their payment. 
 
 176. The capitalist may also act oppressively; and, 
 availing himself of power obtained, incidentally, over his 
 workmen, may, for a time, compel them to work for wages 
 lower than he ought to pay them. But any power to act 
 thus must be dependent upon previous want of intelligence, 
 or want of forethought, on the part of the workmen. And, 
 in fact, it scarcely ever occurs. It is always exceptional ; 
 and it must be temporary ; and can no more conduce to the 
 ultimate prosperity of the capitalist than similar conduct on 
 the part of the workman can profit him. Such employers 
 
 45 
 
fVAGES. 
 
 quickly get known; and, as soon as known, whatever their 
 capital or their skill, they begin to work at a disadvantage. 
 They cannot command the services of the best workmen; 
 and they can have but a poor hold upon the good service 
 of any. 
 
 177. If, on the contrary, the capitalist takes his proper 
 course, he uses his capital and skill to the greatest advantage ; 
 he acquires the confidence at once of his customers and his 
 workmen; and, as his profits increase, he is enabled to 
 extend his operations, to improve his method of manufacture, 
 to give to his workmen that full and constant employment 
 which only the steady prosperity of the employer can give ; 
 and which finally makes him not only able, but, for his own 
 sake, willing to reward, promptly and hberally, with increased 
 wages, whatever increase of productive power any of his 
 workmen may display. 
 
 Course 178. The workman, too, has his legitimate course; and 
 
 labourer. ^^ ^^^^ ^^s° ^'^ temptations — much more powerful than those 
 which assail the capitalist — to go astray. His true interest 
 would direct him, first, to make the best bargain he can for 
 the sale of his- labour. The terms of this bargain will depend 
 much upon the state of the market in which he has to sell 
 his labour. He is at perfect liberty to combine with other 
 workmen in the demand for a given rate of wages — the 
 employers having a similar right of combination. What one 
 man may do any number may combine to do. But he has 
 no right to use threats, much less violence, to compel other 
 workmen to combine with him. By so doing, indeed, he 
 cuts from under him the very ground of reason on which, for 
 the time, he takes his stand. That ground is the liberty of 
 every man, individually, to require for his labour whatever 
 price he pleases ; and this liberty he would take from others, 
 at the very instant at which he is claiming it for himself. 
 179. The rate of wages once fixed, the obligation of the 
 46 
 
WAGES. 
 
 employer is fulfilled when he has paid them. The workman 
 has no further claim on the profits of the employer. But, as 
 we have seen, he has an obvious interest in seeing these 
 profits maintained ; for if they be not, he may expect to see 
 withdrawn the very demand for labour to which he owes his 
 wages. Further, he has an interest, hardly less obvious, in 
 seeing those profits increase : for if they do, he may expect 
 to see the demand for his own labour increased. 
 
 180. If, however, the workman takes a short-sighted view 
 of his position, and, regarding his interest and that of his 
 employer as adverse, first gets the rate of wages fixed, and 
 then gives, in return, as little work as he can, he places 
 himself in the line of a very different train of consequences. 
 For himself, personally, he probably earns, with the capitalist, 
 a bad character; and so makes his labour permanently of 
 lower value in the market. And he certainly diminishes the 
 profits of his employer ; and, so far, diminishes the induce- 
 ment of the capitalist to invest capital in the same business : 
 thus reducing, generally, the demand for his own description 
 of labour. 
 
 181. Yet it seems to be supposed, by some workmen, that 
 the less work is done by each man, the more men there will 
 be employment for. They forget that to employ (say) six 
 men to do what five could do, is, so far, to increase the cost 
 of production ; and that this, by increasing price, inevitably 
 reduces the demand for the thing produced. If a carpenter 
 were called upon to pay for his clothes an additional price, in 
 order that more tailors might be employed in making clothes, 
 he would think the demand an unreasonable one ; and if it 
 were enforced, he would meet it as everybody else meets such 
 demands, when they cannot be evaded, by buying fewer 
 clothes, and so spending only the same annual sum upon 
 them. This line of reasoning will be found applicable to 
 every argument by which it may be attempted to prove that 
 it is not the true interest of the workman to do the best he 
 can for his master. 
 
 47 
 
WAGES. 
 
 Strikes and 182. Strikes to obtain higher wages, and lock-outs to en- 
 lock-oitts. JQj.gg lower wages, apart from intimidation or violence, have 
 in them nothing unjust, on either side. Regarded alone, 
 they signify only that there is a difference of opinion on a 
 matter of mutual interest, and that one side or the other 
 adheres firmly to its own. But the policy by which these 
 movements are directed is often a short-sighted one ; and, in 
 practice, they invariably bring with them loss for both sides, 
 and suffering for the labourer. And it may safely be affirmed 
 that, with adequate intelligence, both parties would avoid 
 them. To the workmen, strikes, especially if frequent, do a 
 permanent injury, by impressing capitalists with the idea that 
 labour, in the form of employment so troubled, is uncertain. 
 This adds to the uncertainty of his profit ; and, consequently, 
 there must at least be the prospect of a higher rate of profit 
 to bring capital to, and to keep it in, such a business. Lock- 
 outs will, as young workmen become more intelligent, have a 
 similar effect on labour. They will tend to drive the best 
 workmen out of the business thus harassed. 
 
 183. The ultimate effect of the use of strikes, as a mode 
 of settling the rate of wages, is especially detrimental to the 
 better workmen. It deprives them of much of the advantage 
 they should derive from being better. 
 
 184. A just method of fixing the rate of wages should at 
 least aim at securing that labour shall be paid for in propor- 
 tion to its productiveness ; or, in other words, in proportion 
 How Wages to the service it renders. But this cannot be said of the 
 ^^ ■ ordinary action of Trades Unions. On the contrary, it is 
 obvious that no such rule can be applied until we advance so 
 far as to distinguish between the labour of different men, 
 engaged in the same occupation. And, hitherto, one of the 
 effects of all combined efforts by workmeri to raise wages has 
 been to prevent such distinctions being made. It is true 
 that the employer can still determine the number of men he 
 
WAGES. 
 
 .will employ ; and in most cases he can exercise some right 
 of choice among those who offer themselves to him, as to 
 which he will take. But he is not unfrequently forbidden to 
 do this ; and is required to take the number he wants, in rota- 
 tion, from a list provided by the Union, and so framed as to 
 put all upon the same footing. The object, and to a great 
 extent the result, is to reduce the services of the men brought 
 under this system to a dead level of value. All motive to a 
 man to excel is thus removed ; and in place of it is substituted 
 a tendency to keep well with the Union, by not exceeding the 
 standard of efficiency to which the least valuable workman 
 can readily attain. I was once told by a master builder who 
 had risen from the position of a bricklayer, (to that of mayor 
 of the town he was born in,) that the number of bricks his 
 men were each permitted to lay in a day was less than half 
 what he was accustomed to lay when he was young, and much 
 less than the number any good workman could lay well with 
 ease. 
 
 185. Were the natural rule — that pay should be determined 
 by efficiency — allowed to prevail, — as, in the absence of 
 artificial restrictions, it would, — an increase of wages, being 
 only the result of more productive labour, would be as 
 welcome to the master as to the workman. If two men could 
 do the work of three, they would be worth more than the 
 wages of three : for there are many items — as shop-room, 
 tools, light, rent, and superintendence — which would still be 
 reduced, for the master, in the proportion of three to two. 
 
 186. But the natural rule cannot prevail in the presence 
 of combinations by workmen to enforce a uniform rate of 
 wages. The better men, by combining with the rest, give 
 up, or at least make subordinate to the general will, their 
 natural right to be distinguished. This is bad economy, as 
 regards themselves ; and it is not good as regards their fellow- 
 workmen. Production is kept down ; and the fund available 
 for wages is diminished. Natural and acquired faculties, 
 which would otherwise enhance the value of the labour of 
 
 E 49 
 
WAGES. 
 
 many of the men, are quietly suppressed. A part of the 
 fund of ability with which the Almighty has endowed the 
 labourers, as a body, is withheld from use. Less is paid in 
 the shape of wages, and less is received in return, and society 
 is altogether the poorer for the bad political economy of the 
 workmen. 
 
 But they have pohtical freedom, and they must retain it ; 
 and use it in their own way, till they learn better. For, on 
 the whole, it is undoubtedly better that they should have this 
 freedom, and so abuse it for a time, than that they should be 
 deprived of it. If a right use of political power canilot be 
 learned except through a waste of economic power, we must 
 even so get it learned. But it is well that we should see that 
 this is so ; and that ignorance of the political economy of 
 daily life not only leads to waste, but also tends to pervert 
 the uses of pohtical freedom. 
 
 Machimry. 187. As to the effect of improvements in machinery in 
 superseding labour, which also obscures this subject, it is to 
 be observed that machinery is only a form of capital, and 
 that the primary use of all capital is to save labour. The 
 use of improved machinery, and more of it, is the most 
 legitimate, and, in the end, the most certain and most bene- 
 ficial effect of the intelligent use of capital. To object to 
 it, on behalf of the labourer, is in truth to object to the 
 intellige nt use of capital. 
 
 188. That the consequent change in the distribution of 
 labour often involves distress for individuals, is true. But all 
 such changes have a similar effect, and there is no improve- 
 ment without change. The more free, and therefore the 
 more frequent such changes are, the slighter their effect, and 
 the less they disturb the previous methods of production. 
 To forbid, or to obstruct, such improvements would be mani- 
 festly absurd. We should rather give them free way, for the 
 common benefit; and recognize in such suffering as they 
 5° 
 
WAGES. 
 
 cause, the natural result, to any intelligent being, of taking 
 part in and living by a complicated industrial system, without 
 learning and looking forward to the operation of the laws by 
 which its action is governed. Such comprehension and fore- 
 thought may for some workmen be difficult, and for some it 
 may be practically impossible ; but it is required nevertheless, 
 as is required all other regard to natural laws, under the 
 penalty of inevitable suifering for neglect. 
 
 189. Those who, as workmen, object to machinery, as 
 tending to supersede their labour, should especially mark the 
 now well-known effect of strikes in promoting an increased 
 use of machinery. 
 
 190. When the holders of any commodity whatever com- 
 bine to evade the natural effect of free competition among 
 themselves, and thence to force up its price, and succeed in 
 doing so ; the first effect, of course, is to make the consumer 
 pay more than he used to pay for the resulting service. The 
 next is to reduce the demand for such service ; for there are 
 always some who, as they cannot afford the increased price, 
 wiU rather give it up than pay more for it. And the next is 
 to cause efforts to be made to find a cheaper method of 
 getting it. This is so with all other commodities ; and it is 
 so with labour. 
 
 191. Now the only important descriptions of labour to 
 which the raising of wages by combination is applicable, 
 with effect, are those which are mainly mechanical. And 
 this is precisely the kind of labour which, in the natural 
 order of progress, is always being gradually superseded by 
 machinery. Whence it follows that to press upwards the 
 rate of wages for such labour is to put a premium, of cor- 
 responding amount, on the more rapid discovery and use of 
 machinery which shall supersede the labour the price of 
 which has been raised. In other words, the insistance of the 
 Trades Union makes the machinist's opportunity. And as it 
 is evidently one of the conditions of the continuous elevation 
 of our race that manual labour, of a rude and monotonous 
 
 £ 2 51 
 
WAGES. 
 
 kihd, shall be gradually got rid of, so any undue pressure for 
 higher wages, by men so employed, does in fact, by the force 
 of a natural law, hasten the advancement of society at large. 
 Even unsuccessful strikes, if so conducted or repeated as to 
 harass the capitalist, have a similar effect. 
 Machinery 192. We See the strongest demand for labour and the 
 in the highest rates of wages in the United States, and we see their 
 ^Mef. natural effect in a more general effort to dispense with 
 labour. Most of our best labour-saving machines come 
 thence. This marks the inevitable result of impeding pro- 
 duction by the combined action of large bodies of workmen. 
 To act together, they bring themselves into a nearly uniform 
 condition, as to skill ; and thus they so shape and limit their 
 skill, that it may be easily superseded by machinery. The 
 loss of capital, and especially the waste of labour, incident to 
 -strikes and lock-outs, we all know. It is much to be re- 
 gretted that more intelligent and less costly modes of ascer- 
 taining the just rate of wages, though already devised and 
 shown to be effective, have not yet come into general use. 
 It is, however, in some degree consoling to reflect that, in the 
 economic world, as elsewhere, these violent distm-bances, 
 though disastrous to society at the time, have in the end a 
 beneficial result, 
 
 193. The conclusion may be stated in few words : — 
 Conclusion. I • The true or ultimate interest of the capitaUst, and that 
 of the labourer, are in all cases identical. 
 
 2. As to the rate of wages — labour, to command much, 
 must be worth much ; and it can be worth much only by 
 being productive of much. And, when labour is paid for at 
 its true value, the higher the rate of wages the better for the 
 capitalist who pays them. 
 
 And thirdly, all attempts by combined action to interfere 
 with free individual action in settling the rate of wages, 
 whether made by the masters, or by the workmen, or by the 
 Government, must needs have the result of rendering the 
 
 52 
 
IVAGES. 
 
 labour and the capital concerned, for the time being, less 
 productive : raising prices to the consumer, reducing the 
 profit of the capitalist, and diminishing the amount earned 
 by the labourer. And there seems to be no evidence of any 
 good result sufficient to counterbalance the loss thus sus- 
 tained. 
 
 194. It would seem, however, that until employers and 
 labourers, alike, shall learn more of the natural laws regulating 
 their relation to each other, the net amount of evil attending 
 such combinations must be deemed unavoidable ; and we 
 must be content to see strikes and lock-outs ending, at best, 
 in some form of arbitration, used as the only available means 
 of solving a very natural, nay, inevitable, difference of opinion 
 arising, from time to time, between free men, upon a subject 
 which they justly regard as of vital importance to themselves. 
 It is a pity. But the cure is at hand. Free and intelligent 
 action by individuals would now render all this needless; 
 and will, in time, do so. 
 
 63 
 
V. PROFIT. 
 
 Definition 195. Men of business say — " Risk is the mother of profit." 
 We might, with some justice, add, that skill in estimating 
 risk is the father. And whence it comes will be found to 
 indicate very clearly what it is. 
 
 196. Let me repeat, that the four industrial forms of 
 70. income are Wages, Profit, Interest, and Rent. 
 
 197. We took Wages first — as the reward of the simplest 
 form of service : that rendered by mere labour, performed 
 under direction. We take Profit next — as implying that 
 form of service, rendered by capital, which, at first sight, 
 most nearly resembles that which is rendered by labour ; and 
 which is always most nearly connected with labour. The 
 capitalist who earns profit begins by, himself, wedding his 
 capital to labour: his own, and that of others. And he 
 takes upon himself the onerous task of determining what 
 shall be their combined use. Wages are, in practice, the 
 most fixed, immediate, and certain of all the forms of income. 
 Their amount is known beforehand ; and they are the first 
 thing paid. Profit is the least fixed, the least immediate, and 
 the least certain. Its amount can never be foreseen ; it can 
 only be guessed at ; and it is the last thing paid. 
 
 198. There are few forms of industrial enterprise which 
 do not yield each of these four forms of income. Very 
 commonly they are yielded to different persons, not often 
 to the same. But he, only, who takes the risk of the enter- 
 prise — the risk of losing the capital embarked in it— is 
 entitled to the profit. And all enterprise involves some such 
 risk. 
 
 54 
 
PROFIT. 
 
 199. Out of the entire gross return from any enterprise, 
 you will observe that Wages, Interest, and Rent stand to be 
 first paid. These are usually paid on a basis agreed to 
 before the enterprise is begun ; and are not usually intended 
 to be affected at all by its issue. Only what remains, if any- 
 thing remains, is profit. 
 
 200. Profit, then, is always a residuum. Its existence, in 
 due measure, may be taken as evidence that the enterprise 
 has been conceived and conducted with adequate ability; 
 and, thence, that it has been earned. 
 
 201. Observe, further, that Wages, Interest, and Rent are Distin- 
 
 to be paid whether the enterprise result in gain or loss, ^^^Imtvages 
 there be no gain whatever, even if there be a loss, these prior Interest, 
 charges are to be paid out of the capital embarked. So, he ' 
 who claims profit is bound to have at stake capital enough, 
 at least, to pay all the Wages, Interest, and Rent which, by 
 his own actj he has involved in the enterprise. 
 
 and Rent 
 
 202. To take a familiar instance, but one well fitted to 
 illustrate the points in view. A man with a capital of three 
 or four pounds becomes an itinerant dealer in fish. Every Instance. 
 morning he goes to a wholesale market, and selects such fish as 
 he thinks most likely to suit his customers ; and, during the 
 day, goes round to them, supplying each, at an advance of 
 price. He expects that what he receives, during each day, 
 shall return to him the money he laid out at the market. 
 And he expects to find this enhanced by a sufficient sum to 
 pay him for his day's work. The whole of the excess he 
 will probably call Profit. But he is quite conscious that he 
 supplies capital, and runs some risk of losing it, for fish is 
 perishable — and this besides contributing his labour, and 
 using some skill. If he considered the matter more closely, 
 he would divide his gain, at the end of the day, into several 
 parts : one representing Interest on the capital he had used, 
 another Rent of the means of carriage (his cart, or basket), 
 
 it 
 
PROFIT. 
 
 and a third the Wages of his day's labour. These being 
 paid for, the remainder he would regard as the Profit due to 
 his enterprise and ability in, first, judiciously buying the fish, 
 and then carefully re-selling it. He would not consider 
 himself fairly remunerated if he only received, one day with 
 another, about the same return as, with the same labour, he 
 might have earned, regularly, as wages, without using the 
 skill of buying and selling, and without the risk of losing his 
 money. Nor, indeed, would he be so. For he would then 
 be without interest on the capital advanced; and without 
 rent for the capital sunk in his means of conveyance. 
 
 203. This illustration may seem trivial. But, in science, 
 nothing is trivial. A chemical or mechanical experiment 
 within the compass of a thimble, may as effectively illustrate 
 a natural law, as if it called into use the most bulky apparatus 
 of the workshop or the laboratory. 
 
 204. It affords, in fact, an unusually good example of 
 what is Profit. Fish may be said to afford the only instance 
 with which we, in Europe, are familiar, of a crop which no 
 man sows, or tends the growth of ; and the gathering of 
 which is mere matter of enterprise. Its cost depends 
 wholly on the skill and good luck of the fisherman ; and, 
 consequently, its price varies, ungovernably, from day to 
 day ; and affords peculiar scope for that form of combined 
 investment and ability, the use of which entitles him to Profit. 
 
 205. Most commonly, you will find that Profit is received 
 
 in combination, to some extent, with Interest. Hence, the 
 
 two are apt to be confounded. Men of business think much 
 
 of immediate results, and but little of how they are obtained. 
 
 Beware of this error. It is one thing to be paid for the 
 
 use of capital (Interest, or Rent), and another to be paid for 
 
 risking its loss (Profit). 
 
 How Profit 206. Observe, also, that the owner of capital at risk, and 
 
 "uished. who is to take the profit of the enterprise in which it is 
 
 66 
 
PROPIT. 
 
 risked, is, of right, the director of the enterprise. Thus, 
 therefore, he often gives some labour to it. And, in so far 
 as he is paid for this labour, his Profit and his Interest will be 
 further enhanced by Wages. 
 
 207. And, finally, if he who risks the floating capital em- 
 barked, also contributes the use oi fixed capital, he will, in 
 respect of that, be entitled to Rent; and thus he may be 
 found to receive, as income from the same enterprise, a 
 combination of Wages, Profit, Interest, and Rent. 
 
 208. Even men of business sometimes have but a vague 
 notion of Profit. If they do their thinking by rote, as most 
 of them do, they will be apt to confound it with Wages, and 
 sometimes with Interest, and occasionally even with Rent. 
 
 209. They confound it with Wages when they set down as 
 Profit the whole return obtained from any use of capital in 
 the current direction of which they have themselves exerted 
 labour or skill, beyond the mere conception and shaping of 
 the enterprise. They should first deduct the Wages due to 
 the contributed labour, or skill. 
 
 210. They confound it with Interest when they set down, 
 as Interest, anything more of what is paid to them for the 
 use of floating capital than is, strictly, so paid. In almost 
 every case. Interest, so called, includes something paid for 
 risking the loss of the capital invested. And that, wherever 
 it occurs, is, in fact. Profit. 
 
 211. It is true that, in practice, it is not worth while to 
 insist upon a rigorous application of these distinctions, any 
 more than it is to insist that we shall give the name of water 
 only to such water as is absolutely or chemically pure, or 
 refuse to call a pound weight so unless it be true to a grain. 
 But, when dealing with abstract truths, precise knowledge, 
 precise thought, and precise expression, are, to say the least, 
 highly expedient ; and are not the less, but rather the more 
 so, where equal precision in action is not practicable. 
 
 212. Except in the earliest stages, or in the very simplest 
 forms, of industrial life, we do not often see a man initiating, 
 
 57- 
 
PROFIT. 
 
 and conducting to its close, any industrial enterprise, by 
 himself; and so providing all the required capital, floating 
 and fixed, and all the labour, and running all the risk as to 
 the result; and thus earning all the income the enterprise 
 can yield. 
 
 213. In the most modern and most fully developed forms 
 of production, we see the division of the several sources of 
 income most complete, and the dependence upon each other 
 of the different persons engaged most intimate. So infallibly 
 does obedience to the natural laws tend to knit men the 
 closer together by the bond of mutual aid and a common 
 interest. 
 Joint-Stock 214. Take what is called a "Joint-Stock Company," as an 
 tompanus. jjjg(-g^jj(,g_ Very frequently the shareholders supply all the 
 capital. When they do so, of course they are entitled to all 
 the interest, all the rent, and all the profit. Frequently they 
 obtain from others the use of fixed capital, in the shape of 
 buildings. Then they pay rent. Sometimes they borrow 
 floating capital. Then they pay interest. They always 
 employ labour ; and so always pay wages. And here, some- 
 times, occurs a mode of paying wages which looks very like 
 a sharing of profits. A skilled labourer, upon whose eS'orts, 
 or whose vigilance, the success of the common enterprise is 
 much dependent — a controller, or manager — may have his 
 wages, or a part of them, increased, or diminished, by 
 reference to the ultimate profit of the enterprise. But he 
 still receives only wages. The mode of measuring his wages 
 does not change the nature of the payment. The receiver 
 of wages so measured, as he does not risk capital, has no 
 title to profit. To acquire this title, he must supply some 
 part of the requisite prior indemnity to wages, interest, and 
 rent. It is true his wages may, by the failure of the enter- 
 prise, be diminished, or lost ; but that concerns the mode of 
 measuring his remuneration, not the nature of it. 
 
 68 
 
PROFIT. 
 
 215. Every writer on Political Economy, with whose Other 
 writings I am acquainted, has given to the term " Profit " a definitions. 
 meaning different from any which is attached to it in common 
 
 speech ; and no two writers of eminence can be said to have 
 defined it in precisely the same way. Had they agreed, the 
 divergence between scientific treatises and common speech 
 might have indicated nothing more than the difference 
 between the precision of science and the laxity of colloquial 
 expression. It really indicates more : a divergence of 
 opinion, which can only be referred to ignorance of facts, 
 or to insufficient consideration of them, 
 
 216. I will cite, as instances, the use of the term by Adam 
 Smith and by John Stuart Mill, in England, and by J. B. 
 Say, in France. These men, all eminent as political econo- 
 mists, were none of them personally practised in trade. 
 Hence, no doubt, the vagueness of their definition of that 
 which is sometimes, even by mercantile men, not distinguished 
 precisely. 
 
 217. Adam Smith gives the name of "profit" to the whole Adam 
 return a capitalist obtains from capital embarked in any "^^ 
 enterprise which he himself directs. It is manifest, however, 
 
 that this return includes the interest of the capital embarked; 
 and that, where the capital employed is borrowed, this will 
 make itselfapparent, in a debt for interest, due to the lender. 
 It also includes payment for any labour given by the capitalist 
 in controlling the enterprise. And, thirdly, it includes what- 
 ever payment he receives for the risk incurred in the venture. 
 In other words, it includes (i) Interest, (2) Wages, and (3) 
 Profit, properly so called. 
 
 218. Say gives the name of "profit" to the return obtained/. B. Say. 
 by any one who contributes to production — whatever the 
 
 part he may have taken in the process. But then he recog- 
 nizes three different descriptions of " profit : '' identifying 
 wages with " industrial profit ; " interest with " the profit 
 of floating capital;" and rent with "the profit of fixed 
 capital." Thus, like Adam Smith, he attaches no simple and 
 
 59 
 
PROFIT. 
 
 definite meaning to the word " profit," as signifying a distinct 
 source of income. But, in substance, his view accords with 
 that which I have ventured to suggest as most in accordance 
 with the practice of daily life. 
 J. S. Mill. 219. Mill's definition also approaches very nearly to that 
 which I have adopted. He resolves "profit" into (i) interest 
 of the capital employed, (2) wages for superintending the 
 manufacturing or dealing, and (3) insurance to cover the risk 
 of the operation. Here the insurance is what I have defined 
 as the real profit. And the insufficiency of Mill's definition, 
 except as thus amended, will become apparent on consider- 
 ing what would be the nature of the remuneration made to a 
 capitalist who should supply the capital, and incur the risk of 
 its loss, but take no part in directing and controlling its use ? 
 There would then remain to him only interest and insurance 
 (or profit) ; and if interest is to be deemed a distinct source 
 of income, it must, at least in theory, be separable. Separate 
 it, and the remainder is profit. 
 Profit 220. Doubtless, we seldom, if ever, see Interest quite 
 
 'risk.'' ^ distinct from Profit— that being the price of risk : for all 
 mere loans imply some risk of losing the thing lent. Even 
 the Three per Cents, of the British Government cannot be 
 deemed theoretically free from the element of risk. Nothing 
 human can be so. Nor is it, in practice, always easy to 
 separate and distinguish the skill of a paid director of an 
 enterprise from the skill of the capitalist whose action has 
 ceased with the choice and shaping of the enterprise, and of 
 the man to conduct it. • Both forms of skill materially aflfect 
 the risk. But the skill of the director or controller who keeps 
 the enterprise within the groove at first laid down, is that of 
 a servant; while that of the capitalist is the skill of a master; 
 and the master, taking all the risk, takes all the Profit. The 
 servant has only wages ; for he has laboured under direction, 
 and for an agreed price. In a Joint-Stock Company, the 
 shareholders determine, in effect, whether or no the enterprise 
 shall be entered on ; and in what direction, and within what 
 60 
 
mOFIT. 
 
 limits, it shall be conducted : but they do not conduct it them- 
 selves. They supply the capital risked ; and they take the 
 Profit. The rest are engaged as their servants ; and as such, 
 are entitled only to wages- 
 
 221. Good men of business, when acting in business, Tested 
 usually attach a distinct meaning to the term "Profit;" and f-'' ?""*' 
 exemplify it clearly by their practice. If they see a manu- 
 facturing process carried on for a year, and are then called 
 upon to take an account of its results, in Profit or Loss, they 
 have no hesitation about how to do this. They begin with 
 taking an account of the capital embarked. Then they go to 
 the other end of the adventure, and see what remains. 
 Assume that there is a good increase. To the owner of the 
 floating capital embarked, in the shape of cash, or other 
 convertible or consumable stock, dealing with him only in 
 this capacity, they award Interest. To the owner of land, 
 buildings, and permanent machinery, they award Rent. To 
 the labourers, with hand, or with head, or with both, they 
 award Wages, each in so far as these have not already been 
 paid. These being paid, according to rates usually fixed 
 quite apart from any consideration of the result of the enter- 
 prise — the rest is deemed Profit. It is true they do not 
 usually award specific payment of Wages to the owner of the 
 capital, while controlling its use. But, if asked whether they 
 considered an enterprise profitable which paid only fair Wages 
 to all the labourers employed. Rent of the buildings occupied, 
 bare Interest of the money invested, and a return for the actual 
 labour of the owner of the capital, with no return whatever for 
 the risk of its loss, they would, with one consent, answer no. 
 
 222. This exhaustive, but very common, process, marks, 
 distinctly, the true nature of commercial profit. It is the fit 
 reward of that form of intelligence which contrives, and fore- 
 sees the course, and computes the risk, of industrial enter- 
 prise. It is always attended by risk of loss. So it implies 
 the possession of something to be lost. This something is 
 .capital. So a capitalist alone can earn profit. 
 
 6i 
 
PROFIT. 
 
 223. Hence, he who begins a commercial enterprise with- 
 out the means of making good any loss which may ensue to 
 others, seeks a profit to which he is not entitled. He is as 
 one who makes a bet without the means of paying, if he 
 loses. 
 
 No profit 224. We do sometimes see what appears to be Profit made 
 ^!f w' by those who have no capital. Yet it cannot really be so. 
 Let one who has no capital of his own borrow that of another, 
 embark it in trade, realize a large return, and hand back the 
 capital to its owner, with nothing more than what is called 
 Interest. Assume ample security to have been given for the 
 capital lent, and the profit, if any, will, indeed, belong to its 
 borrower : for it is he, or some one for him, who has incurred 
 the risk, by giving the needful security. But assume that no 
 security has been given. Then Interest and Profit are both 
 due only to the lender. He may have made a gift to the 
 borrower of what he might have taken as his own. He may, 
 or may not, receive in his " Interest " (so called) an equiva- 
 lent for the risk he has run. But to him who supplies only 
 labour, however highly skilled, there can be due only Wages ; 
 whatever the form his Wages may take. 
 
 225. So, an occasional messenger, whose earnings vary with 
 the weather, or with the business of others, or with his own 
 skill and activity, who in one day earns the equivalent of three 
 days' wages, and in another earns nothing, is as much a 
 105. labourer, and earns only wages, as a workman who is hired 
 at a fixed weekly rate of pay. For though his labour involves 
 a venture, it can hardly be said that he risks the loss of 
 capital. 
 
 Profit of 226. Thus far we have had in view, mainly, the Profit 
 earned upon what are called productive operations : such as 
 agriculture and manufactures. Now, let us consider the Profit 
 of the mere dealer. Here Profit is seen apparently severed 
 
 62 
 
PROFIT. 
 
 from every form of production ; and this apparent severance 
 long lay in the way of a just estimate of the dealer's value to 
 society. He Was even supposed to have the power of in- 
 truding himself between the producer and the consumer, and 
 of making both pay him for services neither required. Hence 
 his right to the gain inseparable from his occupation was 
 often questioned, and sometimes, even by law, denied. 
 
 227. He certainly buys only to sell again. He adds 
 nothing to the substance, or to the quality, of the thing he 
 deals in. Yet he enhances its price. This is what is always 
 seen. What is not always seen is, that he adds to its ex- 
 changeable value. 
 
 228. This value, observe, must be assessed by the buyer ; 
 who, whether he knows it or not, is the master in every 
 bargain. It is for him to determine whether the service 
 which the thing offered will render to him is worth to him 
 the price asked for it. Things obtain their exchangeable 
 value, however, not Only by their intrinsic qualities, but also, 
 and often more, by the time and place at which these qualities 
 are made available : in other words, by the particular service 
 they render. A pound of tea in England may be in precisely 
 the same state, chemically and mechanically, as it was in 
 China, six months before. Yet its value in exchange may 
 be quadrupled. Three-fourths of this value it will then owe 
 to difference of time and place. 
 
 229. So an ounce of tea will sell for more, in proportion, 
 than a chest, at the same time and place : for he who breaks 
 up the chest into ounces, serves those who want only ounces, 
 and who could not buy a chest. For this service he is paid, in 
 addition to the prior value of the tea. 
 
 230. So a bushel of wheat may, in the same place, be much 
 more valuable a year hence than it is now; and the additional 
 value may be realized, as Profit, by buying and keeping it 
 for a year. 
 
 231. The tea is transferred in space, from where it was 
 ittle wanted to where it is much wanted. The wheat may 
 
 63 
 
PROFIT. 
 
 be removed, in time, from when it is little wanted to when it will 
 
 be much wanted. Dealing, in short, is equalizing supply, in 
 
 relation to demand; and this is one of the most important 
 
 services men can render to each other. 
 
 Engrossers, 232. But as the capitalist was, at one time, called an 
 
 Fovc- 
 
 stallers, " Usurer " for taking interest, — seeing that his capital came 
 
 Regraters. back to him without diminution, — so the Dealer was, at no 
 very distant date, denounced as one whose operations tended 
 to raise prices. He was called an "Engrosser," a "Fore- 
 staller," or a " Regrater." For, as Parliament, in times past, 
 in its ignorance of the economic laws, tried to fix the price of 
 bread, and to limit the rate of interest, so also it forbade men 
 to buy and hold large stocks of corn and other like com- 
 modities (called engrossing), or to buy them when on their 
 way to a market (forestalling), or to buy and sell a thing on 
 the same day in the same market (regrating). We now know 
 that Parliament can no more keep down prices than it can 
 hasten the rising of the sun, or make two bushels of wheat 
 out of one ; and that any attempt to do so, can, by possibility, 
 only so operate as ultimately to increase the price interfered 
 with. 
 
 233. All price, remember, is but the measure in money of 
 66. the obstructions lying between the desire for a thing and its 
 
 attainment. Government interference cannot remove any of 
 these obstructions ; but, whenever it is exercised, it inevitably 
 creates an additional obstruction; and the price to the 
 consumer is enhanced by the whole effect of the new 
 obstruction. 
 
 234. Every effort of the dealer is, when he is left to him- 
 self, stimulated by the hope of profit ; but that hope cannot 
 be realized unless he effects some better adjustment of the 
 
 405. supply to the demand than would exist without his action; 
 and every such better adjustment is a gain to the consumer. 
 In other words, he can serve himself only by serving the 
 consumer. Thus the true interest of the Dealer and that of 
 the consumer are always identical. 
 64 
 
PROFIT. 
 
 235. We may take, as an example of the operation of this How the 
 law, the very circumstances which have most commonly ^^'^^^^ 
 arawn upon the dealers the denunciations of the ignorant. Consumer. 
 Let it be assumed that a failure of the harvest of wheat has 
 occurred in England. The failure known, the price of corn 
 
 begins to rise ; and then it is perhaps observed that dealers 
 are engaged in buying wheat before it comes to market, 
 obviously to keep it out of consumption. Anticipated 
 scarcity has perhaps already raised the price. Their pur- 
 chases raise it still further; and the wheat they buy they 
 perhaps store, and refuse to sell : looking forward to a still 
 higher price. One or two centuries ago they would have 
 been denounced as manifest culprits. Even now they are 
 often reproached with adding to the sufferings of the poor ; 
 and with making these sufferings the means of gain. 
 
 236. Now let us see how far this is true, and whether, on 
 the contrary, the economic law holds good, that the dealer's 
 profit depends on his serving, not injuring, the consumer. 
 
 237. To see this clearly, we have only to bear in mind 
 that every rise of price (if the work of production and im- 
 portation be free), has a two-fold tendency : it tends to 
 reduce consumption, and to stimulate production or importa- 
 tion : in other words to cause less to be consumed, and more 
 to be brought to market for sale. 
 
 238. Say the thing in question is wheat. It is really of 
 no importance, in the circumstances we have supposed to 
 occur, whether we are dependent on the home supply of 
 wheat only, or we can get supplies from abroad. We know 
 that the only reason why wheat comes to England, or is sent 
 from one market to another, is that it is expected to fetch a 
 higher price where it is sent to than it would at the place 
 whence it comes. And, as to foreign wheat, I need hardly 
 say that the higher, comparatively, the price is in England, the 
 greater is the inducement to send it here, and the greater the 
 quantity likely to come. The only effective mode of caUing 
 upon foreigners to send us wheat, is to let them know that 
 
 F 65 
 
PROFIT. 
 
 we will give them for it a better price than they can get at 
 home. So the dealers, by raising the price, do, in effect,, 
 send for fresh supplies ; and this is precisely what the con- 
 sumer wants. But the Dealer's Profit depends on his skill ; 
 and his skill consists, here, on the one hand, in foreseeing 
 the supposed scarcity, and in getting possession of wheat, 
 and, on the other, in taking care not thus to push the current 
 price above the true value — the true value being that price 
 which the wheat will, in the coming months, before next 
 harvest, be actually worth to the consumer, notwithstanding 
 all the supplies to be had from other quarters. 
 
 239. If, for instance, the dealers, seeing wheat at fifty 
 shillings a quarter, and scarcity impending, calculate that 
 seventy shillings will not be more than enough to bring in, 
 before next harvest, an adequate supply from abroad, they 
 will buy, and hold, till the price reaches that rate, and will 
 then begin to sell. If they miscalculate; and an adequate 
 foreign supply comes in at sixty shillings, they cannot sell 
 their wheat for more ; and the longer they delay their sales 
 after that price is obtainable, the greater will be their loss. 
 For, while they hold the wheat, they have heavy current 
 charges to pay, for Rent, Interest, Insurance, and other 
 charges; and these soon eat up a moderate profit. 
 
 240. In short, by raising the price, they bring in new 
 supplies, and serve the consumer; and the more exactly 
 they hit the precise increase of price required, to operate on 
 the foreign markets, to a sufficient extent, and no more, the 
 larger and the more certain is their profit. 
 
 241. So much for the effect of a rise of price on the 
 supply. Now let us mark its effect on the consumption. 
 There is only one way of limiting consumption among a 
 free people ; and that is by raising price. And, of course, 
 there cannot be one price for the rich, and another for the 
 poor. There must be one market price. It must rise, if at 
 all, for everybody. But it is obviously desirable, for every- 
 body, that when the supply is short the consumption shall, 
 
 66 
 
PROFIT. 
 
 so far as may be really necessary, be reduced. The effect of 
 any such reduction is to reduce the demand ; and, so far, to 
 keep down the price. 
 
 242. Whether we regard a particular country only, or the 
 whole world, when the grain harvest of the year is gathered, 
 we know we can gather no more till next year. 
 
 243. There may be, and there commonly is, a better Corn trade 
 
 supply in some places than in others. Those who thus °/'^/, 
 , world. 
 
 happen to have plenty, might like to keep it. But, then, 
 
 those who have scarcity might starve; and, at all events, 
 
 would be ill supplied. It is obviously desirable for all that 
 
 the entire supply should be divided as equally as may 
 
 be, having regard to the distance it may have to be carried ; 
 
 and of course this equality must have reference mainly 
 
 to the means which the several consumers have of paying 
 
 for it. 
 
 244. It may seem hard that the rich should feed plenti- 
 fully when the poor irlust be ill supplied; but this is the 
 natural law. Industry and providence are strong when 
 idleness and waste are weak. When those who want more 
 offer a sufficiently high price, they receive a corresponding 
 supply. To this end, and for the common good, it is 
 desirable that the wants of those who feel a scarcity should 
 be made generally known, as early, and as exactly, as 
 possible : in order that a lavish consumption, where there 
 happens to be abundance, may the sooner be stopped. 
 
 245. All this an early and sufficient rise of price, at each 
 place of scarcity, will effect ; and nothing else will effect it. 
 And it is the business of the Dealers to bring this about. 
 The world, in such a case, may be compared to a ship at 
 sea, and (say) twenty days' sail from port, but with pro- 
 visions for only fifteen days. To let the consumption go on, 
 unchecked, would be to close the voyage with five days of 
 famine. Put each man, at once, on three quarters of his 
 usual supply, and all may eat, as well as it is possible for 
 them all to eat, till the end of the voyage. Postpone your 
 
 F 2 67 
 
PROFIT. 
 
 precaution for ten days, and nothing more than half-rations 
 can be allowed. 
 
 246. A rise in the price of wheat means, for particular 
 localities, a call for further supplies ; and for the world at 
 large it means a reduction of rations till the next harvest. 
 But the earlier and the more extensive the reduction, the less 
 the consequent suffering. 
 
 247. These measures are, each in its place, as experience 
 has proved, the best that can be adopted for the interest of 
 the consumer. And it is the Dealer who makes the needful 
 arrangement. Without him it would not be made. It is true 
 that he does so in view of his own interest; but this only 
 makes his action the more ready and certain. And, as I 
 have said, exactly in proportion to the skill he displays, in 
 adjusting his operations to the emergency, and so doing neither 
 more nor less than is required for the benefit of the con- 
 sumer, does he effect his own purpose, and make Profit. 
 
 Compc- 248. Then the dealers in each trade compete with each 
 
 deaUrs Other ; and, most commonly, while some speculate upon one 
 estimate of a change in price, others speculate upon a different 
 estimate. Observe also the cause of this. In the complicated 
 and conjectural calculations usually required to form any 
 adequate and reliable conception of what, at another place, 
 or at the same place at a future time, may be the price of any 
 article of general consumption, complete and accurate know- 
 ledge is impossible — so mistakes, more or less material, are 
 inevitable. But, as it is very desirable for the dealers that 
 they should be well-informed, they seek information with 
 great avidity ; and in these days, when combined effort is so 
 much more eflFective than that of individuals, the dealers in 
 each trade act together in this, and even freely make public, 
 to all concerned, what they learn. This, alone, is a great 
 public benefit. 
 
 249. There are always, however, as to the facts known, 
 differences of opinion touching their probable effect. And 
 as each dealer acts upon his own opinion, or the best he can 
 68 
 
PROFIT. 
 
 gather from others, the operations of individual dealers are 
 usually running, more or less, counter to each other. So 
 that, whenever we observe any general concurrence among 
 the dealers in expecting an increase, or decrease, of price, we 
 may safely assume that there is some tolerably firm ground 
 for the expectation. It may still prove to be a mistake. But 
 if it does, and the current supply has been (say) needlessly 
 withheld from the market, and the price unduly raised, what 
 has been so withheld afterwards inevitably swells the supply, 
 and depresses the current price to corresponding extent, until 
 the excess is disposed of. 
 
 250. On one point dealers are always agreed ; and herein Dealing, 
 
 they also agree with the consumers. They desire to see the '^^'^ """'• 
 
 causes low 
 
 cost of production made as low as possible. They do aW. f rices. 
 they can to keep it down : because it thus makes the smaller 
 demand upon their capital ; and also because the lower the 
 selling price the larger the consumption, and the more they 
 can sell ; and as they deal more directly with the producers, 
 they are, in this respect, very useful to the consumer. 
 
 251. They are also agreed, of course, in desiring to keep 
 up the dealer's profit. The proper check on this desire is 
 their own competition with each other. It is true, we have 
 not yet seen any body of dealers who probably would not, if 
 they could, get rid of this check, and keep up their profits by 
 combination. Half a century ago there were several forms 
 of dealing so protected in this country. The most remark- 
 able was that of the East India Company, who alone could 
 import tea into England. There is scarcely anything of this • 
 kind now seen. 
 
 252. The wholesome principle of free trade is now rapidly 
 penetrating into every nook and corner of our mercantile 
 arrangements ; and everybody is learning, by experience, that 
 whatever appearances may sometimes say to the contrary, it 
 works well for all parties. To dealers it gives more, in the 
 aggregate, though less on each transaction : as it, in the end 
 quickens and multiplies sales more than it reduces profits. 
 
 69 
 
PROFIT. 
 
 253. It is a long time since this light dawned upon mere 
 practical men in the saying—" a nimble ninepence is better 
 than a slow shilling," or, to use the more modern phrase, 
 " small profits and quick returns ; " and where it does not now 
 penetrate, and operate, there must be some want of intelli- 
 gence, or activity, or both. 
 Foreign 254. Our foreign commerce is, of course, throughout, the 
 
 commerce, ^^qx\. of dealers ; and in treating it we shall have occasion to 
 "50-69"*° observe how great is the value of the service rendered to 
 985. mankind by this (sometimes decried) form of industry. 
 
 255. The relation of dealers, as a class, to the consumers 
 is one that is often misunderstood, and is sometimes much 
 misrepresented. As a rule, when anything is wrong between 
 them, it is the consumer, rather than the dealer, who is in fault. 
 Bear in mind that the consumer is the paymaster, and that 
 Markets all — producers and dealers — live by serving him. What they 
 ruled by ^ desire is that he shall be wealthy, and keep them employed 
 
 buyers, ■' ^ '■ •' 
 
 in supplying his wants. Half their intelligence, at least, is given 
 to finding out what he wants, or would like to have. But, as a 
 rule, the consumer has, himself, only a vague and imperfect 
 notion of what he does want. Take the commonest of all pur- 
 chasable articles. Say he requires bread. Of course he wants 
 good bread. But he cannot, always, even distinguish good 
 Igitormue bread from bad. He knows that a quartern loaf at sixpence 
 .0/ myers. gQgj-g jggg jjjg^jj ^ quartern loaf at sevenpence ; but, looking at 
 the qualities of the two loaves, and their fitness to afford healthy 
 and agreeable nourishment, there are really not many con- 
 sumers fitted to choose between the honest wheaten loaf and 
 the fair-looking but various compound, sometimes sold under 
 the same description. And it is the same with other things. 
 In short, the consumer, as to most commodities, is much less 
 intelligent than the dealer. He knows less about the thing 
 in question. He seeks cheapness, but does not know what 
 is really cheap. He only knows, for certain, which of two 
 7,0 
 
PROFIT. 
 
 prices is the lower. And this want of intelligence gives a 
 corresponding premium to deception on the part of the dealer. 
 That this is no new evil we may infer from the ancient 
 Latin saying : " Caveat emptor " — " Let the buyer beware.'' 
 
 Yet we hear it complained of, in our own times, as if the 
 manifold and ingenious adulteration of wares which we talk 
 so much about, were not a perfectly natural result of the 
 never-ending effort of manufacturers and dealers to please 
 consumers who can estimate price, but cannot estimate 
 quality. Let the consumer fit himself to assume the com- 
 mand, by either learning what he is about, or retaining the 
 services of one who can act eflBciently for him, — in this 
 matter of quality ; and the command will at once pass into 
 his hands. Manufacturers and dealers work only to serve 
 him : for by his service they live. They have no preference 
 for the roguery he complains of. It is not profitable in the 
 long run. Most of them know this; and as a class they 
 ^ould not practise it if they had not those to serve who must 
 be cheated to be pleased : who do not know the thing they 
 want when they see it ; and are always ready to believe that 
 two pennyworth may be had for a penny. 
 
 256. It is a mistake to suppose that trade is carried on 
 only by exchange of that which may be represented in 
 money. The phrase — " Cash the sole nexus of man with 
 man" seldom quite represents a reality; and still more seldom Manners 
 does it represent a successful exchange, where the process is *" ^ ^' 
 best practised. The value of frank and open deahng, and 
 of courtesy, is best understood by the best men of business. 
 And though it is not literally true that " civility costs nothing," 
 seeing that, as an accomplishment, it usually comes of early 
 and well-developed efi'ort, it is quite true that it buys much. 
 If, by uniform justice, and kindness, we conciliate the good- 
 will of a servant, we most commonly buy, with the same 
 money (plus a moral service), a better quality of the service 
 
 71 
 
PROFIT. 
 
 bargained for. And in dealing with equals, and inferiors, the 
 effect of the presence, or absence, of those moral adjuncts to 
 service which, cannot be bought or bargained for is, in like 
 manner, apparent. Indeed, the basis of all commerce being 
 mutual service, and the value of much service being depen- 
 dent upon the manner in which it is rendered, it cannot be 
 otherwise. Railway companies, hotel-keepers, and others, 
 who supply the service of inferiors, strive to prevent distinc- 
 tions being made between those who conciliate their servants 
 by voluntary fees, and those who look for a full measure of 
 such service without any such conciliation. But they strive 
 in vain. All servants know how to make their service un- 
 gracious, without infringing any rule it is possible for a 
 master to lay down. 
 
 The la- 
 bourer's 
 view of 
 profit. 
 
 Co-opera- 
 tive pro- 
 duction. 
 
 257. A labourer, even a very intelligent labourer, does not, 
 from his own stand-point, readily see the true nature of profit. 
 And as it is well to guard carefully against the common 
 germs of error, and a clear idea is, especially in such cases, 
 well worth the tedium of some repetition, it may be well to 
 consider our definition of Profit under the light thrown upon 
 it by a form of industrial enterprise, which has of late years 
 become popular, which has been contrived in the special 
 interest of the labourer, and which is commonly supposed to 
 give to him niore than he can get under the older and 
 commoner forms of combined action with the capitalist. 
 
 258. To take the best form of this new kind of enterprise — 
 let us suppose that a number of labourers agree to act with a 
 capitalist who shall supply only part of the capital required 
 for the business to be entered upon, the remainder being sup- 
 plied by contributions from themselves. Let the capitalist 
 be supposed merely to lend his capital, upon adequate 
 security, and to take no further part in what is done. And 
 let the amount he supplies be only sufficient to start the 
 enterprise. Let the director of it be one of the labourers 
 themselves ; and let it be understood that, in order to pay off 
 
 72 
 
PROFIT. 
 
 the borrowed capital, and to supply what further may be 
 needed, the labourers shall not receive their wages in full, but 
 shall content themselves with drawing, week by week, a less 
 sum than the ordinary rate of wages, and only so much as 
 may be necessary for their current subsistence. Let this go 
 on for a given term ; say for five years ; and let it be supposed 
 that, in the end, the labourers divide among themselves, in 
 all, an amount double what they would have received, in the 
 same time, merely as wages. 
 
 259. Have they not taken to themselves profit? They 
 have; but only in so far as they have supplied, and have 
 risked the loss of, capital, 
 
 260. In the first place, I assume that they have given 
 security for what they borrowed. Then every shilling which 
 might otherwise have been drawn by them as wages, and 
 has, on the contrary, been left to sustain the common enter- 
 prise, and to abide its issue, has, from the date of each such 
 act of forbearance, become capital at risk ; and has, therefore, 
 entitled its owner to profit. The sum total of what we suppose 
 them, in the end, to receive, is composed of (i) wages drawn 
 only in part, so as to meet the mere cost of daily subsistence ; 
 (2). wages forborne to be drawn, and so converted into 
 capital, and ultimately received back as capital ; (3) interest 
 on such capital, being, as all interest is, the price of forbear- 
 ance; and {4) profit: which is a return for the risk they have 
 incurred, of losing the capital they borrowed, or part of it, 
 and also of losing number 2 and number 3. Element i they 
 have earned by their labour; a and 3 by their self-denial; 
 and 4 by their foresight, in risking judiciously the capital with 
 which they have dealt. 
 
 261. This, however, as compared with some of the schemes 
 suggested, in the same direction, would be a very well con- 
 sidered and safe undertaking. 
 
 262. Many instances have, during the last ten or twelve Modern 
 years, been adduced by way of showing that the earner of ^^ *"'"■ 
 
 73 
 
casx 
 
 PROFIT. 
 
 wages may, almost at the will of the capitalist, and in almost 
 any occupation, be converted into a sharer of profits. But, 
 in all these instances, the facts stated need scanning with 
 much more care than they commonly receive from those who 
 are desirous of seeing such changes made. 
 Ledaii^s 263. Much, for instance, has been said of the success 
 
 achieved, some years ago, by M. Leclair, the house decorator 
 of Paris, in so organizing his business as to make a great 
 number of his workmen his partners, and also making the 
 arrangement both permanent and profitable to all concerned. 
 No equally successful attempt of the kind has yet been 
 reported; though many have been made, and with partial 
 success, during the last forty years. This needs explanation. 
 It will be found in a closer examination of the facts. 
 
 264. In the first place, it is to be observed that the rule — 
 that profits can justly go only to those who share the risk of 
 earning them — was, in Leclair's case, strictly complied with. 
 The workmen risked capital, in proportion to their share of 
 profits ; and so became real partners. 
 
 265. In the next place, the business was such as to make 
 it unusually desirable that there should be many active 
 partners. The work to be done was such that it hardly 
 admitted of superintendence ; and yet was peculiarly liable 
 to suffer from the want of it. 
 
 266. It had to be done in the numerous apartments into 
 which most of the houses of Paris are divided. These had 
 often to be reached by long flights of stairs; and were 
 usually in localities more or less remote from the workshop. 
 Materials, generally portable, and sometimes valuable, had to 
 be entrusted, in unfixed quantities, to those who did the 
 work. The use, or misuse, of these materials could 
 hardly be checked; and, as repeated communication with 
 the head of the firm caused much loss of time and labour, it 
 was necessary that those doing the work should use much 
 discretion : partly in dealing with varying circumstances, and 
 partly in compliance with the wishes of various customers. 
 
 74 
 
PROFIT. 
 
 267. These incidents of the trade had thrown it chiefly into 
 the hands of a number of small capitalists, who, themselves, 
 with one or two assistants, took up each job in succession. 
 Thus had been brought into it a large number of men more 
 or less accustomed, and fitted, to direct. But the higher 
 branches of the trade, wherein taste, skill, care, and despatch 
 were most needed, and the profits were highest, were only 
 with difficulty taken by these small masters. And the loss 
 of time, labour, and material resulting from reliance on a 
 large body of mere assistants, induced Leclair to look for a 
 method of infusing into some of his men the spirit of the 
 master. Fortunately, the means were at hand. His men 
 had already a benefit society, with some accumulated capital. 
 He got this invested in the business; and, with it, took in, as 
 partners, the men who owned it. The rest followed, as a 
 matter of course. 
 
 268. The diflSculty as to capital has been got over in Numerous 
 other instances. But many small partners are apt to %^'^^ obstructive 
 trouble ; and to make the due direction of a business difficult. 
 
 In Leclair's case, the additional profit made available was 
 obvious, immediate, and large; the men were willing helpers 
 in all that Leclair desired ; and their aid was always valuable. 
 
 269. Benevolent masters may, in a great variety of ways, Extra 
 make gifts to their workmen, out of their profits, and may ?"^'?f ""' 
 connect these with the amount of the profits ; and may find 
 
 that doing this is well worth its cost. They may thus pay 
 extra wages for extra service of the best kind. But to 265, 
 suppose that any real sharing of profits can exist, where the 
 conditions of profit are not present ; where the risk of capital 
 is not shared; and where the skill which directs the use of 
 capital, and so determines whether there shall be profit or 
 not, is neither contributed to nor paid for by those who are 
 to share the profits, is only to prepare disappointment. 
 
 270. But while it would be unwise to encourage either the 
 workman, or those who wish to aid him, in the hope that 
 profit can ever really be shared by those who do not share 
 
 75 
 
PROFIT. 
 
 Subject the risk implied in earning it, it is extremely desirable that 
 "disfmdm. *^ ^'^o^^ subject should be widely, fully, and intelligently 
 discussed — that capitalists should freely make known to their 
 workmen the conditions on which profits depend — and that 
 every other source of information, calculated to aid the 
 workman in learning and understanding his true position, 
 should be placed within his reach. The experiments hitherto 
 Results of made, in England, in France, in Germany, and in the United 
 experience, gjg^jgg^ (q connect the rate of wages with the rate of profit, 
 go no further than to show that though the goodwill of the 
 workman, thus stimulated, often makes his labour more 
 productive, he can do nothing to diminish the risk of his 
 employer ; and that though he is always willing to share 
 profits, when they are made, he is always unwilling, and 
 often unable, to share the losses which, in most cases, come 
 alternatively with profits, as the night comes with the day. 
 
 271. Profit must be earned, before it can be had ; and the 
 provident workman, with regard to profit, is best regarded as 
 a small capitalist : now a very large, and, happily, a growing 
 class. Becoming that, the rest is easy, when it is at all 
 practicable. The Joint Stock principle is at hand ; and all 
 that any group of workmen, who can find the needful capital, 
 have to do, is themselves to display, or to retain and pay for 
 the needful skill to put it to apt use. 
 
 Gratuitous help is only alms, after all ; and what is needed 
 is, a free and independent development of the workman's 
 own power, with a view to his own elevation. 
 
 272. If enterprise in his own calling be beyond his reach, 
 diere are always open other avenues to profit. Our railways 
 are now owned chiefly by small capitalists whose shares do not 
 average more than about a thousand pounds, and these might 
 be much smaller. And there are many sound enterprises 
 open to similar investments. The shareholders, in these 
 cases, find, among them, all the capital, and have power, 
 secured to them by law, to appoint, pay, and dismiss, all who 
 direct its use ; and they take all the profit ; and their capital 
 
 7« 
 
 Invest- 
 ments for 
 savings. 
 
PROFIT. 
 
 is hardly more risked than it would be on a mortgage of 
 land or of houses. 
 
 273. No doubt, in the widely varied forms taken by our 
 industrial life, it may be so contrived, in some instances, that 
 the earner of wages shall also be a sharer of profits. But the 
 very distinct nature of the contributions to production made 
 in these two capacities, must always tend to keep them apart. 
 Men so placed can seldom be good servants, and active 
 partners too. Hence it is better, probably, for the thrifty 
 workman to avail himself of investments in which he will 
 not be called upon for direction, than to place himself in a 
 position, as regards his own employer, which, though it may 
 gratify his feelings, and even promote his efficiency, must 
 needs be more or less ambiguous. 
 
 274. There are, and have long been, many thousands of 
 persons in the middle classes who have saved capital, and 
 who would gladly exchange the moderate dividends they can 
 obtain as mere sleeping partners in large concerns for the 
 larger profits they might hope for in smaller ventures directed 
 by themselves. But the wiser of them see that the commerce 
 of our day has, greatly for the benefit of all, drifted into 
 broader channels, wherein no craft they could manage would 
 find adequate safety, and so good an average return as they 
 get where they are. 
 
 275. It is very desirable that we should mark, clearly, the 
 distinction between gambling and commercial speculation. 
 Any confusion here involves, especially in our time, danger 
 of more kinds than one. 
 
 276. It may be done thus :— -As we all know, human Dealing 
 faculties are hmited in their range; and, however highly" ... 
 cultivated, they cannot be relied upon to indicate, with 
 certainty, the future result of any long chain of events. In 
 
 other words, in all human adventure there is more or less 
 of what is called " chance." Now, chance means the action 
 of causes which we cannot detect, or predict the operation of. 
 
 77 
 
PROFIT. 
 
 But all speculative trading assumes that the speculator sees 
 enough of the causes of the event speculated upon to justify 
 him in guessing the rest; and so forming an intelligent 
 opinion as to the probable result. The element of chance 
 is there — it may be largely there ; but it is not usually pre- 
 dominant. The operation is still one of commercial skill ; 
 for there is ground on which skill may reasonably operate. 
 
 277. Now, let us take the other side, and mark the nature 
 of gambling. Two men stake their money on the cast of 
 dice. As each throws, he is ignorant of what the result will 
 be. Here the element of chance alone is present. Skill has 
 no place. Hope and fear, indeed, hang upon the result; 
 but they are not guided by any light as to what is coming. 
 
 278. Most games admit the element of skill, in various 
 degrees. And, so far as it is present, the intellect is appealed 
 to ; and the result is a trial of strength. 
 
 279. Where, then, shall we draw the line between gambling 
 and speculation ? Each assumes that the prospect of profit 
 is based on the fair staking of something to be lost. Then 
 we may say that, so long as the speculator complies witlj 
 this condition, and does not trust wholly to chance, but has 
 data, and really forms an opinion, he is within the line of 
 legitimate trade. It is his proper business to anticipate, and, 
 as it were, to discount, the effect of coming fluctuations in 
 price. If he guesses well, he serves himself, and others, 
 about equally. If he guesses ill, he loses his money. But if 
 he forms no intelligent opinion — whether he has material for 
 one or not — he exercises no skill ; and his operation, though 
 it may accidentally serve himself, and so serve others, is 
 obviously devoid of merit. As regards his own action, it is 
 of the nature of gambling ; and it need hardly be said that 
 if he be not prepared to pay any loss he may incur, he is 
 gambling dishonestly. 
 
 280. It is remarkable that as the eager and short-sighted 
 capitalist, seeking profit, approaches the gambler in his 
 method, and his means, he tends to share also his fate. He 
 
PROFIT. 
 
 hardly ever prospers in the end. If unlucky, he disappears ; 
 and his losses are seldom received as warnings by those who 
 take the same course. If lucky, he is commonly betrayed by 
 the very quality which led him at first — he does not know 
 when to stop. 
 
 281. There are some prevalent modes of dealing for profit Specula- 
 which have no apparent connection with the use of con- ''""• 
 sumable commodities. But they have their use ; and are 
 conducted on the same principle. 
 
 282. Buying at one price, and selling at another, not 
 lower, but as much higher, as may be, may be said, indeed, 
 to include the whole business of commerce — regarded as the 
 process by which wealth is exchanged and distributed. For, 
 to this process the conveyance of commodities to where they 
 are most wanted, and the storing of them against the time when 
 they wiU be most wanted, and the assorting, and dividing, and 
 preparing of them for consumption, do, in fact, all conduce. 
 
 283. These operations are not entered upon, or carried 
 through, with the primary purpose of pleasing, or benefiting, 
 the consumer of the commodities ; but with the purpose of 
 obtaining from him adequate payment for the service they 
 ultimately render to him. It is the primary purpose of the 
 merchant so to buy, to-day, as that he may not have to sell 
 at a loss, and that he may be able to sell at a profit, this day 
 week, or this day month. Thus the estimation of future 
 probable values becomes, with him, a constant operation ; 
 and, when he can do it well, he becomes a successful man, 
 and an useful public servant. For nothing better serves the 
 community than an accurate indication of the future cost of 
 what it is likely to want. And such men cannot use their 
 skill without so affecting market prices as to cause them to 
 afford such an indication. 
 
 284. Of course, such skill, when acquired, will be used 
 wherever it is likely to profit the users. And as changes 
 of market prices are constantly occurring in other things 
 
 79 
 
shares. 
 
 PROFIT. 
 
 than in consumable commodities, there, also, we see such 
 skill in use. 
 Stocks and 285. For instance, the government of each of the nations 
 of Europe has, in time past, had occasion to borrow money 
 for national purposes. In some instances, as with our own 
 government and that of France, the sum borrowed has, alto- 
 gether, been very large. The debt, in each case, forms what 
 is called stock ; and is divided into parts, and subdivided, as 
 it suits the holders ; and twice a year each holder receives 
 the amount of interest (or dividend) due to him, for the past 
 half year. This stock forms in England a great mass of 
 property, which, as the credit of the government is very high, 
 is much liked, and deemed very safe. 
 
 286. The " Three per cent. Consols " means that part of 
 the stock bearing interest at three per cent, per annum ; and 
 in time of peace and general prosperity, though the rate of 
 interest is so low, the stock sells at about " par " — or is worth 
 £ioo for every £ioo of stock. But it fluctuates in price. 
 If war seems likely, it is feared that the government will have 
 to borrow again. This reduces the value of the stock ; for 
 much money will be wanted for the new loan ; and the rate 
 of interest will rise. Even if bad harvests occur, and we have 
 to pay for much foreign corn, so much more money will be 
 needed that this tends to raise the rate of interest. Then 
 the price of government stock goes down — for it yields only 
 three per cent., unless you can buy it below " par." And 
 it is the same with the stock of all governments. 
 
 287. Of course, with many hundreds of millions of stock, 
 and sales and purchases always going on, there would be 
 some change of price, from day to day, caused only by more 
 buyers coming at one time, and more sellers at another. But 
 in view of any such event as I have supposed, a greater dis- 
 turbance occurs. As, when we were near going to war with 
 Russia, in May, 1885, Consols sank five or six per cent., in 
 a few days. On such occasions some of the speculators in- 
 cline to think there will be war, and that the fall will go 
 
 80 
 
PROFIT. 
 
 further. These are called the " bears " because they speculate 
 for a fall ; and seek profit by selling, even when they have 
 not got the stock — because what is bought or sold may 
 remain undelivered for a fortnight — in the expectation that, by 
 the time for delivery, they will be able to buy (for delivery) 
 at a profit. Others incline to expect peace. They are called 
 " bulls." They speculate for a rise ; and are always ready to 
 buy at the current price, expecting it will go up : which 
 would give them a profit. 
 
 288. Now, if it be borne in mind that in the same market, 
 at the Stock Exchanges of London and all our large towns — 
 not only the stocks of European governments, but the shares 
 in all our railway and other joint stock Companies, are 
 being constantly bought and sold ; and that the same events, 
 of national, or even world-wide magnitude, which I have 
 referred to, in proportion as they affect the rate of interest 
 alone, affect all this property, more or less — it will be seen that 
 there is a large field open for speculation, from day to day, 
 as to what will probably be the market price of any such 
 property, a week, or a month, or three months hence. And 
 to such speculation many persons devote their capital, and 
 skill. It often looks like gambling, and sometimes is such ; 
 for what they judge by has to be, for the most part, guessed 
 
 at ; and is sometimes wholly unknown. But this specula- Use of 
 tion has its use. It keeps a market constantly open for buy- ^P^'^"''^' 
 ing, or for selling such property; and it causes the prices 
 there to range as nearly at what is known to be the real 
 value of the property as may be. 
 
 289. Profit, then, as commonly spoken of, means pay- 
 ment for risk successfully incurred by a producer, or a 
 manufacturer, or a dealer ; and also for the use of his capital, 
 and for the direction of its use. But, strictly speaking, the 
 term " Profit " is applicable only to the risk implied in the 
 enterprise : the capital embarked earning also Interest, and 
 the labour earning Wages. 
 
 290. The rate of Profit is directly dependent on the extent Jiate of 
 
 G 8i ^''''■^^- 
 
PROFIT. 
 
 Highest 
 where risk 
 new. 
 
 Ottier 
 causes of 
 variation. 
 
 of the risk incurred — always assuming that the venture it is 
 staked upon has been conceived, and shaped, with adequate 
 ability. Hence Profit is, as a rule, highest in countries in 
 which property is least safe, though it is common to say that 
 Interest is highest in such localities : the charge for the current 
 use of capital being commonly confounded with the risk of its 
 loss while in use. It follows that as one of the main elements 
 of price is thus augmented wherever property is insecure, 
 every advance towards making property safe tends to lower 
 prices. It lessens the rate of profit, or the price at which the 
 needful capital can be brought into use. 
 
 291. This very simple and obvious truth would, were it 
 sufficiently known, malfe the poorer and more nurtierous 
 classes of every nation the most keenly desirous of preserving 
 social order. 
 
 292. Profit is also, as a rule, highest in the newest forms 
 of industry. These are all, at first, more or less experimental. 
 It follows that those who first take up the new venture, and, 
 by their experience, apply a measure for others, to the risk 
 actually incurred, are entitled to a higher profit ; and as they 
 seldom have many competitors, they, in most cases, seciure this. 
 
 293. If all manufacturers and dealers ran about equal 
 risks, the rate of profit would be, with all, about the same. 
 But some trades, and some branches of particular trades, are 
 naturally attended with greater risks than others ; and with 
 these the ordinary rate of profit is therefore higher. Some 
 goods are peculiarly perishable, or liable to become un- 
 saleable. The consumer is sometimes swayed, in his pur- 
 chases, by fashion; and the fashion changing, he rejects, 
 to-day, what yesterday he would have bought willingly. 
 Other commodities, though always in demand, are required 
 only in small quantities, and at uncertain intervals of time. 
 And the dealer must be paid for keeping always ready what 
 he may wait long to sell. Others, as drugs, though not 
 costly in production, would be unsafe to consume, unless 
 taken from skilled hands; and here the consumer 
 
 83 
 
 may 
 
PROFIT. 
 
 reasonably have to pay to a skilful retail dealer as " profit " 
 many-fold the actual cost of production. 
 
 294. Of course dealers with small capital prefer small 
 risks. They prefer to deal in articles which do not lose in 
 value by keeping. The dealer who has no special skill pre- 
 fers to deal in goods which need little skill to buy. But 
 dealers with little skill and with little capital are so numerous 
 that the profit they can make, competing as they do with 
 each other, is very small. 
 
 295. Then some commodities are disagreeable to deal in ; 
 and on these the rate of " profit " (so-called) is proportion- 
 ately higher. 
 
 296. But, allowing for these disturbing influences, there is, 
 with profit, as with interest and wages, a constant tendency 
 to adjust itself to a common average. Whenever the profits 
 in any given trade fall below the average, capital is apt to 
 leave that trade. On the other hand, as profits in any trade 
 
 rise, more capital is apt to. be employed in it. Nor is this Capital fol- 
 process of transfer so difficult as might at first sight appear, lo^^ pfofif- 
 It is not often done, at least in this country, by a direct with- 
 drawal of capital from a trade with diminishing profits. 
 Rather, new capital is no longer invested in that trade, but is 
 carried to others ; until, with the increase of wealth and 
 population, the balance is gradually adjusted. 
 
 297. I need scarcely add, that all profit being payment for 
 risk, is more or less dependent upon the spirit of adventure. 
 It is the reward of that spirit, when duly guided and regu- 
 lated. Consequently, profit is more abundant, as a source of 
 income, in the United States than in this country ; and more 
 abundant in this country than in the other less advanced 
 countries of Europe. 
 
 298. The more strict definition here given of profit, has 
 long been familiar to commercial men, and still more so to 
 commercial lawyers. Strong traces of it are found in the 
 Roman Law ; and it pervades the law of " partnership " 
 
 G 2 83 
 
PROFIT. 
 
 and the law of "principal and agent" in every country in 
 modern Europe. There the right to profit is always assumed 
 to be allied with a risk of capital ; and the liability to sustain 
 the losses incident to an enterprise alone to give a title to 
 its gains. 
 
 299. The definition of profit will, however, often be found 
 more difiicult than that of any of the other three forms in 
 which an income is derived from industry. Profit is more 
 various in its sources, and more variable in amount. It is 
 also less certain, and is less dependent upon any definite 
 qualities in those who earn it. 
 
 300. My views on this subject should be compared with 
 those oiAdam Smith ("Wealth of Nations," Book I., ch. 6); 
 those of Mr. McCulloch ("Political Economy," Part I., 
 ch. 2); and those oiMr.J. S. Mill ("Political Economy," 
 Book II., ch. 15). 
 
VI. RENT. 
 
 301. One of the first things we do in learning a science, or 
 any art, is to master its technical terms — to learn its language. 
 We have to take up new ideas, and to wed them to fit words. 
 And if the words are words we have used before, to convey 
 other ideas, the task is so much harder. We have then to 
 learn to use familiar words with new ideas. 
 
 302. It so happens that nearly all the words used in 
 political economy are also in common use; and most of 
 them with other meanings. Hence a special liability to con- 
 fusion, against which we must strictly guard. But especially Rmt now 
 is it necessary to be precise in the ideas we attach to the il^ 'i'fi'^d. 
 term " Rent : " because, even among political economists, the 
 
 ideas to be attached to the word are not yet well settled. 
 
 303. When, in daily Ufe, we speak of " salt " we mean the 
 common salt of the kitchen. When we learn chemistry, we 
 become acquainted with many salts. Our familiar " salt " is 
 a rough natural combination of chloric acid with soda. But 
 there are many acids, and many alkalies ; and in chemistry 
 a " salt " means a combination of any of these. 
 
 304. Political economy is far from being, in this respect, 
 so well advanced as chemistry. Many political economists 
 have adopted, wholly or partially, the loose colloquial meaning 
 
 of the word Rent ; while some have extended, and others have 71. 
 narrowed, this meaning. In particular, some have made it 
 signify only the payment which is made for the agricultural 
 use of the " natural powers " of the soil. This use of the 
 term is identified with what is known as " Ricardo's Theory 
 of Rent," which I shall have, presently, to explain. 
 
 85 
 
RENT. 
 
 Wider 
 
 definition 
 
 suggested. 
 
 78. 
 
 71. 
 
 305. It seems to me, however, desirable to connect with 
 the term " Rent " all payments which, in their nature, are 
 substantially the same as those made for the use of land and 
 houses — as being made for permission to use any article 
 which is, itself, to be returned to the owner. In this sense, 
 an acre of land taken for a year, a house for six months, a 
 seat in a theatre for three hours, or in a railway carriage for 
 one hour — are all, substantially, held, and paid for, on the 
 conditions of Rent. 
 
 306. As we have seen, when the service to be paid for is 
 a loan of floating capital, or anything which is not itself to 
 be returned, the payment is properly termed Interest. 
 
 307. It would seem to be a good practical way to distin- 
 guish rent from interest, to consider the former the payment for 
 the use of fixed capital, and the latter the payment for the use 
 of floating capital. But this would be to base a cardinal dis- 
 tinction on a difference not capable of being closely defined. 
 
 308. Strictly speaking, everything produced by man is 
 perishable, and is intended to perish in the use — or to be 
 consumed. So all capital may be said to be, in this sense, 
 floating. From the suggested point of view the only assign- 
 able difference between the pie-crust that perishes in an hour, 
 and the monumental pillar that lasts for ages, is one of time. 
 This admits of any degree of subdivision ; and we have no 
 test by which the right division may be determined. 
 
 309. The distinction suggested is one about the application 
 of which there can be no doubt. 
 
 77. 
 
 Its applica- 
 tion. 
 
 310. All loans, whatever the thing lent, involve the con- 
 tingency of the thing not being returned. Loans of fixed 
 capital are comparatively little liable to this contingency. 
 But they involve another : that of depreciation, in value, of 
 the thing lent. 
 
 311. We are all familiar with several forms of (so-called) 
 Rent — as the Rent paid for the use of houses, or parts of 
 
RENT. 
 
 houses, furnished or unfurnished, for the use of oflfices, 
 and of warehouses, and for Jthe use of machinery, as 
 steam-engines and gas-meters ; and with reference to rural 
 affairs, we hear of rent not only as paid for the use of land, 
 but also as paid for the use of animals, as bulls and rams, 
 and for the use of threshing and ploughing machines. 
 In all these cases, the lender places at the service of the 
 borrower some specific piece of property, the use of which is 7^. 
 to be directed by the borrower; though the direction is 
 sometimes given under the superintendence of the lender. 
 And, when it is so given, it includes the element of wages. 
 The beneficial effect of such use of a machine is not usually 
 guaranteed by the lender. That is at the risk of the 
 borrower. 
 
 312. If the service rendered were the ploughing of twenty 
 acres of land, or the threshing of three stacks of wheat, what 
 was paid would not be considered the rent of a ploughing 
 machine, or of a threshing machine : for the service rendered 
 would be seen to be dependent on the effect produced, and 
 not upon the use of particular means to produce it. The 
 payment would therefore take the form of wages for so much 
 labour done. But, in so far as a machine was used, the 
 element of rent would clearly be present in this — as that of 
 wages would be in the preceding case. 
 
 313. Rent, like interest, is almost invariably measured by jii,„t 
 the time the thins: lent is in use. Labour, too, is commonly measured 
 measured by time ; and rent and wages often have some 
 reference, more or less explicit, to the effect expected to be 
 produced. But the effect to be produced has no place in 
 
 the consideration of interest. 
 
 314. Occasionally, transactions occur in which what is Loan of 
 really rent (in the sense in which the term is here used) '^^°^- 
 seems almost identical with interest. If a thousand pounds in 
 Consols be lent for a fixed period, the borrower paying all 
 
 87 
 
RENT. 
 
 cost of transfers, and paying, also, a given sum for the 
 service thus received, the sum he pays is rent. Consols may 
 fall in price, during the period of the loan, to a greater 
 extent than will cover what is paid for the loan ; or may rise, 
 so as thus to double the cost of the loan to the borrower. 
 But the thing lent is itself to be returned ; not its equivalent 
 in value ; and the sum paid for the service, though it may be 
 dependent upon, is not measured by the value of the thing 
 lent. 
 
 . „ 315. All else being equal. Rent may be expected to be 
 
 higherthan higher, in relation to the amount of capital invested, than 
 mtetest. interest : for he who receives Rent not only gives, for a time 
 certain, the use of so much capital : he also takes upon 
 himself, during that time, the loss, if any, incident to wear 
 and tear, and every other form of depreciation of the thing 
 lent which is incidental to the stipulated use, and to the 
 agreed lapse of time. 
 
 Service 316. Those who receive Rent may be said to have served 
 
 ren ere gQgjgty tjy investing capital in specific things capable of 
 being placed, for a time, at the service of others than their 
 owners. Most commonly, the payment they receive may be 
 resolved into two parts : (i) interest of the capital invested, 
 and (2) a return of part of that capital. And the latter item 
 is sometimes the larger of the two. 
 
 It will be observed that the amount of this item is often 
 much dependent upon the care habitually exercised by those 
 who borrow such things. Few persons use the property of 
 others as carefully as they would use their own ; and the 
 known average of such care determines the charge commonly 
 made to make good the result of carelessness in use. This 
 description of carelessness also limits, very perceptibly, the 
 number and range of the things usually let to use for rent. 
 Thus, the economic effect is to promote a careful use of the 
 goods of others. These consist, chiefly, of land and buildings ; 
 S8 
 
RENT. 
 
 but the class might be extended much further than it is, 
 were the borrowers more to be trusted. Land, of course, is 
 practically indestructible ; and is not much liable to deprecia- 
 tion in use. Its mere ownership, also, is for certain social 
 reasons, much desired ; and its profitable use by its owners, 
 is for certain other reasons, not often practicable. So it is 
 much let. And, conversely, as it is not profitable for farmers 
 to own the land they cultivate, the demand for land to rent 
 is nearly measured by the extent of the farming interest. 
 
 317. Buildings are much built to be let, because, as habi- 
 tations, or as places to work in, or as stores, of various kinds, 
 every inhabitant of the country wants them more or less. 
 They are always liable to depreciation in value by use, and 
 also by mere lapse of time ; for the buildings of one 
 generation are, in this country, seldom quite what the next 
 generation wants. But their probable loss of value, in these 
 respects, lies within limits not difficult to estimate. And 
 both land and buildings have the quality of being immove- 
 able. This is an advantage in point of security; but, in 
 other respects, it may entail either loss or gain ; and usually 
 does so, to some extent, within the compass of a single 
 generation. 
 
 318. It seems to be popularly supposed that land always Increased 
 gains in value by the lapse of time. It has done so, for /™^ 
 many years past, in most parts of this country; but not 
 everywhere, even in England. And it is clear it does so, 346. 
 invariably, with reference to the increased value, not of the 1105. 
 land itself, but of the locality it occupies. It does not do so 1122. 
 without being observed; nor, in most cases, without being 
 
 led up to, intentionally, by human action. The buying 
 and selling of land, with a view to a future increase of its 
 local value, is a common employment of capital. And it is 
 not probable that, during any given time, or over any con- 
 siderable area, it has ever yielded, on an average, more than 
 the ordinary rate of profit. 
 
 89 
 
RENT. 
 
 319. Buildings of a permanent character are often let for 
 terms of years. This is facilitated by their fixed locality; 
 and their comparative freedom from depreciation in use. 
 Rent of In proportion as things let to rent differ from land and 
 timchmery, bu^fjingg i^ these two respects — as machinery, furniture, 
 horses, &c. — do we see the terms they are usually let for 
 reduced in length — the vigilance of the owner in watching 
 the use made of his property increased — the freedom of use 
 given to the borrower diminished — and the rent (in relation 
 to the amount of capital invested) increased. As these in- 
 cidents thus become more prominent, there arises a tendency 
 in rent to take the form of wages, or of profit. 
 Of ships. 320. Take the letting of ships as an example. A ship 
 may be regarded as a floating house, or warehouse. It is 
 liable to depreciation, in use, and by lapse of time. But it is 
 much more liable to damage, and to loss, from bad manage- 
 ment. So the owner, though he may let the use of his ship 
 for a term, or for a voyage, always keeps it in the custody of 
 his own servants. He appoints the officers and crew ; and 
 most commonly stipulates for the kind of cargo. In short, 
 the shipowner does not often quit his occupation of a carrier 
 by sea. He lets the use of the whole ship to one customer, 
 much as he would let only a part of it to one. And though 
 the freight, in some instances, comes, if strictly regarded, 
 within the definition of rent, it is much more frequently dealt 
 with as wages. So, even, with the letting of houses. When 
 they are let furnished, and only a part is let to one tenant, 
 especially if the tenant be also supplied with food, the land- 
 lord often assumes the position of a servant, and, waiting 
 upon his tenant, receives, in a form which is, practically, 
 that of wages, what undoubtedly is, in great part. Rent — 
 and which sometimes bears that name. 
 
 321. This tendency of Rent to become mixed with, and 
 not easily distinguishable from, wages and profit, is most ob- 
 servable in cases which are most familiar to dwellers in 
 towns; and hence, probably, it is that writers on political 
 9° 
 
RENT. 
 
 economy, whose experience has been obtained chiefly in 
 towns, are apt to deal with rent, by preference, or only, in 
 its purest form — as it is seen in the rent of agricultural land. 
 
 322. Here we may fitly deal with Ricardo's "Theory," 
 which could have sprung only from this exclusive mode of 
 regarding rent. 
 
 323. It is stated, very clearly, by Mill, in his " Principles Ricardo's 
 of Political Economy," Book II, chap. xvi. ; and the gist ' "^^' 
 of it may be gathered from the four following sentences, 
 extracted thence : 
 
 (a) " Rent is the effect of a monopoly ; though the mono- 
 poly is a natural one, which may be regelated, which may 
 even be held as a trust for the community generally, but 
 which cannot be prevented from existing." 
 
 (b) " So long as any of the land of a country which is fit 
 for cultivation is not cultivated, the worst land in actual cul- 
 tivation (in point of fertility and situation together) pays no 
 rent." 
 
 (c) "As long as there is land which yields no rent, the 
 land which does yield rent, does so in consequence of some 
 advantage which it enjoys, in fertility or vicinity to markets, 
 over the other ; and the measure of its advantage is also the 
 measure of its rent. And the cause of its yielding rent is 
 that it possesses a natural monopoly; the quantity of land, 
 as favourably circumstanced as itself, not being sufficient to 
 supply the market." 
 
 (d) "If all lands were equally fertile, those which are 
 nearer to their market than others, and are therefore less 
 burthened with cost of carriage, would yield a rent equivalent 
 to this advantage ; and the land yielding no rent would then 
 be, not the least fertile, but the least advantageously situated, 
 which the wants of the community required to be brought 
 into cultivation." 
 
 324. The phrase {b) " fit for cultivation " is too vague to 
 form part of such a definition. The thing affected is thus 
 
 91 
 
RENT. 
 
 made much matter of opinion ; and, in fact, may well vary- 
 between one day and the next. 
 
 325. Ricardo's own definition of rent is clear and simple. 
 "Rent," he says ("Principles of Political Economy and 
 Taxation," Chap, ii.), "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." 
 
 326. It is more than a hundred years since this theory 
 first appeared in print ; and about seventy years since 
 Ricardo's name was attached to it. At the latter date it 
 was hailed as a valuable discovery ; and it has since been 
 generally regarded as one of the leading tenets of political 
 economy. It has often been objected to, and has often been 
 misunderstood. 
 
 327. Mr. Ricardo's definition of Rent obviously attaches 
 value to the natural powers, or qualities, of the soil, apart 
 from any human effort. Such natural qualities, so regarded, 
 cannot, however, possess value in our sense of the word. 
 No doubt, every article which bears a price among men owes 
 its utility mainly to the natural qualities of the substance of 
 which it is composed. In any case, we do but fashion the 
 raw material supplied by nature, and make it available for 
 human use. But the fruits of the earth, as they cannot be 
 had without human effort, if only in defending their posses- 
 sion during growth, and till they are fit for consumption, 
 may be fairly deemed to owe whatever exchangeable value 
 they possess to such human effort. 
 
 328. Ricardo also assumes (i) that all possession of land 
 implies a monopoly; and (2) that the "original and inde- 
 structible powers of the soil" form so considerable a part of 
 the value of this monopoly as to justify our regarding these 
 " powers,'' not only as a distinct element in the value of land, 
 but as an element of so much importance as to justify our 
 giving the name of Rent exclusively to the payment made 
 for their use. 
 
 9a 
 
RENT. 
 
 329. On both points I conceive him to be wrong. But 
 let us first fairly understand the " Theory," as it was formed, 
 and may be applied ; and then consider its correctness, and 
 its sufficiency. 
 
 330. To this end, we must regard the subject from the 
 stand-point selected by those who propounded it. From 
 this point of view, it must be admitted that it describes 
 accurately how the rent of land, used in agriculture, comes 
 into existence, and increases or diminishes. I say " used in 
 agriculture," because it is always assumed, in applying this 
 theory, that " fertility," in some degree, is an ever-present 
 element in the value of the land. But though I admit the 
 facts, I cannot agree with all the inferences. 
 
 331. The authors of the theory observed that a rise in the 
 price of the raw produce of land was often the cause of a 
 rise in the rent of the land ; but that an increase of the rent 
 never caused a rise in the price of the produce. The 
 natural inference was, that the Rent of the land did not enter 
 into the cost of production ; and this was found to be, in 
 effect, true. It was seen that if the landlords gave up their 
 rents altogether, the tenants would still get the same price 
 for their produce, for that this price was fixed by the cost of 
 production on the least productive, and least favourably placed 
 land, sending produce to the same market. The Rent given 
 up would, therefore, go into the pocket of the farmer, and 
 not into that of the consumer. Conversely, a rise of rent 
 might ruin the farmer, by absorbing his profit, or even his 
 capital, but it could not raise the price, as long as land yet 
 untilled could be brought into action to increase the supply 
 in the same market, without a rise of price. And, so far, 
 they were right. 
 
 332. To me, however, Ricardo's theory, as a " theory of Where de- 
 Rent," seems to be defective on three points : — fective. 
 
 First, generally, because it has no reference to anything 
 but the Rent of land ; and there are many other forms of 
 Rent. But this is mere matter of classification. 
 
 93 
 
RENT. 
 
 Second, particularly, as defining the Rent of land, it is 
 deficient as referring only to what is pecuhar in the rent of 
 agricultural land ; and leaving unnoticed much, in all rent of 
 land, which is not affected by this pecuUarity. 
 
 And, third, it is incorrect, in tracing what is peculiar in 
 the rent of land to some " natural and indestructible powers " 
 (among which fertility and locality are alone named), when, 
 in fact, there is but one such power — though that, undoubt- 
 edly, has all the imputed effect of the powers referred to. 
 
 333. The only "natural and indestructible power" pos- 
 sessed by any land is such as may arise from its locality: — 
 its place, and its fixity, in space. Any, and every, other 
 " natural power " may be removed, or exhausted. 
 All land 334. In other words, all that is peculiar to land, regarded 
 ^pendent on ^^ property, and therefore all that is peculiar to Rent, as the 
 locality. price paid for the use of land, whatever its use may be, is 
 dependent, and is solely dependent, upon its being im- 
 movably fixed in its place. This quality land alone pos- 
 sesses; and it has, at all times, over the value of land for 
 use, a paramount influence. 
 
 335. Comparative fertility, or productiveness, is not a 
 permanent quality; and also it is shared by other things. 
 And mere " natural" fertility in land is never indestructible ; 
 and has not, ever, much effect upon rent. 
 
 336. But locality is always effective ; and wherever rent is 
 paid, is greatly effective. 
 
 337. The greater part of the fertility of land that pays rent 
 is dependent upon the manner in which it is used; and 
 especially on the skill and capital employed upon it. 
 
 338. Wherever you find land possessing a local advantage, 
 you find Rent, whether it has fertility or not. Where no 
 local advantage is present, you have no Rent, whatever the 
 fertihty. 
 
 339. The development and realisation of the local advan- 
 tage usually kads to a corresponding investment of capital 
 
 94 
 
RENT. 
 
 upon, and in permanent connexion with, the land. But the 
 Rent is, undoubtedly, paid, mainly, for an original and in- 
 destructible " power " in the land. This power, however, is 
 simply its fitness to gratify human wants as arising from its 
 particular locality. 
 
 340. Even in England, there are large tracts of land 
 which, for any agricultural use, would not let for a penny an 
 acre per year ; and there is other land, and not a little of it, 
 the mere surface of which, wholly devoid of fertility, and 
 apart from the value of any erection on it, lets at an annual 
 rent of £10,000 an acre. If there be any (agricultural) 
 fertility, in either of these cases, it is all on the side of the 
 land that will not let. And the whole difference is palpably I082i 
 traceable to difference of locality, and to nothing else. 
 
 341. This value of locality is as clearly traceable to the' Cause of 
 operation of a single cause : the tendency of mankind, as "" 
 they pass onward from the savage to the civilized state, to 
 gather together in large and dense masses in particular 
 localities : in other words, to intensify the advantages of 
 aggregation. Had the earth, before we put a spade into it, 
 been divided, in the most equitable manner, among all man- 
 kind, and had each man been placed upon his own lot, were 
 that possible, the result, in our day, would probably have 
 been much the same. All men being equally supplied, no 
 value in exchange would have attached to the land, till some 
 local advantage gave such value. But, while they remained, 
 each on his own plot, hardly could any such advantage have 
 been developed. Agriculture, however, would have intro- 
 duced division of labour, and variety of industry, and these 
 would have induced local aggregations of men, for produc- 
 tion, and for social purposes ; and, finally, the distinction of 
 urban and rural life ; and then the value of the plots taken 
 for the sites of towns, and those best situated for supplying 
 the towns, would have risen in value, under the very law, and 
 with the very results, we now see in operation. 
 
 95 
 
RENT. 
 
 342. This gathering together of mankind is of course 
 evidence of an adequate inducement ; and the inducement is 
 apparent in an increased productiveness of labour, skill, and 
 capital. All these are served by rapid and complete com- 
 munication : and hence it is that such rent may even go on 
 increasing continually with the advantages that give rise to it, 
 vs'ithout any increase whatever in the price of the com- 
 modities produced by the aid of the facility for which rent is 
 paid. And, for the same reason, mere rent of land may be 
 expected to fall, as improved means of communication, and 
 of transit, shall make the close aggregation of men less 
 needful. 
 
 343. A shopkeeper, who pays a very high rent for a shop 
 in a great thoroughfare, cannot, by this only, obtain a higher 
 price for his goods than other shopkeepers. 
 
 344. Yet his profit may not be less, but greater, than 
 theirs. He economizes in other directions. If he serves 
 five hundred customers in a day, while they serve only fifty, 
 he saves a large proportion of his outlay in various current 
 
 1078. expenses. But if, and when, mere locality becomes less 
 valuable to him, he will cease to pay so much for it. 
 
 Land not 345. In the four short sentences quoted from Mr. Mill, 
 lisai. ''^^'^ reference to Ricardo's theory, the word "monopoly" 
 
 occurs twice. This I deem unfortunate. It has given some 
 sanction to the notion that in the exclusive possession of 
 land, by individuals, there is an inherent injustice. It is true 
 that Mr. Mill seeks to guard himself against this view of the 
 word by calling it a " natural " monopoly ; but I consider 
 the term inapplicable, however qualified. In fact, there is, 
 properly speaking, no monopoly. This subject, however, I 
 deal with further on (1073). 
 
 346. I have said that the Rent of land has no necessary 
 connection with fertility. In fact, more rent is now paid, in 
 96 
 
RENT. 
 
 England, for land on which nothing is or can be grown, 
 
 than for all the rest of the land of England together. The Land-rent 
 
 rent of land, in so far as it differs from other rent, is simply ^ \f^a" 
 
 the price of a local advantage. If the land be cultivated, advantage. 
 
 and be fertile, its fertility will enhance the rent ; but the rent 
 
 will, in all such cases, be found to have lost the character 
 
 attributed to it by Ricardo. It will not be paid only for the 
 
 use of " the original and indestructible powers of the soil." 
 
 Nay, it will be difficult, if not impossible, in any case where 
 
 rent is paid for land, to ascertain what payment, if any, is 
 
 made for the use of any such power, apart from the effect 
 
 of locality. 
 
 347. The natural fertility of any soil, however great at 
 first, is soon exhausted. Apart from a considerable invest- 
 ment of capital, it carmot be maintained, much less in- 
 creased. And if it be relied upon, alone, it is sure to fail 
 long before the time arrives when rent is paid. When that 
 time arrives, the value of the land, agricultural or other, will 
 be found to be dependent upon the fitness of the land to 
 receive the aid of capital, not on its fitness to dispense 
 with such aid. 
 
 348. The function of the capitalist who seeks Rent, then — The return 
 the service which he renders, and for which he is paid — is-^*"^ "^*' 
 that of supplying, in the use of fixed capital, part of the 
 necessary means of using wealth, and of employing floating 
 capital. He brings his capital into the market in various 
 forms. It is his business, as it is that of every one who 
 undertakes to supply wants which are constantly varying, to 
 ascertain where, and in what particular form, his capital is 
 wanted. His remuneration will depend much on the fitness 
 of what he undertakes to furnish to the use it is required for. 
 If he supplies a wharf, or a road, where a house is wanted, 
 or a cart where a carriage is wanted, or, supplying the right 
 thing, does not supply it in the form, and at the time 
 
 H 97 
 
RENT. 
 
 required, he will be a loser, precisely in proportion to 
 the extent of his error. So it is, also, with the lender of 
 floating capital; though he can more readily correct his 
 mistakes. But if he offers money on loan where it is not 
 wanted, or attaches to the loan of it conditions which cannot 
 be complied with by those who are to make the use of his 
 capital which is to earn the means of paying his interest, his 
 money wUl not be borrowed — his capital will remain un- 
 employed — and he will have no return. 
 
 349. With the seeker of Rent, the more fixed is the form 
 of his' investment, and the longer the term during which 
 profit must be sought in the same form, or not found at all ; 
 the more necessary, on his part, is the vigilance which 
 distinguishes what will, from what will not, be the event. 
 The larger, therefore, is the ingredient of profit in the due 
 return. 
 
 350. But, exactly in proportion as the seeker of Rent — the 
 lender of fixed capital — pursues, freely, his own interest, and 
 honestly and intelligently seeks the highest return he can 
 get, does he succeed. And his success, so obtained, is also 
 the measure of the service he renders to society. And his 
 mistakes, disastrous to himself, operate upon society with 
 equal effect. In short, here as elsewhere, we find pervading 
 the whole science of political economy, as the law of gravity 
 
 5. pervades physics, the principle that while a free, just, and 
 
 intelligent pursuit of our own interest is the best service we 
 
 13. can render to the community, so any restriction upon such 
 
 freedom, or any failure in our own honesty, or intelligence, 
 
 inevitably works a corresponding injury to society. 
 
 Mr. ^ 351. An ingenious gentleman from the United States, who 
 
 theory^ knows San Francisco, and New York, and London, has 
 
RENT. 
 
 found there two things of which most of his countrymen, 
 happily, know but little: rent zx\A poverty. He has seen 
 them there, as he had never seen them before : the rents 
 higher, and the poverty deeper ; and has inferred between 
 them the relation of cause and effect. It is a common 
 inference, with some minds, when two things, neither of 
 them well known, are much seen together. Not very many 
 years ago a notion prevailed, in some pious circles, that the 
 forbidden fruit of Paradise was salt. It could not be denied 
 that mankind had everywhere, and always, been found 
 suffering from sin and sorrow; nor that they had, also, 
 everywhere and always, been found addicted to eating this 
 mineral. The apposition was perfect ; and, to some, the 
 inference was irresistible. But, though striking enough to 
 be talked about for a time, the notion never made much 
 solid way : nor, probably, will this of rent being the cause of 33i. 
 poverty. 
 
 352. The most squalid, and the most helpless poverty 
 known to mankind, always has been, and is yet to be, found 
 where rent is not, and never has been. Where wealth is, 
 there is the only cure for poverty ; and there must be wealth 
 where men pay highly, as in great cities, for the possession 
 of a few yards of land. And it is well known that nowhere 
 is indigence, however brought about, so well provided for. 
 In London, where rent is higher than anywhere else, he who 
 is really destitute has but to make known his want, to obtain, 
 at once, at the public cost, a meal and a bed. This pro- 
 vision has been made there, by law, for centuries ; and its 
 cost is, and always has been, charged exclusively upon rent. 
 
 353. It would be out of place to examine this theory, in 
 4etail, here. The economist can deal only with facts. As- 
 sertions not supported by evidence, or such as are contrary 
 to the evidence we have, are commonly best left unnoticed ; 
 and they are noticed here only because they have obtained 
 unusual currency. This gentleman dopiJJBSrSEef^agjiseyi- 
 dence whatever of his general pradc^jliOTr, inat rent^adil^ 
 
 H 2 Jr 99 
 
 MAR 18 1929 
 
RENT. 
 
 poverty. Nor does he offer any evidence of the particular 
 assertions by which it is accompanied: as (i) that "poverty 
 increased with progress, and want with advancing wealth," or 
 (2) that " wages tend to a minimum which wOl give but a 
 bare living," or (3) that " rent swallows up the whole gain, 
 and pauperism accompanies progress." And, on the other 
 hand, these three propositions are directly contradicted by 
 known facts. 
 
 354. For (i) though much "progress" has undoubtedly 
 been made in this country during the last forty years, 
 "poverty" has not increased, though the population has 
 very largely increased. There is less pauperism. The 
 standard of living is higher, with all classes of labourers, 
 down to the very lowest. The necessaries and comforts of 
 life are cheaper ; and the average duration of life is longer. 
 None of these things are consistent with increased, or in- 
 creasing poverty. The friendly societies, and other similar 
 institutions, of the United Kingdom, built up with the savings 
 of the wage-earning classes, have now an accumulated 
 capital which is estimated, by the best authority, to exceed 
 two hundred millions sterling ^ ; and the greater part of this 
 has arisen from the savings of the last twenty years. Com- 
 
 127. paring the savings-banks alone, for the United Kingdom, we 
 find that, in 1845, the amount deposited was £30,748,000 ; 
 and that, in 1884, it was £95,122,000''. 
 
 355. (2) Wages, in every form of employment, (as 
 measured by money,) have, during this period, been rising ; 
 and the purchasing power of money has, with two excep- 
 tions, also been as steadily increasing. The two exceptions 
 are, house-room, and butcher's meat. The increased cost 
 of house-room is seen almost wholly in the towns, where it 
 has arisen mainly from the competition of the working classes 
 
 ^ E. W. Brabrook, Assistant Registrar of Friendly Societies for 
 England, Statistical Journal, March, 1885, p. 39. 
 
 ^ M'Cnlloch's Statistical Account of the British Empire, 3rd Edition, 
 II. 711 ; and Mr. Brabrook, as before cited. 
 
RENT. 
 
 for dwellings where dwellings are always dearest — where 
 population is most dense. Partly, also, it is a consequence 
 of the restrictions, applied by the Trades Unions of the work- 
 men, to all labour in the building trades. Butcher's meat has 
 risen in price, because the working classes, who, forty years 
 ago, could afford to eat but little butcher's meat, have since 
 become large consumers of it ; and the supply has not yet, 
 in spite of great efforts, been so increased as to keep pace with 
 the demand. 
 
 356. (3) If "rent swallowed up the whole gain," during 
 this period of progress, profits must have been absorbed by 
 it, as well as wages. But it will hardly be asserted that our 
 makers of profit — our manufacturers, our shipowners, and 
 our merchants — have all been so simply playing into the 
 hands of our landowners, as to give to these latter all the 
 advantages of our last forty years of progress. If it be so 
 asserted, the facts directly contradict it, 
 
 357. The agricultural rent of the kingdom forms a much 
 smaller proportion of the whole income from property and 
 profits, now, than it did thirty years ago. 
 
 Income-tax Returns. 
 
 Year. 
 
 Schedule A. 
 Land and Tithe. 
 
 All Incomes 
 assessed. 
 
 Per-centage re- 
 ceived by Landlords. 
 
 1851 
 1883 
 
 i 
 47,800,000 
 
 257,000,000 
 612,000,000 
 
 18.6 
 10.7 
 
 358. The agricultural rent of the kingdom, so far as the 
 figures can be ascertained, also now takes a smaller propor- 
 tion of the gross agricultural produce of the kingdom, than 
 it did forty years ago. This notwithstanding there has been, 
 during this period, a very large outlay, in drainage, and in 
 farm buildings of an improved character, made at the cost of 
 the landowners. 
 
RENT. 
 
 Year. 
 
 Gross Agricultural Produce. 
 
 Gross Rental. 
 
 1842-3 
 
 England, £141,606,000 
 
 )C37, 795.000' 
 
 1882-3 
 
 England & Wales, jf 2 70,000,000 
 
 £65,957,000" 
 
 359. Mr. George's theory, as to the continuous and inde- 
 feasible "natural" right to land, has appeared before, been 
 talked about, and been dropped, as worthless. It will be 
 found in a book entitled — 
 
 An Essay on the Right of Property in Land, with respect to its 
 foundation in the Law of Nature ; its present establishment by the 
 municipal laws of Europe ; and the regulations by which it might be 
 rendered more beneficial to the lower ranks of mankind, i vol. 8vo. 
 No date ; but probably about 1786. 
 
 The author was a Mr. Ogilvie, a benevolent enthusiast, who 
 was, for some time, Professor of Latin in the University of 
 Aberdeen. 
 
 " M<^Culloch's Statistical Account of the British Empire, 3rd Edition, 
 I- 650-553- 
 >> Board of Trade Returns. 
 
VII. INTEREST. 
 
 360. Interest is payment for a service rendered by a Definition. 
 capitalist. He renders this service when he lets another 
 have, for a time, the use of capital which is not itself to 7i. 
 be returned, but of which an equivalent, in value, is to be 
 returned. 
 
 Interest is measured by the time during which the capital 
 is left with the person to whom it is lent. 
 
 361. In these days interest is, very generally, regarded as a 
 just return for a real service. But it was not so always. 
 Until statesmen, and churchmen, as rulers of society, gave 
 some attention to the needs of commerce, they were, very 
 generally, of opinion that it was wrong to take interest. 
 
 For many centuries the Roman Catholic Church, so Formerly 
 long the arbiter of public morals in Europe, denounced the-' '"' 
 
 taking of interest upon money as a deadly sin. Express 
 declarations to this effect were made by Clement V. (a.d. 1305- 
 131-4); by Pius IV. (1559-1565) ; by Sixtus V. (1585-1590) ; 
 and by Benedict XIV. (1740-17 58). And the lead thus 
 given was followed in legislation. Down to the date of the 
 Reformation, in this country, it was illegal to take interest ; 
 and until quite recently, our law forbade the taking of interest 396. 
 beyond a given rate — the last rate so fixed being five per 
 cent. The error of the priests, and the legislators, of by- 
 gone times, in this respect, has come down, like a discarded 
 fashion, to the less educated of the political theorists of our 
 own time. And we find the notion that the use of capital 
 may and ought to be had without the payment of interest, 
 
 103 
 
INTEREST. 
 
 still strongly, and even dangerously, prevalent among what 
 is called the "revolutionary party " in France, Germany, and 
 Italy. Hence, it is well to consider carefully why the demand 
 for interest is a just one. 
 
 Is interest 362. What, then, is the service rendered by the lender to 
 ^"^'^ the borrower.? Is it such as he has a right, if he chooses, to 
 
 withhold ? is it such as he has a right, if he yields it, to be 
 paid for? Does it imply, on the part of the lender, any 
 exertion, or sacrifice? And, to this end, what is capital — 
 the thing lent ? 
 
 363. Capital, we must bear in mind, is always the produce 
 of labour, and of saving — not yet expended. To labour, and 
 to save, is to acquire a right to the fruit of these acts — a right 
 to spend, or to lend, or to give it. This will hardly be 
 denied. 
 
 364. The service now in view is the lending of it. And 
 the reality, and the value, of the service, is best attested by 
 the very general willingness of the borrower to pay for it. 
 It is open to him to labour, and to save, for himself. If, 
 however, he prefers that another shall do so much for him, it 
 would seem that he is bound to pay that other. 
 
 365. It may be that the lender has not obtained the capital 
 by his own personal labour and saving. But this is not to the 
 purpose; unless we deny the right of the first owner to 
 transmit wealth, with all its incidental rights, to another— as 
 by gift, exchange, inheritance, or loan. Ask a dying labourer 
 whether the fund he has put into the savings' bank should go 
 to his children or to the State. His answer will have no note 
 of doubt about it. 
 
 366. Capital, then, may be given, lent, or withheld, at the 
 option of its owner; and if he parts with it for an agreed 
 price, the price is justly due to him. So much for the ques- 
 tion of principle. Now for the practical use. 
 
 367. Capital, it will be observed, is not quite the same 
 104 
 
INTEREST. 
 
 thing as wealth; nor is the capitalist quite the same thing as 
 the mere possessor of wealth. 
 
 368. Wealth may be said to include all the accumulated 
 means of well-being, arising from human labour. But, in 
 this sense, it may also be said that some of the lower animals 
 
 are occasionally wealthy. The bee, for instance; and \hs.andex- 
 ant, and the beaver. They gather, and lay up, food, in the ^^ *^" 
 summer, to be consumed in the winter. What they so ac- 
 cumulate affords them the means of well-being, for a time, 
 without labour. We labour to the same end ; and so make 
 provision for days in which we cannot work; and make 
 climates habitable, which, otherwise, we could not live in. 
 
 369. But we make a further and higher use of our accumu- 
 lations. The mere provision for current and for future wants 33. 
 is but one — and the lower — of two uses for wealth. The 
 higher of the two is to make wealth the means of producing 
 more wealth : which is done by using it as capital. This use 
 none of the lower animals ever attempt. The most intelli- 
 gent of them cannot make a tool of any description ; nor do 
 they ever employ the leisure, given by their accumulation of 
 food, to improve, in any way, their methods of working. 
 Every successive season finds them doing the same work in 
 
 the same way, and with the same limited result: food 
 enough, gathered in the summer, to carry them alive through 
 the winter. They are not progressive. We are. We have 
 not only wealth, but Capital. 
 
 370. How savings, converted into capital, run to use, in aid- 
 ing production, in our day, we see around us in many forms. 
 We even see so much of it that, until taught, we do not perceive 
 how distinctively human is the process. How capital first 
 came into use we may easily imagine. When a hunter, of the 
 lowest order of men we can conceive, got food enough, in one 
 day, to last two, and spent the second day in making a weapon, 
 he made a step in the higher use of wealth— he invested 
 capital. His " capital " was the second day's food ; and his 
 " investment " was the new weapon. He might have lain idle. 
 
 i°5 
 
INTEREST. 
 
 His second day's food would still have been wealth ; but he 
 would have turned it to the lower use. It would have been 
 eaten up ; and he would have come to the third day just as 
 he did to the first. Having turned his wealth to the higher 
 use, he enters on the third day as a more effective hunter. 
 He will kill more game in a given time, or will kill it with 
 less labour. He did not spend his extra day's food; he "put 
 it out to use." He forebore to consume it idly. He "invested " 
 it. He receives interest on it. 
 Forbear- 371. In accordance with this view of the origin and the 
 ■^""^ value of capital, our ancestors, with a keener, because a 
 
 nearer, view of both than we commonly have, called interest 
 "usury," as implying the "use" of another's capital; and very 
 often it was called " forbearance," as implying that the owner 
 of the capital, while it lay in the possession of another, forbore 
 to demand it. The term "forbearance" might, with equal 
 justice, have been applied to the process by which the capital 
 was brought into, and kept in, existence — the forbearance of 
 the owner to consume it. 
 
 372. It is not well that these phrases have fallen into dis- 
 use. They indicate, fairly, the true nature of interest. It 
 has long been agreed that each man shall possess in peace 
 the fruit of his own labour ; and this agreement is, plainly, 
 the basis of all property. To forbear to consume the fruit of 
 one's labour, at once originates property and gives the title 
 to what is saved. And hitherto mankind have agreed that 
 that which a man may himself possess and use, he may also 
 impart the possession and the use of to another. 
 
 373. In short, all capital may be deemed stored-up labour ; 
 90. and the labourer who seeks to trench upon the just rights of 
 
 the capitalist does, in fact, go about, indirectly, to attack his 
 
 The 374. Those who live by their labour only, however, do not 
 
 view"'' ^ readily see this, in point of principle. They have sometimes 
 a dim perception of it, when they see capital used in small 
 io6 
 
INTEREST. 
 
 amounts, and by the very men who made it. Try to take 
 away their own tools, on the ground that they are common 
 property, and they will show that they feel what the right to 
 capital is. But, in these days, when capital has, through long 
 periods, been accumulating, until it has reached, in the aggre- 
 gate, in such a country as ours, an enormous amount, and 
 when the savings of many men, through several successive 
 generations, are often seen in the hands of one man or a few 
 men, it is, to the labourer, by no means clear (though it be 
 perfectly true), that the power exerted by the capitalist, who 
 avails himself of the competition among workmen to lower 
 wages, is, in fact, the very same power which is exerted by 
 the labourer's own wife, when, with ready money, she goes to 82. 
 market, and there avails herself of the competition of the sellers 
 of meat or vegetables in getting what she wants at the lowest 
 price. It is in these things that education is most needed. 
 
 375. The merit implied in first earning, and then saving 
 money, is, when it is plainly stated, readily admitted. And 
 if capital were seen only in the hands of those who had 
 themselves earned, and saved it, there would be no doubt cast 
 upon the justice of interest. As things are, we are sometimes 
 asked how an act, or a series of acts, of forbearance, as shown 
 in the accumulation of capital, can entitle not only the man 
 who did these things, but also his successors for ever, to a 
 revenue " drawn from the labour of others.'' 
 
 376. The answer is — first, that the revenue in question is Right of 
 not, in fact, " drawn from the labour of others : " it is drawn '^''P^'"!- 
 from the capital in view, acting in combination with such 
 labour; and the share of the common product which the 
 capitalist gets is settled, in each case, by prior agreement. 
 Second, the merit which first earned the right — the forbear- 
 ance to consume — is, and justly is, like its reward, continuous. 
 When, and as, the one ends, so ends the other. Let the 
 capitalist cease Xa forbear to consume his capital, let him eat 
 
 it up, and he will lose the right his forbearance gives him 
 while it lasts. 
 
 107 
 
INTEREST. 
 
 377. Of the service actually rendered by capital to labour 
 1155. there is but little, if any, doubt expressed. Nobody proposes 
 
 to do without capital. It is seen to aid production exactly as 
 a plough aids the culture of land, or a hammer the driving of 
 a nail. If it did not render such aid nobody would pay for 
 its use. He who wants a plough or a hammer is not com- 
 pelled to borrow it. He may make one for himself; or he 
 may do without it. And thus, precisely, it is with capital. 
 It is produced by labour, as a plough is. Its use is to econo- 
 
 360. mize labour. // saves time in the work of production; He 
 who has given his time to the production of capital may be 
 said to have stored up time for future use. He who borrows 
 capital avails himself of this store. He thus receives a service; 
 and to refuse to pay for it is to refuse to pay for the labour of 
 its producer — an act precisely analogous to that of the 
 
 373. employer who should refuse to pay a workman his wages. 
 
 378. The price of this service, like that of all services, can 
 be justly fixed only by free competition. 
 
 Interest a 379. Interest, then, like other prices, is justly paid in 
 ^"'' proportion as it is the result of a free bargain. 
 
 380. It is, apparently, lowest, when and where floating 
 capital is most abundant. And no doubt it really is so. 
 
 But the variations which occur in the price of the use of 
 iloating capital, which are properly traceable only to the 
 relation of supply to demand, are not great; and seldom 
 exceed two or three per cent. ; and that only for a time. It 
 is the variation of the security for the due return of the 
 capital which makes the greater part of the variations ob- 
 served in the rate of Interest (so called). And the risk thus 
 charged for implies a corresponding fluctuation, not in the 
 rate of interest, but in the rate of profit, which is sought in 
 195. the lending of floating capital. 
 
 381. As regards interest, proper, it will be observed that 
 as nothing is so readily or so cheaply transferred from one 
 
 io8 
 
INTEREST. 
 
 market to another, as floating capital, so the range of varia- 
 tion in its price, which is really due to local variation of 
 supply, or demand, apart from difference of risk, is likely to 
 be small. And it is so in fact. The largely variable ele- 
 ment, then, in what is commonly called interest, is the price 
 of the risk of not duly receiving back the capital. 
 
 382. If the law, in a given locality, be ineffective, or only 
 partially effective, to protect loanable property, the capitalist 
 
 must be paid for the resulting public risk. And if the con- 395. 
 fidence inspired in the lender, by the security tendered to him 
 by the borrower, be deficient, the rate charged will rise in 
 proportion to the private risk. 
 
 383. Thus loans are not easily obtained in a semi-civilized 
 country. And, in any country, loans to (i) a manufacturer, 
 (2) a dealer, (3) a speculator, (4) a spendthrift, will probably 
 differ, materially, as regards the rate of "interest" charged, in 
 the same market. 
 
 384. Assuming the manufacturer to be himself known as 
 the owner of much capital, fixed and floating — the dealer, a 
 man of small capital, but of high character, and known to be 
 doing a safe and regular business — the speculator to be 
 making large ventures, in the reasonable hope of large re- 
 turns, but also involving a liability to sudden and large losses 
 — and the spendthrift to be simply wasting, or anticipating, 
 a fortune — five per cent, might be too high a rate for the 
 first, and fifty per cent, not too high for the last. But each 
 rate would include, though in different proportions, two 
 elements : interest and profit — the latter being by much the 
 more variable element. 
 
 385. It is worthy of remark that interest is very commonly Interest 
 paid without its payment being perceived by the payer. "^^^" ""'■^'^ 
 Whenever one man obtains the possession and control, or 
 use, of floating capital belonging to another, interest becomes 
 due ; and, in some ^ape, is almost invariably paid. Every 
 
 109 
 
INTEREST. 
 
 monetary transaction involves the payment of some interest. 
 All industrial enterprises involve the consumption of time, 
 377. and require, while being carried on, the investment of more 
 or less floating capital. For instance, in converting wool into 
 cloth, or steel into cutlery, or clay into earthenware, there 
 must be employed (i) fixed capital, in the shape of buildings 
 and machinery, and (2) floating capital, to provide raw 
 materials, and meet other current outlay, and to pay wages. 
 Whether the manufacturer be using his own or borrowed 
 capital, the price of his goods to the purchaser must be the 
 same ; and in either case it will include interest on the float- 
 ing capital he has employed. In large transactions this is 
 readily apparent. But the same result may be observed, if 
 looked for, in the smallest transactions ; and especially in the 
 numerous transactions between the producers and the 
 dealers, and those, still more numerous, between dealers and 
 consumers. 
 
 386. The effect of interest on price, and its coincidence 
 
 with the lapse of time which occurs, in successive stages, 
 
 between the beginning of production and the receipt of the 
 
 392. price from the consumer, is seldom observed. Yet few things 
 
 are more obvious when steadily looked at. And it is one 
 
 517. of the most important elements in the price of nearly all 
 
 commodities : important because readily affected by human 
 
 action. 
 
 Measured We have Seen that time is the measure of interest. Now 
 
 by time. uj^rk how directly and strongly the saving of time operates 
 
 on price, through this medium. Sixty or seventy years ago 
 
 heavy goods could be sent from place to place in England 
 
 only by waggon, along a turnpike road, or by canal-boat. 
 
 Then, as now, tropical produce (as sugar) was supplied from 
 
 the seaports. Take the case of an inland town supplied 
 
 from a port a hundred miles distant, and which consumed 
 
 about two hogsheads of sugar a day. Assxmie that the time of 
 
 transit was six days, and that consequently, to keep up the 
 
 supply, there were always about twelve hogsheads on the 
 
INTEREST. 
 
 way. Now, by rail, the twelve hogsheads may go in six 
 hours. Further, as turnpike roads and canals are more 
 liable to be stopped for six days than a railway is to be 
 stopped for one day, a larger stock than is now needed was 
 then needed to keep up a steady supply at the place of con- 
 sumption. Let the old stock have been twenty hogsheads, 
 or ten days' consumption; and let the new be only five. 
 Here we have ten less in transit, and fifteen less in store, 
 needed to feed the same number of persons ; and it is clear 
 that the cost of the twenty-five hogsheads is saved by simply 
 increasing the rapidity of transit. They have become need- 
 less. So much less capital is required to carry on the trade. 
 It is set free for other uses ; and its interest is saved. And 
 this saving, together with a further saving in storage-rent, in 
 fire-insurance, and in other similar charges, leads to a cor- 
 responding reduction in the price of sugar supplied to the 
 town in question. If we consider how many articles are simi- 
 larly affected, we shall see how rapidity of transit reduces 
 price, and becomes in effect a source of wealth — quite apart 
 from reduced cost of transit. Because it saves interest. 
 
 387. Most of those who travel do so on business. The 
 time of a man of business is part of that which is paid for by 
 those who employ him. And when he occupies less time in 
 travelling, his services cost less. 
 
 388. Postal improvements, the telegraph, and the tele- 
 phone, have a similar effect. They save part of the time 
 during which, to achieve a given purpose, capital must be 
 held invested. To get a cargo of wheat from San Francisco 
 to England, on an order from England, it was, a few years 
 ago, necessary to give at least two months to the sole process 
 of sending out the order. Now it is done in a few hours. 
 And, with this, as with all like savings, competition among 
 the producers and dealers rapidly conveys the benefit to the 
 consumer. 
 
 389. The want of adequate floating capital is perhaps the 392. 
 greatest want felt by small producers and dealers. I was 
 
INTEREST. 
 
 once asked by a workman to allow him to supply me with 
 an article produced by himself. I had before been supplied 
 by a dealer ; and it seemed that if, for as good an article, I 
 were to pay the workman the same price, he might expect to 
 receive a price for his labour augmented by the whole of the 
 dealer's profit. To this I consented, stipulating only, that, as 
 the price was to be the same, the quality of the article should be 
 equally good. It was duly supplied. But its nature was such 
 that its .quality could be tested only by use ; and the dealer had, 
 in view of this fact, been in the habit of waiting for payment 
 tm the test had been fairly applied. Such waiting, however, 
 did not suit the workman. Nor, as he had no stock from 
 which a purchaser could select what best suited him, could 
 he so readily meet those objections to quality which most 
 purchasers are apt to raise. And, as he was intelligent, he 
 soon saw, and, as he was candid, he at once admitted, that 
 the dealer, who buys the article from various producers, using 
 a trained judgment in the selection, varying his purchases to 
 suit his customers, and waiting for payment till its quality has 
 been tested, does, in fact, render a service which the mere 
 producer, even when he is in immediate communication with 
 a willing purchaser, cannot render. Part of the service I had 
 previously received lay in the dealer's forbearance to demand 
 immediate payment; and the part of the price which corre- 
 sponded to this service was interest. There was a loan. But 
 
 393. the workman, not having the corresponding capital, could not 
 lend it. 
 
 390. In the industry of a nation like ours, the service re- 
 ceived from floating capital, and consequentiy the payment of 
 interest, is too common to be much observed. In all things 
 familiarity dulls perception; and, no doubt, we owe to this 
 dulling process the notion that it is possible to perform the 
 functions of capital without actually providing capital. The 
 
 487. end is so smoothly and perfectly attained, that the means are 
 lost sight of. 
 
INTEREST. 
 
 391. What is commonly called " interest " varies, not only Variation 
 at different times in the same place, and in diiferent places at "f''''^"- 
 the same time, but also at the same time and in the same 
 place, as between different persons. 
 
 The price of the command and use of floating capital is, 
 in fact, of all prices, that which varies most. 
 
 Like all other prices, it varies with the relation of supply to 
 demand. If there be morfe capital to be lent than is wanted 
 by borrowers at the current rate of interest, the rate will fall ; 
 and if more capital is wanted by borrowers than lenders are 
 prepared to lend at the current rate, the rate will rise. This 
 cause of variation, however, acts chiefly, and most directly, 
 upon the loans which are seen, and are talked of, as such. 
 And these are worthy of particular notice, as being the loans 
 the interest on which is directly affected by the average rate 
 of profit, as taken over a wide range. Such loans are taken, 
 almost invariably, with a view to employing the capital in 
 some considerable profit-yielding enterprise. The rate of 
 interest is a fixed and prior charge on such enterprises ; and 
 there are always enterprises, more or less feasible, which 
 prudent men will not enter upon in the face of a high current 
 charge for the use of the needful capital. And when the rate 
 of interest, properly so called, is higher than usual, it is 
 generally accompanied by somewhat greater care, on the part 
 of the lender, as to the security on which he will lend. And 
 conversely, when the current rate of " interest " is low, and 
 money is diflScult to lend, lenders, as they are more eagerly 
 seeking employment for their capital, are less disposed to cavil 
 at the security offered, or to look narrowly to the means, or 
 the character, of the borrower, or the nature of the enterprise- 
 
 392. Interest needs no vindication to those who know any- How daily 
 thing of the use of capital. In our inland trade, as between f^^ J^"^, 
 the importer and the producer, on the one hand, and the 
 wholesale dealer on the other — and, again, as between the 
 
 I "3 
 
INTEREST. 
 
 386. wholesale and the retail dealers, the charge for interest on 
 the capital in use is carefully regarded and allotted. All the 
 larger payments are more or less postponed, and are eflfected 
 by bills of exchange ; and with these the allotment is easy, as 
 each holder of the bill retains, when he parts with it, the 
 interest for the time he has held it. The smaller transactions 
 are conducted under customary discounts for " prompt pay- 
 ment," arranged to suit the readiness of the respective parties 
 to supply the capital required ; and these effect the purpose 
 nearly as well: the purpose being that all credit, given or 
 taken, shall be balanced by a corresponding allowance of 
 interest. Thus those who have most capital buy, and also 
 sell, with the greatest ease, and the most advantage. 
 
 389. 393. The smaller dealers usually require most credit. 
 
 Hence they are most closely looked after ; and have to pay 
 for the vigilance they give occasion for. They buy at less 
 advantage, and have less free choice of goods ; and are often 
 compelled to take off old stock, not otherwise saleable. 
 Whence judicious buyers do not often resort to them. 
 
 394. Our foreign trade is everywhere carried on by post- 
 poned payments, on the credit of bills of exchange ; which, 
 also, as they pass from hand to hand, accredit each holder 
 with his share of the interest on the capital it represents. 
 
 1028. And it is obvious that these bills could no more be kept 
 afloat, without this daily allowance of interest, than birds 
 could maintain their flight without the support of the air they 
 traverse. 
 
 Use of 395. The distinction between the charge for the risk of 
 
 money and j^gjjjg capital, and the charge for its use, is, in practice, so 
 its loss. seldom observed, that it may, at first sight, seem not very 
 material. But it must not be ignored. All the vast variety 
 of substances the earth contains is produced by various 
 combinations, under the laws of chemistry, of a few elemen- 
 tary substances. Very few of these substances are ever found 
 unmixed with others. Yet all chemical science depends on 
 114 
 
INTEREST. 
 
 their being clearly distinguished. So it is in trade; and 
 political economy, which is the theory of trade, is similarly 
 dependent. Iron and oxygen are simple substances. They 
 are very distinct in their nature. Yet we seldom see them 
 apart. It is the same with interest and profit. They are 
 almost invariably combined. But as the chemist can learn 
 the true nature of iron only by considering it in its pure state, 
 so we, to learn the true nature of interest, must consider it 
 alone. And yet, as in business, we have to deal with 
 "interest" as men talk about it — and with iron as we find it 
 in actual use — so, as men of business, we have to regard the 
 "rate of interest" as affected by all the considerations incident 
 to a compound of interest with an addition — more or less 
 large — of profit ; and, these regarded, we shall find it to be a 
 price, subject to peculiar variations. And these variations are 
 such that they will never become wholly intelligible till we 
 give due weight to each of the elements of which " interest," 
 in the popular sense of the word, is, as to any given trans- 
 action, composed. 
 
 396. The probable eifect of interference, by law, with the Giwern- 
 rate of interest, may be best learned by observing the actual ^If control 
 results of such interference in time past. These have always interest. 
 been the same. Either loans have been prevented, or the 
 borrower has had to pay more for them. 
 
 In England, a statute was passed as lately as the reign of 
 Edward VI, prohibiting the charging of interest, as " a vice 
 most odious and detestable." After the Reformation it ceased 361. 
 to be forbidden ; but the rate was limited. Under James I, 
 the highest rate permitted by law was eight per cent., under 
 Cromwell six per cent., and under Anne five per cent. ; and 
 this restriction remained unchanged till 1839, when it was 
 abolished. Of course the law was evaded ; and the evasion 
 was always effected at the cost of the borrower ; the very 
 party for whose benefit the law was framed. When the 
 market price of a loan exceeded the legal rate — in other 
 
 I 2 115 
 
233. 
 
 INTEREST. 
 
 words, when the security was such that the money could not 
 be had at that rate — of course more was paid. But this was 
 not all. The borrower having also to induce his lender to 
 come within the reach of a legal penalty, had also to pay to 
 him an indemnity, or to pay the cost of some contrivance, 
 satisfactory to the lender, by which the penalty would be 
 evaded. The loan being a voluntary service, to make the 
 service more diflScult, or more dangerous, was, of course, to 
 enhance its price. 
 
 397. In England, a mortgage at an illegal rate simply 
 took a more costly form. The borrower being willing to 
 pay, say seven per cent., and wishing to borrow a thousand 
 pounds, the form of the bargain was this : the lender asked 
 the borrower to grant and secure to him an annuity of seventy 
 pounds — to which the borrower agreed, and made the grant, 
 and secured the payment of the annuity as he would other- 
 wise have secured the payment of the loan with interest. 
 And the lender also agreed that he would, on demand, at 
 the end of the term fox which the loan was made, re-sell the 
 annuity to the borrower, at the original price of a thousand 
 pounds. Of course the effect was to make a loan of a thou- 
 sand pounds at seven per cent. But the property in an an- 
 nuity not having, by law, a fixed price, the parties were free 
 to make the price what they pleased. 
 
 398. This device is the better worth considering as it still 
 survives, in the form of a convenient mode of raising money 
 on the mortgage of a mere life estate in land. The tenant 
 for life, as he may die at any time, has an estate which, at 
 first sight, seems unfit to afford a basis for a mortgage. But, 
 having an income for his life, he may grant to another any 
 annuity for his life, not exceeding that sum ; and may receive, 
 in consideration of the grant, the sum he wishes to borrow. 
 Say the sum he borrows is a thousand pounds, and that he 
 is to pay five per cent., or fifty pounds, per annum for it. 
 Then there is added to this fifty pounds a sufl5cient annual 
 sum to insure the life of the borrower for a thousand pounds. 
 
 ii6 
 
INTEREST. 
 
 The lender of the money takes his five per cent., and uses the 
 addition to insure the life of the borrower ; and at the death 
 of the borrower the lender receives back his thousand pounds 
 from the Insurance Company. 
 
 399. In France, down to 1789, interest was illegal. Since 
 1807, where the rate of interest is not stipulated for, it is 
 fixed at five per cent.; but no stipulation can legally raise 
 it above six per cent. There are two common modes of 
 evasion. On a simple loan, as on a promissory note, the 
 excessive interest is paid beforehand, without the presence 
 of witnesses : the French law not allowing a written compact 
 to be disturbed except by independent evidence. And where 
 a mortgage, with high interest, is made, the property to be 
 used as security is simply sold to the lender, with the addition 
 of a stipulation that the borrower may buy it back at the end 
 of the agreed term at a fixed price : this price including the 
 excessive interest, and so expressing, in due legal form, that 
 which, in another shape, the law has forbidden. 
 
 117 
 
ment. 
 
 VIII. COMMERCE. 
 
 Definition. 400. COMMERCE is an extension of the process of 
 exchange. 
 19- 401. The first difficulty it meets, and the last it conquers, 
 
 is the effect of distance. We have to reach our fellow-men ; 
 and to know them, in order to serve them. 
 
 402. It is easy to deal with our neighbours ; but the 
 advantage is small. Means of conveyance and of com- 
 munication are but slowly discovered, and are costly; and 
 thence are of slow growth. 
 Develop- 403. The service that comes of mere personal skill is 
 
 limited to the locality the skilled person can move over, or 
 act within. But the service conferred by the manipulation 
 and conveyance of commodities admits of the widest distribu- 
 69- tion. The road, the railway, the ship, the post, the telegraph, 
 are, for both forms of service, so many means of evading the 
 effect of distance, and of making the service which a given 
 man can render to his fellows available over the whole world. 
 And every effort to multiply commodities and to convey them 
 to distant places, and convert them to many purposes : in 
 other words, to extend the area over which men may make 
 their services available to others : has reference to a profit to 
 be derived from an exchange of such services. 
 
 404. Our nature impels us to commerce. Its methods 
 are the fruit of long and arduous effort, of oft-applied skill, 
 and of long experience. And to know them is probably to 
 know more of what man is, and is likely to become, than can 
 16. be learned in any other way. It is mutual service organized, 
 in its most perfect form. 
 ii8 
 
COMMERCE. 
 
 405. At home, our manufacturers, or even our farmers, At home, 
 cannot themselves convey much of what they produce to the 
 consumers. They sell it to wholesale dealers, whose business 
 
 it is to ascertain where it is wanted, and to supply it there, in 
 
 convenient quantities, and at convenient times. A good deal 
 
 of our commerce still goes on between neighbours. Our 
 
 meat, milk, vegetables, and fruit are commonly so supplied, 234. 
 
 or with no longer conveyance than is implied in their passing 
 
 from the country into the towns. So it is in every country ; 
 
 and so, to a great extent, it must always remain. The tailor, 
 
 and the milliner, and the shoemaker, the carpenter, the 
 
 blacksmith, and the mason, as well as the parson, the doctor, 
 
 and the lawyer, for the most part supply services which 
 
 neither need, nor admit of transmission to a distance. But andabroad. 
 
 a large, and an increasing proportion of the supplies of every 
 
 household in this country, and of many in every country much 
 
 served by commerce, is now brought from other districts, or 
 
 from distant countries. And even where we employ the 
 
 skill of those we personally know, they commonly get such 
 
 material as they work upon, or with, from a distance. And 
 
 all these arrangements are determined, more or less strictly, 
 
 by one consideration: how can the required service be 
 
 rendered at the least cost — a consideration which is made, 
 
 often unconsciously, to govern the action of every person 
 
 concerned. 
 
 406. And exactly the same process, of local exchange, and Foreign 
 of arrangement for its extension, is going on in each of the ' 
 numerous localities upon whose various capabilities we are 
 daily drawing. Thus, in the cotton-growing states of America, 
 in the wine-growing districts of Southern Europe, among the 
 widely scattered wool-growers of Australia, and wherever corn 
 is being grown to send abroad, the local dealer is at work : 
 gathering, and sending towards the shipping ports, materials 
 for the food or the clothing of our daily life. 
 
 407. The same ruling principle is found everywhere ; and 
 it is everywhere being carried into effect by similar means. 
 
 1(9 
 
 commerce. 
 
COMMERCE. 
 
 Local 408. Take the accounts, now extant, of the imports and 
 
 causes. exports of different countries ; and trace the various descrip- 
 tions of produce to their several sources ; and you will observe 
 that these sources are invariably determined by some special 
 facility of production known to exist in the producing locality. 
 In other words, every movement of commerce between different 
 19. localities, is resolvable into an eflfort to equalize, by exchange, 
 the varying natural advantages of these localities. The local 
 50. advantage may be in climate, or in soil, or in both ; or in the 
 skill, or in the industry, or even in the knowledge, or the 
 honesty, of the people. We do not go for ice to Rio, or for 
 sugar to St. Petersburg. And we are gradually learning that, 
 absurd as this would be, it is hardly less so to produce any- 
 282. thing whatever in a locality in which, all things considered, it 
 cannot be made at the least cost Doubtless, till nations 
 better know, and can more safely trust each other, this will 
 occasionally be done. But it is, undoubtedly, a waste of 
 human energy: for all cost of production is expenditure of 
 human energy ; and needless expenditure is waste. 
 
 409. Wheat will grow well only within certain Umits of 
 latitude. Beyond these limits, indeed, capital and skill may 
 make it grow. We do grow wheat in Scotland ; and, on one 
 occasion, when the late Emperor Napoleon wished to place 
 the best grapes in Europe on his table, he found they were 
 supplied to him by a vine-grower in Lancashire. But these 
 are struggles against nature, which, however admirable as 
 illustrations of human energy and skill, being, in fact, wasteful, 
 cannot, permanently, have a place in the field of commerce. 
 
 410. Local facility of production has hitherto founded, and 
 supported, all the civilization the world has yet seen. Every 
 
 27. great and powerful aggregation of men, which has yet existed 
 in the world, has been built upon a good local supply of some 
 
 50. one form of grain food. Now, kingdoms are no longer so 
 dependent. We have so far conquered the difficulty of trans- 
 port that the grain-food of the whole world is accessible to 
 every commercial people. 
 
COMMERCE. 
 
 411. In more limited zones grow the vine, the sugar-cane, 
 and the cotton-plant ; and in others, yet more limited in area, 
 grow the coffee and tea-plants. All these are in universal 
 demand ; and commerce brings them home to all. 
 
 412. We have similar, though less striking, instances at 
 home. Most of our own branches of manufacture are carried 341. 
 on only in particular towns. Some of them are palpably 
 
 thus localized, at the present day, only by the specially 
 developed skill of the workmen on the spot. This, as in 
 China, is often the result of the work of many genera- 
 tions; and it has been fostered by local arrangements, 
 of similar slow growth, affording facilities for carrying on 
 the particular trades more perfect than are to be found else- 
 where. Sheffield was famed for its cutlery more than five 
 hundred years ago ; and is so still, all over the world. Even 
 where the local advantage is but small, it is, if obvious, 
 sufficient ; and it will remain so till counterbalanced by some 
 adequate motive to change. 
 
 413. Our blockade of the continent of Europe during the 
 long war with the first Napoleon, by depriving many millions 
 of persons of tropical sugar, drove them to look for it in the 
 beet. And the" manufacture having been widely established, 
 and supported by large vested interests, agricultural and 
 manufacturing, long aided by chemical and manipulative skill 
 of the highest order, and sedulously supported by the govern- 
 ments concerned, it now supplies sugar, in nearly even 
 competition, with that we derive from the cane. But the 
 culture of the beet is in the hands of white men ; and the raw 
 material is in close proximity to the manufactory. The cane 
 is grown, and its sugar made, by negro labour. And the 
 closest examination of this instance in no way impugns the 
 wisdom of saving human labour by choice of natural ad- 
 vantages. It rather exemplifies how much may be done to 
 replace those advantages, if need be, by an extra expenditure 
 of human skill. 
 
 414. Nor need we, under the free action of commerce. 
 
COMMERCE. 
 
 begrudge to any the local advantage they thus hold. How- 
 ever well justified, if it be abused, it soon passes away. No 
 such privilege is so firmly founded that it will bear trifling 
 with. Though one nation may have the first place, there are 
 always several in the second, and more who would be added 
 
 1024. to them, if the balance of advantages were even slightly 
 
 1045. changed. 
 
 415. When our cotton-supply was impeded, for a few 
 years, by the American civil war, even those who took the 
 most hopeful view of our position were agreeably svuprised 
 to find how quickly the growth of cotton was extended else- 
 where, and how probable it became that a few more years 
 would make us independent of the missing supply. 
 
 416. But it is not local advantages only that are thus made 
 available to all mankind by the action of commerce. Men 
 differ even more than the countries they live in ; and their 
 works are even more worthy of wide distribution. Their 
 faculties, naturally various, are further varied by different 
 training, and by different opportunities. The system of 
 exchange is admirably fitted to call these various human 
 powers into forms of action even more various; and so 
 brings into the common stock of wealth, more or less for the 
 benefit of all, the services obtainable from special and peculiar 
 
 50. powers, which, had men not been so connected with each 
 other, could not have been developed, and so could not have 
 been used at all. A great poet, a great painter, a great 
 mechanist, chemist, or statesman, each of these — nay, the 
 entire class to which each belongs — may be said to come of 
 the primary process of exchange ; for nothing else could 
 have made their labours available to mankind. By the 
 extension of this process, in commerce, they become, in 
 effect, the countrymen of all. Already great discoverers, and 
 inventors, whose action most directly bears on commerce, 
 whatever credit they may reflect upon their native country, 
 . are instinctively regarded as belonging to all. 
 
COMMERCE, 
 
 417. If, from this general view of the advantages and the 
 methods of commerce, we turn to its details, we find the 
 same principles at work, and the same results being achieved, 
 all through. They live by commerce who serve it — " the ox is 
 not muzzled that treadeth out the corn " — and the advantages *3i. 
 they prepare for others are, throughout, shared by themselves. 
 
 418. When a man has sold a thing produced by himself Early 
 for more than it cost him — or, as we may better say, when t^°S''^"- 
 he has found a mode of serving others which is profitable to 
 himself — he desires to continue its use. The service is, in 
 
 fact, mutual. He will repeat the gain. He will desire to 
 increase it. Hence he will desire to increase' his own power 
 of production — in other words, to make himself more service- 
 able, and to increase the number of those he serves. To 
 produce more, and to sell more, is to make more gain. 
 
 419. But, as this goes on, the more attention he gives to 
 producing the commodities, the less will he have to bestow 
 on the labour of looking for an increased number of customers, 
 and making bargains with them. So he seeks assistance. 
 He calls to his aid another, who takes that part of the 
 business off his hands : who buys from him, and sells to the 
 consumers. 
 
 420. This is a dealer ; and the dealer, by giving his atten- 
 tion entirely to this form of labour, is enabled not only to do 234. 
 more of it, but also to do it better. And though this arrange- 
 ment calls into employment an additional person, it does not 
 
 raise the price to the consumer. If it did this, it would, at 
 least partially, defeat its purpose : for, to raise the price of a 
 commodity, is to check its consumption. Rather, this ar- 429. 
 rangement tends to lower the ultimate price. 
 
 421. The exclusive attention of the producer to his own 
 work, and that of the dealer to his work, makes the work of 
 each more effective ; so that, with a given amount of labour, 
 
 they are, together, enabled to bring to market a larger quantity 5. 
 of the same commodities than before ; and this is due, not 64. 
 
 123 
 
COMMERCE. 
 
 only to the greater skill attained in the constant use of one 
 form of labour, but also, in part, to the saving of the time 
 which is lost when one person has often to change the method 
 of his labour. 
 
 422. The producer and the dealer together may continue, 
 for a time, to receive from the consumers the same price as 
 
 248. before, and so to make larger gains. But this can be only 
 for a limited time ; and the limit is reached when others, who 
 are seeking gain in the same direction, and with similar 
 advantages, begin to compete with them. 
 
 423. When this competition arises between rival producers, 
 the seUing price begins to fall, and continues to do so, till it 
 reaches the lowest level at which, with the existing means of 
 production, the producers are willing to go on producing the 
 quantity required by the consumers. 
 
 Commer- 424. Thus, in each branch of commerce, an average rate 
 cia profit. p£ profit is, sooner or later, established. And if we regard 
 298. this profit, as we find it in the transactions of our own time, 
 as the whole sum which is added to the original cost of pro- 
 ducing a commodity for bringing it to the place of consump- 
 tion, and there supplying it, in kind and in quantity, as the 
 consumer desires to have it, we find, on a closer examination, 
 that this average rate of profit, as paid in one sum by the 
 consumer, is divided among a great number of persons, who, 
 as dealers, have worked into each other's hands, in conveying 
 the commodity, from the original producer, at one end of the 
 chain, to the consumer, at the other end. 
 Instance— 425. Take a pound of tea, as an example. It was grown 
 
 commerce and manufactured in China, say a hundred miles from the 
 tn tea. 
 
 coast. It formed part of a chest bought, with others, by a 
 
 native dealer, from the growers, to send to one of the shipping 
 ports. The price he paid must have covered the cost of pro- 
 duction, and the profit of the grower and manufacturer. He 
 sells it at the shipping port; adding the cost of carriage 
 thither, and a further sum to cover the risk of the transaction, 
 and the price of his services in bringing the tea so much 
 124 
 
COMMERCE. 
 
 nearer to the ultimate consumer. He will also include a 
 charge for any skill he may have used in selecting tea fitted 
 for exportation. When the tea reaches the port, it is brought 
 under the eyes of men whose business it is to examine the 
 teas thus sent from the interior, and to select such as are 
 fitted for particular markets. We will suppose that one of 
 these, being charged with a commission to buy such tea for 
 a merchant in London, buys the chest we have in view. He 
 then selects a ship sailing for London ; or if he has much to 
 do, and the port be a large one, where many ships are to be 
 found, he may pay a broker, whose business it is, to select a 
 ship for him, and to arrange the amount of freight, or the cost 
 of carrying the tea to London. This being done, an account 
 is made out, in which the price of the tea is again enlarged by 
 the cost of these various arrangements. The tea goes on 
 board, and the account of it goes by post to the merchant 
 in London. 
 
 426. But the shipowner undertakes to deliver the tea in 
 London only in case the perils of the sea shall not prevent 
 his doing so. Here is a risk not provided for. So the 
 agent in China, or the merchant in London, agrees with an 
 Insurance Company to take a certain sum of money, and in 
 return, to become bound to pay the value of the tea, should 
 the perils of the sea cause it to be lost. The tea arrives 
 in the Thames, and the merchant there is ready to receive 
 it. But part of the revenue of our government is raised by 
 a tax upon tea imported ; and were the tax not levied before 
 the tea went into the hands of the merchant, it would be very 
 difficult to levy it at all. So it must be secured at once. 
 The ship must be unloaded without loss of time ; and the 
 merchant may not be at hand, or may not be ready to pay 
 the tax. So the government puts it into a warehouse, under 
 the inspection of its own officers. Here the merchant can 
 examine it, and can even sell it to others. But it cannot be 
 taken away till the tax upon it is paid. The merchant usually 
 sells it to a dealer, who makes it his business to buy large 
 
COMMERCE. 
 
 quantities, or even whole cargoes of tea, to store it, and to 
 supply it, in smaller quantities, to retail dealers, in various 
 parts of the country. 
 
 427. So much, however, depends upon the peculiar qualities 
 of different descriptions of tea, that the dealer usually employs 
 a- person specially skilled in examining and tasting tea, to 
 determine not only the current value of the tea, but also its 
 fitness for the particular markets in which it is to be ultimately 
 sold, by retail, to the consumers. 
 
 428. This skill having been exercised, and the tea trans- 
 ferred to the retail dealer, we at length receive over his cpunter 
 our pound of tea. It has travelled many thousands of miles, 
 and has passed through many hands. It was produced by 
 men we shall never see, and with whom it would, at first 
 sight, seem that our relations are very distant indeed, and not 
 very important. But, in fact, these men, and all the rest 
 of those concerned in the transfer I have described, have been 
 engaged, throughout the entire process, in the service of the 
 one person who ultimately consumes the tea; and from him 
 they derive their payment for that service. 
 
 429. Nay, more, though each of those concerned — the 
 grower, the manufacturer, the Chinese merchant, the ship- 
 
 wner, the underwriter, and the wholesale and retail dealers 
 at home — has endeavoured to obtain for himself as large a 
 share of the ultimate price as possible, and so has each, in 
 effect, tried to enhance that price, all the arrangements have, 
 in fact, been such as to reduce the price to the lowest prac- 
 ticable level. Each of these men has checked the demand 
 of the one preceding ; for though he himself desires as much 
 as he can get, he desires the ultimate price to be low, lest 
 the demand should be checked ; and if he did not do this 
 duty effectually, he would be thrown out of employment, 
 609. because he would damage the interest of the next man, and 
 of all concerned, by unduly raising the ultimate price. 
 
 430. Even with the imperfect perception we yet have of 
 the great natural laws regulating the inter-relations of man- 
 
 126 
 
COMMERCE. 
 
 kind, it is readily seen how well and beneficially the process 
 of exchange is already being conducted. No doubt there are 
 defects, and abuses, incident to the process, as it is ; but 
 these are being gradually removed : for all concerned are 
 interested in removing them. The main spring of the 
 mechanism by which tea is produced in China, to be con- 
 sumed in England, is now found in nothing more than a 
 knowledge of the fact that for a pound of tea, consumers in 
 England are willing to pay so many shillings; and that if 
 each man employed does his duty, he will get his fair share of 
 the price. 
 
 431. Thus, throughout our commercial system, individuals, Individual 
 though moved only by an intelligent regard to their own ^^.^yj^^^- 
 interest, are found working together with the regularity of ^^'^^ action. 
 the connected wheels of a machine, and with a degree 
 
 of order surpassing even that of a well disciplined army, to 
 achieve an end of which they have not always a distinct 
 conception. Their personal knowledge of each other is often 
 very slight, and few of the whole number give attention to 
 anything beyond the immediate effect of their work. They 
 are linked together by the action of laws which they very 
 generally obey, without comprehending more of them than 
 they do of the chemistry or the physiology of their own bodies. 
 But they obey these laws with all the readiness and harmony 
 of perfect freedom ; and, in fact, the system of exchange pre- 
 serves the freedom of the individual exactly in proportion to 
 the freedom with which the process itself is carried on. Each 
 person employed contributes to the success of the process he 
 takes part in, and thus adds to the common stock of wealth, 
 in proportion to his fitness for the part he plays ; and, in the 
 same proportion, if the freedom of exchange be not interfered 
 with, he receives in return a just share of the wealth (or 
 well-being) he has helped to produce. 
 
 432. It is obvious that the cost of any article to the 
 consumer is dependent upon the amount of capital, skill, 386. 
 and labour employed in producing and bringing it to him ; 392. 
 
 127 
 
COMMERCE. 
 
 and, therefore, that every diminution of the amount of either 
 capital, skill, or labour required to conduct a given process is, 
 to the consumer, a gain. The cost of capital, being what we 
 360. call "interest," is measured by time; and thus everything 
 386. that reduces the time required to complete the process of 
 production reduces the ultimate price of the thing produced. 
 The merchant who waits to learn the issue of one consign- 
 ment to a foreign port, before he makes another, waits now 
 a shorter time, and so turns his capital with greater rapidity, 
 or does more with it in a given time ; and yet he does it all 
 with equal precision and safety. 
 
 433. It is obvious that we may, by similar means, make 
 the skill which directs mercantile operations available not 
 only in one spot, but in many, and even in the most distant 
 localities ; and thus dispense with much of the outlay, uncer- 
 tainty, and waste of laboxir, implied in agency of various 
 descriptions. 
 Moral 434. But there is a higher, though less obvious, effect of 
 
 efect. jjjg process of exchange than the due supply of our daily 
 
 wants ; and I cannot pass it unnoticed, if only because here 
 political economy needs to be relieved from some undeserved 
 obloquy. 
 
 Men cannot work together for a common purpose, using 
 
 their skill, and increasing it from day to day, improving their 
 
 methods in concert, and, of necessity, putting trust in each 
 
 other, without learning the value of human sympathy; and 
 
 of all those qualities which, among men of business, makes 
 
 5. character : as honesty, industry, punctuality, forethought, and 
 
 that incapacity for taking mean advantages of others which 
 
 is, in business, what chivalry is in war. It needs to be noted 
 
 that commerce, rightly conducted, invariably promotes sound 
 
 morality and kindly feeling, if only by making plain to every 
 
 intelligent man the great and gratuitous disadvantage of their 
 
 109. absence. Honesty has long been recognised as the sole 
 
 basis of credit ; and without credit, exchange, as we see it, 
 
 could not be carried on. No instance can be adduced in 
 
 128 
 
COMMERCE. 
 
 which fraud of any description is really (though it be some- 
 times apparently) promotive of our pecuniary interests : hence 
 the old proverb, " Honesty is the best policy." 
 
 435. Commerce is already observed to be the most 
 powerful promoter of civilization hitherto brought into ope- 
 ration among mankind. We have seen that it is nothing 
 more than a natural development of the principle of exchange 
 of services : a principle directly traceable to the nature and 
 the necessities of mankind. We have seen, too, that this 
 principle commences its operation by an appeal to the selfish 
 
 side of our nature. It oifers us an improvement in our own 54. 
 condition ; but then it invariably tends to, for it is abso- 
 lutely dependent upon, an improvement in the condition of 
 others. 
 
 436. It is thus, in its ultimate effect, a system of co-operation. ^^'^^ 
 By assigning to men different occupations, or ways of living, 
 
 and continually increasing the number and variety of these 
 occupations, as the wealth and the numbers of mankind 
 increase, it improves the condition of each member of the 
 community. For, he who lives by serving others, must needs 
 be benefited by the increased number and wealth and intel- 
 ligence of those who are working with him and for him. All 
 who are so occupied are, in fact, engaged in calling out and 
 rewarding his power to serve them ; and this action is re- 
 ciprocal. They are, in truth, his servants, and he is 
 theirs. 
 
 437. Mark the localities in which industry, intelligence and 50. 
 forethought are most certainly and most richly rewarded. You 
 
 will invariably find them where wealth is greatest, and popu- 
 lation is most dense. It is true that in the same localities 
 you will also be most struck with the poverty of a part of the 
 population. But this spectacle owes something to the effect 
 of contrast ; and when we advance further into the subject, 
 we see how it is that, while the system of exchange has, un- 
 doubtedly, done so much, it has also, thus far, left much to 
 be done, 
 
 K 129. 
 
COMMESCE. 
 
 438. As we become better men of business we learn that, 
 16. even in seeking only to promote our own interest, we do well 
 
 to consider, not only what will do us good, but also what will 
 be good for the community. 
 
 439. It is undoubtedly true, that when we first look at 
 society, as a whole, it presents to our view hardly anything 
 but rival interests, whose contention suggests the conclusion 
 that whatever is taken from one must be a gain to another. 
 Yet, ever, as we learn to see more of what is before us, and 
 to understand it, we perceive the more clearly that it is not 
 so ; and we should see this more readily than we do if artificial 
 restrictions upon the exchange of commodities had not created 
 around us numerous factitious rivalries. 
 
 Inspection 440. There has been a good deal of interference, by law, 
 
 of factories (during {he last thirty or forty years, with our home trade, in 
 shortening and regulating the hours of work for women and 
 children, and incidentally for men also, wherever they are 
 working together in numbers large enough to make official 
 
 and mines inspection practicable. Similar inspection for the purpose of 
 preventing accidents has also been applied to the working of 
 
 ana ships. OUT mines. And much has been attempted, though little has 
 been effected, to reduce the loss of life occurring among sea- 
 men, and assumed to be attibutable to defects in the condition 
 233. or in the management of ships. 
 
 441. Of the motives of this legislation, in a philanthropic 
 point of view, we can only think with respect. But it has too 
 often proceeded on an imperfect knowledge of the facts, has 
 employed means ill adapted to the ends in view, and has 
 hitherto effected the good it has done, only with a consider- 
 able discount of evil. In order to get rid of the painful endur- 
 ance involved in merely aiding and guiding others to better 
 action, we have resorted to the shorter method of compulsion ; 
 and have thus undoubtedly incurred the danger of introducing 
 the action of the State as a remedy for evils to which it is 
 130 
 
COMMERCE. 
 
 quite inapplicable. This danger is now making itself apparent 
 in many directions. "Making things pleasant" is an old 
 road to ruin. 
 
 442. OflBcial inspection of the methods of trade is always 
 an obstruction ; and thence a cause of loss. Its purpose, in 
 the cases referred to, is to secure compliance with regulations 
 which imply that the persons inspected are not yet fit to be 
 entrusted with the direction of their own affairs. Assuming 
 this to be true — and it sometimes is so — it is of course desir- 
 able that they should be made so fit, as soon as may be. And inspection 
 
 the best use of inspection would therefore obviously be to show 'J^'^^f . 
 ^ •' lead to m- 
 
 those inspected what to do, and how to do it, and to supply struction. 
 them with adequate motives for doing what all concerned 
 agree to be right. 
 
 443. Not that this, however directly and intelligently aimed 
 at, would be easy ; but it is what, as it seems, should be steadily 
 aimed at. . 
 
 444. The known risk of life or limb in any occupation, has 
 always been, and always will be, an element in the rate of 
 wages; and as the intelligence of the workman increases, it 
 becomes more distinctly so. It is thus apt to be traded upon. 
 Workmen are much moved by their obvious and immediate 
 interest ; and though they willingly see themselves guarded 
 against the evil incidents of their occupation, whatever these 
 may be, they never, willingly, see their wages reduced. 
 Employers are, for the most part, equally short-sighted ; and 
 think more of the profits of to-day than of any ultimate 
 improvement of the methods of their business. 
 
 445. Such instruction as may be gathered from recent 
 discussion of this topic seems to lead to the conclusion, that 
 real, and well-directed inspection should result in instruction, 
 as well as regulation ; and should, at no distant date, supersede 
 itself, by showing, clearly, what is to be guarded against, and 
 how, and why it should be so, in the interest of all parties 
 concerned. It is obvious that all official inspection, as hitherto 
 conducted, tends to become superficial, and inefiicient ; and 
 
 E 2 131 
 
COMMERCE. 
 
 simply to perpetuate itself as a source of income drawn easily 
 
 from the universal victim : the tax-payer. 
 Workmen 446. The best protector of the workman, is the workman 
 best pro- himself; and it would seem that the law can really do little for 
 tectors. him, beyond providing that, when he has learned how this may 
 
 best be done, he shall never be in want of the means. 
 
 132 
 
IX. CAPITAL. 
 
 447. Capital is wealth earned, but not consumed — which Definition 
 is applied, or ready to be applied, in aid of the production 33. 
 of more wealth. 
 
 448. When a farmer, for instance, begins business, he must, Instance. 
 in taking up a farm, be prepared to have valued to him, as 
 
 part of his needful stock, some portion of the unreturned 
 capital sunk in the farm by his predecessor : as tillage given 
 to land not yet sown, and the seed, and part- culture, of crops 
 already in the ground. Also he must immediately begin to 
 use tools and implements, and to pay wages, and to provide 
 various materials, with reference to other crops. In short, 
 there will be a considerable period during which his out- 
 goings will be large, and his incomings small, if any; and 
 this means that he must have a considerable supply of capital. 
 
 449. When he gathers his first harvest, he may expect thaf 
 the whole, or the greater part of this capital will be again 
 placed at his disposal in saleable produce. But no sooner is 
 one harvest in than another must be prepared for ; and so it 
 may be said that a certain part only of his capital, propor- 
 tioned to the acreage and culture of his farm, will be always 
 at his command, as are his ploughs, his waggons, or his 
 cattle. 
 
 450. In effect, it is the same with all productive occupa- Borrowed 
 tions. Those who carry them on must have capital. Some '^'^■^^ "' ' 
 have all they need. The greater number, however, have not ; 
 
 and avail themselves of the aid of bankers to obtain the use 
 from time to time, as needed, of the capital they have to use. 
 
 133 
 
CAPITAL. 
 
 451. In many businesses, though not often in fanning, it is 
 necessary to give credit to customers ; and this causes another 
 common demand for capital. And as there may be, between 
 the producer and the consumer, several manufacturers and 
 dealers variously supplied with capital, the giving and taking 
 of credit, by and from each, in their successive transactions, 
 is settled by custom. But the producer, manufacturer, or 
 dealer, who is best supplied with capital, will always do his 
 business to the best advantage : for he can accommodate 
 
 392. those he deals with ; and " the borrower is ever servant to 
 the lender.'' 
 
 389. 452. This rule applies even to the ultimate consumer; who, 
 
 1029. when he takes credit from the tradesmen who supply him, in 
 fact contracts a loan, and so increases the amount of capital 
 required to carry on the tradesmen's business. 
 
 453. And as it is with our familiar home trade, so it is with 
 our foreign trade ; and throughout the commercial world. 
 
 Supply of 454. The supply of floating capital is kept up by those 
 
 capital. ^jjQ %z.ve., and by them only. Every man who spends less 
 
 34. than his income must, in some way, dispose of the excess. 
 
 370. He may have it in the shape of gold, or silver coin, and lock 
 
 it up, or bury it. Under such use it would yield no profit. 
 
 He may also lock it up in the shape of bank notes, payable 
 
 on demand. But that would be equivalent to lending it to 
 
 the bank, whose notes, or promises to pay, he so locked up ; 
 
 and this without interest. Or he may deposit it in a bank, or 
 
 lend it to a neighbour, at interest. Or he may invest it in some 
 
 profit-making business. Or he may buy with it some fixed 
 
 property : as a piece of land, or a house. In other words, 
 
 he may either so use it as to get no return, or so as to get a 
 
 return in interest on a loan, or in profit on some business, or 
 
 in rent from some fixed property. But, however he may use 
 
 it, he can get no return unless he takes it into the market for 
 
 floating capital. And there it has much the same effect as 
 
 134 
 
CAPITAL. 
 
 an additional supply of any other comrnodity has on its price. 
 This market for floating capital, as it is now arranged in 
 Europe, is one of the most remarkable of all the varied 
 results of human civilization. All we can refer to here, 543. 
 however, and that in very general terms, is the result at- 
 tained. 
 
 455. There is now, perhaps, a bank wherever there is 
 work for a banker; and his business is to receive money 
 from those who do not themselves wish to employ it, and to 
 lend it to those who do so wish. Like other dealers, he 
 buys as cheaply as he can, and sells as dearly as he can ; 
 and by keeping himself in communication with other bankers, 
 and otherwise, he not only learns where capital is most 
 wanted, but also who may most safely be trusted with it. 
 His profit is derived from the difference between the rate of 
 interest he pays and that which he receives. A banker, then, 
 
 is one whose business it is to aid in distributing the current 227. 
 supply of floating capital, in accordance with the current 584. 
 demand. 
 
 456. The demand for floating capital comes from those Demand 
 whose business it is to direct or superintend the production/"'' '^'^■?**'''^' 
 of commodities, their transmission from place to place, and 
 
 their distribution to the consumers. These are the imme- 
 diate employers of labour ; and, in order to employ labour, 
 they must have capital. If floating capital be abundant, and 
 such property be well protected bylaw, if the rate of " interest " 
 therefore be low, and those who seek to borrow are in good 
 credit, their undertakings are entered upon, and carried 
 through, with much ease. Labourers of every kind are more 
 fully and regularly employed, and their employers' profits 
 are higher, and less uncertain. In the language of political 
 economists, the " wages-fund," or fund of floating capital for 
 the time being available- for the payment of wages, is then 
 large; it passes freely from hand to hand, and those who 
 live by their labour are more fully employed and better paid. 121. 
 
 135 
 
CAPITAL. 
 
 Interest 457. The payment of interest, by stimulating persons to 
 
 savint^ " ^^^^' increases the fund out of which rent, profit, and wages 
 can alone be paid. For, rent of a dwelling-house can, in the 
 ordinary course of things, be paid only from income ; and if 
 of a work-shop, only from profit ; and profit cannot be 
 earned without the use of capital ; and, without capital, wages 
 460. cannot be paid. Thus is the man who lives within his in- 
 come not only advancing in wealth — he is promoting the well- 
 being of others. Without such men no nation could prosper. 
 
 458. And to deny them interest on their savings would be 
 to deprive industry of all reward beyond a bare subsistence, 
 
 363. and to remove the inducement to the self-denial whence all 
 capital comes. 
 
 459. The supply of floating capital, then, is kept up by 
 saving. It consists of the fruit of labour, not consumed, but 
 
 370. laid by for profitable use. It meets the demand for it by 
 passing into the hands of those who require it, at a price 
 determined by the relative strength of the demand for it, 
 and the confidence reposed by the lender in the promise to 
 return it. 
 
 Wagespaid 460. It has been asserted that capital does not pay wages, 
 "catital ^"^ ^^^ sense of providing for the labourer during his work : 
 
 that, on the contrary, the labourer does, by his labour, and 
 121. immediately, provide the means of paying the wages he 
 
 receives. But this is not so, in fact. 
 
 461. We have had adduced, as instances of the truth of 
 this proposition, the fact that a ploughed field will sell for 
 more than an unploughed one by the value of the labour 
 spent upon it ; and that a half-built house, or a half-built 
 ship, will sell for a proportionate part of their ultimate price. 
 
 462. But, in the first place, these articles will sell in their 
 unfinished state, as supposed, only if the capitalist, who has 
 directed the labour, has directed it wisely. If he has not 
 done so, they may not sell at all. And they must always, as 
 unfinished works, sell at a great disadvantage. 
 
 136 
 
CAPITAL. 
 
 463. And assuming the supposed sale to be effected, the 
 productive process being incomplete, the capital sunk remains 
 sunk, and nothing is changed but the name of the capitalist 
 who has to get it back. 
 
 464. Every capitalist who supports a labourer while at work, 
 does so in the expectation that the ultimate effect of the work 
 will be worth more than he pays for it. Otherwise he would 
 not support the labourer. But the service he renders to the 
 labourer is clear. He suppUes his want of thrift, out of the 
 thrift of others ; and pays, by weekly instalments, wages which 
 Nature would provide only annually. 
 
 89. 
 
 465. There is no denying that the capitalist, like the Duties of 
 labourer, has his short-comings. Looking at the benefits we f^ii^_^^_ 
 derive from both, it is no gracious task to enumerate these, ployer. 
 But the economist must see, and ought not to be silent about, 
 
 them. 
 
 466. The owner and employer of capital is, in these days, 
 the wielder of much power ; and by his power is his responsi- 
 bility fairly measured. Those to whom he pays wages labour 
 under his direction; and if the direction be defective, the 
 labourer is apt to suffer. 
 
 467. The fluctuations of trade are, as yet, from deficient 
 knowledge, to a large extent, not preventible. But where 
 they are preventible, their prevention rests with the capitalists. 
 For instance, when of late years in England, many more 
 steam-ships were built than there was any reasonable prospect 
 of finding employment for, much capital was wasted. Also 
 many thousands of workmen were harassed by an excessive 
 demand for their labour, followed by a very deficient one; 
 and every connected form of industry was disturbed and 
 impoverished. In this instance, the records of what was being 
 done were open, and were openly discussed ; but were not 
 read, with reference to the future, as they might have been. 
 
 468. Again, the recent shortening of' sea-voyages, and Foresight. 
 
 137 
 
CAPITAL. 
 
 Recent ex- 
 perience. 
 
 Capital 
 abundant, 
 
 the increased rapidity of every mode of transit and of com- 
 tnunication, used in our commerce, obviously paved the way 
 to great and inevitable disturbance of our previous commercial 
 arrangements. The increased eflSciency of shipping could 
 not fail to make less of it necessary, in proportion to the 
 work to be done. And increased regularity, quickness, and 
 safety, in the sending of commodities from one part of the 
 world to another, as surely tended to reduce, greatly, the 
 stocks required to be held for consumption, wherever this 
 change was felt. In this, indeed, mainly, lay the benefit of 
 the change. But reduction of stock needed, means reduction 
 of demand ; and that with no corresponding reduction of 
 supply, means fall of price. Whence a general fall in prices, 
 and a slackness in the demand for everything has, for two or 
 three years past, brought a general sense of distress. 
 
 469. That this was not foreseen, is evident from the suffer- 
 ing and dismay it caused. Had it been foreseen, it might 
 have been, in some degree, provided for, as such changes 
 always are, whenever the capitalists, as a body, become aware 
 of what is about to happen. And it would have been ; 
 because it was for the interest of the capitalists, first of all, 
 that it should be. 
 
 470. It is in this general foresight — which seems to be 
 getting every year more necessary — that those who, as 
 capitalists, hold the control of the labour of the world, may 
 be fairly said to fall short of what we could wish. Where 
 they see their way, their action is usually admirable. 
 
 471. Let a tramway be laid down anywhere, and made to 
 pay ; and in a few weeks you may have it in every town 
 in the world, however distant, where there is wealth and 
 population to use it. And with every convenience of life it 
 is the same. It is the capitalist seeking profit who does this. 
 He waits upon such occasions ; and at his own risk, at a 
 closely counted price, makes all things accessible that are 
 worth the cost. 
 
 472. But this skill, and this readiness, are not yet matched 
 138 
 
CAPITAL. 
 
 by equal foresight. Capital, in abundance, awaits use. It and new 
 cannot be doubted that many feasible and profitable uses for ""^ "'^ ^ ' 
 it await discovery. Yet whoever has observed, for any con- 
 siderable period, the ordinary course of business, in either 
 the manufacturing or the commercial world, can hardly have 
 failed to notice a frequent want of a form of skill, which is 
 especially needed in a community growing in numbers and in 
 wealth — that, namely, which finds and brings into practical 
 use new methods and channels of production. 
 
 473. In manufactures, the old ways are not unfrequently 
 followed till much of the capital embarked in them is lost ; 
 and new ones, if they are sought, are so seldom sought 
 effectively, that when they appear, they seem rather the result 
 of fortuitous discovery than of deliberate search — rather as 
 changes to be justified, than as improvements to be gladly re- 
 ceived. The groove of habitual action is no doubt unfavour- 
 able to invention, and hardly more favourable to the observation 
 of new wants than to the discovery of means to supply them. 
 New and better ways are commonly brought in by outsiders ; 
 and are not always welcomed as they should be. 
 
 474. In commerce — in the supplying of markets — there is 
 a too prevalent tendency to do rather what others are doing 
 with apparent success, than to scrutinize the causes of the 
 observed success, or their changes, with a view to new 
 fields of action, or to better action in the old ones. But we 
 are a growing community; and our growth is dependent on 
 the efficiency of all ; and especially of those who lead. 
 
 475. The capitalist of course suffers, but he does not 
 suffer alone. He entails like suffering on the labourer, and 
 all who aid him. The continued production of things ceasing 
 to be needful, or inadequate attention to the signs of coming 
 fluctuations of supply, or of demand, as to commodities 
 currently needed, are fruitful sources of the slack work at one 
 time, and unusual demand for labour at another, which distress 
 and perplex the least helpful classes of our labourers. And 
 it cannot be denied that with the higher education and better 
 
 139 
 
CAPITAL. 
 
 intelligence which give just authority to the master over thd 
 workmen, comes a corresponding responsibility for the right 
 guidance'of the tranactions they are both employed in. The 
 mere earner of wages cannot share the profits of capital ; but 
 he has a right to expect that its profits shall be so sought as 
 not to involve needless risk of his means of subsistence. And 
 in every class, but especially from that which most directly 
 and powerfully controls the sources of our national prosperity, 
 we have a right to expect a degree of knowledge and skill 
 adequate to the position it holds. 
 Increasing 476. Something, however, may be hoped for from the more 
 ^^ence' rational views of life, and its duties, which leads every new 
 generation now more completely to discard the notion that 
 44. labour of any kind is degrading, or that there is anything short of 
 nobility in the distinction which may be won by able and con- 
 spicuous service of mankind, in any form of labour whatever. 
 The most needful of the arts of life — those in which excellence 
 most closely concerns its eflSciency, and its enjoyment — have 
 been too much deputed, alike for contrivance, and for execution, 
 to the less instructed, and generally the less intelligent of the 
 race. Our manufactures, and our commerce, ought to attract, 
 and higher as leaders, the best men we breed. And we may well believe 
 "mv '■'^^' ^®' hitherto, our false notions of dignity have deprived 
 
 mankind of more than half the ability of those who have most 
 leisure, so as sounder notions of both dignity and duty shall 
 prevail, our economic progress will be, by the trained aid of 
 such men, both better guided, and lifted to broader, and to 
 higher aims. 
 
 Trade sta- 477. jt has been aptly suggested that the State might do 
 
 tistzcs 
 
 much to aid capitalists, and labourers, alike, by arrangements 
 for the collection, printing, and circulating of statistical infor- 
 mation touching the current relations of capital and labour, 
 and the current circumstances likely to affect them. The 
 capitalists, in every branch of production, and of distribution, 
 have long circulated among themselves, through well-known 
 140 * 
 
CAPITAL. 
 
 channels, such information as they find useful; and this is 
 accessible to all who desire to use it. It does not commonly 
 interest workmen, as it has reference to present prospects, 
 dealt with from a point of view they do not readily share. 
 Statistics of wages, and labour, unless sanctioned and 
 circulated by the Trades Unions, would probably not receive 
 from the workmen the confidence without which they would 
 be of little use. And the policy of the Trades Unions has not 
 hitherto been favourable to that free and ready distribution of 
 labour which it would be the main purpose of such informa- 
 tion to promote. 
 
 478. But all publicity is good; and the surest way to bring Allfub- 
 the capitalist and the labourer into better harmony is to make ^"'^^y S"'"^- 
 them both better acquainted with each other, and with each 
 other's true position. If their interests are, as common sense 
 suggests, really consistent, this is the only way to make it 
 obvious ; and when, unhappily, in the nature of things, they 
 differ,"such knowledge would afford the surest means of making 
 the sources of the difference apparent, and of showing how it 
 might be made least mischievous to all concerned. 
 
 Ml 
 
X. CREDIT. 
 
 Definition. 479. A PROMISE to pay — and somebody who believes it : 
 in these we have all the elements of credit. 
 
 480. The use of credit is to transfer the command of 
 wealth, or capital, from one place, or one person, to another. 
 It is evidence, so far as it goes, of the existence of capital 
 somewhere else ; and of a probability that it will be applied 
 in a given way. 
 
 481. Credit creates nothing. It only transmits. 
 
 482. It is said that the first Bill of Exchange seen in 
 England was drawn in Italy, by a bishop of Chester, who 
 had left the kingdom under the king's displeasure, and who, 
 being sorely pressed for money, was told that, if he drew 
 upon the steward of the episcopal estate, in favour of an 
 Italian money-lender, the bill would be discounted on the 
 spot; and sent home for pa3nment. He did so ; and received 
 the money he wanted ; and it is said that the novelty of the 
 device insured its success. In form, the bill was an order, 
 by a landlord to his agent, to pay to a third party a specified 
 sum. In effect, being discounted, it became a promise to 
 pay that sum — through an agent. Italy, which taught us 
 book-keeping, had not then taught us the use of BQls of 
 Exchange. But the bishop, though it was his first bill, pro- 
 bably saw, clearly enough, that the wealth he thus com- 
 manded was English ; and that the operation did no more 
 than bring it to him. The bill helped him to a loan. It 
 created no wealth. The biU, being paid, the transfer was 
 completed — and no more. 
 
 142 
 
CREDIT. 
 
 483. If the capital, the use of which is to be transferred, 
 be of a fixed and permanent character — not liable to be 
 carried off, or to be materially injured by ordinary misuse, 316. 
 the credit implied in its temporary transfer is not great. The 
 letting of land or buildings implies much less trust on the 
 
 part of the landlord than is implied in the lending of ready 
 money. 
 
 484. Hence, the use of credit is seen chiefly in the faci- Uses. 
 lities — of endless variety of form — which it affords for the 
 safe and effective transfer from hand to hand, and from place 
 
 to place, of the command of capital in a floating, or readily 
 consumable, form ; that form for the use of which men pay 
 interest. 
 
 485. Every mode of taking credit, involving a promise to 
 pay, implies a prior debt. It is also commonly accompanied 
 with some form of security, by means of which the promise 
 may, if necessary, be enforced. And the various forms of 
 credit are distinguished from each other mainly by the nature 
 of the secmrity thus given. 
 
 486. The security may be of a very substantial kind. It 
 may consist in the transfer from the borrower to the lender, 
 for the term of the loan, of land or other fixed capital, of 
 value greater than the amount of the loan. It is then called 
 a mortgage. This may be termed the highest form of secu- 
 rity. But it implies the lowest and least useful form of 
 credit : for the effective use of credit depends mainly on the 
 belief of men in each other, apart from tangible security. It 
 is the appanage of discreet and honest men. And all lack 
 of discretion, or of honesty, in the taking of credit, is a 
 deduction from the economic power which the development 
 of credit confers Upon mankind. 
 
 487. Perhaps the lowest form of security, and also the Book- debts. 
 highest, and the commonest form of credit, is seen in what 
 
 are called book-debts— where nothing is written but a note 392. 
 of the loan in the books of the lender : for, to let me have a 
 loaf without paying for it is, in effect, to lend me the price 
 
 143 
 
CREDIT. 
 
 of the loaf. It is in this and similar forms that commercial 
 credit is most effective. The great number and variety of 
 the acts of exchange necessary to carry on the commerce of 
 this country, require that the men engaged shall have such 
 confidence in each other that, for a very large proportion of 
 the transfers of capital from hand to hand, no higher security 
 shall be required than is implied in a date, and a simi, a 
 promise to pay, and the signature of the debtor. 
 
 488. Thus we get Promissory Notes, and Bills of Ex- 
 change : the former bearing one promise, and the latter two 
 promises or more, to pay the same sum. These pass from 
 hand to hand ; and are safe in use to those who know the 
 solvency of the promisers. 
 Promissory 489. Some promissory notes may be so confidently be- 
 lieved in — as are Bank of England notes — that in every 
 market in the world they may be taken almost as coin would 
 576. be taken. And vnthin their native area, where the law makes 
 624. them a legal tender in payment of a debt, they may fully 
 supply the place of coin. 
 
 But this means not that wealth has been created by the 
 issue of these notes, but that a paper " promise to pay " gold 
 has been substituted for the gold itself. A gold coin means 
 no more to those who take it, than that the current value of 
 so many grains of pure gold (whatever that value may be) 
 will, for that coin, be at all times obtainable in the shape of 
 other commodities : seeing that it is certified, on good autho- 
 rity, to contain these grains. And a Bank-note promise, 
 when implicitly relied on, tells us, on good authority, that 
 those grains shall, for the note, be always obtainable on 
 demand. Bank-notes and gold coin may both, therefore, be 
 said to be useful mainly as exchangeable certificates of value 
 to be had on demand elsewhere. In the case of gold coin, 
 an equivalent value is believed to be tangibly present. With 
 bank-notes there is only a promise of it. But the promise, 
 being fully believed, is, for the time, equally effective. 
 
 490. Besides Bank-notes, and Bills of Exchange, and 
 144 
 
CREDIT. 
 
 Book-debts, arising on the supply of goods on credit, there 
 are various other forms of credit, arising incidentally, in the 
 course of commerce, and with which practice alone will make 
 us familiar. 
 
 491. Let us now consider, more in detail, what Bank- 
 notes, Bills of Exchange, and Book-debts really are. These 
 will exemplify all the leading principles of the system of 
 credit. 
 
 492. A Bank-note is a promise to pay a specified sum of Bank- 
 money whenever the bearer of the note shall present it to its 
 issuer, and demand such payment ; and is called a Bank-note 
 because it is usually issued from a Bank. It is found profit- 
 able, for those who have the requisite credit, to issue such 
 notes, because they supply a want common in every com- 
 mercial country. 
 
 493. Money, even when made of gold, is apt to be 
 cumbrous in use, except in small sums. A thousand sovereigns 
 weigh more than twenty-one pounds, troy weight : more than 
 one would like to carry a mile or two. Bank-notes, for the 
 same amount, may not weigh an ounce, or fill a waistcoat 
 pocket. 
 
 494. It is proved, by experience, that if the promise to 
 pay in gold, on demand, be invariably kept, and so comes to 
 be generally and confidently relied on, a large proportion of 
 the notes so issued will remain permanently in circulation ; 
 and an amount of capital equal to a large proportion of 
 the coin thus superseded in use will be placed, for the time, 
 at the command of the issuer of the notes. 
 
 495. Each party is thus a gainer. There is a gain to the 
 users of the notes in the convenience of paper, as com- 
 pared with gold ; and this convenience is counteracted only 
 by the risk, whatever it may be, of the issuer of the notes 
 betraying the confidence reposed in him, and not providing 
 for their due payment on demand. There is a gain to the 
 issuer, of the difference between the current value of the gold 
 
 L '45 
 
CREDIT. 
 
 thus placed at his disposal, and the cost of supplying the 
 notes and keeping up the arrangements requisite to their 
 being paid, whenever presented. Add these gains together, 
 and you have the entire gain to the community at large. 
 The whole may be regarded as an act of economy, by which 
 so much gold is discarded from use as coin, and made 
 available for other purposes. 
 
 496. But the success of the operation is always conditional. 
 5. The promise to pay must be strictly kept, so that it may be 
 
 confidently relied on. 
 
 497. And the effect of the operation is, after all, only a 
 transfer of capital, from one use to another. No additional 
 capital is created. The gold so withdrawn from use, as coin, 
 had previously only that use. Its place being supplied by 
 paper, its previous owners have, in effect, lent it to the issuer 
 of the notes. Had some one of these previous owners lent 
 a thousand sovereigns to a friend, on his Promissory Note, 
 the operation would have been precisely analogous. The 
 lender would have retained the Promissory Note till the loan 
 was repaid, and the borrower would, for the same period, 
 have had the use of the thousand sovereigns, or rather of so 
 much productive capital as these coins would, by exchange,, 
 command. It is true, the borrower would, probably, in this 
 case, have paid interest on the amount of the Promissory 
 Note; and the issuer of the bank-note pays no interest. 
 But, on the other hand, the bank-note is payable instantly, on 
 demand ; and, in the meantime, performs, for its successive 
 holders, all the functions of money ; and is, therefore, as 
 valuable for present purposes as the gold it has, for a time, 
 displaced. 
 
 " Paper- 498. Every attempt to make what is called paper-money, 
 
 money. ^^^ -^^ Other words, to give permanent currency to a paper 
 substitute for the precious metals, the value of which shall not 
 be constantly maintained by making the paper as constantly 
 exchangeable for the metal it represents, has, hitherto, 
 failed. And there is no reason to believe that it can ever 
 146 
 
CREDIT. 
 
 succeed. Such paper substitutes derive their value from the 
 promise to pay; and experience has proved that they cani 
 maintain it only by constant fulfilment of the promise. 
 Mr. Ricardo proposed to form a cheap and secure currency, 
 of paper, by making Bank-notes payable, not in coin, but in 
 bars, or ingots, of gold, bearing the mint mark, and differing 
 from coin only in being less convenient, or, in fact, not usable 
 as a currency. This might be practicable, and might be 
 useful ; though I do not see how. But, were it done, it would 
 afford no exception to the rule I have expressed. The five- 
 pound note which purports to command a five-pound ingot, 
 and does so, is good for what it bears upon its face. And 
 this is all that is required to maintain its efficiency. 
 
 499. Two notable instances are on record of what is 
 likely to occur, if this condition be not complied with. We 
 will take, first, the one latest in date. 
 
 Soon after the revolution of 1789 broke out in France, the In France, 
 revenue was found to be insufficient to meet the expenditure '7°9- 
 of the Government. But it happened, apparently most 
 opportunely, that one of the earliest events of the revolution 
 had been the confiscation, from the clergy to the State, of a 
 vast extent of landed property. This property was ordered 
 to be sold, to make up the deficient revenue. But the sale 
 was slow. Not many persons had the means of purchase ; 
 and of these some feared a counter-revolution, and a retuin 
 of the property to the clergy. So, by way of realizing, more 
 quickly, the required funds, the Government issued, in pay- 
 ment of the debts of the State, what were at first called 
 municipal notes, and afterwards assignats, with an order that 
 these notes should be taken in payment for the domains about 
 to be sold, from any person who might buy them. 
 
 500. These " assignats," however, having but a limited use 
 (the purchase of church estates), soon fell in value. It was 
 then decreed that they should have currency as money, and 
 be deemed a legal tender in payment of all debts. But as 
 there was httle hope of their ever being paid, people did 
 
 L 2 147. 
 
CREDIT. 
 
 not consider them equal to coin; and all who had coin 
 kept it. 
 
 601. Then the coin gradually passed altogether into hoards, 
 or was sent out of the country. 
 
 502. The first issue of these notes was made in April, 1 790. 
 They were never current at the full value expressed on their 
 face; and as the necessities of the Government were met, 
 month after month, by fresh issues, which issues had indeed 
 some reference to the estimated value of the lands ordered for 
 sale, but had none whatever to the amount of money required 
 for current use in the country, or even to any early probability 
 of the land being sold, the notes fell gradually, in value, till, in 
 August, 1793, they were current for only one-sixth of their 
 nominal value. An effort was then made, by contracting a 
 loan to the Government for the purpose, to withdraw a con- 
 siderable part of the notes from circulation ; and about one- 
 sixth part of those previously issued were, in 1793, got in, and 
 destroyed. At the same time the Government forbade the 
 use of any other form of money — fixed a maximum price in 
 assignats for the most necessary articles of food — and imposed 
 severe penalties upon any breach of the law. For a time, as 
 the Government inspired some terror, these strong measures 
 undoubtedly had some effect. But soon more money was 
 wanted by the Government. Fresh issues of " assignats" had 
 to be made; and then the fall in their current value re- 
 commenced. 
 
 503. In March, 1795, the notes were circulating at one- 
 ninth part of their nominal value. And, before the end of 
 that year, the Government, after struggling in vain against the 
 depreciation, itself gave the finishing blow to the system by 
 levying a forced loan, and ordering that assignats should not 
 be received in payment, unless tendered at one-hundredth 
 part of their nominal value. Further issues were also made ; 
 and soon they fell to about half of this value ; and finally, 
 becoming worthless, passed into the condition pf waste 
 paper. 
 
 148 
 
CREDIT. 
 
 504. A prior instance, already adverted to, might have 
 warned the French Government ; but governments and indi- 
 viduals are alike apt to thrust aside the lessons offered by the 
 experience of others until, from the endless variety of circum- 
 stances attending the repeated operation of a principle, the 
 principle itself has been clearly evolved, and made practically 
 apparent. 
 
 505. When the American Colonies entered, in 1 775, on the In Ame- 
 War of Independence, they had no Bank-notes in circulation ; ""*' '" 
 and their coin in circulation amounted to about ten millions 
 
 of dollars in silver. Congress and the States had no means 
 of providing for the expenses of the war nearly so convenient, 
 or effective, as the issue of Government notes, or promises to 
 pay at some future period. These, accordingly, were issued ; 
 and at first all parties were perfectly satisfied with the result. 
 
 506. For about a year, they remained in circulation, with a 
 diminishing quantity of coin ; and were not perceptibly depre- 
 ciated in value. Then the coin almost wholly disappeared, 
 and a palpable depreciation of the notes began. Prices, as 
 measured in paper, rose rapidly. Congress and the States 
 unanimously set this down to disaffection, declared the paper 
 to be as good as coin, prohibited two prices, and made the 
 paper a legal tender for all payments. Stringent laws, backed 
 by severe penalties, were passed to sustain the value of the 
 paper. 
 
 507. Still the new issues went on, and the paper went 
 down. In 1780 the issues amounted to two hundred millions 
 of dollars, or twenty times the amount of the coin they had 
 displaced; and a silver dollar, when it did appear, would buy 
 as much as forty dollars of paper. Then Congress issued a 
 new set of notes, every dollar of which was declared equivalent 
 to forty dollars of the previous issues. This, however, operated 
 only as a public acknowledgment of the worthlessness of the 
 entire mass. It amounted to a formal abrogation of the 
 promise to pay — long before held in doubt, but not, till then, 
 wholly disbelieved. The notes fell rapidly to one in two 
 
 149 
 
CREDIT, 
 
 hundred, and soon afterwards to one in a thousand of their 
 nominal value ; and then they became waste paper. 
 
 508. In both these instances, an economic error was 
 repeated which had originated, long before, with the cele- 
 brated John Law. In the latter years of the seventeenth 
 century this person submitted to the Parliament of Scotland, 
 his native country, a scheme for a Land Bank, the basis of 
 which was the proposition that promissory notes may be 
 issued, under the authority of a government, to any amount, 
 without depreciation, provided there be tangible property, of 
 any kind, held pledged for their payment. The- Scottish 
 Parliament did not adopt Mr. Law's scheme. So he took it 
 to Paris ; and there he made it the foundation of the famous 
 Mississippi Scheme. The history of this gigantic affair, and 
 of its English counterpart the South Sea Bubble, must be 
 read elsewhere. The story should be read for its apt illus- 
 tration of the fallacy of the proposition vdth which Law 
 started ; and which, false as it is, still, I am sorry to say, lurks 
 in the minds of many able and energetic men in our day. 
 
 509. Had the French Government, or had the American 
 Government, under the circumstances stated, begun by placing 
 (say) one-third of the cash realized by the issue of their notes 
 in a public chest, to meet any immediate demand for their 
 payment, (replenishing this, if need were), and given the 
 promise of the State for the ultimate, payment of the notes, 
 and issued no more than were needed for the circulating 
 medium, they would have done about what we now do at our 
 note-issuing banks ; and would have taken as much of the 
 coin in circulation in the country as they could get possession 
 of without doing incalculable mischief. 
 
 Two instances have occurred in which the principle here 
 stated may seem to have been neglected with impunity. In 
 fact it was not so. In 1797 the British Government sus- 
 pended the payment of gold by the Bank of England, and 
 continued the suspension till after the close of the war with 
 France. And during the Civil War of 1860-1865 the 
 15° 
 
CREDIT. 
 
 Federal Government of the United States met its extra- 
 ordinary outlay by the issue of notes not payable on demand. 
 In each case, the notes became the promises to pay of the 
 settled government of a wealthy and powerful nation. They 
 were issued for a great and temporary purpose, sustained by 
 a strong national determination. The issues did not, at any 
 time, greatly exceed the amount required as a circulating 
 medium. There was, all through, a general confidence in 
 their ultimate payment. And yet, in neither case, was de- 
 preciation of the paper wholly avoided. 
 
 510. A Bank-note then, even when it becomes, as we see Bank- 
 it in this country, a tolerably perfect substitute for money, is "" "' 
 still only a record of a debt. Its operation, when in circula- 
 tion, is simply that of a form of credit. It transfers the title 
 to a corresponding amount of floating capital. In paying a 
 debt, it substitutes for the promise of the debtor that of some 
 well-known capitalist. It thus partially supplies, in the daily 
 business of exchange, the place of money ; and, in so far as 
 it is cheaper in use than money, it effects a saving of capital. 
 
 511. A Bill of Exchange is, usually, in form, an order, by a Bills of 
 creditor, upon a debtor, to pay to a third party the amount JS'"^^''"S^' 
 which is due to the drawer, or to any person this third party 
 
 may name — the payment to be made at a given future date. 1038. 
 It is a demand for payment of a debt, with a postponement 
 of the payment for an agreed term. It seems to imply pro- 
 vision for some difficulty in personal communication between 
 the creditor and his debtor; and, with bills drawn by the 
 merchants of one country upon those of another, this difficulty 
 — that of distance — very commonly exists, and is thus met. 
 
 512. The differences between a Bank-note and a Bill of 
 Exchange indicate, to some extent, their different origin and 
 use. 
 
 With a Bank-note you transfer the capital it repre- 
 
 151 
 
CREDITt 
 
 sents by simple delivery of the note; and with this act of 
 delivery all connection ceases between the note and its 
 previous holder. To transfer a Bill of Exchange, the person 
 in whose favour it is originally drawn, and each successive 
 holder, must write his name across the back of the Bill, or 
 indorse it; and this involves a subsequent responsibility, to 
 which I will revert presently. 
 
 513. A Bank-note is payable at any time, on demand. A 
 Bill of Exchange is payable only at the expiration of a term 
 stated on the Bill. 
 
 514. A Bank-note bears no interest. A Bill of Exchange 
 always bears interest, by including, in the amount payable at 
 the due date, interest during the term for which the Bill has 
 been drawn. 
 
 515. And, lastly, a Bank-note is accepted on the credit of 
 the issuer only ; while a Bill of Exchange circulates on the 
 credit of all the parties whose names appear upon it : each of 
 these, from the drawer down to the last indorser, being equally 
 liable in succession to pay the amount to the final holder, 
 should it not be paid by the original debtor. Hence it is 
 that endorsement is required to pass the Bill from hand to 
 hand, and hence also the responsibiUty attending the use of 
 Bills of Exchange, and their unfitness for ordinary circulation, 
 except among men of business, engaged in the transactions 
 which give rise to Bills of Exchange. 
 
 516. When legitimately used. Bills of Exchange represent 
 
 628. so much floating capital in course of transfer. The transfer 
 may or may not be from one locality to another, but it always 
 implies the lapse of some time, during which the capital 
 represented is in productive use. It may be a transfer of 
 wool from Australia to England, or of woollen yarn from the 
 spinner to the weaver in the same town in England. And 
 the term for which the Bill is drawn ought to have, and 
 
 629. commonly has, reference, more or less precise, to the time 
 supposed to elapse between the successive transfers of such 
 commodities from hand to hand, on their way from the pro- 
 
 152 
 
CREDIT. 
 
 ducer to the consumer: for its purpose is to supply such 
 capital as is likely to be needed for the transaction on which 
 the Bill is based. The postponement of payment thus 
 effected is an accommodation to all who are parties to such 
 transfers. If the wool could not be shipped at Sydney, or 
 Melbourne, till the agreed price was paid there, in hard 
 cash, or its equivalent, the number of buyers would be 
 fewer, and sales would be effected more slowly, and with less 
 advantage to the seller ; and also to the ultimate consumer. 
 With less facility for bringing the wool to England, less of it 
 would come; dealers would be fewer; and the consumers 
 would receive less wool, and that at a higher price. 
 
 517. In considering the subject of Interest, we saw that the 360. 
 time occupied about any productive operation is the measure 386. 
 of one element in the price. The confidence, or credit, 
 implied in the ready transmission of commodities from place 
 to place, and from one person to another, on the security 
 afforded by these transmissible forms of credit, is another, 
 and not less important, element in the ultimate price. 
 
 Book-debts are a third form of credit which should be and Book 
 examined in detail. ^ 
 
 518. Bills of Exchange record the debts incurred by dealers, 
 wholesale and retail, to each other, from the time the amount 
 of debt incurred on each transaction is determined, until the 
 transaction is closed by payment of the debt. They are 
 evidence of a debt, the payment of which is postponed by 392. 
 agreement. And, so far, this description is equally applic- 
 able to the debts recorded by the retail dealer, in his books, 
 against the consumer, to whom he gives credit. A leaf in a 
 ledger is the record ; and, when the retail dealer sums up his 
 assets, he counts the debt thus recorded just as the wholesale 
 dealer enumerates the contents of his bill-case. 
 
 153 
 
CREDIT. 
 
 519. These three forms of recorded credit may be broadly 
 distinguished by the part taken by the debtor and creditor in 
 making the record. 
 
 520. The Bank-note is a record of a debt, made by the 
 debtor alone, and binding him to instant payment, at the will 
 of whomsoever may hold the record. 
 
 521. The Bill of Exchange is made by both parties — the 
 creditor demanding, and the debtor consenting to, payment 
 of the debt on a specified future day. 
 
 522. The Book-debt is often recorded by the creditor 
 only. The time of payment is uncertain; and were it not 
 that the law, in all countries, in view of the policy of closing 
 needless openings to litigation, has fixed a term (in this 
 country six years from the incurring, or from some distinct 
 acknowledgment, of the debt), beyond which such debts are 
 not recoverable by law, Book-debts might become the source 
 of obligations at once endless and indefinite. 
 
 Credit 523. The function of credit is therefore extremely simple 
 
 ^Caibit<d ^" ^'^ nature. But the services derived from it are of very 
 great variety, and of inestimable value. 
 
 524. We have seen how enormously the productive power 
 of human labour is increased by the accumulation of capital. 
 We have also seen that this increase of power is greatly 
 dependent upon the use of capital being directed by adequate 
 skill. Perhaps the problem which, in the larger operations 
 of commerce, most frequently presents itself is, how, most 
 efficiently, to bring capital and skill together, for the promotion 
 of a given purpose. The requisite skill, and the disposition 
 to employ it, are not always found with those who own the 
 capital. Hence, the command of the capital must often 
 pass into the hands of others, in order to make it even 
 moderately effective. Credit affords a ready method of doing 
 this. 
 imt does not 525. But though the various forms of credit effect nothing 
 more than the transfer of wealth, or capital, from one place, 
 154 
 
CREDIT. 
 
 or from one person, to another, the contrary is often alleged. 
 The instruments for transferring wealth are treated as new 
 creations of it. And the plausible character of these allega- 
 tions creates nearly all the difficulty we find in understanding 
 the actual operation of credit. 
 
 526. We very often hear Notes, Bills of Exchange, and 
 other paper records of current credit, spoken of as though 
 they possessed value in themselves. To speak thus is to 
 mistake the title-deed for the estate. Mark the origin of 
 these documents, in the business of daily life. They will all 
 be found mere " promises to pay." Their origin is a debt 
 (real or fictitious). They fix the amount of the debt ; and 
 they name the debtor, and the person to whom the debt is 
 due ; and they fix the time and place at which it is promised 
 that the debt shall be discharged. They do this, and they do 
 nothing more. And the fallacy that they can do anything 
 more had better be got rid of, before deciding what are 
 the true functions of these forms of credit. 
 
 527. Say a baker draws, to-day, ten loaves from his oven. 
 But say he has twenty customers ; and that to each he has 
 promised a loaf to-morrow. To-night all the twenty go to 
 bed believing him. To-morrow comes ; and, with it, the de- 
 livery of bread ; but with the tenth loaf the baker " stops 
 payment." 
 
 528. It cannot be denied that, for a time, promises repre- 
 senting twenty loaves were actually current, and relied on. 
 Each promise bore an equal value ; and we may even suppose 
 that they so passed from hand to hand among the believers 
 in the baker, Each promise looked, last night, as good, for 
 four pounds of bread to-day, as any bill in a banker's bill-case 
 could for the sum it bore on its face, as payable at the due date. 
 
 529. But the baker has failed. What then ? 
 
 Shall we say that ten loaves, or their equivalent in any form 
 of exchangeable value, have been destroyed ? 
 Some economists say " yes," I say " no." 
 
 530. And where lies the diflference ? In this : they say 
 
 IS5 
 
CREDIT, 
 
 that a promise in writing, which actually circulates from hand 
 to hand, and is, by each person receiving it, accepted as 
 equivalent to a given sum of money, inasmuch as it thus 
 commands value in exchange, must, itself, be deemed to 
 have value. Not so. Its efficacy in procuring the transfer 
 of things which themselves possess value in exchange, is 
 due entirely to belief in a promise. And a promise, however 
 precisely made and recorded, and however firmly believed in, 
 is, after all, only something said about value. It may or may 
 not turn out to be true. 
 
 531. No mere words, written or spoken, can add to or 
 alter the real value of anything — much less can they confer 
 value on that which before did not possess it. Nothing said 
 about two loaves can make them into four, or make them as 
 effective for any use of loaves, as four would be. With fic- 
 titious values — values only accepted by the ignorant or the 
 thoughtless — we have nothing to do. Were it otherwise, 
 " value " might be increased at will, with no limit but the 
 credibility of listeners. If the assertion " I have a cart round 
 the corner," or "I have a castle in Spain" — provided only there 
 be some fool to believe it — is to give to the cart, or the castle, 
 the force of " an economic quantity," we had better leave po- 
 litical economy to amuse idlers. It can be of no use to men 
 of business. 
 
 532. Take a case in which capital is obtained on credit ; 
 and observe how the capital is turned to use. You will see 
 how instantly, and continuously, the use of the capital is 
 dependent on the actual possession and use of things which 
 really have value. 
 
 533. Let a railway contractor borrow from a banker 
 enough to pay the wages of twenty men for a week. 
 These men will, in a week, remove so many cubic yards 
 of earth from where they form an obstruction to where 
 they will form a road. In return they must have access 
 to food, clothing, and lodging for a week. This means the 
 consumption of tangible commodities. The banker's notes 
 
 156 
 
CREDIT. 
 
 must go to the village shop, and to other places ; and bread, 
 and bacon, and coats, and boots, and use of houses must be 
 had, before the lent capital becomes effective. The con- 
 tractor's promise to pay has induced the banker to give his 
 promise to pay; and, that promise being believed, the things 
 are had, and consumed. The banker has thus given, and the 
 contractor has taken, command of so much floating capital ; 
 and has ordered the method of its use and consumption. If 
 the contractor's promise be fulfilled, and this capital be duly 
 replaced by him, so much the better for the banker. If not, 
 so much the vtforse for him. As regards the community, so 
 much wealth, or capital, in the shape of certain commodities, 
 has, by means of labour, been converted into so much other 
 wealth, or capital, in the shape of a new road. And that 
 is all. 
 
 534. So, when we are disposed to believe that money, or 
 the things money can buy, may be in two places at once, 
 then, and not before, we may listen to those who would 
 persuade us that credit, however " organized," can do more 
 than transfer such money, or things, from one person, or one 
 place, to another ; or that any appearance of its doing so is 
 more than a delusion. 
 
 535. On the continent of Europe, the notion that credit Organha- 
 would, if properly "organized," enable the labourer to dis- *^''"j°i 
 pense with the aid of the capitalist, in the work of production, 
 
 is so far prevalent as to present itself to continental statesmen 1155. 
 as a distinct and powerful disturber of the relations of capital 
 to labour. I know only one place in which this fallacy is 
 thoroughly analyzed. 
 
 536. When the revolution of 1848 broke out in France, 
 some very impracticable theories were broached touching 
 what were termed " the rights of labour." Amongst others, 
 a M. Proudhon made use of the considerable authority he 
 then had among the workmen of Paris, to urge upon the 
 
 157 
 
CREDIT. 
 
 new Government the propriety of providing these workmen 
 with capital, in order to free them, as he said, from the tyran- 
 nical control of the masters, and to enable them to work on 
 their own account. M. Frederic Bastiat, one of the ablest 
 economists France has produced, entered into a public con- 
 troversy with M. Proudhon, and endeavoured to convince 
 him of the fallacy of his assumption that the Government 
 possessed the power attributed to it. He did not succeed 
 with M. Proudhon. But he left; on record, in his correspond- 
 ence with M. Proudhon, which has been published among 
 the works of M. Bastiat, under the title " Gratuit6 du Credit," 
 a very complete view of both sides of the question thus raised, 
 and generally, of the error to which I have referred. 
 
 537. Nor is it only in France that such theories are ad- 
 vanced. Not many years ago, there appeared in a Liverpool 
 newspaper several communications from a correspondent, 
 who evidently wrote much in earnest, proposing for adoption 
 there, as the basis of some municipal improvement, a scheme 
 founded on the same fallacy. It was based on facts which 
 had come within the writer's knowledge. 
 
 538. The facts stated were that, in one of our Channel 
 Islands, a market house was wanted ; and that one was built 
 in this manner: — -The local government issued promissory 
 notes for the amount of capital required to complete the 
 building ; and when it was completed, the shops or stalls were 
 let at rents. Then, as fast as the net rents were received, 
 their amount was employed in paying the notes thus issued, 
 which, when withdrawn, were destroyed. And, in this way, 
 we were assured that the market house was obtained without 
 its costing anything to anybody. 
 
 539. There is nothing in this statement which is not 
 perfectly credible. But in any way it does not justify 
 the assumption that capital was dispensed with. It is 
 certain that the land, the labour, and the materials, bought 
 with the notes, and thus employed, must have been with- 
 drawn from all other use, and must have been replaced, in 
 
 is8 
 
CREDIT. 
 
 the hands of those who supplied them, with something more 
 valuable than mere paper. 
 
 540. The process, in short, was this : A given sum in coin 
 was, gradually, in the course (say) of one or two years, with- 
 drawn from circulation, and, being replaced by " promises to 
 pay" satisfactory to the community, was converted into a 
 building. The coin, in the first instance, had belonged to 
 the community ; and so did the building, afterwards. Then, 
 the surplus rents of the building, beyond the cost of its main- 
 tenance, being used in the payment of the notes, these were 
 gradually withdrawn. After that, the rents of the building, 
 if any, became, we must suppose, applicable to the public 
 service, in some other form. And if the paper notes were 
 replaced by coin, it was at the cost of the community. 
 
 541. Here, however, we see nothing new. For we con- 
 stantly see capital replaced by the income derived from its 
 us^. It is well known that a sum of money lent at five per 
 cent, compound interest, on adequate security, will double 
 itself in less than fifteen years. If you can borrow money 
 without interest — as was done in this case, by substituting 
 a paper currency for gold — and can so invest it, you may, 
 at the end of fifteen years, return the whole sum borrowed 
 and keep for yourself an equal sum. But there would, in 
 this, be no creation of capital. 
 
 The use of capital commands a price called interest. 
 Receive and accumulate that price, and you have an income 
 from which you may form new capital. But you then do 
 only what is done every day, and has been done, in effect, 
 ever since capital first came into existence; which, as we 
 have seen, was as long agoas when men first began to raise 30. 
 themselves permanently above the condition of mere savages. 
 
 542. Thus far we have considered forms of recorded credit 
 only as means of transferring readily, rapidly, and safely, 
 from hand to hand, the various forms of floating capital 
 
 159 
 
CREDIT. 
 
 already in use, and in alliance with which the industry of 
 the country is actually employed. 
 Credit also 543. But there is another, and hardly less important, 
 "atital office for these various forms of credit, which we must not 
 pass without notice. These forms of credit also provide 
 channels through which new capital is, with like faciUty, 
 brought into the market. We have seen that as all the 
 454. capital we now possess came originally of saving, so every 
 addition made to this capital has precisely the same source. 
 But all savings, at first, are small. As the largest rivers may 
 always be traced upwards to the confluence of others, of less 
 volume, and these to brooks, and so up to the tiniest moun- 
 tain rills, so the large amount of additional capital annually 
 placed at the service of the agriculture, mines, manufactures, 
 and commerce of this country — variously estimated at from 
 eighty to a hundred and twenty millions sterling — is all 
 derived from savings — from earnings, and profits, put ,by 
 instead of being spent; and for the most part is poured 
 into the common fiind, from time to time, in small sums. 
 If we observe, with any degree of care, how these contri- 
 butions are made, we find that the vehicle employed is 
 almost invariably some one of the common forms of credit. 
 Few of those who make these savings can themselves find for 
 them profitable employment. But some one of these various 
 forms of credit will always supply means by which they may 
 be rapidly conveyed, not only into active employment, but 
 very generally into that specific form of employment which, 
 for the time being, most requires such aid. 
 
 544. The process by which it is effected must be dealt 
 583. with under the head of Banking. 
 
 i6o 
 
XI. MONEY. 
 
 545. We have all some practical acquaintance with money. 
 We have here to extend our knowledge. We can hardly 
 hope to complete it ; for the subject is a wide one, and has 
 many details. 
 
 546. Money may be described as a common measure of Definition. 
 value, which has, itself, very nearly the value it indicates ; 
 
 and which is used as a common instrument of exchange. 
 Any wider definition than this will include something which 
 is not money, and is something else. 
 
 547. It is sometimes said that money is anything which 
 men currently accept in discharge of a debt. But the dis- 
 charge of a debt is purely matter of agreement between 439. 
 debtor and creditor. The nearest approach to money is, 510. 
 perhaps, seen in the Bank of England note. This, how- 624. 
 ever, is, in form, and in effect, only a written " promise to 
 
 pay." And the law, in making it a legal tender in discharge 
 of a debt (except by the Bank, itself) only facilitates a change 
 of the creditor. 
 
 548. A debt can be discharged, or cease, only in one of 
 two ways : by the assent of the creditor, or by order of the 
 State. It may cease, by the assent of the creditor, on a 
 written promise, or on an oral promise. Nay, his assent may 
 be gained by a smile, or a tear. It may cease by order of 
 the State, upon any motive the State may deem sufficient : 
 as on due proof of the insolvency of the debtor, and sur- 
 render of his goods; or on proof of the illegality of the 
 
 M 161 
 
MONEY. 
 
 transaction on which the debt arose, or of the incapacity of 
 the debtor to contract the debt. 
 
 Value of 
 Money — 
 How de- 
 termined. 
 
 English 
 
 and 
 
 German. 
 
 French. 
 
 549. Money is that which, being used as a common 
 measure of value and instrument of exchange, the common 
 sense of mankind, and the order of the State, concxu- in 
 declaring to possess the actual current value attributed to it 
 within the dominion of the State. Within that dominion, 
 nothing else can be money ; and, beyond it, all money 
 becomes mere merchandize. 
 
 550. The actual value of standard money is fixed by 
 the weight and quality of the metal of which it is composed. 
 Its current value, as determined by the State, must differ 
 from this only within narrow limits ; or it ceases to be 
 money, in the proper sense of the term. 
 
 551. Money is exclusively a national matter. The 
 Englishman's money is the gold coin known as a sovereign. 
 It is made by the Government only; and when issued is 
 certified to contain 113 grains, Troy weight, of pure gold. 
 It also contains about ten grains of copper, called an alloy ; 
 which, however, is put in only to make the coin wear better. 
 Since 1875, the money of Germany has been closely assimi- 
 lated to ours. The silver mark is worth ix^d., and the gold 
 twenty-mark-piece \qs. id.; and so ranging nearly with our 
 shilling and sovereign. 
 
 552. The Frenchman's money is the silver coin known as 
 a franc. This is made by the French Government, and is 
 certified to contain a little less than 69I grains, Troy weight, 
 of pure silver (exactly 69-452 grains). This, also, is alloyed, 
 to the extent of one-tenth, to make it wear better. But, as I 
 shall presently explain, though the franc in silver is still the 
 primary money of France, their gold coins are also legal 
 tender, for their nominal value, and as containing one part, 
 pure gold, by weight, to fifteen and a half of silver, in francs. 
 
 553. These coins are, in their respective countries, not 
 only the common instrument of exchange, but also the 
 
 162 
 
MONEY. 
 
 money of account. The sovereign measures English debts 
 as the yard measures English lengths ; and the franc measures 
 French debts as the metre measures French lengths. 
 
 554. The French system is now, practically, repeated in 
 Italy, Belgium, and Switzerland, Spain, Greece, Roumania, 
 and Servia. And these countries have found it expedient, as 
 their coins get much mixed in use, to agree to make them of 
 like weight and fineness ; and to limit their coinage. This is 
 called the " Latin Union." The recent fall, and continued 
 fluctuation, in the value of silver, however, has caused 
 disputes which seem likely to bring it to an end. 
 
 555. But our debts need daily expression in quantities less 
 than a sovereign. So we 'provide coins of smaller value. Silver and 
 But these are quite subordinate to, and dependent upon, the '"''^^^■ 
 sovereign. They must be issued, for the sake of convenience ; 
 but they do not disturb, in any way, the position of the sove- 
 reign as the standard, and unit of value, in our money. Silver 
 coins can be tendered, in this country, only for sums not 
 exceeding forty shillings, and bronze coins only for sums not 
 exceeding twelve pence. 
 
 ■ 556. The value of the metal in these coins is made less 
 than their current value, in order that they may remain 
 subordinate to the use of the gold coin. As to the silver 
 coins, were their current and real value nearly the same, a 
 slight rise in the value of silver might cause them to be 
 melted for sale in ingots. So they are issued at a nominal 
 value quite above the market value of the metal. And as to 
 the bronze, to put a pennyworth into a penny would only 
 make it more cumbrous in use. 
 
 557. As to gold, silver, and bronze coins, alike, the 
 Government supplies as much of each as appears to be 
 wanted. If more be sent into circulation than there is use 
 for, it goes back to the banks; and is, in effect, returned 
 upon the hands of the Government ; and as the gain of the 
 
 M 2 163 
 
MONEY. 
 
 Government in coining gold is nothing, and, as to the other 
 coins, is small, there is no adequate inducement to coin 
 more than is actually wanted. 
 
 558. Our attention, however, should be given, with some 
 care, to the manner in which our gold coin comes into, and 
 is kept in, circulation : for upon this depends the solution of 
 some questions which, in the presence of this information, 
 can hardly arise, and which in its absence are often asked, 
 and seldom well answered. 
 Sovereipis, 559, Our Government coins the gold; but makes no 
 Gold "^ charge for doing so. In other words, the cost of the coinage 
 is paid from the ordinary revenue. Any one may take to the 
 mint gold of the mint standard (that is to say, eleven-twelfths 
 gold and the rest copper), and for every forty pounds of such 
 gold he will, after a time, receive back 1,869 sovereigns (or a 
 proportionate number of half-sovereigns); and he will find 
 that these weigh exactly forty pounds. 
 
 560. But, practically, though any one may do this, it is 
 done, almost exclusively, by the Bank of England. Who- 
 ever does it, will probably have about six weeks to wait, after 
 depositing his gold, before he gets his coin. And this may 
 be said to entail a loss of interest equal to about three half- 
 pence for each ounce of gold. So the Government has, for 
 the public convenience, arranged with the Bank of England 
 to give gold coin, immediately, for uncoined gold; taking 
 the latter at a price three halfpence per ounce less than the 
 actual current value. Thus the Bank of England is always 
 ready to receive uncoined gold, of the standard quality, at £3 
 1 7 J. gd. per ounce, and to pay for it in gold coin — the value 
 in such coin being £3 17^. lo^d. per ounce. The bank will 
 give, for forty pounds of such gold, not 1,869, but 1,866 
 sovereigns. The difference repays to the bank the loss of 
 interest which it incurs when it sends gold to the mint to be 
 coined, and waits for it. 
 
 164 
 
MONEY. 
 
 561. We sometimes hear it alleged that we thus Price of 
 establish a fixed price of gold. This, however, is clearly ^''^'^■ 
 absurd. There cannot be a price of gold expressed in 
 gold (coined or uncoined), any more than there can be a 
 price of water expressed in water. The (so-called) price of 
 £3 17^. io\d. means only this: that we coin our sovereigns 
 of such weight and fineness that, were each coin divided into 
 a thousand parts, an ounce of pure gold would contain as 
 much of that metal as three sovereigns, and about 895 parts, 
 out of a thousand, of another sovereign. If a sovereign con- 
 tains 113 grains of pure gold, and is worth twenty shillings, 
 and each shilling is worth twelve pence, then an ounce of 
 pure gold, as it weighs 480 grains, must be worth £3 
 17J. lo^d., neither more nor less. 
 
 562, When the gold coin goes into use, it begins, though, 
 under ordinary circumstances, very slowly, to diminish in 
 weight, by attrition. The sovereign is issued at a weight 
 (including the alloy) of a little more than 123 grains. Its 
 value, therefore, is about twopence per grain. By law it 
 ceases to be legally presentable, as a sovereign, as soon as 
 its weight falls below i22f grains. Any person to whom it 
 is then tendered is at liberty to cut and deface it, and return 
 it to the owner in a state unfit for further circulation. But, 
 
 in practice, this permission is very little acted upon. Only Light gold 
 bankers have at hand scales fine enough to weigh fractions "^''' 
 of grains in a coin ; and bankers do not often choose to 
 offend their customers by defacing their money, and so 
 fixing upon them, in particular, a loss for which they are, in 
 fairness, no more liable than the last previous holder, or the 
 last but one. It is only at the Bank of England that it is 
 done ; and those who take sovereigns there know what they 
 have to expect. 
 
 563. The result is that much of the gold coinage of this 
 country, in the course of a few years after its issue, suffers a 
 
 >65 
 
MONEY. 
 
 material reduction of its weight, and its actual value ; and, for 
 this reduction, there has hitherto been only one remedy : that 
 is to issue a proclamation from the Government at intervals 
 of some years, declaring the coinage to be, to a considerable 
 extent, unduly reduced in weight ; and forbidding the circu- 
 lation of coins thus deficient. The last such proclamation 
 was issued in June, 1842. This amounts to nothing more 
 than reminding the people using sovereigns of their implied 
 duty to refuse, and to stop the circulation of, every sovereign 
 weighing less than i22f grains. Being so brought to mind, 
 the duty is done. It causes some trouble and vexation for a 
 time. All the banks, and many of the public, begin to 
 Re-coinage Weigh the sovereigns they receive. Many of them are found 
 "fS"^'^- deficient — the larger number by one or two grains, and 
 some as much as four or five grains. Those which are 
 materially deficient in weight are readily detected; and a 
 small sum (say threepence each) is paid to make good the 
 deficiency. Many of the light sovereigns are thus passed 
 into the hands of bankers, with an allowance for their light- 
 ness ; and are sent in to the Bank of England, as so much 
 uncoined gold, by weight ; and thence are sent back to the 
 mint for re-coinage. But many of the deficient sovereigns, 
 after detection, and due allowance exacted for their de- 
 ficiency, are probably retained in private hands till the 
 hubbub is over ; and are then quietly returned into cir- 
 culation. 
 
 564, Our present method of keeping the gold coin up to 
 its due weight is, no doubt, objectionable. It operates only 
 occasionally — it is only partially effective, when it does 
 operate — and it does not ascertain precisely, or distribute 
 fairly, the necessary cost of re-coinage. But it is not easy to 
 suggest a better method. Were the Government to take 
 upon itself the cost of restoring all gold coin deficient in 
 weight it would become a lucrative trade to reduce the 
 weight by artificial means, and get heavy coins for light 
 ones; and it appears that, practically, the people, who 
 166 
 
MONEY. 
 
 handle the gold coin, and must, in any event, pay for its 
 maintenance, as they will not exercise, constantly, the neces- 
 sary vigilance, must, at distant and uncertain intervals, pay 
 the penalty of negligence in the troublesome and inequitable 
 process I have described. 
 
 565. In July, 1870, the Government made an effort to 
 promote the withdrawal of light gold from use by offering 
 to receive it at the Bank of England at £3 i*]s. gd. per 
 ounce. But this has not had much effect. Everybody's 
 business is seldom done. 
 
 566. It does not seem likely that any other metal than Gold and 
 gold and silver will ever come into general use for money, ^l . 
 The Russian Government did, in 1829, by way of making 
 useful the platina found in its own dominions, coin three, six, 
 and twelve-rouble pieces of that metal, fixing its value at a 
 little more than one-third of the value of gold, weight for 
 weight. But the experiment, which seemed not unlikely to- 
 provide a convenient medium between gold and silver coin, 
 did not succeed; and these coins were withdrawn in 1845. 
 The state of things described to us in Genesis (xxiii. 15) 
 when Abraham bought of Ephron the Hittite a burial-place 
 in the cave of Machpelah, and "weighed to him the silver 
 which he had named, in the audience of the sons* of Heth, 
 four hundred shekels of silver, current money with the mer- 
 chant," remains much as it then was throughout the East, 
 and has, with few improvements, been adopted and continued 
 in Europe to this day ; and there is no apparent probability 
 of change. Gold and silver are thus fixed in use by con- 
 siderations which can hardly concur as to any other sub- 
 stance : — 
 
 I. All mankind deem them valuable. They are useful, 
 and beautiful ; and each in a high degree ; and hence 
 the progress of civilization does not diminish, but 
 rather increases, our demand for them. 
 
 167 
 
coins 
 
 MONEY. 
 
 2. They are little liable to oxidation, or to other damage. 
 
 3. In proportion to their purity, they may be said to be 
 
 very nearly the same, at all times, and in all places ; 
 and their purity is easily and cheaply ascertained. 
 
 4. They may be divided into very small parts, and these 
 
 parts may again be united, without material loss. 
 
 5. They are of great value in relation to their weight and 
 
 volume ; and 
 
 6. Their value is little liable to fluctuation. 
 
 567. In days gone by, it was not of much consequence 
 that each government adopted, in the adjustment of the 
 value of its several coins, divisions not in use elsewhere. 
 577. Until governments very generally learned the value of abso- 
 lute honesty in the work of coining, no uniformity of practice, 
 as between different nations, could, if attained, have been 
 preserved ; and this lesson was not effectually learned tiU a 
 generation or two ago. Now, however, it would undoubt- 
 edly be of great benefit to mankind if the coinage, and also 
 the weights and measures, of the world could be adjusted to 
 an uniform system. What system, in particular, is of far less 
 consequence than that diversity should, in some way, be 
 superseded by uniformity. 
 
 Decimal 568. The advantages of a decimal system of money have 
 
 coinage. probably been exaggerated. But they are practically un- 
 attainable in this country. The penny of daily life cannot 
 be made to take a decimal relation to the pound sterling: 
 for neither can be changed. Contracts have too firmly fixed 
 the one, and popular custom the other. 
 
 Size of 569. Some practical points have already been settled by 
 
 common experience. No coin, for instance, can be con- 
 veniently used, in silver, of less weight than twenty grains, 
 or about the weight of our three-penny piece. Gold, being 
 168 
 
MONEY. 
 
 heavier, is less in volume ; and our smallest gold coin, the 
 half-sovereign, weighing rather more than sixty grains, having 
 regard to its value, is probably as small as can easily be used. 
 The increased rapidity of wear, which goes with lessened 
 size, is of more consequence with gold. Our five shilling- 
 piece, or crown, weighs about four hundred grains. It is in- 
 conveniently large, and is little used. Perhaps the sovereign 
 might be increased considerably in size without inconvenience 
 in use. But it is now by far the best known and most 
 used gold coin in the world. As a standard of value, it is 
 known and accepted in every market in the world ; and 
 it is not easy to conceive an adequate motive for altering it. 
 No doubt there are, or have been, some larger gold coins in 
 use. The Portuguese doubloon has 406 grains of pure gold ; 
 and the Spanish doubloon about 365 grains ; but the largest 
 gold coin of late years much in use in the world is the 
 American eagle, which has 232 grains. Even this, however, 
 has for the last ten years been driven out of circulation by 
 the issue in the United States of what is called " paper-money " 
 — one of the results of the great Civil War. Our sovereign 
 might be a better coin if made larger ; but it is extremely 
 unlikely that it ever will be. 
 
 570. It is sometimes said that we should improve our Standard 
 money by adopting, as a standard of value, both gold and "f'"'^^""- 
 silver, or, rather, by using, as a standard, whichever metal 
 might, from time to time, be cheapest. 
 
 We have the advantage, in considering this proposal, of 
 the experience of France. There the primary standard is 
 silver, as embodied in the franc. But the gold coin is also 
 a legal tender, in the proportion of one part of pure gold to 
 fifteen and a-half parts of pure silver. Forty years ago — 
 before the new discoveries of gold in California and Australia 
 — gold in Europe was, in relation to silver, worth more than 
 this proportion expresses. Frenchmen, having the option, 
 
 169 
 
MONEY. 
 
 then paid each other in the cheaper metal; and though, as 
 the bank-note was little used in France, and large sums in 
 silver were cumbrous to handle, gold was still used to some 
 extent, the bulk of the French coinage was silver. When the 
 new American and Australian gold, after a time, brought down 
 the value of the metal, so that it fell below the relative value 
 affixed to it by the French law, the gold coin of twenty francs 
 began to come more into use, as being not only more con- 
 venient, but also slightly cheaper, for the discharge of debts. 
 At length it displaced the silver for all but small payments. 
 And England and France came to use, in common, a gold 
 standard. But this has again been disturbed by a great fall in 
 the value of silver. 
 
 571. Whether the French method is, as they allege, better 
 than ours, is a question yet open to discussion. All varia- 
 tion, in a standard of value, is an evil. All standards are 
 liable to variation, and in both directions. But very slow 
 variations, and very small variations, involve no practical 
 evil ; and neither gold nor silver is at all likely to increase in 
 value otherwise than slowly, and slightly. 
 Bi-metal- 572. During the last ten years, the supply of silver from 
 the mines has been so far increased as (taken with the prac- 
 tical adoption of a gold standard throughout Eurepe) to 
 reduce its market value materially. Those interested in its 
 production have made strenuous efforts to persuade us to 
 give it a fixed value, in ova coinage, in relation to gold. 
 This is called " Bi-metallism.'' It means a double standard : 
 which, in effect, is liberty to discharge a debt in whichever of 
 two metals happens, for the time, to be the cheaper. But no 
 such effort is likely to succeed. Gold has the advantage of 
 being more portable, in relation to its value ; and less likely to 
 be changed in value ; and also the advantage, at present, of 
 being more commonly in use as a standard. So, all things 
 considered, it seems best fitted for a single standard. As to 
 the use of a double, or alternative standard, which shall bring 
 into use, from time to time, the cheaper of the two metals — as 
 170 
 
 lism. 
 
MONEY. 
 
 the risk of change is almost entirely in the direction of depre- 
 ciation, and it is more likely that one of two metals should be 
 so affected than that either, in particular, should be so — the 
 single standard seems to be fairly preferable. And uniformity, 
 in this respect, is now becoming as desirable for the world at 
 large as it has heretofore been for each nation by itself. 
 
 673. It does not seem that we have anything to learn, as Coinage 
 to coinage, from the United States. The dollar is rather °{/^-^, j 
 beyond the size found most convenient in use. It was States. 
 adopted from the old Spanish dollar, which had long been 
 the coin chiefly in use in all the American colonies and 
 settlements. Its value was fixed by Congress in 1792, when 
 it was ordered to contain 37 1|: grains (Troy) of pure silver. 
 At the same time, the eagle was ordered to contain two- 
 thirds of the same weight (247^ grains) of pure gold. The 
 eagle being valued at ten dollars, the result was to fix the 
 value of gold in the United States coinage at fifteen to one 
 of silver. In 1843, however, the quantity of fine gold in the 
 eagle was reduced to 232 grains ; and, as the eagle was still 
 ordered to circulate for ten dollars, it raised the relative value 
 of gold to a little more than sixteen to one '. But, this being 
 above the real value of gold, the effect was gradually to bring 
 the gold coin into wider circulation. And this movement 
 acquired increased impetus when the supply of new gold from 
 California began in 1850. In 1853, however, the weights of 
 the silver coins were so far reduced as to make them, like our 
 own silver coins, merely subordinate to the gold eagle. This, 
 in effect, though not in form, was adopting a gold standard. 
 In 1873, the gold standard was formally adopted; and may 
 be said to be represented by the eagle, a gold piece of ten 
 dollars, nine-tenths fine, and worth about £2 \s. ^d. Gold 
 dollars are also coined, worth about 4s. i ^d. And the dollar 
 
 ' This gave our sovereign a value of 4 dollars 87 cents; at which it 
 has since been taken in the United States. 
 
 171 
 
MONEY. 
 
 Our 
 
 Indian 
 
 coinage. 
 
 Bank- 
 notes not 
 money. 
 
 492. 
 
 continues to be the money of account. In 1878, under the 
 influence of the silver-producing interest, the silver dollar was 
 also made a legal tender, and large quantities of it have been 
 coined (at a ratio of about 16 silver to one of gold), but they 
 have not been got into circulation. Paper, payable in gold, 
 is preferred. 
 
 574. In British India, the standard of value is silver, as 
 fixed in the rupee, weighing 180 grains, and containing 165 
 of pure silver. There is also in circulation the gold mohur, 
 which has the same weight and fineness as the rupee. But 
 it has no official value. It varies in current value with the 
 value of gold in relation to silver. In this respect, the Indian 
 system differs from that of France. In India, the standard 
 of value is always silver ; but the gold " Napoleon " has, in 
 France, an official value in silver, at which it also is a legal 
 tender. The price of silver has, of late, been so much 
 depressed that the rupee has fallen materially in value. It 
 commands so much less, in exchange with the sovereign, 
 and hence causes so much inconvenience, as to suggest the 
 expediency of our adopting a gold standard in India. A few 
 years ago, the rupee (containing o-s^a of an ounce of 
 standard silver) was worth is. lo^d. of our money. We now 
 take it for about is. 6^d.^ These fluctuations are more or 
 less distressing to all parties concerned. And they are 
 especially perplexing as they are not readily understood, 
 except by those whose business it is to be familiar with the 
 subject. 
 
 575. To speak of bank-notes as money is to describe 
 things as the same which are essentially different. As I have 
 said, a bank-note is, at its best, nothing more than a promise 
 to pay money : a promise which, like all other promises, may 
 or may not be kept. It is true that, in this country, the notes 
 of the Bank of England, which a concurrence of fortunate 
 
 ■" Showing a ratio of silver to gold, the rupee having 165 grains, and 
 the sovereign 113 grains, pure, of about i8-8 to one. 
 172 
 
MONEY. 
 
 circumstances has raised to the highest degree of credit ever 
 enjoyed by any human promise, and which has also been 
 distinguished by being made a legal tender, has thus ap- 
 proached so near to the character of money that it requires 
 some mental effort to see clearly, in daily life, the essential 
 distinction between these notes and gold coin. But the dis- 
 tinction is there, and must be kept in view, if we would avoid 
 falling into the confusion of ideas so characteristic of most of 
 those who speak or write with any degree of earnestness 
 about " the currency." 
 
 576. The policy of the law by which the notes of the Bank 
 of England have been made a legal tender is open to dis- 624. 
 cussion. But it belongs to the subject of " Banking" rather 
 than to that of " Money." 
 
 577. There was a time, no doubt, when money itself was, Coining 
 to a great extent, current on the faith of a promise : the "™ , 
 implied promise of the Government issuing it that it should done. 
 contain, in weight and fineness, the metal it purported to 
 contain. Five hundred years ago, the art of assaying was 
 
 but little known ; and to ascertain whether a coin was what 
 
 it was said to be was far from being so easy as it is at present. 567. 
 
 It was then perhaps as difficult to ascertain the real value of 
 
 a coin as it sometimes is in our day to ascertain the real 
 
 value of a bank-note, or a bill of exchange. 
 
 578. This difficulty called into existence the trade of the 
 
 " money-changer; '' and thence grew the practice of depositing 1038. 
 coin with goldsmiths; and the ultimate conversion of the 
 goldsmith into the modern commercial banker. 
 
 579. And as there is no form of credit which is not liable 
 to abuse, it is remarkable that every European Government, 
 our own included, has, at one time or other, taken advantage of 
 its power in this respect. Ini344 our sovereigns contained4o8 
 grains of pure gold. To give the Crown a profit, this quantity 
 was, on occasions of re-coinage, repeatedly reduced. But, on 
 
 173 
 
MONEY. 
 
 each occasion, the coin was issued at the same nominal value. 
 In short, the Crown stole a part of the gold. Thus, in 17 17, 
 or in little less than four centuries, the quantity of pure gold in 
 the sovereign had fallen to 1 1 3 grains. It has not fallen lower 
 since, partly because the change would have been detected 
 too rapidly to allow of any profit to the Crown ; but, more 
 especially because the Government had learned that " honesty 
 is the best policy." In like manner, the shilling which in 
 1344 contained nearly 247 grains of pure silver, had in 1717 
 only 86 grains. In 1816, our silver money, having, through 
 long neglect, fallen into a very deficient state, was entirely 
 re-coined. The quantity of silver in the shilling was then 
 finally reduced to 81 grains. 
 
 Our money 
 a national 
 fund. 
 
 626. 
 
 509. 
 
 Sviall 
 notes in 
 Scotland 
 and Ire- 
 land. 
 
 580. Money, therefore, is to be regarded as a necessary 
 and convenient standard and measure of value, and a needful 
 instrument of daily use — costly, and not perfect — but as nearly 
 so as human art can yet make it. Against its cost, however, 
 we may count the incidental advantage of our money affording 
 also a national fund of value, the greater part of it con- 
 vertible to any use, and to which we may always resort on 
 emergency — and that at no greater cost than the temporary 
 substitution of a less perfect medium of exchange, in the form 
 of bank (or Government promissory) notes. 
 
 581. We did this in I'jg'j ; and availed ourselves of the 
 fund till 18 1 9, to aid in carrying on the war with France 
 (i 793-1815). And, so long as our present system is con- 
 tinued, we shall have, similarly, always at command a fund, 
 which, though not increasing in proportion to the wealth and 
 population of the country, is always considerable. 
 
 582. The continued use of Bank-notes, of less than 
 £5, in Scotland, and in Ireland, is a concession to local 
 opinion, and to custom ; and is justified by the smaller supply 
 of capital there, and the careful use which has been made of 
 the privilege. 
 
 174 
 
XII. BANKING. 
 
 583. We have dealt with "Money," and "Credit" — the Definition. 
 representatives of floating capital. Banking is the art of so 
 collecting and distributing these as to admit of their being 
 used to the greatest advantage. 
 
 584. A banker is a dealer in floating capital — receiving it 
 from those who have no present use for it, and imparting it to 
 those who have such use. He gives, for it, secure custody, 
 and a " promise to pay," either on demand, or on short notice; 
 and, usually, he pays interest. He gets for it what he deems 
 adequate security, and such interest as his own skill as a 
 lender, and the state of the " money market," avail to bring 
 him. He serves capitalists who . have spare capital and no 
 immediate use for it, by putting such capital to present use at 
 interest; and he is paid for this service with a part of the 
 interest thus obtained. 
 
 585. Like all other arts, banking is progressive. What it 
 has been shows partly what it is ; and what it is and has 
 been tells us what it may become. 
 
 586. As we know it, the art was first practised in northern Origin. 
 Italy. Whence its name. It began in money-changing ; and 578. 
 " banco " was the Italian name of the bench which was 
 
 used by the money-changers. And these, when the armed 
 adventurers of Europe, in successive generations, poured 
 across Italy to the Holy Land, grew to be something much 
 more than mere changers of money. 
 
 587. Their original occupation was to verify the weight 
 and fineness of coins, and to exchange them for coins of 
 
 175 
 
BANKING. 
 
 more ready circulation in the locality in -which they were 
 wanted for use ; and in this way they had, for many cen- 
 turies, found employment wherever men congregated for 
 commercial dealings. By a gradual extension of their oflBce, 
 they became receivers of deposits of money for safe custody ; 
 then lenders of money, and negotiators of loans. And so 
 far, at least, it would appear that their business had advanced, 
 at Rome, even in the time of Augustus. Soon after the be- 
 ginning of the Crusades, and during the consequent revival 
 of commerce in Europe, the same class of persons, always 
 present where commerce existed to any extent, became not 
 only verifiers of coins, but also verifiers, and sometimes dis- 
 counters, or buyers and sellers, of bills of exchange, promis- 
 sory notes, and bonds — forms of paper-credit which then 
 came gradually into use — partly in aid of money, but more 
 often for commercial purposes for which money was not 
 fitted. 
 
 588. Thus arose what is now called banking. And it is 
 as practised by the private banker, as he is now called, that 
 the art of banking is most clearly seen, and most readily 
 imderstood. 
 
 589. We have already seen that till after the middle of the 
 361. sixteenth century the taking of interest for money had no 
 
 legal sanction in England ; and it was not till about a cen- 
 tury later (1640-50) that the goldsmiths in London began to 
 make a trade of taking money in deposit to lend again — and 
 so became bankers. This marks the national origin of com- 
 mercial banking. 
 In Venice. 590. Banks of a public and corporate character were 
 formed, and are still in great part maintained, in aid of govern- 
 ments. The first of these banks, in Europe, seems to have 
 been formed at Venice. Its origin is obscure ; as is the origin 
 of m'ost things which become in the end much more than was 
 at first expected. The best accounts we have point to the 
 raising, by the State, of a forced loan from the chief families 
 176 
 
BANKING. 
 
 of Venice, to meet the cost of a long war. This was in the 
 twelfth century. The lenders, having a common property 
 in the loan, acted together in having it duly recorded, and in 
 dealing with the State as to its repayment. On two more 
 occasions the State raised money in the same way. And so 
 three bodies of State-creditors came into being. In 1587 
 the three became one body, and took the name of the Bank 
 of Venice. In looking after their own money, they had 
 incidentally learned something of the art of taking care of 
 that of others. Closely bound up with the State, they also 
 shared its credit. They had early received money, and 
 other valuables, in deposit, and had made loans, and remit- 
 tances ; and, it is supposed, had issued notes of money de- 
 posited with them, which passed from hand to hand by 
 delivery. 
 
 591. Similar banks were formed in Genoa (in 1407), in 
 Amsterdam (in 1609), in Hamburg (in 1619), in Nuremberg 
 (in 1 621), and in Rotterdam (in 1635). 
 
 592. It is worthy of note that the money deposited with 
 these banks was held with great fidelity ; and there can be 
 no doubt that, though their practice was imperfect, they gave 
 much aid to the commerce of the time ; and very strongly 
 and usefully illustrated the value of credit. 
 
 593. How banking aids commerce, and makes easier all 
 large and many small dealings with money, is easily shown. 
 
 594. We have seen how all wealth comes of postponed 
 consumption — of self-denial — of saving. That this saving 32. 
 serves two ends : that of providing for future wants, and that 
 
 of aiding future production. That the merely provident 368. 
 purpose operates among some of the lower animals ; but 454. 
 that man alone accumulates capital to economize future 
 labour. And that, even with him, the first steps are slowly 
 made, and with difficulty. 
 
 595. Now we cannot ever make these steps with ease, or 
 
 N 177 
 
BANKING. 
 
 Use. 
 
 274. 
 
 454. 
 
 Deposits. 
 
 2&e. 
 
 Remit- 
 tances. 
 
 ■with much effect, till the banker comes to our aid. What 
 remains unspent, in any given year, of our profits, or our 
 wages, we may, indeed, lay by. But this is only hoarding. 
 Wealth becomes capital only when brought to profitable use. 
 But it is not always easy— it is often difficult — for those who 
 save to find for their savings a profitable use in any industrial 
 operation directed by themselves. Hence, most of those who 
 save want some means whereby small sums may be safely, 
 rapidly, and profitably converted into interest-bearing capital, 
 by being placed at the service of others, who can give to it 
 a profitable use. 
 
 596. It is the primary business of the banker to supply 
 such means. He receives such sums as deposits at interest, 
 makes himself responsible for their safe custody and return, 
 and lends what he has received, on fit security, and at such a 
 rate of interest as may leave him a fair margin of gain. 
 
 597. Thus may savings, as fast as they are made, be made 
 secure, and be easily poured into the fund of floating capital, 
 the distribution of which forms the business of the "money 
 market." 
 
 598. Then, besides the sums finally saved from income, 
 there are also large portions of income received and in com"se 
 of being spent, which, meanwhile, may go to the bankers for 
 safe custody till actually needed. 
 
 Also, the capital already in use, being held to use only 
 for profit, and profit varying in different forms of employ- 
 ment, is occasionally transferred from one use to another. 
 In the process of transfer such capital will almost inevitably 
 be, for a short time, wholly or partially, unemployed by its 
 owner. 
 
 599. It also requires, especially if there be a change of 
 locality, a safe and rapid mode of transmission. It usually 
 passes, therefore, in one form or another, through the hands 
 of a banker, whose business it is to afford such facilities, and 
 who will either hold it safely for a time, or receive it at one 
 place to pay it at another. 
 
 178 
 
BANKING. 
 
 600. And lastly, cash received only from day to day, in 
 the ordinary course of business, finds in the hands of a banker, 
 the safe custody which it requires until it shall again be paid 
 away ; and, as cheques drawn upon a banker are a conve- 
 nient substitute for money in making payments, and the 
 account kept with a banker is, itself, an useful adjunct to the 
 accounts of all who record their receipts and payments, the 
 practice of daily lodging all spare moneys with a banker, in- 
 creases, and probably will increase, steadily, with the wealth 
 and the intelligence of every mercantile community which 
 has once become familiar with the uses of banking. 
 
 601. Deposits are the basis of all banking ; and it is in 
 
 their use mainly that the art presents itself to those who are 454. 
 supplying the capital with which the industry and skill of 
 the country are enabled to extend its manufactures and 
 commerce. 
 
 602. The distribution of the funds thus brought together, Discount. 
 and thence the direct application of banking to the promo- 
 tion of productive industry, is effected mainly by what is 
 
 called discount, or the advance of money on the security of 
 bills of exchange. 
 
 603. We have seen how the commerce of the world con- 
 sists, in fact, of the exchange of commodities, at agreed 4i8. 
 values, between persons, some of whom, indeed, are in 
 immediate personal communication, but many, also, of 
 whom, are at long distances from each other. Such ex- 
 changes usually imply that the commodities in question are 
 about to occupy some time (i) in passing from one locality 
 
 to another, or (2) in being manufactured, or otherwise changed 
 in form, or (3) in being stored, with a view to future use. 
 This implies a corresponding delay, before their value, as 
 that has been in the hands of the last holder, or as it is in the 
 hands of the present holder, can, by either of them, be 
 realized. The consumer is the ultimate payer ; but for his Postpmcd 
 payment the producers and dealers must wait till the time Q{t<^y'^«"(- 
 
BANKING, 
 
 consumption. So they always have reference, in their deal- 
 ings with each other, to the time at which the commodities in 
 question will come to use, and the ultimate payment may be 
 432. expected to be made. Each seeks to limit the use of his own 
 capital to the time during which he is himself concerned with 
 the commodity. Hence all commercial payments, as made 
 by successive holders of commodities on their way to the 
 consumer, are, as a rule, more or less postponed. And the 
 postponement takes place in successive stages, as the goods 
 pass from hand to hand. This is, to all parties, a convenience, 
 because it enables each successive party to the production 
 and conveyance of the goods to withdraw his capital at or 
 about the time at which his share in the transaction comes to 
 an end. That it is so to the buyer, who, having bought 
 goods to sell again, has to wait some time before he can sell 
 them, and get paid for them, is obvious. If the time which 
 he has so to wait is about three months, and he pays for the 
 goods with a three-months' bill, he may expect to receive 
 payment on the one hand at about the time he has to make it 
 on the other. 
 
 604. It is less obvious, but not less true, that the practice 
 of postponed payment, when duly regulated, is an advantage 
 to the seller. By making less onerous the terms of purchase, 
 it brings more buyers into the market, and so tends to raise, 
 
 516. and to maintain, prices. And, while making sales easier, and 
 more rapid, it also makes the seller's profit, on an average, 
 higher, and more secure. 
 
 605. But it is only with the aid of the banker that this 
 system of postponed payment becomes extensively practic- 
 able. 
 
 Use, to 606. It is he who affords to the seller, who takes a bill of 
 
 I'dkrs"'"''^ exchange in payment, the option of (i) retaining the bill till 
 it is due, and so bearing, himself, the burden of the advance 
 1038. of capital, and taking the corresponding remuneration (in- 
 cluded in the amount of the bill), in the shape of an allow- 
 ance for interest, on the price of the commodities during the 
 I So 
 
BANKING. 
 
 term for which the bill runs, or (2) discounting the bill. If 
 he discounts it, he receives the full amount less such an allow- 
 ance as may be agreed on for the interest (or discount) till' the 394. 
 bill becomes due. 
 
 607. For the number of days for which the banker who 
 discounts it may hold the bill, it will be to him an interest- 
 bearing security ; and, if the bill be payable in another place, 
 
 it will afford him the means of remitting its amount to that 1042. 
 place, by sending the bill thither. If, before the bill be due, 
 the banker thinks fit to part with it, he must endorse it. It 
 then becomes what is called " a banker's bill." The endorse- 
 ment, by adding the banker's name to the list of those who 
 guarantee its ultimate payment, makes it more acceptable as 
 a security ; and it is, usually, received by the next holder with 
 an allowance for interest during the term yet to run, less than 
 that at which the banker received it. In other words, the 
 banker, having given to the bill the benefit of his own credit, 
 can sell it at a better price ; and the amount thus gained is one 
 of the ordinary forms of banking profit. The service he 
 renders is that of making more readily current the promises 
 to pay of persons who are less known, or less trusted, than 
 himself. 
 
 608. Here, were it practicable, it would be desirable to go 
 through the daily working of a bank, and mark, as we went 
 along, the sources and the limits of its power, and the various 
 services it renders to commerce. But the subject is far too 
 full of practical detail to be compassed here, even in outline. 
 There are, however, many openings for learning these details 
 in observing what banking is, in our daily life, where it is 
 much more common than it was, even a few years ago. 
 
 609. Bankers, by their professional skill, their local know- 
 ledge, their credit, and their extensive correspondence with 
 each other — by the judicious use of their deposits, and at the 
 risk of a comparatively small amount of capital of their own — 
 are enabled to bring into the relation of mutual reliance great 
 
 181 
 
BANKING. 
 
 numbers of persons who may profitably deal with each other, 
 but who, without such aid, would be hopelessly separated ; 
 and to support the resulting transactions with the required 
 capital. In the absence of such aid, so rendered, many of the 
 branches of commerce with which we are most familiar, could 
 not have attained anything like the condition in which we now 
 see them. 
 
 Instances abound. Take the trade in cotton, now so im- 
 portant to this country. 
 Instance. 610. The grower properly limits his attention, and the 
 use of his capital, to the production of the raw material. He 
 425. does this all the better for not trying to do more. When 
 the cotton leaves his hands for those of the dealer, who will 
 pack it and prepare it for exportation, he must receive its 
 value. 
 
 611. It is the same with the dealer. He spends something 
 in conveying the cotton to the sea-board, and preparing it for 
 shipment; and so hands it over, increased in value, to the 
 merchant ; and, in order to continue his business, he receives 
 this increased value. 
 
 612. In the hands of the merchant the cotton crosses the 
 sea, and then, probably, passes into the hands of a dealer on 
 this side; and thence, in succession, into the hands of the 
 spinner, the weaver, the printer, and the wholesale and retail 
 draper. 
 
 613. All these become, in succession, absolute owners of 
 the cotton for a time, on its long and laborious transit from 
 the pod to the consumer ; who finally pays all. 
 
 614. And, in order that each successive holder may thus 
 obtain effective possession of the cotton, it is necessary that, 
 at each transfer, some equivalent shall pass by way of ex- 
 
 385. change. To use money would be inconvenient, and costly ; 
 and this cost, whatever it might be, would have to be paid by 
 the consumer in the end. Credit effects the purpose easily, 
 and at a small cost. 
 
 615. Each person concerned, as he parts with the cotton, 
 
BANKING. 
 
 draws a bill upon the man to whom he transmits it. This, 
 
 being accepted, becomes a valid and current security for the 
 
 payment of the price, together with an allowance for interest, 
 
 on a stated future day. But this operation implies credit, and 394. 
 
 credit implies confidence ; and confidence here depends upon 
 
 knowledge, by the persons concerned, of each other, and of 
 
 his affairs. 
 
 616. This the persons concerned may not, and sometimes 
 do not, possess; or do not possess it to a sufficient extent, 
 But it is a part of the business of bankers to acquire and use 
 such knowledge. With it they can ascertain, and, with some 
 degree of certainty, can warrant, what might else be so un- 
 certain as greatly to impede the course of trade. By dis- 516. 
 counting, or buying, the bills passed on each transfer of the 
 cotton, as and when required to do so, they enable each 
 producer to limit the use and risk of his capital to that part 
 
 of the transaction over which he has himself control, without 
 requiring that the next man shall instantly replace such capital. 
 And if the bills be, while coming to maturity, passed into 
 circulation under a banker's endorsement, they supply an 
 useful though limited form of currency, and enable those 1028. 
 whose credit is good in their own locality to make effective 
 use of such credit in other and distant places. 
 
 617. Here, again, we see the good effect of increased 
 rapidity, fulness, and certainty of communication. The several 
 transactions I have described are now often quickened, and 
 cheapened, by being blended into two or three only '. And 
 thus a single credit may cover the cotton from the grower to 
 
 ' On referring to one of the best living authorities on the subject, I 
 learn that, fifty years ago (in 1 835), the average time occupied in bringing 
 a parcel of cotton from a plantation, in the United States, to Manchester, 
 was from seventy to eighty days. The cost of carriage was about \\d. 
 per pound. The time occupied now is from thirty to forty days; and 
 the cost of carriage is about \\ of a penny per pound. Time and cost 
 are, each, reduced to less than half of what they were ; and this is applic- 
 able, as a. rule, to all the longer and more frequented routes of our 
 commerce, for the same period. 
 
BANKING. 
 
 the spinner ; and one or two more bring it into the hands of 
 the retail draper. 
 
 Banking 618. It will now be observed that the office of the banker is 
 
 includes 
 insurance. 
 
 always something more than that of a trusted agent or inter- 
 mediary. It includes insurance against risk ; and so requires 
 capital. When a banker intervenes in a commercial trans- 
 action, as by endorsing a bill of exchange, he may be said to 
 
 1038. guarantee all subsequent parties ; and the gain thence derived 
 partakes of the nature of a premium of insurance. And when 
 he receives a deposit, he enters into a similar contract. The 
 depositor is to be held harmless, whatever may subsequently 
 become of his money. 
 
 619. The principle of insurance, which is of wide applica- 
 
 680. tion, we must deal with, generally, in another place. Here 
 we need only observe that its application calls for the exercise 
 of skill based on special knowledge, and guarded in its 
 exercise by some use of the doctrine of average. It is of the 
 business of a banker (i) to learn who may safely receive 
 credit, and how far ; and (2) in view of the practical imperfec- 
 tion of all such knowledge, so to distribute the advances he 
 makes, as to their number, and amount, and the nature of the 
 security on which, and the term for which, they* are made, as 
 to keep the capital under his control employed at the highest 
 average rate of interest, and at the lowest relative risk of loss, 
 that is practicable. 
 
 Pmance 620. Besides the services rendered to commerce by deposit 
 
 ''■ and discount banking, there are those by which banking 
 facilitates the collection and use of large amounts of capital 
 brought together for specific purposes, of a magnitude beyond 
 the range of ordinary transactions. This may be termed 
 Finance Banking. The earliest, and, for a long time, the 
 only, customers for such service were governments, seeking 
 to realize in advance the taxes levied, or to be levied, upon 
 their subjects. Of late years we have seen the art of banking 
 ^84 
 
BANKING. 
 
 applied to the collection of capital to carry on specific in- 
 dustrial operations of a magnitude quite comparable to that 
 of governing a nation. But the nature, or the methods of 
 banking, are not materially changed by mere enlargement of 
 its operations. 
 
 621. From the fact, however, that all regular governments, 
 like individuals, need the services of a banker, and need these 
 services very constantly, and in proportion to the extent of 
 their monetary operations, has arisen some consequences 
 worthy of close attention. 
 
 622. In each of the European countries the largest regular Use to 
 bank-customer is the government. Largest, and also, '-a^S"™^"- 
 every sense, most powerful. And, in practice, it has been 
 found that the connexion of any particular bank with the 
 government usually either begins with, or very soon leads to, 
 
 the conferring on that bank of special privileges. 
 
 623. These privileges may be so used as to benefit the 
 community, by aiding its government ; but they often produce 
 more evil than good. 
 
 624. The transactions between our government and the Bank of 
 Bank of England have, on the whole, been well conducted. ^"Sl'"^'^- 
 They have been constantly under the supervision of Parlia- 
 ment ; and have been regulated by a contract, renewable, for 
 successive periods of years, on terms calculated to give the 
 
 Bank no privilege for which it did not render some adequate, 
 or nearly adequate, service. The management of the national 
 debt, the care of the large investments required to be made 
 under the direction of our courts of justice, and the ordinary 
 business of the revenue, and the public service, have been, in 
 great part, paid for by the privilege of issuing bank-notes to a 
 limited extent, and by the prestige and influence derived from 
 the position of bankers to the wealthiest government in the 
 world. 
 
 625. But the issuing of notes payable on demand is no Issue of 
 necessary part of the business of banking ; and wherever the '*"'"• 
 privilege exists, in this country, it is now very strictly hmited. 
 
 185 
 
BANKING. 
 
 Such notes, when issued under regulations duly securing their 
 conversion into money, on demand, are apt to be taken as, and 
 to perform nearly all the functions of money. The issue of 
 them, therefore, it is now well understood, is not to be extended, 
 and is to be permitted only under the close superintendence 
 of the state. 
 
 626. The issuing of such notes by the government itself is 
 inexpedient for two reasons: (i) it involves technical skill 
 such as no government can possess, and the possession of 
 trading capital such as no government can well control the 
 use of; and (2) as the acts of a government, in the conduct of 
 such a process, could not be duly supervised by itself, or 
 adequately watched by any legislative assembly, there would 
 be no effective superintendence. 
 
 627. As it is the primary function of the banker to give 
 the aid of such capital as he commands to every legitimate 
 transaction within his range, so it is his duty, alike to himself 
 and to the community, to withhold it wherever he has reason 
 to doubt either the reasonable safety, or the character, of the 
 venture he is asked to share. 
 Bankers' 628. For instahce, it is always implied on the face of a bill 
 ««/>-«/ of pj- gxchange that the capital it represents is, during the period 
 for which the bill is drawn, actually invested in some such 
 603. productive business as I have described. If this be not so, 
 the bill is deceptive. It falls into the class of what are called 
 " accommodation bills " — bills produced by collusion between 
 the drawer and the acceptor, which really represent, not a 
 transfer of capital, in the ordinary course of business, but a 
 desire to obtain possession of capital under the pretence of 
 such a transfer. It is part of the needful skill of a banker to 
 be able to defeat these pretences. To be safe in his daily 
 business, he should be able, by himself or his agents, to de- 
 tect an accommodation bill somewhat as a terrier detects a rat. 
 629. Not only should the Bill represent a real and produc- 
 186 
 
BANKING. 
 
 tive transaction ; it should also be drawn to run for a period Due 
 corresponding to this purpose. This latter consideration has of bills. 
 become, in our time, of unusual importance. The quickening 
 of our means of producing goods, and of transmitting them 
 from place to place, and of arranging for their disposal, and 
 finally bringing them to the consumer, has, for some time, 
 been gradually shortening the period for which bills of ex- 
 change need to be, or, therefore, should be drawn. 
 
 Forty years ago, the bills used in our trade with India, had 
 reference to a four-months' voyage out, and the same home ; 
 and it was the custom to draw them at ten months' date : that 
 being the period within which an Indian venture could be 
 completed, in the usual course. When the overland route 
 was made practicable, the needful period was much reduced. 
 But custom was strong. Merchants were willing to take 
 the advance for the usual period — and bankers were un- 
 willing to demur. Thus, an Indian venture became a 
 means of obtaining credit for a period longer than the osten- 
 sible purpose of the credit warranted. And this facility was 
 abused ; as facilities, laxly given, in trade, always are. Then 
 came a period of commercial discredit (in 1847), and several 
 large houses in the Indian trade failed. Public exposure of 
 their accounts drew attention to the facts ; and the due remedy 
 was applied. The icMance of bills, in that trade, was reduced 
 to six months. 
 
 630. We have lately so shortened the period required to 
 complete most commercial transactions that the ordinary 
 ecMance of bills is, probably, everywhere, more or less in 
 excess — just as disposable stocks of all kinds of commodi- 
 ties have, of late, been in excess, and so prices, for a time, 
 severely depressed. Hence there is a renewed call upon the 
 vigilance of the banker. And, perhaps, when money is cheap, 
 and bills for discount scarce, less of such vigilance is used 
 than is really desirable. 
 
 631. The banker is not to be confounded with the money- Tkemomy- 
 
 187 ^"'^'''- 
 
broker. 
 
 BANKING. 
 
 lender, or the money-broker, or with the bill-broker. The 
 money-lender, as a rule, lends only his own money. He is 
 paid with interest, and with such profit as may be earned 
 by his skill in assessing the value of the security on which 
 he lends. He may, himself, have no credit ; though he looks 
 keenly for it in others. 
 
 Themoney- 632. The money-broker only negotiates loans : finding 
 out and bringing together the willing borrower and the willing 
 lender. As a mere agent, he hardly needs either capital or 
 credit. His service is that of a go-between ; and his earnings 
 are the wages of skilled labour. 
 
 The bill- 633. The bill-broker approaches more nearly the functions 
 of a banker. The discounting of bills is one of the chief 
 sources of a banker's profit ; and he often employs the bill- 
 broker to aid in the transaction. But the biU-broker does 
 nothing else ; and he always does this with a view to taking 
 the bills to a banker. In short, he acts as a skilled agent 
 between the makers of the bill and the banker ; and in that 
 capacity not only uses his special skill, but can often make 
 enquiries which would be less easily, or less effectually made 
 by the banker. When the broker has discounted the bill, he 
 endorses it; and so imparts to it his own credit. He has 
 therefore need of credit ; but the credit he properly needs is 
 rather that of personal skill than of capital. In form he 
 makes himself liable for the ultimate payment of the bill ; 
 in effect, he rather signifies his knowledge of, and satisfaction 
 with, the origin and character of the bill. 
 
 634. The service he renders to the makers of the bill is 
 that of making the bill more readily, because more safely, 
 negotiable by a banker. The service he renders to the 
 banker is that of ascertaining the character of the bill, and 
 so aiding the banker's knowledge of the transaction he is 
 asked to take part in. He finds payment for both these 
 services in the difference between the terms on which he 
 receives the bill and those on which he hands it over to 
 the banker. 
 j88 
 
BANKING. 
 
 635. It is true, that in some notable instances, bill-brokers 
 have extended their business by receiving money on deposit ; 
 and have so taken up much of the ordinary business of a 
 banker. But the results have only marked, in practice, the 
 danger of combining functions which call for quite different 
 aptitudes. A bill-broker needs credit, and capital ; but neither 
 to a large extent. His main qualifications must be personal. 
 These will not be supplied by capital or credit, nor will they 
 be preserved by routine ; nor can they be readily transmitted. 
 Hence his success, like that of other professional men, may be 
 expected to die with him. The career, and the downfall, of the 
 house of Overend, Gurney & Co. (May 1866), as compared 
 with the history of many banking houses, is yet remembered ; 
 and affords a pregnant illustration of this. 
 
 636. The banker, then, gathers, distributes, and transfers 
 floating capital. He is paid, for the most part, by the dif- 
 ference between the rate of interest at which he, in various 
 forms, receives the command of such capital, and that at which 
 he parts with it. But his remuneration, so derived, is not 
 all interest. As it implies risk of capital it is also profit; 
 and, in so far as it implies the exercise of skill, ' it is wages. 
 
 637. The popular notion of the powers and duties of the 
 banker differs materially from the one here presented. It 
 nearly always assumes, more or less vaguely, that the 
 power of the banker extends to creating, if not capital, yet 
 something which may serve the same purposes ; and that, 
 consequently, it is his duty, when capital is much wanted, to 
 supply the want, at least for a time. This is an error pro- 
 ductive of much mischief. It leads, first, to reliance on a 
 power which does not exist, and then to disappointment at 
 the power not being exercised. It will be well that we mark, 
 somewhat closely, the origin and nature of this error. 
 
 638. Bankers, though they transmit capital, create none. Bankers do 
 Excepting only such capital of their own as they may possess ""* Z'f^ 
 
 189 
 
BANKING. 
 
 and use in their business, they make advances to others so 
 far as advances are made to them ; and no further. The 
 credit they receive, and which, in turn, they extend to others, 
 is, in fact, nothing more than a willingness on the part of the 
 owners of capital, displayed through the banker, to let others 
 525. have the use of it. So far as this willingness, often generated, 
 and always augmented, by the skill and the credit of the 
 banker, can operate, it facilitates the passage of floating 
 capital from hand to hand, and the postponement of the 
 demand which would otherwise be made, for its return to its 
 owners. Every bill of exchange is evidence of the agreed 
 postponement of such a demand ; and when a bill is renewed, 
 or when, one being paid, another takes its place, there is a 
 371. fresh postponement — another recorded forbearance to call for 
 immediate payment. The price of this forbearance, as it is 
 taken by the owner of the capital forborne to be called for, is 
 interest. 
 
 639. Of course, every such postponement implies confi- 
 
 479. dence in the promise on the faith of which the postponement 
 
 is made. 
 
 Scarcity of 640. Now, if by any cause, no matter what, this confidence 
 
 capi a . ^g shaken, these postponements, of course, become more 
 
 difficult. And if any such lack of confidence be widely 
 
 spread, we have what is called scarcity of money, and 
 
 pressure on the money market. There is, everywhere, less 
 
 " forbearance," and more disposition to call up what is 
 
 outstanding, and at risk. The quantity of money available 
 
 may not be diminished ; but it moves from hand to hand 
 
 with less facility : because those who control its movement 
 
 are less willing to let it move. They are more afraid of 
 
 losing it. 
 
 641. A mere rise in the rate of interest, which is the price 
 of borrowed capital, is evidence of nothing more than that the 
 demand for capital, for the time, exceeds the supply. While 
 unaccompanied by distrust, it usually implies that those 
 who are using such capital are extending their operations, 
 190 
 
BANKING. 
 
 and are sanguine as to the rate of profit they can make, 
 and are probably being imitated by others. If commercial 
 ventures were always made, I will not say prudently, but 
 even on the independent judgment, however erroneous, of 
 those who make them, we should not so often see them 
 extended beyond prudent limits. 
 
 642. But men are prone, in pursuit of profit, as in other 
 things, to imitation. And if a few are seen to make, in any 
 direction, a venture successful enough to attract attention, 
 they are soon followed by others, who can, in most instances, 
 render no better reason for what they do than that it has been 
 done already at a profit. Thus a considerable call for the 
 investment of additional capital, in any direction whatever, 
 if it benefits much those who first answer it, commonly results 
 in a rush by many more, to do likewise ; and the movement 
 is checked at length only by the known losses of those who 
 come too late in the race. The suffering thus caused is due to 
 want of intelligence, to ignorance (or disregard) of the natural 
 laws we are now considering — properly termed natural laws, 
 because they come directly of human nature, and its opera- 
 tion in society. 
 
 643. In short, pressure on the money-market, marked by 
 distrust on the part of the capitalist, and distress on the part 
 of borrowers, is always evidence of some recent misuse of 
 capital, of corresponding extent. 
 
 644. Of course the pressure is first felt through the action Monetary 
 of bankers. They, if they do their duty, watch, with close -^''"•'"''^• 
 attention, the current of business which produces the bills 
 
 they discount. Say they observe that a threatened scarcity 
 of some commodity in common use has made buyers active, 
 and raised prices. They have an increased demand for the 
 discount of bills given on the purchase of this commodity. 
 Say it is bought on speculation, to be held for future con- 
 sumption at higher prices. As long as the speculation is 
 carried on by those who know the facts, and can them- 
 selves form an independent and trustworthy opinion of their 
 
 i9i 
 
BANKING. 
 
 ultimate efifect, there is no great danger of excess. But these 
 men always have imitators. Others come in, making haste 
 to be rich; and then danger is at hand. It is part of the 
 business of bankers to watch for these indications, and to act 
 accordingly. Postponement of payments, by the discount, 
 and still more by the renewal of bills, then becomes not so 
 much the legitimate accommodation of a regular tradCj as a 
 275. facility for speculation, rapidly running into gambling. 
 
 In such a state of things, bankers, being charged with the 
 care of capital which they must replace if lost, begin to hesi- 
 tate, and to limit their discounts in proportion to their prudence. 
 They cannot prudently rely upon promises to pay which are 
 first founded on hopes not Hkely to be realized, and afterwards 
 prompted by a desperation which seeks any escape from ruin ; 
 and if a higher rate of interest, or any other motive, tempts 
 them into compliance, they very often find themselves drawn, 
 as partners in effect, into transactions which not only deprive 
 them of capital, but also diminish their credit. 
 
 645. Occasionally, such operations, so urged, assume an 
 enormous magnitude. When the hope of profit, which 
 animates all trade, generates, as, after a year or two of what 
 is called " commercial prosperity," accompanied by a low rate 
 of interest, it often does, a wide-spread tendency to specula- 
 tion, which is ready to move in almost any direction, the 
 floating capital of the country is first called into very full and 
 active use. 
 Monetary 646. Bankers are obliging; borrowers are pleased; and 
 for a time it seems as if we had but to will prosperity to have 
 it. Transactions promising gain become numerous ; and, 
 confidence being general, very litde diflSculty is found in 
 obtaining the command of floating capital. Bankers are apt 
 to share the general mania, and are more willing to take 
 bills than to scrutinize them. So that there is no difficulty 
 in postponing the discharge of obligations which are not 
 to be conveniently met. 
 
 647. At such times, profit seeming to be easily made, an 
 192 
 
 ease 
 
BANKING. 
 
 increased rate of interest is willingly paid for the means of 
 making it ; and this, to some extent, increases the available 
 supply of capital, by turning to investment what would other- 
 wise have gone to consumption. 
 
 648. But, on the one hand, the capital available has its 
 Umit, and, on the other, whatever the speculation in question 
 may be directed to — whether it be an increased supply and con- 
 sumption of cotton, or of sugar — or the supply of new ships, 
 or new railways, or insurance companies, or even of new 
 banks — or these and others together, and however ample the 
 supply of capital, the operation finds at length an inexorable 
 limit in the actual demand for the things sought to be supplied. 
 
 649. Beyond these limits there is no profit to be had ; and, 
 as this limit is approached, common sense begins to regain 
 its sway. The expected rate of profit inevitably dwindles. 
 He who cannot make profit, cannot pay interest ; and, what 
 is of more immediate importance, he who, with the capital 
 of others, speculates on that which does not occur, cannot, in 
 the end, meet his engagements. 
 
 650. Ingenuity, sharpened, alternately, by the hope of 
 profit, and by the fear of loss, has, for such occasions, brought 
 into use many ingenious ways of putting off the close of a 
 doubtful or failing speculation : but, short of fraud, these 
 methods all resolve themselves into asking for further credit ; 
 and a banker who knows his business, and is prudent, is not 
 easily misled, for any length of time, as to the nature of the 
 demands thus made upon him. 
 
 651. Refusal of discount, or of further advances, may bring 
 down ruin, as the penalty of imprudence ; and ;he who is 
 refused may complain bitterly. But the banker, in guarding 
 his own interests, is also protecting those of society. 
 
 652. It is not well that capital should be placed, or if it be Bankers 
 so placed, should remain, in the hands of those who do not, use ^^/^^^ 
 it discreetly. This, even if the banker had power to give the 
 
 aid asked of him. But, in fact, it seldom is so ; and never is 
 so to any great extent. 
 
 o 193 
 
BANKING. 
 
 653. Speculation, pushed beyond its proper limits, must 
 be followed by loss. The loss is measured by the error ; and 
 is proportionately widespread. And as soon as the owners 
 of capital begin to see what is going on, they begin to limit 
 their confidence. They look at and talk to each other ; and 
 eager as they may have been to take higher interest while all 
 looked bright ahead, their confidence collapses as the prospect 
 darkens. 
 
 654. Every man concerned, feeling pressure, and fearing 
 more pressure, seeks to make himself safe. The deposits 
 in the hands of bankers diminish. The basis of banking 
 credit is thus narrowed. The future is not bright, but dark. 
 Fear takes the place of hope. Capital no longer moves, with 
 any freedom, from hand to hand ; and the rate of interest 
 becomes a matter quite secondary to that of security. 
 
 655. Thus it is not only the bankers who withhold 
 capital, and make it difiicult to borrow. It is also those for 
 whom, and by whose power, bankers act : their customers. 
 Credit is withheld at its sources ; and is therefore no longer to 
 be had from its conductors and distributors. The owners of 
 capital decline to lend it, deeming it no longer safe with those 
 who are using it. As we have seen, the source of this distrust 
 
 g43_ is always some extensive and (in the end) manifest misuse of 
 capital. 
 
 38. 656. Here, however, as elsewhere, throughout the range of 
 
 our daily economy, we find the interests of all honest and intel- 
 ligent men to be identical. 
 Interest of 657. The interest of the banker, rightly regarded, is 
 the banker, identical at once with the interests of those whose capital 
 he receives, and of those, as a body, to whom he lends it. 
 He desires, of course, that the rate of interest shall be as high 
 as it can be kept without unduly checking legitimate com- 
 mercial operations. But it is also for his interest that trade 
 shall thrive, that the demand for capital shall be strong 
 and constant, and therefore that the average rate of profit 
 194 
 
BANKING. 
 
 shall be high, and steadily maintained. He is not the fittest 
 judge of the soundness of the forecast which prompts his 
 customers to enter upon new enterprises. But, if he knows 
 his own business, he will be one of the first to detect the 
 running of these enteirprises into mere gambling. 
 
 658. For himself, and for his depositors, he wants sound 
 securities. He desires that the bills he discounts shall be 
 always met when at maturity ; and he knows they can hardly 
 be so if not based on trade at once legitimate and profitable. 
 
 659. This is equally desirable, in fact, for those to whom 
 he lends. 
 
 660. And the general interest of the community points in 
 precisely the same direction. 
 
 661. If we take up the balance-sheet of a banker, we find Bankers' 
 in it, as we should find in that of any other trader, a clear '^'"'""'^• 
 indication of the nature, as well as the extent and character, 
 
 of his business. On the debit side there will be found, in 
 various forms, the capital of which he has the disposal — his 
 own, and that lent to him. On the credit side there will be 
 found, in a greater variety of form, the loans he has made : 
 as by discounting bills, which either remain, growing to ma- 
 turity, in his bill-case, or have been re-discounted and the 
 amount carried to the debit side of the account — or by ad- 
 vances upon current accounts, or by specific loans — or by 
 investments in current and readily saleable securities. And, 
 lastly, there will be the money held in hand to meet, from 
 day to day, the demands which the banker may, according 
 to the nature of his business, know he is liable to. 
 
 662. Such sums as he holds in deposit which may be 
 of small amount, or may be liable to withdrawal without 
 notice, may bear little or no interest. Deposits for a term 
 specified, as they afford the means of making advances for 
 a term, will bear interest proportioned to the time during 
 which they can be used with confidence. On the other hand, 
 advances made by the banker in discount of bills which may 
 
 o 2 195 
 
BANKING. 
 
 be readily passed into circulation, or loans for short periods 
 and on ample security, the security being readily convertible 
 into money in default of payment of the loan, will bear a 
 comparatively low rate of interest ; and the rate will rise as 
 these incidents of the loan tend either to lock up the 
 capital advanced in inconvertible securities, or to place it 
 in peril, or to put it for a longer time beyond the banker's 
 reach. 
 
 663. Of course the rates given and received by a banker 
 will also vary with the rate at the same time current in the 
 open market. 
 
 664. As a rule, loan by bankers are always for short 
 terms, for they imply that the capital is kept floating and 
 in temporary use; and no security is deemed a good one 
 for a banker which does not afford, at the end of the term, 
 means tolerably certain of realizing the amount at once. 
 
 Banking 665. Banking, in fact, is the economizing of capital by 
 Tapim"" ^^^"- *^® ^'^''^ finding its fulcrum in credit. Given the 
 fulcrum, and scope for its use, and the banker's due profit 
 is measured by his skill in this use. And some of the forms 
 in which this skill, as matured by experience and long practice, 
 is exhibited in our time, are very remarkable. 
 
 666. Checks or drafts by the customers of a banker upon 
 the deposits they have placed with him, do not always require 
 that he shall actually pay the amount of such cheques to a 
 third person. This third person may also be a deposit- 
 customer of the same banker ; and then the payment may 
 be effected by a mere transfer in the books of the banker 
 from the credit of one customer to the credit of the other. 
 487. 667. Here the form of credit is that of a book-debt. 
 
 668. By a similar method most bills of exchange are ulti- 
 mately paid. Every bill bears upon its face a statement not 
 only of the date, but also of the place at which it is to be paid. 
 It is convenient, and it promotes the circulation, and therefore 
 increases the value of such bills, to make them payable at a 
 196 
 
BANKING. 
 
 place well £nown ; and no place is, for this purpose, so fit as 
 a well-known bank. 
 
 669. Whence it follows that bankers receive large amounts 
 in deposit for the sole purpose of meeting bills of exchange 
 made payable with them ; and as foreign bills, or bills drawn 
 in one country to be paid in another, are found most acceptable 
 abroad when made payable in the chief commercial centre of 
 the paying coxmtry, the bankers of London have long had for 
 the United Kingdom, those of Paris for France, those of 
 Amsterdam for Holland, and those of New York for the 
 United States, and so on, the advantage of doing nearly all 
 the foreign banking business of their respective countries. 
 
 670. The business of this kind now done in London is London the 
 of enormous magnitude ; and the presence and the prestige '"^"p^S 
 of the Bank of England greatly aids the doing of it. We the world. 
 often hear of the influence of the Bank of England in 
 setding the current rate of interest. But apart from the 
 
 effect, by way of example, which the action of so powerful 
 an institution must needs have, this influence depends en- 
 tirely on the extent of the bank's business. She is still the 
 largest money-dealer in the kingdom ; and she stands in a 
 position of distinct superiority, of both power and privilege, to 
 all the rest. But the bank competes in the open market for 
 loans with no special advantage. 
 
 671. Foreign bills — bills drawn in other countries and 
 payable in this — come to London for payment as to a centre 
 well known, and easily accessible to all the world. By bills 
 drawn on London are nearly all our imports and our exports 
 paid for — they are in demand in every port and mart in the 
 world, as the best form of international paper-credit — and, when 
 they arrive at maturity, they are provided for by methods not 
 
 only admirable for the skill they display, but in some degree 1028. 
 remarkable, as hardly yet existing elsewhere. 
 
 . 672. It is not practicable, here, to do more than occa- Banking 
 sionally to indicate where you may find facts in daily life "f^^^^^ ' 
 appropriate to the principles I have to state. But one of 
 
BANKING. 
 
 these I must not omit to mention. It is the method by 
 which the large number of bills of exchange daily brought 
 into existence in the local trade of this country, between 
 •wholesale and retail dealers, are, after being discounted, put 
 into circulation, without, in one case in a thousand, coming 
 under the eyes of those who know the parties to the bills : 
 thus avoiding any betrayal of the privacy which — with or 
 without reason — traders are apt each to deem desirable, as 
 to his own affairs. These bills, so far as they may not be 
 retained by the bankers who discount them, are by these 
 bankers sent, from the several districts in which they are 
 made, to London. Thence, after endorsement by a London 
 banker, they are sent into other parts of the country, least 
 likely to be in trade communication with the localities whence 
 the bills have come. Here they usually circulate till near the 
 time they come due. Then, as the day of payment draws 
 near, they are again collected, and sent back to London. If 
 not payable there, they are sent on to the due locality. Thus, 
 while awaiting maturity, they afford a convenient and safe 
 investment for the spare funds of mercantile men, a mode of 
 remittance, and to some extent a circulating medium. 
 
 673. Every day brings to each of the banks in London a 
 large number of drafts of various descriptions, drawn, not 
 only upon themselves, but also upon other banks, also in the 
 city. And these drafts come from all parts of London and 
 the country ; and from all parts of the world. Each day also 
 brings to maturity in each bank many bills of exchange pay- 
 able at other banks. 
 The clear- Q1^. Until 1 775, it was a considerable part of the employ- 
 ment of each of the banks in the city to send round, from 
 time to time, the drafts it had upon the others, and collect 
 the amounts ; and receive and meet similar demands. This 
 made it necessary that many persons should be constantly 
 employed in carrying large sums in Bank of England notes 
 and gold through the streets of the city. The risk was ob- 
 198 
 
 in^-honse. 
 
BANKING. 
 
 jectionable, and the labour was great ; and the capital thus 
 employed was large, and was, of course, withdrawn from all 
 other use. 
 
 675. Then it was suggested that, at a given hour, every 
 day, a clerk from each bank should meet in one place, and 
 that there each should state his account with every other 
 bank, and pay or receive only the final balance. This was 
 tried, and succeeded. The place was called the " clearing- 
 house." It has since received many improvements, suggested 
 by experience; and now it may be said, that for a short 
 period, at the close of each day, all the banks using the 
 clearing-house become, practically, a single bank, in which 
 receipts and payments are settled as readily as between dif- 
 ferent customers of the same bank. The accounts thus daily 605. 
 settled amount to many millions sterling. No money what- 
 ever is used. The clearing-house itself has an account with 
 the Bank of England ; and so has every London Bank ; and 
 the final balance is settled by drafts upon these accounts. 
 
 676. The principle embodied in the action of the clearing- The 
 house has, evidently, a large future before it. In the finan- ^'^l^^ii,. 
 cial operations of London we see only the first call for a form 
 of combined action which every generation is making new 
 calls for. Already, the extent of the speculations annually 
 occurring in American wheat has led to its adoption at 
 Chicago. A partial adoption of it is of old date in the pig- 
 iron trade at Glasgow. The methods of banking all subserve 
 the economic manip"ulation of capital ; and a better knowledge 
 of them is extremely desirable for all who hope to take part 
 in the future extension of our commerce. 
 
 677. Reverting, now, to the effect of competition among 
 producers, dealers, and distributors, in conveying to the con- 
 sumers — that is, the community at large — the net gain achieved 
 by all such increase of skill as is thus displayed, whether it be 
 shown in economy of means, or in more effective attainment 
 
 199 
 
B'ANKING. 
 
 of ends, it -will be observed that the clearing-house has a 
 strong interest for others besides London bankers. He who 
 would worthily grow rich will find the shortest and surest 
 way through adequate service rendered to the ultimate pay- 
 13. master of all our services : the public. And the real suc- 
 17. cesses of business always illustrate this truth. 
 
 454 
 
 678. Banking, then, consists in transferring capital from 
 where it is little wanted to where it is much wanted, as com- 
 merce consists in buying commodities where they are cheap, 
 and selling them where they are dear. In other words, 
 
 431. bankers do for floating capital what merchants do for the 
 goods they deal in. Neither are producers. They are 
 simply distributors. And the gains of both are increased by 
 their success in adjusting the supply to the demand. The 
 instrument with which a banker acts is credit, and his mode 
 of action, though it varies much in form, is always the same 
 in effect. It is always either a loan or a postponement of a 
 demand for the repayment of a loan. Here you will see how 
 
 371. just is the application of the word " forbearance," as the old 
 name for " interest." The creation and the use of floating 
 
 379. capital is one continuous act of forbearance. 
 
 679. It is the workers of society who keep it in existence, 
 and enlarge its methods to the compass of its growing wants. 
 It is those who save who supply the means of advance. 
 The bankers are necessary ministers to both ; and it may be 
 said that a nation obtains effective command of its floating 
 capital only in proportion as its banking is understood by its 
 456 people, and is well done. 
 
XIII. INSURANCE. 
 
 680. Is the art of making sure — of getting rid of uncer- 
 tainty, in the affairs of daily life, so far as it may be got 
 rid of. 
 
 681. Many of the risks incurred in business are such as Definition. 
 no human care can avoid ; and these are properly met by 
 insurance. The dreaded casualty being recognized as one 
 
 of this class, it becomes a legitimate exercise of skill to ob- 
 serve under what circumstances it occurs, to calculate the 
 chance of its recurring under similar circumstances, and to 
 fix, accordingly, the price at which a capitalist may, before- 
 hand, safely agree to take upon himself the risk of its 
 recurrence. 
 
 682. The practice of insurance is especially serviceable to 
 those who seek profit ; for they always risk capital ; and the 
 loss of their capital might bring their occupation to an end. 
 
 And though " risk is the mother of profit," and cannot be 195. 
 wholly severed from the seeking of profit, yet the seeker of 
 profit very properly desires to relieve himself of risks which, 
 as they are clearly beyond the reach of human care, can 
 afford no exercise to his skill. 
 
 683. These he does well to hand over to those who exer- Antidpa- 
 cise another form of skill — that which, taking the risks iri'^"""/"^^- 
 question as inevitable, seeks only to assess their true value, 
 
 and to make due provision, as to each enterprise, and before 
 it is entered upon, for the known average effect of these un- 
 avoidable risks. 
 
 684. Man has been called a " tool-making animal " — and 370. 
 that means a capitalist in his first form. He might also be 
 
 201 
 
INSURANCE. 
 
 called an insuring animal ; for insurance is even more dis- 
 tinctive of the human intellect; and the perception of its 
 want is almost as closely allied with emergence from the 
 merely animal or savage state. 
 
 685. In all that we have yet learned, or been led to infer, 
 as to the early progress of our race, there is nothing more 
 worthy of notice than the absence, in the mind of the savage, 
 of any sense of certainty as to the course of future events. 
 
 686. Until he rises to the conception of natural laws, he 
 sees gods everywhere; and sees in each only a distorted 
 image of himself These ruling powers seem to be moved 
 only by caprice or malice. Man can make no eifort they 
 may not baffle : so he can make no effort with confidence in 
 the looked-for result. How hard it must have been, when 
 labouring under such impressions, to make the first steps in 
 the productive industry which seeks its reward through com- 
 merce — which literally casts its bread upon the waters, and 
 looks for its return after many days — which not only counts 
 upon to-morrow, but must build its fortunes on the anticipa- 
 tion of a long succession of to-morrows ! 
 
 Sources of 687. All the difference in our condition, between this state 
 my. ^j. jjjjjjgg g^j^^j what we now see before us, has come from two 
 sources: (i) better knowledge of the natural laws ruling the 
 universe, and (2) insurance : which is only a special use of 
 this knowledge. The former gives to human skill and care 
 a firm though partial footing ; and the latter provides for 
 all the rest — for what can yet only be guessed at — the inde- 
 terminable " acts of God : " in fire, in tempest, and in sudden 
 death. 
 
 688. Thus, in our time, it is the function of insurance to 
 stand sentry over invested capital, as regards peril no man 
 can otherwise guard against. It relieves the mind of the 
 capitalist of a dread otherwise unavoidable. And, as dread 
 absorbs mental power, to get rid of it is to acquire strength. 
 It assures to men the fruit of their industry and skUl, by 
 202 
 
INSURANCE. 
 
 providing that this fruit shall not be lost by events which 
 no industry or skill can prevent. 
 
 689. Of the very beginnings of commercial, like those 
 of animal life, we can know litde more than that they are 
 
 very small and very feeble. The first thing needed was 30. 
 capital. This, coming only of saving, must have made its 370. 
 first appearance in very small amounts. It was then plainly 454 
 too precious — too hardly got — to be much risked. 
 
 690. Its earliest uses were found in tools and weapons. 
 These involved its gradual consumption ; but seldom brought 
 about its entire loss. Commerce cannot, however, be carried 
 on without risk of such loss ; and commerce involving the 
 carriage of goods by sea, as it involved the most distinct, and 
 also the greatest risk of this kind, seems to have first suggested 
 insurance. 
 
 691. Yet, strange to say, insurance is a modern art — more Insttrance 
 modern than banking ; and is less advanced in its methods, origin. 
 
 692. The need for some such means of protecting the 
 merchant against unavoidable and ruinous loss in the con- 
 duct of his business must have been felt very early in the 
 history of society. But then the means of supplying it did 
 not exist. Even had the right means been clearly conceived, 
 they could not have been brought into use : because, as we 
 now see, they require a degree of combined action which is 
 not practicable by capitalists except under a settled govern- 
 ment, and after society has passed through its earlier forms 
 of growth. Ancient commerce, therefore, was commerce 
 without banking or insurance. Hence it was commerce with 
 little capital ; and that little very much limited in its use, by 
 dread of loss. The services of the merchant were then ren- 
 dered with difficulty, and under much peril. So they cost 232. 
 much ; and mankind bought little of them ; and derived but 
 
 little benefit from them. 
 
 203 
 
INSURANCE. 
 
 693. The practice of insurance being to set a value on 
 certain inevitable perils about to be incurred — so that, at a 
 price, he who is about to incur such perils may purchase in- 
 demnity from them — it follows that insurance is based on the 
 observed probability of the dreaded loss occurring, in any 
 particular case. The needful observations being made, they 
 are brought to use by the method of average. In so many 
 like cases, before, so many instances of the apprehended loss 
 have occurred ; and thence we deduce the probability that it 
 will, or will not, occur in this case. A thousand ships go on 
 a given voyage j and ten are lost. We infer that the chance 
 of loss is one in a hundred. But it is observed that weak 
 ships are lost oftener than strong ones. And more are lost 
 in winter than in summer ; and more in some seas than in 
 others ; and more in the hands of bad than of good seamen. 
 The noting and recording of these differences has gradually 
 given us the art of marine insurance. But the process has 
 been a very slow one. 
 
 Unknown 694. To the Greeks and the Romans the perils of the sea 
 Greeks and ^'^ ^°' seem to have been very important. The Romans 
 Romans, knew, well, only the Mediterranean and the British Channel;, 
 and from these they seem to have learned only to shun the 
 sea. So they went to sea as little as they could — their ships 
 were seldom more than a day or two out of sight of land ; 
 and the interests thus imperilled were of small value. 
 
 695. EflForts have been made to show that Livy and Sue- 
 tonius both refer to the practice of marine insurance. In 
 fact, they only relate events which clearly showed the want of it. 
 As to Livy, the passages relied on (Lib. XXIII, caps. 48, 49) 
 only state that, when the Roman army in Spain was to be 
 supplied with provisions by a company of merchants, it was 
 part of the contract that any of their vessels wrecked, or 
 captured by the enemy, should be made good by the State. 
 In our day, the same result would have been arrived at by 
 204 
 
INSURANCE. 
 
 the merchants insuring their ships, and counting the cost of 
 insurance as part of the cost of fulfilling their contract. As 
 to Suetonius, he says (Lib. V, cap. i8) no more than that, 
 when there was a scarcity of food at Rome, the Emperor 
 Claudius, in order to induce merchants to import corn more 
 wiUingly, offered to pay, not only for cargoes landed, but also 
 for those which might be lost at sea. 
 
 696. It is true that marine insurance, even when most 
 perfect, is only a mode of indemnifying shipowners and 
 merchants against the perils of the sea ; and that its use is to 
 promote maritime enterprise by discounting these perils in 
 advance ; and that in both the instances stated we see such 
 indemnity offered expressly with a view to the same use. 
 But these cases were evidently exceptional, and were so 
 marked. They exhibit the want of marine insurance ; and 
 prove that no such art then existed. In truth, these passages 
 are chiefly remarkable as showing how long the germs of 
 some of the arts of life, now deemed most valuable, may have 
 lain within sight, yet not been seen, or have been resigned, as 
 unattainable. The expansive power of steam was certainly 
 known, and commonly talked about, at a very early date — 
 it even received a mechanical application — yet for many 
 centuries this did not get beyond the working of a me- 
 chanical toy. 
 
 697. When, however, commerce began to assume, in 
 western Europe, considerable activity and importance — when 
 the lending of money at interest, though still a sin in the 
 eyes of the Church, became common — and when banking, 
 and bills of exchange, and book-keeping by double-entry 
 were invented, insurance against sea-perils also came into 
 use. 
 
 698. We find the first distinct traces of all these arts in Early 
 the course of the fifteenth century, in the ports of the Medi- *'>''^"^- 
 terranean. There is on record an ordinance issued by the 
 authorities of the town of Barcelona, in 1435, which certainly 
 
 205 
 
INSURANCE. 
 
 refers to the practice of marine insurance as then existing ; 
 and nothing earlier, I believe, is known. How such in- 
 surances were then effected, how the risks insured were 
 defined and valued, or under what conditions the claims were 
 settled, we can scarcely surmise. But there can be no doubt 
 that, however it was done, it must have given great aid to 
 commerce by sea. Then, as now, much of the capital em- 
 barked in such commerce must have been borrowed. The 
 rate of interest was high, whatever the capital was wanted 
 for. And if intended to be sent to sea, and its repayment 
 was at all dependent upon its safety there, the burden of in- 
 terest and insurance together must have been such as few 
 ventures were likely to bear, and leave a profit. Of course 
 the earliest sea insurances must have been made without 
 much aid from any calculation of probabilities ; but it is re- 
 markable that even at the present day this branch of insurance 
 derives very little aid from statistics, or from computation. 
 In fact, it may be said that this, which is certainly the most 
 ancient form of insurance, is also, at this day, the least 
 perfect in its methods. 
 
 699. When marine insurance first became known in 
 England is not recorded. It probably came here not very 
 long after it began to be practised in the Mediterranean ; for 
 nothing spreads so quickly as the usages of commerce. 
 
 700. In a statute passed in 1601 (43 Eliz., cap. 12) it is 
 spoken of as being then " of immemorial usage among mer- 
 chants ; '' and arrangements are made by that statute for the 
 trial of suits arising out of marine insurance. But " imme- 
 morial" usage meant, then, a much shorter period than it 
 would now. The earliest form of any new practice, social or 
 commercial, is often little observed. Its beginning is seldom 
 recorded, even now, with any precision. So the lapse of 
 even a single generation may, at that time, have pmt back its 
 origin beyond the reach of any memorial. 
 
 206 
 
INSURANCE. 
 
 701. The insurance of buildings, and their contents, 
 against fire would seem to have been invented in England. 
 We find the first traces of it here about the end of the seven- 
 teenth century. It is said to have been begun only after the 
 great fire of London in 1666. With us it is, happily, now 
 very common. But it is more common in England than 
 anywhere else ; indeed, it cannot be said to be very generally 
 practised, yet, except among the English-speaking nations. 
 
 702. It is said that a fire-office was opened in France as In France. 
 early as 1745; but there is no trace until a much later date 
 
 of the practice of insuring against fire having become at all 
 usual there. And it was not till after 1815 that a life in- 
 surance company was formed there. 
 
 703. It is remarkable that the French Code de Commerce 
 mentions only one form of insurance — that against sea perils. 
 In fact this was almost the only form of it which, at the 
 beginning of the present century, was practised on the con- 
 tinent of Europe. 
 
 704. Private enterprise, however, in such forms, had been 
 discouraged on the continent. The governments were not 
 willing to sanction such voluntary combinations, in view of 
 their possible use for political purposes. Nor was the need 
 for them there so great as in this country : seeing that the 
 extent and value of the property exposed to risk was and is 
 generally much less, in France, and in other European • 
 countries, than in this. 
 
 705. Also a much larger proportion of the population, in 
 England, lives in towns ; and thus not only feels the need 
 for, and becomes well acquainted with the advantage of, 
 fire insurance, but frequently sees its use proved by heavy 
 losses caused by the carelessness of neighbours. 
 
 706. With reference to this, and to some other topics, it 
 should be borne in mind that the proportion of the popu- 
 lation living in towns of not less than twenty thousand 
 inhabitants, is, in England, much more than three times as 
 great as in any other country. 
 
 207 
 
INSURANCE. 
 
 707. As to life insurance, probably the law, under the 
 Code Napoleon, which does not allow a parent to bequeath 
 more than a small proportion of his property away from his 
 children, has diminished, to some extent, the willingness of 
 the heads of families to sacrifice present income for benefits 
 to accrue only after death. What a man cannot himself 
 hope to enjoy, and is not permitted freely to give to others, 
 he may well be unwilling to incur the cost of obtaining. 
 French writers, however, allege that the chief cause of the 
 comparative absence of insurance in that country, alike as to 
 fire and life, is want of information — in short, that its advan- 
 tages would be more sought if they were better known. 
 
 708. On the other hand, our continental neighbours have 
 practised, rather extensively, one form of insurance which is 
 hardly known here — that against the damage done to grow- 
 ing crops by hail. This has been done in France so far as 
 to make it clear that hail-storms, though dreaded over a 
 great part of the vine-growing districts, do, in fact, prevail, 
 destructively, only in certain limited belts or strips of country. 
 As this became known, of course it became the practice to 
 insure only for the localities thus marked ; and the premium 
 of insurance, being gradually adjusted accordingly, has come 
 to express, for each of these localities, very nearly the value 
 of the natural disadvantage at which they are thus placed. 
 
 709. Insurance has also been applied to the losses arising 
 from particular diseases in cattle — and from dishonesty of 
 persons in offices of trust — and from non-payment of rents. 
 Of late years several societies have been formed in France 
 for insuring against loss by the insolvency of persons engaged 
 in commerce. And the history of insurance, during the last 
 century and a-half, recounts many projects for extending the 
 principle to other risks. Some of these will perhaps never 
 be practicable ; while others only await better opportunities 
 for their development. 
 
 208 
 
INSURANCE. 
 
 710. Underwriting, or marine insurance, was at first, and 
 is still, to a great extent, done by individuals subscribing in 
 small shares the sum to be insured. But much of our 
 marine and all our fire and life insurance is now done by 
 mutual or joint-stock companies. 
 
 711. All insurance involving a calculation of probabilities, Life in- 
 it is clear that it could not be safely entered upon until such 
 calculations had been conceived, and their proper method 
 ascertained. And it would seem that some of the first light 
 received, on this subject, came from a French source. The 
 celebrated Pascal (born 1623, died 1662) having been asked 
 
 how many times it would be necessary to throw two dice in 
 order to have an even chance of throwing the double six, 
 ascertained that to throw twenty-four times gave less, and to 
 throw twenty-five times gave more, than an even chance. 
 The occasion was of no importance, and the actual result of 
 very little. But the reflections of Pascal, induced by the 
 event, and recorded by himself, admit of no doubt that he 
 correctly appreciated the value of what has since become 
 a chief instrument of modern civilization. 
 
 712. Jan De Witt, grand pensionary of Holland (1625- 
 1672), made a report to the States General on the valuation 
 of life annuities which, though it appears to be subsequent 
 to, is greatly in advance of, and not apparently connected 
 with, the work of Pascal. They may, perhaps, both be 
 deemed discoverers. Life insurance, however, was practically 
 unknown in France till after 1815. 
 
 713. It was first practised in England in the latter half of 
 the seventeenth century, and therefore very soon after these 
 first indications of its being practicable. 
 
 714. The first complete computation, in a tabular form, of 
 the average duration of human life, was made by Edmund 
 Halley (1656-1742). It was founded on observations made 
 at the city of Breslau, in Prussia, and was published in the 
 Transactions of the Royal Society, in 1693. It served as a 
 
 p 209 
 
INSURANCE. 
 
 basis either for insuring lives, on annual premiums, or for 
 granting annuities on lives, on pa3Tnent of a sum down. 
 
 715. The next such table was the work of Richard Price 
 (i 723-1 791); and made about 1 770, from observations on the 
 population of Northampton. This table, however, was ulti- 
 mately found to' be defective in construction. It materially 
 understated the duration of life. Another table was framed 
 by Joshua Milne (1776^1851), from observation of the popu- 
 lation of Carlisle, in the nine years 1779-87. This table, which, 
 allowing for subsequent improvement in the sanitary con- 
 dition of this country, has been found tolerably accurate, 
 remained in use till it was modified by the combined ex- 
 perience of the chief life oflSces ; and was at length practically 
 superseded only by the English life table, derived from the 
 national returns of births and deaths. 
 
 716. The first company formed in England for the insurance 
 of life was the Amicable (since called the Hand in Hand), in 
 1696. It also insured against fire; and was chartered by 
 Queen Anne in 1 706. 
 
 717. When the Amicable company began business its 
 method was very simple. It evinced no reliance upon any 
 calculations of mortality. All lives insured were taken for 
 one year, at the same rate (five per cent.), and the sum thus 
 received, less the expenses, was awarded to those lives which 
 happened to cease within the year. Yet Halley's table was 
 already in existence. 
 
 718. The next advance, though it was based on a valuation 
 of the probable duration of lives taken at different ages, made 
 the accuracy of this valuation but a secondary consideration ; 
 for the companies took the form of mutual insurance asso- 
 ciations. Each member, having paid his annual subscription, 
 varying with his age, was insured by all the rest ; so that all 
 undertook to make good to each any ultimate deficiency in 
 the amounts subscribed. 
 
 719. In fact, however, the data relied upon being very 
 
INSURANCE. 
 
 nearly accurate, or varying only on the safe side, these asso- 
 ciations throve; their funds accumulated; and when the 
 excessive rate of their premiums became apparent, and the 
 tabulated value of lives grew to be relied upon, other com- 
 panies were formed on the proprietary principle. 
 
 720. These relieved the persons insured of all liability 
 beyond the payment of their own premiums. And now we 
 see the two methods working together : the mutual com- 
 panies sustained by the prestige of long success, and by 
 large accumulated funds, and the proprietary companies 
 operating with the greater freedom afforded by their more 
 purely commercial constitution. 
 
 721. The problem of life-insurance is, in itself, very 
 simple; though its practical and profitable application 
 involves considerable skill. 
 
 722. Observation having determined how many persons, 
 out of any ten thousand, or hundred thousand, die in each 
 successive year of Ufe, until all are dead, it is easy to com- 
 pute the probability of any particular person, living under 
 similar circumstances, and now at any given age, dying in 
 any subsequent year; and thus to arrive at the probable date 
 of his actual death. This gives the number of years during 
 which the proposed annual premium may be expected to be 
 received. And if we then compute the value of these annual 
 sums, as held at compound interest for the supposed 
 term, we see at once whether the amount to be received 
 in premiums is likely to equal the amount to be paid on 
 deaths. 
 
 723. The rate of mortality to be expected, and the rate of 
 interest to be made, determine the rate of premium. Some- 
 thing must be allowed for the well-known fact that a company 
 accepts only approved lives. But it is found that the effect 
 of this selection passes away at the end of about six years : in 
 other words, the best judgment to be formed on examination 
 
 P 2 211 
 
INSURANCE. 
 
 of a living person will not, on an average, give a truer fore- 
 cast, as to the duration of his life, beyond six years, than the 
 ordinary life table. 
 
 724. The art of fire insurance is still more simple. The 
 risk itself is not great ; nor has it much variety. The need- 
 ful cost of insurance is so small as to affect commerce but 
 slightly; the security it confers seems enormous in proportion 
 to its cost ; and it is only by competition among fire insur- 
 ance companies that the premiums are kept down to the 
 level of a fair remuneration to the insurer. 
 
 insurance. 
 
 Marine 725. Marine insurance rests upon a much less certain 
 
 foundation ; and is much more difficult in practice. The 
 elements of the risk are numerous and various, and are not 
 susceptible of being ascertained, in any given year, with any 
 degree of precision. 
 
 726. The seasons have much influence ; and in some 
 parts of the ocean have a paramount influence; and in 
 relation to marine risks they vary considerably, and the 
 variations cannot be foreseen. Then the modes of carriage 
 by sea vary, considerably, with the lapse of time ; as of 
 late years steam-vessels have, on all the great sea-routes, 
 almost superseded sailing vessels. 
 
 727. However determinate were the elements of the risk 
 which are traceable to natural causes, much must always 
 remain dependent upon variety in the prevalent modes of 
 navigation, and in the degree of skill and care actually applied 
 by those who have the management of ships at sea. 
 
 728. The contract of insurance, whatever the subject of it, 
 has some invariable characteristics ; and these distinguish it, 
 more or less clearly, from every other form of contract. 
 
 I. It always assumes that the person effecting the in- 
 surance, or his representatives, is or will be, in regard to the 
 
INSURANCE. 
 
 thing insured, liable to sustain some loss which, together 
 with the apprehended cause of the loss, is defined in the 
 contract ; and that this loss is of such a nature that it cannot 
 be avoided by any ordinary degree of skill or care on his 
 'part. 
 
 2. That the purpose of the contract is only to indemnify 
 the person effecting the insurance against such loss, should 
 it occur ; and not to make him in any way a gainer by the 
 occurrence of the event insured against. 
 
 3. The thing insured is always left, pending the insurance, 
 under the control of its owner ; and 
 
 4. The means of supplying the indemnity are provided by 
 the combined action of several persons^ who, together, receive, 
 as a price, an agreed sum, before the risk in view is incurred. 
 
 729. The ultimate effect is to remove the liability to the 
 supposed loss from one, and lay it upon several persons, 
 whose business it is to take such risks, upon a computation 
 of the average value of the risk, as deduced from observation. 
 
 730. Seeing that insurance began with marine insurance, 
 it is not improbable that the practice was suggested by the 
 custom, which is of much higher antiquity, of dividing the 
 property in ships into shares held by several persons. 
 
 731. The primary cause of this division was, no doubt, the 
 scarcity of capital and the consequent inability of individuals 
 to embark in one adventure enough to make the ship and its 
 cargo the property of a single owner. 
 
 732. The comparative safety of this practice, as proved by 
 experience, has secured its continuance; for, even at the 
 present day, a ship is not very frequently owned by one 
 person, 
 
 733. As the length of voyages and the quantity of com- 
 modities to be carried, and the available skill in ship-building, 
 and in navigation, brought about an increase in the size of 
 ships, and the value of their cargoes, the mere division of 
 the ownership became an insufficient safeguard against loss. 
 
 213 
 
INSURANCE. 
 
 Others were probably then induced, in pursuance of a prin- 
 ciple already familiar, to share the adventure, so as to cover 
 a part of the risk incurred on each voyage. 
 
 734. At first, perhaps, total loss only was provided for. 
 But experience would soon show that this was insufficient to' 
 make mercantile adventures by sea freely practicable ; and 
 partial loss, or damage, traceable to the perils insured against, 
 would also be included. 
 
 735. From the first, so far as we know, the mode of 
 effecting marine insurance was, in effect, much the same as 
 it is at present. 
 
 736. The person desiring thus to transfer his sea-risk to 
 others, having agreed with them upon a premium — which is 
 usually so much per cent, upon the whole sum to be made 
 good in the event of loss — and having paid this premium — 
 received a "Policy,"' specifying the risk, and promising to 
 make good any loss incurred within the conditions of the 
 contract. 
 
 737. The -object of distributing the risk among several, 
 and, if the property risked were large, among many persons, 
 could at first be attained onl/ by making a separate bargain 
 with as many. The tendency to economise skill and labour 
 soon brought into use means of reducing the time and 
 trouble thus incurred ; but as regards marine- insurance 
 these means were, until 1824, limited in London (with one 
 exception to be noted presently) to bringing the persons, called 
 underwriters, who were willing to insure marine risks, to- 
 gether in one room (called " Lloyd's "). Here those who 
 sought them came, or sent brokers, skilled in doing such 
 business, to effect their insurances. 
 
 738. The exception referred to was the existence, from an 
 early date in the last century, of two corporations, the "Royal 
 Exchange," and the " London Assurance," chartered by the 
 crown, and, as corporations, exclusively authorized to effect 
 marine insurances. These companies, however, taking also 
 life and fire risks, gave no special attention to marine business, 
 
 214 
 
INSURANCE. 
 
 transacted but little of it, and did not effectually compete 
 with the underwriters at Lloyd's. 
 
 739. At length, their monopoly being strongly objected to, 
 it was withdrawn, in 1824. Other joint-stock companies 
 were then started, and these are now numerous ; and though 
 the underwriters at Lloyd's continue at work, and the 
 arrangements there made for obtaining and recording intelli- 
 gence, as to the movements of and casualties affecting ship- 
 ping, in all parts of the world, are extremely serviceable, 
 alike to underwriters and to shipowners and merchants, the 
 greater part of the marine business of the kingdom is now 
 done by companies. 
 
 740. The differences in method between Marine and Fire Fire in- 
 and Life Insurance are readily traceable to corresponding '^''''""■ 
 differences in the things dealt with. 
 
 741. As a rule, all insurance is effected by paying a small 
 sum on condition that a large sum shall be paid back at a 
 future time, in a given event. Against fire, we commonly 
 insure for a year at a time; and against sea perils for a given 
 voyage, or for several voyages, to be made by the same ship, 
 during a year ; and sometimes, in insuring the payment of a 
 stipulated sum on failure of a given life, the bargain is also 
 limited to one year. Most commonly, however, life in- 
 surances are continued for a term of years, or to the end of 
 the life insured. 
 
 742. In all these cases, it will be observed that the prior 
 payment of the premium gives to insurance something of the 618. 
 nature of banking. Indeed, if we set aside the calculation of 
 chances, by which is determined the premium sufficient to 
 cover a particular risk, and set aside, also, the peculiar skill 
 exercised in taking some of the risks offered and rejecting 
 others, we have, in insurance, nothing more than banking. 
 
 743. After due assessment of the value of the risks, the 
 rate of profit is dependent mainly on the rate of interest. 
 And as the business of a banker implies risk, and may be 
 
 216 
 
INSURANCE.. 
 
 said to consist partly in insuringthe mercantile solvency of many 
 of those he deals with, even the elements of insurance which I 
 have set aside are to some extent represented in banking. 
 
 744. In other words, insurance, like banking, resolves 
 itself, in the main, into the receiving and paying of money ; 
 and rnight, not very, improperly, be described as a form of 
 banking involving special skill in the calculation of proba- 
 bilities. There can be no doubt that here, in part, we find 
 the reason why insurance has hitherto thriven better in Eng- 
 land than elsewhere. The banking of insurance, if carried on 
 upon an effective scale, involves the safe custody and profitable 
 investment of large sums of money, and the confidence im- 
 plied between the parties concerned is often (especially as 
 to life insurance) protracted over long periods of time. And 
 it is obvious that the existence and the amount of our 
 national debt, and the good faith of the English Government 
 with regard to this debt, incidentally supplied to the early 
 insurers in this country ready and ample means of invest- 
 ment, with facilities for instantly and certainly realising the 
 funds invested, such as were unknown in any other country. 
 To this circumstance we in England are undoubtedly in- 
 debted, in no small degree, for our ability to develop the 
 system of insurance (especially of hfe) so early and so 
 rapidly. 
 
 Moral 745. Like all institutions based on combined action, but 
 
 '" '"'^^' in a degree more remarkable than any other, insurance has a 
 distinct and beneficial moral tendency. 
 
 In particular, it exemplifies, in a striking manner, the 
 109. economic value of honesty. The contract always rests, in the 
 first instance, more or less, upon statements made by, or on 
 behalf of, the person to be insured against the risk in view. 
 The truth of these statements is usually assumed rather than 
 proved. They are, of course, subject to examination with 
 reference to their truth ; but their accuracy can seldom be 
 tested with any degree of precision. 
 
 2l6 
 
INSURANCE, 
 
 746. Then it is also essential to the effective value of the 
 process that the thing which is the subject of insurance shall 
 remain in the custody, and at the disposal, of the person (or 
 
 the agents of the person) who is to be indemnified, if it be lost 728. 
 or damaged ; and also that he shall have all legitimate free- 
 dom in its use. And it is scarcely less e&sential that he should 
 be permitted, within limits not very narrow, to assess, for him- 
 self, on making the contract, the value to be attached to 
 what is placed in peril, and to measure, accordingly, the pro- 
 spective indemnity. 
 
 747. Here there is, obviously, a wide scope for fraud; 
 and such fraud, in various degrees, is no doubt sometimes 
 committed. 
 
 748. But it is clear that, if men were not generally honest, 
 insurance would be impracticable. The natural perils of the 
 sea, of fire, and of sudden death, so far as their pecuniary 
 results are concerned, would be preferred to what would 
 then be the more immediate and palpable risk of being 
 defrauded. 
 
 749. Further, every extension of the system of insurance 
 may be said to add to the premium attached to honesty as 
 one of the needful qualifications of a man of business. It 
 steadily increases the interest men are otherwise apt to feel in 
 the integrity of each other. For it leads them, in proportion 
 to their intelligence, to see that in so far as men are, now, 
 occasionally dishonest in effecting insurances, in so far do 
 they also make insurance, for all concerned, at once more 
 costly and more difficult. 
 
 750. More costly, because the amount of the premium 
 charged for covering any given risk is of necessity de- 
 pendent upon the observed amount of the losses incurred 
 upon all the risks of the same class. Whatever the insurers 
 may lose by fraud, therefore, goes into the common account ; 
 and of course must ultimately enhance, in a corresponding 
 degree, the premium paid by all who insure against such 
 risks. 
 
 217 
 
 5. 
 
 46. 
 
INSURANCE. 
 
 More difficult, because the liability to fraud, as shown by 
 the occasional detection of it, renders necessary, on behalf of 
 both parties to the contract, the use of precautions which 
 (i) increase the necessary expense of carrying on the busi- 
 ness, and so increase, in effect, the premium required to 
 cover any given risk, and (2) causes the insurer to reject, 
 and thus often to exclude altogether from the benefit of 
 insurance, risks to which such precautions cannot be efiec- 
 tually applied. 
 
 751. It has been alleged that to enable men, at an incon- 
 siderable cost, to dispense with prudence, is likely to make 
 them less prudent. This ignores one of the leading princi- 
 ples of insurance : that it shall be used only with regard to 
 728. risks which prudence cannot avert. It is true that this prin- 
 ciple cannot, in absolute strictness, be adhered to. But it is 
 found, in practice, that the habit of insurance promotes fore- 
 sight and prudence. It makes the sources and the extent of 
 the risks insured against more palpable than they would 
 otherwise be. And all human tendencies are found to be 
 operative in proportion not only to the strength of the 
 motives inducing the tendency, but also to the facilities 
 afforded for their operation. 
 
 Industrial 752. It is almost needless to repeat that industrial opera- 
 effect. tions are always mainly dependent for their issue on human 
 
 5 conduct— mainly, but not wholly. There is still an irre- 
 
 movable margin of uncertainty. To provide for this margin 
 is the peculiar, and it is the only, purpose of insurance. 
 
 753. In so far as it is effective, it tends directly to limit 
 840. the liability of individuals to that which is determined by their 
 
 own conduct. The rest it distributes, as a common burden, 
 over the community at large. 
 
 754. In so far it is analogous in its operation to govern- 
 ment, to banking, and to free commerce. These each give a 
 higher relative value to everything that constitutes or con- 
 
 218 
 
INSURANCE. 
 
 duces to right conduct — as to industry, economy, skill, and 
 forethought. They make men less dependent upon accident, 
 and more exclusively and more obviously dependent upon 
 their own conduct, for success. They enable men to use 
 such ability as they possess in comparative freedom from the 
 apprehensions which, when not so protected, all intelligent 
 men must feel, and by which the most prudent men would 
 be most daunted. But especially may this be said of in- 
 surance. The accidents to which all are equally subject 
 being by it set aside, fortune is by so much the more likely 
 to correspond with desert. And I need hardly say that it is 
 only when it does so correspond, and in proportion to its 
 observed correspondence, that the good fortune of any man 
 is likely to have a beneficial effect on others, or, in the end, 
 upon himself. 
 
 755. Mr. Mill, in his book on Representative Government, 
 well says — " In proportion as success in life is seen, or 
 believed, to be the fruit of fatality, or accident, and not of 
 exertion, in that same ratio does envy develop itself as a 
 point of national character. The most envious of all mankind 
 are the Orientals.'' 
 
 756. Further, as it is the main purpose, and is, happily, 
 the most certain result of every advance in human intelli- 
 gence, to give, in all our enterprises, more efiect to design, 
 and less to accident, so insurance, by giving a palpable 
 pecuniary value to the risks insured against, affords to all 
 concerned an obvious motive to diminish the causes of acci- 
 dental loss ; and so tends to secure common action for the 
 common benefit where it would otherwise be, at least, un- 
 likely; and where it is often, if not always, of the utmost 
 value. It tells us, in fact, that what we are paying for insu- 
 rance is the penalty of ignorance or infirmity : a discount 
 on our gains, levied because we are not yet able to forecast, 
 and avert, certain events, which occur, however, only under 
 natural laws. Everything which promotes human knowledge 
 goes to diminish the weight of this penalty. 
 
 219 
 
INSURANCE. 
 
 757. So that, while those who thrive by right conduct are 
 relieved of perils which no conduct could relieve them from, 
 they, in common with every other member of the community 
 are supplied with a distinct and tangible motive to reduce, as 
 far as possible, the general effect of these perils. For it is by 
 
 436. this general effect, you will observe, and not by the misfor- 
 tunes of any individual, that the cost of insurance, from time 
 
 750. to time, is measured. 
 
 758. The effect of the motives thus supplied may already 
 be traced in the progress of many of the most remarkable 
 institutions of modern society ; and their operation becomes 
 every year more powerful. 
 
 759. To take, first. Life Insurance : the entire field of 
 human industry, the natural laws of which we are now con- 
 sidering, and the conduct of which is " business,'' presents 
 to us, in one respect, an uniform spectacle. Everywhere we 
 see labour, more or less skilled, employed with and upon 
 floating capital. The laboiu, whatever the skill allied with it, 
 is that of men, liable to premature death. The life of each 
 man engaged in any productive operation has therefore an 
 economic value. If his skill be considerable, it may be 
 traceable in great part to unusual natural powers, but it is 
 
 X06. certain that, in developing skill, labour and capital must have 
 been expended. 
 
 760. The industrial leaders of the world are its men of 
 skill in business. It is by such men that hfe insurance is 
 most commonly resorted to ; for to them it has the aptest 
 use. Their active lives measure the duration of an income 
 more or less necessary to those dependent upon them. And 
 the ultimate value of such men, to the world at large, is 
 obviously dependent upon the number of years during which 
 their activity shall continue. But this, though it be palpable 
 on reflection, has an interest too vague and general to 
 prompt the community, or any part of it, to effective action 
 promotive of the duration of such hves. The system of life 
 
INSURANCE. 
 
 insurance affords, however, a direct and powerful stimulus in 
 the same direction. Every shareholder in a Life Insurance 
 Company is clearly interested in promoting the average 
 duration of life among his fellows, and more particularly its 
 duration among the classes in which the practice of life 
 insurance is most needed, and most common. 
 
 761. Then as to Marine and Fire Insurance : — The float- 
 ing capital on which the energies of such men are employed 
 is either afloat or ashore. The chief unavoidable perils to 
 which it is exposed are covered by these forms of insurance. 
 It may be supposed that, whether insured against or not, the 
 actual result of these perils would not be materially affected. 
 This, however, is not so. By making the profit attainable 
 with large masses of capital, employed under the direction of 
 skill especially appUed to the purpose, dependent on the 
 aggregate effect of these perils, attention is drawn to their 
 nature and to their causes ; and as these become apparent, a 
 powerful interest being affected, means are adopted for 
 diminishing these dangers. 
 
 762. Lighthouses and buoys, harbours of refuge and life- 
 boats, fire-engines and fire-escapes, though, in their action, 
 pleasing to our philanthropy, owe their existence mainly to 
 men of business — to men who, if it be their business to insure 
 others, know that such appliances diminish losses by fire and 
 at sea ; and, if themselves insured, know that losses perma- 
 nently diminished must be followed by lower premiums. And 
 that in either case there is a gain to the community of the net 
 amount saved. 
 
 763. But even let it be assumed that the system of insur- 
 ance is powerless to affect the causes of the loss insured 
 against ; and that all it can do is to distribute more equally a 
 burden in its nature common to all men, but apt, under influ- 
 ences we cannot control, to fall upon individuals with unequal 
 and often with crushing weight. Even here there is a gain 
 beyond the mere distribution of the burden. 
 
 764. The prudent are prone to apprehend evil, and 
 
INSURANCE. 
 
 frequent and bitter is the foretaste of suffering which urges 
 their efforts to avert it. Enterprises which, under this 
 system, involve no imprudence, and so may be entered on 
 by many, must in earlier times have been, and without 
 insurance would now be, mere desperate adventures — apt 
 work, therefore, only for men of whom there are but few, 
 and of whom it is not desirable that we should have many — 
 work, therefore, of which but little could be done, and for the 
 doing of which a high price must have been paid. 
 
 765. The practice of insurance is therefore already one of 
 44. the most ef&cient agents of civilization. It is not yet applied 
 to nearly all the purposes it is adapted to serve ; and it may 
 be safely predicted that as the organization of society becomes 
 more perfect, the principle on which insurance is based will 
 receive a much larger share of the attention of men of busi- 
 ness ; and especially of those whose present means bear the 
 smallest proportion to their probable future wants. 
 
 Various ijrgg jjj jjo branch of commerce has there been more 
 
 methods of 
 
 insurance, ingenuity displayed than in the efforts made by our life 
 
 insurance companies to make easy and convenient the in- 
 surance of life ; but it seems to be impracticable to bring 
 this mode of providing for the future within the reach of the 
 mere earners of weekly wages. To collect premiums weekly, 
 would be too costly : and the advantages to be gained offer 
 91. no sufiScient inducement to men who are content to bound 
 by the week's end their estimate of future liability. And 
 though any steady and prudent workman, beginning only at 
 thirty years of age, might provide himself with a fair annuity 
 at sixty, only few are disposed even to make the attempt. 
 
XIV. COMPETITION. 
 
 767. Competition means strife ; and all strife is, by many, Definitim. 
 considered an evil. In the form of society in which we live, 
 however, this mode of strife plays, and always has played, a 
 
 very important part. Whether it could now, or can ever, be 
 got rid of, is, no doubt, a question worth considering ; and it 
 is one quite within the domain of political economy. 
 
 768. But, if we are to consider it as economists, we must 
 begin by taking man and nature as we find them. We deal 5. 
 with men in society ; but whether in or out of society, men 
 
 can act only under natural laws ; and the wisest course, for 
 every man, is to find out these laws, and to keep his action 
 in accordance with them. We have here no scope whatever 
 for speculations on the wisdom of Providence, in making 
 men what they are, or in placing them where they are. 
 Taking men as we find them, we seek only the way to make 
 them stronger, better, and happier, through an intelligent use 
 of their own faculties. 
 
 769. Let it, however, be afBrmed, as matter for argument, 
 that for men in society to compete with each other, as they 
 do, is an evil. We may then ask whether, so far as we can 
 
 , learn, it was possible that they should, hitherto, have done 
 otherwise— or that they should now, or soon, cease to do so. 
 
 770. We have seen that human society, as we know it, has Necessary 
 been of very slow and gradual growth ; and We also see, with *" process. 
 some clearness, the influences under which it must have begun, 
 
 and must have come to what it is. We see that the only con- 
 stant motive actuating all men is a desire to promote their 
 
 223 
 
COMPETITION. 
 
 own interest'; and that in the earliest forms of society, this 
 motive must have been, and, to a great extent, is still para- 
 mount. 
 
 771. Men have always been. striving to supply their own 
 11. wants. Consideration of the wants of their neighbours, 
 
 wherever it has been traceable, has never afforded more than 
 a secondary and weaker motive. And it would seem, indeed, 
 that this was, in the first instance, needful to the preservation 
 of the race. 
 
 772. We see, also, that men are, and probably always 
 have been, endowed with powers and aptitudes of great 
 
 14. variety; and that their sole choice must, from the first, have 
 lain between a degree of weakness and barbarism hardly dis- 
 tinguishable from the state of the lower animals, and such 
 progress as could be had through an energetic use of the 
 powers of individuals. And further, that this use must have 
 tended to make greater the natural differences between men, 
 as regards their comparative strength and intelligence. 
 
 How justly 773_ On the other hand, however, it is equally clear that 
 limited. ... 
 
 competition must, from the first, have been limited, in some 
 
 degree ; and that, in this respect, the most advanced forms 
 
 of society do not differ very much from the earliest. 
 
 774. Over-riding all forms of society, there is a natural 
 
 21. law — that the strong shall prevail against the weak. No 
 society can set aside this law ; but all society limits, to some 
 extent, its actual operation. 
 
 775. All society forbids, more or less stringently, the use 
 of mere force, apart from any show of right — and also forbids 
 
 22. the use of fraud ; and different forms of society differ mainly 
 in the success with which they do this. For it is against the 
 unjust and the nefarious uses of strength that men take refuge 
 in society. 
 
 776. But to other forms of strength — all such as are not, 
 for the time being, regarded as wrongful violence or fraud — 
 men give, and always have given, free way. Thus, with these 
 exceptions, it has always been deemed right, if only because 
 
 224 
 
COMPETITION. 
 
 it is in most cases inevitable, to allow free competition among 
 men ; and to let the weaker go to the wall. 
 
 777. But the forbidding of violence and fraud is, itself, an 
 act of co-operation. It is done by the power of all, and for 
 the benefit of all. The principJe of co-operation, then, is also 
 as old as society ; and its action seems to extend, in various 
 ways, with the growth of society. Whether it will ever, as 
 some hope, supersede altogether that of competition, may be 
 doubted. But that the time has not yet come, in any society, 
 for a cessation of competition, seems suflSciently obvious. 
 
 778. Besides mutual protection from force and fraud, men 
 sought, and have found, in society, other advantages. The 
 greatest of these is a freer and more profitable exchange of 
 services with each other. These they obtain (i) by division 
 of labotu", and (2) by free competition among those who have 
 services to render. 
 
 779. Let us go into a free market, for either goods or A free 
 services, and see what it means. It means, as to the buyer, "'^^'"*- 
 that he shall decide for himself, as to what he wants, and as 193. 
 to whether he will pay for it the price demanded. And it 248. 
 means, for the seller, that he shall, himself, put a value on his 348. 
 goods, or his labour, and shall be free to accept, or reject, 379- 
 whatever price may be offered for either. 
 
 780. Give us, then, a free market, and we have everything 
 that is implied in the term " competition." And there is 
 nothing in the present aspect of the world which seems to 
 warrant the. notion that free markets are likely soon to be 
 abolished. 
 
 781. We may, therefore, safely assume, that if competition 
 be an evil, it is, for the present, a necessary one. 
 
 782. But, in truth, it is an abuse of words to call it an 
 evil. It is a natural method of human action, which admits 
 of restraint, but not of abolition — which indeed needs some 
 restraint, as we have seen ; but the restraint of which needs, 
 for its wise doing, the greatest care and circumspection. 
 
 225 
 
COMPETITION. 
 
 783. The evils commonly attributed, in a vague way, to 
 competition, often arise, as we shall see, from other, and 
 very different causes. 
 
 Exampleof 784. Let US take, as an example, a very common case. 
 
 opei a ton. -^^ ^^^^ ^ producer complainin of minously low prices, 
 and tracing it to competition. But we need not go much 
 further to hear a consumer complaining of the inferior 
 quahty of the commodity for which these very prices are 
 being paid. 
 
 785. The seller says he is underpaid ; and the buyer says 
 
 he is deceived. But these things have been said ever since 
 
 buying and selling began. Observe the two men, and you 
 
 see that each, in proportion to his- lack of intelligence, is 
 
 prone to deceive the other. The ampler scope for deception 
 
 is usually with the seller ; but the buyer is quite as apt to 
 
 improve the occasion, when it offers. It is a long time 
 
 since the old legal maxim, " Caveat emptor^' bade the buyer 
 
 beware ; but an authority even older tells how 
 
 " The buyer saith rt is naught, it is naught, 
 And goeth away and boasteth." 
 
 We must not, if we would be reasonable, look to competition 
 
 for more than it promises. 
 
 786. Does it promise to the seller a high price ? No ; it 
 promises only the best price a free market will afford. Does 
 it promise to the buyer freedom from deception, as to the 
 
 255. quality of the thing he buys ? No ; that is the fruit of due 
 intelligence; and can be had only where that quahty is 
 exercised. 
 
 787. The buyer is too apt to forget that the quality of the 
 article he buys, as regards its fitness for his purpose, though 
 to him of importance, is of no immediate importance to the 
 seller. If the buyer, buying to consume, knew the thing he 
 -wanted, when he saw it, and acted upon his knowledge, he 
 would obtain it. However ignorant be may be, he, or rather 
 the class to which he belongs, always in fact rules the market. 
 It is supplied to suit him. The sellers all desire to please 
 
 226 
 
COMPETITION. 
 
 him. If he be ignorant of the quality of the thing he seeks, 
 or indolently unwilling to use his knowledge, he, in fact, 
 degrades the use of the market. He offers a premium to the 
 seller who can most deftly lure him into taking what he does 
 not want. The only reward he can offer to the seller who 
 offers him, at a fair price, the very thing he does want, is — 
 to buy that thing, and to buy it, by preference, of that par- 
 ticular seller. If he buys of another something else, because- 
 its price is lower, or because he is careless, he deprives the 
 better seller of his due reward ; and in so far does all he can 
 to promote, by making profitable, the very deception of which 
 he complains. 
 
 788. Say a workman's wife buys some cheap calico — 
 cheap because it is made of poor cotton, and is poorly put 
 together. She likes a fine-looking surface at a low price — 
 and what she likes is supplied to her. By-and-by she sighs 
 over the flimsy rag she sees coming from the washing-tub. 
 
 789. Her sighs are not without cause ; but she directs 
 them to a wrong one. She directs them only to the roguish 
 ingenuity which so plastered the poor calico with starch as to 
 give it the appearance of a calico worth twice the price she 
 paid for it. But, after all, she has got what she sought ; a 
 fair face and a low price ; and on no other conditions than 
 those she now complains of could the two things have been 
 got together. 
 
 790. The manufacturers have no preference for producing 
 such goods. But then the retail dealers know what will sell 
 best, and their demand fixes that of the wholesale dealer ; 
 who, in turn, directs the manufacturer — who is thereupon 
 required to supply such calico, or to cease making calico. 
 
 791. Let the consumer of calico learn to know what he 
 wants, and to know it when he sees it, and the rest will follow. 
 
 He will get what he really wants; and get it at a fair 431. 
 price ; and that through the very competition he now rails at. 
 
 792. Palpable fraud being put aside, the power of the Due action 
 State to interfere in such matters lies within very narrow "U^f 
 
 Q 2 227 
 
COMPETITION. 
 
 limits ; and were this power greater,' the case supposed would 
 afford no scope for its exercise. It is clear that he who seeks 
 787. the benefit of a free market, must be prepared to play his own 
 part in it. To get the advantage a free exchange is calcu- 
 lated to confer, he must take the correlative responsibility 
 of being able to conduct the exchange on his own part. 
 He cannot reasonably expect the seller to act for both 
 parties. 
 
 Co-opera- 793. It is true that the technical knowledge required to 
 hivine j^dge accurately of the quality of the great variety of articles 
 we consume, is beyond, and is likely long to be beyond, the 
 reach of most of us. Hence the obvious expediency of a 
 recent application of the co-operative principle in daily life. 
 Consumers have learned to act together in their buying. In 
 this union they find a new source of strength. It enables 
 them to hire, for the common benefit of many, the skill so 
 few possess. This brings them up to a level, in the market, 
 with the sellers, and with the skilled buyers, who are employed 
 by these sellers : the wholesale and the retail dealers. It makes 
 good the proper connection, of due skill, between the producer 
 and the consumer. Its tendency is to qualify the buyer, 
 through an agent retained in his own interest, to do his part 
 in the work of exchange ; and therefore to enable him to 
 exercise, with due prudence, that government of the market, 
 which has always been, and must always be, in the hands of 
 the buyers. 
 
 794. It also tends to dispense with the retail dealer. But 
 all improvements in the methods of trade have a similar ten- 
 dency. They all tend to economise labour ; and therefore 
 to render needless some of the labour required under older 
 and less perfect methods. 
 
 795. It would be a mistake, however, to set down all the 
 benefit derived from co-operative buying societies to the 
 hiring of due skill in buying. These societies have not only 
 dispensed with the retail dealer's skill which, being exercised 
 
 228 
 
COMPETITION. 
 
 only on his own behalf, they could not hope to obtain the 
 advantage of. They have also supplied the capital hitherto 
 supplied by the retail dealer. And they have very materially 
 reduced the risk under which he embarked this capital, by 
 requiring payment in ready money. 
 
 796. To buy on credit is to borrow the amount spent; 487. 
 and this lending by retail dealers to their customers always 
 implies loss by bad debts. 
 
 797. They have also, by wide combination, effected some 
 other savings ; and, in particular, have saved much time and 
 labour previously frittered away in small amounts. 
 
 798. To found, and to maintain, a co-operative " store,'' 
 requires on the part of those who are to benefit by it, adequate 
 capital, mutual confidence, and some skill in business. The 
 ordinary buyers from retail dealers, who habitually take credit, 
 who often give much needless trouble, and who do not act 
 together, do not apply these various economic means ; and 
 so cannot reap the fruit of their use. 
 
 799. Co-operative buying, by the consumer, of commodi- 
 ties much in demand, has now been in use, in this country, 
 for more than forty years. It has, during the last ten or 
 twelve years, been widely extended. But recent experience 
 seems to show that, for the present, it has grown as far as it 
 can grow with advantage. It sprang, mainly, from the short- 
 comings of the retail dealers. It has partially corrected 
 these ; and has developed some difficulties of its own. But 
 it is sure to °x> on. 
 
 800. Production does not offer to the co-operative principle Co-opera- 
 nearly so good a field of action. duction' 
 
 801. We are, of necessity, all consumers ; and of necessity 
 we must either buy for ourselves, with adequate skill, or hire 
 such skill, or place ourselves at the mercy of those from whom 
 we buy. We consume a great variety of articles ; and ade- 
 quate skill in their purchase is not attainable by ourselves, or 
 not attainable at a price we are prepared to pay. But, in so 
 
 229 
 
COMPETITION, 
 
 far as we are producers, common sense has long since decided 
 that individuals do well in not producing any great variety of 
 commodities. 
 
 64. 802. He produces best who confines his attention to one, 
 
 or to very few articles. Then the capital required in produc- 
 tion is in no way more effective in consequence of its being 
 supplied by many persons, instead of by one or a few ; rather 
 the contrary. The higher forms of skill required in any pro- 
 
 268. ductive process — especially the skill of administration and 
 direction, are certainly more effective when supplied by one 
 or two men, than when gathered from many. 
 
 803. In short, co-operative production offers no promise 
 of advantage except one. In so far as it makes the interest 
 of the labourer palpably and immediately identical with that 
 of the capitalist, by combining them in the same person, it 
 tends strongly to make the labourer work more effectively. 
 When duly applied it has always had this effect. Nothing 
 but the hearty good-will of the labourer can give full effect to 
 his work. Neither the whip to the slave, nor wages to the 
 
 11. free man, can elicit such work as he cheerfully gives who 
 
 770. fggis that he is working for himself And this single advan- 
 tage has repeatedly been made to outweigh all the disadvan- 
 tages (and they are not few) which naturally attend productive 
 operations carried on by combining in the same persons the 
 owners of the capital and the contributors of the labour 
 required. 
 
 Comma- 804. As to the various forms of social co-operation which 
 
 "t^-trt ^^^® been tried, and have partially succeeded, through the 
 adoption of a general community of property, we need only 
 observe that they have invariably begun by setting aside, or 
 overruling, the natural tendency of men to seek first the pro- 
 motion of their individual interest ; and that to this end only 
 one power has been found effective : that of some form of 
 religion such as a large portion of mankind, and especially 
 the more intelligent of them, do not seem susceptible of 
 230 
 
COMPETITION. 
 
 being moved by. In the most successful cases, the sexual 
 instinct has also been so far repressed as to show that a 
 general adoption of the system, in this form, would put an 
 end to that portion of the race which adopted it. And even 
 where this has not been threatened, the religious principle, 
 as thus applied, has invariably put limits to the mental free- 
 dom of those concerned which are clearly inconsistent with 
 that onward progress of the race to which the best minds of 
 our time, and of all times, have invariably looked forward 
 with hope. 
 
 805. Political economy undoubtedly seeks, as a primary 
 object, to effect a full supply of our material wants; but 44. 
 those who use it most wisely are the least likely to regard yes. 
 this supply, however ample, as the sole, or a suflScient, end 
 of human existence. 
 
 806. The bitterness of the complaint made against the View of the 
 effect of free competition never reaches its climax till it ^%^,, 
 touches the remuneration for labour, especially the wages of 
 those who have nothing else to live upon, and who have not 
 intelligence enough to see that labour, as a commodity, 
 must, like all other commodities, ultimately bring the highest, 82. 
 and the fairest price, in a free market This topic, however, 
 I have dealt with. 
 
 807. Let us now mark the application of the principle of 
 competition to the public service. Here we are all, as tax- 
 payers, prepared to recognize its real operation. 
 
 808. The public service being our service, we have no 
 hesitation in admitting that every functionary should be fit 
 for his post ; and should be paid in proportion to the value of 
 his services, and the rarity of the good qualities he may dis- 
 play. If a vacancy occurs in a public ofiSce, and many 
 candidates appear to fill it, we have, as tax-payers, no hesi- 
 tation in desiring to see the best man selected. We may 
 hear of, and we may sympathize with, the disappointment of 
 
 231 
 
COMPETITION, 
 
 some of the rejected ; but, unless we happen to be personally 
 interested, it never occurs to us to doubt that the post is best 
 filled by the best man. And it is the same whenever our 
 own interest is directly appealed to. 
 tested by 809. If we want a workman, we select him from among 
 
 experience, jj^^gg ^Jjq ^ggj. y^ ^g ^j^y reference to our own purpose in 
 193. employing him) the greatest advantage. Of several, more 
 or less fitted for the purpose, we take the one who seems to 
 be, all things considered, likely to serve it best. Of the dis- 
 appointment of the rest we take little notice. 
 
 810. And, assuming it to be possible that, constituted as 
 we are, we should do otherwise, what gain could accrue — 
 and to whom ? To prefer the incompetent workman, or the 
 
 787. inferior commodity, would certainly be against our own 
 interest. And it would, as certainly, injure the parties whose 
 better labour or wares we rejected, by depriving them of a 
 just remuneration. Further, it would undoubtedly injure 
 even those we meant to benefit, by taking from them the 
 only practical stimulus to improvement. 
 
 811. Also, as consumers of commodities, we act thus. 
 To the best of our ability, we, each of us, avail ourselves of 
 the competition of others in their desire to serve us. The 
 most ardent promoters of trade-unionism do precisely the 
 same. From this point of view, and it is the only just one, 
 we have none of us any difficulty in perceiving that a fair 
 and free application of the principle of competition is right ; 
 that it is the only way to equity ; that any interference with 
 it must involve injustice ; and that we are, in fact, all of us, 
 the better for getting our due, and no more. 
 
 812. But to see the full value of the principle we must 
 look beyond our own immediate interests ; we must examine 
 its effect on the affairs of mankind at large. There we find 
 that it has a direct and constant tendency to remove all 
 inequality among men, excepting such as, being personal, or 
 natural, cannot justly be interfered with. 
 
 232 
 
COMPETITION. 
 
 813. As between different countries, it tends to bring into As between 
 a common stock whatever advantages it has pleased the ^cmntries 
 Almighty to attach to different countries, and to distribute i04e. 
 these advantages among all the nations of the earth, in pro- 
 portion to their energy and intelligence. In like manner, it 
 tends to give to all of us a similar share of the fruits of 
 whatever peculiar powers of production particular men may 4i6. 
 in any country possess. 
 
 814. As between individuals, competition is the only anti- Favors 
 dote to personal pretensions not founded on real merit, the """t- 
 only effective adjuster of remuneration to effort. Among 429. 
 nations, while it leaves to those who have peculiar local 
 advantages, as a warm climate, or rich soil, or abundance of 435. 
 timber, or useful minerals, all the advantage of consuming, 
 
 at the lowest price, the produce of their own localities, it 
 also imparts these advantages, as far as is practicable, to the 
 inhabitants of other countries. The superior industry and 
 skill of particular nations is thus placed at the service of all. 
 It makes sugar and coffee abundant in England, and the 
 fruits of English industry abundant where these grow. 
 
 815. And, generally, as between the more and the less 
 intelligent of mankind — as soon as a new machine is invented, 406. 
 or any useful discovery is made, and even whenever any 
 remarkable productive or inventive ability is displayed by 
 
 any individual — the principle of competition, in proportion 
 as it is permitted to act freely, spreads the accruing advan- 
 tage wherever it can be appreciated ; and in so doing tends 
 at once to secure its due reward to the personal merit, if any, 
 whence the new advantage has been derived, and to give the 
 fruits of that merit to all. True, it confers these benefits only 
 in proportion to our intelligence in its use. But herein it 
 differs in no degree from any other source of power. 
 
 816. It is not enough, however, to consider how com- Alleged 
 
 petition operates where it manifestly confers benefits. Let "PP^'"^"'"^ 
 '^ '^ -' action. 
 
 233 
 
COMPETITION. 
 
 US take one of the instances most commonly adduced, of 
 what is termed its cruel or oppressive operation. By way of 
 avoiding the disturbing eifect of contemporary suffering, let 
 us take the case of the hand-loom weavers — a very striking 
 case, but which was finally closed in the last generation. 
 
 817. When the steam-loom came into use, the prospective 
 wealth and power of this country was enormously increased. 
 Its first effect was to begin a gradual and great reduction of 
 the price of all woven fabrics. Thus it conferred a benefit 
 upon all the consumers of such fabrics : a very wide-spread 
 benefit. Then it led to a great increase of our commerce ; 
 and so gave profitable employment to a large number of 
 
 Hand-loom additional persons. It also plainly held out a warning to the 
 weavers, hand-loom weavers to change their occupation. But the 
 hand-loom weavers did not see the warning. Only two 
 courses lay before them — a cessation of hand-loom weaving, 
 as a means of subsistence, or slow starvation. But a forced 
 change of occupation is commonly a painful thing ; and to 
 some it is an impossible one. It always involves a risk ; and 
 a risk which, being of unknown dimensions, is commonly 
 exaggerated. It is so easy to go on doing as we have done : 
 it is often so hard to do otherwise. 
 
 818. The poor weavers soon felt the pressure ; and even 
 read part of its meaning. But they read it unwillingly; 
 Instead of turning from a dying trade they only turned to it 
 with greater energy — and soon with the energy of despera- 
 tion. First, they made longer hours ; and then, as they 
 worked at home, they pressed their wives and children, who 
 had always assisted them, more completely and exclusively 
 into their service. The loom was a household machine — the 
 weaver was to some extent his own master — the whole family 
 toiled, through every waking hour, in the struggle — and held 
 on in it till food gradually, but surely, failed them. And the 
 struggle ended in exhibiting to the public gaze the direst 
 distress perhaps ever endured by any body of workmen in 
 this or any other country. A sadder story than that to be 
 
 234 
 
■COMPETITION. 
 
 found scattered through the parliamentary papers on this 
 subject I have never read. 
 
 819. Of course, when the facts were made public, there was 
 a great outcry. But the worst suffering was then nearly over. 
 Most of the weavers were of French descent. They had 
 brought over to us their skill, and their taste, and their 
 Protestantism, when Louis XIV, by revoking the edict of 
 Nantes (in 1685), drove out of France its best manufacturing 
 population. They had lived much together ; and they kept 
 their sufferings mainly to themselves, till destitution was, for 
 many, closed in death. 
 
 820. Much pity was justly excited, and much temporary 
 relief was provided. But permanent relief was not easy. The 
 weavers and their families had but one occupation ; and at 
 that occupation they could not earn enough to keep them alive. 
 Of course a good deal was said of the cruel effects of " com- 
 petition." Everybody wore steam-woven fabrics ; and yet 
 almost everybody spoke ill of the inventors of the steam-loom. 
 A few did venture to point to the true source of the suffering, 
 in the want of intelligence shown by the sufferers ; but they 
 were not heard with favour. Nobody proposed to go back 
 to hand-loom work, and hand-loom prices ; but everybody, or 
 nearly everybody, joined in a loud cry against competition, 
 and called upon the Government to " do something." 
 
 821. All the Government could do was to stop immediate 
 starvation by giving alms, and then to direct enquiry as to 
 how the suffering had come about, with a view to applying 
 any feasible remedy. 
 
 822. The enquiry and the suffering however came to an 
 end nearly together ; and as the results of the enquiry were 
 soon buried in the darkest corners of our public libraries, the 
 lesson it gave to the nation has not, directly, availed us 
 much. 
 
 823. Here, by the way, we may note one useful fact : that, Use of ex- 
 except for workmen of a high order of intelligence, it is safest ^^^^^^-^^^^ 
 
 235 
 
COMPETITION. 
 
 Govern- 
 vient in- 
 terference 
 noxious. 
 
 to work under the direction of a capitalist. When changes 
 in trade require the abandonment of an occupation, he who 
 serves under a capitalist receives, through his action, timely 
 warning of what is coming. The hand-loom weavers worked 
 at home ; and their comparative independence came saddled 
 with the corresponding necessity that they should look out for 
 themselves. They took, and they rejoiced in, their compara- 
 tive freedom ; but they were not prepared to pay the natural 
 price for it. We would all fain go alone ; but how many of 
 us would it really profit ? 
 
 824. It may, even now, be said that the Government, or 
 some other over-ruling power, might, in the ,case of the hand- 
 loom weavers, have interfered, at an earlier period, and merci- 
 fully used the needful force to compel them to desist from a 
 struggle so painful, and so hopeless. But this would be to 
 forget two things : (i) that the economical wisdom of a 
 Government is seldom in advance of that of the people it 
 rules ; and (2) that we, in this country, enjoy an inestimable 
 general advantage in our freedom from any such despotic 
 control as would in this case have been needed. We are 
 proud of our political freedom; and we do well to take it 
 with its inevitable consequences — and learn to know and to 
 meet these consequences. 
 
 825. Further, were such power applied — were any section 
 of the people, even if acknowledged to be perishing by the 
 gradual failure of their accustomed means of subsistence, so 
 interfered with, we may see how it would be regarded in this 
 country if we only revert to the discussion excited, in Parlia- 
 ment and elsewhere, about a generation ago, by the act of the 
 Duke of Sutherland — when, seeing a large number of the 
 highland peasantry on his estates in this very condition, he 
 availed himself of his position, and his power, as a landlord, 
 to remove them to America. 
 
 826. It is not denied that he took them from a state of 
 increasing and hopeless poverty, and started them in a new 
 
 236 
 
COMPETITION. 
 
 mode of life, with ample means of subsistence, and a fair 
 prospect ; or that they have since prospered. But many ties of 
 private and of national feeling were unavoidably torn asunder ; 
 and it was long before the storm raised by the " men of 
 feeling," looking on, blew over. Everybody may now see 
 that the operation, though despotic in form, was well con- 
 sidered, and has been beneficent in effect. But for many 
 years it made the Duke extremely unpopular, even in 
 Scotland. 
 
 827. Again, when, after sewing had been for thirty or forty Distressed 
 years taught gratuitously, in charity-schools and elsewhere, to " 
 nearly every poor girl in the kingdom, and sewing of a 
 common kind, for pay, became the resource of every woman 107. 
 who had no other; and when those who had husbands to 
 help to maintain them, by competing with the rest, brought 
 down the price of such labour till those who had to live only 
 by it could live no longer, we were again bidden to behold 
 the terrible evils of " competition." The very wearers of the 
 garments thus produced denounced the employers of the poor 
 seamstresses as the producers of the misery all joined in 
 deploring. Yet we know that these employers could not fix 
 the rate of wages. Many hands were put out to aid the 
 sufiferers ; and much help was given. But the sewing- 
 .machine came, and practically abolished the demand for such 
 work. The needle-women, distressed and other, then went 
 to other employment ; and their hard-won experience, like 
 that of the hand-loom weavers, will soon be forgotten. 
 
 828. The sufferers are no longer present ; our judgment is 
 now unbiassed by our compassion ; and we can now admit 
 that in both instances, it was not competition, but lack of in- 
 telligence, that wrought the mischief. The suffering was real, 
 and our regret was proper; but the popular judgment was 
 wrong. Like all other suffering, it brought with it a lesson 
 
 237 
 
Hon. 
 
 COMPETITION. 
 
 for the future ; and not to comprehend and act upon such a 
 lesson is to ensure its repetition. 
 
 829. To complain of competition, then, is a mistake. We 
 cannot do without it. And, further, through a wise use of 
 competition lies the only way to such co-operation as men 
 are capable of. 
 
 830. Strange result! Brought together with, each, one 
 dominant motive — to serve himself — men enter upon, and 
 steadily maintain, a progressive upward course, every step in 
 which is a step towards the more effectual service of each 
 other. 
 
 Explana- 831. But the explanation is at hand. All the advantages 
 offered to men by a state of society are found to be, in fact, 
 16. strictly conditional -on mutual service. Man is essentially a 
 self-server; but he is also intelligent. And his intelligence 
 shows him, as it gradually expands, that he is working under 
 a divine law, by force of which he best serves himself by 
 serving others. From the first, and always, while his nature 
 remains what it is, he must act upon the motive of self- 
 interest. He must compete with his fellow-men. Yet this 
 motive, inevitable as it is, and low as is its first direction, 
 guided by intelligence, leads him, from the first, towards what 
 436. is, in effect, though not in appearance, a system of co- 
 operation. 
 
 832. The Hindoo notion of blessedness is unbroken rest ; 
 and their builders object to the arch that " it never sleeps." 
 But society, as we know it, is all arch. The existence of 
 every part of it is constantly dependent upon the pressure 
 given to and received from the parts adjacent. This pressure 
 comes of competition ; and results in the only form of co- 
 operation which is yet practicable to mankind at large. 
 
 238 
 
COMPETITION. 
 
 833. It is only through competition that human power can 
 be developed. It is true that in co-operation we find the best 
 modes of applying our power. But the two principles are in 
 no way opposed. Each has its place ; and each is most wisely 
 used when used to supplement the other. 
 
 239 
 
XV. TAXATION. 
 
 Definition. 834. So far, we have hardly gone beyond the relations of 
 individual men to each other. But the very existence of 
 these relations, as we see them, implies the action of a 
 government ; and a government implies expense. We must 
 pay for being governed : and what we pay must be collected 
 from us by those who govern us. In other words, we must 
 submit to be taxed. 
 
 History. 835. To the history of taxation, or to the details of any 
 
 particular system of taxation, past or present, it were vain to 
 attempt to give more than a passing glance here. I must 
 limit myself to stating the leading principles which have been 
 obser\'ed practically to govern all taxation ; and by which we 
 may form some opinion of the expediency of what we see 
 about us in daily life. 
 
 836. Every nation has similar duties. Externally, the 
 national territory must be defended. Internally, order must 
 be maintained. These things done, all share the benefit; 
 and all should help to pay their cost. So far, there is no 
 difference of opinion. But as to how each man's share of the 
 cost should be fixed there is much. 
 
 837. In some of the very early states of society, men 
 seem to pay no taxes. Yet, in proportion to what they 
 receive of the benefit of government, they, in fact, pay very 
 heavily. The progress of society means, all through, a real 
 advance, even in this respect. Only by keeping out of 
 
 240 
 
TAXATION. 
 
 society can a man escape taxation. If he enters it, he must 
 pay for keeping it together. A mere wandering tribe exists, 
 as a tribe, to secure defence without, and order within. If he 
 joins such a tribe, he must, in peace, seek his living under 
 the orders of a chief; and in war, he must either fight or 
 help to support those who do so. He may have very little 
 protection for his life, and he may have no property to 
 protect ; but for what he has he must pay. 
 
 838. The first available form of taxation is seen in Hsxe^ Personal- 
 compulsory personal service of the Government. And it is "'""-^"• 
 only in a very advanced state of society that this, which is 
 
 at once the most primitive and the most oppressive form of 
 taxation, can be nearly dispensed with, as it now is with us. 
 In the earlier forms of society it is always very common; and 
 one of its collateral effects is to make nearly all labour com- 
 pulsory. 
 
 839. In the ancient world, this was one of the most 
 powerful and enduring causes of what we now call slavery. 
 
 840. All the older forms of civilization were attained, and 
 maintained, by the aid of a strong government ; and they 
 all, ultimately, perished by magnifying the power, and ex- 
 tending the functions of the government. The tendency, 
 visible in some quarters in our time, to revert to this error, 
 would be best corrected by learning how it has operated 
 before. Labour, and its products, were not so much bought, 
 as taken by superior force. The labourers were supported, 
 because otherwise they could not work ; but their consent 
 was not asked. Foolish workmen sometimes talk of the 
 tyranny of capital. Had they tasted, as their fathers did, 
 the tyranny which compels labour without capital, they would 
 look more wisely for the causes of what they suffer. 
 
 841. The growth, and the free use, of capital brings free- Capital 
 
 dom to the labourer; and it brings a larger measure oi^''"^ "" 
 ' ° ° person. 
 
 personal freedom to all. It tends gradually to shift the 
 
 R 241 
 
TAXATION. 
 
 liabilities imposed by government from persons — to things — ' 
 until we are wholly freed from personal responsibility, except 
 for our own conduct. One of the latest and most remarkable 
 forms of this tendency is seen in our efforts to abolish alto- 
 gether imprisonment for debt. 
 
 842. It is, indeed, one of the greatest advantages derived 
 from wealth, that as a community grows rich it grows free in 
 the persons of its members. 
 
 843. Remains of the practice of taxation by personal ser- 
 vice are, however, still to be seen in England ; and they are 
 much more common in other countries of Europe. Our 
 insular position has always, in some degree, favoured our 
 personal freedom. It has made needless, for home use, a 
 large standing army. Military service has hardly ever been 
 really compulsory, in this country, since the wars of the barons. 
 And, practically, we have now got rid of the liability to 
 compulsory service in the navy, as enforced by impressment ; 
 for, though, in point of form, the Government still holds the 
 necessary power, it is exceedingly unlikely that it will ever 
 again be used. 
 
 844. But, in all the continental countries of Europe, the 
 military service of the State is enforced by some form of 
 conscription, or compulsory enlistment. In these countries, 
 therefore, to complete the tale of their taxation, we have 
 some heavy item^ to add to the account of their mere money 
 revenue. 
 
 845. Our township roads, throughout England, were until 
 very recently repaired mainly by contribution of personal 
 service, in man and horse labour, and under local regulations 
 of great antiquity. 
 
 846. The liability to serve on juries, and to serve the office 
 of sheriff, poor-law guardian, overseer of the poor, church- 
 warden, and other similar oflEtces, are instances of the same 
 ancient form of taxation. And as long as any such re- 
 mains are left, we cannot justly compare, in money-value, 
 the taxation of different countries, by com,paring only the 
 
 242 
 
TAXATION, 
 
 revenues of their governments, and the manner in which they 
 are raised. 
 
 847. As the simplicity of compulsory personal service was Pecuniary 
 departed from, the difficulties of pecuniary taxation revealed f"^'^''""'- 
 themselves; for we cannot have the fruits of intelligence without 
 cultivating it. 
 
 848. To meet these difficulties effectually constitutes the art 
 of taxation : the special business of our Chancellor of the 
 Exchequer. In England, as elsewhere, we see, on one side, 
 a government intent, mainly, on getting what it wants, with 
 as little trouble, and as little unpopularity, as may be ; and, 
 on the other, a multitude of persons, each bent on paying 
 as little as possible. Of course, justice is invoked on both 
 sides ; but is seldom much heeded on either. And the general 
 result, hitherto, has been the 'exercise, within every state in 
 any degree civilized, of a vast deal of petty ingenuity, from 
 above to enforce, and from below to evade, the taxes. 
 Having regard to this mutual contention, it was well said, 
 by one of the most thoughtful of our Finance Ministers, that 
 " to tax and to please, as to love and to be wise, is given unto 
 no man." 
 
 849. The ingenuity of the tax-levier was long ago carried Ingenuity 
 to a high degree of perfection. City life affords fine scope \"/^^'^' 
 for its exercise. It is remarkable that even we, in our day, 
 
 have suffered under no form of taxation which was practicable 
 under the ancient governments of the Greek states and of 
 Rome, which those governments — some or all of them — did 
 not also practise. In Athens they had, in ordinary times, a 
 land-tax, a personal or poll-tax, taxes on occupations, such as 
 our licence duties, taxes on the importation of goods, and on 
 their sale ; and, for extraordinary occasions, a tax on income, 
 and a tax on realized property of every description. 
 
 850. At Rome, under the Empire, they had every mode of 
 taxation known in modern times, excepting stamps. And the 
 
 R 2 ^43 
 
taxation. 
 
 TAX A TION. 
 
 novelty here may well be doubted. What we so distinguish 
 is, in fact, not so much a new form of taxation, as a new 
 mode of collecting an old tax — such as we now see in the 
 new mode of levying postage and telegraph rates. The 
 Romans had also several taxes such as no modern govern- 
 ment would venture to try. It was said of them — as it was 
 said some fifty years ago of ourselves — that they could not be 
 born, marry, or die, or work, or beg, or inherit, or receive in 
 gift, or possess, or buy, or sell, or remove property, of any 
 kind, without being taxed while they were about it. 
 
 851. Nor is it to be assumed only from this description that 
 their system of taxation was a bad one : that is to say bad 
 under the circumstances. Taxation is peculiarly a practical 
 subject. It is of little use to theorize about it, except within 
 the limits of what is immediately practicable. 
 
 852. The general policy of the State having been deter- 
 mined, and the amount and direction of the required outlay 
 settled, it is clearly for the interest of all concerned that the 
 needed revenue should be raised with the least possible 
 trouble. All such trouble is analogous to needless friction 
 in machinery : a mere waste of power. 
 Perfect 853. Doubtless if all men were perfectly honest, and intel- 
 
 ligent, they would, on seeing this, at once declare the true 
 amount of their respective incomes, as enjoyed under the 
 protection of their government ; and the aggregate income of 
 the nation being thus ascertained, each would pay over his 
 just quota. 
 
 854. Not being yet blessed with these qualities — not being 
 quite honest and intelligent — they must, in this as in other 
 matters, pay for not being so. We may, and often do, limit 
 the total amount to be spent ; but we always leave it to our 
 Government to find out the easiest way of getting the money : 
 and this means extracting it from a great number of unwilling, 
 and for the most part unintelligent, and not, in this matter, 
 conscientious persons. 
 244 
 
TAXATION. 
 
 855. If the Government finds, as most Governments do' 
 find, that their subjects part with the required sum most 
 easily when it is taken in driblets, and by many taxes, of 
 various forms, tending to reah'ze the picture sent down to us 
 of the Roman citizen of old, and not very ill reflected in our 
 own state some years ago, we may indeed say- that the 
 system so engendered is a bad one, when considered in view 
 of what is desirable. And yet it may be the best that is 
 feasible. A wise people will be wisely taxed ; a foolish 
 people cannot be so. And nowhere do we see displayed so 
 strongly the ignorance of political economy, yet common in 
 this country, as in the public discussion of questions of 
 taxation. 
 
 856. On the fall of the Roman Empire, the various Govern- 
 ments of Europe, deprived of the benefit of that great central 
 organization, fell into mere local government ; and had to re- 
 vert to, and had long to rely upon, the old method of personal 
 service. Cattle; and com, and serfs, and household furniture, 
 and plate, and provisions, were to be had, on all sides ; but 
 money was hardly to be had anywhere. It is even so now, 
 in some degree, in rural districts, little visited by travellers. 
 
 857. So the net produce of the land (or, as we should now 
 term it, the rent,) and a tax upon every grown man and 
 woman, roughly proportioned to their station, were the only 
 taxes to be relied upon, apart from personal service. 
 
 858. It was only when commerce had made some progress 
 in Europe that this system began to give way to that which 
 we are now so accustomed to that few of us see in it the 
 slow result of many previous changes, and the sure fore- 
 runner of a simpler, honester, and better system. 
 
 859. As to what, even in detail, governments and people 
 alike ought to aim at, there is now little or no difference of 
 opinion among those who have formed any opinion at all. 
 
 860. Adam Smith, more than a century ago, laid down^^a»; 
 the following rules ; and though they have been submitted to ^^^*f'- ^ 
 
 245 
 
TAXATION. 
 
 keen and able criticism, they have not yet been materially 
 improved upon : — 
 
 (i) Taxation should be equal : each subject of the State 
 contributing to the support of the Government 
 according to the income he enjoys under its pro- 
 tection. 
 {2) The amount each has to pay should be fixed by some 
 general rule, and not be arbitrary, 
 
 (3) It should be demanded at the time, and in the manner, 
 
 likely to be most convenient to those who have to 
 pay it ; and 
 
 (4) It should be so collected as to take and keep, out of 
 
 the pockets of the tax-payers, as little as possible, 
 beyond what it brings into the public treasury. 
 I state these rules shortly, in my own words ; but, in sub- 
 stance, as they will be found in the " Wealth of Nations," 
 Book V, c. ii. 
 
 861. The first of these rules is the most important ; but it 
 has hitherto been found the most difficult of application. It 
 could be perfectly applied only by a perfect income-tax ; and 
 that is, at present, certainly impracticable — impracticable 
 because no existing nation is yet intelligent and honest 
 
 853. enough to give the needful individual co-operation in the 
 assessing of such a tax. 
 
 The second and third rules are not hard to apply. 
 
 The fourth is more or less sinned against by all indirect 
 taxation. 
 
 862. The first rule makes each man's income the exact 
 measure of his taxation. It is sometimes alleged, as against 
 this rule, that each of us should rather pay for the service he 
 receives from the Government, as he pays for other service, 
 in proportion as he may happen, or may choose, to require it. 
 
 863. The answer to this allegation is — that the ordinary 
 conditions of voluntary service are not here present; and 
 therefore its ordinary limits are not applicable. The service 
 
 246 
 
TAXATION. 
 
 properly rendered by a Government consists in the protection, 
 alike of all its subjects, in their person and property ; and in 
 the maintenance of order, in the interest of all. Though the 
 resulting benefit is enjoyed by individuals, it is due, and is 
 rendered, to the community at large. It can be demanded, 
 by any one, only as a member of the community ; and can 
 properly be rendered to him only in the same capacity. 
 Hence the analogy assumed between this service and that 
 rendered by individuals to each other, does not exist, If it 
 did, then might each of us take or reject the services of our 
 Government, much or little, as we chose, and pay accord- 
 ingly. Some might call for a special body-guard, and others 
 rely upon their revolvers. But it is clear that this would tend 
 to defeat the very end of Government — the equal preservation 
 of the peace. As members of one community, we are parties 
 to a common bond, for the securing of a common benefit ; 
 and must share it, and pay for it, in common. 
 
 864. This difference, however, is all in favour of the poorer 
 and weaker members of the community. Were the protection 
 of the Government to be withdrawn, and were the evil conse- 
 quences then made the measure of its value to each of us, it 
 is clear that the physically weak, the poor, and the ignorant, 
 would be the greatest sufferers; and so, arguing from the 
 proposed analogy, these might be fairly called upon to pay 
 most for that which they were least able to dispense with. 
 
 865. Relax the bonds of society, as we see it, and we 
 should undoubtedly go back, in effect, if not in form, to some 
 one of the social conditions through which, as history tells us, 
 we have already passed — each of which conditions, be it ob- 
 served, we or our ancestors have, with some exertion, left, to 
 get into that which followed. Go back far enough, and we 
 should" find the richer members of the community surround- 
 ing themselves with armed retainers, maintaining their own 
 police, and army, and doing arbitrary justice on their own 
 estates ; and the poor reduced again into a state of serfdom. 
 
 HI 
 
TAXATION. 
 
 Modes of 
 
 taxing 
 
 income. 
 
 As it is 
 
 being 
 
 made. 
 
 866. Under the guidance of the first rule, we should each 
 pay exactly according to our means — the extent of -which, 
 in such a community as ours, can be quite known, in many 
 cases, only to ourselves. 
 
 867. This points directly to an income tax. And, in fact, 
 all systems of taxation are justifiable, in theory, only as they 
 approach the character of a perfect income tax. Every tax 
 must ultimately be paid out of income. Accordingly, we 
 may regard every other well-devised tax as an effort to levy an 
 income tax : the best effort we can, for the time, make, at 
 once to tax justly, and to teach the tax-payer what it is for. 
 
 868. Now there are three ways, and no more, of levying 
 an income tax ; and every tax may be said to fall under one 
 of these three heads. It may be levied upon the process by 
 which the incorne is obtained ; or upon the income itself, as 
 it is received ; or upon the income as it is being spent. To 
 each of these ways there are practical objections. 
 
 869. I. To tax income as it is being made, is to sin 
 against the fourth rule. It is to take from the tax-payer, in 
 various ways, much more than the treasury receives ; and 
 also, very commonly, to obstruct industry to an immeasurable 
 extent. 
 
 870. When a tax is levied upon the process of making an 
 income, or, in other words, upon any industrial process, its 
 amount is always, to a great extent, paid by one man, and by 
 him collected from others. It is thus added to the price of 
 a service, or a commodity, and is exacted with that price. 
 
 871. Take the tax on beer, recently discussed, as an 
 example. It is levied during the process of, brewing. It 
 thus adds (say) one-sixth to its cost at that point ; and adds, 
 in like proportion, to the subsequent charges for interest, in- 
 surance, and profit. Excise oflScers control, and watch the 
 brewing ; and those who convey the beer to the consumer 
 
 248 
 
TAXATION. 
 
 have to contrive a way of getting the tax returned, or pay it, 
 or some of it, themselves. And, as all increase of price 
 tends to reduce consumption, and to charge a penny or two- 
 pence extra, per gallon, on beer sold, chiefly, in half-pints, is 
 not easy, there is a good deal of contrivance called for. 
 
 872. In effect, the number of (actual) tax collectors is thus 
 greatly increased. The additional (unoflBcial) collectors must 
 of course also collect enough, in addition to the tax, to pay 
 themselves for their services ; and — as these services com- 
 monly include an advance of the amount of the tax to the 
 Govermnent, with more or less risk of its not being after- 
 wards, by them, fully collected from those who are intended, 
 in the end, to pay it — such services can only be had at what 
 is, in the end, a high price. No doubt, the process " makes 
 things pleasant " to those (and they are a very large number) 
 who like to pay their taxes in small sums, at convenient 
 times, and without seeing what they do pay. And though 
 the real "cost of collection'' mtist be heavy, competition 
 among the (unofficial) collectors keeps down the charge to 
 about the lowest sum for which, in fact, such service can be 
 rendered. 
 
 873. From the first, the tax is made to form part of a 
 price, on which competition acts, or may act, freely. And 
 whatever the cost of this indirect and irregular mode of col- 
 lection, its amount may be fairly taken to represent the 
 proper money-fine justly incurred by the community which 
 resists taxation when its amount is obvious, but submits to it 
 when thus disguised by addition to the price of other services, 
 or of commodities. 
 
 874. The penalty paid by a community, so taxed, does 
 not, however, end with the mere increase of the amount paid. 
 Nearly all taxes of this description are also materially ob- 
 structive of industry. As to most articles, in ordinary use, it 
 may be said that the consumption is limited by the price. 
 This is especially so with articles in very common use ; and 
 it would not be worth while to tax thus articles not in very 
 
 249 
 
TAXATION. 
 
 common use. The tax-addition to the price operates, in this 
 respect, precisely as would an increased cost of production. 
 It gives to the consumer less service for the same outlay; 
 and limits, in proportion, the remunerative employment 
 afforded to those who, in this sort, serve him. 
 
 875. And, apart from this effect of increased price, the 
 levy of the tax, in most cases, requires that either the trans- 
 mission of the commodities taxed (as with customs duties) or 
 their manufacture (as with excise duties) shall be carried on 
 under the supervision of the Government. When the manu- 
 facture of a commodity is to be so inspected, the manufac- 
 turer cannot be left free to carry on his business, in all 
 respects, in the way he deems best. He must so carry it on 
 as to give to the officers of the Government frequent oppor- 
 tunities of seeing what he does. If he finds out a new way 
 of doing anything, he cannot practise it, and keep it to him- 
 self, while so inspected ; nay he may not be permitted to 
 practise it at all if it seems, to the revenue officer, at all 
 likely to make the inspection of his work less easy, or less 
 certain, in effect, for taxation. When we taxed soap, and 
 paper, these articles could only be made in places, and in 
 ways, especially sanctioned by the Government; and, with 
 spirits, this is so still. 
 
 876. Thus to levy an excise duty on an article is first to 
 drive out of the trade of making it all the smaller capitalists ; 
 and then to fix the method of the manufacture so that the 
 exciseman may not be deceived. And all this apart from the 
 wasteful mode of collection. 
 
 877. Customs duties, on imports, if levied in moderate 
 amount, so as not to engender much smugghng, and on a 
 few articles, the whole of which must, in any event, be im- 
 ported, may be deemed good taxes of their class. But the 
 class must always be a bad one. And it is not easy, in most 
 countries, to comply with these conditions, so as to raise, by 
 350. 
 
TAXATION. 
 
 import duties, any large proportion of the revenue. The popu- 
 lation, the trade, and the wealth of this country now enable 
 us to raise from some half dozen articles more than, some 
 forty years ago, we could raise from upwards of fourteen 
 hundred articles. We have nearly got rid of smuggling, by 
 reducing our taxes, with reference to the bulk and value of 
 the article taxed, till smuggling no longer pays for its cost 
 and risk. And we have reduced, by the same means, the 
 evil effect which attends the levy of taxes on articles in pro- 
 portion to their value, when we have to apply official tests of 
 value. These always disturb trade, because they can never 
 closely follow, or coincide with, the market tests. But we, 
 as a nation, are, as to such taxes, exceptionally well placed. 
 Our revenue, in proportion to our means of paying it, is 
 small; and our coast-line makes secret importation very 
 difficult. 
 
 878. Customs duties on exports are, in general, peculiarly 
 objectionable, for their effect upon home industry. 
 
 879. Stamps are a tax mainly on income while being 
 made ; but are not so bad as many others of the same class. 
 Most contracts require, for their legal enforcement, written 
 documents. And the Government being always present, and 
 paramount, in the courts of justice, to require such docu- 
 ments to be written on paper stamped by the Government, 
 affords an easy, and generally effectual, mode of raising, in a 
 country like this, a considerable revenue. It adds to the cost 
 of each process in which such documents are necessary ; but 
 if the particular tax is, in relation to the values involved, not 
 heavy enough to suggest evasion, the tax is extremely likely 
 to be paid when due ; and it does not materially impede the 
 process itself. Further, the whole amount of the tax, or 
 nearly so, goes to the Treasury. 
 
 880. Licences to carry on trades have also a direct 
 bearing on income while being made. But they bear very 
 
 251 
 
TAXATION. 
 
 unequally, and can never be made to yield much. They 
 cannot be graduated with reference to the profits of the 
 business carried on under each licence. They fall too 
 heavily on beginners ,•■ and so are impolitic on general 
 grounds. 
 
 So much for taxing income while being made. 
 
 As it is 881. 11. To levy what is commonly called an income 
 
 receive . ^^^ — ^j. j^ ^^^ income when and as it is received — the 
 Government must find out its amount; and, to this end, 
 must make enquiries which are often vexatious, and very 
 often more or less ineffectual : ineffectual not only to ascer- 
 tain the amount of any given income, but also how much of 
 each man's apparent income may be dealt with as being 
 properly at his disposal for current expenditure. 
 
 882. Then the incomes of a great majority of the mem- 
 bers of our own and every other community are received 
 and spent in small sums, and at frequently recurring 
 periods. 
 
 883. The third rule would require that weekly wages, if 
 taxed at all, should be taxed every week. Unless those who 
 paid the wages acted as collectors, this would be imprac- 
 ticable ; and I need hardly say that this mode of collection 
 would, if it were practicable, be objectionable. Practically, 
 an income tax is found to be applicable in this country only 
 to annual incomes of at least £ioo; and as the average 
 income of the seven millions of families of the United King- 
 dom does not, probably, exceed £ 1 40 a-year, and by far the 
 greater number of these incomes are less, such a tax, if 
 levied alone, must leave untouched (apparently) a large part 
 of the people. Now, whether, if we should ever determine 
 to raise the whole, or even the greater part of our revenue, 
 by an income tax, we should, on the one hand, attempt to 
 take a shilling or two a week out of every workman's wages, 
 or, on the other, leave receivers of weekly wages exempt, 
 and yet — as they now hold a majority of the voting power — 
 
 252 
 
TAXATION. 
 
 permit them to decide the policy of the State, in peace and 
 war, while contributing little or nothing towards its cost, is a 
 somewhat serious question — though it is one I need not 
 enter upon here. 
 
 884. Further, even within the range in which the levy of 
 a mere income tax is quite practicable, experience has 
 proved that it is by no means easy, apart from learning the 
 truth as to the actual amount, and the nature, of each income, 
 to give to it that equal bearing upon the paying-power of 
 those taxed which is required by our first rule. It is admitted 
 that the income tax we have been levying now for more than 
 forty years is not quite fairly levied — it has been much dis- 
 cussed — and yet no improvement, at once material and feasible, 
 has yet been suggested. 
 
 885. We have already considered the different sources of 
 income ; and have seen how, in most cases, the incomes of 70. 
 individuals are drawn in various proportions, from several, 
 
 or from all, of these sources. Setting aside incomes under 
 £ioo or £150 a-year, not many can be said to be drawn 
 exclusively from rent, or from interest, or from profit, or 
 from wages. But whenever rent, or interest, or profit is 
 drawn upon, the income must proceed, in some degree, from 
 capital; and then it requires some care, in each case, to 
 distinguish net income from gross, or a return of part of the 
 capital employed from the results of its use. For instance, 
 take income as derived from the following different sources : — 
 (i) Capital lent on the best security: as when invested in 
 
 the Stocks of the British Government. This is, 
 
 practically, all interest. 
 {2) Capital invested in a very secure business requiring 
 
 little superintendence, and little skill, and involving 
 
 no considerable risk : say that of a land-owner. This 
 
 is, in most cases, nearly all rent. 
 (3) Capital invested in a business requiring close attention 
 
 and much skill, and involving considerable risk : as 
 
 that of a manufacturer or merchant. This is mainly 
 
 263 
 
TAXATION. 
 
 profit; but is also in part made up of the wages of 
 skilled labour, and of interest on the capital invested. 
 
 (4) Capital invested in a temporary manner, so that the 
 
 returns bring back, more or less rapidly, both capital 
 and interest, with sometimes a considerable amount 
 of profit, due to the skill exercised in choosing and 
 making the investment — as in the purchase of rever- 
 sionary interests, or life annuities. Here a large part 
 of the apparent income is mere return of capital. 
 
 (5) From labour, more or less highly skilled : as that of 
 
 professional men. This cannot be deemed all wages. 
 In many instances it must be held to include an 
 indirect return of the capital expended in the acquire- 
 ment of special skill. 
 
 886. The income of the fund-holder, and of the land- 
 owner, is nearly all net income. These may be placed in 
 one gTOup. 
 
 887. In another we may place the income of the man 
 who has bought a life annuity. This clearly includes a con- 
 siderable return of capital. In this group, also, to some 
 extent, we may place the manufacturer and the merchant, 
 and the professional man. 
 
 888. In practice the distinction is broadly apparent. But 
 its ground is often mis-stated. It is not that manufacturers, 
 merchants, and professional men commonly have wives and 
 children, or others, dependent upon them, for whom it is 
 desirable, in the interest of the State, that they should pro- 
 vide. On this point all incomes may be taken to be subject 
 to much the same general liability. A land-owner can only 
 provide for one successor like himself. For others, if he has 
 them to provide for, he must lay by, or expend, part of his 
 income. And if the merchant chooses to give all his property 
 to his eldest son, he can do the same. But those whose 
 incomes are derived from the use of capital, and those whose 
 incomes are dependent upon their personal exertions, are 
 
 »54 
 
TAXATION. 
 
 entitled to have regarded as a return of capital, and not as 
 mere profit upon it, whatever portion of their income may be 
 fairly held to possess that character. 
 
 889. In other words, of some apparent incomes the whole, 
 or nearly so, may be said to be real or current income, and 
 therefore available, without loss, for current expenditure. Of 
 others only a part is so available. The remainder is, in 
 effect, a return of the capital which is embarked in the busi- 
 ness, or which has been expended in acquiring the qualities 
 which have given to the life of an individual a value 
 analogous to that of an annuity for a term of years. 
 
 890. The State has, in tl5s country, recognized the de- 
 duction from each man's income which he may deem neces- 
 sary to make a provision for his family in case of his death, 
 by allowing for a premium of insurance on the life of the 
 person earning the income. In practice, this is perhaps all 
 that can be done. But abstract justice does not require this 
 particular concession ; and it does, in some cases, require a 
 great deal more. It requires that a return of capital should 
 be distinguished from wages, interest, or profit ; and, in 
 practice, this cannot be attempted, with success, by any 
 government. 
 
 891. The equitable adjustment here suggested could be 
 effected only by the hearty and honest co-operation of the 853. 
 tax-payers j and this cannot be had. 
 
 892. III. Taxes on income as it is expended, of course As it is 
 leave untaxed so much of each man's income as he may ^•^/^«*'^. 
 not choose to spend, or as he may elect to spend 
 through any channel which does not happen to be reached 
 
 by taxation. 
 
 893. This, however, is an objection not of so great 
 weight as is commonly supposed. Income not spent goes 
 to form new capital : a process every member of the com- 
 munity is interested in promoting; and income which is so 
 
 255 
 
TAXATION. 
 
 spent as to escape such indirect taxation (provided the chan- 
 nels of expenditure which are taxed yield enough, and draw 
 it, with something like equality, from all classes of persons) 
 can only be regarded as income the more freely enjoyed. 
 But, unfortunately, there are few taxes which, properly 
 speaking, are capable of being levied in this class ; and from 
 these it is not possible to raise any considerable revenue, 
 without forcing the tax into Class I. 
 
 894. The tax on armorial bearings is one. Whoever 
 wears, or pays others to wear, such distinctions, does it to 
 please himself. The tax rests where it falls. The tax on 
 hair-powder was another : for,' whether the powder was worn 
 by the tax-payer or by his servants, it was paid for by 
 himself. 
 
 The tax on carriages kept for pleasure is meant to be of 
 this class. But then many of the carriages taxed are, in fact, 
 kept for profit ; and thus the tax becomes indirect, and is apt 
 to violate the fourth rule, by taking out of the pockets of 
 those who ultimately pay it, more than it brings into the 
 public treasury. 
 
 895. The house-tax is one of the best of these taxes. It 
 approximates nearly to an income-tax. We must all have 
 house-room ; and the house-room we have commonly indi- 
 cates nearly the amount of our income. 
 
 But houses are inhabited not only as dwellings, but also as 
 places for labour. The rent sometimes measures not only 
 the available income of the tenant, but also a great part of 
 his outlay in the conduct of his business. We now meet 
 this by exempting all " houses " the tenants of which do not 
 sleep in them. This, however, does not quite meet the ob- 
 jection. To say nothing of such places as hotels, and 
 lodging-houses, the houses of tradesmen, of medical men, 
 and of others, often have as much professional as do- 
 mestic use. 
 
 896. Taxes on dogs, and on male servants, are intended 
 to be in this class. These also involve distinctions between 
 
 256 
 
TAXATION. 
 
 what is kept for profit and what for pleasure ; but not to a 
 very objectionable extent. 
 
 897. And so the various taxes which are devised to imi- 
 tate an income-tax, by falling upon particular items of per- 
 sonal expenditure, may be observed to go through a natural 
 process of decay, and sometimes of revival, thus : All prac- 
 ticable taxes are, as we have seen, more or less objectionable ; 
 and every objectionable tax has its most objectionable side. 
 If strongly opposed on this side, such taxes as I have last 
 mentioned are almost sure to be modified by exemptions. 
 But exemptions only make what remains of the tax still more 
 objectionable. Then come further exemptions; and finally 
 the tax is repealed, as not worth the trouble it gives. 
 
 898. The history of the house-tax affords a good example. 
 It was levied in England from 1696 down to 1834. It had 
 become a very near approach to an income-tax ; the inequal- 
 ities arising from the use of the houses for trading and pro- 
 fessional purposes having, in the course of several generations, 
 been equalized and distributed. But, when the Reform Act 
 of 1832 called into existence the new metropolitan boroughs, 
 the new voters — great numbers of whom were professional 
 men, shop-keepers, hotel-keepers, or letters of lodgings — 
 united in pressing for its abolition; and it was abolished: 
 much to the profit, for a time, of its new opponents. Lately, 
 the house-tax has been re-imposed ; but by-and-by it will be 
 similarly attacked. The tax on horses, after admitting nu- 
 merous exceptions, has lately been repealed. In another 
 generation the particular objections to the horse-tax will be 
 forgotten ; and then it may be re-imposed. So also we have 
 just stopped a burst of clamour by some exemptions from 
 the tax on male servants. And no doubt these will, before 
 long, lead to its abolition. 
 
 899. To resume. No one tax has yet been proposed Several 
 
 taxes 
 necessary. 
 
 which it is imagined would supply the needful revenue of a ''^'^" 
 
 257 
 
TAXATION. 
 
 State like our own. Nor does it seem likely that any very 
 small number of taxes can ever eifect such a purpose. 
 
 900. As to the income-tax, our national wealth is now so 
 great that every penny in the pound levied, even excluding 
 all the small incomes, raises nearly two millions sterling. 
 But, to raise the whole revenue, the tax must go up to three 
 or four shillings in the pound. It is evaded now. What 
 would be the evasion — what the struggle to escape — if the 
 tax were increased eight or ten-fold ? And were this done, 
 we should have to face, still more obviously, the dilemma of 
 letting one part of the nation determine the policy of the 
 Government, and the other pay its cost — or, taxing weekly 
 wages. 
 
 Exclusive 901. In a recent work, which I refer to elsewhere (351), 
 taxation of jj -g proposed to raise the whole revenue of the kingdom by 
 a tax on the rent of land ; to the extent, if need be, of ab- 
 sorbing the whole of such rent. The proposal is part of a 
 scheme which may well be deemed visionary ; but, being, in 
 Revival of itself, perfectly practicable, though anything but new, it may 
 "error fairly claim our attention here. It was made, and for a time, 
 
 much lauded — then discussed, and dismissed, as fallacious — 
 359. more than a century ago. 
 
 902. After Law's Bank, and the Mississippi Scheme, had 
 exhausted, and almost ruined, the capitalists of France (1720), 
 and the whole nation, sick of its first great venture in com- 
 merce, had reverted, steadily, and with new ardour, to that 
 culture of the soil to which it has ever since given the first 
 place, a benevolent old surgeon, Quesnay (1758), first gave 
 form to political economy, as la nouvelle science. Following 
 the well-settled current of the national feeling, he saw, in the 
 L'ImpSt land, the source of all wealth ; and consistently recommended 
 ■unique. ^^^ ^ taxes should be levied on its net produce : the rent. 
 Thus all subsidiary occupations, in manufactures, and in 
 commerce, would be relieved from the burden which, in the 
 end, must, according to the theory, be borne by the land. 
 258 
 
TAXATION. 
 
 803. Adam Smith, in less than twenty years afterwards 
 (1776), dissipated the error that value is produced by the 
 land alone. But, for a time, Tlmpot unique was in vogue, as 
 one of the brightest emanations of the human intellect. It 
 had the wisdom of Solomon {Qui operatur terrain suam, sati- 
 abitur) and the confirmation of Sully (Labmrage et pdlurage 
 sont les mamelles de I'^tat). But the facts were against it ; 
 as they are still '- 
 
 904. It was early seen, and it was never more conspi- Land- 
 cuous than it is now in England, that land-rent has two ele- ^^""^/g"^ 
 ments — elements which not only vary greatly, in particular ments. 
 instances, but are also apt to vary greatly from time to time : 
 
 that part of it which is paid for the use of the land itself, and 
 that which is paid for the use of what has been, by human 
 industry, more or less permanently added to the land. This 
 is so whatever the land is used for ; but especially is it so 
 when the land is much built upon, or about. And it is only 
 in the latter state that those high rents occur which have 
 lately drawn attention to the subject. 
 
 905. These two elements in land-rent have different inci- 
 dents and habilities. 
 
 906. To levy any considerable tax upon buildings, or upon 
 the additions, or any of the improvements, by which the land 
 is made more valuable, or more productive, would clearly be 
 inexpedient. It must discourage all such improvements; 
 and the things taxed, being more or less permanent, any 
 
 ' Those who may be disposed to review the arguments by which 
 Qnesnay's proposal was supported and dismissed, may iind them stated, 
 on each side, in the two following works : 
 
 I. Tableau Economique, et maximes generales du gouvernement 
 economique. Par Fran9ois Quesnay, 4to. Versailles, 1758. 
 
 II. De La Propriety dans ses rapports avec le droit politique. 
 I vol. i8mo. Paris, 1792. 
 
 The second was written by the Marquis Gamier ; who translated the 
 "Wealth of Nations" into French. His courage, not less than his 
 ability, in defending the right of private property in land, in France, at 
 that period, is remarkable ; almost as remarkable as the conseqnent 
 rejection of Timpdt unique, in the very heat of the Revolution. 
 
 S 2 259 
 
TAXATION. 
 
 prospect of increased taxation must operate strongly in that 
 direction. 
 
 907. Upon the ground-rent, alone, if it be fairly dis- 
 tinguished and ascertained, any tax may be levied, even to 
 the absorption of the whole value, without affecting any one 
 but the owner. The only objection to excess, in the amount 
 of such a tax, is that of its injustice. But this, so far as it is 
 valid, is obviously imperative. And unless we are prepared 
 to make a distinction where there is no difference — between 
 the title to the building, and its incidents, which rests on 
 immemorial holding, and purchase under the law, and the 
 title to the land, which rests on exactly the same basis — and 
 to follow the author of this scheme in deeming all land, in 
 private hands, to be mere stolen property — we can find no 
 reason for taxing the ground-rent, which will not also apply 
 to taxing the building-rent. 
 
 908. It is not easy to ascertain the separate value of 
 either; but there is no difficulty in discovering the value 
 of both ; and, when the value of both is great, the owner of 
 one is most commonly also the owner of the other. 
 Result of 909. All experience, however, in England and elsewhere, 
 expel letne. j^ jgaJngt the expediency of taxes proportioned to either the 
 gross or the net produce of the land. They cannot be made 
 even nearly equal, upon different owners, even with periodical 
 valuations, and close inquisition. In proportion to their 
 weight, they discourage agricultural improvement, and check 
 the addition of every description of permanent value to the 
 land. In poor countries, however, they are unavoidable. There 
 is, there, little or nothing else to tax. Down to the seven- 
 teenth century, we had to rely, even in this country, almost 
 exclusively, on taxing the land, and the persons living on it. 
 We had then a quarterly poll-tax on all adults, varying from 
 one shilling to twenty shillings ; and the general revenue 
 was mainly supplied by special grants by the land-owners 
 to the Sovereign. In Eastern countries, where the ruler is 
 still the head landlord, these taxes are found to be almost 
 260 
 
TAXATION. 
 
 prohibitive of enterprise, and, consequently, of progress 
 and, in India, after a long series of efforts, the only subject 
 which never has been, and never can be satisfactorily dealt 
 with, seems to be the revenue from the land. In every 
 European country these taxes have been gradually given 
 up, as the nation has increased in wealth. And if they 
 were now again levied in this country the results would be 
 far from realizing the anticipations of those who propose 
 them. A few figures will show this : — 
 
 910. The gross rental of the United Kingdom, as assessed If af plied 
 to the poor-rate, by the latest returns, was £204,563,000 : 'f,^^^, 
 the area being 76,650,000 acres. This gives an average of Kingdom. 
 £2 13^. 4^. per acre. The average for England and Wales 
 
 was £4 10s. od.; for Scotland, £1 4^. 2d.; and for Ireland, 
 13^. 6d. per acre. 
 
 911. Now, how much of this is agricultural ? The average 
 agricultural value of the land of the United Kingdom — taken 
 on the most liberal estimate — must lie somewhere between 
 that of the richest, and that of the poorest of the agricultural 
 counties. The eight counties of Bucks, Devon, Hereford, 
 Huntingdon, Lincoln, Norfolk, Salop, and Wilts, are the 
 most purely agricultural we have; and, (of these) have 
 the highest rentals. They give an average gross rental 
 (including buildings) of very nearly forty shillings per acre. 
 
 912. For the eight poorest agricultural counties, we may 
 take, in England, Cornwall and Westmoreland — in Wales, 
 Radnor and Brecon — in Scotland, Ross-and-Cromarty, and 
 Sutherland — and, in Ireland, Mayo and Donegal. These 
 give an average gross rental of about 8j. 2d. per acre. 
 
 913. The richer group has 7,730,000 acres, and a gross 
 rental of £16,090,000 — the poorer, 7,910,000 acres, and a 
 rental of £3,290,000. Together, they give an average gross 
 rental of nearly twenty-four shillings per acre. 
 
 914. In the sixteen counties, forming these two groups of 
 agricultural counties, there are a good many small towns ; and 
 much valuable property which cannot be deemed agricultural ; 
 
 261 
 
TAXATION. 
 
 but the figures at command do not admit of precision, and 
 they certainly represent more, not less, than the average agri- 
 cultural value. 
 
 915. Deducting, then, the agricultural gross value of the 
 whole area of the United Kingdom, at the full rate of twenty- 
 four shillings per acre (say £91,000,000), from the total of 
 £204,000,000, we have £113,000,000 left, as the rental of 
 that which is certainly not agricultural : — of the factories and 
 workshops, docks and railways, offices and dwelling-houses, 
 in which are made those four-fifths of the taxed income of 
 the kingdom, which are derived from sources other than 
 agricultural. 
 
 Nor is this amount surprising. London raises the gross 
 rental of Middlesex to £28,305,000, or an average of £156 
 per acre. The manufacturing towns of the West Riding of 
 Yorkshire raise its rental to £11,398,000. Lancashire has a 
 gross rental of £20,203,000, and Lanarkshire of £5,689,000. 
 These four counties, alone, have an assessed rental of 
 £65,595,000. 
 Probable giQ. So that, were this revival of an ancient error now 
 
 adopted, and put in practice, the proposed tax would fall, 
 for the most part, upon land the value of which consists of 
 the dwelling-houses of our town population, and the buildings 
 in which their living is earned, and their wants supplied — in 
 short, upon the fixed capital of our manufactures and trade — 
 upon land, indeed, whereon wages are earned, and trade 
 profits grow, but where nothing else is raised. The larger part 
 of this fruitful area is covered by the habitations of the 
 labouring classes in towns — taxation of which could only 
 make these dwellings more costly than they now are. 
 
 Effect of 917. One other topic only can I now enter on. It con- 
 
 taxation gerns every system of taxation; and it points to a partial 
 
 remedy for the defects of all indirect taxes. We have seen 
 
 that, apart from an income-tax, all taxes must be levied more 
 
 or less indirectly. 
 
 262 
 
TAXATION. 
 
 918. Whenever an indirect tax is levied, it takes some time 
 for the burden it imposes to be conveyed to, and distributed 
 over, those who will ultimately bear it. 
 
 919. For instance, a tax on salt will be taken, first, from 
 the manufacturer, or importer. He will add it to the price ; 
 and so the consumers will, in the end, pay it, in proportion 
 to the quantity of salt each consumes. When this process 
 is completed, the incidence of the tax is settled, and will so 
 continue till the tax is taken off or changed. 
 
 020. A similar process takes place on the imposition of 
 all taxes, the incidence of which is, in the first instance, 
 unequal. When, for instance, the business of auctioneers is 
 taxed, the tax must, in the end, be paid by those who employ 
 them. And, if this business were very heavily taxed, either 
 the auctioneers would be forced out of business, and sales 
 by auction would cease, or whatever should be raised by the 
 tax must be paid by those who resorted to that mode of sale. 
 In short, the weight of such taxes produces a change in the 
 conditions under which certain common services can be 
 rendered. The amount levied is thus added to the cost of 
 these services ; and, so far as it is eifective, acts precisely as 869. 
 would any other addition to the price. And if a tax con- 
 tinues to be levied in the same way for a long period, the 
 usages of the particular trade become well adapted to it; 
 and though the inherent defects of an indirect tax cannot 
 be got rid of, they are thus, in most instances, reduced, to a 
 great extent. 
 
 921. All changes of indirect taxes more or less disturb 898. 
 this adjustment. To reduce the tax is to reduce the cost 
 of some service, probably the cost of some article. In 
 course of time, this reduction will bring down, more or less, 
 the price of the service, or of the article. But some prices, 
 alike of services and commodities, are slow of change, 
 especially downwards; and thus the burden of the tax is 
 apt to remain, to some extent, for a time, even for a long 
 time, after the tax itself has ceased. But an increase of 
 
 263 
 
TAXATION. 
 
 such a tax, though it is in like manner transmitted, is apt 
 to be so much more quickly. 
 
 922. It follows that all changes of the amount or incidence 
 of indirect taxes is, to some extent, an evil. Yet such changes 
 are commonly welcomed. For we are apt to look little to 
 the real and much to the apparent effect of such changes. 
 No doubt, every change, apart from a mere increase of 
 taxes, gives ease, comparative or positive, to somebody. 
 And even new taxes, as their incidence is never clearly 
 seen at first, usually leave room for hope that they may not 
 be much felt. And they are sometimes even welcomed on 
 the ground that they enable the State to dispense with old 
 taxes; which are familiar, and therefore, usually disliked in 
 proportion as their incidence is visible. 
 
 923. It is clear that taxes imposed on particular classes of 
 persons, forming one community, whether they be capitalists 
 or labourers, must be transmitted, in great part, sooner or 
 later, to those who require the services of the specially taxed 
 classes ; and that every change of such taxes disturbs the old 
 distribution, and sets up a new one. 
 
 924. Hence mere change of the method of taxation, 
 whether direct or indirect, if it be not equal, though always 
 being urged from some quarter or other, and often made by 
 statesmen to court popularity, must also be regarded as in 
 itself an evil. 
 
 Conclu- 925. In conclusion — every existing system of taxation may 
 
 ^^'^' be deemed defective. Even in the most advanced countries 
 
 of Europe, and in the United States, the defects I refer to 
 probably enhance the burden needful to raise a given 
 revenue by one half, at the very least. And the cause of 
 this state of things is, in the first instance, the ignorance of 
 the people on the subject of taxation. Were this, ignorance 
 removed, were even a considerable minority of the next 
 generation to learn what taxation really is, great changes 
 would soon be made ; and the time would not be far distant 
 264 
 
TAXATION. 
 
 when people would look back to our present system much 
 as we look back to some of the defective political and 
 social arrangements of a century or two ago. 
 
 926. Thus the defects in our system of taxation, like the 
 defects' in our system of government, may be said to reflect 
 corresponding defects in ourselves. The discovery and cor- 
 rection of these defects is the proper use of politics ; but no 
 clue to their nature is so likely to be correct as one gathered ^55. 
 from close observation of the daily life of the nation. An 
 income-tax levied (in proportion to his means) equally on 
 every man possessing a vote would be the best political 
 teacher a nation could have. But the nation that first attains 
 it will not need much teaching. 
 
 a6s 
 
XVI. PAUPERISM. 
 
 927. This may seem to be rather matter of public than of 
 private concern. But in fact it much concerns our daily- 
 life. What concerns the State concerns us : for we are part 
 of it. The poor-rate is, in this country, as real, and quite 
 as inevitable, as the quarter's rent ; and it is not the only 
 form in which we are taxed for the relief of the destitute. 
 
 928. Political economy is concerned with wealth. The 
 destitute have no wealth. And they do not produce any. 
 But they consume it. They form part of society. Society 
 is not content to see them perish. So they must receive a 
 part of the wealth of others. The only problem they imme- 
 diately present to us is, how best ? 
 
 Definition. 929. The term "pauperism" has a meaning which is not 
 always clearly seen. Both the thing, and its name, may be 
 said to be peculiarly English. 
 
 930. Poverty, no doubt, has always existed — with all 
 nations and in all ages. It means only an absence of wealth : 
 and this may be positive or comparative. Men are said to 
 be poor, who are not destitute. Indeed, this term is often 
 applied, indiscriminately, to a large majority of every existing 
 nation. But poverty so extreme as to involve imminent risk 
 of death by starvation has a distinct and definite character ; 
 and has always been held to justify, in some degree, a 
 demand from the sufferer that he shall receive the means of 
 subsistence from others. In the more ancient forms of society, 
 however, there was a difference. Properly speaking, paupers, 
 266 
 
PAUPERISM. 
 
 as we know them, can only exist among free men. It is true 
 that slavery does not preclude destitution ; but it alters the 
 basis of the claim for relief. Freemen provide means of 
 relieving the destitution of each other, as matter of mutual 
 and corporate obligation. Slaves were protected from star- 
 vation only as we now so protect our domestic animals. We 
 do not allow them to be wantonly starved, if we know it ; 
 but the obligation to feed them rests exclusively on their 
 owners. 
 
 931. Every existing nation may be said to recognize the 
 obligation of the community to aid its destitute members. 
 But in almost every country, except our own, the obligation 
 has hitherto been enforced mainly, if not wholly, by permitting 
 the destitute to beg. 
 
 932. Beggary, however, is not pauperism^ It is the con- 
 dition of those who appeal, on any ground, to private 
 benevolence : to the charity of individuals. 
 
 933. Pauperism is the condition of those in whom the State 
 recognizes a legal right to rehef, out of funds raised by public 
 contribution, or taxation. 
 
 934. As often happens, in the history of political institu- 
 tions, we, in England, had the thing before we had the name 
 
 for it. We made a legal provision for the destitute as early Origin in 
 as the reign of Queen Elizabeth ; but the term " pauper " did J^"g^"'"^- 
 not come into use till early in the present century. 
 
 935. The old system of relief was then observed to have 
 got into serious disorder. It did so under the concurrent 
 effect of a rapid growth of our manufacturing system, and of 
 our town population, and the occurrence of a series of bad 
 harvests. The high price of food made more paupers ; and 
 their migration made useless the old local checks on undue 
 claims. This compelled the attention of statesmen ; and 
 induced thinkers to study the origin and growth of the evil, 
 as it then presented itself, with some care. The " pauper " was 
 
 267 
 
PAUPERISM. 
 
 then first clearly recognized and named, and took a definite 
 place in the body-politic. 
 
 936. Destitution, however relieved, must be received as 
 evidence of a grievous failure, either in the arrangement of 
 society, or in the conduct of its members, or in both. 
 
 837. It would seem that, in a well-organized state of 
 society, we have only to use very common faculties aright 
 to obtain, easily, a supply of all the necessaries of life. Yet, 
 as we see, many, even of a nation like ours, marked among 
 nations by its industry and thrift, are absolutely destitute. 
 About thirty-seven in every thousand persons in the United 
 Kingdom are constantly so at present. 
 Causes of 938. Whence this failure ? Does it come of ignorance of 
 destitution. j]^g natural laws under which we have to work, or from want 
 of attention to them ? Somewhat, no doubt, of the former ; 
 but much more of the latter. Some of the destitution we see 
 around us may be due to general as well as individual dis- 
 regard of the conditions on which the prosperity of men in 
 society depends. But there can be no doubt about the 
 sources of much of it. It is traceable to causes which are, 
 or have been, within the control of those who su.ffer from 
 it. Poverty, like wealth, comes mainly of the conduct of 
 individuals. 
 
 939. Qur English notion of the functions of a government, 
 and of the rights of the governed, forbids any such close 
 inquisition touching the private affairs of individuals as might 
 be necessary to enable us to prove this as to each person 
 in particular. Nor, possibly, could any enquiry, public or 
 private, do much more than establish, in each case, the fact 
 of destitution, and its immediate connexion with some par- 
 ticular and already well-recognized cause of poverty. But, 
 as to general principles, we are clear. 
 
 940. We have no doubt, whatever, that wealth comes of 
 industry, skill, and forethought. Observation has long since 
 
 a68 
 
Pauperism. 
 
 taught U9 this ; and also that destitution, as surely, comes of 
 ignorance, idleness, and improvidence. We have also learned, 
 however, that good conduct usually comes only of good 
 habits ; and that the conduct which leads men to wealth is 
 therefore most commonly preceded by, and is seldom seen 
 apart from, good training in youth. So that as the rich 
 among us have very commonly inherited wealth, those who 
 are poor may in many instances be said to have derived 
 from their parents, in their physical and mental constitution, 
 and in their habits and tendencies, at least the most persistent 
 causes of their poverty. This consideration justly affects, in 
 some degree, the opinion we must needs form of conduct so 
 led up to. But, with more profit, it points to the great value 
 of any system of education which shall tend to stay the 
 descent of ignorance and bad habits from one generation to 
 another. 
 
 941. It is also much to be desired that better education Example 
 should lead the wealthy to give to the poor a better example. "^ ti^ 
 The conduct of the poor is much in the hands of those of 
 
 us who are not poor. They instinctively copy our manners, 
 much as they do our fashions. The vulgar vices of one 55. 
 generation are often but copies of the genteel ones of a 
 prior generation. And when the possession of wealth is 
 seen, as it too often is, to lead only to contempt for labour 
 and pride in idleness and luxury, the force of example — 
 wherein lies the only legitimate control of one class by 
 another — has a most pernicious effect. 
 
 942. Destitution may come upon men from the conduct 
 of others : from their violence, their dishonesty, or their 
 want of caution. For, with the gains of association, we have 
 to take also its liabilities. But this concerns rather the inci- 
 dence of destitution than its causes. Sometimes it may be 
 traceable to such events as those who most suffer from them 
 are too ignorant to foresee, or too poor to guard against. 
 There is, however, a distinct and powerful tendency, in the 
 growth of civilized society, to bring all avoidable calamity, 84i, 
 
 269 
 
PAUPERISM. 
 
 not directly due to personal misconduct, within narrower 
 841- limits. What we have more immediately to deal with is the 
 destitution due, wholly or in part, to personal neglect or 
 misconduct. To prevent this is, and always must be, mainly 
 the work of the sufferers themselves. Till their destitution is 
 apparent, the State cannot interfere with them ; and then it 
 is almost always too late. The personal defect has become 
 incurable ; and its issue must be accepted. Much may be 
 done by instruction for the young, and, by better example, for 
 those who are no longer young. But the statesman can deal 
 only with general causes of destitution ; and with these only 
 so far as they can be brought within the proper functions of 
 a Government. 
 
 943. But while we count up the causes of destitution and 
 look hopefully to the action of the State, and of individuals, 
 for their diminution, the present evil has, from day to day, to 
 be dealt with. To an empty belly the most fruitful theory is 
 barren as the east wind. The destitute, however they have 
 become so, must be provided for. And how best, is one of 
 the most difficult questions of our time. 
 
 944. Sound thought is here more needed than kindly 
 feeling ; though neither can be dispensed with. 
 
 Reason 945. First, it is clear that the provision made for the 
 
 "more than destitute ought not to run beyond its purpose: that its 
 feeling. wisdom lies in its fitness, as well as its sufficiency. It 
 should not be such as, by removing the smart of destitu- 
 tion, to remove also the motive to avoid it. And herein we 
 must obviously have regard to a standard of comfort not 
 gathered from our own compassion, but measured by the 
 condition of those who, though poor, do avoid destitution. 
 Even if the labourer who maintains himself were not, as he 
 is, liable to the rate for feeding his thrifdess and starving 
 neighbour, it would yet be impolitic and unjust to place the 
 idle pauper in a condition as good as that of the least wealthy 
 of industrious workmen. 
 270 
 
PAUPERISM. 
 
 946. Every penny of our poor-rate is, in fact, drawn from Thepr<wi-> 
 the incomes of those who support themselves ; and even were '"' '"^^ ' 
 it made a tax upon realized property alone, it would still, 
 through capital, tell upon wages. 
 
 947. The shame and the burden of the present has but 
 little reference to the past conduct of those who are relieved. 
 Were they all perfectly helpless, and perfectly blameless, 
 their very existence, as paupers, would be disgraceful and 
 injurious to the State. They add nothing to the strength, 
 or to the wealth, or to the dignity, of the nation. They 
 detract from all these. Their condition cannot justly be 
 regarded with any satisfaction, by themselves or others. In 
 so far as they may be fit for useful work of any kind, and 
 not employed upon it, they exhibit not only a waste of 
 material wealth, but also a waste of the power which pro- 
 duces it : a practical reversal of the salutary rule that no man 
 shall have power to compel another to work for him. And 
 it is of the first necessity that their relief shall involve no in- 
 justice to others. 
 
 948. The problem is, no doubt, as urgent as it is complex. 
 It must have its daily solution. Yet, day by day, as we solve 
 it, we are bound to keep before us the future as well as the 
 present, making our question — " How can the destitution 
 before us be effectually relieved without giving additional force 
 to its causes ; and, if possible, so as to aid their removal ? " 
 
 949. Hitherto, we have learned little except from expe- 
 rience. And the unwillingness of mankind to deal with 
 disagreeable topics has much limited the use of the experi- 
 ence we have had. 
 
 950. In England, at present, destitution is practically pro- 
 vided for from three successive sources : family aid, private 
 benevolence, and public relief. A man is as much bound to 
 support his wife and children as he is to support himself. 
 But the range of family obligation does, in practice, run 
 much beyond its legal limits. Perhaps there are few of our 
 
PAUPERISM. 
 
 Private 
 relief. 
 
 families, in the middle or uppef classes, not burdened with 
 persons who prefer living upon others, however shamefully, 
 to working for themselves. On the other hand, neglect of 
 the duties of the family circle often casts a burden on those 
 who are beyond it. The head of every family is bound so 
 to train its members as to prevent their becoming ignorantly 
 or wilfully destitute; and neglect of this duty is a fruitful 
 source of pauperism. 
 
 951. Private benevolence is, and has long been active 
 among us, and has now a very large command of means. 
 On the whole, it does perhaps quite as much to cause as to 
 relieve destitution. Those who support what are called 
 "charities," almost invariably regard their merely doing so as 
 implying merit. They do not usually aim, in any degree, at 
 the removal of that which exercises their benevolence. They 
 regard with complacency the recipients of their bounty. 
 They are very generally imposed upon. And thus they call 
 into active existence a class of persons willing to live upon 
 others, and look grateful for what they get : a class which, 
 very naturally, grows faster than any possible provision for it. 
 And the surplus passes, from time to time, into the body of 
 public paupers. 
 
 Public 
 relief. 
 
 952. Public relief has various methods. It is most fully 
 organized in this country. 
 
 953. The primitive and most simple mode of relief — that 
 first adopted, and still, in fact, most largely in use — is, to 
 leave the destitute to the good offices of their neighbours. 
 And if we mark the growth of our poor-law from the be- 
 ginning until now, we find that it resolves itself into a 
 succession of efforts to give legal effect to this method, and 
 to make the "neighbours" do their duty. Its advantages 
 are obvious. A man's neighbours are hkely to know most of, 
 and to understand best, the events which have led to his 
 destitution. They will know whether relief is or is not 
 
PAUPERISM. 
 
 deserved ; and, what is more to the purpose, they will know 
 how far it is really needed, and how it may best be applied. 
 And if they take the trouble to think of what they are about, 
 which they are likely to do if they act together, and are 
 laying out their own money, they will see that they have a 
 strong interest in giving relief promptly — so that the gift may Need of 
 stave off worse need ; and also discreetly : limiting what they ^^P'""j 
 give to what is really required. And in the stimulus thus 
 given to common action, and to thoughtful and kindly feeling, 
 as to local needs, there lies some compensation, in a moral 
 point of view, for the evils thus mitigated. 
 
 954. Here we have the central idea of our poor-law. But 
 it will not realize itself without pressure from above. Some 
 will not give. Others give with a grudge, and as little as may 
 be. And those who give willingly have usually more regard 
 to their own feelings in their mode of giving, than to the 
 general good. The receivers of relief are of one mind. They 
 do not Uke ordered relief: they much prefer the unchecked 
 doles of private benevolence. 
 
 955. Further — to neighbourly action neighbours are 
 necessary. In some countries fixity of habitation makes 
 neighbourhood common. In this country the progress of 
 industry and commerce has long been unfixing the local 
 attachments of the people; and a great part of the popu- 
 lation has now ceased to have such neighbours as are here 
 in view. And where neighbourhood now has any efiect — 
 as where relief is given by the rich to the poor in rural 
 districts, it probably does more harm than good. Pity is 
 not always thoughtful; and without thought it often injures 
 more than hate. And when pride, of purse or station, guides 
 the giving hand, it is even worse. 
 
 956. When men begin to move about, and to spend much 
 of their time among strangers, as in all countries increasing 
 in population and wealth they must do, the local personal 
 knowledge and sympathy needful to the primitive system die 
 out. He who might have asked of his neighbours aid he 
 
 T 273 
 
PAUPERISM. 
 
 might hope, some day, to return, gives way to the beggar, 
 who asks of all who will give, who is hardly ever known to 
 those he asks, and who tells any story he thinks likely to 
 extract what he wants. Then begging becomes an art ; and, 
 like other arts, it thrives best with those who have most skill, 
 and most practice. 
 
 957. A mistaken view of the religious duty of charity has, 
 in all countries, given a popular sanction to the practice of 
 begging; and where no legal provision is made for the 
 destitute, it derives at least a negative sanction from the neglect 
 of the State. But it is not the less true that begging is 
 morally the worst, and economically the most wasteful, mode 
 of providing for the destitute. It tends to give most to those 
 who deserve least. It also, in effect, casts upon a portion, 
 and, as experience proves, not a large portion, of the com- 
 munity, a burden belonging to all. And it calls into, and 
 keeps in, existence, the class of professional beggars, which, 
 from the composer of begging letters down to the cripple at 
 the corner, can only be regarded as a curse to society. These 
 live by habitual deception, produce nothing, consume much 
 more than the best provided paupers, and usually live in a 
 manner degrading to themselves, and hardly less degrading 
 to those who see and are not disgusted by it. 
 
 Two things 858. Taking the primitive mode of relief by kindly and 
 aimed at. considerate neighbours as its ideal, the efforts of the State, in 
 this country, have, for the last four or five centuries, been 
 directed, more or less steadily, to (i) an orderly and equable 
 relief of the really destitute, (2) a fair distribution of the re- 
 sulting burden, (3) making the relief at once prompt and 
 effectual, without discouraging independent industry, and 
 (4) keeping down the annual charge. 
 
 959. To get a fair field for its work, the law must also put 
 down begging and alms-giving. But this involves a double 
 difficulty. Pity will give, and need will take. An appeal to 
 274 
 
PAUPERISM. 
 
 the compassion of neighbours does not suit the beggar. It 
 involves a check upon his skill. He hates neighbourhood. 
 He thrives best as a wanderer. Even those who beg only 
 from a select circle, and through the post, use much care 
 that those they beg from shall not take counsel together. 
 
 960. It is as a " vagrant," or homeless man, that we first Early 
 find the beggar noticed by our law ; and it is in this capacity '^" 
 that he still most vigorously wars against society. An Act 
 
 was passed by the English Parliament in the year 1388, for- 
 bidding any labouring man to leave his dwelling-place without 
 a certificate from a justice of the peace, stating a good reason 
 for his doing so ; and directing that impotent persons, seeking 
 relief, should be sent to the places of their birth. When 
 it was found that this law harassed the poor in seeking 
 work, it was relaxed; and beggars were sent back to the 
 .place where they had last dwelt for three years. In 1531 
 justices were authorized to license destitute persons to beg ; 
 but only within a district assigned, and within which they 
 were known. This, however, was the only trial we ever 
 made of legalized begging ; and it was a short one : for it 
 worked iU. In 1536 relief was made compulsory, and 
 begging was prohibited. The oflBcers of each parish were 
 directed to support their own impotent poor ; and to collect 
 the needful funds, by way of alms. Alms-giving to beggars 
 was made punishable by a fine of ten times the amount given. 
 The able-bodied, if destitute, were to be fed ; but they were 
 to be put to work by the parish ofiBcers. 
 
 961. This course of action was little changed, in effect, 
 except by the imposition of various penalties for disobedience 
 of the law, till 1601, when, near the end of the reign of Eliza- 
 beth, was passed the poor law which remained in operation 
 down to the enactment of the " New Poor Law," in 1834. And 
 even this new law left the substance of the old one unchanged, 
 introducing only a new method of administration, designed 
 to correct some abuses which had become common in the 
 rural districts of England, and to adapt the law to the new 
 
 T 2 ti% 
 
PAUPERISM. 
 
 requirements of the populous districts of our manufacturing 
 counties. 
 
 Law of 962. The law of Elizabeth charged the overseers of each 
 
 ''" ^ ■ parish with the duty of taxing the inhabitants for relief of the 
 poor. All the poor who could work were to be set to work ; 
 and, to this end, the overseers were to buy flax, wool, and 
 other articles for them to work upon. Those who would 
 not work were to be sent to prison. The children were, 
 in due time, to be apprenticed to trades. And houses were 
 to be built, in which the impotent poor, only, were to be 
 lodged and maintained. 
 
 963. Excepting the provision for putting the able-bodied 
 to work, which took too little account of the practical difficulty 
 of converting even able-bodied paupers, with the aid of a little 
 capital, into productive workmen, and that by the hands of 
 overseers, who had their own business to attend to, this Act 
 may be said to have embodied nearly all the sagacity which 
 at the end of two hundred and eighty years more, we now find 
 applied, not only in England, but also in Scotland and Ireland, 
 to the same purpose. 
 
 Relief in 964. In England, it would probably have remained, to this 
 
 ""^^ day, without material amendment, had it not been for a 
 wages. ■' ' ' ^ 
 
 practice already alluded to, which was introduced in the rural 
 districts of the south of England in the closing years of the 
 last century — that of allowing relief to able-bodied labourers 
 in full employment, on the ground of their wages being insuf- 
 ficient to support them. The prices of food rose, at that time, 
 in consequence of a succession of bad harvests, higher than 
 they had ever been known before. It was assumed that the 
 occasion was temporary ; and the farmers, who knew how 
 much easier it was to raise wages than to get them down 
 again, resorted, in their capacity of overseers, to this form of 
 relief, by way of evading any such rise. But the parish bounty 
 proved quite as hard to withdraw as an increase of wages. 
 The need for it lasted much longer than was expected. And 
 376 
 
PAUPERISM. 
 
 when the need passed away, both employer and labourer had 
 grown too well accustomed to the remedy to part with it 
 willingly. The employer thought he saw in it a way of 
 making the parish pay part of the wages of his labourers ; 
 and the labourer, observing that the allowance was measured 
 only by the number of his family, and had no reference to his 
 own conduct, saw in it a surer and more convenient means of 
 support than ordinary wages. 
 
 965. But the labourer being thus partially reduced to the 
 condition of a pauper, and to the same extent deprived of 
 the wholesome stimulus of competition, became degraded in 
 character : a less efficient workman, and a worse man. Also, 
 of course, the employers had less control over the labourers. 
 And the resulting burden on the rate-payers at length became 
 intolerable. 
 
 966. A commission of enquiry was issued in 1832; and, Law ef 
 in 1834 was introduced an uniform and improved system. ' ^^' 
 The parish officers were placed under the control of a 
 government board. They still retained power to say to 
 whom, and how, and to what extent, relief should be given, 
 
 in particular cases. But rules were framed for general use — 
 and the central authority was armed with the needful power, j 
 
 and made responsible to Parliament for seeing that the law 
 was carried into effect. Parishes too small, or too thinly 
 peopled, to bear the expense of the new system, and districts 
 not within any parish, were formed into unions — each con- 
 tinuing to support its own poor, but combining to do it in a 
 more regular and efficient manner. And, finally, the law of 
 settlement was amended, and made at once less oppressive to 
 the poor and less costly to the rate-payers. 
 
 967. As this reform came of a strong re-action against 
 culpable laxity, it was at first acted upon, in some cases, 
 with much severity. Those who opposed it took mainly the 
 popular ground of compassion for the destitute — however 
 they might become so. They watched for, and eagerly seized 
 upon, and loudly proclaimed, every presentable case of 
 
 277 
 
PAUPERISM. 
 
 hardship. For some years the subject was always befdre 
 Parliament ; many changes were urged, and some were 
 made. 
 
 968. We have now settled fairly into the use of the new 
 machinery. It is not perfectly satisfactory. Perhaps it is 
 not even desirable that it should be so. The relief of des- 
 titution, like the punishment of crime, is not a problem to be 
 well settled, once for all, and put aside. Our true business 
 
 73 is, in each of these cases, to give constant attention to the 
 evil ; to act, as far as possible, upon its causes ; and, if we 
 440. cannot make our remedies needless, at least to make them 
 less needful. 
 
 969. It must be admitted that our system of relief, though 
 well conceived, and now tolerably well administered, has 
 always done, and still does, something to promote the very 
 evil it is intended to remedy. But it is not easy to avoid this. 
 Many successive generations have done their best ; and their 
 best has always ended in some effort to apply more effectually 
 the law of Elizabeth. 
 
 Results of ^'^- '^° P^' '^^ relief of the poor into the hands of local 
 experience, officers, charged to levy its cost upon the inhabitants of the 
 locality, seems to be the only way to secure any degree of 
 economy in the use of the funds raised. Make the rate a 
 national one, and you must withdraw its use from local 
 hands. The authorities of each locaUty would cease to have 
 any apparent interest in keeping down the expenditure. 
 Indeed their immediate and most obvious interest would 
 often point the other way. And, assuming that the local 
 authorities could be displaced, another formidable difficulty 
 appears. None but those locally informed could hope to 
 oppose, with any success, the pressure of feigned destitution. 
 971. On the other hand, to saddle each locality only with 
 the destitution arising within its own limits is to justify its 
 refusal to relieve the destitute who can be shown to belong 
 to other localities. The mere locality of the occurrence of 
 278 
 
PAUPERISM. 
 
 the destitution -would not justify the imposition of more than 
 a temporary burden. 
 
 972. This calls into being the law of settlement, the 
 object of which is to determine, according to fixed rules, 
 the locality in which each person, being destitute, shall have 
 a right to permanent relief. There are, at present, various 
 modes of acquiring such a settlement : as by birth, by mar- 
 riage (for women), by apprenticeship, by service, and by 
 residence for three years. Many efforts have been made to 
 simplify these rules. They are now much simpler than they 
 were thirty years ago ; but they are, and always will be, diffi- 
 cult to apply in practice. Hence much waste of money in 
 litigation, when disputes arise between the officers of different 
 unions, and attempts to avoid these disputes by interfering 
 with the labouring poor to prevent their obtaining settle- 
 ments : as when land-owners pull down or prevent the 
 building of cottages on their land, and so compel the agri- 
 cultural labourer to live a long way from his work. The 
 system has not put a stop to begging ; nor has it quite pre- 
 vented deaths by starvation. But it seems fairly to represent 
 the best we can do at present. Were we to give up the 
 struggle, and leave the destitute to die, or to do the best they 
 could for themselves, there would be enormous suffering, 
 not endurable by any of us ; and, though the real' destitution 
 of the country might, in the long run, be reduced, it is certain . 
 that the feigned destitution would be enormously increased — 
 the aggregate burden would be largely augmented — it would 
 be levied with much worse incidents — it would lose all 
 semblance of equality — and, finally, property would be less 
 safe than it is. 
 
 973. Other nations have the same burden. But I am not Foreign 
 aware that we have much to learn from any of them as to '"^''''""'• 
 how it may best be borne. No other nation has yet gone so 
 far as we have, in (i) recognizing in the destitute a legal 
 right to be reheved, and (2) providing the means of relief by 
 
 279 
 
PAUPERISM, 
 
 a special system of taxation, extended to the whole country. 
 With them, as with us, private benevolence, in the endow- 
 ment or support of particular institutions for the local relief 
 of the sick, the disabled, or the aged poor — in occasional 
 contributions to meet special forms of distress, more or less 
 connected with destitution — and in the use of private funds 
 by private hands, for the relief of individual suffering, has 
 done, and continues to do, a great deal — but generally with 
 very poor results. The main difference is — that in other 
 countries, the State, while it often interferes, especially 
 through the Church, to stimulate these forms of relief, and in 
 some instances to regulate their operation, has done little or 
 nothing to supersede them, or to make public begging 
 needless — and therefore criminal. 
 
 074. The continental economists concur in nothing more 
 generally than that the problem of pauperism, as they term 
 it, "yet awaits a solution^." And, looking at our system, 
 they commonly add that we, who have worked hardest and 
 most earnestly at it, are no nearer to a solution than they 
 are. Nay, we are even told, from abroad, and with some 
 truth, that our destitute population is apparently more 
 numerous, and displays more suffering and degradation 
 than that of any other country. But this applies almost 
 exclusively to the population of our larger towns; and of 
 such population we have, in proportion, three or four times 
 as much as any other nation. There can be no doubt that 
 in densely peopled towns, destitution puts on new and more 
 revolting features, and becomes more difficult alike to 
 prevent and to relieve. The poor and the rich do not see 
 each other as neighbours. As regards our large towns, 
 especially, they live much apart. And, generally, the rich 
 spend as much of their time as they can in the country, or in 
 
 ' For an elaborate and exhaustive statement of the past condition 
 of the poor, in the different countries of Europe and of the means used 
 to ameliorate their condition, see De la Bienfaisance fublique ; par M. 
 le Baron de Gerando. Paris, 4 vols. 8vo, 1839. 
 280 
 
PAUPERISM. 
 
 towns, or parts of towns, in which the employment of the poor 
 is chiefly 'connected with the personal service of the rich. 
 Thus the independent life of the rich and poor is much 
 separated : and example has a diminished eff"ect. 
 
 975. A large proportion of the women of the lower classes 
 pass through the households of the middle and the upper 
 classes as domestic servants ; and are there better fed and clad, 
 and better instructed in some of the arts of life, than they would 
 be at home. But this is almost the only direct form of daily 
 communication kept up between the homes of the wealthy 
 and instructed, and those of the poor and the uninstructed. 
 Hence the formation of habits among the lower classes is the 
 less influenced for good by example from above : and the 
 destitute poor, when compared even with the average of the 
 well-to-do people, have an estranged and degraded look. 
 But it is also to be remembered that what is called the 
 working population is in this country very numerous, and 
 very independent; that a large portion of it is by no means 
 poor; and that with us, all matters of public concern are 
 more freely and openly exposed, and talked and written 
 about, than in any other country in Europe. 
 
 976. Local proximity is not needed to inform us of how 
 others live, if we take an interest in knowing it ; and of late 
 much of our active and unoiEcial benevolence has been 
 applied to improving the dwellings of all who can be 
 deemed poor. 
 
 977. From our ancient and official recognition of the Advantage 
 
 necessity of making a legal provision for the destitute we "f""^ 
 , J • J , , r , system. 
 
 nave derived the enormous advantage of havmg, already, set 
 
 a palpable and reasonable limit to claims which, with other 
 
 nations, yet remain vague and unsettled, and afford plausible 
 
 grounds for impugning the right of private property. 
 
 978. As to the future, the general truth, as applicable to 
 the more populous countries in the present state of the 
 
 z8i 
 
PAUPERISM. 
 
 world, seems to be that destitution cannot be prevented; 
 and that its regular, prompt, and effectual relief, however 
 972. difficult and costly, is not only humane, but is also decidedly 
 expedient. 
 ^'■'^ 979. The more closely and candidly we search after its 
 
 causes, the more difficult it is to say anything of them more 
 definite than that they are, probably, in every instance, 
 traceable to ignorance or misconduct. But then the ig- 
 norance or misconduct are not always, or even often, per- 
 sonally identified with the suffering. Nor can we say that 
 either the ignorance or the misconduct which leads to desti- 
 tution is very much more prevalent in one class than in 
 another. It is true that the lower classes mainly fill our list 
 of paupers. But that would seem to be rather because, 
 being already poor, they more readily become destitute, than 
 because, as a class, they either know less of their social duty, 
 in proportion to their means of acquiring such knowledge, 
 or neglect it more, when known. 
 
 980. We all, in a general way, recognize, as the leading 
 causes of destitution : idleness, improvidence, and extra- 
 vagance. Every class in society, however, seems to be 
 tainted with these qualities, and perhaps about equally so ; 
 and it need hardly be said that if such qualities prevail with 
 anything like equality in classes of varying intelligence, the 
 
 43. implied fault is by no means equal. Wealth has its best use 
 in the means it affords for increasing our knowledge and 
 improving our conduct. It is the duty of those who have 
 55. wealth to use it so : a duty not only to themselves but to 
 941. others. The higher intelligence owes to the lower the 
 special debt of a good example. How far Englishmen who 
 are above the danger of destitution duly recognize and pay 
 this debt is a serious question ; and there is no topic better 
 fitted to suggest it than this of pauperism. 
 
 981. That, as a rule, we give freely of our means, cannot 
 be denied. If we gave less, and learned, and thought, 
 more, it would be better. Especially, it may be said that 
 
■PAUPERISM. 
 
 ■when the young men of the poor look on those of the rich> 
 they do not always — or even often — find in their conduct 
 examples of industry and self-elevation ; and here, in every 
 point of view, the economic loss is great. 
 
 982. But we may justly look forward with hope. Our 
 countrymen, of all classes, are learning better to know their 
 true interest, and to seek it with more intelligence. 
 
 983. The vast and complicated frame-work, of society 
 is now justly regarded as a partnership. By our united 
 action, it confers upon us all, from the least to the greatest, 40. 
 benefits unattainable without it; and with these benefits it 
 imposes upon us corresponding obligations. Humanity and 
 expediency alike dictate to us the policy of seeing that our 
 weaker partners do not perish by the way. Further, we are 
 bound, even in our own interest, to do what we can to 
 remove their weakness, by removing its causes. And if, as 
 
 we have reason to suppose, the causes of individual destitu- 
 tion become more numerous and various in a nation as its 
 activity and wealth increase — if the minute sub-division of 
 labour makes workmen more helpless under change, and the 
 very rapidity with which, as a people, we pass from less to 
 more effective modes of industry makes these changes more 816. 
 frequent — if the industrial gathering of men into close-built 
 cities, while it , adds to the productive powers of capital and 
 labour, also severs more distinctly the social life of different 
 classes, and so removes the needy further from the familiar 974. 
 sight and friendly kindness of the wealthy — if mistaken legis- 
 lation has often obstructed the use of capital and labour — 396. 
 and if, finally, the worst economic faults of the poor are but 941. 
 bad copies of like faults in the rich — it would seem only 
 the more clear that the duty of combating the causes of 
 destitution is especially incumbent upon those among us to 
 whom wealth has given the leisure and the intelligence re- 
 quired, to discover and to recognize these causes. Even they, 
 
 283 
 
PAUPERlSMx 
 
 perhaps, can do nothing better than make others effective 
 partakers of the knowledge they have themselves acquired. 
 We cannot set aside the essential conditions of the problem 
 the world presents to us. Each of us, whatever aid he may 
 have, must still redeem himself. 
 
 084. To the young, through education, it is not, I believe, 
 diflBcult so to give the required guidance, as to avert from 
 them almost all danger of destitution. To those who are 
 already grown up we cannot say so much; and whatever 
 may be said will have less eflFect. Habit is strong. With the 
 present generation it is provokingly obstructive ; but with 
 that which is rising it is a source of new strength. And 
 whoever can be made to enter life with a knowledge of the 
 true difference between poverty and wealth, and how the one 
 is most surely avoided and the other acquired, is not very 
 likely to fall among the destitute, or to claim his English 
 privilege as a pauper. 
 
 284 
 
XVII. FOREIGN COMMERCE. 
 
 985. Our Foreign comtnerce consists, mainly, of the ex- Definition. 
 portation of such English produce and manufactures as can 
 
 be sold abroad at a profit ; and of the importation of such 
 foreign produce and manufactures as can be sold, at home, 
 at a profit. 
 
 986. A lesser part of the exports consists of foreign pro- 
 ductions brought to England, either for storage, to await a 
 market abroad, or merely passing, in transit, through this to 
 other countries. For, as we have long been the chief sea- 
 carriers of the world, England has also long been a place of 
 storage for goods intended for ultimate consumption else- 
 where. And, further, as we have long had the largest 
 command of dapital, we have, in all such transactions, pre- 
 ferred becoming the owners of goods in our hands, and not 
 immediately disposable. 
 
 987. To arrive at any adequate conception of what the 
 foreign commerce of this country now is, we need to re- 
 gard it in three different aspects: — (i) its extent; (2) the ^;i;/^«/. 
 rapidity of its growth, during the last two or three genera- Growth. 
 tions of Englishmen; and, (3) the relations in which it has Results. 
 now placed us, as a nation, to the rest of the world. 
 
 988. Mere figures do not, except to those accustomed to 
 handle them, and to weigh their meaning, often convey very 
 clear ideas. But, to deal with this subject effectively, we 
 must use figures rather freely. 
 
 989. It may help to give a concrete reality to the vague 
 notion we all have of the extent of our commerce, to say 
 that if otu- exports and imports, of all kinds, be taken 
 
 285 
 
FOREIGN COMMERCE. 
 
 In i88i- 
 1882-34 
 
 1785. 
 1883. 
 
 Relations 
 with rest 
 of world. 
 
 together, for the three years 1881-82-83, the annual average 
 will be found to amount to £712,000,000 sterling : or about 
 £ 20 I IS. od. per head of the whole population of the kingdom. 
 
 990. Of its growth, we may say, that this amount is more 
 than twenty times what the figures would have amounted to 
 if taken a century ago. 
 
 991. And, as regards the relations it has created for us, 
 with the rest of mankind, it may be said that, as we now 
 obtain from abroad, through this commerce, about half of all 
 the food we consume, and the means of giving employment 
 to the greater part of our now vast labouring population, 
 these relations have become extremely important to us in a 
 national point of view. 
 
 '•'.Ships, 
 Colonies, 
 and Com- 
 merce. " 
 
 Or/r naval 
 power. 
 
 Colojiial 
 possessions. 
 
 992. To see, with any degree of distinctness, the nature of 
 our foreign commerce, as it is, it will be well first to look at 
 what it was about a century ago. The later state has dis- 
 tinctly grown out of the earlier ; but new elements have been 
 added, and new powers have been developed, which have 
 almost entire!}' changed its aspect, as well as enormously 
 increased its extent. 
 
 993. Our foreign trade in 1785 aflTords, in many respects, 
 a good point of comparison. 
 
 It was a correct, as well as a popular notion of the sources 
 of our commercial success, at that period, which then, and 
 long afterwards expressed itself in the favourite mercantile 
 toast — " Ships, Colonies, and Ccimmerce." 
 
 994. Our power, at sea, for about two centuries previously, 
 had given us free access to its coasts and islands; and we 
 had made frequent and adventurous use of it. We had estab- 
 lished the East India Company at Calcutta ; and that body 
 of merchants, already a military power, held political, as well 
 as commercial sway over a large part of the more populous 
 and busy districts of the peninsula of India. 
 
 995. Nearer home, we had practically annexed to our own 
 islands the finest and most fertile of that belt of tropical 
 
 286 
 
FOREIGN COMMERCE. 
 
 gardens which borders, eastward, the Gulf of Mexico and the 
 Caribbean Sea. And we had, only very recently, lost com- 
 mand of the greater part of the Western sea-board of North 
 America, while still retaining much of it. 
 
 096. From our East Indian and from our West Indian Command 
 possessions, we were bringing to our warehouses, in England, Lm^^ce. 
 the greater part of the Eastern and tropical produce at that 
 time available for the supply of Europe. Our home manu- 
 factures, as yet, contributed but little to our export trade ; 
 and what we sent abroad went chiefly to our own colonies. 
 Such articles as fish, corn, hops, coals, and salt, then occu- 
 pied a space in our export accounts which now seems 
 strangely prominent. 
 
 997. But the commerce of the world, at large, was yet 
 but little advanced. Our place in it was distinctly in front. 
 
 It may be said that our naval wars had, so far, mainly 
 contributed to the founding, extension, and strengthening of 
 our commercial prosperity. By our ships we had won our 
 colonies, and by our colonies we had built up the more pro- 
 fitable part of our commerce. Our eminence, as a manu- 
 facturing nation, was yet to come. 
 
 998. The war with our revolted colonies in kmmz2. Peace of 
 (i'776-i783) had been accompanied by war with France, ^"^ ^' 
 Spain, and Holland; and a general European peace had 
 
 been effected in the autumn of 1783. 
 
 It is remarkable that this peace was followed by a very 
 general and active tendency, among the European powers, 
 to arrange for freer commercial intercourse by sea. The 
 independence of the United States had detached from 
 our rule a valuable group of our colonies, and had thrown 
 them open to the rest of the world. This was regarded not 
 only as a breach in the exclusive system by which we had 
 hitherto monopolized the trade with our colonies, but as a 
 promising opening, to our rivals, of further like advantages 
 in the future. These views do not seem to have been dis- 
 couraged by us. 
 
 • 287 
 
FOREIGN COMMERCE, 
 
 Treaty 
 with 
 France, 
 1786. 
 
 Basis of 
 compari- 
 son. 
 
 Official 
 values. 
 
 999. In September, 1786, a commercial treaty was 
 made between Great Britain and France, so liberal in its 
 conditions that it might be taken as a model at the present 
 day; and it remained in operation till it was rescinded by 
 the outbreak of war, early in 1793. And arrangements of 
 similar liberality were made with other European powers. 
 
 1000. Thus, in 1785, our foreign commerce may be said 
 to have made, after some interruption, a new start, under 
 conditions of greater freedom, as regards direct communica- 
 tion with foreigners, but with a close monopoly of the trade 
 of our colonial settlements ; and, as yet, with little aid from 
 our manufacturing industry. 
 
 1001. To compare, easily, our trade accounts of 1785 
 with those of the present day, we must have regard, (i) to 
 the two different modes of valuation then, and now, in use, 
 and (2) to facilitate the necessary local comparison (the field 
 being much larger, and differently divided) we must form, 
 for each period, local groups of foreign countries which will 
 admit of being, in some degree, compared with each other. 
 
 1002. The values given in the trade accounts of 1785, 
 are what were called " official " values. They were estab- 
 lished in the year 1697 ; and were based on, and in fact 
 represented, the current value of each article at that period. 
 They remained unaltered from year to year, and therefore 
 soon ceased to represent anything, accurately, except the 
 quantity of each article exported or imported, as this was 
 ascertained by applying, to each, the official price. Past 
 quantities being thus, indirectly, recorded, and the current 
 price at any given time being known, it was considered that 
 nothing more need be officially indicated. 
 
 1003. Though these " official " values afford, as to single 
 articles, or any single branch of trade, an unsafe indication 
 of current value, there is reason to believe that, as taken for 
 our whole trade, they were not much further from the truth 
 in 1795, than in 1697. Some articles, being more easily 
 
FOREIGN COMMERCE. 
 
 produced, had fallen in price ; but others, being produced of 
 better quality, had risen ; and there was a slight countervailing 
 influence, towards rise of price, in a reduction of the value of 
 the precious metals, in the intervening period. 
 
 1004. The accounts to which these values were applied Trade 
 were kept separately, but similarly, for England and for Scot- l^'^J^! 
 land ; and the items must be added, to obtain an account for 
 Great Britain. 
 
 1005. The exports were divided : so as to show what had 
 been produced at home, and what was of foreign origin. 
 But as we were not then united to Ireland, our trade fell into 
 two classes : one including Ireland, and the Channel Islands, 
 and our Colonies ; and the other the rest of the world. 
 Those in the former class might trade only with each other, 
 and with ourselves. With the latter, alone, we had what we 
 now call foreign commerce. 
 
 1006. For the purpose of comparing localities, I divide the Mode of 
 countries with which we traded in 1785, into twelve groups. "'^P'^ri- 
 And for the trade of 1883 (which I select for comparison as 
 being the latest year for which the oflacial accounts have 
 
 been definitively made up), I also form twelve groups, repre- 
 senting, as nearly as may be, the same localities. One 
 additional locality I have to add, that being absolutely new — - 
 Australia. 
 
 1007. The exports of Great Britain, in 1785, consisted of, Our 
 Home produce . . . £11,081,810 trade" 
 Foreign produce . . . 5,035.358 ^7^5- 
 
 Total . . £16,117,168 
 
 The imports were . . . £16,279,419 
 
 289 
 
FOREIGN COMMERCE. 
 
 1008. As divided into groups, the trade presented the fol- 
 lowing aspect : — 
 
 1785. 
 
 Exports to Imports from 
 i i 
 
 A. Denmark, Russia, Sweden, Poland, 
 Prussia, Germany, Holland, and 
 Flanders. 
 
 Home Produce . . •. . 2,217,989 
 Foreign Produce , 2,239,718 
 
 B. 
 
 France, Spain, Portugal, Madeira, 
 Canaries, Gibraltar, and Straits. 
 Home Produce . 
 Foreign Produce 
 
 Italy, Venice, and Turkey. 
 Home Produce . 
 Foreign Produce 
 
 United States. 
 
 Home Produce . 
 Foreign Produce 
 
 America, in general. 
 Home Produce . 
 Foreign Produce 
 
 K Africa. 
 
 Home Produce . 
 Foreign Produce 
 
 £4,447,607 
 
 2,185,393 
 459,439 
 
 £3,566,633 
 
 
 £2,644,832 
 
 470,076 
 145,836 
 
 £1,347.519 
 
 C. 
 
 
 D. 
 
 £615,912 
 
 2,143,846 
 164,175 
 
 £2,308,021 
 
 31,120 
 743 
 
 £903,254 
 
 E. 
 
 £843,594 
 
 F' 
 
 £31,863 
 
 412,656 
 174,539 
 
 £587,195 
 
 £18,823 
 
 
 iC48,S35 
 
 290 
 
FOREIGN COMMERCE. 
 
 Exports to Imports from 
 
 G'. Foreign West Indies. 
 Home Produce . 
 Foreign Produce 
 
 H. Ireland, and the Channel Islands. 
 Home Produce . 
 Foreign Produce 
 
 I. Colonies in North America. 
 Home Produce . 
 Foreign Produce 
 
 J^ British West Indies. 
 Home Produce . 
 Foreign Produce 
 
 K. East Indies. 
 
 Home Produce . 
 Foreign Produce 
 
 Ii. Other Countries (including Prize 
 Goods). 
 
 Home Produce . 
 Foreign Produce 
 
 644 
 8 
 
 £652 
 
 973,345 
 1,321,437 
 
 £60,851 
 
 £2,294,782 
 
 £2,069,259 
 
 487,741 
 203,546 
 
 £691,287 
 
 1,082,918 
 114,291 
 
 £208,531 
 
 £1,197,209 
 
 1,074,275 
 
 79,257 
 
 £4,340,104 
 
 iCi,i53,532 
 
 £2,703,940 
 
 1,800 
 32,456 
 
 
 £34,256 
 
 £118,352 ^ 
 
 ' The apparent excess of our exports to P, and of onr imports from 
 Q and J, mark, roughly, the effect of our share in the slave trade. 
 ^ Macpheison's 'Annals of Commerce,^ vol. iv. pp. 69-100. 
 
 U 2 291 
 
FOREIGN COMMERCE. 
 
 Subsequent 1009. It wouId be impossible, here, to state, with good 
 ^'^n^ ' effect, the causes of the growth of our foreign trade since 
 causes. 1^85. But we ought not to pass over this long intervening 
 period without at least observing such indications of what 
 was coming as may be supposed to have been more or less 
 visible to observers at that time. 
 Spinning 1010. We had, before the middle of the century, received 
 mac inery. ^^^ cotton enough from the East Indies to have learned much 
 of its capabilities. We knew the finer fabrics made from it 
 by Indian workmen. And we had begun to mix it in the 
 manufacture of our linen, woollen, and silk goods. But it 
 was not until 1769, that Richard Arkwright invented the 
 first effective machine for making a cotton thread strong 
 enough to serve well as warp. His success was jealously 
 watched by the manufacturers who had to depend upon his 
 thread for the means of introducing the cheaper cotton as a 
 base substitute for the more costly materials ; and it was only 
 with difiiculty that he held the monopoly conferred by his 
 patents till about 1785. His machinery was then thrown 
 open to general use. 
 Opposition 1011. That such machinery, as it superseded manual labour, 
 chi'nery ™^'' ''''''^ violent opposition from the labouring classes, and 
 from those who regarded the immediate condition of these 
 83. classes as of primary importance, may be inferred from all 
 we know of the history of such improvements. In 1782 it 
 was found necessary to attach the penalties of felony (by 22nd 
 George III, cap. 40) to the new crime of riotously assembling 
 to break machinery for spinning or weaving, or for cutting 
 and destroying goods made by such machinery; and, seven 
 years afterwards, an Act was passed extending this law to 
 Scotland. The superseding of the primitive method of hand- 
 817. spinning was already disturbing and distressing all those who 
 relied on it for subsistence. 
 Cotton. 1012. It does not seem that cotton was grown in North 
 
 America, for exportation, until after 1785. A small consign- 
 ment had appeared in England in 1770. But, until the saw- 
 292 
 
FOREIGN COMMERCE. 
 
 gin was invented, its production on a large scale was not 
 found profitable. After that period, the supply thence was 
 hardly limited, except by the demand for it. 
 
 1013. Perhaps, however, the most important fact bearing Steam- 
 on the subsequent growth of our manufacturing system was — P"'"'^''- 
 that in 1785, James Watt first gave practical efficiency to the 
 steam-engine, for manufacturing purposes, by introducing 
 
 the double action of the cylinder, and adding a separate 
 condenser. 
 
 1014. In these facts lay the seeds of much that we have 
 since done ; and it is not improbable that their drift was, even 
 then, to some extent, visible. 
 
 1015. We now pass to the Accounts of our Foreign Com- Trade 
 
 „„ accounts: 
 
 merce m 1883. jg83_ 
 
 These accounts are based on what are known as " de- "Declared" 
 clared " values. These are values declared to the officers '""■lues. 
 of Customs, on the export or import of goods, by the mer- 
 chant. They were first introduced by way of assessing 
 Customs duties on the goods concerned. They were then 
 checked with some vigilance. Since (about forty years ago) 
 we took these duties off all but a few of the articles passing 
 through our ports, they have been retained as preserving a 
 record of our trade. It is not practicable, as to most of the 
 articles, to check the values, so as to insure their correctness ; 
 but in the absence of any apparent motive to concealment, or 
 mis-statement, they are supposed to be tolerably accurate. 
 
 1883. 
 
 
 Exports to Imports from 
 
 
 I I 
 
 Russia (North and South), Sweden, 
 
 
 Norway and Denmark, Germany, 
 
 
 Holland, Belgium, and Austrian 
 
 
 Territories. 
 
 
 Home Produce . 
 
 48,760,7.46 
 
 Foreign Produce 
 
 30,831,888 
 
 293 
 
FOREIGN COMMERCE. 
 
 Exports to Imports from 
 
 i {. 
 
 B. France, Spain, Canaries, Morocco, 
 Portugal, Azores and Madeira, Gib- 
 raltar, and Malta. 
 
 Home Produce . 3S>6i5jI5o 
 
 Foreign Produce . i3>7o9.i'5 
 
 iC39.324.265 (C54.495,i23 
 
 C. Italy, Greece, Roumania, Turkey, and 
 Egypt. 
 
 Home Produce . . 19,810,518 
 
 Foreign Produce 2,140,697 
 
 (C21.9Si.215 ,C24.2 
 
 D. United States. 
 
 Home Produce . 27,372,968 
 
 Foreign Produce 9.359.538 
 
 (C36.732.506 £99.238.960 
 
 E. Mexico, Central America, New Gra- 
 nada, Venezuela, Ecuador, Brazil, 
 Uruguay, Argentine Republic, Chili, 
 and Peru. 
 
 Home Produce . . 20,030,594 
 
 Foreign Produce 997,286 
 
 £21,027,880 £16,618,626 
 
 F. Algeria, French Possessions in Sene- 
 gambia, Fernando Po, other Settle- 
 ments on the Western Coast, and 
 British Possessions in Africa. 
 
 Plome Produce .... 7,679,182 
 Foreign Produce 849,449 
 
 £8,528,631 £9,684,106 
 
 G. Danish West Indies, Spanish West 
 Indies, Haiti, and San Domingo. 
 
 Home Produce . 2,733,023 
 
 Foreign Produce 844,560 
 
 £3.577.583 £1,246,427 
 
 294 
 
FOREIGN COMMERCE, 
 
 Exports to Imports from 
 
 H. Channel Islands and Isle of Man. 
 
 Home Produce . 
 Foreign Produce 
 
 562,868 
 201,526 
 
 
 
 )C764.394 
 
 9.155.927 
 953.669 
 
 £10,109,596 
 
 £806,423 
 
 I. Colonies in North America. 
 Home Produce . 
 Foreign Produce 
 
 
 
 £12,283,727 
 
 J. West India Islands, Guiana, and British 
 Honduras. 
 
 Home Produce . 
 Foreign Produce 
 
 3.519.710 
 374.671 
 
 
 £3,894,381 £5,136,594 
 
 K. East Indies. British Possessions, 
 Dutch Possessions, French Posses- 
 sions, Philippine Islands, China, and 
 Japan. 
 
 Home Produce 
 
 Foreign Produce 
 
 48,599,138 
 2,630,961 
 
 £51,230,099 £63,891,602 
 
 KK. Australia. 
 
 Home Produce . 
 Foreign Produce 
 
 24,216,452 
 
 2,62.:!,038 
 
 £26,839,490 £25,936,201 
 
 L. Other foreign conntries. 
 Home Produce . 
 Foreign Produce 
 
 1,723.287 
 131,199 
 
 £1,844,486 £2,660,362 
 
 295 
 
FOREIGN COMMERCE. 
 
 Campari- 1016. A comparative summary of our foreign commerce 
 
 'i^itwith ^" i?^5' ^^^ 1883, will stand thus : — 
 1883. The Exports consisted of: — 
 
 1785. 1883. 
 
 Official Values. Declared Values. 
 
 i i 
 
 Home Produce . . . 11,081,810 239,799,473 
 
 Foreign Produce . . . . 5,035,358 65,637,597 
 
 Totals . £16,117,168 iC306,437,070 
 
 The Imports were : — 
 
 £16,279,419 £425,603,932 
 
 1017. The rapid growth, and the great extent, of our 
 commerce is here apparent. 
 
 1018. We have now to consider in what relation it has 
 placed us to the rest of the world. 
 
 But before doing so, it may be well to observe, also, 
 the extent to which we are, ourselves, the sea-carriers of the 
 trade thus exhibited. 
 
 Our ship- 1019. The shipping employed in the foreign trade of this 
 jgg,^ country, in 1883, amounted to — 
 
 Vessels cleared. Vessels entered. 
 Tons. Tons. 
 
 British . . 22,135,662 19,186,054 
 
 Foreign ... . 7,237,498 7,124,264 
 
 1020. About three-fourths, therefore, of the shipping em- 
 ployed between this country and the rest of the world, is 
 supplied by ourselves. And the foreign shipping which aids, 
 or competes with, ours, is almost wholly that of Norway, 
 Sweden, Denmark, Germany, Holland, and France, — sur- 
 rounding countries, — the vessels being usually of small 
 tonnage, and not often employed in long voyages. So that, 
 in effect, as nearly the whole of the steam vessels, and by 
 far the greater number of the larger wooden vessels, are 
 296 
 
Foreign commerce. 
 
 supplied by ourselves, the proportion in our favour is larger 
 than it seems. 
 
 1021. Before we leave the shipping, one other point must Outward 
 be noted. The nature of our trade requiring that we, as a ^"f.^'""^' 
 rule, take out manufactured goods, and articles which hikve, freights. 
 in relation to their value, a comparatively small weight and 
 
 bulk, and bring home produce, and raw materials, having 
 greater bulk and weight, in relation to their value, it follows 
 that there is less cargo to take out than to bring home. 
 Hence, outward cargoes being scarce, in relation to the 
 ships ready to take them, freights outward are, by competi- 
 tion, brought down so low, that, as a rule, the shipowner can 
 make a profit only by shaping his arrangements upon the 
 homeward, as well as the outward voyage; or, in other 
 words, looking to the double voyage. 
 
 1022. This, of course, favours the exportation of all heavy 
 and bulky exports — as it offers them carriage to foreign ports 
 at little more, and even sometimes at less, than what it costs 
 the shipowner to carry them. For, if he has no cargo out- 
 wards, he must take ballast, and the cost of shipping and 
 unshipping ballast is often a serious addition to his expenses. 
 The diflSculty cannot be evaded ; and, of course, it is most 
 easily dealt with by the nation which has not only the largest 
 and most various employment for shipping, but also holds, 
 itself, the largest supply of it. 
 
 1023. Of the sailing shipping of the world, fit to go to 
 sea, we own more than one-third in tonnage ; and of the 
 steam vessels afloat, we own considerably more than three 
 parts out of five in tonnage. 
 
 1024. Our foreign commerce has now assumed a very character 
 
 distinct character. The chief workshops of the world are "four 
 
 fofcisti 
 now in the British Islands. Hence, apart from, and far commerce, 
 
 exceeding in extent and importance, the commerce merely 
 
 incidental to the life of a wealthy nation, in our Northern 
 
 297 
 
FOREIGN COMMERCE. 
 
 We export 
 manufac- 
 tures ; 
 1016. 
 
 and import 
 materials 
 for manu- 
 facture, 
 and food. 
 1016. 
 
 Our high- 
 ways by 
 sea. 
 
 latitude, we have the commerce incidental to the supply of 
 these workshops with raw materials for manufacture, and 
 with food, and other household commodities, for the supply 
 of those who work in them. 
 
 1025. Of the home produce we exported in 1883 (valued 
 at upwards of 239 miUions), no less than 215 millions con- 
 sisted 'of articles manufactured, or partly manufactured, by 
 ourselves. The remaining 24 millions consisted of articles 
 of food and drink, of living animals (exported chiefly for 
 their breed), and of such raw materials as coal and salt. 
 
 1026. On the other hand, of the 425 millions at which our 
 imports were valued, nearly 190 millions consisted of articles 
 of food (including a small portion for tobacco), and nearly 
 165 millions was for materials for manufacture. The re- 
 mainder was made up by 53 millions for articles already 
 manufactured, and nearly 16 millions for articles of a mis- 
 cellaneous character. In other words, more than five parts 
 out of six, in value, of our imports were of materials for 
 manufacture, or of food ; and much more than two parts out 
 of five of our imports consisted of food alone. 
 
 1027. The highways to the sources of our foreign food, 
 and also to those who, by consuming our manufactures, 
 enable us to pay for it, are long — they lie across the sea — 
 and they are open to the attack of every foreign ship of 
 war; and the consequences of these ways being stopped, 
 or even materially impeded, may be readily conceived. Our 
 early commerce was won by our naval supremacy, and it 
 would seem that our later commerce must be preserved by 
 it, or must perish. 
 
 Foreign 1028. Here we may fitly consider the mechanism of 
 
 exchanges, a ■pj^g pQj-eign Exchanges ;'' which are, in fact, the means by 
 which we settle our accounts, from day to day, with foreigners, 
 in every part of the world. The subject is supposed to be 
 surrounded with some degree of mystery; but, like most 
 mysterious things, it becomes simple when carefully con- 
 298 
 
FOREIGN COMMERCE. 
 
 sidered. We will begin at home : for wherever commerce is, 
 there is exchange. 
 
 1029. The bread the baker sends to me, creates a debt 
 from me to him. If I, being a draper, supply him with cloth, that 
 creates a debt from him to me. If the debts are equal, and 
 we exchange receipts, both debts are paid, without the use of 
 money. This may not often occur, but it illustrates what 
 follows : — If my debt be the greater, by a shilling, I pay him 
 only that shilling. This is " exchange," as we might see it 
 at home. Its seed is in our daily Kfe ; and, there, is little 
 visible : its fruit is in the widest transactions of our foreign 
 trade, where it appears fully developed, affording employment 
 for much capital, and for thousands of able and industrious 
 men. 
 
 1030. Let us trace the steps by which this very simple 
 economic process is extended throughout the world. 
 
 From buyers and sellers in the same town, we will go 
 to those in different towns. The port of London receives 
 tea from China — and Liverpool receives sugar from Brazil, 
 and elsewhere; and tea and sugar are wanted in every 
 town in the kingdom. Say York requires, for its own con- 
 sumption, five hundred pounds of tea, costing £50 ; and two 
 tons of sugar, also costing £50, per week. The consumers 
 pay these sums to the grocers of York ; who, after deducting 
 their profit (the price of their services) have to remit the rest, 
 in due course, to the wholesale dealers. 
 
 1031. The grocers are paid partly in cash, and partly in 
 cheques on banks in York and elsewhere ; and, as a rule, 
 both cash and cheques go to the local bankers. If a grocer 
 receives a cheque from a customer who happens to keep his 
 account with the same banker as the grocer, the banker, on 
 receipt of the cheque, simply transfers so much of his funds 
 in hand from the credit of the customer, to that of the 
 grocer; and the debt is settled by this transfer. If the cheque 
 paid to his banker, by the grocer, is drawn upon another 
 bank, the banker receiving it settles the amount in account, 
 
 299 
 
FOREIGN COMMERCE. 
 
 with the bank on which the cheque is drawn : each bank 
 throughout the country balancing its debits and credits with 
 other banks, daily, through what is called the "clearing-house," 
 673. (which I describe elsewhere). 
 
 1032. When the grocer has to pay the wholesale dealer, he 
 does so either by a bill of exchange, or by a cheque on his 
 banker. If by a bill of exchange, the bill will be drawn upon 
 the retail, by the wholesale dealer, and be payable at a date, 
 so many days or months afterwards, according to the usage 
 of the trade, at the bank used by the retail dealer. This bill, 
 being accepted, goes to the wholesale dealer, who endorses 
 it, and pays it to his banker; who credits him with its amount, 
 less the interest (or discount) for the period it has to run. 
 
 1033. Thus the wholesale dealer gets his money at once ; 
 the banker makes a loan on good security ; and the bill he re- 
 ceives he may either keep in his bill-case, till it becomes due, 
 or use in his dealings with others, as representing so much 
 capital thus invested. 
 
 1034. The net result, so far, will be a banker's debt from 
 York to Liverpool, and another from York to London. And 
 as it has long been customary, for convenience, to settle all 
 debts to foreigners through bankers in London, and the ulti- 
 mate payments are here to be made to foreigners, the final 
 result will be a series of remittances to London, which will 
 be applied in meeting bOls of exchange, drawn in the sugar 
 and the tea-growing countries, whence our English merchants 
 have imported these articles. 
 
 1035. Now how is this debt of York to be balanced? She 
 consumes the tea, and sugar. What does she supply in 
 return ? She is the central city of a district including many 
 manufacturing towns, the products of which are known all 
 over the world. And her inhabitants are chiefly occupied in, 
 and paid for, various services rendered in this district. Take 
 only the woollen cloths of Yorkshire, and the cutlery. These 
 are in wide demand abroad. Wherever Sunday coats, or 
 pocket-knives, are known, the odds are that Yorkshire is in 
 
 300 
 
FOREIGN COMMERCE. 
 
 credit. So that when, in the stream of bills coming from 
 abroad into London, for payment, those appear which relate 
 to the tea and sugar York has had, we should probably find, 
 if we sought them, other bills drawn by firms in Leeds, or 
 Shefiield, upon their correspondents in Canton and in Bahia, 
 to pay for cloth, or cutlery sent to those places ; or English 
 bills bought in those places, which are remitted to pay for 
 these English exports. And we should, if we followed these 
 bills through the hands of the London bankers, find them 
 being balanced, one set against another — the several debts 
 being paid by being simply balanced in account. In short, 
 with one exception, this balancing of accounts is substantially 
 the same, abroad, as at home. 
 
 1036. This exception it is which alone gives an air of 
 mystery to the " foreign exchanges ; " and it is the only thing 
 
 I need explain in detail. As I have said elsewhere, each 549. 
 country has its own money ; and generally they differ ; and 
 often the difference involves, in a settlement of accounts, the 
 balancing of a given weight of gold, against a given weight 
 of silver. And these two values may, and often do, differ, in 
 relation to each other, from day to day. 
 
 1037. Let us see the actual operation of this, in a single 
 instance. An EngHsh merchant, being minded to import 
 sugar from Rio, directs his correspondent there to buy, and 425. 
 ship, for his account, to Liverpool, as much as will cost 
 £iooo. The sugar is bought, and shipped, and a bill of 
 lading for it goes -by post to the merchant in London. 
 
 [A Bill of Lading is a document signed by the master of a ship, on 
 receiving cargo. It nsually states five things : (i) the name of the ship 
 and the master ; (2) such a description of the cargo received as may 
 serve to identify it when delivered ; (3) the place at which, and (4) the 
 person to whom, the cargo is to be delivered ; and (5) the sum which has 
 been paid, or is to be paid, for freight, or carriage. Various conditions 
 are commonly added ; but are not essential.] 
 
 1038. The sugar is paid for by a bill of exchange for 
 
 [A Bill of Exchange is a demand by one man (the drawer) upon 
 another, for payment of a debt, at a given future date : to which is added 
 
 301 
 
■ FOREIGN COMMERCE. 
 
 a promise, by that other (the acceptor), to pay it at a specified place, 
 302. accordingly. In commerce, it passes from hand to hand, on the faith 
 511. that it will be paid, when due, by the acceptor ; or if not, by the drawer. 
 
 Each successive holder of the bill, receives it at its expressed value, less 
 603. the current rate of interest for the number of days it then has to run, 
 eiO. before the due date. And each, as he passes it on to another, writes his 
 627. name on the back, and so becomes an endorser. The ultimate liability 
 640. to pay the bill comes, first, upon the acceptor, then upon the drawer, 
 
 and then, in due sequence, upon each of the endorsers.] 
 
 £iooo, drawn upon the English merchant, at three months' 
 date, by the seller of the sugar. This bill the buyer of the 
 sugar accepts, by writing his name across it, stating the 
 place (almost invariably a bank in London) at which, when 
 due, it is to be paid. The bill is then ready for circulation ; 
 and may be at once converted into cash. It would not suit 
 the grower of the sugar, who has sold it in Rio, to wait three 
 months, or to send, at the end of that period, to London, 
 for his money. He wants it now; and wants it in money he 
 can use in Brazil. But the want is an old one ; and that 
 ancient functionary, the money changer, is at hand, in Rio, 
 as he has long been in every chief port and mart in the 
 world, to supply it. The making of such bills is part of the 
 business of Rio ; and the buying and selling of them, is 
 another part of it. 
 
 1039. The holder of the bill will find at the Exchange, or 
 Bourse, bankers or bill-brokers, men competing with each 
 other to serve him. He selects one, goes through a calcula- 
 tion which need not occupy ten minutes, endorses (writes 
 his name across the back of) his bill, hands it over, and 
 becomes the owner of its value in milreis. This will be as 
 many milreis, as according to the rate of exchange ruling in 
 Rio, his right to a thousand English sovereigns in London, 
 at the end of ninety days, is, on that day, and there, worth. 
 
 1040. The calculation he goes through, if stated in full, is 
 this: The sovereign contains 113 grains of gold: the milreis 
 196-8 grains of silver. The value of gold, in relation to silver, 
 is, on that day, by the market rate, in Rio, (say) as 15-5 to 
 
 30a 
 
FOREIGN COMMERCE. 
 
 one. So a thousand sovereigns are equal to 9,797 milreis. 
 This disposes of the difference of coinage. But the sove- 
 reigns have to be waited for — three months. So the seller of 
 the bill must allow, for this delay, ninety days' interest. The 
 rate of interest is, again, dependent on the market. That 
 settled, there is yet another item. The buyer of the bill has 
 taken some trouble, and is to take some risk. For, though 
 the bill is endorsed by the seller of the sugar, and he thus 
 joins in warranting its due payment, it is always possible it 
 may not be paid, or that its payment may be delayed, to the 
 causing of more trouble, and some risk of loss. For all this, 
 the buyer of the bill must be paid. How much he is to be 
 paid is settled by the usage of the locality ; which, in turn, 
 is controlled by the competition of the dealers in such bills. 
 
 1041. This would be the form of the calculation, in detail, 
 were it so gone into. In practice, all these items are, how- 
 ever, lumped together, and made to include with them a 
 further item ; which is sometimes on one side of the 
 account, and sometimes on the other. What is actually paid 
 for the bill, is a fluctuating price, dependent not only on 
 what has been here considered, but, further, on the force of 
 the demand existing at the time, in Rio, for bills on London. 
 Like'other things, these are sometimes comparatively scarce, 
 and at others comparatively plentiful; and the price they 
 command varies accordingly. When, and where, our bills 
 are not in demand, the exchange is said to be against us ; 
 and when and where they are in demand, it is in our favour. 
 In all the chief markets of the world the rates of Ex- 
 change here referred to are published daily ; and appear in 
 London immediately afterwards, showing the current relation 
 of each to the chief centres of exchange — as London, Paris, 
 New York, &c. 
 
 1042. The bill is now ready for circulation. It has three 
 months to run ; and will pass for its nominal value less three 
 months' interest. During that period it may be used very 
 much as a bank-note might be, with the additional advantage 
 
 303 
 
FOREIGN COMMERCE. 
 
 that each holder of it is allowed, by the next holder, the 
 current rate of interest for the number of days during which 
 he has held it : for it is then so much more nearly due. It 
 performs some of the functions of money ; and it is also an 
 investment. And as it has, besides, probably, been bought 
 at a profit, it may, also, be sold at one. 
 
 1043. The broker who holds it may, in a day or two, be 
 applied to by a local merchant who is minded to import from 
 Paris articles in demand in Rio ; and who desires to send to 
 his correspondent in Paris the necessary funds. Now a bill 
 on London has long been deemed not only a good security, 
 but, as being more widely known, and more readily accepted, 
 rather better than a bill on any other place. It is also com- 
 paratively scarce, because, in the aggregate, England draws 
 more upon other countries than they draw upon her. Again 
 the broker goes through a calculation. But, this time, it is 
 more simple. The transaction is in milreis only. He fixes 
 his price on the rate of interest, the number of days the bill 
 has to run, his usual commission, and the demand, just then 
 existing, for such bills. 
 
 1044. The Bill, being sold, is sent to Paris; and the 
 merchant who receives it, on paying it to his banker, receives 
 credit for its value, in francs, in that market, on the day it is 
 paid in. Perhaps it may then be passed to another customer 
 of the same bank, who wants it to send to Bordeaux, to pay 
 for wines, to be shipped to England ; and the wine merchant 
 may send it to Newcastle, to pay for a cargo of coals he has 
 received thence. And, finally, as the due date of the bill 
 approaches, it goes to London, for payment; falling, there, 
 into a stream of similar bills, coming from all parts of the 
 
 673. world — and there passing into the clearing-house, it cancels, 
 by balancing, some debt of like amount incurred by foreigners 
 to us. 
 
 Free trade. 1045. The greater part of the growth of our commerce, 
 as here shown, has taken place since (about forty years ago) 
 304 
 
FOREIGN COMMERCE. 
 
 we practically adopted the principle of free trade. This was not 
 done without much careful consideration ; and though other 
 nations have not yet followed our example, we have no 
 ground, in reason, for doubting that the principle is a sound 
 one. The question, however, is sometimes asked — " Is free 
 trade always expedient ? " When asked thus broadly, how- 
 ever, it may imply considerations which cannot be fitly dealt 
 with, on the ground of immediate economy. Its answer must 
 come, not only from the economist, but also from the states- 
 man — from one who has a higher, and a broader range of 
 duty; and who, though he is bound to give due regard to 
 the economy of the State, has also the onerous charge of its 
 safety and independence. 
 
 1046. Were all the world under one Government, there 
 viiQuld be no doubt of the expediency of free trade. We 
 should then no more think of limiting commercial intercourse 
 between England and France, than we should think of barring 
 the roads between Lancashire and London, or between London 
 and Southwark. We should have one dominant authority, 
 to enforce all contracts ; and war would be precluded. As 
 it is nations are still much as men would have been, 
 had they never assumed the bonds of society. War is always 
 prevalent somewhere; and we can never say, with con- 
 fidence, that it will not prevail anywhere, within the next 
 month. 
 
 1047. The further growth of our commerce, needful as it 
 is, to our growing population, is now even less needful than 
 the safety and maintenance of what we have. 
 
 1048. We have now pushed our manufacturing system to 
 a point at which two-thirds of our population have become 
 the settled inhabitants of our large towns. We do not now 
 produce one-half of even the bread we eat; nor could we 
 feed ourselves from our own soil, if we tried. Others, indeed, 
 are growing for us, well and cheaply, all we want ; but, to 
 
 get it, we must cross the sea — the way must be kept open — 1027. 
 and it rests, with us, alone, to keep it open. We have long 
 
 X 3°5 
 
FOREIGN COMMERCE. 
 
 deemed ourselves invulnerable, at home, or nearly so ; but 
 abroad, we are now more vulnerable than any other nation. 
 
 1049. We cannot compel other nations, or even our own 
 colonies, to adopt the principle of free trade. We cannot 
 even induce them to do so, except by example. But we are 
 now so placed, that we cannot permit the freedom of our 
 commerce, as it is, to be interfered with ; and its freedom is 
 obviously dependent upon the maintenance of our naval 
 supremacy. So far, therefore, as the economist can properly 
 answer the question supposed, he has no alternative but to 
 declare that free trade, so far as practicable in view of higher 
 considerations, is for us always expedient ; and that, with us, 
 as a nation, it might well be maintained, so far as it now 
 ' exists, at a heavy cost. 
 Our export 1050. The general question how far, if at all, our com- 
 merce with other nations, with any of whom, at any time, 
 we may be at war, should be modified in view of this contin- 
 gency, is perhaps sufficiently illustrated by our exportation 
 of coal. 
 
 1051. If we take a map of England, and draw a line from 
 Newcastle to Nottingham, and thence to Plymouth, we divide 
 it into two nearly equal parts. Westward of that line lies all, 
 or very nearly all, the coal we have ; and the consequent 
 traffic across the line, and its results, have mainly determined 
 the domestic history of England during the last hundred 
 years. It may be supposed to have taught us, in little, what 
 the ready possession of coal means, where steam-power is 
 paramount. We shall probably learn it, more pointedly, and 
 at large, in an international sense, in our next great naval war. 
 
 1052. Now, hitherto, in the interest of the owners of the 
 mines, and a large number of our labourers, who earn wages 
 by getting, and of our capitalists, who earn profit by selling 
 and of our ship-owners, who earn fieight by carrying abroad, 
 our coal, we have freely permitted its exportation. 
 
 1053. In 1883 we exported to foreign countries, nearly 
 23 millions of tons of coal, valued at about £10,600,000: 
 
 306 
 
FOREIGN COMMERCE. 
 
 about half of it going to Germany, France, Spain, and Italy. 
 And the other day, when war with Russia seemed at hand, 
 we saw contracts being made, in Newcastle, for filling the 
 coal stores of Cronstadt, while the enemy held us in parley 
 on the matter in dispute. 
 
 1054. Further, our coal is an exhaustible quantity. We 
 know that there are very large coal-beds, more or less 
 available, elsewhere ; and that, for any calculable period, 
 there is littie danger of the world at large being at a loss 
 for coal. We know, too, that the mechanical means of 
 getting the coal, and the means of sea-transit for it, are 
 great, and are improving. Yet it is, undoubtedly, a fair 
 question for the statesman, to be answered probably with 
 reference to other than merely economic considerations, 
 whether the free exportation of coal from this country 
 should, under all circumstances, be free. 
 
 1055. The international argument for what is called '' fair" " ^"-^^ ' 
 trade, as against free trade, is plausible. But it ignores the 
 fact, proved by experience, that all voluntary exchange of 
 commodities is beneficial to both parties, as far as it goes. 
 Whence it follows that even partial freedom of trade between 
 any two nations is always good; and is best for the nation 
 which has most of it : even as half a loaf is better than no 
 bread. 
 
 He who buys wisely will buy where the thing he wants is 
 to be had cheapest and best — though he may thus happen to 
 buy from one who, himself, does otherwise. If I, being a 
 baker, find the best and cheapest boots are made by a 
 neighbour who prefers to make his own bread, of worse 
 quality and at a higher price than I could supply it to him, I 
 gain nothing by refusing to buy his boots. Nay, I lose 
 something ; and I should lose more if I determined to make 
 my own boots. Retaliation would but make matters worse. If 
 we admit the products of another nation, and they refuse to 
 admit ours, we do some profitable buying — and they refuse 
 
 X 2 307 
 
FOREIGN COMMERCE. 
 
 to do some. They buy at home, at a higher price than they 
 could abroad. Their producers have more to do ; but their 
 consumers have more to pay. And they have only to extend, 
 and continue, their policy, on the same lines, to shut them- 
 selves out from trade with all the vi^orld. For no nation can 
 sell without buying — if it buys only the precious metals. Nor 
 can any nation buy without selling — for the same reason. 
 For instance, we cannot buy Spanish produce without selling 
 British produce to a like extent : if not to the Spaniard, then 
 to some one else. It is true that, if the Spaniard would buy 
 more wisely (for himself), we should sell more (at a profit), 
 and he would make less of what he can only make at a loss. 
 But every nation has an inalienable right to its own folly — 
 and to its fruits. It is true that it cannot raise such fruits 
 without also imparting a taste of them to those with whom it 
 deals. But this is a quite inevitable result of that very 
 community of interest, between men and nations, which is the 
 basis of all commerce. 
 
 The " fair " trader ignores a truth : that all freedom given 
 to trade, benefits the consumer. And he relies on a fallacy : 
 that the primary purpose of production is to profit the pro- 
 ducer. In fact it is to serve the consumer. And the interest 
 of the consumer, though commonly less palpable, is always 
 the more weighty, and should be, and in the end always will 
 be, paramount. 
 
 It is provoking that other nations cannot yet see this. But 
 we shall not correct their error by sharing it. And it may 
 be well to remember that, for a long time after we became the 
 leading traders of the world, we ourselves remained under this 
 very delusion — that preventing bargains might promote profit. 
 
 308 
 
XVIII. PROPERTY IN LAND. 
 
 1056. This subject has, of late years, been made one of Subject 
 
 , . now popu- 
 
 popular interest. /^^ 
 
 1057. It has been made so by repeated allegations that Property 
 
 the landowners of the kingdom are a privileged body, ^" ''^"'^ , 
 
 ° J- o J ' impugned . 
 
 holding the land by a species of monopoly; and that, 
 favoured by laws now antiquated, they retain it in their own 
 possession, and prevent others from sharing it. The inference 
 presented is, that justice to the community at large requires a 
 material change of the conditions under which property in 
 land is now acquired, held, and disposed of, in this country. 
 
 1058. These allegations, having a strong political bearing, 
 have, at times, been put forward, and discussed, with much 
 heat, and some acrimony; and as they have reached the 
 public chiefly through the newspapers, the facts involved, on 
 which alone a just judgment can be formed, have been par- 
 tially stated, and often been much obscured. 
 
 1059. Fortunately, the facts which are material can hardly 
 be said to be in dispute. 
 
 1060. We need not here refer to the various land tenures Tenure of 
 of the world, further than to say that, as regards the main ^'^"'^■ 
 objections to our own land- laws, those of other civilized 
 countries are, in substance, the same. And as the objec- 
 tions made apply chiefly to the operation of our laws as they 
 operate in England and Wales, and it is desirable, when 
 dealing with details, to avoid needless expansion, we will take 
 
 our examples thence. 
 
 1061. The area of England and Wales is about 37,300,000 The land 
 acres. About 20,000,000 acres are enclosed, and more or "/'''" 
 
 country. 
 309 
 
PROPERTY IN LAND. 
 
 less cultivated. The population now exceeds 27,000,000. 
 There is, therefore, in this part of the United Kingdom, little 
 more than one acre of cultivated land per head. 
 
 1062. " Eighty-five per cent, of the cultivated land of Great 
 Britain is held in farms averaging 168 acres, and 15 per cent, 
 in farms of 50 acres and under. Of the thirty-two million 
 cultivated acres, twenty-seven millions are held by the class 
 of considerable farmers, men employing labour, and using 
 labour-saving machinery, and other means by which labour 
 is rendered most productive. The individual capital em- 
 ployed in the cultivation of the soil will average about 
 £1300, which is fully equal to the average capital of a 
 French peasant proprietor. The Englishman, in fairly pros- 
 perous times, will make a 10 per cent, return upon the whole 
 of it, or £130. The Frenchman will receive 10 per cent, 
 on only one-sixth of his capital employed in cultivation, and 3 
 per cent, on five-sixths sunk in the ownership of the soil — 
 together £53. The 168 acres of the Englishman will afford 
 an annual expenditure, on labour, and tradesmen, of £250 to 
 £ 300. The twenty-two acres of the Frenchman will not more 
 than employ himself and his family. The average wheat crop 
 in England is twenty-eight bushels an acre ; that of France 
 barely eighteen. There seems thus no inducement to copy 
 the French system \" 
 Urban and 1063. The towns, according to the census of i88i, then con- 
 
 rural tained rather more than two-thirds of the population ; and this 
 
 population. '^ '^ ' 
 
 town population was then increasing at the rate of about twenty 
 per cent., or one-fifth additional, in every successive ten years. 
 The country population, as it is constantly sending emigrants 
 to the towns, is increasing at about one-third of this rate : so 
 that the proportion of town population, to the whole, is steadily 
 and rapidly increasing. 
 
 1064. For more than thirty years past ^ there has been no 
 substantial increase of the grain food, or the potato crop, or 
 
 ' Mr. Caird, " Journal of the Statistical Society," Dec. i8Si, p. 635. 
 ^ Mr. Caird, in Address to the Social Science Congress, 1877. 
 
 310 
 
PROPERTY IN LAND. 
 
 of the meat, or dairy, produce, supplied by our own soil ; nor, 
 having regard to the prices at which these supplies can be had 
 from abroad, is it likely that there can be. 
 
 1065. The passing of the population into the towns, is 
 •palpably prompted by the higher gains of town industry. 
 And, already, the value of the land occupied by the towns, 
 having regard to what may be termed the ground-rent alone, 
 would appear to amount to about two-thirds of the (ground- 
 rent) value of the land of the kingdom. 
 
 1066. This is a state of things which has never been 
 reached before, in any country, so far as history informs 
 us ; and the movement which has brought it about, still con- 
 tinues, with undiminished rapidity. Its bearing, upon the 
 subject before us, will be apparent as we proceed. 
 
 1067. With the exception of the space occupied by the How land 
 highways, canals, and railways, by streets, and public places, ^dh Id 
 and by wharfs, docks, and parks and other open spaces of a 
 
 public character, which may probably amount to about one 
 million of acres, the land is held as private property. This 
 private property is, however, and always has been, subject to 
 the liability of being withdrawn, by the State, from private 
 ownership, on payment of its market value, and permanently 
 devoted to public purposes ; and, in fact, no year passes without 
 some portion of it being so withdrawn. 
 
 1068. The first question suggested by the allegations Nature 
 referred to, is — What is the nature of property in land ? %ygZ,.fy 
 — does it differ, necessarily, from property of any other kind ? 
 
 And, if there be such difference, wherein does it consist ; 
 and how does it, or how should it, affect the laws governing 
 the acquirement, and use of land, in a settled country, such as 
 ours? 
 
 1069. The ultimate basis of title is, obviously, to be sought 
 in the relation of the landowner to the State. What, in the 
 abstract, this relation ought to be is not in dispute. It is 
 
 311 
 
PROPERTY IN LAND. 
 
 agreed that it should be such as, for the time being, may be 
 found most conducive to the common weal. What it is, and 
 how far, practically, it conforms to or departs from this 
 standard, are questions the answers to which will be best 
 sought by reference to the facts. 
 333. 1070. We have already seen that land diifers essentially 
 
 from everything else, of which we can make property, in its 
 being unalterably extended, and absolutely fixed in point of 
 locality. But these qualities, and their necessary results, being 
 duly regarded, it differs in no other way. One result of this (and 
 % very obvious and important one it is), is that land cannot be 
 locally accumulated ; and that they who wish to possess more of 
 it, must go further afield. The ancient injunction, " be fruit- 
 ful, and multiply, and replenish the earth," is enforced by the 
 very nature of the earth, as a source of profit. 
 
 1071. We shall find this at the root of nearly every question 
 now current, touching property in land. 
 
 How justly 1072. As to the manner in which land may justly become 
 ate" ' private property, it seems to be determined by universal 
 experience. It cannot be profitably cultivated without being 
 set apart, and enclosed, and improved by labour. In other 
 words, exclusive possession is necessary to cultivation. Until 
 land and labour be wedded, there is no fruit. Hence, it 
 probably always was, as we know it now is, in every newly 
 settled country, deemed desirable that men should be en- 
 couraged, not impeded, in taking actual possession of, and 
 in the onerous task of bringing waste land into cultivation. 
 The resulting appropriation of the land always was, and is 
 now, deemed an addition to the wealth and security of the 
 community under whose laws it takes place. 
 
 Not a 1073. It is alleged, however, that, just as may have been 
 
 monopoly. 
 
 the private appropriation of land, when it began, it has now, 
 in our own country, and elsewhere, assumed the character of 
 a monopoly. 
 312 
 
PROPERTY IN LAND. 
 
 1074. This allegation has often been made ; and has very 
 commonly been taken for granted ; but I am not aware that 
 it has ever been supported by sound argument. Let us see 
 how far it will bear the test of examination. 
 
 1075. The term " monopoly " can have no application here, 
 except as it indicates some exclusive privilege. Now the only 
 privilege which can attach to the possession of any piece of 
 land, apart from its exclusive occupation, which we have seen 
 is necessary, is such as may arise from its particular locality. 
 The commonest form of this privilege is that indicated by 
 its proximity to a market. But a market is a local centre ; 
 and, in proximity to it, every piece of land sending produce 
 to it must, more or less, differ. This privilege, therefore, if so 
 it can be called, is inherent in that quality of local fixity 
 which accompanies all land. In short, every acre, wherever 
 it lies, has its own local privileges, whatever they may be 
 worth. They come from the nature of the land, and not from 
 any human law. 
 
 1076. Of course, no land would ever be appropriated, if its 
 appropriation did not- begin somewhere. From the fiist, 
 until now, and so on, until the land of the earth shall be 
 ■wholly appropriated, this condition and its results have been, 
 and must be, faced by every new-comer. He must take of 
 that which remains, unless he be prepared to turn out some 
 prior possessor. 
 
 1077. Now this is no trivial distinction. It is of the very 
 root of the matter. Proximity to that which the owner desires 
 — of profit, of convenience, or of enjoyment — is of the essence 
 of the value of all land ; and mainly determines its comparative 
 value, all over the world. In this sense ; but in this sense 
 only ; the ownership of any particular piece confers upon its 
 owner a monopoly. But it is a direct and inevitable conse- 
 quence of the very nature of land ; and to speak of it as 
 involving any injustice, would be absurd. As well complain 
 that two men cannot breathe the same cubic foot of air, wear 
 the same coat, or sv/allow the same oyster. 
 
 313 
 
PROPERTY IN LAND. 
 
 Compared 1078. Let US, however, apply the result thus obtained, by 
 "^rltertv^ comparing it, in practice, with that resulting from the ordinary 
 laws of commerce, as regards any other form of property. It 
 is said that land is a part of the surface of the earth, to which 
 every man, as he comes upon it, acquires an equal right. Be 
 it so. But what we are now concerned with is so much of 
 the earth's surface as is already taken up, and incorporated with 
 the fruits of past labour, and is thus unavoidably set apart as 
 private property. A handful of nuggets of gold, while they 
 lie in the earth, are also part of " the common inheritance." 
 Dug up, and coined into fifty sovereigns, they are no longer 
 so. Compare these with an acre of English land. 
 
 1079. The owner of the land, his title being impeached, 
 points to his fences, and his buildings, and his tillage, as 
 evidence of labour sunk in the land, whereby the land has, 
 through him, become available to mankind ; and of his con- 
 sequent right to retain possession, till the State shall order 
 otherwise, and pay him its present value. Either its owners 
 are all mankind^are innumerable, and cannot be produced — 
 or there is only one ; and he is that one. 
 
 1080. So with the gold. While it lay in the earth, it was 
 part of the earth — unappropriated. Taken thence, it be- 
 longed to him who took it ; and who so made it, by his 
 labour, available to mankind. The particular gold, and the 
 particular land, are held by precisely the same right. Labour 
 has separated them from the unappropriated land, and from the 
 unappropriated gold, of the world, and made of them private 
 property. There is more gold of the same quality, to be 
 had at the same price : the labour of making it available. 
 There is more land, also, to be had at the same price : the 
 labour of making it available. The title to each is the same. 
 And each is the subject of a monopoly — or neither. 
 
 1081. Yet A did not make the land, nor did B make the 
 gold. There is, in the world, a limited quantity of each. 
 And while A retains possession of the particular acre, and B 
 of the particular gold, no one else can have either. 
 
 314 
 
PROPERTY IN LAND. 
 
 1082. Wherein, then, consists the difference, quite appa- 
 rent, between the land and the gold, whence has been deduced 
 this notion of " monopoly," as regards the land ? In this, 
 and this only : that the land has a fixed locality. Locality (I 333. 
 repeat) is, as to land, the chief, and indeed almost the only, 
 basis of value. Fertility is of far less consequence, in any 
 case ; and, in many cases, is of no consequence at all. 341. 
 
 1083. Again, however, it is objected that though there be Unequally 
 no " monopoly,'' properly so called, in the private ownership "'" "'' ' 
 of land, as it now exists, the manner in which its owner- 
 ship is determined has the effect of distributing it very 
 unequally. 
 
 1084. This is true. But it is not so with the land only. 
 The same rule determines, in fact, the distribution of all 
 property; and it is the only rule which prevails, or ever 
 yet has prevailed, in any free and civilized community : that 
 he, first, shall have it, who first earns it ; and that, thereafter, 
 he shall dispose of it, within the limits of the law, by gift, or 
 by sale, as he deems fit. Those who now own the land of 
 the kingdom may be said to be those who are willing to give 
 the highest price for it. 
 
 1085. Yet again, however, we are urged to consider the "■Natural 
 
 right'' 
 land. 
 
 case of that " child of nature," that " new guest at the human ''2^'^'' '" 
 
 banquet,'' who, not knowing, and not caring to learn, any- 
 thing of these economical distinctions, desires, simply, to be 
 told how, and where, he is to get possession of his share of 
 the land of the earth, for tillage and subsistence. And the 
 answer is easily given. 
 
 1086. He may present his claim in either of two forms : 
 either merely as a man, or as a member of some existing 
 community. He is entitled to take, and to make the best he 
 can of, either position. But there is no third. 
 
 1087. If he claims as a man, simply, he is one of a number 
 
 316 
 
PROPERTY IN LAND. 
 
 which is estimated, at present, by the best authorities, at about 
 fourteen hundred millions. The land of the earth is said to 
 measure about fifty-four millions of square miles — or say 
 thirty-five thousand millions of acres. Equally divided, this 
 would give to every living soul about twenty-four acres. To 
 a person so claiming, the only answer any one is entitled to 
 give him is to suggest that he go and find a lot that suits him. 
 But he will find nearly all the land that is worth having 
 already ruled by nations whose ideas, as to the right of prior 
 possession, are much the same as those prevalent in England. 
 
 1088. If, however, he elects to abandon the independent 
 position of the wild man — so often referred to — he will find 
 that he cannot do better than cast in his lot, as a civihzed one, 
 with the English people. 
 
 1089. They, now, at home, and in their colonies, and 
 foreign possessions, hold more than eight millions of square 
 miles of the most fertile, and most habitable, land in the 
 world — say five thousand five hundred millions of acres. He 
 will find, also, that the whole population of this area, as yet, 
 amounts only to two hundred and ninety millions : giving 
 nearly twenty acres to each person, or about a hundred acres 
 to each family. 
 
 1090. But, further, if he is not minded to go to India, 
 where the climate does not well suit Englishmen, he will find 
 the space yet to spare, within English limits, much greater. 
 Set aside that portion of our Empire, and there will remain 
 about four thousand five hundred millions of acres, peopled, 
 as yet, only by about forty-seven millions of persons. 
 
 1091. Now, of these forty-seven millions, about thirty- 
 seven are in the British Islands, where they have to get on, 
 as well as they can, with some two acres per head, all told. 
 The other ten millions of Englishmen, with all the rest of 
 our English land, the whole of it held in secure possession, 
 and under climates any Englishman may live and thrive in, 
 are quite ready to welcome him among them. They are 
 burdened, at present, with the care of about five hundred 
 
 316 
 
PROPER TV IN LAND. 
 
 acres of land per head. What they most wish for, is to get 
 other Englishmen to come and share it with them. They 
 will be glad to see him : and to put him into speedy posses- 
 sion of as many acres as he can use ; and will charge him 
 nothing for it, beyond what it has cost them to get it ready 
 for him : say a pound per acre, for picked land. 
 
 1092. So much for the present. As to the future — what As to the 
 mankind have hitherto, after ample and leisurely experience,^"'""' 
 found it well to do, in appropriating and using the land, they 
 
 are likely to continue to do : for on the whole it has an- 
 swered well. There has, of late, been abundance of oppor- 
 tunity for making any feasible, and desirable, change. But 
 no such change has occurred, or even been suggested. 
 During the last hundred years, much more land has been 
 reclaimed from a state of nature, and brought into use, by 
 men free to do it in any way they deemed best, than in any 
 five hundred years before, since the beginning of history. 
 And it has all been done in the same way. 
 
 1093. In every new country— as in the United States of 
 America, and in our own colonies — the leading object of all 
 concerned has been, and is, to get the land settled. It is the • 
 desire of everybody concerned, because they all profit by it ; 
 and experience goes to prove that it is good for everybody, 
 in the end. With increase of population comes increase of 
 capital and of labour — more of both, and a freer application 
 of each. Markets are made, and supphes come in from 
 abroad : for there is more to sell, and to buy, and more to 
 pay for it with. 
 
 1094. In the first instance, in a new country, the land has Duty of 
 always, hitherto, been given away rather too freely. The ruling *^^^^^"^' 
 powers have hardly required a prior promise to occupy, or to 
 
 use it. This has been very readily implied. And so it might 
 safely be, till the occupation of the laud had proceeded 
 so far, as to give to land not yet occupied, a local value in 
 prospect. Then, in all cases, it has begun to be taken up, not 
 
 .317 
 
PROPERTY IN LAND. 
 
 for use, but for speculation, in order to get from those who 
 really wished to use it, payment for its local advantages. 
 But this was seen to indicate a duty of the governing 
 power — the duty to superintend the gradual appropriation 
 of the land, to give order to the process ; and to give to it 
 facilities which a government alone can give ; and to see that 
 the appropriation is for actual use. Hence we now see the 
 outcome of the experience of a wide extent of American 
 and Australian land-settlement in a very simple form. Dis- 
 carding differences of a purely local kind — we see each of 
 the governing powers doing, with order, only what every 
 young community is apt to do without order — that, and 
 nothing else ; and, in effect, that, precisely, which, in a more 
 or less disorderly or warlike manner, every new community 
 taking possession of land, has always done, in time past. 
 
 1095. The government surveys, measures, and identifies 
 the land, and gives such aid, in the construction of roads to 
 it, as is necessary. It then permits the land to be appro- 
 priated in such quantities as are applicable to the purposes 
 (pastoral or agricultural) for which it is adapted, by any 
 person prepared to give a fair assurance of his intention to 
 reside upon it, at a price, for the fee simple, (usually about 
 a pound an acre) calculated to pay all the cost of the services 
 thus rendered by the government, and of protecting, and 
 settling disputes between, those who have settled ; and also in 
 promoting the immigration of new settlers. 
 
 1096. There has been — nay, there still is — abundant op- 
 portunity for introducing any feasible change of this operation 
 
 Can the likely to be beneficial to these growing communities. The 
 
 tain the ^®'*^ ^^ quite open, for instance, for any one to suggest that 
 
 ownership? these colonial governments, in allotting land, should arrange 
 
 351. for afterwards taking from it, in the shape of a tax, any 
 
 901. ultimate increase in what some term the " natural and in- 
 
 1067. herent" value of the land. But where such a proposal would 
 
 alone be in place, it does not seem at all likely to be made. 
 
 1097. Had any proposal been made, during the settle- 
 318 
 
PROPERTY IN LAND. 
 
 ment of the millions of acres thus taken into use, to retain 
 for the government the fee simple of the land, and, to that 
 end, to impose upon it a quit-rent of any kind, it would have 
 been instantly scouted — as opposed to the wishes, and to the 
 interests, of all concerned — and as being both uncalled for, 
 in reason, and impracticable in effect. 
 
 1098. If imposed, any such quit-rent must, obviously, 
 have been small. 
 
 1099. Whatever its amount, it must, by so much, have 
 impeded the settlement of the land. And by a new govern- 
 ment, unprovided with tax gatherers, and with a very widely 
 scattered population, it would not have been worth collection. 
 Any attempt to increase it, as it could have been made only 
 on the ground of the increased and increasing value of par- 
 ticular lots of land, would have been stoutly and reasonably 
 resisted : for the obvious reason that any such increase could 
 operate only as a confiscation of part of the value put into 
 the land by the settlers : seeing that, by common consent, 
 their presence, alone, had given it value. 
 
 The phrase "unearned increment" would there hardly 
 have been uttered twice. And if any government, so 
 situated, had sent its valuers to re-assess the proposed quit- 
 rent on town-lots, and others gone up in value, it would 
 have been sharply and effectually reminded of the sources of 
 its power — that in fact it had none, except from the very 
 men who were resisting, and were prepared to defy it. In 
 short, no such measure has ever been even remotely possible, 
 beyond the dreams of theorists who have no practical know- 
 ledge of the subject. 
 
 1100. The consequence is that at no time in the history Land now 
 of the world has it been so easy as it now is for any man to ^^^^^,^^ 
 obtain, cheaply, rapidly, and certainly, as much land as he 
 
 can cultivate — land of fertile quality, in a favourable climate, 
 and free from rent, approached by good roads, within reach 
 of a market, and protected by a government, a share in which 
 he can have for the asking. And this is easier to English- 
 
 319 
 
PROPERTY IN LAND. 
 
 men than to any others ; because all these advantages are to 
 be had without leaving the society of their country-men. 
 
 1101. The fruits of this, the natural, primitive, and most 
 reasonable method of appropriating the land, has been, under 
 our own government, very good. It is hardly a century since 
 the first ship-load of immigrants landed in Australia. Our 
 several colonial governments, there, now hold in possession 
 more than three millions of square miles of territory (nearly 
 five times the area of the United Kingdom), and with a popu- 
 lation of about two millions and a half (mostly British), have 
 got more than four millions of acres under cultivation ; and 
 are receiving, on an average, about three thousand immi- 
 grants per week. They like their land-laws ; which are 
 substantially the same as ours. They make no complaints ; 
 and their late spontaneous offer to share in war the burdens 
 of the mother country, which gave them both the land and 
 the laws, sufficiently testifies alike to their prosperity, and to 
 their content. 
 
 Urban and 1102. Disparaging comparisons are made between our 
 ^bmrerT labourers in the country, and those in our towns : the former 
 are not so well-off, they display less energy and intelligence, 
 and, generally, are worse provided for. But where the 
 more active and enterprising members of a rural popula- 
 tion have, for several generations, been moving off to the 
 towns, for better employment, such migration has the natural 
 effect of so lowering, in comparison, the condition of those 
 left behind. The best men go, and go with least encum- 
 brance. If the landowners were to complain of the manu- 
 facturers, on this ground, it might be puerile, but it would 
 not be wholly without justification. 
 
 Disappear- 1103. Then we are told that not only the labourers, but 
 
 T^alf '^'^ small freeholders and farmers, also, have been severed 
 
 freeholders, from the land. And this, too, is true. English agriculture 
 
 (which, whatever its imperfections, raises more and better 
 
 320 
 
PROPERTY IN LAND. 
 
 produce, per acre, than any other in the world) has long 
 ceased to afford remunerative employment to small capital- 
 ists. And they have left it. Where they had land, they sold 
 it. The large landowners about them were content with a 
 return of two, or, at most, three per cent, on the value of the 
 land held. The smaller men could not live on that. If they 
 stayed to farm, they conformed to the times, and rented five 
 times as much land. If not, they sought, and easily found, 
 a better investment. If, as labourers, they had got a little 
 money, they preferred going to, or near to, a town, to deal 
 in hay and straw, or drive a cart of their own, or a cab, or 
 sell, not grow, potatoes and greens. 
 
 1104. The bond of attachment to the land which some Labourers 
 
 desire for the labourer is just that which, for the last fifty '{^'"'^''ff 
 J ' J from the 
 
 years, he has been learning to shun. In proportion to his land. 
 intelligence, he sees that to get above his neighbours, he must 
 be free to move — either into a town, or off to the colonies. 
 With wheat well under forty shillings a quarter, butter, and 
 cheese, and eggs, and even milk, coming, in increasing quan- • 
 titles, from abroad, and even the price of fresh meat declining 
 before growing importations, he knows, if he knows anything, 
 that neither the farmer nor the landowner can offer him a 
 bright prospect at home. 
 
 1105. Another topic we must deal with, not so much for 
 its ovra importance, as for the opportunity it affords of con- 
 sidering one of the most erroneous of the tendencies affecting 
 what may be termed popular legislation : ■ the tendency to see 
 and to be guided by some only, not by all, of the facts involved. 
 It was happily described some thirty years ago, by the late 
 Frederic Bastiat, in making public the last of the pamphlets 
 by which he sought to improve the political economy of the 
 French people, when he gave to it the title " Ce qu'on voit, 
 ei ce qu'on ne voit pas!' As to property in land, what is seen Things 
 might, indeed, justify what is proposed, if what is not seen did "y' ""^ 
 not make it, in fact, at once undesirable and impracticable, seen. 
 
 X 321 
 
PROPERTY IN LAND. 
 
 1106. The more active and intelligent of our population, 
 being gathered into towns, and seeing, habitually, but little 
 of the country, are naturally prone to judge of much they 
 do not see, by the little they do see. They see, on the 
 outskirts of every growing town, plots of land being taken, 
 gradually, from rural use, and applied to town use. They 
 see that its conversion into building land greatly increases its 
 value ; and that all the owner of the rural land has to do, is, 
 apparendy, to submit to its conversion, and to the higher 
 value being conferred upon it. And when they are asked to 
 
 " Unearned regard this as evidence that the landowner has become pos- 
 
 iiurcmcnt. gggggjj Qf a^jj "unearned increment" of his property, they 
 
 readily acquiesce. And when, further, they are invited to 
 
 share the opinion that property in land has, here, a privilege 
 
 not accorded to other property, they see no reason for dissent. 
 
 1107. In fact, however, nothing more has, in this case, 
 taken place than is constantly occurring, and always has 
 occurred, wherever the wealth and population of a country 
 
 ■ is increasing. The landlord is a gainer, only as his neigh- 
 bours are. His gain is more palpable, but not more real. 
 Increase of population, and of wealth, is a local change- for 
 the better, which enures to the profit of all who inhabit the 
 locality ; and, apart from the mere increase of numbers, and 
 such general indications of increased- wealth, as may be 
 gathered from the improved condition of the people, we have 
 no indication of the general increase of prosperity, so sure, 
 or so invariable, as that supplied by the obviously increased 
 value of every forrt) of fixed property in the neighbourhood. 
 Not that the increased value attaches only to the fixed pro- 
 perty, but that, from its fixed nature, it alone affords an 
 easy and obvious standard of comparison, during any 
 considerable lapse of time. 
 
 1108. In no country in the world has population and 
 wealth increased so largely, and so rapidly, as in this country 
 during the last century. The growth of the towns is only 
 one of the forms in which this change has shown itself ; and 
 
 322 
 
PROPERTY IN LAND. 
 
 the increased value of the land taken into the towns is only 
 one of its effects. It may be seen in other forms, and pro- 
 ducing similar effects, all over the kingdom. And, though 
 it is exhibited more strikingly in England than anywhere 
 else, it may be seen working, in precisely the same way, and 
 producing exactly the same results, wherever skill, capital, 
 and labour are at work, increasing population and wealth. 
 
 1109. The innumerable groups of town lots which now 
 dot what were the wild prairie lands of America and 
 Australia in the days of our grandfathers, whatever their 
 present value, receive each the greater part of that value 
 from what might, as justly, be termed "unearned increment." 
 And if we turn from these outlying and fainter evidences of 
 the operation of the law indicated, to the spot where it has 
 operated most strongly, — say, to the centre of the city of 
 London (or of any of our larger English towns) — we shall 
 find that by the mere growth of population, and its inevitable 
 results, apart from any individual action of the successive 
 owners of the land, during the last century, every foot of it 
 has been trebled in value. 
 
 1110. But it has not been so with the land only. This 
 increased value will be found to have attached, wherever 
 similar causgs have been in operation, to every form of pro- 
 perty so far fixed in its nature as to admit of comparison 
 over a term of years. 
 
 1111. Take the public funds, as an example. These are 
 not quite so visible as property in land ; but they can equally 
 be identified over a considerable period. 
 
 In January, i8i6, our National Debt amounted to 
 £816,000,000, bearing interest at various rates, from three 
 to five per cent. The three per cent, stock had repeatedly 
 been sold, between 1805 and 181 5, at less than 50 per £100. 
 The average price, during the year 1813, was sixty. About 
 six hundred millions of the three per cent, stock still exists. 
 It was probably acquired, in the open market, by its first 
 holders, at an average of about sixty per cent. ; and quite fitly 
 
 y 2 323 
 
PROPERTY IN LAND. 
 
 SO, as the then condition of the country, its population, its 
 wealth, and its prospects, were far from being what they are 
 now ; and the security offered was therefore not nearly so 
 good. Some seventy years have elapsed — the debtor has 
 become more wealthy, and more prosperous, — he has proved 
 his integrity, and improved his solvency, and the security 
 he gave has increased in value. The three per cent, stock, 
 taking its amount at six hundred millions, is now worth, at par, 
 two hundred and forty millions more than it was at the close of 
 the Revolutionary war with France. Is this " unearned incre- 
 ment ? " or is it increased market value of a security, arising 
 from the improved position of the debtor ? 
 
 1112. Any personal property, of an enduring character, 
 and capable of identification, will supply similar instances. 
 Not long since, our Government bought some pictures, at a 
 very high price, from the Duke of Marlborough. No doubt 
 it was about the market price ; but it was certainly a great 
 deal more than was paid for the pictures by the Duke's 
 ancestors. Had land, bought by the first Duke, been sold at 
 the same time, it would probably have been about as much 
 enhanced in price. And every year affords evidence that 
 there is a great deal of similar property in the world, which, 
 as (like land in particular localities) it cannot, from its nature, 
 be increased or multiplied at will, rises in value with the 
 increase of the number and the wealth of those who desire 
 to possess it. 
 
 1113. In many of these cases it may be that the owners 
 have done nothing to " earn " the increased value, except 
 holding the property, and giving it ordinary care and use, for 
 the period during which the increase has taken place. 
 
 1114. Shall we say that the increment in these cases is 
 " unearned; " and, thence may be justly confiscated? 
 
 1115. Two reasons suggest themselves why we should not 
 do so — two reasons quite apart from the justice of any such 
 proceeding, in the abstract. 
 
 1116. The first is— that not in one case in a thousand, or 
 324 
 
PROPERTY IN LAND. 
 
 perhaps in ten thousand, could we get at the person or the 
 persons who have already taken to themselves the increased 
 increment in question. 
 
 1117. As to land near towns, which has been converted 
 into building ground — either in the last year or in any year 
 of the last hundred — its present owners are probably guiltless 
 of having received much, if any, of the difference between its 
 present value and that which it bore in its rural state. 
 
 1118. A few exceptions could, no doubt, be found, where, 
 in the families of wealthy landowners, we might get hold 
 of not very distant relations of the persons benefited. 
 But it might seem somewhat invidious to enforce the law 
 in only one case in a thousand. 
 
 1119. Or, take the case of the holder of Government 
 Stock. How many hundreds of times has the ownership 
 of every £ioo in our three per cent. Stock been changed, in 
 the last seventy years ? If every transfer, and its conditions, 
 were ascertained, we should find (though the total result has 
 been a gain) almost as many losing as gaining holders. And 
 how, if we took away the gains of the gainers, could we escape 
 the obligation to make good the losses of the losers ? And 
 so, also, with the successive holders of land, could these be 
 traced. Many of those who have held land for a building 
 profit have been heavy losers ; and at the end of twenty or 
 thirty years have seen their chosen plots lying, as they may 
 now be seen lying, within the precincts of many of our 
 northern towns, walled-in, worthless wastes. Are these to be 
 indemnified ? 
 
 1120. There is, however, a second reason for not acting 
 on this principle, which will probably be deemed more 
 forcible. Even-handed justice would require, if we begin to 
 act upon it, that we should carry it into regions in which it 
 would become not only manifestly unjust, but absolutely im- 
 practicable. 
 
 1121. If the holding of a thing for fifty or sixty years, and 
 then selling it at an increased value, though the thing remains 
 
 325 
 
PROPERTY IN LAND. 
 
 exactly what it was, and it fetches more only because some- 
 body is willing to give for it the higher price, shall convict 
 the seller of receiving " unearned increment," it surely fol- 
 lows that if he does the same after having held the article 
 only five or six years, he is at least equally guilty. And, by 
 parity of reasoning, if his period of holding — his sole ground 
 of merit — has been only six weeks, or six days, his guilt is 
 only the more palpable. And, thus regarded, we need not 
 open our eyes verj' widely, or look very far, to see that the 
 oifence is extremely common. 
 
 1122. In all buying and selling for profit, the probable 
 effect of holding the article dealt with, for a period more or 
 less extended, is an element ; and often it is the most im- 
 portant element. And it is so in the ordinary business of 
 buying and selling land, likely to be afiected by the growth 
 of towns, or by the building of factories, or by the opening of 
 mines, or by the extension of railways. This (though it is 
 probably not known to some of our land-law reformers) has 
 long been a favoured field of speculation with a certain class 
 of capitalists : and should Government agents, municipal 
 or other, be sent into this market, they will certainly be met 
 there by men whose knowledge and astuteness have had the 
 advantage of considerable experience. 
 
 1123. It is so, in fact, in every market. Time, the great 
 changer, is everywhere at work ; and everywhere, the effect 
 of time on the value of what is dealt in, makes an accurate 
 calculation of the effect of time the main test of the dealer's 
 skill, and often the key to his profit. Buyer and seller are 
 usually about equally well informed, as to the facts already 
 known, and those probable ; but the foresight, or the fortune, 
 which leads to a just appreciation of the facts, can alone make 
 the bargain, to either, a good one. 
 
 1124. Every movement of the commercial world — from the 
 first culture of the cotton plant, to the sale of its woven pro- 
 duct across the counter, — from the birth of the colt, to his 
 breaking for harness,-"— from the first gleam of a new invention, 
 
 326 
 
PROPERTY IN LAND. 
 
 to its perfected use in millions of households, — even where 
 action is incessant, and earning is most palpable, involves 
 not only the expectation of due pa3rment for skill and labour 
 expended, but also the investment of capital, and the hope 
 that the return on that capital will be enhanced by the 
 growing wants of others. The rural landowner is pre- 
 cluded from such activities. He can neither advance to the 
 town, nor retreat from it ; and when approached by those 
 who want his land to build on, to deny him the right to sell 
 to the highest bidder would be to refuse him a right which 
 has never been denied to any other holder of property — which 
 nobody dreams of denying to him, if he holds his wheat- 
 ricks over a year of low prices — and which is exercised, every 
 day, in every market in the world, by all who hold any part 
 of the produce of the world's harvests, from one year to 
 another : the right to take the market price of his property, 
 for the time being, whatever that may be. 
 
 1125. This offence, however, of taking any increase of 
 value (though bearing any loss) incidental to the mere holding 
 of an article, is not at all a new one. It is very old. And our 
 ancestors — more ignorant than ourselves — had a keener scent 
 for it. They thought they saw that all dealing, in any article, 
 between the producer and the consumer, tended to raise the 
 price ; and, accordingly, they made laws to put down what 
 they called " engrossing," " forestalling,'' and " regrating." 232. 
 These were all forms of mere holding ; and were therefore 
 not deemed legitimate sources of profit. 
 
 Better knowledge has banished these laws from the 
 statute-book. The complaint of " unearned increment " can 
 be adequately met only by re-enacting, and enforcing, them. 
 
 1126. The long-standing objection to the laws now pro- Transfer 
 viding for — and also obstructing — the transfer of landed "-' "" ' 
 property, in this country, the economist can deal with only 
 as regards what is desirable. What is practicable involves 
 technical details which are beyond his range. He can have 
 
 327 
 
PROPERTY IN LAND. 
 
 no hesitation in saying that the methods now in use are 
 dear, difficult, and slow; and that they ought, if possible, to 
 be made cheap, easy, and rapid. And how this might be 
 done, he may, perhaps, be permitted to suggest. 
 
 1127. With any other description of property, a purchase 
 is very seldom impeded by any question of title. He who 
 hath open possession of a thing may, with an ordinary 
 degree of precaution, be safely accepted as its owner. Be- 
 ginning with the possession, we need seldom look very 
 much beyond it. 
 
 1128. With property in land it is very different ; and it is 
 by no means obvious why it need be so. It seems, in this 
 case, always to be inferred that possession carries with it no 
 evidence, whatever, of ownership— that the owner must be 
 sought elsewhere— and that, without very great acuteness 
 and care, he will not be found. Hence those "investiga- 
 tions of tide,'' commonly so tedious, so costly, and So un- 
 certain in effect, which are apt to waste the means, and 
 weary the patience, of those who have to deal with this 
 description of property. 
 
 1129. All that can easily be learned of the origin of this 
 evil seems to indicate that it has arisen from an abuse of the 
 right of private property in land : for it must be deemed an 
 abuse of any such right so to encumber the transfer of the 
 property, frpm hand to hand, as to make it materially less 
 available to the community at large. 
 
 1130. Nor does it seem at all necessary that the freest 
 use of family settlements, or of any other device for privately 
 apportioning the ownership of property in land, should have 
 the effect of so obscuring the ownership as to make it 
 dangerously difficult to ascertain. Property in the Govern- 
 ment funds^in Consols, for instance— is now as often made 
 the subject of family settlement, as property in land ; and 
 without any apparent difficulty. The ownership is 'kept 
 clear and simple. The owners may be trustees, one or 
 several ; but the public authority charged with seeing that 
 
 328 
 
PROPERTY IN LAND. 
 
 the owner alone transfers, and that the purchaser alone 
 receives, the article sold, is unencumbered by any refer- 
 ence to the private limitations of the settlement. The 
 trustees may be false to their trust ; but that is the 
 business of those who trusted them. It is no matter of 
 public concern. The private interest, created for a private 
 purpose, must be guarded by private care ; and the trustee, 
 if an unfaithful servant, must be dealt with, civilly, or 
 criminally, as the case may require, at the instance of those 
 whom he has injured. 
 
 1131. Such difference as there is — and it is certainly con- 
 siderable — between property in land, and property in consols, 
 would seem to favour, not obstruct, the application of the 
 same rule. The land is fixed in locality. It cannot be 
 removed, or hidden. Once sufficiently delineated on a map, 
 it is readily, and certainly, identified. And if its possession 
 were accepted as evidence of ownership, subject only to such 
 correction as might be supphed by a public register, speci- 
 fying the owner, or owners, as the books at the Bank of 
 England specify the owners of consols, there would seem to 
 be no reason why a similar facility of transfer should not be 
 attained. 
 
 1132. Subordinate interests, as those of lessees, or mort- 
 gagees, might safely be left to be protected by themselves : 
 giving them the right to have their names entered on the 
 registers, as co-owners. 
 
 1133. Let the deeds, or wills, defining the interests of the 
 owners, as registered, either as among themselves, or as 
 touching their duties to third parties, be as complicated as 
 the parties desire, and as the laws applicable to the matter 
 will permit ; but let them be, as they surely may most fitly 
 be, deemed matter of private interest only. 
 
 1134. The English law of primogeniture, giving to the 
 eldest son, exclusively, the freehold land of his father, when 
 
 329 
 
PROPERTY IN LAND. 
 
 it is not otherwise disposed of by 'deed or will, does not 
 operate, probably, once in a hundred times. Its ancient 
 use — to provide military service for the crown, by fixing the 
 hability on the person most likely to be able to render it — 
 having ceased, the limitation of family property in land to 
 the eldest son, by settlement, very naturally took its place 
 as a method of maintaining the local dignity of wealthy 
 families. This local dignity, too, long had its national use. 
 Only a century ago, and for several centuries previously, the 
 local government of the country was necessarily deputed, to 
 a great extent, to the local gentry. When the quickest 
 travelling available would not take a Government officer 
 from London to York in less than about four days, or to 
 Edinburgh in less than seven or eight days; and adverse 
 winds often stopped all communication with Dublin for a 
 fortnight,' the necessities of local government were very 
 different from what they are now. 
 
 1135. Family property, and family dignity, of a local kind, 
 have now almost wholly lost their uses. That they are still 
 prized, and still excite the envy of some who do not possess 
 them, is natural. But though they have no very obvious 
 utility, they do no great harm. Their local prominence has 
 almost ceased to have any significance. And the tendency, 
 hitherto powerful, to seek the perpetuation of families, by 
 linking the family name to large local possessions, is now 
 gradually, but obviously, giving way before a better appreci- 
 ation of what rightly commands public respect. 
 
 1136. The law has already been so altered as to give to 
 the holders of nearly all such property power to sell it ; and 
 it is now gradually coming into the market, and thus re- 
 moving the only tangible objection to a practice which, 
 though not admirable to many of the present generation, 
 appeals strongly to the sympathy of those who see in the 
 England of our day the legitimate offspring of the England 
 of the past— and are disposed to give to each its due measure 
 of respect. 
 
 330 
 
XIX. SOCIALISM, 
 COMMUNISM, AND NIHILISM. 
 
 1137. Political Economy, as dealt with here, is sometimes Indivi- 
 called Individualism ; and not unjustly so. It is based, very 
 distinctly, on the individual nature of man, and the neces- 
 sarily individual character of his powers, his rights, and his 
 duties. 
 
 1138. Attendant on individualism, as on every other form Beggary. 
 of human polity yet tried, is beggary. This comes of the fact, 
 
 as yet apparent in every form of human society, that there are 
 some who are wholly unable, and some who are inveterately 
 unwilling, to provide for themselves. Where slavery prevails, 
 this tendency leads to some of its most revolting features. 
 Where there is personal freedom, public compassion, pro- 
 testing against permitted starvation, provides a remedy : 927. 
 either in tolerated begging, or in legal means of relief for 
 the destitute. Thus the evil is reduced in extent, and 
 ameliorated in effect. We may even hope for its ultimate 
 extinguishment ; but, in the present state of mankind, it 
 must be encountered, and dealt with. 
 
 1139. Pauperism (which we have considered) is beggary Pauper- 
 controUed, and regulated. "'"' 
 
 1140. Socialism is, in effect, an extension of pauperism — Socialism. 
 without its justification. Recognizing discomfort as a plea 
 
 for action hitherto justified only by destitution, it would take 
 from those who have, to give to those who have not : not 
 because they have dire need of the property of others, but 
 because they would like to have it. If this be done with 
 
 331 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 70. 
 
 Property, 
 
 T/ie aim 
 of Social- 
 ism. 
 
 Commu- 
 nism. 
 
 the free consent of those deprived, the result may be termed 
 Alms. If not, it is clearly Thefl. 
 
 1141. These are of the fifth and sixth forms of income, 
 already specified. Neither is countervailed by any form of 
 service. In neither, therefore, is there . any foundation of 
 right. 
 
 1142. The distinctive feature of individualism is the insti- 
 tution of private property, and the distribution of the rights 
 and duties incident to property by free and open agreement 
 between individuals. It stimulates, and gives free play to 
 the productive and accumulative powers of the individual; 
 and these are the only sources of wealth. 
 
 1143. Socialism aims at improving the results of indivi- 
 dualism, through the action of the State. Its intention is not 
 to impede the production of wealth ; but to change its dis- 
 tribution. Unfortunately, it always begins, and must begin 
 with some invasion of the liberty of the individual, or of his 
 property. And any such invasion, as soon as it becomes 
 palpable, tends to impede production. The security of 
 private property being threatened, its economic effect ceases. 
 The energy of the individual loses its fulcrum ; and no longer 
 operates. 
 
 1144. Communism is the logical issue of socialism. There 
 is, in the animal man, as in other animals, an instinctive ob- 
 jection to all ownership except his own. But, in any form 
 of human society, there is no room for the indulgence of 
 this objection. Either each must have his own, or all must 
 have all. To halt between the invasion and the abolition 
 of private property, would clearly be to lose the benefits of 
 one system, without attaining those of another. History 
 shows us that communism has a consistency of its own; 
 and may be relied upon, if due means be used, to produce 
 and maintain a kind of social life which, as compared with 
 merely savage hfe, or even with the life available to many of 
 those who, as yet, either cannot or will not comply with the 
 demands made upon them by the individual system, has 
 
 332 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 consider|ble advantages. But, followed to its legitimate 
 conclusion, it leads to cessation of further progress — an 
 abandonment of the methods by which our present industrial 
 system is slowly laying the foundations of wealth, and a higher 
 civilization, for mankind at large — and an effort, by the adop- 
 tion of despotic government, and by equal division of the 
 wealth already obtained, to realize what it will already give 
 to all ; and there be content. It might result in giving food, 
 clothing, and lodging to everybody ; and these in abundance. 
 But, if we may judge by long-continued trials of it, under 
 the most favourable circumstances, it would yield nothing 
 more ; and might reasonably be expected to conduct man- 
 kind back to a merely animal condition. 
 
 1145. The ground on which Socialism — or the compul- Ground of 
 sory application of the means of the capable, the industrious, °"""^'"- 
 and the provident, to the service of the incapable, the idle, 
 
 and the improvident — is justified, varies much in form with 
 its various advocates. But, wherever it assumes a logical 
 aspect, either in this country or abroad, it is substantially 
 the same. 
 
 1146. It consists of an allegation — which is perfectly true — 
 that the condition of the class which earns only wages, and 
 subsists exclusively upon them, is eminently unsatisfactory. 80. 
 And further, it denies that political economy, as now known 
 
 and taught, affords any explanation of this unsatisfactory 
 state of things which can be accepted as sufficient, or con- 
 clusive ; or that it indicates any remedy for the admitted evil 
 which is presently applicable, and is likely to be effective. 
 
 1147. As to the existence, the extent, and the pressure of 
 the evil, the economist can only acquiesce. That political 
 economy either cannot explain, or cannot point to an effec- 
 tive remedy for it, he can only deny. 'i-Vll. 
 
 1148. Fortunately, the facts, so far as they are material, 
 are hardly in dispute. 
 
 333 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 The facts. 
 
 989. 
 
 Mode of 
 fixing 
 wages. 
 
 85. 
 
 'Iron atid 
 rucllaw^^ 
 
 831. 
 
 1149. Under the manufacturing system, and through the 
 concentration of skill and capital which has been found most 
 favourable to its growth and prosperity, the numbers of the 
 wage-earning class, in Europe and America, have, during the 
 last century, been rapidly increased. They have thus as- 
 sumed an importance, in the wealthier countries of the 
 world, which justly invests their condition, whatever it may 
 be, with much interest ; and their discontent with that con- 
 dition has called into its service a great deal of ability and 
 eloquence. It has also made widely known the nature of 
 their discontent ; and has left its main cause no longer 
 doubtful. 
 
 1150. It is alleged that wages are fixed by a method which 
 does not give to the wage-earner his just share of the wealth 
 produced by his joint action with the capitalist; and so 
 keeps him constantly poor. 
 
 1151. The method objected to is not one prevalent in this 
 or that country, or in any particular branch of industry. 
 It is that which always results from leaving the labourer to 
 settle, for himself, with the capitalist, what shall be the price 
 of the service he renders towards the common work of pro- 
 duction. It is obvious that, under the rule of individualism, 
 no other method is practicable. This, however, is denounced 
 as " an iron and cruel law." 
 
 1152. Now here we must " clear our minds of cant." Any 
 such phrase is quite inapplicable. It is inconsistent with the 
 daily experience of the labourer himself. If he gets for his 
 labour the free price of an open market, he gets all he can 
 justly have ; and all he ever willingly renders to others. 
 Under the same " law," he habitually pays for the bread 
 he eats, and the boots he wears. And if the baker, or the 
 bootmaker, were to ask for more, on the same plfea, he 
 would be quite ready to tell them that, in the price of bread, 
 or of boots, he could see nothing either "iron" or "cruel." 
 
 1153. It is not in the economic laws, but in his own con- 
 duct under them, that the wage-earner, who lives only upon 
 
 .S34 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 weekly wages, will find the real sources of his suffering. 
 And the evidence of this is apparent even in the socialistic 
 argument to the contrary. 
 
 1154. This argument has never been formulated with any Continen- 
 degree of skill in England. But in Germany, and in France, '^ ^^'^"'' 
 it has been stated with much eloquence, and with as much 
 logical force as it admits of. 
 
 1155. The best exponent of the socialistic view of the Ferdinand 
 relation of the labourer to the capitaHst was, perhaps, the 
 
 late Ferdinand Lassalle. He did not deny that capital was 
 as necessary to production as labour. But, ignoring the 
 sources of capital, he proposed that it should be made a 
 common possession ; and should, by the State, be placed 
 at the disposal of the labourer. His own life is the best 
 illustration of his doctrine. Able and eloquent, but wholly 
 vmacquainted with any form of industry— a handsome and 
 fashionable idler — poor, reckless, and of sensual habits, he 
 saw only the surface of the subject he dealt with ; and sought 
 in that an easy solution of the difficulties of his own pre- 
 carious lot. And his death, at thirty-nine years of age, in 
 depriving him of the opportunity of learning more of what 
 he was about, also aptly illustrated his unfitness to lead others. 
 He was killed in a duel, provoked entirely by himself, with 
 the affianced husband of a lady with whom he had fallen 
 violently in love. It was said that the lady preferred Lassalle ; 
 but, as she, shortly afterwards, married the man who killed 
 him, this may be doubted. 
 
 1156. Lassalle's error was a common one. He mistook. His error. 
 and greatly magnified, the power of the State. No Govern- 
 ment, yet known, could do that which he proposed. To 
 appropriate, and to control, the use of the capital of a nation, 
 
 which is entirely the fruit of individual exertion, would be, 
 even partially and temporarily, possible only to a very power- 
 ful and despotic Government. To do it entirely and perma- 
 
 336 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 Govern- 
 ment con- 
 trol of 
 capital. 
 
 Lassallis 
 method. 
 
 nently would be impossible to any. Under a commercial 
 system, such as we live under, capital has no country ; but 
 flows from one to another, as the ocean finds its level. It 
 follows its owners. Lassalle thought, and Socialists com- 
 monly think, of it only as something which, in the order of 
 Providence, has come into existence ; and being unequally 
 distributed, should be, and could be, re-distributed more 
 equally. He did not see that, as capital came, at first, of 
 individual saving, and is maintained only by the same 
 process, its supply would certainly fail, if its individual 
 origin were not regarded ; or that, though the fixed capital 
 existing for the time in any given country might, by the 
 Government of the country, be so appropriated, the floating 
 capital — the means of keeping the fixed capital in use, 
 and of supplying, and distributing the produce required to 
 be consumed from one year's end to another — would, if so 
 threatened, be withdrawn; and that, with the channels of 
 commerce open, and other Governments less blind, its 
 withdrawal to safer localities would be easy and certain. 
 Bad legislation may ruin the commerce of England; and 
 our pre-eminence may follow that of our predecessors, the 
 Dutch — her buildings may fall into heaps, her rails may rot, 
 and her docks and wharves crumble back into her shores ; 
 but the industry, the skill and the capital which has made 
 England what she is would find refuge elsewhere. 
 
 1157. Lassalle would have begun gradually ; and by 
 State loans to workmen, and by the use of State credit, would 
 have sought to break down, by competition, the assumed 
 monopoly of the capitalist ; and so to cause interest, and 
 profit, and rent to disappear — leaving only wages, as the 
 reward of labour, in all its forms. 
 
 1158. But, his methods apart, the result of all he taught 
 was simple. He was right in saying that the sufi^ering of the 
 wage-earner arises from his being that and nothing more ; and 
 that until his labour be so wedded to, and aided by, capital 
 of his own, as to relieve him from his present subjection to 
 
 336 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 the capitalist, his sufFering must continue. He was wrong 
 in his mode of attaining this end, because he deduced it from 
 a partial view of the subject. 
 
 1159. The Communist leader, Karl Marx (in the Statutes Karl 
 of the " International Working Men's Association " adopted ^^f' 
 at the Geneva Congress of 1866), expressed, with equal munist. 
 clearness and force, the nature of the evil, when he declared 
 that " the economical subjection of the labourer to the pos- 
 sessor of the means of labour, i. e. of the sources of life, is 
 the first cause of his political, moral, and material servitude, 
 and that the economical emancipation of labour is conse- 
 quently the great aim to which every political movement 
 ought to be subordinated." 
 
 1160. Marr, the ablest exponent of the doctrine of the Marr, 
 Nihilists, who, with a similar view of what requires to be 
 done, would adopt a more thorough mode of doing it, states, 
 with great simplicity, in his book on Secret Societies in 
 Switzerland, why both Socialists and Communists must needs 
 
 fail. " Revolutionists will only unite on a negation : the 
 moment they begin to ask what they will put in its place 
 they differ and dispute, and come to nought." Whence, he 
 concludes, referring to his own party, " We are content to 
 lay down the foundation of the revolution. We shall have 
 deserved well of it if we stir hatred and contempt against 
 all existing institutions. We make war against all prevailing 
 ideas, of religion, of the State, of country, of patriotism. 
 The idea of God is the keystone of a perverted civilization. 
 It must be destroyed. The true root of liberty, of equality, 
 of culture, is Atheism." 
 
 1161. So far may even able, and not ill-meaning men go 
 wrong, if they start with a false assumption. 
 
 337 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 Net result. 
 
 Problem- 
 suggested. 
 
 MilFs 
 view. 
 
 1162. And what does all this terrible rhetoric amount to ? 
 The wage-earner must have capital ; and must get it how he 
 can : even by wrecking all that has yet been done, if no other 
 method be feasible '. Fortunately, there is another method. 
 
 1163. In short, Socialism pretends to have found a pro- 
 blem political economy cannot explain, and one involving a 
 grievance for which individualism has no remedy. Were it 
 so, the science would well deserve all that has been said 
 against it. Communism and Nihilism' start from the same 
 half-truth — aim at the same unattainable end — and differ 
 only in the varying violence of their means. 
 
 1164. The abler political economists of our own time, 
 who, with characteristic breadth of view, and of sympathy, 
 have been least disposed to condemn the dreams of the 
 socialists, have dealt tenderly with this problem. 
 
 1165. Less clearly, but with no less decision, they indicate 
 the form of the suffering, and the need of capital for its relief. 
 But they do not propose that the capital needed shall be 
 obtained by confiscation. And what they do propose is less 
 obvious than it may easily be made. 
 
 1166. Mr. Mill, writing in 1848 on the probable future of 
 
 the labouring classes '', says : — 
 
 " A people who have once adopted the large system of production, 
 either in manufactures, or in agriculture, are not likely to recede from 
 it ; nor, when population is kept in due proportion to the means of 
 support, is there any sufficient reason why they should. Labour is 
 unquestionably more productive on the system of large industrial 
 enterprises ; the produce, if not greater absolutely, is greater in pro- 
 portion to the labour employed ; the same number of persons can 
 be supported equally well, with less toil, and greater leisure; which 
 will be wholly an advantage, as soon as civilization and improve- 
 ment have so far advanced that what is a benefit to the whole, 
 shall be a benefit to each individual composing it. The problem 
 is, to obtain the efficiency and economy of production on a large 
 
 ' A remarkably full and careful review of the subject will be found in 
 Contemporary Socialism. By John Rae, M.A. London: Isbister, 1884. 
 
 ^ Principles of Political Economy, with some of their; applications to 
 Social Philosophy. By John Stuart Mill, 1848, vol. ii. p. 323. 
 
 338 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 scale, without dividing the producers into two parties with hostile 
 interests employers, and employed, the many who do the work being 
 mere servants under the command of the one who supplies the funds, 
 and having no interest of their own in the enterprise, except to 
 fulfil their contract, and earn their wages. * * * The poor have come 
 out of leading-strings, and cannot any longer be governed or treated 
 like children. To their own qualities must now be commended the 
 care of their destiny. Modem nations will have to learn the lesson 
 that the well-being of a people must exist by means of the justice and 
 self-government of the individual citizens." 
 
 1167. Mr. Cairnes, in the same spirit, says : — Caimes' 
 
 " Though the fund for the remuneration of mere labour, whether '^^^"'• 
 skilled or unskilled, must, so long as industry is progressive, ever bear 
 a constantly diminishing proportion alike to the growing wealth and 
 growing capital, there is nothing in the nature of things which restricts 
 the labouring population to this fund for their support. In return, 
 indeed, for their mere labour, it is to this that they must look for their 
 sole reward ; but they may help production otherwise than by their 
 labour ; they may save, and thus become themselves the owners of 
 capital ; and profits may thus be brought to aid the wages-fund '." 
 
 1168. We have now often under pubhc discussion two Peasant 
 methods of relieving the labourer from what is painful in }a]s !"■''"""■?■ 
 position, (i) that he should become, if an agricultural labourer, Co-ofera- 
 a cultivator of the land on his own account; or (2) if a ^^^^£^''" 
 manufacturing workman, should associate himself with 
 others in the work of production, and seek profit as well as 
 wages. These, however, and all similar suggestions, involve 
 the indispensable condition that he shall be provided with 
 capital to start with, — capital which he can risk in the produc- 
 tive operation proposed, and also enough to maintain him 
 till the looked-for profits can come in. 
 
 1169. Meanwhile, what is the money-earner doing for him- 
 self? Herein there is something to indicate his own notion 
 of what he needs. 
 
 1170. I. As a seller of labour, he feels his weakness ; and Trades 
 he combines with his fellows. He seeks the aid of the Trades '^"*'"^*- 
 Union. He has it ; and it gives him an advantage in every 
 
 ' Some leading principles of Political Economy newly expounded. 
 By J. E. Caimes, M.A. 
 
 Z 2 339 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 contest with the capitalist, which he could not otherwise 
 have. But, for the gains of union, he gives up the advantage 
 of individual action. 
 
 1171. A Trades Union is, of necessity, an army ; and, to 
 be efficient, must have the organization and the methods of 
 an army. That it may work with effect, it must first absorb 
 into itself the individual rights of its members ; and when its 
 work is done, what it has won must be equally divided among 
 those who won it. When terms are stipulated for, they must 
 be the same for every member of the force. The capitalist 
 must be deemed a common enemy, with whom there may be 
 truce, but no peace. No man must do more work for the 
 given wage than another, or do it better ; nor must all, 
 together, do more than a careful consideration of what can 
 be extorted, as the labourer's share of the entire product, 
 may seem to make desirable. In getting through a given 
 piece of work, employment must be insisted on for as many 
 men, and for these for as many days, as may be ; and, at every 
 step, distinction between one labourer and another, on the 
 ground of personal efficiency, must be forbidden. 
 
 1172. It is not too much to say, in view of the well-known 
 practical difference between the less and the more efficient 
 workmen, wherever head-work is concerned, when they work 
 freely, that the productive power of the labour controlled by 
 the Trades Unions of this country, is thus reduced by one- 
 
 85. fifth, at least. Nor could the Unions, probably, be kept at 
 184. work, if this were not so. Who loses this one-fifth, may be 
 matter of dispute. It is lost ; and a great part of the loss 
 must fall upon the labourer — for workmen are not often 
 scarce ; and the capitalist does his best to pay only for what 
 he gets. 
 
 1173. That the product of his labour, whether it be in 
 97. food, in clothing, in houses, or in anything else of common 
 
 consumption, thus comes at a higher price to those of his 
 own class, need hardly be said. 
 
 1174. But the labourer, once freed, by his own providence, 
 34° 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 will fraternize with the capitalist ; and, as allies, they will 
 realize the fact neither can yet quite see : that their true 
 interests are identical. 
 
 1175. Fortunately, however, the wage-earners are also Thrift. 
 doing something better. They are not all in thraldom to the 
 Trades Union ; and even of those who are, many are inindful 
 
 of what they are there losing; and are disposed to help 
 themselves in a more hopeful direction. Most of them save. 
 Many of them save much ; and are becoming capitalists. 
 And of one effective form, at least, of their savings, we have 354. 
 public records. 
 
 1176. We return, then, to the original position. It is still 
 as it was of old. " The rich man's wealth is his strong city : 
 
 the destruction of the poor is their poverty \" The workman The evil, 
 of our day is yet, to too great an extent, without either the "' 
 wealth that provides for the morrow, or the wealth that is as 32. 
 a tool wherewith to make more wealth. And what he ought 
 to do he yet lacks the needful means of doing. 
 
 1177. Now what is the solution of the problem offered by the remedy. 
 political economy — by that individualism to which we owe 
 
 all the wealth our race has yet acquired ? 
 
 1178. It is this : — The modern manufacturing system has 
 been built up more rapidly than anything similar has ever 
 been produced before. Its establishment, as we now see it, 
 has been effected by an enormous increase of the number of 
 persons living on weekly wages ; and so living on these as to 
 be practically dependent on their unbroken continuance from 
 week to week. And these persons have not yet learned to 
 
 do a duty (to themselves) which nature has made incumbent 34. 
 on all mankind alike. 
 
 1179. It is a natural condition of the life of every man — he Daily 
 being, in fact, an animal, whose wants are daily, and living '^'^"t^>°"t 
 
 ^ Proverbs, c.io,y.ii. '"""^''f'- 
 
 341 
 
SOCIALISM, COMMUNISM, AND NlfflLISKl. 
 
 on a planet whose harvests are only annual, — that he shall, 
 A year's either himself hold provision of a year's subsistence, or be, in 
 needed. ' Some shape, the servant of those who provide it for him. 
 The wage- 1180. He who reUes for subsistence simply on the sale of 
 "howlro- ^'^ labour, and who spends, as soon as it is earned, all he 
 vidcdfor. gets for it, takes the subordinate method of complying with 
 this condition. 
 
 1181. He declines to make the needful provision for him- 
 self. If he so acted in a state of nature, he would certainly 
 perish. As things are, he is free to elect. But, in electing 
 dependence, he puts himself under subjection. And to lighten 
 the yoke of the capitalist, he resorts to the Trades Union. 
 He ought to be subject to neither. 
 The in- 1182. The wage-earner of our dayisentitled toallthe benefits 
 
 system, '^^ '^^ organized industrial system he is born under. But these 
 have their limits ; and of some of them he has not yet availed 
 himself. They provide him with immediate food, shelter, 
 and clothing; and with work fitted to his powers, and his 
 capacity; and in proportion to their completeness and their 
 efficiency, they provide him with a regular market for the 
 sale of his services. But the whole system, and all who live 
 leaves him under it, capitalists as well as labourers, are subject to those 
 '^ "-''■ natural fluctuations which attend human operations submitted 
 to changeable seasons ; and they do not (and no arrange- 
 ment yet feasible can) relieve those who themselves make 
 no provision for the morrow of the consequences to which, 
 in the course of nature, all mankind who neglect that duty 
 have to submit. 
 
 1183. And, apart from any such fluctuations, the result — 
 the unavoidable result — of improvident reliance by the wage- 
 earner upon the gains of each successive week for continuous 
 subsistence — is a certain degree of subjection to those who, 
 having done the duty he has neglected, have become the 
 possessors of the capital hitherto accumulated; and who 
 have to provide for his wants from one harvest to another. 
 
 Slavety 1184. Time was when this service was rendered to the 
 
 gone ; 
 
 342 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 labourer in a state of slavery. His condition was \htn freedom 
 wholly in the hands of his master. This condition has, "^arifd 
 happily, been put an end to. Slavery is not permitted to 
 any; and the responsibility of the master has ceased. 
 Freedom is open to all. But, though slavery is abolished, 
 freedom is attained only on conditions ; and the first of these 
 is, that he who would have it must take upon himself the 
 responsibilities which nature attaches to his individual inde- 
 pendence. If he would have equality, he must make himself 
 equal, by doing that which others have already done. 
 
 1185. That so many of the labourers of our modem manu- How akme 
 facturing system prefer lingering in the semi-slavery through '^^^'^'■"'^"'^■ 
 which their way lies to higher ground, is to be regretted. 
 
 But their deliverance undoubtedly rests with themselves. No 
 ingenuity in robbery can help them. 
 
 1186. Reliance upon daily wages, alone, is little better 
 than the reliance of a grazing animal on the enduring ver- 
 dure of its pasture. It entails a constant reliance upon 
 those who can alone keep it fit for grazing ; and such re- 
 liance means subjection. 
 
 1187. All such subjection is galling. And it is even well Subjection 
 that it should be so. Its indefinite continuance is un- °J^^g " 
 natural, and degrading; it is, and it ought to be, deemed a 
 
 state of transition ; and it can be got rid of only as it shall 
 become intolerable to the more intelligent and more provi- 
 dent of the class — ^who, in the natural course, are already 
 leading the way out of it. 
 
 1188. Further, it is in no degree necessary. It is not Not 
 desirable for any. Everybody concerned would be the better "^""'^^v- 
 for its cessation. 
 
 1189. The means of its removal are at hand ; and were liemov- 
 never so available as they are now. They have often been " ^' 
 used before, for the same purpose ; they are now being 
 
 so used from day to day ; and they have never been so used 
 without success. 
 
 1190. To avail himself of them the wage-earner needs no 
 
 343 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 political or social revolution. He needs no aid from the 
 State, other than he now has. He need sue for help to 
 none. His redemption from all subjection to the capitalist 
 may be — nay it can be — only his own work. 
 
 Mode of 1191. He who now lives by the sale of his labour will 
 
 removal. -^^^^ ^^ continue to do so, till he can do better. But he 
 may deal more intelligendy with his own position. His 
 labour is hke most other saleable commodities. To sell it to 
 the best advantage, it must not be forced upon the buyers, 
 without regard to time, place, or circumstance. Its quality 
 must be adapted to the purposes it is to serve. It must be 
 offered only when, and as, it is likely to command the best 
 price. And it must be withheld when a fair price is not 
 offered. With all these conditions, the wage-earner is 
 often familiar, as they concern other commodities. He 
 knows that successful dealers always so act ; and that no 
 dealer can hope to be successful without <;apital. How 
 would it be with the market for brooms, if the makers urged 
 their sale upon the buyers as labour is now sometimes urged 
 upon the capitalist : prices fixed, quality ignored, and the 
 buyers accused of cruelty, if they do not buy with due regu- 
 larity and dispatch ? 
 
 1192. The seller who must sell at once — or starve — must 
 be, more or less, at the mercy of the buyer. In fact he 
 cannot deal. He can only take what is offered to him. 
 Not that the wage-earner is often so placed. But he is 
 often in imminent danger of being so ; and is never quite 
 free from that danger. And such freedom from it as he has, 
 he owes solely to that source of strength which can, alone, 
 by its further use, make him free : his own providence. 
 
 The needed 1193. Let him face the duty imposed upon him by our 
 common nature. Let him learn to regard the possession 
 of a year's subsistence in advance as what it truly is : the due 
 purchase of his freedom, as a member of the great industrial 
 
 This at- community to which he belongs. It is the lowest price at 
 which, in fact, that freedom can be had. It is the price 
 344 
 
 condition. 
 
 tainable. 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 which all who have it have paid, or had paid for them, in 
 time past. It is not beyond his means : for thousands of 
 his class are daily paying it, from means drawn wholly from 
 weekly wages. 
 
 1194. The money in the Savings Banks of the United By saving. 
 Kingdom, in 1850, amounted to £28,930,000 — the popula- 
 tion, in the same year, being 27,246,000. In 1863 the 
 amount was £44,328,000 — the population being 29,433,000. 
 
 Thus the increase, in thirteen years, of the population, was a 
 little over eight per cent. ; and of the savings it was nearly 
 fifty-three per cent. 
 
 1195. In r876 the Savings Banks held £70,280,000 — - 
 the population of that year being 33,093,000. The increase 
 of the population, in this second period of thirteen years, was, 
 therefore, about twelve and a-half ; and of the savings it was 
 nearly fifty-eight and a-half per cent. 
 
 1196. In r883, at the end of seven years more, the 
 Savings Banks held £86,755,000. The population of that 
 year was 35,611,000. So that, the population increasing by 
 seven and a-half per cent., there was a further addition made 
 to the funds in the Savings Banks of twenty-three per cent.^ 
 
 1197. In addition to these funds, £645,331 was, in 1883, 
 held by railway savings banks. And the building societies, 
 loan societies, industrial and provident societies, and friendly 
 societies, incorporated and registered with the government, 
 held a further total amount of £70,491,000. A large sum 
 is also held by unregistered societies, of the same general 
 character. 
 
 1198. In the face of these figures, it can hardly be alleged 
 that the wage-earning class in this country have not the 
 means of saving. If, of the seven millions of families into 
 which the population may be approximately divided, even 
 six millions be taken to be of this class, the £200,000,000 
 
 ' This increase continues, unabated. By the monthly returns of 20th 
 of June, 1885, as published in the Times, the amount held by the 
 Savings Banks of the United Kingdom had then risen to £89,070,178. 
 
 345 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 known to be now accumulated in the hands of the Savings 
 Banks, and other provident institutions, gives an average of 
 more than £30 for each. It is true that many have nothing. 
 But these are not divided from the rest by any economic 
 condition pecuUar to the wage-earning class, or susceptible 
 of change by law. They differ only in the different use they 
 make of conditions common to all who are in receipt of 
 wages. 
 
 State of 1199. It should here be observed that the actual condition 
 
 "Earners °^ *^^ wage-earning class is often mis-represented; and 
 7nisrepre- not least frequently by those who wish them well. Philan- 
 thropic persons, with the best intentions, go, or send agents, 
 to inspect the dwellings, and otherwise to ascertain the con- 
 dition, of the poorer inhabitants of our large towns — 
 especially London; and of course receive descriptions, or 
 form impressions, founded rather on the worst than on the 
 best they find. These are always more or less exceptional. 
 And, what is more to the purpose, they seldom have refer- 
 ence to the dwellings of any portion of the wage-earning 
 class, or of those connected with any regular form of industry. 
 They are mainly drawn from a region below the level of that 
 class. They describe, rather, the mode of life of the dregs of 
 our town population : of an unattached residuum of persons 
 commonly without character, and incapable of regular in- 
 dustry, or of self-control, who prefer living, however poorly, 
 on the irregular gains to be had in all our large towns — a 
 class which is never far removed from, and is commonly 
 more or less mingled with, the prostitutes and habitual crim- 
 inals inhabiting similar localities. Of these the want is often 
 wilful, and the relief of it mere waste. It is true that with 
 these, and drifted among them by sheer helplessness, may 
 be found many scattered members of families broken up by 
 the vice and improvidence of their heads; whose position, 
 where it can be recognized, excites only the deepest pity. 
 But these, also, are not of the wage-earning class ; nor is 
 346 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 their condition, properly speaking, any part of the problem 
 before us ; though it is often assumed to be so. 
 
 1200. When we hear, in the exaggerated language of "Hopeless 
 those who give to this subject a great deal of feeling, and ■^''^^''^•''" 
 very little thought, of the " hopeless poverty of the working- 
 man," we hear of that which any man who, in England, has 
 much worked himself, or set others to it, knows does not 
 exist. Hopeless poverty, wherever it is found, in this country, 
 is the lot of those only who cannot, or who will not, do any 
 work which anybody will pay for — or, who, doing such 
 work, insist upon consuming the fruits of their labour as a 
 cow eats the grass before it — without thought of where the 
 next mouthful is to be had. 
 
 1201. We hear much of the paramount necessity of labour True value 
 to all production, and of the want of certainty, at present, as ^ '^ °"^' 
 to whether the labourer gets all he is entitled to. Much of it 
 
 is true. Perhaps it is all true. The labourer has yet, for 
 the most part, not given himself fair play. And it would be 
 well to have all doubts on this subject dispelled, as alone 
 they can be dispelled — by a judicious exercise of freer and 
 larger power, on the part of the wage-earning class, to with- 
 draw labour from the market, till a fair price i? tendered for 
 its continued supply. This can be done, whenever that 
 class shall put itself into condition to sell its commodity at 
 ease, with perfect freedom, and under fair commercial 
 conditions — fair to itself. And it cannot be satisfactorily 
 done in any other way. 
 
 1202. It has been well said that men never dwell together 
 in peace till they know each other, and are conscious of 
 mutual justice ; and the labourer and the capitalist have yet 
 to reach this condition. But the interest of both certainly 
 lies that way. 
 
 347 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 more 
 capital. 
 
 What is 1203. What is justly sought, then, by (and is by us all 
 hopefully desired for) the wage-earning class, is a greater 
 degree of independence and freedom of action. They re- 
 quire to be placed in a position more nearly approaching to, 
 and resembling, that of their capitalist-employers — in being 
 relieved of the dread of impending want — and in being more 
 completely free to choose the occupation they will follow, 
 and their mode of following it. The first use of wealth, as 
 368. we have seen, is provision for the morrow. The second is a 
 better use of labour. They suffer from want of both. 
 Not higher 1204. Higher wages, merely, will not supply either of 
 wages, ut jjjggg -vvants. With wages doubled, if expenditure were in- 
 creased in like proportion, they would neither have less need 
 to dread a cessation of employment, nor more freedom to 
 seek any change, or elevation, of it. * What is needed is indi- 
 vidual command of a fund of capital. There are three ways, 
 and only three ways, to this. They may save it, or beg it, 
 or steal it. But only by the first can it be made a permanent 
 possession. In short, they must cease to spend all they 
 earn; and they must carry this forbearance far enough to 
 achieve the freedom they seek. 
 
 1205. They are already doing this — slowly, it is true — but 
 very steadily and continuously. 
 
 1206. It is not a new process. It is the oldest recorded 
 in our industrial history. It is the foundation of all we have 
 yet done there. Not a shilling now paid in wages through- 
 out the world has had any other origin. And if many of us 
 (and among them, now, no small number of wage-earners) 
 did not practise daily this forbearance, the supply of capital 
 which now daily brings into the market an increasing fund of 
 wages for an increasing number of wage-earners, in this and 
 other countries, would not be provided. 
 
 1207. That saving is a practice many earners of wages find 
 it difficult to begin is nothing new. Providence, to be effec- 
 tual, must become habitual. It is not easily acquired, except 
 in youth. And it is one of the incidents of a highly organized 
 
 348 
 
 1194. 
 
 difficult. 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 industrial system, such as ours has become, that, though it 
 makes saving more easy, and savings, when made, more 
 safe, it makes them less immediately, and less imperatively, 
 necessary. Hence they the more distinctly imply the merit 
 of spontaneous and unforced well-doing. 
 
 1208. If a hunting, or a fishing, or even a pastoral people 
 made no provision for the wants of the coming weeks, either 
 by storage, or by facilities for change of ground, they would 
 be severely admonished by starvation. The need to save, 
 and the need to move, are the most common and the most 
 natural incidents of human progress. They are constantly 
 being enforced by want. The fluctuations of trade in Eng- 
 land, though suflBcient to give similar warnings to the mere 
 earners of wages, give them in a much milder form; and 
 give them with accompaniments which wholly relieve them 
 of any actual threat of starvation. Hence much easy in- 
 difference on the part of many of the class ; and much 
 blindness to what is needed on the part of those who would 
 befriend them. 
 
 1209. Broadly taken, the practical question is — whether Summary. 
 that which is now complained of, is, in fact, anything more 
 
 than a form of suffering which mankind have always had 
 experience of — which they have, all through their history, 
 been striving, more or less successfully, to escape, or to 
 alleviate — which the greater part of mankind still endures, 
 and must long continue to endure — which is actually, now, 
 less prevalent with us than with any other people — which we 
 are gradually reducing by the only natural and effectual 
 method, and which we may fairly hope, by continuance of 
 this method, still more rapidly, and effectually, to reduce, in 
 the time to come ? 
 
 1210. If this be so — as all the facts available tend to prove 
 it to be — and if we have nothing opposed to this view of the 
 matter but allegations which are obviously at variance with 
 the facts, and proposals, the acceptance of which, whatever 
 
 349 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 their promised fruits, would probably endanger the very- 
 foundations of the system by which we have, so far, thriven, 
 we may well resolve to adhere to a course which has at least 
 the sanction of long and wide experience ; and which offers 
 a certain, though not near, prospect of wealth for all. 
 
 What 1211. Every form of socialism — every substitute for, or 
 
 ^trotoses supplement to, individualism — which is offered to us, amounts 
 
 in effect to this : that finding it painful to look upon the 
 
 shortcomings, and the sufferings of the incapable, the idle, 
 
 and the improvident ; and impossible, by example, by precept, 
 
 or by private aid, rapidly to remove them — we should use the 
 
 powers of the State forcibly to effect the desired change ; 
 
 and to this end to take the needful means from the able, the 
 
 Its proba- industrious, and the provident. Were the immediate effect of 
 
 ' any such action beneficial, it clearly could not last. If it proved 
 
 anything to the purpose, it would prove that theft is a remedy 
 
 for poverty ; and it is at least clear that so long as men 
 
 1185. remain what they are, theft cannot be so applied, with any 
 
 hope of ultimate success. Simply to take from others what 
 
 we need, carries with it only the. warrant of brute force; 
 
 and, as a policy, cannot found anything durable. 
 
 The ex- 1212. The explanation of the unsatisfactory state of the 
 
 ami the ' wage-earners, as a class, afforded by political economy is the 
 remedy. only one Consistent with the facts. The remedy it provides 
 is the only one which either experience or reason indicates as 
 likely to succeed. It has been tried already, for a long 
 period, and under the most various circumstances ; and, 
 where steadily applied, has never failed. It is under trial, in 
 all directions, and around us ; and is palpably succeeding 
 everywhere. All that can be urged against it is — that it is not 
 quick enough in its operation to please some of the lookers- 
 on. But hardly anything in nature is so to those who make 
 their wishes the measure of their expectations. 
 
 35° 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 1213. Though, however, we find in the reasoned and Immediate 
 systematic socialism of our continental neighbours the ii^ost -^^^^^^f 
 logical expression of what threatens us in the condition of the 
 mere wage-earning classes, it is not there that we have to look 
 for the dangers we are ourselves now incurring. Our English 
 course has a way of its own. As Mr. Mill early discerned, 
 and pointed out ^, the leisured and the wealthy classes in this 
 country have always been disposed to consider that " the lot of 
 the poor, in all things which affect them collectively, should be 
 regulated/or them, and not by them." It is with this disposi- 
 tion of the rich, rather than with any claims yet put forward 
 by the poor themselves, that we have now to deal. It has 
 become habitual, by the devotion of a much larger amount of 
 wealth, through various channels of private benevolence, to 
 the relief of the poor and suffering, in this country, than in 
 any other. And now it tends to ally itself with a further 
 disposition on the part of those who seek political influence 
 with a largely increased electorate, to promise the aid of the 
 State for the alleviation of any suffering that may seem to 
 come within the scope of an Act of Parliament. 
 
 But the theory of "dependence" and "protection" ior Labourer 
 
 any class is now definitively discarded. The practice of self- "f longer 
 •' ^ '^ dependent. 
 
 dependence is taking its place. And it behoves us not to 
 
 impede its growth. 
 
 Neither public benefactions nor private alms seem to avail Private 
 much in this direction. There are things we cannot do for '^ "'" ^' 
 each other. Alms, in every variety of form, are already 
 familiar to us. They seem part of the national economy. 
 Their uses become more extensive, and more various, every 
 day. And they have found a wide field of action in supply- 
 ing to the wage-earning class, by way of gift, nearly every- 
 thing that weekly expenditure of a weekly income would 
 otherwise have left that class without : as hospitals and dis- 
 pensaries, adapted to every form of disea.se, asylums for the 
 helpless of every kind, local charities of endless variety, and, 
 
 ' Principles of Political Economy, 1848, Book IV. ch. vii. § 10. 
 
 351 
 
SOCIALISM, COMMUNISM; AND NIHILISM. 
 
 State 
 
 charity 
 
 limited. 
 
 Recent 
 advances. 
 
 1140. 
 1185. 
 1211. 
 
 of late, libraries, baths, and recreation grounds. Here, 
 indeed, we might perhaps fairly charge to the wealthy a part 
 of the want of thrift we have to regret in the class so aided. 
 And it is clear that they afford no ultimate remedy. 
 
 1214. No government can well interfere with these forms of 
 private munificence while they generate no palpable evil. But 
 of " giving to the poor" only one form has yet been permitted 
 to the State ; and of that form we have now had some three 
 centuries of experience. Whence we have at least learned 
 that it needs keeping under very strict supervision, and within 
 well-defined limits. 
 
 1215. What we are now, apparently (though perhaps hardly 
 consciously) entering upon is that form of theft which con- 
 sists in the State converting the property of one class to the 
 uses of another. This is no matter of mere benevolence — of 
 willing gift from abundant means, to alleviate suffering all 
 sympathize with. It has not even the excuse of the " panem 
 et circenses" of ancient Rome. There the State had wealth to 
 deal with. Built, from the beginning, much on free con- 
 fiscation of the property of others, it might, with some 
 consistency, share the more portable proceeds with a trouble- 
 some mob at home. With us it is not so. The basis of our 
 polity is wholly industrial. All we have has been earned. 
 The State has no wealth except what is raised by taxes, 
 imposed expressly for the common service of the community; 
 and every sixpence appropriated by it to the use of any 
 particular class, is clearly misappropriated. 
 
 1216. Nothing is easier than to find openings for public 
 expenditure which carries with it the promise of great future 
 benefit ; and so closely are the interests of every class inter- 
 woven with those of every other, that to promote the prosperity 
 of any one class is extremely apt (in the minds of those who 
 are either unwilling or unable to look at more than the 
 pleasant side of a question) to seem both benevolent and 
 wise. But it is exactly here that the lessons of experience 
 36» 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 are of value. In short, we have done this thing before, in 
 effect ; and have suffered for it. 
 
 1217. It is much to be regretted — but it seems to be true — Repetition 
 that even a nation like our own is quite capable of forgetting |^^*f 
 the political lessons of the past, and of repeating, in its legisla- 
 tion, after a generation or two, errors it has already recognized, 
 
 and paid dearly for committing. 
 
 1218. Almost the first work taken up by the reformed Poor law 
 Parliament of 1832 was an amendment of the then existing ^^^^^ jg, ._ 
 poor-law. Under careless administration, prompted, chiefly, 
 
 by that sort of pity for the poor which takes no account 
 of anything but present relief, it had brought some parts of 
 the country into a state now hardly conceivable by those 
 who have not read the records of the time, and who have seen 
 only the results of the better ordered system then brought 
 into use. In one parish the old system had quite come to 
 its natural end : had ruined everybody connected with it. 
 The collection of the poor rate had " suddenly ceased, in 
 consequence of the impossibility to continue its collection, 
 the landlords having given up their rents, the farmers their 
 tenancies, and the clergyman his glebe and his tithes^." 
 Free-handed giving, and willing receiving, had ended, as 
 they always will end, if not checked, in the common poverty 
 of both givers and receivers. No other parish was quite so 
 bad as this ; but many had advanced much more than half- 
 way to it. Enough had been done to engender, among the 
 agricultural labourers, the notion, that no degree of idleness 
 or improvidence barred a man's " natural right " to live as 
 well as his neighbours ; and at their expense. And when the 
 means fell short, as they could not fail to do, and this natural 
 right began to be ignored, rick-burning was very naturally 
 resorted to, to enforce it. 
 
 ' NichoU's History of the English Poor-law, vol. ii. p. 253. 
 A a 353 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 Consequent 1219. All this became well enough known to reconcile the 
 
 stiffcnng. pQjjjjjjQjj sense and the humanity of the nation to remedies 
 which, it must be admitted, were sometimes severe, though 
 salutary ; and for a few years, the suflferings of the poor, who 
 had been deluded by the foolish philanthropy of their so-called 
 friends, were a bitter reminder to many of the impotence of 
 mere good intention. But more than fifty years have now 
 gone by, and the foUy of levying rates in aid of wages, 
 or by way of promoting the prosperity of any class, may 
 again have to be proved, in other shapes, as painfully, and 
 perhaps with as little permanence, as before. 
 
 The error. 1220. The error in this case was the adoption of a prac- 
 tice precisely analogous to what is now proposed for enabUng 
 labourers to become possessed of land, either by loans or 
 grants from the State, or by purchase, with money raised by 
 local rates. It consisted, at first, in granting from the poor- 
 rates sums in aid of weekly wages, when these, from a want 
 of regular employment, became insufficient to pay the weekly 
 expenses of the labourer. Then came the settlement of a scale 
 of household expenditure, framed, of course, upon the number 
 of the persons in each family. And, this done, the rest followed. 
 The parish pay-table made good, weekly, the income of each 
 family ; and the larger the family the better. A woman with 
 three or four illegitimate children became a desirable wife. 
 Farmers thought they got their wages paid, in part, by their 
 neighbours. And it was not till the growing burden of the 
 rates compelled all parties to look at what they were drifting 
 to, that the directly socialistic element thus introduced into 
 the relief of the poor was detected, and discarded. 
 
 Poverty not 1221. Already we are listening to political schemes which 
 igenee. ^Qj^fo^j^fj poverty, properly so called — or the state of one 
 who must labour from week to week for his living — with 
 that lower state of indigence which alone justifies public 
 relief; and while we have already relieved the poor of the 
 greater part of the burden of taxation, we are educating their 
 children, and are trying even to find a method of housing the 
 
 364 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 ■whole class, mainly at the expense of the rest of the com- 
 munity. 
 
 1222. As mere feeling, or fancy, and not right, or reason, Deputed 
 prompts the invention of new modes of removing whatever is "^'^'f- 
 complained of, it is less easy to expose the fallacy of any par- 
 ticular method of doing wrong, in this direction, than to 
 
 show that it is wrong. The method is an old one. "A 
 cannot see B in distress without urging C to relieve him.'' 
 But, like some other methods, it makes its appearance in an 
 endless variety of guises. Already we have political aspirants 
 to place and pay who cannot see a voter in want of anything, 
 without urging the (income) tax payer to find it for him. It 
 may be a passing phase in our political progress; but it 
 points to much that is worthy of consideration. 
 
 1223. Education is an excellent fliing ; and it was plainly Public 
 impracticable to get it adequately and rapidly supplied to ttie ^ ^"■^^°"- 
 children of a large part of the population without the inter- 
 ference of the State; and such interference, to be effective, 
 implied that much of the burden should fall where little of the 
 immediate benefit would be felt. Whether the increased 
 rapidity of the process was worth the sacrifice of principle, we 
 
 shall know better by and by. 
 
 1224. The first result will, of course, be a considerable Probable 
 increase of the book-knowledge, and probably some increase of *""" ■*■ 
 the practical intelligence, of the rising generation of English- 
 men. It is not likely to add much to their productive power, 
 
 and it will certainly tend to direct their energies into new 
 channels : channels which are already full enough. We shall, 
 in all probability, soon see a large increase in the number of 
 candidates for " genteel" employment — of teachers, lecturers, 
 ministers of religion, members of the medical, legal, and other 
 professions, of clerks, and office-assistants, and of agents of 
 every description ; and of aspirants to any form of government 
 office. The fruits of instruction, got for nothing, will be sold 
 for next to nothing; and all such labour will be cheaper 
 
 A a 2 365 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 than ever. The labour market will be unduly, if not 
 dangerously, disturbed, by a supply for which there is no 
 adequate demand. The State, having caused, may well be 
 called on to cure the consequent distress. And though we 
 may not be more pressed to find " careers " for distressed 
 penmen, than we were, in the last generation, to find sub- 
 sistence for distressed needlewomen, the difficulty may be 
 harder to overcome. 
 
 Dwellings 1225. So far as there is any probability that the housing of 
 the poor will be materially improved by the efforts now being 
 made to provide them with better dwelHngs in our large 
 towns, we cannot but regard these efforts with pleasure. But 
 it is already evident that we are dealing rather with the 
 symptoms of the evil than with its effective causes. 
 
 1226. The character o'f a man's habitation, and his use of 
 it, in a sanitary point of view, are not quite so much deter- 
 mined for him, by others, as is commonly supposed. As a 
 rule, they are determined much more by his personal habits, 
 than by his income, or by the incidents of the locality. And 
 such habits are not easily changed. Those now common 
 among the poor have been formed in almost total ignorance 
 of those advantages, of cleanliness and ventilation, which it is 
 now desired to bring within their reach. What some of us 
 so clearly see would be better for them, they have not yet 
 even begun to appreciate. Indeed it cannot be said that any 
 of us have been very generally acquainted with the benefits 
 of ablution, and the value of fresh air, as we now know them, 
 for more than a generation or two. Until there is, on the 
 part of the poor themselves, a demand for more roomy, 
 cleaner, and better ventilated dwellings, they will not, if sup- 
 phed, be easily got into use by those who most need them. 
 And to insist on supplying them, in the absence of any real 
 demand, is to incur some danger of defeating the very object 
 in view. 
 
 Private 1227. The risks attending private benevolence are not 
 
 benevolence. , 
 
 366 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 great. The origin of the donation being apparent, it does 
 not obscure the limits of right and wrong. But any move- 
 ment towards supplying such dwellings by the agency of 
 the State would inevitably have that tendency. It must also 
 exclude the operation of private enterprise. No profit can 
 be hoped for in competing with those who seek no profit, 
 and whose means are without limit. But if, and as soon as, 
 there shall be an effective demand, it will be supplied by 
 private enterprise ; and be supplied in the only way likely to 
 be eflfectual. Without State aid, the workman,, like everybody Supply and 
 else, will get the habitation he wants, as soon as he says what ^^"'^"''■ 
 he wants, and is ready to pay for it. There is no want of 
 capital, or of building skill, or of ground, each at its market 
 price ; and their holders are ready to employ them in any 
 way their customers desire. 
 
 1228. It is not alleged that the classes hitherto so ill sup- 
 plied with house-room are unable to pay for it, of a fair 
 quality ; and, if it were so alleged, it would open quite another 
 question. That they are often unwilling to do so is probable ; Habits ob- 
 because they are often fatally insensible of the loss they 
 sustain from the defective accommodation they now put up 
 
 with. But old habits have to be got rid of, and new ones 
 acquired. This is essential, in the first instance. And if the 
 process is slow, we must have patience. Mere dictation is 
 here out of place. Purer air will be had when its value 
 becomes known. It is almost everywhere accessible to those 
 who like it. Soap and water are not costly; and more 
 breathing-space will take the place of much beer when it 
 is discovered to be both cheaper and better. With haste we 
 may get together a good many better housed paupers, par- 
 tially disguised; but it may fairly be deemed preferable to 
 wait for the more salutary, though slower, action of self-help ; 
 and for the gradual appearance of better informed and more 
 independent fellow-citizens. 
 
 1229. The first duty of the rich to the poor, in such matters. Duty of 
 is the instruction and the guidance of a good example. *^^ "'^^'" 
 
 357 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 If this be given, and be made efifective by frank and friendly 
 communication, without the impertinence of patronage, the 
 rest may safely be left to enlightened self-interest. 
 
 Co/nmu- 
 
 tlisvi 
 
 804 
 
 Results. 
 
 35. 
 1179 
 
 Econoinic 
 
 siia'css. 
 
 1230. Communism has now been very fairly tried in the 
 '"'^ ■ United States ; and the results have been clearly and impar- 
 tially recorded ^. 
 
 1231. Eight different methods of association, the earliest 
 of which has been at work since 1794, have established 
 seventy-two separate communes. But no new ones seem to 
 have been formed during the last thirty years. The whole 
 number of persons in the existing communes seems to be 
 under five thousand ; and this number is steadily decreasing. 
 In about four-fifths of the communes all communion of the 
 sexes is absolutely forbidden. 
 
 1232. In nearly every instance they seem to have suc- 
 ceeded, early in their progress, in providing ample means of 
 subsistence for their members. In some cases they have 
 accumulated considerable wealth. But, in all cases, they 
 have begun with more than a year's subsistence in advance — 
 in all cases they have admitted among them only persons of 
 tried and approved character — in all they have been united 
 by holding, strongly, and in common, religious opinions of a 
 peculiar, and usually of a highly enthusiastic description — 
 and in every instance they have been governed despotically. 
 
 Their economic success is obviously due to their having 
 steadily complied with the ordinary conditions of such suc- 
 cess. They work with great regularity, and under constant 
 superintendence ; but seldom incur much fatigue ; and they 
 hire labour from without, whenever they find it convenient. 
 Idleness, intemperance, and fraud they absolutely exclude ; 
 and so escape all their consequences. They expel all per- 
 sons Avho do not strictly observe their rules. They have little 
 or no amusement ; and generally regard it as sinful. Their 
 
 ' TAe Communistic Societies of the United States ; from personal 
 visit and observation. By Charles Nordhoff. London: Murray, 1875. 
 
 358 
 
'SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 mode of life admits of no extravagance, excepting what is 
 merely mental. It precludes enterprise, and neither prompts 
 to nor affords any scope for invention, for scientific enquiry, 
 or for the cultivation of the arts. And, while they freely 
 avail themselves of all the contrivances and conveniences of 
 the outer world, they contribute nothing to them. Their 
 members have, in fact, retired from ordinary life ; and are no 
 more fitted to afford examples of how such life may be 
 improved, for mankind at large, than were the monasteries of 
 the middle ages. 
 
 1233. It would be a mistake to suppose that communism Commu- 
 implies equality of condition. That can come only with '"■''»"''' 
 equality of personal power. Beneath the dull uniformity of 
 life in these communities, there is considerable variety of 
 position, and of influence. Government is essential to human 
 association ; and communism needs government of the most 
 vigilant kind : for it has, on the one hand, to supply to daily 
 life motives which even stern necessity has hitherto but in- 
 sufficiently elicited among men ; and, on the other, to restrain 
 very strong human tendencies. Nor does it, or can it, mean 
 a life of ease and freedom, even for the select few found fitted 
 for it. As applicable to mankind in general, the clearest ex- Its viethod. 
 pression of its economic method is found in the formula — 
 " From each according to his ability; and to each according 
 to his needs." This, being interpreted by a despotic govern- 
 ment, is as accurately descriptive of Pharaoh's " full tale of 
 bricks," even "without straw" — and of .feeding by "an 
 official diet-table," as of the wild conceptions of those who 
 dream that living at the cost of the State implies unlimited 
 adaptation to personal tastes. 
 
 1234. That the " individualism " of man is inherent — Individu 
 
 , , . . v • v • alism in- 
 
 that, as It preceded private property, so it survives it— is ^^^^^^ ^-^^ 
 
 proved, in a remarkable manner, by the experience of these man. 
 
 societies. Having got rid, by community of property, of every 
 
 569 
 
SOCIALISM, COMMUNISM, AND NIHILISM. 
 
 Other motive to the formation of a family, they have found 
 that sexual inclination, if indulged, would still suffice to main- 
 tain the idea of exclusive possession. The germ of individu- 
 alism is there. The Shakers absolutely and entirely for- 
 bade it j and they, alone, have outlasted two generations. 
 But this points to suicide of the race. In other words, under 
 communism, exclusive love — the prerogative of man — must 
 share the fate of individualism : and the race must either 
 perish or return to the state of the lower animals. 
 
 Individu- 
 alism and 
 syjnpatky. 
 
 1235. It is charged against individualism that, by it, the 
 bounds of right are strictly drawn. It is so. But how else 
 are the fruits of sympathy to be known ? It sets no limit to 
 gift, no bounds to those voluntary concessions which, in a 
 thousand shapes, adorn and soften the relations of the more to 
 the less wealthy of mankind. It, in no way, checks or im- 
 pedes them. Nay, it alone renders them possible ; and lends 
 to them that grace which distinguishes the free gifts of good- 
 will from the extorted relief of wilful want. Without wealth, 
 guarded by right, philanthropy would be without means ; and 
 the joy of wise giving would be reduced to a mere community 
 of suffering. 
 
 J. T. Danson. 
 
 Grasmere, 1885. 
 
 360 
 
INDEX. 
 
 (The figures refer to the numbered paragraphs.) 
 
 ADULTERATION, 788; how led 
 to, 255. 
 
 Africa, trade with, (1785), 1008; 
 (1883), 1015. 
 
 Agency, how dispensed with, 433. 
 
 Agricultural counties, 911. 
 
 Agricultural produce, landowner's 
 share, 358. 
 
 Agricultural rent, 910 ; (in 1851 and 
 1883), 357. 
 
 Agriculture, how begun, 33 ; in Eng- 
 land, 1 06 1. 
 
 Alloy, in coinage, 551. 
 
 Alms, 1140 ; as a source of income, 73. 
 
 Alms-giving, 957. 
 
 America, trade with, (1785), 1008 ; 
 (1883), 1015. 
 
 American Cotton, 1012. 
 
 "paper-money" (1775), 505. 
 
 Annual harvests, make thrift neces- 
 sary, 91. 
 
 Armorial bearings, tax on, 894. 
 
 Arts, dependent on Wealth, 50. 
 
 BANKofEngland,^%^, 509, 562, 565, 
 675, 624; restriction, (1797-1819), 
 
 509, 581. 
 Bank of Venice, 590. 
 Bank-notes, 489, 492, 510 ; not money, 
 
 492, 575 ; (small) in Scotland and 
 
 Ireland, 582. 
 Banker's bills, 607; accounts, 661. 
 Bankers only agents, 652 ; power 
 
 limited, 638. 
 Ranking, definition, 583.; origin, and 
 
 early history, 586. 
 
 Banks of Issue, 625. 
 
 Barcelona, Marine insurance at (1435), 
 698. 
 
 Beer-tax, 871. 
 
 Beet-root sugar, 413. 
 
 Begging, an art, 956. 
 
 Benevolence, possible only with 
 wealth, 45. 
 
 Bi-metallism, 572. 
 
 Bill of Lading, 1037. 
 
 Bill-broker, 633. 
 
 Bills of Exchange, 482, 511, 516, 
 1038 ; use, 603, 617 ; abuse of, 
 638 ; why interest low on, 1042 ; 
 banker's control of, 628 ; his in- 
 terest in using it, 657. 
 
 Book-debts, 487, 518, 523. 
 
 Book-keeping, 697 ; tests profit, 221. 
 
 Borrowed capital, 450. 
 
 Building land, the trade in, 11 22. 
 
 Building-rent, 906, 915. 
 
 Butcher' s-meat, increased price of, 
 
 355- 
 Buyers, rule the market, 228, 787, 
 
 793 ' ignorance of, 255. 
 Buyers and sellers, 784. 
 
 CABITAL, definition, 4^'!; how sup- 
 plied, 454, 459 ; by whom required, 
 456 ; origin of, 90, 370 ; is stored- 
 up labour, 373 ; supplies wages, 
 121, 460; the labourer's view of, 
 374 j right to continued return 
 from, 375 ; fixed and floating, 308 ; 
 follows profit, 296 ; charge for 
 risk of loss, 395 ; new, increases 
 
INDEX. 
 
 demand for labour, 127; produc- 
 tive only with labour and skill, 
 146, 174, 377; " tyranny of," 840 ; 
 frees the person, 841 ; how pro- 
 vided for agriculture, 33, 448 ; 
 government control of, 626, 1156. 
 
 Capital and Labour, their true rela- 
 tion, 126, 162. 
 
 Capitalist and labourer, interest the 
 same, 193. 
 
 Capitalists, their motives and con- 
 duct, 172 ; their true interest that 
 of the community, 177 ; alone earn 
 profit, 224; small, make small pro- 
 fits, 294 ; need foresight, 468. 
 
 Carriages, tax on, 894. 
 
 Channel Islands, trade with (1883), 
 1008. 
 
 Cheapness, the object of all industrial 
 enterprise, 95. 
 
 Checks on increase of population, 
 138. 
 
 Children, average cost of rearing, 
 136. 
 
 Civilization, its food foundation, 27; 
 comes wholly of thrift, 36, 166. 
 
 Civilization and commerce, 435, 
 
 Class-taxation, effect of, 923. 
 
 Clearing-house, 674 ; its principle, 
 676. 
 
 Cocll, its free exportation, 1050. 
 
 Coinage, gold, 551 ; silver, 552 ; and 
 bronze, 555; international, 567; 
 decimal, 568. 
 
 Coining, now honestly done, 577. 
 
 Coins, size and weight of, 569. 
 
 Colonies, 994. 
 
 Combination, workman's right of, 178. 
 
 Commerce, definition, 282, 400 ; its 
 early progress, 418; is mutual 
 service organized, 404 ; now a 
 liberal profession, 476 ; profit of, 
 424. 
 
 Community, of interest in Society, 
 38 ; of property, 804. 
 
 Communism, already tried, 1230. 
 
 Competition, 767 ; necessary to pro- 
 gress, 770, 781 ; how justly hmited, 
 773 ; international, 812 ; favours 
 merit, 814 ; deemed oppressive, 
 816 ; implies co-operation, 431, 
 436- 
 
 Competition and wages, 82, 806 ; in 
 the public service, 808. 
 
 362 
 
 Conscription, 844. 
 
 Consumers, the real paymasters, 255. 
 
 Consumption, checked by rise of 
 price, 241. 
 
 Co-operation, Leclalr's case, 263. 
 
 Co-operation and competition, cor- 
 relative, 833. 
 
 Co-operative buying, 793 ; production, 
 258. 
 
 Co-operative production, needs further 
 trial, 270, 800. 
 
 Cotton trade, 610, loio. 
 
 Courtesy, a saleable commodity, 256. 
 
 Credit, definition, 479; its uses, 484; 
 collects capital, 543. 
 
 Cultivators, attached to locality, 825. 
 
 Custo7ns duties, 877. 
 
 DAIL Y »'Oi?A'in America.England, 
 and abroad, 152. 
 
 Dealer and Constinier, interests iden- 
 tical, 234. 
 
 Dealer's profit, 26, 1121 ; skill, 
 wherein it consists, 238. 
 
 Dealers, service rendered by, 227 ; 
 prefer low prices, 250 ; equalize 
 supply and demand, 231 ; compe- 
 tition of, 248 ; check each other, 
 429. 
 
 Dealing, cost of, 239 ; and gambling, 
 
 275- 
 "Declared Values^'' 1015. 
 Density of population, effect on 
 
 land-rent, 341, 355. 
 Deposits, the basis of banking, 596, 
 
 601. 
 Destitution, evidence of wrong-doing, 
 
 936- 
 Distance, commerce overcomes effect 
 
 of, 69 ; its effect in commerce, 401. 
 Distress, deputed relief of, 1222. 
 Division of Labour, 5, 64, 421. 
 Dogs, tax on, 896. 
 Domestic servants, 975. 
 Duties of the Capitalist-employer, 
 
 465- 
 Dwellings of the poor, 1225. 
 
 EAST INDIES, trade with (1785), 
 
 1008; (1883), 1015. 
 J&cheance of bills, variable, 629. 
 Emigration, effect on wages, 135. 
 Employment for labour depends on 
 
 abundance of capital, 146. 
 
INDEX. 
 
 English foreign trade (1785), 1005. 
 
 "Engrossing" an offence, 232. 
 
 Enterprise, demand for, 472. 
 
 Equality, produced by competition, 
 812. 
 
 Example of the wealthy, 43, 55, 941, 
 980. 
 
 Exchange, its advantages, 64. 
 
 Exchange of service, the basis of com- 
 merce, 19. 
 
 Exchangeable value, 56 ; its basis in 
 human service, 62. 
 
 Excise duties, 87s- 
 
 Experience, its use in direction, 823. 
 
 Exports and Imports (1785 and 1883), 
 1016. 
 
 Expropriation of land, 1067. 
 
 "FAIR day's work for a fair day's 
 
 wage," 90. 
 "Fair'' trade, 1055. 
 Family, the, its necessity, 25. 
 Farming capital, 448. 
 Fees, a form of wages, 105; to sei- 
 
 vants, 256. 
 Fertility, not an invariable incident of 
 
 land, 335-347. 
 Finance banking, 620. 
 Fire-insurance, 701, 724. 
 Food imported, 1026 ; home supply, 
 
 1064. 
 Forbearance, the origin of capital, 
 
 371- 
 
 Foreign comm.erce, definition, 985 ; 
 extent, (1785 and 1883), 989; 
 nature, then and now, 992 ; is all 
 the work of dealers, 254. 
 
 Foreign Exchanges, 1028. 
 
 Foreign relations, importance of, 991. 
 
 Foreign West Indies, trade with (1785), 
 1008; (1883), 1015. 
 
 "Forestalling" an offence, 232. 
 
 Free commerce, favours all ability, 
 416; its moral effect, 434; eventu- 
 ally co-operative, 436 ; its expedi- 
 ency, 1045. 
 
 Free market, what it means, 779. 
 
 Free trade, best for all, 252 ; means 
 production at least cost, 408. 
 
 Freedom, how alone attainable, 30; 
 of exchange, always beneficial, 68. 
 
 Freights, outward and homeward, 
 1021. 
 
 French assignats, (1790), 499. 
 
 GEORGE'S ih.eoTy ofrerA, 351. 
 Gold, cost of coining, 559 ; price of, 
 
 561. 
 Gold and land, held by same title, 
 
 1078. 
 Gold and Silver, why best for coin, 
 
 566. 
 Good example, due by the rich, 43, 55, 
 
 465, 941, 980, 1229. 
 Government banking, 622. 
 Government interference with trade, 
 
 824. 
 Grain food, necessary to civilization, 
 
 26. 
 Gratuitous teaching, effect of, 106 ; 
 
 credit, 535. 
 Ground-rent, 907. 
 
 HAIR POWDER, tax on, 894. 
 Hand-loom weavers, 817. 
 Harvest, only annual, the effect, 92. 
 Head-work, all work requires it, 152. 
 High profits, fairly earned, good for 
 
 all, 149, 179, 181, 296. 
 High wages, desired by masters, 117, 
 
 185, 193- 
 Home-trade, the banking of, 672. 
 Honesty, its necessity, 12; its value, 
 
 109, 748. 
 " Hopeless poverty,'' 1200. 
 House tax, 895 ; history of, 8g8.' 
 
 IGNORANCE, tax on, 854. 
 
 Impressment, 843. 
 
 Imprisonment for debt, how abolished, 
 841. 
 
 Income, justified only by service, 70 ; 
 primai-y forms of, 71 ; commonly 
 derived from several sources, 75,77; 
 its sources should be distinguished, 
 78 ; modes of taxing, 866 ; taxed, 
 and not expended, 892 ; some im- 
 justly taxed, 885. 
 
 Income-tax, perfect in theory, 853 ; 
 its incidents, 881 ; on small incomes, 
 883 ; unequal bearing, 8b6. 
 
 Increase of population, how provided 
 for, 144. 
 
 Independence brings responsibility, 
 823. 
 
 Indian coinage, 574. 
 
 Indirect tax, an addition to price, 
 873- 
 
 363 
 
INDEX. 
 
 Indirect taxation, distributed, 918; 
 
 effect of clianging, 921. 
 Individualism, 1137, 1142 ; inherent 
 
 in man, 1234; aids sympathy, 
 
 1235- 
 
 Industrial enterprise, aims at lower 
 prices, 96. 
 
 Industrial progress, increases our 
 mutual dependence, 213. 
 
 Industry, its necessity, 12. 
 
 Infancy, length of human, 24. 
 
 Inspection of factories, etc., 440. 
 
 Insurance, definition, 6S0; its recent 
 origin,fi92; contract of, 728, 741, 746- 
 
 Insurance and banking, 744. 
 
 Inteviperance follows deficient supply, 
 42. 
 
 /«to-M/, defined, 359; is measured by 
 time, 360 ; is a price, 378 ; service 
 rendered for, 71 ; formerly for- 
 bidden, 361, 396 ; why just and 
 expedient, 362 ; varies, mainly, with 
 the security, 380 ; when and where 
 lowest, 380 ; often paid and not 
 perceived, 385 ; paid before profit, 
 201; often mixed with profit, 205 ; 
 the most variable of prices, 391, 
 paid, daily, in all commerce, 392 ; 
 under English law, 396 ; in France, 
 399 ; prompts to saving, 457. 
 
 Invention, need for, 473. 
 
 Ireland and the Channel Islands, 
 trade with, (1785), 1008. 
 
 "Iron and cruel law,'" I152. 
 
 /i^a/j/, trade with,(1785), 1008 ; (1883), 
 1015. 
 
 JOINT-STO CjTproduction, facilities 
 for, 271. 
 
 KARL MARX, Communist, 1159. 
 
 LABOUR, productive and unproduc- 
 tive, 99; varying value of, 104; 
 when skilled, implies capital, 106 ; 
 effective, lowers prices to labourers, 
 160 ; why submitted to capital, 166 ; 
 to be worth more, must produce 
 more, 193 ; obstructed, produces 
 less, 193; how best sold, 1191; its 
 true value, 1201. 
 
 Labour-problem, the solution, 11 77, 
 121 2; its political aspect, 121 3. 
 
 364 
 
 Labourer and capitalist, interest thi 
 same, 193. 
 
 Labourers, do not refrain from mar 
 riage, 145 ; in town and in coimtry 
 1 102; leaving the land, 1103. 
 
 Labouring classes, savings of, 354. 
 
 Land, why it rises in value, 318 
 varying value of, in England, 340 
 how caused, 341 ; not monopolzied 
 345. 1073 ; tenure of, 1057 ; hov 
 justly appropriated, 1072 ; exclusiv 
 taxation of, 901 ; unequally owned 
 1083; "Natural" right to, 1085 
 quantity in the world, 1087 ; ii 
 English possession, 1089 ; waitinj 
 for occupiers, 1091 ; its future dis 
 posal, 1092 ; improved mode o 
 transfer, 11 26; new, duty of thi 
 State, 1094 ; state ownership, 1097 
 now cheaper than ever, 11 00. 
 
 Land-rent, the price of a local advan 
 tage, 333, 346. 
 
 Land-taxes, defects of, 909. 
 
 Land-value, has two elements, 904. 
 
 Landowner's interest, the same as tha 
 of the community, 350. 
 
 Lassallb, Socialist, 1155. 
 
 Latin Union (for coinage), 554. 
 
 Law, interfering with prices, 233. 
 
 Laws regulating interest, how evaded 
 
 397- 
 Leases, why sometimes long, 319. 
 Licence duties, 880. 
 Life-insurance (Pascal and De Witt) 
 
 711 ; Code Napoleon, 707 ; in Eng 
 
 land, 713 ; principles, 721 ; effect of 
 
 759 ; various methods of, 766. 
 Light gold com, 562. 
 Limitations, Statute of, 522. 
 Limits on labour, their effect, 181 
 
 183. 
 Loans to various borrowers, 383. 
 Local advantage the basis of land 
 
 rent, 333, 346. 
 Local taxation, incidence of, 910. 
 London the chief centre of banking 
 
 670. 
 Low Prices, good for all, 96, 233, 250 
 
 429. 
 
 MA CHINE - BREAKING, mad( 
 
 penal, loii. 
 Machinery, an improved use o: 
 
 capital, 187 ; its effect on wages 
 
INDEX. 
 
 188 ; supersedes only hand- work, 
 191 ; use of, promoted by strikes, 191. 
 
 Male servants, tax on, 896. 
 
 Man, his primary impulses, 23 ; na- 
 tural weakness, 34. 
 
 Manners, in trade, 256, 
 
 Manufactures exported, 1025. 
 
 Marine insurance, 6q^ 698, 710, 725, 
 
 73°- 
 Market, free and open, good for all, 
 
 233. 416, 627, 778, 1045. 
 Market prices, settled by buyers, 65. 
 Marr, Nihilist, 1160. 
 Marriage, necessary to society, 29; 
 
 checked by high standard of com- 
 fort, 140. 
 Men, not bom free, or equal, 30 ; differ 
 
 in condition, as in power, 32. 
 Monetary ease, 646. 
 Money, definition, 546 ; in England 
 
 and Germany, 551 ; in France, 552 ; 
 
 in the Latin Union, 554; is a 
 
 national fund, 580. 
 Money-broker, 632. 
 Money-lender, 631. 
 Money-market, pressure on, 640. 
 Monopoly, none in ownership of land, 
 
 345. 
 Muttial service, the basis of society, 
 
 16, 831. 
 
 NA TIONAL AD VANTA GES only 
 
 conditional, 414. 
 National debt useful, 744. 
 National taxation, comparative, 846. 
 Nations, the wealthy most civilized, 50. 
 " Natural Right;' a phrase without 
 
 meaning, 21. Natural powers of 
 
 the soil, 327. 
 Naval power, 994; supremacy, 1027. 
 Needle-women, distressed, 827. 
 Nominal and real wages, 93. 
 North American Colonies, trade with, 
 
 (1785), 1008; (1883), 1015. 
 Northern Europe, trade with, (1785), 
 
 1008; (1883), 1015. 
 
 "OFFICIAL" VALUES, 1002. 
 Old errors revived, 1216. 
 Overend, Crumey, &• Co., 635. 
 
 "PAPER money;' ^^?,, 526- 
 
 Partners, numerous, obstructive, 268. 
 
 Pauperism, 927 ; origin in England, 
 934 ; early legislation, 960 ; a tax 
 on thrift, 946 ; law of Elizabeth, 
 962 J relief in aid of wages, 964 ; 
 law of 1834, 966 ; law of settle- 
 ment, 972 ; foreign methods, 973 ; 
 advantage of our system, 977 ; 
 results of experience, 970 ; the 
 future, 979. 
 
 Payments postponed, by discount, 603. 
 
 Peace of Vl%i, 998. 
 
 Personal freedom promoted by thrift, 
 841. 
 
 Personal service, as taxation, 838, 
 846. 
 
 Platina, tried for coinage, 566. 
 
 Political economy, its purpose and 
 method, 2 ; how founded, 5 ; its 
 motive power, 10; scope of, 44, 
 805 ; favours effective sympathy, 
 44, 1235; as a science, is imperfect, 
 53 ; its technical terms, 302. 
 
 Political freedom may introduce bad 
 political economy, 186. 
 
 Poor-relief, private, 950 ; public, 952 ; 
 its objects, 958. 
 
 Population, rate of increase, when 
 unchecked, 137; urban and rural, 
 1063. 
 
 Poverty, of any, injures all, 40 ; leads 
 to crime, 42 ; not caused by rent, 
 351 ; its causes often inherited, 
 940. 
 
 Price, definition of, 67, 233 ; reduced 
 only by cheaper production, 98 ; 
 rising, its economic effect, 237 ; 
 of gold, 561. 
 
 Prices, rise and fall within limits, 128 ; 
 how best raised, 152 ; effect of 
 interest on, 386. 
 
 Primogeniture, 1134. 
 
 Private charity, 950, 1213, 1227. 
 
 Private property, basis of, 372. 
 
 Producing and Dealing, why sepa- 
 rated, 389. 
 
 Production, various forms of, loi. 
 
 Profit, defined, 195 ; is a residuum, 
 200 ; service rendered for, 71 ; 
 seldom clearly defined, 205, 215, 
 321 ; is earned only by a capitalist, 
 222 ; often mixed with Interest, 
 205 ; labourer's view of, 257 ; rate 
 of, how determined, 290 ; highest 
 where risk new, 293, 297 ; causes of 
 
 365 
 
INDEX. 
 
 variation, 293 ; workman's interest 
 
 in promoting, 149, 179, 181. 
 Profit and Interest, as mingled, 384. 
 Profit and Wages, their relation, 154. 
 Profits, high, indirectly raise wages, 
 
 158. 
 Progress, dependent on wealth, 51. 
 "■Progress and Poverty" 351. 
 Promissory Notes, 488. 
 Property in land, 1056, 
 Providence, its necessity, 12 ; man 
 
 differ in, 34. 
 Prudence promoted by insurance, 76 1- 
 Publicity always beneficial, 478. 
 Purchasing power of wages, 95. 
 
 QUICKER TRANSIT, effect of, 
 386, 468. 
 
 RAPIDITY OF TRANSIT, saves 
 interest, 386. 
 
 Rate of wages, depends on productive- 
 ness of labour, g8. 
 
 Raw materials, imported, T026. 
 
 Real, and nominal wages, 93. 
 
 ^' Regrating^^ an offence, 232. 
 
 Remittantes, 599. 
 
 Rent, hitherto ill-defined, 302 ; de- 
 finition, 305 ; different forms of, 
 311 ; for loan of Consuls, 314; is 
 usually higher than interest, 315; 
 enhanced by depreciation in use of 
 thing lent, 316; service rendered 
 for, 71, 348 ; Ricardo's theory of, 
 322; is income from fixed capital, 
 207 ; is paid before profit, 201 ; often 
 mixed with wages, and profit, 321 ; 
 and with interest, 205 ; Mr. George's 
 theory, 351. 
 
 Rent of land, always based on locality, 
 
 333- 
 Rent of machinery, and of ships, 
 
 320. 
 Retail dealer, service rendered by, 
 
 229. 
 Retail dealers, and Co-operative stores, 
 
 794- 
 Ricardds theory of Rent, 322 ; defects 
 
 of, 33^- 
 Rights, none prior to society, 21. 
 Rise of price, effect on supply, 240. 
 Risk, anticipation of, 683. 
 Roads, repair of, 845. 
 Rules of Trades Unions, 11 71. 
 
 366 
 
 SA VING, hard to begin, 1207. 
 
 Saving and moving, modes of pro- 
 gress, 1208. 
 
 Savings of workmen, 354. 
 
 Savings Banks, (1850-1883), 11 94. 
 
 Scarcity of capital, 640. 
 
 Self-denial, the source of capital, 458. 
 
 Service, vrithout exchange, seen only 
 in the family, 25 ; why paid for, 
 66 ; valued by those who receive it, 
 III. 
 
 Ship-owning and insurance, 730. 
 
 Shipping, (\%%Z), 1019. 
 
 Shop-rent, high, in great thorough- 
 fares, 343. 
 
 Skill, exchangeable value of, 63 ; adds 
 to wages, but not to cost of living. 
 
 Skill and honesty enhance wages, 
 
 112. 
 Slavery, an early form of taxation, 
 
 839- 
 Slavery and wage-earning, I184. 
 Small freeholders, why disappearing, 
 
 1103. 
 Smuggling, 877. 
 
 Socialism, 1137, 1145; what it pro- 
 poses, 1211 ; continental, 11 54. 
 Society, based on mutual service, 831 ; 
 
 is a partnership, 983 ; is co-operative, 
 
 in effect, 777, 829, 
 Southern Europe, trade with, (1785), 
 
 1008 ; (1883), 1015. 
 Speculation in stocks and shares, 
 
 285. 
 Speculative dealing, 281 ; use of, 288. 
 Speculative periods , 642, 648, 
 Speed, and cost, of carriage, 617. 
 Spinning machinery, loio. 
 Stamp duties, 879. 
 "Standard of comfort," eSect on wages, 
 
 132; raised since 1816, 133; 
 
 means of sustaining, 135. 
 Standard of value, gold or silver, 570; 
 
 single or double, 572. 
 State-education, probable result of, 
 
 1223. 
 State-theft, 1215. 
 Statistics of trade, 477. 
 Steam-machinery, (1785), 1013. 
 Steam-ships, over-building of, 467. 
 Strikes make profits uncertain, 182 ; 
 
 injure the better workmen, 183. 
 Stupidity, tax on, 854, 873. 
 
INDEX. 
 
 Suburban building land, 1106. 
 
 Supply, increased by rise of. price, 
 240. 
 
 Supply, of capital, its effect on in- 
 terest, 381. 
 
 Sympathy, why necessary, 5, 13. 
 
 TAXATION,?,^; history, 835; by 
 personal service, 838; is an art, 
 839 ; in ancient Rome, 850 ; why 
 impferfect, 855, 925 ; in the. Middle 
 Ages, 856 ; Adam Smith's rules, 
 860 ; should be equal, S63. 
 
 Taxation and Representation, 883. 
 
 Taxes, ad valorem, 877; several neces- 
 sary, 899. 
 
 Taxes on Income, as made, 869 ; as 
 received, 881 ; as expended, 892. 
 
 Tea, importation of, 425. 
 
 Teaching, gratuitous, effect of, 106. 
 
 Theft, 1 140 ; as a source of income, 
 
 73- 
 Thrift, the only source of capital, 33 ; 
 of labourers now important, 147, 
 354 ; removes poverty, 36 ; by 
 labourers, supplies capital, 37 ; 
 promoted by payment of interest, 
 
 457- 
 
 Time, commonly measures rent, and 
 always interest, 313. 
 
 Title to land, 1069. 
 
 Town lots, America and Australia, 
 1109. 
 
 Town population, rapid growth, 1063. 
 
 Town residents, ignorance of rural 
 land, 1 106. 
 
 Trade in 1785 and 1883, 1001 ; offi- 
 cial accounts, 1785, 1004. 
 
 Trades Unions, action of, 127; pro- 
 mote the use of machinery, 191 ; 
 are not consistent, 811 ; operation 
 on house-rent, 355 ; loss by, 1172 ; 
 make labour less efficient, 184 ; 
 effect on the workmen's future, 1 1 70. 
 
 Transfer of land, 1126. 
 
 Transit, freedom and rapidity of, al- 
 ways beneficial, 68 ; rapid, equalizes 
 prices, 517. 
 
 Treaty with France, (1786), 999. 
 
 Tropical produce, command of, 996. 
 
 " Tyranny " of Capital, 840. 
 
 ^'UNEARNED INCREMENT," 
 as to land, 1099, 1 106 ; as to 
 
 personal property, mi, 1121 ; the 
 
 phrase fallacious, 11 14. 
 Uniform wages, ill effects of, 184; 
 
 how varied, in effect, 114. 
 C/«zfei/5toto,tradewith, (1785),ioo8 ; 
 
 (1883), 1015 ; coinage, 573. 
 Use of insurance, 687. 
 Usury, as a term for Interest, 371. 
 
 VALUE, found only in human ser- 
 vice, 63. 
 
 Value of insurance, 688. 
 
 Values, increased by lapse of time, 
 1 1 10. 
 
 WAGE-EARNERS, their position, 
 34 ; their way to independence, 36 ; 
 their dependence involves no injus- 
 tice, 37 ; their view of wages, 80 ; 
 sympathy with, 86 ; their subjection 
 needless, 11 87; its cessation de- 
 sirable, 1203; their condition not 
 new, 1209; why weak, 1183; their 
 savings, 1194; their condition mis- 
 stated, 1 1 99; their future, 11 64; 
 their just share, 1150. 
 
 Wage-earning, Nature's ultimatum, 
 
 1179. "93- 
 
 f^a^j, service rendered for, 71; aprice, 
 82 ; rate of, how commonly discuss- 
 ed, 82 ; weekly, why necessary, 89 ; 
 earner of, dependent on the thrift 
 of others, 91 ; nominal and real, 
 93 ; why they vary, 104 ; only 
 uniform for uniform work, 119; 
 supplied by capital, 121, 460; rise 
 of, how caused, 122; fall of, how 
 caused, 125 ; forced rise, effect of, 
 127; highest limit of, 130; lowest 
 limit of, 131 ; as a rule, always 
 paid, 175 ; how settled, in practice, 
 184; paid before Rent, Interest, or 
 Profit, 201 ; often mixed with profit, 
 206 ; extra, not share of profit, 269 ; 
 rise of (1845, 1885), 355 ; tax on, 
 883. 
 
 Wages, by Nature, only annual, 35. 
 
 Wages and Interest, right to, identical, 
 
 377- 
 
 Waste, workmen may often prevent, 
 151. 
 
 Wealth, a common benefit, 40 ; neces- 
 sary to duty, 41 ; desire for, legiti- 
 mate, 41 ; its duties, 55, 465, 941, 
 
 367 
 
INDEX. 
 
 1329; not produced only by 
 " labonr," loi; two leading uses of, 
 368 ; promotes freedom, 842, 942. 
 
 Wealthy classes do not maintain their 
 own numbers, 142. 
 
 West Indies (British), trade with, 
 (irSS), 1008 ; (1883), 1015. 
 
 Work, faithfulness in, raises wages, 
 I6J- 
 
 Workman, his true interest, 178 ; 
 
 mere, cannot share profit, 269. 
 Workmen, sharing profit, 263 ; their 
 
 power in production, 148 ; paid by 
 
 the productiveness of their labour, 
 
 114. 
 Workmen s investments, 272, 354; 
 
 their own best protectors, 446. 
 Workshop, British, 1024. 
 
 THE END. 
 
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