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A POLICY OF FREE EXCHANGE 
 
HORACE HART, PRINTER TO THE UNIVERSITY 
 
A POLICY / 
 
 FREE EXCHANGE 
 
 ESSAYS BY VARIOUS WRITERS 
 
 ON THE 
 
 ECONOMICAL AND SOCIAL ASPECTS OF FREE EXCHANGE 
 AND KINDRED SUBJECTS 
 
 EDITED 
 
 By THOMAS MACKAY 
 
 EDITOR OF 'a plea FOK UBERTY ' 
 
 NEW YOEK 
 
 D. APPLETON AND CO. 
 
 1, 3 AND 5 BOND STEEET 
 
 1894 
 
 P 
 
A. t<?5.5-' 
 
 ' Let not the people — I mean the masses— think lightly of those great 
 principles upon which their strength wholly rests. The privileged and 
 usurping few may advocate expediency in lieu of principles, but depend 
 upon it we, reformers, must cling to first principles, and he prepared 
 to carry them out, fearless of consequences. ... I yield to no man in 
 the world (be he ever so stout an advocate of the Ten Hours Bill) in 
 a hearty good-will towards the great body of the working classes ; but 
 my sympathy is not of that morbid kind which would lead me to 
 despond over their future prospects. Nor do I partake of that spurious 
 humanity which would indulge in an unreasoning kind of philanthropy 
 at the expense of the independence of the great bulk of the community. 
 Mine is that masculine species of charity which would lead me to inculcate 
 in the minds of the labouring classes the love of independence, the privi- 
 lege of self-respect, the disdain of being patronised or petted, the desire 
 to accumulate, and the ambition to rise. I know it has been found 
 easier to please the people by holding out flattering and delusive 
 prospects of cheap benefits to be derived from Parliament rather than 
 by urging them to a course of self-reliance ; but, while I will not be 
 the sycophant of the great, I cannot become the parasite of the poor ; 
 and I have sufficient confidence in the growing intelligence of the 
 working classes to be induced to believe that they will now be found 
 to contain a great proportion of minds, sufficiently enlightened by 
 experience to concur with me in the opinion that it is to themselves 
 alone individually that they, as well as every other great section of the 
 community, must trust for working out their own regeneration and 
 happiness. Again I say to them Look not to Parliament, look only to 
 yourselves.' — From a Letter of Richard Cobden, dated October 21, 1836. 
 
ESSAYS AND CONTBIBUTOBS. 
 
 I. The Science of Economics and its relation to Free 
 
 Eaxhange and Socialism . . . . i 
 By Henet Dunning MacLeod. 
 
 II. The Coming Industrial Struggle .... 47 
 By William Maitland. 
 
 III. National Workshops 85 
 
 By St. Loe Steachey. 
 
 IV. State Socialism and the Collapse in Australia . 103 
 
 By the Hon. J. W. Foetescue. 
 
 V. The Influence of State Borrowing on Commercial 
 
 Crises 143 
 
 By Wynnaed Hoopee. 
 
 VI. The State in Relation to Railways . . -163 
 By W. M. AcwoETH. 
 
 T 
 
 VII. The Interest of the Working Class in Free 
 
 Exchange an 
 
 By Thomas Mackay. 
 
 VIII. The Principle of Progression in Taxation . . 249 
 By Beenaed Mallet. 
 
 IX. The Law of Trade Combinations. . . . 275 
 By the Hon. Alfeed Lyttelton. 
 
PBEFA CE. 
 
 The articles contained in this volume have been written by 
 the various authors independently. For the title, the preface, 
 and for such general argument as is to be found in the book 
 as a whole, no responsibility necessarily attaches to the writers, 
 who are answerable each for his own contribution and for 
 that only. 
 
 The title suggests that the principle of Free Exchange is 
 capable of inspiring a constructive policy, in which freedom 
 is limited only by a mutual respect for the freedom of all, 
 that is, by the reciprocal responsibility inherent in every 
 voluntary act of Exchange : the articles have been arranged, 
 as far as possible, according to the natural sequence of 
 thought ; and for this attempt to give an appearance of unity 
 of design the Editor is alone responsible. 
 
 The first paper, from the pen of Mr. H. D. Mac Leod, gives 
 an historical sketch of the course of economic speculation with 
 regard to the doctrine and policy of Free Exchange. He 
 traces the rise of freedom of internal and international trade 
 from the teaching of the French Economists and Adam Smith, 
 and points out how the misconceptions of Ricardo and his 
 followers on the subject of value have led mankind astray, 
 and confused in the most mischievous manner all our ideas on 
 the economic mechanism of society. 
 
 Free Trade, he argues, is the first great benefit which just 
 economic reasoning has conferred on this country. The task 
 before this and the next generation must be the clear 
 establishment of the truth that a largely increased production 
 of wealth and its equitable distribution among all classes of 
 
viii Preface. 
 
 the population can be attained only by developing the facility 
 and the multiplicity of exchange — in other words, by Free 
 Exchange; and, further, that this rule is applicable to all 
 forms of value, whether they be labour or credits or material 
 commodities. 
 
 Mr. Maitland draws attention to a problem of the immediate 
 future. The adoption of Free Trade by America will produce, 
 without doubt, great industrial changes. If we are to retain 
 our markets, in face of the decreased cost of production which 
 this policy wiU permit in America, we must cast off from us 
 all unnecessary burdens and all unnecessary restrictions. 
 Mr. Maitland's argument is designed to show that our political 
 leaders are very little alive to the reality of this danger. 
 Changes such as he forecasts can only be met by permitting 
 the principle of Free Exchange to be the distributor both of 
 capital and labour. It is one of the evil consequences of 
 Protection that, even when men become persuaded of its 
 injustice and folly, they cannot return to Free Trade without 
 causing considerable economic disturbance. We are about to 
 encounter an industrial crisis arising from this cause ; and it 
 is Mr. Maitland's argument that such redistribution of the 
 industrial markets, as is inevitable, wiU come on us more 
 gradually and with less suffering, if we accept the principle of 
 Free Exchange in every relation of life. Thus encountered, 
 the process of change need have for us no terror, for it must 
 ultimately lead to an ever- increasing satisfaction of human 
 wants at an ever-decreasing expenditure of human exertion. 
 
 Mr. Strachey gives an account of the Ateliers Nationaux of 
 Paris in 1848. The attempt was there made to give labour 
 a right to force the community to purchase it for wages. 
 This violation of the principle of Free Exchange rapidly — 
 in three months' time — produced anarchy and revolution. 
 
 Mr. Fortescue's paper deals with a somewhat similar 
 attempt in our own Colonies to carry on civilization by that 
 vast system of public works which is most briefly described 
 under the term State Socialism. 
 
 Another aspect of the same problem is treated by Mr. 
 Hooper from the purely financial point of view. The pledging 
 
Preface. ix 
 
 of tlie credit of taxpayers for government borrowing and 
 government trading is a contravention, possibly in many cases 
 a necessary contravention, of the principle of Free Exchange. 
 Mr. Hooper shows how treacherous a basis for the expansion 
 of industry this method affords, and how readily it lends itself 
 to the creation of disastrous financial complications. 
 
 Mr. Acworth deals with the vexed question of State- 
 interference in railway management. He shows what a limited 
 amount of truth there is in the allegation that a railway is 
 a monopoly. On the important question of tariff legislation, 
 subject to the necessity of State-interference legislative, 
 judicial, and executive for the purpose of preventing undue 
 preferences and uni'easonable discriminations, he is disposed 
 to leave the public and the railways to deal with each other 
 on the principle of Free Exchange. In most other respects 
 he suggests that more advantage will be gained by an enforce- 
 ment of publicity than from any other form of regulation. 
 Just as in the great Free Trade controversy, the maxim was 
 laid down that a hostile tariff is best combatted by a more 
 thorough free trade, so Mr. Acworth argues that the difficulties 
 arising out of an alleged monopoly, like a railway, are best 
 overcome, not by turning it into a real monopoly in the hands 
 of a government department, but by subjecting it as far as 
 possible to the health-giving influence of publicity and Free 
 Exchange. 
 
 Mr. Mackay's paper deals with the principle of Free Exchange 
 in its relation to the property of the working classes in their 
 own labour and in their own savings. The argument seeks to 
 justify the opinion that Free Exchange is capable of becoming 
 to labour what a right of free mintage is to bullion, viz. 
 a certain guarantee of employment and wages ; further that, 
 in the vast series of exchanges which constitute the economic 
 mechanism of a free community, the value of labour must 
 unceasingly tend to enhancement. It is, therefore, to the 
 organizing influence of Free Exchange that labour has to look 
 for the realization of its legitimate ambition. 
 
 Here the controversial portion of the volume may be said 
 to end. The two papers which follow, though not, strictly 
 
X Preface. 
 
 speaking, covered by the title, have a relevance which is suffi- 
 ciently obvious. Mr. Mallet's paper is a theoretical discussion 
 of one aspect of the interesting problem of taxation. The 
 principle of progression or graduation has been already, as he 
 points out, either avowedly or unconsciously adopted in the 
 financial system of most civilized countries, and its extension 
 is to be looked for in the future. Unless the theory be 
 deliberately adopted that taxation is to be used as a lever 
 for redressing the inequalities of fortune between the different 
 classes of a community, there is, he thinks, much exaggeration 
 both in the fears and in the hopes which this proposal evokes. 
 In the distinction, as stated by Jevons, between value and 
 utilities, he finds a defence of a progressive as opposed to 
 a merely proportional rate of taxation ; but he shows that at 
 a point, which can only be discovered by actual experiment, 
 the abstraction by the State of the surplus wealth of indi- 
 viduals may become not merely a deduction from the wealth 
 of a country, but a positive bar to its further growth ; further, 
 that taxation is just and politic when it aims at equalizing the 
 sacrifice imposed on individuals, but that it is the reverse 
 when it seeks to equalize incomes. 
 
 Mr. Lyttelton, in explaining the state of the law with 
 regard to trade combinations, has adhered strictly to the 
 legal aspect of the question. If there is any force in the 
 argument contained elsewhere in the book that, as regards 
 labour as well as all other forms of wealth. Free Exchange, 
 and not coercive combination, should be our rule of guidance, 
 it is obvious that an estimate of the intricacies of the law of 
 trade combinations is an interesting and pertinent addition 
 to the controversy, even though, as in this case, the writer 
 confines himself to a statement of fact, and takes no responsi- 
 bility for the general argument in which his narrative may 
 serve as an illustration. 
 
 Thomas Mackay. 
 
SYNOPSIS OF CONTENTS. 
 
 The Science of Economics and its kelation to 
 Feee Exchange and Socialism. 
 
 Present chaotic condition of economic 
 speculation, its cause, due to neglect 
 of proper definition of the subject- 
 matter of a Science. Adam Smith 
 not the founder of Economics and 
 Free Trade. Political Science due, 
 like medicine, to the sufferings of 
 mankind, its birthplace was 
 Prance Page 4 
 
 Early attention paid to theory of 
 money, but true principle of trade 
 much misunderstood .... 5 
 
 The sect of the 'Economists.' Their 
 opinions, their contention in favour 
 of Free Trade 6 
 
 An abstract of their doctrine, esta- 
 blishing Liberty and the right of 
 Property as fundamental principles 
 of civilized society . . . 7-10 
 
 Their doctrine concerning commerce ; 
 their assertion that exchangeability 
 is the essence of vfealth ; their 
 denial of the title of wealth to 
 labour and credit, the error of this 
 exclusion demonstrated . 10-15 
 
 The service rendered by the Econo- 
 mists in exposing the fallacy of 
 the Balance of Trade doctrine that 
 in every exchange one side was 
 a loser 15 
 
 Their opinion that neither side lost 
 or gained ; that labour engaged in 
 agriciJture was the only productive 
 
 labour ; all other labour sterile 
 and unproductive . . . . 15, 16 
 
 Such doctrine provocative of reaction. 
 Adam Smith and Condillac show 
 that in commerce both sides gain, 
 the immense importance of this 
 demonstration 17 
 
 Adam Smith's further criticism of 
 the Economists shows the error of 
 confining term wealth to material 
 products of the earth ; he includes 
 labour and credit in the category 
 of wealth, but later on loses sight 
 of this, and proposes various irre- 
 concileable definitions . . 18-20 
 
 The confusion introduced by J. B. 
 Say's adoption and misconstruction 
 of one expression of the Econo- 
 mists ; ' Production, Distribution, 
 and Consumption ' .... 21 
 
 J. S. Mill the disciple of Say. His 
 definitions of wealth, their incon- 
 sistency. In the hands of Say and 
 Mill the science brought to an 
 impasse 21-25 
 
 Summary of the bearing of doctrine 
 of Economists and Adam Smith on 
 Free Trade ; various infringements 
 of Free Trade considered and 
 shown to be robbery. Protection, 
 Slavery, the law of the 'Maximum,' 
 all are forms of Socialism . 25-30 
 
 Error of supposing that England 
 
xu 
 
 Synopsis of Contents. 
 
 should abandon Free Trade because 
 other nations have not adopted it. 
 ' If one tariff is bad, two are 
 
 worse' 31 
 
 Next, the relation of economic specu- 
 lation on socialism. This turns 
 mainly on the definition of value 
 
 34 
 
 The contradictory statements of 
 Adam Smith, the true theory held 
 by Economists and the ancients, 
 error introduced by Locke. Adam 
 Smith's doctrine considered at 
 length, his hopeless attempt to 
 make labour an invariable standard 
 of value, its inadequacy demon- 
 strated 35-40 
 
 The same confusion throughout Ri- 
 cardo, his dogma that labour is 
 the foundation of all value, its 
 obvious untruth .... 40, 41 
 
 M^CuUoch and Carey take the same 
 view 42 
 
 The importance of this doctrine 
 consists in the fact that it is 
 
 made the foundation of social- 
 ism 43 
 
 The doctrine that working men are 
 the creators of all wealth and value 
 tested by ten examples ... 43 
 
 Credit, its nature, and the obvious 
 absurdity of saying that working 
 men have given it its value . 44 
 
 Credit is a mass of exchangeable 
 property, in the creation of which 
 manual labour has had absolutely 
 nothing to do 45 
 
 The alleged equity of socialism based 
 on the Ricardian doctrine of value 
 is thus disproved 46 
 
 Labour has value, as being exchange- 
 able, and there is no reason to 
 withdraw it from the operation of 
 the principle of Free Exchange, 
 which is at once equitable and 
 beneficent 46 
 
 Conclusion that the basis of value is 
 exchangeability, and that the 
 chaotic state of Economics is due 
 to the neglect of this principle 46 
 
 II. The Coming Industrial Struggle. 
 
 The inaugural address of President 
 Cleveland suggests that the Man- 
 chester school, if dead in England, 
 has come to life again in the 
 United States 49 
 
 America the only really protectionist 
 state. The policy has failed, and 
 a new era is beginning ... 50 
 
 In England, on the contrary, we are 
 retracing our steps and returning 
 to protection 51 
 
 The object of this paper to forecast 
 the result of this policy in the two 
 countries .... ... 5a 
 
 The view of President Cleveland con- 
 trasted with that of English poli- 
 ticians : quotations from his inau- 
 gural address and from speeches 
 by Sir William Harcourt, Mr. 
 Arnold Morley, Sir John Gorst, 
 
 Mr. Campbell Bannerman, Mr. John 
 Burns 52-57 
 
 President Cleveland's policy the 
 beginning of the end of protection. 
 Opinion that this will enable us to 
 compete successfully with American 
 manufacturers entirely en-oneous. 
 The reduction of cost of production 
 in America will, for the first time, 
 make their competition formidable 
 to us 58 
 
 Some of the conditions of English 
 and American manufacture con- 
 sidered 59 
 
 American high wages, under present 
 conditions, exaggerated. Proba- 
 bility that with free trade they 
 will rise and take from us our 
 skilled labour 6a 
 
 The change of policy in America to 
 
Synopsis of Contents. 
 
 Xlll 
 
 be regarded with equanimity if we 
 were adhering to free trade . 64 
 
 Still we are in possession — only our 
 own criminal folly can rob us of 
 it 6s 
 
 Looking at home, there is much to 
 disquiet us — politicians doling out 
 protection to secure votes. Policy 
 of Mr. Bright and Lord Shaftesbury 
 compared 67 
 
 Mr. Chamberlain reintroduces pro- 
 tection under the alias of construc- 
 tive legislation. Mr. Burns on 
 ' reproductive ' work .... 69 
 
 Scepticism of Socialists or Protec- 
 tionists as to progress, as illustrated 
 by State pension proposals . . 71 
 
 American protection an object lesson : 
 a corrupt policy of Give, give, with 
 burden falling ultimately on agri- 
 cultural class, and in the end gene- 
 ral exasperation and collapse . 73 
 
 In England the burden is to be put 
 on the capitalist class, with the 
 result that capital will be destroyed 
 or forced to emigrate .... 74 
 
 Mr.Chamberlain fears the competition 
 of a free trade Ireland, but not of 
 a free trade America .... 74 
 
 American labour troubles, protests 
 against artificial or protective 
 monopoly . • • ■ ■ 75 
 
 Mr. John Burns' admission of the 
 hopelessness of labour protection 
 
 75 
 
 Impossibility of walling-in a country 
 or a trade without ruin to its best 
 interests 76 
 
 Expectation that wages will advance 
 in a free market justified by experi- 
 ence 76 
 
 Necessity of a policy of retrench- 
 ment : burden of war preparations 
 and foreign policy; the enviable 
 position of America .... 78 
 
 Position of the Colonies ... 80 
 
 The problem before a nation depen- 
 dent like England on foreign trade 
 — necessity for economical public 
 administration 81 
 
 A market set free from the dread of 
 labour troubles and the burden of 
 vexatious taxation would retain 
 capital buried in hopeless enter- 
 prises in Argentina, Africa, and 
 elsewhere 8a 
 
 President Cleveland and Sir William 
 Harcourt typical of the views of 
 their countrymen. Summary of 
 the situation 83 
 
 Hope expressed that we may be 
 warned in time by the obviousness 
 of the danger 84 
 
 in. National Workshops. 
 
 I. Socialistic theories of nationaliza- 
 tion and municipalization to be 
 tested by facts 87 
 
 The national workshops of 1848 an 
 experiment in this, direction . 88 
 
 Hence their importance and rele- 
 vancy in any consideration of so- 
 cialistic principles .... 88 
 
 II. The national workshops a de- 
 liberate and bona fide attempt to 
 put socialistic principles in prac- 
 tice 89 
 
 As proved by the text of the Decree 
 
 89 
 
 III. Louis Blanc, a convinced Social- 
 ist, at the head of the experiment ; 
 the superintendence entrusted to 
 £mile Thomas, a practical man of 
 business, though not a Social- 
 ist 90 
 
 Louis Blanc armed with practically 
 absolute powers 90 
 
 IV. Text of Decrees formulating the 
 droit du travail and the Ateliers 
 Natimaux 91 
 
 V. The organization described . 92 
 
 VI. The evidence of the correspon- 
 dent of the Economist ... 93 
 
XIV 
 
 Synopsis of Contents. 
 
 Mr. Nassau Senior describes the 
 work as an exact counterpart of 
 the ' parish farm ' 94 
 
 Evidence of Victor Hugo and of M. 
 fimile Thomas 94 
 
 The result — insurrection, street-fight- 
 ing, and 12,000 men shot in the 
 streets 95 
 
 VII. M. Thiers on another experi- 
 ment in collectivism ... 96 
 
 Report of surveyor on work of un- 
 employed at Millbank ... 97 
 
 VIII. English experience of parish 
 farms and under old poor law 
 very similar 98 
 
 IX. Two solutions offered — that of 
 the Socialists and that of the advo- 
 cates of Free Exchange ... 99 
 
 X. A plain summary of the case 
 against Socialism loi 
 
 IV. State Socialism and the Collapse in Australia. 
 
 Dr. Pearson's National Character, due to 
 the inspiration of Australia . 105 
 
 His account of Australian State 
 Socialism 105, 106 
 
 Its alleged success in Australia, the 
 assumption that it is inevitable 
 elsewhere 106, 107 
 
 The religion of the State as outlined 
 by Dr. Pearson — it promises great 
 good, but demands proportional sacrifices ; 
 it is omnipotent, it is never inex- 
 orable ; it bestows benefits freely ; 
 its use of statistics as an advertise- 
 ment and a liturgy . . 108-114 
 
 The turn of the tide — imaginary 
 surpluses detected. Statistical 
 statement of the course of collapse 
 
 "4, "5 
 
 Judged by the test of finance, State 
 Socialism in Australia a failure 116 
 
 The time has now come to ' demand 
 proportional sacrifices ' . . .117 
 
 Will the 'demand' be answered. The 
 earlier example of New Zealand 118 
 
 The exodus of the taxpayer ; the 
 absentee debtor. The prayer of the 
 State religion has two clauses — 
 'Give us our daily bread, and forgive 
 us our debts ' 119 
 
 The case of those who must remain 
 considered: the salaried official, 
 the first victims of retrenchments ; 
 the public service discouraged 120 
 
 The people on the land, being un- 
 organized, their share of pillage 
 
 has been less than that of the town 
 dwellers, and their burden from 
 protective tariffs more oppressive — 
 on them the bill for ' proportional 
 sacrifices ' now falls . . 121,122 
 
 An awkward and disagreeable 
 awakening for the agricultural 
 class, the true workers of the 
 colony ; their natural resentment 
 at garbled accounts, delusive as- 
 sertions as to reproductive public 
 woi-ks; labourers diverted from 
 agricultural industry by artificial 
 work in the towns by means of 
 bon'owed money . . . 123, 124 
 
 The State in its perplexity has re- 
 course to various doubtful financial 
 expedients 124 
 
 Conclusion that, financially, State 
 Socialism has failed, benefits have 
 been squandered, and the obliga- 
 tions of the taxpayer strained to 
 the verge of repudiation, new 
 oppressive and arbitrary taxation 
 has been imposed on the in- 
 dustrious, gambling has been en- 
 couraged, and a low tone of com- 
 mercial morality has grown up 
 
 125-128 
 
 The ethics of public life too have 
 suffered. The adventures of Sir G. 
 
 Dibbs 
 
 129 
 
 The decay of parental authority 
 under the educational policy of 
 the State igo 
 
Synopsis of Contents. 
 
 XV 
 
 state Socialism has corrupted the 
 national character — a fact all the 
 more lamentable in view of the 
 nobler early traditions of the coun- 
 try, and of the necessity of basing 
 recuperation on national charac- 
 ter 132 
 
 The prospects of State Socialism 
 elsewhere. In Australia it has 
 been carried out at the expense of 
 the British capitalist. In Europe 
 
 it must be based on the taxation of 
 the successful 134 
 
 Can the system endure ? it can make 
 beggars, but not one millionaire, 
 and must end in bankruptcy ; then 
 comes a revulsion of feeling, when 
 it is too late 137 
 
 Yet it seems inevitable that State 
 Socialism will come and be the 
 death-cry of our civilization . 139 
 
 The Influence of State Bokeowing on 
 commekcial crises. 
 
 Commercial crisis, a general defini- 
 tion 145 
 
 Certain well-marked characteristics 
 to be further described . . . 145 
 
 Inflation and collapse, followed by 
 long period of inactivity and liqui- 
 dation 146 
 
 The peculiar position of the banker, 
 who (unlike other traders) is 
 always a debtor, on balance ; his 
 need for careful choice of ' securi- 
 ties ' 147 
 
 The Buenos Ayres waterworks and 
 the Barings. The collapse due to 
 the rash engagements of the firm 
 and the refusal of the investing 
 public to support it ... . 149 
 
 The Baring and Overend catastrophes 
 compared. Popular belief in the 
 ability of foreign governments to 
 create ' productive works,' the cause 
 of much ill-considered lending 150 
 
 There will always be speculation ; 
 the security of a well-planned in- 
 dustrial undertaking better than 
 the security based on excessive taxa- 
 tion. Abuse of State guarantee 151 
 
 The tendency of politicians to find 
 excuse for extending the sphere of 
 State action. From 1820 to 1870 the 
 country was freeing itself from 
 many mischievous forms of State- 
 
 interference. The present reaction 
 not yet gone very far . . . 152 
 
 The present inquiry confined to the 
 financial consequences of this 
 policy. Method of raising capital 
 in London market .... 153 
 
 The case of a foreign or colonial 
 government raising a loan for ' pro- 
 ductive public work ; ' the infla- 
 tion of trade, the demand artificially 
 created ceases. The illustration of 
 Argentina 154 
 
 Natural that Great Britain should 
 advance capital to new countries ; 
 objection to this beingdone through 
 Government loans . . . .155 
 
 Greater safety of a more gradual 
 development through the appli- 
 cation of capital by private enter, 
 prise 156 
 
 Argument that instruments of pro- 
 duction should be in hands of 
 government involves a mistaken 
 view of functions of government. 
 Young countries may try experi- 
 ments, but the fact of their youth 
 will not prevent failure . . . 157 
 
 The capitalists of Great Britain the 
 principal creditors of the world. A 
 breakdown in any one country 
 therefore alarms and paralyzes 
 credit all over the world . . 158 
 
XVI 
 
 Synopsis of Contents. 
 
 Summary of reasons why government 
 borrowings are more likely to draw 
 countries into difSculty than pri- 
 vate borrowings : (i) Government 
 borrows more than necessary ; (2 1 
 the money does not go so far ; (3) 
 its credit, depending on the taxation 
 of its subjects, being greater, its 
 power to throw good money after 
 bad much less limited, hence 
 chance of larger collapse . .159 
 
 Too ready belief of borrowers of their 
 ability to pay, and carelessness of 
 
 issuing finance houses, combine to 
 make a certain danger ; the promise 
 of a government not always a good 
 guarantee 159 
 
 Economic objection to loans at home 
 to enable government to carry on 
 public works, one or two instances 
 mentioned 160 
 
 Conclusion, that the present ten- 
 dency to increase the interference 
 of government in matters relating 
 to trade and commerce ought to be 
 diminished 161 
 
 VI. The State in Relation to Railways. 
 
 The relation of the State to railways 
 may take one of five forms . 165 
 
 Two forms may at once be excluded 
 
 165 
 
 A third, viz. State ownership of rail- 
 ways which are let out to be worked 
 by private enterprise, now out of 
 fashion in this country, though 
 favoured at one time by Sir Row- 
 land Hill, adopted in Italy, in 
 Holland, and in a sense in France 
 
 166 
 
 In England there are left two pos- 
 sible methods — State ownership 
 and private ownership under State 
 control 166 
 
 Wide ramifications of the subject 167 
 
 Objections alleged against our present 
 system considered and answered — 
 waste of competition, bloated divi- 
 dends a tax on trade, unwilling- 
 ness to make concessions, granting 
 of undue preference, occasional 
 effete or incompetent management 
 168-171 
 
 Arguments in favour of State owner- 
 ship considered and appreciated ; 
 State should own monopolies ; eco- 
 nomy in rate of interest on capital 
 due to superior credit of State, also 
 due to unification of management ; 
 State would work railways for the 
 benefit of community . 171-173 
 
 Would-be reformers unable to agree 
 as to principle on which rates are 
 to be based 173 
 
 The matter not to be decided by o 
 priori arguments but by observation 
 of practical experiment. Some of 
 the State-managed railways of the 
 continent the worst in the world. 
 Railways of Baden, Belgium, Prus- 
 sia, Australia .... 174-179 
 
 The result summed up : (i) State 
 management does not reduce the 
 price of services ; (2^ Management 
 more costly; (3') and danger of politi- 
 cal corruption great . . . .179 
 
 State management of Post Ofiice 
 criticized 180-185 
 
 Admitting that State railways are 
 undesirable, the limits and occa- 
 sions of State control have next to 
 be considered, under two heads — 
 (i) as affecting public safety, (2") as 
 regulating tariffs 186 
 
 The first of these turns on the inter- 
 pretation, in each case, of the old 
 maxim, Sic ntere Ho ut alienum non 
 laedas. Construction of new lines, 
 compulsory dispossession of owners, 
 promoters to show that they have 
 sufBoient prospect of financial sup- 
 port, publicity of accounts. Level 
 crossings, signalling, interlocking, 
 *« 186-190 
 
Synopsis of Contents. 
 
 xvu 
 
 The crucial point, however, is tariff 
 regulation, necessarywithiu certain 
 limits 191 
 
 Justification of State control con- 
 sidered, on the ground that a rail- 
 way is a monopoly ; that it has 
 acquired property by compulsory 
 powers ; that the authorizing Act 
 of Parliament secured, by way of 
 bargain, certain advajitages to the 
 public 192-195 
 
 Hence maximum rates, their futility 
 as a means of securing free contract 
 and equality of charges. Difficulty 
 of applying the principle . . 195 
 
 The controversy as to what consti- 
 tutes undue preference considered 
 
 196 
 
 ' Personal discriminations ' unknown 
 in England. Discriminations 
 favoiu'ing special classes of goods 
 and special localities frequent 197 
 
 The difficulties to be overcome by any 
 
 tribunal for the regulation of rates 
 
 198-203 
 
 Conclusion that the authority of the 
 Executive cannot beneficially un- 
 dertake much more than purveying 
 information . — Mr. Justice Wills, on 
 the danger of ill-considered inno- 
 vations 203 
 
 Experience in this country and in 
 the United States confirm these 
 views 204 
 
 Satisfactory result of 'publicity' in 
 Massachusetts 205 
 
 Summary of results. State owner- 
 ship undesirable. State control 
 unavoidable. General conclusion in 
 favour of the present system. With 
 publicity ' the eventual supremacy 
 of an enlightened public opinion ' 
 is matter of certainty — on this we 
 must rely ... . . 207-210 
 
 VII. The Interest of the Working Class in Free 
 Exchange. 
 
 The property of a man in his own 
 person the origin and foundation 
 of all other property .... 213 
 As necessary corollary from this 
 follows the right of the free ex- 
 change of labour and of the wages 
 
 of labour 213 
 
 No need to discuss questions of pre- 
 historic title. Modern title to 
 property rests on legal acts of 
 
 exchange 214 
 
 The influence of Free Exchange in the 
 economic organization of society 
 limited, but still operative ; civili- 
 zation means the extension of that 
 
 influence 215 
 
 The purpose of the paper to consider 
 the influence of Free Exchange as 
 it affects the property which the 
 labourer has (i) in his own labour, 
 (a) in his own savings . . .217 
 
 I. Labour the poor man's most 
 important possession . . . 217 
 
 General functions of a market. The 
 labour market contrasted with the 
 gold market. The appreciation of 
 gold doubtful ; the appreciation of 
 labour obvious and certain. Free 
 mintage means a continuous de- 
 mand for gold. Free Exchange has 
 a similar function to perform for 
 labour 218 
 
 The Malthusian fallacy that subsist- 
 ence is limited, is analogous to the 
 trade unionist fallacy that oppor- 
 tunities for labour are limited 219 
 
 How far at present is Free Exchange 
 acting as a free mintage for labour? 
 
 219 
 
 The mobility of labour considered — ■ 
 some comfort to be found in pro- 
 gress already made .... 220 
 
xvm 
 
 Synopsis of Contents. 
 
 The wages of domestic service con- 
 sidered—argument that Free Ex- 
 change and the bargain in detail 
 have been beneficial and a cause of 
 rising wages 222 
 
 The modern trade unionist blind to 
 the advantages of Free Exchange 
 
 223 
 
 His objections considered — argument 
 that better conditions of labour 
 must come from an increase of 
 exchangeable supply, i. k. the in- 
 creased production of the proper things 
 in their proper quantities and places 
 
 224 
 
 This economical distribution of effort 
 (i.e. labour and capital) to be 
 effected only by Free Exchange 225 
 
 Injustice and inexpediency of a com- 
 pulsory minimum wage, the cause 
 of the congestion of labour, known 
 as the Unemployed problem . 226 
 
 Doubt expressed whether this coercive 
 policy is conducive to the main 
 object of trade unionism . . 227 
 
 Other foi'ms of restriction on Free 
 Exchange. Municipal trading. 
 Larger forms of enterprise claimed 
 as the monopoly of Government; 
 consequent congestion of capital 
 and labour in the smaller in- 
 dustries 227 
 
 The terms ' employable ' and ' com- 
 petent' considered. Free Exchange 
 the necessary condition of the 
 growth of these characteristics 228 
 
 The art of capitalization, a form of 
 exchange, the coping-stone of in- 
 dustrial competence .... 230 
 
 Savings a cause of firmness in the 
 labourmarket, contrasted with poor 
 
 law relief, which has an opposite 
 effect 231 
 
 2. The property of the poor man 
 in his benefit society and savings 
 bank considered 232 
 
 Argument that saving is a process of 
 exchange 232 
 
 Illogical nature of the Socialist's 
 dissent from a particular form of 
 exchange 233 
 
 The savings of the working class a 
 practical refutation of collectivism 
 
 235 
 
 Question of savingsbanks; comparison 
 instituted between Government 
 savings banks, commercial banks 
 on the Scotch system, and co- 
 operative banks in Germany and 
 elsewhere 236 
 
 A sound system of credit developed 
 by banks compared to the fertilizing 
 waters of the Nile .... 237 
 
 Argument that these advantages can 
 be secured to the labourer by 
 co-operative banking . . 238, 239 
 
 Improvement in working class in- 
 surance under free competition 241 
 
 Controversy in the co-operative 
 movement between advocates of 
 dividend-on-purchase and divi- 
 dend-on-wages 243 
 
 A neglected element in the co-opera- 
 tive theory. The most satisfactory 
 co-operation is the subdivision and 
 distribution of capital and labour 
 in a free market 245 
 
 M. Rostand's comparison of the 
 sterile antagonism of Lassalle to 
 the constructive beneficence of the 
 life-work of one of our English 
 co-operative worthies . . . 248 
 
 VIII. The Principle op Progression in Taxation. 
 
 Two theories stated as to the legiti- 
 mate purposes of taxation . .251 
 (t) For the sake of revenue neces- 
 sary for economical administra- 
 tion of public services . .251 
 
 (2) For bringing about an equaliza- 
 tion of incomes . . . 252 
 Desire for economy now less powerful 
 than before, hence now schemes 
 for raising revenue. Among others 
 
Synopsis of Contents. 
 
 XIX 
 
 progressive or graduated taxa- 
 tion 353 
 
 A preliminary question — What are 
 the legitimate purposes of taxa- 
 tion? 253 
 
 If theory (i) as above prevails, there 
 will be no burdensome taxation for 
 any class. If theory (2) be to any 
 extent adopted, then progressive 
 taxation may become a formidable 
 v?eapon 253 
 
 This preliminary question not here 
 considered 253 
 
 Object of paper to discuss (i) the 
 abstract principle of progression, 
 (2) its practical value as a method 
 of taxation 253 
 
 Taxation to be levied ( i ) in proportion 
 to benefits enjoyed, or (2) according 
 to ability to pay 254 
 
 This last the view of Mill. Equality 
 of sacrifice not realized when 
 necessities of life wei'e taxed, hence 
 taxation of luxuries. A tax levied 
 on property and income to some 
 extent a recognition of the principle 
 of graduation .... 254, 255 
 
 Its indirect recognition in this coun- 
 try ; its popularity with the demo- 
 cracy 255 
 
 The question therefore presses and 
 deserves attention 256 
 
 Mill argues that the 'same percen- 
 tage' does not insure equality of 
 sacrifice, recommends exemption 
 of smaller incomes, but rejects 
 graduation 256 
 
 Mill's conclusions unsatisfactory 257 
 
 The subject viewed from the stand- 
 point of Jevons' theory of the 
 distinction between utility and 
 value. Statement of this theory, 
 and a justification of the prin- 
 ciple of progression based thereon 
 
 257 
 
 Admitting the justice of the principle, 
 other considerations to be taken 
 into account : (i) variability of term 
 ' luxuries ' as between different 
 classes of men and different times ; 
 (2) a satisfaction of a primary want, 
 a step upward in the path of civili- 
 zation ; (3) Free Exchange daily 
 bringing within the reach of the 
 million what were formerly the 
 luxuries of the great .... 261 
 
 These considerations, pointing to the 
 beneficence ahd levelling influence 
 of wealth accumulating under a 
 system of Free Exchange, suggest 
 the necessity of a liinit to the 
 principle of progression . . . 264 
 
 Description of the nature of this 
 limit 265 
 
 Can ah equitable rate of graduation 
 be fixed? 265 
 
 Justice of the exemption of the lower 
 incomes 265 
 
 Difficulty of fixing the scale of gradua- 
 tion for the higher incomes . 266 
 
 Next, is graduation satisfactory in 
 practice? 267 
 
 M. Leroy-Beaulieu in favour of a 
 light and uniform tax . . . 267 
 
 Mr. Goschen and M. Leroy-Beaulieu 
 quoted to show how large a propor- 
 tion of the national income of 
 civilized countries is in the hands 
 of small proprietors . . 267, 268 
 
 Unproductive nature of progressive 
 taxation — if excessive, it tends to 
 defeat its object ; if moderate, little 
 more productive than uniform or 
 proportional taxation . . . 269 
 
 Both fears and hopes with regard to 
 this principle of taxation exag- 
 gerated. If used for equalizing 
 taxation, and not for equalizing 
 incomes, a useful adjunct to 
 taxation 273 
 
XX 
 
 Synopsis of Contents. 
 
 IX. The Law of Trade Combinations. 
 
 Growth of combination in modern 
 commerce 277 
 
 Large companies and trusts press on 
 the individual trader as Trade 
 Unions do on the individual work- 
 man 277 
 
 The conflict apt to be oppressive. 
 Necessity of preventing physical 
 violence 278 
 
 Early laws against combination, now 
 out of harmony with modern 
 ideas 278 
 
 The scope of the article to discuss 
 the question as affected (i) by the 
 Criminal Law, and (ii) by the 
 Civil Law 279 
 
 (a) The Criminal Law as laid down in 
 The Conspiracy and Protection of 
 Property Act, 1875 ; the effect of 
 this statute ; sections 3 and 7 
 quoted ; ambiguity of term ' intimi- 
 date ; ' its analogy with the Corrupt 
 Practices Act, 1883 ; intimidation 
 according to Mr. Justice Cave must 
 include the threat of personal 
 violence. The case of Gibson w. 
 
 Lawson ; of Curran v. Treleaven. 
 Conclusion that the statute of 1875 
 leaves a very absolute power in the 
 hands of trade combinations 
 
 279-284 
 
 (6) The Criminal Law as defined by 
 the Common Law of Conspiracy; 
 its scope and authority considered ; 
 possibility of its application in the 
 case of Gibson v. Lawson ; the ex- 
 emption contained in section 3 of 
 the statute of 1875 considered 
 
 285-287 
 
 The remedy of the Civil Law. The 
 Mogul Steam Ship Company v. 
 McGregor, Gow & Co. The case of 
 Temperton v. Russell . 287-289 
 
 The decisions in these two cases con- 
 trasted ; suggestion that they are 
 not governed by the same rule ; 
 probability that they will either 
 be more clearly distinguished or 
 the decision in one or other re- 
 versed ago, 29 1 
 
 Summary ... ... 292 
 
I. 
 
 ON THE SCIENCE OF ECONOMICS 
 
 AND ITS RELATION TO 
 
 FBEE EXCHANGE AND 
 
 SOCIALISM. 
 
 HENRY DUNNING MAC LEOD. 
 
ON THE SCIENCE OF ECONOMICS 
 
 AND ITS RELATION TO FREE EXCHANGE 
 
 AND SOCIALISM. 
 
 All persons wlio are interested in the so-called science of 
 Economics know only too well the melancholy and deplorable 
 state into which it has fallen. It is such a chaos of contradic- 
 tions that very many persons refuse to believe that there is 
 any such science at all \ 
 
 The cause of this lamentable confusion is that there are 
 fundamental concepts of it, which are wholly irreconcile- 
 able with each other, just as there have been in the earlier 
 and imperfect stages of most other sciences, such as astronomy, 
 optics, and many others. 
 
 A science is a body of phenomena all relating to a single 
 fundamental- general concept. Thus dynamics is the science 
 which treats of the laws governing the phenomena of force ; 
 optics is the science of the laws governing the phenomena of 
 
 ' In 1870 Stanley Jevons, after to Vol. II of my Theory and Practice 
 
 having read my works then pub- 0/ Banking : ' We have no hesitation 
 
 lished, as he has very handsomely in saying that the -whole system of 
 
 acknowledged in his preface, spoke of Political Economy, as laid down by 
 
 Political Economy as the ' shattered Kicardo and developed by Mr. John 
 
 science ' — an expression which has Stuart Mill, is utterly and radically 
 
 acquired a certain popular vogue. bad '—which gave prodigious offence 
 
 Long previous to this, in 1856, at the time. I also said : ' The time 
 
 when I had occasion to study the has come when all Political Economy 
 
 works on Economics then current must be rewritten.' After thirty- 
 
 in their relation to credit and eight years people are beginning to 
 
 banking, I had poiiited out their de- find out that this is true, 
 fects, and said, in the Introduction 
 
 B 3 
 
4 A Policy of Free Exchange. V- 
 
 light ; and so on. Economics is often said to be the science 
 of wealth. What, then, is wealth? What is that quality 
 of things which constitutes them wealth? Economies can 
 only be the science of the laws which govern the phenomena 
 relating to that quality which constitutes things wealth. 
 
 It was long an assured opinion in this country that 
 Adam Smith was the founder and creator of political economy 
 and free trade. A once prominent politician is reported to 
 have said that political economy and free trade sprang perfect 
 and complete from the brain of Adam Smith, as Minerva did 
 from the head of Jupiter. Such ideas, however, show a com- 
 plete ignorance of the history of Economics, and are now quite 
 abandoned by all persons who have studied the subject. 
 
 In fact, it is contrary to nature that it should be so. 
 Great sciences are not created by a book. They invariably 
 arise from small beginnings, just as the mighty Danube flows 
 from a spring in the garden of a German burgher. Men 
 begin to observe certain phenomena connected with some 
 single general fundamental concept. Then others extend it 
 to a larger number of phenomena based on the same concept : 
 and so at last, by the contributions of an increasing number 
 of observers, it grows into a great science, just as the Danube 
 from a tiny spring is swollen into a mighty river by multi- 
 tudes of tributary streams. 
 
 Every one with a scientific instinct can at once perceive 
 that Adam Smith's work is pervaded by a combative air, that 
 every part of it is evidently written at something preceding, 
 and that it was intended to overthrow a prior system. 
 
 As a matter of fact. Economics was founded as a science by 
 an illustrious sect of philosophers in France in the middle of 
 the last century, who were the first to perceive and declare 
 that there is a positive and definite science of Economics, 
 based upon demonstrative reasoning, in the same way as the 
 physical sciences. 
 
 The science of Economics, like medicine, has arisen out of 
 the calamities and misery of mankind, caused by the violation 
 of true economic principles ; and every advance in economic 
 theory has originated in some great pressing practical evil. 
 
I.] The Science of Economics. 5 
 
 The first department of Economics to be reduced to 
 scientific principles was that of money. Charlemagne caused 
 the pound weight of silver to be adopted as the standard of 
 money in aU Western Europe ; and he divided it into 
 340 pennies. The mediaeval sovereigns clipped, curtailed 
 and debased their coinages, but declared that the clipped and 
 debased coin should pass at the same value as good coin. 
 Philip le Bel was particularly conspicuous for issuing debased 
 coin, for which he was consigned to the Inferno by Dante.. 
 This degradation of the coin produced such intolerable evils 
 and misery to the people that Charles V of France referred 
 the matter to one of his councillors, Nicolas Oresme, who 
 addressed to him a treatise on money, which may be said to 
 stand at the head of modern Economics. In consequence of 
 similar evils in Poland, Sigismund I requested Copernicus to 
 draw up a treatise on the subject. This has recently been 
 discovered and printed in the new edition of bis works. 
 These two treatises laid down the true principles of money, 
 which are now accepted by all sound Economists. 
 
 For many centuries all governments enacted laws regarding 
 trade without suspecting that there are any fixed principles 
 on the subject. Sometimes they favoured free trade, some- 
 times protection ; sometimes they cockered up one species of 
 industry, sometimes another, according to the whim of the 
 moment. They never seem to have had the faintest idea that 
 the true principle was to leave every industry alone, and 
 allow each one to develop itself according to its natural 
 tendencies. 
 
 Every one has heard of the glories of the reign of 
 Louis XIV ; but few probably have any idea of the terrible 
 reaction, and the incredible disasters and misery of the end of 
 his reign. These may be learnt from contemporary writers 
 and also from Taine's History of the Ancient Regime. Soon 
 after the death of Louis XIV, John Law was allowed to try 
 in France his scheme of paper money, which had been 
 previously rejected by the Scottish Parliament. The result 
 was that disastrous catastrophe known by the name of the 
 Mississippi Scheme. In 1749 Turgot, then a young man of 
 
6 A Policy of Free Exchange. ]}- 
 
 twenty-two, began to reflect upon these ten-ible calamities, 
 and endeavoured to discover the error of Law's system. 
 Turgot associated with himself Gourlay, an eminent merchant 
 who was a keen advocate of free trade, Quesnay the king's 
 physician, Le Trosne, Mirabeau plre, the Abb^ Baudeau, and 
 many others, who formed themselves into a powerful sect 
 under the name of the ' Economists.' These men were the 
 first to perceive and declare that there is a positive and 
 definite science which may be named Economics. 
 
 They found France divided into a number of separate and 
 semi-independent provinces, each of them surrounded with 
 customhouses, which were an intolerable barrier to com- 
 mercial intercourse ; every species of industry was loaded 
 with minute and oppressive regulations ; a very large portion 
 of the human race was groaning under the bonds of slavery ; 
 in every country persons were relentlessly persecuted for 
 their religious opinions. The Economists held that these 
 commercial, personal and religious oppressions were contrary 
 to the fundamental rights of mankind. 
 
 They proclaimed as the indefeasible natural rights of 
 mankind the freedom of person, the freedom of opinion, and 
 the freedom of exchange or of commerce. 
 
 Quesnay (who was the real founder of the science) and his 
 followers, reflecting on the intolerable misery they saw around 
 them, struck out the idea that there must be some great 
 natural science, some principles of eternal truth founded on 
 nature itself, with regard to the social relations of mankind, 
 the violation of which was the cause of the hideous misery 
 of their native land. The name Quesnay first gave to it was 
 natural right ; and his object was to discover and lay down 
 an abstract science of the natural rights of men in all 
 their social relations. This science comprehended their 
 relations towards the government, towaa'ds each other, and 
 towards property. The term politique in French might in 
 a certain way have expressed this science ; but the word 
 was so exclusively appropriated to the art of government 
 that they adopted for it the name 'political economy,' or 
 ' economical philosophy ' ; and hence they were named 
 
I.] The Science of Economics. 7 
 
 ' the Economists.' Dupont de Nemours, one of their number, 
 proposed the name of physiocratie, or the government of the 
 nature of things ; and hence they were often called the 
 physiocrates ; but the word, having been appropriated to 
 certain doctrines of the sect which are now shown to be 
 erroneous, and abandoned by all subsequent Economists of 
 note, has fallen into disuse, and the term political economy, 
 or Economics, which is now more commonly used, has 
 survived. 
 
 Now it is evident that this wide and extensive scheme 
 comprehends not only a single science, but a whole multitude 
 of sciences ; and we shall henceforth confine ourselves strictly 
 to that part of it which relates to commerce or exchanges. 
 
 Quesnay's first publication, Le Droit Naturel, contains 
 a general inquiry into these natural rights ; and he afterwards 
 in another work, called Maximes Generates du Gouvernment 
 iJconomique d'un Royaume Agricole, endeavoured to lay 
 down, in a series of thirty maxims or general principles, the 
 whole basis of the economy of society. The twenty-third of 
 these declares that a nation sufiers no loss by trading with 
 foreigners ; the twenty-fourth declares the fallacy of the 
 balance of trade ; the twenty-fifth says : ' Let entire freedom 
 of commerce be maintained ; for the regulation of commerce, 
 both internal and external, the most sure, the most exact, the 
 most profitable to the nation and to the State, consists in 
 entire freedom of competition.' These maxims entirely 
 overthrew the prevailing system of political economy. This 
 was the work of Quesnay and his followers ; and, notwith- 
 standing certain errors and shortcomings mentioned below, 
 they are unquestionably entitled to be acknowledged as the 
 founders of political economy and free trade. 
 
 We may now give a brief abstract of the doctrine of the 
 Economists, by which they vindicated the principle of liberty 
 and the right of property. 
 
 The Creator has placed man upon the earth with the 
 evident intention that the race should prosper ; and there are 
 certain physical and moral laws which conduce in the highest 
 degree to ensure its preservation, increase, well-being and 
 
8 A Policy of Free Exchange. \}- 
 
 improvement. The correlation between these physical and 
 moral laws is so close that if either be misunderstood, through 
 ignorance or passion, the others are also. Physical nature, or 
 matter, bears to mankind very much the relation which the 
 body does to the mind. Hence the perpetual and necessary 
 relation of physical and moral good and evil to each other. 
 
 Natural justice is the conformity of human laws and 
 actions to natural order ; and this collection of physical and 
 moral laws existed before any positive institutions among 
 men. And while their observance produces the highest 
 degree of prosperity and well-being among men, the non- 
 observance or transgression of them is the cause of the 
 extensive physical evils which afl9ict mankind. 
 
 If such a natural order exists, our intelligence is capable of 
 understanding it; for if not, it would be useless, and the 
 sagacity of the Creator would be at fault. As, therefore, these 
 laws are instituted by the Supreme Being, all men and all 
 states ought to be governed by them. They are immutable 
 and irrefragable, and the best possible laws ; they are 
 necessarily the basis of the most perfect government, and the 
 fundamental rule of all positive laws, which are only for the 
 purpose of upholding that natural order which is evidently 
 the most advantageous for the human race. 
 
 The evident object of the Creator being the preservation, 
 the increase, the well-being, and the improvement of the 
 race, man necessarily received from his origin not only 
 intelligence, but instincts conformable to that end. Every 
 one feels himself endowed with the triple instincts of well- 
 being, sociability, and justice. He understands that the 
 isolation of the brute is not suitable to his double nature, and 
 that his physical and moral wants urge him to live in the 
 society of his equals in a state of peace, goodwill and concord. 
 He also recognizes that other men, having the same wants 
 as himself, cannot have less rights than himself, and therefore 
 he is bound to respect their right, so that other men may 
 observe a similar obligation towards him. 
 
 These three ideas — the necessity of work, the necessity of 
 society, and the necessity of justice — imply three others— 
 
I.] The Science of Economics. 9 
 
 liberty, property and authority — which are the three essential 
 terms of all social order. 
 
 How could man understand the necessity of labour or obey 
 the irresistible instinct of self-preservation without per- 
 ceiving at the same time that the instrument of labour, the 
 physical and intellectual qualities with which he is endowed 
 by nature, belong exclusively to himself, that he is master 
 and the absolute proprietor of his own person, that he is 
 born and should remain free ? 
 
 But the idea of liberty cannot spring up in the mind 
 without associating with it that of property, in the absence 
 of which the fii-st would only represent an illusory right 
 without an object. The freedom the individual has of 
 acquiring useful things by labour includes necessarily the 
 right of preserving them, of enjoying them, and of disposing 
 of them without reserve, and also of bequeathing them to his 
 family^ who prolong his existence indefinitely. Thus liberty 
 conceived in this manner involves and is dependent on the 
 idea of property, which may be conceived in two aspects, as it 
 regards moveable goods, and as it regards the earth, which 
 is the source from which labour ought to draw them. 
 
 At first property was principally moveable ; but when the 
 cultivation of the earth was necessary for the preservation, 
 increase, and improvement of the race, individual appropriation 
 of the soil became necessary, because no other system is so 
 proper to draw from the earth all the mass of utilities it can 
 produce ; and secondly, because collective property would 
 have produced many inconveniences as to the sharing of the 
 fruits, which would not arise from the division of the land, 
 by which the rights of each are fixed in a clear and definite 
 manner. Property in land is, therefore, the necessary and 
 legitimate consequence of the principle of personal and 
 moveable property. Every man has, therefore, centred in 
 him by the laws of Providence certain rights and duties, the 
 right of enjoying himself to the utmost of his capacity, and 
 the duty of respecting similar rights in others. This perfect 
 protection of reciprocal rights and duties conduces to pro- 
 duction in the highest degree, as well as to the greatest 
 
lo A Policy of Free Exchange. [i. 
 
 amount of physical enjoyments. Thus the Economists estab-: 
 lished freedom and property as the fundamental right of 
 mankind — freedom of person, freedom of opinion, freedom 
 of exchange or commerce ; and the violation of these they 
 maintained to be contrary to the laws of Providence, and 
 therefore the cause of all evil to men. 
 
 We must now examine what their doctrines were regarding 
 exchanges or commerce. 
 
 While they expressly declared that exchanges, or commerce, 
 were one of the departments of economical philosophy, they 
 most unfortunately devised another and alternative name 
 for it, which being misinterpreted by a subsequent very 
 distinguished French writer, has been the cause of all the 
 mischief and confusion of the science in recent times. 
 
 They termed the department of economical philosophy 
 relating to exchanges, or commerce, the 'production, dis- 
 tribution and consumption of wealth.' It might not be very 
 apparent to the general reader how in the mind of the 
 Economists these two concepts are identical, and meant exactly 
 the same thing ; and we must now explain the interpretation 
 of this latter expression given to it by its authors. 
 
 They defined the word wealth to mean the material pro- 
 ducts of the earth which are brought into commerce and 
 exchanged, and those only. The products of the earth, which 
 were consumed by their owners without an exchange, they 
 termed Mens, but not richesse. They steadfastly refused to 
 admit that labour and credit are wealth ; because they 
 alleged that this was to allow that wealth can be created out 
 of nothing. They constantly maintained that man can create 
 nothing, and that ex nihilo nihil fit. 
 
 By production they meant obtaining the rude produce from 
 the earth and bringing it into commerce. 
 
 But this rude produce is scai'cely ever fit to be used by 
 men. It has to be fashioned and manufactured in a multitude 
 of ways, to be transported from place to place, and perhaps 
 sold and resold more than once before it is ultimately pur- 
 chased for use and enjoyment. 
 
 All these intermediate operations of manufacture, transport 
 
I.] The Science of Economics. 1 1 
 
 and sale between the original producer and the ultimate 
 purchaser the Economists termed traffic, or distribution. 
 
 The final purchaser, who bought the product for his own 
 use and enjoyment, and so took it out of commerce, they 
 termed the acheteur-consoTtiviateur ; because he consummated, 
 or completed, the operation. 
 
 Consommation, in the language of the Economists and of 
 all French writers before them, meant simply purchase, or 
 demand ; it involved no idea of destruction. 
 
 The consommateur, or consumer, was the person for whose 
 benefit all the preceding operations took place. Production 
 was only for the sake of consumption, or demand ; and con- 
 sumption, or demand, was the measure of reproduction; 
 because products which remain without consumption, or 
 demand, degenerate into superfluities without value. 
 
 The complete passage of a product from the original 
 producer to the ultimate consumer, or purchaser, through all 
 its intermediate stages, the Economists termed commerce, 
 or an exchange ; and as any man who wished to consume, 
 or purchase any product, must have some product of his own 
 to give in exchange for it, he was also a producer in his turn. 
 Hence, in an exchange, things are produced, and consumed 
 or purchased, on each side. An exchange has only two 
 essential terms — a producer, or seller, and a consumer, or 
 purchaser. These are the only two persons necessary to 
 commerce ; and they often exchange directly between them- 
 selves, without any intermediate agents. 
 
 Hence the 'production, distribution and consumption of 
 wealth,' as defined by the Economists, meant simply the 
 commerce, or the exchange, of the material products of the 
 earth, and of these only. 
 
 But distribution was often used as synonymous with 
 consumption. Hence ' production, distribution and con- 
 sumption,' 'production and distribution,' and 'production 
 and consumption' all meant exactly the same thing — the 
 commerce or exchange of the material products of the earth. 
 
 It must be carefully observed that these expressions were 
 one and indivisible ; and they must nofbe separated into their 
 
12 A Policy of Free Exchange. [i. 
 
 component terms. They all meant simply supply and 
 demand. 
 
 The Economists, by restricting the term wealth to the 
 material products of the earth, made materiality and labour 
 the accessories or accidents of wealth ; but they did not make 
 them the 'principle, or essence, of wealth. The essence, or 
 •principle, of wealth they held to consist in exchangeability; 
 because they expressly excluded the material products of the 
 earth which were not brought into commerce and exchanged 
 from the term wealth. 
 
 Now, considering that the Economists admitted and declared 
 that there is a positive and definite science of exchanges or 
 commerce, how is it possible to restrict it to the commerce 
 or exchanges of material products only ? It must evidently 
 and necessarily comprehend all exchanges, or all commerce 
 in its widest extent and in all its various forms. 
 
 There is a gigantic commerce in labour ; there is a colossal 
 commerce in rights and rights of action, creditSj or debts. 
 How is it possible to exclude the commerce in labour and the 
 commerce in rights and rights of action from the general 
 science of exchanges, or commerce % 
 
 The basis of the science of Economics is the meaning or 
 definition of the term wealth. The Economists admitted 
 that exchangeability is the real essence of wealth ; but they 
 clogged it with the limitation that it only applied to material 
 products, and denied it to labour and credit, which equally 
 possess the quality of exchangeability. But this is contrary 
 to the fundamental principles of natural philosophy. Bacon 
 long ago pointed out that when the quality or the concept 
 which is at the basis of a science is once determined, all 
 quantities whatsoever which possess that quality, however 
 diverse in form they may be, must be included among the 
 elements or constituents of the science. This is what Plato 
 calls the one in the many, i.e. the same quality appearing 
 in many different forms. It would be just as rational to 
 restrict the term force to the force of men and animals, and 
 to exclude gravitation from the term force. 
 
 Ancient writers for 1,300 years unanimously held that 
 
I.] The Science of Economics. 1 3 
 
 exchangeability pure and simple is the sole essence and 
 principle of wealth ; that everything which can be bought 
 and sold, or exchanged, is wealth, whatever its nature or its 
 form may be. 
 
 Aristotle defined wealth to be all things whose value can 
 be measured in money. Here we have a fundamental concept, 
 of the widest generality, and fitted to form the basis of a great 
 science. Out of this single sentence of Aristotle the whole 
 Science of Economics is to be evolved, just as the great oak 
 is developed out of a tiny acorn. 
 
 In an ancient anonymous dialogue Socrates is made to 
 show that money is only wealth where and when it can be 
 exchanged, or purchase other things ; where it cannot be 
 exchanged, or purchase other things, it is not wealth. He 
 shows that anything which can be exchanged for, or purchase 
 other things like money, is wealth, for just the same reason. 
 He says that persons gain their living by giving instruction 
 in the sciences. Therefore, he says, the sciences are wealth — 
 at l-!!iaTy\\i.ai yj)i\\).aTa ovaaL ; and that those who possess them 
 are wealthier — irXownaiTepoi den. This is the first recognition, 
 of which I am aware, that labour is wealth. 
 
 Demosthenes showed that personal credit is wealth ; because 
 a merchant can purchase goods with his credit equally as 
 with money. 
 
 The Koman jurists showed that rights and rights of action, 
 such as credits or debts, are wealth, because they can be 
 bought and sold. 
 
 Thus, after 800 years from the time of Aristotle, the Eoman 
 juiists completed the science, because they completed the 
 number of its constituent elements. There is nothing which 
 can be bought and sold or exchanged, or whose value can be 
 measured in money, which is not of one of these three forms, 
 or orders of quantities: (i) material products; {2,) personal 
 qualities, i. e. labour which can be exchanged for wages, and 
 character which may entitle to credit ; and (3) abstract rights. 
 
 There is no trace in ancient writers of any such doctrine 
 as that labour and materiality are necessary to wealth and 
 value. Thus they answered, a, 100 years ago, the doctrine of 
 
1 4 A Policy of Free Exchange. [i. 
 
 the Economists that labour is necessary to wealth, because 
 they declared that personal qualities and abstract rights are 
 wealth, and they recognized three orders of economic quan- 
 tities. These can be exchanged against one another in six 
 different ways ; and these six diflferent kinds of exchange 
 constitute commerce in its widest extent and in all its forms 
 and varieties. 
 
 The relation of these quantities to each other is termed 
 their value ; and the laws of natural philosophy show that 
 there can be only one general law of value, or a single 
 general equation of Economics. 
 
 We have thus a definite body of phenomena, all based 
 upon a single general concept ; separate and distinct from 
 all other phenomena, and circumscribed by a definition, which 
 constitutes a science, and may be designated as pure, or 
 analytical, Economics. 
 
 Thus, if any one had conceived the idea of describing the 
 mechanism of these exchanges, or of commerce, Economics 
 might have been the eldest born of all the sciences ; but there 
 was no science in existence in those days to serve as a model 
 for the creation of a science of Economics ; and a long and 
 dreary interval had to elapse before the moderns reached the 
 perfection of the ancients, all to redound to the immortal 
 glory of Bacon, who was the first to point out that the 
 physical sciences must first be created to serve as models 
 before it is possible to create the sciences of society. 
 
 For many centuries it was held that money alone is 
 wealth ; and we must briefly state some of the consequences 
 which flowed from this doctrine, which produced innumerable 
 wars and other calamities. 
 
 A strange consequence flowed from the doctrine that only 
 money is wealth. It was held for many centuries that in an 
 exchange what one side gained the other lost. What the 
 persons who maintained this doctrine would have said to an 
 exchange of products it would be difficult to imagine. They 
 quite forgot that when persons bought things with money 
 they obtained a satisfaction for their money. Nevertheless, 
 for centuries, the wisest statesmen and philosophers main- 
 
1.] The Science of Economics. 1 5 
 
 tained that in commerce what one side gained the other 
 lost. They held that foreign commerce which did not pro- 
 duce an importation of money was a loss to the nation. 
 Accordingly, in every country, laws were made to encourage 
 the importation of money and to prohibit its export. This 
 doctrine was the cause of innumerable wars. J. B. Say, 
 writing in the first quarter of this century, says that 
 during the last three hundred years fifty had been spent 
 in wars directly arising out of the dogma that money 
 alone is wealth. About the end of the seventeenth century 
 it began to be perceived that it was absurd to maintain 
 that money alone is wealth ; and the term was enlarged 
 to include all the material products of the earth which 
 conduce to man's subsistence and enjoyment. But still 
 they held to the doctrine of the balance of trade, which 
 was based on the assumption that, in every transaction of 
 commerce, what one side gained the other lost. 
 
 The first merit of the Economists was that they entirely 
 overthrew the doctrine of the balance of trade ; and they 
 made a considerable advance in Economics by maintaining 
 that in commerce neither side gains or loses. 
 
 The Economists maintained that labour engaged in agri- 
 culture is the only form of productive labour ; because, they 
 alleged, it is the only one in which the value of the produce 
 exceeds the cost of production. The excess of the value of 
 the produce over that of the cost of production they called 
 the produit net ; and they maintained that, as this is the only 
 increase of wealth to a country, all taxation should be levied 
 out of the produit net of the agriculturists, and that all other 
 classes should go free. 
 
 They denied that commerce or manufactures can emich 
 a nation ; because, they alleged, in commerce equal values are 
 always exchanged for equal values — and if the values ex- 
 changed are always equal, how can there be any profit on 
 either side ? They held that the only use of commerce is to 
 vary and multiply the means of enjoyment, but that it does 
 not add to the national wealth ; or, if it does, it is only by 
 giving a value to the products of the earth which might 
 
1 6 A Policy of Free Exchange. [i. 
 
 otherwise fail in finding a market. They contended also 
 that, as all exchanges are merely equal value for equal value, 
 the same principle also applies to sales, and therefore that the 
 gains, which traders make, are no increase of wealth to the 
 nation. 
 
 With such views they held that internal commerce conduces 
 nothing to the wealth of the nation, and foreign commerce 
 very little. They called foreign commerce only a pis oiler. 
 One very important truth, however, they perceived. They 
 saw that money is the most unprofitable merchandise of any 
 to import, and that merchants never import money when 
 they can impoi-t products. Therefore they called the import 
 of money only the pis aller of a pis aller. 
 
 They contended that the labour of artisans in manufactures 
 is sterile or unproductive, because, though this labour adds 
 to the value of the product, yet during the process of the 
 manufacture the labourer consumes his subsistence ; and the 
 value added to the product only represents the value of the 
 subsistence destroyed during the labour. Hence there was 
 a transference of the value of the labourers' subsistence into an 
 equivalent value of another kind ; but no production of wealth. 
 
 They held that all the costs of trafficking come out of the 
 profits of the producers and the consumers, which, though 
 gains to them, are not profit to the nation ; and therefore that 
 the State ought not to tax thenl. 
 
 All classes of the community, except the agriculturists, 
 they denominated sterile or unproductive. 
 
 These are the doctrines which the Economists maintained, 
 with long and repeated arguments, in defiance of all op- 
 position; but how men of the ability of the Economists 
 could maintain that a country cannot be enriched by com- 
 merce or manufactures, with the examples of Tyre, Carthage, 
 Venice, Florence, Holland, England, and hosts of others 
 before them, is incomprehensible. With such patent glaring 
 facts before them, it is surprising that they were not led to 
 suspect the truth of their reasonings. It is one of those 
 aberrations of the human intellect which we can wonder at, 
 but not explain. 
 
t] . The Science of Economics.. 17 
 
 These doctrines provoked a reaction : men who were 
 labouring in all sorts of vocations were roused to indignation, 
 by being stigmatized as sterile and unproductive. Men 
 were astounded to hear that a nation cannot be enriched by 
 commerce or manufactures. 
 
 Nevertheless, the doctrines of the Economists seemed to be 
 logically unassailable, provided that their fundamental dogma 
 was right. But the consequences they drew from it were 
 so startling, and so contrary to patent undeniable facts, that 
 clear-sighted men began to inquire — Is it true that in com- 
 merce neither side gains ? 
 
 Two writers entered the field against the Economists^ 
 Condillac in France, and Adam Smith in England. Both 
 published their works in the same year, 1776. They over- 
 threw the doctrine that in commerce neither side gains, and 
 maintained that in commerce both sides gain — a truth that 
 was seen by anticipation by the great Emperor Frederick II, 
 in the thirteenth century ; and by Boisguillebert, the morning 
 star of Economics, in the beginning of the eighteenth century. 
 In this brief sketch we have no space to say much about 
 Condillac, because his explanation is not very satisfactory, 
 and his work never attracted the slightest attention till very 
 recently. 
 
 This, then, was the real origin of Adam Smith's work. He 
 was neither the founder and creator of Economics nor of 
 free trade. Economics, as a science, sprang out of the 
 misery and calamities of the French people, and the Econo- 
 mists were the first to perceive and declare that there is 
 a positive and definite science of Economics ; and that, con- 
 sequently, it must be constructed by exactly the same 
 methods by which all other sciences have been created — 
 namely, by settling its fundamental general concepts and 
 definitions; by a strictly accurate statement of facts and 
 phenomena ; and by reducing all the phenomena to a single 
 general law. Economics is the science of exchanges, or of 
 commerce ; and therefore the details of commerce are the 
 phenomena of Economics. Nor was Adam Smith the founder 
 of free trade. The Economists published their code of 
 
i8 A Policy of Free Exchange. [i. 
 
 doctrine in 1759, in which free exchange was asserted to be 
 one of the fundamental rights of mankind ; and there were 
 numerous and powerful advocates of free trade in Italy and 
 Spain fifteen years before Adam Smith published a line. 
 Turgot carried out immense reforms in the direction of free 
 trade in 1774. How did these writers and statesmen learn 
 the doctrines of free trade from Adam Smith, when his work 
 was not published till 1776 ? The fact is that Adam Smith 
 did not attempt to disprove the theory of protection and 
 prohibition ; he assumed free trade as the doctrine approved 
 of by all enlightened minds. Adam Smith has done suflBcient 
 services himself to Economics, and his reputation does not 
 require the advances and services done by other persons to 
 be attributed to him. 
 
 Adam Smith, then, attacked the doctrine of the Economists, 
 that in commerce neither side gains or loses. By a course of 
 masterly reasoning, far superior to that of Condillac, but too 
 long to be set out here, he demonstrated that in commerce 
 both sides gain ; and, therefore, that nations, in multiplying 
 their commercial relations, multiply their profits and multiply 
 wealth. Even if Adam Smith had never done anything else for 
 Economics than this^ he would have been entitled to immortal 
 glory. By this single demonstration he brought about a change 
 in public opinion and in international policy which has for 
 ever removed a perennial source of war from the world. 
 Nations learnt that instead of destroying each other, and 
 trying to ruin each other's commerce, it was their interest to 
 promote each other's prosperity and to multiply their com- 
 mercial relations with each other. 
 
 Adam Smith next proceeded to demolish the doctrine that 
 neither commerce nor manufactures emich a nation. He 
 demonstrated that both commerce and manufactures are prO' 
 ductive of wealth, and enrich a nation. 
 
 Furthermore, he burst the bonds of the narrow dogmatism 
 of the Economists, that the material products of the earth 
 alone are wealth. For under the title of fixed capital he 
 includes the ' natural and acquired abilities of the people ' ; 
 and under the title of circulating capital he includes bank 
 
I.] The Science of Economics. 
 
 19 
 
 notes, bills of exchange, &c., which are mere abstract rights 
 or credit, and types of vast masses of other incorporeal pro- 
 perty. Hence he fully recognized the existence of the fhre^ 
 orders of economic quantities, as the ancients had done. 
 
 But the utility of his work is sadly marred by the total 
 want of clear, distinct and uniform fundamental concepts or 
 definitions. He entitles his work. An Inquiry into the 
 Nature and Causes of the Wealth of Nations ; but he nowhere 
 gives a clear and distinct definition of what wealth is. In 
 the Introduction he says that the real wealth of a country 
 is the annual produce of ' land and labour.' But he entirely 
 omits exchangeability, which was the quality which the 
 Economists, in agreement with the ancients, recognized as 
 the essence of wealth. But Smith's definition is ambiguous. 
 It is not clear whether he means the produce of land and the 
 produce of labour, or the produce of ' land and labour ' com- 
 bined. It is probable that he meant the last ; and so he has 
 been generally understood. Now, such a definition is mani- 
 festly too wide and also too narrow ; because there are 
 multitudes of things which are the produce of 'land and 
 labour ' which are not exchangeable, and therefore not 
 wealth ; and there are multitudes of things which are ex- 
 changeable, and therefore have value and are wealth, which 
 are in no way the annual produce of ' land and labour.' 
 
 Thus, after proceeding some length, he classes the ' natural 
 and acquired abilities of the people ' as fixed capital and as 
 national wealth. How are the ' natural and acquired abilities 
 of the people' the annual produce of 'land and labour'? 
 Further on he classes bank notes, bills of exchange, &c., as cir- 
 culating capital. How are these, which are mere incorporeal 
 rights, the annual produce of ' land and labour ' ? It is evident 
 that these ideas are absolutely incongruous. This indefinite- 
 ness of view we might have shown at much greater length ; 
 but these instances are sufiicient to prove that his ideas 
 of wealth in diflTerent parts of his work are absolutely 
 inconsistent. 
 
 Furthermore, after inculcating for several hundred pages 
 that value and wealth require the combination of ' land and 
 
 C a 
 
20 A Policy of Free Exchange. [i. 
 
 labour,' he admits that if a thing is not exchangeable it is not 
 ■wealth. He says that if a guinea could not be exchanged for 
 other things it would not be wealth any more than a bill upon 
 a bankrupt. Thus, after all, he recognizes that exchange- 
 ability is the real essence of wealth. By this single sentence 
 he upsets the whole theory which he had been so elaborately 
 building up. 
 
 Keen observers have long ago seen that the first half of 
 Adam Smith's work is entirely inconsistent with the latter 
 half; because in the first half labour is considered as the 
 essence of value and wealth, and in the second half exchange- 
 ability, i.e. demand, is admitted to be the real essence of value 
 and wealth. 
 
 Eicardo adopted the first half of Adam Smith's doctrine, and 
 founds all his ideas of value upon labour. Whately adopted the 
 latter half, and adopts exchangeability pure and simple, and 
 says that Adam Smith's title only denotes the subject-matter 
 of his work ; but that Economics is the science of exchanges, 
 or of commerce. 
 
 Adam Smith's first two books are upon production and 
 distribution ; but he explains that that means commerce, 
 and he says that his purpose is to examine the causes of the 
 price of things ; in other words, the theory of value ; and 
 M^Culloch says in a note that it might be called the science 
 of values. 
 
 An acute writer pointed out long ago that the great defect 
 of Adam Smith is the total want of unity of doctrine, and 
 the want of uniformity of principle. He never had the 
 least idea that the phenomena of value must be reduced to 
 a single general law; but he catches at any theory which 
 seems to explain the cases which for the moment he is 
 considering. The consequence is that his theories ai'e utterly 
 inconsistent with each other; and of course, as they are 
 a series of contradictions, they must sometimes be right. 
 Moreover, though his work abounds with shrewd observa- 
 tions, it is entirely wanting in the very first requisite of every 
 work of science, a clear and accurate definition of its subject- 
 matter. Consequently, though Adam Smith did great and 
 
I.] Th6 Science of Economics. 2 r 
 
 solid services in overthrowing the prejudices and errors of his 
 own day, his work is in no way fitted as an exposition of the 
 actual science at the present day ; in fact, most of the great 
 and complex problems, which are of pressing importance 
 at the present day, had not arisen when he died. 
 
 Now, from the foundation of Economics as a science up to 
 the time of Whately, who was Professor at Oxford in 1 830, 
 there was in this country a perfect uniformity of opinion as 
 to the general nature of the science. The Economists 
 expressly declared that it is the science of exchanges, or of 
 commerce, or the theory of value : and so it was understood 
 to be by the writers in France who did not enrol themselves 
 in the sect of the Economists ; by Condillac, Adam Smith, 
 Eicardo, M"=Culloch, Whately, and all persons who were 
 interested in it. And, however imperfect it might have been, 
 or however many defects it may have had, these were all 
 capable of being rectified. If this concept had been steadily 
 adhered to, and the same labour had been bestowed upon it, 
 to rectify and develop it, by the same methods by which all 
 other sciences have been created, it might long ago have been 
 erected into a positive and definite science, like any of the 
 physical sciences. 
 
 But, most unfortunately, the science was thrown into utter 
 confusion, and its progress retarded for a long time, by 
 a distinguished French writer, J. B. Say, about the beginning 
 of this century. He adopted the second and alternative 
 definition of the science which the Economists most un- 
 guardedly and unadvisedly suggested. Moreover, he com- 
 pletely changed the meaning of its fundamental terms ; by 
 which he ruined Economics as a science, and has been the 
 cause of all the subsequent confusion and of the deplorable 
 state in which it is at present. From this state of chaos it 
 has only begun to recover in recent times. Those who have 
 examined the matter closely are beginning to see that the 
 system of J. B. Say is absolutely unworkable as a practical 
 science, and that in order to construct Economics as a positive 
 science it is indispensable to revert to the original concept of 
 it as the science of exchanges or of commerce. 
 
22 A Policy of Free Exchange. [i. 
 
 While the Economists declared that the expression 'pro- 
 duction, distribution and consumption ' of wealth is one and 
 indivisible, and meant nothing but exchange, or commerce, 
 J. B. Say broke it up into its constituent terms and completely- 
 changed their meaning. While the Economists defined pro- 
 duction to mean bringing the rude produce of the earth into 
 commerce, Say defined it to mean bestowing value on 
 a product. While the Economists defined distribution to 
 tnean the intermediate operations between production and 
 consumption, and those only. Say treats of distribution in 
 such a nebulous way that it is difiicult to make out distinctly 
 what he means by it. The Economists and Adam Smith used 
 the word consumption (consortiTiiation) to mean purchase 
 pure and simple, or demand ; Say defined it to mean the 
 destruction of value, and says that all consumption is 
 a destruction of value. The absurdity of this is patent. 
 When a person purchases (i.e. consumes, in the language of 
 the Economists and Adam Smith) a diamond ring, a piece of 
 plate, a picture, a statue, or a book — does he thereby destroy 
 them ? The fact is that consumption, which Say defined to 
 mean destruction, is no part of Economics at all. For 
 Economics is limited to the phenomena of exchange. 
 
 The Economists steadfastly refused to admit that labour and 
 Credit are wealth. But on the first page of his work Say 
 classes titres de creance, bank notes, bills of exchange, the 
 funds, &c., as wealth ; and further on includes many other 
 kinds of incorporeal property under the title of wealth. 
 These are all abstract rights. Say also, like Adam Smith, 
 includes all the industrial faculties of the people under the 
 definition of wealth and capital. 
 
 Now, how can we speak of the ' pi'oduction, distribution 
 and consumption ' of bank notes, bills of exchange, the funds, 
 shares in commercial companies, copyrights, patents, and the 
 other forms of incorporeal property ? 
 
 How can we speak of the 'production, distribution and 
 consumption' of labour of different kinds, of knowledge, 
 and other intellectual qualities, and of personal credit 1 
 
 Whereas we speak of the supply and demand, and the 
 
1.] The Science of Economics. 25 
 
 value of all these things ; and they are all the subjects of 
 exchange or commerce. The whole operations of mercantile 
 credit — the colossal system of banking — and the foreign exi 
 changes — are all sales, or exchanges, and integral departments 
 of commerce : but how can their mechanism and phenomena 
 be explained under the expression the ' production, distribution 
 and consumption of wealth ' ? 
 
 This sepai-ation of the component terms of the expression 
 ' production, distribution and consumption,' and their treat- 
 ment in separate chapters, utterly destroys the character of 
 Economics as a science, and utterly breaks the back of the 
 theory of value, which is the very essence of Economics. 
 
 Say's books abound in valuable observations, but his system 
 of Economics is absolutely unworkable for any practical 
 purposes. Say totally forgot to observe that the expression 
 'production, distribution and consumption of wealth' was 
 rigorously restricted by the Economists to the exchanges, or 
 commerce, of material products only, and, even as applied to 
 them, was a very awkward concept ; and that labour and 
 credit were entirely excluded from it. But when labour and 
 credit are admitted to be wealth by Adam Smith and Say, 
 and introduced into Economics by them, the expression 
 becomes mere unintelligible jargon. 
 
 .J. S. Mill was the friend and pupil of J. B. Say, and modelled 
 his ideas very much on those of Say. Nevertheless, he haa 
 considerable divergences from him. He saw that consumption^ 
 in the sense of destruction, is no part of Economics ; and 
 he divides his work into production, distribution and ex- 
 change. But production and distribution, in the language of 
 the Economists and Adam Smith, was exchange— so that 
 Mill's work is really simply exchange and exchange. 
 
 But as the basis of the whole science is the word wealth 
 we have to see what meaning Mill gives to it. 
 
 In his preliminary remarks he says that it is no part of 
 the design, of his treatise to aim at metaphysical nicety of 
 definition where the ideas suggested by a term are already 
 as determinate as practical purposes require, and that every 
 one has a notion sufficiently correct for common purposes 
 
24 A Policy' of Free Exchange. [i. 
 
 of what is meant by wealth. It somewhat surprises us 
 to hear this. For many centuries nations have been quite 
 unable to agree as to what wealth is ; and many bloody 
 wars have been waged because of quarrels which rose directly 
 out of a mistaken conception of its meaning ; vast quantities 
 of mischievous legislation have been enacted as the result of 
 erroneous theories as to its nature and origin; and at the 
 present moment the widest differences of opinion prevail 
 among Economists as to what should be included under the 
 term. 
 
 One of Mill's definitions is as follows : ' Everything foi-ms 
 part of wealth which has power of purchasing.' This exactly 
 agrees with the definition adopted 1,300 years ago by the 
 ancients, and includes everything which can be bought and 
 sold, or exchanged, whatever its nature or form may be ; and 
 evidently comprehends all the three orders of economic 
 quantities. 
 
 > Now, let us see how far Mill is consistent with himself. 
 After giving this wide and general definition he shortly 
 afterwards attempts a second, and identifies the 'production 
 of wealth, the extraction of the instruments of human sub- 
 sistence and enjoyment from the materials of the globe.' Mill 
 admits that industrial qualities are wealth. Now, how are 
 industrial qualities extracted from the materials of the globe ? 
 Mill admits that personal credit is wealth. How is a merchant's 
 or banker's credit extracted from the materials of the globe % 
 Mill admits that a credit given by a solvent banker or 
 merchant is of the same value as gold, and therefore wealth. 
 How is a credit — a mere abstract right of action — extracted 
 from the materials of the globe ? Elsewhere Mill speaks of 
 wealth as being the product of land, labour and capital ; but 
 how are personal qualities and abstract rights the product of 
 land, labour and capital ? We might point out several other 
 self-contradictions of Mill on the nature of wealth ; but that 
 would be too wearisome for our readers. Mill says that every 
 one has a sufficiently correct knowledge of the meaning of 
 wealth ; and now it is seen that he has no consistent ideas 
 on the subject himself. 
 
I.} The Science of Economics. 2 5 
 
 The fact is that Say and Mill have brought the science 
 to a complete ivupasse. The expression 'production, distri- 
 bution and consumption of wealth ' was expressly restricted 
 to the commerce, or exchanges, of material products only; 
 and when we introduce personal qualities and abstract rights 
 into the science, as Adam Smith, Say and Mill have rightly 
 done, it throws the whole subject into irremediable confusion. 
 There is no possibility of erecting the ' production, distribu- 
 tion and consumption of wealth ' into any sort of scientific 
 system ; if we are to attain that end we must revert to the 
 concept of Economics as the science of exchanges, or of com- 
 merce, as the most advanced Economists are now doing: 
 and then we have a body of phenomena as capable of being 
 erected into an exact and definite science as astronomy, 
 optics, or any other. 
 
 We shall now see the bearings of the doctrines of the 
 Economists and Adam Smith on free trade. 
 
 The Economists established it as one of the fundamental 
 rights of mankind that they should be allowed to exchange 
 their products and services freely with one another. Now, 
 it is evident that when men agree to exchange their products 
 and services, the arrangement of the price, or value, of the 
 reciprocal products and services exchanged should be left 
 entirely to the mutual agreement of the parties, the buyer 
 and the seller. Who can tell so well as they what is the real 
 value of the product or service to them ? Now, when the 
 price of the product or service is agreed upon and settled 
 between the sole parties who are interested in it, suppose 
 that some artificial force is suddenly directed against one of 
 them, beyond what arises from their natural position, to 
 oblige him to yield up more of his property to the other 
 than he would do if the arrangement were left perfectly 
 free — such a force suddenly put at the disposal of either party, 
 whatever its nature be, whether moral or material, would 
 clearly be unjust in its very nature, and would be nothing 
 more than a license enabling one party to rob the other. 
 
 It may be asserted in the broadest possible terms that 
 
26 A Policy of Free Exchange. [i. 
 
 it is the natural right of every man to employ his industry 
 and the talents which Providence has given him in the manner 
 which he considers to be most for his own advantage, so 
 long as it is not to the injury of his neighbour. He has the 
 natural right to exchange the products of his industry with 
 those of any other person who will agree to such exchangej 
 to buy from whom he will, and to sell to whom he can. 
 A law which seeks to check the course of this free exchange 
 is inherently wrong, and, because inherently wrong, inhe- 
 rently mischievous. And, though it may be permitted to 
 take something from him for the necessities of the State, 
 which is the guardian of the interests of all, a law which 
 deprives one class of the community of a part of their pro- 
 perty in order to bestow it upon another class is an intolerable 
 violation of natural justice. If a person forcibly takes away 
 a part of his property from another person without any 
 equivalent it is simply robbery. In the same way if a man 
 wishes to sell any article and can by any means force the 
 buyer to pay a higher price for it than he otherwise would, 
 it is simply despoiling him of part of his property, and 
 appropriating it to himself. 
 
 Let us put this in a familiar way. Suppose that Richard 
 Stubble lives in the country and grows corn, and that his 
 friend John Smith carries on his business in town. Having 
 some corn to sell, Richard proposes to have a transaction 
 with his friend John. The free marketable value of the corn 
 is 40s. per quarter. But suppose that Richard has about 
 a hundred times more influence over the legislature than 
 John has, and he gets them to pass a law by which he can 
 compel John to pay him 50s. for what he could buy elsewhere 
 for 408. In that case he deprives John of los., representing 
 so much of his industry, for which he gives him no equivalent, 
 and takes it to himself. In the mediaeval ages great lords 
 and barons used to keep armed retainers whom they employed 
 to plunder any unfortunate travellers who came within their 
 power. In the nineteenth century the governing classes 
 passed laws by which they forced traders to surrender to 
 them a considerable portion of their property against their 
 
I.] The Science of Economics. 2 7 
 
 will. Where is the moral diflFerence between the two cases ? 
 When one man forcibly and unjustly deprives another man 
 of his property, the precise method he may adopt for his 
 purpose does not materially affect the moral aspect of the 
 thing. 
 
 It is no argument to say that till comparatively recent 
 times the protective system was established in this country, 
 that it is still in force in foreign countries, and that it was 
 supported and adopted by men of unblemished character and 
 integrity. It is absolutely necessary that we should not suffer 
 our estimation of the moral character of men to influence our 
 view as to the soundness of their opinions. There never 
 prevailed a pernicious error in the world which was not 
 supported by the authority of men of eminent personal 
 virtue. It is, unfortunately, through the very excellence 
 of the men who adopted them, that most of the erroneous 
 principles which have done so much mischief in the world 
 derived their fatal influence. The real question is, not whether 
 the men who hold certain opinions are estimable, but whether 
 the opinions themselves are right or wrong. The fact is that 
 questions are examined with greater care and more searching 
 criticism nowadays than ever they were before ; and by this 
 more comprehensive investigation new considerations and 
 relations are discovered. Arguments drawn from equity; 
 sometimes well founded, sometimes the reverse, are every day 
 obtaining greater influence in legislation ; and many of the most 
 beneficial reforms of the present day have been to abolish and 
 set aside the partial and unjust laws which encumbered the 
 statute-book. It is not so very long ago that public opinion 
 in this country tolerated the slave trade, and men of eminent 
 piety saw no harm in stealing men from their homes and 
 transporting them to foreign countries to labour for the benefit 
 of their masters. But public opinion became convinced of its 
 abomination, and not only put it down but declared it to be 
 a great crime. What was considered to be legitimate traffic 
 at the beginning of the century is now declared by law to be 
 piracy, and Englishmen who engage in it are liable to be dealt 
 with as pirates. Little more than one hundred years ago, if 
 
28 A Policy of Free Exchange. [i. 
 
 a gale came on, it used to be the custom to pitch the negroes 
 overboard like cattle, and this was related in a court of law 
 without eliciting the slightest comment. Now, at bottom 
 there is not much difference in the idea involved in protection 
 and the slave trade. They both seek to effect the same object 
 by somewhat different methods. They are both for the 
 purpose of enabling one set of men to appropriate to them- 
 selves the fruits of their neighbours' industry — the one by 
 the coarse method of force, the other by the somewhat more 
 refined method of fraudulent taxation. 
 
 Lord Macaulay remarks that the two greatest and most, 
 salutary social revolutions which have taken place in England 
 were those which, in the thirteenth century, put an end to the 
 tyranny of nation over nation ; and which, a few generations 
 later, put an end to the property of man in man. To these 
 we may venture to add a tJdrd, not less great and not less 
 salutary than the other two — that great revolution in the 
 ideas of the age which, in the nineteenth century, abolished 
 for ever the property of one set of men in the industry of 
 another. 
 
 The protective system is, therefore, nothing more than 
 a method by which producers endeavour to force consumers 
 to pay a higher price than they otherwise would do for their 
 commodities. Now, let us consider a different case. 
 
 Suppose that the legislature, being entirely composed of 
 consumers, should pass a law forbidding the farmers to sell 
 their produce above a certain price, or to export it to foreign 
 countries, where they might find a better market for it : 
 or suppose that laws were made to prevent workmen demand- 
 ing above a certain rate of wages : or compelling producers 
 to bring their products to market and accept a price for them 
 much below what they would fetch if there were no such law. 
 This would be a case on the part of consumers precisely 
 analogous to what protection is on the part of producers. 
 
 This form of injustice did formerly prevail to a certain 
 extent in this country ; but it never acquired a distinctive 
 name in our language as it did in France. During the height 
 of the horrors of the French Kevolution in 1793, when the 
 
I.] • The Science of Economics. 29 
 
 insecurity of property had scared away almost all sorts of 
 produce from the market, the French Convention passed the 
 severest laws to limit the price of commodities, forbidding 
 persons to sell their produce above a certain fixed price, 
 whence they were called the laws of the maximum. As 
 might have been foreseen, these laws only aggravated the 
 evil; and their disastrous effects are set forth with great 
 minuteness in the third, fourth, fifth, and sixth volumes of 
 Alison's History of Europe (seventh edition); though the 
 author overlooks the fact that the very same objections 
 apply against the system of protection, of which he is so 
 strong an advocate. 
 
 Each of these systems, then, is erroneous, but in opposite 
 directions ; that of protection, by which the producer obliges 
 the consumer to buy from him his produce at a price above 
 its natural value ; that of the maximum, by which the 
 consumer obliges the producer to sell to him his produce at 
 a price below its natural market value. Now, every law 
 which interferes with the natural course of trade, which 
 attempts to regulate the wages of labour, or the price of 
 commodities, which attempts to meddle with the free ex- 
 change of industry or products between man and man, 
 must necessarily fall under one of these forms of error. 
 Every such law sins against natural justice, more or less, 
 in one direction or the other, either as it assumes the 
 form of protection or the maximum ; and it is just as clear as 
 the sun at noonday, that the only true, just and proper course 
 is to establish and maintain absolute freedom of exchange. 
 
 The fact is, that both of these erroneous systems — pro- 
 tection and the maximum — are forms of socialism ; they are 
 both especially designed for the very purpose of interfering 
 with the natural value of commodities. Consequently, which- 
 ever of the parties is enabled to compel the other to part with 
 his property at a different rate than what he would, if 
 unconstrained, is able to appropriate to himself a portion of 
 the other's property. And this is the very essence of socialism. 
 Protection is the socialism of producers ; the maximum is the 
 socialism of consumers. And nothing is more natural to find 
 
30 A Policy of Free Exchange, [i. 
 
 than that where the one doctrine is popular with one party the 
 other doctrine is popular with the other party. Of this we 
 may see examples in foreign countries where protection is the 
 creed of the State, and socialism is the alarmingly increasing 
 creed of the people. 
 
 Now, the idea which was at the root 'of all this legislation 
 was that cost of production should regulate value, and that 
 those who had produced articles had the right to have re- 
 munerative prices secured to them by law. This idea was 
 a very natural one to occur to producers ; and when we think 
 of the condition of Parliament when this species of legislation 
 was in fashion it is not surprising that it prevailed. In the 
 last century, it is true, there were at various times laws 
 enacted for disturbing the natural course of commerce ; but 
 the corn laws, which lasted, with various alterations, until 
 Sir Robert Peel abolished them, were made in 1815. Now, 
 what was the state of Parliament at that time ? One branch 
 was entirely composed, as it still is, of agriculturists; the 
 other principally of agriculturists, and the nominees of 
 agriculturists, as well as great manufacturers, great merchants, 
 great shipowners, and great producers of all sorts. It was 
 entirely a Parliament of sellers, a vast close and corrupt 
 combination. The great body of the people, i. e. the consumers, 
 had very little influence in the House of Commons. The 
 sellers had a complete monopoly of law-making; and theii- 
 legislation is exactly what might have been expected. All 
 the producers in turn were permitted to plunder the public 
 for their own benefit. It was nothing more than a gigantic 
 conspiracy of all the sellers against all the buyers. These laws 
 were a striking proof that no single interest can be entrusted 
 to frame laws for the whole community in a spirit of justice ; 
 but, to insure that, all interests must have a voice. 
 
 These considerations are, we think, sufficient to place the 
 doctrine of free exchange on an impregnable moral basis: 
 and we have now to consider the eflTect of Adam Smith's 
 demonstration that in commerce hoth sides gain. This, of 
 all the services he has done to Economics, may be considered 
 bis chief achievement, one which alone, from its stupendous 
 
I.] The Science of Economics. 3 1 
 
 effects on national policy, would entitle him to immortal 
 glory. 
 
 The essence of Adam Smith's doctrine is that the wider 
 and more extensive commercial intercourse is among nations, 
 the more prosperous and wealthy they all become. Every 
 one, in seeking his own advantage benefits others as well, 
 because if a man wants to acquire any object, he must have 
 to oifer in exchange for it something which other people 
 want. Different countries have different advantages for pro- 
 ducing commodities for the enjoyment and satisfaction of 
 mankind. It is the interest of the whole world that all com- 
 modities should be produced in those places where they can 
 be obtained best and cheapest, and exported to those places 
 where they can only be produced of inferior quality and 
 at a greater cost. Thus the whole world will obtain the 
 greatest amount of enjoyments and satisfactions at the least 
 labour and cost. Thus absolute freedom of commerce and 
 exchange throughout the whole world is the true nature of 
 things. But when hostile tariff's are interposed they act at 
 once as a barrier, and diminish the commercial intercourse 
 of nations to their mutual loss and impoverishment. Pro- 
 tective tariffs are expressly made for the purpose of forcing 
 commerce out of its natural course and development, and 
 that alone is sufficient to condemn them. This is so obvious 
 that we need not dwell on it further. 
 
 It is, however, necessary to correct an assertion which is by 
 no means uncommon. It is well known that Cobden in his 
 wonderful campaigns many times declared that if England 
 would lead the way other nations would quickly adopt free 
 trade. At that time there seemed every prospect that this 
 hope would be realized. The success of free trade legislation 
 in England gave an immense stimulus to free trade doctrines 
 in France, the birthplace and cradle of Economics and free 
 trade. In 1846 and 1847 numerous Economists, among 
 whom Michel Chevalier and Frederic Bastiat were the most 
 conspicuous leaders, got up an association and agitation in 
 France on the model of the Anti-Corn Law League in 
 England, and excited immense enthusiasm. The movement 
 
32 A Policy of Free Exchange. [f- 
 
 had the best prospect of success, when the French Eevolution 
 of 1848 broke out and quickly spread all over Europe. That 
 of course extinguished all hopes of free trade. When thrones 
 ■were rocking to their foundations, and crowns were tumbling 
 in the dust, statesmen could give no attention to Economics. 
 Inter arma Economics silet. And instead of Economics the 
 wildest socialism got the upper hand. The socialists knew 
 instinctively that true Economics was their deadly enemy, 
 so they abolished all the chairs of Economics in France. 
 Under the fatal advice of Louis Blanc they established the 
 Ateliers Nationaux (of which I have given an account in my 
 Dictionary of Political Economy), where every workman 
 was to be provided with work out of the resources of the 
 State. But though the State could pay workmen to produce 
 articles, it could not provide purchasers to buy them : so that, 
 to prevent bankruptcy, the Ateliers Nationaux had to be 
 suppressed at the cost of the most terrible civil war ever 
 waged in any city. 
 
 Napoleon III, with the advice and assistance of Rouher, 
 Chevalier, Cobden and Mallet, negotiated a commercial treaty 
 with England in i860 which considerably relaxed the pro- 
 tective system then established. But this treaty was carried 
 by the autocratic power of the Emperor, and was utterly 
 distasteful to the great mass of the French people, who were 
 now mainly protectionist and socialist, which are one and 
 the same thing. And alas ! France, which in the last century 
 was the beacon to spread the light of free trade thi-oughout 
 the world, is now enveloped in the deepest darkness of pro- 
 tection and socialism: nor does there seem any immediate 
 prospect of her emerging from it. 
 
 Now, a considerable number of persons, seeing that other 
 nations not only have not followed the example of England, 
 but on the contrary have retrogressed, and are now even more 
 protectionist than they were in 1 847, and that, up to this time, 
 Cobden's hopes have been falsified, have maintained that 
 what Cobden regarded only as a hopeful prospect, was in his 
 view the necessary corollary of England's adoption of free 
 trade : and that as other nations have plunged deeper and 
 
I.J The Science of Economics. 
 
 %l 
 
 deeper into protection and socialism, England should do 
 so likewise. They clamour against what they are pleased to 
 designate as one-sided free trade. And under the specious 
 names of reciprocity and fair trade, they are calling for 
 England to retaliate by enacting protective tariffs against 
 those nations which have enacted protective tariffs against 
 her, and so to do unto them as they do unto her. If this 
 were carried out, England would have to revert to the darkest 
 days of protection. 
 
 It has been frequently said that if Cobden were alive now, 
 and saw the falsification of his hopes, he would advocate 
 reciprocity and fair trade, as they are pleased to term it. 
 But those who say so never studied Cobden's doctrines. 
 Constantly and uniformly he inculcated that England ought 
 to adopt free trade whether other nations did so or not, and 
 even if all the world were against her, as is pretty much 
 the case at present. 
 
 Having a perfect recollection of the great free trade 
 discussions, I have no hesitation in saying that Cobden 
 would have done nothing of the sort which the reciproci- 
 tarians and fair traders would attribute to him. His con- 
 stant maxim was that fhe true way to fight hostile tariffs is 
 by free trade. 
 
 No doubt all these hostile tarifis are extremely exasperating : 
 they inflict incalculable injury, not only upon the wealth 
 and prosperity of England, but upon the nations which enact 
 them, and on the rest of the world. But if, as some hot- 
 headed and inconsiderate persons urge, England were to 
 resort to reciprocity and retaliation, she would merely 
 double the mischief. If the present hostile tariffs destroy 
 an incalculable amount of commercial intercourse, a resort to 
 reciprocity and retaliation would destroy it infinitely more. 
 As Sir Louis Mallet pithily said, ' If one tariff is bad, two are 
 worse.' If foreign nations smite us on one cheek by their 
 hostile tariffs, if we followed the advice of the reciprocitarians 
 and retaliated, we should simply smite ourselves very hard 
 on the other cheek. 
 
 Retaliation is not to be thought of. England may justly 
 
 D 
 
34 A Policy of Free Exchange. [i- 
 
 fume and fret, but she must keep her temper and possess her 
 soul in patience. There is no remedy but time and patience. 
 When protectionist policy once gets the upper hand the 
 natural tendency of its advocates is to strain it till it cracks. 
 When protectionists do not reap the benefits they expect from 
 protection, their constant cry is for more protection. We see 
 this in Russia, Germany, France, Italy, and most conspicuously 
 in the United States. In this last-named country there are 
 evident signs that the people see that they have bent the 
 bow too far, and the present Government is strenuously bent 
 on relaxing it to a considerable extent ; but how far it will 
 succeed time only can show. But, whatever other nations 
 may do, England must endure to the end and steadily keep 
 the light of free trade burning amid despondency, gloom and 
 darkness, in the hope that time, experience and reflection will 
 bring other nations to a better frame of mind. One example 
 alone is sufficient to prove the wisdom of this policy. Even in 
 former times, when all nations were protectionist, there were 
 always a certain number of free cities, and their wealth and 
 prosperity, while all nations were weighed down with pro- 
 tection, completely establish the truth of Cobden's doctrine. 
 If so be, England must continue to the end as the free port 
 and market of the world. 
 
 Thus we see how true Economics throws a clear and steady 
 light on the path of national policy. 
 
 We have now to consider the influence of economic specula- 
 tion, true or false, on that new form of protection which, under 
 the name of socialism, has in these last few years become so 
 increasingly prevalent, and which is assuming more alarming 
 and portentous influence every day. 
 
 Adam Smith, as we have shown even in this brief and 
 cursory sketch, did immense services to Economics ; but, alas ! 
 he also did infinite mischief by his self-contradictions and 
 confusion on the nature and causes of value. 
 
 Aristotle said — ' Value is the relation which anything bears 
 to other things.' 
 
 The Economists were perfectly clear and consistent in their 
 
I.] The Science of Economics. 35 
 
 doctrine of value. Le Trosne says — ' Products acquire, then, 
 in the social state which arises i'rom the community of men 
 among each other, a new quality. This new quality is 
 value, which makes products become wealth. 
 
 ' Value consists in the ratio of exchange which takes place 
 between such and such a product, between such a quan- 
 tity of one product and such a quantity of another product.' 
 And in this the Economists were unanimous. Now, it is 
 evident that if value is a ratio, there can be no such thing 
 as intrinsic value ; and also that a standard of value is 
 impossible by the very nature of things. Value, like distance, 
 necessarily requires two objects or quantities. 
 
 Aristotle also showed that the cause of aU value is demand 
 — yj>da. The word yjyf\\i.a, which is one of the most usual 
 words in Greek for wealth, comes from xpao/xai, to want or 
 demand : and the ancients showed a thing is XPW" — wealth 
 — only where and when it is yj>i]<ji.\j.ov — wanted and demanded : 
 and that where and when it is not xpTjeri/xoz/ — wanted and 
 demanded — it is not yj>y\\i.a — wealth. In the ancient dialogue 
 we have referred to above, Socrates shows that money is 
 wealth only in those places where it will purchase other 
 things, and he instanced several examples of local moneys 
 which were valuable and were wealth in certain places, but 
 which had no value and were not wealth in others, where 
 they had no power of purchasing. All the Economists of 
 France and Italy showed that value proceeds entirely from 
 the wants and desires of men. The Economists were quite 
 unanipaous that all value proceeds from consomniation, or 
 demand ; and that where things are not consommes — 
 demanded — they are no better than so much rubbish. Now, 
 as all commerce or exchange proceeds from the mutual wants 
 and desires of men, it is quite evident that value requires the 
 concurrence of two miuds, and that it proceeds from reciprocal 
 demand. 
 
 Our great philosopher Locke was, unfortunately, the origi- 
 nator of all the confusion which has done so much to blight 
 the progress of English Economics. Locke maintained that 
 all differences of value arise from differences of labour. Locke's 
 
 D a 
 
36 A Policy of Free Exchange. [r, 
 
 abstruse works are very little known, and if this fatal dogma 
 had lain perdu in them there would have been very little 
 harm done. 
 
 But, unfortunately, this idea was taken up in the early part 
 of his work by Adam Smith, though quite discarded in the 
 latter part of it, and his fifth chapter has been the ruin of 
 English Economics. 
 
 Of this chapter that distinguished Economist and statesman 
 Francis Horner says — ' We have been under the necessity 
 of suspending our progress in the perusal of the Wealth of 
 Nations on account of the insurmountable difficulties, obscurity 
 and embarrassment in which the reasonings of the fifth chapter 
 are involved .... the discovery that I did not understand 
 Smith speedily led me to doubt whether Smith understood 
 himself.' 
 
 We shall now lay before our readers the cause of all this 
 confusion. 
 
 In this unfortunate chapter Smith begins by saying that 
 the, value of any commodity is equal to the quantity of labour 
 which it entitles him to purchase. Hence if we denote labour 
 by I, we have 
 
 A=l,2l,^l,4l... 
 
 He then says that this is the same thing as saying that it 
 is equal to the produce of labour which it enables him to 
 purchase. On denoting produce by p, we have 
 
 A=p, 2p, ^p, 4p . . . 
 
 Then he" says that the value of anything is more frequently 
 estimated in money than either in labour or commodities. 
 On denoting money by m, we have 
 
 A = m, a m, 3 m, 4 171 . . . 
 
 Now, although it has been pointed out that these modes of 
 estimating the value of a quantity are by no means identical, 
 we observe that in this passage Smith defines the value of 
 a thing to be something external to itself. Hence the value 
 of A must vary directly as I, p or m. The more of Z, ^ or m 
 that A can purchase, the greater is the value of A : the less 
 
I.J The Science of Economics. 
 
 ?>7 
 
 of l,p or m that A can purchase, the less is the value of A, 
 It is also perfectly clear that if any change takes place in the 
 relation between A and these quantities, the value of A has 
 changed. 
 
 Hence Smith admits that value, like distance, requires two 
 objects. If any change takes place in the position of these 
 two objects, the distance between them has changed, no 
 matter in which the change has taken place. So if any 
 change takes place in the relation of two quantities, their 
 value has changed, no matter in which the change takes 
 place. Hence it is clear that there can be no such thing as 
 invariable value. Nothing whatever can have invariable 
 value unless its exchangeable relation with everything else is 
 fixed. Hence we can at once see that, by the very nature of 
 things, there can be no such thing as an invariable standard 
 of value by which to measure the value of other things, 
 because by the very nature of things, the very condition of any- 
 thing being invariable in value is that nothing else shall vary 
 in value, and that there shall be no variations to measure. 
 
 Nevertheless a very large body of Economists have set out 
 upon this wild-goose chase, this search for an invariable 
 standard of value, which it is utterly contrary to the nature 
 of things should exist at all. Directly after the passage we 
 have referred to. Smith commences the search for that single 
 thing which is the invariable standard of value. He says 
 that gold and silver will not do because they vary in their 
 value ; sometimes they can purchase more and sometimes less 
 of labour and commodities. Then he says — 
 
 ' But as a measure of quantity, such as the natural foot, 
 fathom or handful, which is always varying its own quantity, 
 can never be an accurate measure of the quantity of other 
 things, so a commodity which is itself continually varying in 
 its own value can never be an accurate measure of the value 
 of other commodities. Equal quantities of labour at all 
 times and places may be said to be of equal value to the 
 labourer. In his ordinary state of health, strength and 
 spirits, in the ordinary degree of his skill and dexterity he 
 must always lay down the same portion of his ease, his 
 
38 A Policy of Free Exchange. [i. 
 
 liberty, and his happiness. Tlie 'price which he pays must 
 always he the same whatever the qtutntity of goods which he 
 receives in return for it. Of these, indeed, it may somietiines 
 purchase a greater, and sometimes a smaller quantity, but it 
 is their value which varies, not that of the labour which 
 purchases them. At all times and places that is dear which 
 it is difficult to come at, or which it costs much labour to 
 acquire, and that cheap which is to be had easily, or with 
 very little labour. Labour alone, therefore, never varying in 
 its own value, is alone the ultimate and real standard by 
 xvhich the value of all commodities can at all times and 
 places be estimated and compared. It is their real price; 
 money is their nominal price only. 
 
 ' But though equal quantities of labour are always of equal 
 value to the labourer, yet to the person who employs him 
 they appear sometimes to be greater and sometimes of smaller 
 value. . . . 
 
 ' Labour, therefore, it appears evidently is the only universcd, 
 as well as the only accurate measure of value, or the only 
 standard by which we can compare the value of different 
 commodities at all times and 2)laces.' 
 
 The utter confusion of ideas in these passages is manifest. 
 A foot, or a fathom, is an absolute quantity, and of course 
 may increase or decrease by itself: but value, by Smith's 
 own definition, is a ratio, which requires two quantities : 
 and therefore we might jiist as well say that because a foot 
 which is constantly varying its own length 'cannot be an 
 accurate measure of the length of other things, therefore 
 a quantity which is always varying its own ratio cannot be 
 an accurate measure of the ratio of other things. This is 
 utter confusion of idea. We may measure a tree with a yard, 
 because they are each of them single quantities ; but it is 
 impossible that a single quantity can be the measure of 
 a ratio. It is manifestly impossible to say that 
 
 a : b : : X. 
 
 It is manifestly absurd to say that 4 is to 5 as 8, without 
 saying as 8 is to— what ? just as it is absurd to say that a horse 
 
I.] The Science of Economics. 39 
 
 gallops at the rate of twenty miles, without saying in what 
 time. 
 
 But Smith says that ' equal quantities of labour are always 
 of equal value.' What? If a man is paid five shillings for 
 a certain amount of labour, is his labour of the same value to 
 him as if he were paid .5^1,000'? This certainly is a very 
 comfortable doctrine for the employer, because, if he pays his 
 workmen one shilling a week, according to Smith their 
 labour is of just as much value to them as if he paid them 
 twenty shillings a week. We doubt whether the workmen 
 would acquiesce in this view. 
 
 Smith himself says that gold and silver vary in their value 
 because they sometimes can purchase more and sometimes 
 less of other things. But when labour sometimes earns more 
 wages and sometimes less wages, does it not also vary in its 
 value ? How, then, can its value be invariable % How is its 
 value to be determiued on principles different from those which 
 govern the value of gold and silver % 
 
 The fact is that Smith's dogma that labour is an invariable 
 standard of value is a pure mare's nest. Neither labour nor 
 any other single quantity can be a standard of value ; and to 
 suppose that it could, is on]y to betray utter ignorance of the 
 mathematics of ratios. 
 
 The term value has been so confused by Economists that 
 it will aid much in showing the confusion of Smith's ideas to 
 translate them into mechanical language, substituting the 
 word didance, which has not been so befogged in popular 
 language, for value, thus — 
 
 ' As a measure of quantity, such as a foot, which is always 
 varying its own length, can never be an accurate measure of 
 the length of other things, so an object which is always vary- 
 ing its own distance can never be an accurate measure of the 
 distance of other objects. But the sun is always at the same 
 distance. And though the earth is sometimes nearer to the 
 sun and sometimes further ofi" from it, the sun is always at the 
 same distance. And though the earth is at different distances 
 from the sun, the sun is always at the same distance from the 
 earth : it is the distance of the earth which has varied, and 
 
40 A Policy of Free Exchange. [i. 
 
 not that of the sun : and the sun alone never varying its own 
 distance is the ultimate and real standard by which the 
 distances of all things can at all times and places be estimated 
 and compared.' 
 
 Such is a fair translation into mechanical language of 
 Smith's ideas on value, merely substituting distance for value. 
 Smith practically contends that if a railway station is fixed, 
 and a train approaches, or recedes from it, the distance of the 
 train from the station varies ; but that the station is always 
 at the same distance from the train ! Can we wonder at the 
 language of Horner ? The cause of the confusion is obvious. 
 Smith begins by holding the value of a product to be the 
 quantity of other things it will purchase : and then he suddenly 
 changes his concept of value to the quantity of labour em- 
 bodied in obtaining the product itself: and he has not the 
 slightest idea that these are utterly inconsistent ideas. 
 
 Exactly the same confusion runs through the whole of 
 Ricardo. His conception of value is vitiated by the same 
 utter want of unity. 
 
 Ricardo's work is avowedly a treatise on value. Now, 
 Bacon and common sense show that before a person begins 
 to theorize on a subject he must first make an exhaustive 
 collection of the facts relating to itj even the most minute ; 
 because a single fact which is irreconcileable with a theory is 
 fatal to it. Ricardo excludes immaterial and incorporeal 
 quantities from his investigations, which Adam Smith 
 in conformity with the unanimous agreement of ancient 
 writers included : he confines his inquiiy solely to material 
 things: and of these he excludes all but those which are 
 the product of human labour. Now, material commodities 
 which are the product of human labour, are one subdivision, 
 and that by no means the largest, of material commodities, 
 which are wealth by unanimous consent. Ricardo then 
 attempts to found a general theory on a single subdivision of 
 one class of commodities which have value : by this method he 
 omits about eighty per cent, of the facts of the case. The 
 veriest tyro can perceive that such a method of philoso- 
 phizing is absolutely inadmissible. 
 
I.] The Science of Economics. 41 
 
 He also falls into exactly the same confusion on value that 
 Adam Smith does. He begins by saying — 'The value of a 
 commodity, or the quantity of any other commodity for 
 which it will exchange.' Also — ' The exchangeable value of 
 these commodities, or the rule which determines hoiu much of 
 one shall he given in exchange for another' : and several other 
 passages to the same effect. 
 
 But he very soon slides into the same pitfall as Smith does ; 
 and he calls the ' quantity of labour bestowed on a commodity 
 under many circumstances an invariable standard indicating 
 correctly the variations of other things.' 
 
 He then maintains that, ' if a commodity could always be 
 produced by an invariable quantity of labour, its value would 
 be invariable, and it would be eminently well calculated to 
 measure the varying value of all other things'; and in a 
 subsequent part of his work he says : 'The labour of a million 
 of men in manufactures will always produce the same value. 
 That commodity is alone invariable which at all times 
 requires the same quantity of toil and trouble to produce it.' 
 Now, Eicardo's doctrine is that when manufactures have been 
 produced they are of exactly the same value, whether they sell 
 for a large sum of money or cannot be sold at all. We doubt 
 whether the manufacturers of Manchester would acquiesce in 
 this doctrine. 
 
 He then says : ' I cannot agree with M. Say in estimating 
 the value of a commodity by the abundance of other com- 
 modities for which it wiU exchange.' Thus Eieardo, in this 
 last sentence, not only disagrees with the whole world, but he 
 flatly contradicts himself. 
 
 Kicardo, then, having excluded all commodities from his 
 inquiry which are not the produce of human labour, roundly 
 declares that labour is the foundation of all value. 
 
 Kicardo gives an instance, which is indeed the logical 
 consequence of his doctrine, which will enable plain persons 
 to judge of the value of his system. As he contends that 
 labour is the sole cause of value, he alleges that as fine 
 weather, the warmth of the sun, and copious showers, are the 
 free gift of nature, they add nothing to the value of the crops. 
 
42 A. Policy of Free Exchange. [i. 
 
 If this be 80, it is obvious that bad weather, storms of rain 
 and wind, can in no way damage their value. If Ricardo's 
 dogma be true, the value of the crop reaped cannot be greater 
 than the value of the seed sown ; because with the ploughing 
 of the land, the sowing of the seed, and manuring the ground, 
 human labour ceases, all the rest is the agency of nature. 
 Surely the naked statement of Ricardo's doctrine is sufficient 
 to show that his whole system is fallacious. 
 
 M^CuUoch is the bondslave of Ricardo ; he also asserts 
 that labour is the sole cause of value. , Carey, the American 
 Economist, says : ' Labour is the sole cause of value,' and he 
 adds, it is so in nine hundred and ninety-nine cases out of 
 a thousand; and if there be one case in a thousand where 
 there is value without labour it is just the exception which 
 proves the rule. Carey had queer notions of natural philo- 
 sophy, for it is an axiom of natural philosophy that if there 
 be a single case which is irreconcileable with a theory it is 
 fatal to it. 
 
 Now the superlative importance of this doctrine is that it 
 is the foundation of socialism and all its consequences. 
 Socialists avowedly base their doctrines on Adam Smith and 
 Ricardo, and just as the astounding consequences which the 
 Economists drew from their doctrine, that in an exchange 
 neither side gains or loses, caused Condillac and Smith to 
 inquire into its truth ; so the portentous consequences which 
 the socialists draw from the Smith-Ricardo doctrine, that 
 labour is the cause of all value, demand the strictest inquiry 
 into its truth, because it has become a very prevalent dogma 
 among working men, and a good many others besides, 
 that working men are the creators of all value and of all 
 wealth. 
 
 In the brief space at our command it would be impossible 
 to give a full examination of the dogma commensurate with 
 its superlative importance and its consequences. We can 
 only touch upon a few leading points ; but if any of our 
 readers care to examine it more minutely, we may refer 
 them to our Theory of Credit, in which it is investigated 
 exhaustively. 
 
i-J The Science of Economics. 
 
 43 
 
 Let us now test the dogma that working men are the 
 creators of all value and of all wealth. 
 
 We may premise that by the term wealth, in accordance 
 with the argument contained in an earlier portion of this 
 paper, we mean anything whatever whose value can be 
 measured in money ; anything which can be bought and 
 sold ; anything which has purchasing power. 
 
 Now let us take a few examples of wealth : 
 
 ( 1 ) The simple space of ground upon which a great city 
 stands has enormous value and is wealth. Did working: men 
 create the ground upon which a city stands and give it 
 value ? 
 
 (2) Herds of cattle, sheep, pigs, fowls, and other animals 
 fit for food have value and are wealth. Did working men 
 create aU these kinds of animals and give them value ? 
 
 (3) Timber trees standing on the ground, which no 
 human being ever touched, often have very great value, and 
 are bought and sold. Did working men create these timber 
 trees and give them value % 
 
 (4) A whale was stranded on the shore of the Frith of 
 Forth. As it lay on the beach it was sold for £70. Did 
 working men create the whale and give it value ? 
 
 (5) An aerolite fell in Sweden. The curator of the 
 national museum bought it for £84. Did working men 
 create the aerolite and give it value ? 
 
 (6) Mr. Buckland says that at the Zoological Gardens 
 the dejecta of the snakes sold for nine shillings the pound. 
 Did working men create the excreta of the snakes and give 
 them value % 
 
 (7) The manager of a great commercial company, such 
 as a bank or a railway, often earns by his business capacity 
 an income of several thousand pounds a year. His business 
 qualities, therefore, have great value, and are wealth to 
 him. Did working men create his business qualities and 
 give them value ? 
 
 (8) To professional men, advocates, physicians, surgeons, 
 engineers, and many others, their capacity often brings them 
 an income of many thousands of pounds a year. Their 
 
44 A Policy of Free Exchange. [i- 
 
 capacity has therefore great value and is wealth to them. 
 Did working men create their professional ability and give 
 it value ? 
 
 (9) Mill says justly that everything is wealth which has 
 purchasing power. Merchants and traders purchase com- 
 modities almost exclusively with their credit, i. e. by giving 
 a promise to pay at a future time ; and these promises to 
 pay have value, because they will be paid at maturity. 
 Merchants and traders make a profit by trading with their 
 credit : their credit has great value to them and is wealth. 
 Did working men create the credit of our merchants and 
 traders and give it value % 
 
 (10) The express purpose of a bank is to create credit, 
 i. e. to issue promises to pay several times the amount of cash 
 they hold in reserve. The floating rights of action issued by 
 all the banks in Great Britain, and at present in circulation, 
 are about £1,000,000,000. These thousand millions of cir- 
 culating credits have all the etfects of an equal amount of 
 gold. They have value and are wealth. Did working men 
 create the credit of our great banks and give it value? 
 
 We must now say something about credit, because the 
 dogma that labour is the cause of all value has made the 
 subject absolutely unintelligible. 
 
 We shall first explain what credit is. 
 
 When one person has the legal right to compel another person 
 to pay or do something for him he is termed a creditor ; the 
 person who is legally bound to pay or do that something is 
 termed a debtor; and the right of action which the creditor 
 has against the debtor is termed indifferently a credit or a debt. 
 It is to be carefully observed that this credit or debt is not the 
 right to any specific material chattel ; the creditor has no right 
 to any part of his debtor's property; that is absolutely intact; 
 it is simply the right against the person of the debtor to compel 
 him to part with some part of his property in exchange for 
 this right of action, credit or debt, at a fixed time. It is, 
 therefore, a pure abstract right. But the creditor can seU his 
 rigVit of action to any one else for money; and it may be 
 bought and sold any number of times like any material 
 
I-] The Science of Economics. 45 
 
 chattel. And because the right of action may be bought and 
 sold, the Roman jurists termed it pecunia, res, bona, 7)ierx ; 
 the Greek jurists, \pfjij.a, Trpayixa, dyadov, otKoy, ovo-m, ovcrCa 
 d<f)avris ; and English jurists, goods, chattels^ vendible com- 
 modities, merchandise, i.ncorporeal property, incorporeal wealth. 
 So Mill acknowledges that the promise to pay of a solvent 
 merchant or banker is of the value of gold, which is very clear, 
 because the gold is the value of the promise. 
 
 Thus the whole mass of circulating credits or debts is 
 a mass of exchangeable property just like any other, such 
 as gold, silver, corn, manufactured goods, or any other. 
 These credits, debts or rights of action have value for exactly 
 the same reason that any other commodities have value, 
 because at the proper time they will be exchanged for money 
 or its equivalent. The whole commerce of the country is now 
 carried on by them, except only to an infinitesimal degree, 
 and the aggregate of money and all these credits under various 
 forms constitute the circulating medium, or currency of the 
 country, or the measure of prices. 
 
 The whole system of credit is based upon this principle — 
 that every future profit, from whatever source arising, has 
 a present value, and that this present value may be bought 
 and sold like money or any other chattel. 
 
 Few persons have any idea of the enormous magnitude 
 of this species of property in this country. In a return laid 
 before Parliament by an eminent city firm it was shown that 
 out of £3,000,000 of payments and receipts by the firm only 
 £40,986 were made in gold, silver and copper ; all the rest in 
 different forms of credit; and some bankers found that in 
 banking only four per thousand, or -0025 per cent., were paid in 
 coin ; all the rest in credit. Thus if we say that ninety-nine 
 per cent, of the transactions of this country are carried on by 
 credit, and only one per cent, by coin, our statement will 
 be well within the mark, and we may obtain a very 
 rough approximate estimate of the actual amount of this 
 circulating credit, because the best estimates of the actual 
 coin in the country place it at about £110,000,000; now 
 if we multiply this by ninety- nine we shall find the result to 
 
46 A Policy of Free Exchange. [i. 
 
 be £10,890,000,000, as the proximate actual quantity of credit 
 in all its different forms in this country. Thus it is seen of 
 ■what supreme importance it is to comprehend the great 
 principles and mechanism of credit, if we would understand 
 the commerce of the country, and the theory of prices. Now, 
 in no sense can it be said that working men created these 
 ten thousand millions of credit and gave it value. 
 
 Thus we see that the whole basis of socialism, founded on 
 the Ricardian doctrine of value and incorporated as the 
 leading idea of Karl Marx's Capital, is utterly overthrown. 
 
 Labour, like everything else, has value in so far as it is 
 exchangeable. Attempts to raise the price of labour by 
 artificial restrictions on its sale are destructive of the 
 mechanism of exchange, from which alone value is derived. 
 The theory of Economics here developed contains a complete 
 vindication of the equity and beneficence of the principle of 
 free exchange as applied to all forms of wealth, to Labour, 
 to Credit, and to material commodities. 
 
 English Economics can never emerge from its present 
 deplorable state until we utterly discard the doctrine that 
 labour is the basis of value, and dismiss from our mind the 
 concept of Economics as the 'production, distribution and 
 consumption of wealth,' by which it is impossible to create 
 it a science. When we shift the basis of value to exchange- 
 ability, and revert to the original concept of Economics as 
 the science of commerce, or exchanges, scientific order succeeds 
 to chaos, everything becomes clear and simple, and we have 
 a definite, positive, and intelligible science. Economics is the 
 theory of value, which, next to civil government, is the most 
 important thing in human affairs. It may be summed up in 
 words which M. Michel Chevalier did me the honour to say 
 contained the best definition of the science which has yet been 
 proposed — 'Economics is the science which treats of the laws 
 which govern the relations of exchangeable quantities.' 
 
 Henry Dunning Mac Leod. 
 
II. 
 
 THE 
 COMING INDUSTRIAL STBUGGLE. 
 
 WILLIAM MAITLAND. 
 
II. 
 
 TEE COMING INDUSTRIAL STRUGGLE. 
 
 We frequently hear now that the Manchester school of 
 political economists is dead, and that the doctrines it incul- 
 cated are extinct. That this should be so seems to be con- 
 sidered a subject for general congratulation. Its policy is 
 described as narrow and selfish, unsuited to the more en- 
 lightened and philanthropic times in which we live; while 
 its professors are accused of want of patriotism and, strangely 
 enough, of having sacrificed the interests of the whole nation 
 to those of one particular class. Those, however, who have 
 read the inaugural address of President Cleveland — perhaps 
 the most remarkable declaration of policy ever delivered by any 
 man in any country, though it has attracted far less attention 
 in England than it deserves — may come to the conclusion that 
 the Manchester school is not dead ; but that, like a large part 
 of the population of this country, it has emigrated to America, 
 and taken its principles with it. This is, perhaps, not to be 
 wondered at. We are a very great and a very intelligent nation, 
 and for the last twenty-five years we have been lecturing 
 the United States, in season and out of season, on the folly 
 of protection, and the advantages to be derived from a strict 
 adherence to sound economic principles. We have pointed 
 to the marvellous development of our own industries, and to 
 the rapid increase of wealth and enlightenment among every 
 class of the community, as the best proof of the soundness 
 of our advice; while we even ventured to predict for them 
 an almost similar advance, if they would but follow our 
 example. 
 
 E 
 
50 A Policy of Free Exchange. [ii. 
 
 How far we were honest in proffering this advice it is 
 difficult to say. The followers of the Manchester school 
 could consistently do so ; for they believed that their policy 
 must be for the advantage of every country adopting it, and 
 that every advance in prosperity made by one nation must 
 be for the advantage of every other. On the other hand, 
 many believed that American manufactures were solely kept 
 up by protection; and that, if the United States could be 
 induced to open their markets, their own manufacturers could 
 not compete with ours, and we should obtain an almost com- 
 plete monopoly. Even Mr. Gladstone, who claims to be one of 
 the last survivors of the Manchester school, in a controversy 
 with the late Mr. Blaine, in the North American Revievj, 
 some years ago, on the subject of free trade and protection, 
 wrote as if it were the special mission of the United States 
 in the universe to provide raw material for our manu- 
 facturers and food for our operatives, forgetting that he was 
 addressing the representative of one of the largest manu- 
 facturing countries in the world. However, America is now 
 going to adopt a free trade policy, possibly because of our 
 advice, but much more probably from her own bitter ex- 
 perience of protection, which has ruined her agricultural 
 classes, has tended to accumulate wealth in the hands of a 
 few, and has led to a system of making concessions to every 
 class of the community which had influence enough to exact 
 them, to the detiiment of those who had no such power. 
 
 This departure is far more important than at first appears. 
 It may be said that America is only one country, and that 
 most continental nations are still protectionist ; but not only 
 is America the most important of all as regards wealth, terri- 
 tory, population and resources, but she is also the only 
 nation which can really claim to be protectionist in the 
 fullest sense of the word. She alone is raising a revenue far 
 in excess of her requirements. France, Germany, and all 
 other protectionist countries, may gild the pill and endeavour 
 to persuade their people that this form of taxation is a benefit, 
 but every farthing raised is urgently needed for the support 
 of their enormous armaments and the interest on their debts. 
 
II.] The Coming Industrial Struggle. 51. 
 
 They probably find it easier to raise their revenue in this 
 form than in any other. But the United States, practically 
 without an army, a navy, or a public debt, had a revenue far 
 in excess of what she could require, even after allowing for 
 many illegitimate drafts made upon it ; and, perhaps for the 
 first time in the history of the world, the enormous accumu- 
 lation of wealth in the public treasury became a pressing 
 danger to the State. It was this condition of affairs which 
 gave rise to the abuse of the pension fund, and led to the 
 reckless extravagance, to call it by no stronger term, of the 
 last Administration, which culminated in its defeat at the 
 last election. But, opposed as I am to protection in every 
 form, there is no doubt that more can be said in favour 
 of it for America than for any other country. America is 
 very nearly, if not altogether, self-supporting. With the 
 exception of tea and cofiee, and perhaps a few drugs, she can 
 produce everything she requires in the way of food for her 
 population, or raw materials for her manufacturers. If pro- 
 tection has failed in such a country, what can be said for it 
 elsewhere % It has failed, and America is now pledged to 
 a policy of free trade. 
 
 While this change has taken place in the United States, 
 the very reverse is going on among ourselves. Our farmers 
 and manufacturers, or rather those who profess to speak for 
 them, clamour for protection. Workmen are to be protected 
 against their employers ; the unemployed against those who 
 do not employ them. We are to be protected against working 
 too many hours, against getting drunk, against old age, against 
 incapacity, against everything, except, perhaps, small-pox, by 
 these new reformers. All this will require money ; and, 
 enormous as our taxation is, especially in view of the present 
 condition of trade and commerce, this appears to present 
 no difficulty. Govei-nment is to pay for all the proposed 
 benefits, and the necessary taxation can be raised from the 
 capitalists. Coexistent with this public extravagance, as is 
 always the case, there is the most wild and reckless private expen- 
 diture the world has ever seen among all classes of the com- 
 munity, while both public and private extravagances are held 
 
 E a 
 
52 A Policy of Free Exchange. [n. 
 
 up as proofs of our marvellous prosperity. For years the 
 old watchword of the Manchester school — Retrenchment — has 
 never been heard here, and it now sounds strangely in our 
 ears, as it comes to us, across the Atlantic, from the lips 
 of President Cleveland, as he preaches public and private 
 thrift and frugality, individual freedom, and independence of 
 all government support and protection. 
 
 The object of this paper is to forecast, as far as possible, 
 what will be the effect of this change of policy ; and what 
 each country will gain and lose by it. But, before entering 
 on this subject, and to show how wide the lines of divergence 
 already are, I propose to place in juxtaposition a few state- 
 ments from the speech of Mr. Cleveland, in which he lays 
 down the fundamental principles of good government, and 
 some of the utterances of prominent statesmen in this country, 
 belonging to all parties — unless, indeed, there still be a party 
 representing the Manchester school. 
 
 President Cleveland. 
 
 ' While every American citizen must contemplate with the 
 utmost pride and enthusiasm the growth and expansion of 
 our country, the sufficiency of our institutions to stand against 
 the i-udest shocks, the wonderful enterprise of our people, and 
 the demonstrated superiorityof our free government, it behoves 
 us constantly to watch every symptom of insidious infii-mity 
 that threatens our national vigour. 
 
 'It cannot be doubted that our stupendous achievements 
 as a people, and our country's robust strength, have given 
 rise to a heedlessness of those laws governing our national 
 health, which we can no more evade than human life can 
 evade the laws of God and Nature. 
 
 '. . . We should be wise and should temper our confidence 
 and faith in our national strength and resources with a frank 
 confession that even these will not permit us to defy with 
 impunity the inexorable laws of finance and trade. 
 
 ' Closely related to the exaggerated confidence in our 
 country's greatness, which tends to the disregard of the rules 
 
II.] The Coming Industrial Struggle. 53 
 
 of national safety, another danger confronts us not less serious. 
 I refer to the prevalence of a popular disposition to expect 
 from the operation of our Government especial and direct 
 individual advantages. . . This is the bane of republican 
 institutions — a constant peril to our Government by the people. 
 ... It perverts the patriotic sentiment of our countrymen, 
 and tempts them to a pitiful calculation of the sordid gain 
 to be derived from their Govei'nment's maintenance. It 
 undermines the self-reliance of our people, and substitutes 
 in its place dependence on governmental favouritism. 
 
 ' The lesson of paternalism ought to be unlearned, and the 
 better lesson taught that, while the people should patriotically 
 and cheerfully support their Government, its functions do 7wt 
 include the support of the people. 
 
 ' Acceptance of this principle leads to a refusal of bounties 
 and subsidies, which burden the labour and thrift of a portion 
 of our citizens. . . . 
 
 ' It ' (that is, the neglect of this principle) ' leads also to 
 a wild and reckless pension expenditure, which . . . prostitutes 
 to vicious uses the people's prompt and generous impulse to 
 aid those disabled. . . . 
 
 'Every thoughtful American must realize the importance 
 of checking at its beginning any tendency to extravagance 
 in public or private stations, and to regard frugality and 
 economy as virtues. The toleration of the idea of ex- 
 travagance results in waste of the people's money by their 
 chosen servants, and encourages prodigality and extravagance 
 in the home life of our countrymen. Under our scheme of 
 government, waste of public money is a crime against the 
 citizen, and contempt for the character of our people for 
 economy and frugality in their personal affairs ; and it 
 deplorably saps the strength and sturdiness of our national 
 character. It is the plain dictate of honesty and good 
 government that public expenditure should be limited by 
 public necessity, and that this should be measured by the 
 rules of strict economy. It is equally clear that frugality 
 among the people is the best guarantee of the contented and 
 the strong support of free institutions. 
 
54 A Policy of Free Exchange. [n. 
 
 ' The existence of immense . . . combinations . . . formed for 
 the purpose of limiting production and fixing prices is 
 inconsistent with the fair field which ought to be open to 
 every independent activity. Legitimate strife in business 
 should not be superseded by an enforced concession to the 
 demand of combinations that have power to destroy. Nor 
 should the people . . . lose the benefit from the cheapness 
 which usually results from wholesome competitions. These 
 . . . combinations frequently constitute conspiracies against 
 the interest of the people ^. . . . 
 
 ' When we proclaim that the necessity for revenues to 
 support the Government furnishes the only justification for 
 taxing the people, we announce a truth so plain that its 
 denial would seem to indicate the extent to which judgement 
 may be influenced by familiarity with the perversion of 
 taxing power. When we seek to reinstate self-confidence . . . 
 by discrediting abject dependence on governmental favours, 
 we strive to stimulate those elements of the American character 
 which support the hope of American achievement.' 
 
 Sir Williatvi Harcourt. 
 
 'I have already pointed to the growth of expenditure in 
 the last seven years, and I have nothing to say on the subject 
 of that expenditure. I am not going to enter into any 
 controversy with reference to it, or to condemn it, but this, 
 at least, I may say- — that those who have authorized, en- 
 couraged, and insisted upon it — I am speaking now entirely 
 without distinction of party, for it has not been one party 
 alone — are bound to provide the means of defraying it. 
 I know there was once in this country an economical party 
 (laughter) ; but there is no economical party now, and I believe 
 that the Prime Minister and myself are the only survivors 
 of it (laughter). There has been attributed to me a saying 
 
 ' Mr. Cleveland here refers to the which have attempted and, to some 
 
 great trusts and monopolies which extent, succeeded in forcing the 
 
 have ruled the markets for some years Government to conform to their 
 
 past; buthiswordsareequallyapplic- demands, 
 able to combinations in this country 
 
n.J The Coming Industrial Struggle. 55 
 
 that every one is a Socialist now. I do not know that 
 I ever said it ; but this I will say — there are no economists 
 now. Financial economy has gone the way of political 
 economy (ironical cheers). A chancellor of the exchequer 
 preaching against extravagance is nowadays a voice 
 crying in the wilderness. We hear much of the stingi- 
 ness of the treasury; I only wish the treasury had 
 power to be more stingy than it is. A chancellor of the 
 exchequer may hold up his hands in despair, like the old 
 steward in The Rake's Progress; the money is spent, or, 
 as the French say, the wine is drawn, and you must pay 
 for it. After all, the causes of this are not far to seek. 
 Economy was possible, and even popular, in former days. 
 Governments were compelled to be economical, for the people 
 demanded it, and the House of Commons supported it. 
 Sir Robert Peel was an economical minister. At that time 
 the country was poor, capital was deficient, trade was bad, 
 the weight of our debt was crushing, and taxation relating 
 to the resources of the people was enormously heavy. 
 
 'The people were obliged to attend to the pence because 
 they had no pounds to look after. Now the nation has 
 grown rich, taxation, compared to the resources of all classes, 
 is relatively light, and probably, in proportion to its wealth, 
 this is the most lightly taxed country in Europe. Therefore, 
 it is not unnatural that when any one comes forward with a 
 proposal for increased expenditure he should be received as if 
 he were the discoverer of a new pleasure (laughter). Private 
 members with large hearts and small responsibilities take up 
 favourite schemes for some favoured class of the community. 
 They demand higher wages and greater pensions, and they 
 desire that the State should undertake new duties, fresh re- 
 sponsibilities and larger expenditure. We create new empires 
 here, and annex fresh territories there ; we are anxious to 
 reduce postal charges all over the world, to relieve more 
 rates, to undertake lifeboats, &c. For these things the 
 country is well agitated, and interests are well organized, 
 the House of Commons is well canvassed, and one afternoon, 
 in the gaiety of our hearts, we pass a resolution unanimously 
 
56 A Policy of Free Exchange. [n. 
 
 which is to cost a few millions when it comes into operation 
 a few years hence. This is the cause of the increase of public 
 expenditure. 
 
 ' I pointed out the other night, with reference to a motion of 
 this kind, that it meant £25,000,000 ; but the Houseof Commons 
 said. Only £25,000,000 ! How cheap ! Let us have it at once 
 (laughter and cheers). / do not condemn these things — they 
 are all excellent in their way, there is a great deal to be said 
 for them, and very little to be said against them ; but the 
 
 time comes, and it has come, when you must pay for them 
 
 I belong myself to the old school, and I would gladly see 
 a good deal less spent, for, in fact, a good deal of it is wasted 
 (cheers) ; and, if I might reverse the old saying, I would say that 
 those who call the tune must pay the piper. The wealth of this 
 country has increased, and is increasing, year by year. You 
 may find yourselves in temporary straits, hut there is no 
 occasion for apprehension and disquiet. The condition of 
 your affairs is sound, solid and prosperous. The resources of 
 the country are ample, and they are always at command. 
 
 ' He (Mr. Goschen) then proceeded to show that while 
 public attention was fixed on the great staple industries of 
 the country — the cotton, coal and iron industries — there is 
 a mighty trade going on, there is wealth being rolled up — 
 wealth of which no public statistics exist, but which is 
 nevertheless accumulating and adding to the capital of the 
 country. He pointed out that the profits of the cotton trade 
 were less than the aggregate profits of the medical profession, 
 and that the profits of the coal mines were still less than 
 those of the lawyers (laughter).' — (Sir William Harcoukt, 
 Budget Speech, April 25, 1893.) 
 
 Me. Arnold Moeley. 
 
 ' The market rate of wages referred to was not a standard 
 a government, or any other large employers of labour, ought 
 to be guided by, and, he thought, the Post Office ought to 
 set an example to other large employers of labour.' — (Reply 
 to Deputation of the Unemployed, December 2, 1892.) 
 
II.] The Coming Industrial Struggle. 57 
 
 Sir John Gorst. 
 
 'The principle he was anxious to lay down was, that, 
 whenever the public was the employer of labour, and the 
 workers were working either for the general public or for 
 the public in any division of the United Kingdom, the 
 employers should so regulate all the conditions of the 
 employment as to make themselves model employers of 
 labour. . . . The whole matter was in the hands of a Govern- 
 ment department, who were under no obligation to make 
 any profit out of the work which they turned out ; who had 
 no foreign competition to rival them, and who were only 
 under the necessity of seeing that the work was good. It 
 really did not much matter what it cost.'' — (Debate on Labour 
 in Dockyards, March 6, 1893.) 
 
 Me. Campbell-Banneeman. 
 
 ' With regard to wages, the Government did not shut their 
 eyes to the change that had come over the public mind in 
 this matter. A very few years ago it would probably have 
 been regarded on both sides as a perfectly sufficient answer 
 if he had said, " We get men enough at the wages we offer. 
 If our doors are open, there is a constant stream of men 
 coming in ; and, if they are shut, there is a mob outside 
 wishing to come in ; therefore, why in the name of common 
 sense should we wish to raise our wages ? " He did not 
 use that answer, he did not believe in it.' — (Debate on Labour 
 in Dockyards, March 6, 1893.) 
 
 Me. John Bcens. 
 
 'No better method of attempting to solve the question of 
 the unemployed, which grew more serious every year, could 
 be found in large districts where Government establishments 
 existed than for systematic overtime to be abolished, a week 
 of forty-eight hours established, and men from the ranks 
 of the unemployed engaged in the arsenals and dockyards on 
 reproductive work,' &c. — (Debate on Labour in Dockyards, 
 March 6, 1893.) 
 
58 A Policy of Free Exchange. [11. 
 
 These quotations show how wide apart the lines of 
 divergence already are ; and I propose to consider, in the 
 first place, how the United States will be affected by this 
 new departure. Briefly stated, Mr. Cleveland declares that 
 the government of the country must be carried on with 
 extreme thrift and frugality, and that all taxation beyond 
 what is actually required for revenue is alike impolitic and 
 unjust. Protection, therefore, will gradually disappear ; and 
 those who believe that this step will give us a monopoly 
 of the American markets, will, if they are right, see their 
 desire consummated. I am of opinion, however — and I write 
 with a long experience of America — ^that they wiUbe grievously 
 disappointed, and that the very reverse will be the case. 
 Americans are at least as good manufacturers as we are ; 
 and, so far from protection having aided in the development 
 of their industries, its efiect has been to restrict them. I am 
 not going to discuss here whether protection may not, in the 
 first instance, have helped to establish these industries ; that 
 is now beside the question ; for all the most important of them 
 are now firmly established, and are ready for any further 
 development. Many m&j feel inclined to dispute my assertion 
 that Americans are as apt manufacturers as ourselves ; but, if 
 they will remember that the first consequence of protection 
 is to raise the cost of production, and that of free trade 
 to lower it, and that, notwithstanding this, there are already 
 many articles in the production of which the United States 
 not only compete with us, but in which we are quite unable 
 to compete with them, they will find it difiicult to explain 
 this fact on any other hypothesis. 
 
 It is interesting to examine the cause of this exceptional 
 position of some articles, as it has a very direct bearing on 
 the future of industry in the United States. It will be 
 found that when a very large home demand for any article 
 has existed in America, a demand as great as, or perhaps 
 greater than, the whole of the home and export demand 
 of any other country, the manufacture of that article has 
 been in the end confined to America, the extra cost of pro- 
 duction there being met by improvements in labour-saving 
 
II.] The Coming Industrial Struggle. 59 
 
 machinery, &c., while the larger quantity turned out enables 
 the manufacturer to accept a small profit. Let us take an 
 example. Rifles and pistols are much more common in 
 America than here, and there are probably five hundred 
 Americans who own one or both of these weapons for one 
 person who does so in this country. For this reason, 
 American rifles and pistols are common enough in England, 
 while English weapons are practically unknown in America. 
 I am, of course, not speaking of the very finest weapons, but 
 of those for which there is a popular demand. The same holds 
 good of farming implements, tools of many sorts, clocks and 
 watches, railway carriages, type-writers, sewing and many 
 other labour-saving machines used in factories, &c., &c. It is, 
 above all, in the manufacture of labour-saving machinery 
 that Americans are pre-eminent, and, good manufacturers as 
 we are, we cannot lay claim to equal inventiveness or equal 
 mechanical skill of this kind. 
 
 The iron and steel industry is also, to some extent, a case 
 in point, for — although, so far, there has been little or no 
 export — the home demand for railway and other iron and 
 steel is so enormous as compared with that of any other 
 country, that prices have been reduced until they are 
 perilously near those current in England ; and any further 
 reduction in the cost of production, such as may be expected 
 from the promised revision of the tariff, is likely to bring 
 the United States into our home and foreign markets as 
 a competitor with us, for the first time, in one of the great 
 staple industries. 
 
 This points not only to great manufacturing capacity, but 
 to the immense advantage her large and increasing home 
 market will give America over every other country. A home 
 demand is always a much more important factor in industry 
 than an export demand, as it is more steady and more to be 
 depended on. I think, therefore, I am not wrong in saying 
 that Americans are, at least, as good manufacturers as we are, 
 and that men who have been able, notwithstanding the 
 enhanced cost of production, whenever any exceptional 
 circumstances were in their favour, not only practically to 
 
6o A Policy of Free Exchange. [ii. 
 
 exclude us from their markets, but to compete with us in our 
 own, will, in the future, when they meet us on equal terms, 
 be able to do the same with many other and much more 
 important products. For it must not be forgotten that while 
 protection — and even the last and crowning phase of it, the 
 McKinley Bill — has succeeded only partially in excluding us 
 from the American markets, it has, with the few exceptions 
 referred to, absolutely shut American manufacturers in, and 
 prevented them competing with us, either in our home or in 
 foreign markets. In his address to the London Chamber of 
 Commerce, towards the close of last year, Sir John Lubbock 
 showed very conclusively that America had damaged herself 
 far more than she had hurt us by her protective policy, and 
 especially by the McKinley Bill ; but it is easy to go a gi-eat 
 deal further, and to demonstrate that to American protection, 
 more than to anything else, we owe our still undisputed 
 commercial and industrial supremacy, and that it will depend 
 on the policy adopted by this country whether we are in 
 future to retain our fair share of it or are to lose it beyond 
 all hope of recovery. 
 
 No one will dispute that protection raises the cost of 
 production and that free trade lowers it, and it is to this 
 alone that we owe our present immunity from American 
 competition. If protection is now abolished in that country, 
 the cost of production will be reduced, and American 
 manufacturers will then start on equal terms with ourselves. 
 But will thS terms be equal ? I am inclined to think not. 
 Assuming, however, that American manufacturers are not 
 better than our own, that their energy and activity have not 
 been stimulated by the adverse conditions under which they 
 have hitherto worked, that they are not more inventive and 
 have not greater mechanical skill — even then it will be seen 
 that they have every advantage we can claim, and many we 
 can lay no claim to. They have plenty of good and most 
 efficient labour, and can get as much more as they require ; 
 they have an abundance of iron and coal; in many places 
 they have natural gas, available both for lighting and fuel ; 
 they are far ahead of us in the use of electricity ; and they 
 
II.] The Coming Industrial Struggle, 6i 
 
 have unlimited water-power, which is likely to become a very- 
 important factor in the future of industry, in the production 
 of electricity. But, besides all these, they have three special 
 advantages which far surpass all the others — they have the 
 home demand of a rapidly increasing population of already 
 seventy millions ; they produce nearly all the raw material 
 for their manufacturers ; and, above all, they produce all the 
 food for their operatives. We are already dangerously 
 dependent on our foreign trade, and must, to a large extent, 
 import our raw material and food. Is it likely, then, that 
 with all these advantages in their favour, and with a reduced 
 cost of production, free trade is going to give us a larger 
 share of the American markets than we have hitherto had ? 
 Those who think so know very little of the energy, the 
 activity and the eagerness of Americans in business. On the 
 other hand, is it not evident that free trade will exclude us 
 from American markets much more effectually than protection 
 has ever done % It wiU not stop there, however ; for, if they 
 can compete with us successfully in America, they can 
 equally compete with us here in our home markets, in India, 
 in China and the East, in our own Colonies (all the more 
 successfully if the latter still adhere to their fatal policy of 
 protection), and in Africa, when we have succeeded in 
 colonizing that ' most distressful country.' 
 
 Take as an example one of the most important industries, 
 the manufacture of cotton goods. This industry is already 
 firmly established in America ; and, with nothing to feed on 
 but a demand practically limited to the home market, it has 
 advanced with leaps and bounds, and is ready for any further 
 developments. America grows the best cotton in the world 
 and gi-ows much more than all the rest of the world. At 
 present we import the bulk of this cotton at a great cost, 
 manufacture it, and, after deducting what we require for our 
 own use, export the balance, much of it back again to 
 America. We know that India, where trade is as free as it is 
 here, now retains a large part of the cotton produced in that 
 country ; and, by manufacturing that cotton, which is much 
 inferior to American in quality, has almost monopolized the 
 
62 A Policy of Free Exchange. [ii. 
 
 trade for all the heavier and coarser cotton goods, not only in 
 the Indian, but in all the Eastern and East African markets, 
 leaving us to supply the demands for the finer goods made 
 from American cotton, or from a mixture of the two. This 
 has not really hurt us, for the prosperity which this and other 
 large industries have produced in India has created such 
 an increased demand for the finer goods that our exports 
 are larger and relatively more valuable than they were. 
 But if America now retains her cotton, and can manufacture 
 it as cheaply as, or more cheaply than, we can — is there any 
 reason to doubt that she will succeed, at least as well as 
 India, hampered as that country always is by an excessive 
 burden of taxation ? And, if so, what will be the condition 
 of Lancashire ? Surely the moment is ill chosen for imposing 
 restrictions and regulations which can in any way hamper the 
 free action of our manufacturers — whether capitalists or 
 operatives — when a struggle is before them, on the result of 
 which their very existence may depend. 
 
 I may be told that the high wages in America will prevent 
 all this coming to pass ; but here again I believe that those 
 who differ from me are mistaken ; I do not believe that the 
 real cost of labour is higher in America than here. The 
 apparent excess in wages merely represents greater efiiciency. 
 But assume for the sake of argument that wages are higher, 
 much higher, if you like, in America than here — does it follow 
 that they will remain higher, or, what is the same, that wages 
 here will remain lower? We are all aware that there has 
 been now for many years a vast emigration of our people to 
 the United States, some twelve millions having gone there in 
 the last fifty years ; and the same emigration has been going 
 on from every country in Europe. Few of us, however, 
 know that of this large emigration not much over one per 
 cent, has been skilled labour. Our operatives have not gone 
 to any great extent, and the reason is not very far to seek. 
 They knew, some had probably leai-nt from experience, that 
 employment in industries which are dependent on, and 
 strictly limited to, the demand for the home markets, and 
 which have no other outlet for then- surplus, is apt to be less 
 
II.] The Coming Industrial Struggle. 63 
 
 regular than employment for a market which commands hoth 
 a home and an export trade ; that, while they may receive 
 higher wages so long as they are employed, they are much 
 more liable to be thrown out of work than in a country 
 which has the whole world for its customer ; and that, there- 
 fore, at the end of a year, or a series of years, they are worse 
 and not better off than they were at home. But if this new 
 departure in America also attracts the whole world as her 
 customer^ the objection to emigration on the part of skilled 
 labourers at once disappears ; and in its place they will see 
 the great advantages active, energetic men have in a new and 
 rapidly developing country for the investment of their savings 
 and the opportxmity it affords them of raising themselves and 
 their families to a much superior condition. It is the pressure 
 of population to a very great extent which leads to emigration ; 
 and, so far, it has been the lowest class of unskilled labour 
 which has emigrated, while the skilled labour has remained. 
 The moment, however, that our operatives begin to see that 
 America holds out inducements to them which the older 
 country cannot offer, they will emigrate in increasing numbers; 
 the pressure will be reheved, and the unskilled labour will 
 remain to fill their places as best it can. There is one way, 
 andj as far as I can see, only one way, in which we can hold 
 them — we can give them higher wages, wages at least equal 
 to those obtainable in America ; and to do this we must 
 be able to afford it. If we find it impossible to retain our 
 skilled labour, other consequences will follow of immense 
 importance to both countries. No one who has watched the 
 emigration to the United States for many years past can 
 doubt that it has been far from an unmixed benefit, and it 
 may have been an unmixed evil, to that country to receive 
 the continuous stream of emigi-ation which has poured into 
 it — the most miserable, the most ignorant, and the most dis- 
 contented population from the poorest agricultural countries 
 in Europe, almost unmixed with any better element. Its 
 departure was a benefit to the country it left, but a danger 
 to that which received it. If these conditions are now 
 reversed — if the better class of labour leaves us, and the less 
 
64 A Policy of Free Exchange. [ii. 
 
 competent remains, the emigration of a large part of our 
 population every year may cease to be the blessing to this 
 country it has hitherto been. 
 
 This is no wild, incoherent prophecy, dead though the 
 Manchester school may be, and oblivious though we may 
 have become of the most fundamental principles of political 
 economy. Admit only that free trade will lower the cost 
 of production, which protection has raised, and it wiU be 
 evident to any one who will carefully consider the whole 
 question, that every one of the changes foreshadowed must 
 foUow as a necessary consequence. 
 
 If it were not that we see so many indications that the 
 country is deserting its old policy of freedom of trade and 
 freedom of enterprise, we could look forward to the future 
 with perfect equanimity. If our adoption of the principle 
 of free trade has in the past led to most marvellous prosperity 
 at home, which has reacted on every part of the world, and if 
 so great an advance has been made by the action of a small 
 country like England, what may we not expect from the 
 same action in a country with the immense and varied 
 resources of the United States, capable of supporting a popu- 
 lation at least ten times as large as England ? Even during 
 our greatest prosperity we could not maintain the increased 
 population which that prosperity produced, and, during all 
 those years, millions emigrated to people America and other 
 countries for whom we had no room at home. At least one 
 half of our increase we had to send abroad to maintain our 
 prosperity. Can we suppose that it will be no additional 
 advantage to America and to us, no additional security to 
 the permanence of worldwide prosperity, that, for far more 
 years than we need look forward to, overpopulation there must 
 be impossible ; that every soul born in that country will be 
 one more worker, one more customer for the trade of the 
 civilized world, instead of being, as is so often the case here, 
 a drag on the rest of the community which must be got 
 rid oi% 
 
 We should remember, however, that while America has 
 so many advantages over us, we have at least one advantage 
 
II.] The Coming Industrial Struggle. 65 
 
 over her, and that a very important one. We are in pos- 
 session; and, before she can wrest our present industrial 
 supremacy from us, she must dislodge us from the position 
 we now occupy. It must be years, it may be many years, 
 before she can stand on as strong an industrial footing as 
 we now hold. Time is in our favour ; and if we are wise we 
 can so fortify our position as to render it wellnigh im- 
 pregnable. Those of us who are convinced free-traders do 
 not believe in or care for exclusive commercial supremacy ; 
 the very phrase is a contradiction in terms, for trade is in 
 its nature not exclusive but reciprocal. Further, we believe 
 that Nature, if her laws are not interfered with by artificial 
 restrictions imposed by the ignorance or folly of mankind, 
 will give supremacy in the future, as she has always done 
 in the past, to that part of the world, and to that nation, 
 which, for the time being, can use it most for the benefit 
 of the whole human race. We believe also that the most 
 efficient and economical distribution of industry is that 
 which takes place under free trade ; and that, if from any 
 cause we lose any of our more important industries, others, 
 perhaps now unthought of, will spring up to take their 
 places. We believe that every country and every nation 
 will under freedom be guided to its true path of development, 
 and can retrograde and become extinct only through its 
 ignorance, its folly, or an overweening and ill-founded belief 
 in its own greatness. 
 
 When, however, we look at home we are filled with 
 misgivings. While we see America embarking on a course 
 which, judging from our own experience, must lead her on to 
 foi-tune, we see England rapidly retracing her steps. The 
 whole air is redolent of protection, which now comes to us 
 under many new disguises, most of them strangely enough 
 described as reforms. This new school of self-styled reformers 
 (I do not know if they also profess to be economists) has 
 many and most wonderful panaceas for the improvement 
 of mankind, for there is scarcely a measure proposed by them 
 that is not a restriction of individual freedom. And yet the 
 great fight of the old school of reformers was for freedom, not 
 
 F 
 
66 A Policy of Free Exchange. [ii. 
 
 alone of trade, but for the individual freedom of every man to use 
 the powers given him for his own advancement, well knowing 
 that no man could improve his position without at the same time 
 adding to the well-being, not only of his own nation, but of 
 all humanity. The fight against governmental extravagance 
 and the demand for retrenchment were scarcely even an 
 extension of this principle. It was believed then that every 
 man was entitled to the fruits of his labours, and that 
 Government had not the right to ask him to contribute from 
 these more than was absolutely requisite for carrying on that 
 government with the strictest economy. We have changed 
 all that now. Sir John Gorst and Mr. Arnold Morley appear 
 to belong to the same school of political economists (if they 
 will excuse my applying so mean an epithet as economist 
 to gentlemen with such liberal ideas) — for the one believes 
 it does not matter how much a warship costs so long as the 
 Government foots the bills, and the other considers that 
 the market rate of wages is not the standard which ought 
 to guide the Government or any other large employers of 
 labour. Mr. Arnold Morley does not tell us what the new 
 standard he has discovered is, but I presume it to be sentiment. 
 I wonder if he ever remembers that there are many small 
 employers of labour, who pay their wages out of their own 
 pockets, and not out of the pockets of the taxpayers, who 
 will be ruined by the introduction of his new standard, and 
 that their ruin will entail ruin upon thousands of working 
 men, every whit as deserving as his letter-carriers. 
 
 The occasion on which Mr. Arnold Morley delivered him- 
 self of this sentiment furnishes us with perhaps as good 
 an example of the change which has come over us in recent 
 years as can be found. A deputation of the unemployed, 
 having nothing better to do, arranged to pass a part of their 
 day with Mr. Arnold Morley. Instead of entering into their 
 own woes, as he probably expected they would do, they read 
 him a severe lecture on the duties of Government in general, 
 and of the Postmaster-General in particular, towai-ds those 
 Avhom they employ. These gentlemen evidently belonged to 
 the same school of political economists as Sir John Gorst and 
 
II.] The Coining Industrial Struggle. 67 
 
 Mr. Arnold Morley himself, for they shared their belief that 
 the more monej'- Government expends on wages, the more 
 there will be for outside employers of labour to pay as wages 
 to their workpeople, and the more with which to give em- 
 ployment to the unemployed themselves. If Mr. Arnold 
 Morley will refer to the life of his most distinguished pre- 
 decessor, the late Mr. Fawcett, he will find that, on a some- 
 what similar occasion, that gentleman laid down an exactly 
 opposite rule ; and Mr. Fawcett not only spoke with authority 
 as a political economist, but he did more during his term of 
 office, by affiarding the public greater facilities for the trans- 
 mission of parcels, &c., to increase in a legitimate way the 
 employment given to the working classes by the Post Office 
 than any other Postmaster-General in our time. 
 
 Mr. Arthur Balfour tells us that the failure of Mr. Cobden's 
 teaching is due to his having fought against the aristocratic 
 and landed classes solely in the interest of the manufacturers. 
 No doubt Mr. Cobden did oppose the landed classes, and the 
 fight was a bitter one ; but there was at least as much bitter- 
 ness on the one side as on the other. It was that class which 
 had imposed and maintained the disabilities under which all 
 the other classes of the community suffered ; and it was for 
 the repeal of these disabilities, in the interest of all classes, 
 that Cobden fought, and fought successfully. What is there 
 in Mr. Cobden's life to show that he would not have fought 
 as stoutly against the restriction of labour as he did against 
 the restriction of trade ; and that in doing so he would not 
 have believed he was acting in the best interests of the 
 working classes themselves ? To the last hour of his life 
 Mr. Bright remained unconvinced as to the advantage of 
 factory legislation ; and it suits those who are opposed to his 
 views on that subject to point to this as a proof of the 
 selfishness of the policy in furtherance of which he spent his 
 life. But Mr. Bright's conduct in this, as in all else, was 
 perfectly honest and consistent. He believed, not in helping 
 or protecting people, but in teaching them to help and protect 
 themselves. It is true he was a manufacturer ; but, as such, 
 he probably knew more of the working classes than most of 
 
 r 3 
 
68 A Policy of Free Exchange. [ii, 
 
 those opposed to him, and he knew that the conditions which 
 gave rise to the cry for this special legislation would, if things 
 had been left to work themselves out, have taken another 
 form, and these people would have protected themselves, as 
 responsible human beings ought to do, and can do, more 
 effectually than any government can ever hope to do for 
 them. In the last fifty years two men stand out conspicuously 
 as the champions of the working classes, two men of blame- 
 less life and noble character, who spent their lives in the 
 service of their fellow-men — Lord Shaftesbury and Mr. Bright. 
 The one, a great nobleman, taught that it was the duty of the 
 upper classes and of the Government to protect those whom 
 he believed to be weak and incapable of helping themselves. 
 I yield to no one in my admiration of the single-heartedness 
 with which Lord Shaftesbury devoted a long life to the cause 
 which he had at heart ; but I am convinced that his action 
 has been disastrous, and to none so much as the working 
 classes, by teaching them to look for help elsewhere than to 
 themselves. Mr. Bright, on the other hand, was a man of the 
 people, who knew them well, and believed in them. He spent 
 his life trying to awaken the working classes to a sense of 
 their rights and responsibilities ; and, having done that, he 
 had no misgivings as to their being able to protect themselves. 
 Mr. Bright's teaching has been, I believe, all for good ; but 
 then I belong to the extinct Manchester school. 
 
 Perhaps the best exposition of the policy of the new Liberal 
 party is that presented to us by Mr. Chamberlain in his 
 article in the Nineteenth Century of last November. 
 Mr. Chamberlain says a few half-complimentary words over 
 the grave of the Manchester school. It was useful in its day, 
 he thinks, but its day is passed; and he then proceeds to 
 introduce to his audience our old enemy protection in 
 a number of new disguises, under the name of ' Constructive 
 Legislation.' He enumerates some, possibly all the measures 
 which he thinks may be advantageously passed for the 
 amelioration of the condition of the working classes. There 
 are two characteristics common to all these measures ; they 
 all require a great deal of money and the interference of 
 
II.] The Coming Industrial Struggle. 69 
 
 Government. Neither Mr. Chamberlain nor any of those 
 who agree with him have ever been able to tell us where all 
 this money is to come from, nor, I fear, will they succeed in 
 doing so until they have solved the greatest economic problem 
 of all time — how you can both eat your loaf and have it. The 
 pockets of the capitalists and manufacturers have, it is true, 
 been suggested ; but Mr. Chamberlain knows full well that 
 they never have much money in their pockets, and have none 
 at all when they are most prosperous. They can then employ 
 it to better purpose. It cannot be taken from the wealth 
 realized by past production, for three reasons — the first, 
 because that wealth has been largely re-employed in industry ; 
 the second, perhaps a childish reason, because it would be 
 misappropriation ; the third, because, as the fund would soon 
 be exhausted, it could not provide a permanent provision for 
 the objects in view. It must, therefore, be taken from 
 the current industry. It must come from the manufacturers' 
 profits, where they still exist. Even admitting that all 
 manufacturers are still making a profit, it is not a verj^ large 
 one ; and it is clear that the profits in every industry must 
 vary according to the special advantages possessed by some 
 manufacturers as compared with others. The larger and 
 wealthier among them can, as a rule, make money when those 
 less favoured can barely make both ends meet. It is evident, 
 therefore, that any readjustment of the division of profits 
 between employers and employed, or any provision made out 
 of profits for the latter based on what the larger and wealthier 
 manufacturers can afibrd, must tend to the extinction of the 
 smaller men, and that with their extinction a large number 
 of operatives will be thrown out of work. These will, I 
 presume, join the ranks of the unemployed, for, according to 
 Mr. Burns, Government is to find reproductive work at a full 
 rate of wages in our dockyards and arsenals. It seems to 
 escape our new reformers that in process of time all the popu- 
 lation which has not already left the country will be occupied 
 in the manufacture of war material ; for it is evident that the 
 wages paid to every man engaged in the building of war- 
 ships and guns, which, Mr. Burns notwithstanding, is not 
 
70 A Policy of Free Exchange. [ii. 
 
 reproductive work, means the withdrawal from really re- 
 productive industry not of one man but of many men. If 
 we know anything, we surely know by this time that money 
 raised by taxation, and expended by Government, does not go 
 nearly so far and is not applied to as good purpose as the 
 same sum expended in private enterprise. Moreover, these 
 ships and guns once made must be manned ; and the evil does 
 not stop there, for then we must get up a little war just to see 
 how well, or how badly, they work. There is one sense, how- 
 ever, in which these works are reproductive. When finished, 
 they are so imperfect, that the supposed necessity for them 
 requires us to produce others to take their place ; and in these 
 we reproduce the same or as great defects. The difference 
 between building a war vessel and a merchant vessel is, 
 that every man engaged either in the construction or the 
 maintenance of the former is a drain on the resources of the 
 country ; while every man engaged on the latter is contribut- 
 ing to find employment for many others at home and abroad, 
 and is thus, not only occupied in work which will in time 
 reproduce itself out of the profits it makes, but is adding to 
 the wealth and prosperity of the nation at large. Our new 
 reformers seem to take a totally different view of the situation 
 from President Cleveland ; and consider that, while it is the 
 duty of the Government patriotically and cheerfully to support 
 the people, it is in no wise one of their functions to support 
 the Government, or, in other words, themselves. Those manu- 
 facturers who are left after the extinction of their smaller and 
 less wealthy competitors will, for a time at least, do an 
 excellent business, even after they have deducted from their 
 profits their share of what is required for the support of the 
 unemployed. It is wonderful how clearly we see the mote 
 which is in our brother's eye, for I should be afraid to say 
 how many English homilies I have read in the last ten years, 
 addressed to the benighted American people, proving most 
 conclusively that the protection of industry must create huge 
 monopolies which oppress the people, and especially the 
 working classes. We fail to recognize the fact that the 
 protection of labour must accomplish the same result even 
 
II.] The Coining Industrial Struggle. 71 
 
 more surely. It is the same with every measure proposed, if 
 ■we follow it to its logical conclusion ; it is the working classes 
 who must, as Sir William Harcourt says, pay the piper; 
 and this is, perhaps, only fair, for it is they who call the 
 tune. 
 
 These would-be reformers are entirely sceptical as to the 
 capacity for progress possessed by a really free society, and 
 they map out the future course of progress by means of their 
 own foot rule. A reference to the many proposals for the 
 provision of old age pensions from the rates will explain my 
 meaning. It is clear that the rate of pension must bear some 
 proportion to the rate of wages current at the time the measure 
 is proposed, the more so if the prospective pensioner is to 
 contribute towards the amount required. To-day we fix the 
 pension at five shillings a week, and in forty-five years 
 a working man now aged twenty will come into the enjoy- 
 ment of that income. Supposing, however, a similar measure 
 had been passed forty-five years ago, half-a-crown a week, or less, 
 would probably have borne about the same proportion to the 
 rate of wages then current as five shillings does to-day. In the 
 meantime, we have taken away from the young man, during 
 the best years of his life, the greatest incentive to thrift — the 
 necessity of making provision for old age — and we have misled 
 him into relying on a pension at sixty-five, which, when that 
 time arrives, proves to be no provision at all. What reason 
 is there for thinking that the rate of wages will now stand still, 
 and that forty-five years hence five shillings wiU satisfy the 
 legitimate ambition of a working man any more than half 
 a crown does to-day ? 
 
 I have often wondered what an American working man 
 would say if any one suggested he might have a pension of 
 five shillings a week when he was sixty-five. I should not 
 advise any one to make the proposal to him, except at a very 
 safe distance. 
 
 ' God knows,' said Mr. Gladstone, in his interview with the 
 coal-miners, ' that eight hours is long enough for any man to 
 work underground.' Mr. Gladstone generally weighs his 
 words very carefully, and, in speaking thus, he must have 
 
72 A Policy of Free Exchange, [n. 
 
 done so either to add impressiveness and solemnity to what 
 he was saying or because he considered it incapable of 
 contradiction. It is evident, however, that God cannot have 
 come to two absolutely contradictory conclusions ; and I 
 would ask if God does not also know that there is far more 
 suffering of the cruellest kind among the poor from cold than 
 there is among the colliers from overwork, and whether 
 legislation which could in any way add to that sufiFering 
 would not be wellnigh criminal ? We know from experience 
 that, where a policy of free trade prevails, the tendency is 
 always to the maximum of production consistent with a 
 reasonable profit to be divided between employers and their 
 workpeople. A maximum of production must necessarily lead 
 to a maximum of employment and a maximum purchasing 
 power for the wages earned. The regulation of industry must 
 as certainly lead to its restriction, to a decreasing amount of 
 employment available for the working classes, and to a lower 
 scale of real as opposed to nominal wages. The former policy 
 leads to a state of great national prosperity and an increasing 
 demand for all the necessaries and luxuries of life ; the latter 
 to continual contraction of production and the misery to 
 which it must give rise. 
 
 England and America can be very useful to each other, 
 and in no way more so than by teaching each other what to 
 avoid. The whole history of American protection provides 
 us with an object lesson which we cannot study too carefully. 
 At first it was a tax for revenue and, as such, possibly 
 accomplished its object as well as any other form of taxation; 
 then it was to establish their industries, and this it may have 
 helped to do ; but it was found that this system had no 
 inherent strength. The older these industries grew the greater 
 was their need of protection. Tarifi" was piled on tariff, and 
 still the believers in protection cried Give ! give ! and at last 
 the climax of absurdity was reached when the McKinley Bill 
 was passed. Protection is unsound in theory, but it is far 
 more unsound in practice. It is not equal protection which 
 is wanted; but each section of industry intrigues to be specially 
 protected at the expense of every other section. Wealth and 
 
II. J The Coming Industrial Struggle. 73 
 
 poverty being merely relative terms, a good protectionist has 
 no desire to advance only with the rest of the population, and 
 calls on his fetish to pass him on a little ahead of the others. 
 It generally happens, however, that there is some class which 
 cannot be protected, and the larger and more simple this class, 
 the longer will it be able and willing to support all the rest 
 of the community. In the United States this was the agricul- 
 tural class, and on it fell the entire burden of taxation. 
 Naturally its powers of endurance were limited ; but the 
 crash was averted for long by loans made to the farmers on 
 mortgages of their properties by the other sections of the 
 community which they supported, and, unfortunately, to 
 a large extent by investors in this country. The financial 
 crisis through which America is now passing is purely agricul- 
 tural, and neither commercial nor industrial, as seems generally 
 to be supposed. Of the bank failures which have taken place, 
 85 per cent, have occurred in the Western States, 10 per cent. 
 in the South, and only 5 per cent, in the Eastern States, which 
 alone can lay claim to any industry hot immediately connected 
 with agriculture, excepting, of course, mining, through which, 
 however, banks could not become directly involved. And 
 the end of the crisis is not yet, for the mortgages on agricul- 
 tural lands are held principally by the savings banks, which 
 have the right to require six months' notice of withdrawal 
 from their depositors, and this, it has generally been supposed, 
 would give sufficient time to enable them to foreclose, should 
 that be necessary. In every announcement of the failure of 
 a bank it has been stated that the assets were amply sufficient 
 to cover the liabilities ; and no doubt they are, if the same 
 level of value at which these mortgage loans were made can 
 be maintained. This, however, remains to be seen, and must 
 depend on the proportion of mortgages they hold, as compared 
 with other securities. It is evident that anything like general 
 foreclosure is impossible. 
 
 With this picture before our eyes, it is wonderful that 
 we should rush so madly after the chimaera protection. 
 Like the Americans, we think we have discovered the class 
 which can support all the others ; and this class we fondly 
 
74 A Policy of Free Exchange. [n. 
 
 believe is the capitalist. Unfortunately capitalists, unlike 
 the American farmer, are neither very simple nor very 
 enduring; and we may find that they, or at least their 
 capital, have taken -wings for other countries where they 
 will be less interfered with. In the end, we shall find that 
 the burden must be borne by the whole nation, and that the 
 working classes, who form by far the larger part of it, must 
 suffer the most severely. We cannot fight against natural 
 laws; and, in the end, we must awaken to a sense of our 
 madness; but my fear is that, in the interim, we may lose 
 our present strong commercial and industrial position beyond 
 all hope of recovery. In his speech of June lo, on one of the 
 Home Rule amendments, Mr. Chamberlain, speaking as the 
 representative of the working classes, pointed out that, if less 
 costly and less restrictive State regulation of industry is 
 adopted in Ireland than is in force in Great Britain, Irish 
 manufacturers will be able to work on such favourable terms, 
 as compared with their English competitors, that an agitation 
 will at once be set on foot to repeal these regulations. Now, 
 except one comparatively small part of it, Ireland has never 
 been, and never can be, under ordinary circumstances, a great 
 manufacturing nation, yet if, notwithstanding this, Mr. Cham- 
 berlain believes that Irish competition is a real danger, does 
 he see no danger threatening us from the enormous resources 
 and natural advantages of America, a country which has no 
 State regulation or restriction of her industries at all? How 
 does Mr. Chamberlain propose to meet this difficulty? Or 
 does he believe that America is a less dangerous industrial 
 competitor than Ireland ? 
 
 We may be told that America also has her labour troubles, 
 and that the working classes there will also insist on having 
 State regulation. The first part of this statement is true, 
 no doubt ; but it must be borne in mind that American 
 labour troubles have been different from ours. The labour 
 agitations there have generally been directed against great 
 artificial monopolies, which were either directly protected 
 or the outcome of protection. When Labour found its partner. 
 Capital, pillaging the agricultural classes, it is not to be 
 
II.] The Coming Industrial Struggle. 75 
 
 wondered that Labour should have tried to insist on having 
 her fair share of the plunder. So far, the labour agitations 
 in America have been directed against protected mono- 
 polies; although many of those who took part in them may 
 not have recognized the fact. I am convinced that the 
 American working man will never tolerate any attempt on 
 the part of the State to interfere with his right to do what he 
 likes with his labour. He will continue to work how and 
 when and for as many hours as he likes. He looks forward 
 to something a good deal more substantial than a pension 
 of five shillings a week, and he is not going to allow the 
 State to interfere with the attainment of the object which he 
 has in view. 
 
 In a recent speech delivered in Hyde Park, Mr. John Burns 
 spoke of Labour as crucified between two thieves, Capital and 
 Machinery. Now America, with its vast resources requiring 
 development, and a relatively small population, ought to be 
 an ideal country for the new trades unionism. Clearly if 
 ever there was a country in which labour should be able to 
 fix its own wages it is America ; and yet here is to be found 
 a production out of all proportion to the population, when 
 compared with that of any other country, and yet wages are not 
 much higher than they are in this country. Making use of Mr. 
 Bums' somewhat question-begging illustration, we may find an 
 explanation which is simple enough. Capital is not so dependent 
 on labour as he had supposed ; and, when driven to it, perhaps 
 without being driven to it, it can reduce its wages bill by the 
 introduction of labour-saving machinery. Hence the crucifixion 
 of which Mr. Burns complains, and from which he will find 
 that the working man has only two means of escape ; he may 
 subside into a state of pauperism and dependence, or, becoming 
 self-reliant, he may accept Capital and Machinery as his partners 
 and become as independent as either of them. 
 
 If Mr, Burns and his colleagues will only consider the 
 question calmly and dispassionately, and take a somewhat 
 wider view of the whole matter than they are wont to do, 
 they will find that, so far from legislation being able to do 
 anything for the improvement of the condition of the working 
 
76 A Policy of Free Exchange. [n. 
 
 classes, exactly the reverse is the case. Much of the money- 
 received by Government is, and always will be, wasted, while 
 the balance is expended so extravagantly that it does not go 
 nearly as far as it would in the hands of private individuals, 
 and, consequently, cannot afford as much employment for the 
 working classes. We cannot impress upon ourselves too often, 
 or too strongly, that every farthing raised by taxation is taken 
 from some industry where it is directly affording employment 
 to labour of a useful and profitable nature. 
 
 Apart from this, moreover, we shall find that under no 
 circumstances can a country hope to wall itself in, and 
 become independent of the rest of the world, by protective 
 or restrictive legislation. America has tried and failed ; and 
 yet America was more independent of foreign supply and 
 foreign demand than any other country on the face of the 
 globe. Such a policy may for a time give an appearance 
 of great prosperity, which is, however, purely fictitious, and 
 at last ends in disaster. England, however, is in a very 
 different position. We have long passed that stage of our 
 development in which we could rely on our own resources 
 and be independent of other countries. On them we depend, 
 to an almost unexampled extent, for our supplies of raw 
 material, for our food, for the sale of our products, even for 
 the absorption of our surplus population. If the labour party 
 will only recognize this surely very patent fact, they wiU see 
 that we may pass all the Acts we like ; we can make our 
 Government departments model employers of labour, and thus 
 raise the rate of wages against other employers ; we can limit 
 the hours of labour, give every man an insurance against old 
 age and accident, establish councils of arbitration with com- 
 pulsory powers to give effect to their decrees — but all this 
 legislation must be in vain if the United States adopt 
 a free trade policy and their working men determine that 
 each man shall retain the power to dispose of his labour as 
 he sees fit. 
 
 In the case of labour, whatever it be with regard to other 
 things, it is not the worst or the least favourably situated 
 which determines the value, but that which is most efiicient 
 
II.] The Coming Industrial Struggle. 77 
 
 and enjoys the greatest advantages. If this were not so, we 
 should not have seen wages advancing as they have done 
 during the last fifty years ; nor should we have been able to 
 maintain our industrial supremacy in face of the competition 
 of other countries where wages are much lower, and whose 
 industrial progress has been relativelj' greater than our own. 
 Clearly it is the country which possesses the greatest natural 
 advantages which must determine the margin of profit for 
 which it will work ; and, fortunately, there is always a tend- 
 ency to raise the standard of subsistence, which not only leaves 
 a sufiicient margin for other less favoured countries, but by 
 creating an increased demand, not merely for the necessities, 
 but also for the comforts and luxuries of life, leads to a great 
 extension of industry all over the world, and to the general 
 well-being of the human race. 
 
 If labour is well advised it will leave its cause to the action 
 of natural laws instead of trusting to human legislation, which 
 must in the end prove a broken reed. The worst feature about 
 all forms of protection is that it always requires further pro- 
 tection to support it ; and, unless we are warned in time, we 
 shall find that labour is making greater demands on industry 
 than can be satisfied, and that other nations are beginning to 
 monopolize our trade. Each decadent trade will then demand 
 protection against its foreign rivals, and we shall see a huge 
 edifice of protection raised in our midst, which must in the 
 end, from the want of any sound foundation, crumble to pieces 
 and destroy those who built it up. It is surely evident that, 
 if America has greater natural industrial advantages than we 
 possess, from the day she appears in our foreign and colonial 
 markets as our competitor (which her system of protection has 
 till now practically prevented her becoming), the working men 
 of America will fix the rates of wages and the hours of labour 
 for us, as well as for themselves, in defiance of all the laws we 
 may pass with a view to controlling them. 
 
 But, while working men can do nothing by protective 
 legislation to improve their condition, there is one way in 
 which they can do much. They can protest against national 
 extravagance, instead of demanding it ; and they can insist on 
 
78 A Policy of Free Exchange. [ii. 
 
 retrenchment. Our public expenditure is now close upon 
 £ioo,oco,ooo a year; and if Government goes on as it has 
 been doing for years past, acceding to every fresh demand 
 made upon the treasury by every section of the community, 
 this amount will soon be largely exceeded. It is in conse- 
 quence of this enormous unproductive expenditure, more than 
 anything else, and perhaps also not a little to the private 
 extravagance to which, as is always the case, it sets the 
 example, that our industries are depressed and our workpeople 
 to a large extent without employment. If the labour leaders 
 will make use of the power now vested in their hands, and 
 will insist on the most thorough-going retrenchment in every 
 department of Government, they will find abundant scope for 
 their energies, and will do more to ensure the prosperity, not 
 only of the classes they directly represent, but of the nation 
 at large, than any other leaders of the people since the days of 
 Mr. Cobden and Mr. Bright. They need not fear that they 
 will be spoiled by overpopularity, for the economist is never 
 a popular character. Nor need they fear that the task will 
 prove unworthy of their strength, for the great spending depart- 
 ments of Government are as strong as, or stronger than, they 
 ever were; and where Mr. Cobden and Mr. Bright failed, or 
 succeeded only for a time, they will do wisely not to overrate 
 their strength. But if the task is no lighter than it was, 
 the necessity for some one undertaking it becomes greater 
 every day. 
 
 We build great navies and maintain large armies, and we 
 are told that the main object of these is to protect our 
 trade from the possible attacks of other nations. Have we no 
 reason to fear an attack far more dangerous from the United 
 States, which will be carried on by industrial armies and 
 merchant fleets, and which, if we continue in our present 
 course, will find us weakened and unable to resist ? We have 
 recently been having an arbitration in Paris with the United 
 States. Some of the incidents in the dispute are worth atten- 
 tion. We had one of our numerous fleets lying in British 
 Columbia, and the United States, practically without a navy 
 at all, sent a revenue cutter — a mere naval police-boat — and 
 
II.] The Coming Industrial Struggle. 79 
 
 arrested every British ship she found sealing in Behring Sea. 
 The Commission has decided that this was little else than an 
 act of piracy, and yet we neither bombarded New York nor 
 San Francisco nor annexed Alaska nor marched an army to 
 Boston, simply because we knew that America never interferes 
 except in what is, or what at least she believes to be, her own 
 business ; and, although in this instance she may have been 
 technically wrong in the action she took, the regulations now 
 laid down by the Commission for the future conduct of sealers 
 show that she was to some extent justified. We hear a great 
 deal about our prestige, and spend millions to maintain it. 
 Surely a nation which can boast that she can maintain her 
 prestige with a single revenue cutter is in a most enviable 
 position. Clearly dignity and moral strength are not the pre- 
 rogatives only of nations armed to the teeth with engines of 
 destructive warfare. True, America now seems anxious to 
 follow the burdensome European fashion, and acquire a navy ; 
 but even in this she is different from European nations. The 
 real origin of her navy was the necessity of finding an 
 outlet for her overflowing treasury, and now that that 
 has been somewhat depleted, wiser counsels are likely to 
 prevail. 
 
 Unfortunately there are 'jingoes ' in America as everywhere 
 else, who wish to have the pleasure of paying for an army and 
 navy, and to annex every conceivable continent and island 
 under the sun ; but they receive very little support from the 
 bulk of the nation. Only the other day the American residents 
 in the Hawaiian Islands deposed the native government, and 
 practically annexed the islands to the United States ; but the 
 Federal Government absolutely declined to confirm their 
 action. Yet Hawaii is much more closely connected with the 
 United States than many islands and other parts of the world 
 which we have annexed were with England. By a commercial 
 treaty existing between the two countries each had agreed to 
 admit the products of the other duty-free, and the sugar 
 industry of the Pacific States, the largest foreign industry they 
 possess, was dependent on Hawaii ; but America has not yet 
 discovered that apparent expediency gives her any right to 
 
8o A Policy of Free Exchange. [ii. 
 
 commit an injustice, and it is to be hoped that for her own 
 sake, as well as for that of other nations, she may never make 
 this discovery. The best reason for America not having 
 a large and costly navy is that she does not require one, and, 
 such being the case, she could not man it, for her people are 
 too profitably employed at home to spend their time sailing 
 the seas in search of quarrels. 
 
 We, on the other hand, are so entangled in the meshes of 
 European and Eastern politics that all pai-ties in the State 
 seem agreed on the necessity of submitting to the grievous 
 burden of our military and naval armaments. Great wars 
 are happily so rare that we are entirely in the dark as to 
 the value of the huge and costly experiments which we are 
 making in naval construction. We do not know whether in 
 time of war our ships can be successfully manoeuvred, whether 
 they will prove seaworthy and shot-proof, and we are not 
 without apprehension that they may turn out to be as great 
 a danger to each other as to an enemy. We maintain an 
 army at an enormous expense, and yet it is admittedly 
 insufficient, without the aid of very untrustworthy alliances, 
 to meet the demands which may be made on us. We attempt 
 to conciliate one nation in the hope of securing it as an ally, 
 and by doing so we arouse the suspicion and jealousy of 
 some other nation, and so almost precipitate the catastrophe 
 we seek to avoid. Is not the position of America, I repeat, in 
 many ways enviable % Is it impossible for Europe to learn 
 a lesson from her example ? 
 
 Our Colonies, unhappily, have committed many errors ; but 
 they have none of them been drawn into the stupendous folly 
 of wishing to entangle themselves in our complicated European 
 politics. Ambitious and sentimental schemes of Imperial Federa- 
 tion have dwindled down to a mere proposal for protection, a ZoU- 
 verein, which is to open colonial markets to our manufacturers 
 and home markets to colonial products, to the exclusion of 
 other countries. The proposal is too ridiculous to bear much 
 discussion. How, for instance, would it suit Canada to be 
 shut off from trading with the seventy millions of the United 
 States, her nearest and best customers, in exchange for the 
 
II.] The Coming Industrial Struggle. 8i 
 
 very trifling advantage to be gained from trading with 
 Australia and her small and probably decreasing population of 
 three millions? Or is it likely that Australia will care to 
 involve herself in war with the United States for the sake 
 of a few sealskins coveted by British Columbia? If our 
 Colonies have done nothing else by incurring the enormous 
 load of debt which now weighs them down, they have at 
 least discovered a new protection against annexation. The 
 Colonies have now neither men nor money to spare ; so 
 they are not likely to prove valuable either as markets or 
 recruiting grounds for many long years ; and until they follow 
 the example of America, and, paying off their debts, determine 
 to contract no more, they will find that the surplus population 
 of this and other countries will prefer the United States as 
 a field of emigration. 
 
 These, I am well aware, are unpopular sentiments ; but in 
 the changes which must follow on the adoption of free trade 
 by America, England will be brought face to face with a great 
 dilemma. We have an enormous population absolutely 
 dependent on our foreign trade. If we wish to retain our 
 share of that trade and to save our labouring population 
 from the suffering involved in a long, continuous, and ever- 
 increasing depression of trade, we must insist on some relaxa- 
 tion of the burden of taxation. We have staggered along till 
 now because America has handicapped itself with protection 
 and because we have only been opposed by European States 
 as heavily burdened as ourselves. In the future we are to 
 face a young and vigorous competitor, which is laying aside 
 the errors of protection and preparing to run its industrial 
 course without encumbrances. The question is not, Are these 
 sentiments popular? but, Is the danger real? England has 
 a proud roll of achievement in the service of humanity. No 
 greater addition could be added to her fame than that it 
 should be given to her to take the initiative in the disarma- 
 ment of Europe. 
 
 There is another way in which more economical public 
 administration and greater freedom of enterprise would mate- 
 rially assist industry. Of late years vast sums of money have 
 
82 A Policy of Free Exchange. [n. 
 
 been sent abroad to Argentina, to Australia, to Africa, and to 
 every part of the globe. A very large part of this might just 
 as well have been thrown into the sea ; it is hopelessly and 
 irretrievably lost. This money would have been much safer 
 at home ; and, if our industry were not hampered with heavy 
 taxation, obstructive regulations and with fear of what is 
 known as the ' labour trouble,' it would remain at home, and 
 give employment to labour in the extension of industry. 
 
 One might write much without exhausting the lessons to be 
 learnt from America ; but these I have mentioned must suffice. 
 No one reading Mr. Cleveland's inaugural address inculcating 
 thrift and self-reliance on his countrymen, and warning them 
 against overconfidence in the future because of their achieve- 
 ment in the past, and then turning to the somewhat boastful 
 harangue of Sir "William Harcourt, can doubt where the real 
 strength and wisdom lie. Both of these men presumably 
 represent a majority of their countrymen and of public 
 opinion. The one represents a country where development 
 has little more than begun, and whose prospective wealth is 
 greater than has ever been dreamed of for any nation in the 
 history of the world — a country not only practically without 
 a debt, but which has just, by an unparalleled effort, repaid 
 an enormous debt, so repugnant to it was the very idea of 
 indebtedness — a country without an army because it fears no 
 other nation, with no liabilities beyond her own frontiers, and 
 no complicated foreign relations such as in European States 
 may at any moment give rise to a struggle for existence : and 
 to this country her President preaches public thrift and 
 frugality, and deprecates overconfidence in her own powers. 
 Sir William Harcourt, on the other hand, sees great and 
 increasing depression in all the most important industries of 
 this country ; but he bids us be of good cheer, as there is no 
 occasion for apprehension or disquiet. A mighty trade is 
 going on, wealth is being rolled up, capital is accumulating ; 
 and the two industries to which he refers are the medical and 
 legal professions, which, according to him, produce wealth 
 faster than either cotton or coal. 
 
 These comforting assurances do not reassure. Turning 
 
ii.J The Coming Industrial Struggle. 83 
 
 from Sir William Harcourt's easy, confiding optimism, we see 
 on every side leaders of party renouncing the duty of leader- 
 ship, ostentatiously abandoning every principle of economy 
 in a headlong race to catch the votes of the most igno- 
 rant class of the electorate — a class which, to do it justice, 
 is amenable to reason and appreciative of courage, if those 
 who profess to be our leaders had the boldness to speak out. 
 We see that freedom of enterprise which is the foundation of 
 England's greatness, and the support of her vast population, 
 threatened on all sides by the unreproved clamour of ignorant 
 empirics. We feel ourselves burdened by a large imperial 
 debt of which we have repaid only a fraction and by a local 
 indebtedness which increases by leaps and bounds, while 
 during the last twenty years we have spent on our armaments 
 nearly enough to have paid off the national debt. We have 
 got rid, it is true, of an oppressive protective tariff, but we are 
 fettering our industry by debt, by taxation, by strikes, and by 
 innumerable vexatious and costly regulations. Meanwhile, we 
 see a great nation of our own kith and kin about to adopt 
 that principle which has been the secret of our success, and 
 which we in our folly are now throwing away. We cannot, 
 under these conditions, look forward without apprehension to 
 the inevitable and rapid transference of the centre of trade to 
 the other side of the Atlantic. It means to our poorer classes 
 long and dark years of suffering, till our population can 
 transport itself to freer fields of industry or becomes reduced 
 by decimation to the needs of an industry shrunk to the 
 narrowest dimensions. 
 
 If, by reason of the very obviousness of the danger, we are 
 warned in time, not we alone, but all Europe, will have to 
 thank America. That country, fearing no other, and at peace 
 with all, will begin to monopolize the trade of the world. 
 The nations of Europe will then, when they find their 
 resources dwindling away, discover, perhaps when it is too 
 late, that they have devoted too large a proportion of their 
 wealth and the flower of their manhood to preparations for 
 wars which rarely come, and would never come at all without 
 these preparations. Then, when they will find themselves 
 
 G 3 
 
84 A Policy of Free Exchange. [n. 
 
 sinking beneath the burden which they have allowed their 
 rulers to impose upon them, despite the opposition of officialism 
 and of the classes interested in keeping up this extravagant 
 expenditure, they will insist on following the wiser and better 
 example set them on the other side of the Atlantic. 
 
 William Maitland. 
 
III. 
 
 NATIONAL WORKSHOPS. 
 
 ST. LOE STEACHEY. 
 
III. 
 
 NATIONAL WORKSHOPS. 
 
 ' We are tired of abstractions. Let us come to realities.' — 
 That is the cry of the modern Socialists when they are con- 
 fronted with the disquisitions of the older school of Economists. 
 So be it. Let us try and test Socialism and its theories, not 
 by counter theories but by facts. The Socialists have a great 
 many doctrines and counsels of perfection, but their essential 
 principle of practice is contained in the formula which declares 
 that society will only be successfully and happily organized 
 when the sources of wealth and the machinery of production 
 are in the hands of the State — when, that is, the machinery of 
 production is either nationalized or municipalized;,and when the 
 community, not the individual in competition, undertakes the 
 production of all the things which man needs, from his clothes 
 to his daily newspaper. When we are confronted with this 
 theory, with the declaration that it ought to be put in 
 practice, and with the demand that it shall be combatted, if it 
 is combatted, with facts, not abstractions, the first thing we 
 must ask is. What does the experience of the past teach on the 
 subject % — has the plan of making the community the producer 
 and the manufacturer the owner of the machinery of industry 
 and production ever been tried before ? The answer is Yes. 
 It has been tried, and was a failure. When did that trial take 
 
88 A Policy of Free Exeliaui^e. [m. 
 
 place? In Pai-is in 1.S4S, when, undor tlio siipovviwion iif tlio 
 Provisional (lovoniinoiit, Avhicli iuhv^jiUhI tlio (loclrinos ol 
 modern Sociivlisn\, a sovioua and pniolical altomiit Avas iiiado 
 to inaugurate Uic era of State iMnployiiu<nt and State pro- 
 duction. The history of the national workHJiopa of 1848 i«, 
 thon, wlintovor its toaoliingtt, of tlio utmost iiiiporlniuio to those 
 -who aro anxious to oonsidor, i'airly and roasonably, as 1 trust 
 I am, the proposals of tho Sooinlists of to-day. If tlu^ proposals 
 of the Fahituis would solvi' the sooial proMiMii, abolish povorty 
 and niisory, tuid build a now hoavoii and a now oarth, 1, like 
 ovory one else I ovor hoai'd of, would bo a Sooialint, and wo>dd 
 adopt the doctrine of tho nationalization of tho sourocs of 
 production. ' God hatos tho poor, and justly punislios tlioui 
 for their wickodiioss,' is not a dootrino that has ovm" boon 
 sorioualy hold, though it is, I am aware, often roprosontod as 
 the Anti-Socialist's gospol. Tho question is, Would tho realiza- 
 tion of Socialism moud matters, or would it not ralber make 
 them worse? That is tho problem whioh I propose (o cou- 
 sidor in the light of the oxporienoo of the national workshops 
 of 1848. 
 
 11. 
 
 Perhaps it will bo stud that the Parisian I'xporimont of forl^y- 
 five years ago is no guide, because tho m(^n who set up Ww 
 Atelicru Nil tioiiittox did not really a(h)pfc tho Colloctivist thiMiry, 
 or because, oven if they did, they did not apply it projiei'ly, 
 i.e. give the scheme a fair trial. Tliorefoin, it will lie urg(\d, 
 the doings of 1 848 throw no light on tlu* sidijeet. 1 accept the 
 challenge. If tho precedent is to aj)ply, the int.cMition unist 
 have biHiu geiiiiin(dy Socialistie, and the (^xperim(^nt. must 
 have boi^n made consciously and deliberately, and not merely 
 haphazard. Heforo, thon, boginniiig to read a lesson IVom tlu* 
 nal-ioiuil worksh()i)M, it is necessary to show (i) the Sooialistio 
 intent of the foundecs of the Aldicvx NalioiMVX; (2) the fa.(',t 
 that th((y did Iheir best to make tho workshops a Hueeoss. 
 Tho readiest way of oHtalilishing the truth of th(* lirsl, of those 
 propositions is to quote verbatim the Dooreo of tho I'rovisional 
 Oovornment, in which tlioy laid down tho principles that guided 
 
HI.] N(i/ioital ]Fori\\'//(>/>s. 89 
 
 tlunii ill (lioir iloaliiij^a with tho Hocial pvoMoin. llorc is tlio 
 
 l)oiT(\o : - 
 
 Paws, 
 FcbriiiDij a8, 1848, 
 In run Namu of tiik Kiiknoh Tkoi'LH. 
 
 SiK'iiiK Umt Ui<\ n'voliiliciii minlii by tho pnuplo Hlumld Iw also for tho 
 
 1'<'"I'1" i 
 
 Thnt i( is liiMii 111 jmt lui oml to ihi' long and iniquitous sulToringa of tho 
 woi'lvors ; 
 
 'I'li.'il t.ho iiuosliou of woili is of sniu'oiuo iuiiiorljinoo ; 
 
 Th.'it tlu'ro is U(> (jui'siiou gvojUoi- or nioro worthy of ilio t'onsidorjitioii of 
 n ivimblii'.'iii govornnionl ; 
 
 'I'lint il, spociiiUy boliovos Kiiinoo lo c:u-ofiilly atuiiy and to solvo a problom 
 nt this momont boforo I'vory in<l\is(i'ial nnlion in Eurojio ; 
 
 Tliiil luoniis must nt oni'o bo dovisoil to guMninloo to tbo pooplo tlxo 
 h'gitiniiilo fruits of thoii- toil ; — 
 
 Tho l*rovisionnI ("lovornniont of th»» Ixopnblii' d<H'ro(»s : 
 
 Thiit ii noi-nuiuont l\>u\n\itfi'o, lo iuy i';Uliui Oovirnmi'rtl Conmiitht^ for tl'iwAvrs, 
 ^b^^ll bo nou)iuati>il, with t.Iu^ (>xpri>ss aud spi'oiiil obJtH't of watohiug ovor 
 tbo woi'lioi-s. To slu>w wli.'it iniiioi'liiniw tho l*roviNiou:il Oovoiuuunit of tbo 
 b'opiiblii' jiltiirbos to tbo solution of this ditlloult problom M. l<onia Blauc, ono 
 of its Tuouibors, will bo iioniinattMl l^rosidont of th(> Ooivi'uwcnt C()mnvttr<^ for 
 tl';«7.vis, ;\nil anotbor of its nionibors will bo obosi>n iis Vico-rrosiilout^ 
 M. Alliorl, workniau. Worknu'n will b<> oiillod on to sit upon tho Oommittoo. 
 
 'V]u\ uio(*liugs of tbo <.\>niu»ittoo will {.alio i>l:voo in tbo Palais d\i 
 l,uxon\bourg. 
 
 TiiK Mkmukhs ok riiK Vhovisional Government. 
 
 III. 
 
 No doubt soiiio of tlio HUM! who signoil t.lua ilooiinient only 
 half lii'lii'vod that tho oxpi'iiinoiit would bo suoo.ossful, and 
 ftftor its fiviluvo doclarod that thoy know all ixlong that it 
 was liopoloss. No 0110, lunvovor, who roails tho roeovds of tho 
 IvovoliU.ion of 1 848, and notos bow groatly obargod tbo air was 
 with Socialism, onn doubt thai tbo tHovovnioont as a wholo 
 woro gonuinoly dotormiiu'd to givo tbo Sooinlistio principle 
 a fair trit\l, and that many of thorn, and ospocially tliose 
 obargod witli tho conduct of tho workshops, at whoso head 
 was Louis Rlajio, a oonvinood Sooia.list, ontortainod (bo highest 
 hopos of siioooss. Kvon Lamoi'tino, who in 1 844 Mroto tliat the 
 host govornmonts woro tboso that did not intorforo with liberty 
 of ao(,ioii in industrial aflnirs, signed tho Dee.roo, and for the 
 time pliingod deep inUi Collectivism. That tbo oxporimont was 
 
90 A Policy of Free Exchange. [in. 
 
 fairly made, and that there was no determination, conscious 
 or unconscious, to show that the national workshops were 
 a piece of Utopia, is clear from the account of the undertaking 
 written by M. ifimile Thomas, their director and president, and 
 published only a month or two after the collapse. M. Emile 
 Thomas was a practical man of business, who was entrusted 
 with the superintendence of the work by the Government. 
 Though not a Socialist by conviction, it is clear that he did 
 everything in his power to " run ' the workshops successfully, 
 and that if any one could have organized them into efficiency 
 it was he. That, at any rate, is the impression which I believe 
 will be produced upon any one who reads the Histoire des 
 Ateliers Nationaux consid^rds sous le double point de vue 
 politique et social ; des causes de leur formation et de leur 
 existence; et de I'infiuence qu'ils ont exercee sur les evdne- 
 ments des quatres premiers mois de la Republique suivi des 
 pieces justificatives. Par J^niile Thor)ias. Paris: Michel 
 Levy Frlres, 1848. The proof that Thomas did his best for the 
 workshops is to be found in the fact that Louis Blanc, armed 
 with virtually absolute powers, superintended the under- 
 taking, and could, if he had thought the work was being 
 mismanaged, have dismissed Thomas. Perhaps, however, the 
 best way of showing the bona fide character of the experiment 
 is to describe the actual organization of the workshops and 
 to note what they accomplished. In doing so I shall adopt, 
 with some slight alterations, dictated by the desire to economize 
 space, the account given by Mr. Nassau Senior in an essay in 
 the Edinburgh Revieiu, since republished by his daughter, 
 Mrs. Simpson (' Journals kept in France and Italy : ' H. S. King 
 and Co., 1871). It must be remembered that Senior visited 
 Paris directly after the Eevolution, that he was on terms of 
 intimacy with many of the men who were responsible for the 
 Ateliers Nationaux, and that he had talked with those who 
 had seen the workshops in full swing. In a word, he is 
 a firsthand authority on a subject in which he took a profound 
 interest. The actual details of his account are drawn du'ectly 
 from Thomas's book, which is primarily a reprint of the official 
 documents. 
 
III.] National Workshops. 91 
 
 IV. 
 
 Before, however, summarizing Senior's account of the work- 
 shops I wiR give the Decrees formulating the droit avb travail 
 and establishing the Ateliers Nationaux. 
 
 Here is the Decree which stated the right to work, or more 
 scientifically — the right to wages {le droit au salaire) : — 
 
 Paris, 
 February 25, 1848. 
 The French Republic. 
 
 The Provisional Government of the French Eepublic binds itself to 
 guarantee the existence of the workman by means of work ; 
 
 It binds itself to guarantee work to every citizen ; 
 
 It recognizes the right of the workmen to unite, to enjoy the fruits of their 
 toil. 
 
 The Provisional Government gives back the million which will fall in from 
 the civil list to the workmen to whom it belongs. 
 
 The Members of the Provisional Goverhment. 
 
 Here is the Decree under which the Ateliers Nationaux 
 were actually established : — 
 
 Paris, 
 February 26, 1848. 
 Iif THE Name op the French People. 
 
 The Provisional Government of the Republic decrees the immediate 
 establishment of national workshops. The minister of public works is 
 charged with the execution of the present Decree. 
 
 The Members or the Provisional Government. 
 
 V. 
 
 The effect of this Decree was the immediate opening of 
 national workshops. Their organization was as follows. 
 I adopt Senior's abstract of Thomas's account. 
 
 A person who wished to take advantage of the offers of the 
 Government took from the person with whom he lodged 
 a certificate that he was an inhabitant of the Ddpartement de 
 la Seine. This certificate he carried to the mairie of his 
 arrondissement, and obtained an order of admission to an 
 atelier. If he was received and employed there, he obtained 
 an order on his onairie for forty sous. If he was not received, 
 after having applied at all of them, and found them all full, 
 he received an order for thirty sous. Thirty sous is not high 
 
92 A Policy of Free Exchange. [iii. 
 
 pay ; but it was to be had for doing nothing, and hopes of 
 advancement were held out. Every body of eleven persons 
 formed an escouade ; and their head, the escouadier, elected 
 by his companions, got half a franc a day extra. Five 
 escouades formed a brigade ; and the brigadier^ also elected 
 by his subordinates, received three francs a day. Above these 
 again were the lieutenants, the chefs de compagnie, the chefs 
 de service, and the chefs d' arrondissement, appointed by the 
 Government, and receiving progressively higher salaries. 
 Besides this, bread was distributed to their families in 
 proportion to the number of children. 'The hours supposed 
 to be employed in labour were,' adds Senior, ' nine and a half. 
 We say supposed to be employed, because all eleemosynary 
 employment, all relief work, all parish work, to use expres- 
 sions which have become classical in Ireland and England, is 
 in fact nominal.' M. ifimile Thomas tells us that in one mairie, 
 that containing the Faubourg St. Antoine, a mere supple- 
 mental bureau enrolled, from March i a to March 30, more than 
 1,000 new applicants every day. On May 19, 87,943 had 
 altogether been enrolled, and a month later, 135,000 — repre- 
 senting, at four to a family, 600,000 persons — more than one 
 half of the population of Paris. 
 
 VI. 
 
 Such are the facts of the organization. I have no desire to 
 moralize as to the abstract futility of these arrangements. 
 I merely desire to call attention to the actual results of 
 M. Louis Blanc's experiment, under the nineteenth and 
 thirtieth Decrees. The first witness I will call is the Cor- 
 respondent of the Economist newspaper, who was in Paris 
 in 1 848, and saw with his own eyes what he describes : — 
 
 The greatest experiment made by Louis Blanc was the organization of tailors 
 in the Hotel Cliehy, which, for the purpose, was converted from a debtors' 
 gaol into a great national tailors' shop. This experiment began with 
 peculiar advantages. The Government made the buildings suitable for the 
 purpose without rent or charge ; furnished the capital, without interest, 
 necessary to put it into immediate and full operation ; and gave an order, 
 to commence with, for tmntyfive thousand suits for the National Guard, to be 
 
III.] National Workshops. 93 
 
 followed by more for the Garde Mobile, and then for the regular troops. 
 The first step taken was to ascertain at what cost for workmanship the large 
 tailors of Paris, who ordinarily employed the bulk of the workmen, and 
 performed Government contracts, would undertake the orders. Eleven 
 francs for each dress was the contract price, including the profit of the 
 master tailor, the remuneration for his workshop and tools, and for the 
 interest of his capital. The Government agi'eed to give the organized tailors 
 at the H6tel Clichy the same price. Fifteen hundred men were quickly got 
 together, with an establishment of foremen, clerks, and cutters-out. It was 
 agreed that inasmuch as the establishment possessed no capital to pay the 
 workmen while the order was in course of completion, the Government 
 should advance every day, in anticipation of the ultimate payment, a sum 
 equal to two francs (is. 'jd. ) for each man in the establishment, as ' subsistence 
 money ' ; that when the contract was completed, the balance should be paid, 
 and equally divided amongst the men. Such fair promises soon attracted 
 a full shop ; and when we visited the H6tel Clichy, upwards of fifteen 
 hundred men were at work, and apparently were not only steady, but 
 industrious. The character of the work they were upon at the time, the 
 urgency of the ragged Garde Mobile for their uniforms, formed an unusual 
 incentive to exertion ; the foreman told us that notwithstanding the law 
 limiting the hours of labour to ten, the ' glory, love, and fraternity ' principle 
 was so strong that the tailors voluntarily worked twelve or thirteen hours 
 a day, and the same even on Sundays : they seemed to forget the stimulus 
 of the expected balance which each was to receive at the conclusion of the 
 contract. What was the result ? For some time many contradictory state- 
 ments were put forward by the friends and opponents of the system. Louis 
 Blanc looked upon it as the beginning of a new day for France. He had 
 already arranged that as the tailors were the first to begin, the cabinet- 
 makers should next be organized, and one by one all the trades of France. 
 He forgot that he would not have an order for the cabinet-makers to 
 furnish half the houses in Paris to begin with : this, in his estimation, was 
 no difficulty. He had in view public warehouses for the sale of furniture ; 
 and although not a chair or table had been sold in the existing over-stocked 
 shops for two months, he had no doubt about customers. But the result 
 of the experiment in the Hatel Clichy has been fatal. The first order was 
 completed : each man looked for his share of the gain. The riches of 
 Communism, and the participation in the profits, dazzled the views of the 
 fifteen hundred tailors, who had been content to receive is. ^d. per day as 
 subsistence money for many weeks : no doubt every one in his own mind 
 appropriated his share of the ' balance '; for once he felt in his own person 
 the combined pleasure of 'master and man.' The accounts were squared. 
 Eleven francs per dress for so many dresses came to so much. The sub- 
 sistence money at is. ']d. a day had to be deducted. The balance was to be 
 divided as profit. Alas ! it was a balance of loss, not of gain ; subsistence 
 money had been paid equal to rather more, when it came to be calculated, 
 than sixteen francs for each dress, in place of eleven, at which the master 
 tailor would have made a profit, paid his rent, the interest of his capital, 
 and good wages to his men, in place of a daily pittance for bare subsistence. 
 The disappointment was great when no balance was to be divided. The 
 consternation and disturbance was greater when a large loss was to be 
 
94 A Policy of Free Exchange. [in. 
 
 discussed, for which no provision in the plans had been made. The 
 customers— that is, the new National Guard and the Garde Mobile— were 
 in a rage at the detention of their uniforms, and the whole attempt seems 
 to have resulted in confusion and disappointment. Louis Blanc is not a 
 match for the master tailors of Paris. — From The Economist, May 20, 1848. 
 
 The next witness is Mr. Senior — for, as I have said, he was 
 cognizant of the facts at first hand. He entirely corroborates 
 the testimony of the Correspondent of the Economist, and tells 
 us, as above, that the work done in the Ateliers Nationaux 
 was purely nominal — an exact counterpart of ' all Parish 
 work' — i.e. the parish farms and parish houses of industry 
 which Senior had seen at work, or rather at idleness and 
 waste, during his inquiry into the English poor law. In addi- 
 tion, however, to noting Senior's evidence in regard to the 
 complete failure of the national workshops, I should like to 
 quote the following very able reflections : — 
 
 When the relations of the labourer and the capitalist are in the state 
 which in a, highly civilized society may be called natural, since it is the 
 form which in such a society they naturally tend to assume when undis- 
 torted by mischievous legislation, the diligence of the labourer is their 
 necessary result. As he is paid only in proportion to his services, he strives 
 to make those services as valuable as he can. His exertions perhaps ought 
 more frequently to be moderated than to be stimulated. A large proportion 
 of our best artisans wear themselves out prematurely. In another state 
 of society, which is also natural in a lower civilization — that of slavery — a 
 smaller but still a considerable amount of industry is enforced by punish- 
 ment. But in eleemosynary employment there is absolutely no motive for 
 the labourer to make any exertion, or for the employer, a mere public ofScer, 
 to enforce it. The labourer is, at all events, to have subsistence for himself 
 and his family. To give him more would immediately attract to the public 
 paymaster all the labourers of the country ; to give him less, and yet require 
 his services, would be both cruelty and fraud. He cannot be discharged — 
 he cannot be flogged — he cannot be put to task work — since to apportion the 
 tasks to the various powers of individuals would require a degree of zealous 
 and minute superintendence which no public officer ever gave. When the 
 attempt was made in Paris, men accustomed to the work earned fifteen 
 francs a day, those unaccustomed to it not one. 
 
 Another witness is Victor Hugo, who boldly asserted in the 
 National Assembly that the experiment was a failure. ' The 
 national workshops,' he declared, ' have proved a fatal experi- 
 ment. The wealthy idler we already know well ; you have 
 created a person a hundred times more dangerous both to 
 himself and others, the pauper idler. ... At this very moment 
 
III.] National Workshops. 95 
 
 England sits smiling by the side of the abyss into which 
 France is falling.' The pauper idler is a happy phrase and 
 well describes the condition of the unemployable — the men 
 who pass their lives looking for work and praying God they 
 won't find it. Hardly less emphatic was the grave report 
 of the Commission appointed by the French Government 
 to inquire into the subject. While compelled to recommend 
 the expenditure of further enormous sums of money, it 
 felt bound to admit that 'the Revolution, which found the 
 workmen of Paris contracted in their proper sphere, has been, 
 by treating them like spoilt children, the cause of that change 
 in their character which makes every one now dread the 
 excesses of which they may be guilty.' 
 
 The next witness to whom I would refer is M. Emile 
 Thomas, the Director of the Ateliers Nationaux, whose work 
 I have named above. He shows how exceedingly difficult it is 
 to do the thing which the Socialist assumes to be so easy, 
 i.e. make people work, and how in spite of the most tremen- 
 dous exertions to render the workshops a success, they broke 
 down. His work, however, should be read, not merely quoted. 
 He was a plain man of business, not a forger of epigrams, 
 and he does not attempt to sum up the results of the experi- 
 ment in any single passage. He tells the plain tale of what he 
 saw and did quite plainly — a fact which makes the general 
 drift of his history all the more impressive. His account 
 of the workshops is the most convincing testimony possible 
 that in 1848 Collectivist production had a fair trial and 
 utterly broke down. 
 
 A word in conclusion as to what was the end of the 
 national workshops. When the National Assembly found 
 that the Ateliers Nationaux were rapidly bringing the 
 State to a condition of bankruptcy they determined to close 
 them. This they did, with the result that the workmen rose 
 in insurrection, and that for four days and nights there was 
 such street fighting as the world had never seen before. In 
 putting down the insurrection caused by the dissolution of 
 the great Socialist experiment, 12,000 men were sacrificed — 
 the number of killed at Waterloo was hardly greater. 
 
96 A Policy of Free Exchange. [ni. 
 
 VII. 
 
 Before leaving the subject of the Socialistic experiments tried 
 in Paris, I will put on record for purposes of reference the 
 following extract from Thiers's Rights of PropeHy, which 
 describes another experiment in Collectivism : — 
 
 The owner of a great engine factory lent for a time his works to his 
 workmen, so that there was no capital sunk in the formation of an establish- 
 ment, and he agreed to buy at a stated price the machines or parts of 
 machines they might construct. This price has been augmented 17 per 
 cent, on the average. The associated workmen were to govern themselves, 
 to pay themselves, and to share the profits among them. The master had 
 nothing to do with them. He paid for the machines, or portions of 
 machines, and naturally he was not to pay until the work was done. 
 
 The associated workmen remained divided, as they were before, in different 
 departments (a great facility of organization, since they had only to continue 
 the habits they had acquired) ; they placed at the head of each department 
 or workshop a president, and a general president over the whole. They 
 preserved the former classification of wages (another facility arising from 
 acquired habits), except that they gave three francs instead of two-and-a-half 
 francs to the lower class, that of common labourers, and they discontinued 
 paying the skilful workmen (the ma/rchandewrs, or middle-men) the high 
 wages resulting from piece-work. These did not, like the rest, work all day; 
 yet as they must be satisfied in a certain degree, they were accorded supple- 
 mentary wages of ten, fifteen, and sometimes twenty sous, which, added to 
 the four francs of average wages, gave five francs, at the most, to those 
 workmen who had previously earned six, seven, or eight francs a day. 
 These supplementary wages were given by the presidents of the workshops. 
 After having thus raised the wages of the mere labourer, and lowered those 
 of the clever workman, the following was the result of the three months' 
 trial. 
 
 There was a daily tumult in the workshop. 'Tis true, tumult was 
 pretty general then, and was not less at the Luxembourg, or the Hotel 
 de Ville, than in the manufactories. The men made holiday whenever it 
 pleased them to take part in this or that demonstration, which, however, 
 only injured the workmen themselves, for the proprietor paid only for the 
 work when done. But they did not work much when they were present, 
 and the presidents charged with the maintenance of order and the super- 
 vision of the labour were changed two or three times a fortnight. The 
 general president, having no local supervision in the workshops, was subject 
 to fewer variations of favour, being changed once only during the period 
 of the association. Had they worked as before, they would have received 
 a sum of 367,000 francs in these three months ; but their returns were only 
 197,000 francs, although their prices were raised 17 per cent. The principal 
 cause of this smaller production was not owing solely to the fewer number 
 of days and hours they attended the workshops than before, but because, 
 when present, they did not work with such activity. The piece-hands, who 
 only received at the utmost a trifling supplement of a franc, were not very 
 zealous in labouring for the association. The men whom they generally took 
 
in.] National Workshops. 97 
 
 ■with them when they were on piece, to whom they gave a small additional 
 sum, and whom they superintended in person, were left to the almost 
 negative supervision of the presidents of the workshops, and a thousand 
 workmen out of fifteen hundred manifested that ardour with which men are 
 animated when they do not work for themselves. In a word, loo labourers 
 received half-a-franc a day more ; 300 or 400 workmen received their ordinary 
 300 or 400 francs, but during fewer days, for they took more holidays ; and 
 the 1,000 clever mechanics, who formerly worked by the piece, were 
 deprived of the advantage due to their exertions, which had raised their daily 
 wages to seven, eight, and ten francs. Accordingly, the good hands were 
 all determined to leave the establishment, and when the three months 
 assigned to the association had expired, it came to an end without a single 
 protest. It was a kind of insolvency, for it owed many hours which had not 
 been made up, and had swallowed up the little capital of a benefit fund 
 instituted by the owner of the establishment previously to this philanthropic 
 administration. 
 
 Ten sous more a day, to a hundred labourers out of 1,500 ; the wages of 
 300 or 400 more kept at the same point ; those of 1,000 clever hands dimin- 
 ished ; the whole body much poorer in consequence of absences, represent- 
 ing 32 per cent, of time lost; 197,000 francs of work, instead of 367,000 in 
 the same period ; all the good workmen disheartened ; and finally, the 
 association itself insolvent after three months' existence, although there was 
 an establishment already prepared by the owner — this was the result. 
 
 Compare in this context the Eeport of the Surveyor who in 
 1893 superintended Mr. Shaw Lefevre's attempt to pull down 
 a part of Millbank Prison by means of the unemployed. 
 When these men worked with the knowledge that their pay 
 would vary according to the work done, they did twice as 
 much as when they knew that whether they worked or idled 
 their pay would be t\d. an hour. While the cost of cleaning 
 and stacking bricks by the unemployed, acting as the 
 pensioners of the State, averaged from 12s. to 13s. a thousand, 
 the same men when employed by piece managed to earn 
 higher wages than before, although the rate agreed on was 
 only 7s. a thousand. 
 
 VIII. 
 
 Perhaps it will be said that the national workshops failed 
 because they were set up in France, and that Collectivism 
 would do much better in England. That is a strange argu- 
 ment considering the natural aptitude for being ordered 
 about officially possessed by our neighbours. Still I will try 
 to meet it. We possessed till the Eeform of the Poor Law 
 a good many experiments in Socialism in the shape of Parish 
 
 H 
 
98 A Policy of Free Exchange. [in. 
 
 Farms and Houses of Industry, where the poor were, in 
 accordance with the Statute of Elizabeth, 'set on work.' 
 These experiments have lately been examined in a very able 
 and moderate article by Professor James Mavor {Nineteenth 
 Century, October, 1893). The conclusions he arrives at are 
 that all the attempts were failures : — 
 
 The conclusions from this survey of attempts ' to set the poor on work ' 
 cannot be said to afford much substantial ground for optimism regarding the 
 probability of success of modern attempts in the same direction. It is quite 
 evident that the parish farm hitherto has not afforded a means of relief to 
 the respectable artisan out of employment, but that it has been occupied 
 solely by the vagrant and the beggar. It would seem to be a well-established 
 fact that these two very distinct classes will not mix together in parish farms 
 or anywhere else. The history of the parish farm shows that while it is 
 costly and highly susceptible to the evils of bad management, it may be 
 adapted to the needs of the beggar ; but there is no evidence to show that the 
 respectable artisan would be likely ever to enter it so long as the beggar is 
 there. 
 
 IX. 
 
 Before I leave the subject of Collectivism tested by 
 experiment, I desii'e to say a word on the general question, 
 and for that purpose will resume some portion of what 
 I have written elsewhere on the subject (i. e. in The Liberal 
 Unionist in 1891). I admit as fully as any Socialist can 
 that the ideal is to get a better, fairer and more equal 
 distribution of the world's goods. Two solutions are offered 
 of this problem — one by the Socialists, the other by those 
 who follow in the footsteps of Mr. Cobden and Mr. Bright. 
 The Socialists in effect say, 'Make the State the universal 
 proprietor and the universal employer of labour, and you will 
 have solved the problem and produced a community where 
 misery shall have ceased to exist.' On the other hand, the 
 advocates of Free Exchange, not less zealous nor less religious 
 in their own faith, say, 'Free trade and labour from all shackles, 
 put an end to the ruin and waste of war, and of the armaments 
 maintained for the purpose of war, stop all unnecessary 
 absorption by the State of wealth which should belong to 
 the individual, and you will make human labour so valuable 
 that every man willing and able to work wiU be able to 
 command material comfort.' I have no hesitation in saying 
 
III.] National Workshops, 99 
 
 that I believe the solution offered by the advocates of Free 
 Exchange is the ti'ue solution. Socialism, which has existed 
 as an aspiration since the world began, has in bygone times 
 been carried into practice, but always with one result — the 
 enslavement and misery of people. When the Spaniards 
 tore down the veil behind which the Peruvian State had 
 developed secluded from all intercourse with the outside 
 world, they found a community arranged on the most 
 approved Socialistic model. The State owned the land, 
 the flocks and herds, the houses, and finally, the bodies of 
 the inhabitants. What was the result ? The Peruvians were 
 a nation of slaves, living a life which was little better than 
 that of well-kept, well-fed animals. Again in Pai-aguay the 
 Jesuits produced a Socialistic state. The iufanteg barbati, 
 or beai'ded childi-en of their Reductions — the name given 
 to the communities in which the Indians were collected — 
 were ideal Socialist citizens. They possessed no property. 
 No family was richer or more esteemed than another, and 
 all individual effort was suppressed. Yet who will venture 
 to assert that Paraguay under the Jesuits is a model which 
 ought to be copied in the regulation of human society 1 The 
 case against Socialism is, indeed, conclusive in ever}- par- 
 ticular. Socialism c&a be proved unsound both economically 
 and historically ; and, further, it can be shown to be in 
 conflict with the strongest impulses and instincts of human 
 nature. It may be said, perhaps, that if Socialism can be 
 shown to have failed it cannot be shown that any system 
 based on Free Exchange has ever succeeded. No doubt no 
 State has yet been civilized enough to adopt the principle 
 of Free Exchange in its eutii-ety. It can, however, be proved 
 that those States which have approached most nearly to 
 that ideal ai-e the most prosperous, and their inhabitants least 
 miserable. England has gone further than any other country 
 in the du-ection of Free Exchange, and unquestionably the 
 people of England aie better off than those of any country 
 whose conditions as to debt and geographical position make 
 the comparison a fair one. Wages ai-e better, prices lower, 
 and the standai'd of comfoi-t higher in England than in any 
 
 H 3 
 
loo A Policy of Free Exchange. [iii. 
 
 country of the Continent. That this is due to the partial 
 adoption of the principle of Free Exchange, I do not doubt 
 for a moment. 
 
 X. 
 
 I will end by giving what I believe to be the plain 
 reasons why plain men should not be Socialists. It is not 
 because Socialists are innovators or agitators or preach 
 things contrary to the Book of Daniel, or are this, that, or 
 the other, but simply and solely because Socialism is nonsense. 
 Let me try then to put my reasons for not being a Socialist 
 in the simplest possible form — the form which is patron- 
 izingly called suitable for children and uneducated persons, 
 but which in reality is the form in which everyone reasons 
 out a subject in his own mind. 
 
 Should those who desire, above all things, an improvement 
 in the condition of the labourer become Socialists ? 
 
 No. 
 
 Why not ? 
 
 Because Socialism, if carried out, would injure, instead of 
 benefiting, the labourer. 
 
 Why would Socialism injure the labourer? 
 
 For the following reason : If the condition of the working 
 men is to be improved, that is, if they are to have more food, 
 more room in their houses, more clothes, more firing, more 
 of everything they desire, it is evident that there must be 
 more of all these things in the world. That is, there must 
 be more wealth, for these things make up wealth. But in 
 order that there shall be more wealth, i.e. more of the things 
 men need and desire, more must be produced. If ten men 
 have only five loaves between them, and need one each, the 
 only way they can be made comfortable is by getting five 
 more. It follows, therefore, that nothing which decreases 
 the total wealth of the world, which diminishes, that is, the 
 corn grown, the wool clipped, the houses built, the cotton 
 spun, or the coal dug, can improve the condition of the poor. 
 If, then, Socialism would diminish the production of the 
 things needed by mankind it would be injurious. 
 
Ill,] National Workshops. loi 
 
 But would it diminish the wealth of the world, and so 
 make less to go round % 
 
 Yes. 
 
 How? 
 
 In this way. The great stimulus to the production of 
 wealth of all kinds is self-interest. American farmers who 
 increase the wheat supply of the world, by working hard 
 throughout the year, do not do so out of love for their fellows, 
 but because they want to get rich, and be able to spend 
 money in the manner most pleasing to themselves. In the 
 same way the man who throws up a life of comfort, and 
 works from morn to night till he has made a discovery which 
 will enable the manufacturer to turn out double the amount 
 of woollen cloth without increased expenditure, does so 
 because he has the incentive of self-interest before his eyes — 
 the incentive of knowing that success will be rewarded by 
 the fulfilment of his desires. Throughout the world the 
 motive force of the machinery which produces wealth is 
 self-interest — not self-interest in a bad sense, but the natural 
 and legitimate desire for reward and enjoyment. Destroy 
 this motive force, give men no rewards to strive for, and 
 each individual, unless compelled, will do no more than is 
 necessary to keep himself and his family from starvation. 
 But this is exactly what the Socialist intends to do. He 
 proposes to take away the incentive, under the influence 
 of which more and more wealth is added to the world's store, 
 and to deprive men of the rewards in order to obtain which 
 they now labour. The Socialist would confiscate all private 
 property, and dole out to each individual a subsistence 
 portion. But in order that there shall be something to dole 
 out the inhabitants of the Socialistic state will be compelled 
 to work. Compulsion in a word will become the ultimate 
 motive force of the machinery of production under Socialism, 
 just as under our present system it is self-interest. Which is 
 likely to be the most successful ? Who works best, the slave 
 or the labourer, at weekly wages who, if he finds his work 
 irksome, can at least gratify his own tastes in his own way ? 
 All experience shows that compulsion produces less than pay. 
 
I02 A Policy of Free Exchange. [iii. 
 
 Convict labour is a synonym for waste and inefficiency. 
 Socialism, then, based as it must be on compulsion, would 
 diminish the wealth of the world. But if the total wealth 
 of the world is diminished there will be less to go round, 
 and, therefore, the share of each person will be less. That is, 
 Socialism would injure instead of benefiting the poor. 
 
 St. Loe Steachey. 
 
IV. 
 
 STATE SOCIALISM AND THE 
 COLLAPSE IN AUSTRALIA. 
 
 HON. J. W. rORTESCUB. 
 
IV. 
 
 STATE SOCIALISM AND THE COLLAPSE 
 IN AUSTRALIA. 
 
 The literature of State Socialism is ever increasing, though 
 it is but rarely emlched by the addition of such a volume as 
 that wi-itten by Dr. Pearson under the title of National 
 Character. Possibly it might seem a depreciation of the 
 value of this book to rank it in so narrow a category as 
 that of State Socialistic literature. The scholarship, the wide 
 culture, the encyclopaedic study and research which show 
 themselves on every page, have been duly recognized by 
 critics far more competent to appreciate, though not less 
 ready to admire, than the present writer ; and praise from 
 such quarters might reasonably be held to claim for it a higher 
 place. None the less, however, is it certain that Dr. Pearson's 
 book is an inquiry into the working of State Socialism — 
 a forecast of its probable effects on human character — to 
 which the writer, by his own admission, has felt himself 
 impelled by 'twenty years' residence under the Southern 
 Cross.' In other words, we owe this book to the inspiration 
 of Australia ; and this is a highly significant fact. 
 
 ' The history of the English Colonies in Australia and New 
 Zealand is particularly instructive because it shows what 
 the English race naturally attempts when it is freed from the 
 influence of English tradition. The settlers of Victoria and, 
 to a great extent, of the other Colonies, have been men who 
 carried with them the English theory of government ; to 
 circumscribe the action of the State as much as possible ; to 
 free commerce and production from legal restrictions ; and to 
 
io6 A Policy of Free Exchange. [iv. 
 
 leave every man to shift for himself with the faintest possible 
 regard for those who fell by the way. Often against their 
 own will the colonists have ended by a system of State 
 Socialism that rivals whatever is attempted in the most 
 bureaucratic nations of the Continent. The State employes 
 are an important element in the population ; the State builds 
 railways, founds and maintains schools, tries to regulate the 
 hours and wages of labour, protects native industry, settles 
 the population on the land, and is beginning to organize 
 systems of State insurance. . . . Planted in Australia the 
 Englishman ... is rapidly creating a State Socialism, which 
 succeeds because it is all embracing and able to compel 
 obedience, and which surpasses its continental State models 
 because it has been developed by the community for their 
 own needs, and not by State departments for administrative 
 purposes.' Of course it does not follow that they are right ; 
 but ' it is surely safe to say that political experiments which 
 half a dozen self-governing British communities are instinc- 
 tively adopting deserve attention as an indication of what we 
 may expect in the future.' 
 
 This quotation gives the key to Dr. Pearson's design. State 
 Socialism ' succeeds ' in Australia : Dr. Pearson will work out 
 for us the probable results of its success in the civilized world 
 at large. The argument is developed briefly as follows. It 
 seems absolutely certain that the higher races — i. e. those that 
 are held to have attained the highest form of civilization 
 — are confined within certain unchangeable limits by the 
 influence of climate. Australia is a country in point, half of it 
 being, so to speak, ' a white man's country,' half of it dis- 
 tinctly not so. Having established his position as to the 
 ' unchangeable limits of the higher races ' (a most valuable 
 and interesting chapter, by the way, on a sadly neglected 
 subject). Dr. Pearson passes on to consider how confinement 
 within those limits is liiccly to afl'ect those races— how, in 
 fact, they arc to survive, or rather think they ai-e to survive, 
 rostrictidn witliin their own climatic borders, the increasing 
 competition of the inferior races, the consequent closing of 
 the outlets for trade iind energy. He answers— and he gives 
 
IV.] State Socialism. 107 
 
 good ground for his answer — By resort to State Socialism ! 
 Englishmen, for instance, losing faith in themselves, will fall 
 back on the State and State Socialism, and resign themselves 
 to a stationary order in society — wealth and population 
 ceasing to increase. From such stationary order is likely 
 ■ to result increase of standing armies, of great cities, and of 
 national debts — the first by no means an unmixed evil, which 
 is more than can be said of the other two. The nation is 
 bound to remain the unit of political society, because the 
 interests and feelings of different races and countries are too 
 discordant to be harmonized under a central government. 
 The future of society will, then, depend very much on the 
 perpetuity of national feeling. Given that perpetuity of 
 national feeling, and with it the exaltation of the State to 
 the highest place in the minds of men, we may expect — what 1 
 The millennium % No ; ' the decline of the family and the 
 decay of character.' 
 
 Such is the conclusion to which Dr. Pearson is irresistibly 
 led by his review of the prospects of State Socialism as 
 a success; and we cannot sufficiently admire the practical 
 courage and candour wherewith he has given it utterance. 
 He holds no brief for or against State Socialism ; he accepts 
 it as inevitable ; examines it in an impartial spirit and 
 pronounces judgement without flinching. Not unnaturally, 
 therefore, his work has been branded by many as pessimistic — 
 after the usual fashion of those who strike unpleasant argu- 
 ments with a label and therewith declare them slain. Per- 
 sonally I cannot see that it is more pessimistic than optimistic ; 
 for surely it is an optimistic assumption that State Socialism 
 will successfully fulfil the functions that are generally pre- 
 scribed for it. Moreover this assumption, as it seems to me, 
 is rather more than the mere acceptance of an hypothesis for 
 the sake of argument. ' In Australia State Socialism succeeds,' 
 are Dr. Pearson's own words. Does it succeed? That is 
 a question to be examined rather than begged. 
 
 In a chapter— the most optimistic chapter in his book — on 
 the advantages of an enhanced national feeling. Dr. Pearson 
 has much to say of the hold that a State, which confers in- 
 
io8 A Policy of Free Exchange. [iv. 
 
 numerable benefits on its citizens, should thereby acquire over 
 them. Such enlargement on the topic is pertinent, because it 
 is on the perpetuity of national feeling (according to Dr. 
 Pearson) that society depends in the future. . A few quota- 
 tions will make the matter clearer. 
 
 ' Whatever may have been the case in old days, a child's 
 obligations to the State are now infinite. The State watches 
 over the infant from birth ; provides that the growing child 
 shall not be stunted by excessive toil, is properly clothed and 
 fed, and so educated as to have a fair start in life ; it assures 
 the adult against starvation, protects him against tyrannical 
 employers and from the criminal classes that prey upon 
 property ; it secures him liberty of thought and faith ; and 
 it offers him the means of safe and easy insurance against 
 illness or death.' 
 
 Again : ' The love of any man speaking the English tongue 
 for his country is now for a land that can give him ampler 
 protection than his fathers ever dreamed of, that invests him 
 with the privilege of a dominant race, that adjusts his public 
 burdens so as to be least onerous, that gives him the right to 
 assist in the making of laws, that protects him against his 
 own weakness, and ofters him the means to start on equal 
 terms in the race for honour or wealth.' 
 
 And yet again : ' It is now the State which is fascinating 
 every family by profiFering the h&ton de maHchal to its 
 children as it forces upon them an education that will fit 
 them to rise to wealth or dignity . . . The broad fact remains 
 that human co-operation for political ends is yeai-ly becoming 
 more fruitful of good purpose, and more successful in its 
 attempts to relieve want . . . Neither is it only material 
 benefits with which a great country endows its citizens . . . 
 the citizens of every historic State are richer by great deeds 
 that have formed the national character, by winged words 
 that have passed into current speech, by the examples of 
 lives and labours conseci-ated to the service of the common- 
 wealth. Tho religion of the State is surely as worthy of 
 ri^vrrcnci' as any crood of the churches, and ought to grow 
 in IntonHity year by year.' 
 
IV.] State Socialism. 109 
 
 '/i is, however, the note of every true religion that if it 
 promises great good it demands proportional sacrifices' 
 
 It is in this last sentence that the difficulties of State 
 Socialism really confront us. I am not concerned to dispute 
 that in the religion of the State, as outlined by Dr. Pearson, 
 there is much that may elevate and ennoble ; nor that the 
 State, as apparently the less unintelligible abstraction, may 
 command readier and more willing worship than Humanity. 
 But abstractions are abstractions, and no profusion of capital 
 letters will make them concrete. We are forced to ask. What 
 is the State ? With Dr. Pearson we must set it down at 
 something higher than merely ' the casual aggregation of 
 persons who find it to their advantage to live in a certain 
 part of the earth'; and if we desire to appraise it at its 
 highest — as worthy of its capital letter — we must treat it as 
 an abstraction, and a remarkably vague abstraction. But 
 human creatures who, like the Australians and, indeed, the 
 majority of English-speaking peoples, have a decided bias, 
 temporary or permanent, towards materialism, are somewhat 
 impatient of vague abstractions. Even three hundred years 
 ago the framers of the Anglican Articles of Belief thought it 
 expedient to define the visible Church. There is no such 
 formula, so far as I know, for the visible State. Such phrases 
 as ' a congregation of faithful men in which the pure gospel 
 of State Socialism is preached and salaries are received 
 according to Act of Parliament,' are insufficient and out of 
 date. Men seek for something terse and tangible, and 
 accordingly objectif}'' the State in the Government for the 
 time being ; and in that Government seek for the outward 
 manifestation of those hidden qualities, which, by their hypo- 
 thesis, are comprehended in the abstract idea of the State. 
 
 There is one divine attribute, and one only, that is assigned 
 by its devotees to the State— namely, omnipotence. It is 
 thought that the State, in virtue of some mysterious and 
 unexplained qualities, can do for men what they cannot do 
 for themselves — enjoys, in fact, powers that are practically 
 superhuman. Even Dr. Pearson, soberest of writers, seems 
 to lend countenance to this astonishing doctrine when he 
 
no A Policy of Free Exchange. [iv. 
 
 employs such loose expressions as that ' the State offers a man 
 the means to start on equal terms in the race for honour and 
 wealth.' That the State may profess to make the offer is 
 likely enough ; but herein it arrogates superiority to Fate, 
 which, in my judgement, is not a tenable position. This 
 omnipotence of the State is, however, assumed, as I have said, 
 and in common with other attributes finds objectification in 
 the reigning Government. It is, moreover, by no means sur- 
 prising that the faith therein is never stronger than in 
 a democracy. For democracy (to employ Dr. Pearson's 
 excellent definition) seems really to mean the vesting of power 
 in the people in such a way that their changes of purpose 
 may have instantaneous effect given to them. It is the 
 peculiarity of a democracy that it never believes that 
 a Government cannot do a thing : it believes only that it will 
 not do it. So if one Government declines to give instantaneous 
 effect to one change or another of its purpose, it seeks another 
 that undertakes the duty ; and some party can always be 
 found to make the undertaking. Hence the eternal cry of 
 the disappointed agitator — ' We can expect nothing from ihis 
 Government. But wait a little ; a time will come.' 
 
 Nor can it be denied that to a superficial observer the State 
 seems to possess some attributes that are generally accounted 
 divine. To the mass of mankind material considerations are 
 paramount — it is not sweetness and light, but fullness and 
 warmth, that signify happiness. If the prayers of the world 
 for a single day could be summarised it would be found, 
 I cannot doubt, that the commonest and most constant petition 
 is for the grant of material benefits. The Lord's Prayer 
 itself contains the material clause, ' Give us day by day our 
 daily bread.' Those, however, who utter it in other than 
 a merely formal spirit rarely hope to see a raven fly in with 
 provisions through the window, or to find an angel at the door 
 with a bread-basket. They trust that the prayer may be 
 answered according to the inscrutable wisdom of a Power 
 that has allowed men to starve before now ; and they are 
 stimulated by their trust to individual endeavour. Not so 
 with the State. The State undertakes immediate and direct 
 
IV.] State Socialism. 1 1 1 
 
 supply of material benefits. Men go to the State and ask, 
 if not for bread, at all events for work — and they get it. 
 They ask higher wage for that work — and they get it. They 
 ask for reduction of hours of work without corresponding 
 reduction of pay rate — and they get it. They ask for relief 
 from the burden of educating the children which they have 
 begotten into the world — and they get it. They ask for 
 protection against the consequences of their own folly — and 
 the State undertakes to grant it. They ask for an equal start 
 in the race for power and wealth — and the State promises it. 
 They ask for the moon — and the Government, or objectified 
 State, binds itself to give the demand its most serious 
 consideration. 
 
 For it is the peculiar attraction of the deity of the State 
 that it is never absolutely inexorable. In fact it is a deity 
 that can be coerced. Jehovah may be adored or blasphemed ; 
 the idol of the savage may be feasted or whipped by the 
 helpless and the starving ; and the food supply is not thereby 
 visibly afiected. The State, on the contrary, in its objectifi- 
 cation as the reigning Government, can always be squeezed. 
 Nor does it object to such pressure. Ministers of the State 
 whei"ein State Socialism prevails are as vain, as ambitious 
 and as arrogant as the high priests of any church ; and they 
 rejoice in every new appeal to their authority as fresh 
 evidence of the faith that is reposed in them. They borrow 
 prestige fi-om the mysterious abstraction, of whose bounty 
 they are held to be the dispensers ; and they know that every 
 addition to the prestige of the State is an addition to theii" 
 own. To this source may, perhaps, be traced the ever 
 increasing intensity and passion of the struggle for the 
 government of men. All great rulers, from Moses onward, 
 have testified to the thanklessness of this task of government. 
 Cromwell would sooner have kept a flock of sheep ; Danton 
 would rather have been a poor fisherman ; but still men press 
 and hustle each other in the race for authority to rule. The 
 State is omnipotent; with such omnipotence at their back 
 they can seize the reins with a light heart. 
 
 Now if the faith, alike of ministers and citizens, in the 
 
112 A Policy of Free Exchange. [iv. 
 
 omnipotence of the State be taken as the test of success, then 
 assuredly Dr. Pearson has some reason to claim success for 
 State Socialism in Australia. Everything that the devotee 
 of the State chose to demand from his idol has practically 
 been granted or promised. The State has provided, in one or 
 other or in all the Colonies, all the cherished privileges that 
 were enumerated a few pages back. Moreover, it has made 
 the provision of work doubly attractive, in the eyes alike of 
 worker and onlooker, by declaring the work to be repro- 
 ductive — in fact, to pay for itself. Thus, a railway not only 
 furnishes emplojrment and wage during its construction ; but, 
 when constructed, assumes the guise of a national benefit, and, 
 more curious still, of a national asset. Moreover, in Australia 
 the State gi-ants all these privileges unconditionally, without 
 demanding any service from its citizens in return. The 
 logical complement of State Socialism is compulsory military 
 service ; a subject on which Dr. Pearson's remarks are well 
 worth reading. But, from the point of view of national 
 defence, Australia has no occasion to compel military service. 
 Her defence is undertaken by England, and depends on the 
 British fleet, which was specially increased for the purpose at 
 British expense, and is maintained at no greater cost to 
 the six Australasian Colonies than an annual payment of 
 jf 125,000, divided between them. Thus, in all its doings, the 
 State in Australia omits to train its citizens to the idea of 
 sacrifice. Noting, no doubt, how thoroughly the citizens 
 appreciated the duty of the State towards themselves, it 
 counted on them for as thorough an appreciation of their 
 duty toward the State ; in fact, it calculated (if it thought 
 about the matter at all) that multiplicity of benefit would 
 breed infinity of obligation. 
 
 Finally, therefore, as the crowning attraction and supreme 
 revelation of its omnipotence, the Australian State bestowed 
 all these benefits upon its citizens, apparently free of charge, 
 by the simple expedient of borrowing scores of millions of 
 pounds from the British capitalist. It is true that taxes were 
 levied; but very largely in the form of protective customs 
 duties, which are always popular among those who seek au 
 
IV.] State Socialism. 1 1 3 
 
 easy life; and, indeed, it is pretty evident from the latest 
 developments that the State virtually provided the citizens 
 with money to pay taxes withal. Of course the amount of 
 the debt always appeared as an offset against the national 
 prosperity ; and here the fiction of the ' reproductive ' works 
 came usefully into play. If the British capitalist happened 
 to observe that he had lent the State ten, twenty or forty 
 millions, the high priests waved their hands towards railways 
 and irrigation schemes, and said, loftily, 'There are your 
 millions ; not idle, but breeding new millions.' So the 
 prestige of the State grew and waxed great ; and therewith, 
 that of the ministers also ; for they needed but to wave their 
 handsj and the land was filled with plenteousness. And they 
 looked upon the work of their hands, and saw that it was 
 good. And Mr. Froude journeyed to Australia to see the 
 wonderful things that were there ; for the fame thereof had 
 reached his ears in his own country. And he saw the 
 ministers of the State, and communed with them; he saw 
 their work also, and blessed it. And his blessing is a curse 
 unto Australia unto this day. And passing over to New 
 Zealand he saw there George Grey, the seer (which had 
 formerly been of the ministers, but was cast out), and he 
 communed with him, and cursed New Zealand. Notwith- 
 standing, his curse was changed into a blessing. And other 
 men also came from England to see Australia, which blessed 
 it, and gave glory to the' State, not knowing what they did. 
 Nay, there were that blessed it, not having seen it with their 
 own eyes ; and of all these the blessing is changed into 
 a curse. 
 
 Undoubtedly, in the piping times of the ' eighties/ the 
 Australian Colonies, judged by certain standards, were quite 
 ideal States — paradises of the working man, and so forth. 
 Their success was frequently quoted as conclusive evidence of 
 the value of State Socialism and of the infinite power of the 
 State for good ; and they were consequently flattered and 
 belauded to an extravagant degree. Nor were they backward 
 to accept such homage. The Australian Colonies began to 
 look upon themselves as decidedly superior communities; 
 
114 A Policy of Free Exchange. [iv. 
 
 and the men that directed them began to imagine themselves 
 statesmen. To nourish the prevailing sentiment of national 
 self-satisfaction, the Governments instituted that peculiar 
 form of national advertisement which is known by the name 
 of ' statistics ' — statistics of ' realized wealth,' ' national 
 resources,' ' national assets,' and the like — all designed to 
 assure the world in general, and the people of England in 
 paiticular, that the Australians were, for all their State 
 comforts, the most energetic, industrious and enterprising 
 folk in the world. Now, no one likes to be called energetic 
 and industrious so much as the man who never does more 
 work than he can help ; and accordingly the Australian 
 working man heard and was delighted. Nor was he alto- 
 gether without justification. All ofiicial documents declared 
 Australian prosperity to be phenomenal ; and that prosperity 
 was certainly due to some one's exertions— why not, there- 
 fore, to his own (as every one assured him), with the help and 
 guidance of an enlightened abstraction called the State? 
 Deity and devotee alike live on faith, and thrive with its 
 increase. So the game went merrily on during the eighties, 
 becoming fast and furious towards their close, till at last it 
 culminated in the year 1888. That year was marked in 
 Sydney by a great festival to celebrate the centenary of the 
 arrival of the first two convict ships at Botany Bay ; and in 
 Melbourne by a great Exhibition to commemorate the fiftieth 
 anniversary of the foundation of Victoria. 
 
 Shortly after, the tide began to turn. The first blow dealt at 
 the omnisufiicience of the State was struck by an Australian 
 newspaper, the Melbourne Argus, which discovered and gave 
 publicity to the fact that the surplus shown by the Victorian 
 Treasurer for the financial year just expired (1889) had no 
 existence except in imagination. Further inquiry showed 
 that the surpluses of some previous years had been obtained 
 by a manipulation of the public accounts, which in a private 
 firm would not have been considered straightforward. Though 
 known and remarked in the Colonies, this incident of the 
 sham surplus of 1889 was unheard of in England until Mr. 
 Charles Fairfield made it public in the pages of A Plea for 
 
IV.] State Socialism. 115 
 
 Liberty. Other attacks followed Mr. Fairfield's, as the 
 mysteries of Australian State Socialism were gradually un- 
 veiled; and at last the ministers took fright and began to 
 admit, in Australia at least, that matters might not be in 
 quite so satisfactory a state as could be desired. In England 
 they continued, through their instruments, to pufif the per- 
 fection of their system and to denounce the attacks of critics 
 as persistently as ever. Still, the steadiness of the downward 
 tendency was too strongly marked to make denials and 
 denunciations of any avail. The Colony of Victoria, wherein 
 Dr. Pearson made his principal study of the success of State 
 Socialism, presents, perhaps, the most instructive picture of 
 financial collapse — Victoria was the enfant gdt4 of the British 
 State Socialist, the darling example of such critics as Sir 
 Charles Dilke. Her decline and fall may be traced in the 
 following brief statement. 
 
 July, 1889. The Treasurer announced a surplus of £1,600,000. 
 
 Nov. 1889. The Treasurer announced that the surplus of 
 £1,600,000 had sunk to £142,000; and that there were 
 liabilities of £5,600,000 to be met. Liabilities accordingly 
 met by means of loans, and finance declared (by Mr. 
 H. Willoughby, Nineteenth Century, Sept. 1891) to have 
 been ' put straight without the slighest confusion.' 
 
 1890. Treasurer announces a surplus of £600,000 on the past 
 financial year. 
 
 1891. Treasurer announces a deficit of £797,000 on the past 
 financial year, reckoning to June 30; and of £1,418,000, 
 reckoning to July i ; also that £1,700,000 had been 
 borrowed from trust funds (Government Savings Bank 
 deposits) in anticipation of loans. £3,000,000 were 
 borrowed in London during the year, of which £900,000 
 were for conversion of a matured loan. 
 
 189a. Treasurer announced a deficit of close on £1,600,000 
 for the past financial year. £3,000,000 raised by loans 
 during the year 1892. 
 
 1893. Estimated deficit of £2,500,000. Collapse. 
 
 There is no necessity to dilate further on the present finan- 
 
 I a 
 
1 16 A Policy of Free Exchange. [iv. 
 
 cial condition of Australia — it has been all too soiTowfully 
 brought home to hundreds of ruined Englishmen. ' When a 
 State undertakes enterprises beyond its strength, it always 
 does it at the risk of bankruptcy,' writes Dr. Pearson, very 
 sagely ; and . bankruptcy is the fate that has overtaken 
 Victoria, New South Wales and Queensland. Now it is 
 agreed by common consent that finance is the principal test 
 whereby the success or failure of a system of administration 
 should be tried. Applying this test to Australia we are 
 surely forced to the conclusion that State Socialism, so far 
 from succeeding there, is a hopeless and disastrous failure. 
 Now, the practical certainty of bankruptcy in these three 
 provinces, and particularly in Victoria, has been patent to 
 any man who chose to use his eyes, since the year 1890, 
 if not from still earlier times. Dr. Pearson's book bears date 
 1893 ; and we must, therefore, assume that, at all events to 
 the close of 1 891, he still considered State Socialism to be 
 a success in Australia. Consequently we can only conclude 
 that he would not regard such a test as final, and would 
 require further evidence to convince him that he was mis- 
 taken. I can hardly believe, I confess, that if his book were 
 still unprinted he would leave the passage about the success 
 of State Socialism in Australia unaltered. But his subject is 
 a wide one ; and he expressly disclaims the consideration 
 of such possible contingencies as the trial of impracticable 
 experiments, and the resort to such old failures of the past as 
 unlimited issues of paper money by 'ignorant tribunes of 
 the people.' We are, therefore, driven to apply some other 
 test. It may, of course, be said, and indeed it has been said, 
 that the financial collapse in Australia is due merely to a 
 fortuitous concurrence of unfortunate circumstances ; that it 
 is merely transitory and superficial, and that it will be 
 followed by speedy and solid revival. It has also been said 
 that the collapse was due to the malicious attacks of English 
 critics, who sought notoriety by uttering dismal prophecies 
 of Australia's failure, and secured fulfilment of those prophecies 
 by decrying her credit. But it would be as reasonable to 
 attribute the outbreak of an epidemic of typhoid fever to 
 
IV.] State Socialism. 117 
 
 the predictions of a doctor who condemns the sanitary con- 
 dition of a town. The fact that it could be predicted is 
 sufficient evidence that the collapse was due, not to unlucky 
 mischance, but to simple and ascertainable causes. If, in 
 spite of national bankruptcy, success can still be claimed 
 for State Socialism in Australia, it can be upon one ground 
 only — viz. that, though the State may have failed (let us say 
 through excessive zeal) in its duty to the citizens, yet the 
 citizens have redeemed such failure through their infinite 
 devotion to the service of the State. 
 
 Now, I have already described, in Dr. Pearson's own words, 
 the consummation which he hopes may be reached in the 
 growth in each individual citizen of a proper sentiment of 
 gratitude, loyalty and piety toward the State — ^I have 
 sketched what the State has undertaken to do, and what 
 it actually has done (no matter at whose expense), for its 
 citizens in Australia ; and it now remains to examine what 
 return the citizen seems likely to offer to the State. ' It is 
 the note of every true religion that, if it promises great good, 
 it demands proportionate sacrifice.' ' What reward shall I give 
 unto the Lord for all the benefits that He hath done unto me ? ' 
 
 The peculiar tendency to accumulate large debts, which 
 present experience has shown to be characteristic of State 
 Socialism, has not escaped so keen an observer as Dr. Pearson. 
 His residence in Victoria cannot but have forced this danger 
 upon his notice, and presented it to him as real and pressing. 
 It is evident, indeed, that this peculiarity has puzzled and 
 disturbed him not a little. ' The day may come,' he hopes, 
 ' when a man who leaves an old and indebted State will 
 be like the partner who peremptorily withdraws from an 
 embaiTassed firm ' ; but he admits that if thousands of 
 citizens who have supported a policy of lavish expenditure 
 leave the country when the burden of taxation becomes 
 unpleasant, the very existence of the State may be imperilled. 
 I have little doubt but that this latter sentiment was sug- 
 gested to Dr. Pearson by (among other examples) what 
 happened in New Zealand in the year 1888-9. New 
 Zealand, it should be mentioned, at that time led the race 
 
1 1 8 A Policy of Free Exchange. [iv. 
 
 of extravagant administration among the Australian Colonies ; 
 and, indeed, is still rather ahead of her sisters in the matter of 
 certain State institutions — e. g. State insurance. Her career 
 ■was, however, cut short in the nick of time by Mr. Froude's 
 strictures in that delightful but inaccurate book Oceana. 
 New Zealand gained a bad reputation in the English money- 
 market; the supply of loans was cut off; and she found 
 herself on the brink of bankruptcy. Now, there can be 
 no doubt whatever that the adventurous politician who 
 initiated and encouraged the policy of extravagant borrow- 
 ing in New Zealand was cordially supported by the mass of 
 the people. To this day, I venture to affirm, there are many 
 in the Colony who still swear by him. Nor is it altogether 
 surprising considering that, as if by the waving of a magic 
 wand, he flooded the country with money, and began an era 
 of apparently unexampled prosperity. Let it be noted mean- 
 while that in New Zealand there was no concealment of the 
 financial position by mishandling of the accounts. The 
 annual balance sheets showed faithfully enough a deficit just 
 about equivalent to the amount of the annual interest due on 
 the loans ; so that it was sufficiently patent to any intelligent 
 man that the interest on old loans was discharged, not by 
 the labour of the citizens, but by the complaisance of the 
 British capitalist. No sane man could believe that such 
 a system would last for ever ; yet it was stopped, not by the 
 unwillingness of the citizens to continue it, but by the refusal 
 of the British capitalist any longer to support it. Now, 
 innocent people might suppose that citizens under such 
 obligations to the State as in New Zealand would have stood 
 by her in the hour of her trial. Nothing of the kind. No 
 sooner was the borrowing stopped than the 'working men,' 
 the adult males, who are generally reckoned to be the cream 
 of the population, streamed away in thousands to Australia. 
 So far from making a saci'ifice for the State, which had nursed 
 them so tenderly, they not only forsook her, but in many 
 cases left their wives and children behind to be a burden 
 to her. Those who remained sought by every means in their 
 power to shift the weight of their obligations to the State 
 
IV.] State Socialism. 119 
 
 on. to others' shoulders. Sir George Grey openly proposed 
 that, under the form of an income tax, a fraction of the 
 interest due to the English bondholders should be confiscated 
 for the benefit of the State, which meant, in plain words, 
 repudiation. The Government, without going so far as this, 
 imposed this income tax upon the foreign holder of debentures 
 in New Zealand companies ; and has got into some trouble in 
 consequence, though not with its own citizens. 
 
 So much for New Zealand. Sensible colonists who watched 
 the exodus of the working man from that country on the 
 cessation of the borrowing policy, predicted (not without 
 bitter satisfaction) that he would soon return, a wiser creature 
 than when he left. And so in fact it has turned out. Com- 
 pared with the crashing collapse of Victoria, New South 
 Wales and Queensland, the fall of New Zealand appears like 
 a gentle subsidence. The ' working man ' of Australia, sworn 
 supporter of reckless extravagance, ' cleared out ' directly 
 there was a question as to the payment of the bill ; and 
 fled to New Zealand, South America or any country where 
 he could hope to receive benefits without repaying them. 
 Nay, a few hundred extremists, so we read in the papers, 
 have started off to construct a Utopia which shall satisfy all 
 their ideals ; schismatics from the established State religion 
 which once commanded their reverence in Australia, embarked 
 on some parody of the Mayflower, bound on the welcome 
 and simple mission of forming a fool's paradise. But the 
 bulk of the emigrants, so far as I can gather, has made its 
 way to New Zealand ; deserters, some of single, some of double, 
 some of triple dye, but all alike without shame. Within six 
 months of their arrival they are entitled to a vote ; and, with 
 unconscious irony, will probably press for the imposition 
 of heavy burdens on absentee proprietors and absentee 
 lenders. Absentee debtors, of course, are not to be classed 
 with such vermin. The devotee of the State has but two 
 clauses to his prayer — ' Give us day by day our daily bread, 
 and forgive us our debts.' 
 
 It may be said that such citizens as these are no citizens. 
 Possibly ; but why, then, does the State so readily grant them 
 
I20 A Policy of Free Exchange. [iV. 
 
 the privileges of citizenship, asking at very most no more from 
 them than an occasional service on a jury — a service, by the 
 way, which, being properly within the domain of the State, 
 not infrequently finds its way into private hands, to the great 
 discomfort of justice ? There is, I think, but one answer — the 
 religion of the State encourages hirelings rather than shepherds. 
 
 Now let us consider the case of the citizens who remain 
 faithful to the country of their birth or their adoption. Some, 
 beyond all question, remain true to her from really high 
 motives of sentiment and honour — the men who would never 
 desert a companion in misfortune or disgrace, much less 
 a country. But are such motives bred by the lavishment of 
 material benefits % Surely not. Were the sharers of the 
 sportula the men who stuck to their Roman patrons in their 
 fall as well as their prosperity ? I do not think so. 
 
 But there is a much larger body that stays from sheer 
 inability to go away. These are mainly of two classes — 
 salaried official employes of the State, too old, too strongly 
 committed to her service, or too much narrowed in the 
 discharge of the duties thereof to begin life over again ; and 
 the country people, who are attached, partly by sentimental, 
 more often by commercial, ties to the soil — the working moiety 
 of the population, which produces whatever wealth is produced 
 in the country. The first is that over which the State has 
 most immediate and complete control. They are simple 
 dependents — the one class from which the State can extort 
 sacrifices. As the easiest, they are always the first victims of 
 retrenchment ; and the first cry in a country where State 
 Socialism has brought about financial embarrassment is ' Cut 
 down the salaries of the Civil Service.' The ministers lend 
 a willing ear : salaries are cut down, old servants are dis- 
 charged, with or without an inadequate composition for the 
 pension to which they were entitled by the terms of their 
 contract ; and the whole service is disheartened and demo- 
 ralized. These men are among the few that have faithfully 
 served the State ; and this is their reward. Is it conceivable 
 that such involuntary Abdiels should keep their loyalty, love 
 and zeal towards so faithless and oppressive a taskmistress 1 
 
IV.] State Socialism. 121 
 
 The people who work on the land are in rather a different 
 position. Although from the mere fact of dispersion they 
 cannot organize themselves to put pressure on the State like 
 the townsmen, yet they have compelled the State in some 
 measure to justify their faith in its omnipotence. Of course 
 they have ever been the last to receive protection for their 
 industries ; but they would not consent eternally to pay 
 through the nose for every tool, utensil and garment in order 
 that the townsman might prosper and amuse himself; and 
 accordingly, together with the privileges extended to every 
 citizen, they have occasionally exacted special favours, such 
 as bounties and the like. Now, these men have always felt 
 a conviction (and quite justifiably) that they are the true 
 Australian citizens — ready, it is true, to take anything that 
 they could get from the State, but proud to think that they 
 were not dependent on it, nor bound to it by a daily increasing 
 sum of uncancelled obligation. To them the collapse must 
 have been a more than ordinarily painful surprise. They 
 know that they have worked on as usual, and yet they learn 
 of failure after failure of banks and business fii-ms — probably 
 enough of the disappearance of their own earnings in such 
 failure. They hear of public liabilities whereof the total 
 seems ever to increase, of a public revenue that never ceases to 
 fallj of business at a standstill, of a Government at its wit's 
 end. They hear of imperative necessity for immense retrench- 
 ment and new taxation ; reduction of the benefits granted by 
 the State, increase of the burdens to be borne for her. Lastly, 
 they hear that thousands of taxpayers have fled from the 
 coming wrath, and that thousands more are preparing to follow 
 them ; and that they who have always worked must stay and 
 work on, in difliculty and discouragement, to pay the piper to 
 whose music the fugitives have danced. 
 
 Then they ask. Why this collapse ? Who is responsible for 
 it? And the answer is. The State. It was the State that 
 promised to create universal prosperity and universal content- 
 ment; and to carry out its promise utilized, not its own 
 resources, but money borrowed from other countries. The 
 State had ideas of ready-made prosperity as of a ready-made 
 
122 A Policy of Free Exchange. [iv. 
 
 suit of clothes. It seems so simple to take a man of fine 
 physique, clap him in a borrowed suit of fine clothes, call him 
 a millionaire, and bid him go play. But, the true workers 
 rejoin, Why so sudden a collapse 1 Surely there should have 
 been unmistakable warnings. We had no such warnings. 
 The balance sheets and official information furnished by the 
 State through its ministers were, at any rate till quite recently, 
 most satisfactory and reassuring. The answer is, The State 
 your god is a jealous god, and does not like its devotees to 
 think that they can do without her, still less that she is wholly 
 dependent upon them. It was a part of her policy to conceal 
 from you that you were the only true workers in the country, 
 and that without you she was nothing. It was equally part 
 of her policy to conceal from the Biitish capitalist the fact 
 that he has hitherto paid the interest on the money that he 
 has lent her out of his own pocket. Whether from unwilling- 
 ness to lose faith in the omnipotence of the State or from fear 
 of publishing the discovery which they had themselves made, 
 that such faith was groundless, successive batches of ministers 
 so garbled the financial accounts and returns of the State as 
 to convey a wholly false impression. Hence a general feeling 
 of distrust and uncertainty towards AustraUan State balance 
 sheets at the present moment. In Victoria these balance sheets 
 were presented with various suppressions and omissions 
 according to the interest of the reigning Government in showing 
 a deficit or a surplus, i.e. a deficit as the creation of then- 
 predecessors in office, a surplus as the production of their own 
 talent. In New South Wales the dispensers of the riches of 
 the State have recently made some very candid admissions. 
 ' The Colonial Treasurer is practically powerless to control the 
 finances ; he is liable at any moment to have accounts to meet 
 of the very existence of which he was unaware ' — such is the 
 confession of the present Treasurer. You ask, How about 
 the ' reproductive public works ? ' wherein the borrowed money 
 was invested ; and you point triumphantly to the Victorian 
 railways, which, according to official returns, paid not only 
 the interest on the capital borrowed for their construction, but 
 a small percentage of profit also. Well, by this time you must 
 
TV.] State Socialism. 123 
 
 know that these official returns were misleading. Those rail- 
 ways never did pay that interest, and at the present moment 
 are less likely to pay it than ever. In 1891 the earnings were 
 avowedly £332,000 short of the interest on the capital outlay, 
 and in 1893 £445,000. If you ask about another class of 
 ' reproductive ' public works, those constructed for purposes 
 of irrigation for the benefit, at any rate ostensibly, of you in 
 the country, I must point out to you that the aggregate 
 arrears of interest due from local bodies on this account rose 
 from jEaoOjOOo to £300,000 between 1891 and 1892, and that 
 you may as well write off these sums and more as bad debts. 
 It is of no use for you to say that much of the money spent on 
 these reproductive works was wasted ; that some of the rail- 
 ways, for instance, ought never to have been made at all ; that 
 many ought to have been delayed for ten, twenty or thirty 
 years ; that nearly all should have been constructed at 
 much smaller cost ; and that if you had had any idea of the 
 haphazard fashion in which the affairs of the State were 
 conducted you would have risen to put a stop to the system. 
 All that is no doubt very true, indeed, has been admitted to 
 some extent by ministers. You supposed, at any rate hoped, 
 that all was right, and never dreamed that the ministers of the 
 State were deceiving you. But you must remember that the 
 ministers are but men, like you believers in the State, con- 
 cerned to uphold its divinity, and therefore unwilling to 
 profane its mysteries. 
 
 All this, though interesting, is but a digression from the 
 most important point, namely, that the State looks to you and 
 to your exertions to discharge liabilities incurred partly for 
 your good, but chiefly for the good of others. You must not 
 complain of this. You must not say that the State has done 
 you more harm than good by attracting all labour away from 
 you to its own works, and encouraging the population to do 
 artificial work in the towns, instead of natural work in the 
 country, and that its eternal interference has been the ruin of 
 Australia. The interest on the debt must be paid, and you 
 have got to pay it. 
 
 Can we believe that these citizens will feel gratitude and 
 
1 24 A Policy of Free Exchange. [iv. 
 
 devotion towards the State which has so deceived them ? 
 Will they not rather curse her for the injustice that she has 
 wrought ? For has not each man the perfect right to say that 
 if the State had but openly shown him the true nature of her 
 doings he would have renounced his allegiance and left the 
 country while he could, without loss of independence, character 
 or honour ? 
 
 Meanwhile, the State has made a last effort to retrieve its 
 damaged character. In the general distress the people, 
 demoralized by long dependence on its bounty, call louder 
 than ever on the State for help ; and the State has responded. 
 In Victoria it tried, besides other experiments, to avert the 
 failure of banks, by declaring them closed for five days; 
 which is as though a doctor should stop a man's breath to 
 save him from breathing his last. Needless to say, the few 
 banks that were confident as to their soundness refused to 
 avail themselves of this enforced holiday ; while those that 
 knew their own unsoundness closed for five days, reopened — 
 and failed — as it was inevitable that they should fail. In New 
 South Wales and Queensland, the Governments, still filled 
 with the omnipotence of the State, have undertaken, with no 
 mightier engine to hand than an ordinary paper mill, to 
 create money, under the name of ' Treasury Notes,' ' Treasury 
 Bonds,' and so forth. This, of course, is no new thing. The 
 State has set itself the same task at various periods in various 
 countries; but it is significant that such 'money,' whether 
 designated ' Treasury notes,' 'Cedulas,' or ' Assignats,' has never 
 failed to fall into early disrepute. These ' State promises 
 to pay ' are in reality nothing more nor less than drafts on the 
 credulity of those who believe in the omnipotence of the 
 State ; and human credulity finds its limits very swiftly, 
 when pounds, shillings and pence are in question. Thus in 
 two at least of the Australian provinces the State has fired 
 its last shot. What may be the ultimate outcome of these 
 issues of forced paper it is difficult to say. The issue, of 
 course, is declared to be limited, and all reissue to be for- 
 bidden ; so that at present the scheme does not come under 
 Dr. Pearson's category of ' old failures ' ; but it is a disquieting 
 
n'.] State Socialism. 125 
 
 reflection that issues of forced paper have a tendency to 
 outlive the term originally assigned for their existence. 
 In any case there is but one source from which these 
 promissory notes can be redeemed, viz. the labour and 
 production of the workers in the country districts, who are 
 already sadly overburdened. The truth is that the State in 
 the last resort can find neither help nor salvation except in 
 the private enterprise, which in Australia it has done its best 
 to extinguish ; but this truth being unpalatable, both to itself 
 and to its worshippers, the State leaves no means untried to 
 'disguise it. By the people these paper issues have been 
 hailed with acclamation as a stroke of magical beneficence ; 
 in other words, neither Government nor people are alive to 
 the fact that a State's promise to pay is a people's promise to 
 work. 
 
 Looking, then, at the situation from both sides — from the 
 side of the State in respect of the benefits which it has 
 conferred upon the citizens and from the side of the citizens 
 in respect of the obligations which they recognize towards 
 the State — I find it impossible to justify Dr. Pearson's 
 assumption that State Socialism succeeds in Australia. The 
 experiment may have been interesting, but the result is 
 failure ; and the immediate products are a bankrupt treasury 
 and a demoralized people. The reign of State Socialism in 
 Australia has been a reign of gambling, pure and simple ; and 
 the tendency to gambling is of all tendencies that which an 
 Australian Government should have been most careful to 
 discourage. For the English have a natural passion for 
 gambling only less intense than have the Chinese ; and 
 Australia is from the nature of the case a gambling country. 
 So treacherous is the climate, with its alternation of heavy 
 destructive drought and heavy destructive flood, that even 
 the soberest work on the land partakes heavily of the nature 
 of gambling. If the new settler begins with a good season, he 
 makes money very rapidly ; if with a bad, he is, for all his 
 efforts, not less rapidly ruined. On this point all men with 
 experience of Australia seem to agree — there is, as a rule, no 
 medium between these two extremes. Then, as if this were not 
 
126 A Policy of Free Exchange. [iv. 
 
 enough, the State aggravates the uncertainty of work on the 
 land by continual tinkering at the land laws — now withhold- 
 ing the public land from sale, alleging scruples about ' alienat- 
 ing the national patrimony,' now disturbing the holders of 
 land already alienated, now proposing to repurchase the 
 ' national patrimony ' ; so that men can hardly tell what 
 their rights in the land may be ; while rabbits, by a strange 
 irony, enjoy undisputed possession of thousands of square 
 miles. Another natural stimulus to the gambling spirit was 
 the discovery of gold; which, though commonly accounted 
 a blessing, is in reality the greatest curse that can oppress 
 a country — offering royal roads to wealth, and discouraging 
 steady industry. As if this were not enough, the State floods 
 the country with borrowed millions, thus obtaining and pro- 
 moting, directly and indirectly, an unprecedented extension 
 of credit for its citizens. Hence, as was to be expected, more 
 and more gambling, culminating in the frantic speculation 
 known as the Melbourne Land Boom of 1888; when the price 
 of real property in Melbourne actually rose above that in the 
 City of London; while the State, to keep the ball rolling, 
 carelessly squandered a quarter of a million^ of borrowed 
 money on a great exhibition. 
 
 The prevalence of the gambling spirit, and the direct 
 encouragement thereof through precept and example by the 
 State, has, of course, left its mark on commercial moraUty. 
 I must guard myself against misconception and the accusation 
 of Pharisaism by saying at once that I do not think English 
 commercial morality is much to boast of; and am rather 
 inclining to the opinion that the old and extinct aristocratic 
 prejudice against trade had its root in something greater and 
 stronger than the mere pride and folly of caste. I am not 
 concerned to deny, meanwhile, that the morality of the 
 tradesman or merchant or banker has as good a right to 
 distinct existence and special recognition, as such, as the 
 morality of the advocate or the politician; for every pro- 
 fession and calling has its own ethical code — known to the 
 
 ' The net loss on this exhibition exceeded £200,000. 
 
IV.] State Socialism. 127 
 
 outside world as etiquette, and to the initiated as business. 
 But, making all these allowances, I do not think it can be 
 disputed that the standard of commercial morality in Austra- 
 lasia is low, and lower than in England. The position can be 
 illustrated by the different treatment of bankruptcy in the 
 Colonies and the old country. Gambling and bankruptcy are 
 intimately connected together — gambling being carelessness, 
 indifference, contempt, but always at bottom defiance towards 
 obligation ; bankruptcy the admitted inability, from whatever 
 cause, to fulfil obligation. The attitude of law and still more of 
 society towards bankruptcy is a sure index to the standard of 
 respect that is paid to the sanctity of obligation in any commu- 
 nity. If any one will compare the bankruptcy laws of England 
 with those, say, of New Zealand, I do not think he will find 
 any difficulty in deciding which are the most stringent, or, in 
 other words, make most for honesty. But the social attitude 
 towards bankruptcy in the Colonies is even more significant. 
 Bankruptcy is attended by comparatively few difficulties ; 
 and is accompanied by no stigma. Perhaps this may be 
 more excusable in a new country than an old, but it is not 
 less dangerous. Dr. Pearson justly says that ' in a new 
 society a man goes on experimenting till he finds the career 
 in which he works best ; and that this facility has a great 
 effect in promoting individualism.' I think that it has 
 a great effect in promoting bankruptcy also ; for, through the 
 too lax acceptance of the principle, the liberty to experiment 
 ad libitum is construed as the right to fail ad infinitum. 
 Hence to have ' passed through the court,' as the phrase runs, 
 is in the Colonies held to be rather an evidence of enterprise 
 than a certificate of failure. It cannot astonish us, therefore, 
 to find bankruptcy in high places in the Colonies. I take no 
 such unfair test as a mere enumeration of the Australian 
 premiers, past and present, who have been obliged to confess 
 insolvency ; for misfortune spares no man. I take the recent 
 and significant case of a politician who quite lately held the 
 office of premier. This gentleman, while yet in the first blush 
 of bankruptcy and of intimate connexion with a business 
 whose failure had justly or unjustly provoked severe criticism 
 
128 A Policy of Free Exchange. [iv. 
 
 in the Colony, was actually selected for the appointment of 
 Agent-General in England ; and this at a time when his 
 prime duty would have been to reassure British capitalists as 
 to the safety of their investments in his Colony. The press, 
 to its honour, opposed the appointment and forced the 
 Government to cancel it. But conceive the selection of 
 a bankrupt for such a mission ; and consider the standard of 
 commercial morality in a country where such a selection 
 could not merely be thought of, but was only most reluctantly 
 withdrawn, as much from policy as shame, in deference to the 
 press. It is the standard reproach against two great rival 
 English statesmen, that the one lived a gambler and the 
 other died a bankrupt. If his marvellous talents and amaz- 
 ing personal charm cannot save the fame of Eox; if his 
 lofty character and transcendent services cannot wholly 
 efface the one stain on the memory of Pitt, surely it is 
 a mistaken and unwholesome leniency to leave similar fail- 
 ings in Australian politicians wholly out of account. 
 
 Let us take another aspect of Australian commercial 
 morality. It is constantly claimed on behalf of Australian 
 ministers, that they have never diverted the riches of the 
 State to their own personal gain. Let us freely grant that in 
 some important English-speaking communities such virtue 
 is all too rare; and let us give all honour to Australasian 
 ministers for that they still hold it dear. But what are we 
 to say to the publication of misleading accounts, false balance 
 sheets and fictitious returns by authority of the State? It 
 cannot be urged that ministers were unaware of the irregu- 
 larity of their proceedings, for it was constantly brought to 
 their notice by the auditors. It cannot be advanced that 
 political exigency is sufficient excuse; for the ministers and 
 their apologists expressly debarred themselves from any such 
 plea. They asserted again and again that the money borrowed 
 by the State was expended on commei'cial undertakings in 
 accordance with business principles ; and they must, thei-efore, 
 be judged by the code, not of political, but commercial ethics. 
 What, again, are we to say of the ministers who, after 
 admitting, under the legitimate torture of press criticism, 
 
IV.] State Socialism. 129 
 
 that a certain balance sheet was misleading, not to say falsej 
 none the less advised the Governor to countersign that same 
 false balance sheet, and suffered it to pass into the English 
 ofEcial returns as correct % What, further, shall we say of the 
 people which, after the exposure of such a scandal by the 
 press, allows the guilty ministry to remain quietly in office^ 
 and retire on its laurels % Lastly, what shall we say of New 
 South Wales and of its present Premier? In the summer of 
 1892 that Premier, Sir George Dibbs, came to England to 
 support the tottering credit of his Colony. He wrote a long 
 letter to the Tmies in defence of Australian financial adminis- 
 tration in general, and of New South Wales finance in 
 particular ; he succeeded in reassuring English investors to 
 some extent (for he was received with honour in high places, 
 and even knighted), and is said to have actually raised the 
 New South Wales Government Stock one per cent. He then 
 pressed the Chancellor of the Exchequer hard to open Colonial 
 Government Stock to English trustees ; most fortunately with- 
 out success. Shortly after he returned to his Colony. Within 
 six months he saw it sunk in hopeless financial collapse ; 
 within nine he had, by the establishment of a forced paper 
 currency, virtually admitted its bankruptcy. Now, one would 
 have thought that a Premier so ignorant of the fijiancial con- 
 dition of his Colony as to cry up its soundness and stability 
 (and make a journey to England for the purpose) but half 
 a year before a confession of insolvency — one would have 
 thought, I say, that a minister so ignorant, would have been 
 forthwith driven from oflSce. On the contrary, he not only 
 remains in office, but has received a public testimonial 
 (£700 was, I thiuk, the amount subscribed) for his eminent 
 services to his country. Such sympathy with ignorance 
 seems, at first sight, a Little difficult to account for, in view of 
 the free education so liberally supplied by the State to every 
 citizen in New South Wales, though, to directors of shaky 
 companies, and indeed, to debtors at large, it must be very 
 full of encouragement and comfort. But surely it must be 
 conceded that a community in which executive power and 
 public feeling conspire to set at naught the sanctity of 
 
 K 
 
1 30 A Policy of Free Exchange. [iv. 
 
 obligation, is, to say the least of it, in a very unsound 
 condition. The whole fabric of State Socialism depends for 
 stability and coherence on the due maintenance of mutual 
 obligation between citizen and State. Yet the State, as we 
 have seen, neglects to uphold it, even as between citizen and 
 citizen ; and if man keeps not faith with his brother, whom 
 he has seen, how shall he keep it with the State, which he has 
 not seen? Why, lastly, should men hesitate to abuse the 
 trust of their fellow men, when the State itself, which is the 
 pattern for all, does the like to a feUow State ? 
 
 It may be replied that education is the means whereby such 
 evil may be corrected. Now, we hear a great deal about 
 education in Australia and of the consequent intelligence of 
 its citizens ; but the same fundamental mistake runs through 
 the whole scheme of Australian State Socialism — namely, the 
 grant of benefit without the exaction of sacrifice — and in the 
 case of education shows itself as the imparting of knowledge 
 without the enforcement of discipline. Mr. Gladstone recently 
 said that the English are an undisciplined race; and the 
 assertion contains so much truth that it is much to be regretted 
 that it should have been spoiled by its context; for the English 
 are at any rate patient of discipline, which is precisely the 
 point at which the Irishman fails. The English, as compared 
 with the Germans, are decidedly undisciplined; and the 
 Australians, as compared with the native English, are even 
 more decidedly undisciplined. The cause is not far to seek. 
 A settlement in a strange land is not formed by the steady, 
 the soberminded and the commonplace ; these can do weU 
 enough at home ; but by the discontented, the restless, the 
 adventurous and the enterprising, who are attracted by the 
 relief from discipline and restraint — by the liberty to fight 
 the battle of life in their own way. Even after the settlement 
 has become a colony the population is fed mainly by the 
 infiux of men of similar temperament; for the man who leaves 
 his native land — whether as an emigrant to seek his fortune 
 or as a colonist to make a new home — is plainly a man who 
 is not satisfied with it and hopes to do better. Thus in all 
 new countries there is, so to speak, a kind of hereditary 
 
IV.] State Socialism, 131 
 
 predisposition to indiscipline, which shows itself mainly in 
 the relaxation of parental authority. All the more reasons, 
 it wiU be urged, why the State should take the rising genera- 
 tion in hand. The State has taken the rising generation 
 in hand accordingly, and has absolved parents from all 
 responsibility in respect of the making of citizens. The 
 decline of the family, which is the fate that Dr. Pearson 
 predicts for the civilized world, is rapidly accomplishing itself 
 in Australia ; but the rise of the State in its place is invisible, 
 except to those who pretend to see it in columns of reckless 
 expenditure. The ministers of the State have so little con- 
 ception of the responsibility that the State has assumed that 
 they ignore the necessity for inculcating obedience as the first 
 of all lessons. In one Antipodean Colony which I know, it 
 was proverbial that if a schoolmaster attempted to enforce 
 discipline by proper punishment, the parents promptly com- 
 plained to the member for the district, the member complained 
 to the Minister of Education, and the schoolmaster ran great 
 risk of dismissal. What wonder that the children kick up 
 their heels at all authority, and grow up to become larrikins ? 
 Parents wash their hands of them as soon as they are old 
 enough to be put in charge of the State ; the State washes its 
 hands of them as soon as school hours are over ; and yet the 
 children are expected to grow up good citizens. As to higher 
 education, Dr. Pearson, who is a most competent witness, shall 
 himself tell us how and why it is valued in Australia : ' In 
 the English Colonies I have known the tendency is to tolerate 
 University training as a necessity for professional men ; but 
 to regard primary school education, or something only a little 
 above it, as suiEcient for all the needs of practical men and 
 men of the world. Indeed, high schools in Australia seem to 
 be maintained chiefly because some people like their children 
 to have the distinction of a rather costly training; because 
 a few others intend to send their sons and daughters into pro- 
 fessions; and because a good many find it convenient to keep 
 their children of a certain age away from home during the day.' 
 Such is the spirit in which the citizens receive such gifts of 
 the State as they consider to pass the needs of every day. 
 
 K 2 
 
1.^,2 
 
 A Policy of Free Exchange. [iv. 
 
 How, then, to recall Dr. Pearson's words already quoted, are 
 they to gain knowledge of the immaterial benefits with which 
 every historic State endows its citizens — the great deeds which 
 have formed the national character, the winged words that have 
 passed into current speech, the example of lives and labours 
 consecrated to the Commonwealth % It is to historic England 
 that the Australian owes whatever significance he may possess. 
 What does he know of it ? and in what light is that historic 
 England displayed to him by the State % Fii-st, as a credulous 
 and convenient loan agency, and latterly as a grasping and 
 suspicious creditor. Whether it wished it or not, this is what 
 the State in Australia has done ; and for noble deeds, winged 
 words and lofty examples the Australian must fall back on 
 such men as Sir George Dibbs. 
 
 This is on the whole the blackest blot on the administration 
 of State Socialism in Australia — it has corrupted the national 
 character. If the situation were merely that of communities 
 wherein a few rogues at the head of affairs had embezzled 
 public money, borrowed on the public credit, and absconded 
 therewith, then we might contemplate it with comparative 
 equanimity and look with confidence for ultimate revival. 
 But in Australia such a scandal in high places has been 
 escaped only at the price of far greater mischief. The 
 borrowed millions have been lavished on the people at large — 
 every soul has had his share of the plunder — and the absconders 
 are numbered by thousands. The colonists have played at 
 work for so long that they have forgotten how to work in 
 earnest; and industry and honesty have gone to the wall. 
 And yet, if we forget (as we can afford to forget) the early 
 days of penal settlement in Australia, and think only of more 
 recent times, I think we must admit that there was plenty of 
 good human material to the State's hand for the making 
 of a solid and prosperous community. The deeds of the 
 pioneers and explorers and early settlers are rightly enshrined 
 as monuments of energy and enterprise ; and it is not too 
 much to say that the eai'ly traditions of Australia are of hard 
 work, perseverance and self-help. Whatever of good there 
 is in Australian life (and there is much) is due to these 
 
IV.] State Socialism, 133 
 
 traditions and to the habits that grew up along with them. 
 Colonial hospitality is proverbial — indeed, hospitality (as 
 we understand it in England) is too weak a word 
 to express this side of the colonial character. Colonial 
 neighbourliness is another virtue which equally deserves to 
 pass into a proverb. Indeed, I know nothing more beautiful 
 to see than the spontaneous and unreflecting self-abnegation 
 wherewith colonists come forward to share the burden of 
 a neighbour's sickness or distress. Young clerks, for instance, 
 who are busy at their desks all day and, it may be, have to 
 prepare for an examination all the evening, relieve each other 
 and keep each other company over a neighbour's sick bed — 
 sacrifi^cing pleasure, health, rest, and even prospects, without 
 the slightest consciousness of performing more than the simplest 
 neighbourly duty. Such virtues as these the State could not 
 destroy if it would ; but the old energy and self-reliance it has 
 done its best to destroy, with a lamentably full measure 
 of success. 'The Lord will provide' is a text with a dangerous 
 double-edge; 'the State will provide' is an excuse for idleness 
 and shiftlessness ; ' the State will provide at another State's 
 expense ' is an irresistible exhortation, not only to idleness, 
 but dishonesty. It has first corrupted the commendable and 
 sturdy pride of the colonists in their young motherland into 
 noisy, blatant conceit, and finally smothered it in shame. 
 
 Seeing, then, things as they are, I think we have at least as 
 much right to take State Socialism in Australia for a failure 
 as Dr. Pearson has to treat it as a success ; and that we are 
 justified in reasoning from this failure to other failures, just 
 as he reasoned from this assumed success to other successes. 
 Of course it may be urged, not without plausibility, that the 
 experiment of State Socialism has not been fairly tried in 
 Australia ; that it is incomplete ; that the system has broken 
 down for the moment only ; that the recuperative power of 
 young communities is great ; that one should not be in too 
 great a hurry to rush to sweeping conclusions. That there 
 may be some force in such objections I will not dispute. But 
 I am obliged to ask, What is a fair trial of State Socialism ? 
 Are we to declare all trials unfair, until at last one be found. 
 
1 34 A Policy of Free Exchange. [iv. 
 
 or claimed, to be successful'? And when are we to declare 
 the experiment complete, if not at the stage where the explosion 
 of bankruptcy brings the whole laboratory about the experi- 
 menters' ears ? As to the recuperative powers of young com- 
 munities ^ these depend not upon mere natural resources, but 
 principally upon the citizens, or, as we may now say, with 
 thanks to Dr. Pearson for teaching us the word, upon national 
 character. The national character in Australia has, I think, 
 been sufficiently proved to have suffered very seriously from 
 State Socialism. Where, then, is ground for hope of swift 
 recovery ? 
 
 Let us now, therefore, pass to the consideration of the 
 question whether State Socialism is as likely to break down 
 in other countries as in Australia. The Australian Colonies 
 are under the rule of a democracy ; and, as Sir Henry Maine 
 pointed out many years ago, democracy is a terribly expensive 
 system of government. Are we to look for a similar collapse 
 of State Socialism in Germany, where administration is from 
 long habit and tradition conducted on the most economical 
 principles, and the people, from long centuries of suffering and 
 misfortune, are drilled, disciplined and patriotic? And if not 
 in Germany, are we to look for it in England, which represents 
 the mean between these two extremes % I do not question for 
 a moment but that in all cases the effect of State Socialism 
 will in the long run be the same. For, whether under the 
 guidance of an enlightened despot, of a hare-brained Kaiser or 
 an ordinary demagogue, State Socialism seems to proceed on 
 a false principle towards the fulfilment of an impossible task. 
 At the core of the system is to be found the oft-exploded 
 
 ' I am aware that two of the lap.se ; and am strengthened in my 
 
 Australian provinces have recently opinion by two recent enactments 
 
 succeeded in floating loans in Lon- of the Parliament of New Zealand, 
 
 don, and that it is now assumed that which could only have been passed 
 
 tliuir priucipal difficulties are over. in the feai- of a serious financial crisis, 
 
 N'liHitholcMN I soo uo occasion to alter and ai-o not justified even by that. 
 
 a word that 1 havd written ; for with- If Now Zealand's recovery be so slow 
 
 out K"ing into detail I may say that and uncertain, how much slower and 
 
 I do not uluijn tlici general confidonce move uncertain must Australia's be 1 
 in suc'li HudcU'ii roaunoetionfrom col- 
 
IV.] State Socialism. 135 
 
 fallacy that all men are equal; presenting itself in tlie still 
 more preposterous notion that all men are equalizable. On 
 what other possible hypothesis could Dr. Pearson have worked 
 out his conclusion as to the decay of individual character? 
 State Socialism is, in fact, the creation of the ever-increasing 
 multitude of civilized men who are oppressed with the sense 
 of the finality of this life. They have seen, froin the teaching 
 of history, that hitherto it has always been the fate of a large 
 fraction of mankind to serve the remainder; that in fact 
 history is simply the record of the struggles of individuals to 
 pass from the class that serves to the class that is served, 
 and of the efibrts of communities to adjust the relations 
 between the two to the current ideas of justice. Speaking 
 generally, it can hardly, I think, be denied that the fraction of 
 mankind that is served is superior to the class that serves it. 
 It is not necessarily a question of merit in them ; it is simply 
 an exemplification of the unpleasant but incontestable truth 
 that, broadly speaking, a lucky man for the purposes of this 
 life' is better than an unlucky man. The Church, while unable 
 to resist the temptation to try and do something towards 
 relieving the distress of the unlucky, always kept the promise 
 of redress in a future life in reserve as a final resource, when 
 all others should fail. The State is far bolder. It undertakes 
 to make this life potentially endurable and pleasant to all — to 
 say that henceforth there shall be no such division of men into 
 servers and served ; but that all men shall serve the State, 
 and the State serve all. And this it hopes to accomplish by 
 taking the human organism in hand almost from the cradle^ 
 passing it (to take an extreme case) through the State crfeche 
 into the State school, and from the State school into the State 
 workshop, from the State workshop to the State asylum for 
 the old, and from the State asylum to the State grave. But 
 this is a process which costs money ; and who is to provide 
 the money ? In Australia it was claimed for a time that this 
 problem had been solved ; but in truth it was only evaded. 
 State Socialism there worked on the old lines — that there was 
 a class to serve and another class to serve it. The class to be 
 served was the colonist, and the class to serve was the British 
 
136 A Policy of Free Exchange. [iv. 
 
 capitalist. But the British capitalist kicked ; and the system 
 broke down, with disastrous results both to capitalist and 
 colonist ; and now the situation is recognized in its true light 
 as reversed, i.e. that the capitalist claims the service of the 
 colonist. 
 
 In other countries the methods of State Socialism can be 
 only superficiallj' different. The savings of successful natives 
 instead of those of foreigners will be appropriated for the 
 supposed happiness of the unsuccessful, and the certain 
 demoralization of all. This has been done even in Australia 
 itself, where the Government Savings Bank deposits have in 
 some cases been taken by the State to meet current expenses, 
 and virtually form a portion of the national debt : indeed, in 
 Victoria the Mdhovbrne Argus openly says that they may as 
 well be reckoned as such. Now, if a schoolmaster were to fix 
 an arbitrary standard of marks, far below the 'highest 
 possible,' for his pupils, and, deducting the excess gained over 
 that number by the first boy, should add the difference to the 
 marks gained by the last boy, we should call him an idiot, 
 ignorant of the rudiments of his profession. Yet this is the 
 process which under State Socialism the State proposes to 
 pursue towards its citizens. The pace of a cavalry charge is 
 (or rather was) supposed in theory to be regulated by that of 
 the slowest horse in the regiment. Military men, by reputa- 
 tion the most precise and hidebound of pedants, have freed 
 themselves without difficulty in practice from so absurd 
 a restriction ; for they recognized the value of the counter- 
 proposition — that if every bridle could be cut at the supreme 
 moment, a cavalry charge could not fail to sweep everything 
 before it. Yet the pace of the slowest horse is the ideal 
 which, consciously or unconsciously. State Socialism has 
 perpetually before its eyes. The carthorse cannot gallop like 
 the thoroughbred, so the thoroughbred must be hobbled to 
 bring him back to the carthorse. It is claimed, of course, that 
 State Socialism can, so to speak, raise the general average 
 speed of the carthorse ; and so conceivably it may, but, by 
 Dr. Pearson's own confession, not by very much. But the 
 point is that the ideal of the State, particularly of the 
 
IV.] State Socialism. 
 
 137 
 
 democratic State, is the lowering of standards. The same 
 influence is at work everywhere and is traceable with 
 equal clearness in trades unions and would-be-intellectual 
 society cliques, viz. the reduction of the standard of excellence 
 to the shallowness of the meanest member's capacity ; the 
 claim that the best shall fare no better than the worst ; the 
 ostensible exaltation of all geese to be swans ; the veritable 
 attempted degradation of all swans to be geese. 
 
 Now, is it conceivable that such a system can endure? 
 That the State wiU attempt to make it permanent I cannot 
 doubt, for I have seen in Australasia with what desperate 
 jealousy it will endeavour to throttle all private undertakings 
 which it chooses to consider encroachments on its province ; 
 nor do I think it the least unreasonable to believe that, in its 
 efforts to enforce it, the State may be as intolerant of the 
 right of private judgement, and as ruthless in its endeavour to 
 suppress it, as any church. But that the system will break 
 down in bankruptcy long before it can be pushed to the limits 
 now assigned to it seems to me to be inevitable. For from 
 whence are to come the funds to support it? It is useless 
 (as has been very frequently pointed out) to indicate the 
 millionaire with one hand and the pauper with the other, 
 and ask whether it is right that the one should have been 
 permitted to make his million and the other to sink to 
 starvation. If a country wants millions it must allow those 
 that can to make them, or it will never get them at all ; in 
 a word, it must give the lucky men liberty to follow out their 
 luck. If, while a man is trying to make his million, the 
 State perpetually interferes to prevent him from making it, 
 the million will never be made, by the State or the beggar or 
 any one else. But this is exactly what State Socialism 
 proposes to do, forgetting that though the State can make, 
 and does make, beggars by the thousand, it cannot make 
 a millionaire. Nor does it weigh in the slightest degree with 
 the officials of State Socialism that a millionaire, when once 
 he has made his million, as often as not hands back a large 
 portion of it, of his own free will, to the service of the public. 
 The making of a million is one way whereby a man can show 
 
1 38 A Policy of Free Exchange. [iv. 
 
 his superiority to other men, if in no more than the art of 
 thriving according to the material standard of this world ; 
 and demonstrated individual superiority is what State 
 Socialism cannot endure. For State Socialism in practice is 
 the embodiment of the jealousy that the unsuccessful feel 
 towards the successful. Meanwhile, when the cloud of 
 bankruptcy comes up over the horizon, the State (as may be 
 observed in Australia) suddenly relaxes its hold of individuals 
 and begs them to go to work as they will, so they do but 
 consent to save it ; in a word. State Socialism falls back on 
 personal liberty and private enterprise as its only hope of salva- 
 tion. It is noticeable too that in this way, as in others, the 
 State, so far from holding the highest place in men's minds, 
 grows to connote something of inferiority, to become, in fact, 
 somewhat a term of opprobrium. In the public offices of the 
 whole world the delay which the State alone can affisrd to 
 permit in the transaction of business is so well recognized as to 
 enjoy its own name of ' red-tape.' But this is a small thing com- 
 pared to certain others. In London, for instance, some of the 
 working class prefer to pay for the education of their children 
 in private establishments rather than suffisr them to associate 
 with those that they meet in the State schools. So also in 
 a New Zealand town I saw a private school, which undertook 
 no more, nominally, than the elementary State schools, filled 
 up immediately with children of parents for whom the State 
 standards were not high enough. These parents, almost all 
 of the working class, preferred to educate their children at 
 their own expense rather than make them over to the State 
 to be educated gratis ; and this, not from mere vulgar love of 
 ostentation, but from honest preference for what was good 
 though dear over what was cheap and nasty. In plain English, 
 the State standard represented with them the lowest, and was 
 accordingly contemptible to them. So likewise with the 
 Civil Service. While the State lived on borrowed money the 
 Civil Service was overgrown and overmanned. When the 
 State came to live upon its own resources all this was 
 changed and the service became, very naturally and justly, 
 a byword. Thus, not only did the State earn an evil name as 
 
IV.] State Socialism. 139 
 
 an employer, but, worse still, it was badly served. Finally, 
 we come to the crucial instance of State credit. Dr. Pearson's 
 remarks on the superstitious trust reposed in a State 
 guarantee are so admirable that they must not be weakened 
 by paraphrase in these pages. It is sufficient to say that he 
 shows with unerring force that a guarantee by the State, to 
 merit confidence, requires as good testimonial to character as 
 that of any other corporate guarantor. We use the phrase 
 ' as safe as the Bank of England.' There is no corresponding 
 Bank of Australia ; but the Government Savings Bank takes 
 its place as the neai-est equivalent. Yet the State Savings 
 Banks in Australia, as we have seen, are used by the Aus- 
 tralian Governments as milch kine ; and the deposits in one 
 case have been swept into the national debt. As to State 
 railways and State works, enough has already been said. 
 State balance sheets seem to be at least as dubious in some 
 European countries, where State Socialism is in the ascendant, 
 as in Australia itself. Latterly, State prosecutions have also 
 fallen into disrepute, as they well might, after the Panama 
 scandals in France, and the minor, but equally unpleasant, 
 'Davies' scandals in Austraha. All these things tend to 
 bring the State into contempt, and, more, into well-deserved 
 contempt — a dangerous and lamentable thing, even in a 
 free community ; a fatal calamity in a country governed 
 according to the standards of State Socialism. 
 
 But, in spite of the acknowledged and unacknowledged 
 drawbacks of State Socialism, it is likely, so Dr. Pearson 
 warns us, to be forced upon us by circumstances, e. g. by the 
 limits imposed on the higher races by climate, the consequent 
 closing of present outlets for trade and energy, and the 
 turning of every nation inward upon itself. But, admitting 
 as we freely may, the reality and pressure of these dangers — 
 what deliverance is to be expected from the State ? Com- 
 pulsory military service — a people in arms. I am not one of 
 those who lightly dismiss the advantages of compulsory 
 military service, and condemn it as anathema; but surely 
 efficient military service is as much dependent on national 
 character as any other national service. Surely a people 
 
I40 A Policy of Free Exchange. [iv. 
 
 which throws itself in despair into the arms of an helpless 
 abstraction; which fears the bare idea of the worst going to 
 the wall ; which shrinks from the laws of nature and tries to 
 evade, instead of obeying and so subduing them — surely such 
 a people will never win battles. Destruction of family ties 
 (a consummation which is rapidly accomplishing itself) and 
 decay of individual character — are these the stuff of which 
 Conquering armies are made? It must be remembered too 
 that highly civilized communities have generally ended by 
 hiring mercenaries to do their fighting for them ; and the same 
 may happen now — nay, is more than likely to happen, if the 
 natural outlets to individual energy are closed — with the 
 usual results. State Socialism, in seeking to lessen compe- 
 tition, is destroying the fighting spirit. 
 
 Then once more the question of money crops up — money, 
 the sinews of war. Also there is another consideration to 
 which we are led by Dr. Pearson's vision (amply justified by 
 existing conditions all round us) of future increase of great 
 cities, standing armies and national debts, viz. How are these 
 communities, cramped within their own limits, to be fed % If 
 the town population is for ever to increase at the expense of 
 the country, where is the food to come from? From the 
 inferior races outside those limits ? But they may have none 
 to spare, or refuse to spare what they have. State Socialism 
 delights in large towns, for it is in them that the power of 
 the State may be most strikingly exhibited, while the sense 
 of oppression born of confinement within streets helps to 
 render men more docile to its teaching. In the country the 
 State can never obtain the ascendency which it may gain in 
 the towns ; and it is in the country accordingly that the men 
 who love liberty and independence ai'e most likely to be 
 found. In Australia, as we have seen, State Socialism, which 
 for a time kept town and country alike in subjection, by 
 pampering both at the expense of the British capitalist, has 
 been compelled to transfer all burdens to the country. 
 Whether the country will stand it remains to be seen; but 
 that it will do so without a struggle to assert its political 
 supremacy I do not believe. Thus there is every indication 
 
IV.] State Socialism. 141 
 
 that State Socialism, so far from promoting peace and con- 
 tentment within a community, simply tends to embitter the 
 country against the town ; and it is in the combat between 
 the two that we may expect to see it fall, both in Australia 
 and elsewhere. For though we have few clues as to the issue 
 of such strife, we have at least one, and that of no ordinary 
 significance, viz. that life in large towns means physical 
 degeneration. In England the country has now lain for some 
 years under the heel of the towns ; but the towns must decline 
 with the decline of foreign trade, which townsmen in their 
 wisdom are doing their best to accelerate. When the ' boom ' 
 on which the English towns grew and throve for half a century 
 has been finally broken down (the process of destruction is 
 still going on) — ^then, perhaps, we may expect the English 
 State to remember that' there are country districts and 
 country interests even in England. Whether the country 
 districts will feel as kindly towards the State, and help her in 
 her hour of need, is another question. 
 
 Altogether, we are forced to accept Dr. Pearson's conclusion, 
 which is (if I understand it aright) that State Socialism is the 
 death-cry of our civilization. It is only reasonable to assume 
 that our civilization will perish just as other civilizations 
 have perished before it — for it seems to be incontestable that 
 the lower races tend to outbreed the higher, just as curs 
 outbreed pure foxhounds. The tendency of the moment (and 
 it may be of more than the moment) is to abandon all efi'ort 
 and to yield place to the inferior races, provided they will 
 but let us alone to enjoy our State Socialistic dreams. 
 Ireland, it is said, stops the way — is the bar to all English 
 legislation. In that case — long may she stop the way, and 
 keep us from the most ignoble form of national suicide ! 
 
 J. W. FORTESCUE. 
 
V. 
 
 THE INFLUENCE OF STATE 
 
 BOMB OWING ON COMMEBCIAL 
 
 CBISES. 
 
 WYNNARD HOOPER. 
 
THE INFLUENCE OF STATE BORROWING 
 ON COMMERCIAL CRISES. 
 
 Commercial crises are primarily the consequence of the 
 imprudence of bankers, merchants, financiers and other 
 members of the business classes, and also of the credulity of 
 the general public. Crises vary very much in the details 
 of the phenomena composing them, but they all possess certain 
 well-marked characteristics which it is necessary to describe 
 with some miauteness, as otherwise it would not be possible to 
 indicate the important part which the action of governments 
 in regard to finance and commerce have had on the crises of 
 recent years. 
 
 A commercial crisis is a state of things resulting from a 
 period of inflation and over-speculation; its characteristics 
 are usually a breakdown, for a short time, of the ordinary 
 machinery of credit, followed by a period of inactivity. The 
 violence and extent of the collapse is proportionate to the 
 strain that has been put upon credit by the previous inflation. 
 For inflation of prices is the concrete expression of over- 
 production and over-speculation, and over-speculation is only 
 possible when a great many people have trusted others too 
 much and have been trusted too much themselves. Sooner or 
 later the more cautious lenders begin to get anxious about the 
 money they have lent and restrict the accommodation they 
 aflbrd to borrowers, who are then obliged to try and obtain 
 what they need from less careful, or worse informed people. 
 The latter, in their turn, eventually become uneasy, and as 
 they are a large class, the bulk, indeed, of the business 
 
 L 
 
146 A Policy of Free Exchange. [v. 
 
 community, their newly acquired fear of continuing loans 
 soon produces a considerable effect on the money market, 
 necessitates sales of stock and commodities, and causes failures. 
 When once the process we have briefly described has com- 
 menced its effects are felt even by manufacturers and traders 
 who have not operated beyond the extent which in ordinary 
 times their means justify. The paralysis of credit eventually 
 becomes acute, and even the most careful and wealthiest people 
 have to be content to abstain from all but the most necessary 
 transactions in which no risk is involved, until by sales of 
 securities and commodities the embarrassed portion of the 
 business world has either paid what it owes or made a com- 
 position with its creditors. After a certain lapse of time an 
 approximately ' clean slate ' is shown, creditors having taken 
 what they can get and written off the balance of what is due 
 to them from their books as a ' bad debt.' 
 
 Of course the condition of affairs is never in practice so 
 simple as this. There are no men who are creditors, or debtors, 
 pure and simple ; but there are always men who are, on 
 balance, creditors, that is, have more owing to them than they 
 owe. That is, or ought to be, the position of the bulk of 
 the community, with one important exception, the bankers, 
 A banker is a person who is at all times a debtor, on balance. 
 He owes a great deal more than he could pay if all the people 
 whose money is left with him asked for it at once. But he is 
 in no danger whatever on that account provided he has ob- 
 served what are known as the rules of sound banking. The 
 normal condition of a careful trader is to be a creditor, on 
 balance, but he can only be in this position if some one else 
 is always a debtor, on balance ; and this latter function is 
 fulfilled by the banker. 
 
 The safety of a banker depends partly on the character 
 of the liabilities he has assumed, but even more on due 
 proportion being kept between the various classes of those 
 liabilities, and above all on his preserving a proper amount 
 of actual cash constantly in hand, or, under the London system, 
 in the Bank of England. What the ' proper ' amount may be 
 each banker must judge for himself, but it is necessary to 
 
v.] Influence of State Borrowing. 147 
 
 observe that even a proportion of cash which would rightly 
 be considered large in ordinary times may be insufficient in 
 times of general discredit, when the banker, the universal 
 debtor, is called upon to pay an unusual amount on demand. 
 What he can keep in cash is a small portion, at the best, of 
 what he owes, for cash kept as a reserve, ex Jiypothesi, earns 
 no interest, and as bankers have to pay interest on most of the 
 money left with them, they have to use the bulk of it profitably 
 or become bankrupt. The universal debtor, therefore, must be 
 very careful to whom he lends and even more careful how 
 he lends it. If a banker lends more than a small portion of 
 his resources to even the most wealthy of his customers for 
 a long period, he is courting danger. In technical language 
 he has allowed his money to be ' locked up.' It avails him 
 nought to be able to say, ' So and So is a good man, the 
 interest is fair, and the loan is secure of repayment when it is 
 due.' The banker can be made to pay large sums on demand 
 under pain of commercial death, and his demand creditors will 
 not be put off by being informed of the promise of Messrs. 
 So and So to repay him, for they want cash at once, and 
 must have it, under pain, perhaps, of commercial death them- 
 selves. Bankers, therefore, cannot hold a large proportion of 
 long dated securities, no matter how good they may be, unless 
 these securities are what is called marketable, that is, are 
 freely dealt in at all times on the Stock Exchange. Now, the 
 number of such securities is not great, for though under normal 
 conditions readily marketable securities of good quality are 
 fairly numerous, they become few during periods of commercial 
 distrust. In the extreme case of a panic they are, to aU intents 
 and purposes, reduced to one, namely. Consols. The rest of 
 the ' readily marketable ' class can, indeed, sometimes be sold 
 at such times, but only at a ruinous fall in their price. Consols 
 on the other hand can be sold at a moderate decline, or bor- 
 rowed on, even in a panic, and this is why bankers always 
 keep a considerable quantity of Consols in spite of the low 
 rate of interest they yield. 
 
 If all merchants were careful to remain, on balance, creditors 
 and took care to give credit only to people who could eventually 
 
 L 3 
 
148 A Policy of Free Exchange. [v, 
 
 pay, and if all bankers invariably kept tbe money lent them 
 in proper proportions of cash, short loans, bills and marketable 
 securities, there would never be a commercial crisis, though 
 owing to failures of crops, wars and revolutions, and unavoid- 
 able accidents which can only be partly covered by policies of 
 insurance, there would still be occasional times of compara- 
 tively dear money. But merchants, bankers, and the general 
 public, are human beings, and are consequently liable to be led 
 from the path of safety, from time to time, by the delusive hope 
 of abnormally large gains. The desires of even the humblest 
 man or woman may be said to be infinite relatively to his or 
 her resources for gratifying them, and though most people learn 
 at an early age that their desires can only be fulfilled to 
 a strictly limited extent, and only by constant hard work, and 
 though, as a rule, they also learn to act on the knowledge they 
 have acquired, the desires never wholly become extinct, and 
 occasionally play strange pranks with the mental eqmlibrium 
 of usually staid and grave persons. This is the secret of the 
 never-failing attraction of lotteries, and of the periodic out- 
 bursts of insane speculation in Stock Exchange securities. 
 The class of people who live by promoting and dealing in 
 loans and public companies have an enormous mass of latent 
 cupidity to work upon, and from time to time this cupidity 
 becomes ungovernable and leads large masses of people to do 
 things which they would not, in their normal state, have 
 dreamed of doing, and which they bitterly regret having done 
 for the rest of their lives. 
 
 It must not be assumed that the people who promote and 
 deal in loans and other securities of a speculative character 
 are intentional cheats. If they were they would not be 
 as dangerous as they are. In nineteen cases out of twenty 
 they too are misled by their desires into greatly exaggerating 
 the profits which can be derived from theu* undertakings. 
 It is true they are usually better informed as to the risks 
 run than they allow the public to be, but they underrate 
 the risks, even to themselves, when under the influence of 
 Desire the mother of Hope. That this is so is plain from 
 history, for there have been occasions when the public even 
 
v.] Influence of State Borrowing. 149 
 
 when ' on the feed,' to use an expressive phrase sometimes 
 heard on the Stock Exchange, have shrunk back in fear from 
 some palpably dangerous undertaking which its promoters 
 have nevei-theless persisted in going on with, having rashly- 
 committed themselves to it. A striking example of this 
 infatuation was afforded by the issue of the Buenos Ayres 
 Drainage and Waterworks in 1888, which was conducted by 
 Messrs. Baring Brothers, and was one of the principal causes 
 of the destruction of that famous firm two years later. Messrs. 
 Baring, who like most other great finance houses were ' regis- 
 tered as bankers,' had allowed themselves, under the guidance 
 of their senior partner, to drift into the position of bankers in 
 fact as well as in name, without at the same time taking the 
 precautions which a banking business demands. Instead of 
 being, on balance, creditors they gradually allowed their 
 necessarily very large liabilities to assume enormous dimensions, 
 by entering into engagements, chiefl}^ in Argentina, which they 
 could only fulfil if everything, political as well as financial, 
 went smoothly in that country. They had undertaken to find 
 five millions of money within a short time and another five 
 millions subsequently for the Buenos Ayres Drainage and 
 Waterworks, thinking that the public would gladly relieve 
 them of a large part of the shares bj' which this liability was 
 represented. But the public was scared at the magnitude of 
 the scheme, which fairly staggered the wiser heads among 
 them, who began to feel uneasy about other investments which 
 they had acquired from a firm which showed so strange a want 
 of prudence on such a huge scale. There is nothing to show that 
 Messrs. Baring felt any misgiving at that time as to their own 
 safety, to say nothing of other people's, for when, after the col- 
 lapse of the Comptoir d'Escompte of Paris in the spring of 1889, 
 the Russian Government asked Messrs. Baring to take over 
 a deposit account they had kept with that institution, Messrs. 
 Baling did so with alacrity, thus placing themselves under 
 a fresh liability of a very dangerous kind. It also lent the 
 Argentine Government money, on security, of course ; but 
 though faii-ly good as an investment, the security was not 
 of a kind that could be readily converted into cash in time of 
 
1 50 A Policy of Free Exchange. [v. 
 
 financial pressure, and was, as a matter of fact, quite unsale- 
 able for some time after Messrs. Baring's collapse, though it 
 was at length disposed of. 
 
 The mistakes of Messrs. Baring have been dwelt on because 
 they afforded the biggest example that was ever seen of the 
 peculiar kind of madness which comes over the public gene- 
 rally at times. The breakdown of Overends in 1866 was 
 equally striking, but it did not occur in the same way. 
 Overends were broken because, being from the nature of their 
 business, debtors, on balance, at any given moment, they lent 
 the money under their control foolishly, so that they could 
 not get enough of it back immediately when they required 
 cash to meet payments due on demand. Barings, who ought 
 never to have been debtors, on balance, at all, slipped into the 
 position of being so without intending it. Now, small capital- 
 ists and manufacturers, who also ought not to be in debt, are 
 from time to time seized with a species of madness, and commit 
 themselves to liabilities which they cannot meet, thinking that 
 they will never have to meet them, that ' it is a mere form,' or 
 that their speculations, whether in stocks or commodities, wiU 
 have turned out well by the time they have to pay calls or 
 take up securities they have 'underwritten,' or to pay for 
 materials consumed. They do this under the influence of 
 various delusions, such as belief in the infallibility of great 
 finance houses, in the indefinitely great riches and prosperity 
 of foreign countries, and in the ability of foreign governments 
 to construct an unending series of ' productive public works,' 
 or works which, though not directly productive, are supposed 
 to add to the ' efficiency of production.' The general public, 
 which does not underwrite new loans or intentionally specu- 
 late, buys with its savings securities which it fondly believes 
 to be good investments, and thus frequently becomes com- 
 mitted to speculations of a more or less uncertain character. 
 The end of all this is weeping and gnashing of teeth, furious 
 denunciation of the great finance houses, for it is on them that 
 the ' investing public ' relies, and equally furious denunciation 
 of foreign governments, ending with rueful acceptance of the 
 fact that a good deal of capital has been lost and a solemn 
 
v.] Influence of State Borrowing. 151 
 
 determination to gather up the wreckage and be content with 
 ' a safe Three Per Cent.' in future. The manufacturer who has 
 risked his capital in a struggle for a new market, and has lost 
 it owing to the general breakdown of credit, suffers in the 
 same way. Many have gone through this experience during the 
 last three years, owing to events in South America, Australia, 
 Portugal, and elsewhere, and until sounder ideas are held as 
 to what a government can wisely do in the direction of 
 ' developing the resources ' of a country, similar experiences 
 win probably be the lot of many more unwary persons. 
 
 Mistaken speculation there will always be. Railways, 
 steamships, waterworks, gasworks, breweries, mines, and indus- 
 trial undertakings generally, do not always yield the profits 
 expected of them, and sometimes give no profit at all. These 
 unsuccessful companies, however, are a small minority, as an 
 inspection of that marvellous embodiment of the financial and 
 industrial energy of this country, the Official List of the London 
 Stock Exchange, shows. But during the last ten years there 
 has been a steady increase in the number of loans to govern- 
 ments and public bodies, which depend for their revenue in 
 the main upon taxation, frequently excessive taxation relatively 
 to the normal income of the people, which is a more precarious 
 security for the payment of interest than the receipts of a well- 
 planned railway carried out entirely by private enterprise. But 
 governments not only raise loans, the proceeds of which may 
 or may not be used for constructing public works ; they also 
 frequently give what are called ' guarantees ' to railways, and 
 sometimes to industrial undertakings, by which they undertake 
 to pay an annual subsidy to the companies concerned. When 
 carefully thought out and properly limited, arrangements of 
 this kind may be beneficial. The Government aid given to the 
 early Indian railways was wisely given, but in other countries 
 the principle of granting guarantees has been much abused. In 
 Argentina it was abused to such an extent that payment of 
 the sums promised became impossible, even supposing the 
 revenue of the State had not been unduly pledged in other 
 ways. 
 
 The world is at present sufiering almost everywhere from 
 
152 A Policy of Free Exchange. [v. 
 
 excessive government interference with industry and com- 
 merce. It has always suffered in this way, sometimes to 
 a formidable extent, and probably always will in some degree, 
 owing to the exigencies of political parties. As this is not 
 an essay on politics, the ways in which the working of the 
 party system tends in all countries to the establishment of 
 bad financial and economic arrangements intended to place 
 patronage in the hands of party managers can only be touched 
 on incidentally. Politicians will always find suitable excuses 
 for any line of action they may wish to take, and their line of 
 action in regard to finance and commerce is almost always 
 the same, namely, an extension of the sphere of State Action, 
 on pleas which vary much at different times and places. The 
 course of events in the United Kingdom after the great war 
 must be considered as an episode. Owing to a series of for- 
 tunate accidents this country got rid, during the fifty years 
 ending with 1870, of an enormous mass of mischievous laws 
 tending to restrict trade and enable the State to control it. 
 We are still enjoying some of the benefit of the supremacy of 
 the philosophic theories which dominated politics during 
 those years, but for some time past legislation has shown 
 a tendency to resume its normal direction, the sphere of State 
 control being extended in several directions. Laisser /aire is 
 no longer the economic maxim of either of the great parties of 
 the United Kingdom. On the contrary, both of them have 
 of late made tentative advances towards socialism, and seem 
 likely to move still further in the same direction. So far, 
 however, these advances have not taken the form of open 
 encroachment by the State on the sphere of private enter- 
 prise ; but if the outcry for the management of railways and 
 other public works by the State becomes sufficiently powerful 
 to make it worth attending to, the politicians will not be long 
 in finding pretexts for accepting that policy. Ah-eady some 
 progress has been made in this direction in the sphere 
 of Local Government, gasworks, waterworks, and tramways 
 having in many cases become the property of municipalities. 
 Local bodies, however, provided they are controlled by the 
 ratepayers of the area they administer, are less unfitted than 
 
v.] Influence of State Borrowing. 153 
 
 the national government to manage undertakings of this 
 kind, though even in their case abuses of patronage and other 
 forms of corruption are sure to become prevalent sooner or 
 later. We must look abroad, to our own colonies and to 
 foreign countries, for full-blown examples of administrative 
 control of public works, and of interference with trade gene- 
 rally. In Australia practically all the railways are owned by 
 the State, with very unsatisfactory results from a financial 
 view alone, and almost equally bad consequences politically. 
 In all the Australasian colonies there are strong parties in 
 favour of extending the principle of State ownership still 
 further, but recent events have checked their influence for the 
 time. 
 
 We are not now concerned, however, with the mode in 
 which the extension of State ownership of public works and 
 the general spread of socialistic theories affect the finances 
 and political stability of countries, but with the effect of 
 these tendencies on the markets for money, securities and com- 
 modities, throughout the world, more particularly in London, 
 the centre through which a large proportion of the world's 
 transactions are 'cleared,' and where considerable quantities 
 of money are lent to states, municipal and other semi-public 
 corporations, and joint-stock companies. The means whereby 
 these various bodies obtain money to carry out their objects 
 are the issues of loans, bonds and shares, or stock. The issues 
 of governments or municipalities are made through finance 
 houses, but the larger public companies sometimes do the work 
 themselves, or employ a bank merely to receive subscriptions. 
 An issue backed by a house of good repute is sure of success 
 in ordinary times, for * good repute ' means that the firm in 
 question is believed to look carefully into any issue they allow 
 their name to be connected with. Sometimes this belief turns 
 out to have been mistaken, and the repute of the firm becomes 
 less ' good ' in consequence. 
 
 We will suppose that a foreign or colonial government raises 
 a loan in London to provide for some ' productive public work.' 
 Either it has already begun the process of construction, borrow- 
 ing the money from a bank or finance house in order to pay the 
 
154 -^ Policy of Free Exchange. [v. 
 
 contractor such portion of the contract money as becomes due 
 to him from time to time, or it commences operations after 
 raising the loan. In the former case orders for materials have 
 already been placed by the contractor, or whoever is in charge 
 of the work. In the latter they are still to be placed. Either 
 way, the effect of the government's use of its credit is to create 
 a demand for certain commodities. If the government has 
 entered on an extensive scheme of railway-making, which will 
 require many thousands of tons of rails, chairs, fishing plates, &c., 
 as well as girders and other ' heavy structural ironwork ' for 
 bridges and stations, there is a considerable addition to the pre- 
 viously existing demand for all these commodities. If several 
 governments are committed to large operations of this kind at 
 the same time, which is not unlikely to be the case, a perceptible 
 rise in the prices of such commodities is probable, the makers of 
 the articles wanted will extend their works, and new men will 
 put capital into the iron and steel trade, probably raising wages 
 by doing so. So long as the works undertaken by the various 
 governments go on uninterruptedly, the iron and steel trade 
 is prosperous ; but eventually one of two things happens — 
 either the works contemplated are all completed and the 
 governments cease for a while from stimulating the iron 
 market or, which is only too likely in the case of the govern- 
 ments of the rash and impulsive peoples of young countries, 
 they find they have undertaken too much, and that they 
 cannot meet the interest on what they have borrowed. Some- 
 times their creditors come to the same conclusion before the 
 actual breakdown arrives, and refuse to lend them any more. 
 In either case there are no more orders for rails, gix'ders, &c., 
 from this source, and the makers of these articles suffer 
 severely in consequence. When a trade has been stimulated 
 by two or three years of extra demand, which looks as if it 
 would last for as many years more, it is a serious thing when 
 the demand suddenly stops. And the demand artificially 
 created by the government of a young country whose people 
 are full of extravagant ideas of what it needs, and still more 
 extravagant notions of what is necessary to its future develop- 
 ment, is liable to stop with great suddenness. The Argentine 
 
v.] Influence of State Borrowing. 155 
 
 RepubKe was kept well supplied with money up to 1 890 by 
 the issue of national and provincial loans for all sorts of 
 purposes, in addition to the considerable sums raised by com- 
 panies. In that year, although the country's credit was 
 distinctly on the wane, it imported 274,000 tons of iron and 
 steel rails. In the following year, after the complete collapse 
 of Argentine credit, these imports only amounted to 88,000 
 tons, and in 1893 they were barely 13,000 tons. This enor- 
 mous falling off in the purchases of rails was only typical of 
 what took place in regard to all our exports to Argentina 
 after the great collapse of 1890, the total of these exports 
 falling from £8,416,000 in that year to £4,241,000 in 1891, 
 and a similar reduction took place in the exports to most 
 countries which depend for the capital required to develop 
 them on the issue of loans here. 
 
 Now, it is quite natural that new countries should be 
 indebted to this country for the means of developing their 
 natural resources. Simply stated, and ignoring for the moment 
 the financial and commercial machinery by which the end is 
 accomplished. Great Britain hands over to her Colonies and 
 to foreign countries a certain amount of plant, machinery and 
 materials every year, and takes in return a percentage of the 
 profits they yield. That is the transaction in its essence, 
 though it is obscured somewhat by the form it takes in 
 practice. The question that arises is, Are there not seiious 
 drawbacks to the carrying out of this useful and, indeed, 
 necessary transfer through the medium of extensive loans 
 contracted by governments ? There unquestionably are. 
 First, public works carried out by governments are some- 
 times badly done, and are always extravagantly done. 
 Secondly, the power of raising money for productive public 
 works is sure to be employed sooner or later for non-pro- 
 ductive works whose usefulness can be plausibly maintained. 
 Thirdly, the public never troubles its head, when it is ' in a 
 buying mood,' about works of any kind, but insists on regarding 
 the loans as the obligations of a ' rich and progressive young 
 country,' New Gerolstein, let us say, vouched for by that 
 ' eminent house ' X, Y, Z & Co. There is not much, therefore, 
 
156 A Policy of Free Exchange. [v. 
 
 to prevent the Government of New Gerolstein, with the aid 
 of Messrs. X, Y, Z & Co., raising loans for any purpose it 
 may think fit, including the reimbursement of Messrs. X for 
 advances previously made, perhaps to provide interest on 
 loans for ' productive public works ' which have, quite unac- 
 countably of course, failed to yield profits. To sum up, the 
 process of equipping a new country with the appliances of 
 a modern commercial and industrial community by lending 
 largely to its government, involves waste of money and bad 
 work from the commencement, and bad and, very possibly, 
 corrupt finance eventually. It is almost an infallible way of 
 producing a breakdown of the credit of the country con- 
 cerned, unless it is conducted with more prudence on all 
 sides than can reasonably be expected of human nature. 
 And, as has been shown, the consequences of the breakdown 
 in the credit of a country which has been a large customer for 
 commodities is a sudden stoppage of demand for them, and 
 a violent fall in their price, followed, of course, by forced 
 restriction of production, loss of capital, eventual reduction of 
 wages, and all that results therefrom. 
 
 It may be said that in a new country the only way in 
 which development is possible is through the credit of the 
 government ; or, if the absurdity of this contention is demon- 
 strated, it will certainly be alleged that the development will 
 be ' too slow for the modem spirit ' unless government loans 
 are raised. As we have shown, however, more haste may be 
 worse speed in this matter. Rapid development attained in this 
 manner is often over-development, involving either a heavy 
 burden to be borne by the taxpayer (or by one set of tax- 
 payers for the benefit of another) or an injury to the State's 
 credit, and possibly actual default. Moreover, talk of this kind 
 about the requirements of ' the modern spirit ' is not sincere, 
 being merely part of the stock-in-trade of corrupt politicians 
 and officials leagued with contractors and financiers in want of 
 a job, in both senses of the word. There is not the slightest 
 fear of a country which is really worth developing not being 
 developed quite as fast as is good for it by private enterprise, 
 provided it affords reasonable security for life and property. 
 
v.] Influence of State Borrowing. 157 
 
 Of course private enterprise, conducted by independent com- 
 panies, is not likely to make railways merely to help the 
 election of supporters of the government — a motive for railway 
 construction not wholly unknown either in our Colonies or in 
 foreign countries. But all really useful lines or other works 
 are sure of support in London, except in times when a series 
 of commercial and financial collapses has temporarily de- 
 stroyed confidence, as has been the case for the last three years. 
 There is one argument, however, against leaving the making 
 of public works, such as railways, to private enterprise which 
 is advanced frequently in perfect good faith and deserves 
 consideration from the economist. It is the well-known 
 socialistic plea that governments ought, as a matter of prin- 
 ciple, to possess control of all instruments of production, and 
 consequently of the means of communication which subserve 
 production. To combat this notion, however, which is based 
 on a profoundly mistaken view of the functions of government, 
 would open up a discussion of greater extent than is con- 
 templated in this essay, in which it is merely intended to 
 show that the construction of pubhc works by means of State 
 loans necessarily aggravates commercial crises. If young 
 countries insist upon disregarding the experience of past ages, 
 and imagine that because they are new they require new 
 principles for their guidance, they will probably involve 
 themselves in considerable trouble, but they will be useful to 
 the rest of the world as ' object lessons,' to use the slang of 
 the New Journalism. The United States, a young and 
 vigorous, but overweening community, has lately performed 
 a series of most interesting experiments on itself — first, by 
 deliberately adopting Protection in its most extreme form; 
 and, second, by converting its Treasury into a Pig Silver 
 Warrant Store, in the mistaken hope of keeping silver at the 
 old American ratio to gold of sixteen to one. Although it is 
 easy to extract amusement from the spectacle thus afforded, 
 the results of this latter freak on the part of our lively cousins 
 are by no means wholly comical, or entirely confined to their 
 afiairs ; and everybody is heartily glad that this attempt to 
 perform the impossible has been abandoned, for it had caused 
 
158 A Policy of Free Exchange. [v. 
 
 temporary paralysis in most of the great markets of the 
 world by disturbing confidence in American securities. 
 
 The commercial and financial relations between countries 
 are now so close that no country can arouse distrust in its 
 own ability to fulfil its obligations without causing general 
 uneasiness. The principal creditors of the world are capital- 
 ists in Great Britain, and if one of the debtor countries gets 
 into difficulties of any kind the capitalists become not only 
 less able to lend money elsewhere, but, for the time, less 
 willing to do so. This is why the breakdown in Argentina 
 produced such serious efliects, even in quarters quite uncon- 
 nected with that country. After the great collapse of 
 November, 1890, there was hardly a country which depends 
 on the London Money Market for aid in developing its re- 
 sources which did not find its supplies of capital curtailed. 
 All second-rate investments are liable to risks, which are, 
 more or less, recognized by those who engage in them ; but, 
 as a rule, the perception of these risks is dormant. Where, 
 however, some one of this class of investments, to which the 
 securities of most new countries belong, ceases to yield 
 interest the whole class becomes temporarily discredited, 
 because it is impossible for even the dullest not to perceive 
 that what has happened in one case may happen in others. 
 All the weak points of securities of this class are suddenly 
 brought home to those who have been in the habit of holding 
 them, and, for a time at any rate, are probably as much 
 exaggerated as they had previously been underrated. As we 
 have shown, government borrowings are much more likely to 
 lead a country into financial trouble than the borrowings of 
 companies conducted by private enterprise — first, because the 
 governments are pretty sure to obtain more money than they 
 can productively employ (which is not so much the case with 
 companies) ; and, secondly, because even what they employ 
 productively would have gone further in the same direction 
 if managed by companies controlled by private individuals. 
 Moreover, if a private enterprise is found to be hopelessly 
 unremunerative, the company carrying it on wiU, indeed 
 must, go into liquidation, while a government which can draw 
 
V.J Influence of State Borrowing. 159 
 
 on the revenue of its subjects by taxation, is very likely 
 to go on throwing good money after bad, long after an 
 undertaking it has committed itself to is proved a failure. 
 The facilities for borrowing enjoyed by governments have 
 been too great for many years past. There is something 
 dangerously seductive both to lender and borrower in the 
 power possessed by governments of mortgaging the future 
 revenue of the countries they administer. The government 
 of a new country is especially prone to take a sanguine view 
 of its prospects ; the people are at least equally certain of 
 their capacity to provide the interest required ; the finance 
 houses, which stand as sponsors for the loans, may be credited 
 with a belief that at any rate their particular issues are safe, 
 and the public here too often blindly follow the finance 
 houses. In the majority of cases all the parties concerned are 
 actuated by perfect good faith, and the evils which follow 
 from excessive issues are the results of being oversanguine, 
 and sometimes, as regards the finance houses, of neglect to 
 look sufficiently carefully into all matters connected with 
 such issues, especially the amounts of those already in 
 existence. 
 
 Now, this too ready belief on the part of the borrower in 
 his future ability to pay, and the tendency on the part of 
 issuing houses to shirk examining carefully the troublesome 
 details of a loan operation, are examples of ordinary failings 
 of human nature, which must be reckoned with at all times. 
 They are constant elements in the situation, and their efiects 
 are certain to make their appearance sooner or later in cases 
 where governments habitually raise loans outside their own 
 country. Of course it is true that any country may without 
 danger have a small foreign debt; but the interpretation of 
 the word small must be strict — that is, the debt incurred must 
 be compared with the right quantities, and not with quanti- 
 ties whose relative dimensions have no real bearing on the 
 question at issue. Occasionally, it is to be regretted, figures 
 are introduced into prospectuses of loans which suggest quite 
 irrelevant comparisons, of course tending to show that the 
 proposed issue is 'small' and the resources available for 
 
1 60 A Policy of Free Exchange. [v. 
 
 meeting it 'greatj whereas comparison with the proper quan- 
 tities would have brought out a very different result. These 
 are matters in which finance houses allow themselves to be 
 ' caught napping ' more often than is good for their reputations 
 or for the pockets of those who place confidence in their 
 judgement. But it is necessary to emphasize the fact that 
 the investing public, in demanding infallibility from finance 
 houses, as they practically do, are asking for too much. Every 
 investor will admit this obvious truth individually, and yet 
 readily forms one of a drove of similar persons who coUec- 
 tively act as if Messrs. X, Y, Z & Co. were both omniscient 
 and exempt from all human failings, whether moral or mental. 
 Is it surprising under these conditions that the said public 
 sometimes finds that its money is lost, in whole or in part ? 
 If all finance houses had taken as much trouble as they 
 ought, the number of foreign government loans would be 
 about half what it is ; but the same result would have been 
 attained if the public had not foolishly accepted the belief 
 that the promise of a government is always a good guarantee 
 for payment 
 
 The economic objections to the principle of allowing govern- 
 ments to raise big loans abroad for public works are equally 
 strong as regards similar loans made at home. It is inter- 
 esting to observe, however, that, except in the case of naval 
 and military expenditure, where it can be defended on other 
 than economic grounds, few countries ever attempt to raise 
 money for public works except abroad. In most countries 
 there is none to be got ; and in those where it has been tried 
 the plan has by no means proved to be a success economically. 
 Even in France it broke down. The gigantic railway scheme 
 elaborated by M. de Freycinet in 1879 could not be carried 
 out, the State having, some years later, to beg the great 
 railway companies to take over the lines it had partly 
 constructed and was unable to complete, and to transfer to 
 them most of the remainder of the mileage originally intended 
 to be built as part of the addition to the r^seau d'Mat. 
 Whether the possession of the Prussian railway system by 
 the State will eventually turn out well remains to be seen ; but 
 
v.] Influence of State Borrowing. i6i 
 
 it can be plausibly justified by considerations connected with 
 the military safety of the country. It is doubtful if the Belgian 
 railways are as efficient as they would have been if made by 
 private enterprise. The acquisition of the telegraph system 
 of the United Kingdom by the State is defended, even by 
 those who are no friends to State Socialism, as a necessary 
 corollary of the administration of the Post Office by a Govern- 
 ment department. It can also be justified, with some plausi- 
 bility, on political-military grounds. But, although it has 
 long been an accomplished fact, and must be tolerated, it is 
 economically bad — first, because the actual service rendered 
 is less good than would have been furnished by private 
 enterprise; and, secondly, because the ordinary defects of 
 a bureaucracy, namely, morbid hostility to change and dislike 
 of criticism, are formidable obstacles to the adoption of im- 
 proved methods in a business which depends largely on 
 adequate recognition of the progress of science. The delay 
 in the extension of the telephone system in this country was 
 entirely due to the fact that the Telegraphs are managed by 
 one of the Eevenue departments of the United Kingdom, and 
 that the Treasury is an octopus, which insists that there shall 
 be surplus revenues for it to throw its tentacles around — in 
 the interest of economy, no doubt, but in disregard of efficiency. 
 In conclusion, the opinion of the present writer is that, 
 to employ a well-known formula, the sphere of action of 
 governments in matters affecting trade and commerce 'has 
 increased, is increasing, and ought to be diminished.' The 
 more strongly the current of general opinion, which necessarily 
 means ill-instructed opinion, runs in favour of more govern- 
 ment interference, the stronger should be the efforts of those 
 who see the evils it prodiices to make them plain. And if we 
 cannot easily begin ' at home ' in this case, it is comparatively 
 easy to begin abroad. For the evil results of entrusting large 
 amounts of money to foreign governments, ostensibly for the 
 construction of productive works, can be made patent to 
 every one. 
 
 Wynnaed Hoopek. 
 
 M 
 
VI. 
 
 THE STATE IN RELATION 
 TO RAILWAYS. 
 
 W. M. ACWORTH. 
 
 M 2 
 
VI. 
 
 THE STATE IN RELATION TO RAILWAYS. 
 
 The writers of this volume I understand to be in agreement 
 on this main principle — that individual initiative, or where 
 that is from the nature of the case impossible, the initiative 
 of bodies spontaneously organized on a voluntary basis to 
 meet each new necessity of civilization as it arises, is, unless 
 in exceptional circumstances, and then for due cause shown, 
 to be preferred to State management. It falls to me to apply 
 this general principle to the particular case of railways. 
 
 The relation of the State to the railways in any given 
 country may take one of five forms. 
 
 (i) The State may both own and work. 
 
 (2) It may own and not work, but lease. 
 
 (3) It may work without owning. 
 
 (4) It may neither own nor work, but merelj^ control, 
 
 (5) It may let the railways alone altogether. 
 
 Of these various forms No. 3, working without ownership, 
 practically only arises in countries where the State, already 
 owning and working some lines, agrees for convenience' sake 
 to work certain other lines which it does not care to purchase. 
 No. 5, which may be described as laisser faire pure and 
 simple, has practically never existed except in the United 
 States ; even there it is now obsolete. In fact, a state of 
 things in which a stockbroker and two of his clerks could 
 register themselves as a company desiring to build a line 
 from New York to Buffalo, and thereupon ipso facto obtain 
 powers to take compulsory possession of any house that 
 might happen to be in the way in the course of a 400 miles 
 
1 66 A Policy of Free Exchange. [vi. 
 
 progress across country, with further powers, if and when 
 they opened the line, to run what trains they pleased, over 
 bridges as shaky as they might see fit to build, charging such 
 rates and fares as they thought proper — such a state of affairs 
 could evidently only exist in a new and unsettled country 
 where the great object was to get railroads — proper railroads, 
 and in a proper manner if possible, but by all means to get 
 railroads. 
 
 The second alternative, that the State should own the 
 railways and lease them to operating companies, is out of 
 fashion at the present time in this country, not being 
 a sufficiently root and branch reform for our modern State 
 Socialists. But it enjoyed at one time considerable popularity, 
 and was, indeed, recommended by no less a person than Sir 
 Eowland Hill in his minority report as a member of the 
 Eoyal Commission of 1865. Moreover, it was the principle 
 adopted after the most exhaustive inquiry by the Italian 
 Government as recently as the year 1885. Still more recently 
 the same policy has been systematized in Holland. Indeed, 
 it might be said to be the French policy also, for French law 
 regards the soil on which the French lines are laid as part of 
 the public domain, and the railway companies as only the 
 occupants on a terminable lease. And France is a type of 
 not a few other continental countries. But we need not 
 concern ourselves with the political problems of our neigh- 
 bours ; we have quite enough to do to solve our own ; and 
 may therefore pass by the question of the State owning and 
 leasing. There remain therefore for consideration but two 
 possible methods; and for us the alternative is between 
 Government railways pure and simple, such as those of 
 Prussia or Victoria, and railways as we have them now, 
 owned and worked by private companies and subject to 
 a State control of more or less stringency. We have, therefore, 
 in the first place to consider the arguments for and against 
 Government railways ; and if these lead us, as I think they 
 will, to conclude against them, to go on further and discuss 
 the principles on which State control of private lines should 
 be based, the end at which it should aim, and, in broad outline 
 
VI.] The State in relation to Railways. 167 
 
 of course and not in detail, the methods which it should 
 adopt. 
 
 It is impossible within the strict limits of an essay such 
 as this to do more than touch the fringe of the subject of State 
 ownership. A very recent writer has indeed published 
 a tolerably bulky book on the subject, and yet found no 
 space in it to come to the actual point at all ^. An adequate 
 treatment of the question would evidently imply, in the first 
 place, an exhaustive consideration of the proper functions of 
 the Executive Government as a general principle, and of such 
 modifications of that principle as the varied forms of the 
 Government (despotic, aristocratic or democratic, as the case 
 might be), and the diiFerent genius and quality of the nation 
 concerned might seem naturally to suggest. Secondly, it 
 would imply an equally exhaustive consideration of the nature 
 of railways and railway transportation. Such questions as, 
 for instance, whether railways should compete with or only 
 supplement water carriage ; whether the cost of the railroad 
 itself, as distinguished from the expenses of carriage along it, 
 should be charged against the individual users as on the old 
 turnpikes, or paid for out of general taxation, as being public 
 necessities like any other highways ; whether rates and fares 
 ought to be fixed on what may be called the postal principle, 
 ignoring distance altogether, or on the opposite principle of 
 charging so much for each mile travelled, or again, on the 
 merely commercial principle of ' charging what the traffic will 
 bear ' — in other words, endeavouring to lay on the consumer 
 of each kind of railway service the least possible burden 
 consistent with the raising from the traffic as a whole the 
 revenue necessary to pay working expenses and interest on 
 capital — questions such as these must evidently be faced and 
 solved at the outset, for on the solution arrived at will largely 
 depend whether we finally decide for State or private owner- 
 ship of railways. 
 
 Nor could any treatise on this subject be complete which 
 failed to supplement these two heads of more or less abstract 
 inquiry by a history tracing the experience of the civilized 
 
 ' Haiiimal Bailioays, by James Hole. London : Cassell & Co., 1893. 
 
1 68 A Policy of Free Exchange. [vi. 
 
 world in the last half-century, showing the progress of 
 railway development in the different countries, and indi- 
 cating which of the failures of the one or of the successes 
 of the other might fairly be ascribed to the management 
 of that system by the State or private enterprise, as the 
 case might be. To write such a book would be the work of 
 a lifetime, and when written its author would probably be the 
 only person to feel bound by its conclusions. For the facts 
 under each of the suggested heads of inquiry are so multifarious 
 and so obscure that no writer, however capable and con- 
 scientious, could ever count on getting them all in front of him, 
 still less on appraising each of them at its precise value. We 
 must be satisfied here with presenting the outline of the 
 abstract arguments upon the question, and sketching in as 
 few words as possible the history of State-owned lines in other 
 countries. 
 
 It is equally impossible to deal here with the general question 
 of State Socialism. The delegates, for instance, who at the 
 Trade Union Congress of 1893 voted, after five minutes' dis- 
 cussion, for the nationalization of all the means of production 
 at one gulp, will evidently not be deterred by a mere mouthful 
 such as the thousand millions of capital represented by our 
 English railway system. We must confine ourselves here to 
 arguments that apply to railways more particularly. Now 
 there is no reason to praise the existing system too highly. 
 It gives us unquestionably in some instances what it is common 
 to describe as the waste of competition. That waste, how- 
 ever, is by no means so large as is believed by the public 
 unfamiliar with practical railway accounts. To take the stock 
 instance of the London and Dover expresses. Whenever 
 either of the competing trains is canying as many as four 
 first class passengers — and it is difficult to believe that they 
 often run with less — it is earning a not profit. Further, 
 we cannot ignore the question whether two simultaneous 
 trains, both run under the stimulus of competition, may not 
 carry twice as many passengers as one train run without this 
 stimulus. If X be the gross revenue and Fthe cost of earning 
 it, 3Z — 3 Fis greater than X—Y, whatever values be assigned 
 
VI.] The State in relation to Railways. 169 
 
 to X and Y, Still we must acknowledge after all that the 
 waste of competition has a real existence. 
 
 Another argument is to the effect that commercial companies 
 may, in spite of extravagance of management, earn bloated 
 dividends by what is practically a tax upon trade. This too 
 no doubt is theoretically true. I can, however, recall but one 
 instance— that of the Taff Vale Company — in modern English 
 railway history ; and here commercial competition has already 
 done its work, and the BaiTy Company has taught its elder 
 rival to modernize both the rates and the methods of working. 
 Then, again, it may fairly be said that the natural tendency of 
 a company bound to return to its shareholders twice a yeai* 
 a dividend at least not less than that for the preceding half- 
 year, is to fight shy of bold and radical concessions. For 
 instance, it is quite arguable that third class fares at a half- 
 penny a mile might in the long run pay the company ; 
 undoubtedly they would be an enormous benefit to the 
 community ; but no railway company dare try such an experi- 
 ment. Again, the objection is not without weight. Once 
 more, however, it is more theoretical than practical ; for, 
 in fact, experience shows that State railways do not 
 venture the reductions which theoretically they might be 
 expected to make. Far and away the most sweeping reduc- 
 tions the world has seen have been those made by the highly 
 competitive railways of the United States. The latest exploit 
 of the commissioners of the State railways in Victoria is 
 a proposal for the universal increase of the rate of charge. 
 Similarly, the tendency of a State railway system ought to be 
 in the direction of regarding the general good, and giving the 
 blessings of adequate communication to all the parts of the 
 country alike. Commercially-minded companies, on the other 
 hand, must surely hesitate to extend their systems into poor 
 and profitless districts ; content with the splendid profits of 
 the main trunk lines, they will naturally — so one would reason 
 a priori — decline to water their dividends by investing 
 capital in new lines which can never pay more than a very 
 moderate rate of interest. Again, the facts are the other way. 
 That England led the world in railway extension sixty years 
 
1 70 A Policy of Free Exchange. [vi. 
 
 back is notorious ; that the Cape and Australia lag behind 
 even Argentina, much more behind the Western States of 
 America at this moment, is equally obvious now. 
 
 Once again. Commercial companies will act from commer- 
 cial considerations, and every merchant knows that the bigger 
 the buyer the larger discount he will demand as his right. 
 Translated into railway language this means the concession 
 of cheap special rates for wholesale traffic between great 
 centres, and the maintenance of a high standard of charge for 
 the transaction of the general retail business of the country. 
 Of course, the natural tendency of this is to make the great 
 greater, and thereby the small smaller. And it is a common 
 and, I think, a reasonable belief, that this tendency, if not 
 indeed wholly mischievous, is at least of questionable advan- 
 tage to the community. But once more it may, I think, be 
 answered that the tendency is too strong to be resisted by any 
 Government department. The Prussian State makes special 
 rates just as freely as the North- Western Eailway ; the English 
 War Office and Admiralty do not venture to place on their 
 list of contractors the names of any except the leading and 
 most powerful firms in their respective branches of industry. 
 Moreover, whether the preference of one trade or trader, of 
 one town or district over another, be justifiable or unjustifiable 
 — be or be not, to adopt the legal phraseology, an undue and 
 unreasonable preference — is a matter involving careful and 
 detailed consideration of all the circumstances of the indi- 
 vidual case. As such it is eminently suitable for judicial 
 decision. Now a court of justice can much more easily curb 
 the action of a private corporation, however powerful, than it 
 can that of a department of the Executive Government with 
 a majority of the House of Commons behind it. 
 
 One more objection, and perhaps the most serious, has been 
 kept to the last. Where a body of shareholders are so blind 
 to their own interests as to leave the management of their 
 railway in the hands of an incompetent and effete body of 
 directors and officials, the public lacks definite and posi- 
 tively legal right of interference to prevent the service of 
 the line becoming quite disgracefully bad. It is, I think, 
 
VI.] The State in relation to Railways. 1 7 1 
 
 undeniable that such cases have occurred and do still occur in 
 England ; and, further, that a Government department would 
 not dare to treat any large section of the electorate with 
 neglect as gross as that from which some parts of the country 
 suffer at the present moment. But, after all, we must regard 
 the interest of the country as a whole rather than any indi- 
 vidual section of it. It would need a great deal of levelling 
 up in services which only concern, perhaps, 5 per cent, of the 
 community to counterbalance even a small amount of levelling 
 down in the services given to the remaining 95 per cent. And 
 experience goes, I believe, to show that the tendency of State 
 management is towards uniformity indeed, but towards uni- 
 formity on a lower level than the average of private manage- 
 ment. There is another point : ' The price of liberty is eternal 
 vigilance ! ' and if the inhabitants of A, B and C — there is no 
 need to mention names, they will rise instinctively before the 
 mind of every reader — are suffering — and some of them do 
 suffer grievously — from the badness of their railway service 
 in this free country, where, after all, public opinion is in the 
 long run supreme and irresistible, they have mainly their own 
 supineness to thank for it. 
 
 I have endeavoured to sketch the objections commonly 
 made to private railway management, and to outline the 
 answer which can be given to each. Let us now see, in the 
 same general fashion, what are the main arguments advanced 
 as justifying State ownership. It may be noticed in passing 
 that, pro tanto, according to the extent and minuteness of the 
 system adopted, some of these arguments apply to State con- 
 trol also. It is said in the first place that railways are 
 a monopoly, and a monopoly of an article of public necessity ; 
 but this is a point I should wish to reserve for consideration 
 at a later stage. Again, it is claimed that, if the credit of the 
 State were behind the railways, the portion of the rates and 
 fares which represents interest on capital could be largely 
 reduced. The facts, however, do not bear out the statement. 
 It is true that railway capital at this moment receives on an 
 average within a fraction of 4 per cent., and that the State 
 
172 A Policy of Free Exchange. [vii 
 
 can borrow money at something like 2| per cent. But the 
 great railway companies can borrow practically as much as 
 they please at almost the same rate ^. It is not a question of 
 the price at which the company could raise the money to-day, 
 but of the price which they had to pay when their lines were 
 built originally. And when we remember that, even as lately 
 as the Crimean War, the State issued consols at about 85, we can 
 hardly admit that through lack of credit the companies have 
 on the whole paid very dear for their money. At a| per 
 cent, the Exchequer must make up any possible deficiency of 
 railway earnings ; purchasers of ordinary railway stock can 
 at present prices get in normal times about 3^ per cent, for 
 their money ; but then they take the risk of a coal strike at 
 any moment annihilating a half-year's dividend altogether. 
 Economy of interest would then, I think, be something quite 
 trifling. 
 
 There is the question also of economy in working expenses. 
 I have already said that the economy secured by the abolition 
 of competitive services would be very much smaller than the 
 public seems commonly to suppose. I may add that the 
 economies resulting from unity of management would also, 
 I believe, be comparatively insignificant. In Ireland, with its 
 fifty or sixty separate companies, each with its own board of 
 directors, they would no doubt be proportionally great ; but 
 the whole working expenses of all the Irish railways put 
 together are a mere bagatelle. In Great Britain the under- 
 takings are already big enough to give every man as much as 
 he can do, and for my own part I fail to see how the re- 
 organization of the service would enable a single official to be 
 reduced. On the other hand, everybody who has had experi- 
 ence of methods of business of public departments and private 
 undertakings knows well that the former are more com- 
 plicated and therefore more expensive. Nor is it generally 
 believed that the State gets more work out of its servants 
 than the private employer. Similarly, I think one might go 
 through all the branches of railway expenditure and show that 
 
 ' London and South-Western 3 per cent, debentures have, I believe, been 
 dealt in at 107. 
 
VI.] The State in relation to Railways. 173 
 
 in none of them, except possibly in that much magnified mole- 
 hill, Parliamentary and legal expenses, could any reduction 
 worth speaking of be effected. 
 
 Again, it is said that at present our railways are worked in 
 the interests of the shareholders ; the State would adopt 
 a different principle, and work them for the benefit of 
 the community at large. This sounds, of course, very 
 nice and pretty. When we ask for particulars, however, 
 of the improvement, we are generally informed that the 
 Government department would improve the revenues by 
 a series of judicious reductions in rates. Stated thus broadly, 
 the claim would appear to be that, because certain reductions 
 in rates, made deliberately by the skilled managers of existing 
 lineSj have proved to be profitable, all other reductions of 
 rates, which those same skilled managers have ex hypothesi 
 rejected as likely to be unprofitable, would in the future 
 increase the net revenue of the State railways. The fallacy 
 is obvious, and comes back really to the theory of the Irish 
 apple woman who could afford to sell her apples at a loss 
 because she sold so many of them. And it will not be for- 
 gotten that, while at the present time the railways shareholder 
 pays the piper for unprofitable experiments, under a State 
 regime the cost would fall on the taxpayer at large. 
 
 There is another point worth notice. If we can persuade 
 our would-be reformers to descend from the general to the 
 particular, we do not always find them agreed as to the 
 principles on which the reform should be based. Liverpool, 
 for instance, is the nearest port for the manufacturing towns 
 of Lancashire. Accordingly, we find the mayor of Manchester 
 telling a House of Commons' Committee that railways ought 
 not to be permitted to ' deprive a town of the advantage of its 
 geographical situation.' In other words, the distance carried 
 is to be the governing factor in the rate. Other places — say, 
 for example, Southampton and Plymouth — have behind them 
 only thinly-populated agricultural districts. Their repre- 
 sentatives, therefore, are equally persuaded that the true 
 principle on which judicious reductions will be based is to be 
 found in an approximation to the postal principle of one 
 
1 74 A Policy of Free Exchange. [vi. 
 
 uniform rate— that the great duty of a railway is to annihilate 
 distance. Evidently, till all the inhabitants of Liverpool and 
 Plymouth respectively are agreed to the principle on which 
 the judicious reductions which they both equally desiderate 
 are to be based, it will not be very easy for the State officials 
 of the future to set about making them. 
 
 But, after all, the question of State purchase of the railways in 
 this country will never be decided on a •priori considerations. 
 In so complicated a subject practical men will be guided by 
 the sum of practical experience. For railway experience of 
 course we must go outside England itself. But we may fairly 
 call in our own experience of the Government undertakings 
 most nearly comparable —the Post Office and the Telegraphs — 
 to supplement it. A lengthened experience of State railway 
 management, even as railways count length, is only to be 
 found in Belgium and in the smaller states of Germany. As 
 for Wiirtemberg, Bavaria and Saxony, it may safely be said 
 that, as far as speed goes, their railway services are among 
 the very worst in the world. Those of Baden are distinctly 
 better ; but Baden has from the beginning had the benefit of 
 being on an international route, and taking part in keen 
 competition for international traffic. It is true that rates and 
 fares are low in these small German states, but it is difficult 
 to call them low considering the quality of service that is 
 given in return. Moreover, they are not low according to the 
 general money standard of the country. The difference be- 
 tween a Bavarian and an English railway fare is nothing at 
 all so great as the difference between a Bavarian and an 
 English hotel bill, or between the wages of an English and 
 a Bavarian artisan or day labourer. Belgium undoubtedly 
 affords a more favourable instance of the result of State con- 
 trol. Taking into consideration both the rates charged and 
 the service given, the Belgian railways can fairly hold their 
 own with any continental country. But then we must re- 
 member that the Belgian State railway system is a small 
 affair ; the whole of it not as important as our own Midland 
 Railway. It is very much as though the State here were to 
 
VI.] The State in relation to Railways. 1 75 
 
 buy up the Midland Eailway, remaining exposed not only 
 to the competition by water on all sides, but to that of the 
 North- Western on the one side and of the Great Northern on 
 the other. 
 
 Further, it cannot be said that Belgium has developed any 
 special principles broadly differentiating State railways from 
 those of private commercial companies. ' In Belgium,' says 
 Professor Hadley, ' State raih'oads were simply roads owned 
 by the State, but managed on the same principles and with the 
 same abuses as competing private roads.' ' At one time,' the 
 quotation is again from the same authority, ' the Government 
 railroads themselves granted special rates to prevent people 
 from using the Government's own canals . . . they abandoned 
 schedule rates, and had recourse to personal discriminations 
 and to special contracts of every kind. It is probable that in 
 these respects the State was a worse offender than the private 
 companies themselves. . . . Charges have been made in official 
 form by one of the best authorities in Belgium, Le Hardy de 
 Beaulieu, that the connexion between railroads and politics 
 has produced distinctly bad results ; that there has been 
 a multiplication of forms and offices of no use in actual busi- 
 ness, and that there has been serious manipulation of accounts 
 to make an unduly favourable showing for the Government.' 
 Still, on the whole, it would I think be fair to admit that 
 there is no evidence that a private company would have 
 managed the Belgian railways better than the State has done. 
 Those who are satisfied to put forward the example of Hudders- 
 field, where the Corporation works the tramways so far at but 
 small cost to the rates, as the main argument to prove that 
 the County Council should work the tramways of London, 
 which carry a number of passengers equal to the entire popu- 
 lation of Huddersfield once every two hours, will doubtless be 
 likewise ready to generalize for the railways of England from 
 the experience of Belgium. 
 
 If from Belgium they pass to Prussia they will certainly 
 not find much to strengthen their case. Even had the State 
 management of railways in Prussia been proved a triumphant 
 success, it would be inadmissible to argue that England was 
 
1 76 A Policy of Free Exchange. [vi. 
 
 capable of doing likewise. No one doubts, for instance, that 
 Prussia can organize and administer an army : it would be 
 rash to found on this fact a belief that England can do the 
 same. Says Mr. Charles Francis Adams, with the statesman- 
 like wisdom hereditary in his family : ' In applying results 
 drawn from the experience of one country to problems which 
 present themselves in another, the difference of social and 
 political habit and education should ever be borne in mind. 
 Because in the countries of Continental Europe the State can 
 and does hold close relations, amounting even to ownership, 
 with the railroads, it does not follow that the same course 
 could be successfully pursued in England or in America. The 
 former nations are by political habit administrative, the latter 
 are parliamentary ; in other words, France and Germany are 
 essentially executive in their governmental systems, while 
 England and America are legislative. Now the executive 
 may design, construct, or operate a railroad ; the legislative 
 never can. A country, therefore, with a weak or unstable 
 executive, or a crude and imperfect civil service, should accept 
 with caution results achieved under a government of bureaus.' 
 
 But in fact there is no need to enter any such caveat. The 
 Prussian Government did indeed, when it was urging the pur- 
 chase of the railways upon the Prussian Parliament, point out 
 that private companies were actuated only by greed of gain 
 and care for their dividend, and steadily opposed to any reduc- 
 tion in rates ; that the State alone was in a position to work 
 the railways in the public interest; that the Government 
 ownership would secure more judicious and equitable employ- 
 ment of the railway capital, as well as more rational and 
 economical methods of working; further, that the State, 
 freed from the obligation to consider particular interests, 
 would regard the railways as the instrument of the general 
 prosperity, and would devote itself constantly, as far as finan- 
 cial prudence permitted, to the development of the entire 
 railway system, to improvements of service and reduction of 
 rates. 
 
 But the facts have belied these high-flown assertions. 
 The railways have been worked mainly as instruments of 
 
VI.] The State in relation to Railways. 177 
 
 taxation. They have been managed on precisely the same 
 commercial principles that were denounced when put in prac- 
 tice by the companies. The development of the system, the 
 improvements of service are not yet visible ; when traders cry 
 out for trucks to keep their works going, they are calmly told 
 that they ought to have laid in a supply of coal or raw 
 material during the slack months of the summer ; when pas- 
 sengers petition, not of course for English and American 
 speeds, but for expresses at say 35 to 40 miles an hour, they 
 are assured by the official apologists that the physical condi- 
 tion of the lines would render such speeds unsafe. As for 
 reduction of rates, they have been made, of course, here and 
 there, but there has been no general reduction, no simplifica- 
 tion in tariffs, nothing but partial concessions, made from time 
 to time to particular interests and particular localities, con- 
 cessions absolutely insignificant in amount by the side of 
 those granted in the same period by the competitive systems 
 of the United States. 
 
 There is, no doubt, in Prussia an elaborate machinery of 
 district and national councils, whereby the public can express 
 opinions as to changes of tariff which they consider desirable. 
 But such expressions of opinion remain opinion only, for the 
 State has carefully retained all actual authority on the subject 
 in the hands of its own employes. It is true that in the 
 years of good trade the State railways have paid over large 
 surpluses in reduction of general taxation ; but, now that the 
 good years have come to an end and the lean years have 
 followed, the railway revenues have fallen off in an alarming 
 manner and, spite of new taxation, there is a threatened deficit 
 of four millions in the Prussian Budget. Of course it is easy 
 to produce witnesses on either side to testify for or against 
 the existing system. Professor Cohn, whose authority I should 
 be the last to question, has recently placed it on record that 
 no one outside of the Radical opposition wishes to go back to 
 the former state of things. But certainly the said Radical 
 opposition have recently uttered very caustic criticisms in the 
 Prussian Parliament. I shall, not, I think, go beyond the fact 
 if I say that, even without any discount for the undeniably 
 
178 A Policy of Free Exchange. [vi: 
 
 superior efficiency of the executive organization of the Prus- 
 sian Government, the success of the Prussian State system has 
 not been so striking as to constrain us to imitate it. 
 
 The country whose experience of State management should 
 really be of direct example to us is Australia. With the 
 Australian evidence I have recently dealt at some length 
 elsewhere ^, and I need only mention it here in the merest 
 outline. Australia may fairly be compared with the Western 
 States of America. These latter States have of course now 
 a population many-fold that of Australia, but they had none 
 till the railways went there. They would have had but little 
 now, had the railways charged the rates which are apparently 
 found necessary on the Government lines in Australia. This, 
 however, is not the only, hardly even the chief, difficulty. The 
 railways of the different colonies have all passed through 
 a stage of direct management by a minister immediately 
 responsible to Parliament. That such method of management 
 meant jobbery, extravagance, and inefficiency, is admitted on 
 all hands. One after another the colonies found themselves 
 compelled to interpose a buffer, in the shape of a non-political 
 and largely irresponsible Commissioner, between the railways 
 and the political minister. The system is as yet on its trial. 
 Sir Robert Hamilton, ex -Governor of Tasmania, whose com- 
 petence as an observer can as little be questioned as his 
 democratic sj'mpathies, has publicly expressed the opinion 
 that the experiment cannot permanently succeed ^. 'I believe,' 
 he writes, ' that any guard upon our parliamentary representa- 
 tives, in the shape of permanent commissions appointed by 
 them to exercise their powers, must, as experience appears to 
 be already showing, break down.' The Victorian experiment 
 has indeed already broken down. How far, during its short 
 life, it availed to protect the public from jobbery, may be 
 judged from the one fact that the Melbourne Age recentlj' 
 published a list, occupying ii^ closely-printed columns, of 
 free passes over the State railways granted to the wives and 
 
 ' Government Railways in a * Lending money to Australia. 
 
 Democratic State. Economic Journal, Nineteenth Century, August, 189a. 
 December, 1892. 
 
VI.] The State in relation to Railways. 179 
 
 families and dependants of members of Parliament. In New 
 Zealand, too, the non-political Commissioners will probably 
 by the time these pages are published have been reduced to 
 a condition of subserviency to the Ministry of the day. In 
 New South Wales, thanks to the exceptional personality of 
 the Chief Commissioner, they have so far held their own, but 
 after a life and death struggle. In Queensland and South 
 Australia their position has not, as far as I know, been chal- 
 lenged. But in face of the fact that direct State manasement 
 in Australia has confessedly meant in the past, and would 
 again mean, extravagance and inefficiency, and that no sub- 
 stitute for that system has yet been found which can offer 
 any reasonable pledge of permanency, he would, I think, be 
 a bold man who should claim the experience of Australia as 
 in favour of direct Government management. 
 
 Such then is in outline the case against the State manage- 
 ment of railways. It cannot be better summarized than it 
 was by the famous Italian Commission of Inquiry, which sat 
 for three years, from 1878 to t88i, collected six quarto volumes 
 of evidence both oral and written, and finally embodied the 
 experience of the civilized world in these conclusions ^ : — 
 ' I. Most of the pleas for State management are based upon 
 the idea that the State would perform many services much 
 cheaper than they are performed by private companies. This 
 is a mistake. The tendency is decidedly the other way. 
 Private companies can do for their patrons many things which 
 the State cannot ; but it is doubtful whether the State would 
 be justified in doing anything of the sort which private com- 
 panies cannot. The State is much more likely to attempt to 
 tax industry than to foster it. And when it attempts to tax 
 industry, it is more omnipotent and less responsible than 
 a private corporation. 
 
 ' 0,. State management is more costly than private manage- 
 ment. Such at least was the conclusion of the commission, 
 on comparing the results of the two systems. The difierences 
 which they bring out are quite marked, though it is fairly 
 
 ' The summary of the text I borrow verbatim from Professor Hadley's 
 invaluable BaUroad Transportation. 
 
 N 3 
 
i8o A Policy of Free Exchange. [vi. 
 
 open to question just how much they prove. Comparing 
 State and private railroads in different countries, they find 
 that the ratio of operating expenses to gross earnings is 
 always greater on State railroads— averaging eleven per cent, 
 more in all the countries compared. In their more detailed 
 comparisons, the commission take carefully into account the 
 various elements which involve cost of handling ; but unfor- 
 tunately they do not take up the question whether the rates 
 charged on the State railroads considered may not be lower 
 than on the private railroads — a thing which would make 
 the percentage look unfavourable, and yet be rather a credit 
 to the management than otherwise. We cannot, therefore, 
 accept this point without reserve. 
 
 ' 3. The political dangers would be very great. Politics would 
 corrupt the railroad management, and the railroad manage- 
 ment would corrupt politics. These effects have already been 
 seen in actual working. Changes of rates are made for the 
 sake of influencing elections. A questionable experiment was 
 recently made in Belgium in the matter of railroad tariffs ; it 
 had been adopted by the Government as a means of currying 
 popular favour — a kind of bribery to which there is great 
 temptation. It would not be hard to find similar instances in 
 other countries on both sides of the Atlantic' 
 
 So much for the foreign experience. It is worth while to 
 supplement it with a few words as to our English experience 
 of the nearest analogous business in the hands of our Govern- 
 ment — ^tbe Post Ofiice. For a century and a half, from the 
 time when ' an enterprizing citizen of London, William Dock- 
 wra, set up at great expense a penny post which deKvered 
 letters and parcels six or eight times a day, in the busy and 
 crowded streets near the Exchange, and ... as soon as it 
 became clear that the speculation would be lucrative, the 
 Duke of York complained of it as infraction of his mono- 
 poly, and the Courts of Law decided in his favour^,' the 
 Post Office has been constantly worked as primarily an 
 engine of taxation. 'The State has shown itself much 
 
 ' Maoaulay, Hisifmj of Englani, Chapter III. 
 
VI.] 
 
 The State in relation to Railways. 
 
 i«i 
 
 more inclined to tax industry than to foster it^.' The modern 
 history of the Post Office might be given in a sentence. Half 
 a century back an outsider of energy and genius, Rowland 
 HiU, converted the nation to a belief in the possibility of 
 
 ' The following summary of Post 
 Office history from the time when the 
 idea of using the Post Office monopoly 
 as an engine of taxation first took 
 root, down to the time when an out- 
 raged public opinion thrust Rowland 
 Hill into the office to prevent State 
 officials doing after their kind, is not 
 mine. It is extracted from Mr. Joyce's 
 excellent History of the Post Office (Lon- 
 don, Bentley, 1893). As Mr. Joyce is a 
 trusted and high-placed officer of the 
 Department, we may fairly assume 
 that his indictment is at least not over- 
 drawn. 'Let us compare for a moment 
 the beginning of the nineteenth with 
 the end of the seventeenth century. 
 In 1695 the postage from London to 
 Liverpool, or to York, or to Plymouth, 
 was, for a single letter, ^d. ; in 1813 
 it was lid. In 1695, wherever letters 
 were being carried clandestinely, the 
 policy was to supplant ; in 1813 the 
 policy was to repress. In 1695 the 
 King would not consent to a single 
 prosecution, even for the sake of 
 example ; in 18 13, when the Post 
 Office revenue had passed from the 
 King to the people, prosecutions were 
 being conducted wholesale. In 1695 
 a circuitous post would be converted 
 into a direct one, even though the 
 shorter distance carried less postage ; 
 in 1813 a direct post, in place of 
 a circuitous one, was being constantly 
 refused on the plea that a loss of 
 postage would result. In 1695 Lon- 
 don enjoyed the advantage of a penny 
 post, and this post carried up to one 
 pound in weight ; in 18 13 the penny 
 post had been replaced by a two- 
 penny and three-penny one, and, 
 except in the case of a packet passing 
 through the general post, the weight 
 
 was limited to four ounces. In 1813, 
 moreover, the complications were be- 
 wildering. In some places there were 
 fifth-clause posts, and in others penny 
 posts ; and the charge by these posts 
 was in addition to the charge by the 
 general post. Some towns, over and 
 above all other charges, paid an addi- 
 tional id. on each letter for the privi- 
 lege of the mail-coach passing through 
 them. Of two adjoining houses one 
 might receive its letters free of any 
 charge for delivery and not the other. 
 This difference was to be found in 
 towns where building was going on 
 — as, for instance, at Brighton — old 
 houses being considered within, and 
 new houses without, what was called 
 the usage of delivery. In London 
 itself, the complications, if possible, 
 were more bewildering still. The 
 three-penny post began where the 
 two-penny post ended. Thus far the 
 practice was simple enough. But 
 the general post limits did not coin- 
 cide with the limits of the two-penny 
 post ; and the limits of both the two- 
 penny post and the general post dif- 
 fered from those of the foreign post. 
 Indeed, it is probably not too much 
 to say that in 18 13 there was not 
 a single town in the kingdom at the 
 Post Office of which absolutely certain 
 information could have been obtained 
 as to the charge to which a letter 
 addressed to any other town would be 
 subject. More than ten years later. 
 Post Office experts, examined before 
 a Committee of the House of Com- 
 mons, were unable to state what, 
 even on letters delivered in London, 
 would in certain cases be the proper 
 postage.' 
 
1 82 A Policy of Free Exchange. [vi. 
 
 penny postage. The State organization fought tooth and nail 
 against the innovation. Public opinion, however, was strong 
 enough to thrust Rowland Hill inside the office ; there he 
 carried out his reform ; and the Post Office has lived on his 
 reputation ever since. The claims put forward in the annual 
 report of the Postmaster- General, that the Post Office is a pro- 
 gressive and business-like department, are not a little amusing 
 in their stolid self-complacency. For indeed letter-distribution 
 is one of the simplest businesses to manage in the world. It 
 is fenced round by a statutory monopoly; it is transacted 
 exclusively on a cash basis ; and no complicated commercial 
 questions are involved. The standing difficulty which con- 
 fronts a railway company is the question of differential rates. 
 The inexorable laws of supply and demand compel a railway 
 company to sell its services for what they will fetch. But it 
 is only human nature that J. should object to a fifty per cent, 
 profit being made out of him while 5's business is done on 
 a margin of five per cent. The Post Office is spared the 
 whole of this difficulty by the relative insignificance of the 
 amount of its charge. If the sum were worth fussing about, 
 depend upon it we should soon have a league in existence to 
 protest agaipst the iniquity of charging one man a penny for 
 a sheet of paper from Lombard Street to the Temple and 
 another a halfpenny for two ounces of paper from London to 
 San Francisco. 
 
 One might admit therefore to the full that the Post Office 
 does its present work well — and compared with the average 
 English Government Department no doubt this admission 
 ought to be made — and yet be very far indeed from admitting 
 that this proves its capacity for managing the infinitely more 
 difficult business of a railway. But let us examine the Post 
 Office record a little more closely. Let us see fii'st how it has 
 used its statutory monopoly. Take, for example, the tele- 
 phones. Tens of thousands of pounds were spent in litigation 
 to prove that the wording of an Act of Parliament, passed 
 before telephones were born or thought of, might be strained 
 to include a monopoly of all forms of electric communication. 
 In the result London is ten years behind Stockholm or Rotter- 
 
VI. J The State in relation to Railways. 183 
 
 dam in telephone communication. Take again the more 
 recent instance of the Boy Messengers Companies. There was 
 no need, thought the Post OfBce, of an ex])ress messenger 
 service, but no sooner does a private company make the 
 attempt at its own risk to aiFord the public a new convenience, 
 than the Post Office starts a rival service of its own, 
 judiciously handicapping its more nimble rivals with the 
 weight of a heavy royalty for the infringement of a statutory 
 monopoly. Of course, the plea for these royalties is to be 
 found in the alleged interests of the public revenue. It is, 
 however, difficult to understand why a tax on communications 
 becomes economically justifiable because its effect is to spare 
 State officials the exertion of using their brains to cope with 
 the competition of private enterprise. 
 
 Not that one would wish to deny for an instant the wisdom 
 of the Post Office from its own point of view in insisting on 
 this taxation. For, where it has no monopoly behind it, it is 
 usually beaten out of the field. Take for example the annuity 
 business, in which the Post Office, with the credit of the 
 Government at its back, does about as much business in 
 a decade as a single private company gets through in a week. 
 How long, one wonders, would the inconceivably clumsy 
 money orders and the scarcely less inconvenient postal orders 
 hold their own, if it were not for the stamp duty of one penny 
 on cheques even of the smallest amount. Or take again the 
 carriage of newspapers. Sixty years back the Post Office had 
 a monopoly, not legal this time but only practical, of the 
 carriage of all the newspapers out of London. To-day the Post 
 Office has retained the unprofitable pait only ; the single paper 
 earned in a separate parcel to remote country districts. Out 
 of the wholesale business one firm alone of newsagents has 
 built up a fortune of over two millions for its head. 
 
 The State, we are told, will operate the railways, not 
 actuated by greed of gain but in the interest of the public 
 as a whole. As a salient example of this spirit, we may point 
 to the Post Office, which runs a wire with alacrity into the 
 betting ring of every gate-money race meeting, while it turns 
 a deaf ear to aU demands for the extension of its lines to 
 
184 A Policy of Free Exchange. [vL 
 
 lighthouses, to fishing harbours, or to agricultural villages. 
 Or again, who can fail to appreciate statesmanlike economy 
 which refuses to recognize the unity of the British Empire by 
 the establishment of a uniform rate of postage when a revenue 
 of no less than £70,000 a year might be jeopardized by the 
 innovation. Take another instance : For forty years past 
 express legislation has made it impossible for private railway 
 companies to contract themselves out of liability for the 
 negligence or misconduct of their own servants. For this 
 interference with freedom of contract public interest was 
 undoubtedly the motive. Yet the Postmaster- General can 
 and does repudiate all legal liability for the deliberate theft 
 or injury by his own servants of property entrusted to him, 
 even in cases where extra fees have been paid as an insurance 
 premium. A union of continental railways led by the com- 
 mercial companies of Switzerland has recently procured the 
 enactment of international regulations, facilitating the re- 
 covery of claims against railway companies. A man whose 
 property is lost on a railway in Holland can settle the matter 
 after his arrival at destination with the railway company in 
 Italy. The State Postal Union, on the other hand, devotes its 
 energy to barring out the claims of individuals altogether. 
 Here is, for example, one regulation. 'Under no circum- 
 stances is the charge for an unrepeated telegram which has 
 been inaccurately transmitted refunded.' In other words, if 
 the sender, after having paid five shillings for the despatch 
 of a certain message, declines to pay x shillings ^ additional 
 to discover whether the message which the Post Office has sent 
 is really the message which he handed in, not only will he have 
 no claim for any damage which may result to liim from Post 
 Office carelessness, but actually he may find himself compelled 
 to pay for a service which has never been rendered him at all. 
 Conceive a railway company which loses a man's portmanteau 
 and delivers him instead a sack of damaged potatoes. Not 
 only does it refuse to pay compensation for the loss of the 
 
 ' I have written x shillings Post Office Guide, I am quite unable 
 because, after exhausting perambu- to understand what the additional 
 lations through the mazes of the charge actually is. 
 
VI.] The State in relation to Railways. 185 
 
 portmanteau, but it insists on being paid for the carriage of 
 the valueless potatoes. 
 
 But indeed the comparison between railway and Post 
 Office methods is fruitful of results. Imagine a railway com- 
 pany placarding its station with a notice ' The booking clerk 
 is not required to give change or authorized to demand it,' or 
 with another notice requiring passengers personally to paste 
 the labels on their portmanteaus. Or again, what would the 
 public say, if the railway companies issued notices at Christ- 
 mas and at Easter calling upon them to travel in the early 
 days of the week, in order to make the work as easy as 
 possible for the companies' servants % And yet an extra 
 passenger needs more accommodation than an extra letter. 
 One instance more. When a railway company puts on a new 
 train or opens a new station it makes up its mind to face an 
 almost certain initial loss. The Post Office refuses to open 
 a new telegraph office, however great its indirect advantages 
 to the locality may be, unless the actual cost is guaranteed 
 from the outset. Heads the department wins, tails the 
 guarantors lose. 
 
 And yet, for all its penny wisdom, the Post Office can be 
 at times extravagant enough. The rate, for example, for press 
 telegrams — 100 words for one shilling — is, we are officially 
 told, a rate which not only does not pay, but never could pay. 
 But the rate continues, for the Press is powerful, and the 
 profits of a handful of miUionnaire newspaper proprietors must 
 not be lightly interfered with. On the whole, it is not too 
 much to say that, before anyone can call the management of 
 the Post Office successful, consciously or unconsciously he must 
 have determined that a private enterprise is to be judged by 
 one standard and a Government department by another and 
 a much lower one. 
 
 If then we admit State management of railways to be 
 undesirable, we have next to consider what are to be the 
 objects, the extent, and the methods of State control. Now 
 the control of railways falls under two main heads. There is 
 first what may be called the police control of working in the 
 
1 86 A Policy of Free Exchange. [vi. 
 
 interest of the public safety, and secondly control from the 
 commercial side of the tariffs and services. The division is 
 for practical purposes a fairly accurate one, though some 
 subjects, as, for instance, new construction and train punctu- 
 ality, are on the border line. In the early days of railvrays 
 the police control was much the most important. In those 
 days every town was a centre of demand and supply, and 
 enjoj'ed, not of right but of necessity, 'the advantage of its 
 geographical situation.' People bought the food grown within 
 a few miles of them. If it did not grow they starved, or, 
 always supposing the roads to be passable, they migrated to 
 another district. The idea, I will not say of New Zealand 
 and Texas, but of Devon and Aberdeen competing in the 
 London Meat Market, had not yet dawned. It was a question 
 not of relative but of absolute tariffs, and railways were — 
 always considering the accommodation they gave — so im- 
 measurably cheaper than any other mode of conveyance that 
 no one grumbled. Nowadays the absolute quantum of a rate 
 is unimportant. It is all a question of relation and propor- 
 tion. The farmers of Devonshire may find themselves com- 
 peting at a disadvantage in the London Market, in spite of 
 a reduction of five shillings a ton in the railway rate, because 
 a reduction of ten shillings has been made in the rate from 
 Aberdeen. Naturally, therefore, with an ever-widening area 
 of supply, tariff questions have constantly increased in in- 
 tricacy and importance. 
 
 As far as police control is concerned there would seem to 
 be no special principles afi'ecting railroads, nor is it necessary 
 to discuss the theoretic justification for such conti-oL No 
 one, practically speaking, argues against marine inspection, 
 boiler inspection, building act regulations, notification of 
 infectious diseases, and so forth. The practical justification 
 of any or all of these is of course a matter for discussion 
 on the facts of the individual case ; but in theory they all 
 seem comprised within the four comers of the old legal 
 maxim, sic utere tuo ut alienuvi non laedas. In more 
 modern phrase the community coerces certain individuals so 
 far as may be necessary to secure that the freedom of all 
 
VI. J The State in relation to Railways. 187 
 
 other members of the community shall be at the maximum. 
 So far as our present subject is concerned, it would seem to 
 be absolutely a matter of detail whether certain injuries, to 
 which railway passengers are liable, and from which they are 
 not strong enough individually to protect themselves, shall 
 be dealt with by the co-operative machinery of the State, or 
 by the machinery of a voluntary co-operative Eailway 
 Passengers' Protection Association. As for the kind of inter- 
 ference which has been shown by experience to produce the 
 best results, there wiU be a word or two to be said later on. 
 Meanwhile let us notice some individual points in which 
 State interference is obviously justifiable. First and foremost 
 comes the construction of new Hnes. A railway cannot be 
 made unless it has the power compulsorily to take the land 
 required for the purpose. The only justification for the con- 
 cession of this power is the public interest, and in this the 
 existence of a tribunal to decide whether the public interest 
 is really involved is at once implied. Carrying this a stage 
 further, we may say that a railway can only be useful to 
 those whom it accommodates. A line, for example, made 
 without intermediate stations to serve the express traffic 
 between London and Brighton, is evidently no convenience 
 to the districts it passes through. Control therefore of the 
 construction of the line implies control of the arrangements 
 for dealing with traffic along it. On this point it may well be 
 thought that the State — represented in this case by Parlia- 
 mentary committees — has with us hitherto interfered too 
 little. Kunning one's mind, for instance, down the line of 
 a single company, the Great Western, it is evident that the 
 public interest would have been better served had public 
 authority prevented the construction of a second indepen- 
 dent station, and insisted on the new company's admission 
 to the old station at Reading, Oxford, and Swindon re- 
 spectively. These, of course, are only given as examples. 
 Any one who takes an interest in such questions could 
 no doubt supply from his own local knowledge scores of 
 instances in which slight modifications of promoters' plans 
 would have resulted in greatly increased convenience to the 
 
1 88 A Policy of Free Exchange. [vr. 
 
 public. Of course there is a per contra in all such matters. 
 One man may lead a horse to the water, but nine men may not 
 be able to make him drink ; and so a public department may 
 lay obligations on a body of promoters, with the result 
 possibly of stopping the construction of the line altogether, 
 or at least, in less extreme instances, of discouraging the 
 promotion of similar schemes. No doubt there is need for 
 a large allowance of common sense and elasticity at the back 
 of such interference ; still, given the possibility of finding 
 such qualities in a government department, I am constrained 
 to think that State interference with the construction of new 
 lines might with advantage be carried somewhat further than 
 it has been hitherto. 
 
 Again, the State may naturally be expected, before per- 
 mitting owners and occupiers to be compulsorily dispossessed 
 of their lands, to satisfy itself that the new company will 
 really carry out the undertaking which it projects. Obviously, 
 half-finished embankments and semi-pierced tunnels can 
 afford no convenience to the public at large ; they may, 
 however, as was found in practice after the mania of 1847, 
 remain as a standing nuisance to landowners, and an eyesore 
 to every passer-by for many years to come. It is, therefore, 
 only right and proper that security should be taken that the 
 promoters are persons who may be expected really to complete 
 and open the line for which powers are given ; and further to 
 be able to work it when opened in a reasonably efficient 
 manner. Parliamentary committees and the authorities of 
 the two Houses have in practice striven for half a century 
 past to attain this end, but the scant measure of success 
 to which they have attained is one more proof of the inherent 
 difficulties of railway control. For in fact the Parliamentary 
 control has protected neither the landowner on the one hand, 
 nor the promoter on the other. Hundreds upon hundreds 
 of Bills have been passed whose powers have subsequently 
 lapsed, either wholly or partially unexercised, for want of 
 funds, while a hundred millions sterling is a moderate estimate 
 of the money that has gone in railway construction without 
 yielding any dividend whatever. Indeed it may be questioned 
 
VI.] The State in relation to Railways. 189 
 
 whether on the whole railways, though incorporated under 
 special Acts of Parliament, have been one whit safer invest- 
 ments than banks and insurance and steamship companies 
 incorporated in the ordinary fashion under the Companies 
 Acts. After all, the best security the public can have for 
 the success of a new scheme is the character of the persons 
 associated with it as promoters and directors. And as long 
 as Parliament satisfies itself that the promotion of a new 
 scheme is bona fide and responsible, I am not clear that it 
 can do better than accept this fact as sufficient. 
 
 But there is another closely analogous function which can, 
 I think, be exercised by the Government with every prospect of 
 more useful result, namely, the supervision of the accounts 
 and statistics not merely of new but of established companies. 
 So long as companies are considered entitled to obtain, if 
 they can, a dividend at the current rate on the money they 
 have invested, the public has a right to know whether the 
 nominal amount of the capital does or does not correspond to 
 the sum spent on the construction and equipment of the lines. 
 Where payments aggregating nearly a hundred millions per 
 annum, more than five per cent, of the gross national income, 
 are concerned, the public is entitled to have access to figures 
 showing what services the companies render and at what 
 price, and what is to them the out-of-pocket cost of doing 
 the business. But no information on these points is attainable 
 at present. The railway returns published year by year 
 under the authority of our Board of Trade have been for 
 years past a byword among railway economists in every 
 other civilized country. The State would, in my judgement, 
 not only be acting within its undoubted right, but be taking 
 a step of the utmost practical importance, if it called on 
 the companies to submit their accounts to State inspection, 
 and to furnish statistics showing in an adequate manner 
 their general course of business. 
 
 In the next place, a public authority will naturally exercise 
 control over the arrangements which involve the safety of 
 the public, level crossings, height of platforms, methods of 
 signalling and interlocking, methods of train- working, and so 
 
I go A Policy of Free Exchange. [vi. 
 
 forth. It seems to me impossible to deny the justification for 
 such control, but equally impossible to doubt that its practical 
 working in England is far from satisfactory. A State 
 department is almost bound to establish rigid codes of rules ; 
 it dare not lay itself open to charges of partiality and favour- 
 itism by varying its regulations to suit the infinitely various 
 circumstances of practical everyday life. Regulations, there- 
 fore, have to be laid down more or less by a method of 
 average ; but an average can only be drawn too low for the 
 top and too high for the bottom. We find accordingly, on 
 the one hand, important stations left without safety appliances 
 that in their case might fairly be called necessary, and 
 directors and managers sheltering themselves under the plea 
 that the Board of Trade does not prescribe their use as obli- 
 gatory; while, on the other hand, petty railways in poor 
 districts may be crushed by the burden laid upon them of 
 providing even the average standard of safety appliances. 
 Further, the Government ofiicials are not responsible for 
 commercial results, and cannot be expected to regard the 
 shareholders' dividends, while they do incur a serious personal 
 responsibility if they permit poor railways to forego the use 
 of safety appliances merely on the ground of cost. Naturally, 
 therefore, the average of demand will be fixed too high 
 rather than too low. Theoretically, the result may be merely 
 to reduce dividends, and what is money, says the common 
 opinion, compared to human life. Practically, however, the 
 result is to prevent the making and working of railways in 
 poor districts altogether; in other words, to deprive the 
 public of the almost perfect safety of even the most primitive 
 railway, and to leave them face to face with the comparatively 
 appalling risk of transit in stage coaches and cai'riers' carts ^. 
 
 ' I believe I am correct in saying impotence of statistics to touch the 
 
 that since the beginning of this year imagination can hardly be better 
 
 more passengers have been killed and illustrated than by the fact that, 
 
 seriously injured in stage coach than while we constantly hear of the 
 
 in train accidents. This would make dangers of railway travelling, the 
 
 the percentage of risk run in these man who dares to climb the box seat 
 
 two means of conveyance roughly of a coach is seldom acclaimed as a 
 
 something like 10,000 to i. The hero. 
 
VI. J The State in relation to Railways. 191 
 
 We come, lastly, to the crucial point in railway adminis- 
 tration, the control of tariffs, meaning thereby, be it observed, 
 not only the rates and fares charged, but the services rendered 
 in return therefor. That the State must interfere here may, 
 I think, be taken for granted. Our own Government from 
 the very earliest days of canal legislation has always fixed 
 schedules of maximum tolls. In the United States too the 
 States which began to interfere earliest have been precisely 
 those which have found the question of the measure and 
 methods of interference least insoluble. At the same time, 
 we must recognize also that the problem is one of the most 
 difficult in the whole range of economic legislation. To quote 
 from a report adopted by a Convention of the State Railroad 
 Commissioners held at Washington in April, t 893 : ' To fix 
 a standard for reasonable rates is a duty that demands the 
 gravest and most serious consideration and the most thorough 
 independence . . . The law of the carrier requires him to 
 perform the service for a reasonable rate. The railway 
 freight agent, the shipper (trader), the granger, the politician, 
 and the legislator, all agree that rates should be reasonable. 
 This is all they seek and all they ask. When they attempt 
 to arrive at what is reasonable their views are widely 
 different. Who then shall determine ? Usually the party 
 who feels aggrieved calls upon the State that has chartered 
 these corporations to fix a standard. What the standard 
 shall be, or how prescribe some rule, some law, or some 
 formula by which rates may be measured, has been a problem 
 that has puzzled the wisest and most thoughtful minds. Our 
 belief is that this invariable standard cannot be found.' 
 
 It is usually admitted that the State can only successfully 
 perform services which are of a routine and non-speculative 
 character. All experience shows that the railways which 
 have had the most flexible and most commercial — one might 
 almost say, most speculative-tariffs, have been those which 
 have done most for the development of the country^. 
 
 ' The fascination of the tlieory of subject the ordinary retail traffic of 
 an ideal uniformity has indeed in- the country to equal mileage rates, 
 duced the Prussian Government to the same for a ton of gray shirtings 
 
192 A Policy of Free Exchange. [vi. 
 
 Government interference must naturally make for inflexibility 
 and routine; yet Government interference we cannot away 
 with. All we can do is to see that the interference shall go 
 on right lines and approach the subject from the proper point 
 of view. What that point of view should be, it therefore 
 becomes necessary for us to inquire. 
 
 Control of railway charges is commonly justified on the 
 ground that railways have a monopoly, or at least a practical 
 monopoly. The argument will not hold water when we 
 come to examine it. For what is a monopoly ? It is defined 
 in the dictionaries as ' an exclusive right of selling.' This no 
 English railway ever has had. Not only has competition by 
 water and by road always remained open, but Parliament has 
 never hesitated — at least for a generation past — to sanction 
 competition by a rival railway. To take the most recent 
 instance — the North Western and the Midland and the Great 
 Northern asserted, and with perfect truth, that they were 
 ready and anxious to carry every ton of traffic that presented 
 itself between London on the one hand and Manchester, 
 Sheffield, Nottingham, and Rugby, on the other. Yet, after 
 full consideration. Parliament deliberately sanctioned a new 
 competing route. Where then is the exclusive right of the 
 existing railways? But the monopoly, though not legal, is, 
 we are told, ' practical,' ' virtual.' In this sense there are few 
 undertakings that are not monopolies. ' An apple stand,' says 
 an American writer, 'is a monopoly up to the point when 
 it begins to pay.' The existing railways have undoubtedly 
 secured the best location ; they have also the advantage 
 of a long-established connexion. But is this practical 
 monopoly? Have Bo ad Street shopkeepers a monopoly 
 because the number of Bond Street shops is limited % Have 
 
 as for a ton of silk velvet. But when German ports of Hamburg and 
 
 it comes to serious matters, to en- Bremen, theory and ideals go to 
 
 abling German agriculturists and the winds, and the German Govern- 
 
 millers to hold their own against the ment frankly puts out special tariffs 
 
 competition of Russia and Hungary based wholly on what the traffic will 
 
 and the United States, or to divert- bear ; in other words, on the very 
 
 ing the traffic of Westphalia from unideal consideration of commercial 
 
 Antwerp and Amsterdam to the competition. 
 
vi.J The State in relation to Railways. 193 
 
 London bankers a monopoly because there is no room for 
 newcomers in the Bankers' Clearing House? Or, again, 
 is a newspaper a virtual monopoly? A newly established 
 journal which should fill twenty columns per diem with the 
 proceedings of the House of Commons would bankrupt its 
 proprietor, were he a Rothschild or an Astor, in a twelvemonth. 
 The Times can do it because it is the Times. Is the Tivies, 
 therefore, a practical monopoly ? 
 
 Again, it is said that the fact that the Company has been 
 suffered to take land compulsorily is a justification not only 
 for State interference, but for exceptional taxation. This 
 argument will hold water even less than the last. The power 
 to take land by compulsion was not a present made to the 
 railway. It is a function inherent in the State itself, exercised 
 indeed through the agency of the Company, but exercised by 
 the direct action of the State itself, as a consequence of the 
 deliberate decision of the legislature that such compulsory 
 expropriation in the particular case is for the benefit of the 
 public at large. So fully indeed is the fact recognized, that 
 public interest is the only justification for compulsory powers 
 of purchase, that the Standing Orders of the House of Lords 
 in terms provide for striking out compulsory powers from 
 any Bill whose ' direct object is to serve private interests 
 in any lands, mines, manufactories, or other properties.' The 
 privilege conferred on the railway proprietors, so far at least 
 as pecuniary benefit is concerned, may be said to be permission 
 to pay every landowner along the route a sum of at least 
 ten per cent, more than the maximum value of his property. 
 There might be some justification for regarding this as a 
 reason for laying exceptional taxation on the dispossessed 
 landowner, but on the expropriating railway hardly. 
 
 Once more, it is said, the special Act of Parliament au- 
 thorizing the construction of a line should be regarded as 
 a bargain made by Parliament, acting on behalf of the public 
 at large, with the Eailway Company. Be it so, but unfortu- 
 nately the bargain secures for the public nothing worth 
 having. We have had schedules of maximum rates imposed 
 with this object for two generations past. Except in a very 
 
 o 
 
1 94 A Policy of Free Exchange, [vi. 
 
 few instances and under quite special circumstances they were 
 of no use to anybody. The Companies habitually charged 
 far below them. And, though useless, it cannot be said that 
 they were innocuous, for it is, I think, unquestionable that 
 the tendency of holding up before the railway managers the 
 schedule of rates fixed by Parliament as reasonable for them 
 to charge has been to keep rates higher than they would 
 naturally have been, had each Company been left free to 
 experiment for itself. It is impossible to doubt that in some 
 instances managers, had they been free to charge what they 
 liked, would have established ridiculously prohibitive tariffs. 
 That no doubt, from one point of view, would have been hard 
 on the district, but at least the district would have been no 
 worse off than it was before the railway was made, and the 
 reduction of rates which self-interest must shortly have com- 
 pelled would not only have afforded a valuable object lesson 
 to neighbouring lines, but would very possibly have gone much 
 further than if, owing to Parliamentary compulsion, a less 
 unreasonable scale of rates had prevailed at the outset. 
 
 It will, of course, be understood that I am not arguing 
 against the abstract justice of statutory maximum rates. 
 Theoretically there is nothing to say against them ; prac- 
 tically, however, the policy has proved a failure. 'Every 
 careful student of the question,' writes Professor Hadley, 
 ' from Morrison in 1836 down to the Committees of 1872 and 
 1882 has come to the conclusion that fixed maxima are of 
 n^xt to no use in preventing extortion.' Unfortunately, the 
 British public and the British House of Commons has a 
 sovereign contempt for careful students, and prefers to trust 
 to the rule-of-thunib guidance of the practical man. Its 
 recent experiments in the revision of maxima have, however, 
 now, I hope, finally convinced even that most impractical 
 of mortals, the practical man, that a schedule of maximum 
 rates is a double-edged weapon. The fixing of maximum 
 rates is not likely, perhaps, to come back into fashion as 
 a panacea for railway grievances till a new generation has 
 arisen both of politicians and traders. 'Maximum rates,' 
 said Sir Albert Rollit, in his address as president of the 
 
VI.] The State in relation to Railways. 195 
 
 Associated Chambers of Commerce at Plymouth last Septem- 
 ber, — 'maximum rates are dangerous delusions, and they 
 afford little, if any, practical protection to the trader.' The 
 same may be said of various other forms of control that have 
 from time to time been suggested or attempted. Limitation 
 of dividend, sliding scales, periodic revision of rates, — all may 
 be excellent in theory ; only, unfortunately, they are quite 
 unworkable in practice. 
 
 But State interference may be based on a different principle 
 altogether. Without regarding railway companies as grantees 
 of a monopoly, and as such subjecting them to exceptional 
 burdens, the State is surely entitled to say that their position 
 is such that real free contract between a railway company 
 and an ordinary private citizen, in reference to each individual 
 passenger journey or consignment of goods, is out of the ques- 
 tion. Neither cabmen nor pilots have, in any ordinary sense, 
 a monopoly, nor have they ever been regarded as fit subjects 
 for exceptional taxation^ ; yet the civilized world agrees that 
 cabmen and pilots must be licensed and their charges regulated 
 by outside authority. So too I believe that the State should 
 interfere in order to secure that the charges of railway 
 companies shall be equal and fair to all their customers alike. 
 In other words, the State must abandon the attempt to deal 
 with railway charges as excessive and concern itself, not 
 with their total amount, but only with their relative pro- 
 portion. The principle is simple enough ; the application 
 of it is, it must be confessed, of extraordinary difficulty. To 
 take a well-known instance of Mr. Grierson's, the Great 
 Western rate for coke from South Wales to Wiltshire may 
 give the Westbury Iron Company an undue preference over 
 
 ■ The hackney carriage license this. But, of course, tliese duties 
 duties in London are historically a might quite well be justified on the 
 survival from the days when loco- ground of the excessive user by 
 motion, like everything else, was hackney carriages of the iondon 
 taxed. And it is mainly owing to streets, and in that case would be 
 the fact that the Chief Commissioner only another form of the very equit- 
 of Police is a subordinate of the Home able principle involved in the High- 
 Office and not a London local official ways (Locomotives) Amendment Act, 
 at all that they have not been swept 1878. 
 away, or at least largely modified, ere 
 
 O % 
 
1 96 A Policy of Free Exchange. [vi. 
 
 its competitors at Coalbrookdale in Shropshire ; or, going yet 
 further afield, the rate for American meat from Liverpool to 
 London may be unfair to the cattle dealers in Yorkshire or 
 Norfolk. 
 
 We have admitted it to be the duty of the State to prevent 
 undue preference. Before, therefore, going further, it is 
 desirable to see clearly what undue preference is. The phrase 
 is often used to cover two widely different things. A and B 
 are, let us say, rival tradesmen in London sending goods to 
 Cambridge. If each of them sends a hundredweight of sugar 
 of the same kind, packed in the same way, and the one is 
 charged is. and the other is. 3c?., that is one kind of undue 
 preference. But suppose that they are both charged by the 
 North-Western Company is. to Cambridge and is. %d. to Oxford, 
 though the distance carried in the former case is fourteen miles 
 more than in the latter, this may be called undue preference 
 of Cambridge over Oxford ^. But it is undue preference, if it 
 be undue, of a very different kind. The first case is practically 
 non-existent in England. It happened largely in the early 
 days of railways, and it has been continued, more or less, down 
 to the present time in the United States. It is in conformity 
 with the ordinary principles of business life. A is perhaps 
 a large customer whom it is desirable to conciliate ; 5's custom 
 may not be worth consideration. Or, again, A may be a keen 
 man of business who always drives the best bargain he can ; 
 B a happy-go-lucky individual who pays what is demanded 
 and asks no question. In ordinary commercial life A would 
 undoubtedly get better terms than B. No merchant sees 
 anything disgraceful in allowing a friend to purchase from 
 him retail quantities at the wholesale rate ; no merchant 
 would deny that he shades off his prices sooner than allow 
 his customer to go away without doing business at all. 
 
 ' In this case the explanation is, of Western, with a distance of 63 miles, 
 course, obvious on the face of the For its 78 miles to Ojcford the North- 
 map. The North-Western ia not the Western can charge, therefore, as for 
 direct line to either town. To Cam- 63 miles ; while for its 92 miles to 
 liridge the rate is fixed by the Great Cambridge it can only charge as for 
 Eahtern, with a route only 55-J miles 55J. 
 in length ; to Oxford by the Groat 
 
VI.] The State in relation to Railways. 197 
 
 Priima facie, there is nothing immoral in such transactions. 
 But from very early times it was seen that when one party 
 to the bargain was a railway company, doing business on 
 such a scale that it could afford to forego a profit, or even to 
 incur a loss, on individual transactions, or sets of transactions, 
 for an indefinite time without feeling the consequences, such 
 liberty must lead to serious abuses. A company would be 
 able to wreck the business of any merchant or manufacturer 
 against whom it had a grudge, or even, it might be, out of 
 mere caprice, or in order to favour a rival firm. Such a state of 
 things was obviously intolerable. As long ago, therefore,as 1 845, 
 public legislation — Private Acts of a much earlier date con- 
 tained the same provision — required that all charges should at 
 all times be equal under like circumstances, and that no reduc- 
 tion or advance should be made, either directly or indirectly, in 
 favour of or against any particular company or person using 
 the railway. The Traffic Act of 1854 carried the matter 
 a stage further ; and subsequent Acts have laid it down that 
 all rates shall be public, so that every one can see for himself 
 what the company professes to be charging for the carriage of 
 each article. The upshot of this legislation, coupled with the 
 very determined action of the courts of justice under it, has 
 been that for a generation past undue preferences in the first 
 sense — they call them ' personal discriminations ' across the 
 Atlantic — have been a thing unheard of. ' It is remarkable,' 
 says the Report of the House of Commons' Committee of 1883, 
 after an exhaustive investigation, ' that no witnesses have 
 appeared to complain of preferences given to individuals by 
 railway companies as acts of private favour or partiality, 
 such as were more or less frequent during the years immedi- 
 ately preceding the Act of 1 854.' 
 
 The other class of preferences exist by the million, and are 
 given by every government railway in the world ; whether 
 they be due or undue is a question of extreme difficulty — 
 a question on which, when the cases get near the dividing 
 line, two equally competent and equally impartial judges 
 may hold diametrically opposed opinions. Preferences of 
 this kind may be roughly classified iato preference of one 
 
1 98 A Policy of Free Exchange. [vi. 
 
 locality, whether of origin or destination, over another, and 
 of one method of consignment (including therein volume, 
 method of packing, responsibility for loss or damage, and so 
 on) over another. Undue preferences, then, in the fii-st sense, 
 'acts of private favour or partiality,' are, like St. John's 
 famous fox, to be knocked on the head, wherever they are 
 found, with every weapon the State may have at its disposal. 
 It remains for us to consider by what machinery the State 
 shall exercise its control to prevent preferences of the second 
 class, which must of necessity exist, from becoming undue. 
 
 In the first place, of course, it can act by legislation ; but, 
 practically speaking, such legislation must simply confine 
 itself to generaUties. Some American State legislatures have 
 indeed attempted to embody detailed railway rates and 
 regulations in statutes, but their success has not been such as 
 to encourage others to emulate their example. Other States 
 have entrusted a power of fixing rates to the almost unfettered 
 discretion of one or more commissioners appointed for this 
 purpose. This experiment too has practically been abandoned 
 as a conspicuous failure. In some States, however, it lasted 
 long enough to prove that the equitable adjustment of the 
 conflicting claims of rival localities was not made easier 
 by the fact that the person entrusted with the task happened 
 to be a State ofiicial. Even where the legislature has confined 
 itself to generalities its incompetence to deal with questions 
 of this character is only too apparent. Take, for example, the 
 twenty-seventh section of our most recent general Act — the 
 Railway and Canal Traffic Act 1888 : 'The Court may take 
 into consideration whether such difference in treatment is 
 necessary for the purpose of securing in the interests of the 
 public the traffic' What public ? And who is to represent 
 the interests of this indefinite public before the court? 
 a lawyer asks, in respectful bewilderment. Or, again : ' No 
 railway company shall make, nor shall the court or the 
 commissioners sanction, any difierence in the tolls, rates or 
 charges made for or any difierence in the treatment of home 
 and foreign merchandise in respect of the same or similar 
 services.' No doubt the noble lord who was responsible 
 
VI.] The State in relation to Railways. 199 
 
 for the insertion of this proviso, and the two Houses of Parlia- 
 ment who passed it into law, did so with the best intentions. 
 The railway companies were so determined to 'favour the 
 foreigner' — from whom at best they could only get a mere 
 fraction of their traffic — even at the risk of bleeding to death 
 his English rival, on whom they were bound to rely for 
 ninety-five per cent, of their livelihood, that it was no doubt 
 necessary to stop them at all hazards. But really this 
 proviso does not help much. What are ' similar services ' ? 
 Is the service of carrying a ton of Texas beef, part of a con- 
 signment of a hundred tons, the one-twenty-fifth part of its 
 journey which lies on Enghsh soil, the same as the service of 
 carrying the four quarters of an English bullock the whole 
 way from the pastures in Cheshire to the Smithfield Meat 
 Market ? Or is it totally dissimilar ? The Act of Parliament 
 sounds very patriotic, even though its patriotism seem not 
 wholly in conformity with the teachings of the Cobden Club, 
 but it fails to guide us as to the principles to be kept in view 
 in the solution of the practical question. 
 
 If, then, legislative regulation be impossible, the task must 
 be left in the hands either of the Executive or of the courts 
 of justice. The leading example of Executive control is 
 furnished by France. In France no railway rate can be 
 altered either up or down ; none of the conditions of carriage 
 can be modified in the slightest degree, without the formal 
 assent and consent of a minister of State. The initiative 
 rests with the companies ; but before any alteration suggested 
 by them comes into practical operation it is submitted to 
 a whole hierarchy of State officials for report, and finally to 
 the exhaustive consideration of a council of over fifty 
 persons, one-half of them highly placed Civil servants, and 
 the other half representatives of mercantile, agricultural and 
 manufacturing interests. Having regard to the constant 
 financial support given by the Government to the French 
 railway companies, such a system may be possible in France, 
 and yet not be capable of transplantation here, where the 
 companies have buUt their lines at their own sole cost and risk. 
 
 But even in France its disadvantages are tolerably obvious. 
 
200 A Policy of Free Exchange. [vi. 
 
 For one thing the cost is enormous. To say that the com- 
 pany must first of all propose a change, and that, secondly, 
 the Government must investigate and decide whether to 
 approve or no, means in plain English that the whole work 
 of management must be done twice over. The French 
 control staff numbers over i,ooo persons. It costs about 
 £160,000 per annum, and the complaints are constant that 
 both staff and salaries are insufficient. Further, a duplicate 
 system, especially when one-half is in Government hands, 
 naturally implies very considerable delay; and such delay, 
 though none too acceptable in France, in the main a self- 
 contained country, would be quite intolerable here, where we 
 have to face the competition of the world at large. Tenders, 
 for instance, are invited for the construction of a bridge over 
 the Danube at Pesth. At Derby there is a famous firm of 
 bridge-builders who would like to put in. Before doing so, 
 however, they must know whether for a consignment of 
 10,000 tons of steel, the Midland is prepared to give them 
 a special rate to Hull or to Liverpool or to the London Docks. 
 The matter can be settled at present by a call at the goods 
 manager's office, followed by an interchange of telegrams 
 with the North-Western and the Great Northern. An answer 
 is given next morning at the furthest. But it takes an English 
 Government department as a rule ten days to acknowledge 
 the receipt of a letter, and certainly two months to investigate 
 the simplest cases. 
 
 But there is yet another objection of principle. It is a fatal 
 blot on any system that it divorces power from responsibility. 
 In France the Government guarantees the railway dividends ; 
 having, therefore, the power, it has also the responsibility. But 
 with us ? A new special rate might develop trade, and so add, 
 not only to the dividend of the company, but to the wealth of 
 the country at large. But it is certain to rouse the jealousy of 
 a host of neighbours to whom it is not extended. Why should 
 any Government department sanction such a rate and risk 
 the asking of a dozen inconvenient questions in the House of 
 Commons? It is always so easy to utter platitudes about 
 the obligation of preferring the general welfare to the interest 
 
vi.] The State in relation to Railways. 201 
 
 of one particular applicant. On the other hand, the general 
 manager of the railway cannot fairly be held responsible if 
 he is not permitted to manage it ; and, further, it takes the 
 heart out of a man's work if you keep him in leading strings 
 at every step ^. The following generalization is not, I believe, 
 too wide. The whole tendency of modern commerce is to 
 concentrate business into great aggregations, and the con- 
 cession of special railway rates is only one exemplification of 
 this tendency. In its working it undoubtedly inflicts some 
 hardship on individuals, but this is more than counterbalanced 
 by the benefit to society at large. Any interference by an out- 
 side authority with the free play of commercial forces may be 
 expected to be in the interest of the tangible individual who 
 complains rather than in that of the public at large, which 
 has no opportunity of making its voice heard, even if, indeed, 
 it were conscious of its interest in the matter. Such inter- 
 ference, therefore, is, in the public interest, to be deprecated 
 and to be kept down to the irreducible minimum. 
 
 For that there is such a minimum has been admitted from 
 the outset. The free play of commercial forces is all very 
 well in its way ; but when the scales are pulled by the 
 North-Western Eailway on the one side and by the local 
 shopkeeper on the other, the interests of the latter are likely 
 to kick the beam. Still, as it seems to me, the shopkeeper 
 should be sufficiently protected by an appeal being given him 
 to a properly constituted court of justice. Such a court, of 
 course, can interfere only after the event ; and prevention is 
 usually regarded as better than cure. Still, if prevention is 
 only possible at the price of a bodyguard of physicians in 
 constant attendance, one may buy one's immunity from 
 
 ' It is five years since we had any methods of working (signals, brakes, 
 
 conspicuous improvement in English block system, mixed trains, &c.), 
 
 railway service. Even in passenger railway servants' hours of labour, 
 
 service, in which we led the world, employers' liability, &c., &c. The 
 
 without equal or second, a few years railway chiefs have been occupied, 
 
 back, the Americans are going ahead mistakenly perhaps, in endeavouring 
 
 of us in all directions. This is no to minimise that regulation. They 
 
 accident. The Board of Trade and have had neither time nor heart to 
 
 Parliament and the public have been think of improvements, 
 regulating railway rates, railway 
 
202 A Policy of Free Exchange. [vi, 
 
 disease too dear. Moreover, a court of justice, by a series 
 of decisions, gradually builds up a code of law on the subject ; 
 and in this way the cure of one case really constitutes the 
 prevention of fresh outbreaks of the same complaint. 
 
 Obviously such a court is no patent remedy for all railway 
 diseases ; but experience shows it to be the best attainable 
 in this imperfect world. The difficulty is, however, to get it. 
 Such a court must consist of several members, for the 
 bearings of these railway cases are so wide that no one mind 
 can be expected to grasp the whole of them. Then the 
 questions involved are not merely legal. The ideal judge 
 should be not simply a lawyer, but a trained economist, with 
 a practical knowledge of railway management and business 
 methods as well. So far from a judge being thrown away on 
 such matters, as more than one Member of Parliament has 
 stated of late, what we want is something more than an 
 ordinary judge. And we shall only get such men when the 
 public realize that this question of railway control has come 
 to stay, and is not to be settled oiF-hand by haphazard 
 resolutions of chambers of commerce, or even by the passage 
 of unworkable statutes. There is another point. Having got 
 your court, you must make it possible for a complainant who 
 is not a millionaire to go there. The railway companies have 
 akeady expressed their readiness to accept the idea that as 
 a general rule each side, whatever be the results, should pay 
 its own costs. I believe that substantial justice would be 
 done by going even further and providing that, while the 
 railway company was left, if successful, to pay, except in 
 extreme instances, its own costs, the commission should be 
 empowered to give, under ordinary circumstances, to a suc- 
 cessful applicant costs against the company. 
 
 But, even when we have got an ideal court for the decision 
 of these questions, there will still remain important functions 
 to be discharged by the Executive Government. It is as true 
 in the moral as in the material world, that corrupt matter is 
 rapidly oxygenated and rendered harmless by the action of 
 light and air. It should be the business of the Executive to 
 investigate alleged abuses, and, where they are proved to 
 
VI.] The State in relation to Railways. 203 
 
 exist, to publish the fact. Abuses brought to light will mainly 
 right themselves. There is nothing more remarkable than 
 the sensitiveness of great corporations to public opinion. 
 Not but that such sensitiveness is natural enough. A great 
 corporation offers so big a mark to shoot at that it is bound 
 to be hit if once it provokes the public to take to their 
 weapons. And the men who manage our great companies 
 are well aware of this. Or, if any one amongst them should 
 be for a moment foolish enough to forget it, his colleagues 
 may be trusted to remind him by the exercise of some such 
 corporate discipline as is exercised, almost as a matter of 
 course, in the old-established professions. Of this sensitive- 
 ness to public opinion this very year has furnished a most 
 striking instance. Parliament, after an exhaustive investi- 
 gation of the subject lasting for over eleven years, solemnly 
 enacted that from the first of January the railway com- 
 panies should be entitled to make certain charges. Un- 
 advisedly, as their own official representatives have since 
 admitted, and without explanation or apology, the railway 
 companies proceeded to exercise in full the rights which 
 Parliament had most deliberately given them. Public opinion 
 strongly disapproved of their action. An unopposed resolution 
 of the House of Commons condemned it, and within three 
 months the companies had been constrained to abandon the 
 attempt to exercise their unquestionable legal right. In the 
 face of this experience it would seem evident that pubhc 
 opinion does not, at any rate, lack force. The object of 
 the interference of the Executive Government should be to 
 supply it with the facts and, where necessary, with the 
 commentary required for its correct guidance. 
 
 It may seem almost an insult to the Executive to propose 
 to confine it to the humble function of purveying information. 
 And yet we cannot be too often reminded that the action of 
 the State — however large be the capitals in which we write 
 the word — means only the action of the handful of fallible, 
 perhaps arbitrary, possibly not wholly disinterested indi- 
 viduals, who on any particular occasion are its instruments. 
 Now we may fairly expect that these individuals will inves- 
 
204 -^ Policy of Free\ Exchange. [vi. 
 
 tigate more carefully and weigh their decisions more deliber- 
 ately when they have to make them prevail by their own 
 inherent rightfulness than when they are empowered to give 
 a peremptory order and let their will avouch the deed. And 
 in matters such as these, where, to borrow from a recent 
 judgement of Mr. Justice Wills, a wrong decision would 
 ' check competition, hamper enterprise, and enhance the price 
 of many articles of primary necessity, . . . ruin many indi- 
 viduals, and amount to an economic revolution in much of the 
 business of the country,' we must be satisfied to move but 
 slowly, so only that we move in the right direction. 
 
 Experience of our own railway history, still more of the 
 railway history of the United States, is available to confirm 
 these a prion reasonings. For twenty years the inspecting 
 ofiicers of our Board of Trade had practically no powers 
 except to investigate and report. But by the constant 
 employment of these powers, and with the force of public 
 opinion behind them, they made English railway traveUing 
 incomparably the safest in the world. In an evil hour 
 Parliament passed the Eailway Regulation Act, 1889. The 
 Board of Trade could order where before it could only advise, 
 and rejoicing, one must suppose, in its new-won authority, 
 it proceeded forthwith to strike a general average for the 
 railways of the United Kingdom, and to prescribe for the 
 railways of Caithness and Cardigan requirements well enough 
 adapted for the latitude of London. Last session we heard 
 more than once of public bodies in remote localities imploring 
 in vain that the Board of Trade would sufier passengers to 
 run the risk of travelling in company with goods waggons 
 rather than be deprived of a train service altogether. But 
 the Board was inexorable. It had formed its ideal of what 
 a passenger service ought to be, and the railway companies 
 must be compelled to give that or nothing. So in fact they 
 will give nothing, and the Board of Trade will no doubt be 
 satisfied. 
 
 To take another instance, fortunately of a more satisfactory 
 character. In America the control of railways was down to 
 1887 exclusively, and is still mainly, in the hands of the 
 
VI.] The State in relation to Railways. 205 
 
 separate State governments, and the experience of these forty- 
 different bodies is a perfect mine of instruction for those who 
 wish to appreciate at once the difficulties and the possibilities 
 of government control '^. Broadly speaking, the States of the 
 American Union have divided themselves on this question 
 into two opposite camps. Those of the East and North, led 
 by Massachusetts, have acted on one principle ; those of the 
 South and West, led by Illinois, have adopted quite another. 
 Both groups of States have appointed commissions to control 
 the railways ; but while the Illinois Commission possesses 
 large powers, the powers entrusted to the Massachusetts Com- 
 mission — so says Mr. C. F. Adams, who for ten years was its 
 chairman — ' hardly deserved the name . . . The only appeal 
 provided was to publicity . . . The Commissioners had to 
 listen, and they might investigate and report — they could do 
 little more.' To quote Mr. Adams again, the Massachusetts 
 type of commission means only publicity, the Illinois type 
 means the constable. 
 
 And now to summarize, equally broadly, the results. The 
 commissions of the Illinois type have been in perpetual hot 
 water from the day of their birth. Their powers have been 
 increased and then again diminished, or even withdrawn 
 entirely at a stroke. They have reduced railway companies 
 by the score to banki-uptcy. But the more they have 
 oppressed the companies the less the public at large have 
 appeared to be satisfied. Finally, in despair, they have thrown 
 the reins on the neck of the steed, and left the companies to 
 take their own course almost unchecked. At the present 
 time there is hardly one of the State Commissions of the 
 compulsory type which attempts to exercise the powers which 
 are nominally vested in it. Meanwhile, the Massachusetts 
 Commission has constantly increased both its authority over 
 
 ' There is no one work with which I have myself attempted, in evidence 
 
 I am acquainted adequately dealing before the House of Commons Com- 
 
 vrith this chapter of railway history. mittee of last session on Railway 
 
 Its general tenour may be learnt Eates, to make the outlines of the 
 
 from Hadley's Railroad Transportation, story accessible— if anything in a 
 
 C. T. Adams' Railway Problem, and Blue Book ever is accessible— to 
 
 Clark's State Railroad Commissions. English readers. 
 
2o6 A Policy of Free Exchange. [vi. 
 
 the railways and its hold over public opinion. Whenever 
 a question arises, the Massachusetts Commission investigates 
 and publishes its conclusions. If it concludes against the 
 view taken by the railways, the company concerned finds 
 itself constrained to submit ; if, on the other hand, its report 
 endorses the action of the company, the public acquiesces and 
 the agitation dies down. In a word, the corner-stone on 
 which the Massachusetts railway legislation rests — and it is 
 the true foundation for the legislation of a free people — is, to 
 quote Mr. Adams yet again, ' the one great social feature 
 which distinguishes modern civiHzation from any other of 
 which we have a record, the eventual supremacy of an 
 enlightened public opinion.' 
 
 It might be argued that Massachusetts is not England. 
 ' The men of Massachusetts,' says Lord Macaulay, ' could work 
 any constitution.' Be it so, but we are not without preciselj' 
 similar experience in this country. The Eailway and Canal 
 Traffic Act of 1888, by a clause avowedly based on the 
 Massachusetts precedent, gave to the Board of Trade in 
 the matter of goods rates alleged to be oppressive these very 
 powers of investigation and publication. The clause has 
 only been in operation four years, and during almost the 
 whole of that time the goods rates of the different companies 
 were in the melting pot, and till they finally emerged, in their 
 new shape, it was scarcely worth any one's while to raise 
 fresh issues. Even so the Board of Trade has thrice reported 
 that the effect of the Conciliation Clause, as it is termed, has 
 been markedly beneficial. The railway companies have 
 almost without exception adopted the recommendations of the 
 Board of Trade, and as a rule their differences with their 
 customers have been amicably settled. But four years have 
 not been long enough to eradicate all trace of original sin 
 even from the three hundred and fifty thousand railway 
 officials and servants, still less has a method been found to 
 make any concession satisfactory to claimants who urge 
 simultaneously claims diametrically opposed the one to the 
 other. So we are now told that publicity has failed ; that 
 the constable's truncheon must be thrust into the reluctant 
 
VI.] The State in relation to Railways. 207 
 
 hand of the Board of Trade. It is not safe to prophesy unless 
 one knows. But no one who has studied these matters can 
 have the smallest doubt that if any government passes an Act 
 giving, either to a Court of Law — the Eailway Commission — 
 or to a government department — the Board of Trade — or even 
 to the tertium quid suggested by some leading authorities — 
 a ' cheap and expeditious tribunal ' composed of gentlemen 
 neither lawyers nor railways experts and with no experience 
 of administration — a power to arbitrate between railway 
 companies and their customers and to force both sides to 
 accept as final its decision whether a rate is reasonable or 
 unreasonable — if any government does pass such an Act 
 as this — and strong pressure in this direction is being brought 
 to bear by traders' associations at the present tirap — that 
 government will, before many months are out, have bitter 
 reason to regret its action, and may quite possibly find itself 
 in the humiliating position of being forced publicly to avow 
 its mistake and retrace its steps. 
 
 But enough. No attempt has been here made, nor is 
 indeed possible within the limits of this paper, to discuss 
 questions of detail. How far railway companies should be 
 free to amalgamate, or to enter into agreements to abandon 
 competition and divide traffic with each other ; whether they 
 shall be confined strictly to railway business, or allowed to 
 embark in subsidiary undertakings as dock and steamship 
 owners, or warehousemen, as hotel keepers, or cartage agents — 
 these and a score more questions of a like nature need the 
 most careful and deliberate consideration, but they cannot be 
 touched on here. Again, it is a question of principle of most 
 vital moment, how the railways of a country can best be 
 made subservient to its general prosperity. On the answer 
 to that question, which at any given time commends itself to 
 the minds of the controlling agents, miist depend the opinions 
 they express and the judgements they pronounce on the facts 
 of the concrete cases as they are brought before them^. But 
 
 ^ The United States Interstate that 'the practice of the Commission 
 Commerce Commission, in its sixth is so to administer the law as to pro- 
 and latest annual report, declares tect each locality in the enjoyment 
 
2o8 A Policy of Free Exchange. [vi. 
 
 this question, though its importance cannot be overrated, is 
 also foreign to our present scope. We must confine ourselves 
 here strictly to the question of the measure and method of 
 State interference. And on this question we may now 
 formulate our conclusions as follows : — 
 
 State ownership is undesirable, but State control is unavoid- 
 able. So far as that control has to do with matters of police, 
 with the security of the public, the proper treatment of 
 employes, and so forth, it is on all fours with inspection in 
 numerous other departments of daily life, and will naturally 
 be carried out by officials appointed by the Executive Govern- 
 ment. To the control of railways as commercial undertakings, 
 on the other hand, a different set of considerations apply. 
 Here the broad principle seems to be that the private investor, 
 paying the piper, must be allowed to call the tune, subject 
 only to this proviso — that no one customer of the railway shall 
 be allowed to obtain an unfair advantage over the rest. 
 Whether any particular advantage be in a given case fair or 
 unfair is a matter best left to the judicial decision of 
 a technically as well as legally qualified court. Where there 
 is no general agreement even as to the most elementary 
 principles of tarification — I make no apology for importing 
 across the Channel an absolutely necessary word — we are less 
 likely to go wrong if we confine ourselves to ex post facto 
 judgements on concrete facts which have arisen in actual 
 practice, and refuse to construct in advance symmetrical 
 
 of its natural advantages. . . . Each them. Further, had the theory that 
 community is entitled to the benefits a locality has a right to be protected 
 arising from its location and natural in the enjoyment of its natural ad- 
 conditions.' With all possible re- vantages been suffered to control 
 spect for the Commission I venture the railway policy of the past, the 
 to assert that its practice is nothing problem which the Commission now 
 of the kind. The only practice that has to solve of an equitable adjust- 
 even approaches conformity to this ment of competitive rates over the 
 theory would be the enjoinment on continent of North America would 
 the companies of equal mileage rates never have come into existence, for 
 for like commodities in like quan- the buffalo must have still shared 
 titles. And from such a course the with the Red Indian the undisturbed 
 strong common sense of the Com- occupation of the larger part of the 
 missioners may be trusted to preserve area of the United States. 
 
VI.] The State in relation to Railways. 209 
 
 edifices of theory. But there is also scope for useful action 
 on the part of the Executive Government, whose officers can in- 
 vestigate and report, both generally and when their attention 
 is specifically directed to alleged abuses. In this manner the 
 public will gradually be educated to form an intelligent 
 judgement, and the railway companies will be kept on their 
 good behaviour. 
 
 Such is the railway creed which I would put forward as 
 suitable for adoption, not semper, ubique, ah omnibus, but by 
 Englishmen in England at the present day. If it be objected 
 that it is mainly negative, that it amounts to little more than 
 dotting the 'i's and crossing the 't's of the existing system, 
 I venture to reply that therein lies its greatest recommenda- 
 tion. In the dark it behoves us to feel our way cautiously ; 
 and our legislatoi-s, with all respect be it said, are really very 
 much in the dark as to the economics of transportation. To 
 begin to run, as some distinguished persons are urging at this 
 moment, when we are not certain that we have started in the 
 right direction, and have no idea what obstacles there may 
 be across the road, may be human nature, but is certainly not 
 philosophic. Besides, simple publicity is an instrument whose 
 value cannot be exaggerated, and it is a weapon which has 
 hitherto been used, where used at all, only in the most 
 hesitating and half-hearted manner. Given the right men as 
 Government inspectors, with full access to facts and documents, 
 and the power to publish the conclusions which they draw 
 from them, powers of compulsion will be not merely super- 
 fluous but actually a hindrance. For, in England as in 
 Massachusetts, ' the eventual supremacy of an enlightened 
 public opinion' is matter of certainty. In our present 
 temper, however, ' eventual supremacy ' is not enough for us ; 
 we are all for reaching immediate supremacy by the short cut 
 of compulsion. In the words of a distinguished railway 
 authority, Professor H. G. Adams, of the Interstate Commerce 
 Commission, 'there is danger lest the quietness with which 
 the principle of publicity works should deprive it of the 
 confidence which it deserves.' The more reason, therefore, to 
 press home the point that the nearest approach to success in 
 
 p 
 
aio A Policy of Free Exchange. [vi. 
 
 the very difficult task of controlling without fettering the 
 commercial management of railways has been attained by 
 a system which, refusing altogether the assistance of the 
 constable, relies on the support of public opinion for its sole 
 sanction. 
 
 W. M. ACWOBTH. 
 
VII. 
 
 THE INTEREST 
 
 OF THE WOBKINa CLASS IN 
 
 FREE EXCHANGE. 
 
 T. MACKAY. 
 
 P 2 
 
VII. 
 
 THE INTEREST OF THE WOBKING CLASS 
 IN FREE EXCHANGE. 
 
 ' The property which every man has in his own labour^ as 
 it is the original foundation of all other property, so it is the 
 most sacred and inviolable.' Such is the axiom in which 
 Adam Smith proclaims the charter of human freedom. It is 
 a pregnant phrase, and the corollaries which follow from it 
 are far-reaching and important. A man's property in himself 
 gives him a right of exclusive use in his own labour, and, as 
 under the present subdivision of labour its principal use 
 will consist in being exchanged for wages, it gives him also 
 a right of Free Exchange. To argue that exchange should be 
 other than free is to countenance slaver}'^. This monopoly, or 
 exclusive power of sale over his own labour, is sacred and 
 inviolable. It can only be exercised by the free will of the 
 seller, that is to say, in Free Exchange. This universal right 
 vested in every seller of labour does not confer on any one 
 man a right to coinpel others to purchase his labour, for such 
 a forced exchange would be a violation of our axiom, in that 
 it compelled other men to part with their labour, or the results 
 of their labour, against their will. The axiom gives, there- 
 fore, no guarantee of employment, no droit au travail; it 
 merely affirms each man's exclusive right to take his own 
 labour and services to market. Further, if the greater may 
 be held to include the less, each man has the same right of 
 property over all that he obtains in exchange for his labour. 
 In other words, within the limits set by an enlightened juris- 
 prudence, a man is entitled to dispose of his wages as he 
 thinks fit. In the infinite series of exchanges here fore- 
 shadowed, labour is 'the original foundation of all other 
 
214 ^ Policy of Free Exchange. [vii. 
 
 property.' To complete our view of the organizing influence 
 of exchange, another deduction must be drawn, which seems 
 to follow naturally from the axiom above stated. It is, that 
 if a man has a right of sale he has also a right of gift. Hence 
 the jurisprudence of the civilized world, recognizing that 
 economically as well as physiologically the life of the child is 
 a continuation of the life of the parent, has sanctioned, what 
 it is probably powerless to forbid, the right of inheritance and 
 bequest, as being on the whole the simplest and most equitable 
 method of passing property from one generation to another. 
 Every man, then, has property in his own labour, his own 
 mental efforts, and in the values which neighbours freely give 
 him in exchange for these. Liberty and Property, or, as rela- 
 tively to an industrial society it may more suggestively be 
 stated, Free Exchange and Property are two inseparable 
 ideas. 
 
 It is hardly necessary to depart from the precedent of our 
 axiom, and to complicate the question by considering the case 
 of property held in virtue of alleged acts of illegal appro- 
 priation in a prehistoric past. Practically speaking, at the 
 present day all property rests on a title of labour bestowed, 
 or on some legal act of exchange or bequest. The current 
 controversy as to the ' unearned increment,' that is, as to the 
 right of private ownership in an undertaking like the New 
 River Company, or in ground-rents in the city of London, has 
 nothing to do with the validity of the original title. The 
 point raised is whether the State should not retain to itself 
 any increment of value which may arise from a future 
 concentration of demand on a particular water supply or 
 a particular bit of land. Our answer to this will depend on 
 our judgement as to the ability of the State to forecast the 
 course of demand, and as to the wisdom of leaving speculation 
 in land to private persons. If we admit that the State should 
 be a speculator in land values, there is no reason why now or 
 at any other time it should not, with a view of lightening 
 future taxation, purchase at the market rate land which, its 
 advisers think, is likely to rise in value. It is well, however, 
 to remember that if by chance it finds itself in possession 
 
VII.] The Interest of the Working Class. 215 
 
 of a site of enhanced value, it can only do what the private 
 owner does, namely, let it at a rack rent. To let it under its 
 market value, as fixed by the intensity of the demand for it, 
 is at once jobbery and favouritism, and has further the mis- 
 chievous consequence of concentrating population where the 
 high price of land, if left to itself, would tend to disperse it. 
 This intense concentration of demand on particular articles 
 is an unavoidable incident so long as men naturally or by 
 fashion continue to desire the same thing. It has, however, 
 this convenience, that the values which it creates are a kind 
 of natural consols. This is appreciated by the poorer classes, 
 as is evidenced by the fact that their own provident insti- 
 tutions invest a large amount of their funds in ground-rents. 
 All this, however, has nothing to do with the question of title, 
 and for the purpose of this discussion it is proposed to accept 
 the proposition that the property which every man has in his 
 own labour is the original foundation of all other property. 
 
 One assumption has been made, that a man has a monopoly 
 in his own labour and in the values for which he exchanges 
 his labour. If this be conceded, we have a justification of 
 the principle on which, though there are many lets and 
 hindrances to its full influence, the present basis of society 
 mainly rests ; we have also an acknowledgement that these 
 lets and hindrances are contrary to justice ; it remains to 
 be shown that we have found a principle, which, if these lets 
 and hindrances could be removed, is capable of ' moralizing ' 
 the whole organization of social life. 
 
 All things in process of evolution are of necessity imperfect, 
 and if we are analyzing society with a view of discovering 
 the principle of association most conducive to its welfare, we 
 waste our time if we search for one which has attained a parar 
 mount ascendency. If there is any principle which at this 
 moment has a complete and undisputed authority, the present 
 imperfect condition of society wUl be its conclusive condemna- 
 tion. If we are looking for a principle to which we can 
 without misgiving entrust the progress of the race, it ought to 
 have some of the following characteristics. It ought, in the 
 first place, to be a force already at work. It ought to be a rule 
 
2i6 A Policy of Free Exchange. [vii. 
 
 of conduct which has already established some authority for 
 good over human nature. It were hopeless to try to reorganize 
 society by a force which in the past mankind has consistently 
 ignored. Further, if we wish to recognize the influence which 
 makes for social progress, we should look for one which has 
 power to transform the lower and purely selfish motive into 
 the higher and social motive. To adopt the epigrammatic 
 phrase of Mr. Huxley's Eomanes lecture, we must look for 
 some principle which, in itself, is a ' pedagogue to virtue.' 
 
 All these conditions seem to be present in the principle of 
 Free Exchange. Without doubt it has played, and is playing, 
 a great part in the social economy of the civilized world. It 
 has not permeated, it is true, to every corner of society. 
 It has been restricted by the nature of things, and by human 
 artifice. Still, to those who permit themselves to indulge in 
 ideals, it is a principle capable of exorcising from human 
 character the instincts of the ' tiger and the ape,' by making 
 mutual interchange of service the all-pervading motive of our 
 associated life. 
 
 Even under our present subdivision of efibrt, no activity of 
 the economic man is entirely self-regarding. Men labour and 
 exchange their labour, or the products of their labour, for the 
 labour or products of other men. The man, therefore, who 
 wishes to receive much in exchange, must strive to perfect his 
 capacity for the service of his fellows. This influence afiects 
 not only manual labour, but every act of capitalization, for 
 the application of capital to production can only bring reward 
 to its author, so long as it ministers to the requirements of the 
 public. Capitalization, as we shall presently see, is essentially 
 a process of exchange. In this blending of the private with 
 the public motive, we may perceive the birth of a new senti- 
 ment and a new rule of conduct awakened, as it were, by this 
 elementary lesson of the ' cosmic pedagogue.' 
 
 On the other hand, it is acknowledged that this process of 
 evolution is incomplete, that the lower nature of the 'tiger 
 and the ape ' is by no means eradicated. Is it not conceivable, 
 however, that the slowness of our progress is due to the 
 inherent difficulty of the subject, to the dullness and obstinacy 
 
VII.] The Interest of the Working Class. 2 1 7 
 
 of the pupil, rather than to any defect in the teaching of the 
 pedagogue ? 
 
 It is the purpose of the following pages to trace the develop- 
 ment of the principle of Free Exchange, more especially as it 
 has affected the property and savings of the working class. 
 How far has it already been the foundation of social welfare ? 
 To what further heights of prosperity does it seem to beckon 
 us? To what extent is it a 'pedagogy' creating competent 
 social habits and character in the beings that live within its 
 organizing influence ? 
 
 To the poor man, his most important, as well as his most 
 sacred, possession must ever be his own labour. His savings 
 are in all probability of small amount, and their rise upon the 
 original foundation of his labour has been of recent date. The 
 labour market, therefore, is to him of the highest importance. 
 To the man who has anything to sell, more especially to the 
 man who deals in a commodity, which, like labour, will not 
 keep, it is an advantage to be brought into contact with the 
 largest possible number of buyers. This is the function of 
 a market or exchange. In a great organized market, prices 
 are fixed in an automatic fashion, into which no personal 
 element can enter. In the general extension of the open 
 market which has been going on for many years under the 
 influence of free trade^ some things tend to rise in value, 
 others to fall in value. To which of these classes does labour 
 belong 1 
 
 A sovereign will exchange for a greater quantity of wheat 
 or for a greater quantity of clothing than fifty years ago. On 
 the other hand, it will purchase a less quantity of labour. 
 The rule would seem to be, that those things which can be 
 produced practically at will, tend to depreciate in value ; 
 while those things of which the supply is more or less in- 
 capable of being immediately increased, tend to appreciate in 
 value. There would seem to be reason for thinking that in the 
 past, at all events, the value of labour has been enhanced. 
 
 We are hearing a good deal nowadays of the alleged 
 appreciation of gold. It is argued that the value of gold has 
 
2 1 8 A Policy of Free Exchange. [vii. 
 
 risen because the number of exchanges in which it has to 
 serve as a measure has increased far more rapidly than the 
 production of gold. This, of course, is denied by some who 
 are of opinion that the annual production, and the economies 
 in the use of bullion effected by various expedients of credit, 
 have kept pace with the public requirement for this precious 
 metal. No opinion is here offered on the question, it is cited 
 only to bring out the general admission, that if an article of 
 universal demand is supplied in limited quantities, its value 
 relatively to other exchangeable commodities, which iucrease 
 less rapidly, must be enhanced. The universal demand for 
 gold consists largely in the right of mintage afforded by the 
 governments of the gold-using countries of the world. By 
 means of the mint, gold bullion is assured of its market, and 
 passed into the currency of the country. It is the object of 
 civilization to organize a similar market for labour. 
 
 Let us pursue the comparison a little further. Labour even 
 more than gold is a necessary element in most operations of 
 industry and exchange. Credit can serve as a substitute for 
 gold, but no substitute can be found for labour. Lnproved 
 machinery does not dispense with labour, on the contrary, it 
 makes *a higher demand for skill and trustworthiness and for 
 the higher forms of labour. Labour, moreover, unlike gold, can 
 be applied to an infinite variety of purposes. Every increase 
 of the labour population ought, and to a certain extent does, 
 create a demand for its own employment. Given a number 
 of employable but unemployed labourers, a well-organized 
 market ought to afford them an opportunity for a profitable 
 exchange of services. A glut of gold in the bullion market, 
 owing to fresh discoveries, is a conceivable thing, and indeed 
 has happened before now, bringing with it a depreciation in 
 the value of gold. No operation of the mint could prevent 
 this. On the other hand, with a really effective labour ex- 
 change, and a real mintage for labour, an excessive supply of 
 labour is impossible. 
 
 I argue that this certain market for labour can be organized, 
 not by a recognition of any droit au travail, but by the 
 operation of the principle of Free Exchange, and by that only. 
 
VII.] The Interest of the Working Class. 2 1 9 
 
 The foregoing comparison between the gold and the labour 
 market establishes a presumption in favour of the view that, 
 in an absolutely free market, the price of labour must tend to 
 rise. The trade unionist, however, will not trust himself to the 
 open market, and seeks to raise the price of his labour by 
 combination and by various restrictions on the right of Free 
 Exchange. Let us consider this opinion somewhat more in 
 detail. 
 
 The attitude of the trade unionist would seem to rest on 
 a certain phase of the Malthusian terror. As a general 
 proposition, the doctrine attributed to Malthus has lost its force. 
 If a really effective labour exchange were established, all labour 
 would be passed into currency. Malthus' theory can only be 
 true in markets which are artificially limited. There is un- 
 fortunately congestion of population in certain industries, and 
 when relief is sought, as it too often is, by action which results 
 merely in limiting production, it may occasionally be true 
 that population increases more rapidly than subsistence. Still, 
 if there is no absolute mobility of labour, there is certainly no 
 absolute immobility, and Mr. Henry George is, I think, right 
 in arguing, not perhaps that subsistence actually does increase 
 more rapidly than population, but that with a better organiza- 
 tion of the labour market it certainly would so increase. The 
 idea of the trade unionist that there is a limited amount of 
 work to be done, is parallel to the Malthusian fallacy that 
 there is a limit to the increase of subsistence. There is no truth 
 in either proposition so long as no artificial impediment is put 
 on those Free Exchanges which at once employ labour and 
 increase subsistence. 
 
 To what extent under existing circumstances are labour, and 
 the capital necessary to its employment, distributed in the 
 industries most proper to them by the operation of Free 
 Exchange 1 
 
 Dr. G. B. Longstaff, in an elaborate paper on Rural Depopu- 
 lation, read before the Statistical Society on June ao, 1893, 
 sums up the matter as follows. ' Reduced to a sentence, what 
 does this mean 1 It means that the dream of the free-trader 
 is being fast realized. That we are more and more learning 
 
220 A Policy of Free Exchange. [vii. 
 
 to do in each place that for which each place is' most 
 advantageously circumstanced.' As between the town and 
 the country we have already reached a point where it is 
 a somewhat nice calculation to determine whether the higher 
 wages of the town are really preferable to the lower wages, 
 lower rents and allotments of the country. The migration 
 to the town has to some extent levelled up the rate of wages 
 all over the country. An expression of this opinion does not 
 debar one from thinking that a greater freedom of exchange 
 in the matter of land values might turn the tide of migration 
 back again to the country. The phenomenon of labour and 
 capital migrating in search of greater freedom of enterprise is 
 nothing new. It is the motive of the colonization of America 
 and Australia. Hitherto these countries have for the most 
 part taken our unskilled population only. We have preserved 
 our market for skilled labour, because of our international 
 free trade. It is suggested, however, by Mr. Maitland, that 
 in the event of the United States adopting a policy of Free 
 Trade, the greater internal freedom of American industry would 
 attract both skilled labour and capital to a country where 
 a career is open to talent, just as in mediaeval times industry 
 deserted the chartered towns, where it was protected and 
 regulated, for the open villages which grew to be the great 
 manufacturing centres of to-day. 
 
 Nor in this connexion should it be forgotten that the worst 
 incidents of our feudal laws of settlement lasted down to the 
 end of the last century, and that up to 1795 no poor man 
 could come into a parish in search of work without being 
 liable to removal to the place of his settlement, not because 
 he was chargeable to the poor rate, but lest he should 
 become so. 
 
 Considering the many impediments to its mobility, the 
 wonder rather is that labour has acquired even its present 
 measure of fluidity. When we speak of the mobility of labour 
 as between the town and the country, we do not, of course, 
 mean that each labourer is able to transfer his labour from one 
 market to another. A curious demographer might find in 
 a Dorsetshire village a labourer who had never heard of 
 
VII.] The Interest of the Working Class. 221 
 
 Yorkshire, but there is probably not a village in England 
 from which there has not been some migration, some dispersion 
 of the young labour that comes each year to the market, and 
 this is all that is needed to relieve an overstocked market. 
 
 Again, it is sometimes argued that the great specialization 
 of employment in modern industry is inimical to the mobility 
 of labour. This, however, seems by no means to be the case. 
 Some interesting information on the subject has been collected 
 by Mr. Llewellyn Smith, in a pamphlet on ' Modern Changes 
 in the Mobility of Labour.' From this it would appear that 
 ability to manage machinery increases rather than diminishes 
 a labourer's power to change his employment. A remarkable 
 instance of this is mentioned, in which, at the close of the 
 American war, a gun factory was turned without change of 
 staff into a sewing machine factory. Although we are still 
 very far from the time when there is one market and one price 
 for all competent and employable labour, those who see no 
 other solution of our social difficulties than that which involves 
 a natural organization of society on a basis of Free Exchange 
 may find some comfort in the progress already made. 
 
 Before leaving this aspect of the question, it is worth 
 noticing that there is an alternative to the mobility of labour, 
 it is the mobility of capital. We shall have occasion later on 
 to discuss the question of popular banks. I may, however, so 
 far anticipate, as to suggest that the Dorsetshire labourer who 
 never heard of Yorkshire may be a competent and trustworthy 
 agriculturalist, that if by means of a co-operative bank he 
 could obtain the use of capital, his ignorance of geography 
 would not interfere with the profitable cultivation of his 
 allotment any more than the Lord Chief Justice's indifference 
 to the fame of music hall singers stands in the way of the due 
 discharge of his judicial functions. The Dorsetshire labourer 
 may refuse to move, but the capital may come to him. The 
 thing required is not mere mobility, but a certain character 
 of economic competence. The career opened to the humblest 
 agricultural talent by the system of popular co-operative banks 
 in Germany and Italy is an element in the problem worthy 
 of careful attention. 
 
222 A Policy of Free Exchange. [vii. 
 
 The following practical instance will illustrate my contention 
 that Free Exchange is the best available distributor of labour, 
 and that it is to the interest of the labourer more than any 
 one else to allow his labour to be directed by its influence. 
 
 The wages of domestic service are a familiar but often 
 neglected instance of the rapid rise in the value of labour in 
 an open market. Within the experience of many people still 
 living the wages of domestic servants have at least doubled. 
 This result has come about in a market in which transactions 
 have all been made in detail. No person willing to accept 
 wages has been prevented from so doing by any labour 
 organization. Undoubtedly here and there persons have 
 served for very low wages, but the general result has been 
 a great advance in the average price paid for the various 
 qualities of domestic labour. No harm has come to the 
 interest of labour, because some transactions, rather than not 
 take place at all, have taken place at a very low rate of 
 exchange. The tendency of the market has been upward, and 
 continues to be upward. The balance of advantage is cer- 
 tainly with the servant rather than the housekeeper. 
 
 This, I contend, is largely due to the fact that domestic 
 servants have done their bargaining in detail, and in a free 
 market. The free bargain in detail, far from being a cause of 
 low wages, is the only method by which an impersonal market 
 can be organized without at the same time depriving it of its 
 sensitiveness and power of expansion. The wages of a good 
 cook or housemaid are just as well understood, and just as 
 impersonal, as if they had been settled by the arbitration of 
 a chamber of commerce or a long series of strikes. Servants' 
 agencies, the advertisement columns of the papers, the good 
 offices of friends, are sufficient to constitute an open labour 
 exchange in which domestic servants have more than held 
 their own. Any other organization of the market would 
 have deprived it of its sensitiveness, for wages rise not 
 because the whole bulk of the labour in a particular trade can 
 at once command a higher price, but because in virtue of the 
 bargain in detail the better class of labour gets a rise first, 
 and establishes a precedent which others follow. Any other 
 
VII.] The Interest of the Working Class. 223 
 
 arrangement would have prevented the expansion of the 
 market, and this perhaps is the most important point of all. 
 If, by means of a trade union combination, attempt had been 
 made to force the market in order to give to the servant 
 something over the free market rate, it would .of course have 
 prevented many people from employing servants. This 
 actually has occurred in America, where the high wages of 
 labour, and the greater equality of condition, have justly 
 enough enabled domestic servants to set up higher pre- 
 tensions. As a consequence, hotel life has been adopted by 
 many American households which otherwise would have 
 employed servants. In America this .is a natural and 
 legitimate adjustment, for the free market enables those who 
 would otherwise be servants to make a better use of their 
 labour. In this country the conditions are different. To 
 have kept persons willing to enter domestic service out of 
 the market, without providing them with some equally good 
 occupation, would have been most mischievous. 
 
 The modern trade unionist is inclined to overlook these 
 advantages of the free market, and to ignore the objections 
 to the organization of the market by forced combination. 
 
 Looked at from another point of view, it may be said that 
 the favourable conditions of the domestic service market 
 are due to the fact that the demand has always been in excess 
 of the supply. This, again, is due to the continuous increase 
 of wealth, and to the ever-growing number of persons who 
 can afford to keep servants. This same increase of wealth 
 gives rise to greater demand for all articles of consumption. 
 Under a proper organization, therefore, there should be no 
 break in the continuity of demand, for then the man who 
 ' demands,' makes his demand effective by ' supplying ' some- 
 thing in exchange. Only a free self-adjusting employment of 
 labour and capital can discover what that ' something ' is, and 
 what quantity of it is required. If by coercion of the market 
 a higher price is kept up, say in miners' wages, than employers 
 can for long afford to give, we lose the valuable warning of 
 the free market which says, ' there is too much labour here 
 already, let it be diverted elsewhere.' If, as must, I think, be 
 
224 A Policy of Free Exchange. [vii. 
 
 conceded, wealth, and consequently demand for something, is 
 increasing, what is required is that new population shall 
 be diverted to the making of this something, and not to 
 producing more coal, which in the case considered is not 
 wanted. Even under present restrictions demand does grow, 
 but how much more rapidly would it grow if we really gave 
 ourselves up to the free market, and allowed it to direct both 
 labour and capital to the supplying of the thing that is really 
 required. It is much to be feared that our present policy 
 is rather in another direction. I may be wrong in thinking 
 that labour will find its most profitable market in the entire 
 absence of all combination, but if so, such combination as 
 there is should surely not ignore the fact that all increase of 
 wages must come from increase of supply, and that to restrict 
 the supply of a thing that is not wanted is not as advan- 
 tageous as to discover the thing that is wanted, and to set to 
 work to create a supply of it. 
 
 The strong belief which exists in most quarters as to the 
 efiicacy of combination to increase the wages of labour, is 
 based on the indubitable fact that when an industry is 
 unprofitable, single sales of labour at a reduced price will 
 come more rapidly than when labour is combined in one 
 great association which stands and falls together. This is 
 precisely the point on which I am insisting, namely, that the 
 market is more sensitive if left uncombined. It should, 
 however, be observed that what is true of a fall is true also 
 of a rise of wages ; both will come more rapidly in a sensitive 
 and free market. I have already given my reasons for think- 
 ing that labour will of necessity have an enhanced value in 
 proportion as the productive transactions, in which it forms 
 a part, increase in number and in efficiency. If, then, the 
 tendency of the price of labour in a free market is to rise, it 
 might be argued that it is more important to keep the market 
 sensitive for the sake of the rise that is inevitable, than to 
 restrict the market for fear of the fall which is very unlikely. 
 Further, though the values of gold and ground-rents are 
 subject to fluctuations, it is clear that under a free organiza- 
 tion of labour there can be no fluctuation, but only a growing 
 
VII.] The Interest of the Working Class. 225 
 
 intensity of demand for the proper things produced in their 
 proper quantities and places. It is only through the organi- 
 zation of an ever-increasing freedom of exchange that we can 
 discover what these things are, and how and where they are 
 to be produced. 
 
 India is a country where the enterprise of Free Exchange is 
 not very highly developed, yet during normal times, the staple 
 foods of the country are circulated with unerring precision to 
 the places where they are required. In times of famine it 
 becomes the duty of the executive to provide maintenance 
 for a starving population. The Indian Civil Service consists 
 of a body of the most disinterested, most able, and most 
 highly trained officials that the world has ever seen. Yet 
 how inferior to the free principle of exchange have been their 
 attempts to distribute the food of the people. In some 
 famines they have failed utterly to gauge the requirements of 
 the people, and wholesale starvation has been the result. At 
 another time they have fallen into the opposite extreme, and 
 there are instances on record where the grain has either rotted 
 away, or where dealers have gone up into the famine districts 
 in order to purchase the superfluous supply which the govern- 
 ment had carried up at vast expense. So it is with the 
 labour supply ; no human ingenuity can devise a system so 
 likely to distribute it to advantage as that of an absolutely 
 Free Exchange. 
 
 While, therefore, I argue that a fall in wages is an event 
 under a free system not likely to occur, there is something 
 to be said for allowing the labour barometer to be extremely 
 sensitive of the causes that tend to a fall of wages. Far 
 from being matter of regret, it is on every account most 
 desirable that labourers should have timely warning that 
 too much enterprise of capital and labour is being applied to 
 some particular industry. This indication they receive when 
 wages show a tendency to fall, and the sooner this tendency 
 makes itself felt the better. In each instance in which by 
 a warning of this kind labour is diverted from one industry 
 to another, a step is taken towards the perfecting of the 
 market. Nothing but congestion of industry can follow from 
 
 Q 
 
226 A Policy of Free Exchange. [vii. 
 
 a neglect of these signs ; in one market a glut of supply 
 •which no one will purchase ; and elsewhere capital lying idle, 
 and labour starving, because we have broken the machinery 
 which would have attracted them to a point where they 
 could have co-operated with profit. 
 
 To those to whom the matter presents itself in this light, 
 the wisdom of putting down coercively exchanges of labour 
 which do not conform to Trade Union pattern will appear 
 very doubtful. 
 
 It will, for instance, appear to them manifestly unjust and 
 by no means conducive to the object in view, to prevent an 
 old man taking service at the best wages he can command, 
 because those wages do not happen to be trade union wages. 
 I have been informed that, as a consequence of obtaining 
 a contract with the London County Council, which has faUen 
 in with the views of trade unionists in this matter, a certain 
 firm had to choose between dismissing a number of old 
 workmen whose ability was failing, and employing them 
 at a rate of wages which they were unable to earn. This 
 crusade against the aged has without doubt thrown many 
 very worthy persons out of employment, and in some places 
 has increased the rate of pauperism. A similar policy is 
 pursued with regard to the young and the less competent. 
 Young men just out of their apprenticeship, and those who 
 have not established a reputation for competence, are occa- 
 sionally dismissed or rejected because the employer does not 
 see his way to employ them at the wages of a fully competent 
 man. This denial of a right of market prevents them from 
 ever becoming competent, and they are left to deteriorate in 
 the ranks of the unemployable. Society is then left face 
 to face with the insoluble problem of how to employ an 
 aggregation of the least competent labourers collected from 
 all points of our industrial system. This difficulty of the un- 
 employed is of our own creation. Collectively, the unemployed 
 are the unemployable. Eemove these restrictions, and in 
 small numbers, here a few, and there a few, this residuum 
 will be distributed throughout our national industries by the 
 ordinary action of Free Exchange. All will not exchange 
 
vil] The Interest of the Working Class. 227 
 
 at the same price, for there are different cualiries of labour, 
 bm all will exchange at a price which at the moment i? 
 an adxantage to all concerned, and that price must alwavs I*? 
 an upward tending price. 
 
 The trade unicns have a difficult and responsible task to 
 perform, and for their main ■: r;ec:5 thev have the svTiir'&iLv 
 of all feir-minded men. The qiestion at issue,, of Cviirse. is 
 vheUier this restrictive policv is reallv wndueiTe 10 the end 
 desired. Even if tiie wages-regulatinir policy of the unions 
 conla be prove<i a mistake, they could s^ill render great; 
 sariee lo 'Uieir cvnsiimenTs. They could enlarje. unify and 
 give publicity to the labour exchange : they could increase the 
 sensitiventss •svith -n-hich labour allo"?rs iuseli to h-e ciirriii'e-i 
 ly Free Exchange. Thev could advise as 10 the he 5" iLeihc-is 
 01 dealing with savinss, and take part in breaking dovm the 
 ii!iar:iazy line which separates the labourer and c-apitalist. 
 They could make the labourer 5 life c-ease to be pirrelv ppjleta- 
 riate. purely dependent on the daily hand-to-mouth gale of his 
 labour: they cotild do much to hasten the timp when everv 
 labourer shall also be a capitalist. 
 
 The trade union, hfr^ever. is not the onlv imr-eiirariit to 
 Free Exchange. The absurd jealousy of Parliament tas. as 
 Mr. Ac^'cnh has shovm. brcTLght railway crrsmcTion to a 
 stand-still. In a lerter to the ^'.jTudard of Jxme zz. 1S53. Miss 
 Octavia Hill r-oints out that the acticn of the London Ct-jiity 
 Connefl. in threatening to use the ratepayers' money !•:• build 
 eleeinoeynary d^velling^ is restricting T:r:T£-e enterprise. 
 Earlier restric-tions on our system of land transfer have in 
 recent years hro":ight things t-: such a pass that "nre axe no-sr 
 vainlv trvin^ to e-;rr^;-t the restiits of former e:^or. C'V nsin; 
 pabUc money to enforce sales and leases of Ian i ■sr^hic-h ear ier 
 lesrislatioai had. rendered imposable. He is a sanirtiine Tnan 
 who lo:hs for anything tat confusion — :rse ecnf:tJiiei as 
 the result of this empirical homo-eopathy. 
 
 Looking at the situation generally, it is n;: tcO' much t". 
 say that the larger fom; of entapiise have ceen practic-aH^y 
 closed to the present g^eneration by reas^Tn cf the contis'T-atory 
 tineats of the —ell-meaning htit half-edtcatea c:ntr:_ers 
 
2 28 A Policy of Free Exchange. [vii. 
 
 of votes who now contrive to call the tune from all political 
 parties. The extension of the larger forms of enterprise 
 under an enlightened acceptance of the principle of Free 
 Exchange would be practically endless. As it is, unless they 
 can be undertaken by a municipality drawing its supplies 
 from reluctant ratepayers, they are left unattempted, and 
 as a further result there is a congestion of labour and capital 
 seeking employment, and battened down in those smaller 
 enterprises where already competition is far too keen. 
 
 The terms * competent ' and ' employable ' have been used 
 more than once in the foregoing argument, and a word may here 
 be said as to the important qualification thereby introduced. 
 Labour becomes competent by practice; if it is denied a 
 market it is bereft of an indispensable element of technical 
 education. It is not, perhaps, irrelevant to point out that 
 in the domestic service market, the freest portion of the labour 
 exchange, the employer has practically to provide for the 
 technical training of the employed. Servants enter on their 
 calling untrained. How far our present compulsory and 
 uniform system of popular education is a bar to a voluntary 
 but real system of technical education it is beyond the 
 purpose of this paper to discuss. Certain it is that we have 
 not, and probably never can have, a general system of technical 
 education other than that which is to be gained in the work- 
 shop. This fact, together with the right claimed by some, 
 if not by all, trade unions to limit by various expedients 
 the number of workmen in various trades, must have an 
 appreciable effect on the distribution of labour. One result 
 is that an undue proportion of the young labour becoming 
 available each year in the towns is diiven into the ranks 
 of clerks and unskilled labourers. The limited application 
 of free trade principles under which we live is not able to 
 work miracles. It cannot organize industry with an excessive 
 supply of clerks and unskilled labourers ; it looks for some 
 assistance from the intelligent and responsible human beings, 
 whose operations it seeks to direct to the best advantage. 
 
 There is no subject more keenly debated at the fireside of the 
 labourer than the question ' What are we to do with our boys V 
 
VII.] The Interest of the Working Class. 229 
 
 Parents are extremely anxious to direct tlieir children to 
 the career open to talent ; but the restrictive policy of the time 
 obscures the signs of the market and obstructs elementary 
 an-angements for technical edycation. Much of the compe- 
 tence of labour must always depend on this exercise of 
 parental responsibility. In the interest therefore of a better 
 distribution of labour, artificial monopolies of the right to 
 labour, as claimed by a certain section of Trade Unionists, 
 ought to be strenuously resisted. 
 
 Again, when a man passes from parental control he still 
 must study his market and seek to offer the quality of labour 
 most in request. He must not simply deposit himself as 
 a lump of unskilled labour, or think that society is disordered 
 because permanent and profitable employment does not come 
 to him unsought. He will be wrong to assume that the 
 world has use for nothing but his mere labour, that it is not 
 prepared to give additional reward to intelligence, sobriety, 
 trustworthiness and skill. One of the few points on which 
 all economists seem to agree is that effective and highly paid 
 labour is the cheapest to the employer. The practical man 
 has never doubted the fact. The testimony of the elder 
 Brassey has long been on record. Even in the matter of 
 agricultural labour, often erroneously described as unskilled, 
 superior quality is appreciated and sought after. Very 
 recently I was assured by a skilful agriculturist that there 
 were labourers whose labour he could not profitably employ, 
 even if he got it for nothing. He preferred, he said, looking 
 merely to his own interest, to hire the very best men and 
 to secure them by paying as much as 25 per cent, or 30 
 per cent, over the market rate. It is these transactions 
 which pioneer the way to higher conditions for all. The 
 attempt to restrict competition, with the object of obtaining 
 for the less competent labour the same wage as for the more 
 competent, is a policy likely to defeat itself. It prevents the 
 pioneer movement of the best, and in the long run is by no 
 means a benefit to the inferior workman. Competition makes 
 war on the person of no man, it acts rather as a friendly 
 pedagogue for the repression of unprofitable habits and for 
 
230 A Policy of Free Exchange. [vii. 
 
 the inculcation of serviceable social character. To withdraw 
 a class from the educative influence of this force is to leave 
 it at the mercy of those ever-present lower motives of self- 
 indulgence which in the interest of progress should be 
 controlled if not eradicated. 
 
 Important as these considerations are, the coping stone 
 cannot be set on the edifice of industrial competence tUl the 
 labourer learns something of the art of capitalization. Under 
 certain conditions responsible character, even such as is at- 
 tainable in the humblest ranks of labour, is capital. Under 
 the popular banking system already mentioned the German 
 and Italian peasant is enabled to exchange his mere promise 
 to pay for the most material form of capital, paid in the 
 currency of the country. This is an effort of industrial 
 enterprise, a triumph of social organization, to be distinguished 
 from thrift and saving. The development of working-class 
 credit is still in its infancy; but it is obvious that, if a reputa- 
 tion for character and skill can give a man a command of 
 capital, the property which every man has in his own labour 
 has received a vast addition to its value. 
 
 A sound system of commercial business, based on the wil- 
 lingness of a successful banking association to give cash 
 on equitable terms in exchange for the poor man's mere 
 promise to pay, is, perhaps, the most highly developed harmony 
 of a system of Free Exchange. 
 
 The ordinary thrift of the working class is, however, distinct 
 from this. In depositing in a savings bank it is the poor 
 man who makes what the Roman lawyers called an emptio 
 spei, the purchase of a hope ; and to complete our survey of 
 the causes that afiect the value of labour something must 
 be said of the advantages which accrue to labour from the 
 responsible temperament gained by the practice of frugality 
 and thrift and from the stronger position in the labour 
 market which savings give to their possessor. The point 
 is best illustrated by the following comparison. 
 
 It has been contended (and there cannot really be much doubt 
 about the matter) that outdoor relief, more especially as paid in 
 former times to the able-bodied man and now to the able-bodied 
 
VII.] The Interest of the Working Class. 231 
 
 widow with children and to persons only partially disabled from 
 work, has a tendency to lower the wages of unskilled labour. 
 Some keen but not very wise controversialists have argued that 
 this is excusable, on the ground that the same result is brought 
 about by the work of those in possession of a small amount 
 of savings, and of married women and others not wholly 
 dependent on earnings for their support. Even if this were 
 true it would be no justification for supplementing wages 
 out of the poor rate ; but, of course, it is the very reverse of 
 true. In nine cases out of ten, application to the poor rate 
 comes from a class accustomed to live a purely proletariate 
 life, from hand to mouth. Those who have had anything 
 to do with the pauper class know that the whole problem 
 of pauperism is one of character and not of income. When 
 the expectation of a class has for long been fixed on the rates 
 as a source of income, it is extremely difficult to detach it 
 and to indoctrinate it with any appreciation of the advan- 
 tages to be derived from saving and self-control. To have 
 nothing is the well-advei-tised qualification precedent to 
 receiving something from the rates. To the class, therefore, 
 which has not detached itself from the influence of the Poor 
 Law there is an artificial impetus given to the natural ten- 
 dency to consider the present rather than the future. An 
 addition, from whatever source, to the income of this class 
 is, unfortunately, no occasion for rising to a higher level, for 
 it is used merely to allow the hand-to-mouth life to be for 
 the time a little more lavish. 
 
 When, however, the imagination is detached from reliance 
 on poor law relief, and is exercised in the accumulation 
 and management of savings, an entirely different tone 
 is created. The possession of savings as a possible source 
 of income is a cause of firmness rather than of weakness 
 in the labour market. The possession of savings makes 
 men, as it is termed, 'very independent.' I have argued 
 that it is to the interest of labour to preserve a sensitive 
 market by allowing transactions both at higher and lower 
 prices to take place freely. The use of a common strike 
 fund, a perfectly legitimate weapon, is apt to destroy this 
 
232 A Policy of Free Exchange. [vn. 
 
 sensitiveness. What is required is something of the nature 
 of a universal private strike fund at the disposal of every man. 
 This is supplied potentially by the savings bank account. 
 The personal independence of the units of which labour is 
 made up, is a securer basis to build upon than any conceivable 
 form of combination imposed from without. 
 
 Leaving, then, the question of the property which every man 
 has in his own labour and the various influences which affect 
 its value, let us now tiirn to a consideration of the other 
 property in which the working class is interested and see how 
 far in this matter also it is to their interest to rely on a policy 
 of Free Exchange. Labour, though the most important of 
 a man's possessions, is not coextensive with his life. There 
 are times when he is sick and old and unable to work. 
 Labour, moreover, is an expenditure of force more or less 
 painful ; and he therefore desires leisure and rest. These are 
 legitimate motives urging him to action. To satisfy them 
 he has again made use of the principle of exchange. He has 
 long outgrown the stage when, to provide for periods of 
 sickness, old age and leisure, he has hoarded provisions. He 
 now makes use of a pure form of exchange. To take the 
 simplest instance : he goes to a savings bank and exchanges 
 a portion of his wages for a credit. His property in the coin 
 deposited ceases, and he accepts as an equivalent the bank's 
 promise to pay. He goes to a friendly society or to an 
 insurance company and he exchanges a series of premiums 
 paid and to be paid by him for the promise of the association 
 to pay him an allowance in sickness or a round sum on his 
 attaining a certain age or at death, as the case may be. The 
 purchase of a share in a railway company or in a co-operative 
 store is of essentially the same nature. 
 
 It is most important to realize that all this creation of 
 saving is effected by a series of exchanges. The only new 
 feature in the transaction is the willingness of the wage-earner 
 to exchange the material of his wages for some immaterial 
 instrument of credit. The motive which impels men to this 
 form of activity (which is just as much a phase of human 
 
VII.] The Interest of the Working Class. 233 
 
 energy as manual labour) is common to all the race. It is 
 a desire to purchase the power of deferred consumption or to 
 economize the painfulness of labour. 
 
 This juncture is important, for it is at this point that the 
 Socialist raises hisrevolt against the principle of Free Exchange. 
 It has not been possible to deny a man's right of exchange 
 over his own wages when used to buy articles for immediate 
 consumption. The attack is on what, with invidious intent, 
 is called ' Capitalism.' 
 
 Obviously two men cannot eat the same portion of food 
 or occupy the same cubic space of shelter. In the act of 
 consumption complete private property is ipso facto established. 
 In the act of consumption a common enjoyment of property is an 
 unthinkable condition. No one, as far as I am aware, has been 
 bold enough to deny a man a right of exclusive use in his own 
 dinner and in his own clothes. The contention of the Socialist 
 is, however, that private property in capital is something 
 different and for a variety of reasons a thing to be prohibited. 
 
 A man may exchange his wages for his day's dinner ; may he, 
 one is tempted to ask, exchange them for to-morrow's dinner? 
 If so, at what point does it become wrong for him to exchange 
 his wages for a promise of another man to pay the where- 
 withal to purchase dinners twenty years hence ? Or again, it 
 is permissible to purchase and use exclusively a suit of clothes. 
 Is it permissible to buy a diving dress or a spade, to make or 
 cause to be made a bit of labour-saving machinery or an 
 irrigation work, and to retain the exclusive use and benefit of 
 such action? If not, at what point between the suit of clothes 
 and the erection of a factory does the illegality come in ? 
 
 In truth there is no logical distinction to be drawn between 
 the simpler and the more complicated forms of exchange. 
 The Socialist, seeing what we all admit, that the beneficent 
 action of Free Exchange is not perfected, rejects its assistance 
 altogether, and seeks for some different, and, as he thinks, more 
 equitable principle. He proposes, therefore, the socialization 
 of capital. He ignores the socialization which is being 
 brought about by the slow and cei-tain organization of society 
 on the absolutely democratic basis of Free Exchange. 
 
2 34 ^ Policy of Free Exchange. [vii. 
 
 Let us see what it is that he is really proposiag. At 
 present the advantage gained by successful capitalization 
 is enjoyed in right of an inheritance or in right of thrift 
 and saving. This, says the Socialist, can be improved upon. 
 The work of capitalization should be carried out by public 
 bodies, whose duty it would be to put some men among the 
 overseers and many others among the overseen. For every 
 one man who under this system was obliged, ninety-nine 
 would be disobliged. The causes which at present give 
 success in life are in part, it is true, beyond our control ; we 
 think them unjust and we grumble at the partiality of fortune ; 
 but should we be better pleased (we, that is, who are set to 
 do hodman's work and to belong to the ranks of the 
 overseen) if our fate was entirely decided- in the lobby of the 
 bureaucracy set to rule over us ? 
 
 The duties of life are not all alike pleasant. If the rewards of 
 life are arbitrarily made equal, the work of the poet — even if 
 he is confined to dithyrambs on municipal sewers — will stiU 
 be esteemed a pleasanter occupation than that of the 
 scavenger. In every conceivable form of government each 
 man must be guaranteed the exclusive use of the benefits due 
 to him in the performance of his ofiice. We have not, therefore, 
 got rid of inequality or of the fact that one man draws more 
 than another out of capitalization. All we have succeeded in 
 doing is to distribute these inequalities at the fiat of a cor- 
 ruptible bureaucracy instead of on the principle of Free 
 Exchange. When a large proposal of this nature is made, 
 we are entitled to look round to see what are the effects of 
 any existing experiment on the principle suggested. Our 
 present poor law system allows guardians the power to give 
 to one pauper a preferential form of relief, viz. outdoor relief, 
 and to confine another to the workhouse. This is exactly 
 analogous to the power of making some men overseers and 
 others overseen. The poor law is most unpopular, and 
 precisely for this reason — that it passes the wit of man to 
 minister justice indifferently under such conditions. 
 
 Be the arguments in favour of a prohibition of private 
 ' capitalism ' what they may, in practice they have been 
 
VII.] The Interest of the Working Class. 235 
 
 disregarded, and the working man has exercised his liberty 
 to acquire a right of deferred consumption in a great many 
 ways. The following table, taken from the last Statistical 
 Abstract, shows that the total of working class savings amount 
 to a considerable sum, and that during the fifteen years 
 included in the Abstract that sum had as nearly as possible 
 doubled. The fact emphasizes a point which people are 
 sometimes apt to forget, namely, that the hope of those of 
 us who have no property must be in the creation of new 
 wealth and not in the redistribution of wealth which is 
 already in existence. 
 
 Present Time, say 1S91. £ £ 
 
 *Post Office Savings Bank, 1891 .... 71,608,000 
 
 ♦Trustee Savings Bank, 1 89 1 42,875,000 
 
 ♦Government stock standing in name of depositors 
 
 at Post Office, 1891 5,087,000 
 
 ♦Government stock standing in name of depositors 
 
 at Trustee Banks, 1891 1,283,000 
 
 120,852,000 
 
 ♦Building Societies, 1890 . 52,482,000 
 
 ♦Industrial and Provident (Co-operative) Societies, 1890 . . 15,261,000 
 
 ♦Industrial Insurance Companies, 1890 . . . 8,873,000 
 
 ^Friendly Societies 20,167,000 
 
 JCoUecting Friendly Societies, 1889 . . . 2,565,000 
 
 31,605,000 
 
 220,200,000 
 
 In order that some idea may be given of the rate at which 
 these investments are growing, I have made out a second list, 
 showing the state of affairs fifteen years earlier. 
 
 ♦Post Office Savings Bank, 1877 .... 28,740,000 
 
 ♦Trustee Savings Bank, 1877 44,238,000 
 
 ♦Government stock standing in name of depositors 
 
 at Post Office, 1881 (no earlier figures given) . 738,000 
 
 ♦Government stock standing in name of depositors 
 
 at Trustee Banks, 1881 (no earlier dates given). 124,000 
 
 73,840,000 
 
 ♦Building Societies, 1876 20,854,000 
 
 ♦Industrial and Provident (Co-operative) Societies, 1876 . . 6,224,000 
 
 ♦Industrial Insurance Companies, 1880 (no earlier figures given) 1,476,000 
 Friendly Societies, 1876 (as estimated by Mr. Ludlow, Chief 
 
 Registrar's Report, 1890, Part A, p. 9) 97336,0°° 
 
 111,730,000 
 
 ♦ Statistical Abstract, 1877 to 1891, No. 39. 
 
 t Rev. T. Frome Wilkinson, Mutuai Thrift, estimated p. 191. 
 
 J Ibid., p. 194. 
 
236 A Policy of Free Exchange. [vii. 
 
 In following the history of popular savings we shall find 
 that the material as well as the educational advantages of 
 these provident institutions is for the most part proportionate 
 to the liberty of action which they enjoy. 
 
 No more remarkable illustration of this truth is to be 
 found than in the history of the savings bank. 
 
 The labourer takes his surplus earnings to the bank, and 
 exchanges them for a credit. With a laudable desire to make 
 this credit a safe security to the poor man, it is laid down by 
 Act of Parliament that these sums shall be placed by the Post 
 Office and Trustee Banks in the hands of the Commissioners 
 for the reduction of the National Debt for investment in 
 consols. Treasury bills and other Government securities. AU 
 the petty savings of the provinces are in this way carried up 
 to London, a small portion is placed in Local Loan Stock three 
 per cent., and in a sense a percentage of this finds its way back 
 to the country. It has been held, no doubt rightly, that a 
 Government department cannot undertake the whole function 
 of a banker. Our savings banks, therefore, are merely the 
 reservoirs in which petty savings may collect. They make 
 no pretence to be dealers in credit ; and if a full exercise of 
 the function of a banker is an advantage to the community 
 society has to that extent been a loser. 
 
 An interesting description of the advantage of banking and 
 of the exchange of credits in which it consists will be found 
 in the following passage from Mr. Mac Leod's Elements of 
 Economics. He describes how it is part of the Scotch 
 banking system ' to open or create credits to certain amounts 
 in favour of respectable and trustworthy persons. A cash 
 credit, therefore, is a drawing account created in favour of 
 a customer upon which he may operate in precisely the same 
 manner as on a common drawing account ; the only dif- 
 ference being that, instead of receiving interest on the daily 
 balance at his credit, as is very common in Scotland, he pays 
 
 interest on the daily balance at his debit Almost every 
 
 young man commencing business in Scotland does so by 
 
 means of a cash credit These credits are granted to all 
 
 classes of society, to the poor as well as to the rich. Every- 
 
VII. J The Interest of the Working Class. 237 
 
 thing depends upon character. Young men of steadiness and 
 judgement get their friends to become sureties for them on 
 a cash credit — this is as good to them as money ; and then 
 they have the means placed within their reach of rising to 
 any extent that their abilities and industry permit them. . . . 
 Not only has Scotch agriculture been raised to its present 
 tate entirely by these cash credits, but also public -works 
 of all sorts — roads, canals, railroads, docks — in fact everything 
 has been created by the same means. It was stated that the 
 Forth and Clyde Canal was executed by means of a cash 
 credit of £40,000 granted by the Eoyal Bank. . . . All these 
 marvellous results, which have raised Scotland from the 
 lowest state of barbarism up to her present proud position 
 in the space of 150 years are the children of pure credit. . . . 
 The express purpose of these banks was to create credit, 
 incorporeal entities created out of nothing, for a transitory 
 existence; and then, having performed their function, vanishing 
 again into the nothing from whence they sprang. And has not 
 this CREDIT been capital % . . . But their solid results have by 
 no means faded like "the baseless fabric of a vision." . . . On 
 the contrary, their solid results have been her far-famed 
 agriculture ; the manufactures of Paisley, Glasgow and 
 Dundee; the unrivalled steamships of the Clyde; great public 
 works of all sorts — canals, roads, bridges, docks, railroads ; 
 and poor young men converted into princely merchants. 
 What the Nile is to Egypt, that has her banking system 
 
 been to Scotland ' Mr. Mac Leod is here defending the 
 
 note issue system of Scotch banks, but his panegyric covers 
 the whole system of legitimate banking. 
 
 Compare this picture to the restricted operation of the 
 savings bank. It will be said at once that our commercial 
 banking system already aflfords the necessary facilities for 
 credit to those persons who are entitled to it, and that the 
 poor man is not a person entitled to credit. If there is 
 any justification for this view it consists in the fact that 
 the character of the poor man is not such as to warrant 
 a banker in making a loan to him. The Scotch banking 
 system has done much to popularize credit ; but it has not 
 
238 A Policy of Free Exchange. [vii. 
 
 succeeded in reaching the humblest class. Is, then, the thing 
 impossible ? 
 
 The experience of the People's Banks of Germany and Italy- 
 has shown that the poor man can, under certain conditions, 
 convert his promise to pay into an article of exchangeable 
 value. The main condition is simply that the exchanges 
 must be effected on the mutual or co-operative basis, which 
 is able to solve a difficulty otherwise insoluble. The reason 
 for this is at once obvious and extremely instructive, and, 
 as we shall have occasion to point out, it has its analogy 
 in insurance business and possibly elsewhere. A Scotch 
 farmer or a Scotch tradesman is a person who has had 
 some experience of the mechanism of business ; he has learnt 
 that character is capital, or at least can give its owner the 
 command of capital. To such a responsible person a bank, 
 knowing that the risk is not great and that the enterprise 
 in which he is engaged is a reasonable one, can afford to lend 
 at a moderate rate. When we go a little lower in the social 
 scale the character of the people is less trained in this 
 particular form of trustworthiness. They are less familiar 
 with the principles of business. They have a greater dis- 
 position to evade their liabilities, and individually their 
 transactions are very small and are supposed to be unworthy 
 of the attention of the high finance. The risk of lending 
 money to them is therefore great, and money lending has 
 degenerated into usury. The inherent disability of a poor 
 man's loan institution, not based on the mutual principle, 
 is aptly summed up in a little story told by Mr. Wolff, to 
 whose interesting volume on People's Banks the reader is 
 referred for much valuable information on the subject. 
 Speaking of a small English experiment in Peoples' Banks, 
 he remarks : ' Nothing seems more striking in the experience 
 of this society than the conscientious honesty and punctuality 
 with which the poor people make a point of repaying loans, 
 once they are constituted trustees of their own interests — 
 even those who would otherwise make no bones of keeping 
 back rich men's money. One man, who sent in his instal- 
 ments with most praiseworthy regularity, had previously 
 
VII.] The Interest of the Working Class. 239 
 
 borrowed £2 from the vicar. " How is it that you pay the 
 society, and never offer to pay me ? " " Ah, you're the vicar ; 
 you don't want it," was the reply.' This puts the case of 
 self-help versus patronage in a nutshell. Responsibility is 
 not a natural but an acquired virtue, and the want of it 
 brings its own punishment. The operations .of the ' vicar ' 
 or other charitable person to whom no one repays are 
 naturally limited ; and if a tradesman undertakes the task, 
 he can only do so by charging a rate of interest proportionate 
 to the risk. Hence the ' Gombeen ' man and the villasre 
 
 o 
 
 usurer. This last was, and I suppose still is, a familiar 
 feature in every German village; but an instrument has 
 been invented by which the peasant is educated in respon- 
 sible character and set free from the grinding extortion of 
 the usurer. 
 
 The history of the People's Banks of Germany as developed by 
 Schuke-Delitsch, and in an even more successful form by Raif- 
 feisen, has been written in an interesting volume by Mr. H. W. 
 Wolff. The element which has made these banks a success 
 has been the mutual or co-operative element. Some of them, 
 particularly the Schulze-Delitsch banks, have shareholders in 
 whose interest a profit is earned. This fact has a tendency 
 to convert an institution originally co-operative into a purely 
 commercial undertaking. The commercial undertaking, to 
 our view, is a simpler and less cumbersome and more fully 
 perfected method of transacting exchanges than the co- 
 operative institution ; and when, as between the Scotch banks 
 and their customers, the parties to the exchanges are trust- 
 worthy and therefore competent persons, it has, without doubt, 
 a higher efficiency and an equal degree of equity. In dealings 
 with the very poor, however, this condition does not exist, 
 and for this reason Mr. Wolff gives a preference to the 
 Raiffeisen form of bank, where the shareholder element is 
 carefully repressed, and the whole responsibility of making 
 and collecting the loans is put on the members. Under this 
 system in Germany and Italy the savings of the poor form 
 a banking capital which, aided by the credit enjoyed by these 
 banks, is educating the people in one of the most essential 
 
240 A Policy of Free Exchange. [vii. 
 
 of human activities and spreading the advantages of capital 
 among the very humblest classes. 
 
 ' If,' asks Mr. Wolff, ' Germany can, by the aid of her People's 
 Banks, raise annually somewhere about £150,000,000, circu- 
 lating in commerce, of which not a shilling remains idle, of 
 which every penny takes effect — stimulating trade, developing 
 agriculture, feeding home industries — what could not we 
 accomplish with our proportionately larger population, our 
 ampler wealth and our more abundant facilities ? ' 
 
 It is said, and said truly, that an increase of capital is one 
 of the necessary conditions for an improvement in the status 
 of the labourer. Here, under this system of People's Banks, 
 is a means of increasing capital, not in the hands of the rich, 
 but in the hands of the poor, to whom a career is thus opened 
 to talent. The development here foreshadowed, discloses 
 an endless vista of progress both material and moral. 
 
 Surely this justifies the assertion that the advantage to be 
 derived from our banking system is proportionate to the 
 freedom of the exchanges on which it is based ; further, that 
 the principle of Free Exchange is the true solvent of social 
 congestion and incapacity. 
 
 Compared with this our present savings bank system, with 
 all its security and other advantages, is a sterile system. 
 Those who have made themselves acquainted with the extra- 
 ordinary ingenuity and extraordinary success with which 
 English working men have dealt with the much more 
 difficult and complicated problem of sick insurance cannot 
 for a moment suppose that they will fail where German and 
 Italian peasants have succeeded. Compared to sick insurance 
 banking is a simple matter, but it is capable of being made 
 a much more important matter — for it may bring within the 
 reach of the humblest a stream of capital which, as Mr. Mac 
 Leod has put it, may fitly be compared to the fertilizing 
 waters of the Nile. 
 
 An analogous experience has arisen with regard to sick 
 insurance. It is a humiliating but also an encouraging fact 
 that the mutual supervision of interested members is the only 
 power which can preserve an association insuring against 
 
VII. J The Interest of the Working Class. 241 
 
 sickness from speedy insolvency. Commercial companies 
 have undertaken, but have all abandoned, the business of sick 
 insurance. The limited scheme of the German Government 
 is, without doubt, on its way to break up over this difficulty. 
 Even Canon Blackley seems to have given up the idea that 
 a Government sick club could escape ruin from excessive sick 
 claims. The patronized county societies find the difficulty 
 very pressing. The excellent Hampshire society, at its last 
 meeting, had to adopt some stringent new regulations to 
 check this leakage. Centralized and admirably managed 
 societies, like the Hearts of Oak, do not altogether escape. 
 It has been stated with regard to this society that if a number 
 of concentric circles were drawn round the office of the society, 
 in Charlotte Street, it would be found that the percentage of 
 sickness increased in each zone in proportion to the distance 
 from the centre. It is by the locally constituted and locally 
 managed lodges of the affiliated orders, such as the Manchester 
 Unity of Odd Fellows and the Ancient Order of Foresters, 
 that malingering is most successfully controlled. As M. L^on 
 Say has remarked, 'L'usure ne pent §tre combattue que de 
 prfes.' Usury — and, to complete the saying, we may add 
 malingering — can only be overcome at close quarters. 
 
 The history of life insurance and endowment insurance for 
 making a provision for old age, among the working class, is 
 also very instructive. Here the mutual principle has not to 
 any great extent been called in to assist. The increased 
 intelligence of the workman and the pure competition of 
 business men competing for his custom is bringing, about 
 a great improvement. 
 
 The gigantic system of industrial insurance has been 
 very hotly condemned on the score of its costliness. It 
 has in the past been a choice of evils. Without the collector 
 — as witness the experience of the Post Office — no insurance 
 would have been done. With him a vast business has sprung 
 up, undoubtedly of a very costly nature to the insured. The 
 cost of collection has of late years somewhat decreased. It is 
 still very high relatively to the amounts collected. Roughly 
 speaking, it costs on an average about a halfpenny to collect the 
 
242 A Policy of Free Exchange. [vii. 
 
 weekly penny. According to the best information I can obtain 
 on the subject, it does not appear to me to be possible to reduce 
 the cost of management and collection much below 40 per cent, 
 of the premium revenue ; and it is only one large company 
 that has succeeded in doing this. This, however, is not aU. 
 Intelligent working men are very well aware of the costliness 
 of this collecting system, and they have with avidity availed 
 themselves of cheaper and perfectly unexceptionable terms of 
 insurance, without weekly collection, offered by the same 
 associations which also transact the collecting business. The 
 expensive collecting system still, it is true, continues to 
 inci'ease ; but what is very remarkable, and also very satis- 
 factory, is, that ordinary insurance on exactly the same terms 
 as can be obtained by the middle and upper classes, is spread- 
 ing much more rapidly among the working class. 
 
 To take the figures of one well-known Insurance Company, 
 which does about three-quarters of the industrial life insur- 
 ance of the whole country. The premium revenue for the 
 year 189a, in the Ordinary (i.e. non- weekly collection) 
 Branch, shows an increase of £223,865 over that of 1891 ; 
 while the increase in the Industrial (i.e. weekly collecting) 
 Branch was £160,819. The total premium revenue of the 
 Ordinary was £1,665,611, as against £3,849,157, in the Indus- 
 trial Branch ; and is only a question of time for the Ordinary 
 business to overtake the Industrial business. 
 
 It is worth noticing that while this very enterprising 
 company had succeeded, on December 31, 1891, in placing 
 through its Ordinary Branch something over 170,000 ^ endow- 
 ment policies — a majority of them, without doubt, for the 
 purpose of making provision for old age — it had only succeeded 
 in inducing twenty-three persons to subscribe for a deferred 
 annuity. This fact, combined with the failure of the Post 
 Office to popularize this form of investment, seems to me to be 
 a conclusive comment on the fatuous proposals for eompelhng 
 
 ' I have, by the courtesy of the tion of these Ordinary insui-anees are 
 
 manager of the company, been taken out by members of the working 
 
 allowed to satisfy myself by personal class, 
 inspection that a very lai-ge propor- 
 
VII.] The Interest of the Working Class. 243 
 
 or bribing people to provide for their old age by means of 
 deferred annuities. 
 
 I have dwelt on the satisfactory development of insurance 
 business under the natural competition of a free market, in 
 order to show that, even without the aid of the mutual 
 principle, the tendency of Free Exchange is towards a maxi- 
 mum rather than towards a miuimum advantage to all 
 concerned. 
 
 There is a controversy at the present time within the 
 co-operative movement which has some bearing on the 
 attitude taken up by the working class toward capital. The 
 most successful part of co-operative enterprise has been what 
 is known as distributive co-operation. All over the country 
 there are small co-operative stores, their capital subscribed 
 by shares, on which, as a rule, a fixed interest is payable. 
 Any profit made is paid back to the purchasers in proportion 
 to their dealings with the store, and is known as dividend on 
 purchase. These local stores purchase most of their supplies 
 from Wholesale Co-operative Associations in London, Man- 
 chester and elsewhere. The capital of the Wholesale is 
 subscribed by the retail stores, and any profit made by the 
 Wholesale over and above interest on capital is returned to 
 the retail stores as dividend on purchase. The Scottish 
 Wholesale Society pays a part of its profits to its work- 
 people, but as a rule no share in the profits is in the English 
 societies paid to the employ^. This, in the opinion of a section 
 of the co-operators, is a falling away from true co-operative 
 orthodoxy. Kesolutions have from time to time been passed 
 at the Co-operative Congress in favour of giving to every 
 workman a share in profits. These resolutions have never been 
 generally acted on, and it seems clear that, in the executive at 
 all events, the dividend-on-purchase party has the majority. 
 
 To some of us, the expedient of having a deferred element 
 in every exchange will appear an unnecessary complication. 
 At the same time there is no reason why persons selling their 
 labour or buying their groceries should not stipulate for 
 a percentage of profit ; and under certain conditions of 
 society there is a considerable advantage in this plan. 
 
 K 2 
 
244 ^ Policy of Free Exchange. [vii. 
 
 The advocates of the two systems raise several practical 
 considerations. The dividend-on-purchase party point out 
 that the system makes an unbroken phalanx of co-operative 
 purchasers. They stick to the stores, and the stores stick to 
 the Wholesale, and the Wholesale has been able to enter 
 largely into manufacture, and, as a constant and calculable 
 demand is assured, with considerable success. The enthusiasts 
 of the party contemplate a system under which all production 
 shall be carried on by this affiliation of co-operative enterprise. 
 The rate of interest allowed in the English Wholesale Society 
 is 5 per cent, on share capital and 4 per cent, on loan 
 capital. The obvious comment on this is, that if co-opera- 
 tive enterprise can convert all capital into a 4 per cent, 
 preference and a 5 per cent, ordinary stock, perfectly safe, 
 the capitalist will regard its spread as a great boon, and even 
 in its present development it is an immense advantage to the 
 working class to have a safe investment always open in which 
 they have to act as their own trustees. At the same time the 
 mpre venturesome form of enterprise, involving costly experi- 
 ment and culminating, perhaps, in something which may be 
 either a Panama or a Suez Canal, is not to be carried on by 
 the necessarily centralized and cautious policy of a Wholesale 
 Co-operative. It is, however, from this class of enterprise 
 that mankind derives the largest benefit ; but it is also ia 
 this class of enterprise that more fortunes are lost than won. 
 
 The dividend-on-purchase advocate, when pressed by the 
 school which wishes to pay a dividend on wages, says, and 
 says truly, that the labourer has an advantage as consumer in 
 the good quality of the store goods and in the cheapness 
 brought about by the dividend on purchase. This, however, 
 is not the advantage which the orthodox co-operator wants. 
 He objects, and, I think, naturally objects, to seeing the system 
 which his enthusiasm has helped to raise turned, as he thinks, 
 into a species of Frankenstein. What he looked for from the 
 co-operative movement was emancipation from the duress 
 under which, as he conceives, the labourer is forced to sell his 
 labour. He wishes to direct and manage his own industry, 
 and he has no wish to be absorbed into one vast and all- 
 
VII. J The Interest of the Working Class. 245 
 
 pervading association, governed by a ' Vehmgericht ' in whose 
 election he has, perhaps, one millionth share. With these 
 feelings it is impossible not to sympathize. At the same time 
 the difficulties which have to be overcome before his ideal can 
 be realized are not to be overlooked. It is made a point 
 against him by his opponents that the difficulties of conduct- 
 ing manufacture under co-operative management have almost 
 invariably proved insuperable unless the manufacturing asso- 
 ciation is affiliated in the way described with the Wholesale 
 Societies, and through them with the consumer. There seems 
 to be some truth in this criticism. Many attempts at co-opera- 
 tive manufacture have failed, and the successful manufacturing 
 businesses owned by workmen are constituted for the most 
 part on the joint stock principle; and, as Mr. Hardern informed 
 the Eoyal Commission on Labour, the workmen in those 
 Oldham spinning mills which are owned by the working class, 
 are not as a rule shareholders in the mill where they work. 
 There is an obvious practical difficulty in putting management 
 into commission ; it has been overcome in some instances, and 
 it is to be hoped that as business intelligence grows among 
 working people the difficulty may grow less. This solution 
 of the labour problem is a legitimate and honourable one ; but 
 in all this controversy there is a neglected element, which 
 both parties appear to overlook. 
 
 The fullest and most perfect co-operation is to be found, not 
 in the clumsy expedient of a deferred payment, either to 
 consumers or workmen, but in an equitable and complete 
 exchange in an open market. The educative value of the 
 mutual principle is cordially acknowledged. Just as in the 
 banking and friendly society problem, so here this narrower 
 and more elementary form of co-operation is training the 
 labourer in experience and competence, fitting him to take 
 his place without fear in the open market. There are some 
 forms of enterprise which possibly will always be better done 
 under the mutual form of co-operation than under the auto- 
 matic co-operation of independent units in an open market. 
 There is, however, no antagonism between the two systems. 
 In the co-operative movement the labourer is gaining experi- 
 
246 A Policy of Free Exchange. [vii. 
 
 ence and property, either in the form of share capital paying 
 5 per cent., with or without a bonus on wages and purchase, 
 or, passing outside the co-operative movement as in the so-called 
 Oldham Limiteds, he is becoming a holder of shares in a joint 
 stock company, and learning to deal with his property in 
 exactly the same way as a Peabody or a Kothschild. He is, in 
 fact, breaking down the imaginary barrier which divides labour 
 from capital and entering on the true path to emancipation. 
 If he can enter the labour market fortified by a modicum of 
 these two conditions, personal competence and private property 
 held on the tenures recognized by the civilized world, the 
 ' duress ' of the market is at an end, his independence and his 
 liberty will not suffer because he sells his labour to an employer 
 and does not direct it himself. 
 
 Accident or some, to me at aU events, incomprehensible 
 reason has made a certain section of the Socialists throw their 
 influence into the side of the dividend-on-purchase party. 
 This admirable device for accumulating capital in private hands, 
 with comparative safety and at 5 per cent, interest, seems to 
 them to reahze some of the conditions of Socialism. 
 
 If they would extend their view a little further they would 
 see that a complete organization of society on a basis of Free 
 Exchange would probably reduce the normal interest on capital 
 employed in safe industries to something under 5 per cent., 
 that ample capital would still be forthcoming to experiment 
 in more venturesome enterprises, and that the demand for, 
 and consequently the value of, labour would constantly be 
 increased. In its comparatively restricted sphere, the co-opera- 
 tive movement has not suffered by being confined to enter- 
 prises in which a safe 5 per cent, can be looked for; but 
 the useful, cautious financier who organizes safe investments 
 suitable for trustees and widow ladies is not the sort of man 
 who has built up the civilization of the world. The originators 
 of our railway system were venturesome speculators (I use 
 the term in no invidious sense), and until they broke the 
 ground, and had made and lost fortunes over it, the modern 
 railway director with his debentures and preferred stock was 
 an impossibility. So it is surely absurd to suppose that the 
 
VII.] The Interest of the Working Class. 247 
 
 great industrial revolutions of the future are to be carried 
 out aa safely for the capitalist as an investment in consols. 
 As an attractive incitement to the thrift of poor people, 
 a promise of a safe 5 per cent, in a domestic industry is 
 admirable; but it is childish to talk of it as anything else 
 than a very ingenious phase of ' capitalism,' or to argue that 
 there is anything revolutionary in its principle. Another 
 ground of this temporary alliance between the Socialist and the 
 dividend-on-purchase co-operator is the objection which the 
 Socialist seems to entertain against labour-profit-sharing in 
 any foim whatsoever. It is conceivable, he argues, that 
 a man may as a trade unionist find himself at issue with 
 himself as a profit sharer or capitalist. A mere statement 
 of this terrible contingency seems to him sufficient to condemn 
 profit sharing and the ownership by workmen of industrial 
 property. 
 
 The argument, which I do not think I state unfairly, reminds 
 one of the sophisme 6cono'mique — that it is to the interest 
 of glaziers that the windows of the community should be 
 broken every week. Even glaziers, however, have windows ; 
 and the working class is rapidly acquiring capital. It is not 
 to their real interest to prevent the accumulation of capital 
 in the hands of capitalists, much less is it their interest to 
 prevent its accumulation in the hands of their own class. 
 To insure that there shall be plenty of employment for us 
 to-morrow by destroying or hindering the work we have to 
 do to-day is surely topseyturveydom in excelsis. The co- 
 operator is a man of a very practical turn of mind ; and this, 
 like many another fallacy, is being exposed ambulando. It 
 is not for a moment to be supposed that the co-operator will 
 be deterred from applying his savings to such honest invest- 
 ments as come in his way, or that, having done so, he will be 
 induced by the rhetoric of the new trade unionism or Socialism 
 to destroy his own hard-earned savings. 
 
 The honest indignation which rails at the imperfections of 
 society may at times stir men up to justifiable and salutary 
 rebellion; but mere revolt can never be constructive. In 
 a recent work M. Kostand, one of the most energetic advocates 
 
248 A Policy of Free Exchange. [vii. 
 
 for the introduction of People's Banks into France, has drawn 
 a comparison between the life of one of the worthies of our 
 English co-operative movement and that of the 'tragi- 
 comedian ' Lassalle : ' Quelle difference mSme dans leur influ- 
 ence posthume. L'un continuant Taction f^conde par I'exemple 
 contagieux, par I'imitation de types crd&, par les nobles 
 semences r^pandues un peu partout ; 1 'autre propageant de sa 
 tombe I'antagonisme sterile, poussant des miUiers et des milliers 
 d'^tres ^ demi ^clair^s dans le trouble mental et moral, les 
 faux emplois d' Energies, les gSnes accrues, I'envie qui assombrit 
 et fait souffrir, la colfere qui n'enfante rien.' The revolutionist 
 knows, he tells us, some road to progress other than through 
 the development of personal responsibility, cheerfully under- 
 taken and successfully discharged — but to what single achieve- 
 ment can he point? Theirs is a record, as M. Kostand puts 
 it, of sterile antagonism. They ignore the remedies within 
 reach ; they do nothing to help in their organization ; but continue 
 to harp on the barren theme that thrift is a crime, a mere 
 rushing into new privations. Compare with this the silent 
 life-work of a man like Eaiffeisen or the quiet unostentatious 
 action of the now happily numerous band of labouring men 
 who devote themselves to the honest and successful manage- 
 ment of friendly societies and co-operative stores. It is these 
 influences, and not the arts of declamation, which combat and 
 conquer poverty at close quarters. 
 
 T. Mackay. 
 
VIII. 
 
 THE PBINCIPLE OF 
 BBOGBESSION IN TAXATION. 
 
 BERNAED MALLET. 
 
:y 
 
VIII. 
 
 TEE PBINCIPLE OF 
 PB0GBES8I0N IN TAXATION. 
 
 Me. David A. Wells, the well-known free-trader, has 
 recently published a vigorous protest against the growing 
 abuse of the power of taxation in the United States'. To 
 make the occasion for the exercise of this power other than 
 necessity, and the object anything else than the raising of 
 money for meeting the expenditure of a government economi- 
 cally administered, is, he considers, 'to strike a blow, not 
 only at good government, but also at free government,' and he 
 finds in the policy of protection, which has long ceased in the 
 United States to be other than a ' pretence and a cover for the 
 promotion of private interests,' an all-sufficient instance of the 
 abuses to which such conceptions of the function of taxation 
 are liable. In countries where the public wealth is less enor- 
 mous, and where what is called the social problem is more 
 pressing than in the United States, a wider and more menacing 
 extension is being given to the purpose and function of taxa- 
 tion — an extension of which the significance has hardly been 
 grasped in this country, although its efiects are obvious enough 
 in the rapidly growing demands upon the public purse. It 
 is held by the school of German economists, led by Adolf 
 Wagner, that taxation is to be valued chiefly for the effect it 
 can be made to produce on the distribution of wealth. Social 
 objects are to prevail over purely fiscal objects, and taxation 
 
 1 A Tariff far Bevmue : Whatit really Means. Forum, September, 1892. 
 
252 A Policy of Free ExcJiange. [vui. 
 
 is to be used as the principal and most powerful means of 
 hastening the supersession of private property by collective 
 ownership. That these ideas are shared by the preachers of 
 the new social gospel in England it would be easy to show ; it 
 is perhaps sufficient to quote a passage fi'om a recent work 
 by a writer of this school^. ' . . . We can adjust taxation as 
 we please. If we take the view of rent interests and profits 
 advanced in this chapter, we shall regard them as the natural 
 reservoii- from which wealth is to be drawn for all public 
 purposes. That is, we should adjust taxation to faU exclu- 
 sively on the surplus of industry, and not at all on '■ wages ' in 
 their broadest sense. Leaving the smaller incomes as free as 
 possible, we should graduate the income tax so as to fall most 
 heavily on those who are getting the largest share of rent 
 interest and profits, we should find another point for the 
 application of our principles in the death duties and (if we 
 do not deal more di-astically with the uneained inci-ement) in 
 the taxation of ground-rents. In this way we should make 
 rent and interest pay for their own extinction. We should 
 inflict no overwhelming loss on any individuals or any class 
 of living pei-sons, as would happen if we pitched on any one 
 particular form of property — say, land and railways — and took 
 them without compensation. There would be no spoUation, 
 but readjustment of taxation on a new principle. And the 
 ground landlord has no more right to complaiu when the tax- 
 collector comes his way than I have to cry out when the 
 Chancellor of the Exchequer puts an exti-a penny on my 
 income tax.' 
 
 If such a theory were to become widely prevalent, its first 
 result would be seen in a vastly increased public expenditure. 
 Two significant signs of its growth may, indeed, ah-eady be 
 noticed in the almost complete disappeai-ance of the old desire for 
 economy and, in the efibrts which are being made to discover 
 new sources of taxation, to tap to a greater extent than has so far 
 been done the realized wealth of the community by means 
 of taxes on capital and income. Of the various proposals 
 
 ' T1\e Labour Movemettt, p. 78. L. T. Hobhouse, 1893. 
 
VIII. j The Principle of Progression in Taxation. 253 
 
 now being put forward, that for the systematic incorporation 
 into systems of taxation of the principle of progression or 
 graduation is pre-eminently one as to which hopes and fears, 
 both perhaps exaggerated, seem to be entertained. At the 
 outset it is necessary to emphasize the truth that the 
 importance of the adoption of such a principle as this 
 depends largely on the view which is taken of the legitimate 
 purposes of taxation. K these are held to be confined to 
 what have hitherto been considered the practical necessities 
 of a State economically administered, the questions covered 
 by the euphemistic phrase, 'readjustment of public burdens,' 
 become of comparatively little moment, for no class need then 
 suffer from the pressure of taxation, and progression will be 
 adopted only as a fairer and more scientific means of dis- 
 tributing such pressure as exists; but if the conception of 
 the state which has given rise to what we may call the 
 Wagnerian theory of taxation is to prevail in legislation, the 
 insufficiency of its resources will at once become apparent, 
 the methods indicated by Mr. Hobhouse will inevitably 
 be resorted to, and progressive taxation, adopted in a very 
 difierent spirit, will take its place as one of the most effective 
 and formidable weapons of the new school. This serious con- 
 troversy lies at the root of any discussion of taxation, its para- 
 mount importance cannot be overlooked ; but it hes outside 
 the scope of the present paper, as do the questions of the 
 distribution of wealth and the incidence of taxation direct and 
 indirect, the consideration of which is an essential preliminary 
 to the application of our principle to the case of any particular 
 society. The subject of the following observations is ad- 
 mittedly more abstract and more limited than these; but 
 it may nevertheless be thought useful, with a view to the 
 formation of public opinion on a proposal often mooted, but 
 less often discussed, to endeavour to arrive at some conclusion 
 — fii-st, as to whether the principle of progression rests on 
 any scientific basis ; and, secondly, whether, in practice no 
 less than in theory, there is ground for believing that its 
 application for revenue purposes can, under the social con- 
 ditions which have so far obtained, be successfully confined 
 
2 54 -^ Policy of Free Exchange. [viii. 
 
 within safe limits. An affirmative answer may probably 
 be given to both questions ; but we must first revert for 
 a moment to the theory of taxation upon which the principle 
 of progression is based. 
 
 The chaos of speculation and of practice in which the art 
 of taxation remains is not a little remarkable when it is 
 remembered that the raising of money has been in all ages 
 the first care and the most essential function of government ; 
 but two rival theories clearly emerge from the discussion 
 which has of late years been almost entirely abandoned to 
 foreign economists — the one being that the citizen should be 
 taxed according to the benefits or protection he enjoys from 
 the State, the other that he should be taxed according to his 
 ability to pay. It is the last-named which modern economists 
 agree in considering, in respect of imperial as opposed to local 
 taxation, the most applicable to present conditions ; and it was 
 stated by Mill in the following terms : 
 
 'The subjects of a State ought to contribute as nearly as 
 possible in proportion to their respective abilities, i.e. in 
 proportion to the resources which they respectively enjoy 
 under the protection of the State. In other words, equality 
 of taxation means equality of sacrifice. It means appor- 
 tioning the contribution of each person towards the expenses 
 of government, so that he shall feel neither more nor less 
 inconvenience from his share of the payment than every other 
 person does from his.' 
 
 It will be noticed at once that this seemingly cleai' state- 
 ment of the ideal to be aimed at leaves us completely in 
 the dark as to how it is to be attained. Every man will 
 place his own interpretation on the formula ' equality of 
 sacrifice.' It rests, in fact, rather on sentiment than on 
 reason, on the prevailing idea of justice than on any abstract 
 economical principle. The standard varies with every 
 generation. In this country, for instance, at the time when 
 Adam Smith wrote, the labouring classes, owing to the 
 system of indirect taxation, undoubtedly paid a far larger 
 proportion of the revenue than they do now. It has been 
 gradually recognized that what has been described as ' the old 
 
VIII.] The Principle of Progression in Taxation. 255 
 
 idea of taxation according to ability contained for centuries 
 in laws and constitutions,' was not realized under a system 
 which taxed the necessaries of life. The total exemption of 
 these, and the taxation of articles of luxury, although to 
 a certain extent a recognition of the principle of progression, 
 was soon found inadequate to the needs of a modern State ; 
 and a system of property and income taxes was accordingly 
 devised to bring under contribution the different sources of 
 wealth. 
 
 The convenient principle of equality of sacrifice was next 
 invoked to give sanction to proposals for a system of pro- 
 gressive taxation, proposals to which several circumstances 
 have combined for the first time to give importance in this 
 country. 
 
 It is characteristic of English methods that the principle of 
 graduation should have found its way into legislation before 
 it has been accepted by theory. It is hardly necessary to 
 state that the actual fiscal system of this country contains in 
 every part an indirect recognition of the idea of progressiouj 
 which, however, though often quoted by the socialistic, press 
 as a direct sanction, has hitherto been defended on quite 
 other grounds as being merely one of the devices to remedy 
 the obvious unfairness of the pressure of indirect taxation 
 on the poorer classes. Students of politics will not need to 
 be reminded that we are probably destined to witness further 
 experiments in the same direction. 
 
 But more important than any possible official patronage of 
 the idea is its prevalence and popularity for other than purely 
 fiscal reasons among the masses of the people, in whom 
 political power is now so largely vested, and who are 
 naturally desirous of placing still further upon the wealthier 
 but less powerful classes the chief burden of taxation. 
 Besides the fiscal, political or social reasons in favour of the 
 proposal, there is a widespread feeling that it is only in 
 accordance with justice that wealth should contribute more 
 largely to the common needs than it has done in the past. 
 The question how much the individual should be asked to 
 contribute to the collective wants of society is indeed 
 
256 A Policy of Free Exchange. [viii. 
 
 a complex one, and no one would deny that the existing hand- 
 to-mouth systems are far from reaching any ideal standard. 
 We need not endorse a recent dictum, studiously indefinite as 
 it is, ' that society should take of the realized riches of those 
 who benefit by the advantages of civilization such a share as 
 the best of the wealthy classes already give of their own accord 
 for the benefit of the victims of our social system; ' but there 
 can be little question that the public opinion of a generation, 
 sensitively alive to the evils of poverty and to the inequali- 
 ties in the distribution of wealth, is favourable to the idea that 
 wealth has obligations towards society which it is well able to 
 fulfil without imposing upon itself an undue burden, and that 
 something more than the exact proportion may be demanded 
 from its possessors, without imposing a penalty on people for 
 having worked harder and saved more than their neighbours. 
 How far such a sentiment is based upon reason, and how far 
 it may be just and politic to meet it, are questions which 
 must be faced by practical men, and the following observa- 
 tions upon one proposed method of doing so may at least 
 serve to bring out a few of the points which will have to be 
 kept in view in further controversies. 
 
 Mill, whose position as a philosopher and economist has of 
 late years been so fiercely, and in some respects so successfully, 
 assailed, has yet had so great a practical influence in shaping 
 ideas and legislation in this country that his remarks on the 
 question we are considering are worth quoting, especially as 
 they clearly state the issue. 
 
 He begins by inquiring whether an equal sacrifice is de- 
 manded from all by making each contribute the same percentage 
 on his pecuniary means. ' Many persons,' he says, ' maintain 
 the negative, saying that a tenth part taken from a small 
 income is a heavier burden than the same fraction deducted 
 from one much larger ; and on this is grounded the very popular 
 scheme of what is called a graduated property tax, in which 
 the percentage rises with the amount of the income.' 
 
 His answer is in the following words : ' On the best con- 
 sideration that I am able to give to this question, it appears 
 to me that the portion of truth which the doctrine contains 
 
VIII. J The Principle of Progression in Taxation. 257 
 
 arises principally from the difference between a tax whicli can 
 be saved from luxuries and one which trenches, in ever so 
 small a degree, upon the necessaries of life.' He therefore 
 proceeds to advocate the method of adjusting these inequalities 
 of pressure recommended by Bentham and adopted in our 
 income tax, viz. of leaving a certain minimum of income 
 sufficient to provide the necessaries of life untaxed. I shall 
 return to this subject in a later part of this paper. 
 
 Mill further combats the idea of mitigating the inequalities 
 of wealth by means of graduation by saying: 'To tax the 
 larger incomes at a higher percentage than the smaller is to 
 lay a tax on industry and economy, to impose a penalty on 
 people for having worked harder and saved more than their 
 neighbours. It is not the fortunes which are earned, but those 
 which are unearned, that it is for the public good to place 
 under limitation.' 
 
 It may be at once observed that a scientific view of the case 
 will not support either the distinction between luxuries and 
 necessaries, or the unearned increment theory, Mill's advocacy 
 of which has probably given a more powerful impulse to 
 socialistic ideas than an advocacy even of a ' penal ' income 
 tax which he so emphatically condemns, certainly more than 
 a well grounded and carefully argued defence of the principle 
 of the ' impot progressif ' would have done. 
 
 But MiU does not attempt seriously to argue the question in 
 the foregoing passages ; and it is impossible not to feel that his 
 objection to taxing the larger incomes at a higher percentage 
 than the smaller ones does not go to the root of the matter. 
 We may therefore proceed to a more fruitful manner of 
 approaching the problem, and inquire how far a justification 
 of the principle of progression may be found in Jevons' theory 
 of value. For the sake of clearness it will be necessary to 
 give the argument at some length, quoting as far as possible 
 the economist's own language ^. 
 
 ' It is perhaps unnecessary to say tension to novelty, but it was noticed 
 
 that the following application of by the present writer before he 
 
 Jevons' final utility theory to the had the advantage of knowing that 
 
 doctrine of progression has no pre- he had been anticipated in his con- 
 
258 A Policy of Free Exchange. [viii. 
 
 (i) The foundation of this theory lies in the distinction 
 between utility and value — Adam Smith's 'value in use' 
 and 'value in exchange,' or, as we shall see, Jevons with 
 greater clearness describes it, ' total utility ' and ' final 
 utility.' 
 
 (ii) 'Utility for the purpose of economics must be con- 
 sidered,' he says, ' as measured by, or even as actually identified 
 with, the addition made to a person's happiness.' ' It is a con- 
 venient term for the aggregate of the favourable balance of 
 feeling produced — the sum of the pleasure created, and the 
 pain prevented ^.' 
 
 (iii) ' Utility is not proportioned to commodity. A quart 
 of water per day has the high utility of saving a person from 
 dying in a most distressing manner. Several gallons a day 
 may possess much utility for such purposes as cooking and 
 washing ; but after an adequate supply is secured for these 
 uses, every additional quantity is, or may in fact become, 
 negative ; further supplies may even become inconvenient and 
 hurtful (e.g. in case of a flood) ^.' 
 
 (iv) Jevons endeavours to show^, by dividing into ten parts 
 a quantity of food consumed by a person in twenty-four 
 hours, that each of the one-tenth parts or increments is less 
 and less necessary or possesses less utility than the preceding 
 one. He then distinguishes between the ' total utility of any 
 commodity and the degree of utility of the commodity at any 
 point.' . . . ' For the purposes of the theory, it is not necessary 
 to consider the degree of utility except as regards the last 
 increment which has been consumed, or, what comes to the 
 same thing, the next increment which is about to be con- 
 sumed *.' He therefore adopts the expression 'final degree of 
 utility ' as meaning ' the degree of utility of the last addition 
 or the next possible addition of a very small or infinitely 
 small quantity to the existing stock.' 
 
 elusion by the very elaborate invest!- whole ground of the discussion, 
 gations of certain Dutch economists. ' Jevons' Theory ofFoUHcal Economy, 
 
 Professor Seligman, in his learned 2nd edition, p. 49. 
 and exhaustive article in the Political ' Ibid. p. 43. 
 
 Science Quarkriy for June, 1893, sum- ' Ibid. p. 49. 
 
 marizos their results and covers the ' Ibid. p. 55. 
 
VIII.] The Principle of Progression in Taxation. 259 
 
 (v) The variation of the function expressing the final 
 degree of utility is the all-important point in economic pro- 
 blems. ' We may,' he says, ' state as a general law that the 
 degree of utility varies with the quantity of commodity, and 
 ultimately decreases as that quantity increases^.' We cannot 
 live without water, and yet in ordinary times we set no value 
 upon it — why is this ? Simply because we usually have so 
 much of it that its final degree of utility is reduced to nearly 
 zero. Let the supply run short by drought and we begin to 
 feel the higher degrees of utility, of which we think but little 
 at other times. ' No commodity can be named, which we con- 
 tinue to desire with the same force, whatever be the quantity 
 already in use or possession.' 
 
 (vi) It is with the final degree of utility that exchange is 
 concerned. 
 
 ' The value of a divisible commodity is measured, not indeed 
 by its total utility, but by its final degree of utility, i. e. by 
 the intensity of the need we have for more of it^.' But the 
 power of exchanging one commodity for another greatly 
 extends the range of utility. We are no longer limited to 
 considering the degree of utility of a commodity as regards 
 the wants of its immediate possessor, for it may have a higher 
 usefulness to some other person, and can be transferred to 
 that person in exchange for some commodity of a higher degree 
 of utility to the purchaser. 
 
 (vii) We have now arrived at the definition of value as 
 a ratio of exchange. Jevons sets out mathematically the 
 condition of exchange in the form of equations, and shows 
 how the laws of supply and demand are the result of the true 
 theory of value or exchange. It is not necessary for our 
 purpose to enter into this. It remains to apply these con- 
 siderations, especially those stated in (v), to the case of 
 income and money. 
 
 'The final decree of utility of money, or that supply of 
 commodity which governs a man's income, is measured by that 
 of any of the other commodities which he consumes. What, 
 
 ' Jevons' Theory of Political Economy, 2nd edition, p. 57. 
 2 Ibid. p. 148. 
 
 S 3 
 
26o A Policy of Free Exchange. [viii. 
 
 for instance, is the utility of one penny to a family earning 
 £50 a year ? As a penny is an inconsiderable part of their 
 income, it may represent one of infinitely small increments, and 
 its utility is equal to the utility of the quantity of bread, tea, 
 sugar, or other articles which they could purchase with it, 
 this utility depending on the extent to which they were already 
 provided with these articles. To a family possessing £1,000 
 a year the utility of a penny may be measured in an exactly 
 similar manner ; but it will be much less, because their want 
 of any given commodity will be satiated or satisfied to a much 
 greater extent, so that the urgency or need for a pennyworth 
 more of any article is much reduced ^.' 
 
 Again, ' The degree of utility to a very rich man will 
 be governed by its degree of utility in that branch of ex- 
 penditure in which he continues to feel the need of further 
 possession.' 
 
 A question whether this rule would apply to the higher 
 satisfactions as well as to the purely physical needs appears to 
 be raised in one sentence. After stating the law that the 
 degree of utility varies with the quantity of the commodity 
 and ultimately decreases as that quantity increases, he says : 
 ' All our appetites are capable of satisfaction sooner or later ".' 
 ' It does not follow, indeed, that the degree of utility wiU 
 always sink to zero. This may be the case with some things, 
 especially the simple animal requirements, such as food, air, 
 water, &c. But the more refined and intellectual our needs 
 become, the less are they capable of satiety. To the desire for 
 articles of taste, science or curiosity, when once excited, there 
 is hardly a limit.' 
 
 We thus arrive at what appears to be a justification of the 
 principle of progression up to a certain point. The Dutch 
 economists, says Professor Seligman, ' admit that the number 
 of wants increases as their intensity diminishes. After a cer- 
 tain point the difierences between the intensity (and final 
 utility) of wants diminishes with the increase of their number 
 and area, until, finally, when we come to the very large 
 
 ' Jevona' Tlieary of Political Economij, 2nd edition, p. 153. ' Ibid. p. 5. 
 
VIII.] The Principle of Progression in Taxation. 261 
 
 incomes, the possibility of satisfying almost all wants becomes 
 equal. Hence, while taxation should be progressive, the rate 
 of progression should itself diminish till the tax becomes 
 proportional.' 
 
 A variety of considerations, however, partly theoretical and 
 partly practical, must be mentioned before we are in a position 
 to see how far the admission of the principle, if it be admitted^, 
 carries us, and within what limits the application of it may be 
 attempted. And, in the first place, it will be necessary to lay 
 stress upon the part which human wants and their satisfaction 
 play in the social economy. Bastiat has well summed up the 
 theory of consumption in the following words : ' Besoins, 
 Efforts, Satisfactions, voilk I'homme au point de vue ^cono- 
 mique.' Even the meanest necessities, like those of eating 
 and clothing, are subject to the influence of circumstances and 
 habits, age and sex. No one would pretend that a man 
 accustomed to the physical luxuries of an English artisan 
 would be able to support existence on the diet of an Indian 
 ryot or a Eussian peasant. One man in a certain state of life 
 would find life intolerable without books and newspapers, 
 while another in a diSerent situation would not be able to 
 read. ' For some men the privation of certain enjoyments is 
 intolerable whose loss is not even felt by others. Some, 
 again, sacrifice all that others hold dear- for the gratification 
 of longings and aspirations that ai-e incomprehensible to 
 their neighbours ^.' The luxuries of one age become the 
 necessaries of another ; a man would have been thought 
 a madman who, in the sixteenth century, expected to be able 
 to travel at forty miles an hour, or send a message from Paris 
 to London in half an hour. 
 
 It is unnecessary to multiply instances to prove the truth 
 of this assertion, which is, indeed, a commonplace of economic 
 science. It is no less clear that the satisfaction of a primary 
 want creates or intensifies the sense of more than one 
 
 ' Mr. Charles Devas {Political possibility of its application than 
 
 Bcmomy, p. 197) has some very against its abstract truth, 
 
 pertinent criticisms on this law, - Banfield ; quotedby Jevons, p. 45. 
 directed, however, rather against the 
 
262 A Policy of Free Exchange. [viii. 
 
 secondary privation ; and the maxim that the ' satisfaction of 
 every lower want in the scale creates a desire of a higher 
 character ' is self-evident.' 
 
 Further, it is the action of this fundamental law which 
 causes and determines what we know as progress and civiliza- 
 tion. It is this which stimulates the invention of labour- 
 saving apparatus and of machinery, and necessitates the 
 application of human intellect to the arts of life. By the 
 natural operation of supply and demand, it is daily placing 
 within the reach of millions what was formerly the privilege 
 of the great ones of the earth. By the action of free com- 
 petition it is bringing about the real millennium, the ideal 
 of the Socialists, and removing necessary after necessary 
 and luxury after luxury from the region of ' value ' to that of 
 ' utility,' from the domain of exchange and political economy 
 to that of common property ^- For no less clearly established 
 than the rise in the rate of wages under this system is the 
 fall certainly now in progress in the rate of interest on capital, 
 which the increase of security in business, the increase of 
 capital by accumulation, and the lessened productivity of 
 freshly accumulated capital in old-established societies have 
 all contributed to bring about. The competition for employ- 
 ment of capital with capital is a fact which, if it could only 
 be recognized, would be seen to overshadow the competition 
 of labour with labour or the strife between labour and 
 capital. The rate of interest declines because the stored- 
 
 ^ As Bastiat, a writer who is not common or gratuitous to all, the 
 
 answered when he is taunted with aggregate of utilities, is constantly 
 
 economic optimism, expresses it increasing, that of things having ex- 
 
 (Harmonies JSconomiques, p. 291) : — change value, of property, does not 
 
 ' Toute propri^t^ est une valeur, decrease, for the horizon of human 
 
 toute valeur est une propri^t^ ; desires and possible satisfactions is 
 
 Ce qui n'a pas de valeur est gratuit, always expanding and with it the 
 
 oe qui est gratuit est commun ; field of human labour and service, 
 
 Baisse de valeur, c'est approxima- production and exchanges, without 
 
 tion vers la gratuity ; which those desires cannot be satis- 
 
 Approximation vers la gratuity. fied. 'La propriety' is a pioneer 
 
 c'est realisation partielle de com- which accomplishes its work in one 
 
 munaute.' sphere and then passes to another. 
 
 But although the domain of things 
 
VIII.] The Principle of Progression in Taxation. 263 
 
 up -vrealth of the world is increasing, and this wealth, as 
 a necessary consequence, is being diffused throughout the 
 community in the shape of higher wages and lower prices. 
 This process tends towards the equalization of conditions in 
 this further way, that a decline in the rate of interest is 
 equivalent to a gradual loss by the class of capitalists and 
 ' rentiers ' of part of their advantage over the rest of the 
 community. If this is the case — and facts as well as theory 
 confirm it — what sense, it will be asked, can there be in 
 endeavouring to bring about by clumsy and unjust legislative 
 expedients the conditions of the stationary state of society 
 towards which economic causes may appear to be leading us ? 
 A stationary state reached by the gradual process above 
 described might conceivably be one of material comYort, 
 for it could only be so reached when human labour and effort 
 in the satisfaction of desires was reduced to a minimum ; 
 reached by socialistic attacks on wealth, if, indeed, such 
 attacks succeeded in doing anything beyond checking ac- 
 cumulation and its beneficent effects, it could only be one of 
 general misery. 
 
 This fascinating subject, however, must not detain us, for 
 one instance of the function of capital such as that given 
 by Mr. Atkinson^ is worth much speculation. 'The late 
 Cornelius Vanderbilt may be taken as an example of a com- 
 munist in the true sense. He was the greatest communist 
 of his age. He consolidated and perfected the railroad 
 service in such a way that a year's supply of bread and meat 
 can be moved one thousand miles from the Western prairies 
 to the Eastern workshops at the measure of cost of a single 
 day's wages of a mechanic or artisan in Massachusetts. . . . 
 The work is not that of the labourer in the sense in which 
 that word is used by so-called labour reformers . . . yet it 
 is an effort of the human mind of such a quality, that except 
 capital had then come under the control of these men, all the 
 efforts of labourers would have utterly failed to promote the 
 general welfare. The farmers of the West would have 
 smothered in their own grease, and would have continued to 
 
 ' Distribution of Products, p. 38. 
 
264 A Policy of Free Exchange. [viii. 
 
 burn their Indian corn for fuel, while the workmen of the 
 East might have starved.' 
 
 ' The true function of capital and of the capitalists is of 
 the utmost beneficence. It cannot be exerted in the present 
 condition of the world, except by way of ownership of land 
 and capital, subject to the limitation and to the duties which 
 are implied by existing laws^' The able American statist 
 goes on to say, in words which must have caused a shock of 
 surprise to ' social reformers,' that the fortunes which the great 
 directors of industry have made for themselves bear but the 
 proportion of a small fraction to the labour which they have 
 saved their fellow-men. 
 
 The bearing of the above observations upon the immediate 
 question before us is easily indicated. Those who look to 
 freedom and equal rights as the only means of ensuring the 
 supreme object of the largest possible production, an in- 
 creasingly larger share of which goes under such a system 
 to labour, will be unable to regard taxation as anything but 
 a drag on the wheels of the social machine, and they will 
 seek to confine it within the narrowest limits. They will 
 endeavour to meet any unfair incidence of indirect taxation 
 upon the poor by abolishing or reducing such taxation, and 
 they will be inclined to put up with rough-and-ready methods 
 so long as no class can complain of actual oppression, rather 
 than have recourse to expedients like graduation. They are 
 not however on principle justified in condemning an attempt 
 to equalize the burden upon individuals and classes of such 
 taxation as exists, and it is impossible for them to shut 
 their eyes to the deplorable fact that in European states, 
 with their debts and armaments, not to speak of social 
 demands, the pressure of taxation is sevei-ely and increasingly 
 felt, and that finance ministers cannot afford to neglect 
 any promising sources of revenue. They may, therefore, 
 without abandoning their view of the economic organiza- 
 tion of society as it now exists (and, it may be added, will 
 continue to exist until collectivism can supply a different 
 motive for labour than those which now animate mankind), 
 
 ' Distribution of Products, p. 41. 
 
VIII.] The Principle of Progression in Taxation. 265 
 
 perhaps admit that the argument tells, not indeed against 
 a moderate application of the principle for revenue purposes, 
 but against a progression, which would end, as progression 
 logically must on the socialistic theory of rent interest and 
 profits, in the confiscation of all income above a certain 
 point. If human wants were a limited and stationary 
 quantity, any surplus income (if one may for a moment 
 assume that in these circumstances such a surplus could 
 come into being) beyond the amount necessary to satisfy 
 those wants, would obviously be superfluous, and might be 
 confiscated without hurting the owner. Above a certain 
 ascertainable limit, he would not feel the abstraction by the 
 state of all his wealth, for he would have no use for it. But 
 when we bear in mind the progressive character of human 
 desires, which is the keystone of civilization, we shall at once 
 see the doubtfulness of any such assumption. The larger the 
 individual income, the larger will be the accumulations of 
 capital, with all their beneficent eflfects upon the general level 
 of social well-being. Further, on the supposition on which this 
 argument proceeds — that a system of private property, with 
 its necessary accompaniment of free exchange, is favourable 
 and indeed essential to human progress — we find at once 
 a necessary limit to the application of the principle at the 
 point at which it begins to check accumulation, and thus 
 hinder production^. Where that point lies in any particular 
 community is a question which can only be solved by inquiry, 
 discussion and experiment. 
 
 If, then, by adopting a plan of degressive taxation 
 (i.e. a uniform rate being fixed for large incomes, but 
 gradually lessened for the smaller, and a minimum being 
 wholly exempted), the danger thus indicated may be met, 
 is it possible to meet the further difficulty of fixing an 
 equitable rate of graduation ? The first step, the exemption 
 of a minimum income, finds an easy defence on the 
 
 ' It has been calculated that there the most economioal terms for more 
 
 is no country where the entire ac- than three years, and that the world, 
 
 Cumulated property would sell for as a whole, is always within a single 
 
 enough to maintain its population on year of starvation. 
 
266 A Policy of Free Exchange. [viii. 
 
 economic ground above sketched out. It is obvious that 
 all wants or sets of wants are not equally imperious. May 
 it not, therefore, be possible and defensible to mark oflF 
 a certain limit of desires of the elementary kind, such as 
 those for food, shelter and clothing, which are common 
 to all men, the satisfaction of which is necessary to keep 
 human beings alive, and to supply a lever for the creation of 
 higher wants ? Humanity forbids us to allow our fellow- 
 creatures to perish ; and society may legitimately, in its 
 own interest, do what it safely can to give a lift up to 
 an indigent class by affording it the chance of conceiving 
 aspirations after a higher level of comfort. This is, indeed, 
 the only real basis and justification from the ' free exchange ' 
 point of view for the so-called socialistic legislation of 
 the present day. For this purpose, then, and to some such 
 extent, human wants may be treated as a fixed quantity, and 
 incomes above the amount necessary to satisfy these wants 
 may be held to be alone, or in larger proportion, liable to 
 taxation. 
 
 If we desire to apply the same argument to justify 
 graduation above this point, we are met by the practical 
 difiiculty of deciding whether, beyond a certain point, one 
 set of desires is more imperious than another. We may 
 assume that a man will make a greater effort to earn the 
 £50 ^ year which saves him from starvation than another 
 man to earn £1,000 a year. But who can say whether 
 one man will make a greater effort to eai-n £1,000 than 
 another £2,000 or another £10,000? It may be, indeed, 
 found possible to cut the knot by some such rough-and-ready 
 scheme as that proposed by Professor Ely, who would 
 have three rates of taxation — one for incomes, sufiicient 
 to furnish necessities ; one for those sufficient to provide 
 the useful ; and one for those large enough to warrant 
 luxuries. In these three words, however — necessities, the 
 useful, and luxunes — what material for dispute and conflict 
 does there not lie? Here, then, we find ourselves face to 
 face with the great practical difficulty in the case, the arbi- 
 trary character of all such schemes. Proportional taxation 
 
VIII.] The Principle of Progression in Taxation. 267 
 
 carries in its very name a permanent and definite rate of 
 assessment, yet even under this system practical financiers 
 tell us that the difficulty of arriving at a fair distribution 
 of the burden of taxation is well-nigh insuperable^- How 
 greatly is this difiiculty increased with a scale of progression 
 depending on the moderation or caprice of legislators ! If 
 however, on the other hand, proportional taxation is in itself 
 unjust, it is clear that its greater definiteness should not 
 save it from condemnation as an ideal to be aimed at in 
 systems of taxation. 
 
 Finally, the question may be taken from another side — 
 that of facts and experience. In this part of his remarks 
 M. Leroy-Beaulieu (in his Science des Finances) is brilliant 
 and suggestive, some will think conclusive. He gives ex- 
 haustively the grounds which lead him to th6 opinion that 
 a light and uniform tax will produce as much, with less 
 friction and less danger, than the most rigorously graduated 
 tax. Those who advocate this latter expedient cannot, he 
 thinks, have studied (as he himself has done in another admir- 
 able work. La Repartition des Richesses) the distribution of 
 wealth among the different classes of modern societies. 
 Few better illustrations of what this distribution means 
 from a revenue point of view can be given than the following 
 
 ' It has been impossible in this It is conceivable that if a direct tax 
 paper to touch on a question, which were imposed on the working classes, 
 yet lies at the root of all speculation they might be unable to recover the 
 on the subject of taxation, viz. its whole of it by a rise in the rate of 
 incidence on individuals and classes. wages. It is not easily conceivable 
 The following words show the im- that a tax on capital would not be 
 portanceof the question in connexion gradually diffused throughout the 
 with our present subject : ' Without community, and ultimately affect 
 going so far as some economists in wages, and be borne in a, large pro- 
 thinking that wherever taxes are first portion by the working classes.' 
 imposed they are so diffused and Again, 'There can be no greater mis- 
 distributed in the process of exchange take than to suppose that an immense 
 as to render all elaborate attempts at and increasing burden of taxation 
 a nice adjustment of them a matter can be raised by any " adjustments" 
 of comparative unimportance, it is on what is called the property of 
 undeniable that under no system of about five million persons without 
 taxation can any class escape a share a disastrous recoil on the interests 
 of the burden, and, least of all, the of the working classes.' — Sir Louis 
 most helpless and improvident class. Mallet, Free Exchange, p. 194. 
 
268 A Policy of Free Exchange. [viii. 
 
 remarks of the late Chancellor of the Exchequer in one of his 
 budget speeches : 
 
 'The Committee scarcely realizes, I think, the extent to 
 which both the income tax and the inhabited house duty are 
 paid by men of comparatively humble means. I thought at 
 one time it might be reasonable to allow every income tax 
 payer to deduct £400 from his income before paying income 
 tax, but I was staggered to find that this would involve a 
 loss of £4,700,000 out of a total receipt of £13,000,000. To 
 allow every income tax payer to deduct £200 would involve 
 a loss of £2,500,000. This shows to what an enormous 
 extent the revenue is contributed to by people of small 
 incomes.' 
 
 The same fact, which is one of vital importance, is well 
 shown by the table on the opposite page, taken from M. Leroy- 
 Beaulieu's work. 
 
 From this table it appears that in a highly civilized and 
 industrial canton, out of a total income of 31 million francs 
 five-sixths (25,628,000 fr.) was in the hands of persons with 
 a no larger income than 3,000 fr., and that one-thirtieth only 
 belonged to persons with incomes of over 10,000 fr. Further, 
 that a uniform tax of i per cent, produces 310,020 fr. ; while 
 the progressive tax proposed produces 334,266 fr. or only 
 24,000 fr. or 8 per cent, more ; a gain which might easily be 
 counterbalanced by the frauds for which there would obviously 
 be so great a temptation. 
 
 The progression here sketched out is considerably less than 
 that which actually exists in many cantons, especially in the 
 Canton de Vaud, where a very interesting experiment is 
 in progress. In this Canton in 1890 the tax on real property 
 yielded £43,956, and that on personal property £52,902 ; the 
 population being 247,605 ; the increase of revenue accruing 
 from progression being about £6,000. Its opponents, however, 
 declare that this gain is more than counterbalanced by injury 
 to local trade, and especially by the great depreciation (stated 
 at 50 per cent.) in the value of landed property which it has 
 caused. It seems probable, indeed, that the principle in this 
 instance has been pushed too far. There are five cantons, 
 
VIII. J The Principle of Progression in Taxation. 269 
 
 PROPOSAL FOE A PKOGKESSIVE TAX ON THE INCOMES OF 
 THE CANTON OF NETJCHATEL. 
 
 Classiflcaiion of Taxpayers from the Begiste/r in 1874. 
 
 Incomes. 
 
 No. of 
 tax- 
 payers. 
 
 Average 
 income in 
 each class. 
 
 Totals of tax- 
 able incomes. 
 
 Bate of 
 tax per 
 100 Frs. 
 
 Estimated 
 
 product of 
 
 tax. 
 
 Fr. 
 
 Fr. 
 
 
 Fr. 
 
 
 
 Fr. 
 
 From to 3,000 
 
 42.714 
 
 600 
 
 25,628,000 
 
 I 
 
 256,284 
 
 3.001 
 
 , 4,000 
 
 410 
 
 3.500 
 
 1,435.600 
 
 iiV 
 
 15.785 
 
 „ 4,001 
 
 , 5.000 
 
 196 
 
 4.550 
 
 891,800 
 
 lA 
 
 10,700 
 
 5.001 
 
 , 6,000 
 
 106 
 
 5.500 
 
 583.000 
 
 lA 
 
 7.579 
 
 „ 6,001 
 
 , 7,000 
 
 53 
 
 6,500 
 
 344.500 
 
 lA 
 
 4,821 
 
 7,001 
 
 , 8,000 
 
 60 
 
 7.500 
 
 450,000 
 
 lA 
 
 6,750 
 
 „ 8.001 
 
 , 9,000 
 
 24 
 
 8.500 
 
 204,000 
 
 lA 
 
 3,264 
 
 >. 9.00I 
 
 , 10,000 
 
 35 
 
 9.500 
 
 332,500 
 
 lA 
 
 5.649 
 
 „ 10,001 
 
 , 12,000 
 
 19 
 
 11,000 
 
 209,000 
 
 lA 
 
 3.762 
 
 „ 12,001 
 
 . 15.000 
 
 IS 
 
 13.500 
 
 202,500 
 
 lA 
 
 3,847 
 
 .. 15.001 
 
 , 20,000 
 
 10 
 
 17.500 
 
 175.000 
 
 2 
 
 3,500 
 
 „ 20,001 
 
 , 30,000 
 
 14 
 
 25,000 
 
 350,000 
 
 2A 
 
 7.350 
 
 „ 30,001 
 
 , 40,000 
 
 2 
 
 35.000 
 
 70,000 
 
 2 A 
 
 1.540 
 
 ,, 40,001 
 
 „ 50,000 
 
 I 
 
 45,000 
 
 45,000 
 
 2A 
 
 1.035 
 
 „ 50,001 a 
 
 nd above 
 
 2 
 
 50,000 
 
 100,000 
 
 2A 
 
 2,400 
 
 
 
 43,661 
 
 
 31,020,700 
 
 
 334.266 
 
 Zurich, Vaud, Geneva, XJri and the Grisons, in which complete 
 systems of these taxes exist, and many others in which 
 a partial use of the principle is made ; and these systems 
 are remarkable for the care with which they have been 
 adapted to the circumstances of the people. The insuffi- 
 ciency, however, of this fiscal method in the Swiss Confede- 
 ration generally is shown by the marked tendency towards 
 increased indirect taxation, which already, in 1881, amounted 
 to 57-9 per 100^. 
 
 ' A fairly full account of these taxes, 
 whether on income or capital, real 
 or personal estate, is given in a report 
 
 by Mr. Buchanan (Foreign OfSoe, 
 1892; Miscellaneous Series, No. 267), 
 
270 A Policy of Free Exchange. [viir. 
 
 The returns of the new Prussian income tax for 1893-3, 
 the first financial year since its introduction, do not prove 
 much as to the efficacy of progression. There is an. increase 
 of £3,364,201, in spite of the amount levied from smaller 
 incomes having been decreased by £350,000; but 440,318 
 new taxpayers have been laid under requisition, including, for 
 the first time, joint stock companies and trading associations. 
 The moderate graduation adopted appears to meet the sense 
 of justice in the community, and has not had the effect of 
 causing any withdrawal of capital from the country. An 
 agitation, of course, exists for increasing the tax on the higher 
 incomes. It is interesting to observe that of incomes of 
 £4,800 and over there are 1,780, while 'i,^ are over £45,000, 
 4 over £150,000, 3 over £350,000, and i of £350,000. The 
 large figures are accounted for by the fact that the income of 
 the mediatized princes have now, for the first time, been 
 rendered amenable to taxation ^. 
 
 The example of the Australian Colonies is so often quoted 
 by democratic reformers that it is well worth while to see 
 what, in regard to graduated taxation, that example really 
 amounts to. 
 
 The total revenue of the colony of Victoria^ in 1887 was 
 £7,607,598, of which nearly 60 per cent, was raised from 
 sources other than taxation, viz. : 
 
 Crown Lands . . . £656,627 
 
 Eailways .... 2,741,488 
 
 Post and Telegraphs 485,533 
 
 Other Sources . . . 653,307 
 
 ^4,536,955 
 
 Whatever advantages such sources of revenue- may possess, 
 they cannot be defended from the point of view of taxation 
 as being charges on wealth. The railway revenue, for 
 instance (36 per cent, of the whole revenue), is a tax on 
 locomotion and on transport, not on ' realized riches.' 
 
 ' Foreign Office, 1892 ; Misc. Series, year has been chosen before the recent 
 
 No. 268. check to the Colony's prosperity; since 
 
 ^ These figures are taken from which panegyrics of Victorian State 
 
 Hayter's Victorian Year Boole ; and a Socialism have notably diminished. 
 
VIII.] The Principle of Progression in Taxation. 271 
 
 There remains 40 per cent, of the revenue which is drawn 
 from taxation (as compared with 39-99 per cent, in Switzer- 
 land and 84-25 in the United Kingdom in the same j'ear) 
 of this revenue 75 per cent, (or 30 per cent, of the whole) 
 was drawn from Customs and Excise, and therefore pressed 
 unduly on the poor. The reinaining taxation, out of which 
 alone can come any application of the principle of graduation, 
 amounted to under 9 per cent, of the whole, and includes 
 excise licences, stamps, succession and probate duties, property 
 and income taxes, amounting to under £700,000. Under this 
 head would fall the new forms of taxation directed against 
 great estates, (i) the land tax and (2) the succession duty. 
 The first of these is not graduated but is ' a tax with 
 considerable exemptions, the classes of exemptions being so 
 constructed that the tax is clearly intended to bring land 
 into the market^.' The whole tax fell upon under 900 persons 
 and brought in about £124,000 a year. The succession duty 
 which brought in a slightly larger amount was graduated on 
 a scale varying from 2 per cent, on small estates up to 
 10 per cent, on estates of over £100,000. 
 
 We have said enough to show that, although the principle 
 may be recognized and applied in most countries, the practice 
 is certainly not to tax property in any undue proportion, if 
 indeed sufficiently. It is not too much to say that in no 
 stable civilized state has progressive taxation ever amounted 
 to anything like confiscation of the larger incomes, such as 
 is demanded by theoretic Socialism. Further, it does not 
 appear by any means certain, from the experience of coun- 
 tries where it has been tried, that much is to be gained 
 from a revenue point of view by a progressive income tax. 
 Taken by itself as a fiscal instrument, it has even been said 
 that it must either amount to confiscation or it will be useless, 
 that it must either aim at the destruction of private capital, 
 in which case, to quote Proudhon's picturesque phrase, 'II 
 aurait pour effet de refouler la richesse et de faire que le 
 travailj comme un homme attach^ k un cadavre, embrasserait 
 
 ' Sir C. Dilke, Problems of Greater Britain, vol. i. p. 192. 
 
272 A Policy of Free Exchange. [viii. 
 
 la misfere dans un accouplement sans fin; ' or that it will be 
 moderate, and in this case will be little more productive 
 than uniform or proportional taxation. The dilemma, how- 
 ever, is probably less conclusive than it looks. It is rash 
 to imagine that in a matter in which the habits of a 
 people, the distribution of their wealth and the character 
 of their government are all important factors, the example 
 of one country can be of very great assistance to an- 
 other. The same taxes, or similar methods of levying them, 
 will not be suitable alike to tax-dodging America, frugal 
 Switzerland and bureaucratic Prussia. But the question 
 whether the circumstances of any particular country make it 
 possible or desirable to adopt or develop a progressive system 
 of taxation is one of practical finance upon which it has been 
 no part of my design to touch, having had chiefly in view the 
 greater question, namely, What ideal of justice should taxation 
 endeavour to attain 1 Even if the comparative inutility of all 
 existing systems of progressive taxation were established, 
 this question would remain for solution; and, since a system of 
 taxation will never be in its highest degree productive which 
 does not conform to some standard of rightfulness in the heart 
 of the taxpayer, it cannot well be neglected. The argument 
 from Jevons' theory, if it is economically sound, has also the 
 advantage of harmonizing with what we may take to be the 
 rough-and-ready sense of justice of the ordinary man. It 
 cannot, of course, be pushed too far ; and if it may be held 
 to demonstrate in a general way that, in order to equalize the 
 burden of taxation upon individuals and classes, a higher pro- 
 portion should fall upon the larger than upon the smaller 
 incomes, it does not help us to a practical scheme of pro- 
 gressive rates, which has sometimes been deduced from it, 
 and which can only be arrived at as the result of carefully 
 guarded experiment. 
 
 Taxation indeed belongs essentially to the domain of 
 practical administration, and a conclusion based on considera- 
 tions of theory, such as those discussed in this paper, must 
 therefore of necessity be incomplete. The judgement of the 
 Economists appears to deprive the principle, in its practical 
 
VIII.] The Principle of Progression in Taxation. 273 
 
 application, of much of the importance which has been 
 claimed for it, but it entitles us at any rate to assume that 
 progressive taxation, in its theoretical aspect, need neither 
 be considered in the light of a socialistic bugbear, nor ridiculed 
 as a mere 'joujou d^mocratique,' and that, if it be confined 
 within bounds, some of which have been pointed out as 
 essential to its safe and advantageous use, and if the object of 
 equalizing taxation be clearly kept in view and the object of 
 equalizing incomes be as clearly repudiated, it may be found 
 a useful adjunct to a well-balanced fiscal system. 
 
 Beenaed Mallet. 
 
IX. 
 
 THE 
 LA W OF TRADE COMBINATIONS. 
 
 HON. ALFRED LTTTELTON. 
 
 T 3 
 
IX. 
 THE LAW OF TRADE COMBINATIONS. 
 
 The proximity into which men are now brought, and the 
 almost bewildering ease with which they can communicate 
 with one another, have given a strong impulse in business 
 to the principle of combination. Combination is the motto 
 of modern commerce. More and more is it apparent that 
 iadustry will in the future be mainly in the hands of 
 associated bodies. On the one side vast companies and 
 amalgamations of companies quarter out the field in which 
 capital circulates; on the other Trade Unions numbering 
 members in thousands and tens of thousands organize and 
 regulate labour. Already companies have practically absorbed 
 the great operations of Land Transport and Fire and Life 
 Insurance; soon Banking wiU pass also under their sway. 
 The Salt Union, the United Alkali Company, and the pro- 
 posed Coal Trust mark the advance in this country alone 
 of ideas of even vaster enterprise. Yet outside the serried 
 ranks of these great associations there yet exist a large 
 though perhaps a diminishing number of individual capitalists 
 and a still larger and probably not diminishing number of 
 individual workmen. Combined capital, guided by salaried 
 managers, measures its long purse and its long arms against 
 the individual proprietor operating in a narrower area, but 
 with more concentrated energy. Combined labour, strong 
 in the discipline of the trade union, confronts the single 
 craftsman, and brings irresistible pressure to bear on him, 
 if he ventures to resist its authority. The interests of 
 labour and capital, to those most nearly concerned, appear 
 only too often to be divergent and furnish ample material 
 
28o A Policy of Free Exchange. [ix- 
 
 committed by one person would not be punishable as 
 a crime. 
 
 'Nothing in this section shall exempt from punishment 
 any persons guilty of a conspiracy for which a punishment 
 is awarded by any Act of Parliament. 
 
 ' Nothing in this section shall affect the law relating to riot, 
 unlawful assembly, breach of the peace, or sedition, or any 
 offence against the State or the Sovereign. 
 
 ' A crime for the purposes of this section means an offence 
 punishable on indictment, or an offence which is punishable 
 on summary conviction, and for the commission of which the 
 offender is liable under the statute making the offence 
 punishable to be imprisoned either absolutely or at the 
 discretion of the court as an alternative for some other 
 punishment.' 
 
 ' 7. Every person who, with a view to compel any other 
 person to abstain from doing or to do any act which such 
 other person has a legal right to do or abstain from doing, 
 wrongfully and without legal authority, — 
 
 '(i) Uses violence to or intimidates such other person or 
 
 his wife or children, or injures his property ; or, 
 '(a) Persistently follows such other person about from 
 
 place to place ; or, 
 ' (3) Hides any tools, clothes, or other property owned or 
 
 used by such other person, or deprives him of or hinders him 
 
 in the use thereof ; or, 
 ' (4) Watches or besets the house or other place where 
 
 such other person resides, or works, or carries on business, or 
 
 happens to be, or the approach to such house or place ; or, 
 ' (5) Follows such other person with two or more other 
 
 persons in a disorderly manner in or thi'ough any street or 
 
 road, 
 shall, on conviction thereof by a court of summary juris- 
 diction, or on indictment as hereinafter mentioned, be liable 
 either to pay a penalty not exceeding twenty pounds, or to be 
 imprisoned for a term not exceeding three months, with or 
 without hard labour. 
 
 'Attending at or near the house or place where a person 
 
IX.] The Law of Trade Combinations. 281 
 
 resides, or works, or carries on business, or happens to be, or 
 the approach to such house or place, in order merely to obtain 
 or communicate information, shall not be deemed a watching 
 or besetting within the meaning of this section.' 
 
 Section 7, it will be seen, enumerates the various methods 
 of coercion which from time to time have been employed by 
 trade organizations, and may perhaps be said to comprehend 
 the totality of such methods by the word ' intimidate.' It 
 has been objected to this word that it is too vague, and if it 
 be true, as many wise men think, that the criminal law 
 should in all cases be rigidly precise in its definitions, it is 
 a charge which we think is made out ; but there is more 
 perhaps to be said in favour of a criminal statute that leaves 
 something to the intelligence of the tribunal which administers 
 its decrees than would at first be supposed. When for 
 instance the word ' intimidate ' was limited as in a previous 
 statute to actions which would justify a magistrate in binding 
 over the intimidator to keep the peace, it was only human 
 nature for men to ascertain precisely those actions which 
 would cause the maximum of fear, without giving a magistrate 
 such a jurisdiction. 
 
 One of the most effectual penal statutes of modern times 
 is the Corrupt Practices Act, 1883, which imposes fine and 
 imprisonment on persons doing certain acts 'in and about 
 the conduct and management of the election.' Now there is 
 no definition in the statute of the time when an election 
 commences, and during ten years no judge has laid down with 
 precision this fatal hour. The result is that numerous offences 
 subject to severe penalty are left vague. But the objectors to 
 this vagueness are not purists in legal codification but old 
 election hacks, who if the election period had been rigidly 
 ascertained would only have ceased corrupt expenditure at 
 midnight of the day before. 
 
 A long stride in the clear definition of the word ' intimida- 
 tion ' has now been made, so that the vice of vagueness, if it 
 be a vice, is largely mitigated. As early as 1880 Mr. Justice 
 Cave ruled that to constitute intimidation within the meaning 
 of the section under consideration personal violence must be 
 
282 A Policy of Free Exchange. [ix. 
 
 threatened ; and in 189 1 the scope of the section, and in par- 
 ticular the meaning of the word ' intimidation,' were considered 
 and determined by five judges in two cases the importance of 
 which justify a somewhat detailed reference. 
 
 Gibson v. Lawson. 
 
 In this case, in Dec. 1890, a workman named Gibson, 
 a member of a trade union called the National Society of 
 Engineers, was employed as a fitter by Messrs. Palmer & Co. 
 shipbuilders in Northumberland. Another workman, by name 
 Lawson, a shop delegate and a member of another trade union, 
 the Amalgamated Society of Engineers, was employed in 
 a like capacity at Messrs. Palmers. On Dec. 3 the Amal- 
 gamated Society of Engineers met and resolved not to work 
 at Messrs. Palmer's after Dec. 6 unless Gibson joined their 
 union. Lawson communicated this resolution to Messrs. 
 Palmer's foreman, who repeated it to Gibson. Gibson there- 
 upon refused to leave his trade union or to join the other, and 
 in consequence, and in order to avoid the threatened strike, 
 Messrs. Palmer's foreman dismissed Gibson from his employ- 
 ment. No violence or threats of violence either to person or 
 to property were used to Gibson, but he swore that he was 
 afraid, in consequence of what Lawson said, that he would 
 lose his work and get no more at any place where the 
 Amalgamated Society predominated numerically over his 
 own society. 
 
 Lawson was afterwards prosecuted for having wrongfully 
 and without legal authority intimidated Gibson, under section 
 7, sub-section (i) of the Statute of 1875. On these facts it was 
 held by a court consisting of five judges that the action of 
 Lawson implied no threat whatever of personal violence, and 
 was not ' intimidation.' It was also observed that the Statute 
 of 1875 expressly legalized strikes, and that a conspiracy, by 
 means of a strike thus legalized, to coerce another's will, 
 notwithstanding certain decisions of Lord BramweU and Lord 
 Esher, could not be indictable. 
 
 Regarding this decision from a purely legal point of view, 
 
IX.] The Law of Trade Combinations. 283 
 
 it is to be observed that in the repealed Act of 1871, which 
 dealt -with the same subject as the Statute of 1875, the word 
 ' intimidation ' was limited to such intimidation as would 
 justify a magistrate in binding over the intimidator to keep 
 the peace towards the person intimidated. In the Statute of 
 1875 Parliament enacted the seventh section containing the 
 word ' intimidation ' without any such limitation. It has 
 been a matter of surprise to many lawyers that the word 
 ' intimidation ' was construed in face of this contrast as if the 
 limitation of the Act of 187 1 were still in force. Two reasons 
 only are given in the report for this decision : (i) The changing 
 temper of the times on the subject ; (a) That the Statute of 
 1875 was preceded by a Royal Commission which recom- 
 mended a relaxation of the law in favour of trade unions. 
 As to (i), it is submitted that though it is quite sound to 
 permit 'the changing opinion of the times' to modify a common 
 law rule, for such a rule is founded on custom, it is quite 
 unsound to extend such reasoning to a statute. For a statute 
 is to be construed according to the intention of those who 
 passed it, and to construe it, not according to that intention as 
 gathered from its tenor, but according to the fluctuating 
 opinions of its readers, seems obviously to introduce confusion 
 and uncertainty. 
 
 As to (2), it is not legally permissible to read or even 
 refer in argument to the debates preceding the passage of an 
 Act, still less to the report of a Royal Commission on which 
 it is supposed to be based. It is moreover inaccurate to say 
 that the Royal Commissioners recommended a relaxation of 
 the law as regards intimidation, on the contrary, they advised 
 that no relaxation should here be made. 
 
 CUKRAN V. TBELEAVEN. 
 
 In this case the Secretaries of certain trade unions had 
 been convicted before the Recorder of Plymouth of wrongful 
 intimidation under the section above referred to. The 
 Recorder stated the following case for the consideration of 
 the Court of Queen's Bench before giving efifect to the 
 conviction. 
 
284 A Policy of Free Exchange. [ix. 
 
 The appellant and two other secretaries of trade unions, 
 in order to prevent the respondent employing non-union men, 
 informed him that if he did not cease to do so, they would 
 call off from their employment by him all the members of 
 their respective unions. After a meeting of the unions, at 
 which it was resolved that this course should be adopted, the 
 appellant and the other secretaries, in the presence of the 
 respondent, whom they asked to attend, made the following 
 statement to the respondent's workmen and others who were 
 assembled: — 'Inasmuch as Mr. T. (i.e. the respondent) still 
 insists on employing non-union men, we, your officials, call 
 upon all union men to leave their work. Use no violence, 
 use no immoderate language, but quietly cease to work, and 
 go home.' The union men in consequence ceased to work. 
 
 Held, that there was no evidence of intimidation by the 
 appellant within the meaning of the section, and that the 
 conviction must be quashed. 
 
 The reasons for this decision may be presumed to be the 
 same as those given in the first case, as no others germane to 
 the subject are given in the report. 
 
 Whatever legal criticism may be suggested on the reasons 
 given for these decisions, the law, as laid down in them, has at 
 least the merit of being clear, and I venture to predict the 
 result that no prosecutions will be undertaken under section 
 7, sub-section (i) of the Statute of 1875 unless proof can be 
 given that physical force has been used or threatened. The 
 other ofiences aimed at by the second, third, fourth, and fifth 
 sub-sections are defined with great clearness, and require no 
 comment here. 
 
 It seems then that if in such cases as the above, the only 
 resort to the criminal law against trade combinations left 
 open to employers and workmen be the Statute of 1875, 
 the conclusion follows that subjects of the Queen, owing 
 allegiance only to the law of the land, can, against their will, 
 be brought under the dominion of a power which they detest, 
 and to which in a free country they owe no obedience, and 
 that too, in matters so vital to them, as on the one hand the 
 employment of their capital, and the hiiing of their workmen, 
 
IX.] The Law of Trade Combinations. 285 
 
 and on the other the expenditure of their income, the hours, 
 methods, nay even the disposal of their labour. For it is 
 idle to say that a power is not absolute which, though bound 
 to abstain from physical violence, is yet at liberty to bring 
 upon a fellow-subject industrial ruin. Such a conclusion is 
 startling, for every one knows that the remedies of the civil 
 law, for workmen at any rate, against trade unions are 
 practically beyond their means or opportunities. 
 (&) The common law crime of conspiracy. 
 
 It has been too readily assumed, probably owing to some 
 dicta in the cases above mentioned which were unnecessary 
 for their decision, that outside the provisions of the Statute of 
 1875. the criminal law is powerless against combinations of 
 capitalists and workmen. I propose to consider two doctrines 
 of the common law relating to conspiracy which appear to be 
 available against such combinations. There is authority that 
 the following agreements are criminal. 
 
 I. Agreements between more persons than one to do acts 
 which are injurious to the public, or as Sir James Stephen 
 puts it, ' Agreements between more persons than one to carry 
 out purposes which the judges regarded as injurious to the 
 public' 
 
 3. Agreements where, with malicious design to do an injury, 
 the purpose is to effect a wrong though not such a wrong as 
 when perpetrated by a single individual would amount to an 
 offence under the criminal law. 
 
 I. The statement of this rule appears and is extraordinarily 
 vague. Convictions have in the past been obtained against 
 persons conspiring to impoverish the farmers of excise, so as 
 to make them incapable of rendering the king his revenue, 
 against combinations of officers to throw up their commissions 
 in times of danger, and against persons combining to disturb 
 the price of the funds by false rumours. But the principle 
 has never been applied, in England at any rate, against rings 
 of capitalists or unions of workmen, and though it is possible 
 to conceive cases in which the national importance of the 
 industries affected might justify its use, no judge would 
 venture to enforce it in cases such as those we have considered. 
 
286 A Policy of Free Exchange. [ix. 
 
 3. The second prlnc!ij)](i lias the authority of the l<'iim1 
 Report of the Royal (.'(jiruniHHion on the Labour Laws in 1 87.(5 
 (a CommisBion which containod, lunong others, Jjord (Jliiof 
 Justice (Jockbum,, Sir M. Smith, Mr. Russell Ournoy, 
 Mr. Roebuck, and Mr. Tlioinas lliifflKiH), Ikih biien sup- 
 ported by dicta of the (Jourt ol' Appeal, and its rcaHon- 
 ing adopted in cases of high authority in Americu. If tlio 
 principio be applied to tlio facts of the caso of (jibson v. 
 Lawson I do not think it can l)o doulitod that in tlio ubHontio 
 of the exempting section of the Statute of 1 87,'^, Lawson and 
 those who acted with him would have boon found K"''*y 
 legally of a criminal conspiracy. Their imincdiati; intention 
 was to induce Gibson's omployorH to briiiik tlioir contract with 
 him. Such an intention is malicious inlaw, oven though there 
 be no personal ill-will. Their remoio object was to force 
 Gibson to leave his trade union and join another, i.e. to 
 infringe his legal right to belong to any union he thought fit. 
 Then does the third section of the Stiiiute of 187,1; ex(!inf)t 
 such a eornbination from the law of criminal conHjiiraey ■? 
 That section, it will be rememliered, enacts that 'An agreement 
 or combination by two or more jjersfiriH to do w procure to be 
 done any act in contemplation or furtherance of a trade 
 dispute between employers and workmen shall not bo indiet- 
 able as a conspiracy if such act committed by one pf^rHon 
 would not be indictable as a crime.' TMs section has beisn 
 judicially declared to have expressly legalized strikes. I'lit if 
 it is closely scrutinized it will be fouml to exempt strikes 
 from tlie operation of the Criminal liaw of Consfjiraey only 
 when the agreements at their root are ' in furtherane.e or con- 
 templation of a trade dispute between ernjiloyerH and work- 
 men.' 'i'he whole history of this legislation shows that the 
 object of Parliament in granting this exemjition was to remove 
 all fetters from Laboui' which might seem to cramp it unfairly 
 in the struggle with (.ajjita]. The caiiitalist, it was argued, 
 is a combination in himself. The labourer should then lie 
 free also to com?jino. The intention of I'ai'liarnent was not to 
 give a dominance which might easily become a tyranny cithiir 
 to rings of capitalists or unions of workmen, but to place 
 
IX.] The Law of Trade Combinations. 287 
 
 workmen so far as possible on terms of equality in competition 
 with capitalists. The exemption of section 3 accordingly- 
 only operates to make agreements otherwise criminal not 
 criminal when they are made in the course or genuine con- 
 templation of a trade dispute between employers and workmen. 
 The belligerents must not be employers and employers or 
 workmen and workmen, but employers and workmen, and 
 there is no sanction in the statute for the notion, now widely 
 prevalent, that a ring of capitalists can combine to ruin rival 
 capitalists, or that a trade union can combine to ruin non- 
 unionists, by wrongfully injuring them. The mere cover of 
 a strike is not of itself to render not criminal all agreements 
 attendant on its inception. It will be seen, therefore, that had 
 Lawson and his friends, for example, been indicted for a common 
 law conspiracy, and had their action been brought within the 
 terms of the definition under consideration, they would not 
 (it is submitted) have been entitled to an acquittal by virtue 
 of section 3 of the Statute of 1875, unless the jury found 
 as a fact that the agreement to procure the dismissal of 
 Gibson had been in bona fide contemplation or furtherance 
 of a trade dispute between the defendants and their em- 
 ployers. 
 
 II. As already indicated, it is not intended to discuss the 
 civil remedies of those aggrieved by the actions of trade com- 
 binations, beyond adverting in detail to two recent decisions 
 of the Courts in which these remedies have been elaborately 
 discussed, and which illustrate in a very salient manner the 
 bearing of the modern law in this connexion. The first of 
 these cases is called The Mogul S. S. Company v. McGregor, 
 Gow & Co. (1889), and will be hereafter referred to as 'the Mogul 
 case.' In that case the defendants were a number of ship- 
 owners who formed themselves into a league or conference 
 for the purpose of ultimately keeping in their own hands the 
 control of the tea-carriage from certain Chinese ports, and 
 for the purpose of driving the plaintiffs and other competitors 
 from the field. In order to succeed in this object, and to 
 discourage the plaintiffs' vessels from resorting to those ports, 
 
288 A Policy of Free Exchange. \}^- 
 
 the defendants during the 'tea harvest' of 1885 combined to 
 offer to the local shippers very low freights, with a view of 
 generally reducing or ' smashing ' rates, and thus rendering it 
 unprofitable for the plaintiffs to send their ships thither. They 
 offered, moreover, a rebate of five per cent, to all local shippers 
 and agents who would deal exclusively with vessels belonging 
 to the conference, and any agent who broke the condition 
 was to forfeit the entire rebate on all shipments made on 
 behalf of any and every one of his principals during the whole 
 year — a forfeiture of rebate or allowance which was de- 
 nominated as ' penal ' by the plaintiffs' counsel. It must, 
 however, be taken as established that the rebate was one 
 which the defendants need never have allowed at aU to their 
 customers. It must also be taken that the defendants had no 
 personal ill-will to the plaintiffs, nor any desire to harm them 
 except such as was involved in the wish and intention to 
 discourage by such measures the plaintiffs from sending rival 
 vessels to such ports. 
 
 In a judgement, which is a monument of legal learning and 
 literary form, Lord Justice Bowen, supported by Lord Justice 
 Fry and afterwards by the House of Lords, Lord Esher 
 dissenting, held that this transaction was only the ' lawful 
 pursuit to the bitter end of a war of competition waged by 
 the defendants in the interest of their own trade,' and that, 
 although a damage to the plaintiffs, intentional in the sense 
 of being necessarily consequential on the defendants' action, 
 had been proved, the defendants had just cause or excuse for 
 inflicting such damage in the instinct of self-advancement and 
 self-protection which is the incentive of all trade. 'To say 
 that a man is to trade freely but that he is to stop short at 
 any act which is calculated to harm other tradesmen and 
 which is designed to attract business to himself, would be 
 a strange and impossible counsel of perfection.' The funda- 
 mental ground for this decision is that it is good for the 
 community that competition should be unfettered and that 
 the exercise of a trader's right to trade freely necessarily 
 implies the right intentionally to injure other traders. To 
 ruin a man's trade because you want to ruin him is unlawful, 
 
ix.J The Law of Trade Combinations. 289 
 
 but to do so because you want it for yourself is in obedience 
 to a natural and legitimate instinct. 
 
 Since the decision in the Mogul case was given, the 
 action of certain trade unions combining to ruin a person 
 who refused to fall into a scheme for imposing generally, 
 throughout a trade, trade-union regulations, has been discussed 
 in the Court of Appeal. In the case of Temperton v. Russell 
 and others (1893), 'the defendants were members of a joint 
 committee of three trade unions connected with the building 
 trade in HuU. A firm of builders there having refused to obey 
 certain rules laid down by the unions with regard to building 
 operations, the unions sought to compel them to do so, by 
 preventing the supply of building materials to them. In 
 pursuance of this object, they requested the plaintiff, a master 
 mason and builder in Hull, who supplied building materials 
 to the firm, to cease to supply them with such materials, 
 but the plaintiff refused to do so. Thereupon, with the object 
 of injuring the plaintiff in his business, in order to compel him 
 to comply with their request, the defendants induced persons 
 who, to the knowledge of the defendants, had entered into 
 contracts with the plaintiff for the supply of materials, to 
 break their contracts, and not to enter into further contracts 
 with the plaintiff, by threatening that workmen would be 
 withdrawn from their employ. The plaintiff sustained damage 
 in consequence of such breaches of contract and of the refusal 
 of such persons to enter into contracts with him : — Held, 
 That an action was maintainable by the plaintiff against 
 the defendants for maliciously procuring such breaches of 
 contract, and also for maliciously conspiring together to 
 injure him by preventing persons from entering into con- 
 tracts with him.' 
 
 So far as this decision relates to the maliciously procuring 
 persons to break contracts actually entered into, it merely 
 declares well-settled law and is altogether beyond criticism. 
 On the other hand, so far as it relates to a conspiracy to 
 induce persons not to enter into contracts with others in the 
 future, the decision has no precedent, and appears to be at 
 least questionable. For, if it be sound, it would appear that 
 
290 A Policy of Free Exchange. [ix. 
 
 in all cases the most effective weapon, and in most cases the 
 only weapon, of a trade union, one which has been used 
 for many years — viz., the power to refuse the service of their 
 members to employers, except upon stated terms — would be 
 struck from their hands. 
 
 In the Mogul case, for the purpose of establishing a mono- 
 poly, the conference of shippwners undoubtedly used means 
 which involved the intentional and injurious coercion of 
 a dissentient fellow-trader. In Temperton v. Russell, for 
 the purpose 'of improving the condition of labour' and in 
 furtherance of a labour dispute, the trade unionists un-' 
 doubtedly took certain active measures highly oppressive to 
 the person against whom they were directed. 
 
 It would be presumptuous to suggest that there are not 
 weighty reasons to be given in support of a judgement of the 
 Court of Appeal, but it is obvious that these two decisions do 
 not make the state of the law clear. 
 
 On one side, it will be argued that the cases are dis- 
 tinguishable ; that in the Mogul case the defendants only did 
 what any trader is entitled to do, viz., offer exceptional terms 
 for continuous and exclusive custom, and use the power of 
 combination, peacefully and without personal iU-will, to 
 drive all competitors from the field. In the second case, 
 the defendants, it might be argued, went beyond the legitimate 
 furtherance of a trade dispute when they brought injurious 
 pressure to bear on the affairs of one who was no party to 
 that dispute. 
 
 On the other side it will be maintained that the two cases 
 ought to be governed by the same rule. The trade unionist 
 will naturally insist that the object in both cases, viz., the 
 improvement of their own market, was identical, and that the 
 steps taken to secure this legitimate end were in both cases 
 the same. If coercion by combination is legitimate in one 
 case it ought to be legitimate in the other. A combination to 
 prevent persons entering into future contracts was held legal 
 in one case and it ought to be held legal in the other. 
 Why is the capitalist's combination merely an incident in 
 a war of competition, waged in the interest of their own 
 
IX.] The Law of Trade Combinations. 29 f 
 
 trade, and the trade-union combination a malicious and 
 illegal conspiracy? 
 
 It is impossible to deny the force of this reasoning, but it 
 would require another paper to discuss the possible develop- 
 ments of legal decisions or statute law whereby the uncertainty 
 of the situation can be removed. 
 
 If these two cases are distinguishable, the exact ground of 
 distinction will, no doubt, be made clearer in future decisions 
 of the Courts ; if, on the other hand (and to this opinion I am 
 disposed to incline) they are not distinguishable, there can be 
 no doubt that the balance will be righted by the strict and 
 unquestioned impartiality of the judicial bench. 
 
 The object of this paper has been to consider the law 
 affecting trade combinations as determined by recent decisions, 
 and we are now in a position to sum up the result of our 
 inquiry. 
 
 So far as the law of crimes is concerned, we have seen that 
 Parliament, assisted by the judges, has laboured in the main 
 since 1875 to secure absolute equality of conditions to 
 combatants in the war between labour and capital. The 
 opinion has been hazarded that, so long as every form of 
 physical force is avoided, trade disputants in combination have 
 no interference to fear and trade dissentients no protection 
 to expect from the law of conspiracy ; but that if, on the other 
 hand, coercion is used, which, without the excuse of a war 
 between labour and capital, would be otherwise unlawful, the 
 power of the law may successfully be called in. 
 
 So far as the civil law is concerned it has been submitted 
 that the principle of acknowledging every man's right to trade 
 freely has been applied by the Courts in a sense which has 
 accorded to combined capitalists a privilege not granted to the 
 trade union. 
 
 Further, it has been suggested that, while more use might 
 have been made of the criminal law for the protection of 
 dissentients against trade unions which may act oppressively, 
 on the other hand the power of the civil law has been unduly 
 strained against labour combinations. 
 
 Whatever may be the justice of these conclusions, the 
 
292 A Policy of Free Exchange. [ix. 
 
 discussion has revealed the great complexity of the subject. 
 The law is being called on to deal with a new and very 
 difficult set of circumstances. The power of combinations, 
 such as we have been considering, is always very great and 
 sometimes very oppVessive. It is not too much to say that 
 individuals are at times made subject not only to the law of 
 the Queen, but also to the law of the Combination. The 
 possibility of oppression and the difficulty of dealing with it 
 are equally obvious, and it seems a dismal view of the future to 
 say that the law can do no more than keep the ring on equal 
 terms for the combatants in these disastrous and often ferocious 
 contests. But we are here considering only the legal aspects of 
 the question ; whether in the future it may be thought desirable 
 to legislate for the protection of private citizens against the 
 tyranny of combinations, the future only can decide. 
 
 In conclusion, some hope may be gleaned from the advance 
 of conciliatory principles. In the controversies of nations, for 
 instance, although the law of force is still predominant, the 
 greatest and most civilized races are beginning, timidly and 
 fitfully, it is true, to look to arbitration. In industrial 
 disputes, such as those which have been considered, the 
 element of race animosity is absent, and the interests of the 
 opponents are often not really conflicting. Is it Utopian to 
 hope that the great waste and suffering of war between 
 Labour and Capital may gradually give place to more civilized 
 and more rational methods 1 
 
 Alfred Lyttelton.