Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924081089272 PRINCIPLES SOCIAL ECONOMICS INDUCTIVELY CONSIDERED AND PRACTICALLY APPLIED CRITICISMS ON CURRENT THEORIES GEORGE GUNTON , AUTHOR OF " ■WEALTH AND FKO(iR£SS ' SECOND EDITION, TENTH THOUSAND , G. P. PUTNAM'S SONS NEW YORK LONDON 2? WEST TWENTY-THIRD STREET 24 BEDFORD STREET, STRAWS %\t $nuherbotkti '^mi 1897 COPYRIGHT^ 1891 3Y GEORGE GUNTOX Electrotyped, Printed, and Bound by Ube mnicberbochec pcess, Devp S^orfi G. P. Putnam's Sons PREFACE. If therie is one subject that should be more attractive to the student and more inspiring to the citizen than an- other, it is that of social economics, because it deals directly and exclusively with the influences and conditions which control all human welfare. It is through a knowl- edge of the principles and laws of human economics that we are enabled to make nature contribute to man's comfort and luxury by substituting abundance for poverty, freedom for slavery, peace for war, intelligence and morality for ignorance and brutality ; in short, a civilization of democracy and culture for one of despotism and degradation. When- ever the science which should furnish the key to nature's bounties and the light to human progress becomes unattrac- tive to the student and repulsive to the average citizen, we may be assured that there is something fundamentally amiss with the conception and treatment of the subject. This is precisely the case with political economy to-day. Instead of being the beacon-light of industrial and social affairs, — the source to which all may turn for safe instruction and hopeful guidance, — it is the " dismal science " which students avoid, statesmen and capitalists disregard, citizens ignore, and laborers discredit. Why is a' science so dreary and pessimistic, which by its very nature should be fasci- nating and hopeful ? The obvious answer is, that it fails to fulfill its function as a science of industrial welfare and social advancement. On nearly all fundamental questions affecting the production and distribution of wealth its doc- trines are both uncertain and inconsistent. The popular VI PREFACE, theory of wages has been exploded by experience, and the current doctrines of value, interest, and profit have for gen- erations been subjects of perplexing controversy between experts and sources of utter bewilderment to students. This is mainly due to the fact that the accepted theories belong to the hand-labor conditions of the seventeenth and eighteenth centuries, which have very little relation to the factory conditions of the nineteenth century. Nor should this be a matter of surprise, since it is entirely consistent with the law of industrial evolution. In its development society has assumed several distinct and essentially different industrial phases, which have each changed the economic structure of society, shifting the centre of industrial move- ment and the point of view of economic study. Under feudalism, for instance, the land-owning class was the centre of all social and industrial movement. Economic policy therefore was considered from the standpoint of a land-owning class. With the development of manufacture and trade however, came a radical change in economic relations. Serfs became wage receivers, and the cultivation of the land passed to tenant farmers, which change transferred the distribution of wealth from the domain of authority, to that of economic law. By this transition the social basis of industrial prosperity was broadened, and the centre of economic movement was shifted from the industries required to supply the needs of a small land-owning class to those required to supply the demands of a relatively large commercial class, whose interests were more varied and extensive. In proportion as new conditions developed, the narrow paternal policy which was adapted to the old regime became inimical to the welfare of the community, and a reconstruction of economic doctrine from a new point of view became necessary. The efforts of two centuries to supply this need culminated in the " Wealth of Nations," which really marks the advent of middle-class political economy, whose influence has practically moulded the economic thought of the present century. PREFACE. vii For the same reason that under feudalism every thing was viewed from the standpoint of the land-owner, every thing was now considered from the standpoint of the manufac- turer and merchant, whose income was derived from trade. How to promote sales became the fundamental idea of what has been well named the "Commodities School" of political economy. To sell extensively necessitated pro- ducing cheaply. And since wages formed the greater part of the cost of production, it appeared from the " com- modities " point of view to be as necessary to obtain cheap labor as cheap raw material, and for the same reason. Consequently it became a cardinal doctrine of the " Com- modities School " that large profits depend upon low wages. " It has been my endeavor to show throughout this work," says Ricardo, " that the ratio of profits can never be increased but by a falf in wages." In the days of hand labor and small factories, when the consumption of the upper and middle classes furnished a sufficient market for pro- ducts, this cheap-labor policy was successful in giving profits. But this very success led to the development of large factories, which were destined again to revolutionize the economic structure of society. For since these large enter- prises required a more extensive market for their success than any possible increase in the consumption of wealth by the upper and middle classes could furnish, the habitual demands of the masses for the first time necessarily became the foundation of industrial prosperity. Therefore it is in the needs of the masses that the economics of the future must be studied and statesmanship determined. To such a change of industrial relations Adam Smith and his followers were altogether oblivious ; their conception of industrial evolution was too limited to enable them to antici- pate it, and their purely " commodities " point of view pre- vented them from observing it. They saw the importance of the factory as a means of making wealth cheap, but they did not see the economic importance of making man dear. Having failed to recognize the laborer as the great factor in viii PREFACE. a market whose consuming power must be increased, they continued to treat him only as a productive force in the factory, whose cost should be reduced, on the theory as Mill puts it, that " profits depend upon wages, rising as wages fall and falling as wages rise." Thus through an effort to apply erroneous ante-factory theories to factory conditions political economy has for three quarters of a century been made a gospel of cheap labor and an enemy of social advance. The growing incompetency of political economy to deal with modern conditions has begun to be recognized by in- ductive economists, and during the last twenty years an increasing departure from economic orthodoxy has been manifest among the younger economists of Europe and this country, which is now developing to the proportions of a new school. In breaking from the hard and narrow lines established by the doctrines of early English economists, the " New School" has already rendered an important service to economic sci- ence, by making respectable the re-discussion of the funda- mental principles governing industrial relations and political policy, in the light of modern knowledge. Thus far, however, its work has been critical rather than constructive. It has contributed far more to break up the old than to establish a new body of economic doctrine. Although the English theory of wages has been repudiated and the doctrine of laissez faire rejected by them, no ap- proximately adequate explanation of wage phenomena has been furnished, nor any affirmative principle of public policy suggested. In the following pages I have endeavored to discuss the principles of social economics from the nineteenth century point of view. If the facts of modern experience are to be the court of final appeal, the great fundamental fact to be recognized in our society is the democratic basis of industry^ The factory system has made the use of natural forces (steam, electricity, etc.) necessary to successful industrial en- PREFACE. ix terprise. Nature is intensely democratic. She will only work cheaply when she is serving a large number. Kings and aristocracies may command the unpaid service of slaves, but natural forces will work efficiently only for the million. Millionaires could not travel by steam or communicate by electricity if millions of workmen did not use the same methods. In short, the success of all machine-using industries now primarily depends on the extent to which their products are consumed by the masses. Therefore the prosperity of the community in general and capitalists in particular depends upon increasing the wants and elevating the social life and character of the laboring classes. Considered from this standpoint, the whole subject of economics assumes a new and altogether more rational and humane aspect. It ceases to be a mere " science of wealth," subordinating producers to the product, and becomes a science of human welfare, making the social life of the producers the end to which the creation of commodities is the great means. In other words, it is transformed from a dismal science of pessimism and despair, which complacently sees the masses crowded to the verge of starvation, into a science of optimism and hope, which bears a message of prosperity and progress to the whole of humanity. Besides giving economic science a humane, hopeful aspect hitherto conspicuously wanting, this change in the point of view makes it integral, harmonious, and intelligible. Much that has been involved in confusion becomes simple and clear; much that has been mistakenly regarded as unjust and oppressive enough to warrant revolution, becomes obviously beneficent and progressive ; and much that has been dole- fully taught as axiomatic truth is seen to be manifest error. Moreover, when we change our point of view from com- modities to men, and make the laborer the initial point of observation, the questions of production and distribution become susceptible of discussion in terms intelligible to ordi- nary minds. We then find value or price assuming a human basis, and commodities are seen to be dear or cheap not as X PREFACE. they will exchange for more or less gold, but as they will exchange for more or less of labor, as economic equivalents- With this idea of value the theory of supply and demand of which Malthusianism and the wage-fund fallacy are a natural outcome, is incompatible. The ratio in which a given quan- tity of cloth or shoes is the economic equivalent of a day's labor can no more be determined by the mere fact of the quantity of cloth or the number of laborers, than can the moral quality of a robbery by the number of thieves. The only basis upon which two things can be economic equivalents of each other is the substantial equality of their cost of production. Upon no other principle can exchanges be economic, equitable, and mutually advantageous. The principle of cost, governed as it is by the cost of the dearest portion of the economic supply of any commodity, furnishes a keystone to the arch of economic science. It supplies the basis for a consistent body of economic doctrine capable of explaining the phenomena of wages, rent, interest, and profit upon one general principle of universal application — namely, the law of economic price and its corollary, the law of economic surplus. Instead of a system of ''commodity" economics which justifies human degradation as a means of cheapening wealth, we have a sys- tem of social economics, which shows that the most effective means of promoting the industrial welfare of society on a strictly equitable basis, must be sought in influences which develop the wants, and elevate the social life and character of the masses. Here then we have a sound, economic, and broad social basis for intelligent, humane, and progressive statesmanship, which shall promote individuality without incurring the follies of laissez faire, and utiHze the educa- tional and protective functions of the state without incurring the dangers of paternalism. New York City, January, 1891. CONTENTS. PART I. The Principles of Social Progress. CHAPTER I. SOCIAL PROGRESS. PAGE The law of progress the key to history 3 The nature of progress 4 Progress defined and phenomena classified 5 Its tendency shown by the primitive condition of man .... 6 By the development of the family as a social unit ..... 7 By the rise of the feudal system 8 By the growth of free towns and individual rights . . . . g By the development of the middle class and the factory system . . 10 Industrial progress different from social and political . . . .11 The source of individual freedom . . . . . . . .12 Socializing effect of the wages system 13 Economic interdependence and social individuality a criterion of civilization, 14 CHAPTER II. THE LAW OF SOCIAL PROGRESS. The elements in social progress 15 Natural order of social progress 16 Industrial progress the basis of all progress 17 Comte's mistake i3 The intellect the servant of human wants 19 Relation of egoism to altruism 20 Law of social progress summarized ■ 31 XII CONTENTS. CHAPTER III. THE CAUSE OF SOCIAL PROGRESS. Human wants the cause of social evolution Effectual and non-effectual desires . The social source of equity .... Intelligence, justice, and virtue have same origin As human wants increase civilization advances PAGE 32 23 24 25 36 CHAPTER IV. VERIFICATION OF THE LAW OF SOCIAL PROGRESS. Progress accompanies large consumption of wealth by the masses Small consumption in Oriental countries . Under ancient Greece and Rome, few rich, many poor Slavery preponderates ...... Why ancient philosophy long remained without effect Arrested progress cause of Rome's fall 27 28 29 30 31 32 CHAPTER V. THE RISE AND SOCIAL POWER OF FREE CITIES AS VERIFYING THE LAW OF SOCIAL PROGRESS. Barbarism supplanted by feudalism 33 Concentration of the serfs in the towns ....... 34 The burgesses secure control of the towns by paying rent • • • 35 Insurrection of the towns ......... 36 Transformation of towns into free cities 37 The cities were the homes of freedom 38 CHAPTER VI. THE FALL OF THE FREE CITIES AND ITS EFFECT UPON SOCIAL PROGRESS. Progress arrested by their fall 3g Spain distracted by religious wars ........ 40 Premature development in Italy 41 German freedom destroyed by imperial alliance 42 French cities overcome by the barons 43 In England the cities not suppressed 44 Charters rendered inviolable 45 Labor rents superseded by wages 46 Feudalism abolished by expansion of freedom in the towns ... 47 Increased wealth of the middle class 48 COlfTMNTS. Xltf CHAPTER VII. THE LAW OF SOCIAL PROGKESS AS VERIFIED IN THE PROGRESS OF t OLITICAI AND RELIGIOUS FREEDOM. PAGE 49 SO 51 52 53 54 55 56 57 58 59 60 Political power of English Commons .... Religious and political liberty follow material development Wiclifl's Bible succeeds ; Hussite War a failure Character of the Jacquerie and the Peasant War Social character of the Reformation .... Protestantism due to the social power of middle class Condition of the masses from the fifteenth to the eighteenth century The factory system. Industrial legislation Right to vote extended to the laboring classes . Superior industrial conditions of America Difference between French and American Revolutions Industrial prosperity cause of our free institutions . PART II. The Principles of Economic Production. CHAPTER I. WEALTH AND THE LAW OF ITS PRODtJCTION. Mill's conflicting definitions of wealth 63 Walker's definition 64 Perry substitutes the word property • 65 Essential characteristics of wealth .66 Wealth defined 67 Various views of production 68 Theory of non-productive labor 69 All useful labor productive 7° Differentiation of productive effort 71 Gratified desires complete the cycle of effort 72 Land, labor, and natural forces the necessary factors in production . . 72 Land passive, man and nature active 73 Nature and character of capital 74 Economic use of the term capital 75 Use of capital determined by increasing returns 76 Mistaken praise of parsimony 77 Capital the effect not the cause of industrial prosperity ... 78 Capital arises from the hope of gain 79 No use for capital in barbarism 80 Social consumption the cause of economic production .... 81 XIV CONTENTS. FAGB Characteristic simplicity of physical wants 82 Complexity of social wants 83 Nature responds liberally only to large demand 84 New wants make large markets 85 High wages lead to low prices 86 Two kinds of discoveries under ancient and modem civilizations . . 87 Why ancient civilizations were not self-sustaining 88 Resume of laws of production 89 CHAPTER II. ECONOMIC VALUB. Adam Smith's definition confusing 90 Relation of value and utility Qi Definition of value 92 Price and value identical 93, 94 Value a relation between man and things 95 Mistaken point of view 96 Error of Mill and Cairnes 97 Value is not the exchange ratio of things to things, but of things to man . 98 Effect of the new point of view 99 CHAPTER III. DEMAND AND SUPPLY NOT THE LAW OP ECONOMIC PRICES. Economic price not governed by demand and supply .... 100 Gregory King's law loi It applies to agricultural products 102 Not to manufactured products ....... 103, 104 The theory does not fit the facts ........ 105 Wages do not obey the law of supply and demand ..... 106 Economic price the exchange of equivalents ...... 167 Cost the basis of economic equivalence 107 Testimony of McCuUoch 108 Cairnes' error regarding supply and demand ...... 109 Commodities do not create demand . . . , , . .110 Demand the cause of supply iii Origin of price '112 Initial point of supply 113 Price phenomena originate in man . . . , , , , .114 CHAPTER IV. THE LAW OF ECONOMIC PRICES. Exchange ratio of wealth and service 115 Meaning of economic law , . . . . , , . . 1 16 CONTENTS. XV PAGE Z^ 285 Its erroneous postulates 286, 287 False views of competition 288 Misuse of the term natural law 289 Natural and human selection 290 Survival of the unfittest 291 Government essential to society ........ 292 Character of economic competition 293 The competing units must be approximately equal 294 The necessity of opportunity .... .... 294 CHAPTER II. THE STATE ; OR, THE NATURE AND FUNCTION OF GOVERNMENT. The state as distinguished from society .... No absolute rights in society All government is representative The state is the authoritative expression of the aggregate . Relation of the state to the individual .... 295 296 297 298 299 XX CONTENTS. PAGE Social-organism theory of Plato, Hobbes, Rodbertus, Marx, and Spencer. 300 Spencer's claim that society is an organism, stated .... 301, 302 His fundamental propositions considered ...... y^Z Radical distinction between society and an individual organism . . 304 Society is not an organic entity . . ..... 3°5 Social evolution different from physical 306 Mr. Spencer logically supports socialism 3°? Clark's attempt to apply this theory to economics 308 His position analyzed 3^9 The function of government 310 Importance of mutual dependence . . . . . . . .311 Controlling principle in statesmanship 312 Individual action preferable to state action 313 Difficulty of determining their respective spheres .... 3I4> 3I5 Sphere of individual action 315 Sphere of state action 3^6, 317 Difference between protection and paternalism . . . . .318 State functions essentially protective and educational . . . .319 CHAPTER III THE PRINCIPLE OF INTERNATIONAL TRADE. Necessity of national development 320 Society a means for individual advancement . . . . . .321 The nation ............ 322 Socializing tendency of manufacturing industries 323 Importance of their development .,,..... 324 A large home market necessary ........ 325 Superiority of home over foreign market ....... 326 Foreign markets and home wages ........ 327 A nation is rich by what it uses, not by what it sells .... 328 Test of economic cheapness 329, 330 False assumption of free-traders 331 Operation of free trade illustrated ....... 332, 333 Uneconomic competition ......... 334 Basis of economic competition ........ 335 Popular fallacies regarding the nature of a tariff 336 The law of international competition ....... 337 Weakness of the infant-industry theory 338 Civilization depends upon protecting the higher against the lower . . 339 India, Ireland, and Russia ......... 340 England, America, and Continental countries ...... 341 Protection and home prices ......... 342 Proper mode of testing a tariff ........ 343 Ultimate effect of a protective tariff on profits 344 CONTENTS. XXI Effect of protecting the higher wage-level Illustrated by cotton industry .... Led to improved methods of production Effect on the industrial development in America . Wages in non-protected industries . Erroneous views regarding .... Mr. Blaine's mistaken view ..... Has not outgrown the English theory of wages How protection affects wages Wages can only be raised by social forces How to examine wages phenomena .... Industrial improvement affects all classes Effect of protection upon other countries How protection promotes the economic selection of industries It leads to free trade ...... Its domestic application PAGE • 345 ■ 346 • 347 . 348 ■ 349 • 350 • 351 • 352 353 • 354 • 355 • 356 357, 358 • 359 . 360 . 361 CHAPTER IV. THE PRINCIPLES OF ECONOMIC TAXATION. Basis of equitable taxation .... .... 362 It should come from surplus incomes 363 The mobility of taxes 364 Their relation to wages 365 How transferred from laborer to employer . ... 366 How he pays them out of his surplus . . .... 367 How his surplus is replenished from nature 368 Taxation like wages a form of consumption .... . 369 Economic importance of taxation exaggerated ...... 370 Taxes enable government to exercise its functions ..... 371 How taxes shor.ld be levied, paid, and collected ..... 372 Evils of direct taxation 373, 374 Property and incomes tax 375 Advantages of indirect taxation . 376 Taxes should be levied upon real estate 377 Equitable nature of a land tax 378 Objections answered 379 No profits on taxes. Mill's error 380 Taxation is public consumption of wealth 381 Henry George's delusion 381 CHAPTER V. BUSINESS DEPRESSIONS. How distinguished from famines 383 Historical facts about depressions 384 XXI 1 CONTENTS. Inadequate causes assigned Low consumption the real cause Evils attending factory system Indications of arrested consumption Mistaken industrial policy Economists largely responsible for this Sound economics would ead to their gradual extinct -Two points which should be realized by capitalists Increase consumption by raising wages . Improve laborers' social condition . Necessity of an industrial barometer Idleness statistics should be frequently collected 3B5 386 387 388 389 390 391 392 393 394 394 396 CHAPTER VI. COMBINATION OF CAPITAL. Social alarm created by spinning-jenny 397 Modern opposition to trusts of similar nature 398 Relation of capital to consumption ........ 399 Combination of capital raises the plane of competition .... 400 Concentration of capital and competition ...... 401 Efficiency not number of competitors the criterion of competition . . 402 Economic incentive 403 Power of potential competition 404 Mobility of capital diminishes as that of comsumable wealth increases . 405 Effect of no-profit capital ......... 406 Limit of concentration .......... 407 Purchasing power of wages and the concentration of capital . . 408 Effects of trusts on prices .... . ■ . 409 Standard Oil Trust .... 410, 411 Its economy in utilizing waste . , . . .412 Its economies extended to other countries . ... 413 Trusts unlike comers . . . ... 414 CHAPTER VII. COMBINATION OF LABOR. Combination of labor accompanies that of capital . . , , '415 Both have an economic function . . . . . . , .416 Objections to trades-unions ...,,.,,, 417 Concentration the keynote of all progress 418 False notions of individual freedom 419 One-sided economics 420 Impossibility of individual contracts 421 Incompatible with industrial complexity 422 CONTENTS. xxin Economic nature of labor organizations . Strikes and comers Social contact essential to progress . It develops intelligence and refines manners Social effects of labor unions . Economic effect of labor unions Their relation to hours of labor and wages They must be judged by their permanent effect Gain and loss by strikes Unfair criticisms Trades-unions are necessary institutions . PAGE 423 424 425 426 427 428 429 430 431 432 433 SUMMARY AND CONCLUSION. Character of social progress Nature of production and of value Nature and order of distribution Duties of statesmanship . 434 436 436 438 Index Index to ' Wealth and Progress " 443 449 PART I. THE PRINCIPLES OF SOCIAL PROGRESS. Principles of Social Economics. CHAPTER I. SOCIAL PROGRESS. Section I. — The Nature and Meaning of Social Progress. The promotion of social progress may be regarded as the primary object of all human institutions. The wisdom or un- wisdom of any form of government, political and industrial policy, or moral code — regardless of climate, country, or civiliza- tion — depends upon whether or not it tends to promote the social progress of the people. When we can furnish an adequate explanation of the law of social progress we shall be in a position to explain why the march of civilization has been so marked and continuous in some countries and so retarded in others ; why nations once the most advanced are now greatly in the rear ; why the ancients made such progress in art and philosophy, while they lacked simple contrivances with which to procure the common comforts and decencies of daily life ; why general poverty, religious, social, and political despotism prevail in some countries, while comparative abundance with religious freedom and political democracy obtain in others. " The law of prog- ress," says Fiske," " when discovered, will be found to be the law of history. The great fact to be explained is either the presence or the absence of progress, and when we have formu- lated the character of progress and the conditions essential to it, we have the key to the history of the stationary as well as of the progressive nations. When we are able to show why the latter ' "Cosmic Philosophy," vol. ii., pp. 195, 196. 3 4 THE KEY TO SOCIAL HISTORY. have advanced, the same general principle will enable us to show why the former have not advanced." Indeed, to explain the nature, law, and cause of social progress is not only to lay the foundation for the science of social economics, but it is also to furnish the key to social philosophy, and thereby to establish a rational basis for statesmanship and social reform. This in- volves, first of all, the consideration of what constitutes progress. Unless we understand what social progress is, there can be no intelligent consideration of the law and cause of its development, and hence no approximately correct science, either of economics or of government, is possible. Progress is commonly regarded as synonymous with improve- ment. This expression confounds the process with the product. It states what progress does rather than what it is. If asked what constitutes the progress of the plant, it would not be correct to say the flowers, buds, and foliage. Their condition correctly indicates the state of the plant's progress, but they no more con- stitute the progress than the apple constitutes the tree, or the barometer the storm. The progress of the plant consists of a series of changes that take place in its organization before the flower appears, and of which it is the result. So, too, of improve- ment. Whil« progress usually implies a change for the better, the improvement is not the progress, but the result of it ; it is the change of form or condition which precedes and produces the improvement. Although all progress is simply change, all change is not necessarily progress. It may be retrogression. What then are the distinguishing characteristics of the changes which con- stitute progress ? Fortunately science has furnished the answer to this question, so far as physical development is concerned. The investigations of Linnaeus, Wolf, Goethe, Schelling, Von Baer, Darwin, and others have established the fact that the growth or progress of organisms, both vegetable and animal, consists of a series of structural changes from a relatively simple to a relatively complex state of organization. For more than half a century this definition of progress has so completely stood the test of verification that it has become an accepted scientific truth, and now both plants and animals are classified in the scale of development according to the simplicity or complexity of their organization. DEFINITION OF SOCIAL PROGRESS. $ If we examine the history of social institutions we shall find that this distinguishing characteristic of progress is equally true of society. Although the precise forms of the earliest phases of social life are difficult to determine, modern investigation has proved beyond question that society in its primitive stages was a homogeneous aggregate of human beings without industrial specialization or social or political individuality, and that all progress from that time to this has been a movement towards a greater complexity of life and definiteness of individual, social, and political functions. Progress in general, therefore, may be defined as a tendency to change from a relatively simple to a relatively complex organization. Although this movement from the simple to the complex is the distinguishing characteristic of all progress, the form it assumes in physical and social phenomena is very different. In all the phases of physical development the tendency is to produce a greater perfection, individuality, and freedom of the organism, — the highest type of which is man. Society is not an individual organism, but an association of individual organisms. Social development, therefore, does not coiisist in organic differentiation, but in the differentiation of the social environment of individuals. In considering social advancement, therefore, we are concerned only with social phenomena ; that is to say, with the influences which affect the material, political, and moral condition of man in society ; nor are we called upon to deal with the origin of the elements in his social character, but only with the development of their expression. The phenomena of society may be classified as social and economic ; the former relates to man's political and ethical life, and the latter to his industrial efforts. In order to correctly understand progress in society, it will be necessary briefly to consider the historic tendency of these two phases separately. Section II. — The Historic Tendency of Social Progress. Although the genesis of man is still an unsettled question, the fact that he once existed as a mere physical being scarcely superior to the lower animals is conclusively established.' ' The wild men in the interior of Borneo are described by Dalton as living : " absolutely in a state of nature, who neither cultivate the ground nor live in 6 THE JELL Y-FISH PERIOD OF SOCIETY. Recent investigations have shown that primitive man was so devoid of social life and character as to neither cook his food nor build himself a hut to live in. In many instances the insti- tution of marriage was entirely unknown ; in others the conjugal ties were so slender that they existed only until the birth of the child.' The interminable struggle for life against the elements, wild beasts, and his fellows, made man's localization necessary, and brought him into social and personal relations that gradually assumed a more permanent or tribal character. This may properly be said to constitute the first stage of social existence — the jelly-fish period of society. Here the social homogeneity was such that every thing was owned in common — even wives and children. Authorities agree that "the primitive condition of man socially was one where every man and woman were regarded as equally married to one another," and "any woman who attempted to resist the marriage privileges claimed by any member of the tribe was liable to severe punishment. " ' The child had no particular father or mother, but belonged to the tribe.' The struggle for existence being now between tribes, war was the chief occupation, and those who were most proficient and brave as warriors naturally became the most honored and influential leaders of the tribe. One of the chief characteristics of tribal warfare was that the will of the victor became the law of the vanquished. Accordingly, if the chief desired to take a huts, who neither eat rice nor salt, and who do not associate with each other, but rove about some woods like wild beasts ; the sexes meet in the jungle, or the man carries away a woman from some campong. When the children are old enough to shift for themselves, they separate neither one afterwards think- ing of the other. At night they sleep under some large trees, the branches of which hang low." Sir John Lubbock's "Origin of Civilization," pp. 5, 6; Ibid., chapter iii. See also Lichtenstein's " Travels in South Africa," p. 137 ; " Expedition to Borneo," vol. ii., p. 10 ; Lubbock's " Prehistoric Times," pp. 563-5. 595, 596 ; Lyell's " Antiquity of Man," pp. 377-80 ; Sproat's " Scenes and Studies of Savage Life," p. 120 ; Dubois' " Description of the People of India,'' p. 3 ; " Transactions Ethnological Society," new series, vol. iii., p. 248. 'Lubbock's " Origin of Civilization," pp. 53-57. See also Sir Edward Belcher's " Transactions Ethnological Society," vol. v., p. 45 ; Starke's " Primitive Family," pp. 82-84. 'Lubbock's "Origin of Civilization," p. 67; Starke's "Primitive Family," p. 245 ; McLennan's " Primitive Marriages," pp. 229, 230. * Lubbock's " Origin of Civilization," p. 71. THE FAMILY THE SOCIAL UNIT. 7 woman from among his war captives, he could have the exclusive use and enjoyment oi her as against any and all other members of the tribe." This instituted a departure from tribal homoge- neity which naturally led first to a certain degree of personal domestic exclusiveness, then to individual marriages, and finally to the family group. Thus, through the gradual process of social differentiation and integration, society was slowly transformed from a simple homogeneous mass, in which the tribal aggregate was the only unit, into a relatively complex social organization with the family as the unit, possessing definite social functions, rights, and powers. It should be remembered, however, that this social individuation conferred no rights or powers upon the individual, but only upon the family.' Indeed, it is a universal law in society that the exercise of social rights extends only with the growth of the social unit. Hence, when the family became the unit, it acquired all the social rights and powers of the unit. But all rights absolutely stopped at this point. The individual members of the family acquired no more social recognition by this change than had been previously accorded to the individual members of the tribe. The family was recognized solely through its male head, whose power was absolute, even to life and death. With the settlement of the family came the necessity of culti- vating the lands. This led to the substitution of an agricultural for a pastoral life, and the right of private for public ownership in land and its products.' Another feature of this regime was the practice of enlarging the family by enforced or voluntary adoption ; those entering the family by this means were kinsmen ; — a fiction that nothing but '"A war captive, however, was in a peculiar position ; the tribe had no rights to her ; her capturer might have killed her if he chose ; if he preferred to keep her alive he was at liberty to do so ; he did as he liked, and the tribe was no sufferer." Sir John Lubbock's " Origin of Civilization," p. 71 ; also McLen- nan's " Primitive Marriages," pp. 43, 44. '"At the outset, the peculiarities of law in its most ancient state lead us irresistibly to the conclusion that it took precisely the same view of the family group which is taken of individual men by the system of rights and duties now prevalent throughout Europe." — Maine's " Ancient Law,'' p. 129. " But ancient law, it must again be repeated, knows next to nothing of Individuals. It is concerned not with Individuals, but with Families ; not with single human beings, but with groups." — Ibid., p. 250. "Village Communities," p. 10. ' Maine's " Early History of Institutions," pp. i, 2, 73-79. 8 THE PATRIARCHAL FAMILY. the absolute authority of the head of the family could have estab- lished. In this way the simple primitive family made up of blood relations, was expanded into the patriarchal family, held together by the tie of a mythical kinship.' Greater sacredness of, and protection to, life and property came with this higher state of organization, and " marriage by capture " gave place to marriage by purchase, transferring the selection of a wife from the muscu- lar authority of the savage suitor, to the civil authority of the parent.' These social relations continued theoretically until the Chris- tian era, and practically until the middle of the sixth century. From the time of the Twelve Tables, B.C., 450, to that of the Justinian Code, progress was very tardy, but tended tow- ards a further differentiation of the social polity in the direc- tion of substituting the individual for the family as the social unit. This movement, which is most distinctly indicated by the innovations made upon the domain of patria potestas (the authority of the father over the person and property of his de- scendants), though imperceptible during the latter four hundred years of the Republic, began to show itself in the early days of the Empire. If we pass from the ancient to the modern world, where social progress has been more marked, we shall find that its movement has been everywhere distinguished by the same general charac- teristics. During the savage struggle for imperial supremacy which covered the face of Europe for nearly four hundred years after the fall of the Western Empire, in which all permanent authority and recognized law were practically abolished,' the patri- archal system virtually disappeared and society reorganized into the feudal system. Social institutions then assumed a different as- pect. Instead of being composed of family groups, held together ■ We must look on the family as constantly enlarged by the adoption of strangers within its circle, and we must try to regard the fiction of adoption as so closely simulating the reality of kinship that neither law nor opinion makes the slightest difference between a real and an adoptive connection." — Maine's "Ancient Law," p. 128. See also "Early History of Institutions,'' p. 310; "Village Communities,'' p. 115 ; Lubbock's " Origin of Civilization." •Maine's "Ancient Law," pp. 119-133 ; cf. Lubbock's "Origin of Civili- zation," p. 52 ; " Fiske's " Cosmic Philosophy," vol. ii., pp. 220, 221. •Guizot's " History of Civilization," pp. 6, 69 ; also HaUam's " History of the Middle Ages," vol. i., p. 92. SOCIAL CHARACTER OF FEUDALISM. 9 by a mythical kinship under parental despotism, subject to impe- rial absolutism, society consisted of manorial or baronial groups, held together by mutual dependence upon the land-owner, who, while giving nominal allegiance to the king, was practically inde- pendent of him.' The individual instead of the family was the social unit, and industrial interest instead of kinship was the cohesive principle in society ' ; land, or wealth, instead of birth, became the basis of rank and authority.' No sooner had feudalism become the settled order of society than the process of further social differentiation set in. One of the earliest evidences of this was the localization of the serfs on the estates of the respective barons, and their division into classes as " hinds " and " artificers." By this division of labor the former became permanently ruralized, and the latter central- ized, into groups whose history is that of modern civilization. During the tenth century these groups grew into permanent towns and became the centres of trade and industry. As they increased in population and wealth they grew in social activity, intelligence, and power ; and hence became the permanent source of the further division of labor, the specialization of social and religious functions, and of personal and political rights. By the middle of the eleventh century we find the burghers asserting their right to the ownership of property, and forcibly resisting the efforts of the barons to despoil them. Early in the twelfth century the towns began to obtain the right of local self- government. During the thirteenth and fourteenth centuries the serf was differentiated from the lord's estate, and became an economic and social individual. The separation of political in- stitutions from the authority of the Church, and the power of Parliament over the Crown were also positively asserted during this period. ' " The kingdom was as a great fief, or rather as a bundle of fiefs, and the king little more than one of a number of feudal nobles, differing rather in dig- nity than in power from some of the rest." — Hallam's " History of the Middle Ages,'" vol. i., p. 136. ' " It was feudalism which for the first time linked personal duties, and by consequence personal rights, to the ownership of land." — Maine's " Ancient Law," p. 102. ° Hallam's " Middle Ages," vol. i., p. 88; also ibid., p. 122, and Guizot's " History of Civilization," p. 67. lO FREE CITIES AND THE MIDDLE CLASS. This was followed in the fifteenth and sixteenth centuries by a general breaking up of the feudal system and a new formation of social institutions. Throughout Europe the political elements integrated into definite nations.' The gentry and inferior no- bility, who were economically and socially segregated from their class, and the superior artisans who, by the growth of manufac- ture and trade in the Free Towns, had become " master artificers," formed a new social stratum — the mercantile or middle class — Which henceforth became the enterprising and progressive ele- ment in society. With the rise of this class came a new era in civilization. Under its influence industrial, political, and reli- gious institutions were revolutionized. In this period the dis- covery of America and the passage to India by the Cape of Good Hope, and the use of the mariner's compass were consummated ; painting with oil and the manufacture of paper from linen were invented ; the right of private judgment in religion and the supremacy of parliamentary government were permanently estab- lished. From this came the use of steam, the invention of the spinning-jenny and the power-loom, and the establishment of the factory system, the railroad, steamship, and telegraph, with their natural accompaniments — the daily press, cheap books, and popular education. As the outgrowth of these movements slavery has been abol- ished from Christendom and the principle of civil and religious freedom for the individual, without regard to caste, color, race, or sex, has been established in the most advanced countries, and is destined to be extended to the whole human race. Thus the universal tendency of progress in society is to in- crease the power, rights, and freedom of the individual, and diminish the arbitrary control of collective authority. Section III. — Historic Tendency of Economic Progress. Upon the principle that all progress is governed by one general law, it is commonly supposed that progress must assume the same form in economics that it do2s in society and politics. Consequently, because social progress tends toward greater democracy of administration, it is held that industrial progress ' Guizot's " History of Civilization," chap. xi. CHARACTER OF ECONOMIC PROGRESS. II must be in the direction of the public administration of industry. A little reflection will show this to be a mistake. Although industrial progress has a tendency toward greater specialization, the form it assumes differs from that in social and political institutions, as much as progress in the latter differs from that in physical phenomena. The essential difference between political and industrial insti- tutions is that the utility of the former consists in their harmoni- ous adaptation to the social habits and character of the people, whereas the utility of industrial institutions consists in their economic efficiency — their capacity of furnishing wealth cheaply. Since social institutions will necessarily more completely reflect the desire and character of the people in proportion as the masses participate in their construction, it follows that progress in society is a tendency towards democracy of administration of political and social affairs. With economics the case is different. No advantage can accrue to the laborer or the community by any change of industrial institutions which does not enable the la- borer to obtain more wealth for a day's work. Whether industry is conducted on the democratic town-meeting plan, or by a few private individuals, cannot possibly affect the welfare of the com- munity, except as it promotes that end. Unless democracy of industrial administration would cheapen wealth, it would be a burden upon the community, without any compensating advan- tage, since it would involve the care of management without any beneficial result. A brief survey of the history of industrial progress will show that the increasing eificiency of productive methods, and hence the improvement of the means of getting a living, has two characteristics. One is the division and concentration of labor power, the other is the increase and social diffusion of political power. The former tends to specialize and limit the laborer's economic function, the latter tends to generalize and extend his social function. Thus, as the laborer's industrial individuality diminishes, the influence of his social and political individuality increases. Primitive industry, like primitive society, was very simple and homogeneous. Every one performed practically all kinds of labor with equal proficiency. Progress from that point to the 12 MISTAXEN NOTIONS ABOUT FREEDOM. present has been a continuous tendency toward a greater divi- sion, and specialization of labor and concentration of capital. The tendency of this movement has ever been to differentiate productive force into numerous portions, integrating the laborer and machinery upon special branches, every one of which is dependent not only upon the action of the others, but upon the united action of the whole. Thus industrial differentiation, in- stead of increasing, tends to diminish the economic individuality of the laborer. It is because of this tendency to make the laborer an almost automatic part of a highly complex productive ma- chine, that the present industrial system is regarded as inimical to his social freedom. Those who take this view, and they are very numerous, lay great stress upon the fact that the laborer is an employe. To them the very stipulation of income means limita- tion of freedom. Of all the objections urged against the wages system, this is probably the most universal, and is regarded as the most fundamental. They think the only conditions under which social freedom is possible, is where the laborers employ themselves. The fallacy in this position arises from a miscon- ception of the idea of freedom. Freedom is not a mere theoretic form, but a sturdy fact. It does not consist in the formal per- mission, but in the actual power, to go or to do. Nothing can give social and political freedom but wealth ; the freedom that wealth affords does not depend upon whether the laborer works for himself or for another, but it depends entirely upon how much wealth he receives. There is no power in nature, society, or government that can make a poor man free. Poverty is social weakness ; it is the source of slavery, and the background of despotism. Social well-being consists not so much in doing, as in having. In proportion as man's energies are expended in obtaining a living, the possibilities of his social, intellectual, and moral life and de- velopment are restricted. In order, then, to maximize man's social individuality, it is necessary to minimize the expenditure of his physical energy. This is precisely what the division of labor, the concentration of capital, and the development of the factory system promote. The de-individualization of the laborer as a producer promotes his social advancement in many ways. In the first place, it makes INFLUENCE OF THE WAGES SYSTEM. 1 3 the wages or stipulated-income system necessary. In proportion as the income of any class becomes stipulated, it becomes less contingent. To the extent that this occurs, material subsistence becomes more certain, which is the first step toward social and intellectual development. So long as the laborer's living is uncertain, he is in a more or less constant state of anxiety and suspense, which tends to make progress in the higher phases of social life impossible. Another beneficial feature of this tendency is that it concentrates the laborers, and specializes their occupations. By this means , they are not only forced into closer and more frequent intercourse with each other, but it also increases their mutual interdependence. The material condition of the masses cannot be improved, nor can their political freedom or social character be developed, by any thing which does not increase the economic interdepend- ence of the people, and weld them together in social classes. In proportion as this process of social differentiation increases, interests and sympathies broaden, altruism is developed, and the welfare of all becomes identical with that of each. Nothing so surely aids social advancement as that which makes it necessary for millions to rise together. No industrial system, no civiliza- tion, no religion even is worth sustaining which only saves a few. Another feature of the wages system is the tendency to promote more constant employment. There is no fact more conclusively established in the history of industrial progress than that the concentration of capital in fixed plants and large enterprises makes a marked increase in the permanence of employment. As industrial establishments increase in size, constant employ- ment of capital becomes necessary. The loss involved in the short stoppage of a large factory will soon be more than equal to the profit of a year's business. Whatever increases permanence in the use of capital necessarily increases the constancy of employment. Thus, as the factory methods develop, the capi- talist has to pay the penalty for enforced idleness through loss or bankruptcy ; and hence permanent employment becomes one of the features of the industrial expertness of capitalistic manage- ment. Under the individual or self-employing regime this was not the case. When the hand weaver failed to sell his cloth or make a living, he could starve, beg, go to jail, or die, as the case 14 ECONOMIC PROGRESS DEFINED. might be. His poverty involved nobody else, while under the wages system the great capitalist, nay, the whole community, is involved with the enforced idleness of the laborer. Accordingly, the world over, we find that permanence of employment increases and enforced idleness diminishes where the wages system is most developed and capital most concen- trated. This is clearly shown by the currents of emigration. People always leave those localities and countries where employ- ment is the most precarious and least remunerative, and move towards those where it is most permanent and best rewarded. Hence the tendency of emigration is always from those coun- tries where the wages system and factory methods are least developed, to those where they are most highly developed. It is from China, Bohemia, Austria, Italy, Germany, and Ireland, towards England and America, that laborers emigrate, and not from England or America to Continental Europe and Asia. The industrial system, which tends to socialize the laborer, in- crease the economic interdependence of the capitalist, consumer, and workman, and make the material well-being of the masses the basis of business success, necessarily possesses all the possi- bilities of an ever-advancing civilization. Progress in politics and society, therefore, may be defined as the tendency to increase the sovereignty of the individual and diminish the arbitrary authority of the state by establishing greater democracy of administration. In economics it may be defined as the tendency to centralize industrial administration and responsibility, de-individualize the laborer as a producer and socialize the results in better and cheaper products. CHAPTER II. THE LAW Of SOCIAL PROGRESS. Section I. — The Elements of Social Progress. In the preceding chapter two facts were established. First, that social progress is the movement of society toward the reali- zation of the highest material, intellectual, and moral possibilities in human life ; i.e., toward the plane of greater human well- being. Second, that this progressive movement consists in a series of changes from a relatively simple to a relatively complex state of social organization. We now come to the consideration of the law by which this movement takes place ; that is to say, the order in which the different phases of social phenomena are developed. These may be grouped under three general heads, as the material, the intellectual, and the moral. The material element in social progress is not merely that which relates to man's physical necessities, but every thing that relates to his wants and desires, of whatever kind, — the gratification of which involves the production of wealth. These will be found to in- clude, not only the necessities for food and shelter, but those for education, art, travel, intellectual and moral culture, and even religion. In fact, there are no desires of which man is capa- ble whose gratification does not directly or indirectly necessitate the production of wealth. The material element in social progress, therefore, includes every thing which relates to the gratification of human wants, desires, and aspirations. The intel- lectual element is that which relates to man's capacity to acquite and apply knowledge ; it is the analyzing, reasoning, judging, and directing element. Morality simply relates to the quality of IS l6 THE ORDER OF SOCIAL PROGRESS. human conduct. We designate conduct as moral or immoral according as it directly or indirectly tends to promote or retard social well-being or human happiness. While these phenomena are distinct in their character they arc inseparable in their relation ; hence no differentiation can result in permanent integration and specialization which does not find expression in all these phases of social life.' If the development of any one of these elements should be promoted at the expense of the rest, it must necessarily fail of its function because not one of them can permanently exist without the sustaining influence of the others. The increased production and accumulation of wealth, for example, could not continue without the increase of intelligence to devise the means necessary to produce it, and a corresponding advance in the social integrity to sustain it. A general advancement of intelligence is impossible without the relative elimination of poverty and vice ; and no considerable advance in ethics can take place without a previous increase in material well-being. Section II. — The Natural Order of Social Progress. Although the various elements of social development are in- separably connected with, and constantly act and react upon each other, one of them must necessarily sustain the initiative relation to the others, or no movement could take place. Which of these occupies that position? The answer to this question must explain the relative position these elements occupy in the scale of development and the historic order of their appearance, — both of which are indicated by their functional relations. Morality, being the quality of conduct, necessarily arises from motives, decisions, and actions, and hence must be a resultant of the other elements. Morality is the fruit and not the root ; it is the objective point towards which progress tends, and conse- quently is the last to be developed.' The intellect, as already explained, is the reasoning, analyzing, judging faculty ; its func- tion consists exclusively in adapting means to an end. It occupies the position of servant and guide to the other faculties. ' "The progress of society is not moral progress, or intellectual progress, or material progress ; but it is the combination of all the three." — Fiske's " Cosmic Philosophy," vol. ii., p. 245. ' Ward's "Dynamic Sociology," vol. i., p. 216. MATERIAL PROGRESS THE FIRST. 1 7 Human activities are never exerted except for the gratification of some desire, want, sympathy, sentiment, or ambition arising in the feelings. Intellectual or physical effort put forth without some motive or desire would be senseless." Of necessity, there- fore, the material element in social progress is first in the scale of '• development and supplies the motive which calls the intellect into activity. All the inventions and discoveries in manufacture, science, and literature, all the doctrines of economics, ethics, politics, and religion have been produced by the intellect in its effort to gratify the desires. These efforts have been perpetuated or abandoned in proportion as they were found, by experience, to be favorable or unfavorable to human well-being. Clearly, therefore, the natural order of the various elements in social development is : the material, the intellectual, the moral ; the material being the basis or motor force, the intellectual the means, and the moral the result." Although the fact that progress of society has always been in the ascending order — from the material to the moral — has been generally recognized as a matter of history, it has been almost uniformly ignored as a principle in social philosophy. There appears to have been an undefined apprehension that to permanently regard the material as the preponderating element in human progress is to belittle the influence exercised by the intellect upon the advance of civilization. This is a mistake. The danger of inverting the order of its operation is what is most likely to occur. It is precisely at this point that some of the most fatal errors have entered the popular theories. The best writers agree that in the early stages of social growth the material element is first in order and influence, but seeing that the mate- rial conditions and moral character advance more rapidly as the ' Comte's "Positive Philosophy,'' pp. 384-scx). ' " The same may be said of all the so-called virtues — honesty, benevolence, justice, etc. These qualities are the result of his civilization. His moral nature has sprung from his rational faculties, and may be traced back to its origin in sympathy : at first confined to his immediate companions or offspring ; thence gradually extended to embrace his own clan ; then his particular tribe, race, or country ; then, to a limited degree, the whole human race ; and lastly, as exhibiting the highest type, and quite rare even among the most civilized, made to comprehend the lower brute creation in one beneficent scheme of morils."— Ward's " Dynamic Sociology," vol. i., p. 461. t r8 COMTE 'S MISTAKE. intellect develops, they appear to assume that the order of prog- ress changes and the intellectual instead of the material element becomes the dominating influence in social progress. Even Comte says : " If our affective faculties were subordinated to the intellectual, all idea of improving the social organism would be senseless. . . . For our affective faculties must preponderate, not only to rouse the reason from its natural lethargy, but to give a permanent aim and direction to its activity, — without which it would be ever lost in vague, abstract speculation." ' After having thus affirmed the truth of the ascending order, he says : " This is the natural order . . . whereas the reverse is the rational one and that which gains upon the other in proportion as the intellect assumes a larger share in the human evolution."" Thus, according to Comte, upon the dawn of the human intellect, the natural order became irrational. Buckle, Draper, and Guizot all take practically the same position. Though they do not go through the same course of reasoning that M. Comte does, they act upon the same conclusions. They all admit that material conditions must precede intellectual and moral development, and then insist that the intellect is the source of human progress.' For the assumption that the order of evolution is thus reversed by the accession of the intellect there is no warrant either in rea- son or fact. That the material element in progress is greatly accelerated by the reflex action of the intellect, and the intellec- tual by the moral, and that progress is greatly enhanced thereby, is unquestionable. But that in no way implies any change in the law of social movement. The fact that the intellect fills a much larger sphere in human life than it once did, does not tend to show that it has in any way changed its relative position. The differ- ence in the activities of man in modern civilized society and those of his savage ancestors simply represents the difference in the quality and quantity of his desires. The intellect, by the very nature of its function, is not a propelling, but a guiding element. It is the servant and not the master of human wants. ' "Positive Philosophy," p. 500. American edition. ' JUd., pp. 685, 686. ' Buckle's " History of Civilization," vol. i., pp. 30, 31 ; cf. also pp. 242 and 509 ; Draper's " Intellectual Development of Europe," p. 591 • Guizot's " History of Civilization," pp. 66, 84, 85, and 230. THE INTELLECT OBEYS THE WANTS. I9 The operation of this principle is clearly illustrated in the social effect of the discovery of the mariner's compass, the art of print- ing, the use of gunpowder, etc. It was not until some consider- able portion of mankind desired the products of other nations that navigation became necessary and the mariner's compass could be of service to man, while gunpowder and printing, having been invented before the desire for them was developed, had to wait thousands of years before they could exercise any influence upon civilization.' Although our acquisitions in sci- ence, art, labor-saving inventions, etc., are the work of the intellect, it is only when those achievements minister to human wants that its activities tend to promote human progress. It is true, however, that the influence of a new acquisition by the intellect seldom fully expands itself in the satisfaction of the wants to which it directly relates, but it frequently exercises a reflex influence, the tendency of which is to again increase the desire and consequently still further stimulate its own activity. For example, the art of printing not only increased the number of books sufficiently to supply those who had already acquired a positive desire for reading, but it so cheapened them as to put them within the reach of a large class to whom such a luxury had previously been impossible, — thereby greatly increasing the desire for, as well as the possibilities of, obtaining knowledge. Again, when the power-loom and the spinning-jenny were invented, they not only enabled the manufacturers to supply the increasing demand for cotton cloth, but they so reduced its price that it could become an article of common use among the masses. This fact naturally soon gave rise to such desires for other and superior fabrics that the result was to ultimately revolutionize the industrial system of all Europe. It is therefore not true that the natural order of social evolu- tion is changed by the development of the intellect. To whatever extent the sphere and activities of the intellect may be increased, its relative position and function must, by the very nature of its constitution, remain the same. A similar error prevails in regard to the position of ethics in social progress. Because personal morality, commercial integ- rity, industrial equity, and social harmony are seen to increase ' See Part II., chapter i. 20 ERRORS REGARDING ALTRUISM. as the altruistic feelings advance in society, it is held that altruism and egoism are essentially antagonistic to each other. Egoism is a term usually employed as relating to self, and altruism as relating to others ; hence all actions and feelings are regarded as egoistic in proportion as they tend to promote the welfare of self to the exclusion of others ; and conversely they are altruistic in pro- portion as they tend to promote the well-being of others to the exclusion of self. From this position it has been consistently inferred that self- interest is inimical to the well-being of society. The natural effect of such a conclusion is to create an aversion to all indus- trial institutions in which this principle is recognized and to stimulate the demand for a reconstruction of society on a so- called altruistic basis. This reasoning involves a misconception of the terms egoism and altruism and their logical relation to each other. It is a radical error to regard altruism as anti- egoistic, — or even non-egoistic, in its influence. To injure or ignore the well-being of self is to destroy the first essential con- dition for promoting the welfare of others. We can only be helpful to others in proportion as we are well provided for our- selves.' The poor, the weak, and the inferior are always a burden rather than a help to their friends. Egoism may be defined as relating to the welfare of self ; and altruism as relating to the welfare of self and others. The basis of true altruism is successful egoism. Altruism differs from egoism, not in being opposed, or even indifferent to, the interests of self, but only in embracing the interests of others besides self. Thus all real altruism is highly egoistic, though all egoism is not altruistic. All conduct may be called relatively altruistic accord- ing as it benefits more than one, and relatively egoistic as it benefits less than all. It is a mistake, therefore, to conclude that altruistic conduct in society can be increased only as the princi- ple of self-interest is diminished. There is, moreover, unconscious and conscious altruism. The ' ' ' The acts required for continued self-preservation, including the enjoyment of benefits achieved by such acts, are the first requisites to universal welfare. Unless each duly cares for himself his care for all others is ended by death ; and if each thus dies there remains no other to be cared for. This permanent supremacy of egoism over altruism, made manifest by contemplating existing life, is further made manifest by contemplating life in the course of evolution." — Spencer, " Data of Ethics," pp. 187, 188. THE LAW OF SOCIAL PROGRESS. 21 former is altruistic conduct prompted by egoistic motives ; the latter is that inspired by altruistic motives. In the progress of society unconscious altruism precedes and tends to develop con- scious altruism. Much the larger portion of the altruistic con- duct in the world to-day is of the unconscious class. The great improvements in manufacture and commerce that have put so many luxuries and refinements within the reach of the average citizen have, for the most part, been created by egoistic motives. It is because the industrial policy of the employing class has been dominated too much by the idea of benefiting self to the exclu- sion of others that it has received so many disastrous checks. We shall hereafter see that industrial depressions, bankruptcies, enforced idleness, and their accompanying evils, are the economic penalty for ignoring the interests of others in the efforts to bene- fit self. Those who are excluded from the benefits we enjoy become a menace to our well-being and a hindrance to our prog- ress ; and conversely, the more completely the welfare of others becomes identical with our own the more is our own increased. Altruism, then, is not opposed to egoism ; it is simply a higher phase of it. Obviously, altruism — the highest form of ethical conduct — is the consequence of broadening the egoistic activities of the material and intellectual elements, and hence is necessa- rily last in the order of development. We are therefore war- ranted in concluding that the progress of society toward greater complexity of organization, in which the necessity of physical effort is diminished, intellectual power and personal freedom increased, and moral character elevated, is always in the ascend- ing order from the material to the intellectual and moral ; — the material being the basis, the intellectual the means, and the moral qualities the result. What then are the influences by which exclusive egoism is transformed into all inclusive altruism, and savagery is converted into civilization ? To answer this question is to explain the cause of social progress and will be the subject of the next chapter. CHAPTER III. THE CAUSE OF SOCIAL PROGRESS. It is not enough to known what progress is, or even to know the law of progress ; but the cause of progress must also be under- stood before a true system of social philosophy can be established. We have seen : (i) that social progress consists in changes of man's social polity, or institutions, and not in his physical organ- ism ; (2) that while all progress is change, only those changes are progressive which tend to further social differentiation ; (3) that while there can be no social progress without differentiation, only that differentiation is progressive which results in new inte- grations and greater complexity of social relations. What then is the force which produces the changes that result in integrating differentiation ? If we examine the history of social institutions from their simplest beginnings, or trace them from their most complex stages back to the earliest times, we shall find that every change in the polity of society — whether in- tellectual, political, moral, or religious — has been brought about by man's conscious effort to adapt social institutions to his own needs and desires. Social institutions are established by man exclusively for men. It may be said that the changes in social _ institutions are the work of the human intellect ; that, where man's social wants are the most numerous his physical and intel- lectual activities are the most varied and all phases of social institutions are the most highly differentiated. In the last analysis the proximate cause of social progress is human wants. In the first place, it will be observed that all desires, of what- ever character, are simply states of feeling, the distinguishing characteristics of which are pleasure and pain. In proportion as DESIRE THE CAUSE OF EFFORT. 23 pleasure exceeds pain in human experience happiness prevails and life becomes attractive and desirable ; and conversely, as pain exceeds pleasure misery prevails and life becomes undesirable. These antithetical states are completely represented in the terms, want and satisfaction. Want is pain ; satisfaction is pleasure ; and the extent to which the latter exceeds the former is the true measure of happiness. To increase the proportion of pleasure to pain, therefore, is the primary purpose of all human effort and the immediate cause of social differentiation. Although all effort is exerted for the gratification of some desire, there are many desires that fail to call forth sufficient effort for their satisfaction. Effectual desires are those which incite the necessary activity for their gratification ; those which fail to call out such effort are in- effectual. Only effectual desires cause progress. Why are some desires effectual and others ineffectual ? it may be asked. Upon what principle is effort expended for the satisfaction of some wants and not for others ? A moment's consideration will show that this is all determined by the relative degree of pain and pleasure involved. Hence, the gratification of any given desire must finally turn upon the choice between a relatively painful want and a relatively painful effort, the decision always being in favor of the minimum pain. If this be true, it follows that human wants are not only the cause of social progress, but that advance- ment toward a higher plane of happiness can only take place on the egoistic principle of obtaining the maximum pleasure for the minimum pain. It thus appears that self-interest in man is not an evil element, as we have been taught to consider it, but that the principle of egoism affords the basis of, and inspiration to, social develop- ment. Man in his most primitive state was exclusively egoistic in his desires and in his conduct. Altruism was not visible in any thing that he did. Having no social or physical interest in his fellow-man, there was no more economic or ethical reason, why he should not steal from, or even kill and eat, him, than that the lion should not devour the lamb. As his wants became more numerous the efforts to satisfy them became more burdensome, and the contest between want and effort began. The want must remain ungratified or a means of gratifying it less painful than the want itself must be devised. This 24 THE ORIGIN OF EQUITY. could only be accomplished by inventing labor-saving con- trivances ; and invention is exclusively the function of the mind. The greater the demand for this mental activity the more rapidly are the intellectual faculties developed, and the more easily are wants gratified. It was precisely upon this principle that the crude tomahawk, bow and arrow, and canoe were first employed, and the division of labor became a necessity. With the division and specialization of labor, exchange of products became indis- pensable to the gratification of wants, and some degree of inter- course having been established, a beginning of confidence became inevitable. As the wants of men increased, and they became more dependent upon each other for the means of satisfying them, they naturally became more settled and social in their mode of life, and as soon as the crudest form of association be- came necessary, altruistic conduct began. The fact that asso- ciation arose from self-interest made it indispensable that the advantages should be mutual to some extent. Thus from purely egoistic motives it became absolutely necessary that the efforts to benefit self should be so directed as to confer some benefit upon others. Through this closer social contact wants became still more varied and efforts more specialized ; intellectual activity in- creased and individuality grew more pronounced. When, from these influences, exclusive family relations, with the permanent care of offspring, developed, and the private ownership of prop- erty became customary, it was obvious that one of two things must occur, — either the security of- life and property must be increased, or these complex social relations must be abandoned ; otherwise the danger to life and property would neutralize all the new advantages. Thus a certain degree of morality became in- dispensable to self-interest, and the murder, theft, and treachery which a more simple life induced, having proved injurious to all and permanently beneficial to none, were pronounced capital offences. The more closely we consider history in this light, the more clearly it appears that the same principle applies to the whole moral code. Just as fast as the quality of an action becomes uniformly recognized it is designated moral or immoral, and passes from the sphere of conscious expediency to that of moral principle. DEVELOPMENT OF MORALITY. 25 In this way virtue tends to perpetuate itself, while vice or immorality tends to its own elimination. The object of intel- lectual activity being to serve the desire for happiness, it is neces- sarily employed in devising means for eliminating the painful without reducing the pleasurable experiences, and it is only as this eliminating process takes place that new social integrations become permanent and the best results of progress are secured. This principle applies to all phases of human conduct. All the improvements in medicines, ethics, politics, and economics are the direct results of this eliminating process. It may be urged that the altruism, or morality, thus evolved from egoistic motives, is only of the unconscious kind, and is very different from the conscious altruistic feeling which we recognize in the highest moral characters. If we pursue the enquiry a little further we shall see that volitional altruism is but a higher phase of the unconscious expedient. The same principle which leads men to repeat the conduct that produces beneficial results, also leads them to have a common interest in, admiration for, and sympathy with, those identified with such beneficial efforts. It should be remembered, however, that social progress is not a simple, direct movement, but a resultant of the action and reaction of a variety of social currents, and that with each suc- cessive increase in the social complexity the influences affecting their differentiation become more subtle and involved. The increasingly frequent personal intercourse which inevitably arises from more complex social relations, and the greater identity of interests, naturally tends to promote a greater reciprocation of s)mipathetic feelings. It is a universal principle in sociology that the more frequently we repeat acts which command our own and others' approval, the more they tend to become habitual and automatic ; and in proportion as any conduct tends to become an unconscious part of daily life, it forms a fixed element of social character. Accordingly, in the most advanced countries, where the wants and desires of the people are the most numerous and their industrial and social relations the most complex, we find the greatest degree of honor, virtue, integrity, fair dealing, general honesty, and public and private justice ; in short, the highest phase of moral conduct. To such an extent is this true that con- tracts, sometimes covering millions of dollars, are daily made 26 NEW WANTS THE CAUSE OF PROGRESS. between parties in New York, London, Paris, etc., who never saw each other. Should either party violate such obligation, the law— which expresses the moral character in the respective countries— would enforce its fulfilment, and the civilized world even sanctions warfare when nations violate their treaties with each other. The transfer of conduct from a basis of conscious utility to that of moral principle is but another step in social evolution ; the essential difference being direct and indirect experience. When we act upon the abstract principle of right and wrong we are simply basing our conduct upon generalizations drawn from the repeated experiences of others. We accept it as a dogmatic principle only because its expediency has been pre- viously demonstrated. Nor is this all. The influences which are thus elevating indi- vidual egoism into moral principle are also simultaneously tending to expand and intensify sympathetic, altruistic feeling. In pro- portion as the influence of man's egoism becomes indirect, and that of his altruism direct, he becomes more sensitive to the feelings of others and less absorbed in his own ; so that, instead of regarding the misery of others with indifference, as formerly, a comparatively slight unhappiness becomes the source of great pain to him, and often the incentive to his highest action. Hence we see that, whereas man could once kill and feed upon his fellows, to-day the advanced races regard injury to another as equal to harm inflicted upon themselves. Viewing the subject in all its phases, we see that in every direction the increase of egoistic wants is the real source of social progress. It develops the activity of the intellect ; this in turn differentiates the social environment ; engrafts virtue into char- acter ; transforms conscious egoism and unconscious altruism into unconscious egoism and conscious altruism ; elevates utility into morality, and makes moral principle, instead of individual interest, the basis of social conduct. Thus, as man's intellect is called into activity by the differentiation of his desires, so is his moral character developed by the differentiation of his interests. CHAPTER IV. THE VERIFICATION OF THE LAW OF SOCIAL , PROGRESS. According to the theory of social progress presented in the preceding chapters the development of man's social wants, and the consequent increase in the general consumption of wealth, is the necessary precursor of social, intellectual, and moral advance- ment. If this doctrine is correct we may always expect to find the highest state of civilization, and the most complete social, political, and religious freedom, in those countries where the material well-being of the masses is the most marked and con- tinuous. And conversely, wherever the development of social wants have been the most restricted, we may equally expect to find the greatest intellectual and moral stagnation, and social, political, and religious despotism. The operation of this law is as universal as the human race. History is replete with the evidence that social, political, and re- ligious freedom is everywhere large or limited, the intellectual and moral character high or low, in proportion as the general consumption of wealth by the masses is great or small. The his- tory of India and China, for instance, reveals to us peoples whose simple habits of life induce very few wants, and those chiefly of a physical character which are easily supplied. Their food consists chiefly of rice, ragi, or millet, with a little seasoning. Their houses are mainly fragile huts which may keep out the rays of the sun, but seldom afford much protection against wind and rain. The furniture and clothing of the common people are equally simple and meagre, being confined to the limited uses which a rice-diet and a ten-cent-a-day social life make necessary. 17 28 INDIA, CHINA, AND EGYPT. AJthough the political institutions of the two countries are ia many respects essentially different, the economic and social con- ditions of the people are practically the same. What law and caste has done towards stereotyping the industrial and social degradation of the laboring classes in Hindostan, custom has just as firmly established in China. The natural result of these con- ditions is the arrest of material and social progress in those countries. If we can accept the testimony of modern travellers, the people of India and China are in substantially the same state of mental and moral degradation that they were in nearly three thousand years ago.' In Egypt the industrial and social systems were very similar to those in India and China, and their influence upon civilization was substantially the same. Dates Composed the staple food of the common people. The poverty of the masses in ancient Egypt may be inferred from the fact that the children of the lower classes went entirely naked, and that to bring up a child to maturity did not cost more than twenty drachmas, or thirteen shillings of English money,' i.e., about three dollars and a quarter. The social and political servitude of the lower classes is shown by the fact that they were prohibited by law and custom from owning land, participating in public affairs, or even choosing their own occupation.' So far as data are obtainable, a similar set of facts present ' ' ' The nations of Europe have very little idea of the actual condition of the inhabitants of Hindostan. They are more wretchedly poor than we have any notion of." — "Transactions of Asiatic Society," vol. i., p. 482. "From the earliest period to which our knowledge of India extends, an immense majority of the people, pinched by the most galling poverty, . . . crouching before their superiors in abject submission, and only fit either to be made slaves them- selves or to be led to battle to make slaves of others." — Buckle's " History of Civilization," vol. i., p. 53. "It is remarkable how little the people of Asiatic countries have to do in the revolution of their governments. They are never guided by any great and common impulse of feeling, and take no part in events the most interesting and important to their country and their own posterity.'" — " Journal of Asiatic Society,'' vol. i., p. 250. See also Alison's " History of Europe," vol. x., pp. 419, 420. • Buckle's " History of Civilization," vol. i., p. 63. ■ " If any artisan meddled with political affairs, or engaged in any other em- ployment than the one in which he had been brought up. a severe punishment was inflicted upon him." — Wilkinson's " Ancient Egyptians," vol. ii., pp. 8 Q. GREECE AND ROME. 29 themselves in the much-lauded early civilization of South Ameri- ca. The leading features of the industrial and social system in ancient Mexico and Peru were similar to those of China, India, and Egypt ; and consequently their influences upon human progress were substantially the same. What rice was to the in- habitants of India and China, and dates to those of Egypt, maize and bananas were to the people of Mexico and Peru. Here too, poverty, ignorance, and servitude, with all their attendant evils, were the direful lot of the laboring classes.' The history of ancient Rome and Greece presents a similar picture, although the setting is somewhat different. These two countries differed from each other in some respects ; their cli- mate, religion, political institutions and literature were unlike those of India, China, Egypt, and early America in many im- portant particulars ; but in one fundamental respect they were all substantially the same — namely, the material and social con- dition of the people. The great mass of the people in Greece and Rome were miser- ably poor and the very few were enormously rich. Despite the progress of art, philosophy, and jurisprudence, the social con- tempt in which the industrial classes were held by their superiors was as intense as that exhibited by the ruling classes of Asia, Africa, and America. Slavery was so thoroughly rooted in the social system of Greece that it was not only sustained by those who had a mer- cenary interest in the traffic, but the philosophers — before whose wisdom we of the nineteenth century are asked to bow — defended it as being in accordance with natural law. Xenophon, a disciple of Socrates, in expressing his contempt for the laboring classes, declared : " The manual arts are infamous and unworthy of a citizen." Even Plato introduced slaves into his ideal republic. Nor did the scientific mind of Aristotle emancipate him from the iniquitous idea. Speaking of laborers, he says : " These indi- ' ' ' They (the masses) had nothing that deserved to be called property. They could follow no craft, could arrange no labor, no amusement, but such as was specially provided by law. They could not change their residence or dress without a license from the government. They could not even exercise the free- dom which is conceded to the most abject in other countries — that of selecting their own wives." — Prescott's "History of Peru," vol. i., p. 159. See also Draper's " Intellectual Development of Europe," p. 461. 30 EXTENT OF SLAVERY UNDER ROME. viduals are destined by nature to slavery because there is nothing better for them to obey. It is clear, then, that some men are free by nature and others are slaves ; and in the case of the latter, the lot of slavery is both advantageous and just." The inability of the learned and high-minded philosophers of Greece, who were too pure to participate in politics or trade, to conceive of the possibility of a social state without slavery attests conclusively how permanently and universally the social degrada- tion of the common people must have been established. Under Rome we find the same arrogant contempt for industry among the rich, and the same general ignorance among the masses. According to Gibbon, " slaves were so numerous in Rome that the authorities dared not permit them to wear a pecul- iar habit for fear that they might become dangerous by discover- ing their own numbers and strength." Athenseus boldly asserts that he knew very many Romans who possessed, not for use but ostentation, ten and even twenty thousand slaves.' We are told that " in Italy itself the consumption of life was so great that there was no possibility of the slaves by birth meeting the requirement, and supply of others by war became necessary." ° It will thus be seen that the chief social characteristic of ancient civilizations was the opulence, arrogance, and despotism of rulers, and general poverty, ignorance, and servitude among the masses. Consequently all the forces that naturally tend to promote civili- zation were limited to a small exclusive class, while those influ- ences which tend to retard progress were in constant and general operation among the great mass of the people. Although wealth, learning, and culture are the most powerful agents in promoting human progress, it should always be remembered that the potency of their influence depends entirely upon the extent and constancy of their operation. It is not surprising therefore that the learning and philosophy of Greece and Rome, like the wealth of Asia and Africa, tended to increase the power of the rulers rather than to develop the social character of the common people. It is true that modern civilization owes more to the learning and philosophy of Athens, and the jurisprudence of Rome, than it ' Gibbon's " Decline and Fall of the Roman Empire," vol. i., p. 52 ; note, 59 ; ibid.^ vol. i., p. 51. ' Draper's " Intellectual Development of Europe," p. 184. EFFECT OF ANCIENT PHILOSOPHY. 31 does to the wealth and art of India and Egypt ; but this is not due so much to the superior influence which they exercised in their own time as to the fact that Greek philosophy and Roman law were committed to parchment, and thereby preserved until a sufficiently large portion of the race reached the advancement necessary to appropriate it. And long it had to wait for that period to arrive ; it was seventeen centuries after the time of Socrates, Plato, and Aristotle that Greek literature began to exercise any influence upon human progress ; indeed, it was not until a thous- and years after the government of Greece and Rome had passed away, and the slavery they had bequeathed to the race over- thrown, that — through the influence developed by the Free Cities of Europe — the laboring classes for the first time became active social factors, and a broader field prepared in which the seed of Athenian philosophy could germinate.' Therefore, so far as advancing the civilization — improving the social condition of the masses — of its own period is concerned, the philosophy of Greece and Rome did no more than the pyra- mids of Egypt, or the palaces of Peru. It was because the refining elements of these civilizations were not rooted in the industrial and social character of the common people, but represented only the glitter of a small class sustained by the power of the army, that their decay and fall was inevitable. When circumstances arose which forced them to contend with foreign enemies and civil strife, their seeming strength vanished and their real weakness was revealed. The defeat of the army was the fall of their power ; with the military support taken from under the government nothing remained to prevent it from ' Draper thinks the revival of Greek may be dated from the close of the four- teenth century, at which time Chrysoloras taught it in Italy. Although this iso- lated spark appeared in 1395, and some Greek manuscripts (including those of Plato and Pindar) were brought into Italy a few years later, it cannot be said that there was any perceptible restoration of, and much less any social influence from, Greek literature until after the capture of Constantinople by the Turks in 1453. This, it will be remembered, was fully a century and a half after the Free Cities had obtained the material prosperity and political freedom which made them leading factors in the social and industrial life of Europe ; more than a century after the discovery of gunpowder ; seventy-two years after the insurrection of Wat Tyler in England ; thirty-seven years after the revolt of the Hussites in Bohemia ; and eight years after the discovery of the art of printing. 32 IVJiy ROME FELL. falling to the level of the real character of the people — which was barbarism. It was a mistake to assume, as Draper and others have done, that the decay of these civilizations was the natural result of social ripeness and old age. Such was far from being the case ; they all died (socially speaking) in their very babyhood. Not one of them arose above the plane of chattel slavery and hand labor ; they did not even reach the point of having chimneys, or glass windows, in the houses of their most favored classes,' — and cer- tainly much intellectual and moral light cannot be expected to enter the minds and characters of a people when sunlight never enter their dwellings. The commonly accepted notion that .the overthrow of these ancient governments was the destruction of superior civilizations is erroneous. When Rome conquered Greece and subjugated all Europe, as well as Egypt and Asia Minor, — or when the barbari- ans sacked Rome, — they did not destroy high civilizations, but rather reduced the political institutions of the time to the level of the general industrial and social character they had created. Had the material conditions and social character of the Roman people in the fifth century been equal to that of the burgesses of the four- teenth, neither the defeat of the army nor the fall of the empire could have reduced them to barbarism ; but slaves — the chief social product of Rome — were good material for barbarian rule. Human progress was not arrested because Rome fell, but Rome fell because human progress had been arrested. ' Chimneys and glass windows did not come into use until the middle of th« tourteenth century. CHAPTER V. THE RISE AND SOCIAL POWER OF THE FREE CITIES. If we pass from the ancient to the modern world we shall find that, so far as the same causes have been in operation, the same social effects have been produced ; namely, that intellectual and moral development, and civil and religious liberty, have always followed the line of the material prosperity of the masses, and vice versa. The first five centuries of the history of Europe after the fall of the Western Empire compose the midnight darkness of social chaos. Indeed, the only approach to orderly government within that period was during the reign of Charlemagne. After his death the empire soon resolved itself into the elements from which it was constructed, and all law, authority, and regular government again disappeared. After protracted but futile struggles for political and territorial supremacy, powerful chiefs began to settle upon their domains with their retainers, and there assumed all the functions of military chiefs, civil magistrates, and political sovereigns over their vassals. Thus, before the close of the ninth century, the feudal system — which during the tenth, eleventh, and twelfth centuries governed all Europe — slowly emerged from barbarism. Feudalism sustained the same relation to barbarism that bar- barism did to Romanism. — not that it was superior to it, but that it was the natural outcome of it. Both barbarism and feudalism were simply the means of adapting the external machinery of society to the internal character of the people. As the vast em- pire of Rome became reduced to wandering tribes and petty 3 33 34 FIRST STEP TOWARDS FREEDOM. kingdoms because it had failed to develop the industrial and social character of the masses, so, for the same reason, in the tenth century authority was transferred from petty kings to feudal lords; society was reduced to its lowest terms, and political rights and social privileges were absorbed by industrial conditions, — he who offered the means of a living commanding complete political, military, and social allegiance. Under this regime all who were not noble were servile ; the extent of servitude was in accordance with the degree of poverty; the very poor were slaves. " Artisans and free husbandmen," says Hallam, "were often compelled to exchange their liberty for bread. In seasons also of famine, and they were not infrequent, many freemen sold themselves into slavery . . . others became slaves, as the more fortunate men became vassals, to a powerful lord for the sake of his protection." ' Guizot observed : " No sooner was society a little settled under the feudal system than the proprietors of fiefs began to feel new wants, and to acquire a certain degree of taste for improvement and melioration ; this gave rise to some little commerce and industry in the towns of their domains ; wealth and population increased within them — slowly for certain, but still they in- creased." ' With the concentration of the serfs in the towns the seed of social development was planted. The influence of the in- dustrial, social, and religious intercourse thus created, though meagre and crude, perceptibly affected the wants and character of the laborers and taught them to produce, and also to consume, wealth. This first real step towards progress and freedom became too pronounced to be mistaken by the middle of the eleventh cen- tury, and finally grew too powerful to be arrested until it had overthrown the feudal system and laid the foundation of a higher civilization. As the towns increased more rapidly in population and prosperity, they naturally developed a spirit of independence. This tended to excite the jealousy of the barons, who regarded the burghers as serfs having no rights that they were bound to respect, and they therefore increased their exactions and en- ' " Middle Ages," vol. i., pp. 121, 122. ' " History of Civilization," p. 157 ; also ibid., p. loi. LETTING THE TOWNS IN FEE-FARM. 35 deavored to rob and plunder them at every opportunity." " The exactions," says Guizot, " of the proprietors of fiefs upon the burgesses were redoubled at the end of the tenth century. When- ever the lord of the domain by which the city was girt felt a de- sire to increase his wealth he gratified his avarice at the expense of the citizens . . . merchants on returning from their trading rounds could not with safety return to the city. Every avenue was taken possession of by the lord of the domain and his vassals." Man will seldom take much risk to obtain advantages he has never possessed, but he will risk every thing, often against great odds, to defend and sustain those he has already enjoyed. So the burghers, having had a taste of wealth and social freedom, slight indeed though it was, were ready to risk their all to retain these benefits. Despite the constant efforts of the lords to check the power and progress of the burghers by greater exactions and open rob- bery, we are told that : " The towns became continually richer . . . the consciousness that they could not be individually despoiled of their possessions, like the villains of the country around, inspired an industry and perseverance which all the rapacity of the Norman kings and barons was unable to overcome."' The opposition of the burghers to the harassing policy of the barons at length became so strong that the barons were com- pelled to abandon the effort to exact tribute from each individual burgher at will, and agreed to accept a specific amount from the whole town, to be paid as a yearly rent. To secure this rent the baron surrendered every other claim which he might have, either upon the town or its individual inhabitants. " The town was then said to be affirmed, or let in fee-farm, to the burgesses and their successors forever." ° This rent, when once fixed, was per- petual, and could not be increased by the lord, — however popu- lous or rich the town might become, — nor could any new tax be imposed upon it without the consent of the burghers. This was really the first victory for liberty ever known by, and for, the laboring classes. ' " History of Civilization," p. 158 ; Hallam's " Middle Ages," vol. i,, pp. 365, 366, and Wade's " History of the Working Classes," p. 9. ' Hallam's " Middle Ages," vol. ii., p. 78. ' Hallam's " Middle Ages," vol, i., p. 78. 36 REVOLT OF THE TOWNS. But. instead of being the end, this was only the beginning of the struggle, for what the lords could no longer take by tallage they endeavored to obtain by force." In order, therefore, to maintain their existence and the little freedom they had ac- quired, the towns were forced into open hostility to the barons. To sustain themselves in this struggle we are told that : " Every citizen was bound by oath to stand by the common cause against all aggressors, and this obligation was abundantly fulfilled. In order to swell their numbers, it became the practice to admit all who came to reside within their walls to the rights of burgher- ship, even though they were villains, appurtenant to the soil of a master, from whom they had escaped." ' Thus the towns not only protected the prosperity and promoted the progress of those who lived within them, but they offered protection and freedom to all who would flee from the clutches of the feudal masters. Guizot assures us that : " It was not merely the lower orders, such as serfs, villains, and so on, that sought this protec- tion, but frequently men of considerable rank and wealth, who might chance to be proscribed. . . . Refugees of this sort," he adds, "had, in my opinion, a considerable influence upon the progress of the cities ; they introduced into them, besides their wealth, elements of a population superior to the great mass of the inhabitants." ' By these means, together with the industrial and social in- fluences before referred to, the towns continued to grow in wealth, population, and power, and before the close of the eleventh century they were in general rebellion against the barons.' Although the revolt was local, and spontaneous in its origin, it was universal and simultaneous in its movement. The same general causes were everywhere in operation, and consequently the same general effect was produced.' ' " Wealth of Nations," Book III., chap, iii., p, 306. • Hallam's " Middle Ages," vol. i., p. 170. ' " History of Civilization,'' p. 157. ' Guizot's " History of Civilization," p. 161. ' " The situation of all the towns being nearly the same, they were all liable to the same danger ; a prey to the same disaster. Having acquired similar means of resistance and defence, they made use of those means at nearly the same time." — Guizot's " History of Civilization," p. 161. ESTABLISHMENT OF FREE CITIES. yj When the open rupture between the towns and their lords took place, the king, though not necessarily an active partisan, was always a deeply interested party. Adam Smith says : " The burghers naturally hated and feared the lords ; the king hated and feared them too ; but, though perhaps he might despise, he had no reason to either hate or fear, the burghers. Mutual inter- est, therefore, disposed them to support the king, and the king to support them against the lords. They were the enemies of his enemies, and it was his interest to render them as secure and in- dependent of those enemies as he could " ' ; accordingly, in their struggles with the barons, the towns frequently called upon the king for aid and support in protecting the rights and privileges which the lords had previously sworn to grant them. This appeal was generally responded to, at least so far as the king could know that his own power and interest would be pro- moted thereby. By this means, in the eleventh century, the towns began to obtain charters giving them special commercial privi- leges,^ and early in the twelfth century they obtained charters which secured to them, besides commercial privileges, the right of self-government.' By these charters the towns were practically transformed into little republics. They were better able than ever before to effectually offer an asylum to overpowered lords, and freedom to the enslaved and degraded serfs who might take refuge within their walls. These Free Cities, therefore, natu- ' "Wealth of Nations," Book III., pp. 306, 307. ' "From the time of William Rufus " (1087 to 1 100), says Hallam, "there was no reign in which charters were not granted to different towns, of exemp- tions from tolls on rivers and at markets, those lighter manacles of feudal tyranny ; or of commercial franchises ; or of immunity from the ordinary juris- diction ; or, lastly, of internal self-regulation." — " Middle Ages," vol. ii., p. 78. ' According to Hallam, the city of Leon received its municipal charter from Alfonso v., of Spain, as early as 1020. The city of London, from Henry I., in iioi, and those of Noyon, St. Quenton, Laon, and Amiens, by Louis VI., of France, about mo. "The privileges conferred by these charters," says this writer, ' ' were surprisingly extensive. . . . They (the burgesses) were made capable of possessing common property, and authorized to use a common seal as the symbol of their incorporation." — " Middle Ages," vol. i., pp. 166- 169. " It is certain," says the same writer (vol. i., p. 190), " that before the death of Henry V., in 1125, almost all the cities of Lombardy, and many of those of Tuscany, were accustomed to elect their own magistrates, and to act as independent communities in waging war and in domestic government." 38 SOCIAL POWER OF THE FREE CITIES. rally attracted to themselves the most industrious and energetic portion of the population, and consequently, during the twelfth and thirteenth centuries, became the centres of wealth, population, and progress. In 1 164, the Lombard cities formed a league to defend their rights and liberties against the attacks of Frederic Barbarossa, who two years before, attacked and pillaged the city of Milan, the most populous and powerful of their number. The war into which they entered lasted thirteen years, and ended with the famous " Peace of Constance " (1 183), which, we are told, " established the Lom- bard republics in real independence.'" By 1188 the cities of Spain acquired the right of representation in the national legisla- ture. In 1 2 14 Magna Charta declared the old and new privileges of English cities to be inviolable (this was reconfirmed thirty-two times before the middle of the next century), and in 1265 the burghers, or inhabitants of the free cities, obtained representation in Parliament. About the middle of the thirteenth century, the Free Cities of Germany, in order to protect their rights and property against the rapacity of the barons, formed the famous Hanseatic League (which was a confederacy of eighty of the most powerful cities), and sixty other cities banded themselves together as the League of the Rhine. " It will thus be observed that, through their material or indus- trial prosperity, social intercourse, and political activity, the Free Cities gave birth to human freedom and became the nurseries of modern progress ° ; and that in those countries where the Free Cities never existed, such as China, Hindostan, and Egypt, civili- zatiofi has been most stationary. ' Hallam's "Middle Ages,'' vol. i., p. 196. ' Ibid., p. 367 ; cf. ibid., vol. ii., p. 271. ' ' ' ' Order and good government, and along with them the liberty and security of individuals, v?ere, in this manner, established in cities, at a time when the occu- piers of land in the country were exposed to every sort of violence." — Smith's " Wealth of Nations," Book III., chapter iii., p. 308. CHAPTER VI. THE FALL OF THE FREE CITIES AND ITS EFFECT UPON SOCIAL PROGRESS. It is not necessary to our present purpose to discuss the causes which led to the fall of the Free Cities, but merely to indicate, by a brief notice, the general relation which they sustain to social progress. The important fact everywhere observable is, that although the fall of the Free Cities in different countries was not simultaneous, nor the causes identical, the bad effect upon the material prosperity of the people and the progress of social, political, and religious freedom was substantially the same. In Spain charters were granted to the towns early in the eleventh century (1020),' and before the close of the twelfth they were admitted to representation in the Cortes. The peculiar feature of the history of Spain during the Middle Ages is the fact that for nearly eight centuries she was engaged in religious war. The early charters of Spain, unlike those of France, Eng- land, and Germany, were granted more for the purpose of inducing the burghers to defend the country against the Moors, than to enable them to protect themselves against the exactions of the barons." This perpetual religious war served to keep the importance of the clergy and the king constantly before the ' " The earliest instance of the erection of a community is (in Spain) in 1020, when Alfonso V., in the cortes at Leon, established the privileges of that city, with a regular code of laws by which its magistrates should be governed." — Hallam's " Middle Ages," vol. i., p. 303. ' ' ' Instead of purchasing their immunities, and almost their personal freedom, at the hands of a master, the burgesses of Castilian towns were invested with civil rights and extensive property on the more liberal condition of protecting their country." — Hallam's " Middle Ages," vol. i., p. 303. 39 40 THE SPANISH CITIES. people, the former to teach the true faith, the latter to extirpate the heretics. The Christians being more devoted to the killing of heretics than to the production of wealth, manufacturing and commercial industries were, for the most part, carried on by the Mohammedans.' Therefore, when the Moors were driven out of Spain, and their industrial centres deserted, the last prop to her material prosperity was destroyed. Buckle pointedly observes ' : " There was no one to fill their place ; arts and manufactures either degenerated or were entirely lost." The city of Seville, which before the expulsion of the Moham- medans contained sixteen thousand looms and gave employment to thirty out of fifty persons, only employed three hundred looms after that event. During the same period the fifty woollen- factories of Toledo were reduced to thirteen, and her silk trade, which had given employment to over thirty-eight thousand persons, was entirely destroyed. The poverty and wretchedness which followed this decay of the Christian and the violent overthrow of the Moorish Cities of Spain are almost indescribable,' and with this industrial degener- acy the social progress of the burghers was soon arrested. By the close of the fifteenth century their representation in the Cortes, and with it their industrial and social freedom, was prac- tically extinct.* From this time Spain rapidly declined, and soon fell from the position of one of the strongest to that of one of the weakest nations in Europe — a fall she has never since re- covered. In Italy the Free Cities fell from a different set of causes, but the effect of their fall upon progress was essentially the same in kind, if not in degree. As already stated, the Lombard Cities began to acquire wealth and freedom in the eleventh century, and before the close of the twelfth they became recognized, independent republics. Upon the same principle that the in- crease of wealth which precedes the development of wants leads ' Buckle's " History of Civilization," vol. ii., p. 52. ^ Ibid. * Mahon's " Spain under Charles II.," pp. 138—140. ^ " At the cortes of Burgos, in 1315, we find one hundred and ninety-two representatives from more than ninety towns. . . by the year 1480 only seventeen cities retained the privilege of representation." — Hallam's " History of the Middle Ages," vol. i., p. 314. THE ITALIAN CITIES. 4I to waste, the increase of freedom and power that precede the development of social character necessary to their wise use, nat- urally lead to maladministration, and tend to promote anarchy rather than the advancement of a higher civilization. Thus it was with the Free Cities of Italy. They acquired political power too suddenly ; their form of government was republican before their character had become democratic. In short, their external power and prominence were more the result of political despotism than social development. Accordingly after their great victory over Barbarossa in 1 183, they soon be' came the victims of internal feuds. Having no foreign enemy tcp encounter, they turned their swords upon one another, which was more fatal to their prosperity, power, and freedom than all the attacks of a foreign foe.' Weakened by the factious war among themselves, they soon became an easy prey to monarchy. By the middle of the thirteenth century (1233) they had fallen into the hands of a monkish usurper, Vicenza, and by the close of the century they were forced, with little difficulty, to submit to the yoke of a despotic monarchy. So completely did the loss of their freedom follow that of their material prosperity that, " be- fore the middle of the fourteenth century, at the latest, all those cities which had spurned at the faintest mark of submission to the emperors, lost even the recollections of self-goverment, and were bequeathed, like undoubted patrimony, among the children of their new lords." Although brought about by very different causes, the fall of the free cities in Italy, as in Spain, arrested the material prosperity of that country, and consequently its social progress and political and religious freedom were greatly retarded. The history of the Free Cities of Germany was somewhat dif- ferent from that of Spain and Italy. In Germany the rapacity of the barons and petty princes partook more of the character of common highwaymen than in any other country. So universally was this the case among the rural nobles that it became customary for them to build their castles upon inaccessible hills where they could command the public highways. As an evidence of the prevalence of this practice, Hallam relates the story, told by a > " For revenge, she threw away the pearl of great price, and sacrificed even the recollections of liberty."— Hallam's " Middle Ages," vol. i., p. 198. 42 THE GERMAN CITIES. contemporary writer, of an archbishop who built a fortress of this kind. No legal provision having been made for him, he was asked by the governor "how he was to maintain himself," to which he replied that "his castle was situated near the junction of four roads." As a means of protection against the " robber barons," the cities allied themselves with the emperors, and the emperors, in order to obtain assistance against the petty princes, willingly patronized the cities. German cities were not entirely free from the internal jealousies which were so fatal to those of Italy, but the constant danger from the barons made some degree of united action necessary to their existence. Thus the Hanseatic Union and the League of the Rhine were formed ; the first about 1250, and the latter in 1255. These two organizations comprised, at the time, over a hundred and thirty cities leagued together to defend themselves against the nobility, just as those of Italy were leagued against Frederick I. By this means the German cities escaped the fate of those in Lombardy ; but in their very escape they became the victims of influences which were scarcely less fatal in their results, though more gradual in their operation. Through their almost constant alliance with the emperor they naturally became more and more under his influence and control ; and although they did not become imperial strongholds, they ceased to be democratic nurseries. Guizot has well observed : " They preserved their privileges, but they remained confined to the inside of their walls. Within these, democratic organization was shut up and arrested ; if we walk abroad over the face of the country, we find no resemblance of it." ' Thus, while they retained their external form until after the close of the sixteenth century, at the close of the fifteenth their power as harbingers of industrial and political freedom was practically destroyed. If we turn to France, a similar picture presents itself ; although the local causes were different, the general result was substantially the same. France was the birthplace of feudalism, and it is therefore not surprising that the feudal system should have taken deeper root in that country than in any other. While it was a fundamental principle of feudalism that the lord should be ' " History of Civilization," p. 223. THE FRENCH CITIES. 43 supreme on his own domain, in no country was baronial sover- eignty so absolute, in theory and practice, as in France. There the lord possessed all the powers that were invested in the king. He even had the right to declare war against the king himself. In many countries this practice was more or less indulged in, but in France it was laid down as one of the legal rights of the lord. By this means the feudal nobility in France were equal in strength to all other elements combined. Although the French kings, in order to strengthen their own hands, granted very liberal charters, they were mainly confined to the towns on the royal domains and those of the weaker nobility in the south of France. Con- sequently, when the struggle between the barons and the cities came, the power of the former proved too much for the latter, and the cities fell.' With the fall of the Free Cities the feudal system was re- established, and many of its odious features continued down to the French Revolution. Passing from the Continent to England, we shall find that, while the general appearance of the movement was very similar, the essential features, and therefore their effect upon civilization, were very different. The Free Cities in England, like those on the Conti- nent, were the birthplaces of material prosperity and the nurseries of civilization ; but in England no elements were strong enough to suppress them. Neither the king nor the Church, as in Spain ; nor internal strife and usurpation, as in Italy ; nor baronial weakness and imperial strength, as in Germany ; nor the feeble- ness of royalty and the power of Feudalism, as in France, were sufficient to prevail against the cities of England. From the fifth to the eleventh century there was very little dif- ference in the social state of the various countries in Europe ; if any thing, England was probably less advanced than some of the rest. About the middle of the eleventh century, however, an event occurred in England which produced an arbitrary and radical change. When William, Duke of Normandy, decided to present a forceful claim to the English throne, he promised to ' " And so it was in France. The towns, with few exceptions, fell at the first shock ; and the cities lost their municipal privileges, which, not being grafted on the national character, it was found impossible to preserve." — Buckle's " History of Civilization," vol. i., p. 449. 44 THE ENGLISH CITIES. freely distribute the wealth and land of England among his fol- lowers in order to induce them to enter more heartily into the struggle, and he was as good as his word. He had no sooner obtained possession of the British Govern- ment, such as it was, than he proceeded to dispossess the Britons of all political power and to confiscate their property,— both of which he divided among his Norman followers.' In this redis- tribution of wealth and power, William never lost sight of the main object of the conquest, — his own power and aggrandize- ment, — and hence, in making his grants, he was always careful to exact the fullest ackowledgment of his own supreme authority. The feudal system in England was thus arbitrarily recon- structed, and, so far as the nobles were concerned, on a more limited basis than that which obtained upon the Continent. For instance, the most powerful of the English barons never acquired such sovereign privileges as the right of coining money in their own name ; the right to forbid the circulation of the royal money upon their own domains ; exemption from all public tribute ex- cept feudal aids ; the right of waging private wars, even against the king, etc." The power of the Norman barons in England being thus limited, the contest for supremacy between feudalism and monarchy was more evenly balanced. Under these condi- tions the opportunity for the growth and safety of the towns was naturally great. Consequently, we find that, while the English towns did not rise to opulence as suddenly as the Italian cities, they made gradual progress toward wealth, power, and freedom. In order to weaken the barons, and in the hope of strengthen- ing his own hand, the king granted charters to the towns, ex- empting them from, and protecting them against, the exactions of the barons. Another beneficial effect of "that vigorous pre- rogative of the Norman monarchs which kept down the feudal aristocracy " was, that, because of the inability of the barons to ' " This exclusion of the English from political privileges, "says Hallam, " was accomplished with such a confiscation of property as never perhaps has proceeded from any government not avowedly founding its title upon the sword. In twenty years from the accession of William almost the whole soil of England had been divided among foreigners." — " Middle A^es," vol. ii., p. 27. ' See Hallam's " Middle Ages," vol. i., p. 127 ; also Buckle's " History of Civilization,'' vol. i., p. 445. THE MAGNA CHARTA. 45 cope single-handed against the king, it became necessary for them to include the rights and privileges of the burghers (whom they hated) with their own. It was by this means that, under the leadership of Stephen lyangton and the Earl of Pembroke, the Magna Charta was wrung from that rapacious and treacherous coward. King John, in 1 2 15. This declared that : " The charter of the city of Lon- don, and of all the towns and boroughs, is inviolable ; no freeman shall be taken or imprisoned, or be deprived of his freehold liber- ties ; or free customs ; or be outlawed ; or exiled ; or any other- wise destroyed but by lawful judgment of his peers, or by the law of the land." The great charter of rights extended as much protection to the burghers against the violence and oppression of the barons as it did to the barons against the oppressions of the king, and in order to secure the privileges thus obtained subse- quent kings were forced to solemnly ratify this great charter' thirty-two different times. In the same way, fifty years later, the burghers obtained the right of popular representation in Parlia- ment. It was in the protracted struggle between the confederate barons and Henry III. that, in order to secure the favor of the burghers and thereby strengthen the hands of the barons against the king, the Earl of Leicester, on the 12th of December, 1264, issued writs to all the sheriffs, directing them to return to parlia- ment " two citizens for every city and borough, in addition to the knights of the county." ' Nearly all the charters that were granted to the towns after the reign of John gave them complete municipal independence, including the right to make their own laws, elect their own magistrates and judges, levy their own taxes, etc. With these powers the Free Towns could offer protection and citizenship to all who would reside within their walls. Villeins were declared free, and endowed with the free rights of citizen- ship, who fled to the chartered towns and continued residents for a year and a day.' This obviously tended to increase the power ' See Buckle's "History of Civilization," vol. i., pp. 446, 447; also Hal- lam's " History of the Middle Ages," vol. ii., pp. 73, 83. ' Hallam's " Middle Ages," vol. ii., p. 73. ^ Ibid., p. 203. See also Wade's "History of England," p. 9. 46 RISE OF THE WAGE SYSTEM. of the towns and the number of freemen, and at the same time to diminish the power of the Lords, as is abundantly shown by the petitions sent to Parliament by the lords, praying : " that the villeins might not put their children to school ... for the honor of all freemen in the kingdom " ; and complaining : " that villeins fly to cities and boroughs, whence their masters cannot recover them ; and, if they attempt it, are hindered by the peo- ple ; and prayed that the lords might seize their villeins in such places without regard to the franchises hereof." ' The result was that the lords were compelled to be more generous in theii treatment of villeins in order to prevent them from running away to the towns,* and consequently, by the last quarter of the thir- teenth century their condition had become greatly modified. Instead of being inseparable parts of the lord's estate, the villeins were now bound only to perform certain specified services, known as " labor rents," for which they were allowed to possess the land they lived upon, or work for wages the remainder of the time as " free laborers for another lord." ' By the close of the reign of Edward II. (1327) labor rents had almost entirely dis- appeared ' ; and before the middle of the reign of Edward III. the villeins, for the most part, had become wage-laborers,' and feudalism, as an industrial system, was practically overthrown. The effect of these influences upon the industrial condition of the masses is further seen in the fact that, early in the fourteenth century, not only artisans but farm laborers began to demand higher wages. Rogers informs us that, at the close of the famine in 1321, wages rose "from 23 to 30 per cent., fully 20 per cent, of which became permanent," ° and thirty years later (1350) they rose again from 50 to 100 per cent.' This marked increase in ' See Eden's "Stateof the Poor," vol. i., pp. 3, 4 ; also Hallam's " Middle Ages," vol. ii., p. 207. ' " It was natural that the country people, or uplandish folk, as they were called, should repine at the exclusion from that enjoyment of competence and security for the fruits of their labor, which the inhabitants of the towns so fully possessed." — Hallam's " Middle Ages," vol. ii., pp. 204, 205. ' Hallam's " Middle Ages," vol. ii., p. 202. ' Rogers' " Six Centuries of Work and Wages in England," p. 218. ' Hallam's " Middle Ages," vol. ii., p. 204. ' " Six Centuries of Work and Wages,'' pp. 218, 237. ' Ibid., p. 237. FALL OF FEUDALISM. 47 wages was not the result of temporary causes, such as famine, black death, etc., but the natural effect of the period in which English commerce and manufacture took their first great start.' It was in 1331 that Edward III., the " father of English com- merce," induced Flemish manufacturers to settle in England, promising them that " they should feed on fat beef and mutton till nothing but fullness should stint their stomachs." The increasing wealth and comfort of the laboring classes during this period is further shown by the constant complaints of contemporary writers about " the extravagance and vanity of the common people," and the frequent petitions to Parliament complaining that " the masters were obliged to give their servants and laborers great wages to prevent their running away to towns where they became artificers, clerks, etc., to the great detriment of agriculture." Thus the natural prosperity which had its rise in the towns during the twelfth and thirteenth centuries extended, in the fourteenth, to the farm laborers in the rural country and consummated the fall of feudalism. Thus the towns in England gradually rose from industrial to commercial, and from commercial to political, importance. As their wealth did not precede their wants, each addition to their privileges was an increase of their power, and their influence upon freedom and progress extended beyond their own walls. Consequently, although their struggles were severe, they survived until they had overthrown feudalism, transferred the slavery of villeinage into wage-labor, securely established popular repre- sentation, and laid the foundation for the religious reformation in the sixteenth, the political revolution in the seventeenth, and the industrial revolution in the eighteenth and nineteenth cen- turies. It is a great mistake to conclude, as Fiske ' and other eminent writers appear to have done, that this is due to some inherent supe- riority in the English race. A careful consideration of the funda- mental causes which underlie and promote social development will show that, while the political and religious institutions of a country are determined by the character of its people, the character is main- ly determined by the industrial and social environment. Therefore, ' Cf. "Wealth and Progress," pp. 110-131. ' "American Political Ideas," chap. iii. 48 XISE OF THE MIDDLE CLASS. the cause of the superiority of the English over the Spanish, Italian, and German institutions in the seventeenth, eighteenth, and nineteenth centuries is not to be found in any inherent quality in the English race, but in the difference of its industrial and social conditions in the thirteenth, fourteenth, and fifteenth centuries. Manufacture and trade became more profitable than agriculture, and therefore naturally attracted to themselves the more intelligent and ambitious. By this means, during the fifteenth and sixteenth centuries there arose a middle or commercial class, whose increase in wealth and influence was such that early in the seventeenth century it began to rival the landed aristocracy.' Before the close of the seventeenth century the aggregate income of the manufacturers and merchants was more than equal to that of the nobility, and by the end of the eighteenth century the mid- dle class had become the dominant power in society. ' " In the course of the sixteenth century the commercial prosperity of Eng- land had increased with amazing rapidity, while during the same time much territorial wealth, much baronial property, had changed hands." — Guizot's "History of Civilization," p. 271, CHAPTER VII. THE PROGRESS OF POLITICAL AND RELIGIOUS FREEDOM. If we examine the progress of political and religious freedom we shall find that it has always followed the line of the material prosperity of the masses, rising where that rose, falling where it fell, and becoming permanent only where industrial improvement had been general and continuous. England was the only country in which the Free Towns were not overpowered by either the Church, the Monarchy, or the Barons, and consequently it was the only country in which social and political progress was not arrested. The Cortes of Spain, the States-General of France, and the Republics of Italy rose and passed away, scarcely leaving their imprint upon the national character, while the English House of Commons has ever stood out as a conspicuous feature of modern civilization. " No great measure," says Guizot,' " which has truly had any influence upon society in France, no important reform either in the general legislation or administration, ever emanated from the States-General. . . . The Cortes of Portu- gal and Spain afford the same general result. . . . The Cortes, like the States-General of France, has been an accident in his- tory, and never a system — never a political organization or regu- lar means of government. . . . The lot of England has been different. . . . The Commons obtained in England a power much superior to those on the continent, a power really capable of influencing the government of the country. In the fourteenth century, the character of the English parliament was already ' " History of Civilization," pp. 225-7. 4 49 50 WICLIFF, TYLER, AND HUSS. formed. . . . The attempt to bring together the various ele- ments of society, and to form them into one body politic, one true state or commonwealth, did succeed in England while it failed in every part of the Continent." What was true of municipal privileges and political representa- tion was equally true of religious liberty. In the fourteenth century, when, on the Continent, the masses were losing their political rights and society was gravitating towards civil and re- ligious despotism, the people of England were steadily advancing towards still more freedom. The increasing prosperity of the towns from the reign of Henry III. to the middle of the reign of Edward III. — during which time villeinage had been transferred into wage-labor, and the last thirty years (1321-1351) of which had witnessed a general and permanent rise of wages — greatly developed the social and intel- lectual character of the people,' and made the successful advent of Wicliff and Wat Tyler possible. Whatever may have been the influences that induced Wicliff to openly renounce the authority of the pope, denounce the usurpations of the Roman Church, stigmatize the friars as its political and financial emis- saries, and insist upon the right of the laity to read and interpret the Bible — which he subsequently translated into English, — the effect of his teachings upon the community ultimately depended upon the character of the people.' Had Wicliff lived before, instead of after, the Free Cities, his own fate, as well as the influence of his doctrine, would probably have been entirely different. This is well illustrated by the fate of the Hussites in Bohemia some forty years later. When John Huss, through the treachery ' " A silent alteration had been wrought in the condition and character of the lower classes during the reign of Edward III. This was the effect of increased knowledge and refinement, which had been making a considerable progress for full half a century, though they did not readily permeate the cold region of poverty and ignorance." — Hallam's " Middle Ages," vol. ii., p. 204. ' As Buckle truly says : ' 'Although the origin of a new opinion may be due to a single man, the result which the new opinion produces will depend on the con- dition of the people among whom it is propagated. If a religion or a philosophy is too much in advance of a nation it can do no present service, but must bide its time until the minds of men are ripe for its reception." — " History of Civili- zation," vol. i., p. i85. FAILURE OF THE HUSSITES. 5 1 (or weakness) of Emperor Sigismund, was sent to the stake (1416) for advocating the doctrines of Wicliff, his followers flew to arms under the leadership of one John Zisca, who, though totally blind, proved to be almost a second Hannibal. At the death of Zisca, however, the Hussites fell to pieces ; in less than twenty years after the death of Huss they were suppressed ; and by the middle of the century the movement was practically obliterated.' Thus the agitation of Huss in Bohemia only con- tinued during the life of its originators, and died without leaving any lasting impression on the character of the people, while that of Wicliff permeated the whole community to such an extent that, it was said, every third man was a Lollard. Wicliff's Bible created such a desire for reading, especially among the middle classes, that, by the middle of the fifteenth century, the art of printing — which had been waiting a thousand years for a book- reading civilization — ^became a success, and by its aid the country became ripe for the great religious reformation early in the sixteenth century. Nor can the difference in the fate of this movement in England and Bohemia be attributed to any differ- ence in the quality of the leaders or the tenets of the creeds. Both Wicliff and Huss represented leading universities, and both promulgated essentially the same doctrine. The only differences that existed were in the condition and character of the people. The same is true of the Wat Tyler insurrection in 1381. Un- questionably the " groat-tax " ' was the immediate cause of the discontent among the peasants, and the killing of the tax-collector by Tyler, for the assault upon his daughter, was the special fact which caused the uprising and put Wat Tyler at its head ; but the reforms that were demanded, and the permanent effect of the movement upon the community, depended upon the character of those who took part in it and were influenced by it. Despite the fact that Tyler was treacherously slain, the other leaders all sub- ' " I cannot assign any beneficial results to the schism of the Hussites, at least its immediate results, in the country where it appeared." — Hallam's " Middle Ages," vol. ii., p. 324. ' A groat is fourpence (eight cents). The groat-tax was a tax of three groats a year levied upon every person in the kingdom, male and female, over fourteen years of age. It was the refusal of Tyler's daughter, under fourteen years of age, that led to the assault, for which Wat Tyler struck the collector dead at a blow. S2 THE JACQUERIE AND PEASANT WAR. sequently hanged, and the declaration of the Lords and Commons in Parliament that they would never concede to the demand — "if it would save them from all perishing together in one day," — the insurgents finally obtained all that they claimed. The poll- tax was never collected, and, we are told, " the English laborer for a century or more became virtually free and constantly prosperous." ' If we compare the Insurrection in England with the Jacquerie in France, twenty-three years earlier (1358), or with the Peasant War in Germany, one hundred and forty-four years later (1525), the case is even more striking than that of Huss and Wicliff. In each of these countries the revolt was a spontaneous uprising of the people to demand a reform in their industrial and social con- ditions. There was one important difference, however : the Jacquerie and the Peasant War were preceded by a long period of the direst poverty and galling degradation, while the rising in England was preceded by more than a century of almost con- tinuous prosperity and growing freedom. Nothing is so effective in producing weak character as poverty ; and, for the same reason that empty stomachs make poor soldiers, empty characters make poor reformers. ■ The Jacquerie and Peasant War were desperate outbursts of long pent-up degradation and despair. The struggles of the people were fierce, but their defeat was overwhelming, and they were hurled back into poverty and subjected to a despotism as oppressive as that against which they had rebelled. The English uprising, on the contrary, being the natural outcome of previous material progress, led on to still greater prosperity and a higher civilization, which laid the foundation for the success of the grea.t event of the sixteenth century — the religious revolution known as the Reformation. The Reformation was really a social movement. It was the first struggle of the middle class for freedom — of which the new religious doctrines were more the consequence than the cause. WiclifiE's first protest was not against the unsoundness of the spir- itual teachings of the Church, but against the social injustice of its temporal exactions, which were declared by Parliament to amount " to five times as much as the taxes levied by the king." ' ' Rogers' " Six Centuries of Work and Wages in England," p. 271. 'Draper's " Intellectual Development of Europe,'' pp. 397-434. SOCIAL ASPECT OF THE REFORMATION. 53 When he denounced the friars as financial emissaries of the pope, and advocated the heavy taxation of the monasteries, telling the king that " to prohibit the transmission of English money into Roman coffers was not only justifiable but a public duty," he was simply holding up the hands of Edward and his Parliament against the outrageous demand of the pope for the arrears of tribute — promised in a moment of humiliation by the weak and cowardly King John. His subsequent revolt against the theological dogma of the Church was the natural sequence of this opposition to her temporal usurpations. Again, in the sixteenth century, Luther did not raise his first opposition against the doctrines of the Church, but against her unscrupulous methods of extorting tribute from the people. His first public movement (1517') was the posting upon the doors of the cathedral at Wittenberg of ninety-five objections to the prac- tice of selling indulgences. It was not until he had been repri- manded by the pope, and afterwards ordered to publicly retract his utterances against the traffic, and finally condemned as a heretic, that he challenged the religious doctrines of the Church. Finding himself in a deadly conflict with the papal authority on temporal matters, he became defiant on spiritual matters also, and in 1520 publicly committed the books of the canon law and the bull of excommunication to the flames. In England the Reformation came into active existence in a very similar way. By the first quarter of the sixteenth century the usurpation of temporal power and the extortion of money from the people by the clergy had become a public scandal. In 1529 the House of Commons declared, in a formal petition to the king, " that the house of convocation made laws without the consent or knowledge of the people ; that such laws were never published in the English language, and that, nevertheless, men were daily punished under them without ever having had an opportunity to eschew the penalties . . . that poor men were harassed without cause in the spiritual courts for the mere pur- pose of extortion, and exorbitant fees were exacted from them without cause ; and that bishops illegally imprisoned, sometimes for a year or more, persons in their jails without informing them of the cause of their imprisonment or the name of their accuser." In their defence against these charges the bishops declared : " that canon law was superior to the laws of the realm ; that the punish- 54 THE SPREAD OF PROTESTANTISM. ment inflicted upon laymen had been for the health of their souls ; and that, generally, saints may claim powers to which common men are not entitled." The determination of the Commons to curtail the temporal power of the clergy at this period is shown by the number of laws that were passed for that purpose, among which was the " Clergy Discipline Act." Thus, when it became necessary for Henry VIII. to depose the pope in order to obtain Anne Boleyn, and subsequently to dispossess the clergy of their wealth in order to retain his newly acquired authority over the Church, he was, for social reasons, readily sustained by the Commons and the middle class in his confiscation policy. The Reformation was to the middle classes of the sixteenth century what the movements of Wicliff and Wat Tyler were to the peasantry of the fourteenth. It attained higher intellectual and moral results because it was based upon higher material and social conditions. Although Protestantism spread over nearly all Europe, it failed to produce any permanent effect in those countries where the Free Cities had been overthrown and the material progress of the masses had been arrested. Thus, in Spain and Italy, where the Free Cities had been most thoroughly suppressed, the influence of the Reformation was the most fleeting. In the former country it was entirely stamped out in ten years,' and in the latter it was suppressed before it could take root among the people." Although its struggle for a foot- hold was longer and fiercer in France, its extinction was hardly less complete. In Germany, where the Free Cities continued to a much later date, its influence, though more general and lasting, did not become permanent. It was only in England and Switzer- land, where the Free Cities were never entirely conquered, that the Reformation became permanently established. If we pass from the sixteenth to the seventeenth century we shall find that the march of progress was in accordance with the same general principles. It was the same character, produced by the same general causes, that revolted against the usurpations and oppressions of the Church in 1529, and finally took off the head of Charles I. in 1649. In short, for the same reason that 'Buckle's " History of Civilization," vol. ii., p. 19. 'Guizot's " History of Civilization," p. 260. POLITICAL REVOLUTIONS. 55 the Reformation in the sixteenth century succeeded in estab- lishing the right of private judgment in England — while it failed on the Continent — the political revolution in the seventeenth cen- tury established popular constitutional government in the same country — while it utterly failed in France." To use the eloquent language of Professor Fiske : " The close of the seventeenth cen- tury, which marks the culmination of the Asiaticizing tendency in Europe, saw despotism, both political and religious, firmly estab- lished in France and Spain and Italy and in half of Germany ; while the rest of Germany seemed to have exhausted itself in the attempt to throw off the incubus. But in England this same epoch saw freedom, both political and religious, established on so firm a foundation as never again to be shaken, never again with impunity to be threatened, so long as the language of Locke and Milton and Sydney shall remain a living speech on the lips of men. It is equally obvious, from the industrial history of the period, that when, from causes elsewhere explained,' the material progress of the laboring classes was arrested in the middle of the fifteenth century, their march towards freedom was also arrested. It was only that small portion of laborers who passed into the ranks of the middle or capitalist class in the fifteenth, who went on to freedom in the sixteenth and seventeenth centuries. The history of the Poor-laws, the Act of Settlement, and the Allowance system, clearly show the condition of the masses had not been improved from the middle of the fifteenth to that of the eighteenth century, and also that their liberties were not enhanced by the Reformation, the Commonwealth, or the Revolution of 1688.* It ■ The difference in the condition and character of the English and French Revolutions is clearly presented by Buckle in " History of Civilization," vol. i., chapter x. ; and even Guizot, the French historian, in discussing the Eng- lish Revolution, exclaims : " Hovif came it to pass that this struggle took place in England sooner than anywhere else ? How happened it that the revolution of a political character coincided here vifith those of a moral character sooner than they did on the Continent ?" — " History of Civilization," p. 270. ' " American Political Ideas," p. 119. ' See " Wealth and Progress," pp. 132-144. ■* ' ' The eager spirits who crowded the House of Commons, the mounted yeo- men who rode with Hampden, the men who fought and won Marston Moor, and Naseby, thought no more of the peasant and the workman, had no more care 56 RISE OF THE FACTORY SYSTEM. was the commercial prosperity of England, during the first half of the eighteenth century, that made it possible to produce wealth cheaper by machinery than by hand labor. This led to the organization of the factory system, which, during the first quarter of the present century, entirely changed the economic condition of the English laborer, and has since revolutionized the industrial system of all Christendom. The factory system broke up the isolated and non-socializing system of domestic in- dustry, and it brought the laborers into closer and more frequent intercourse with one another, socially as well as industrially. The influence of this upon the wants and habits and consequently upon the material condition of the masses, is shown by the rise of wages during the first twenty years of the present century. During the next twenty years the improved condition of the masses was still more marked, for during that time there was a pronounced fall in prices as well as a distinct rise in money wages.' The influence of this material prosperity upon the political freedom of the laboring classes is manifest from the liberal legislation that has followed from 1825 to the present time. Previous to this time industrial legislation, from the "Statute of Laborers" (1350), was directed to keeping down wages and restricting the social opportunities of the masses. Now for the first time in history the power of government was directly exercised on the side of the laboring classes. In 1819 the first law was enacted restricting the hours that women and children for bettering him, than the Irish patriots of 1782 cared for the kernes and cottiers on whose labor they lived. . . . The great Revolution which established the authority of Parliament, put an end to arbitrary power, and relieved the con- sciences of those who could not accord themselves to the worship of the Eng- lish Church, brought no liberty to the peasant and artisan. It stereotyped their servitude. . . . Laborers had ceased to be factors in political action, and were simply ignored for a century or more. . . . All this too was done when the patriots and placemen chattered about liberty and arbitrary administration, and fine ladies and gentlemen talked about the rights of man." — Thorold Rogers' " Six Centuries of Work and Wages,'' pp. 432-434. ' According to Thorold Rogers, wages from l8oo to 1820 were 55.25 pence per day, while from 1821 to 1840 they were 62.75, and during the former period a given quantity of seven of the chief necessaries of life cost 232.5 shillings, while in the latter they only cost 146.35 shillings. — "Six Centuries of Work and Wages in England," p. 504. Cf. Tooke's " History of Prices," vol. i., pp. 329, 330. SOCIAL SEFORMS. 57 should be employed in factories. In 1824 the laws, which for nearly five centuries had made it a penal offence for workingmen to organize for the promotion of their own interest, were re- pealed ; as was also the Quarter-Sessions Assessment Act.' In 1825, 1831, 1833, 1844, 1847, 1874, and 1882, important laws were enacted reducing the hours of labor, by instalments, from fourteen to nine and a half hours per day ; also providing com- pulsory education for all working children under fourteen years of age ; superior sanitary regulations for all factories and work- shops ; proper protection against dangerous machinery ; making the employer responsible for injury to laborers, etc. Through the constantly increasing influence of the growing intelligence and social character of the laboring classes upon public opinion, the right to vote was extended, in 1832, 1867, and 1884, from the middle to the laboring classes ; the last instalment making the agricultural laborer politically (at least on election day) the equal of the Duke of Westminster. It was during this period also that religious tests for holding government offices were abolished ; that Catholics (1828) and Jews (1845) were admitted to repre- sentation in Parliament and permitted to enter the universities ; that tithes were commuted and church rates were abolished ; that the great Chartist movement ' was inaugurated ; that the con- spiracy laws were repealed ; that stamps on newspapers were abolished ; and a free press and free speech were established. Thus, in the same way and for the same reason that the civil and religious liberty acquired by the middle classes in the six- ' See Rogers' " Work and Wages," p. 438. ' Macaulay clearly saw the historical error of ascribing our industrial and social progress to our political institutions, and says : " I am perfectly aware of the immense progress which your country has made and is making in population and wealth. I know that the laborer with you has large wages, abundant food, and the means of giving some education to his children. But I see no reason for attributing these things to the policy of Jefferson. . . . You will, I am sure, acknowledge that the progress which you are now making is only a con- tinuation of the progress which you have been making ever since the middle of the seventeenth century. It therefore seems to me quite clear that the facts which you cite to prove the excellence of purely democratic institutions, ought to be ascribed not to those institutions, but to causes which operated in America long before your Declaration of Independence. " — Macaulay's letter on Randall's " Life of Jefferson," Oct. 9, 1858. S8 INDUSTRIAL CONDITIONS OF AMERICA. teenth and seventeenth centuries was the fruition of the material progress of the fourteenth and fifteenth centuries, the social, religious, and political freedom obtained by the masses in the nineteenth century is the result of the material prosperity which made the use of steam, the spinning-jenny, the power-loom, and the factory system possible. If we pass from Europe to America we shall find that social progress has taken place in the order and in accordance with the same general principle as in England. The most superficial acquaintance with the history of the United States is sufficient to show that our republican institutions are the consequence, and not the cause, of our material prosperity. The Republic was born of the social and intellectual character growing out of a long period of previous industrial prosperity, and this prosperity was due to causes long ante-dating the slightest observable democratic tendency in our political institutions. The comparative prosperity which prevailed in the American Colonies for three quarters of a century immediately preceding the Revolution is shown by the fact that wages were most of the time one third higher, and the price of provisions very much lower, here than in England. In describing the industrial condition of the American people during that period, Adam Smith says : " Labor is there so well rewarded, that a numerous family of children, instead of being a burden, is a source of opulence and prosperity to the parents. The labor of each child, before it can leave the house, is computed to be worth a hundred pounds clear gain to them." In 1770 the wages of carpenters, masons, etc., in London (which is always twenty-five to thirty per cent, higher than in the country), were two shillings and six pence a day,' while at the same date in New York, ship carpenters received " six shillings and six pence sterling, and journeymen tailors two shillings and ten pence sterling " ° ; and, adds the same writer, " the price of provisions is everywhere in North America much lower than in England." This industrial prosperity made the development of the social and intellectual character of the people inevitable. Consequently ' These prices were paid at Greenwich Hospital from 1830 to 1770, and are taken from the records of that institution. ' Smith's "Wealth of Nations," Book I., chapter viii., p. 54. FRENCH AND AMERICAN REVOLUTIONS. 59 the necessary intelligence and force of character had been created to successfully resist the permanent adoption of the Stamp Act (1765). and it was repealed the next year. The opposition to this measure did not arise from the poverty or hardship it entailed upon the people, but from the injustice of the principle it involved. The same year in which the Stamp Act was repealed in England the " Declaratory Act " was adopted, insisting that the king and Parliament "had the absolute right to make laws binding the colonies and the American people in all things whatsoever." The endeavor to enforce this principle rekindled the flame of resistance in this country and gave rise to the effective cry that " taxation without representation is robbery." This led (1767) to the policy of excluding (boycotting) English goods, — which resulted (1770) in the throwing of tea into Boston Harbor, — and finally culminated (1776) in the Declaration of Independence, a successful revolution, and the establishment of the Republic. Thus, instead of the Revolution being a desperate struggle against V industrial degradation, it was a bold, high-minded assertion of political principles, sustained by the superior character conse- quent upon the previous industrial prosperity. This explains the important difference between the character and result of the French and American Revolutions. For a century previous to their great Revolution the people of France were in a state of almost indescribable poverty and social degradation, and their struggle was for material existence only. The natural consequence was that they were much more barbar- ous in their methods and the effects were much less beneficial on this account. The American Revolution resulted in establishing the most liberal and democratic republic the world has ever seen, while that of France did little more than exchange one despot for another. Our Republic was not only born of industrial pros- perity, but its success and permanence are due to the same cause. The industrial prosperity of our people during the first seventeen or twenty years of the Republic was phenomenal. By the end of the first decade our exports had risen from nineteen to ninety- four millions of dollars and the revenue had increased from five to thirteen millions. Nor was this prosperity in any sense due to our republican institutions ; it was the result of causes which operated exclusively in Europe. During the first quarter of a 6b GROWTH OF AMERICAN INDUSTRY. century after the outbreak of the French Revolution (1789 to 1815) events in Europe almost uninterruptedly conspired to pro- mote the industrial prosperity of the young Republic. The French, English, Dutch, Spanish, and Portuguese merchant- men were practically driven from the seas by the campaigns of Napoleon. The United States was in an excellent condition to supply vessels to take their places and her neutrality secured her the opportunity. By this means the Republic obtained, for the time being, a practical monopoly of the ocean freight of the worlS, All that was necessary for the small capitalist of America to do, in order to rapidly acquire wealth, was to obtain a cargo of Ameri- can products at normal prices and sail to the West Indies, or to Europe, under the American flag. For several years Europe was supplied with American produce ; Russia, Sweden, Germany, and even England often availed themselves of the service of the American merchants for exchange and freight. The effect upon the trade and industry of the Republic may be seen from the fact that, in 1789 the aggregate capacity of American shipping was only 201, 562 tons, while in 1808 it had increased to 1,242,595 tons. Another European influence which greatly contributed to the growth of American industry was the discovery of the spinning- jenny and the power-loom (1767-1785), and the inauguration of the factory system in England, which created a great demand for American cotton. In 1791, the entire cotton crop of America was only 2,000,000 pounds, and by the close of the century the annual product was over 48,000,000 pounds. In 1795, ^^^ English consumption of American cotton was 5,000,000 pounds ; in 1820 it was 90,000,000 pounds ; in 1840 it was 488,000,000 pounds ; and by i860 it was over 1,100,000,000 pounds a year. This prosperity was the one great fact which saved the Republic from going to pieces under the terrible strain to which it was subjected by foreign wars and internal dissensions during the first years of its history. Therefore, instead of attributing our remarkable industrial prosperity and superior civilization to our republican institutions, as is the custom of our statesmen, journalists, and public teachers generally, the truth is that our republican institutions are the natural result of industrial prosperity and consequent superiol c'^ilization. PART II. THE PRINCIPLES OF ECONOMIC PRODUCTION. CHAPTER I. WEALTH AND THE LAW OF ITS PRODUCTION. Section I. — The Nature and Meaning of Wealth. In considering the laws which govern the economic production of wealth, it will be necessary to explain : (i) wealth, (2) produc- tion, (3) the necessary factors in production, (4) the economic importance of these factors, {5) the principle upon which they become active in production. Unfortunately the term wealth has no uniformly accepted signification. There is no general agreement, even among the best writers, as to what the word wealth means. John Stuart Mill, after saying, " Every one has a notion sufficiently correct for common purposes of what is meant by wealth," within his first two chapters gives several definitions of wealth, all of which are essentially different. For example, he says ' : " Every thing forms therefore a part of wealth which has a power of purchas- ing " ; and adds ■' : " In the wealth of mankind nothing is included which does not of itself answer some purpose of utility or pleasure." But many things have " a power of purchasing" which in themselves " answer no purpose of utility or pleasure." A dollar bill, a bank check, a mortgage deed, a trade privilege, etc., in themselves " answer " no " purpose of utility or pleasure," but they constantly have a " power of purchasing." In fact, it is only because they can be exchanged for things that will in them- selves " answer some purpose of utility or pleasure " that any one cares to possess them. Again he says ' : "It is essential to the >dea of wealth to be susceptible of accumulation." Services are ' " Principles of Political Economy," vol. i., p. 24. ' Ibid, pp. 24, 25. ' Ibid., p. 75. 63 64 CONFUSING DEFINITIONS. obviously incapable of being accumulated; The products of labor may be stored up, but not so of labor itself. To-day's service, whether of the highest functionary or of the lowest laborer, must be used to-day or it is lost forever ; hence, accord- ing to this definition, labor cannot be wealth, — although it is about the only "power of purchasing" the masses possess. Again he says ' : " The skill amd the energy and perseverance of the artisans of a country are reckoned part of its wealth no less than their tools and machinery." And on the next page he throws this into confusion by saying ' : " I shall therefore in this treatise, when speaking of wealth, understand by it only what is called material wealth." With such conflicting definitions as these from Mill, it can hardly be a matter of surprise that confusion should pervade the writings of less able thinkers and more careless writers. Walker says " : " Wealth comprises all articles of value and nothing else." If this definition is correct, then that of Mar- shall,* which includes " human faculties, habits — physical, mental, and moral," as wealth, cannot be accepted, because the essential condition of value is exchange, which involves transferableness. Human faculties and habits are inseparable attributes of individ- ual character, and are absolutely non-transferable, and conse- quently cannot have value. We can influence others by our faculties and habits, but we can no more transfer them to anotheh than we can give him the color of our hair. To treat human faculties as wealth is to confound wealth with man. Moral and mental qualities indicate rather what a man is than what he has. To thus confound wealth with man tends to increase the confu- sion, rather than to clarify the conception, of both wealth and its relation to man. Such is the confusion on this point that some writers have questioned the wisdom of using the term wealth. Perry actually proposes to expunge it from the economic vocabulary,' and recommends as a substitute the word property ; but it is difficult to see in what sense this would be an improvement. It is as necessary to clearly define the meaning of the word property ' " Principles of Political Economy,'' vol. i., p. 75. ♦ Ibid., p. 76. ^ " Economics of Industry,'' p. 6. • " Political Economy," p. 5. ' " Political Economy," p. 98. ATTRIBUTES OF WEALTH. 6? as it is the term wealth, and all the difficulties which beset the use of the former term would be associated with the latter. "That is property," says Perry,' "which can be bought and sold." But would it not be just as easy, simple, and correct to say — that is wealth which can be bought and sold ? Manifestly, nothing would be gained to the science by merely substituting the word property for wealth. Popular phrase is always the most direct avenue to the public mind, and hence should never be abandoned except a manifestly greater directness of expression and clearness of thought can be obtained by so doing. Common language has universally appro- priated the term wealth to convey the idea of something which gratifies human wants. Nor does there appear to be any scientific necessity for employing a new word to express that idea. All that is required for the purposes of correct reasoning and clear statement is, that the term shall be so defined as to ex- press all that is included in the idea, without embracing any thing inconsistent with it. If we examine the characteristic attributes of wealth, we shall find that such a definition is not only possible, but entirely feasi- ble. In the first place, wealth is essentially a social phenomenon ; nothing can be wealth which is not subject to, and conditioned by, social influences. In other words, wealth must be something peculiar to man as a social being, as well as a mere animal organ- ism. Therefore, whatever exists as the result of purely cosmic influences, whether chemical, mineral, vegetable, or animal, can- not be wealth until it comes within the pale of social influences. Second, in order to constitute an object wealth, it must possess the capacity of gratifying some human want or desire. In other words, it must possess utility. Third, it must be socially appro- priable ; that is to say, it must be capable of being adapted to the exigencies of social life, and hence must be transferable, — susceptible of exchange. Fourth, in order to possess these qualities, it must have an objective existence ; that is to say, it must be something external to man — a part of his environment. Therefore, for an object to be wealth it must be at once social, useful, transferable, and material. There are many things which possess some of these qualities, but lack others, and hence can- '" Political Economy," p. 99. (i6 HUMAN FACULTIES NOT WEALTH. not be classed as wealth. Thus, for example, the sun, air, gravi- tation, and other forces are useful and objective, but they are neither social nor transferable ; that is to say, they are the product of automatic cosmical, instead of social, forces, and hence are equally in the possession of all without effort. Thus they are not only independent of social influences, but they are unappropriable, and consequently incapable of exchange. Man's physical and mental faculties, and also his moral quali- ties, are highly useful to himself and to society : they are subject to, and regulated by, social influences, but they have no objective existence, and hence cannot be transferable. They may be higher and better than wealth, but they are not wealth, because they lack one of the essential attributes of wealth. In short, they are attributes of man's character and not the external objects with which he gratifies his wants and desires. While this view of wealth excludes the personal qualities which orthodox economists have included — without being able to give a sufficient reason for so doing — it includes other things which they excluded. They have made it " essential to the idea of wealth to be susceptible of accumulation."' Hence they have concluded that all the efforts of teachers, ministers, lecturers, singers, actors, showmen, etc., are non-productive ' — ^because what they produce cannot be accumulated ; that is, it cannot be stored up and subsequently enjoyed or exchanged. This has led to that erroneous doctrine of unproductive labor which per- vades so much of English economic literature. It is not neces- sary to constitute an object wealth that it shall be able to main- tain all the attributes of wealth for an extended period. If an object has all the qualities and fills all the functions of wealth at any one time, it is wealth. An object is not precluded from being wealth to-day, because it fails to fill that function to-morrow, or next month, or next year. That is simply a question of degree of durability, and not a question as to wealth ^^^ se. The product of the minister, the musician, the lecturer, the actor, etc., in the form of a sermon, song, lecture, or drama, fills ' Mill's " Principles of Political Economy," vol. i., chap. iii. ° "Wealth of Nations," Book II., chap. iii. Mill's " Principles of Political Economy,'' vol. i., pp. 77, 78. Marshall's " Economics of Industry," pp. 18, 19. DEFINITION OF WEALTH. 6^ all the functions of wealth. It is social, because it is entirely the product of human influences. It is useful, because it gratifies human wants and desires. It is transferable, because it is capable of being distributed to an unlimited number of people. It is ob- jective, because it exists entirely in the environment of those who produce it and those who receive it. It is not capable of being redistributed, because it loses all its wealth attributes within a few seconds after its production. But, as before remarked, that is simply a question of duration. The susceptibility to re-distribu- tion is not a necessary quality of wealth, it is only a quality of some kinds of wealth. Therefore we may say that the product of this class is not only wealth, but much of it is vastly more so- cializing and civilizing in its influences than many forms of wealth which are susceptible of redistribution, long duration, and extensive accumulation. Wealth, then, must have an objective materiality and possess potential transferable utility — the actualization of which is de- pendent upon social or human forces ; or, to be more specific, the term wealth includes every thing capable of serving human wants and desires, the utility of which is the result of human effort. An able critic, to whom this chapter was submitted in manu- script asks : " If a shower of manna fell from Heaven, or an island of coral rose from the sea, or a spring of healing mineral water started from the hill, or the sea washed up a mountain, of pearls, would they not be wealth ? " Certainly not, they would possess some of the qualities of wealth, they would have objec- tive materiality and they would be appropriable, but they would possess only potential utility — to actualize which would require the human effort necessary to put them into the possession of those whose wants they would supply. Until utility is actualized, it is as though it did not exist. The vast coal- beds of China are not wealth to the Chinese, and the gold in California and the iron in Pennsylvania was not wealth to the roving Indians. Natural or cosmic forces alone can never produce wealth. The most they ever do is to make the production of wealth by man possible. Therefore, every thing may be regarded as wealth, the utility of which is actualized by human effort. 68 PRODUCTION AND PRODUCERS. Section II. — Production and Producers — Their Economic Meaning. The terms production and producers have been scarcely more fortunate in their treatment at the hands of the economists than has wealth. While nearly all writers use them, they seem to take the liberty of expanding or contracting their signification at will. The French physiocrats limited the term production to eiforts devoted to the cultivation of land — that is, extracting material commodities from the earth. All efforts devoted to manufacture, transportation, and commerce were regarded by them as unpro- ductive labor. Adam Smith vigorously attacked this idea as being too narrow. ' With great force and clearness he showed that efforts devoted to manufacture, transportation, and all the various phases of trade and commerce are as truly productive as are those applied to agriculture ; but he insisted that armies, navies, courts, and government oificials, together with all intellectual and literary efforts, were non-productive and a burden upon "the produce of other men's labor.'" Mill, who modernized Adam Smith, extends this definition sufficiently to make it include government officials in the pro- ductive class, on the ground that : " The labor of officers of government in affording the protection which, in some manner or other, is indispensable to the prosperity of industry, must be classed as productive even of material wealth." ° Be- yond this, however, he adheres to the definition of Adam Smith, and classes all efforts as unproductive that do not produce wealth which can be literally accumulated and inventoried. " All labor," he says,^ " according to our present definition, must be classed as unproductive which terminates in a permanent benefit, however important, provided that an increase of material products form no part of that benefit. . . . Unproductive may be as useful as productive labor; it may be more useful even in point of permanent advantage. ... In any case society or mankind grow no richer by it, but poorer." To say the least, this definition of production is very con- fusing. For while it recognizes the creation of utility as essential ' " Wealth of Nations," Book IV., ch. ix. ' Ibid. Book II., ch. iii. ' Mill's " Principles of PpliticaJ Economy," vol. i., p. 76. '■IHd.,-^^. 77, 78. NON-PRODUCTIVE LABOR THEORY. 69 to production, it declares a large class of efforts unproductive which produce the highest kind of utility. The efforts of minis- ters, lecturers, actors, musicians, and their class, not only create utility, but the kind of utility they produce serves a very high order of human desires ; indeed, they are the most effective of all kinds of effort in producing the new wants which form the very basis for the production of material things. If the efforts of government officials are productive because they tend to increase the security of property, and thereby indirectly aid in the gratification of human wants, surely the efforts of the intellectual classes, which directly serve a much higher class of wants, are still more entitled to that designation. Moreover, if the philosophers, scientists, and teachers were mere economic parasites on society, and did not increase enjoya- ble utility, the tendency of progress would be to eliminate them from social life. The fact is exactly the reverse. The more society becomes acquainted with the influences which promote the gratification of its desires, the more this class is increased. A definition according to which politicians, soldiers, policemen, and jailers are productive helpers to society, and scientists, philosophers, poets, teachers, ministers, actors, and musicians are unproductive burdens, should carry with it its own con- demnation. To assume that mere parasitic influences increase as the knowledge of the means of gratifying human desires becomes more perfect, is a violation of the fundamental idea of production, and contrary to the whole principle of self-interest underlying all economic movement. There are others who, while extending the definition of wealth to the products of those workers whose efforts do not increase the actual quantity of things, limit the term production to those efforts which are put forth for pay. Thus any effort is unpro- ductive, however much utility it may produce, if the product is not offered for sale. "^ producer," says Perry,' "is any person who gets any thing ready to sell and sells it." " One of my boys," he adds," "is now playing the piano in the parlor. It is effort for him — irksome effort, but as he has no intention to ever sell his skill on that instrument it cannot be called productive effort. It is effort put forth for altogether other than commercial reasons. • " Political Economy," p. 166. ' /M., p. 167. •JO ALL USEFUL LABOR PRODUCTIVE. The effort of his music-teacher, however, who comes here to give him lessons, is productive effort, inasmuch as it is put forth solely with reference to a sale." According to this definition, whether a given class of effort is productive or unproductive does not depend upon whether it creates utility, but whether or not it is sold. Thus, if a person raises his own provisions, or makes his own clothes, he is not a producer ; and if an artist paints a picture, or a poet composes a song, or a musician plays Beethoven's Ninth Symphony for his own, or his friend's, instruction without pay, it would be unpro- ductive. But if they charged for it, then it would be productive. The estimation in which a doctrine should be held which teaches that those who supply their own wants, or gratuitously help to supply those of others, are non-producers, is obvious. The idea so prevalent in the public mind, and especially among the wage-workers, that middle-men are non-producers, and that interest, profits, and rent are robbery, is a legitimate part of the self-contradictory doctrine of non-productive useful effort. If we accept the definition of wealth stated in the last section, we shall see that all efforts are properly productive which directly or indirectly tend to impart to matter any of the attributes, or surround it with any of the conditions, which make it available for human wants and desires. The desires which induce pay for the services of the actor or musician, minister, lecturer, scientist or statesman, are as purely economic as those which make it profitable for the farmer to raise wheat and wool, or the miller and manufacturer to prepare them for final use. It is fallacious to the last degree to assume that, because the results of any intellectual effort cannot be measured by inches or pounds, they are unproductive. Much of the plausibility of this popular error arises from viewing the question in its most complex aspect, thus making the inter-relation of the various efforts more difficult to observe. If we examine the process of production in its simplest stages, we shall soon see that the doctrine of unproductive labor is an attempt to deal with an economic myth. For example, let us take the production of flour. In the simplest stages of society we find that man plants and harvests the wheat, grinds it into flour, and eats it all himself. When the DIFFERENTIATION OF PRODUCTIVE EFFORT. fX process is complete the wheat has filled the function for which it was produced, it has gratified human want. In this case it was produced and consumed by the same person. Clearly, there were no parasites here ; all that was produced belonged to him who produced it. Every thing that was necessary to obtain the bread in this case was a part of its production. Let us suppose that man begins to produce flour for his neigh- bor, and the neighbor to produce shoes for him. By this slight degree of specialization of effort, the process becomes a little more involved. It is now necessary for him to take the flour to his neighbor, and for his neighbor to bring the shoes to him. This is clearly as much a part of the production as it was to take it from his own field to his hut. But suppose that another man will agree to devote his whole time to carrying the flour and allow the first man to devote his time exclusively to raising and grind- ing it ; the process will now become still more involved, while it will only cover the same article as before. If the new man receives a portion of the flour for his part of the process, will he be a parasite upon the man who raises and grinds it, or upon the distant consumer who receives it ? Certainly not ! The second man simply does a part of the work that the first man has proviously done, and by this division of labor they are able to produce more. If we follow the process a little further, we find the man who carries the flour devising means to transport it in large quantities — instead of taking it in small quantities to suit the individual consumer ; but in order to make the flour available to individual consumers, he has to divide it into small quantities to suit their convenience. At this juncture a fourth man enters, and volunteers to receive it in bulk, and to deliver it to the con- sumers in convenient quantities to suit their wants. Here the process becomes still more complex, but nothing is added. The fourth man requires a part of the flour for what he does, but this is not an added burden to the man who grows the wheat, or to those who use it, because the only reason he does what the other man formerly did is because he can do it cheaper than the other could. Indeed, the only reason any one is permitted to enter the process at any stage is because it is seen that, by this means, each can obtain more of the aggregate utility for less effort and sacrifice. 72 CYCLE OF PRODUCTIVE EFFORT. If we follow the process until a million men are added, the same will be true in every stage. If, at any time, the added man results in lessening the relative utility which accrues to any of the existing producers, they will return to the previous method of production and do without him. Thus the wholesaler, the drum- mer, the retailer, the shipper, the banker, or broker, all fill a useful function in the process of producing the flour. Until they can do this no one will employ them ; and just as soon as they cease to do it every one is interested in eliminating them. Again, as the process increases in complexity, new elements arise. As wealth is produced on a larger scale it is necessarily held in large quantities at the factories, and at the various whole- sale and retail depots on its way to the consumer. With this increased accumulation of commodities the risks of loss, by fire and other causes, necessarily increase. Hence, in order to secure their safe delivery to the consumer (without which the whole process would be void), it is necessary to have policemen to guard them from thieves and incendiaries — another differentia- tion, which involves legislators, courts of justice, lawyers, etc. At last, in order to further protect the aggregate community against dangers of molestation by foreign countries, and for the protection of trade between countries (at least, until the moral quality of the race is more highly developed), an army and navy are necessary — the administration of which makes a general government indispensable. Thus we see that not only are ministers, singers, actors, etc., productive factors in the community, but the policemen, lawyers, doctors, judges, soldiers, sailors, and statesmen are also producers. In other words, every thing that promotes the raising of wheat in Dakota, or its safe delivery as flour into the pantry of the con- sumer, or in any way aids in compassing the satisfaction of any other human want — physical, mental, moral, political, esthetic, or religious, — is properly production. Section III. — The Necessary Factors in Production and Their Relative Economic Efficiency. The factors which participate in the production of wealth may be briefly stated as Land, Labor, and Natural Forces. By the first is meant the earth's surface ; the second, human energy ; FACTORS IN PRODUCTION. 73 and the third, cosmic forces — including all natural agencies outside of man and land. Land may be regarded as representing passive material, and the other two as the active forces which operate upon it in producing wealth. Without the presence of all these factors wealth cannot be obtained. They are equally essential to the simplest and to the most complex methods of production. Land being the passive element, the only factors which actively participate in production are the human and the natural forces. It may be remarked, how- ever, that there are some natural forces — such as the light and heat of the sun, gravitation, atmospheric air, etc. — that are gratuitous, being ever present and ever active, even under the simplest conditions of land-labor. But there are certain other natural forces — such as steam, electricity, coal, wood, iron, etc. — which, as factors in production, are not gratuitous. For instance, steam can only be made to do service in production when it is confined in a boiler and applied to an engine ; and this makes the use of coal, iron, and other materials necessary. This, in turn, cannot be accomplished without a considerable amount of skill and energy having been previously devoted to the con- struction of engine, boilers, etc. The wealth thus employed is distinguished from that which is used for the direct gratification of human wants, and is called capital. This brings us to another economic term which has been sub- jected to a great variety of definitions. Capital is generally used to express the means employed in production, but because man's faculties are constantly employed in the production of wealth, some writers have included them in the term capital. Hence we frequently hear such expressions as : " The laborer's skill is his capital." ' It would be difficult to conceive of a more misleading ' " Capital may be said to be any thing which a man can trade with or which he can turn to the purposes of profit, or which helps him to gain an income — any property or quality he possesses which enables him to increase his wealth. Thus the tools of an artisan, together with his skill and industry, form his capital ; the education and books and skill of a physician and lawyer are their capital." — Macleod's" Elements of Political Economy,'' p. 70. " Per- sonal wealth consists of those human energies, faculties, and habits, physical, mental, and moral. . . . Almost all personal wealth is or may be per- sonal capital." — Marshall's " Economics of Industry," pp. 6 and 20. See also "Wealth of Nations," Book II., chap. i. 74 NATURE OF CAPITAL. expression. Instead of giving any definite meaning to the tenn capital, it deprives it of all special significance and makes capital and labor synonymous, hence rendering the discussion of their relation logically impossible. It is equally misleading to speak of capital as " stored up labor " — a mode of speech commonly indulged in. Labor is human energy, and, as we have elsewhere shown," can never be stored up in any thing but a human being, and only to a very limited extent there. It is because the laborer cannot store his labor — because he can never sell more than one day's service in a day ; and be- cause, if he does not sell to-day's labor to-day, it is lost forever, that enforced idleness has such terrors for him. Nor can he store up his labor in external objects. When he devotes his energies to producing an article he does not impart his labor to it, but he expends his labor upon it, and as human force it is gone forever. Wealth and capital in every form and under all conditions are something outside of and subservient to man, but can never be a part of him. There are two states in which wealth may exist : that of being produced, and that of being consumed. It can also fill two func- tions : that of serving human wants, and that of aiding in produc- tion. Hence wealth may be properly divided into two classes : consumable wealth, and productive wealth. It is the latter kind only which can properly be called capital. It is held by some that, as land is a means of producing wealth, it is capital.' There is a certain amount of plausibility in this ; but it should be remembered that land does not necessarily pos- sess any of the qualities of either enjoyable or productive wealth. It is only when labor, or capital and labor, are devoted to it that it can either serve human wants or assist in producing consuma- ble commodities. It is true that, when land has by this means become wealth, it may also become the means of procuring more wealth, and in that sense fill the function of capital. It may be asked, however, if all other wealth becomes capital ' " Wealth and Progress," pp. 17, 18. ' " By much the largest part of all salable land is nothing more nor less than capital. Capital is some product reserved as a means of further production ; and valuable land is always a product of labor and previous capital and is generally reserved for use in future production and so is capital under the definition." — Perry's " Political Economy," p. 283. USE OF THE TERM CAPITAL. 75 by virtue of aiding in production, why is not all productive land capital for the same reason ? Strictly speaking, so far as land di- rectly serves human wants, it is consumable wealth, and so far as it aids in production, it is instrumental wealth, or capital. By making this technical distinction and treating certain kinds of land as capital we should probably add to the confusion, rather than to the clearness, of economic discussion. Therefore, — while admitting that it might be technically correct to regard land, under certain conditions, as capital, and the re- turns from it as profits, — for the sake of avoiding any unnecessary confusion, I shall follow the example of Mill ' and use the term capital as expressing all instrumental wealth, outside of land, the returns from which are interest and profit ; and all wealth invested in and inseparable from land will be regarded as land, and the returns from it as rent. There is an additional advantage in this use of the term capi- tal in the fact that it is the only wealth, distinct from land, that can be employed in harnessing the reluctant natural forces, such as steam, electricity, etc., to the production of wealth. With this use of the term capital, it will be strictly correct to treat the use of reluctant natural forces in production as synonymous with capital, because they never participate in production except by the use of capital. And, as the substitution of natural for human forces in the productive process is the essential wealth-cheapening feature in economic progress, we shall continue to regard the fac- tors in production as Land, Labor, and Natural Forces (capital). Which of these three factors then is the most effective in pro- ducing wealth ? — which of them is capable of contributing the greatest amount of productive force at the least cost ? The hand is the slowest, and, judged by its results, the most expensive instrument that can be used in the production of wealth. Hence we find that, other things being equal, machine-made products are always cheaper than hand-made products, and the difference in their cost is proportionate to the relative difference in which human and natural forces (capital) participated in their pro- duction. How, or upon what principle then, natural forces can be made to save human labor in producing the world's wealth is the question next to be considered. ' " Principles of Political Economy," vol. i., p. 526. j6 NA TURAL FORCES SA VB HUMAN LABOR. Section IV. — The Principles upon Which Natural Forces Save Human Labor in Production. We have seen that human effort is devoted to production upon the principle of obtaining the maximum enjoyable result for the minimum painful effort. Indeed upon no other principle can the net amount of happiness — i. ., in the-absence of arbitrary barriers) there cannot be two prices for the same commodity in the same market. (2) That when the supply and t|ae 'demand are equal the price is the exact equiva- lent of ,th6 cost of j)toduction. (3) That the price rises as the demai^d qxiee'eds the supply, and falls as the supply exceeds the \ demand ; ^and,' " the rise or fall continues until the demand and the supply are again equal to one another." In order to sustain ' Perry's I '' Political Economy," p. 211. Mill's "Principles of Political Economy," Vol. I., Book III., ch. ii., p. 252. Price's "Practical Political Economy," p. 188. Jevons' " Theory of Political Economy," p. 6. (Preface). MacLeod's "Elements of Political Economy," p. m. Caimes' "Leading Principles of Political Economy," p. 183. GREGORY KING'S LAW. tOI this claim, two propositions must be established : {a) that the value of all commodities and services always rises and falls as the demand exceeds or falls short of the supply ; which movement " continues until the demand and the supply are equal " ; (^) that the variation in the price is produced by the alternation in the ratio of the demand and supply. Unless these postulates can be sus- tained, the doctrine of demand and supply must be rejected as inadequate to furnish a scientific law of value. Although this doctrine has always been held to apply to both commodities and labor, in order to simplify the discussion we will consider it in relation to these factors separately, taking commodities first. In the seventeenth century, Gregory King observed that the price of commodities varied with the demand and supply as follows : A decrease in the supply of : 1 tenth raises the price above the common rate 3 tenths. 2 tenths " " ' ' " 8 tenths. 3 tenths " " " " • I and 6 tenths. 4 tenths ' 2 and 8 tenths, 5 tenths " " " " " " " 4 and 5 tenths. Despite the modifying effect of the " cost of production," in- troduced by Smith and Ricardo, this scale of variation in prices, which was based entirely upon agricultural products, has been practically accepted as the law of all prices ever since. Even Thorold Rogers repeats this formula in his latest work, with emphatic indorsement as " one of the most important generaliza- tions in statistics, and applicable to all values whatever." ' The reason the early writers upon this subject confined their studies chiefly to agricultural products is not difficult to under- stand. During the time of Gregory King and even down to the nineteenth century, agricultural products constituted the chief articles of consumption for the great mass of the commu- nity. During the present century, and especially the last fifty years, this has been greatly changed. The proportion in which manufactured, as compared with agricultural, products enter into the daily consumption, is steadily increasing as civilization '" Eonomic Interpretation of History," p. 55 (i888). Jevons reaffirms it in his "theory of Political Economy,'' pp. 168-771. 102 AGRICULTURAL PRODUCTS. advances. Consequently if the agricultural hypothesis furnishes the true law of prices, it must be applicable to the prices of man- ufactured as well as agricultural products. Of course the true law of prices must explain the movement of all prices, but no hypothesis can be assumed to do so merely because it aifords a seeming explanation of one class of prices. The recognition of this fact is especially important in this connection because the production of manufactured and agricul- tural commodities is frequently affected by widely different influences. In agriculture the quantity and quality of products are often largely determined by purely cosmical forces — the operation of which is entirely outside the domain of economic law, — while, in manufacture, nearly all the influences affecting production are economic and social. Consequently we may naturally expect to find any theory constructed upon purely agricultural data to be inadequate to explain the prices of manu- factured products. It is undoubtedly true that the price of wheat, potatoes, apples, peaches, or any other farm or garden product tends to rise or fall with the relative increase or diminution of the demand or the supply. The fact that the price of wheat will rise with a failure of the crop and fall with an abundant yield may be counted upon as unmistakably as any other fact in nature. It is also true that in all such cases the rise or fall in the price continues until the demand and supply are approximately equal. Nor is there any doubt that this rise or fall in the price of agricultural products indicates a corresponding change in the ratio in which they will exchange as economic equivalents. So far as agricul- tural products are concerned, therefore, the facts seem to accord with the theory.' Let us now see how the case stands with the price of manufac- tured products. According to this hypothesis, whenever the quantity of cotton cloth, shoes, or other manufactured commod- ities is greater than the quantity effectually demanded, the price ' This will be true, however, only so far as the variation in the demand and supply is due to cosmical influences, such as favorable or unfavorable seasons. But if the over-supply should be due to the cultivation of a larger number of acres under traditional conditions this would not occur, and any fall in the price would involve loss or bankruptcy to the farmer. MANUFACTURED PRODUCTS. I03 of the article will fall, and the fall will continue until the demand and the supply are equal." If this theory were correct, there could never be what is called, " an over-production," at least until the quantity of cloth, shoes, etc., was so great that they could not be consumed at any price. Because, it will be remem- bered, if the supply more than equals the demand the price will fall to " the point which equalizes the demand and the supply," " — which must be the point at which all the product can be sold. As a matter of fact, this is what almost never occurs under such circumstances. There is probably no large manufacturing and commercial centre in the world in which the supply of a large number of commodities is not greatly in excess of the demand. And yet the price does not continuously fall, but in a very large majority of such cases remains practically steady for years together. Industrial depressions are specifically cases of this kind. The characteristic feature of an industrial depression is that manufac- tured commodities are produced in greater quantities than they can be sold. The expression "over-production" simply means that the supply is in excess of the demand. Instead of the movement of prices under these conditions being that which is predicated by the demand-and-supply theory, it is entirely differ- ent. There is a tendency to equalize the demand and supply, but it is brought about by an entirely different process than the fall in prices ; as laid down in the popular theory. The first symptom of an over-production, or excess of supply, is the difficulty in selling the entire product. This will generally be followed by an increased competition among the manufac- turers and merchants — especially those who have large margins — and will tend to reduce the price toward the point at which they can barely sell without loss — which point is nearly always reached long before the demand and supply are equalized. Here, however, an entirely different movement sets in and the fall is transferred from the price to the quantity of the commod- ity. Instead of the price continuing to decline until an equilib- rium between demand and supply is reached, the fall in price is arrested at the no-profit point, and the decline in the amount of sales commences. As the sales fall off warehouses are filled, ' "Principles of Political Economy," vol. i., pp. 551, 552. ''Ibid., p. 550. 104 RICARDO SA W THE FALLACY. profits shrink, and the incentives to produce are diminished ; hence the supply is curtailed to prevent further loss. ThuS, in- stead of the demand and the supply being equalized by a contin- uous fall in the price and larger sales, that result is reached by lessening production — which involves the closing of factories, enforced idleness of laborers, and sometimes the bankruptcy of manufacturers and merchants.' It will be seen, therefore, that the equilibrium between demand and supply is reached — if reached at all — by reducing the supply to the dimensions of the demand 2X paying prices, and not by lowering the prices to that of demand and supply. Moreover, if the price of commodities under these conditions continued to fall until the demand and the supply were equalized, as in agriculture, it would not be, as in that case, an exchange of economic equivalents, but it would be a highly uneconomic exchange, involving continuous loss, and probably ruin, to the producers. Were the conditions reversed the same principle would govern the movement of the phenomenon. If the demand for shoes greatly exceeded the supply, the demand and supply would not be equalized by the increased price, but by an increase in the supply. It is exactly under such conditions that new factories, with improved methods, come into existence. This gives more employment to labor ; enlarges the market ; cheapens the cost of production ; and tends to make profitable sales at lower prices possible. Thus it is clear that the price does not necessarily fall when the supply exceeds the demand, nor rise when the demand exceeds the supply. This much of the fallacy of the demand- and-supply theory was evidently clear to Ricardo, who probably had more glimpses of fundamental truth in economics than any other writer of this century. He says ' : " Diminish the cost of production of hats, and their price will ultimately fall to their new natural price, although the demand shall be doubled, trebled, or quadrupled. Diminish the cost of subsistence of men, by diminishing the natural price of the food and clothing by which life is sustained, and wages will ultimately fall, notwith- standing that the demand for laborers may very greatly increase." ' This is equally true of agriculture where the increased supply or over-pro- duction is due to increased investment instead of gratuitous natural forces. ' " Principles of Political Economy and Taxation," ch. xxx., p. 232. THE THEORY DOES NOT FIT THE FACTS. lOj There is still another important fact that here presents itself for the demand- and- supply theory to explain. If the value of commodities is governed by the ratio between the demand and the supply, why has the value of manufactured articles steadily fallen during the present century, in some cases sixty and seventy per cent., while the value of farm and garden products has gen- erally risen, and in some cases very considerably. It cannot be because the relative demand for agricultural products, as com- pared with the supply, has been greater than that for manufac- tured commodities, because, in that case, the profits of agriculture would have been greater during the period than those of manu- facture and trade, whereas the reverse is true. For the same reason the fall in the price of manufactured articles cannot be attributed to the excess of supply as compared with agriculture. Now, if the normal price of commodities were governed by the ratio between demand and supply, this phenomenon would be an economic impossibility. Nor can it be objected that the fall in the price of manufactured articles is like that in the auction sale, — at the expense of the seller. The manufacturers of cotton cloth, who to-day sell their product at four cents a yard, are economically as well off as were those who received eighteen or twenty cents a yard a hundred years ago. In other words, to give twenty yards of cotton cloth for one dollar to-day is just as equitable an exchange of economic equivalents as it was to obtain a dollar for six yards in 1820. This is not the exception, but the rule, and represents the normal economic movement in modern society ; clearly therefore the theory of demand and supply is wholly inadequate to explain the movement in the economic price of commodities. Section II. — Does the Price of Labor Obey the Law of Demand and Supply ? In the case of labor the failure of this theory will be found to be no., less conspicuous. If the doctrine were true, that wages always fall when the supply of labor is in excess of the demand, enforced idleness or able-bodied pauperism would be impossible, as we have elsewhere pointed out.' In that case, as soon as un- ' " Wealth and Progress," Part II., ch. i., sec. i. I06 WAGES FAIL TO OBEY THE LAW. employed labrrers appeared wages would begin to fall, and the fall would continue until all the laborers were employed at some price, that being the only point at which the demand and the supply could be equalized. So far from this being the rule, there is not a country in all the world in which it ever occurred. There may have been times and places when laborers were all employed, but this was never accomplished by the lowering of wages. History does not afford a single instance of abolishing enforced idleness, and reducing able-bodied pauperism, by that means. Such a phenomenon is an economic impossibility. Every fall of wages tends to lessen the general consumption of wealth, and thereby diminish rather than increase the employment of labor. As a matter of fact, wages do not fall ; any thing like a general fall of real wages is practically an unknown phenomenon. It is one of the distinguishing characteristics of the history of industrial evolution that, since the dawn of the wage-system, neither royal authority, civil law, religious dogma, or any other industrial or social pressure, has been able to permanently force the price of labor below the point that has once been generally established in a community, although the supply has frequently been greatly in excess of the demand. The statistics of able- bodied pauperism, and the history of poor-law legislation, furnish abundant evidence of the over-supply of labor during the last three hundred years. The same fact is clearly shown in the economic literature of the period, which abounds with the dis- cussion of the pauper problem. It was the alarming extent to which the supply of labor was continuously in excess of the de- mand, which gave rise to the Malthusian doctrine of limiting the population by curtailing births among the laboring class. This doctrine has been generally accepted by economists during the present century, both in Europe and this country, as the only means of raising wages. Yet in the face of this continuous over- supply of labor, wages have risen seven hundred per cent. It is therefore clear that wages do not necessarily fall when the supply of labor is in excess of the demand, but that they may, and often do, rise in spite of that fact. It is very doubtful if it can be shown that a single step in the rise of wages, from twelve cents to two dollars a day, has taken place in accordance with the doctrine of demand and supply, but almost invariably contrary THE BASES OF EQUIVALENCE. I07 to it. Obviously, therefore, the first postulate upon which the demand-and-supply theory is based, namely, that the prices of all commodities and labor rise and fall as the relative demand exceeds or falls short of the supply, utterly fails. Section III. — Economic Prices cannot Possibly be Determined by the Mere Ratio between Demand and Supply. We come now to the second postulate upon which this theory rests, namely, that the variation in the price of commodities and labor is caused by the alteration in the rate of demand and supply. Although the variation in price may often be similar to that in the demand and the supply, it can easily be shown that the mere proportion between the quantity demanded and supplied cannot possibly determine economic value. The very idea of value is quid pro quo. The conception of economic exchange necessarily implies that each obtains an equivalent for what he gives. Therefore, in seeking the law of value, we are not seeking to ex- plain that process of exchange by which, through ignorance, fraud, and other devices, one can get the advantage of another ; but we are seeking the law by which different quantities of various kinds of wealth and service can be equitably exchanged as the economic equivalents of each other, and according to which a given amount of service can become the equivalent of an increas- ingly large amount of wealth. In what sense, then, are commodities the equivalents of each other ? It cannot be their similarity in quantity, quality, or form, because it is their very dissimilarity in these respects which makes their exchange desirable and necessary. The only sense in which different quantities of various kinds of commodities and services can be the equivalents of each other is as economic products — i.e., in the sense that they represent the same amount of economic expenditure. An econonomic equivalent is that which will afford as much gratification to the buyer as he could, with due preparation, otherwise have obtained by the wealth and service devoted to procuring that which he gave for it. Can this be in any way affected by the mere presence or absence of quantity ? Is there any thing in the fact that the demand is greater or smaller, or equal to the supply, that can make differ- io8 Mcculloch' s testimony. ent quantities of wealth and service, — the procuring of which involves different amounts of expenditure, — the economic equiv- alents of each other ? ' If one gives a day's labor to procure a pair of shoes, and then exchanges the shoes for twenty grains of gold, unless he can obtain as much of other commodities, or service, for the gold as he could for the labor that he put into the shoes, the gold is not the economic equivalent of the shoes. Whether or not the gold will reimburse him for making the shoes — i.e., will be an equivalent for the shoes — cannot possibly be affected by the mere fact that there are many or few grains of gold. The ability to exchange a pair of shoes for twenty grains of gold, as an equivalent, can no more be affected by an increase or a decrease in the number of shoes or the quantity of gold than the weight of a pound of lead can be affected by the presence of a larger or smaller number of pounds of lead. There is absolutely nothing that can enable a man to give his shoes for the gold, without losing, which does not enable him to obtain the shoes for the same amount of wealth and service. McCuUoch pointedly remarks ■' : " No variation of demand, if it be unaccompanied by a variation in the cost of production, can have any lasting influence in price. If the cost of production be diminished, price will be equally diminished, though the demand should be increased to any conceivable ex- tent. If the cost of production be increased, price will be equally increased, though the demand should sink to the lowest possible limit." As the proportion between the demand and supply can- not .enable the producers of either gold or shoes to make their articles one fraction cheaper, it cannot affect the ratio in which these articles will exchange as economic equivalents, and conse- quently cannot determine their economic value. To recapitulate, then, four important facts are established, — any one of which is sufficient to invalidate the claim of the theory that the ratio between demand and supply is the law of economic prices. They are : (i) That the value of commodities and labor does not always rise and fall as the demand exceeds or falls short of the supply, and so continue until the demand and the supply are equalized. (2) That prices may and do rise when the supply • De Quincey's " Logic of Political Economy,'' p. 8. • " Principles of Political Economy," Part III., sec. iii., p. 137. CAIXNES' ERROR. lOQ is in excess of the demand, and fall when the demand is in excess of the supply. (3) That prices may and do rise or fall without any perceptible change in the ratio between the demand and the supply. (4) That, from the nature of things, it is impossible for the mere scarcity or abundance of quantity to alter the ratio in which different quantities of wealth and service become economic equivalents of each other. Section IV. — The Economic Relatioji of Demand to Supply. Sometimes the most effective way of showing what a thing is not, is to explain what it is. The error of the doctrine that economic prices are determined by the ratio between demand and supply will become still more apparent if we examine the economic relation which these phenomena sustain to each other. We shall then see that this quantitative relation is more the con- sequence than the cause of economic prices. Attention has already been called to the fact that, while econo- mists have defined value as the ratio in which quantities exchange, they have treated the subject as relating exclusively to wealth. The natural outcome of this position is that even such a careful writer as Cairnes ' has insisted, that demand and supply are iden- tical phenomena — " Simply different faces of the same fact." The only effectual demand being actual supply, and vice versa. Consequently, the only way to increase the demand for one class of commodities is to enlarge the production of other commodities to exchange for them, or, as Cairnes ' expressly states : " Pur- chasing power, in the last resort, owes its existence to the pro- duction of a commodity and, the conditions of industry being given, can only be increased by increasing the quantity of com- modities offered for sale ; that is to say, demand can only be increased by increasing supply." Accordingly, the panacea for a glutted market — " over-production " — is more production, — a delightful tonic for industrial depressions. The inevitable effect of this view of the subject, which limits economic phenomena to wealth and makes demand and supply identical facts, — each equally dependent upon the other — is to ' "Some Leading Principles of Political Economy," ch. ii. ' Ibid., p. 31. no MISTAKEN IDEA OF DEMAND. reduce economic movement to a vicious circle and make progress impossible. The result of this class of reasoning was recently illustrated in the attitude of a gentleman, who had devoted more than a generation to the study of economics, and had digested the literature of several languages upon the subject. He clearly saw the social necessity of doing something to improve the labor- er's condition ; but it was equally clear to him that this must be done by scientific means. He said (and in a protracted cor- respondence repeated the argument in several ways) : " We are all anxious that the laborer should receive more wealth. This he can do in but one of three ways : by theft, charity, or economic exchange. To increase his income through either of the first two would be to injure instead of to help him, and he can only obtain more wealth through exchange by having more to give for it, which is exactly what he lacks. Therefore," exclaimed the gen- tleman, " unless you can show how the laborer can be put into possession of something to give in exchange for the wealth he desires, there is no feasible way by which society can economi- cally increase his income." Thus, by the logic of his position, my friend was forced into the vicious circle where he finally was compelled to exclaim : " There is no way by which society can increase wages ; that question must be left to settle itself by natural law." Consequently, like most of the leading economists of the present century, he was compelled to assume the negative, pessimistic position of laissez-faire, and, in spite of himself, become an ardent free-trader, though very desirous of being a social reformer. The intellectual quagmire into which this argument leads is due to the mistaken definition of demand. It is a radical error to regard demand and supply as identical phenomena, and assume " that demand can only be increased by increasing the quantity of commodities offered for sale." As a matter of fact, not one tenth of the world's demand consists in " commodities offered for sale." The great market of the modern world is made by the daily wants of the people who have practically no commodities to offer for sale. All they have to offer for sale is service, and it is with that they purchase. When we once recog- nize the fact that all exchanges are ultimately the exchange of wealth for service, and not wealth for wealth, this matter assumes DEMAND THE CAUSE OF SUPPLY. Ill a new aspect and the pessimistic vicious circle disappears. In- stead of saying that all demand for commodities is the supply of commodities offered for sale, we shall then say : the demand for commodities is the desire to consume them, coupled with the supply of service necessary to produce their equivalent. From this view there is no difficulty in seeing how the demand may be increased, and, through it, the supply enlarged. It is undoubtedly true that demand and supply are closely related and interdependent, but they are not identical phenomena. The distinction and economic relation of demand and supply will be greatly simplified if we keep two obvious facts in mind, namely : that no matter how complex the relations, or how involved the phenomena, demand always means want — consumption, and supply means service — production. Although Bastiat's statement of " wants, effort, and satisfaction" is correct, it should be remembered that the first two only are active forces. The first represents the active feeling or motive ; the second, the effort or action. The third is simply the result of these ; it is the actualization of the first, of which the second is the means. To-day's wants determine to-morrow's efforts, and yesterday's actual consumption determines to-day's actual pro- duction. Clearly, then, consumption is not only potentially prior to, but it is actually the cause of production. Since consumption constitutes the actual demand, and production the actual supply, it follows that demand is the cause of supply. There is no more obvious fact in economic experience than that supply follows the line of, adapts itself to, and finally de- pends upon, demand. This is why mankind always lives from hand to mouth, as it were, and society can never be made to per- manently produce more than will supply the normal current de- mand in any state of civilization. Indeed, were it otherwise, industrial depressions would increase instead of social welfare being promoted. It is for this reason that nothing can per- manently increase the quantity and reduce the cost of wealth which does not multiply the wants, enlarge the consumption, and therefore expand the social character of the people. The way in which demand exercises its controlling influence over supply is through the instrumentality of value or price. Upon the same principle that man will not give something for 112 HOW PRICE ARISES. nothing, he will refuse to supply the wants or demands of others except on the conditions that he obtains an equivalent in return. It is only when the demand is strong enough to induce the giving of full equivalents for the efforts of production, — i.e., a price equal to the cost — that a continuous supply will be forthcoming. Supply, then, not only depends upon demand, but it depends upon demand at a certain price. Demand really creates the price, and the price induces the supply. In order to more clearly see the economic relation of these phenomena, let us suppose the existence of a community where the division of labor and exchange have not yet made their ap- pearance ; where there is neither buying, selling, nor barter. Here demand and supply, exchange and value, are unknown ; every one supplies his own needs by his own personal efforts. Let us further suppose that some one person in this community, more ingenious than the rest, contrives to make a bow and arrow, by the aid of which he is soon able to procure more game in one day than he previously could in three or four. No sooner has the advantage of this new weapon become known than others want it. How to obtain bows and arrows is now the question, and the price-creating forces at once begin to operate. Since the advantage of the new instrument in getting a living is so great, all who are unable to make it for themselves are willing to give something to obtain one from others. Here the want begins to assume the form of an economic demand, and price emerges. How much will he give ? A deer is offered for the bow and arrow. Whether the offer is accepted or not, the bow and arrow now have a price. It is one deer, but this is not enough. The maker of the bow and arrow can obtain more game by hunting with his new weapon than by staying at home and selling it for one deer. Hence he declines to make them and there is no supply. Two deer are offered, but he declines for the same reason, and still there is no supply, — although the price has doubled through the strength of the demand. Two deer and a beaver are offered ; here the bow- and- arrow-maker yields, and the supply commences. At this price those who have the apti- tude for making bows and arrows are willing to stay at home and make them, because they can obtain as much, or more, game in exchange for their weapons than by hunting for themselves. WHEN SUPPLY BEGINS. II3 It will thus be seen that bows and arrows not only had a price long before there was any supply, but it was only when the price rose to the economic, or remunerative, point that the supply commenced and the ratio between demand and supply had any existence. Manifestly, the first fact in the movement of these phenomena was the demand for the game. When the bow and arrow was known to be capable of aiding in the gratification of this demand the desire for venison was extended to the bow and arrow also, and the amount that was offered for it was deter- mined entirely by the strength of the desire ; and this price, — when it became large enough to make it more profitable to manufacture bows and arrows than to hunt for a living, — was the sole cause of the weapons being supplied. It is therefore obvious that the price of the bows and arrows was not created by the ratio between the demand and the supply. This principle obtains with the same force in the most com- plex business transactions of modern society as in the most primitive stages, although its origin and operations are not so easily observed. It is true that an article sometimes is produced before there is any demand for it, i.e., before its utility is gen- erally known — but this does not alter the case. When a com- modity is supplied in advance of the demand for it, the supply is impelled by the same cause as when it is produced in response to a known demand, the only difference being in the certainty of the result. In the former case the supply of the article is based upon confidence in its capacity to serve some purpose to the community sufficiently well to induce willingness to give a remunerating price for it. If the utility of the article and the wants of the people have been correctly estimated, a remunerative price-making demand for it will ensue as soon as its merits are known. But, on the other hand, if the relative degree of these influences has been miscalculated, no effectual demand for it will arise, in which case the production will prove to be an entire mistake, resulting in loss to those who undertake it. This has been painfully illustrated in thousands of instances, — as the almost interminable list of unsuccessful patents clearly shows. Hence, whether the demand and supply commence to operate in their natural order, from the known utility of the article, — as in the case of the bow and arrow, — or in anticipation of it, — 8 114 ORDER OF PRICE PHENOMENA. as in the case of the patents, — makes no real difference. In both cases the result is governed by the same law. Evidently, the more closely we examine the economic relation of demand and supply, the clearer it becomes that demand is the active force, to which supply is but the ultimate response. And that, to the extent supply exists without demand, is it devoid of social utility and economic force. In other words, products become waste or wealth in proportion as they pre- cede, or are preceded by, wants. Therefore, instead of economic prices being dependent upon the ratio between the demand and the supply, they have no necessary relation to it. The order of the economic relation of these phenomena is that supply imme- diately depends upon the price, and the price is created by the demand, and the demand depends entirely upon the habitual wants or social life and character of the people. CHAPTER IV. THE LAW OF ECONOMIC PRICES. Section I. — The Scope and Importance of the Subject. The law of prices may be said to occupy the keystone position in the arch of economic science. It involves the principle upon which the equity of all human relations finally rests. All the advantages of social intercourse, however simple or complex, ultimately depend upon the exchange of equivalents. This is as true in the realm of the affections, ideas, ethics, and politics, as it is in economics. If all could secure the equivalent for what they give, they would receive an absolutely equitable reward for what they do, and injustice would be impossible. All industrial political, moral, or religious endeavor to improve society being \ efforts to promote justice, it must rest finally upon the principle involved in the law of economic prices, namely, quid pro quo. Nothing is truly economic which is not entirely equitable, and equity is the highest form of ethics. The phenomena that are subject to the law of prices may be grouped under two general heads, as wealth and service. There can be no economic change in society except through the alteration of the ratio in which these exchange for each other. The prices of wealth and service move inversely to each other, promoting social welfare only as the ratio in which wealth will exchange for service increases. Since all economic exchanges are of the same general character and belong to the same class of phenomena, they must be subject to the same general law. Conse- quently, to explain the law of prices is to furnish a clue to the law of wages, rent, interest, and profit, and really to lay the founda- tion for a scientific solution of the whole problem of Economic Distribution. "5 Il6 ECONOMIC LAW. At the outset we must remember that we are not seeking the explanation of some special cases of exchange, but we are seek- ing the law to which all exchange may be referred, and through which all prices may be adequately accounted for. The true theory of economic prices must be capable of explain- ing why the price of agricultural products tends to conform to the ratio of demand and supply, while that of manufactured products does not ; and why the price of labor rises when the supply is in excess of the demand ; why the price of certain agricultural and dairy products constantly tends to rise, while that of manufactured products tends to fall ; and why this dis- parity in the permanent tendency of prices in these classes of commodities is the greatest in the most highly civilized countries. In short, it must be capable of explaining the variation in the economic prices of all kinds of commodities and service under all conditions. Section II. — The Meaning of Economic Law. It is important, in this connection, clearly to define in what sense the word law is to be understood in Economic Science. We frequently hear the expressions natural law and artificial law — as if the phenomena created by art were unnatural, — the impli- cation being that nothing is natural except what results from the unaided forces of nature. This erroneous notion is the basis of much of the unscientific conduct of the laissez-faire doctrinaires. Upon the assumption that natural law means the uncontrolled operation of cosmic forces, they conclude that " natural law " can only prevail in commerce and industry under a laissez-faire regime. It is difficult to conceive a notion more unscientific. All laws are natural. Unnatural law in the scientific sense is a contradiction in terms. Law in science simply means the necessary order in which phenomena succeed each other as cause and effect. A law is not more or less natural because its operation results from cosmic or from human influences, nor because its effects are good or bad. Almost every thing that will preserve life under certain con- ditions, win just as surely destroy it under others, and the law is equally natural in both cases. In seeking a scientific law, there- CHARACTER OF ECONOMIC SCIENCE. II7 fore, it is not a question of distinguishing the natural law from the artificial law, but solely one of ascertaining the necessary order in which phenomena lead to given results, and the con- ditions which favor or retard that order of movement. Under- standing this, we shall be in a position to act scientifically regarding the influences that aid the recurrence of desirable, and prevent that of undesirable, phenomena. Since the advancement of social welfare primarily depends upon cheapening wealth, it is one of the chief functions of economic science to explain how a smaller amount of labor can become the equivalent of a larger amount of wealth. In study- ing the law of prices, therefore, our chief concern is to ascertain the order of economic phenomena which makes given quantities of wealth and service the economic equivalents of each other. When this law is clearly established we shall have a scientific basis for industrial development, and instead of having to take refuge behind the doctrine of laissez-faire to protect us from the irra- tional hit-or-miss policy which has characterized so much of modern statesmanship, we shall be able to increase the influences which promote, and diminish those which retard, industrial and social progress, with the same scientific accuracy that we can now travel by steam and communicate by electricity. This does not mean that economic science is of the same exact character as mathematics or chemistry. The phenomena with which it deals do not admit of the same exact statement, for two reasons : first, because the change that is constantly taking place in social phenomena is so universal and persistent that in no two succeeding instances are the phenomena exactly the same ; and second, because much of the change in this class of phenomena is due to human desire and human will, neither of which admits of exact quantitative statement. Although economic phenomena are not susceptible of being reduced to exact mathematical state- ment, they are susceptible of positive explanation. Economic science deals with the social relations of the human race, and the law of their continuous development. Since social progress is an almost imperceptible evolution, it is more necessary that knowl- edge regarding the tendency of phenomena should be exact than that the precise quantitative relations should be known at any given time. Il8 THE LAW OF TENDENCIES. In economics, then, the term law must be understood as expressing the order in which phenomena necessarily tend to move in any given direction. Hence, in studying the law of economic prices, we must endeavor to ascertain, first of all, the necessary tendency of economic prices, and how that tendency is determined. When the primary law of economic tendency is clearly established, the action of the secondary influences, which tend to modify its operation, can be ascertained with comparative ease and accuracy. We shall then be in a position to distinguish the economic tendency from its uneconomic perturbations. The law of the first will of necessity furnish the key to the second, because to know the one is, by implication, to know the other. Section III. — The Primary Law of Prices. It is a characteristic of all phenomena with which science has yet been able to deal, that their actual movement is governed by a composite law, resulting from a variety of forces which act and react upon and modify each other. This is especially true of economic and social phenomena. These forces may be divided into two classes : as primary and secondary forces. The former determines the constant tendency of the main current ; the latter affects the rate of movement, and hences modifies the quantita- tive result at any given time. Thus, for example, in gravitation the primary forces attract bodies towards each other directly in proportion to the quantity of matter which they contain ; but this movement is modified by the secondary forces, which diminish the power of attraction as the distance increases. Consequently, until the relative influence of these two classes of forces was accurately ascertained, the actual movement and relative position of bodies under given conditions could not be correctly predi- cated. Hence, in stating the actual law of gravitation, we express the action of both these forces and say ; " All bodies are attracted to each other directly in proportion to their size and inversely to the square of their distance." So it is in the sphere of economic prices. While the order and direction of economic movement is determined by the direct action of the primary forces, the degree is modified by the secondary forces, and the result at any given time cannot be correctly predicated unless the relative power of ECONOMIC MOVEMENT OF PRICE. II9 the secondary to the primary forces is accurately known. There- fore, correctly to understand the scientific law of economic prices, we must first ascertain the primary law of price-determining phe- nomena, and then consider the modifying influence of secondary forces and the degree to which they operate in determining the actual ratio of exchange. In order clearly to observe the action of the primary forces upon the tendency of prices we must eliminate all secondary in- fluences from the problem. To do this we must assume that all who participate in a transaction are adequately informed as to the quantity, quality, and other conditions affecting the commodity for which they are negotiating ; and also that they are entirely free to act according to their best interest and judgment. More- over, to be sure that the movement is entirely economic, we must assume commodities whose production is wholly determined by economic forces, such, for instance, as manufactured products, leaving agricultural products, whose quantity and quality are largely influenced by gratuitous forces, to be considered later. How, then, upon the principle of self-interest and economic equity, is the price of a commodity determined ? Since the action of both producer and consumer is governed by the motive to obtain the greatest result for the least effort, it is quite clear that no exchange will take place unless each can obtain more gratification from what he receives than he could have procured from what he gives. Let us examine the economic movement under the simplest known conditions — namely, where man produces for his own personal consumption. The economic movement is as complete here as in transactions where thousands of miles and millions of people intervene between the producer and the consumer, the only difference being in its relative sim- plicity or complexity. If our isolated producer wants cotton cloth, the first question that arises is how to get it. That being settled, the next point in the problem is, will the gratification de- rived from the product be sufficient to compensate for the effort necessary to obtain it ? If it will, the cloth will be made ; if not, the enterprise will be abandoned. In modern society where, through the division and specializa- tion of labor, all produce for others and receive what they actually consume through exchange, the principle is the same, though the I20 BASIS OF ECONOMIC EQUALITY. process is more complex. When making cotton cloth for a stran- ger, it is essentially the same question which arises as when mak- ing it for one's self, namely : can the producer, in exchange for the cloth, obtain as much utility as it cost in painful effort, or as he could otherwise have obtained by the expenditure of the same amount of energy ? If not, the cloth will not be made. Ob- viously, therefore, the first condition necessary to secure the pro- duction of cotton cloth is that the consumer shall be willing to give an economic equivalent for it. Economic equivalents, as already explained, are not necessarily equivalents of utility. The utility of an article may differ with different persons according to tem- perament, taste, intensity of desire, and other conditions peculiar to the individual, but that does not affect it as an economic qual- ity. The fact that an eastern manufacturer can obtain twice as much gratification from a bushel of wheat as from ten yards of cotton cloth, while a western farmer could only get one tenth more gratification from the cloth than from the wheat, does not prevent the wheat and the cloth from being economic equiva- lents. Of course the farmer will not give the wheat for the cloth unless it has more utility for him than has the wheat, but the fact that it would possess twenty times as much utility for the manu- facturer would not affect the economic relation of the producers. The economic equality of commodities does not depend upon the equality of the utility, but upon the equality in the amount of reluctant productive energy expended in procuring them — in other words, the necessary cost of production. Clearly, then, the minimum price at which the cloth can be obtained is determined by the producer, and it is fixed at a point equal to the cost of its production. For the same reason that the minimum price is determined by the producer, the maximum price will be deter- mined by the consumer. What, then, under these conditions, will the maximum price be ? Since the producer will not permit the consumer to obtain the cloth for less than it cost, will the consumer permit the producer to obtain more for it than it cost ? It must be remembered that the motives which influence the producer to refuse to supply the cloth for less than it cost oper- ate with equal force to make the consumer decline to give more than it cost. Unless there is some ethical or economic reason why the consumer should give more for the cloth than the equiva- COST THE BASIS OF PRICE. 121 lent of its cost, he certainly will not do so. There is manifestly no good reason for compelling the consumer to give more for an article than its equivalent, since to do so would be to receive less — an obvious violation of the principles of equity. The ethics of economic exchange are : quid pro quo, — price, the exact equiva- lent of the cost. Nor is there any economic reason why this should be other- wise. If the consumer demands the cloth for less than it cost — i.e., for a smaller amount of wheat, shoes, or other products, than its economic equivalent, the manufacturer has an effective remedy at hand, namely : to refuse to make the cloth and devote his energies to producing the wheat or shoes for himself. On the other hand, the consumer of cotton cloth, who is a producer of other things, has an equally effective means of protecting himself against the encroachments of the producer. If the manufacturer demands more wheat or shoes for his cloth than its economic equivalent, the consumer of cloth can, and unquestionably will, refuse to furnish wheat or shoes and devote his energies to making cloth. And all the power which the producer pos- sesses for preventing the price of cloth from falling below the cost of its production, the consumer has in an equal degree to prevent it from rising above the cost of production. Therefore, upon the principle that two equal opposing forces neutralize each other, the consumer cannot force the price below, and the producer cannot force it above, the cost ; consequently this is the only point at which the exchange can take place. In a word, it is the only point at which all exchanges become economic and mutually advantageous, and at which everybody obtains an increase of utility by giving an economic equivalent. Moreover, if there were any economic force by which the pro- ducer could exact more than he gives, it would be neutralized by the consumer in his capacity as a producer, and again reduce the relation of the producer and the consumer to a purely economic cost basis. It will thus be seen that, in the absence of secondary and modifying influences (hereafter to be considered), the primary law of economic prices is, that commodities exchange in the ratio of the cost of their production. It may be well to pause here a moment to explain precisely what is meant by the expression, " cost of production." The 122 COST OF PRODUCTION DEFINED. cost of a commodity is simply what its owner gave for it, or must give to replace it The aggregate cost of producing cotton cloth may be divided into three items : cost of service, cost of raw ma- terial, and cost of tools. Under existing methods all whose services are found necessary to the manufacture of cotton cloth are included in the cost of service, or labor. All classes of labor must, for the reasons already stated, receive as much from the enterprise as they put into it, or they will devote their energies in some other direction. What the laborers put in is their whole working force ; the cost of their working force to them is their living — whatever that may be, — and that they must have in order to be able to continue to supply their productive energy. This cost of service will vary according to what enters into the living. In one case it may be a dollar a day ; in another, ten or twenty dollars a day. What determines that difference will be con- sidered under the head of wages. It is sufficient for our present purpose that each class of service must receive from the product the equivalent of its cost ; none can obtain more, because none will accept less. The same is true of raw material. If we follow the history of its cost we shall find that it is again resolved into the same three classes of cost, and, in the last analysis, they will all prove to be the cost of labor. We will assume that all previous demands in producing the raw material have been settled, and therefore its cost is represented in what the manufacturer has to give for it. For the same reason that the laborer must receive the eqiiivalent of the cost of his labor, the manufacturer must obtain from the product the equivalent of the cost of the raw material. And he cannot obtain more than the cost, because to do so would be to take something for nothing, and to this nobody will consent. The same is true of tools and implements. The wear and tear of tools and machinery must be replaced from what is received for the product, or they would soon disappear. Less than the equivalent of this the owner will not accept, and more the con- sumer will not give. Now, what is true of service, raw material, and tools separately is equally true of them collectively. For the same reason that each of these must receive the equivalent of what is expended, the producer or owner of the finished product will not accept less, and cannot obtain more than the equivalent THE PRICE-FIXING INCREMENT. \2% of its aggregate cost. In other words, the cost of manufacturing cotton cloth is increased by exactly the amount that each of these three factors impart to it, and the ratio in which it will exchange for other commodities and service — /. 5l9-5 to i spindles 47.6 to i. 57.0 to i Annual consumption of lbs. of cotton cloth per capita. . .5.90 13.81 Price of cotton cloth per yard 17 cents 7 cents Operative's wages per week $2.55 fe'40 It will be seen that in the 756 large establishments in 1880 in which the aggregate capital invested was five times as great as that in the 801 small establishments in 1830, the capital invested per spindle was one third less, the number of spindles operated by each laborer nearly three times as large, the product per spindle one fourth greater, the product per dollar invested twice as large, the price of the cotton cloth nearly sixty per cent, less, the consumption per capita of the population over one hundred per cent, greater, and wages more than double. 264 PURCHASING POWER OF WAGES. If we take the New England States, which comprise the leading cotton-manufacturing district in the country, and also that where the greatest concentration of capital and machinery in this industry has taken place, the results in this direction are still more striking. According to the statistics on wages and prices from 1752, gathered by the Massachusetts Labor Bureau,' in 1831 the ratio of spindles to operatives was 20,^^ to i. In 1880 they were yixfr to i- ^"^^ ^^ ratio of pounds of product to operatives employed in 1831 was 1,484 to i, and in 1880 it was 3,633 to I. That is to say, during fifty years the ratio of spindles to operatives increased 184 per cent., and the ratio of product to operatives 145 per cent. During the same period the aggregate wages of men, women, and children rose 115 per cent., and the hours of labor were reduced 12 per cent, while the price of calico print fell from 17 to 7 " cents a yard. Thus, while the wages in this industry rose 115 per cent., the purchasing power of those wages in the finished product increased 241 per cent. ; that is to say, through a rise of wages and fall in prices accompanying the concentration of capital and use of improved methods, the laborer was enabled to obtain over five times as much of his own product for a day's labor in 1880 as he did in 1830 — the increase is still greater now (1890). If we consider the matter from the standpoint of value instead of quantity of product, a similar result is apparent. In 1850 ' the value of the product per operative in New Eng- land was $707 ; in 1880 it was $1,139 per operative, an increase of 6i-f^ per cent. The wages in this industry for 1850 for New England are not obtainable, but if we assume that the proportion of the 115 per cent, increase from 1830 to 1880 was as great after as before 1850, a perfectly safe assumption, the rise in wages from 1850 to 1880 would be 69 per cent. Measured in money, therefore, the value of labor (wages) of cotton operatives rose 8 per cent, more than the value of their product. If we extend this generalization to the whole United States the result is very similar. The value of product per operative in the cotton industry in 1850 was $709, and in 1880 it was $1,112, being an ' Report for 1885, pp. 185-189. ''Ibid., p. 455. ' I have taken 1850 because the value for 1830 is not obtainable. MR. GIFFEN ON WAGES AND PRODUCT. 26$ increase of 56^^-' per cent, or 12 per cent, less than the rise of ■Wages. Therefore, whether we view the question from the standpoint of quantity of wealth, purchasing power of wages, or the ratio of wages to product, it is equally clear that wages have increased both actually and relatively to the quantity of con- sumable wealth produced, as capital has been concentrated and as improved methods of production have been employed. Notwithstanding this rise of wages and fall of prices, it is insisted that the laborer is despoiled of a large part of the wealth he produces. As evidence of this we are pointed to the fact that in many industries the product per laborer has increased more than a thousand per cent, during the last fifty years, while their wages have not much more than doubled. This claim has been virtually conceded by Mr. Giffen, President of the British Statis- tical Society. He says : " On this head it may be admitted, to begin with, that there is apparent foundation for some of the complaints. Workmen in particular employments do not get a reward at all in proportion to the increase of production in those employments. The illustration of a cotton-mill is familiar. A single attendant on a number of machines will 'produce' as much in an hour as formerly in a year or two, but his wages are only double — or perhaps not quite double — what they were when the production was so much less." . . . But the increased severity of toil, without proportionate remuneration, might be admitted in those special employments without altering the fact that remuneration has increased generally. What seems to have happened in these cases is that the development of society imposes a heavy burden on a special class.'" While he tries to break the force of this complaint by showing that remuneration has increased generally, he practically admits the injustice, and treats it as an inherent element in the present industrial constitu- tion of society. This is all that socialistic reconstructionists claim ; it is because they believe that equity is impossible under the present industrial system that they demand its abolition. Nor can their claim be reasonably resisted unless these phe- nomena can be explained without assuming either that society ' See U. S. Census {1880), volume on Manufactures, pp. 541-547. 5 " Gross and Net Gain of Rising Wages,'' Contemporary Review, December, 1889, p. 835. ^Ibid., p. 838. 266 MR. GIFFEN'S ERROR. has developed in the wrong direction or that natural law is inherently unjust. Here is another instance of the error of treating wages as a share in the division of the product, instead of an item in the cost of production. If this view were correct, and wages in each industry should rise directly as the product per laborer increases, as Mr. Giffen's argument implies, the result, instead of being more equitable, would be unjust to the laborers and more inimical to society. It would be unjust to the laborers because it would give all the increased product resulting from improved machinery to the particular laborers who happen to use the improved implements, thus depriving the laborers in non-machine-using industries of any advantage arising from superior methods of production. Upon what principle of equity should a weaver or shoemaker who happens, without any virtue on his part, to use improved instruments, receive fifty or a hundred times as much wages as the bricklayer, painter, compositor, and other hand- workers whose industries do not admit of the use of steam-driven machinery ? Manifestly any industrial system which would in- crease the wages of the factory-worker fifty or a hundred-fold, while it would only advance those of hand-workers ten or twenty per cent., simply because, in the nature of the occupations, the former could and the latter could not use labor-saving machinery, would be the very embodiment of injustice. It would be inimical to society, because it would make any general reduction in the price of commodities impossible, as the increased wealth would all go to the particular laborer who used improved machinery, thus depriving the community in general of any participation in the advantages of industrial development. It is hardly necessary to say that the use of steam-driven machinery is no more due to the particular operatives who use it than it is to the millions of compositors, bricklayers, farmers, and Other laborers who do not use them. In the first place, it is the consumption not of the machine workers merely, but of the whole community that supplies the market which makes the use of the factory methods possible. And in the second place, it is the inventive genius developed by an advancing civilization, to- gether with the capital invested in the production of machinery to supply the need thus created, that furnishes the increased DISTRIBUTION OF BENEFITS. 267 product. Clearly therefore, if only the wages of those laborers were increased who used the improved instruments the market for the machine-made products would be too small to enable factory methods to be profitably employed. Thus a system which would give all the increased product resulting from improved instruments to the particular laborers who use those instruments would not only be highly unjust, but would defeat itself and arrest the industrial progress of society. If we examine the case of machine-using and non-machine using laborers in the light of the law of wages and prices heretofore presented, it will be apparent that the mere fact that the laborer produces more, has practically nothing to do with what he shall receive, because it has nothing to do with the cost of his living. The amount he produces by a day's work depends far more upon the kind of tools he uses than upon his personal quality. A twelve-year-old child in a New England factory can spin more yarn than a hundred of the most expert spinners that ever lived could produce with a spinning wheel. It is the price of the product, and not the price of the labor, that is determined by the quantity the laborer produces in a day. The cost of his living being the same if he produces twice as much, the cost of production and hence the price will be proportionately reduced. Thus any improvement of productive instruments which enables the laborer to produce more, his cost of living being the same, will show itself not in a rise of his wages, but in a fall of the price of the commodities he produces. On the other hand, the price of hand-made commodities rises in proportion as the laborers' wages increase. It thus appears that wages are determined by conditions which affect the charac- ter and cost of the laborer, and not by those which influence the quantity and cost of the product. When the standard and cost of living of the compositor, bricklayer, painter, etc., increase, the community has to pay more for the products of their labor, because there is not much improvement in the tools they use ; whereas the product of the factory worker is so much increased that, although his wages rise as much as those of other laborers, the cost of production is greatly diminished. That is why the price of all hand-made products tends to rise while that of machine or factory-made products constantly tends to fall. It is 268 EQUITY OF ECONOMIC LA W. because the wages of the hand-workers have increased in a greater proportion than their product that those of machine workers have increased less proportionately to their product. By this means the disadvantage of inferior and the advantage of superior instruments is distributed uniformly to each person in the community to the extent that he is a consumer. Thus the two prime movements of industrial progress, the rise of wages and the fall of prices, benefit laborers in all occupations and condi- tions directly as their wealth-consuming capacity increases and social character rises. It will be observed that, from this point of view, the case of the workman to whom Mr. Giffen referred as not getting " a reward at all in proportion to the increase of production," appears entirely different. What to him appeared to be a necessary in- justice is in reality the evidence of the supreme equity of economic law. The increased product being mainly due to the use of capital and improved tools, which has been made possible through the use of increased consumption and higher social life of the general community, it is to the community in general, and not to particular laborers who happen to use those tools, that the increased product in equity should go, and by economic law does go. The important fact that cannot be too much emphasized here is, that wages are paid for the economic cost, and hence for the social quality of the laborer. It is therefore what the laborer is rather than what he does that determines his wages, and this is true without regard to the nature of his occupation or the quality of his tools. 2. This brings us to the second proposition, that profits tend to absorb a diminishing proportion of the consumable wealth produced. In view of what has already been said, a discussion of this proposition might be properly deemed unnecessary. And were it not that one of our most trusted statistical authorities has apparently affirmed the opposite, I should so regard it. In the report of the Massachusetts Bureau of Statistics of Labor for 1885 the data for nine industries are given, which show that the percentage of the net product paid as wages fell from 59yV P" cent, in 1850 to \'^-f-^ per cent, in 1S80, and, after commenting upon the peculiarities of each industry, the report (p. 191) says : " An examination of these two tables would, we think, lead to RATIO OF PROFIT TO PRODUCT. 269 the conclusion that, although in every case money wages have considerably increased, yet in certain industries in which the principles of the factory system (i.e., the subdivision of labor, co- ordination of processes, and the application of a series of mutually dependent and practically automatic machines) have been most effective, such, for instance, as in the cotton and woollen indus- tries, the relative share of net product gained by the workmen tends to decrease. That is to say, in these industries perfection of machines and processes constantly tend to create a larger product with less capital, and the ratio of increase in productive capacity tends to outrun the ratio of increase in wages, so that of this larger product labor obtains a less relative share." They then take from the United States Census the same data for all industries in the country, and find that 5 1 per cent, of this net product was paid in wages in 1850 and only 483^ per cent, in 1880, and say : " It appears that when the field is broadened so as to include the entire manufacturing industries of the country, labor's share of the net product has declined from 5 1 per cent, to 48-jV per cent." In view of such emphatic statements apparently sustained by facts from such a reliable source, it can hardly be a matter of sur- prise that it is generally believed that wages obtain a constantly diminishing and profit gains an increasing proportion of the wealth produced. It is important, therefore, even at the risk of being a little tedious, to examine the process by which this con- clusion is reached. Nor will this be very difficult, since both the data and the method of treatment are amply stated. The method of procedure is to divide the product into gross and net, value, the former being the value of the aggregate product, and the latter that of the product less the cost of the raw material. This is regarded as representing the net value created by the joint operation of the labor and capital employed in the enterprise.' If a diminishing proportion of this net product is paid as wages, it is concluded that an increasing proportion of it must go to ' "Net product, or value of product remaining after deducting value of raw- materials of manufacture, represents the direct result of the productive forces in the given industry ; or, in other words, it represents the value created over and above the value of raw materials by the effective operation of labor and capital united." — Report of Bureau of Statistics of Labor, p. 190. 2/0 DEFECTIVE METHODS. profits.' This method of treating the subject is defective in two respects : (i) in regarding the ratio of the total wages to the net product (product less raw material) as indicating the economic condition of the laborer ; (2) in assuming that a diminution in the ratio of the total wages to this net product necessarily implies a proportional increase of profit. (i) That it is a mistake to treat the ratio of the aggregate wages to the value of product as indicating the economic condi- tion of the laborer, is shown by the fact that this ratio may increase and the laborer grow poorer, and it may diminish while the laborer's condition improves. Take, for example, the hand- loom weaver and the factory laborer. After deducting the raw material, nearly all the value of the product of the hand-loom weaver went to wages ; while, according to the bureau's figures, only about 48 per cent, of the product now goes to wages, yet no one would pretend that the hand-loom weavers were in a better economic condition than are the factory operatives to-day. Whether the amount paid for labor is one million or one thou- sand millions of dollars in no way affects the laborer's condition, except as it gives a larger amount to each laborer. The same is true of the proportion. Whether the 80 or 90 per cent, of the product received by the hand-weaver gave him more actually or relatively to the product than 50 per cent, will to-day, depends entirely upon whether it is paid to a relatively larger or smaller number of laborers. If the aggregate amount paid in wages relatively to the product were doubled, and either the number of laborers to whom it was paid or the time expended in producing it with the same laborers was more than doubled, instead of indi- cating an improvement in the laborer's condition, it would show a deterioration. Suppose for example, that under hand labor, 80 cents out of each dollar's worth of product go to labor, and are paid to 20 laborers, the ratio of wages per laborer to the value of the product will be as 4 cents to the dollar ; whereas, if, under the factory system, only 50 cents out of every dollar's worth of product goes to labor, if it is all paid to five laborers, the ratio of wages per laborer to the value of the product would be as 10 cents to the dollar. Thus every laborer would receive relatively ' Ibid. , p. 90. MISLEADING DEDUCTIONS. 2J\ to the product created two and a half times as much with the 50 per cent, under factory production as with the 80 per cent, under hand labor. Now this is precisely what has occurred in the development of factory methods of production. Clearly there- fore, it is not the proportion between the aggregate wages and the product, but the proportion between the amount paid to each laborer and the product that indicates his economic condition. In other words, it is the rate and not the aggregate amount of wages that is the true basis of comparison, because it is the rate of wages only that affects the laborer's economic status, either actually or relatively. (2) The assumption that a diminution in the ratio of aggre- gate wages to the so-called net product necessarily implies a pro- portional increase of profits is also a mistake. The fact that 5 1 per cent, of the net product was paid in wages in 1850 and only 48^ was so paid in 1880, does not prove that the percentage of the product going to profit has increased ; on the contrary, this might occur and profit be greatly reduced or annihilated alto- gether. All this fact reveals is that in 1880 the total amount paid in wages represented 2^-^ per cent, less of the value of the product, after deducting value of raw material, than it did in 1850 ; but this does not show that more of the remaining 5iyV per cent, of the product went to profit. Until that remaining portion is accounted for, there can be no more warrant for saying that it went to profit than that it went to the moon. The only condition under which the amount of one item can be properly inferred from that of another is when the two represent the whole, or when the amount they do not represent is a known fixed quantity. Since all the product, less raw material, is not divided between wages and profit, the inference that the ratio of profit to net product increases because that of wages is diminished can only be valid when all the other items are definitely ascertained. That this has not been done in the present instance is shown by the following statement : " The value of net product forms, as we have said, a fund divisible into interest on capital, interest on loans, insurance, freights, rents, commissions, wages, and profits. Now if the relative share paid in labor in the form of wages is decreased, it is, of course, obvious that the share remaining for the other purposes mentioned is increased. If capital is also 272 OMITTED DATA. relatively decreased, then it is fair to suppose that the share chargeable to interest is also diminished. It is well known that the relative cost of freights and insurance has decreased." " It will be observed that the above not only fails to definitely explain the relative amount of the other items in the cost of pro- duction and thereby obtain the proportion going to profit, but it omits some items altogether. In the first place, it only accounts for a portion of the amount which is paid for service, no account being taken of salaries of managers and other overseers, and agents, which are a part of the payment to labor, and are included in the cost of production as much as the day-wages of the laborers in the shop. In the next place it omits entirely the depreciation of capital, which is also a necessary item in the cost of produc- tion. The items thus unaccounted for necessarily go to swell the undivided surplus which is put down as profit. By this means it may be made to appear that a large profit exists, when in truth there has been a dead loss, and when a profit does actually exist this method of investigation will invariably make it appear very much larger, sometimes more than double what it really is.' Both these items of cost affect the result in two ways. In the first place, other things being the same, they both reduce the undivided surplus going to profit to the full extent of their amount. In the next place, they both absorb an increasing proportion of the net product in proportion as factory methods of production are increased. It is impossible to state the exact proportion of the net product paid in salaries in the different periods, because that item has been entirely omitted by all industrial statistics until the Massa- chusetts Census for 1885. According to this report, the total amount paid in salaries in that State in 1885 was $10,846,367, which was equal to i-^-^ per cent, of the value of the net product. In order correctly to understand this data, however, it must be observed that this amount was all paid by less than 10 per cent, of the establishments. That is to say, out of the 23,431 manufac- turing establishments only 2,144 pa-id salaries, and of these 949 were corporations. The 949 corporations own an aggregate capi- tal of $300,649,758, or an average of $316,806 each, while the ' Report of the Bureau of Statistics of Labor, Mass. (1885), pp. 190, 191. ' A case of this kind appears in the 20th vol. of the Census, 1880, pp. iii, 112. EVOLUTION OF SALARIES. 273 22,482 private concerns have an aggregate capital of only $199,- 944,619, or an average of $8,893. Iii other words, the 949 cor- porations, which only represent 4^^ per cent, of the establish- ments, own 6oY4ir per cent, of the capital, use 2>^-t^^ per cent, of raw material, produce 3St%- per cent, of the finished product, employ 40-^^ per cent, of the laborers, and pay 36^*^ per cent, of the total wages. Thus it is quite clear that the salaries are nearly all paid by the large concerns, over 90 per cent, of the smaller ones not paying any salaries at all. In 1850 the average amount of capital invested per manufac- turing establishment for the whole country was $4,334, or only about half the amount that is invested in the average establish- ments in Massachusetts to-day which pay no salaries. In 1880 the capital invested in the average establishment was $10,991. Thus, while it is impossible from these data to ascertain the exact ratio of increase, it is obvious that the amount paid in salaries becomes an increasing proportion as the concentration of capital into large establishments increases. Since the S-jVtt P^"^ cent, of the net product paid in salaries in Massachusetts (which may be taken as representative of the whole country, though it is prob- ably a fraction higher) is practically all paid by concerns having a capital of $250,000 or upwards, it is quite safe to assume that not more than one fourth as much was paid in 1850, when the average amount of capital per establishment was only $4,334. To estimate this item as representing one per cent, of the net product in 1850, will therefore be quite liberal. Of the remaining 2^'^ per cent, which this item has increased since 1850, i^ per cent, may safely be assigned to the period from 1850 to 1880, which alone accounts for more than one half of the apparent relative decrease in wages. The other omitted item, the depreciation of capital, affects the result in a still greater degree. This also has hitherto been entirely overlooked in all our industrial statistics, but taking twenty corporations together in four different industries for eight years successively, I find the general depreciation of plant, machinery, buildings, etc., together with transient repairs, equals about six per cent, on the capital invested. Nor does this repre- sent all the depreciation of capital. Every improvement in machinery which makes a considerable saving in the cost of 18 274 DEPRECIATION OF CAPITAL. production, and reduces the selling price of the commodity, throws out of use a large amount of machinery that was previ- ously producing under conditions which barely repaid the cost. It is a common thing for millions of dollars' worth of capital to be almost annihilated at a single stroke in this way. In the iron industry it is a frequent experience that the machinery of whole factories, which, so far as its normal productive capacity is con- cerned, is in excellent condition, is reduced to the value of old iron by the introduction of superior machinery in a competing factory. The percentage of depreciation from this cause increases just in proportion as new methods of production are introduced. While there are no accurate statistics of this kind of depreciation, it may safely be assumed to equal one sixth of the normal depreciation, making the depreciation of capital from all sources fully 7 per cent. Since the ratio of capital invested to the value of the net product in 1850 was as f 1.15 to $1, the depreciation of capital would represent 8 per cent, of the net product. In 1880 the ratio of capital invested to the value of the net product had reached $1.41 to $1. Consequently, the depreciation repre- sented g-^ir per cent, of the net product, an increase of i-j^^V P^' cent. Thus, on a very moderate estimate, the relative increase of the two items omitted in the Census returns more than offsets the seeming proportional decrease in wages. Consequently, assuming other items of cost to have remained the same, instead of wages having decreased 2^-^ per cent, relatively to the net product from 1850 to 1880, they have actually increased -^^ of I per cent. If we take the data down to 1885, which the ample statistics for Massachusetts now enable us to do, the evidence that an increasing percentage of the net product goes for service becomes more conclusive. According to these, in 23,431 establish- ments, with a capital of $500,594,377, producing $574,634,269 worth of product, the amount paid in wages equalled about 51-^^ per cent, of the value of the product, less the value of raw material. The ratio of capital invested per dollar of net product was $1.75 to $1. The depreciation of capital represented 12^^ per cent, and salaries 3TV?r P^r cent. Taking the period from 1850 to 1885, and putting salaries with wages — where they properly belong, for they are the payment for service precisely RELATIVE DECREASE OF PROFIT. 275 the same as wages, the only difference being that one is estimated by the year and the other by the day or week, — the case stands as follows : Per cent, of net product paid for service. Ratio of capital to $1 net product. Per cent of net product as depreciation. Wages. Salaries. Total. 1850 51. 48.1 51-7 I. 2-5 3-8 52. 50.6 55-5 $1.15 to $1 |i.4l to$l $1.75 to $1 8. 1880 9.8 12,2 188'; Since the whole amount taken in depreciation is consumed in maintaining the working efficiency of the plant, it not only does not go to the capitalist, but it reduces the amount of net product divisible among all classes. Thus it will be seen that, in 1850, after deducting the proportion paid in wages and salaries, 40 per cent, remained for all the other costs and profit. After making similar deductions in 1880, only 39-]^ per cent, remained for the other items of cost and profit, and in 1885 only 32^ per cent, remained for profits and other costs. It is obvious, therefore, that if the proportion of the net product paid in rent, taxes, insurance, commissions, freights, etc., remained the same, the proportion going to profits must necessarily have decreased, though its aggregate amount may have increased. A close examination of the facts would undoubtedly show, as the bureau suggests, that the relative costs of freights and per- haps insurance have slightly diminished. It must be remembered, however, that all freight charges are made on the basis of quan- tity, as so much per ton. If estimated on the value of the product the result would be very different. For example, the product per operative in the cotton industry measured in pounds increased 145 per cent, from 1830 to 1880, but measured in value it only increased a little over 60 per cent. Thus a reduction of 50 per cent, in the cost of transportation per quantity would not show any reduction per dollar of value. Assuming that profits in 1850 were equal to 10 per cent, of the net product, and that the proportion of the net product paid for transportation has since decreased 2 per cent., and that paid in taxes, rents, commis- sions, etc., has remained the same — though Carroll D. Wright thinks they have actually increased, — the aliquot parts of the 276 RELATIVE INCREASE OF WAGES. net product going to service and profit in 1850 and 1885 would be as follows : Service. Other costs. Depreciation. Profit. Total. i8«;o 52. 55-5 30 28 8. 12.2 10. 4.3 i88< 100 It thus appears that, although the proportion of the net product paid for service has only increased about 4 per cent, and that paid in wages less than i per cent., the proportion going to profit has diminished SyV P^r cent. It should also be observed in this connection that the value of raw material, which represents 57 per cent, of the total value of the product, and also that nearly all the other costs, representing 28 per cent, of the net product, are very largely made up of wages. Indeed, if we take the finished product and trace the various items of its costs back to the crude raw material, we shall find that its value is nearly all finally resolved into the amount paid for service. The reason the proportion paid for labor in the last stages of manufacture appears to represent so small a percentage of the total value is (i) because, in the prior stages of its development, so much of the value has been previously paid for in wages ; (2) because, in the last stages, the greatest amount of capital per dollar of prod- uct is employed, and consequently a greater proportion of the product created in that stage goes to depreciation of plant, all of which must of necessity be eliminated before any scientific com- parison of the proportional shares going to wages and profit in any given industry can be made. Clearly therefore, in order to ascertain whether or not the laborer is obtaining an increasing or a diminishing proportion of the consumable wealth produced, we must compare the value of what goes to labor, not in the aggregate but per laborer, with the value of the product after deducting the cost of raw material, depreciation of plant, and all other fixed costs incident to the increased production. From this method of examining the case it will appear that, in each given stage of the productive process, as the concentration of capital and the use of improved methods of production are employed, the laborer receives a constantly increasing proportion of an increasing product. 3. We now come to the question of the actual ratio of wages to DIFFICULTY OF OBTAINING DATA. 277 profits in modern industry. It is assumed by socialistic writers, as already shown in the case of Marx, that under the present in- dustrial system profits are not only increasing actually and rela- tively to the product, but that they approximately equal wages.' Since this is wholly a question of fact and is one of the chief reasons urged for revolutionizing the existing industrial system, it may be well to compare this claim with the facts in the case. The question of profits and wages is one which cannot always be settled by public statistics because they are seldom taken in such a way as to furnish the correct data upon both these points. As already intimated the service item is nearly always incomplete and profits are seldom given. The Massachusetts Labor Bureau, which has ever been the best source of reliable industrial data in this country, made an extensive investigation of the subject of profits and earnings for 1875 ' and 1880, the result of which was published in their report for 1883. The results of this investiga- tion, which covered 14,352 establishments in 80 industries, show that the ratio of wages ' to profits in 1875 was as aj'VV to i, and as StVir to I in 1880. In 1889 I made extensive investigations on the same points, but instead of taking a large number of industries for a given year I took a limited number of large industries for a number of years together. It will readily be seen that the normal ratio of wages to profits will be much more accurately indicated by taking a few ' ' ' There is left the sum of ;^ 3 1 oj. od. , which is the variable capital advanced ; and we see that a new value of ;^ 3 los. od + £'i l l-r. od. has been produced in its place. Therefore ~ • } '"" ^' ■ giving a rate of surplus value of more than one hundred per cent. The laborer employs more than one half of his working day in producing the surplus value." — Marx, " Capital," p. Z03. " Now, gentle- men, if you compare the working time you pay for, you will find that they are to one another, as half a day is to half a day ; this gives a rate of one hundred per cent., and a very pretty percentage it is." — Ibid., p. 211. " But the fact is — and on that we lay stress — that the workers receive only about half of what they produce. " — Gronlund, " Modem Socialism," p. 23. ' These are exclusive of Boston. I have omitted Boston because for some unexplained reason the net product in Boston fell about 75 pei cent. Such a change must be the result of some abnormal occurrence perhaps in a few indus- tries. Although it would greatly reduce the ratio of profits to wages in 1880, rather than use doubtful results, I prefer to exclude the whole of Boston data. ' Exclusive of salaries. 278 RATIO OF PROFITS TO WAGES. representative concerns for a considerable number of years to- gether, than by a very much larger number of concerns for a sin- gle year. For instance, the complete facts for ten large corpora- tions for ten years together will much more accurately show the normal ratio of wages to profits in that industry than would the facts, equally complete, for all the concerns in the country for any given date. This investigation shows that the ratio of wages to profits in thirteen leading industries for a number of years to- gether,' to be as 4.20 to i. Taking the basis adopted by the Massachusetts Bureau for 1880, the relative movement of profit and wages from 1850 to 1885 has been as follows : ALL MANUFACTURING INDUSTRIES FOR THE UNITED STATES. Percent- age of raw Percent- Percent- and fixed age of age of Average* yearly- Ratio of Value of aggregate product. costs in wages in profits in wages to total total total wages. profits. product. product. product. 1850 — $1,019,106,616 . . 67.61 23.23 9.16 $247-37 2. 53' to I i860— 1,885,861,676 . . 67.92 20.09 11.99 288.94 1.67 to I 1870 — 4,232,325,442 . . 71.79 18.34 9.87 376-59 1.85 to I 1880— 5,369.579,191 • • 76.37 17.67 5.96 346.91 2.96 to I ALL MANUFACTURED INDUSTRIES FOR MASSACHUSETTS.* 1875 — $456,400,458 . . . 62.57 27.06 1880— 631,135,284 . . . 72.79 21.75 1885 — 674,634,269 . . . 70.88 23.45 1888— THIRTEEN LEADING INDUSTRIES FOR 8 1889—1112,393,804.98 . I 67.98 I 25.93 10.37 5.46 5-67 $445.00 2.60'to I 364.00 3.98 to I 388.62 4.13 to I 402.45 YEARS TOGETHER TO 1 889. I 6.09 I I 4.20 to I ' Ten of these were for eight years in succession, two for ten years, and one only for four years. ' It should be remembered that these figures do not represent the wages of men, but the average wages of men, women, and children all taken together. Since in manufacturing industries there is generally one worker besides the head of the family, and sometimes more, these wages only represent about half the in- come of the average family in these industries. ' This column is exclusive of salaries. * Exclusive of Boston. I have omitted Boston because for some unexplained reason profits fell from an aggregate of $27,640,680 in 1875 to $7,162,768 in 1880. Such a change must be the result of some abnormal occurrence perhaps in a few industries. Although it would greatly reduce the ratio of profits to wages in 1880, rather than risk doubtful results I prefer to exclude the whole of Boston data for 1885. ' This includes salaries. ACTUAL RISE OF WAGES. 279 It will be seen from these facts, which represent the greatest body of statistical data ever collected upon the subject," that the industrial tendency during the last thirty years has been steadily towards a greater concentration of capital and economy in pro- ductive power, resulting in an actual increase in wages both rela- tively to the product and per laborer employed, and also a relative proportional decrease of profit as compared with wages. ' The figures for the United States are taken from the Census of 1880 and those for Massachusetts are taken from the industrial census of that State, rep- resenting for 1880 14,352 establishments in 80 industries with an aggregate capi- tal of $271,056,051 ; for 1885, 23,431 establishments in 83 industries, with an aggregate capital of $500,594,377. PART IV. THE PRINCIPLES OF PRACTICAL STATESMAN- SHIP; OR, APPLIED SOCIAL ECONOMICS. CHAPTER I. LAISSEZ FAIRE AS A GUIDING PRINCIPLE IN PUBLIC POLICY. Section I, — A Protest Against Paternalism. Although laissez /aire has never been the accepted rule of public policy in any country, the fact that for more than a century it has been taught by leading economists as the guiding principle of industrial statesmanship entitles it to prominent con- sideration. It should be remembered in the first place that the idea of laissez /aire as applied to industrial statesmanship does not represent an inductively established principle in society ; that is to say, it is not a logical conclusion drawn from an ex- tensive study of industrial phenomena. On the contrary it came into existence as a watchword to express a protest against the high-handed paternalism of the feudal and mercantile systems ; and by the force of habitual repetition, sustained by a pardon- able bias against a land-owning class, it was subsequently elevated to the position of an economic principle. During the Middle Ages government was not only essentially paternal, but it was exclusively in the hands of the land-owning class. The interest class being chiefly local, industrial policy was naturally restrictive in character. Accordingly, in the earliest stages of manufacture and the growth of the free towns, industry was hemmed in by innumerable arbitrary regulations. Scarcely any occupation could be engaged in without paying tallage or tribute to the baron. And with the growth of the Free Cities and the decline of baronial power this privilege of exacting tribute for the right to engage in an industry was assumed by the guilds, and finally took the form of charters, by which the gov- 283 284 ORIGIN OF LAISSEZ FAIRE. ernment became the exactor of booty. In proportion as manu- facture and commerce increased, the evil effects of this policy became more and more inimical to public welfare, and made a new industrial policy necessary. Nor is it surprising that the new policy should be the very opposite of the old one. The remedy for the evil effects of too much government interference was naturally sought in a policy of no government interference. By the last half of the seventeenth century this anti-paternal feeling had become very strong, and was finally voiced by a prominent French merchant, who, when asked by Colbert, "What can we do to aid you?" promptly answered, " Laissez faire " — Let us alone. This expression so completely represented the feelings of the mercantile class that it became the watchword for a new policy, and by the middle of the next century was made the basis of an economic theory by Quesnay and the Physiocrats, whose policy was concisely expressed as " Laissez faire et laissez passer " — Let us alone and keep the ways free. In the last quarter of the eighteenth century this doctrine was revised and recast in England by Adam Smith. In many important respects the great Scotchman improved upon the doctrines of the French Physiocrats, especially in bringing out the economic importance of manufacture and commerce. But in view of the fact that the public policy of England was still largely determined by the landed aristocracy, who were traditionally hostile to the interests of the manufacturing and trading classes, Adam Smith naturally adhered to the doctrine of no government interference. Since his time the idea of laissez faire has been generally presented as representing a fundamental principle upon which the industrial policy of all nations should be based, any departure from this rule being justified only in special emergencies. In the next place it should be observed that the doctrine of laissez faire has not been verified by subsequent experience ; consequently, instead of being more implicitly accepted, its economic validity is denied just in proportion as the scientific treatment of the subject increases. As an axiom in public policy laissez faire is rejected by the inductive economists of the present generation with almost as much uniformity as it was accepted by the deductive economists of the previous half century. There- fore, the claim that the theory of laissez faire represents a CHARACTER OF LAISSEZ FAIRS. 285 universal principle in nature and society, and is entitled to the same unquestioning acceptance in economics that is accorded to the principle of gravitation in physics, is wholly unwarranted. Section II. — Laissez Faire Essentially Unscientific. Considered as a fundamental principle in statesmanship, laissez faire is essentially unscientific. It is necessarily negative, while statesmanship is positive. All government, order, and progress imply affirmative action, and therefore are the op- posite of laissez faire. Science is essentially aggressive ; it implies the active policy of investigating, knowing, and control- ling things. Every improvement in the arts and sciences, every labor-saving appliance, is the result of man's interference with nature, of subjecting natural forces to human purposes. By studying the laws of chemistry, electricity, and mechanics, we know that under certain conditions heat, light, and force are developed. And instead of adopting the rule oilaissez faire, and waiting till nature produces the desired result, we have learned to bring the particular forces together in just such relations as will produce that result much quicker. Consequently, we make steam produce our wealth, electricity do our errands, and natural forces serve us in every phase of life. The same is true in the animal and vegetable world. Our choicest flowers and vegetables are not the result of unaided natural selection, but of artificial cultivation ; that is to say, of the scientific application of the law of development. We have studied the conditions under which certain kinds of fruit, flowers, and vegetables develop their best specimens, and where nature fails to supply these conditions they are substituted by man. Our fast horses and finest breeds of cattle and sheep have all been produced in the same way. What is true in chemistry, mechanics, botany, and biology is equally true in sociology. Since affirmative statesmanship is necessary to government, and government is necessary to civilization, it is a contradiction in terms to speak of laissez faire as the basis of statesmanship. The science of government is not the knowledge of what not to do, but it is the knowledge of what to do and how and when to do it. To know what to do implies the knowledge of what not to do, but to know what not to do does not imply the knowledge of 286 ERRONEOUS POSTULATES. what to do. So long as government exists it must have a function — a sphere of action. Scientific statesmanship implies a knowl- edge of the principle by which that action should be directed. Because the history of state interference with industry is the history of mistakes, it is commonly assumed that the only way to avoid mistakes of the past is to do nothing in the present. It would be just as correct to say that because all mistakes are the result of affirmative action, inaction is the only means of avoiding error, the logic of which would involve the destruction of the human race. We cannot choose between doing and not doing, but only between doing wisely and unwisely. The doctrine of laissez faire, therefore, has no place in the science of statesman- ship or the art of government. This theory derives its chief plausibility from a seeming uni- versality in its postulates, which are : (i) That self-interest is a universal principle in human nature. (2) That each individual knows his own interest best, and in the absence of arbitrary re- strictions is sure to follow it. (3) That free competition always develops the highest possibilities by enabling each to do that for which he is best fitted, and thereby most surely advances the welfare of all. The proposition that self-interest is a universal principle in human nature is undoubtedly correct ; but there is nothing in experience or logic to warrant the assumption that the other two follow from it. That whatever is for the best interest of each promotes the welfare of all is indisputable, but that each individual always knows what is best for his own interest, and in the absence of arbitrary restrictions is sure to follow it, is by no means certain. Before each can know how to promote his own best interest he must know what his best interest is, which is precisely what the great bulk of the human race do not know. This knowledge can only be acquired by a more or less intelligent generalization from experience. Whatever tends to improve man's condition materially, socially, and morally, and increase the advantages of social life, promotes his best interests. To assume that every one knows what is best for himself is as unphilosophic as to assume that the child knows best what will promote its own welfare. Although many parents are ignorant, and often injure when they think to IGNORANCE OF SELF INTEREST. 287 help the child, the fact remains that the successful rearing of children chiefly depends upon the number of instances in which the wisdom of the parent, developed by experience, pre- vails over the ignorance of the child. Indeed the race would die out if the experience of parents were not transformed into author- ity over the child. What is true of the child in this respect is still true to a very great extent, of a vast majority of the human race. Take for instance the people of Central Africa. The principle of self-in- terest is as universal there as in any part of the world. But no one would seriously claim that the average individual in that dark continent knows what is best for his own interest. On the con- trary, the most advanced scientists, philanthropists, philosophers, and statesmen agree that the best interests of the inhabitants of Africa can only be promoted by the interference of more ad- vanced and civilized nations. This same lack of knowledge of what is best for one's own interest, which is simply ignorance of the laws of social development, is still painfully apparent, not merely in every country, but, more or less in every class in the most ad- vanced countries. Those familiar with the laws of sanitation and hygiene know that cleanliness, fresh air, good drainage, and wholesome food are of vital importance to physical health, and therefore are of the highest interest to the laborer. But the ex- perience of health authorities shows that only with the utmost difiS- culty can the laboring classes, and particularly the poorer and more ignorant portion, be induced to pay any attention to these conditions. So too the employing classes, while more enlightened upon questions of science, literature, and art, exhibit scarcely less ignorance in regard to their economic interests. Take, for in- stance, their attitude towards the social condition of the laborer. They have assumed and have acted almost uniformly upon the assumption that high wages are inimical to their own interests, and consequently that to resist the rise of wages and social im- provement of the laboring classes is to promote their own pros- perity ; whereas, had they known their true economic relation to the laborer, they would have seen that every limitation of his social and material progress reacts injuriously upon the per- manence and extent of their own prosperity. The reason for 288 FALSE NOTIONS OF COMPETITION. their mistaken attitude is precisely the same as that which gov- erns the laborer when he endeavors to improve his condition by using dynamite, and when he resists the introduction of improved machinery, or evades the instructions of the Board of Health, — namely, ignorance of what is for his own best interest. It is therefore fallacious to assume that every individual knows his own interest best, and in the absence of arbitrary restrictions is sure to follow it. The idea that free competition always develops the highest possibilities by enabling each to do that for which he is best fitted, is equally misleading. The popular idea of free compe- tition is that it means an unconditional struggle for existence among individual units, and that is the sense in which the term is usually employed by economists. This view is commonly re- garded as the application of the doctrine of natural selection to society ; and hence the policy of laissez /aire is claimed to be based upon the doctrine of evolution. This is a mistaken con- ception both of the doctrine of evolution and of the nature and function of competition, as will appear from the following con- siderations. The doctrine of evolution is simply a theory of growth as distinguished from that of special providence. It teaches that whatever may have been the origin of things, progress towards higher forms of existence in all classes of phenomena takes place in accordance with a law of cause and effect, and that higher and more .complex types of formation and the existence of new func- tions, appear only under conditions favorable to their develop- ment. In other words, opportunity for actualizing the potential qualities of higher types is indispensable to progress. There is nothing in this doctrine to warrant the assumption that such op- portunity can always, or even generally be best secured by the new type for itself, through a mere unrestrained struggle for ex- istence. On the contrary, the whole implication is that existing types must prepare the way and therefore create a favorable opportunity for the birth and growth of the higher type. Much of the error in this connection is due to a mistaken use of the phrases " nature " and " natural law." We commonly employ the term nature as if it represented only unconscious cosmic forces as distinguished from conscious human forces. And thus we USE OF THE TERM NA TURAL LA W. 289 speak of the products of cosmic forces as natural and the prod- ucts of human device as artificial, just as if human arrangements were necessarily unnatural. The term "natural " applies no more to cosmic than to human forces. The consciousness and intelligence of man are as natural as the unconsciousness of gravitation or of inorganic substances. The term " natural " simply means that which is necessary to or inherent in the constitution of things. It is natural that man should have blood, nerves, and brain, because without these he would not be man, but it is equally natural that stones should not have them, because in that case they would not be stones. So with natural law ; a law is not natural or unnatural because it relates to conscious or unconscious objects, but solely because it relates to the nature and inherent constitution of things. It is just as much in accordance with natural law that under certain conditions electricity destroys our house, as it is that under other conditions it should light our streets. Natural law is simply the order in which phenomena necessarily occur under given conditions. Man cannot impose artificial laws ; he can only artificially change the relations of objects so that through the operation of cause and effect desired phenomena may occur sooner, more frequently and more continuously than they other- wise would. It is in this way, and in this way only, that man is ever able to aid progress. Therefore, in considering whether laissez faire ox human inter- vention is to be preferred, the question is not whether one is more natural than the other, because in any case the result will be natural, but it is whether the desired end can be more surely obtained by intervention than by the unaided operation of unconscious forces. And this will depend entirely upon whether those who manipulate the conditions understand the laws of the phenomena with which they are endeavoring to deal, and there- fore can correctly predicate the result. Ignorant or unscientific interference may be worse than laissez faire. But this by no means implies that laissez faire is superior to scientific regulation. Another expression which is misleadingly employed is " natural selection." Here again the term natural is used as if all selection were unnatural th.at is not blind and unconscious. There are no natural and unnatural selections ; there are wise and unwise 19 290 NATURAL AND HUMAN SELECTION. selections, and there are conscious and unconscious selections. It is as natural that ignorance will make poor selections as that intelligence will make good ones. Because progress in the physi- cal world has taken place mainly by unconscious selection, it is assumed that progress in society will necessarily be more rapid and continuous under a rdgime of laissez faire. If it were true that in physical phenomena an unconditioned struggle of units always produces the highest types and the greatest progress, it would not follow that the same should be true in society. But it is by no means clear that this is true even in the physical world. It is of course true that in the development of the earth and other physical formations where surviving forms were determined by the action and reaction of unconscious physical forces, those forms only were able to survive which could withstand the struggle. But it is scarcely less certain that many higher forms may have been destroyed during early stages of their development, which, had they been able to reach maturity, would have been better able to withstand opposing forces than those which did survive. It is highly probable that by this means millions of potentially higher forms were destroyed in their infancy by mature and lower types of formation. Thus under a regime of pure laissez faire — the action and reaction of blind physical forces — progress may have been greatly retarded, while inferior types for ages perpetu- ated their existence by preventing the development of superior types. Indeed, this is what we see taking place in every domain where laissez faire prevails, and development is left to an un- conditioned struggle for existence among individual units. In the sphere of vegetation for instance, it is now a matter of scientific knowledge that the choicest trees and most highly de- veloped plants of any species may be stunted and even destroyed by the presence of weeds and brush that had prior existence: This is a fact that every scientific farmer and horticulturist under- stands. As an illustration of the law of natural selection and the survival of the fittest, we are pointed to wild animals, say a drove of wild horses. It is assumed that those which survive are always best and that those which were killed off were inferior, from the mere fact that the former lived and the latter died. This conclusion, however, does not necessarily follow from these SURVIVAL OF THE UNFIT. 29I facts. Suppose, for example, a foal, which possessed all the pos- sibilities of being a faster or tougher horse than any in the herd, was kicked in the ribs by one of the inferior though mature horses and fatally injured. It is quite clear that in that case the inferior type would prevent the development of the superior. And this is what is constantly taking place wherever an unre- strained struggle for existence prevails, as all experienced horse- breeders know. By the study of appropriate mating and the protection of the superior young against the violence of the inferior old, speed, strength, and other desired qualities of the horse have been developed to a degree never before known. Thus under scientific selection, the higher possibilities of the horse have been developed incomparably faster than they ever were under natural selection. This is true in every sphere of phenomena to which human knowledge can be applied. In fact, progress everywhere increases directly, as scientific selection can supersede natural selection — in proportion as knowledge of rela- tions can be substituted for blind experimentation. Were this otherwise, science and civilization would be no better than igno- rance and barbarism. Clearly therefore laissez faire is not the surest way to promote the survival of the fittest even in the physical world. In society this is still more uniformly true by virtue of a differ- ent character in the phenomena. One of the most marked dis- tinctions between physical and social phenomena is the manner in which existing units influence the environment of future units. In the lower forms of life the opposition of the inferior mature to the superior immature (the established old to the unestablished new) is limited to a direct struggle between contending units. Consequently, the potentially superior has always a limited chance (say one in a million) of surviving, if only by evading the deadly opposition of an established type. In society this is different, and the chance of the new to escape the repressive power of the old is more difficult. Man, having acquired the power of consciously adapting means to an end, can not only resist the undeveloped new with the advantage of prior possession and mature develop- ment, but he also has the power of manipulating the environment of the subsequent generation so as to make the development of the superior impossible. 292 GOVERNMENT INEVITABLE. One of the prime conditions of human society is consciously regulated order, and this implies government. Government neces- sarily dominates the social environment of the "individual. Through social and political institutions, therefore, the opportu- nities for enabling the fittest to survive will necessarily be aided or repressed according to the notions entertained by those who determine the policy of government. By this means, through mere accident of priority, the inferior man can so regulate the conditions of existence for subsequent generations that the de- velopment of the potentially superior shall be impossible, and thus secure the survival of the unfittest instead of the fittest. The history of society is replete with evidences of this fact. Indeed every arrest of social progress is due to the fact that the inferior who obtained possession of authority have so dominated the environment as to cut off opportunity for the development of others, who with favorable opportunities would have been supe- rior to themselves. Under such conditions not only does the unfit survive, but its influence tends to perpetuate the reign of the less fit in two ways. i. By stifling the germs of superiority in humble classes, and thus cutting off the possibility of its develop- ment and actualization. 2. By stereotyping the character of the successful in giving it a monopoly of power and position. This is what took place in ancient Egypt, Greece, and Rome, and in mediaeval Europe, where both religious and civil authority was exercised to cut off all opportunity for the development of char- acter in those classes of the community not recognized as noble or royal. The masses, who have ever constituted the laboring classes, have been regarded as an inferior portion of society. Their social inferiority has not only been made a reason for their exclusion from social power and authority, but by destroy- ing the opportunity for actualizing their best possibilities it has been made the means of preventing their development and thus keeping them inferior. Laissez faire, therefore, is literally im- possible in society. There can be no choice between natural selection and human selection, but only a choice between scien- tific human selection and ignorant human selection ; not between government and no government, but only between wise or un- wise government interference. The chief fallacy underlying the doctrine of laissez faire is a ECONOMIC COMPETITION. 293 mistaken notion regarding the nature of competition. Because competition is rivalry between contending units it is assumed that all rivalry is competition, and hence that free competition is simply an unrestrained struggle for existence. As we have already seen, unrestrained struggle may and often does mean repression and despotism instead of development and freedom. It is entirely true that competition is indispensable to develop- ment, but in order to have competition that develops instead of a struggle that destroys, rivalry must take place under conditions which make the object sought reasonably possible to either con- testant. There can be no advantageous competition where the prize is impossible to one and certain to the other. Such an unequal struggle instead of developing the highest possibilities of both competitors, inspires neither contestant to do his best. To have effective competition the contest must be of such a character as to compel the winner and inspire the loser to the maximum degree of effort. This can only occur when the contest takes place between approximately equal competing units. Com- petition between unequals necessarily tends to crush rather than develop the weaker, although he possesses all the potential possi- bilities of superiority. Take, for instance the child of the poor laborer and that of the wealthy merchant. The former is sent to the factory or mine without any education or opportunity for social development ; it is reared in an atmosphere of ignorance, brutality and vice, while the latter receives all the education and incentives for culture that wealth and leisure can supply. When these two children grow up, can there be any inspiring competition between them as citizens for social position, public confidence, or even in the sphere of business, where education and mental training are necessary, indeed anywhere outside the sphere of manual labor ? The difference between them in this respect, which nothing but a difference in their opportunities creates, instead of inspiring both to do their best, will naturally create a feeling of shrinking inferiority in the one and an undue feeling of superiority in the other. These two opposite feelings necessarily tend to give the power of authority to the latter and the submissive position to the former. Clearly therefore instead of laissez /aire necessarily securing 294 NECESSITY OF OPPORTUNITY. free competition and "the survival of the most fit," it is the policy which in society is most likely to prevent free competition and to promote the survival of the less fit. It is an indispensable condition to free competition and the maximum development of the competitors, that the contest should be between approxi- mately equal competing units. To secure approximate equality among competitors and hence the success of the superior, we must secure to each the opportunity for developing his best possibilities. In other words, to obtain the inspiring influence of free competition and to develop instead of crushing the potential capacity of the individual we must substitute scientific states- manship for ignorant authority. The question of statesmanship then is not whether or not the state shall interfere in the affairs of society, — this it is sure to do so long as society exists, — but upon what principle it shall act in order to promote maximum prosperity and freedom in the community. This involves a con- sideration of the economic and social functions of government, which will be the subject of the next chapter. CHAPTER II. THE STATE ; OR, THE NATURE AND FUNCTION OF GOVERNMENT. Section I.— Wkat is the State? It is very common to use the term state as if it were synony- mous with society. That such a use of the term is too indefinite for scientific purposes becomes apparent the moment we attempt to consider the functions of the state. It is essential to the idea of society that there be more or less social intercourse and inter- dependence among the individual units having some recognized common centre of interest and action. This is not true of all mankind. The human race is divided into groups or nations composed of individuals who have more or less social and indus- trial affinity. There is a great diversity of feeling, interest, and action within these groups, but each group has a common inter- est and will take common action as distinguished from any other group or nation. The maintenance of this common interest we call patriotism. Society therefore may be defined as an aggre- gate of individuals in any group, nation, or tribe. We cannot speak of the functions of this aggregate, because in its entirety society never acts. Even under pure communism, where the greatest uniformity of the units prevails, children, minors, and usually though not necessarily, women are excluded from active participation. Thus society as an aggregate never acts except through a more or less extended representation by which a portion acts for the whole. This representative portion, large or small, constitutes the state as distinguished from society ; it is the largest acting aggregate, and the individual is the smallest acting unit. 295 296 NO ABSOLUTE RIGHTS. The state then may be defined as the conscious authoritative expression of society. Since the aggregate is greater than, and includes the individual, the authority of the state necessarily in- cludes and is superior to that of the individual. The state then not only represents the authoritative action of the aggregate (society) as distinguished from that of the individual, but its authority is necessarily absolute over both the individual unit and social aggregate. We often hear such expressions as " absolute rights," " inalien- able rights,'' etc. Strictly speaking, there are no such rights in society ; not only the right to " liberty and the pursuit of happi- ness," but even the right to life in society is necessarily subject to the will of the aggregate, as authoritatively expressed in the state or government. This is indispensable to the existence of society. Society being an association of individuals whose im- mediate interests are not always identical and whose conceptions of the equity of their relations are frequently very different, the existence of a power superior to both, whose authority shall be absolute, is indispensable to social order. All rights of the indi- vidual in society therefore, must in the very nature of the case, be conditional. Absolute individual rights are a social impossi- bility. It is equally indispensable that these conditions should be de- termined and enforced by the collective authority, the state, since nothing short of that would command the confidence, sup- port, and obedience of the individual units. While the authority of the state is always absolute over both individual units and the social aggregate, it always represents a consensus of both. Although the state is always representative, it does not always represent in the same manner, nor derive its authority in the same, way. In some stages of society collective authority is all invested in one person, as in the chief of primitive tribes, and forms an absolute despotism. This is sometimes due to superior physical force, and sometimes to a fiction of divine ap- pointment. In other stages of society authority is invested in a number of individuals by hereditary descent, forming an aris- tocracy or constitutional monarchy, and in others it is vested in a still larger number, chosen by popular vote, forming a democratic republic. But in every case the state represents the ALL GOVERNMENT REPRESENTATIVE. 297 authority of the aggregate. The Czar's proclamation is not the act of a mere individual, but the recognized authoritative expres- sion of Russia. The Pope's edict is not the voice of an individual Italian, but that of the Church. It may be said that one-man-power, as represented by a shah, a sultan, a czar, or a pope, is not representative but despotic. It is indeed despotic, but it is also representative. Representa- tion is to speak and act for others authoritatively. In this sense, despotism is no less representative than is democracy, but its au- thority to act for others is acquired in a different way. The essence of all collective or state authority is that the government derives its "powers from the consent of the governed." The ab- solute authority of the despots who rule Persia, Russia, and Turkey rests upon the consent of the governed as completely as does that of the President or Congress in democratic America. If the Czar of Russia had not the consent and confidence of the Russians, his proclamations would have no more authority in Russia than would those of any other individual. It is because they recognize his fitness to rule (to act for them) that they obey and support him. Their confidence may be misplaced, or may be due to a superstitious belief in his divine appointment as the head of the church and ruler of the nation ; but whatever the reasons, their confidence and consent are none the less complete, as is shown by the fact that they will not only work for him and worship him, but will by the millions fight and die for him. The only difference between despotic and democratic representation is that through poverty, ignorance, and superstition, the consent of the governed under despotism is given by silent acceptance of their rulers as inherently fitted and divinely appointed to govern, while under democracy this consent can only be obtained through the volitional action of the individuals. Thus the essential dis- tinction between despotism and democracy is not that the latter is more representative than the former, but that it is more elective. Poverty, ignorance, and superstition make political and social incapacity inevitable, which in turn make elective represen- tation impossible. Just in proportion as the individual units of a community be- come more intelligent and positive in character, does their con- sent to the authority of the state become less dependent upon 298 ELECTIVE REPRESENTATION. traditional usage and supernatural injunction, and more de- pendent upon individual judgment. Hence it changes from silent acquiescence to conscious choice, and then the repre- sentative function of the state becomes less hereditary and more elective in character. In such countries as Persia, Turkey, and Russia the consent of the governed to the authority of gov- ernment consists entirely in silent acquiescence, while in such countries as Austria, Italy, and Germany, where material condi- tions and the intelligence of the people are more advanced, there is a limited amount of elective representation. In England the elective principle is still more general, and in America it is most general of all, being directly or indirectly applied to every branch of government. But there is no country in which the repre- sentation is all elective. Even in democratic America women are still excluded from elective representation. The state, or col- lective governing authority, sustains exactly the same representa- tive relation to women in the United States as does that of the Czar of Russia or the Shah of Persia to the whole people of those countries. Hence the state, whether despotic or democratic, is always the authoritative expression of the aggregate. This is only another form of stating the principle so frequently emphasized in these pages — namely, that all social institutions rest upon the habits and social character of the people. Society, therefore, differs from the individual, in that it represents a literal aggregate of which individuals are the units. The state differs from society and from the individual, in that it is the representative collective action of both, and its authority is absolute over both. In short, the state expresses authoritative social policy. Section II. — The Relation of the State to the Individual in Progressive Society. In order to ascertain the true relation of the state to the indi- vidual, it is necessary, first of all, to examine the structural con- stitution of society. This brings us directly to the question, is society a higher organism, for whose preservation and develop- ment the individual units are the tributary means, or is it an asso- ciation created by and utilized for the preservation and develop- ment of the individual units composing it ? Upon the answer to GREEK IDEA OF SOCIETY. 299 this question depends the character of statesmanship and the governing principle by which public policy should be shaped and directed. If society is an organic entity, to whose development the individual is subordinate and simply tributary, then the true public policy would be to increase the functions of the state and limit the sphere of individual action and authority. And con- versely, if the development of the individual is the end to pro- mote which society is only a means, the true public policy would be to so mould and direct public institutions as to increase the functions, responsibility, and authoritative sphere of the indi- vidual, and to diminish those of the state. It will be observed that these two conceptions of the relation of the state to the indi- vidual logically lead to opposite theories of statesmanship, the one towards socialism and the other towards individualism. It is a peculiar feature of sociological literature that both socialist and individualist writers assume that society is an organic entity, and that it sustains the same relation to individuals that the individual organism does to the parts of which it is com- posed. This was the controlling idea of the Greeks and Romans, who regarded the state as every thing and the individual as noth- ing, except as he served the state. In his ideal republic, Plato makes the state stand for a great personality, in whom the differ- ent social classes are simply the functions. The ruling class, the military class, and the industrial class are presented as corre- sponding to the faculties of reason, will, and passion or force in the human organism. Upon this point at least, it may be truly said that all that has been written during the last two thousand years has been simply Platonizing. Hobbes endeavored to es- tablish literally by minute detail what Plato only introduced in general outline, by making society a colossal artificial man. He not only made certain classes of the community correspond to the reason, will, and passion of the human organism, but he went so far as to divide society into limbs, joints, nerves, memory, con- science, and even ascribed to it a soul.' This idea, with some qualifications eliminating the minutiae of detail introduced by Hobbes, is reaffirmed and extensively elabo- rated on the basis of modern science, by Herbert Spencer. ' See preface to his " Leviathan ; or, The Matter, Form, and Power of a Com- monwealth, Ecclesiastical and Civil. " 30O SOCIAL ORGANISM THEORY. Therefore Rodbertus had the full warrant of the continuous teachings of philosophy from Plato to Spencer for his basic- socialistic postulate that " the community is the end in itself. In- dividuals are only the means for the promotion of social well- being ; they are in no sense ends in themselves." ' From this point of view he logically held that public policy should constantly be directed towards putting the ownership of property, especially the means of production into the hands of government. This idea has been more thoroughly developed by Karl Marx, who endeavors to show that from the nature of economic phenomena the ownership of the means of production can only reside in the community, which theory is made the basis for public policy by all shades of socialists. That socialists should readily accept the traditional theory is not surprising, because it sustains their a priori assumption that the state should do every thing. But with Mr. Spencer the case is quite different, as he is the most extreme representative of the individualist school. He regards socialism as slavery,^ and state ownership and con- trol of industrial enterprises as inimical to progress. Now the supremacy of industrial individualism is incompatible with the existence of a social organism. The question, however, is not whether Mr. Spencer's position on the organic structure of society is consistent with his theory of individualism, but whether it is scientifically and philosophically sound. This is the more im- portant, because Mr. Spencer stands pre-eminently for the scien- tific method of investigation. Indeed, his conclusions upon this point are regarded as the sociological embodiment of the doctrine of evolution, and may be taken as representing those of evolu- tionists generally upon this subject. The fact that Mr. Spencer occupies this leading position in the world of scientific sociology makes a careful consideration of his position on this subject of the utmost importance. In setting forth his reason for conclud- ing that society is an organism, he says : " So completely, however, is a society organized upon the same system as an individual being, that we may almost say there is something more than analogy between them. ... A still more remarkable fulfilment of this analogy is to be found in the fact, ' Political Science Quarterly. September, 1889, p. 546. ' " The Coming Slavery," Popular Science Monthly, April, 1884. SPENCER'S THEORY OF SOCIETY. 3OI that the different kinds of organization which society takes on, in progressing from its lowest to its highest phase of development, are essentially similar to the different kinds of animal organi- zation." After a detailed illustration of the similarity between society and an individual organism, he says : " Thus do we find, not only that the analogy between a society and a living creature is borne out to a degree quite unsuspected by those who commonly draw it, but also that the same definition of life applies to both. Thus the union of many men into one com- munity — this increasing mutual dependence of units which were originally independent — this gradual segregation of citizens into separate bodies, with reciprocally subservient functions — this for- mation of a whole consisting of numerous essential parts — this growth of an organism, of which one portion cannot be injured without the rest feeling it — may all be generalized under the law of individuation. The development of society, as well as the de- velopment of man, and the development of life generally, may be described as a tendency to individuate — to become a thing. And rightly interpreted, the manifold forms of progress going on around us are uniformly significant of this tendency." ' In a later work," Mr. Spencer discusses the social organism at still greater length and defends his conception from the inconsis- tencies of the Greeks and also against those of Hobbes. After criticising these writers, he says : " Notwithstanding errors, however, these speculations have considerable significance. That such analogies, crudely as they are thought out, should have been alleged by Plato and Hobbes and many others, is a reason for suspecting that some analogy exists. The untenableness of the particular comparisons above instanced is no ground for denying an essential parallelism ; for early ideas are usually but vague adumbrations of the truth. Lacking the great generalizations of biology, it was, as we have said, impossible to trace out the real relations of social organiza- tions to organizations of another order." ° He then discusses the points of general analogy between society and living organisms, which he sums up by saying : ' " Social Statics," pp. 490, 493, 497. See also " First Principles," pp. 408, 413, 433-437. ' "Illustrations of Universal Progress," chap, jc ' Ibid., p. 391. ; 302 SOCIETY AND LIVING BODIES. " Thus we find but little to conflict with the all-important analogies. . . . The principles of organization are the same ; and the differences are simply differences of application. Here ending this general survey of the facts which justify the com- parison of a society to a living body ; let us look at them in detail." ' After devoting thirty pages to the discussion of details sustain- ing this analogy he concludes by saying : " Such, then, is a general outline of the evidence which justifies, in detail, the comparison of societies to living organisms. That they gradually increase in mass ; that they become little by little more complex ; that at the same time their parts grow more mutually dependent ; and that they continue to live and grow as wholes, while successive generations of their units appear ard disappear, are broad peculiarities which bodies politic display, in common with all living bodies, and in which they and living bodies differ from every thing else." " It will be seen from the foregoing that although Mr. Spencer objects to Hobbes' presentation of the analogy between the social and the human organization, he quite as emphatically holds to the conclusion that society is an organism, whose organic struc- ture is fundamentally the same as that of animal organisms. If this be correct, it of course follows that the relation of the units to the aggregate is the same and that the order of progress in society is the same as in the animal organism. In short, that a biological hypothesis adequately explains sociological phe- nomena. The fact that a theory correctly accounts for one class of phe- nomena does not warrant its application to another, unless it can be shown to adequately explain the new phenomena independently of its use in any other field of investigation. If we examine social phenomena independently of biological hypothesis, we shall find : (i) That although there is a general resemblance be- tween society and the animal organism, the difference between ' " Illustrations of Universal Progress," pp. 397, 398. ' Ibid., p. 428. That this represents Mr. Spencer's views upon the subject is shown by the fact that it is repeated in his latest utterances. See " Sociology.' Also correspondence with Huxley in the Times, September, 1889, republished in the Popular Science Monthly, February, 1890, SPENCER'S POSTULATES. 303 them is sufficiently radical and fundamental to destroy the basis for the conclusion that society is an organism. (2) That such an assumption is not necessary in order to apply the theory of evo- lution to social phenomena. It is unquestionably true that there are many points of re- semblance between society and individual organisms, and so there are between individual organisms and inorganic bodies. The question, therefore, is not whether there are anypoints of agree- ment between society and an organism, but whether the points of agreement are sufficiently numerous and fundamental to make them constitutionally identical. Mr. Spencer presents four char- acteristics in which society resembles an individual, which he re- gards as sufficiently fundamental to warrant the classification of society as an organism ; they are : " I. That commencing as small aggregations, they insensibly augment in mass : some of them eventually reaching ten thousand times what they originally were. " 2. That while at first so simple in structure as to be con- sidered structureless, they assume, in the course of their growth, a continually-increasing complexity of structure. " 3. That though in their early, undeveloped states, there exists in them scarcely any mutual dependence of parts, their parts gradually acquire a mutual dependence, which becomes at last so great that the activity and life of each part is made possible only by the activity and life of the rest. " 4. That the life and development of a society is independent of, and far more prolonged than, the life and development of any of its component units, who are severally born, grow, work, re- produce, and die, while the body politic composed of them sur- vives generation after generation, increasing in mass, completeness of structure, and functional activity." ' There can be little doubt that in these four characteristics society resembles the animal organism ; nor can there be any doubt that the first two apply with equal force to inorganic de- velopment. These are as true of the development of inorganic substances as they are of the growth of plants, animals, or society. If, therefore, we are to assume that society is an organism because in these general and important respects it resembles an individual, then may we not say that vegetable and animal bodies are in- ' " Illustrations of Universal Progress,'' pp. 391, 392. 304 SPENCES'S ERROR. organic, because, in these fundamental characteristics they re- semble inorganic bodies ; and vice versa. If we should attempt to draw any such conclusion, Mr. Spencer would soon correct us by pointing out that the lower we go in the scale of development the greater is the simplicity and similarity of form. And thus, while in the first two characteristics animal organisms are similar to those of inorganic bodies, in the last two they greatly differ ; for, though mineral substances like organisms, increase in mass and complexity of structure, they do not develop the functional dependence of parts exhibited in the individual organism.' If the fact that the individual organism has functional activi- ties different from those of inorganic bodies, establishes the distinction between their classification as organic and inorganic, it follows that a similar difference between the constitution of society and that of an individual organism equally warrants a dis- tinction in their classification. If we examine the constitution of society and the individual organism, we find the following radical distinctions which are quite as great as those between organic and inorganic bodies as pointed out by Mr. Spencer. I. In an individual organism progress consists in the differ- entiation and specialization of functions in which the aggregate tends to gain a more complete control over the action of the parts, such as eyes, ears, teeth, tongues, feet, hands, etc., whereas in society progress consists in a differentiation of functions and definiteness of polity in which the parts constantly tend to acquire an increasing control over the action of the aggregate. II. In an individual organism the end of the parts is to serve and sustain the aggregate or organism, and when they fail to serve that end they become atrophied and disappear, whereas in society the end of the aggregate is to serve and sustain the individual units. III. In an organism, where consciousness and intelligence exist, they reside in the aggregate and never in the parts ; whereas in society consciousness and intelligence reside always in the parts and never in the aggregate. Indeed, the social aggregate has none of the attributes of a conscious entity. ' " Even such inorganic bodies as crystals, which arise by growth, show no such definite relation between growth and existence as organisms. " — ' ' Illustrations of Universal Progress," p. 392. SOCIETY NOT AN ORGANISM. 30S IV. In an organism the existence of the parts is subsequent to, dependent upon, and developed through the unconscious action of the aggregate ; whereas in society the aggregate and its polity or representative action, is subsequent to, dependent upon, and de- veloped through the conscious action of the parts. V. In an organism the influences which promote differentiation of function must operate upon the aggregate or organism, and through it affect the parts ; whereas in society the influences which promote differentiation must operate upon the paits or in- dividual units, and through them affect the constitution of the aggregate and its active polity. VI. In society conscious wants, intelligence, and will, are the characteristic attributes of the units through which all the in- fluences affecting the differentiation of the social aggregate must finally act ; whereas in the individual organism the units have no such characteristics ; where these characteristics exist at all they are the attributes of the aggregate and not of the units, and in the lower forms of animal and all vegetable organisms they do not exist at all. It will thus be seen that, despite the general resemblance be- tween society and an individual organism, the difference in the functional relation of the parts to the aggregate, and the order of their development, is quite as marked and more fundamental than that between organic and inorganic bodies. The differ- ence between the organic and the inorganic consists mainly in the fact that the complexity of structure and interdependence of the parts are greater in the former than in the latter ; whereas the difference between society and an organism consists in the fact that the units sustain an opposite relation to the aggregate, and that progressive differentiation is in an opposite direction : in society the tendency being to increase the conscious control of the parts over the aggregate, and in an organism to increase that of the aggregate over the parts. So far from being an organic entity, society is only the systematized environment of associated individuals by whom and for whom it is created, and upon whose state of industrial, social, and intellectual develop- ment its existence, form, and character depend. Nor is this view inconsistent with the doctrine of evolution. This theory does not involve the assumption that society is an 3o6 SOCIAL PROGSESS UNLIKE PHYSICAL. organism. Evolution simply implies a progressive movement from a less to a more definite, coherent, orderly state of existence. But it does not follow that the more complex form must neces- sarily be organic ; since in that case inorganic development would not be evolution. Although evolution implies a greater definite- ness of functional relation, it does not necessarily mean the individualization of the aggregate. It is not strictly correct therefore, to say " the development of society as well as the de- velopment of men and the development of life generally may be described as a tendency to individuate — to become a thing." So- ciety does not tend to become a thing, in the sense of an organic entity. Progress in society is not a tendency to individualize the social aggregate, but rather to de-individualize it, making its action more and more the consciously delegated expression of the individual. Indeed, the only individuality which social prog- ress develops is in the units ; institutions are specialized, but man only is individualized as an organic entity. If we regard society as an association of individuals for their common protec- tion and further development, the theory of evolution becomes rationally applicable to social as well as organic and inorganic phenomena. From this point of view the assumption that society is an organism is unnecessary, and the anomaly of creating a colossal social man with increasing despotic power over the individual disappears. Social progress then is seen to be an orderly movement towards greater individual perfection, and per- sonal freedom for man, which accords with universal history. So far as human knowledge goes, the highest individual or- ganism yet developed is man. In every stage of physical development, from the most incoherent homogeneous form known or inferred, the movement has been towards higher and more complex types of formation, each of which tended to make the existence of the next possible. And the crowning product of the whole series of inorganic and organic evolution is man. With the appearance of man began another phase of develop- ment which was neither inorganic nor organic, but social. Progress in this sphere does not consist in the unconscious differentiation of an inorganic mass, nor in that of a living organism, but in a systematization of the environment and specialization of the efforts of individuals, which results in a SPENCER UNWITTINGLY SOCIALISTIC. 307 further development of the individuality of the units. It thus appears that man occupies the objective or crowning position in both physical and social evolution ; with this difference however : in the physical world he presents the highest type of an organic aggregate, and in society he occupies the position of a unit. Thus although evolution is fundamentally the same in society as in the physical world, in that it is a move- ment from the simple to the complex, the order of development is reversed ; in the physical world, it is a subordination of the parts to the perfection of the aggregate, and in society it is a subordination of the aggregate to the perfection of the units. In order therefore, to complete Mr. Spencer's statement, that " the development of society as well as the development of man and the development of life generally, may be described as a tendency to individuate — to become a thing," we must add, that this individuating tendency ends in the greater individual- ization, not of society, but of man — physically as an organism, and socially as a sovereign personality. It is evident, therefore, that the Greek and Roman conception that the state is every thing, the individual nothing ; and the socialistic position logically deduced therefrom, that "the com- munity is the end in itself, individuals being only the means for the promotion of social well-being, and in no sense ends in them- selves " ; and Mr. Spencer's assumption that " society is an organ- ism," are essentially erroneous. In this, as in all other cases of reasoning from mistaken hypotheses, the error only becomes important when the theory is made the basis of action. Like many of the immature postulates of the English economists, already referred to, Mr. Spencer's theory of a social organism unwittingly lays the logical basis for state socialism, a theory which he himself regards as the greatest of modem fallacies. The difference between Rodbertus and Mr. Spencer is precisely the same as the difference between Marx and Ricardo.' Marx arrived at the conclusion that profits are robbery by the logical application of the Ricardian 'postulate that the quantity instead of the cost of labor determines value. And Ricardo avoided the fallacy of Karl Marx only by failing to consistently apply his own postulate. So the theory of state socialism developed by ' Part III., chap. vi. 308 PSOFESSOR CLARK'S VIEW. Rodbertus is logically sustained by the Spencerian postulate that society is an organism, and Spencer avoids the fallacy of social- ism only by disregarding his own hypothesis. We are therefore warranted in concluding that society is not a colossal " artificial man," as affirmed by Hobbes, nor an " organ- ism " as affirmed by Spencer, nor an " end in itself," as affirmed by Rodbertus ; but on the contrary, that it is an association of indi- viduals as a means for the promotion of individual well-being. Indeed the history of government is the history of making and unmaking social institutions in order to render them more subservient to the needs of the social life of the individual. Nor is this view confined to Spencer and the socialists, but it is beginning to be accepted by liberal economists. Thus in his chapter on " The Basis of Economic Law " Professor Clark says : " The analogy between society and the human body was familiar to the ancients. It is a discovery of recent times that a society is not merely like an organism ; it is one in literal fact. . . . Political economy treats not merely of the wealth of individuals who sustain complicated relations with each other, but of the wealth of society as an organic unit." ' In a subsequent chapter (" Theory of Value ") he makes this social organism into an active contracting personality who buys every thing from the individual and sells every thing to him, and says : " Exchanges are always made between an individual and society as a whole. In every legitimate bargain the social organism is a party. Under a regime of free competition, whoever sells the thing he has produced, sells it to society. His sign advertises the world to come and buy, and it is the world not the chance customer that is the real purchaser. Yet it is equally true that whoever buys the thing he needs, buys it of society. ... In the process the social organism is true to its nature as a single being great and complex, indeed, but united and intelligent. It looks at an article as a man would do, and mentally measures the modification in its own condition which the acquisition of it would occasion, or which the loss of it would occasion, if once possessed." ' It will thus be seen that according to Professor Clark society is not merely an organic entity, but it is a single intelligent be- ' " Philosophy of Wealth," pp. 38, 39. * lUd., pp. 85, 86. CONFOUNDING METAPHOR WITH FACT. 309 ing. If the analysis of the economic relation of individuals to society presented by Professor Clark is correct, then economic collectivism is scientifically sound and should be accepted as the basis of industrial statesmanship. But is the analysis correct ? Is it true that " exchanges are always made between individuals and society as a whole " ? Do such economic relations actually exist ? Where, how, and under what conditions does society "as a whole " buy wheat, potatoes, shoes, clothes, furniture, etc., from individuals ? When farmers and manufacturers take their products to the market they do not sell them to society, but to individuals, who invariably purchase them either for their own consumption or to resell them to other individuals. Nor does society, as an organism of which individuals " are but atoms," consume any of these products. They are consumed by indi- viduals, and by individuals only. Neither is the statement that "his sign advertises the world to come and buy, and it is the world and not the chance customer that is the real purchaser," any nearer correct, if the term world is used in any other sense than the individuals in the world. The social market simply expresses the aggregate consumption of individuals constituting any social group. Neither is there any truth, except as a metaphor, in the statement that " the social organism is true to its nature as a single being, great and complex, indeed, but united and intelligent. It looks at an article as a man would do, and mentally measures the modification in its own condition." Society, as an entity, does nothing of the kind. All the " mental measurement," all the " intelligence," all the con- scious action, is performed by individuals. A hundred indi- viduals equally intelligent do not constitute a single intelligence a hundred times as great as one. An intellectual giant cannot be made by simply adding mental Liliputians. Intelligence can only be increased by developing it in the individual organism. Notwithstanding the immense advantage of society over isola- tion — and it constitutes all the difference between savagery and civilization, — there are no facts to warrant the assumption that society is a new acting entity, much less an individual organ- ism. On the contrary, the advantage of society is entirely to individuals through their association with each other. In short, society is an association of individuals for the better promotion 3IO THE FUNCTION OF GOVERNMENT. of their own well-being, and therefore, in studying the law of economic movement we must have for our basis the individual ; in no other way can social progress be promoted. Section III. — The Function of Government ; or. The Control- ling Principle in Statesmanship. Having seen what the state is and the relation it sustains to the individual, we are now in a position to consider its function as a factor in civilization. Nor will this be a difficult task, if we bear in mind the points already established, namely : that the state is but the representative expression of associated individuals, and that progress in society is a tendency towards the greater indi- vidualization of man, both a physical organism and as a sovereign social personality. As already pointed out, social progress has two fundamental characteristics ; one is economic, the other social. The former is a tendency towards more wealth for the individual ; the latter is towards more freedom for the individual. How to promote the increase of wealth and freedom for the individual therefore, is the problem of statesmanship and the end to which collective authority, or state action, should ever be directed. In considering this question it should be remembered that neither wealth nor freedom can be authoritatively given to the individual ; they must be taken by him. The only way in which the state can give wealth to the individual is by charity. Wealth so acquired, instead of promoting freedom, is one of the most powerful means of preventing it. Charity in any form tends to create obligation, stereotypes dependence, and thereby destroys individuality, and makes freedom impossible. The history of freedom is a history of the increase of the sovereignty of the individual over his own actions and the diminution of that of the state. It is sometimes said " that government is best which governs least." It would be more correct, however, to say that people .is best governed which needs the least government. We should be careful, however, not to confound freedom with inde- pendence. The savage is independent of social restrictions, but he has very little freedom. He is in constant danger of his life from the defencelessness of his position. He has no friends because he befriends nobody ; he can obtain no assistance or protection because he assists and protects nobody. Indeed it is VIRTUE OF INTERDEPENDENCE. 311 because he is the least dependent upon his fellows that he is the most helpless and has the least freedom of any man in the world. Mutual dependence is the greatest promoter of freedom. When- ever the freedom of each depends upon the freedom of all, no one has any interest in preventing it, but every one has an interest in extending it. Mutual dependence cancels obligation and extends freedom, while dependence creates obligation and restricts freedom. It is only when everybody's safety depends upon pro- tecting the safety of his neighbor that freedom extends along the whole line of human relations. With the dependence upon authority the case is entirely different. There the obligation is all on one side. It is the relation of creditor and debtor, of the giver and receiver, of the master and ward, and not that of mutual helpers and the receivers of equivalents. Dependence upon authority is scarcely less inimical to freedom than non- dependence upon society. The one involves savagery and the other despotism. It is only the mutual assistance born of indi- vidual interdependence that can make the highest social life and the maximum individual freedom possible. In other words, the highest individualism promotes the most complete co-opera- tion of effort, unity of interest, equity of relations, freedom of action, and complexity of social life. Evidently then, it is the duty of the state to promote in every way possible the develop- ment of the individuality of its citizens, increase their mutual de- pendence upon each other and to decrease their dependence upon the government. Upon what lines should the public policy be directed to accomplish this result ? Paternalism fails to promote this end, because it tends to lessen instead of increase the activi- ties and responsibilities of the individual. Nothing develops power but activity, and nothing creates activity but the necessity for it. We never put forth effort to do for ourselves that which others will do for us. Since inaction is fatal to progress, the in- crease of paternalism is necessarily a great barrier to individual development. Nor is it less erroneous to assume that the sover- eignty of the individual can best be promoted by merely restrict- ing the sphere of governmental activities. It would be as correct to say that the withdrawal of parental care and education from children is the best means for developing the highest manhood. The way to increase the sovereignty of the individual is not to 312 BASIS OF PUBLIC POLICY. arbitrarily lessen the functions of the state, but to make its activities less necessary. The necessity of state action- can be minimized only by maximizing the capacity of the individual. To break the egg from without is almost certain to injure if not kill the chick, but when it is broken from within by the increasing power of the chick itself, it only breaks when the chick is strong enough to do without it. So in society ; the authority of the state over the individual should not disappear by weakening the forces without, but by increasing those within him. In short, the indi- vidual is the initial point of social movement. The more intelligent and highly developed the character of the individual, the more capable he is of doing for himself and more reluctant to have others do for him. Hence, throughout the his- tory of society we see that the greater the ignorance and poverty the more marked is the lack of individuality in the social units ; and the weaker the character of the individual, the more despotic is that of the government. A most significant fact in this move- ment is, that this transfer of authority from the state to the indi- vidual has always been exacted by the individual and reluctantly yielded by the state.' Indeed it is a fundamental principle in both nature and society that man can only continuously have that which he can demand and maintain by force of character. Therefore the increase of wealth and the freedom of the indi- vidual must come through influences which tend to develop his character, thereby making paternalism less necessary and des- potism less possible. It may therefore be laid down as a fundamental postulate in scientific statesmanship, that the controlling principle in ^public pol- icy should ever be to minimize the necessary sphere of governmental action and authority, and to maximize the possible sphere of individual action and responsibility. In other words, the function of govern- ment in all phases of industrial, social, and political life is to promote the development of the highest possibilities of the individual. ' Witness the protracted agitation that is always necessary to extend the rights of the individual in any direction, the right of individual judgment in religion, the right to vote, the right for women to own property, the right to hold public office without regard to religious views, the right to democratic government, the right for women to vote, even in a Republic, etc. , etc. DISADVANTAGE OF STATE ACTION. 313 In order to understand the lines of action which the application of this principle involves, it is necessary to consider: (i) Why, on general principle, individual effort and responsibility are pref- erable to state action and authority ; (2) What class of things can be administered better by the state than by the individual ; (3) What line of public policy should be pursued in order to maximize the sphere of individual action and responsibility and thereby minimize the necessity for governmental authority. I. On general principle, individual action and responsibility are preferable to state action or collective authority, because they possess the maximum possibility of directness, efficiency, econ- omy, and equity. State action, being representative whether elective or not, is necessarily indirect and arbitrary. Arbitrary action always involves the maximum amount of inequity and mistakes, because it is necessarily governed by stipulated rules, and therefore cannot be modified to suit the great variety of individual cases. The universal experience of mankind confirms the assumption that whenever individuals can settle their affairs between themselves, the adjustment is most likely to be equitable and mutually satisfactory, and hence the decision of a third party should always be a matter of last resort. This does not mean that all courts and other forms of governmen- tal action, or even war, are unmixed evils ; it only means that they are necessarily clumsy, because arbitrary means of accomplishing the desired end. Indispensable as war may have been, and im- portant as armies, navies, and policemen still are, it is universally admitted that the less the necessity for using them the better. It is because of the injustice which always accompanies battle-field decisions that war diminishes as individuality in the average citizen increases and civilization advances. The same arbitrary element runs through all collective action, though it is some- times indicated in less violent and repulsive forms. Take, for instance, taxation. How to equitably adjust taxation has been a perplexing problem since human society began. It is because taxes are levied by representative authority, according to some arbitrary rule which is utterly incapable of being adapted to a very great variety of conditions, that injustice is constantly being done to numerous individuals and frequently to whole classes. The same principle shows itself in our best courts 314 THE DIVIDING LINE IMPORTANT. of justice, notwithstanding the jury system and the immense learning of advocates and judges. When a case is given to a jury the legal limits to their decision are fixed by the judge in his charge. They may think the defendant morally innocent or actually justified in his act, but by virtue of a legal technicality they are forced to vote him guilty and subject him to a punish- ment which both individually and collectively they would regard as unjust. And so on through the whole history of legal de- cisions. It is because of this preponderating probability of legal inequity that in civil cases wherever disputants can adjust the difference themselves they are generally encouraged to do so by the court. State action being necessarily arbitrary, and hence seldom capable of the highest elBciency, economy, and equity, it is important to consider what class of things, if any, can natu- rally be administered by the state belter than by individuals, and vice versa. 2. Since association is better than isolation, and since govern- ment is necessary to society, it follows that while there are many things which the individual can do better than the state, there are some things which the state can do better than the indi- vidual. How shall we determine between the sphere of state and individual action ? If we take an extreme case from either class, there is no difficulty in deciding to which sphere it naturally belongs. For instance, if it is a question of determining one's own religious opinions, we have now no difficulty in deciding that it belongs entirely to the individual. And on the other hand^ if it is a question of public defence, such as requires an army and navy, we have no difficulty in deciding it to be clearly one of the functions of the state. But when we come to the outer edges of these spheres of action where they merge together, the line of demarcation is not so easily observed. Here a new difficulty arises, because this is not only the point where a wise decision is most important, but also where the material for making a wise decision is most difiScult to obtain. Although there is no differ- ence of opinion to-day as to whether or not the individual should choose his own religion or the government should control the army, there is an immense difference of opinion as to whether telegraphs, banks, mines, and railroads should be conducted by private enterprise or under state control. The difference be- SPHERE OF INDIVIDUAL ACTION. 315 tween the administration of the post-ofBce and that of the tele- graph is so slight that public management of the former is made the basis for demanding state control of the latter. And if we have nothing upon which to base our decision but the facts in the two particular cases, it will be very difficult to decide. And if government control is extended to the telegraph, the question between that and the railroad becomes equally difficult to deter- mine. The steps from the railroad to the mine, from the mine to the farm, from the farm to the factory, are all equally short and, of themselves, difficult to determine. It is necessary there- fore, to have some broader generalization upon which to base our decision than the data which each individual case furnishes. This can only be found by viewing each individual case in the light of the general class to which it belongs. Since in the progress of society there is a constant tendency to transfer functions from one sphere to another, it is in the distinctive characteristics of these functions that we must seek the principle governing the line of demarcation between the proper sphere of state and indi- vidual authority, and thus be able to establish a scientific basis for determining whether or not in any given instance the sphere of state action should be extended or restricted. If we study the evolution of society from its homogeneous form, in which every thing was done by authority, to its present highly complex state, where most things are done by individual enterprise, we can readily see the leading characteristics of those functions which tend to pass from the state to the individual and those which tend to become recognized as distinctively the func- tion of government. Among the things which have indisputably passed to the sphere of individual authority are the right to per- sonal freedom, the selection of one's partner in life, and the charge of one's own children, the right of free speech, and of making industrial contracts. The reason why these are relegated to the individual is that in all such cases there are many subtleties in which the individual is more directly interested, and about which he is more com- petent to decide than any third party can possibly be ; and these subtleties increase with the advancing complexity of social rela- tions. Moreover in many of these intricate personal relations the decision must be made at once in order to be effective, 3l6 SPHERE OF STATE ACTION. and therefore can be made only by the individual himself. The arbitrary, red-tape character of government action neces- sarily precludes complete knowledge of detail and the prompt action necessary in such cases. Although no individual is yet perfect in this regard, he has infinitely greater possibilities of be- coming so than any form of representative authority can pos- sibly have. This is equally true of economic relations. In the early stages of society, when industry was very simple, being practically limited to agriculture, with crude hand-methods of production, it could be conducted by collective authority. But as wants were multiplied and occupations differentiated, economic relations grew more involved, and a more special knowledge became necessary, which made arbitrary administration very much less efficient. Consequently the ownership of property and the administration of productive enterprise gradually pass from public to private ownership and control, or from the sphere of state to that of individual authority, in proportion as the division of labor, the concentration of productive effort, and the social freedom of the individual increased. On the other hand, although governments have radically changed their character, certain functions have been relegated to them by common consent. Among these are protection against a common enemy, the maintenance of public order, the protection of individual rights, the enforcement of contracts, the administration of justice, the maintenance of public roads, canals, bridges, parks, museums, libraries and the enforcement of sanitary regulations. Nor is the reason for this difficult to understand. The administration of the army, navy, police, and the like, is pre- eminently the function of the state, because in such things effec- tiveness lies in the maximum aggregation of physical force, and this can be best obtained by all acting as one man under a single leader. Indeed the most perfect military force involves the maximum despotism and the minimum individuality, and hence can always be exercised most efficiently by arbitrary authority. The maintenance of public order, the enforcement of contracts, and the administration of law are also functions which can be best performed by the collectivity, for the reason that it acts uniformly for all, and its decisions are backed by the power of PUBLIC AND PRIVATE FUNCTIONS DEFINEP. 317 all. Nor does the development of individual character tend to transfer the functions of the soldier, the policeman, the judge, and the jailor from the authority of the state to that of the individual. On the contrary, while it tends to make these functions unnecessary, so long as they are needed they can be better performed by the state than by the individual. The same is true of public highways, such as roads, canals, bridges, sanitary regulations, etc. They are common conven- iences which everybody needs, and their management is of the simplest character. To keep such public conveniences in repair calls for no special skill, and changes in method are so slow and infrequent that no inconvenience is experienced by having them under control of routine authority. Although unlike military and police functions, these do not diminish but steadily increase with the advance of civilization, there is no tendency to put them under individual control. The reason for this is that while these can be managed as well by the state as by the individual, the former has the additional advantage of giving greater freedom to travel by obviating the inconvenience of direct payment in the form of tolls, etc. And since these functions relate only to securing the maximum safety and convenience to individual enterprise and mobility, there is no incentive for individuals to undertake them because they have no interest in doing so. It may therefore be laid down as a general principle, that in proportion as social functions are complex, variable, and personal in their nature and interest, requiring instant decisions and expert skill, individual management is superior to state author- ity, and conversely, only in proportion as functions are simple, permanent, and arbitrary in their character, and impersonal in their nature and interest, can they be efficiently performed by the state. In other words, the functions of the state are essentially protective, judiciary , educational, and impersonal in their nature J hence, all economic and social functions which are tssenXially personal, productive, commercial, or experimental va. their nature properly belong to the sphere of individual action and responsibility. 3. This brings us to the consideration of the third proposition, namely, what line of public policy should be pursued in order to maximize the sphere of individual action and responsibility, and 3l8 PROTECTION AND PATERNALISM. thereby minimize the necessity for governmental authority. The doctrine that the state should do for the individual only such things as he cannot do as well for himself, of course implies that it should continue to do all those things which it can, under exist- ing conditions, do better than he. Hence, it does not follow that because the natural functions of the state are protective, judiciary, educational, and impersonal, that it should never perform any others. On the contrary, the state must continue to do whatever the individual is incapable of doing as well. The state should re- linquish no function until it can be performed as well or better by the individual ; otherwise many social duties would be abandoned alto- gether and progress greatly retarded. Paternalism in government is a necessary substitute for individual capacity, and consequently iticr eases as we descend and diminishes as we ascend the scale of civiliza- tion. Therefore, whenever it is necessary for the state to perform paternal functions — doing for the individual, — it should always be regarded as a temporary duty, to be transferred to the indi- vidual as rapidly as he acquires the capacity to perform it. In the last analysis then, while it is the duty of the government to do those things for the individual which he cannot do as well for himself, the governing principle in public policy should ever be to protect and enlarge those OPPORTUNITIES, and to promote those influences which tend to develop the highest possibili- ties of the individual to do for himself. There is one other point worthy of note before passing to the application of this principle to the various phases of industrial and social life — namely, the importance of distinguishing between paternal and protective functions. This distinction is indeed in- dispensable to scientific statesmanship. To confound the pater- nal with the protective principle in government is to destroy all philosophic basis for a public policy, yet this is commonly done by many of the ablest writers. For instance, such writers as Senior, Spencer, and the leading English economists oppose state regulation of the hours of labor, the sanitary conditions of workshops, employment of women and children in mines and factories, compulsory education of factory children, and free public schools, as being paternal legislation. They thus fail to recognize any difference bet^v^fen the policy of furnishing the DISREPUTE OF ENGLISH ECONOMICS. 319 child with wholesome sanitary surroundings and an education, and that of furnishing hitn with food, clothes, and shelter.' It is really this unphilosophic opposition to reform which has brought the doctrines of the English school into such disrepute among the more liberal and sympathetic portion of the commu- nity, and which in its reaction has given much plausibility to socialism. Indeed it has made individualism the synonym for anti-reform and its antithesis — socialism — the means of reform. Orthodox economists reason that because paternalism is in- jurious, protection should be abandoned; while, on the other hand, socialists conclude that because protection has been advanta- geous individualism should be abandoned and paternalism adopted. By overlooking the distinction between protection and paternalism, we are logically driven to one of two unscien- tific theories of statesmanship — laissez faire or socialism. The distinction between paternalism and protection is that a paternal policy implies doing the maximum for the individual, while a protective policy implies providing the individual with the maximum opportunity to do for himself. If this difference were clearly recognized the obvious error in the anti-reform atti- tude of let-aloneism and the stultifying influence of paternalism would be obviated. The duty of the state as essentially pro- tective and educational in the widest sense of the term would be easily understood. With this as the basis of public policy, the state can always be scientifically used as a means of promoting progress without hindering the growth of individual freedom. ' This mistake is strikingly illustrated by Buckle in his able arraignment of what he calls the protective spirit in France as contrasted with the non-protective spirit in England. The truth is, however, that what Buckle was denouncing in France as protection, was paternalism. It was a reign of bureaucracy in which the state endeavored to do the maximum for the individual instead of enabling the individual to do the maximum for himself. The contrast was not between protection in France and laissez faire Kn England, but a contrast between pater- nalism in France and protection in England. See " History of Civilization," vol. i., chapters ix. and x. See also Spencer's " Coming Slavery," Popular Science Monthly, April, 1884. CHAPTER III. THE PRINCIPLE OF INTERNATIONAL TRADE. Section \. — Increasing Social Opportunity Necessitates National Development. In the preceding discussion four facts have been established : (i) That social progress is development of the character and sovereignty of the individual, to which end government is but a means. (2) That the let-alone doctrine is theoretically unscien- tific and practically impossible in society ; a negative government being a contradiction in terms. (3) That since paternalism limits the need of the individual to do for himself, it hinders rather than helps the development of individuality. (4) That freedom can only be increased by the growth of individual capacity, which in turn depends upon the opportunities for de- veloping individual character. In order to apply these principles to the various phases of social and industrial life it is necessary at the outset to under- stand what constitutes opportunity. In the first place it should be remembered that we are dealing with man as a social being ; hence it is only with the development of his character as a social individuality that we are concerned. Indeed this constitutes all the difference between savagery and civilization. Opportunity then, is necessarily social, and must be sought in man's social environment — in his intercourse with his fellow-men. And since progress in society as elsewhere, is the movement from a rela- tively simple to a relatively complex state of existence, the social environment necessary to constitute opportunity must be con- stantly increasing in complexity. Social opportunity, therefore, 320 WHAT OPPORTUNITY IMPLIES. 32 1 may be stated as necessary contact with an increasing variety of social influences.^ Society then, is a necessary prerequisite to individual advance- ment. Society does not mean merely an aggregation of human beings, but such an association of individuals as shall make fre- quent intercourse and mutual dependence between them certain. This implies the segregation of the human race into groups or nations in which the individuals have some industrial, social, and political affinity, without which the contact necessary to individual growth is impossible. Consequently the doctrine of increasing opportunity for individual development includes not only the re- lation of individuals to each other within a social group ornation, but also the development of the nation as a political entity. Although patriotism and the desire for national autonomy is a prominent feature in the statesmanship of every country, there is no recognized principle by which its policy should be governed. What relation the industrial development of the nation sustains to the civilization and freedom of the people ; why, and under what conditions national and industrial autonomy is necessary to industrial development, and what relation industrial and indi- vidual development sustain to each other, are questions to which neither economic nor political science has hitherto furnished any adequate answer. When we recognize the fact however, that a nation is but the social setting of the individual and that gov- ernment is but a means by which the resources of the nation are utilized for promoting the welfare of the individual, the im- portance of considering the development of the nation as a necessary means for promoting the progress of society at once becomes apparent. Section II. — National Development Necessitates the Growth of Manufacturing Industries. In considering this question it is important at the outset clearly to understand what we mean by the expression, national develop- ment. It is commonly assumed that the development of the material resources of a country, as agriculture, mining, or manu- facture, is necessarily the development of the nation. This view confounds the physical qualities of soil and climate with the ' "Wealth and Progress," pp. 231, 232. 21 322 THE NATION IS SOCIAL. social qualities of the people which are essentially different. Such reasoning logically makes the industrial pursuits, and hence the social life, of the people depend upon the physical character- istics of the country. Thus instead of subordinating nature to man it subordinates man to nature, which is the reverse of all progressive tendencies in social evolution. When we separate physical from social phenomena and recognize the nation as the people this difficulty is obviated ; it then becomes evident that the social development of man is an end to which the physical development of nature is but the means. In considering the development of a nation therefore, the prime question is not development of the natural resources of the country, but development of the character of its people. The mere fact that the soil of a country is prolific is not a suffi- cient reason why all the people should become agriculturists. The cultivation of the soil or of any material resource of a country should be made subordinate to the cultivation of man. In other words, the development of a nation consists in the development of its civilizing and individualizing influences. To the extent that the people of a nation are isolated in their occu- pations and daily life, will their social progress be slow ; and the less frequent intercourse between individuals the less social- izing will its influences be. In order then, to increase the socializing influences of a nation, it is necessary first of all to promote the concentration of its population. Nor can this be accomplished by mere arbitrary authority. People will not con- centrate either in their social life or industrial pursuits merely because they are advised or ordered to do so. The concentration of population means greater complexity of social life, which is what man is apt to avoid except under the pressure of some desire or necessity. It is proverbial that the savage shrinks from the customs of civilization, and the rural peasant from contact with city life. Indeed, people whose social life is simple, always endeavor to avoid close intercourse with those in highly developed society, because it means new and at first, embarrassing experiences. Nothing will induce people to encounter the difficulties of a new environment but the strong desire for some object not otherwise obtainable. So long as people can gratify their desires Avithout IMPORTANCE OF CITIES. 323 facing the difficulties of new and more complex social relations, they will continue to do so. Nothing will permanently centralize a people which does not make concentration indispensable to getting a living. Thus social concentration depends upon indus- trial concentration. The possibility of concentrating employ- ments depends upon the nature of the industry. Agricultural occupations cannot possibly be centralized ; they are isolating in their very nature, and hence are essentially non-socializing in their influence. The only industries which tend to centralize and socialize people are manufacturing. Social isolation is as impossible with manufacture as is social concentration with agriculture. The development of manufacturing industries then, is an indispensable condition to national development and social progress. The development of manufacturing industries is important in many respects. In the first place because it involves socializing occupations. Factory methods of production bring people into close social contact in the ordinary pursuits of industrial life. Whatever compels people to work together, makes their living in close proximity indispensable ; the modern city and all that it implies is chiefly the product of these two facts. From time immemorial the growth of manufacture and trade has been the means of developing towns and cities,' and these industrial centres have in turn ever been the nurseries of civilization. It is always in the cities that the most complex social environment arises, and it is always there that the greatest refinement and highest individuality exists, and hence it is there that the successful struggles for social, religious, and political freedom have always taken place. The difference therefore, between agricultural and manufac- turing employments is very marked. Agriculture is essentially isolating and non-socializing as an occupation, and its products relate almost exclusively to physical wants. Hence it does practically nothing either to create or supply the social wants and life of man. Manufacture, on the contrary, relates almost exclusively to the civilizing and refining side of man's character. The supply of clothing, furniture, the development of archi- tecture, music, literature, art, and every thing above the mere ' Witness the free cities of the Middle Ages. 324 ECONOMIC OPPORTUNITY. physical needs of the savage, is directly or indirectly the result of manufacture and its socializing influence. These things are not only necessitated by man's higher social wants, but are largely consumed as the result of his social relations. Since manufacturing industries tend both to create a socializing en- vironment and to supply the social wants resulting therefrom, they are doubly indispensable to national development. Section III. — Necessary Conditions to the Development of Manufacture. In discussing the economic and social wisdom of any public policy, the two important questions to consider are : (i) What is the end we desire to promote ? (2) What means will most surely promote that end ? 1. It may be safely assumed that the desired end, to the promo- tion of which statesmanship should be devoted and public policy directed, is the material and social progress of the people. We have already seen that this involves the development of the nation as a political entity, and also that national development necessi- tates social concentration and industrial diversification, which in turn depend upon the growth of manufacturing industries. The immediate question, therefore, for the practical statesman to consider is, what will best promote the development of manufac- turing industries. Whatever will promote this end will justify the means necessary to its adoption. The question to ask is not what will it cost ? but will it do it? 2. It is a universal law in nature and society that growth depends upon opportunity. As already explained, opportunity is not to be interpreted as mere passive possibility, but as actual inducement. In nature opportunity for growth means the exist- ence of conditions and influences which make it easier to grow than not to grow. In society, it is contact with positive social influences which make refinement, knowledge, and general culture easier and more advantageous than ignorance and crudeness ; and in economics it is the existence of conditions which make it more profitable to do than not to do. Opportunity for the development of manufacturing industries therefore, means the existence of conditions which make manufacture not only physi- cally possible but ecgnpRJically profitable. NEED OF A HOME MARKET. 325 Obviously the first condition necessary to the growth of any industry is a market for its products. Now an economic market evidently cannot be made by mere fiat of government because it depends on the habits and social life of a people. But it can be preserved by protecting home industry in manufacturers to a cer- tain extent. How far ? Why just so far as is necessary to prevent home products from being undersold by the products of lower paid laborers in other countries. This then is the sober rule and principle of protection as ministering to human welfare. The industries of a country should be protected to the full amount of the difference between the wage-level of that nation and the nations below it in average civilization using similar methods and no further, since thus the maintenance of its place in civilization is secured. A restric- tive policy can be justified only on the ground that it will promote greater social advancement than would otherwise occur. Nothing can justify the restriction of freedom except a demonstration that it will ultimately promote more freedom. Will the protection of the home market increase the opportunities for developing social- izing industries ? This is the immediate question to consider and it involves a number of most important questions, which will be taken up in their order as follows : (i) The economic and social superiority of the home market over the foreign ; (2) the economic basis of international competition ; (3) the relation of cost of production to international value ; (4) the effect of a tariff upon the price of home products ; (5) the relation of tariffs to wages in non-protected industries ; (6) the influence of pro- tection in the most advanced countries upon the progress of less civilized countries. Section IV. — The Economic and Social Superiority of a Home Market over a Foreign. There are three important reasons why home markets are supe- rior to foreign markets, and why domestic trade and manufacture should always be encouraged in preference to foreign: (i) Because foreign trade is essentially wasteful ; (2) because foreign mar- kets tend to enable employers to permanently profit by low wages ; (3) because home markets most surely promote the diversification of industry and social progress. 326 FOREIGN TRADE WASTEFUL. I. Foreign trade is essentially wasteful because it necessarily tends to maximize instead of minimizing the distance between the raw material and the factory, and between the factory and the market. For instance, before the development of cotton manu- facture in this country, our cotton cloth was made in England. The raw cotton was produced in South Carolina, sent to England to be manufactured, then brought back to America. The con- sumer of cotton cloth in this country had to pay the cost of transporting it twice across the Atlantic, which was so much waste made necessary by uneconomic conditions. To carry a product six thousand miles in order to deliver it to consumers a hundred miles away is to perpetuate the most costly way of doing. Nothing can justify such waste except absolute inability to avoid it. The mere fact that England could, under existing con- ditions, do the manufacturing at so much less cost than we, as to be able to pay the transportation both ways, was no economic justification for our continuing to buy cotton cloth of her, instead of developing the methods for making it ourselves. Indeed such a policy would have been as obviously uneconomic as to have per- sisted in using the hand-loom and stage-coach in preference to the factory and railroad. The question in that case was not, can England, under existing conditions, supply our cotton cloth cheaper than we can make it ? but can we, by any change of conditions, develop the means of making it as cheaply for our- selves as she can make it for us, and thus eliminate for all time the unnecessary cost of double transportation ? This question was answered in the affirmative, and to-day cotton cloth can be made as cheaply here as in England, and more cheaply than in any other country, notwithstanding our wages are so much higher. Consequently that economic waste is saved not only to us, but to all future generations, to say nothing of the social advantage of developing the industry in our own country. It may be laid down as a fundamental principle in economic production that all commodities should be manufactured as near as possible to the raw material, or the market for finished products. If a nation possesses the raw material for a given article, it should always develop the facilities for manufacturing the finished product for its own consumption ; and any public policy which does not tend to promote this end is inimical to FOREIGN MARKETS AND HOME WAGES. 327 national development. Therefore, instead of constantly en- couraging foreign trade, it should ever be a cardinal principle in statesmanship to develop domestic trade and home manufacture. 2. Another disadvantage of foreign as compared with home markets is, that they divorce the economic interest of the em- ployer and the employed. To the extent that the producers in any community rely upon a foreign market for their wares, the employers cease to have any economic interest in the welfare of their own laborers. Whenever the employer is independent of the laborers of his own country as consumers, he has an apparent interest in keeping down wages, because, under those circum- stances, every reduction of wages is an increase of profits. Sup- pose, for instance, an American shoe manufacturer sells all his product in Europe at a dollar a pair ; it is quite obvious that if he can obtain his labor at 10 per cent, less, it would be so much addition to his net profit, because the reduction of wages would in no way affect the consumption of his shoes, they being sold in another country where wages remain the same. Under a home-market regime the case is very different, be- cause in domestic trade there are no influences that militate against the material welfare of the laborers which do not react upon that of the employing class. The obvious reason for this is that no market for factory-made products can be permanently sustained without consumption by the laboring classes. Conse- quently when the employing class in any country have to rely on a home market for the sale of their products, their own prosperity depends directly upon the consuming capacity, and hence the wages, of the laboring classes in their own country. Under such conditions, whatever reduces wages and impairs the purchas- ing power of the laborer diminishes the market and undermines the prosperity of the employer. Thus, under a home-market regime, the employer's success is dependent upon and commen- surate with the prosperity of the laboring classes, because their consumption determines the market basis for his production. But the days of foreign markets, as the chief support of highly developed manufacturing industries in any country, are doomed. Frequency of travel and familiar intercourse between the most civilized nations tend to make exclusive knowledge of productive methods practically impossible. Hence, as fast as nations be- 328 A NATION IS RICH BY WHAT IT USES. come consumers of manufactured products, they begin to make them for themselves, and to use the improved methods developed by their most advanced neighbors. Thus the tendency of civili- zation is to make the industries of all countries depend more and more upon home consumption. The economics of the future must be the economics of large production, home-market, and high wages, which are the only industrial conditions compatible with social freedom and political democracy. 3. The third and by no means the least important reason why home markets are preferable to foreign markets is, that they more surely promote the diversification of production and the sociali- zation of employments. One of the popular notions regarding foreign trade is that the prosperity of a nation is indicated by the amount of its exports, that it is rich by what it sells. This is a great mistake. Nothing indicates the prosperity and well-being of a people but what they consume. A nation may produce ex- tensively and export largely and the mass of its people remain very poor. To the extent that more manufactured products are exported from any country than imported to it, are its products not consumed by those who produce them. The prosperity of a nation therefore, cannot be measured by the wealth it exports to other countries, nor by the wealth it receives through the profits of foreign trade, but only by the wealth its own people consume, since that is all which really enters into their social life. Thus the extent of domestic consumption — the home market — is the real measure of the social status. Moreover, a home market supplies a double social current, whereas a foreign market for the same products only supplies a single current. In addition to the socializing effect of manufac- ture upon industry, the home use of manufactured articles tends to increase and diversify the market for such products by the social conditions necessarily connected with their consumption. For instance, the consumption of carpets, pictures, music, millinery, etc., imply more or less refined social relations, which stimulate not only the desire for more of the same kind of things, but also create tastes and desires for fresh varieties of products. Thus, while manufacturing industries always socialize, their so- cializing influence is necessarily the greatest where they produce for a home market. This must not be interpreted to mean that TEST OF ECONOMIC CHEAPNESS. 329 foreign markets are a disadvantage under all conditions, but only that wherever the development of a home market is possible it is always preferable to a foreign market. In other words, foreign trade is ultimately an economic disadvantage to a nation unless it can take place without substituting simpler for relatively com- plex industries or lowering wages, and should be encouraged under no other conditions. Section V. — The Economic Basis of International Compe- tition. Competition is regarded as essential to industry, because it pro- motes economy in the production of wealth both by developing the highest capacity in the producers and by reducing prices, thus giving the community the advantage of the highest skill and the best productive methods. This unexceptionable proposition has the advantage of being one of the most uniformly accepted postulates in economic science. Here then we have a point of common agreement, namely, that no competition can promote industrial well-being which does not tend to make wealth cheap. (Neither a free trade nor a protective policy therefore can be economically justified, except as it squares with this proposi- tion.) In order to apply this test to public policy, however, it is necessary to understand clearly what constitutes cheap wealth, and how to determine accurately when commodities are cheap or dear. Commodities are said to be dearer as their value rises, and cheaper as their value falls ; but the terms dearer and cheaper have no meaning except as they indicate that the articles referred to have become more or less diflScult for man to obtain. Wheat cannot be either cheap or dear to potatoes or gold, any more than Easter bonnets can be cheap or dear to fishes. The value of wheat may be high or low as compared with that of potatoes or gold, but value cannot be high or low to those articles ; it can be high or low only to man. Nor is the value of an article high or low to man because it will exchange for a larger or smaller quantity of gold or other commodities, but solely be- cause it will exchange for a larger or smaller quantity of his labor. In short, the terms value, price, exchange, dearness, and 330 CHINESE AND AMERICAN PRICES. cheapness have absolutely no meaning, and convey no idea except in relation to man. From this point of view the importance of economic movement does not turn upon the relation of one kind of wealth to another, but depends upon the relation of all kinds of wealth to man. Wealth is not necessarily cheap or dear according as it will ex- change for a large or small amount of gold, but only as it will exchange for a large or small amount of labor. That is to say, no matter what the ratio of exchange between different com- modities or between all commodities and gold may be, they are cheap or dear only in proportion as a large or small amount can be obtained for a day's service. It may be said that the ratio in which commodities exchange for gold always indicates the ratio in which they will exchange for labor ; that is to say, the gold-price always indicates the labor-price. This may be true to a limited extent within any given country, but it is almost never true as between different countries. Take, for example, this country and China ; suppose shoes of a given quality were two dollars a pair in this country and they were only fifty cents a pair in China, manifestly the amount of gold necessary to obtain a pair of shoes in America would purchase four pairs in China. Thus according to the gold standard of measurement shoes in America would be three hundred per cent, dearer than those in China, which is precisely what the current doctrine teaches us to believe. Consequently it is laid down as a self-evident proposition, that any discrimina- tion which would prevent the shoes of China from entering the market of America at less than two dollars a pair would make the shoes of the American consumer dearer by three hundred per cent.; therefore, the true economic policy is to have free trade between America and China, and thus enable the American citizen to have cheap shoes. If we examine such a transaction from the standpoint of man instead of gold, the utter fallacy of such a position will at once be apparent. To be sure the shoes in America cost two dollars a pair, but as the American mechanic receives two dollars a day he can obtain a pair of shoes for a day's labor, while in China, although the shoes cost but fifty cents a pair, the laborer receiv- ing less than ten cents a day must work fully five days to obtain CHEAP LABOR-PRICES ARE HIGH. 33 1 a pair of shoes. Thus while measured in gold, the shoes in America cost four times as much as those in China ; measured in labor, the Chinese shoes are four hundred per cent dearer than the American. Manifestly the two-dollar American shoes are cheaper for Americans than the fifty-cent Chinese shoes are for Chinamen. Professors Sumner and Perry would probably reply yes, but Chinese shoes would be cheaper for Americans than American shoes are, because we could get four pairs of Chinese shoes for the amount of service we now give for one pair. It is, they would add, just because the Chinese can make shoes for Americans cheaper than Americans can make them for them- selves, that we want free trade in order that we may obtain our shoes from those who can make them cheapest. Why should we give the shoemakers of Lynn or Marblehead two dollars for what we can buy from those of Pekin or Hong Kong for one dollar ? This argument has a very satisfactory seeming, but it has the disadvantage of failing to reckon with the facts. Like the Ricardian theory that " profits can only rise as wages fall," it would be true provided the assumption upon which it is based were correct — namely, that every thing else remains the same. Of course the American consumer would receive a net gain by purchasing his shoes from China at fifty cents a pair, instead of paying two dollars in America, if wages and other conditions remained the same, which would be an impossibility. It would be just as rational to say that ' other things remaining the same,' a brick will not sink to the bottom of a bucket of water. It is precisely because no two particles of the water remain the same that the brick sinks ; the disturbance caused by introducing the brick makes a readjustment of every drop of water necessary. The same is true in the case before us. The introduction of Chinese shoes into the American market would not merely give the two-dollar American laborer one dollar shoes, but to the extent that it operated, would make it a general industrial dis- turbance and therefore cause a readjustment of economic rela- tions. As already stated, whatever undersells succeeds, and whatever succeeds becomes permanent, and whatever becomes permanent establishes the methods by which its success is accomplished. Therefore if the shoemakers of China could undersell the shoemakers of America in the American market, 332 READJUSTMENT ON A LOWER PLANE. they would necessarily succeed in obtaining the custom of Amer- ican consumers. If this caused no other change than to reduce the price of shoes in this country, the case would be very simple, and the logic of the laissez-faire economist would be conclusive ; but this is not the case. On the contrary, it would make an entire rearrangement of industrial conditions necessary, at least so far as the 200,000 of American shoemakers are concerned. As soon as American consumers begin to buy shoes from China several forces will begin to operate, which will tend to revolutionize and ultimately readjust economic relations. The American manufacturer will endeavor to compete with the China- man in the American market, to do which he will be compelled to reduce the cost of producing shoes here at least to the level of the cost of production in China, together with the cost of trans- portation. This could only be accomplished in one of two ways, either by using superior labor-saving machinery or by reducing wages equal to the difference. The improved machinery could not be adopted for any such reason, because nothing has oc- curred to increase the market sufficiently to make its profitable employment possible. A slight increase in the consumption of shoes might result from lowering the price, but that would soon be more than offset by the reduced consumption among the discharged laborers. Hence it is manifest that such a change could do practically noth- ing to create the better machinery necessary to make a differ- ence in the cost of production. The only other alternative would be to reduce the wages of shoemakers here to substantially the same level as those in China. And this would not be limited to the men who simply manufacture the shoes, it must also apply to all those who produce the raw materials and tools used in making shoes. When this reduction occurs, all the cheapness of the imported shoes disappears, because the capacity of American la- borers to purchase shoes is reduced exactly as much as the price of the shoes has fallen. If wages are not reduced, then the China- man would produce the shoes and the American shoemaker would be forced into idleness, unless he emigrates to China, in which case he would have to work on the same terms as the Chinaman. Nor is there any warrant for assuming that the discharged laborer will find another occupation. Nothing will create em- LOW WAGES NEVES CHEAPEN WEALTH. 333 ployments except a market for products. Since nothing has occurred in this instance to create either a demand for new commodities or increase the consumption of existing ones, we have no more right to assume that the discharged laborers could find new occupations than we have to assume that they could live in luxury without employment. Thus in the last analysis the shoes would either have to be made in China or in America by Chinese methods ; and in either case, American wages would be adjusted to Chinese prices. Consequently, instead of the low- priced products from China giving us cheap wealth in America, it would serve only to give us cheap labor and a lower civilization. It may be regarded as an economic axiom that nothing can perma- nently cheapen wealth which does not reduce the price of commodities relatively to wages, and this can never be accomplished by substituting cheaper for dearer labor, either at home or abroad. Nor is this all. Not only is it true that the low-priced shoes of China would not be permanently cheaper to anybody than the high-priced shoes of America, but to permit the products of the low-paid laborers of Asia to undersell those of the high-paid laborers of America, would be to prevent the growth of the only influences which can make wealth permanently cheaper in the future. Just in proportion as the high-paid labor of one country is superseded by the low-paid labor of another, is the simpler so- cial life and small consumption of the former substituted for the more complex social life and larger consumption of the latter. This check in the demand for an increasing variety of products necessarily prevents the diversification of industry and the de- velopment of manufacture, and consequently lessens the incentive for the concentration of capital, the use of steam-driven machinery, and all wealth-cheapening methods of production ; and thus not only fails to furnish cheap wealth for the present, but prevents the possibility of cheaper wealth in the future. It is manifest, therefore, that from a philosophic view of the case any public policy which aids or permits the products of the low-paid labor of one country to undersell the products of the high-paid labor of another, tends to arrest human progress by stereotyping lower civilization and preventing the growth of a higher. Whenever a struggle for industrial supremacy takes place between producers in countries of differing degrees of civiliza- 334 UNECONOMIC COMPETITION. tion,' one of two things must necessarily occur : either the higher must descend to the plane of the lower, or the lower must ascend to the plane of the higher. If the higher-paid producer descends to the plane of the lower, it will not be economic competition, because in that case the low-wage products will be sure to undersell the high-wage products, and thus enable the inferior to succeed against the superior. In such a struggle there is nothing to de- velop the best in the higher, but every thing to repress it. The cheap-labor competitor does not succeed through his economic superiority, but solely because of his social inferiority. Such a contest, therefore, is contrary to all conditions of economic com- petition." Instead of being a contest between approximately equal competing units which tends to develop the best in both, it is an unequal struggle in which the inferior is sure to prevail against the superior. When competition takes place on the plane of the higher wage-level, the result is very different. In such a contest, who- ever succeeds is compelled to do so by employing superior ma- chinery, and that reduces the cost of wealth by saving instead of cheapening human labor. Every effort of the lower to succeed against the higher by such means necessarily tends to develop better methods of production, cheapen wealth and promote social progress in the less advanced country, even if it fails to undersell competitors in a foreign market. On the other hand, in every such struggle the high-wage producer is compelled to make efforts to still further develop the wealth-cheapening methods in the most advanced countries. Therefore the con- test on the higher plane is supremely economic, because it stimulates the best in both competitors, guarantees that only the superior shall succeed, and in so doing helps rather than injures the inferior. This is precisely what takes place in every other sphere of de- velopment. Evolution is a constant differentiation and higher integration with an ever increasing complexity of relations. So- cial progress constantly tends toward a greater variety of relations, ' The most infallible test of a relatively high or low state of civilization in any country is the material or social conditions of the masses, Vfhich is always indi- cated by the rate of real wages. ' See definition of economic competition, p. 293. BASIS OF ECONOMIC COMPETITION. 335 specialization of functions, and integration into larger but more diversified aggregates ; witness the tendency towards larger and larger cities and nations, through which greater freedom and more complex and socializing intercourse is steadily devel- oped. In all this progressive tendency each integration takes place by the lower rising to the plane of the higher, and never by the higher descending to that of the lower. And this progress can only take place by the lower becoming approximately equal to the higher. For instance, if one wants to move in a social class more cultured than the one to which he belongs, he can do so only by becoming more cultured himself. The more refined will neither take on coarser manners nor tolerate then in another for the sake of his society. Indeed, were it otherwise, progress would be impossible ; because if the higher would descend to the lower, there would be no incentive for the lower to rise. Since nothing can cheapen wealth which does not reduce the cost of production without diminishing real wages, and since no industrial contest can be economically competitive which does not take place between approximately equal competing units, and since there can be no approximate economic equality between contestants except on the plane of the higher, it follows that the true economic basis for international competition is the wage-level of the dearer-labor country. In order therefore to apply the doc- trine of opportunity laid down in the previous chapter, and to establish international trade upon a strictly economic basis, it is necessary for the higher-wage country to discriminate against the products of the lower-wage producer to the full extent that the lower wages affect the cost of production, as this determines the competitive status of the commodity. Thus we have a truly economic basis for a tariff policy that shall be protective without being paternal. A tariff policy based upon this principle would protect the superior against injury from the inferior, without affording the slightest monopolistic impediment to economic rivalry. Instead of restricting wholesome competition, this would simply protect the competitive opportunity for the " fittest to survive," the test of fitness always being the ability to furnish low- priced wealth without employing low-priced labor. Under such conditions the products of foreign countries could never under- sell those of home industry, except when the lower price of the 336 SUPERFICIAL REASONING. foreign productis due to the use of superior \ahox-saving and not to \2hQx-cheapening methods. Consequently whoever undersells confers a permanent advantage on the whole community. Section VI. — Some Popular Fallacies Considered. It is a standing charge against the protective doctrine that it has no definable scientific basis, that it is grounded upon no general principle in nature, society, or economics. Nor is this charge wholly unwarranted when judged by. the accepted reason- ing on the subject. It is a peculiar feature of the history of tariff legislation that it has been generally advocated for local or special reasons, and almost never based upon any economic principle susceptible of general application. In this country, where the protective idea has reached its highest development, the tariff advocate rests his claim almost entirely upon the fact that we have made marked industrial progress under a protective regime. He compares the wages and social condition of the laborers in high-tariff America with those of the laborers in free- trade England, and confidently exclaims : " Behold the superiority of a high-tariff policy ! " And, with equal assurance, he ascribes the poverty and social degradation of Ireland and India to the fact that British rule has prevented them from having a protective tariff. On the other hand, while the free-trader objects to this kind of reasoning by the protectionist as confounding coincidence with cause, he employs it with equal assurance in presenting his own case. Studiously confining his observation to European conditions, he compares the wages and social condition of labor- ers in England under free trade with those in continental countries under protection, but not with those in America, and triumphantly exclaims : " Behold the superiority of free trade ! " By this mode of reasoning the English free-trader is as unable to explain why wages are higher in America under protection than in England under free trade, as is the American protectionist to explain why they are higher in England with free trade than in continental and Asiatic countries under protection. If the mere fact that prosperity accompanied free trade in England justifies the reasoning of the free-trader, then the fact that pros- perity accompanies a high tariff in America equally justifies the reasoning of the protectionist. And when the free-trader declares, LAW OF ECONOMIC PROTECTION. 337 as he does, that America is not prosperous by virtue of the tariff, but in spite of it, the protectionist can with equal force reply that England is not prosperous by virtue of her free trade, but in spite of it. This line of reasoning furnishes no scientific means of testing the merits of either doctrine ; it shows that progress is possible under both policies, but it affords no logical basis for the application of either. What these facts show is, that neither free trade in England nor protection in America prevented the growth of industrial prosperity in those countries, but they do nothing to prove that this progress was promoted by either policy. Free trade being simply the absence of protection, it follows that to discover the law of economic protection is to discover that of free-trade also, and since neither free trade nor protec- tion will produce the best economic effects under all conditions, it is only by the knowledge of such a law that any philosophic application of either policy is possible. If the conclusions reached in the preceding sections are correct, however, this law is already established, and we have a universal principle upon which a protective and consequently a free trade policy can be scientifically adopted. Briefly stated this law is : (i) that compe- tition can be economic only when it takes place between approximately equal competitors j (2) that when there is any marked difference in the wage-level of the international competitors, such approximate competitive equality is possible only when the competition is based upon the higher wage-level of the higher ; (3) that no lowering of prices can cheapen wealth which does not result from diminishing the cost of production without lowering wages. Bearing these propositions in mind, we shall have no difficulty in seeing why a protective policy might promote industrial pros- perity and social progress in America, and have the reverse effect in Austria, India, and Ireland. Nor will it be difficult to under- stand why America has more to fear from free trade with highly civilized England than with the less civilized nations of Asia and South America. And it will be equally clear why a tariff policy will not produce the same effect with a high-wage level in a small colony like Victoria with a million inhabitants, as in a large country like the United States, with sixty-five million of people.' ' See articles in The Nineteenth Century for September, 1888, and Quarterly Journal of Economics, October, 1888. 338 INFANT-INDUSTRY THEORY. One of the arguments much relied upon by protectionists is that known as the "infant-industry argument." The burden of this argument is that industries should be protected in their early stages to prevent them from being killed by competition before they are fully established, the implication being that when they become well established they will be able to hold their own against the world. For a time this idea was reluctantly accepted by anti-tariff people, but now that after having had protection for half a century and on the plea of " infant industries/' a tariff is still demanded, the free-traders naturally ask " when do industries reach maturity ? " They regard such reasoning as far more in- fantile than the industry, and insist that if there is any virtue in the protective principle, it should be applied in behalf of the weak against the strong and not in behalf of the strong against the weak. Consequently, if protection can be justified at all, it is such countries as Russia, Turkey, Italy, Spain and the in- dustrially weak countries of South America that need protection against the United States, and not the United States against them. If the principle here laid down had been recognized, the obvious fallacy in both these positions would have been appa- rent ; and the talk about " infant industries " would never have been indulged in by the protectionist, and the free-trader's re- joinder about protecting the lower against the higher would have been too absurd for utterance. It would then have been seen that the products of America do not need protection against those of England because the industries are younger, but be- cause they are made under a higher civilization — a civilization in which the human element in production is more expensive. Hence, to permit the products of America to be undersold by those of another country, the lower cost of which results entirely from the use of lower-paid labor, would neither give cheaper wealth nor better social conditions. It would also have been clear that this fact in no wise changes with age, unless either the wage-level of the lower-wage country rises, or the use of labor- saving appliances in the higher-wage country more than overcomes the difference. Unless one of these things occurs protection will be as necessary at the end of a thousand years as it was the first six months, although both countries may have greatly advanced. THE HIGHER REQUIRES PROTECTION, 339 Indeed, the greater the advancement in both countries the greater will be the probability of their employing similar ma- chinery, thus making the necessity of protection depend entirely upon the difference in their respective wage-levels, as is the case with America and England to-day. Therefore, when the tariff advocate asks for protection simply because the industry is young, and the free-trader opposes it on the assumption that the producers in a superior civilization ought to be able to eco- nomically compete with those in an inferior civilization, they both mistake the true economic gist of the problem. Social superiority, instead of making protection unnecessary, is the very thing which makes it necessary, provided it is socially important to retain or further develop the industry. Nor is this peculiar to industry ; it is a general principle throughout society. In every phase of human relations, it is the higher that needs protection against the lower, and this because the latter will resort to methcfds of aggression and defence which the former cannot, for social or ethical reasons, afford to em- ploy. Take, for example, the criminal laws. They are enacted to restrain the morally lower from injuring the higher ; it is to prevent the dishonest from plundering the honest, the ma- licious from assaulting the well-intentioned, that police courts and jails are instituted and armies maintained. Indeed, there is not a restrictive institution maintained in society which was not called into existence to protect the higher from the injurious effects of the lower. It may be asked, if this theory is correct, why does not the American producer need a much higher tariff against the prod- ucts of China, Russia, or South America than he does against those of England, since her wage-level much more nearly ap- proximates to his own ? The reason for this is very simple. It is because the social chasm between America and those coun- tries is so great, that the use of labor-saving appliances here more than makes up for the difference in the cost of labor in the respective countries. In China, for instance, where almost every thing is made by hand labor, the product per capita is so small, compared with what can be turned off by steam-driven machin- ery here, that it costs more to produce an article there with labor at 6 cents a day than it does here with labor at two dollars a day. 340 INDIA, IRELAND, AND RUSSIA. But if the labor-saving machinery of America were introduced into China, and operated by their six-cent-a-day laborers, then an immensely high tariff would be necessary in order to protect the high wage-level of America, because, in that case, while all other items of cost would be the same, the human element in the pro- ductive process would be many hundred per cent, dearer here than there. This is why England is a more dangerous com- petitor to us than China. True, the wage-levels of America and England are more nearly alike than are those of America and China, but the machinery of America and England is still more so. Indeed, it is because the machinery used in America and England is practically the same, that all the difference in their respective wage-levels is directly expressed in the relative com- petitive power of the two countries. What is true of England is equally true of France, Germany, and every other country, to the extent that they use similar machinery but cheaper labor than we do ; yet they may have very much cheaper labor, and still be practically harmless as economic competitors, so long as they use poorer machinery or hand methods. Another error into which tariff advocates commonly fall, is in thinking that India, Ireland, or Russia would greatly improve their condition if they imposed a tariff against British products. Indeed, there are not a few Englishmen to-day who entertain a similar notion, and insist that England would be greatly benefited by adopting a tariff policy towards America. This is a mistake, for America's wage-level being higher than England's, we could not undersell her except by the use of superior methods, which either English producers would be forced to adopt or let Ameri- can producers do the work, and in either case English laborers would have a net gain. If the better methods were adopted in England, she would have cheaper products without lower wages, which would be equal to a rise of wages. If America made the products, the English laborer could emigrate to America and obtain American wages. The same is true with regard to England and continental countries. Competition between England and Russia would not injure Russia, because there are no economic methods employed in England which are not superior to those employed in Russia. Whenever Russia is undersold by England, her products will ENGLAND AND THE CONTINENT. 34I have to be made by English methods either in England or in Russia, and in either case the Russian people will be benefited. The only reason England is not injured to-day by competition with the countries in Continental Europe is precisely the same as that which prevents China from seriously injuring America, namely : that while her wage-level is higher, her machinery is so much superior to theirs, that it more than makes up the differ- ence in the cost of production.' England has less to fear, how- ever, from continental competition than we have, because their wage-level is nearer to hers than it is to ours, and to the extent that American and English machinery is adopted in continental countries faster than their wage-level approximates that of Eng- land, will their relative competitive power gain upon hers. In fact, unless the wage-level in continental countries rises very rapidly, it can only be a matter of time when they will occupy the same competitive position to England that she now sustains to America, in which case she will be compelled either to adopt a protective policy or surrender much of her manufacture to con- tinental producers. It will thus be seen that the seemingly inexplicable phenomena over which free-traders and protectionists have vainly contended, become perfectly explainable on the principle that international competition can only be beneficial when the competitors are ap- proximately equal upon the plane of the higher. Therefore a protective policy is beneficial to a nation, only as affecting its relations with less civilized countries. While America may need protection against the machine-made products of all other coun- tries, there is no country that can be permanently benefited by discriminating against the products of America. So too with England ; she may ultimately require a tariff against the machine- made products of all other countries but America, and so on. In a word, a tariff can only be of any permanent economic advan- ' According to Mulhall, 80 % of the productive energy in Great Britain is fur- nished by steam, while in continental countries steam only represents an aver- age of 36 %. Consequently, the total cost of productive power per thousand foot-tons is 17 cents in Great Britain as compared with 27 cents on the con- tinent. ' ' This advantage enables us (England) as far as labor is concerned to undersell continental countries by 12 %, although our workmen's wages are almost double." — " History of Prices," pp. 54 and 57. 342 SUPERFICIAL OBJECTIONS. tage, to the extent that it protects the opportunity for industrial development afforded by a higher wage-level from the uneco- nomic influence of a lower wage-level and inferior civilization. Section VII. — The Effect of a Tariff upon the Price of Home Products. There is no objection urged against a tariff policy so much emphasized and so frequently repeated as the charge that a tariff is necessarily a tax — an oppressive burden upon the consumer. The free-trade advocates, especially in this country, deny that it is possible to improve the industrial condition of a community by any system of tariff legislation. They insist that at best it can only enable one class to gain at the expense of another.' Perry regards a protective tariff as an unmitigated curse, and says : " Political economy, denouncing it as the enemy of man- kind, hopes soon to throw upon its loathsome carcass the last shovelful of cleansing earth."" It will not, however, be difficult to show that despite the learn- ing and dogmatism on its side, this mode of treating the subject is exceedingly superficial. The assertion that a tariff is a tax bears the stamp of the declaimer rather than the economist ; while seeming to say much, it actually says nothing. A tax is simply a contribution to the public treasury, and is one of the innumerable expenditures that social life makes necessary. The payment of two dollars for a hat or a pair of shoes is just as much a burden upon the resources of the citizen as is a tax of two dollars for the government. Taxes, like all other kinds of expenditures, should be treated as an investment, the wisdom or unwisdom of which depends not upon its amount, but entirely upon whether it yields more in ultimate advantage than it costs in immediate disadvantage. This fact can be more easily determined in some cases than in ' " We deny that they can gain any thing from us, on account of the law, but what we lose ; we deny that the total gains to one part of society by this process can ever exceed the total losses of another part — i.e. , that the process can increase the wealth of the community ; we deny, finally, that our share of these hypothetical gains can ever be redistributed to us so as to bring back our first loss." — Sumner's " Protection in the United States," pp. ii and 12. ' " Political Economy," p. 477. TAXES ARE INVESTMENTS. 343 Others. For example, when one buys a steak, by the next meal time he can determine whether or not he received an equivalent for what he gave ; whether the satisfaction was equal to the cost. If he purchases a suit of clothes, however, the result cannot be so quickly determined. It will take several months to ascertain whether or not an equivalent was given and received. And if he invests in a farm or a factory, a still longer time is required to decide the wisdom or unwisdom of the purchase. The indirect and impersonal nature of governmental expenditures makes a still longer time necessary to determine the exact results. In order to determine whether or not a tax is a good invest- ment, we have to deal with general tendencies or with ultimate rather than immediate effects. For instance, if the wisdom of the expenditure involved in maintaining an army, navy, police force, were determined by the immediate effects at any given time, it would be regarded as waste. Nevertheless the ex- penditure necessary to enforce law and order is regarded as a good investment even by free-traders. It procures as good economic results as the expenditure for food, clothes, or shelter, since it is essential to their enjoyment. The same is true of education, but the effects here are still further removed from direct observation, and consequently must be judged on a still broader general basis. There are in some countries, and indeed in some parts of this country, those who regard a tax for the public schools as an oppressive burden, an unjust exaction. But upon a broader view of the subject it appears that their general social safety, freedom, and well-being largely depend upon the intelligence of the great mass of the community in which they live, and this to a great extent depends upon opportunities for popular education. Experience has con- clusively shown expenditure in public schools to be a good invest- ment ; it comes back in better citizens and a higher civilization, which in turn supplies all the influences and conditions that make cheaper wealth and larger freedom possible. In the same way must we estimate the wisdom or unwisdom of a protective tariff. In considering the effect of a tariff policy upon the price of home products, we must not consider alone the direct and immediate effect upon prices, but also the indirect and ultimate effect. It has already been pointed out that the test of 344 TARIFFS AND PROFITS. cheapness is the ratio in which labor will exchange for wealth, things being cheap or dear according as a large or small quantity can be obtained for a day's labor. If home products can be undersold by foreign, solely because labor is cheaper abroad than here, the only result would be a readjustment of prices on the lower wage-level, with no advantage to anybody. Let us assume that a 20 per cent, tariff is necessary to prevent the home products from being thus undersold, that 20 per cent, would not in any sense be a tax upon the American consumer, because if that tariff were not applied, the wage-level would be commensurately low- ered and a day's labor would purchase no more wealth than before. To say that- under such conditions the home producer is enabled to add as profit on his whole product an amount equal to the tariff upon the forf^ign product, is to exhibit a striking unacquaintance with economic phenomena.' All that a tariff can do in such instances is to prevent a readjustment of prices on a lower wage-level. Prices however, would be governed by cost of production, according to the law before stated, just as if there were no tariff. The competition between home producers, together with the effort of the consumers to purchase at the minimum, will force prices down to the cost of producing the most expensive portion of the necessary supply. All who can produce at less than that, will obtain the difference as profit. Unless the cost of producing that dearest portion can be lessened by some other means than by lowering wages, it is utterly impos- sible to make any improvement by reducing price. This much however, only applies to the direct and immediate effect, and is usually the only aspect which the advocate of laissez /aire stops to consider. The permanent economic influ- ence of a protective tariff upon the price of home products, however, is the indirect and ultimate effect rather than the im- mediate and direct. In preventing the products of dear labor from being undersold by those of cheap labor, the tariff protects the home market for the home producer. The economic effect of this, as already shown, is to promote the growth of manufac- turing industries, and to concentrate population, which in turn creates a social environment that develops new tastes and habits, and these elevate the standard of living among the masses, and ' Cf. President Cleveland's message December 6, 1887. THE PRICE OF COTTON CLOTH. 34S consequently enlarge the demand for an increasing quantity and variety of products. The necessary tendency of this is to develop a higher grade of social character and general intelligence, more inventive genius and improved methods of production, by which the cost and therefore the price of commodities is ultimately lowered without reducing wages. From the foregoing it will be seen that a tariff or any thing else which prevents a readjustment of prices on a lower wage-level affords protection to the opportunity for devel- oping better productive possibilities through the use of labor- saving and wealth-cheapening methods. The effect of a tariff upon the price of home products, therefore, when applied accord- ing to the principles here laid down, is, first, to prevent a wasteful readjustment of economic relations on a lower wage-plane ; second, to protect opportunities for increasing productive pos- sibilities and thereby make a readjustment of economic relations on a higher wage-plane necessary. If space permitted it could easily be shown that, despite the frequent unseemly higgling and hauling to help local producers by absurd tariff schedules, this has been the general effect of the protective policy of this country. Take, for example, the cotton industry, to which reference has already been made. For reasons not necessary to explain here, the factory system had its rise in England, and by the close of the first quarter of the present cen- tury the use of steam-driven machinery, especially in the manu- facture of cotton cloth, had become well established. At that time the cotton industry in this country was in its infancy, being mostly carried on in small factories run by water-power. The difference in the development of this industry in the two countries is clearly shown by the number of factories, amount of capital, etc., which, in 1830, was as follows : Number of establishments .... Capital invested per establishment . Number of spindles per establishment Number of looms per establishment Number of operatives per establishment . Weekly wages ' Price per yard ...... • These figures represent for England (1833) the average weekly wages of 67,819 cotton operatives. And for America they represent the average wages of 31,471 cotton operatives in New England (1830). England. America. 1,151 801 $147,680 150,702 8,108 1,556 87 41 205 77 $2.51 $3.46 i5i 17 346 PROTECTION GAVE OPPORTUNITY. It will be seen from the above that the English manufacturer had a double advantage over the American. In addition to having nearly half a century's start in the development of factory methods, by which he had acquired a much greater concentration of capital and more efficient use of machinery, he had an advan- tage of nearly 40 per cent, in the cost of his labor. No argument is necessary to show that under such conditions it was impossible to prevent our cotton cloth from being undersold by the English without reducing American wages fully one third. Nor would this reduction in wages have been limited to the factory opera- tives ; for even if the American manufacturer had imported English machinery free of duty, the higher wages of the brick- layers, masons, carpenters, painters, etc., would have made his building and general plant cost more than the English. It would have been necessary, therefore, to have reduced wages in all these industries to practically the same level as those in England, in order to be able to compete with the English manufacturer in our home market. To obviate this difficulty and make it possible for the American manufacturer to produce for the American market, a tariff was levied upon English cotton cloth. This, however, did not increase the price of the American product, as is commonly assumed, but it increased the price of the English product, there- by preventing the price of American cloth from falling to the English level, and making it unnecessary to reduce wages here in the cotton and several other industries. By thus putting the American producer on an approximate competitive equality with the English in the American market, an economic basis was furnished for the development of cotton manufacture in this country. Nor did this tariff create a monopoly, by which the price of cotton cloth could be abnormally increased and fabulous profits obtained by the American producer. On the contrary, it pre- vented the English producer from monopolizing the American market through the use of cheaper labor. So long as the English producer, by paying lower wages, could undersell the American, there was no inducement for the American to take the risk of investing capital in improved machinery. But when this uneco- nomic advantage was removed and the competitors in the Ameri- can market were put upon substantially the same wage-level, a IMPROVED METHODS. 347 Strong incentive for developing superior methods was created, since their use became the only means of success. With the rapid increase of population which our high wage-level stimulated the home market steadily increased, making a larger production necessary. This naturally led to a greater concentra- tion of capital, the use of larger factories and better machinery, and the result is that cotton cloth, which could not be produced for less than seventeen cents a yard in 1830, can now be furnished at a profit for five cents a yard, while the laborer receives double the wages he did then.' The development of wealth-cheapening methods in the cotton industry, which the protection of the home market has made possible, will be seen by the following facts for England and America in 1830 and 1880 : England. America. 1830. 1880. 1830. 1880. No. of establishments 1,151 2,671 801 726 Capital per estab. . . fi47,68o $140,292 $50,702 $275,503 Spindles per estab. . . 8,108 14.798 1,556 14,089 Looms per estab. . . 87 192 41 298 Laborers per estab. . . 205 180 77 228 Wages $2.51 $4.66 $3.46 $6.45 " Price of cloth per yard, i5i 6f 17 7 It will be observed from the above that in 1830 the concentra- tion of capital in the cotton industry was very much greater in England than in America, the ratio of capital to establishments being nearly three times as large, that of spindles more than five times, that of looms twice as great, and that of operatives nearly three times as great as in this country, while wages were 38 per cent, lower. But in 1880 their relative position is reversed. While in England the total capital invested had a little more than doubled, in America it had increased more than 400 per cent. In England, with the increased capital, the number of establishments had been commensurately increased, while in America the number ' See Part III., chap, iv., sec. v. ' The wages in this table represent Massachusetts and England for 1883. The average weekly wages for the whole period from 1872 to 1883 inclusive, in the cotton industry, were : in England, $4.60 ; in Massachusetts, $7.68— being 66.96. per cent, higher in Massachusetts than England. See " Massachusetts Labor Bureau Report for 1884," p. 419. 348 EFFECT UPON OTHER INDUSTRIES. of establishments was actually reduced. Hence, in 1880 the amount of capital per establishment in England was $7,000 less than in 1830, while in America it was five times as large. The ratio of spindles to establishments only increased in England about 82 per cent., while in America they increased 800 per cent. The number of looms per establishment in 18S0 had a little more than doubled in England, while in America they increased six- fold. During this period the number of operatives per establish- ment in England diminished from 205 to rSo, while in America they increased from 77 to 228 ; and while wages in England rose $2.15 a week, in America they rose $2.99 a week. All this clearly demonstrates that the concentration of capital and the use of labor-saving appliances in this industry made greater progress in America than in England after the home market regime was in- augurated. This is further shown by the fact that the price of the product has been reduced more here, even with a greater rise in the wages, than in England. Consequently, so far as the manufacturing process is concerned, cotton cloth can be made cheaper in America to-day than in England, notwithstanding that wages in the same industry are 38 per cent, higher here than there. Nor was the beneficial effect of protecting the home market in this instance limited to the cotton industry. The concentration of capital and development of large factories in the cotton industry naturally created a demand for machinery, which gave rise to various branches of home manufacture in the iron industry and the numerous industries involved in the building trades. With this growth of manufacture and diversification of employment, industrial centres became large cities, which furnished a steadily increasing market for the products of our food and raw material producing population. This in turn necessitated railroads, which still further lessened the cost of production, diversified industry, cheapened travel, and thereby enabled the daily paper to penetrate the rural districts, and the country population to come into more frequent contact with city life ; and in other manifold ways de- veloped the socializing influences of the nation, thus reacting upon the social life, standard of living, and wages of the laboring class. Without attempting to follow the various phases of industrial development directly or indirectly resulting from the protection WAGES IN NON-PROTECTED INDUSTRIES. 349 of the home market, it is perfectly safe to say that, with the ad- vantage that England had in factory development, it would have been impossible to develop cotton and many other kindred manufacturing industries without the imposition of a tariff, or some other restrictive policy, unless we had lowered our wages to the English level. To have done that would have destroyed the incentive for emigration and thereby arrested the rapid in- crease of our population, which in turn would have commensu- rately checked the growth of our home markets, and thus necessarily have greatly hindered the development of many manufacturing industries. And if, without a tariff we had main- tained our higher wage-level, not only our cotton cloth, but nearly all our manufactured products, would have been made in England, and we should have remained practically an agricultural people, and hence, in all probability, would now be a third- or fourth-rate nation, with a scattered population of perhaps from twenty to thirty millions, having smaller wages, less general in- telligence, and therefore a lower civilization than England. Section VIII. — The Relation of Protection to Wages in Non- Protected Industries. One of the most plausible objections urged against tariff legis- lation is that it affords no benefit to those engaged in non-pro- tected industries. It is insisted that in order to justify a tariff policy, its advocates are bound to show that it is as advantageous to those engaged in non-protected as in protected industries. Nor is this an unreasonable demand ; there can surely be no justification for any public policy which benefits one portion of the community only at the expense of another. That the theory of protection as hitherto presented has failed to fulfil this require- ment can hardly be questioned by its most enthusiastic disciples. The protectionists unquestionably believe that the whole com- munity is benefited by a tariff policy, but they have hitherto failed to explain how a tariff on the various articles of food, clothing, furniture, and the like, benefits the carpenter, painter, plumber, bricklayer, mason, engineer, compositor, and other domestic artisans. This is chiefly due to the fact that they have accepted the economic postulates of the laissez-faire economists, especially 350 GLADSTONE AND BLAINE. regarding wages, prices, and profits, thus rendering a philosophic conception of the protective principle logically impossible. We have a striking illustration of this in Mr. Blaine's argument upon that point in his recent controversy with Mr. Gladstone. He said : " He [Mr. Gladstone] sees that the laborers in what he calls the ' protected industries ' secure high pay, especially as com- pared with the European school of wages. He perhaps does not see that the effect is to raise the wages of all persons in the United States engaged in what Mr. Gladstone calls the ' unprotected in- dustries.' Printers, bricklayers, carpenters, and all others of that class are paid as high wages as those of any other trade or call- ing, but if the wages of all those in the protected classes were suddenly struck down to the English standard, the others must follow. A million men cannot be kept at work for half the pay that another million men are receiving in the same country. Both classes must go up or must go down together." ' This statement, which represents the gist of the modern pro- tectionist position regarding the economic relation of protection to wages, implies two assumptions, neither of which is correct ; (i) that wages are directly increased by the tariff in protected industries ; (2) that through competition the rise of wages in protected industries brings the wages in non-protected industries up to the same level. I. The idea that wages are high in protected industries be- cause the tariff enables the manufacturer to obtain large profits, and hence to pay higher wages, is one of the most popular falla- cies connected with the whole tariff discussion. Even if tariffs increased profits, that would not necessarily increase wages. Employers do not raise wages merely because profits are large. The increase of wages, except in rare cases, does not come through the generosity of the employer, but through the pressing demands of the laborer. Every laborer knows and every states- man ought to know that protected employers are as ready to reduce wages, as reluctant to increase them, and have as many strikes, as do unprotected employers. But the assumption that profits are larger in protected than in unprotected industries has no foundation in fact. Even if a tariff did at first produce this ' North American Remew, January, 1890, pp. 47, 48. BLAINE'S MISTAKE. 35 1 effect, it would soon be destroyed by competition, as capital would leave unprotected to engage in protected industries, where larger profits would be obtained. Had the economic law of profits been understood, no such assumption would have been made. It would then have been seen that if there is any competition between producers in the same market, the price of the commodity would tend to equal the cost of producing the most expensive portion of the general supply. If the cost of producing the dearest portion is lessened by free trade, the price will fall ; if it is increased by protection, the price will rise. But this change will affect the consumer's price, not the employer's profit. The profit in either case will represent the difference in the cost of production, increasing as the cost diminishes below that of the dearest competitor, a difference which neither free trade nor protection can affect. 2. Mr. Blaine's statement, that " a million men cannot be kept at work for half the pay that another million men are receiving in the same country," is also very unfortunate, as that is just what is actually taking place all the time. Coal miners, agricultural laborers, and many others are working every day in this country, in many instances for less than half the pay that many classes of workmen in the cities are receiving. And what makes this posi- tion still more unfortunate is the fact that the printers, engineers, bricklayers, carpenters, and others, whose wages are the highest, are employed in non-protected industries ; hence this cannot be the result of competition with the lower wages in protected in- dustries. Neither is this difference in wages in the same country peculiar to nationality or to political institutions ; it is as great in America with protection and democracy as in England with free trade and monarchy, or as in Germany with protection and despotism. Instead of wages tending to uniformity in all indus- tries in the same country, they tend to a greater diversity as industrial differentiation advances. The only sense in which wages tend to uniformity is in the same industry contributing to the same market.' Nor is Mr. Blaine's statement, that " both classes must go up or must go down together," any nearer correct. Experience shows that they do not necessarily do any thing of the kind. For ' See chapter on Wages. 352 CAUSE OF BLAINE'S ERROR. instance, in 1725 the wages of agricultural laborers in England were ^s. ^d. ($1.28) per week ; those of carpenters, masons, brick- layers, and other domestic artificers were ()s. ($1.44) a week. In 1800 the wages of agricultural laborers were lu. 5^. {$2.74); those of domestic artificers i8j. ($4.38). In 1840 wages of agri- cultural laborers were ws. ($2.64) ; of artificers 33^.' ($7.92). In 1877 wages in the London building trades were 42 j. 9^." ($10.26) a week, while in agriculture wages were about 13^. ($3.12) a week, being only 14^. ($3.36) in 1884.° In a word, during the present century the wages of mechanics and artisans have increased more than twice as much as those of agricultural and other rural laborers. The truth is, a protective tariff does not affect wages in any such manner as indicated by Mr. Blaine.' The laborer knows from experience that an increase in the tariffs on the particular commodity he produces does not yield any commensurate increase in his wages. And to persist in telling him that it does, can only result in destroying his confidence in the economic advantage of a protective policy. If working men are expected to take an intelligent interest in protection, a more rational explanation of its advantages must be presented. ' Wade's " History of the Working Classes," p. 166. ' Rogers' " Six Centuries of Work and Wages,'' p. 539. ' Mulhall's " History of Prices," p. 125. * This argument clearly shows that the American protectionist has not yet outgrown the English demand-and-supply (wage-fund) fallacy, which is further shown by the fact that Mr. Blaine actually ascribes the rise of wages in England to the increased demand for labor here. — North American Review, January, 1890, p. 48. If this were true why did not wages rise still more in Ireland, Germany, Italy, Bohemia, etc. , from which countries the emigration has been much greater than from England, and why have wages risen as much in France, with almost no emigration, as in continental countries, where emigration has been the greatest ? The truth is that voluntary emigration tends to check rather than promote the rise of wages, because it draws off the best laborers upon whom a rise in the wage-level depends. It is only when the lowest laborers are ex- ported that home wages are improved by the change. That is why the condition of the laborers in any country can best be improved at home. Hence the true economic policy is to develop the home market and diversify domestic industry instead of relying upon emigration as the means of relieving industrial distress. The true way to help the people of Russia, India, and China is to take our civilization to them and not to bring them to our civilization, and this can best be done by developing our own possibilities. — See section ix., p. 98. HOW TARIFFS AFFECT WAGES. 353 Considered from the point of view here taken, however, these seemingly conflicting facts are easily explained. When we under- stand that the price of labor, like that of commodities, is governed by the cost of furnishing the dearest portion of the necessary supply, and that this cost is determined by the laborer's standard of living, which in turn depends upon his character and social environment, the whole subject assumes a new aspect. It then becomes apparent that no influences can permanently affect wages which do not operate upon the laborer's social life and standard of living. The only way a tariff can do that is by promoting the concentration and diversification of industry, thereby creating more complex social relations that, stimulate the growth of new desires and habits and a higher plane of living. Manifestly these influences operate just as much upon the laborers in non-protected as in protected industries. The non-protected printer, carpenter, and painter obtain just as much advantage from the social influences of a manufacturing city as do their protected neighbors, the hatter and cigar-maker. The wages of city mechanics are higher than those of rural laborers because their standard of living is higher, which is owing to the more complex social conditions under which they live. It is only to the extent that a tariff promotes the development of these social conditions by protecting the home market that it in- fluences wages in any industry. Upon the principle therefore that protection is economically beneficial only as it tends to develop the socializing influences of the nation, it is clear that its effect upon wages is not limited to protected industries, but that it effects equally the wages of all laborers to the extent that it directly or indirectly affects their social environment. If it were true, as is usually assumed, that a tariff benefits the laborer through increasing the employer's profits and thus en- abling him to pay higher wages, it would be true as is often urged that the non-protected mechanic has no interest in a protective policy. And so long as that view is taught by leading protec- tionists, we may expect to see the intelligent laborers in domestic industries, especially in our large cities, become free-traders. But from the point of view here presented their interest in a protective policy is quite as great and often greater than that of those employed in the most highly protected industries. With- 23 354 SOCIAL FORCES ONLY RAISE WAGES. out the development of cities and manufacturing centres, as already shown, railroads, telegraphs and other industries, to say the least, would have been in a much less advanced state.' In which case the industrial and social environment of the great mass of mechanics would have been more homogeneous, hence a more simple social life and lower wages would have been inevitable, as is the case in small towns, rural districts, and non-manufacturing communities throughout the world. To the extent that a tariff policy has developed manufacture and the growth of cities, it has improved the social life and wages of laborers in a// industries in those industrial centres, protected and non-protected. And to the extent that it has developed railroads and telegraphs, it has shortened the distance between farm and factory, and thereby increased the opportunities that force rural laborers into more frequent contact with the social influences of city life, — thus in its reflex action elevating the social life and wages of rural laborers. This explains why the wages even of agricultural and other laborers in isolating occupations are always higher in the immediate vicinity of cities and manufacturing towns." This view of the subject also enables us to understand why a tariff will not produce the same effect in a small community like an Australian colony, that it will in a large country like the United States, even though the wage-level is as high there as it is here. It is because the population there is too small to furnish a sufficiently large market to sustain the use of the most highly de- veloped factory methods, without which the socializing environ- ment necessary to raise the standard of living and the rate of wages cannot be developed. There is one other fact that should be noticed before leaving this point. We are told that despite the improvements in ma- chinery and the general advancement, the condition of the factory ' Witness India, Russia, and Turkey as compared with this country in these respects. There are six times as many miles of railroad in New York State as in all Turkey, and more miles of railroads in the United States than in all the rest of the world. ^ This fact has been universally observed though very little understood. See "Wealth and Progress," pp. 160-163 I Rogers' "Six Centuries of Work and Wages," pp. 171, 172, 180, 327, 535, 536. Also "Wealth of Nations," Book I., ch. viii. For similar facts in India see Buchanan's " Journey through the Countries of Mysore, Canara, and Malabar," vol. i., pp. 124, 125. MINERS AND FACTORY OPERATIVES. 355 operatives of New England and the miners of Pennsylvania is no better, but in many cases is worse, than it was forty years ago, although the products of these industries are highly protected. There is some truth in this statement, and a great deal of error. In the first place, it is not correct in any general sense to say that the condition of the miners and factory operatives has not im- proved. It is true, however, that the condition of the laborers employed in those industries to-day, as compared with those of forty years ago, has not improved commensurately with the progress of the community. This fact is usually taken as con- clusive evidence that, through some unjust manipulation of in- dustrial forces, the laborers in these industries have been excluded from the beneficial effects of the increasing wealth and social advancement. A little closer examination of the facts, however, will show that this conclusion is erroneous. Suppose, for example, that in a given business the laborers were intelligent Americans in 1850, but for some reason they all left it and their places were filled by Italians or Chinamen, would it be any test of the industrial and social progress of the laborers in the community to compare the wages, character, and intelligence of these Chinamen and Italians in 1890 with those of the Americans who were employed in that industry in 1850 ? Such a comparison would be rejected by any fair-minded investigator as unworthy of a moment's consideration. He would very properly insist that, in order to ascertain the improvement in the laborer's condition from 1850 to 1880, we must compare the condition of the same laborers. The wages and social condition of the Chinamen and Italians might have improved a hundred per cent, and still be no better in 1890 than were those of the American laborers in 1850. The only way to ascertain whether or not, or to what extent, the laborer's con- dition has improved, is to compare the condition of the American laborers in 1890 with their condition in 1850, and also the con- dition of the Chinese and Italian laborers in 1890, not with that of the Americans, but with their own condition in 1850. Now this is precisely what has taken place in New England factory life. The operatives of forty years ago were mainly composed of native Americans, mostly children of the New England farmers. During this period the industrial history of 356 EVOLUTION OF INDUSTRIES. America has been unlike that of any other country in the world. Owing to our higher wage-level and the protection of our home market, manufacture and a variety of occupations increased much faster than did our native population. The consequence was a continuous stream of emigration to this country. The introduc- tion of every new industry of a higher order naturally drew to it the more intelligent and characterful portion of the laborers from the grade below, their places being filled by the less competent. By this means there was an almost constant movement of laborers from the more simple to the more complex and artistic industries, and the less advanced laborers from other countries taking the simpler occupations. In the cotton industry, for example, as Americans moved up into the position of overseers, managers, or merchants, their places were taken first by English, next by Irish, and last by French Canadian operatives, so that to-day an Ameri- can is scarcely to be found in the cotton factories of New England, except in the superior positions, many of the various grades of overseers, machinists, etc., being English or English-Irish. Therefore, if we compare the wages and social conditions of the spinner and weaver in New England cotton factories to-day with those of 1840, we are not dealing with the same class of people at all, nor even with the effects of the same civilization. The French or Irish operative may not be very much better off to-day than was the American who occupied the same position forty years ago, and yet his condition may have been improved several hun- dred per cent. The same is true of the miners of Pennsylvania, who to-day are largely composed of the poorest laborers from Continental Europe. In order, therefore, to ascertain the progress that has taken place in the industrial and social condition of these classes of operatives, we must not compare their present condition with that of the American forty years ago, but with their own condition at that time. If we compare the condition of small merchants in New England to-day with that of factory operatives of 1850, or compare the condition of the English, Irish, and French Cana- dian operatives in New England and the miners of Pennsylvania to-day with what it was in England, Ireland, Canada, Scandi- navia, Bohemia, or Russia thirty or forty years ago, the improve- ment will appear as marked as in that of any other class in the EFFECT UPON OTHER COUNTRIES. 357 community. To overlook this is entirely to misapprehend the phenomena under consideration. These facts are not referred to here to give a rose-colored tint to the condition of these laborers ; on the contrary, I regard their condition, in many instances, as not only a disgrace but as a serious danger to our civilization.' They are referred to, only to emphasize the mistake of ignoring them in considering the effect of modern industrial influences upon the social condition of the laborers ; because it is only by recognizing all the facts in the case, that we can form any true estimate of the beneficial or other effects of any industrial policy. Hence it may properly be said that to the extent that protection has promoted the growth of manufacturing industries it has directly and indirectly improved the social condition and raised the wages of all classes of laborers in this country com- mensurately with the advance of the community. Section IX. — The Influence of Protection in the Most Ad- vanced Countries upon the Progress of the Less Advanced. Perhaps the most specious argument employed in favor of a free-trade policy is that it is cosmopolitan in its character, that it rises above local, sectional, or even national considerations, treating all mankind as brethren, while protection is pre-emi- nently a local policy that endeavors to discriminate against the people of all other countries in favor of its own. It may be ad- mitted that any policy which promotes the welfare of one country at the expense of another is essentially unphilosophic, and that the best policy for any country is the one whose beneficial effects are most universal. The economic character of a public policy, however, should never be judged by its immediate or temporary effect, but always by its permanent and ultimate influences. Measured by this standard, it is not difficult to show that the protective principle as here laid down is pre-eminently cos- mopolitan in its character. It may be regarded as a self-evident proposition that he who would help others must first develop the best in himself, since not to develop his own capacities is to limit his usefulness. The most altruistic effects are usually produced by efforts to broaden and ' See " Wealth and Progress," pp. 365-373. 358 SELF-IMPROVEMENT THE FIRST STEP. elevate our own social life, because every addition to our own life embraces more of the efforts, interests, and well-being of others. In proportion as the interests of others becomes iden- tified with our own, will our efforts be directed to promoting their welfare as much as our own. In other words, in proportion as we become socially interdependent do our efforts become altruistic and cosmopolitan. Indeed, it is only by increasing man's interdependence upon his fellow-man that the solidarity of the human race will ever be realized, and the altruism which shall make every man's happiness include that of all mankind become an established fact. This is as true of nations as of individuals. The nation which would contribute most to the advancement of human progress must develop its own civilization. We might as well expect the weak to carry the strong, as barbarism to aid civilization. That nation which most completely develops its own industrial and social possibilities, creates the most improved methods of pro- duction. In this way it is not only able to obtain its own wealth cheap, but ultimately to produce many commodities at less cost than can be produced by the cheap labor of less civilized countries. Upon the principle that whatever undersells succeeds, the less civilized countries are compelled to adopt the superior methods. Thus the benefits of inventions which result from the development of a higher civilization are automatically transferred to the lower, and the socializing influences of improved methods of production become cosmopolitan. This is clearly demonstrated by the adoption of various kinds of American machinery abroad, without the use of which many European products would have been undersold by ours. Nor are the benefits which more highly civilized countries confer upon the lower, limited to what is forced upon them by competition in commodities which they both produce. A still greater benefit arises from the introduction of new commodities, which more diversified tastes and more complex social life of the more highly civilized country bring into existence. As a demand for new commodities increases, labor-saving appliances are invented to reduce the cost of their production, until they can be sold in foreign countries at merely a nominal price. In this case the products of a higher civilization are not competing with those ECONOMIC SELECTION OF INDUSTRIES. 359 of a lower, but new products are being introduced into less civilized countries ; this stimulates a taste for articles they have not hitherto used, thereby introducing new elements into their social life. Just as fast as a demand for such new commodities is created, the social life is diversified, the standard of living is raised, wages are increased, and a market basis for new industries is established. This is what the diversified tastes and inventive genius of America have been doing in Europe and South America to an increasing extent during the last twenty years. Another advantage of a protective policy is that it tends to make the economic selection of industries possible, thereby promoting the only conditions upon which free trade between nations can ever take place without injury to the higher-wage countr)-. The postulate, so frequently emphasized by the advocates of laissez faire, that nations, like individuals, should be enabled to adopt those industries for which they are best fitted, is unexcep- tionable. But in order to obtain this result, it is necessary to secure opportunities for developing the economic possibilities of the people. It should ever be remembered that the most effec- tive economic force in society is human invention and not natural resources, as is commonly assumed. For reasons already explained, labor-saving inventions can be developed only under the influence of socializing and diversified industries. These conditions, without which a truly economic selection of industries is impossible, are what protection furnishes. Although it may be possible for these conditions to exist with- out protection, history does not furnish an instance where such a thing has occurred. The way in which protection promotes this is easy to understand. In the first place, by raising the basis of international competition to the plane of the higher wage- level, it prevents the lower-paid labor of one country from being made the means of checking the growth of manufacturing in- dustries in another. This secures a home market for domestic products and furnishes an economic basis for a diversification of socializing industries in the higher wage-country. The greatest incentive is thus furnished for developing the most economic methods of production. With concentrated capital, the use of 360 PROTECTION PROMOTES FREE TRADE, highly perfected machinerj', and the development of specialized industries, a truly economic selection of industries becomes pos- sible. The conditions will then exist for determining what things a nation can most economically produce, by reason of its pe- culiar character, natural resources, and civilization. When this point is reached, protection will be economically necessary only to the extent of preventing the substitution of simple for complex industries. It will then be to the advantage not only of that nation, but of the world, that it should devote its productive energies to those industries for which it has devel- oped the best capacity, and to relinquish all others to countries for which they are better adapted. Just in proportion as this takes place, protection becomes unnecessary — -provided, however, that this change does not involve the substitution of simple for com- plex industries. For example, if America becomes highly profi- cient in the manufacture of jewelry and relatively deficient in the manufacture of silk, capital will naturally go to the former and away from the latter industry. Foreign silk might then be admitted free of duty without injury to the American laborer. It win thus be seen that protection (as here considered) not only prevents a less civilized country from checking the progress of a higher, but by promoting the substitution of economic for natural (blind) selection of industries, it tends ultimately to make a mu- tually advantageous free trade possible. Thus a protective policy is not necessarily narrow and ex- clusive, but, when philosophically applied, is a most truly cosmopolitan doctrine of industrial relations, because it tends first, to develop home industry and civilization without injuring others, and second, to automatically extend these beneficial results to all mankind. Here, then, we have a truly philosophic and strictly economic basis for applying the protective principle both to foreign and domestic industrial relations. It consists in securing the present and promoting the future opportunities (incentive-creating con- ditions) for developing the highest industrial and social possibili- ties of a people, and may be briefly summarized thus : Foreign — Applied to the industrial intercourse of nations, a true protective policy is to prevent the products of the more advanced countries from being undersold by the products PROTECTIVE PRINCIPLE APPLIED. 36 1 of less civilized countries, through the use of lower paid labor ; thereby securing opportunities for developing the best methods of production afforded by the larger consump- tion and higher social life of the more advanced country. Domestic — Applied to the relations of individuals and classes within the nation, this policy is one to guarantee the safety of persons and property with the maximum amount of indi- vidual freedom, and to secure the education, leisure, and other like conditions, which tend to develop the best physical, intellectual, and moral qualities of the individual citizen. The scientific application of this principle to the various phases of industrial, social, and political life is the true function of statesmanship. CHAPTER IV. THE PRINCIPLES OF ECONOMIC TAXATION. Section I. — The Economic Basis of Equitable Taxation. In the preceding chapter, taxation was discussed solely as an instrument of industrial protection and national development. It is now proposed to consider taxation as a means of obtaining public revenue. In order to determine how to obtain the neces- sary revenue with the least expense and the greatest equity to all classes, it is necessary briefly to consider : ( i ) the principle which should determine the individual's contribution to the state ; (2) the source from which the contribution should be drawn. (i) The principle which should govern individual service to the state is a much debated one. It has been contended by some that a tax should be proportionate to the degree of pro- tection furnished by the state. According to this view, if one class of property is exposed to more danger than another, its owners should pay a proportionately higher tax. The objection to this is that it would place the greatest burden upon those least able to bear it. Assuming taxes to stay where they are put, under this system the owners of coal mines, stone quarries, and land would be almost exempt from taxation, while those engaged in manufacture and commerce would have to pay very high taxes. Moreover, the very poor and helpless, who most frequently need the aid of the state in many forms and are least able to contribute, would be the most heavily taxed. Since the function of government is to protect and promote opportunities for increasing the well-being of the individual, the most equitable basis on which the individual can be called upon to serve the state, is evidently his ability to contribute without injury to him- 362 PROPERTY TAX. 363 self. This idea is more or less generally recognized, as is shown in the frequent demand to have a heavier tax imposed upon com- modities consumed by the rich than upon those consumed by the poor. And the frequent demand for taxing incomes above a certain amount, the exemption of wages and small homesteads, — all of which are efforts to make the rich contribute more to the public revenue than the poor, upon the principle that they are more able to contribute. (2) From what source should this tribute to the state be drawn, or what is the best measure of an individual's capacity to pay without injury to his own well-being ? It is commonly assumed that the ability of a citizen to pay a tax is proportionate to the property he owns ; this, however, is far from being correct. For instance, one may legally own a large amount of property which is so highly mortgaged as to make his ownership merely nominal. To tax such a man in proportion to his property would impover- ish him, while the effect of a similar tax upon his neighbor whose property is free from mortgage would be relatively slight. One manufacturer with a large plant may, through a mere change of fashion or other social cause, be working at a loss, while another, with a similar plant, but who is unaffected by the fashion, may be making large profits. Clearly, to tax the property of these two at the same rate would be to deprive the former of his means of getting a living, while from the latter it would take but a fraction of his surplus, and hence would in no way impair his present industrial or social status. Manifestly then a uniform tax upon product or property would not fall with equal weight upon all. In other words, the owner- ship of property does not constitute a correct measure of the in- dividual's ability to contribute to the public revenue. There is but one source from which wealth can be taken with the certainty that it will not inflict a burden, and that is, surplus income, which embraces all the forms of rent, interest, and profit. The reason this form of income can be taxed with the least burden to its owner is that it does not enter into the necessary cost of his living. The cost of the social well-being of all who participate in production being a part of the necessary cost of production is represented by wages and salaries, the surplus is what remains after these costs are defrayed. Consequently, al- 364 MOBILITY OF TAXES. though to pay a tax from one's surplus is to lessen one's wealth, it does not intrench upon the normal means of social well-being, and therefore inflicts the minimum amount of economic and social inconvenience. Clearly then, the extent of the surplus in- come is the measure of an individual's ability to contribute to the public revenue without injury to his own well-being. How then can taxes be levied so as to be drawn from the economic surplus of the community without disturbing industrial relations ? This would be a very simple problem if the taxes would stay where they are put and were paid by those upon whom they are levied. But this is just what does not occur. In order therefore, to answer this question, it is necessary to consider the economic mobility of taxes. Section II. — Tke Mobility of Taxes and their Relation to Wages. To ascertain how taxes travel from one to another class in the community, and to find by whom they are ultimately paid, we have only to follow a tax from where it is levied to the place where it cannot be further shifted. For illustration, let us sup- pose that a tax is laid upon land ; the land being the source of all raw material, such a tax would affect all commodities in the first stage of their production. Upon the principle that a commodity cannot be continuously furnished for less than it costs, the tax will be added to the price of the product in the same way as wages and other items, and must be paid by the purchaser. If the article is wheat, the tax is thus transferred from the far- mer to the miller. The tax being an inevitable item in the cost of the flour to the miller it is transferred by him to the wholesale merchant, and by him to the retail grocer, who in turn passes it on to the consumer. Manifestly unless the consumer can transfer the tax to some one else, he must pay it, because it is included in the price of his commodity in addition to all necessary costs. This brings us to the most critical point of the subject. All writers of any standing recognize the mobility of the tax from the raw material to the consumer of the finished product. But it is generally assumed that the tax cannot be made to travel any further than the commodity in whose cost it is an item, and con- sequently whoever consumes the article ultimately pays the tax. . RELATION OF TAXES TO WAGES. 365 If we examine the matter more closely, however, we shall see that this conclusion is only partially correct. Whether or not those who consume the wheat pay the tax, will depend upon whether its consumption forms an item in any further series of production. Suppose, for instance, the wheat is consumed by horses that are employed in a brick-yard. The wheat in that case at once be- comes an item in the cost of using the horse, which in turn is an item in the cost of the brick. This point is very important here, because it has a direct bearing upon whether or not the laborer ultimately pays the tax included in the price of the com- modities he consumes. The laborer, it should be remembered, exercises two functions. One is social, and the other economic. As a social factor he is a consumer, and constitutes an important item both in civilization and in the market. As an economic factor, however, he is simply a productive force. In this capacity he affects the price of the product in precisely the same way as does any other force so employed, whether it be through the instrumentality of ani- mals or machinery. Economically they all affect the cost and price of the product in the same way, namely, through the cost of procuring them. The cost of any productive instrument is what is consumed in maintaining its productive efficiency, and that cost must be replenished from the price of the product. Now, the cost of maintaining the productive efficiency of the laborer is his living. Whatever is necessary to that is a part of the price of his labor — wages, — and therefore becomes a neces- sary item in the cost of whatever he produces. Clearly, there- fore, the more his living costs, the more expensive will be his labor. If his cost of living could be reduced, either by inducing him to consume fewer commodities or by lessening the cost of those he does consume, his wages could easily be lowered. The price of labor in Asia and continental Europe is less than in America because labor there costs less.' For the same reason that the price of labor would fall if the cost of the laborer's living could be reduced, it must and will rise if the cost of that living is increased. Nor does it matter whether the increased cost is due to an increase in the amount of '"Wealth and Progress," Part II., chap, vii., sec. i., pp. 162-167; »lso Brassey's " Work and Wages," pp. 88, 8g, 94-96. 366 THE LABORER SHIFTS THE TAX. wealth he consumes or to a rise in the price of that wealth. Thus, during the American war, when the price of commodities was greatly increased through the inflation of the currency, wages soon moved in the same direction and fell again when the prices were lowered — as, indeed, they have throughout all history.' Clearly, therefore, if the price of a laborer's flour, sugar, coffee, clothing, and the like is increased by a tax, the result will be economically the same as if the higher price were due to the payment of higher wages to agricultural laborers, a rise in the rate of transportation, a failure of crops, or any other cause ; and if it becomes perma- nent it will result in his demanding and obtaining higher nominal wages. The laborer would not gain any thing in well-being by such a rise of wages, but it would be necessary in order to furnish him the amount of well-being to which he had become habitually accustomed, and without which he would refuse to work. In this way, therefore, the tax is transferred from the laborer to the em- ployer." What is true of the laborer is equally true of all who receive stipulated incomes. To whom, then, it may be asked, does the employer transfer the tax ? Here the answer is as before — to whomsoever he can. And if he cannot transfer it to anybody, he must pay it himself. He will of course utilize all the economic forces at his command to pass the tax to somebody else. He may first try to make the '"Wealth and Progress," pp. 148-156; also McCulloch's "Principles of Political Economy," p. 181. " This fact was recognized by the early English writers, although, like many others of their best suggestions, it has been subsequently treated rather as an incidental than a primary fact. Adam Smith says : " Such a tax must there- fore occasion a rise in the wages of labor proportionable to this rise of price. It is thus that a tax upon the necessaries of life operates in exactly the same man- ner as a direct tax upon the wages of labor. The laborer, though he may pay it out of his hand, cannot, for any considerable time at least, be properly said to even advance it. It must always, in the long run, be advanced to him by his immediate employer in the advanced rate of wages." — " Wealth of Nations," Book v., chap, ii., article iv., pp. 6gi and 6g2 ; see also pp. 686, 693, 694, and 704. Ricardo says : ' ' There can be no permanent fall of wages, but in con- sequence of a fall of the necessaries on which wages are expended." — " Political Economy and Taxation," p. 75. "A tax, however, on raw produce and on the necessaries of the laborer, would have another effect — it would rais^ wages." — IMd., p. 93. " The effect of a tax on wages would be to raise wages by a sum at least equal to the tax, and would be finally, if not immediately, paid by the employer of labor." — Ibid., p. 133 ; see also pp. 129, 136, and 141. TAXES DRAWN FROM THE SURPLUS. 367 laborer pay it by refusing to increase wages, but here he will be met by the laborer's refusal to work, and, should he try to put it on the consumer in higher prices, he will only be repeating the circle, because the increase in the price will act as before upon wages, and he will have to pay out to the laborer what he has thus exacted from the consumer. In the last analysis, therefore, the only source from which the employer can pay the tax is his surplus or profit.' That being, as we saw in the last section, the true measure of the individual's ability to contribute to the public revenue without curtailing his own well-being, it is the most equitable basis of taxation. This brings us to the question how the employer replenishes his surplus from which taxes are finally drawn. Section III. — The Ultimate Effect of Taxation upon Profits and the General Wealth of the Community. If the conclusion reached in the last section is correct, and taxes finally come out of the surplus product, then it follows that either profits diminish as taxes increase, or that the employer has some means of replenishing his surplus. We know from ex- perience that the aggregate amount of wealth taken in taxes tends to increase as society advances, and it is equally certain that the aggregate profits do not diminish. On the contrary, while there is a tendency to minimize the rate of profit per unit of product, the aggregate amount of surplus product in various forms un- questionably tends to increase. Clearly, then, there must be some means by which the employer can replenish his surplus when thus drained by taxation. How does he do it ? We have already seen that he cannot take it from the consumer • Accordingly, any extra pressure of taxation is always first felt by the business portion of the community in the diminution of profits. Hence we always find the commercial class the first to protest against excessive taxation. For this reason no representative government, and few despotic ones, could suddenly increase the taxation of the country by an amount equal to the aggregate profits of the community, because such an act would practically be a seizure of the total surplus revenue, which would, in all probability, cause a, revolution that would destroy the government. That is why, whenever an exceptionally large amount is to be Suddenly raised by taxes, it invariably takes the form of a loan for a long period, thus extending the ultimate payment of a portion of the tax to future generations. 368 ffOW THE SURPLUS IS REPLENISHED. by raising prices, nor from the laborer by reducing wages. That he does not take it from either of these sources is further shown by the fact that contemporaneously with the increase of taxation, real wages have risen and the price of commodities has fallen. Manifestly then, the only way the producer's surplus can be replenished is by 'a new draft upon nature through increased production. Nor will it be difficult to see how this takes place, if we bear in mind the law of prices and surplus, previously presented. Under this law, whenever productive methods are employed by which nature yields a greater amount of wealth for the same effort, all other demands upon the product being fixed amounts, the whole gain naturally flows to the contingent surplus of those who use the new methods. Consequently, all increase in the wealth of any stipulated income class in the community, whether it be through lowering prices or increasing wages, must be drawn from the contingent surplus of the producers. For instance when, by the adoption of more productive instruments, the sur- plus of the most successful producers increases, there arises a greater inducement to invest more capital in the enterprise, and thus increase production. In order to insure the sale of this increased production, it is offered at a lower price. If this reduction be ten per cent., the uniform price of the total product in that market will fall ten per cent. Manifestly this fall comes directly out of the profits of the producers, and all who were previously making less than ten per cent, profit will now have to leave the business or adopt the methods by which the reduction was brought about. Thus the additional wealth resulting from the increased productive efficiency first flows to the economic surplus of those producing the improvement, and then by com- petition, is transferred from the producers' surplus to the com- munity in lower prices. An increase of wages takes place upon the same general principles, and with substantially the same result, but it comes in a somewhat different way. A reduction in prices is a distri- bution of the surplus through the aggressive action of employers. An increase of wages is a distribution of the surplus by the aggressive action of laborers. As already explained, the enforced transfer from profits to wages compels the producer either to TAXES INCREASE PRODUCTION. 369 work without profit, or perhaps at a loss, or to adopt some labor-saving means by which more can be produced at the same cost. Thus the laborer's encroachment upon the capitalist's surplus forces him, under penalty of poverty, to make nature yield more wealth for the same effort, thus replenishing what the laborer has taken from him, and making the community absolutely richer by the amount to which wages have been increased.' What is true of wages is true of any other form of increased consumption which adds to the cost of production. Taxation is precisely of this character. If 10 per cent, is added to the price of wheat or cotton by a tax, the mobility and ultimate economic effect upon profits and production will be identically the same as if 10 per cent, had been added to the cost by an increase of wages. The same economic power which would enable the farmer to add to the price of wheat an increase in the farm laborers' wages, and the miller, wholesale and retail merchant, each in turn to add it to the price of flour, and the mechanic, who consumes the flour, to add it to his wages, and thus ultimately take it from the employers' profits, will enable them to do pre- cisely the same by a tax which increases the cost of production in the same way, no matter at what stage of the process it is levied. Taxation, like wages, is simply a form of consumption, and hence exercises the same influence upon profits and the general wealth of the community as any other form of consump- tion — namely, to increase the aggregate production, which added increment goes to replenish the source from which the tax was last taken — the employer's profit. It will thus be seen that the entrepreneur does not pay the tax, in the sense of being permanently the poorer by it, any more than does the farmer, miller, merchant, or laborer. They each shift it on to the next purchaser of the product into whose cost it has entered. In the laborer's case, having become a part of the cost of his labor, it is charged to the employer in the same way. The employer, being unable to charge it upon any class of his fellow-men, is forced, by the impulse of self-interest, to exact it from nature, which he finally does in the form of a larger product. Therefore Professor Sumner's statement that "every ' Part II., chap, v., sec. iii. Also "Wealth and Progress," pp. 31, 32. 24 370 IMPORTANCE OF TAXATION EXAGGERATED. tax is an evil " is essentially false. A tax is not necessarily an evil any more than wages or any other form of consumption.' It will thus be seen that taxation properly occupies no such important position in economics as is usually ascribed to it. If the total consumption upon which the $300,000,000 of taxes in this country is expended were abolished to-morrow, instead of adding to our wealth, it would create an industrial depression in this and probably in several other countries, until, by enforced idleness and bankruptcy, production could be readjusted on the narrower basis to conform to the diminished consumption or demand. Were this relation of consumption to production prop- erly understood, taxation would cease to be the hobgoblin of public affairs. The important question regarding taxation is not as to who shall pay the taxes, nor how much they shall be, but as to how they shall be expended. If a large amount of wealth is exacted from the community in taxes, and is squandered, then there would be no justification for a readjustment of economic relations which its production involves. If the tax revenue is used to repress any phase of social progress, as would be in maintaining a standing army, it is then a positive injury. Only when the wealth created by tax is used to further the social development of the people has it any economic or ethical justifi- cation. Upon what principle, then, should the public revenue be expended in order to justify its collection ? Section IV. — The Legitimate Sphere of Public Expenditures. Since the public revenue is but the means by which government fulfils its functions, its expenditure is necessarily limited to the sphere of governmental action. We have already seen that the functions of government are Qss&atia\\y protective, Judiciary, educa- tional, and impersonal in their character. Clearly therefore, the sphere of public expenditures is properly limited to the promotion of those objects which may be conveniently grouped into two classes as the Static and the Dynamic functions of government. ' Whether or not a rise of wages or an increase of taxation will be beneficial will depend largely upon how it is expended, and this, in turn, will depend upon the influences by which it was brought about, but, in any event, it will cause an increase in production. riVO FUNCTIONS OF GOVERNMENT. 37 1 The static functions embrace all that is necessary to secure the community against a common enemy and to enforce the recog- nized system of social order as expressed in established institu- tions. This may require a large army, an extensive police force, and a numerous staff of judiciary and executive officers. The means necessary to sustain these instruments of public order should be supplied from the public revenue, for the obvious reason that it is the function above all others which can be best performed by the government, and without which it would be impossible for the individual to perform with safety and freedom any of the industrial and social duties of a civilized citizen. All expenditure for this purpose represents the price that civilization has to pay for guarding itself against the effects of barbarism, and should be reduced as rapidly as possible. To accomplish this reduction involves the exercise of the dynamic functions of government. These relate to increasing the opportunity for developing all phases of individual capacity and freedom. Opportunity, as the term is here employed, is distinctively educational in the broadest sense of the word. Every thing is educational that brings man into more frequent contact with an increasing variety of social influences which tend to stimu- late his wants and desires, sharpen his intelligence, and actualize the latent possibilities of his character. This embraces not only the elementary education furnished by the common school, which is of prime importance to citizenship, but it also includes the furnishing of clean, wholesome streets, good drainage, ventilation, and other sanitary requisites to wholesome domestic life, an abun- dance of public parks, gardens, museums, free lectures, reading- rooms, circulating libraries, and, above all, the leisure necessary to enable the masses to avail themselves of these and kindred educating and elevating influences. To the extent that these opportunities are increased will the intelligence and character of the citizen be elevated and the functions of the soldier, policeman, judge, and jailer become unnecessary. Consequently, to the extent that the public revenue is expended in performing the dynamic functions of the state will the amount required to perform the static functions diminish. This is the more import- ant because every dollar that is consumed by the government in exercising its static functions involves so much production 372 PUBLIC IMPROVEMENTS. without any real increase in well-being, — it being all consumed in guarding what already exists. On the other hand, every dollar expended by the state in performing its dynamic functions involves an increase of production, all of which is a net gain in social well-being. Therefore, instead of treating all taxes as an evil to be dimin- ished, it is only the amount of the public revenue consumed by the government in performing its executive and police duties that can properly be so regarded. AH that is consumed in extending the socializing opportunities of the people is a positive benefit and should be increased, especially as the increase of the latter is the surest way of diminishing the former. To oppose an increase of taxation for public improvements, in the name of economy, is a fallacy which cannot be too frequently exposed. It is just as important to have clean streets as to have clean houses, and the wealth consumed in the one contributes to civilization as much as that consumed in the other. The only question to be con- sidered regarding such expenditures, is whether or not they can be more efficiently conducted by the government than by private individuals.' But that the wealth so consumed should be increased is sustained by all the interests of civilization, and those who oppose it are unconsciously or otherwise obstructing the movement of social progress as surely as those who oppose popular education and favor long hours of labor and low wages. Section V. — How can Taxes be Most Equitably Levied, Conveniently Paid, and Economically Collected? This proposition involves two questions : (i) How taxes should be levied. (2) What they should be levied upon. I. There are two general methods by which the public revenue can be obtained — direct and indirect taxation. It is a peculiar feature in the history of taxation that those who are charged with the responsibility of raising the revenue and with the administra- tion of government, usually prefer to obtain the revenue through indirect taxation. On the other hand, revenue reformers and social reformers generally advocate direct taxation. Direct taxation is urged in preference to indirect, chiefly on the ' See Part IV., chapter ii., section iii. DIRECT TAXATION. 373 ground that a tax is an evil which should always be minimized, and that if taxes were collected directly from the individual he would then realize how much he paid, and would therefore be more strenuous in his demands for a retrenchment of the public revenue. They insist that indirect taxation is simply a cunning device for making the citizen contribute to the public revenue under the guise of purchasing the necessaries of life, thus obtain- ing wealth from the individual which he would otherwise refuse to contribute. This position is based upon two assumptions : (i) that taxes are necessarily an evil to be minimized ; {2) that direct taxation affords each individual an opportunity of correctly estimating the amount he contributes to the public revenue. In the first place it is an entire mistake to regard taxes as neces- sarily an evil. We have already seen that they simply represent the consumption of wealth in a public form, and have the same economic effect upon production, industry, and commerce gener- ally, as does private consumption. And whether or not private or public consumption will be permanently beneficial to the com- munity depends upon how such consumption takes place. To the degree that wealth is consumed in extending public improvements and enlarging the social opportunities of the people, it is both economically and socially a positive advantage. The assumption therefore that taxes are at best a necessary evil is not only erroneous in fact, but it is extremely mischievous in its effect, as it inspires opposition to expenditures for public improve- ments. Nor is the idea that direct taxation enables each individual accurately to determine the amount he contributes to the public revenue any nearer correct. This is another of the numerous errors arising from a misconception of the law of wages. From what has already been said it will not be difficult to see that a direct tax upon the individual is just as mobile as an indirect tax levied upon the commodities he consumes. If a merchant can transfer a tax upon flour to the consumer, because it adds to its cost to him, he can also transfer to the consumer a tax upon his house or his horse for the same reason. The same is true of the laborer. A direct tax upon his house or his wages or any thing in his possession, is simply so much addition to the cost of his living, and can be transferred through 374 EVILS OF DIRECT TAXATION. higher wages to the employer in precisely the same way as is hi house rent, and the cost of his food, clothes, and other necessarie of life.' In many parts of England the different classes of loca expenditure such as the " poor's rate," the " cemetery rate," thi " highway rate," the " water rate," the " local-board rate," etc., ar( collected directly from each householder by the tax-gathere: in separate items, and often by different persons. These ratei however, enter into the cost of the laborer's living, and have to b< covered by his wages just as much as the amount of his grocerj bill or his house rent, and are everywhere so recognized.' When the rates and rents are high, as in London and other large centres the wages in all industries are correspondingly higher than it localities where these items are low, which is one of the reasons why wages are always higher in large cities than in small towns and rural districts.' The economic mobility of a tax is in no- wise affected by the fact that it is directly or indirectly collected Whether the taxes are gathered directly from the laborer in a specific sum, or indirectly through the enhanced price of com- modities, makes no real difference. In either case it enters intc the cost of his living and the price of his service, and hence is ultimately transferred to the employer. Instead, therefore, ol direct taxation enabling the laborer accurately to determine the amount he pays to the government, it has the opposite effect, and he is deluded into the belief that he is heavily burdened by pub- lic expenditures, whereas he actually contributes nothing except temporarily during periods of readjustment. Moreover, the effect of direct taxation is pernicious in manj ways. In the first place it creates a strong incentive for evading taxes, which is a standing inducement to dishonesty. So long as men believe that they are permanently impoverished by whal they pay into the public treasury, they will endeavor to devise ' " Wealth of Nations." ^ So manifest is this that where whole classes of laborers have to ride to anc from their work, as in London and other large cities, the price of their fare ii recognized as a proper cause for demanding higher wages, and in other district! where the employer furnishes the laborer's house rent-free, or the privilege ol keeping a cow, etc. , it is equally regarded as a legitimate reason for payinj lower wages, and in such cases wages always are lower. ' "Wealth and Progress," Part II., chap. vii. PROPERTY AND INCOME TAX. 375 means to elude the tax-gatherer ; the " tax-dodger " is a well- known character.' In the next place direct taxation creates a strong feeling of dissatisfaction among the different classes in the community as to the justice or injustice of taxing or not taxing different classes of property. Hence the interminable controversy as to whether or not workingmen's homes should be exempt from taxation. It is held to be unjust to tax the work- ingman's home because that would be putting the burden upon those who are least able to bear it. But if they are to be exempt, at what point should the exemption be fixed ? To exempt home- steads at a given valuation would tend to encourage the building of houses within that valuation limit ; and that would be a decided injury, because it would act as a check upon the building of superior houses, and hence tend to stereotype inferior domestic conditions. Again, whether or not all personal property should be taxed, and if not what kind should be exempt, is another point of con- tention. Some insist that productive property should not be taxed, because such taxation discourages industry, while others contend that to tax non-productive property is unjust, since it yields no income. And certain it is that every attempt to tax personal property encourages systematic misrepresentation and other fraudulent practices too numerous to recite." The same is true of income tax. This tax is assessed on the assumption that it draws the revenue from surplus incomes which would otherwise escape taxation. But when it is understood that in the normal course of economic movement all taxes are finally drawn from the surplus product, the force of such reasoning entirely disappears. So far from direct taxation being the model method of raising public revenue, therefore, it is essentially un- economic and demoralizing. It involves the maximum incon- ' In Boston for instance it has become an established practice among a large number of rich men to temporarily reside in Nahant, a small town a few miles from the city, where the local taxes are very light. By living there on the first of May, when assessments are made, they are taxed for Nahant instead of Boston. While they actually live in Boston, and obtain all the advantages of the large public expenditures there, they are only taxed according to the trifling expenditure in Nahant. ^ See Prof. E. R. A. Seligman on " The General Property Tax," Poliiical Science Quarterly, March, i8go. 376 INDIRECT TAXATION. venience, puts a premium on dishonesty, and tends to make the average citizen a persistent enemy of public improvements, without affording any compensating advantages. In short, direct taxation is defensible only in cases of exceptional emergency such as wars," and even then but for the briefest period pos- sible. Since the public revenue must be directly or indirectly col- lected, it follows that all the reasons for objecting to direct taxation obtain in favor of the indirect. While it is highly important that the individual should always be fully informed regarding real burdens, it is quite as important that he be not deluded into assuming imaginary ones. Since the public con- sumption represented by taxation is not a permanent burden upon any class in the community, the public welfare demands that taxes should be so levied as not to have that appearance. Consequently, instead of making taxes as direct as possible, thereby giving them the most burdensome seeming, they should be levied with the greatest indirectness, so as to be as impercepti- ble as possible. To the extent that the individual ceases to be conscious of his contribution, and its exact amount becomes difficult to determine, will the incentive for the various forms of dishonesty and corruption for evading taxation disappear. And when an important public improvement is proposed which in- volves a large expenditure, the decision of the average citizen regarding it will be less likely to be neutralized by the feelings of his own inability to contribute his share. By removing this con- scious personal element, the question of taxation will be considered solely with regard to its effects upon the community, thus removing one of the greatest obstacles to public improvements. With this view of taxation, all public expenditures of a protective, educa- tional, opportunity-creating character (judiciously applied) would be regarded as an actual addition to the wealth of the community, ' The only reason for adopting direct taxation in case of war is that the surplus income is reached quicker by that means, but it is far more inconvenient and arbitrary ; and even in such cases it is more economic to borrow the necessary amount and let it be finally repaid out of the revenue indirectly collected. When it is thus furnished through the normal operation of economic law, il tends gradually to replenish the surplus from which it is drawn by increased production, and thus minimize, if not indeed obviate, the burden upon the com raunity. ADVANTAGES OF LAND TAX. 377 to be increased, instead of as at present being treated as a burden to be avoided at every turn. 2. Upon what class of property should taxes be levied is the question that remains to be considered. The important point to be considered in determining the class of property upon which taxes should be levied is how to obtain the greatest indirection of movement with the least cost of collection. Manifestly a tax will have the greatest indirection of movement, and hence be most completely subject to economic law which passes through the largest number of hands and enters into the greatest variety of productive processes. To give a tax the greatest indirection, therefore, it must be levied at the point farthest removed from those by whom it will be finally paid. Since all taxes are finally drawn from the surplus product, they would necessarily be most direct when levied upon profits or other surplus, and conversely most indirect when levied upon the source of raw material. Upon the same principle that a tax upon surplus incomes cannot be shifted to any other class in the community, because it does not enter into the cost of production, a tax on raw material can be shifted in a multitude of ways before reaching any class of consumers, because it all enters into the cost of production, and becomes an indistinguishable part of the price of commodities. Clearly then, the greatest indirection would be secured by imposing a tax on real estate, especially on land. A tax upon land would of course be an addition to the cost of producing every species of wealth in the community. It is equally clear that a tax upon real estate would be the most easy and inexpensive to collect. In the first place, it is the form of property that is most accessible, it cannot be con- cealed from the eye of the assessor ; hence it affords the least temptation for tax-dodging, or other dishonorable means of evasion. It is also the class of property whose value is most easily ascertained, because it is most frequently and permanently in the open market for sale or rent, either fact furnishing the basis for ascertaining its current value at any given time. This form of property has the further advantage of being immovable. The owner may leave the city, State, or country, but the real estate remains as accessible as ever. Another advantage in this form of taxation is that it avoids all the objectionable inquisitorial 378 EQUITABLE NATURE OF LAND TAX. features involved in all direct, personal, and property taxes. There is no other form of property in society upon which taxes can be so easily and accurately assessed, so cheaply collected, and with as little intrusion upon the freedom of the citizen. Nor can there be any complaint that such a tax would press unduly upon the landowner, because, so far as the income from the land represents the cost of service rendered in using it for productive purposes, the tax will all come back in the price of the product ; and only that portion of the tax which falls upon the surplus as rent, interest, and profit will be untransfera- ble and finally paid by the landowner, the equity of which no one can question. Nor can any legitimate complaint be made by those who advance the tax at any of the subsequent stages. In every case, so far as it affects the cost of economic production either in the form of the cost of raw material, tools, labor, or any thing whatsoever, it can be added to the price. Neither could there properly be any complaint about the personal wealth of the rich escaping taxation, because the tax having been laid at the source of economic movement, its/w// amount is included in the price of every thing they buy. Hence their only means of suc- cessfully avoiding taxation would be to forego consumption, which is to relinquish wealth and civilization. If taxes were thus levied, the rich jewelry, wardrobes, furnishings, and equi- pages of the wealthy would all carry their quota of taxation, and so far as they represented the stock of the manufacturer or merchant, or were included in the necessary cost of living of any who render productive service, the tax included in their price would be transferable as in all other cases ; that portion of these forms of wealth only which was supplied from surplus income would have finally to bear the tax. There certainly could be no justice in making an article, which has already borne its full quota of taxation in its economic journey to the consumer, yield a fresh tax each year after it leaves the sphere of economic move- ment. Such a tax must necessarily act as a direct check upon all new forms of consumption, especially among the wage- and salary- receiving class, and thus be positively inimical to the development of a high standard of living and social progress. It will perhaps be objected that if taxes were all levied on real estate, and acted as an increase in the cost of raw material, the OBJECTIONS ANSWERED. 3^9 tax would fall the heaviest on those articles containing the largest amount of raw material. And since food and the coarser manu- factured products consumed by the masses contain a much larger proportion of raw material than the finer products of manufacture and art consumed by the wealthy, the tax would fall much more heavily upon the poor than upon the rich. This is an objection which can be easily answered, if we bear in mind the law govern- ing the mobility of taxes. It is true that in high-priced jewelry, pictures, books, and indeed the finer products of manufacture and art, the raw material forms the most insignificant portion of the cost. And if the tax represented in the price of such articles was limited to what is conveyed by the cost of raw material, it would indeed be very slight. The fact is, however, that the tax in such products enters mainly through the labor. Although the tax-bearing raw material in these products is very slight, that represented in the laborer's wages, which includes all that enters into his living, is very great, and as the high price of such prod- ucts is largely made up of the cost of labor, they bear the tax levied upon all the raw material consumed by the laborer. The tax, therefore, in the finer products of manufacture and art will not be proportionate to the raw material they actually contain, but to all the raw material that has been consumed by every thing used in producing them. In other words, their contribution to the public revenue will be proportionate to their value as finished products, and therefore they represent the greatest instead of the least tax-transmitting power. Another objection that will probably be urged against this position is, that a tax on raw material has the effect of adding to the price of the product not only the tax but also the profit upon the tax to those who advance it. This view has long been held by leading English economists.' According to this view, every time a tax is transferred it carries with it an added increment of ' Adam Smith says : "A tax upon those articles necessarily raises their price somewhat higher than the amount of the tax, because the dealer who advances the tax must generally get it back with the profit. . . . His employer, if he is a manufacturer, will charge upon the price of his goods this rise of wages with a profit, so that the final payment of the tax, together with his overcharge, will fall upon the consumer." — "Wealth of Nations," Book V., chap, ii., article iv., pp. 691, 692. 380 MILL'S ERROR. profit. Consequently, if it is transferred enough times, the amount of profit which is added to the consumer's price of the finished product by the tax will be greater than the tax itself. This doc- trine is a logical part of the orthodox theory of profits, according to which the normal profits of the capitalists form a necessary part of the cost of production, and hence of the price of commo- dities. In stating this theory. Mill says : " And profit, we have also seen, is not exclusively the surplus remaining to the capitalist after he has been compensated for his outlay, but forms, in most cases, no unimportant part of the outlay itself." And after enu- merating a long series of processes, in which the profits of each are compounded in the next, he adds : " All these advances form a part of the cost of production of linen. Profits, therefore, as well as wages, enter into the cost of production which deter- mines the value of the produce." ' Were this doctrine correct, it would certainly form an unanswerable objection to all indirect taxation, and indeed to indirect production also. Since every specialization and division of labor adds to the series of distinct profit-yielding processes, industrial improvements would serve to increase the power of the capitalist to add compound profit to the consumer's price of commodities. Fortunately for civilization, however, economic law permits no such compound profit-making process. We have already seen that the price of the product in a given market tends to a uniformity on the basis of the cost of furnishing the dearest portion." Consequently the profits of each producer can only be equal to the difference between his cost of production and that of those furnishing the dearest increment of the general supply, this increment being sold without profit. It is impossible there- fore in any market, or at any stage of the productive process, to add the producer's profit to the consumer's price, since competi- tion compels all who contribute to the same market to sell at the same price, which price is fixed by the cost of the no-profit produc- ers. Consequently, if there is any profit, it must be obtained from nature through greater economy in production. It will thus be seen that the claim that taxes upon land or raw material must be repaid with a profit to those who pay them, is a pure phantom ' " Principles of Political Economy," vol. i., p. 568. ' Part II., chap, iv., pp. 125-128. Cf. pp. 205, 206. POPULAR DELUSION. 38 1 which entirely vanishes in the light of the true law of economic prices, and with it disappear all the objections to indirect taxa- tion, based upon adding compound profit to consumers' prices. It will be seen that the question of taxation is much less funda- mental than it is usually made to appear. Like the question of money, it is frequently employed to influence public opinion on a multitude of questions on which it has practically no bearing. Taxation is simply the consumption of wealth in a public form, and has no more economic effect than the same amount of wealth privately consumed. The only interest therefore the community has in the question is that the taxes shall be economically col- lected and wisely expended. If this fact is once clearly under- stood, the misconceptions in which the subject has been involved will disappear. Then the popular delusion that all taxes are finally paid by the laborer would lose its political utility, and the equally erroneous notion of Henry George, that to levy all taxes on land-values would abolish poverty and establish universal freedom, would at once be recognized as a mere social mirage. The only advantage in levying taxes upon land and real estate in preference to incomes and personal property is that the revenue can be collected from the former with greater ease, certainty, and convenience. CHAPTER V. BUSINESS DEPRESSIONS. Section I. — Economic Characteristics of Business Depressions. There are few questions upon which a greater variety of opinion exists than business depressions. They are ascribed to a different cause in every country, and often to as many different causes in the same country as there are phases of social reform, political parties, sectional or industrial interests.' Before any intelligent understanding of the cause of these social calamities can be obtained, it will be necessary to consider their economic peculiarities, and the industrial or other conditions under which they occur. The first general characteristic of business depressions is that they are periods of exceptional industrial adversity. But there are two kinds of industrial adversity, whose characteristics and causes are widely different ; these are famines and business de- pressions. A famine is an actual scarcity of consumable wealth ; a business depression, on the contrary, is a relative plethora of consumable wealth. The first symptom of a famine is the failure to produce a sufficient amount of wealth to meet the existing de- ' The business depressions of 1873-1878 were attributed to over two hundred different causes by the various economists, capitalists, philosophers, and re- formers, who testified before the Congressional Committee to investigate the subject. See reports of the Wright and Hewitt Congressional Committees on " Industrial Depressions," also the report of the United States Senate Com- mittee on " Education and Labor,'' 1885, and the report of the Commissioner of Labor on " Industrial Depressions," 1886. Also report of Royal Commis- sion (England, 1885) o;i tjie " Cause of Industrial Depressions." 382 DEPRESSIONS, FAMINES, AND PANICS. 383 mands of the community ; while the first indication of a business depression is the failure to find sufficient customers to carry off the existing supply of commodities. The economic distinction, therefore, between a famine and a business depression is that the former springs from a scarcity of commodities and the latter from a scarcity of consumers. Nor do famines and business depressions both occur in the same countries. India, Egypt, and other less civilized countries, have frequently suffered severely from famine and cgnsequent pes- tilence, as did also Europe during the Middle Ages, — thousands, and sometimes millions, died of hunger and disease,* — but they have no business depressions. America and the leading countries in Europe no longer have famines, but they have business depres- sions. Famines and business depressions are not only economi- cally distinct, and occur in different countries, but the very conditions which promote the one tend to prevent the other. The very specialization of industry and development of science that have steadily diminished the possibility of famines, have brought into existence involved commercial relations and the factory system which make business depressions possible. Nor must business depressions be confounded with financial panics ; these are disturbances of another kind. A money panic may arise in the midst of business prosperity as at present (1890). Although, like any other social disturbance, a financial panic has a harmful effect upon the industrial community, it being purely a fiscal disturbance the evil effect is largely restricted to the specu- lative class. A money panic may be the final straw which reveals a business depression, but if the consumption of commodities is practically equal to the production it cannot produce one. Busi- ness depressions, therefore, 'may be characterized as periods of industrial adversity peculiar to machine-using countries, and arise from a failure to sell and never from an inability to produce consumable wealth. Another characteristic of business depressions is that they are not local or even national in their movement, but that they occur with striking uniformity in all countries in which they occur at all. This will be seen by the following table, which shows the > Mr. Cornelius Walford, F.I. A., F.S.S., in a paper published in the Sta- tistical Journal, vol. xli., gives the history of 350 famines. 384 HISTORY OF DEPRESSIONS. recurrence of business depressions in England, France, United States, Germany, and Belgium during this century.' Germany. Belgium. England. France. United States 1803 1804 .... 1810 1810 .... 1815 1813 1814 1818 1818 1818 1826 1826 1S26 1830 1830 .... 1837 1837 1837 1847 1847 1847 1857 1856 1857 1866 1866 1867 1873 1873 1873 1883 1882 1882 1885 1885 1885 1837 1837 1847 1848 1855 1855 1864 1873 1873 1882 1882 1885 1885 By this table three facts are clearly indicated : (i) That busi- ness depressions are limited to machine-using countries beginning in England with the rise of the factory system. (2) That they have steadily extended to other countries as fast as factory methods of production have been adopted ; that is to say, as fast as they became manufacturing and commercial countries. (3) That business depressions have been practically uniform and international in their movement, and that all countries with- out regard to form of government, political institutions, physical or climatic peculiarities, when once afflicted are visited with every recurrence and almost simultaneously. With these facts before us regarding the nature and history of business depres- sions, we are in a position to intelligently consider the causes from which they arise. Section II. — Cause of Business Depressions. In order to warrant the conclusion that any circumstance is the cause of succeeding phenomena, it is at least necessary: (i) that it should be adequate to produce the effect ; (2) that it sustain some necessary relation to it. In seeking the cause of business depressions therefore, we must first eliminate from the problem all influences which are clearly insufficient to produce them. Among the hundred or more specific causes assigned for ' First Annual Report of U. S. Commissioner of Labor, p. 290. CAUSES ASSIGNED. 385 the business depression of 1873 in this country were excessive speculation in railroads and real estate, inflation of the currency, high protective tariff, and the unnatural stimulus given to industry by the war.' But when we observe that none of these things occurred in England, and that still the industrial depression was as severe there as here, it becomes clear that these causes were insufficient to explain the facts. So too in the case of France. The fact that at the close of the war in 1872 France was compelled to pay an indemnity to Germany of five millards of francs in gold, appears at first sight to furnish a sufficient reason why she should have experienced a state of severe business depression and poverty in 1873. But when we observe that the depression was just as severe and protracted in Germany, where, this colossal indemnity was received, as in France, from whom it was exacted, the virtue of this explanation disappears. Its inadequacy be- comes still more apparent when we remember that although none of these circumstances existed in England, Belgium, and America, they all had business depressions equally severe and protracted. The same is true of causes assigned for the depressions of 1882 and 1885.'' Without entering further into details regarding this class of causes then, we are abundantly warranted in rejecting them as wholly inadequate to account for the phenomena. To what cause then can business depressions be attributed .' A business depression can never occur unless the equilibrium between consumption and production is disturbed in such a manner as to result in a diminution of consumption as compared with production. The first symptom of an approaching business depression is the inability of producers to find customers for their whole product at remunerative prices. Manufacturers will con- ' ' ' There had been a period of excessive speculation, especially in railroads and real estate, large failures following that of Jay Cooke, inflation of the cur- rency, high protective tariff, large immigration, and the unnatural stimulus given to industry by the war, brought the monetary affairs of the country to a crisis, resulting in general distrust, fall of prices, apprehension, and all the train of evils which follow such crises." — " First Annual Report of the Commissioner of Labor," 1886, p. 60. ' For the cause of the depression in 1882 see " First Annual Report of the Commissioner of Labor," p. 76, and for a summary of the causes and remedies recommended, see ibid., pp. 291-293. 25 386 THE REAL CAUSE. tinue to produce wealth and will prosper so long as they can fihd a remunerative market for their wares, even though wars rage or governments are overthrown. Production being but the economic response to consumption, it is to the influences which effect con- sumption that we must look both for the cause and cure of business depressions. Nor is this all. Since business depressions are peculiar to factory conditions, and the market for factory-made products depends chiefly upon the consumption of the laboring classes, it follows that it is the failure of the laborers' consump- tion to keep pace with the capitalists' production — the failure of the home to grow as fast as the factory — that really produces business depressions. Here then we have a cause that is both adequate to produce the effect and necessary to it. So long as the consumption of the masses — i.e., the wage- and salary- receiving class — increases commensurately with the productive capacity of the community, nothing can create a business depres- sion ; and whenever this does not occur nothing can prevent one. Why does the laborers' consumption periodically fall behind the capitalists' production ? Is it a necessary part of the present productive system, or is it merely incidental to it ? The essential features of capitalistic production are specialization of labor, concentration of capital, and the use of factory methods. As already pointed out, these are essentially socializing in their in- fluence ; hence, instead of being inimical to the growth of the laborers' consumption, they are characteristically favorable to it. This is also shown by the fact that all phases of social progress have advanced more in a single century under the factory or capitalistic regime than in any previous period of the world's history. And it may be added that this progress has been greatest in those countries where the factory system has most completely prevailed. Witness this country and England, as com- pared with the countries of Asia and Africa. There is another feature of this industrial regime, however, which should not be overlooked. In proportion as the factory system improves economically, it tends to make the laborer more and more a specialist of some particular part of the finished product. Thus, the manufacture of a shoe is now divided into nearly seventy specified occupations, and cotton manufacture into eighty-six. In proportion as the laborers' employment is thus PHASES OF FACTORY SYSTEM. 387 specified, the speed and quantity of machinery is increased, and the strain upon his physical and nervous energy intensified. With this concentrating and specializing tendency the piece- work system has been generally established, which places the laborers in severe competition with each other, and often results in overdoing.' Again, the use of improved machinery and the specialization of labor tend to diminish the necessity of a high degree of skill in the laborer. This leads to the employment of a large number of women and children in all branches of manu- facturing industries ; and, like the men, they too are forced to be automatic factors, their portion of the work being an indispensable part of the whole productive process. They have to labor the same number of hours, under the same constantly increasing strain and pressure, and under the same sanitary conditions as the men. The obvious effect of all this is to deaden the springs of ambition and check the growth of new desires and superior tastes and habits of life. The laborer whose energies are ex- hausted in the workshop is naturally impervious to more ele- vating and refining influences. His leisure moments find him physically tired, mentally dull, and hence morally and socially indifferent. The inevitable tendency of this is to cause him to gravitate towards the saloon rather than the reading-room, lecture-hall, or theatre for his instruction and entertainment. Persons who are subjected to such continued toil from child- hood up, in the foul air of mines and the sweltering heat and stifling atmosphere of mills and factories, cannot be expected to develop the ambition and force of character necessary to inspire and elevate their domestic and social life. The effect of such conditions upon women and children is even more damaging than upon men. The employment of women, especially wives and mothers, in the factory tends to sap the very source whence the springs of social character arise. Just in proportion as woman is transferred from the home to the workshop is her in- ' So general is this that in nearly all factory employments it is necessary to have a large number, often 5 or 10 per cent., of spare hands, or substitutes, who take the place of those who are compelled to be absent a day or two at a time through sickness, or for a rest to prevent sickness, etc. It is not an uncommon thing for this, in a large proportion of cases, to average as much as one day in a week. 388 ARREST OF CONSUMPTION. spiring, socializing, and humanizing influence in the domestic circle destroyed — a condition that will inevitably result in stereo- typing the social life of the masses, and in checking the increase of their wealth-consuming capacity. This relative diminution of consumption soon begins to show {tself in the accumulation of the merchants' stock, which reacts upon the manufacturer, first in diminished orders for \a& product,- then in a severe competition among producers for the contracted market, in which the smaller concerns are compelled to close, finally creating among the laborers enforced idleness, the most powerful factor of all in promoting business depressions. When the laborer ceases to have employment he practically ceases to be a consumer ; for although in modern society he is not per- mitted to starve, he has necessarily to be supported by others, either in the form of indebtedness or charity. There is no one cause by which the aggregate consumption of the community is so rapidly diminished as by enforced idleness. Like a contagious disease, it rapidly increases its own power for evil. The actual restriction of the market resulting from enforced idleness still further limits the sale of commodities, rendering production un- profitable ; this again results in suspending production and in further discharges, inevitably culminating in a business depres- sion in which, through bankruptcy, the large capitalists absorb the smaller ones, and are thus enabled to wait till the lagging consumption again overtakes production. Every such ruinous adjustment is a temporary arrest of progress, and the more fre- quently it occurs the more permanent becomes its evil influence upon society. Still another source of idleness is the use of improved ma- chinery. Indeed changes in machinery are only improvements in proportion as they are labor-saving — i.e., labor-discharging. Hence machinery that will discharge the most laborers is always adopted. This takes place most frequently when trade is most prosperous, and in countries where machine-using methods are most general. Nor is it possible, or even desirable, that this should be otherwise, since it is only through the use of improved methods of production that the drudgery of human labor can be reduced, the luxuries of life increased, and social well-being en- hanced. Manifestly unless n?w employments are created as fast MISTAKEN POLICY OF EMPLOYERS. 389 as laborers are discharged, enforced idleness and the recurrence of business depressions are inevitable. It thus appears that while the factory system necessarily creates socializing conditions, it has been accompanied by influences which tend greatly to neutralize their beneficial effect ; but it it is not difficult to see that these neutralizing influences are in no sense a necessary part of the industrial system. While the various forms of industrial specialization tend to increase the draft upon the laborers' energies, it is not at all necessary that this should be inimical to his social advancement. There is nothing in the nature of factory methods which makes it neces- sary that their use should be physically and socially deteriorating. Bad ventilation and other unsanitary conditions, dangerous machinery, overdriving, the employment of young children, and long hours of labor are not essential to the factory system, any more than slave labor and the cat-o'-nine tails were an essential part of cotton-growing. With increase of productive power and its accompanying pressure upon the laborers' resources should have come a com- mensurate increase in his leisure and opportunities for social improvement. The reason this has been neglected is entirely due to the mistaken social policy pursued by the employing class. For the same reason that the Southern slave-holder believed that slave labor was necessary to the cheap production of cotton and, consequently, to the prosperity of the planters, the modem employer has acted upon the erroneous assumption that cheap labor is necessary to his business prosperity. Accord- ingly he has resisted instead of promoting every effort to ameli- orate the condition of the laboring classes, from the same motive that the Southern planter opposed the abolition of slavery. All other efforts to increase the social opportunities of the laborer have been resisted by the employing class as mischievous agita- tions, until they were made imperative by statute law or social custom. Indeed their whole attitude toward the labor movement in general has been one of persistent hostility. The experience of the last fifty years, however, has shown that in almost every instance they were entirely mistaken. It is now admitted that free labor is more productive and economic than slave labor ever was. And instead of the prosperity of the manufacturing class 390 ECONOMISTS AT FAULT. having been lessened by the various restrictions imposed upon their inhumane and uneconomic policy, it has steadily increased. The employer of to-day, with wages twice as high, hours of labor one fourth less, and the sanitary and social conditions of the laborer a hundred per cent, better, is more prosperous than were his predecessors fifty years ago. Nor is this socially repressive policy due to any peculiar per- versity of the employing class. They are not less humane and philanthropic than any other portion of the community, as their liberal contributions to charitable, educational, and other public institutions conclusively show. Their antagonistic attitude arises from a misconception of their economic relation to the laboring class ; and for this, the economic teaching of the period is responsible. The failure of the economist to recognize the revo- lution in the economic relation of the laborer to the capitalist which took place with the inauguration of the factory system, naturally led to the mistake of ignoring the economic importance of the laborers' consumption as the market basis for factory-made products. With this ante-factory-period view of the laborers' economic position, it naturally appeared to the employer that the true economic policy was to obtain his labor as cheaply as possi- ble. Oblivious of the fact that the success of his factory as a mere money-making institution depends upon the character and wealth- consuming capacity of the masses, he has systematically regarded the laborers as merely so much productive force to be used to the limit of their endurance. Under the influence of such doctrines, it is not surprising that the employing class should use every effort, industrial and politi- cal, to resist all endeavors to increase the social opportunities or raise the wages of the laborer.' Thus, through the influence of a mistaken industrial policy, the capitalist in the vain endeavor to increase his power to produce, by limiting the power of the laborer to consume, defeats the very object he most desires to accomplish, and instead of promoting his own permanent pros- perity, he is continually planting the seed of business depression, enforced idleness, and bankruptcy. Thus business depressions, instead of being a necessary part of the factory system, are really the penalty which the employing class and the community have ' See "Wealth and Progress," Part III., chapters vi. and vii. FACTS TO BE RECOGNIZED. 391 to pay for ignoring the economic and social advancement of the laboring classes as the real basis of industrial prosperity. Section III. — The Prevention of Business Depressions. It will be observed that business depressions are wholly a prob- lem of the market ; and also that the market, while furnishing the economic basis for production, is a social phenomenon, having its rise in the social life of the people. Whether scientific pro- duction shall continually cheapen wealth and increase social well-being, or whether it shall create enforced idleness and busi- ness depressions, depends upon whether new employments are created as fast as labor-saving appliances are adopted. Produc- tion being the response to consumption, new employments can be created only as fast as new demands for commodities arise among the masses. This involves an important change in the general point of view from which the economic position of the laborer is regarded. In the first place it must be distinctly recog- nized as an irrevocable historic fact, that with the inauguration of the factory system the economic relation of the laborer to the capital- ist was radically changed, and that under modern industrial conditions the market for the capitalists' production finally depends upon the extent of the laborers' consumption ; hence business prosperity can be continuous only in proportion as real wages rise. And it must be no less distinctly recognized as a fundamental principle in eco- nomics that the cost of production is the controlling element in price movement, and consequently that the determining element in the price of labor (wages) is the cost of the laborers' living as determined by the standard of his social life. It should be remembered, however, that capitalists are not philosophers, nor have we any right to expect them to be. They are captains of industry, and as such are too busy with the ad- ministration of affairs to solve economic problems. Their func- tion is to apply rather than to develop economic principles. The same is substantially true of the journalist. Although his posi- tion is that of an educator of public opinion, he is more like a manufacturer than a scientist. He is occupied rather with the popular presentation of accepted economic doctrines than with testing their validity. Like the capitalists, the ablest editors and 392 NATURAL REMEDY. essayists rely mainly upon economists for their economic princi- ples. It is to the economists, therefore, that we have a right to look for the recognition and active propagation of the economic truths underlying this important problem. When the foregoing propositions are emphatically taught in colleges and acted upon by capitalists, the first great step towards a solution, not only of industrial depressions but of the social problem will have been taken ; and the chief cause of an- tagonism between the laboring and the employing class will have been removed. So long as the laborer and capitalist believe their interests are economically antagonistic, unity of action to redress social evils is almost impossible. If, however, the employing class can be once made to realize (i) that there is no economic antag- onism between the laborers' interests and their own, and (2) that the initial point of industrial prosperity is not in production but in consumption — not in the factory but in the home — not in profits but in wages, — there will for the first time be a common agreement as to the point towards which all efforts for industrial improve- ments must be directed, namely, the elevation of the laborer's stand- ard of living. This fact established, the only question would be as to the best means of promoting that end, since whatever would do that would promote the welfare of the whole community. It is not to be inferred from the above that an increase in the laborers' consumption (real wages) is a simple matter that can be arbitrarily accomplished by an oflScial proclamation or a legisla- tive enactment. On the contrary, the laborer's standard of liv- ing, being determined by his social habits, is a matter of relatively slow development. Although there is no immediate panacea for business depres- sions any more than for poverty, despotism, or other evils arising from the lack of social character among the masses, there are three ways in which their severity may be diminished and their ulti- mate elimination promoted : (i) negatively by lessening the ob- structions to the social progress of the masses ; (2) positively by constantly increasing the social opportunities of the masses ; (3) by establishing an international business barometer by which ap- proaching business depressions will be indicated sufficiently in advance to enable their severest phases to be avoided. I. The greatest obstruction to the social progress of the masses, 26 DUTY OF EMPLOYING CLASS. 393 as already pointed out, is the opposition of the employing class and their literary and legislative allies. With the acceptance of the doctrine here indicated, there would naturally be a marked change in the attitude of the press and statesmen toward the social question, by which much of their opposition would be removed. In the first place, such men as Edward Atkinson, David A. Wells, and the leading commercial and political journals would no longer appear as the opponents of every proposition, legislative or other, for improving the laborers' social condition. Indeed much of their present attitude toward the social question would then be properly regarded as opposition to the public weal. The accept- ance of this view would also further the same end by preventing a vast amount of misdirected effort at social reform, the futility of which often serves to strengthen the hands of the opposition. If it were clearly understood that nothing can promote business prosperity which does not directly or indirectly tend to elevate the laborers' social life, and make a larger consumption of wealth necessary, then the various social chimeras — such as land nation- alization, socialism, and the like — would be discredited in advance as having no real bearing upon the question. 2. The disparity between the increase in the laborers' consump- tion as compared with that of the capitalists' production would be still more diminished, if the energy which has been constantly devoted to limiting the laborers' social opportunities were ap- plied to increasing them. Then every proposition for improving the condition of the masses would be approached with the desire of adopting whatever feasible element of good it contained, instead of a determination to magnify all its disadvantages for the purpose of defeating it. In order that the policy of increasing instead of restricting the laborers' consumption may be scientifically applied to the pre- vention of business depressions, it is necessary to have some means of knowing in advance the first indications of a business depression. It will be readily seen that if it could be correctly known that a movement towards business depression had set in, which if not arrested would inevitably bring a period of social disaster, all the wisdom of economists, statesmen, and capitalists would be applied to preventing its occurrence, and this could be done in two ways. 394 ^^ INDUSTRIAL BAROMETER. In the first place, if correct economic doctrine prevailed, efforts would at once be redoubled in all manufacturing countries to use every known legislative, personal, social, and industrial means of augmenting consumption among the masses. This would involve efforts to raise the laborer's standard of living, which of course means an improvement in his social condition. If such efforts were made in all machine-using countries as soon as the symp- toms of an approaching depression appeared, it could always be weakened and in many cases obviated. In the second place, if the consumption of the masses in the various countries could not be increased sufficiently to offset a threatened diminution in the market, the depression could be largely mitigated by a movement of capital. As soon as it was definitely known that the relative diminution of the market had set in, while established industries could not, without injury, cur- tail their production, the investment of new capital could and would be curtailed. By curtailing investments sufficiently in advance much new capital would be saved, and the shock to established industries would be greatly reduced. Moreover, as business depressions generally arise from a dis- parity between consumption and production in certain lines of commodities, a proper knowledge of business phenomena would indicate in precisely what line of industry the disturbance existed, and thus enable a more economic direction to be given to new investments. By this means much of the capital that in such periods is wasted in America, England, France, and Germany might, and often would, be made to render a service to civiliza- tion by developing the social resources of South America, India, China, and other non-manufacturing countries. Is it possible then to establish such an industrial barometer ; is there any means by which the early symptoms of a business depression can be surely indicated ? I think there is. Although the first symptom of a business depression is the failure of the producer to find a profitable market for his whole product, this may occur from causes which do not necessarily indicate a depression in business. A change of fashion for example, or the substitution of a superior for an inferior product through the use of better methods, may produce that effect in a specific industry. In that case however, the dulness in the old STATISTICS OF IDLENESS. 395 industry would be practically offset by the briskness in the new. Such a disturbance therefore will only be a temporary perturba- tion incident to the movement of capital and labor from one industry to another, and might indeed be a sign of business pros- perity rather than adversity. But there is one fact in the indus- trial world which infallibly indicates an approaching business depression, namely, enforced idleness. There are many ways in which enforced idleness may be produced in machine-using countries, e.g., by the immigration of laborers from non-machine- using countries, by discharges through the use of labor-saving machinery, or by the suspension of industry consequent upon a declining market. But from whatever cause or number of causes enforced idleness arises, unless it is arrested, an industrial depression is inevitable. It is equally certain that nothing can produce a business de- pression of serious proportions which does not create enforced idleness ; indeed, so long as the laborers are all employed a busi- ness depression is practically impossible. Therefore, while enforced idleness may not be the initial cause of business depressions, it is one of the earliest and most infallible indica- tions of it. Since a knowledge of the phenomena is a necessary prerequisite to scientific action, the first practical step toward prevention of business depressions, is the collection of statistics of enforced idleness. Nor would this be a difficult task, since the machinery for collecting industrial data is now fairly well established in most civilized countries. Statistics of enforced idleness not being of an inquisitorial nature, there could be no valid objection to their collection, especially as no class in the community would have any motive for withholding the information. In order that these statistics may have the utmost utility, the investigation should be authoritative, universal, and frequent. To make the investigation authoritative, it should be under- taken by the state. Moreover, it is a work which peculiarly be- longs to the government, because it is of universal importance, and can be performed more extensively, efficiently, and eco- nomically by the state than by the individual, especially in the less civilized countries. To give reliability to the data, the in- vestigation should be as extensive as the factory system, includ- 396 NECESSITY OF FREQUENT DA TA. ing at least America, England, France, Germany, Belgium, Switzerland, Austria, Italy, and Spain. These statistics should also be collected as frequently as pos- sible, not less than once a year, and half-yearly or quarterly would be even better. Frequency of collection is one of the most essential requisites of idleness statistics, because it is only by a frequent collection of facts that the symptoms of an on-coming industrial depression can be observed in its early stages and hence the most efficient means of prevention adopted. Such a body of data would furnish an inductive basis for the scientific application of economic principles to market phe- nomena, besides being invaluable in the treatment of all other phases of the social question. While it is not pretended that business depressions can be summarily abolished, it is indisputable that with full, frequent, and reliable statistics of enforced idleness in all machine-using countries, together with sound views regard- ing the economic relation of the laborers' consumption to the market, a great step would be taken towards their diminution and ultimate elimination. CHAPTER VI. COMBINATION OF CAPITAL. It is a peculiar feature of the industrial history of society that every movement towards concentration or more complex associa- tion of industrial forces has always been viewed with alarm, and has had to encounter serious opposition from the community. The landed aristocracy saw with dismay the rise and growth of the mercantile class from the fifteenth to the eighteenth century, and accordingly used all their social and political power to harass and hinder the development of what to them contained naught but evil for society. With the introduction of the spinning- jenny in the eighteenth century, this social alarm was taken up by the hand spinners. Their horror and indignation at the idea of a machine spinning eight threads where they could only spin one were such that they ransacked the home of Hargreaves, broke his machines, and drove him from his native county for inventing it. A similar alarm was raised in the first quarter of the present century by the hand- loom weavers against the introduction of the power-loom, and they went from town to town destroying the steam-driven ma- chines. The small factory owners, who had encountered the violence of the hand laborers, subsequently raised a similar alarm against the corporation, and now small corporations, individual factory-owners, laborers, and non-commercial classes all join in raising a similar alarm-cry against trusts, syndicates, and other corporate combinations. Perhaps the most remarkable feature in the attitude of the public towards industrial combination is their disregard for the lessons of history. The fact that in almost every instance the opposition to new forms of industrial organization has been a 397 398 IMPORTANCE OF CORRECT VIEWS. mistaken resistance to what finally proved to be a permanent benefit, seems to have almost no modifying influence upon their belligerent attitude. The opposition to trusts to-day is scarcely less intense than was that against the machines of Hargreaves and Arkwright a century ago.' A very little reflection will show that this opposition to capi- talistic concentration is as uneconomic and impolitic as is the crusade of capitalists against the combination of labor, and for substantially the same reason. The fallacy underlying both these positions is the assumption that an improvement in the con- dition of either is obtained at the expense of the other. The capitalist is opposed to labor-unions because he believes that a rise of wages involves a fall of profits ; and the public oppose the combination of capital because they believe that the large profits of a successful corporation are necessarily obtained at the expense of the laborer and the consumer. In the light of the economic law of prices, surplus, and wages, as heretofore presented, the fallacy of such an attitude becomes apparent. When we once realize that profit is not added to the consumers' price, but that it represents a surplus produced by the use of superior instruments and natural forces, it is clear that the wealth of the capitalist is not drawn from the incomes of the other classes in the community, but from nature." And so with the capitalist ; when he understands that a rise in wages is not a permanent tax upon him, but is ultimately replenished through an increased product — hence, like his own profit, is not drawn from his fellow-man, but from nature, — the ground of his opposition to labor combinations will disappear. Since neither the employ- ing nor laboring class can permanently improve its condition by impairing that of the other, but only by increasing the product of nature^ it will be obvious that neither one has any thing to gain by suppressing the combination of the other ; but, on the con- trary, if combination will increase their economic power, every- body has an interest in extending and strengthening such combination. ' In 1888 a bill was introduced into Congress proposing to levy a tax of 40 per cent, on the products of trusts. In 1889 two other bills were introduced into the United States Senate, practically making trusts criminal conspiracies. 'Chapter on " Prices.'' TWO KINDS OF WEALTH. 399 Without stopping to consider whether or not the trust form of combination is superior to any other, it may be laid down as a fundamental principle demonstrated by the history of industrial evolution, that the combination of capital is indispensable to economic progress. This consists in cheapening wealth as com- pared with labor. Capital and labor being the only two factors which enter into the cost of production, it follows that wealth can be cheapened only by increasing the productive capacity of capital. It is a fact too obvious and universal to need discussing, that an increase in the productive efficiency of capital is obtained by means of greater specialization and concentration, which in- creases as civilization advances. Of this, every successful factory, railroad, and steamship enterprise is a demonstration. This much will be conceded by the most ill-informed anti- combinationist. But the objection commonly urged is that the gain resulting from this economy in production mainly accrues to a small class. It is insisted that this tends to create a double evU, by at once promoting industrial monopoly and political des- potism. They assure us that wherever wealth is accumulated in the hands of a few, the poverty of the people, political corruption, and private immorality increase, and that intellectual, political, and national decay inevitably set in.' Although few arguments have more effect upon the public mind than this, there are none that reveal a greater lack of economic insight. , Itiproceeds upon the assumption (1) that all accumulation of wealth in the hands of a limited class is injurious to the welfare qf tfee community, and (2) that the concentration of capital necessarily destroys competition. ^ ' 1 , , I. If we bear in mind the economic distinctioT^ between con- sumable and productive wealth or capita' already referred to, we shall have little difficulty in seeing the error of this proposition. Whether or not the accumulation bf wealth in' £t few hands will be beneficial or injurious to society, lyill emtjrply depend upon whether it is consumable wealth or capital that is accumulated. No one acquainted with the subject will for a moment contend that concentration of consumable wealth in the hands of a small class is advantageous to the community. Since this class of 'See author's article on "Trusts," Political Science Quarterly, vol. iii., pp. 403-406. 400 CAPITAL ONLY IS ACCUMULATED. wealth only ministers to human welfare when in the possession of the consumer, it follows that it can only yield the largest benefit to the community when it is most extensively distributed among the people. With productive wealth or capital, however^ the case is exactly the reverse ; its functions being solely that of a productive instrument, it can minister to human welfare only by producing consumable wealth. Clearly therefore, whether or not capital is any advantage to its owner or to the public, depends entirely upon whether it is advantageously used in creating en- joyable commodities. Since capital will only furnish consumable wealth to its owner in proportion as he can sell his products, its possession can only be advantageous to the capitalist when the consumable wealth it produces is generally and liberally consumed by the community. It may be observed in passing that there is no tendency in modern society to accumulate consumable wealth. On the con- trary, the very prosperity of the community depends upon the constantly increasing consumption of consumable wealth. When we speak of the accumulation of millions in the hands of a single individual or family to-day, it should be remembered that cap- ital and not consumable wealth is referred to. With the excep- tion of a small amount personally consumed and dispersed in charities, the large fortunes of the Vanderbilts, Goulds, Astors, Rothschilds, anc^ other millionaires are productively employed. Indeed, it would be regarded as the insanity of financiering to accumulate conppiable wealth, because the only result of such accumulation would be deterioration and loss. As shown in the preceding chapter^ ^any teijdency to prevent consumption from keepingpacewit^hiprcHiuction, which is simply accumulating con- sumable wealth, purely leads to business depressions, and entails inevitably bankruptcy, and often ruin upon the owners of capital. Since capital can iBe of no sldvantage to its owner except when it is profitably employed in producing consumable wealth, and as it can be profitably employed only when its product is consumed substantially as fast as it is produced, it follows, as an economic necessity, that consumable wealth is most widely distributed where productive wealth or capital is most concentrated. Thus we again arrive at the oft-repeated proposition that the prosperity of the capitalist finally depends upon the consumption of wealth by the masses. CONCENTRATION AND COMPETITION. 40I 2. The second objection is that combination of capital tends to destroy competition. If this assumption be correct, the power of competition will necessarily diminish as the combination of capital increases. Whether or not this has taken place can be determined only by the facts. In order to determine whether or not effective competition increases or diminishes with combina- tion of capital, we have only to ascertain whether or not prices tend to press closer to the line of the cost of producing the most expensive portion of the general supply. Tried by this test, the assertion that the combination of capital necessarily tends to destroy competition will be found to be entirely erroneous. There never was a time when economic combination was so great as it is to-day, nor was there ever a time when competition was so fierce and unsparing — that is to say, when the margin between the cost of producing the dearest portion and the selling price was so small in such a large proportion of industries. In- deed, it is one of the chief indictments against the capitalistic system of production that it is a " competitive system." If we follow the combination of capital from the hand-loom weaver and the spinner of a single thread to the trust and syndicate, we shall find that the margin of profit per unit of product has steadily diminished — a fact which every business man knows. The reason for this is obvious. For instance, when the hand-loom weaver could only turn off forty yards of cotton cloth a week, a margin of a cent a yard would yield but an insignificant amount of profit. The profit on the product of fifty weavers would only be $25 a week, whereas the same margin on the product of fifty weavers to-day would yield a profit of $1,080 a week. Much of the error in this connection is due to judging compe- tition from the standpoint of the deposed or receding competitor. Thus, when the products of a small factory undersold those of a hand-loom, judged from the standpoint of the hand-loom weaver, competition was destroyed and monopoly established. Such however was not the case, as everybody now knows. What really took place was a readjustment of economic factors, made necessary by the introduction of superior methods, which resulted in transferring competition to a new plane, where its effectiveness was greatly increased. The same was true when the small factory was superseded by the corporation, and is true now when the corporation is superseded by the trust and syndicate. 402 THE CRITERION OF COMPETITION. It should be remembered that the influence of competition does not depend so much upon the number of competitors as upon the effectiveness of competition. Competitors may be very- numerous and still competition be ineffective, as in the case of the hand-loom weavers. And conversely, competitors may be few in number and still be very effective, as is the case of large concerns to-day. One Macy furnishes more effective competi- tion than a hundred small merchants with a few hundred dollars capital each. This does not mean that reducing the number of competitors will necessarily increase effective competition, but it demonstrates the fact that high competition is possible with a small number of competitors. Indeed, it is the severity of com- petition thus developed that has brought the trust and other forms of industrial confederation into existence. That effective competition has thus increased with the increas- ing combination of capital, no one acquainted with the subject will dispute, but the alarm raised is ostensibly for the future. It is upon what trusts may do, and not upon what they have done, that the present opposition is based. It is said that the object of the trust is to monopolize the market. Even so ; there is nothing new in that. That has been one of the objects of every other in- dustrial improvement. What motive could there be for intro- ducing better methods and investing large capital, unless it would give the owner more advantage over existing competitors. To condemn an industrial institution because the object of its pro- moters is to undersell and supersede traditional producers and methods is economic insanity. It is not the motive of the capi- talist but the economic effect of his action that must be deter- mined in judging the social utility of industrial methods and institutions. Whether the capitalist acts as an individual pro- ducer, small factory owner, corporation, or trust ; whether he produces cotton cloth, shoes, or petroleum, conducts a railroad or publishes a newspaper, his motive is substantially the same ; namely, to obtain more wealth — " to make money." Will it pay 1 is the question upon which the doing or not doing in every sphere of industrial activity is determined. The tone and politics of the newspapers are determined by that fact about as completely as is the form and quality of hats and shoes. Newspaper corporations have not invested hundreds ECONOMIC INCENTIVE. 403 of thousands and even millions of dollars in buildings, large and fast presses, automatic folders, foreign correspondence, special telegrams, high salaried editors and reporters, special trains for deliveries, etc., merely for the sake of furnishing the public with ample, early, and reliable news. This has all been developed by the effort of each to outdo his neighbor in the contest for obtain- ing public patronage — the market. It was only because this could not be done without furnishing a larger or a better paper at the same price — which nothing but a greater combination of capital and superior methods made possible — that the immense improvements in the daily paper have been produced. The same motive which has induced newspaper corporations to furnish a daily history of the human race for two cents, has given us our railroads, telegraphs, steamships, and other time-and-space- reducing and wealth-cheapening institutions, of which trusts are the most recent form. And the reasons for suppressing one will apply with equal force to suppressing the others. The opposition to the larger combinations of to-day will be found to have its root in the error which has characterized all previous opposition to productive integrations. The averagely intelligent antagonist to trusts will readily admit that all the evil predictions regarding the earlier stages of capitalistic combina- tion were mistaken. He will also admit that the mistake consisted in the failure to recognize the increasing competitive power which the larger factory and corporation possessed, especially when accompanied by the daily press, the telegraph, and the rail- roads. The more intelligent now see that a multiplicity of com- petitors is not necessary to effective competition, having learned by experience that this may result in a great waste of economic power instead of a cheapening of commodities, and that compe- tition is quite as effective, and far more economic, with a limited number of competitors. While they recognize the folly of assuming that any diminution in the number of competitors must weaken competition, they tenaciously insist that to permit the com- bination of capital to increase until the actual competitors are re- duced to zero, must destroy competition. In other words, they insist that competition is impossible unless the competitors are actually present in the market. The error in this view arises from overlooking the influence of 404 POTENTIAL COMPETITION. potential competition. If we examine the subject from the standpoint of modern phenomena, we shall find that there is potential competition as well as actual, and that the economic effect of potential competition increases as its phenomena grow in complexity. The competitive power of capital will be found to ultimately depend not merely upon its actual presence, but upon its known availability at any given time and place. Consequently, the more intelligent and economically powerful competitors are, the more effectual will be their potential or possible competition, and vice versa. For example in the ante-factory period, with neither railroads nor telegraphs, the only capital known to be available was that visibly present ; hence, none other exercised any competitive influence in the market. With the development of modern industry all this has changed. Electricity and steam have so diminished time and space, and concentration of capital has so increased the economic power of the producer, that now both capital and products thousands of miles away are economically available, and therefore exercise a positive competitive influence upon the market. Accordingly the wheat in India, Russia and Dakota, now exercises practically the same competitive influence in Liverpool as does that which is stored there, and solely because it is known to be actually avail- able for the Liverpool market if the price rises high enough to warrant its movement thither. Thus through improved means of communication and transportation, products in the most remote parts of the earth exercise a competitive influence upon a market they may never actually enter, simply because it is known that they can be there if needed. What is true of commodities is even more true of fixed capital, and as will readily be seen, potential competition or the power of the possible competitor increases as the combination of capital enlarges. Capital is proverbially one of the most sensitive things in the world. Although it will take great risks for large profits it will timidly recede at the sight of loss. There are many reasons why large combinations are more amenable to the influence of potential competition than small ones. Although more powerful, they yet have more at stake. The very fact that capital is cow- ardly makes it careful, and, since fear of loss next to hope of gain is the most powerful motive which governs its movement, the first INABILITY OF LARGE CAPITAL. 40$ condition to be secured is safety against loss. The greater the concentration of capital, the more serious and difficult this be- comes. It is a principle in economic progress that as the mobility of consumable wealth increases that of productive wealth diminishes, because the very means which promote the easy transfer of prod- ucts involve a greater fixity of capital. In proportion as capi- tal loses its mobility, the necessity of maximizing its economic utility in its existing form increases ; and when the concentration is very great, that becomes the only means of preserving it from deterioration. Take, for example, the Vanderbilt railroad system with its investment of $170,000,000 and 60,000 employes; this is excellent property so long as it can be economically employed for its present purpose. If, however, it should be superseded by a superior system of transportation, the greater part of that prop- erty would be worthless, the capital invested being absolutely non-transferable. Such parts of the equipment as the rails, road- bed, engines, cars, and stations (representing nearly $150,000,000) which now have a full value as finished products, would in that case practically be reduced to the value of old iron. Three fourths of their value would vanish as completely as if the prop- erty were reduced to ashes. If we bear in mind the fact that capital is simply an economic instrument whose decay can only be prevented by maintaining its productive utility, it will be manifest that in proportion as its con- centration increases, the very life of capital depends more and more upon its wealth-cheapening efficiency. It will probably be replied that this may all be true so long as any actual competi- tors remain, but when the combination of capital has reached a point where the production of a given commodity is practically in the hands of a single concern this restraint will disappear, and prices can be indefinitely increased to suit a monopoly. Here is where the error of ignoring the influence of potential competition again shows itself. The very fact that capital cannot take wings and fly away, but is compelled to work where it is or perish, gives potential competition its greatest influence ; that is to say, gives the non-employed or less remuneratively employed capital its maximum price-reducing influence. It should never be forgot- ten that in a progressive society, where alone the greatest combi- 406 EFFECT OF NO-PROFIT CAPITAL. nation of capital is possible, two things are more or less con- stantly occurring : (i) the accumulation of wealth available for productive purposes, which increases as the margin of profit rises ; (2) the reduction of capital to no-profit uses, which in- creases as superior productive methods and management are adopted. From these two causes, which are as universal and constant as social progress, capital seeking remunerative employ- ment is constantly increasing. Hence this idle or unremunerative capital has the same eco- , nomic effect upon productive capital that the wheat in India or Russia has upon that in Liverpool ; it is waiting for an opportu- nity. In the absence of legal restrictions, nothing will prevent this anxiously waiting capital from actually entering the field except keeping the margin of profit too small to warrant the risk. This of course involves the lowering of prices commensurately with the diminished cost of production, which is all the fiercest actual competition can do. It may be said that if new capital enters the field a monopoly will buy it up. But that takes more capital ; a million dollars invested in buying up a competitor is so much added to the cost of production, and directly dimin- ishes profit. Clearly the million thus invested might just as well be surrendered to the community in lower prices. That this would be a safer and more economic method is manifest : (i) because lowering the price tends to increase the consumption of the commodity, extend the market, and make a still smaller margin of profit yield a greater aggregate return ; (2) because a new competitor is an unknown quantity, and may prove too strong to be bought up, in which case existing producers may be driven from the field, or have their profits reduced to zero. Since the least danger to existing corporations lies in keeping out rather than buying out new competitors, and since reducing prices alone can do this, it follows that the larger a corporation the greater is its interest in keeping prices low enough not to induce the organiza- tion of counter-enterprises to jeopardize its existence. It is thus evident that with economic freedom, the potential competition of available capital is essentially the same as if a new competitor were actually on hand. The fact that he may come any day has practically the same competitive influence as if he had come, because to keep him out requires the same kind of price-reducing LIMIT OF CONCENTRATION. 407 effort that would be necessary to drive him out. Since the former always involves less risk and generally less cost than the latter, it is most likely to be adopted, in proportion as an intelligent under- standing of economic movement prevails. It is a great mistake to suppose that the investment of large capitals is specially desirable to the capitalist. On the contrary he avoids this as much as possible, always preferring to get along with the minimum rather than to use the maximum capital to accomplish any given result. Indeed to accomplish the greatest result with the least investment is the very art of economic pro- duction. Moreover, with every increase in the size of invest- ments capital becomes more fixed, involved, and unwieldy, redu- cing margins and making it possible for great losses to result from very slight mistakes ; consequently greater expertness of management becomes necessary in every department of a colos- sal enterprise. Larger investments increase the risk of the capi- talist and further outlay will be adopted only under the spur of some economic inducement — such as avoiding a loss, replenish- ing a diminished profit, or perhaps obtaining a still larger profit. The economic movement of capital being governed by the law of increasing returns, it follows that capital will not (except by mistake) go into new industries unless it can obtain a greater return per unit than it is already receiving. So, too, of concen- tration or combination ; capital will continue to concentrate only so long as it can obtain an increasing return per unit by so doing. When that ceases to be possible the motive for combination dis- appears ; and when the point of diminishing returns is reached self-interest is positively against further combination. That there is a point in any given state of society at which further concentra- tion of capital will fail to yield increasing returns, and at which diminishing returns set in, cannot be doubted. Whether or not this point will be reached before the actual competing producers in the same market disappear cannot now be determined. Nor is this of any real importance since concentration will continue only so long as it will give increasing returns to the capitalist and cheaper products to the consumer. There is therefore no eco- nomic reason why the state should do any thing to limit the con- centration of capital, since that will be arrested by the capitalist when it ceases to economize production and cheapen the wealth 4o8 EFFECT OF CONCENTRATED CAPITAL. of the community. In other words, in the absence of legal re- strictions economic law is more effectual in determining the equi"- table movement of capital than statute law can possibly be. That this has been the general effect of the concentration of capital during the present century is abundantly proven by the fall of prices and rise of wages as shown by the increased pur- chasing power of a day's labor during that period. The follow- ing table shows the average weekly wages and their relative purchasing power in 200 staple articles for i860 and 1885 : ' Industries. Arms and ammunition . Artisans' tools Boots and shoes Carriages and wagons. . Clothing Cotton goods Flax, hemp, and jute. . Leather Liquors Machinery Metallic goods Musical instruments. . . Paper goods Print and dye-goods . . . Silk and silk goods. . . . Stone Woollen goods Worsted goods Carpetings Building trades 12 10 17 7 II 86 15 19 10 8 18 26 9 7 58 22 25 10 Average (Total 386) i860. PI4-I5 8.45 11.42 10.47 8.26 6.50 4-63 10.01 10.73 7.90 9.07 10.94 8.63 9.90 5.91 8.01 5.38 6.12 6.62 9.87 8.64 ■S^ 3 o- 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1885. ^^ $13.15 11-45 10.63 12.80 8.19 6.45 6.46 II. 01 11-73 11.75 11.25 12.94 7-63 7.67 6.91 12.01 7.90 6.12 6.62 14.99 .a t as go. 119 174 120 157 127 128 180 141 141 192 161 152 114 100 167 193 189 129 129 196 150 n £-0 19 74 20 57 27 28 80 41 41 92 61 52 14 67 93 89 29 29 96 50 This tendency is still more conclusively shown by the fact that the fall in prices has been greatest in those commodities in whose production there has been the greatest concentration of ' The wages in the above table represent 386 occupations in Massachusetts ; the data for 1S60 will be found in the Report of the Labor Bureau for 1884, and those for 1885 in the Census Report for 1885 (volume on Manufactures). EFFECT OF TRUSTS ON PRICES. 409 capital, as will be seen by the accompanying table, which shows the purchasing power of weekly wages in commodities furnished by trusts and other colossal combinations for i860 and 1890 : Purchasing power of weekly wages. i860. l8go. Percentage of increase. Cotton-seed oil, number of gals. . . Sugar refined, number of lbs Freight New York to Chicago. First class 530 lbs. 654 " 822 1309 io7tV,j 29T^°7r 152 1317 lbs. 1520 " 1976 2822 3It^ " 1086^ 66 67 148 Third class 132 176 "5 283 907 Telegraph messages, number of. . Pretroleum refined, number of gals. It will be seen from the above tables that, although the general purchasing power of wages has greatly increased since i860, the increase has been very much greater in those industries where the greatest concentration of capital has taken place. Taking 200 staple articles together, the increase is 53^^ per cent., whereas, in cotton-seed oil, it is 66 per cent. ; in sugar, 67 per cent. ; in transportation (all classes) together, it is 142 per cent. ; in telegraphy, 283 per cent. ; and in petroleum, 907 per cent. It should be observed in this connection that the figures for cotton- seed oil only extended to 1878, and that more than -^ of the entire fall in the price has taken place since the trust was formed in 1884 ' ; and also that the fall in the price of sugar during the last thirty years has all taken place since January, 1882.* It may be said that the point has not yet been reached where actual competitors are reduced to none, and therefore the cor- rectness of the theory here presented cannot be inductively verified. It is true that there are very few industries in which the actual competitors are not still relatively numerous. Nor is there any sufficient ground for concluding that the time will ever come ' The figures in this table are for 1878. * These figures are for 1866. ^In 1878 the price of standard summer oil was 47^^ cents a gallon ; in 1883 it was 47xfir cents a gallon ; it is now (September 27, 1890) 33 cents a gallon. * The average price of refined sugar in i860 was 9J cents a pound. In Janu- ary, 1882, it was 9f, and in July 9j\ cents a pound. 410 STANDARD OIL TRUST. when this will not be the case in a great majority of industries, but that in some industries production may practically be in the hands of a single concern is certainly within the range of possi- bility, since we have at least one instance of this kind already in the Standard Oil Trust. This concern comes nearer to having complete control of a given product than perhaps any other en- terprise in the world. When petroleum was refined by small con- cerns, it was very poor in quality and very high in price. In 1861, when crude oil was only \^-$^ cents a gallon, refined oil was 6i^ijV cents a gallon, making the cost of refining and trans- portation 60-^^ cents a gallon. By concentration of capital and the improved processes of ten years, the price of refined oil was reduced to 24^^ cents a gallon. The oil was still both poor and dangerous to use, casualties from exploding lamps being of daily occurrence. This was practically as far as small concerns were able to carry the light-improving and price-reducing processes, and although the quality was poor and the price high the re- finers' profits were small." In 1872 the refiners formed a combination called the Standard Oil Company, which however did not include any considerable portion of the refiners until 1874, but by this concentration of productive power they were able to introduce various improve- ments otherwise impracticable. For example, before the organi- zation of the Standard Oil Company, crude oil had to be trans- ported from the wells to the market in small quantities, in barrels, tanks, etc. After the organization of that company, various methods of reducing the cost of transporting oil were adopted, which, about 1879, resulted in substituting for the rail- road and other means of transportation, a general pipe line taking oil from the various wells and delivering it directly to the market. There are now two such lines reaching New York, with the capac- ity of 25,000 barrels a day. There is also one such line to the cities of Philadelphia, Baltimore, Buffalo, Cleveland, and Pitts- burgh, and one is being constructed to Chicago. This was an undertaking absolutely beyond the power of any of the smaller corporations. Nothing short of a colossal combination was ade- quate to the task, which resulted in a saving of over 66 per cent, of the cost of transportation alone. Similar savings in other departments, such as the manufacture of their various supplies, have been accomplished by virtue of ITS ECONOMIC METHODS. 411 the consolidation. Thus in 1872 barrels cost $2.35 each ; to-day the trust manufactures them for its own use at f 1.25 each, a re- duction of 47 per cent., or a saving of nearly $4,000,000 a year. In the cost of manufacture of tin cans, a saving of 50 per cent, has been made, the price having been reduced from 30 to 15 cents per can since 1874. As this company uses about 30,000,000 tin cans a year, that makes a saving of over $4,500,000 annually. The same is true of wooden cases, which in 1874 cost 20 cents each, while the company now manufactures them for itself at a cost of 13 cents each, being an annual saving of about $1,250,000. Similar economies have been established in the man- ufacture of tanks, stills, pumps, and other things used in the busi- ness. As a result of all this the price of the refined oil was reduced in eight years, 1872-1879, from 24-^ cents to Syf jrcents a gallon, or 66^*5^ per cent. Moreover, in addition to thus low- ering the price, the quality of the oil was greatly improved by entirely eliminating the explosive elements and increasing its illuminating quality. By these improvements in quality and reductions in price, the market for oil was greatly extended, and in 1880 a still further combination of capital was undertaken and the trust formed. This, as before remarked, included nearly all the leading refiners in this country, and therefore actual competition in this business was minimized.' Under these monopolistic conditions, accord- ing to the usual predictions, the price of oil might have been ex- pected to rise, but the fact is that it continued to fall as will be seen by the following table : Year. Price of crude oil per gallon Price per gallon of refined oil at wells. for export. 1880 2.24 9.12 1881 2.30 8.05 1882 1.87 7.41 1883 2.52 8.14 1884 1.99 8.28 1885 2.11 7.86 1886 1.69 7.07 1887 1.59 6.75 1888 2.07 7-50 1889 2.42 7.25 ' The Standard Oil Trust refines about 75 per cent, of all the oil in this country. 412 EFFECT OF UTILIZING WASTE. It will be observed that this fall in the price of refined oil is none of it due to a fall in the price of the crude oil which re- mained practically unchanged. This is the more surprising be- cause improvements in the means of transportation and other processes had already been practically maximized, and, as will be readily observed, the possibilities for economy are very much less when the price has reached 9 cents than when it was 24 cents a gallon. Manifestly if the community is to receive in reduced prices the advantage of the limited improvements that remain possible and profits are to be maintained, economies must take a new direction. And this is exactly what has taken place. During the last few years, and especially since the organization of the trust, a series of improvements has been developed by means of which what had been previously wasted is now con- verted into valuable commodities. In the refining of petroleum, after the illuminating oil is abstracted, there is a large residuum left which hitherto had only a fuel value. This formerly wasted material is now converted into naphtha, lubricating oils, paraffine wax, etc. In order to do this, however, expensive machinery and manufactories had to be constructed expressly for the purpose, which could only be profitably undertaken in connection with the most colossal processes of petroleum refining. Some idea of the extent of this may be formed from the fact that naphtha thus pro- duced supplies more than two thirds of the public light of New York City, Brooklyn, and Jersey City because it is cheaper than gas. The price of paraffine oil also has been reduced by this means from 2 2 cents to 11 J- cents a gallon, and has been improved 50 per cent, in its lubricating qualities. In 1875 the standard for American paraffine oil by the commercial test viscosity was 100 seconds at a temperature of 70 ; it now tests \$o, and its flash point, which in 1875 was 300, is 380. Moreover, in 1875, paraffine oil could not be used for lubrica- ting machinery without an admixture of from 20 to 50 per cent, of animal oil, while to-day it can be used without any animal oil. This is true of several other lubricants made from petroleum, especially cylinder oil. Even for railroad purposes this super- sedes tallow and other animal lubricants, having the great merit of preventing corrosion by keeping the metal surfaces bright and EFFECT ON OTHER COUNTRIES. 413 clean. In 1875 the price of petroleum cylinder oil was $1.25 per gallon ; it is now only 35 to 40 cents. The price of black lubri- cating oils used for railroad axles was 15 to 18 cents a gallon in 1875, and to-day it is sold at 7 and 9 cents. The monthly sales of mineral lubricating oils were not more than 10,000 barrels in 1875 ; they are now nearly 70,000. Furthermore, the annual product of paraffine wax from petroleum was less than 6,000 tons in 1870, and this year the product is estimated at fully 20,000 tons, and the price has been reduced from 9 to 5 cents a pound. It may be added that the quality of this product has been so im- proved, that for candle purposes, especially in Great Britian, it has superseded tallow, stearine, products of palm oil, etc., and the price of candles has been reduced one half in consequence. In addition to all this the trust has undertaken the manufacture of its own sulphuric acid, having need of a greater quantity of that product. Through improved processes introduced into the manu- facture of this commodity the price has been reduced from a cent and a quarter a pound to eight cents a hundred pounds. By such means this trust has been able to give to the community in reduced prices the full benefit of all improvements in refining petroleum, and to obtain its profit from what formerly was mere waste. Nor is this all ; the series of improvements, from the pipe line up, which have thus been developed through the increasing com- bination of capital, has since been copied bodily in Russia. Petroleum was discovered there long before it was known in Pennsylvania, but because of crude methods for developing it it was not much more serviceable to them than were the valuable mineral and agricultural possibilities of this country to the Indians. But after the development of these processes here, the combination of European capital took America's experience and discoveries to Russia, where oil is now produced by sub- stantially the same process. It will thus be seen that the com- bination of capital in this industry has not only lowered the price and improved the quality of oil in this country, but has actually transferred that much of our civilization to Russia. It may be said that this is not true of all trusts, but that some of these combinations have used their power to increase instead of to reduce prices. That there are men at the head of trusts 414 TSUSTS AND CORNERS. who mistake their true economic function will not be questioned for a moment ; but to the extent that trusts are used for specu- lative instead of productive purposes — to create corners instead of reducing the cost of production — will they fail to be a perma- nent advantage either to the community or to those undertaking them. Corners can only be successful to the extent that they can control a commodity for a sufficient length of time to force its price up abnormally high. The concentration of productive capital in trusts, railroads, syndicates, and the like, tends to ultimately prevent this in two ways : (i) By increasing the amount of product to such proportions as to make its permanent control by a few persons practically impossible. (2) By in- creasing the facilities for communication and transportation so that commodities can be readily obtained from any part of the world. Before the period of steam and the combination of productive capital, although millionaires were few, corners were numerous and relatively successful. With the development of the railroad, telegraph, steamship, large factory, and trusts, however, corners have become more and more impossible. This is shown by the fact that during the last fifteen years almost every extensive attempt to corner commodities has resulted in serious loss and often ruin to its projectors. Witness Black Friday, and the ruin of Keene in the wheat corner five years later, and the failure of the copper syndicate last year, which came very near bankrupting a number of the largest capitalists in the world and breaking the bank of France. The reason for the failure of these and many other efforts to fictitiously inflate prices, is that the quantity of wealth produced and the means for rapidly transferring it to any given point have increased so enormously that to corner any staple product long enough to accomplish the end desired is practically impossible. Thus, so far from the combination of capital in production and transportation being the cause of, or favorable to, comers, it tends more and more to make merely speculative monopolies impossible. The recent experience of the sugar trust and the cotton-seed oil trust also illustrated the same tendency. The combination of capital is strictly an economic phenomenon subject to economic law, and when it is used for an uneconomic RESPONSIBILITY OF CAPITALISTS. 415 purpose it is pretty certain to bring its own punishment. In other words, productive combination is in the order of industrial evolution, and any attempt to permanently restrict that move- ment is inimical to the best interests of a progressive society. There is one fact, however, that capitalists would do well not to overlook — namely, that their safety in the future depends upon the economic use of their power. If they persist in the effort to employ the power of combination for uneconomic purposes, they will find themselves confronted by another and more summary kind of opposition than economic law presents. In proportion as the social condition of the masses improves and they become more informed and politically powerful, do they become sensitive about their rights, conscious of their strength, and indignant at any effort to trifle with their interests. Consequently, if capitalists fail to recognize this important fact and continue to trifle with the interests of the community by perversion of their industrial power, they may suddenly find themselves in the hands of an arbitrary political authority whose action may be even more un- reasoning than theirs has been uneconomic. There is nothing which furnishes such a plausible basis for the demands of socialism to-day as the uneconomic conduct of the capitalist class. Whether industrial evolution and civilization shall be permitted to advance by increasing the wealth-cheapening capa- city of capital, or whether society shall be forced into an experi- ment of socialism with its stultifying influences, will mainly depend upon the use made by the capitalist class of the economic power which society has conferred upon them. CHAPTER VII. THE COMBINATION OF LABOR. TiHE combination of labor is the historic and economic accom- paniment of the combination of capital ; it is as necessary to the wages system as the factory is to capitalistic production. In the preceding chapter we saw how uneconomic and short-sighted is the policy of those who oppose the concentration of capital. The unwisdom of this opposition is quite clear to the particular capi- talists against whom it is directed. It was clear to small fac- tory owners in the first quarter of this century ; it was obvious to the corporations in the third quarter of this century, and it is no less manifest to trusts, syndicates, and other colossal combina- tions of to-day. But singularly enough they are all tacitly or avowedly opposed to the combination of labor. The president of a syndicate, trust, confederated railroad, or telegraph system, can see the folly and inconsistency of the large newspaper, itself a gigantic corporation, railing against the combination of capital ; but he is apparently oblivious of his own inconsistency in opposing the combination of labor. This attitude can be explained only on the ground of mistaken notions regarding the subject. A little reflection will show that every reason which obtained for the concentration of capital applies with equal force and for similar reasons to the combination of labor ; and that all the objections urged against the combination of labor are applicable to the combination of capital. The standard by which all social institutions must be judged is their influence upon the welfare of the community ; nothing can permanently promote the industrial welfare of society which does not either reduce prices or increase wages. Since the eco- nomic effect of the combination of capital is shown in the price 416 OBJECTIONS TO TRADES UNIONS. 417 of commodities, and that of the combination of labor is shown in wages, the social utility of the former must be judged by its ten- dency to make wealth cheap — to reduce prices, — and that of the latter by its tendency to make men dear — to increase wages. We have already seen that, judged by this test, combination of capital is a great social benefit, and if we bear in mind the point of view from which the discussion has proceeded, we shall have no diffi- culty in seeing that the same is true of the combination of labor. Among the many objections to trades unions it is urged : (1) That they are un-American, because they were born in andbelong to the monarchical institutions of the old world, and are out of place in a democratic republic ; (2) that they tend to destroy the right of individual contract, and thereby limit the laborer's freedom and industrial independence ; (3) that they tend to encroach upon the employer's right to manage his own business by preventing him from contracting for his labor with the laborers individually ; (4) that they cannot increase wages and improve the laborers' social condition, because they are contrary to natural law. 1 . It is true that trades unions were not born in America ; neither were factories and railroads. If labor combinations are to be rejected in America because they arose in Europe, then the use of steam, the daily press, our literature, language, religion, and indeed our very civilization may also be rejected for the same reason. Of all the objections urged against the combination of labor, there are none more flippant and absurd than the fact that , it was of old-world origin. Trades unions arose in England solely because capitalistic production and the factory system had their rise there. The combination of labor, like that of capital, is not a national but an economic institution, and must be judged entirely by its economic characteristics. To call an institution un-American because it did not have its birth in the United States, is to fail to distinguish between an economic principle and a geographical location. The truth or wisdom of a doctrine, in- stitution, or policy, does not depend upon how or where it arose, but upon the social effect of its application. 2. The contention that trades unions destroy the right of indi- vidual contract and limit the laborer's freedom has a plausible seeming, but it is singularly superficial. If it be true that com- bination destroys the freedom of the laborer, why does it not 27 4l8 SOPHISTICAL OPPOSITION. also destroy that of the capitalist. It will hardly be contended that capitalists who have steadily integrated into larger and larger combinations are less free than formerly ; one great com- plaint against them is that they are having too much freedom. It is true that labor combinations have steadily increased during the last fifty years, and it is equally true that the laborers' industrial, social, and political freedom has increased more during that period than ever before. Nearly all opposition to labor combinations is ostensibly for the laborers' benefit. As early as 1831, when the trades union asked Parliament to reduce the working time of the factory operatives in England from twelve to eleven and a half hours a day, the proposi- tion was opposed on the ground that it would destroy the freedom of the laborer to work as many hours as he chose. And forty-five years later the same reasoning was presented in Massachusetts against the adoption of a ten-hour factory law. Edward Atkinson and others repeatedly pleaded against the measure on the ground of individual freedom, claiming that to limit the working day by law to ten hours was to deprive the working women (the law only applied to women and children) of their sacred right to make an individual contract to work as many or as few hours and for such wages as they pleased. Such reasoning implies that the factory women had previously enjoyed the precious boon of making individual contracts regarding their hours and wages. The fact is, however, that no such right existed ; there was never a time since the factory system began when the operative of either sex could make any such individual contract ; and prior to the fac- tory system and the existence of trades unions the laborer had neither part nor lot in determining either his wages, hours of labor, or any other condition. Down to the fourteenth century the laborer was the property of his master. From the middle of the fourteenth to the close of the eighteenth century his industrial conditions were determined by statute law, in which he had no voice ; and during the first half of the present century they were determined by the employer." The right or expediency of con- ' During the reign of Edward III., Richard II., and the Fourth and Fifth Henrys, the law was chiefly directed to regulating the laborers' wages, /ood, clothes, occupation, and mobility, coupled with severe penalties for violation. And during the next four hundred years (1425-1825) this was supple- FALSE NOTIONS OF FREEDOM. 4 19 suiting the laborer in such things is a matter of recent date ; a fact which labor combinations have made possible and are fast making necessary. The mistake in this attitude arises from a misconception of what constitutes freedom. As already observed," freedom does not consist in the negative permission to do but in the positive power of actual doing. The essence of freedom is power, and the source of economic and social power is wealth. Nothing can furnish the motive to associate but the fact that association increases the power to obtain desired objects. The history of freedom is the history of progress, and the history of progress is the history of industrial, social, and political integration or com- bination. Every movement towards freedom is a movement towards greater economic and social interdependence between individuals. Interdependence involves mutual helpfulness, which in turn furnishes security of rights and the maximum free- dom of action. The difference between freedom furnished by savagery and that secured by society is that the former affords the freedom to injure while the latter gives freedom only to help our fellow-man, and thereby benefit ourselves. If trades unions were inimical to the laborers' freedom we should find more indi- viduality and freedom among unorganized than among organized laborers. The facts, however, are everywhere the reverse. In every country and industry it is the organized laborers who are the most characterful and progressive, and the most difficult to coerce or mislead, either industrially or politically. It is not cor- rect therefore, either theoretically or historically, that labor com- binations tend to destroy the laborers' freedom. 3. The complaint that trades unions invade the rights of the capitalist to control his own business, is regarded as the greatest grievance by the employing class. When discussing this point however, it soon becomes apparent that the phrase, " preserving the laborers' right of free contract " really means nothing but the right of the employer to insist upon making contracts with mented by laws making it a penal offence for laborers to combine for the pur- pose of obtaining advance of wages, or for altering the hours of work." See Encyclopedia Britannica, vol. vi., p. 181, and vol. xiv., pp. 166, 167. Also, Rogers' " Six Centuries of Work and Wages," p. 399. ' See page 12. Also, " Wealth and Progress," pp. 131, 132. 420 ONE-SIDED ECONOMICS. laborers individually. A very slight acquaintance with industrial experience is sufficient to show that the reason for this is, that in so doing the laborer is less able to make contracts to his own advantage. There is surely no principle in economics or equity which will not apply with as much force to the capitalist as to the laborer. If the capitalist has a right to object to the laborers acting col- lectively, the laborers have an equal right to object to the associ- ated action of capitalists. In truth however, such an objection on the part of either is the very acme of absurdity, because individual action has been rendered practically impossible on both sides by the very constitution of the factory system. Everybody is now aware that associated capital is practically indispensable to successful production. No matter how desirable it might ap- pear that each stockholder should directly participate in every transaction of the concern, such a town-meeting method is now utterly impracticable. That a considerable degree of associated and representative action is necessary for capital is generally admitted ; the individual contract system is literally insisted upon only for the laborer. All contracts for labor must take place between corporate capital and individual laborers. When the laborer purchases commodities he must buy individually from cor- porate producers, and when he sells labor he must sell individually to corporate purchasers. This position is as illogical as it is impracticable. Fortunately economic law makes such an one-sided arrangement impossible. The very conditions which have made the combination of capital necessary, have rendered a practical uniformity in the price of labor necessary for the same work in the same shop. It is mani- festly impossible for a concern employing several thousand laborers to make a special contract with each individual laborer as to the wages he shall receive and the hours he shall work. In the first place, a multitude of different rates of wages and other conditions would throw the whole concern into confusion. Every change of workman would be liable to involve a new price, and thus change the cost of producing the article. Since the labor of all the workmen is merged into a common product and sold at a uniform price, it would be impossible to know from week to week whether the selling price was above or below the cost of produc- INDIVIDUAL CONTRACTS IMPOSSIBLE. 42I tion. This difficulty would be further increased by the fact that the productive capacity of operatives greatly varies, especially where men, women and children all work at the same occupation. It was this fact, together with the desire to spur the workman to his maximum effort, that led to the introduction of the piece-work system. It is needless to say that to have a special contract with each individual operative as to the price paid per unit of product is absolutely impracticable. Still another obstacle to individual contract is the fact, that under factory methods the tools are all driven by a single power. This makes it essential to the economy of the process that there be a uniformity of hours in order that all may commence and stop at the same time, because it involves about as much cost to run the machinery for a portion as for the whole number of operatives. Furthermore, since every department supplies but a fraction of the finished product, it is necessary that its quota should be furnished in a uniform proportion to all the rest, as any variation in this respect would be a disturbing hindrance to the whole concern. In other words, the workers in the seventy different branches in the manufacture of a shoe are simply inte- gral parts of a continuous process, and therefore must all conform to a general system of operations. It is as impossible for each operative to make separate conditions without regard to the rest as it would be to make the cogs of a wheel of different length, breadth, or thickness, without regard to each other. Individual contracts therefore, regarding wages, hours of labor, or other working conditions, are absolutely out of the question under the factory system. Indeed, no practical business man would ever seriously entertain such an idea. As a matter of fact, no such freedom on the part of the laborer to make an individual contract for himself, different from that under which his fellow-workman in the same shop or industry is working, is ever intended by the much-heralded phrase " free- dom of contract." All that is really meant by this phrase is that the employer should have the freedom to take the laborers singly in order to make them jointly accept his terms. It simply means that in making a contract, the laborer shall not have the same right to be represented by the most competent of his class or craft that capital has ; but that each one, however ill-informed or in- 422 UNFAIR CONTRACT. competent to present his own case, shall be dealt with simply by the representative of corporate capital. Every time a laborer is induced, through ignorance or otherwise to accept inferior con- ditions, it increases the power of the employer to enforce similar terms upon others. Thus, while the uniformity of price for the same work in the same shop prevails, this method enables the employer to impose the maximum hardship and give the minimum pay that the superior men can endure, whereas if the laborers acted collectively, as the capitalists do, the more competent of their number could be chosen to negotiate the contract for the whole, thus preventing the inferior from being used as a means of destroying the contracting power of the superior. And since the contract made by the superior would always be as favorable or more so than that made by the inferior, the poorest laborers have every thing to gain and nothing to lose by associated or representative action. Any system of jurisprudence which should permit representation by counsel on one side and refuse it on the other, would throughout Christendom be pronounced as a scan- dalous violation of the principles of equity ; yet this relation obtains between employers and employed in the most civilized countries, except so far as it has been rendered impossible by the power of organized labor itself. As proof of the obvious one-sidedness of the individual-contract idea, it is only necessary to go into any large factory and read the printed rules which govern the conditions of employment. I have read scores of them. They are usually printed and posted up near the entrance of the factory, and they stipulate the various conditions of work the employers desire to impose. Sometimes these rules, miscalled contracts, appear to give the same rights to the laborer as to the employer. This, however, is usually fol- lowed by the qualification that in case of misdemeanor, inferior workmanship, or other cause, the laborer can be summarily dis- missed, and of these things the employer is the sole judge. In short, these rules are formulated and enforced exclusively by the employer. And when a new laborer is engaged he neither hears nor sees any thing of them but the mere fact that they are posted up in the factory, and that he was not coerced into taking the po- sition, is held to constitute a free contract, the conditions of which are legally binding, and are commonly so interpreted by the courts. It may be replied that this is the only practical way of doing, TRADES UNIONS AND WAGES. 423 SO far as the employer is concerned. This is undoubtedly true ; but it demonstrates the impossibility of individual contracts ; hence the absurdity of objecting to labor combinations, on the ground that they destroy the laborers' freedom of individual con- tract. The right of individual contract means nothing, unless it means that every individual can make a contract for himself with- out regard to that of others. Experience has shown that such contracts are incompatible with a highly complex productive sys- tem. To the modern employer laborers constitute various parts of a vast productive machine, and hence must work in practical uniformity or not at all. This is not only true of the laborers in any given workshop, but it is practically true of the laborers in different workshops in the same industry, whose products com- pete in the same market. Thus it is the economic conditions of production, and not labor combinations, that have destroyed the feasibility of individual contracts ; and it is beyond the power of either laborer or capitalist, or both combined, to restore it with- out abrogating the factory system. Since both capital and labor now necessarily move in large aggregations, for organized capital to object to the existence of organized labor is manifestly as un- just as it is irrational and uneconomic. 3. Another objection urged against labor combinations is that they are uneconomic in their character and methods. It is in- sisted that they cannot increase wages because wages are gov- erned by natural law, whose operation is beyond the influence of trades unions. That much of the conduct of trades unions has been uneconomic will not be disputed by any one familiar with their history. But it is scarcely less clear that this is mainly due to their acceptance of the capitalists' doctrine of wages, and not to any thing in the nature of labor combinations. This doctrine is that wages are regulated by the proportion between the demand for and supply of laborers, and consequently that nothing can increase wages which does not diminish the supply of labor, as compared with the demand. The supply of labor being determined by the number of the laboring population, any en- deavor to increase wages except by limiting the population was held to be a futile attempt to suspend the operation of natural law.' A doctrine according to which wages could only be raised ' See Mill's " Principles of Political Economy," vol. i., p. 428 ; " McCul- loch's ''Principles of Political Economy," p. 174; Perry's "Political Econ- 424 STRIKES AND CORNERS. by increasing the deaths or decreasing the births in the laborers' families was properly repugnant to them, though they were unable to answer it. While the laborers accepted the economists' theory, they rejected their means of applying it, and to their credit be it said, they endeavored to control the supply of labor without resorting to protracted celibacy or infanticide. Moreover, they were constantly having object lessons in the application of this doctrine by the employing class. Supply and demand being regarded as the law of prices as well as of wages, the capitalists had practically to deal with the same problem. With this exception, however, that in their case supply involved the ex- istence of commodities, in the case of the laborers it involved the existence of human beings. In acting upon this doctrine, the capitalists endeavored to regulate the price of commodities by withholding a portion of the product from the market — reducing the supply. This naturally led to corners and other forms of artificial monopoly, which are now recognized as social evils, especially as all such efforts are undertaken solely to increase the price of commodities. That the laboring class should imitate the policy by which their masters had apparently been so successful cannot be a matter of surprise. They naturally tried to do with labor what the capital- ists had done with commodities — namely, to limit the supply in order to increase its price, by withholding a portion of it from the market, which in their case is called a strike. Every strike for higher wages is simply the practical application of the doctrine of " supply and demand " to labor ; it is to the labor-market omy," 1st. ed., pp. 122, 123. Also Wells' "Recent Economic Changes," p. 124. Cf. " Wealth and Progress," pp. 35-52. Nor can it be said that this doc- trine has been discarded although its fallacy has been repeatedly exposed. The fact that Mill practically gave it up before he died, rendered the wages-fund form of stating it unpopular. But the doctrine that wages are governed by the relative demand and supply of laborers has continued to be taught by the most scholarly economists. Cairnes tried to rehabilitate it after Mill's conversion. Jevons reaffirmed it, and it is the essential idea in the most recent discussion of wages by German, Austrian, English, and American writers. And Marshall in his " Principles of Economics," (1890) which is characteristically the embodi- ment of the most recent discussion of the subject by continental and Anierican writers, makes supply and demand the basis of all his reasoning on Distribution and Exchange. FUNCTION OF COMBINATIONS. 425 precisely what a corner is to that of commodities. And yet this is precisely what economists have taught in theory and the capitalists have illustrated in practice. Thus the feature in the combination of capital which the public most oppose, and that in the combination of labor which the employing class most con- demn, is the logical result of the popular doctrines of prices and wages, and not a necessary part of industrial combination, either of capital or of labor. We have already seen that the arbitrary and speculative feature of the combination of capital is the incident, and that its normal function is to increase the economic efficiency of production and reduce the price of commodities ; and also that the former is diminished and the latter increased as the progress of society advances. A very little consideration of the subject will show that this is equally true of labor combinations. Not only have the rise of wages and the general freedom of the laboring classes everywhere advanced with the growth of trades unions, but these organizations have been one of the most efficient means in pro- moting that end. The reason for this is obvious when considered in the light of the doctrine of wages already stated. When we realize that cost, and not the mere ratio between quantities, is the chief determining influence in prices, the importance of labor com- binations as a means of raising wages is easily understood. Upon the principle that the cost of labor is high or low according to the simplicity or complexity of the social environment, it follows that whatever increases the laborer's social opportunities — i.e., forces him into more frequent contact with an increasing variety of social influences, necessarily tends to increase his wages, and this is precisely what labor organizations do. Isolation is social death. The poverty of the laborer's social life has always been the lack of social opportunity. For centuries the only opportunity for social intercourse open to the laborer outside of his meagre family circle and the church was the tavern. During the middle ages and practically down to the present cen- tury the church and the tavern or inn were the most prominent social institutions. Although the church was the centre of culture and refinement and furnished what there was of art and music, its attitude towards the laborer was always that of authority. It bade him obey under penalty of endless punishment. It afforded 426 CHURCH AND TA VERN. him little if any opportunity for social intercourse with his peers, where he could talk over his grievances on equal terms with those whose experience was practically like his own. Social intercourse for the laborer, of a democratic character, was first furnished by the tavern. There the laborers, tired and heart-sore, with no industrial, social, religious, or political rights which their superiors were bound to respect, could meet over a mug of beer, relate their hardships to one another, and exchange sympathetic encouragement. By such social inter- course the laborers not only became more acquainted with, and interested in, each other, but the more intelligent and characterful among them were naturally inspired to suggest various methods for improving their condition and demanding new rights and greater freedom. Thus, by affording social opportunity, the tavern was one of the early instruments of social progress ; it may indeed be said to have been the birthplace of free speech for the masses.' What the tavern was to the early peasantry the trades union is to the modern laborer. Indeed, for the first half of the present century the trades union was really a differ- entiation of the tavern meeting. Instead of meeting in a general social way, they met for discussion and united action regarding their special industries. The trades union tends to develop the intelligence and charac- ter of the laborers in many ways. In the first place it stimulates the study of industrial conditions, which involves a considerable amount of reading and general information, and also a close acquaintance with the industrial condition of their craft. The discussion of the various propositions which arise for considera- tion develops individual confidence, force of character, and a consciousness of industrial rights and social power, not only in those who actively participate, but in all who attend. . In short, the trades union is a great educational institution ; it is the eco- nomic academy of the laboring class and is practically the only opportunity for industrial education they have ever had. ' The need of the tavern as a social resort will be better understood when we realize the fact that the first public meeting ever held in England for the open discussion of political rights did not take place till 1 769. See Buckle's ' ' History of Civilization,'' vol. i., p. 311. Also Hallam's " Constitutional History," vol. ii., p. 420. Cook's " History of Party," vol. iii., p. 187. Albemarle's "Memoirs of Rockingham,'' vol. ii., p. 93, SOCIAL EFFECT OF LABOR UNIONS. 427 Moreover, the labor union is an important social centre ; in addition to furnishing the laborers with the means of a better knowledge of their economic conditions, it affords a degree of opportunity for social intercourse otherwise practically impossible. It is to the laboring class what clubs and other social institutions are to the wealthy. The social intercourse and activity thus created (which is frequently extended to their families and friends) necessarily awaken new tastes, wants, and aspirations. Nor is the influence of this limited to the personal character and home life of the members of the association, but the social rivalry between different organizations is equally pronounced. So strong is this that a class feeling often exists between trades as to their social position, the test usually being the wages paid in their trade and the financial strength of their organization. Thus, on all public occasions, they vie with each other as to which shall make the most opulent appearance. This social competition necessarily furnishes the incentive to new desires and ambitions involving a greater variety of social life and a more expensive standard of living. The pressure of the increased necessities thus unconsciously developed makes a demand for an increase of wages necessary. This, of course, does not come suddenly ; it is felt first and most keenly by those who have been most susceptible to the social- izing influences and whose cost of living has been most increased. Their expenditure begins to press uncomfortably against their income, until finally they are unable to make both ends meet. Those who first begin to experience this hardship, being the most expensive of their class and usually the most intelligent and characterful, bring the matter before the union and advocate a general demand for an increase of wages. When this feeling is shared only by a few, they fail to carry their point. Since it is impossible both from the nature of the factory sys- tem and the constitution of labor organizations to make special terms for individual cases, the only way for the most expensive laborers to secure an increase of wages for themselves is to ob- tain the same for their whole trade. Being thus compelled to rise together, or not at all, it becomes necessary to inspire their associates with substantially the same feelings and ambitions they experience themselves. To do this they are forced to argue 428 TRADES UNIONS, ECONOMIC. questions over and over again, showing not only the necessity but the feasibility of their proposition. When they have suc- ceeded in convincing twenty or thirty per cent, of the most char- acterful in their union of the wisdom of their demand, the re- mainder usually follow. With this united action of the whole class they invariably succeed sooner or later in obtaining the increase of wages or other improved conditions desired. All this is educational and socializing in its influence. It is through organizations which thus practically weld the laborers into a social class that the economic condition of the whole is improved by the efforts of a small but the most advanced portion. It will thus be seen that trades unions are essentially economic institutions ; instead of being inimical to the laborer's interest and a menace to capital, they are a most important feature of modern society. For the same reason that nothing can perma- nently reduce the price of commodities, which does not diminish the cost of production, nothing can permanently advance wages which does not increase the laborer's cost of living. And upon the same principle that the combination of capital increases the facilities for diminishing the cost of production, the combination of labor increases the opportunity for increasing the laborer's necessities and cost of living. It is by their opportunity-creating influences, and not by their power to limit the number of labor- ers, that trades unions ever permanently affect wages. Of course they resort to strikes as a means of enforcing their demands when petitions and other more moderate forms of request have failed ; not because it limits the supply of laborers, but because a con- siderable portion of the laborers are acting under the pressure of a social necessity, which if not satisfied will involve a protracted social conflict. It is commonly assumed that the conducting of strikes is the chief function of labor unions. This is as erroneous as it would be to say that the chief function of organized capital is to con- duct lock-outs. Strikes are among the most reluctant and the least beneficial functions trades unions perform. It is indeed notorious that strikes diminish as labor organizations increase in extent and efficiency. It is a fact well known to those con- versant with the history of labor organizations, that far more strikes have been prevented by the officers of trades unions than HOURS OF LABOR REDUCED. 429 were ever inaugurated by them. It is, however, through their united efforts as industrial organizations and as the means of concentrating the political influence of their class to promote in a multitude of ways the improvement of their social condition, that the trades unions have done their best work. Take, for ex- ample, the reduction of the hours of labor ; this they have persist- ently advocated for more than forty years, and in spite of the almost united opposition of the employing class, have succeeded in shortening the working time in almost every civilized country, in many instances from fourteen to ten and nine, and in some cases to eight, hours a day. It is due to their efforts that night-work for women and children in factories was prohibited, education for working children secured, and the truck system with numerous other degrading features of the factory system abolished. It may indeed be said that nearly all the improvements in the sani- tary and social condition of modern workshops which have taken place during the last generation are directly or indirectly the re- sult of the indefatigable efforts of labor combinations. The rise of wages is the secondary effect of these social improvements, which are simply so much added opportunity for individual development. It is not pretended that these organizations furnish the only social opportunity the laborer enjoys ; it is of course true that he obtains some share in the benefit arising from the general progress of society, but the degree in which he is thus benefited largely de- pends upon the social preparation he receives in his own special sphere. Suppose, for example, the mass of laborers continued to work in an unwholesome atmosphere under demoralizing con- ditions for twelve or more hours a day, and to spend their nights in dismal tenements, compared with which a very ordinary saloon is a wholesome attraction. The general culture of society would have but a very slight influence upon their social life. This much- needed preparatory social opportunity is what the trades union largely supplies. It does this first through the social intercourse and inspiration it directly furnishes within its organization, and next by its persistent efforts to modify the form of labor and diminish the amount of time the workshop shall exact from the laborer's life, and by increasing that which is added to it by leisure, and the general humanizing influences of society. Labor 430 CHARACTER THE BASIS OF WAGES. combinations, therefore, tend to promote the increase of wages in the most truly economic way possible, which is by stimulating the growth of the laborer's social wants and desires, and by promo- ting industries, education, and the possibility of united, intelligent action in economic and social affairs. There is no force in society that can secure a permanent rise in wages unless the social necessity for it is previously developed. When strikes take place for an increase of wages, or any other object, before the demand of a considerable portion of the laborers has ripened into a necessity for it, they generally fail. It is always the most intelligent and characterful, whose habitual consumption presses the hardest against their income, who are the most cautious about entering upon a strike, and the most persistent in their en- durance after the conflict commences. On the other hand, that portion of the class which has a little bank account or a mortgaged cottage, are the first to surrender when the real hardships of the struggle begin to appear. The reason for this, however, is not that they are inherently less heroic than the others, but that the advance in their standard of living has not outgrown their wages to the same extent. Consequently, the hardships arising from the insufficiency of their wages are less severe than those of the others ; hence their early surrender. In other words, their effort to obtain the advance is relatively weak because the consciousness of its necessity is relatively slight. And, conversely, those whose necessary expenditures press the hardest upon their incomes suffer the greatest inconvenience from the smallness of their wages, and hence will endure correspondingly great hardships in the efforts to obtain an increase. It is, however, to the ill-advised strikes and other rash conduct of trades unions that we are usually referred as evidences of their evil influence. We are told that they are dictatorial, that they arbitrarily disturb trade and industry, destroy the profits of capital, and involve untold hardship upon the laboring class by loss of wages. It is, indeed, one of the favorite themes of the opponents of trades unions to foot up, periodically, how much the laborers have lost in wages through strikes, and to point out that they are the dupes of dishonest leaders. This method of estimating the social and economic merits of labor unions is at once specious and misleading. Judged by such GAIN AND LOSS BY STRIKES. 43 1 a standard, almost every great movement for social and political reform would have to be voted a failure. The Wat Tyler insur- rection, the uprising of the Roundheads against Charles I., the Protestant Reformation, the Revolution of 1688, the French and American Revolutions, and our Civil War, all cost more finan- cially than was immediately realized from them. But if the results of these struggles are estimated in their permanent effect upon social well-being, they were all great successes, yielding indefi- nitely more in benefits than they cost in sacrifice. So it is with labor unions, notwithstanding their many mis- takes. It is a great error to assume that, because a strike fails to accomplish the specific object for which it was inaugurated, the money and energy expended upon it are wasted. On the contrary, the educational effect of an unsuccessful strike on the employer and the public, as well as on the laborer, is often worth more than all it costs. But if these efforts are judged by their permanent effect upon the material and social well-being of the masses, they will have to be regarded as great successes even in a financial sense, to say nothing of the social and moral advantage resulting from the reduced working hours and improved indus- trial conditions they have secured. The increase of wages during the last forty years is many times greater than all that has been spent or lost through strikes since the dawn of the factory sys- tem. Indeed, the amount the laborers in this country and Eng- land have received through increased wages since 1850 is nearly equal to all they received during the previous fifty years. But what is still more important, all this gain will not only continue in the future without any further effort, but will furnish a power- ful lever by which to obtain still greater improvement. The laboring classes therefore are not permanently impover- ished by what they pay into unions or lose in strikes. It should be remembered that their losses are only temporary, while their gains are permanent. Thus when they strike for an increase of wages or reduction of hours, if they fail to obtain that specific object their loss is slight, since their future wages are not reduced nor their hours increased on that account ; but if they succeed they obtain a permanent gain. In other words, when they fail they practically hold their own, and when they succeed they gain forever. 432 UNFAIR CRITICISMS. That many strikes are unwisely inaugurated and badly man- aged would be readily admitted by those acquainted with the history of labor organizations. Nor will it be disputed that dis- honest men, or men otherwise conspicuously unfit for leader- ship, sometimes get at the head of labor organizations. But is this not true of every other form of social and industrial organ- ization ? Are capitalist organizations free from these charges ? Do they not frequently act rashly and undertake enterprises in which thousands of innocent confiding investors (often women, children, and orphans) lose their little all ? Have they not their Grant and Wards, whose rash (or worse) conduct often disturbs the whole commercial and industrial world, bringing bankruptcy and ruin to large numbers ? Cannot the same impeachment be urged with quite as much truth against political combinations, social clubs, and even churches ? Would any one venture to say that because there are dishonest railroad presidents and corporation treasurers, the combination of capital should be prohibited, and because there are dishonest and incompetent deacons and ministers church associations should disband ? Why should working men be ex- pected to be more honest and wise than any other class in the community ? Why should perfection be demanded of them, when liability to err is conceded to every one else ? Since all other social institutions are to be judged by their virtues, why should labor organizations be judged only by their mistakes ? Considering their limited opportunities and the extent of the forces arrayed against them, the wonder is not that the laborers have made so many mistakes, but rather that they have succeeded at all. Another characteristic of labor combinations, which should not be overlooked, is the marked improvement in their methods of dealing with industrial disputes. In proportion as trades unions become more complete in their organizations, and their members more intelligent, they have become more rational and conserva- tive in their attitude. Whereas physical force, often involving the destruction of life and property, was once their chief means of warfare, they now mainly rely upon reason and facts as their economic weapons. Consequently we find to-day that in those industries where trades unions are best organized and exercise the greatest influence, strikes are fewest, wages are highest, hours TRADES UNIONS NECESSARY. 433 of labor shortest, and the relation between laborers and employers the most confidential and harmonious. Trades unions therefore are not only legitimate, economic, and social institutions, but they are an integral part of the industrial organization of modern society. They are the economic counter- part of the combination of capital, and their existence and devel- opment are equally necessary to the harmonious development of society. It is an entire mistake, therefore, to regard trades unions as necessarily a menace to industry and social welfare ; they are constitutionally important educational institutions, and whether they will be a power for good or for evil in society depends upon what they teach and how they teach it. Since labor organizations are the most effectual, and nearly the only means of furnishing the opportunities for economic education to the wage workers, instead of trying to degrade and suppress them, it is alike the interest and duty of both the employing class and the community to encourage their development and increase their usefulness. If capitalists would devote one tenth the means for helping labor unions to provide for more comprehensive and correct knowl- edge upon economic and social questions that they devote to opposing them, these organizations would become the source of sound economic education and the training schools for intelligent citizenship, instead of being the nurseries of industrial and social antagonism. SUMMARY AND CONCLUSION. In the preceding pages I have endeavored to discuss the geis- eral principles which govern the economic relations of society, and to indicate briefly their application to practical affairs. It will be observed that this treatment of the subject widens the sphere of economics, in that it applies these principles to society instead of limiting their application to wealth or value. There- fore instead of the principles of physical economics, which political economy has hitherto taught, we have the principles of social economics, a system which recognizes the tastes, habits, and character of man, as the source of all economic movement, and the development and perfection of man as the goal of social evolution. Since this is a departure from the traditional meth- ods of discussing economics and involves the consideration of the whole subject from a different point of view, it may be well to briefly summarize the leading principles laid down in each of the four parts as follows : Principles of Social Progress. — Social progress is here consid- ered as a gradual movement of society towards a greater definite- ness of economic and social relations, specialization of functions, and interdependence of individuals and classes, and an increase of wealth, power, and freedom for the individual, with a diminu- tion of the arbitrary function of government. This movement has two characteristic phases, distinguishable as industrial and social. The former relates to the means of sustaining life, and the latter to the mode of enjoying life. The development of these two phases of progress in society is indicated respectively as follows : In economics by a movement towards the de-indi- viduation and aggregation of productive force — both of labor and capital, — the individuation of management and responsi- bility, and the socialization of results in the form of more, better, 434 SOCIAL AND ECONOMIC PXOGRESS. 435 and cheaper products. In society and politics it is indicated by a movement towards increasing the sovereignty of the individual and diminishing governmental authority. This produces two changes in the laborer's condition : one specializes and limits his economic function, the other generalizes and extends his indi- vidual and social function. Thus in proportion as the laborer's industrial individuality diminishes and he loses the economic ,^ower to employ himself, his social and political individuality sacreases, and he gains the power to control his employer ; and this power he will use to the detriment of existing interests and institutions if his well-being is neglected or impaired. Therefore as civilization advances, the prosperity and safety of the whole community depend more and more upon the industrial and social welfare of the laboring classes. The correctness of this view is sustained by universal history, which shows that civil and political freedom have everywhere followed the material pros- perity of the masses, and this has everywhere been characterized by specialization of labor, concentration of capital, and private responsibility in industrial enterprise. Principles of Economic Production. — Production is treated as the creation or increase of transferable utility. Since nothing has utility which does not serve human wants, effective desire or consumption is the cause of production. Industrial progress primarily consists in cheapening wealth, the test of which is the increase of material well-being obtainable for a day's labor. It is a universal law in economics, that productive efficiency is increased and wealth is cheapened according as natural forces are substituted for labor. Natural forces can only be harnessed to production by the use of capital, and capital can only be economically employed under conditions of increasing returns. Increasing returns are only possible with a relatively larger market, and this depends entirely upon the increase of consump- tion per capita in the community. Large consumption, which means high-priced labor, is one of the prime causes of cheap wealth. Value is here treated not as the ratio in which things exchange for one another, but as the ratio in which wealth exchanges for service. Economic prices are high or low, things are dear or cheap, solely in proportion as a smaller or larger amount of them 436 PRODUCTION AND DISTRIBUTION. will exchange for a day's labor. A commodity at 50 cents in China, a dollar in Russia, or $1.50 in England, maybe very much dearer than at $2 in America. To repeat this in another form, the economic status of wealth is determined absolutely by the ratio in v/hich it will exchange for service as an economic equivalent. The basis upon which economic equivalents are determined is not quantity but cost. Therefore economic value or prices are not determined by the ratio between demand and supply, but by the cost of production. Under free competition in open market, the price of any given commodity tends towards uniformity, on the basis of the cost of producing the dearest portion of the supply in that market. Cost of production is determined not by the quan- tity of labor expended, but by the aggregate cost of labor directly or indirectly devoted to its production, and since large consump- tion induces the economic use of machinery, which saves labor and diminishes the cost of production, high wages promote low prices. Principles of Economic Distribution. — The distribution of wealth is not a distinct economic function, but an inseparable part of the process of production. Economic distribution takes place in the form and order of wages (and salaries), rent, interest, and profit. Consequently, the social theories based upon the assump- tion that wages are determined by what remains of the product after rent, interest, and profit are deducted, as held by socialists, and practically supported by Jevons and Walker, are erroneous. Wages differ from rent, interest, and profit, in that they are economically cost, while rent, interest, and profit are surplus. Wages, being the price of labor, are determined by the same law as the price of commodities, namely, the cost of furnishing the dearest portion of the necessary supply, and are necessarily added to the price of commodities ; while rent, interest, and profit, being surplus, are not items in the cost of production by which the price is determined, hence do not enter into the consumer's price of commodities, so that prices are not higher or wages lower by virtue of rent, interest, and profit. The chief problem, therefore, to consider in connection with the dis- tribution of wealth is wages. To increase wages is to increase the income of all who participate in productive enterprise, and this in turn extends the market for products, diversifies industry, FOREIGN AND DOMESTIC RELATIONS. 437 and makes the various forms of surplus possible. In other words, the prosperity of all the other classes of the community finally depends upon that of the wage-receiving class. Con- sequently, the economic problem of society is not one of re- ducing rents, regulating interest, or abolishing profit, but it is a problem of increasing wages which finally depend upon the wants, habits, and character of the laboring classes. Principles of Practical Statesmanship. — In applying the princi- ples of economics to the practical affairs of society, it should be observed first of all that the functions of government are es- sentially of a protective, educational, and judiciary character. Therefore, while practical statesmanship has to deal with an infinite variety of circumstances, the machinery of government should be employed only upon the principle of protecting or enlarging the industrial, social, or political opportunities of the individual. This should be the test of every change in public policy of whatever character. Applied to international relations, this principle involves what- ever is necessary to secure to the people of a nation the op- portunities for developing their highest industrial and social possibilities. This may take the form of protecting the people against forceful molestation by military invasion or an encroach- ment upon their political or territorial rights, or it may take the form of protecting them against an industrial invasion, in which the development of their home industries is menaced through the underselling of their products by those of lower-paid labor in less civilized countries. Applied to domestic relations, the principle implies whatever is necessary to protect the individual in all the rights and privi- leges he now enjoys, and to increase in every possible way the opportunities for developing his character and capacity for assuming a still greater degree of individual responsibility and freedom in every sphere of life. In the first place, the policy of government should always be to encourage individual enterprise by securing the greatest possible freedom to capital consistent with business integrity and social safety. In other words, it should be the guardian of the interests of the community without assuming business responsibility. In the next place, it should not only protect the laborer's industrial and social rights, but it 438 POLICY POR THE FUTURE. should employ all possible means for improving his industrial and social condition. This is of fundamental importance: (i) because the laboring classes constitute the great mass of the community, and therefore most truly represent society ; (2) because under democratic in- stitutions, public integrity, political and social freedom, depend upon the intelligence and character of the masses ; (3) because under factory methods of production material prosperity and social welfare finally depend upon the consumption of wealth by the laboring classes. Thus it appears that, whether we consider the social question from the stand-point of the general progress of society, as indicated by the advance of personal, political, and religious freedom, or from the standpoint of industrial progress, as indicated by the development of labor-saving and wealth-cheapening methods of production and the more equitable distribution of the products of industry, as indicated by the increase of wages, or from the standpoint of practical statesmanship, as indicated by legislation, we find it all ultimately resolves itself into the problem of developing the character, individuality, and social life of the masses. When this fact shall become the accepted basis of public policy, the true economic relation of the laborer to the welfare of society will have been recognized for the first time, and one great step will have been taken towards the solution of the social problem. Herewith is reached the end of our journey along the paths of industrial human development. Dimly lighted as it has been by the researchers and thinkers of the past, our way has been found only by closely following the light of facts. No theories have been allowed to stand against fact. No reasonings have been sustained in spite of fact. No propositions have been given credence contrary to fact. If novel and paradoxical conclusions have been reached, it has been in humble obedience to facts. If we have found the solution of many problems hitherto dark and tangled, it is fact that has unravelled the complexities of the subject. If many questions heretofore explained in tortuous methods difficult to follow have been given the guise of sim- plicity, it is because facts have been able to furnish a simple explanation. A BRIGHTER FUTURE. 439 That this book issues in a system of social development at once pleasant, profitable, and promising the greatest good, is agreeable to me, and should be to the reader. It may at first repel orthodox experts in political economy who have thought so long on the old dismal lines that nothing agreeable seems to them possible from the workings of economic law. Steeped in the dreary reflections of Malthus, Ricardo, Mill, and the rest, they may indeed reject with scorn any thing that opens a more cheerful view. But the world actually goes from good to better perpetually, despite their awful predictions. Men are richer, brighter, more virtuous and happy, wiser, stronger, and healthier than they ever were, and we have simply pointed out the principles that have brought them to this finish. The human race is on the road to better estates. Long ago it set out on its unknown and perilous journey. At the time when the first men learned to trust their brains instead of their muscles the march was begun, and still it goes on. Every day sees some new attainment of the human mind, some new conquest over its environment, and every day sees more and more men included in the general enrichment and enlightenment. The world becomes more peaceful, more industrial. The rewards of industry become greater ; the general comfort i« increased ; the powers of production prevail ; education becomes more general and varied ; nature is subdued and harnessed ; political freedom waxes, civil broils decline, occupations are diversified, cities multiply, vast organizations are formed to contribute to human welfare, and machineries proffer their million fingers swifter than arrows, surer than muscles, more tireless than thought, to the workshops of mankind. There are formed the countless ob- jects of human desire, most potent of all earthly forces. Steam drives the machinery, but human desire drives the steam. Out of man the movement springs, for him it labors, him it improves, and there is no limit to it. It has the nature of the infinite. The more it gets, the more it wants ; the more it does, the more it aspires to do ; the higher its advancement, the higher mounts its ambition. Still no advantage is gained by magical methods such as those suggested by our modern dreamers of dreams, but all is accomplished by the well-known and powerful methods al- 440 THE VIRTUE OF NEW DESIRES. ready at work among us — our present benefactors. No sequestra- tion of the rents of land, such as Mr. Henry George is pleased to advocate, has any share in the advance. How could it have, when one sees that the more land there is to the person the worse off all persons are ? The steppes and the untilled prairies are the habitation of the idle nomad and the painted savage. Miles of land per man, but no wealth. Men are richest where each has least land, as in the teeming cities. " To every man his own farm " is a motto of barbarism. Anti-poverty societies would find plenty of land their death-warrant. It is to escape the bovine monotony of farm life that men throng to cities and towns, where intelligence is general and the resources of the individual enlarge, where the interchange of human sympathies and criticism stimu- lates thought and develops civility, where, as in a beehive, socia- bility supplants the dull hut of the lonely agriculturist, with whom new thoughts are as rare as roses in January. Nor is progress to be speeded after any such fashion as Mr. Bellamy has pictured, nor by the methods advocated by socialists. Work and system, organization and struggle for better materials, more productive energies, wiser laws, clearer principles, nature better understood and made more obedient, will always be the real agencies of amelioration. And by the use of these means more intelligently applied and more completely developed, the human race may legitimately and soberly expect to reach the goal of its most sanguine expectations. To reach it quickly the main thing is to widen human desires. The true ideal is that everybody should want every thing enough to be willing to work for it and to get it, since this is the source and fountain of prog- ress. No wants means no advance. The first economic duty of society and government is con- stantly to stimulate desire. If the English in India could make the Hindoo laborer want more things, they could soon civilize him up to their own standard. If the Russian peasants were not content with so little, the development of Russia might run on at equal speed with that of the United States. If our Indians could only be made to want houses and steam machinery and good clothes enough to work for them, the Indian problem would solve itself in a single decade. If the Southern negro could be made discontented with his slovenly hut, his scanty clothing and food, WEALTH FOR ALL IS CHEAP.ER THAN POVERTY. 44I the race problem would dissolve ; and if our own poorer classes could only be made to crave better homes, better amusements, better food, with better surroundings, the problem of poverty would soon disappear, since they would universally begin to get them. To desire things is the first step in social progress, and this de- sire no sooner sets in with force than it begins to establish a new form of society. More wants means more factories, more ma- chinery, cheaper products, our laborers more steadily employed, capitalists more comprehensive and adventurous. Enterprises on an ever enlarging scale are called for to produce the desired result, — enterprises surpassing in their extent all the trusts yet devised, controlled by individual management, under abler cap- tains of industry than have yet appeared, and delivering cheaper products to be used by larger proportions of the people. The laborer must become more specialized as a laborer, though more generalized as a man. His welfare must be seen to be the welfare of the community, because he is really seven tenths of the community, and his interest must be more and more considered by all classes, as carrying with it the welfare of the rest. When employers understand their true interest the stupid and stolid resistance which they have long made to his progress will give way to a genial and hearty co-operation in all that makes for his advantage. They will realize that in his advancement lies their own prosperity. Then the future will be much brighter and happier, and larger numbers of men will succeed to a secure and pleasurable career. Since fifty years of devotion to industrial pursuits have wrought the wonders we know, and led mankind from the days of plague, pestilence, and famine, from general illiteracy, isolation, and superstition into the prosperity and progress of to-day, what will it be when a thousand years of intelligent progress have wrought out the possibilities of human development ? When nature well understood and well harnessed to the supply of millions of human wants shall furnish the riches of her storehouse, abundance for all will be more easily obtained than is the little which the great mass of mankind now receives. INDEX Abolition of rent simply an increase of profits, 235 Absolute rights a social impossibil- ity, 296 Abstinence, capital not the result of, 79 Actual law of prices, statement of, '31 Adam Smith's definition of value criticized, 90 doctrine as modernized by Mill, 68 ' policy of no government in- terference, 284 Agricultural laborers, wages of, 208 — pursuits essentially non-socializ- ing, 323 — prices controlled by supply and demand, 133 ' — products, supply and demand, 102 Altruism, errors regarding, 20 Amelioration of the masses, real agencies of, 440 America, industrial conditions of, 58 American and French revolutions, difference between, 59 — industry, growth of, 60 Ancient and modern discoveries, S7 — civilization not equal to modern, 86 — philosophy, effect of, 31 Arbitrary action involves inequity, 313 Arts and sciences, tendencies of, on social progress, 19 Associated action of laborers, its effect upon inferior laborers, 422 Basis of economic production, 80 Benefits, distribution of, 267 Blaine's error, cause of explained, 352 — mistake in regard to protection, 351 Brassey, Thomas, 142, 143 Buckle, 18, 28, 40, 43, so, 55 Business depression by disturbing equilibrium between consump- tion and production, 385 ■ cause of, 384 economic characteristics of, 382 famines and panics, 383 — ■ — impossible when laborers are all employed, 395 industrial and other condi- tions under which they occur, 382 influences affecting consump- tion must be looked to for both cause and cure, 386 limited to machineusing countries, 384 peculiar to factory conditions, 386 periods of industrial adver- sity, 383 prevention of, 391 symptoms of a, 394 uniformity of, 384 uniform and international in their movement, 384 — phenomena, a proper knowledge of would assist financial invest- ment, 394 — prosperity assured as real wages rise, 391 Cairnes, 109 — and Mill, criticism of, 97 — error regarding supply and de- mand, 109 Capital an economic instrument whose utility must be maintained, 405 443 444 INDEX Capital and labor in their relation to wages, 185 Marx's theory, 252 relation of, 206 reviewed, 199 table of profit, price, savings and wages, 206 — arises from hope for gain, 79 — cannot create a market, 147 • — combination of, 397 — combination of indispensable to industrial progress, 399 — constantly being reduced to no- interest point, 240 — constantly struggling from no- interest to high profit, 241 — defined, 73« — does not discharge labor, 145 — depreciation affects results, 273 — how created, 79 — increase of also advances price of labor, 193 — land should not be considered as, 7S — millions annihilated by improved machinery, 274 — movement of, 241 — not the reward of abstinence, 243 — often forced to losing point by competition, 241 — price of using, Dr. Wood, 189 — produced by surplus earnings of capital already in use, 243 — proverbially sensitive, 404 ■ — return for use of, 123 — rewarded by exceptional produc- tive efficiency, 243 — seeking remunerative employ- ment constantly increasing, 406 — successful only when cheaper than labor, Wood, 190 — the cause of industrial progress, 78 — the effect of progress, 80 — the means employed in produc- tion, 73 — use of determined by increasing returns, 76 — use of the term, 75 Capital, Walker's origin of, 77 Capitalistic concentration, fallacy of opposition to, 398 — system of production a competi- tive system, 401 Capitalists — Marx's mistaken as- sumptions, 258 — prosperity finally depends upon consumption of wealth by the masses, 400 — responsibility of, 415 — should beware of uneconomic policy, 415 Carey and Ricardo's theories of rent discussed, 221 Cause and cure of business depres- sions, 386 — assigned for business depression, 385 — of changes in social progress, 22 — of emigration stated, 196 — of social progress, human wants, 23 Change of labor, relative position, Z13 operatives in New England in the last forty years, 355 Character the basis of wages, 430 Characteristics in which society re- sembles an individual, 303 Charters (English) rendered invio- lable, 45 Cheap foreign imports would cause an entire readjustment of Ameri- can wages, 332 — labor competitor succeeds be- cause of social inferiority, 334 — — prices are high, 331 — wealth, what constitutes, 329 Children's opportunities compared, 293 Children, successful rearing of in its relation to government, 287 Chinese and American prices com- pared, 330 Cities and towns the nurseries of civilization, 323 — importance of, 323 City wages higher than rural wages, 353 INDEX 445 Civilization, modern greater than ancient, 86 — the price it has to pay to protect itself from barbarism, 371 Clark, J. B., 144, 146, 192, 195, 197, 199. 308, 309 Colossal enterprises require expert management, 407 Combination of capital, does it tend to destroy competition, 401 objections commonly urged to, 399 for uneconomic purposes sure to bring its own punishment, 414 to reduce prices a great social benefit, 417 — of labor to increase wages a great social benefit, 417 an economic institution, 417 fallacy of crusade against by capitalists, 398 has the same reasons as con- centration of capital, 416 Combinations, functions of, 425 — of capital and labor, features of, 425 Commodities, a fall in the value of any or all implies a rise in the value of labor, 98 — and labor, prices of move in op- posite directions, 206 — furnished by trusts and purchas- ing power of wages, relatively, 409 — relation of to labor, 98 — rise or fall in one does not nec- essarily affect the other, 98 — theory of final utility, 185 Comparison of societies to living organisms, 302 capital invested, 1850-1880, 273 Competition between England and Russia compared, 340 unequal, tends to crush the weaker, 293 — cannot promote industrial well- being if not tending to make ■wealth cheap, 329 — economic only between approxi- mately equal competitors, 337 — effective and far more economic with limited number of competi- tors, 403 Competition, false notions of, 288. — has not yet reached the zero point, 409 — indispensable to development, 293 — must make the object possible to either contestant, 293 — the criterion of, 402 Competitive influence much en- larged by capital and products thousands of miles away, 404 Comte, August, 18 Concentrated capital, effect of, 408 Concentration of capital, limit of, 407 industrial forces viewed with alarm, 397 occupations depends on nat- ure of industry, 323 population means greater complexity of social life, 322 Condition of the laborer examined, 270 — changed by the advancement of society, 316 Confounding metaphor with fact, 309 Conscious wants, intelligence and will attributes of society, 305 Constitution of society and the in- dividual organism — ^radical dis- tinctions, 304 Consumable wealth, concentration of not advantageous to the com- munity, 399 no tendency in modern so- ciety to accumulate, 400 use of, 178 Consumer's price and laborer's wages, how determined, 233 Consumption and population in- crease simultaneously, 83 wages increase at the same time, 84 — arrest of, 388 — the cause of production, 80 — what constitutes, 175 Continental competition in regard to England and America, 341 Corners becoming obsolete, 414 — frequently become boomerangs on their projectors, 414 446 INDEX Corporate capital and individual laborer theories impracticable, 420 Corporations, less danger in keep- ing out than buying out new com- petitors, 406 Correct views, importance of in regard to capitalistic concentra- tion, 398 Cost and profit, comparison of, 254 — — quantity of labor as deter- mining values, 194 rent compared, 221 • — determined by labor, 140 — due to difference in methods, 231 — in its relation to land, capital and labor, 198 — of labor — ^time and product com- pared, 257 ■ to value of product consid- ered, 257 — of living, controls laborer's wages, 365 ■ how affected, 216 regulates wages, 136 — of production affects consumer's price, not employer's profits, 351 controlling element in price movement, 391 explained, 121 is what is consumed in main- taining its productive efficiency, 36s law of, 138 may be changed by labor, 142 popular errors regarding, 138 — reduced by cheap living, 204 — what is meant by, 204 Cotton industry, comparative fig- ures in relation to, 345 considered, 326 ^ 1830 and 1880 compared, 263 ' in England and America, 347 reviewed, 242 ■ review of, 263 — cloth, the price of, 345 Crude oil, prices remain practically unchanged, 412 Currency is not money, 164 Currency paper, basis of, 164 Cycle of productive effort, 7a Data, difficulty of obtaining, 277 Decline of the feudal system, 9 Defective methods in wages and profits, 270 Definition of wages, 201 Degrading features of factory sjrs- tem abolished by labor unions, 429 Demand causes supply. III — creates prices, H2 — and supply, Cairnes' error, 109 doctrine of, 100 does not regulate wages, Id6 not the law of economic prices, 100 theory in its relation to wages, 423 — is followed by supply, ill — mistaken idea of, no — to supply, relation of, 109 Democracy, volitional action of in- dividuals, 297 Depreciation of capital, 274 Desire the cause of effort, 23 — — first step in social progress, 441 Despotism and democracy com- pared, 297 Development considered in regard to character and resources, 322 — of manufacture, necessary con- ditions to the, 324 morality, 25 Difference between French and American revolutions, 59 Direct taxation an enemy to public improvements, 376 an inducement to dishonesty, 374 creates dissatisfaction, 375 — — does not accurately deter- mine individual payments, 373 pernicious in many ways, 374 preferable, 373 Discoveries, ancient and modern, 87 INDEX 447 Distribution, economic order of, 183 — historic order of, 182 — meaning of, 176 — of wealth, inseparable from pro- duction, 175 — relations of laborer, capitalist, landowner and entrepreneur, 181 Divisions of political economy, I7S Domestic trade and home manu- facture should be developed, 327 Draper, 18, 31, 32 Earnings of men affected by em- ployment of women and children, 214 Economic and social progress, 435 — basis for development of cotton manufacture in United States, 346 — character of interest, 248 — combination encourages strong competition and small margins of profit, 401 — competition, 293 basis of, 335 — competitors harmless as long as they use poorer machinery, 340 — conditions of production have destroyed feasibility of individual contracts, 423 — distribution, explained, 176 ' order of, 178 i principles of reviewed, 436 profit last, 181 statements in regard to, 178- 179 -— doctrine, correct understanding would obviate business depres- sions, 394 — equality, basis of, 120 — equivalent, what is, 107, 120 — function of money, 150 . — incentive of combination of cap- ital, 403 — law defined, 1 16 — — equity of, 124, 268 Economic law ftfFectually deter, mines the equitable movement of capital, 408 of prices, verification of, 132 which make no-rent land and no-profit factories make no-inter- est capital possible, 239 — methods of the Standard Oil Trust, 411 — mobility of tax not affected by direct or indirect collection, 374 — opportunity, 324 — phenomena, classification of, 222 — price does not necessarily follow supply and demand, 128 of labor the law of wages, 203 and movement the law of wages, 203 govern labor, land and com- modities, 198 tendency of, 118 — peculiarities of business depres- sions, 382 — principles of the capitalist and journalist considered, 391 — • production, basis of, 80 principles of, 61, 435 — profit, how equitably evolved, 258 equity of, 260 — progress, character of, 1 1 — protection, law of, 337 — relation of the laborer to the welfare of society, 438 — science, the phenomena with which it deals, 117 — status of wealth, 436 — taxation, the principles of, 362 — theory of Quesnay et al., 284 — value, defined, go Economists at fault, 390 — relied upon for economic princi- ples, 392 Effect of protective tariff in Austra- lia, 354 - of trusts on purchasing power of wages, 409 — tariff upon various industries compared, 348 — WiclifPs doctrines, 50 448 INDEX Effectual and non-effectual desires, 23 Egoistic wants the source of social progress, 26 Elective representation, 298 Elements in social progress, 15 Employer and employee, interests inimical under home market regime, 327 Employers' antagonism a miscon- ception of economic relation to laboring class, 390 — mistaken policy of, 389 — more prosperous with wages doubled and hours reduced than 50 years ago, 390 Employing class, duty of, 393 should encourage the devel- opment and usefulness of trades unions, 433 errors of, 287 — nor laboring class can improve by impairing each other, 398 Employment of women in factories a domestic circle destroyer, 387 Enforced idleness infallibly indi- cates business depression, 395 necessity of frequent statisti- cal data in regard to, 396 of the laborer arrests con- sumption and causes business depression, 388 English and American manufacto- ries compared, 346 — charters, rendered inviolable, 45 — Commons, political power of, 49 — economists' and Mr. Walker's views compared, 242 oppose paternal legislation, 318 — free cities, most powerful, 43 not suppressed, 44 — postulates on profit, 250 Enrichment of the masses causes civilization, 27 Entrepreneur, relation of to distri- bution, 183 Equality, economic, basis of, 120 Equitable profit, not found, 258 Equitable taxation, economic basis of, 362 Equity of economic law, 124 — origin of, 24 Equivalent, economic, what is, 107, 120 Errors regarding altruism, 20 Established conditions abandoned only for improvements, l8l Establishment of free cities, 37 Evolution, distinguishing feature of industrial, 106 — implies a progressive move- ment, 306 — of social progress, causes of, 22 imperceptible, 117 — the doctrine of, 288 Exchange is the doing or giving something for something, 95 Exploitation by labor and capital — Marx, 261 — Marx's theory of, 251 Exports do not show prosperity of nations, 328 Factors in distribution, 182 Factory employers as autocrats, 422 — methods bring people into close social contact, 323 — operatives in New England, con- dition of, 355 — system, deleterious effects of, 387 phases of, 387 rise of, 56 Failure of the Hussites, 51 Fall of feudalism, 47 — Italian free cities, cause of, 40 Family — the social unit, 7 Famines and business depressions caused by opposite conditions, 383 — defined, 382 Fee-farm, letting towns in, 35 Fertility of land not a cause of rent, 224 Feudalism, a stepping-stone in social progress, 33 INDEX 449 Feudalism, birthplace of, 42 — how influenced by the increasing importance of towns, 47 — overthrown, 47 — reconstruction of, in England, 44 — social character of, 9 Feudal systems of government re- viewed, 284 decline of, 10 origin of, 33 Financial panics not necessarily business depressions, 383 First step, toward freedom, 34 Fiske, John, 3, 16, 47 Force of character necessary for advancement of society, 312 Foreign and domestic applications of protective policy, 360 relations, 437 — laborers, their ability to save discussed, 213 — manufactured imports would tend to cheap labor and lower civilization, 333 — products of low-paid labor ar- rest human progress, 333 — trade, an economic disadvantage, 329 wasteful, 326 Four facts concerning government established, 320 France the birthplace of feudalism, 42 Free cities, English, most powerful, 43 not suppressed, 44 establishment of, 37 fall of and effect upon social progress, 39 rise and social power of, 33 social power of, 38 Freedom, false notions of, 419 — of contract, meaning of the phrase, 421 the individual in trades unions considered, 418 — first step toward, 34 — political, progress of, 49 — religious, progress of, 49 Freedom and independence in op- position to each other, 310 Free-trade and protective reason- ings, 336 — promoted by protection, 360 French and American revolutions, difference between, 59 — free cities overcome by the barons, 43 Functions of the state and of indi- viduals, 314 — relegated to government by common consent, 316 George's pessimistic declaration, 227 German free cities, 42 — nobles, practically highwaymen, 41 Giffen, 265, 266, 268 Gladstone and Blaine controversy, 35° Gold and silver, double standard of 158 tabular silver, 159 — price does not always indicate labor-price, 330 Government, different forms de- fined, 296 — economic and social functions of, 294 — erroneous assumptions in re- gard to, 286 — functions of protective, judici- ary, educational and impersonal, 370 — in the middle ages, 283 — inevitable, 292 — necessary to society, 314 — should develop the highest pos- sibilities of the individual, 318 — static and dynamic functions of, 370 — the function of, 310 — the nature and function of, 295 — the science of, 285 Governments all representative, 297 Grades of land compared in relation to rent, 223 45° r/vasx. Grecians and Romans, few rich, many poor, 2g Greece, originally slavery's strong- hold, 29 Growth of American industry, 60 Guilds and their charters, 283 Guizot, quotations from, 34-36 H Hallam, 34, 37, 39, 40, 41, 44, 46, 50, 51 Higher civilization brings new de- mands, increased wages and bet- ter social life, 359 of one country a benefit to the human race, 358 — prices for commodities cause higher rates of wages, 366 — rates of wages tend to advance- ment and intelligence, 208 — wages and lower prices the re- sult of protective tariff, 348 level competition is progress- ive, 334 benefit of to the commu- nity, 368 causes low prices, 86, 436 causes high rent, 234 Historic tendency of economic progress, 10 social progress, 5 History of business depressions, 384 Hobbes' and Spencer's theories of society, 299 Home market always preferable to foreign market, 329 need of a, 325 — — the real measure of social status, 328 superior to foreign, 325 — wages and foreign markets, 327 Hours of labor reduced by labor unions, 429 How taxes should be levied, 372 Human ability is not a constituent part of wealth, 66 — invention, the most effective economic force in society, 359 — labor saved by natural forces, 76 ~ race, divisions of the, 295 Human race on the road to better estates, 439 — wants the cause of social pro- gress, 23 Hussites, failure of the, 51 Idleness, statistics of, 395 Ill-advised strikes constantly re- ferred to by labor union oppo- nents, 430 Improved machinery cheapens the cost of production, 144 • concentrates capital and makes lower prices, 241 considered in its relation to wages, 266 — methods cannot cheapen, there- fore must save labor, 229 create producer's surplus, 368 — — effect of, 229 tend to reduction to no-inter- est point, 240 Improvement in social condition of New England laborers explained, 356 — order of, 232 Inaction fatal to progress, 311 — involves destruction of human race, 286 Incentive of profit — capital exploit- ing nature, 261 Income of the family discussed in relation to its sources, 215 Increased product furnished by inventive genius, 266 — wages makes surplus possible, 437 the result of pressing de- mands of laborer, 350 Increase of population increases purchasing power, 228 prices a setback to civiliza- tion, 227 taxation for public improve- ments a positive benefit, 372 India, Ireland and Russia, 340 Indirect taxation favorable in that the burden seems less, 376 favorable to public improve- ments, 376 INDEX 451 Indirect taxation avoids dishonesty, corruption and evasion, 376 a cunning device, 373 Individual action, sphere of, 315 — capacity increases freedom, 320 — contracts fail of advantage to the laborer, 420 idea, one-sidedness of, 422 impossible, 421 — functions are personal, produc- tive, commercial or experimental, 317 — rights determined by the state, 296 — service to the state discussed, 362 Industrial barometer, 394 — centres, birthplaces of freedom and civilization, 208 — combination, lessons of history in regard to, 397 — conditions of America, 58 — • depressions, elimination of, 392 — disputes, marked improvements in methods by labor unions, 432 — evolution, distinguishing feature of, io6 — human development the policy for the future, 438 — improvement must come from elevation of laborer's standard of living, 392 — legislation, 56 — progress, primarily consists in cheapening wealth, 435 • capital the cause of, 78 distinguished from social and political, II — organization frequently proves to be a. permanent benefit, 398 ^— progress the basis of all progress, 17 — prosperity, cause of our free in stitutions, 60 — statistics of Massachusetts, 272 Industries of America, evolution of, 356 — economic selection of, 359 Infant-industry argument of pro- tectionists, 338 Inferior man may regulate condi- tions of existence, 292 Influence of towns over feudalism, 47 the wages system, 13 Injustice to the laborer treated, 265 Insurrection — Wat Tyler, 5 1 Intellect obeys the wants, 19 — the guiding element, 18 Intelligence and character of the laborer developed by trades unions, 426 Interdependence the foundation stone of human happiness, 358 — virtue of, 311 Interest and wages — Mr. Wood's theory of their relations, 187 — a positive advantage to the com- munity, 247 — and rent analagous, 237 — — wages not alike, 190 — a tax upon the consumer, 238 — a wealth-cheapening agency of civilization, 248 — economic surplus for use of cap- ital borrowed, 247 — economically identical with rent, 246 — how caused, 247 — movement of, 242 — not a part of cost, 247 — or profit, variableness of, 189 — popular theories, 237 — rent and profit, illustration of the law of, 245 . — the law of, 237 — the true theory of, 244 — • Walker's view of, 238 International competition only beneficial when approximately equal, 341 the economic basis of, 329 — trade, the principle of, 320 Investment of taxes, determined by results, 343 Italian free cities, cause of fall of, 40 45* INDEX Jacquerie and peasant war, 52 Jelly-fish period of society, 6 Jevons, 91, 158, 160, 163, 178, 179 K King, Gregory, 161, 191 L Labor, all useful, is productive, 70 — and capital, Marx's theory, 252 — high-priced lessens the cost of production, 143 — human saved by natural forces, 76 — in different countries compared, 142 — may change the cost of pro- duction, 142 — movement of, 186 — obtains a less relative share of product, 269 — organizations, sophistical oppo- sition to, 418 why should they be judged only by their mistakes, 432 — price of, determined by its own cost, 191, 203 — production, cycle of, 72 defined, 69 — relation of commodities to, 68 — rents replaced by wages, 46 — -saving machinery overcomes low-priced hand labor, 340 — the combination of, 416 — most expensive families set the price of, 205 — theory, non-productive, 69 — to value, relation of, 215 — unions and social and political freedom of the laborer have in- creased in the last fifty years, 418 • a necessity, 433 social effect of, 427 the economic counterpart of , capitalistic combination, 433 — and capital, net value of, 269 reviewed, 199 Labor and capital, table of savings, wages, profit and price, 206 capitalist combinations both unwisely and badly managed, 432 labor-power under freedom and slavery explained, 201 raw material, relation of com- pared, 256 surplus, Marx's illustrations reviewed, 255 — combinations do not tend to de- stroy laborer's freedom, 419 tend to promote economic in- crease of wages, 430 — determines cost, 140 — • division and formation of indus- trial groups make differentiation, 191 — economic condition of, 183 Laborer and product, price of, con- founded, 196 — controls the market, 148 — machine using and non-machine using, 267 — receives constantly increasing proportion of increasing product, 276 — ■ the dearer help the cheaper, 207 — will not work for less than his cost of living, 204 Laborer's advancement, the em- ployer's prosperity, 441 — condition, 270 — errors of, 288 — relation to the cost of produc- tion, 267 — right of free contract, 419 — wages not affected by instru- ments used, 197 Laboring classes not impoverished by losses in strikes or union as- sessments, 431 Laissez faire, a non-aggressive policy, 285 a retrograding principle, 290 as a public policy, 283 character of, 285 doctrine of irrational, 117 essentially unscientific, 285 impossible in society, 292 INDEX 453 Laissez faire, not a universal prin- ciple, 284 ■ origin of, 284 Land and its price-fixing increment, 19s machinery compared, 232 its cost of production dis- cussed, 220 quality and fertility, 219 — law of price in relation to, 220 owner and laborer compared, 227 — rent of under economic freedom, 221 — should not be treated as capital, 75 — tax, advantages of, 377 affects all commodities in first stage of production, 364 equitable nature of, 378 finally paid from surplus in- comes, 378 not proportionate to raw ma- terial in works of art, 379 objections answered, 379 Large capital, inability of, 405 — consumption means high-priced labor and cheap wealth, 435 — corporations, their inducements to keep prices low, 406 — investments not desirable to the capitalist, 407 — production, home markets and high wages must be the econom- ics of the future, 328 — profits in protected industries a fallacy, 350 Law, economic, defined, 116 — of economic prices, 115 individuation, 301 progress, the key to history, 3 social progress, 15 summarized, 21 Legislation, industrial, 56 Letting towns in fee-farm, 35 Living, increased cost of increases wages, 267 Lower prices by improved methods of production, 260 Low prices caused by high wages 86 — wages never cheapen wealth, 333 true remedy for, 217 Lubbock, Sir John, 6, 7 Luther's objections to Papacy, 53 M Machinery and land compared as to order of its coming into use, 232 — and methods, the most expensive fixes the price, 196 — development benefited by pro- tected cotton, 348 — improved cheapens the cost of production, 144 — relation of to wages, 144 — three facts regarding use of, 146 Magna Charta, granting of, 45 some provisions of, 38 Maintenance, in its relation to the laborer, 204 Man a unit in society, 307 — an organic aggregate in the physical world, 307 — as a social being considered, 320 — richest where each has least land, 440 — his labor the standard of values, 329 — the highest individual organism yet developed, 306 Manufacture and agriculture, com- parative savings, 212 Manufactured products, supply and demand, 103 Manufacturing industries encour- aged by national development, 321 tend to socialize environment and to supply social wants, 324 Market, relation of wages to, 144 — for production finally depends upon laborer's consumption, 391 Marx, Karl, 177, 194, 195, 238, 251, 252, 254-259, 261, 262, 277 — and Spencer's positions on struc- ture of society compared, 300 4S4 INDEX Marx's error repeated, 194 — mistaken assumptions in regard to capitalists, 258 — theory stated, 252 that rent, interest and profit are robbery, 251 Massachusetts labor bureau, statis- tics of, 264 Maximum and minimum cost of living — table, 204 McCuUoch on supply and demand, 108 Meaning of social progress, 3 Metallic currency is wealth, 163 Methods, effect of improved, 229 Middle classes, Protestantism due to the social condition of, 54 rise of, 48 wealth of increased, 48 Middlemen, are they parasites, 250 Migration of laborers tends toward high rent location^, 234 Military force involves despotism, 316 Mill and Cairnes, error of, 97 — the modernirer of Adam Smith's doctrines, 68 Mill's conflicting definition of wealth, 63 — error in regard to profits, 380 Mining operatives of Pennsylvania, condition of, 355 Misleading deductions, 271 Mistaken idea of demand, no Mistakes of Comte, 18 Modern and ancient discoveries, 87 — civilization greater than ancient, 86 — industrial influences, effect upon social condition of laborers, 357 Monetary standard, object of to obtain even bases, i6i Money and its economic function, ISO wealth, difference between explained, 151 — currency is not, 164 — definition of, 150, 153 — depreciation of, 161 Money, essential elements of, 156 — fluctuation in value causes loss to neighborhood, 155 — Francis A. Walker's definition of, 150 — Herbert Spencer's view on who should furnish it, 168 — how to adjust the quantity of, 170 — inadequacy of coin, 163 — is evidence of credit, 152 not wealth, 151 the equivalent of wealth, 152 — necessity for, 165 — panic, may reveal a business de- pression, 383 — reason why coin is necessary, 166 — value of, 156 — what should it be made of, 156 — who should furnish it, 166 Monopoly not created by tariff on cotton cloth, 346 — of the market by concentration not a new feature, 402 Morality, development of, 25 — the fruit of progress, 16 Movement of labor, 186 — — profits and wages — stable, 278 wages, rent follows, 230 Mutual dependence a promoter of freedom, 311 N National development, increased by social opportunity, 320 Nation and society, relation of in regard to development, 321 Nations are rich by what they use, 328 Natural forces save human labor, 76 — law, relates to the nature and inherent constitution of things, 289 use of the term, 289 — order of distribution, 183 of social progress, l6 — remedy for business depressions, 392 INDEX 455 Natural selection, 289 applied to the horse, 291 law of, 2go Nature and meaning of social pro- gress, 3 of wealth, 63 — and natural law, 288 — is democratic, 4 — of progress, 4 Necessary factors in production, 72 Net product, increased percentage goes for service, 274 New desires, the virtue of, 440 — employment creating conditions 229 must be created as labor-sav- ing appliances are used, 391 — law of wages according to Mr. Wood, 188 — wants create new markets, 85 No-interest capital, 240 Nominal and real wages, 202 Non-productive labor theory, 69 Non-protected industries maintain the highest wages, 351 the relation of protection to wages in, 349 No-profit capital, effect of, 406. Oil, crude and refined, table of prices 1 880-1 889, 411 Old machinery and methods yield no profit, 196 Opportunity, distinctively educa- tional in every respect, 37 1 — necessity of, 294 Order of economic distribution, 178 Organized capital objecting to or- ganized labor manifestly unjust, 423 — labor a result of organized capi- tal and the factory system, 420 enforces principles of equity, 422 — laborers most characterful and progressive, 419 Oriental countries : China, India are not progressing, 27 have small consumption, 27 Oriental countries ; many are poor, few rich, 27 Original condition of society, 5 Origin of capital. Walker's, 77 equity, 24 supply, 113 Over-production precipitates bank- ruptcy, 132 Paraiiine oil, commercial tests and prices, 412 — wax reduces price of candles in Great Britain, 413 Parsimony, mistaken praise of, 77 Paternalism and protection, 318 — a protest against, 283 — in government a substitute for individual capacity, 318 Patriarchal family, the, 8 Patriotism and national autonomy, 321 Peasant and Jacquerie war, 52 Personal freedom, origin of, 12 Petroleum extracts used for lubri- cation of machinery and cylinders, 412 — (refined) greatly improved and reduced in price by combination, 410 Phenomena subject to the law of prices classified, 115 Philosophy, ancient, effect of, 31 Physical and social phenomena compared, 2gi progress unlike, 306 — wants defined, 82 Plato's ideal republic, 299 Policy of protection not necessarily narrow and exclusive, 360 Political combinations, social clubs, and even churches sometimes badly managed, 432 — economy, divisions of, 17S — freedom, progress of, 49 — power of English Commons, 49 — ■ revolutions, 55 Poorest laborers — their relation to wages, 187 4S6 INDEX Popular education as an investment reviewed, 343 — fallacies in regard to tariff legis- lation, 336 Population, effect of on prices, 228 Possible competitors increase as combination of capital enlarges, 404 Potential competition increases as phenomena grow in complexity, 404 Practical statesmanship, principles of reviewed, 437 — ■ — the principles of, 281 Prevention of business depressions, 393 Price and surplus, distinction pointed out, 263 value are interchangeable terms, 93 relation of, 92 wages not interchangeable terms, 93 — determining point, 239 — determines the point of final utility, 186 — economic movement of, 119 — lowest is the consumer's maxi- mum, 125 — maximum determined by con- sumer, 120 — minimum determined by pro- ducer, 120 — of home products, effect of tariff upon, 342 ■ labor follows cost of produc- ing. 13s labor in different countries, I3S land, how determined, 222 tends to uniformity, 221 ■ manufactured products tends to permanently fall, 132 refined oil continues to fall under trust combination, 411 — the exact equivalent of cost, 121 Prices, actual law of, 131 — agricultural, 133 controlled by supply and de- mand, 133 — and rent, relation between, 226 Prices are regulated by supply, 102 — created by demand, 1 12 — economic, law of , 115 tendency of, 118 — formula of law of, 149 — induce supply, 112 — law of economic, 115 phenomena subject to classified, 115 — primary law of, 118 influences which modify, 128 — reduction of enlarges the mar- ket, 149 — statement of actual law of, 131 — tend to uniformity, 130 — variations in, 129 Primary law of prices, influences which modify, 128 Principles of economic production, 61 Producer, definition of, 69 — will sell from cost price upward, 125 Production and distribution, 436 price of cotton in 1830 and 1880, 347 producers, 68 — consumption the cause of, 80 — cost of cheapened by high- priced labor, 143 cheapened by the use of machinery, 144 explained, 121 governs profits, 259 may be changed by labor, 142 — increased by taxation, 369 — involves distribution, 176 — law of cost of, 138 summarized, 89 — methods of in its relation to price, 186 — necessary factors in, 72 — omitted data of, 272 — popular errors regarding the cost of, 138 — what constitutes, 175 INDEX 457 Productive combination in the order of industrial evolution, 415 — efficiency obtained only by greater specialization and concen- tration, 399 — effort, cycle of, 72 — instruments, price of using, 193 — labor, all useful labor is, 70 defined, 69 ■ various kinds of, 71 — wealth, may be accummulated with benefit to the community, 400 — wealth, socialistic ideas of, 177 use of, 177 Product and wages, ratio of profit to, 262 — price determined by what enters into it, 197 of determined at the no- interest point, 189 — value of diminishes as ratio of product to cost of labor increases, 25s Products have a price only because of the cost of manufacture, 124 Professions, result of research in and production of principles re- lating to, constitute wealth, 66 Profit a contingent remainder, 246 — and interest, similarity of, 239 — creating — Marx's misleading il- lustrations, 253 — definition of, 123 — governed by number of hands used in manufacture, 249 — how different from rent and interest, 245 — must be obtained from nature by economy of production, 380 — relatively decreased as compared with wages, 279 — relative decrease of, 275 — to product, ratio of, 269 — reviewed by Adam Smith, Ri- cardo, and Mill, 249 — the law of, 249 — Walker's view of, 238 Profits and surplus are drawn from nature, 398 — do not tend to uniformity, 192 Profits, origin and explanation of, 126 — tend to absorb a diminishing proportion of consumable wealth, 268 — to wages, ratio of, 278 — ultimate effect of taxation upon, 367 Progress causes specialization of labor and union of capital, 12 — delayed by fall of free cities, 39 — in society increases complexity, 320 two phases of, 434 — its course shown by the develop- ment of the family as a social unit, 7 education of the middle classes and the factory system, 10 feudal system, 8 first condition of man, 6 increase of free towns and personal rights, 9 — morality the result of, 16 — nature of, 4 — not apparent where cereals are the staple articles of diet, 28 — of political freedom, 49 religious freedom, 49 — social, evolution of impercep- tible, 117 — tendency of in society, 10 — what it consists of, 4 Property and income tax, 375 — tax, 363 Prosperity and safety depend upon industrial and social welfare of laboring classes, 435 Protected industries tend to raise wages in non-protected industries, 35° Protection and education the duty of the state, 319 free trade policies of various countries compared, 337 — influence of in advanced coun- tries upon progress of less ad- vanced, 357 4S8 INDEX Protection necessary against lower wage and civilization countries, 338 in industrially weak countries, 338 — of home market a. socializing influence, 348 will it increase socializ- ing industries, 325 — principle of, as ministering to human welfare, 325 — required in higher wage coun- tries, 339 — tends ultimately to make free trade possible, 360 Protective policy, the individual opportunity, 319 — principle applied, 361 — tariff as Perry regards it, 342 does not directly affect wages, 3S2 permanent economic influ- ence of, 344 Protestantism due to the social condition of the middle classes, 54 & — growth of, 54 Public and private functions of society defined, 317 — expenditvires, legitimate sphere of, 370 — highways in their relation to the state, 317 — policy, basis of, 312 character of should be judged by permanent and ultimate influ- ences, 357 economic and social wisdom of, 324 — revenue, ability to contribute measured by surplus income, 364 expended in dynamic func- tions tends to decrease expendi- ture in static functions, 371 Purchase and sale — rule governing, 130 Purchasing power of wages, 264 Quality and not quantity of labor regulates compensation, 136 R Rate of wages, the true basis of comparison, 271 controlled by complex social conditions, 353 Ratio of wages to profits, 277 • product implies in- creased profits — a mistake, 271 Real and nominal wages, 202 — cause of business depressions, 386 — estate tax easiest and most inex- pensive to collect, 377 secures the greatest indi- rection, 377 Reasons why dealers sell below cost, 129 Reconstruction of feudalism in England, 44 Reducing the supply, effect of, 424 Reformation, social character of, S3 Reforms, social, 57 Relation of demand to supply, 109 wages, rent and profit to labor, land and capital, 197 Relations of society, general eco- nomic principles, 434 the state to the individual, 298 Religious freedom, progress of, 49 Relative increase of wages, 276 Remuneration has increased gen- erally, 265 Rent and interest, differentiated portions of profit, 246 no-rent increment in deter- mining values, 19S prices, relation between, 226 — definition of, 218 — economic basis of, 227 surplus, 219 — effect of abolishing, 235 — highest in most civilized coun- tries, 234 — influences governing price the cause of, 225 — its law and cause, 218 — not paid before wages, 231 INDEX 459 Rent, net surplus of, in its relation to production, 193 — question summarized, 236 — Ricardian definition of, 221 — surplus, price and wages table, 233 — the cause of, 222, 225 — to wages, economic relation of, 233 — the law of, 219 — interest and profit, 244 made necessary by dif- ent ownership, 244 profits all from the same source, 245 Representation incomplete even in democratic America, 298 Residual theory, fallacy of, 180 Result of social progress on com- mercial law and transactions, 26 Revolt of the towns, 36 Revolutions, political, 55 Ricardian-Marx theory inadequate, 261 Ricardo, quotation from, 141 Ricardo's theory of rent, 221 values, 256 criticized, 141 Right to vote extended to the labor- ing classes, 57 Rise of the wage system, 46 Rodbertus' comparisons of profit and wages, 250 — theory of diminishing wages, 262 Romans and Grecians, few rich, many poor, 29 Roman empire, extent of slavery in, 30 s Salaries, evolution of, 273 Savings, agriculture unfavorable to, 212 — and wages — table, 204 — bank statistics, 210 — deposits a supposed gauge of high wages, 209 worthless for comparison of wages, 210 Savings, England and America compared, 213 — the source of, 211 Science, economic, the phenomena with which it deals, 117 Scientific application of protective principles the true function of statesmanship, 361 — law, condition of in regard to labor and surplus, 257 of wages, 200 — selection promotes progress, 291 — statesmanship, 286 — • — must be substituted for igno- rant authority, 294 Selection, natural and human, 290 Self-improvement the first step toward the advancement of others, 358 Self-interest as a cause of rent, 224 — ignorance of, 287 — a universal principle, 286 Selling price, uniformity of, 259 Service, other costs, depreciation and profit table, 276 — subject to the law of prices, 115 Silver and gold, tabular standard, 159 double standard of, 158 Simple phenomena misleading, 139 Slavery, extent of in Roman em- pire, 30 — prevalent in Greece, 29 Social advancement, tends to higher wages, 208 — aggregate has no attributes of conscious entity, 304 — and political progress distin- guished from industrial, 1 1 — character of feudalism, 9 • — the Reformation, 53 — condition of America and its effect upon other countries, 357 — development and high wages of labor rebound to advantage of employer, 389 — economics, applied, 281 principles of, reviewed, 434 — forces only raise wages, 354 460 INDEX Social habits make the cost of living, 211 — inferiority of the laboring classes, 292 — institutions of the laborer, 425 — intercourse for the laborer first furnished by the tavern, 426 Socialism encouraged by the un- economic conduct of the capital- ist class, 415 — in its relation to rent, interest and profit, 251 — promoted by the errors of English economists, 319 Socialistic theories, orthodox eco- nomics responsible for, 249 Socializing effect of the wages sys- tem, 13 Social isolation impossible in man- ufacturing industries, 323 — moral and financial advantages gained by strikes, 431 — movement, initial point of, 312 — necessities of the laborer involve social conflict if not satisfied, 428 — opportunity, what it implies, 321 — organism an active contracting personality — Clark, 308 discussed by Mr. Spencer, 301 theory, 300 — power of free cities, 38 — problem, solution of, 438 — progress arrested by domination of the inferior, 292 cause of, 22 develops the units, 306 effect of fall of free cities on, 39 elements of, 15 feudalism a stepping-stone in, 33 first element in is the mate- rial, 17 greatest under factory and capitalistic regime, 386 imperceptible evolution, 117 law of, 15 law of, summarized, 21 natural order of, 16 Social progress, nature and mean- ing of, 3 opposed by obstructionists, 372 principles of, reviewed, 434 tendency of, 5 the arts and sciences on, 19 the elements in, 15 — reforms, 57 — standard and money cost com- pared, 216 — superiority makes protection necessary, 339 — tax, is rent a, 230 — unit, the family, 7 — wants defined, 82 promote manufacture, 83 — welfare advanced by high wages and low prices, 236 Society and association of individ- uals, 308 living bodies, 302 — as an entity, 309 presented by Professor Clark, 308 — definition of, 5, 295 — Greek idea of, 299 — jelly-fish period of, 6 — makes intercourse and mutual dependence certain, 321 — most truly represented by the laboring classes, 438 — not an organism, 305 — original condition of, 5 — Spencer's theory of, 301 — systematized environment of as- sociated individuals, 305 — tends to increase conscious con- trol of parts over the aggregate, 30s Source of personal freedom, 12 Spanish, free cities, 40 — religious wars, 39 Specialization of effort, 24 labor diminishes demand for skilled laborers, 387 Spencer's error in regard to socie- ties and living organisms, 304 — postulates on society, 303 INDEX 461 Spencer unwittingly socialistic, 307 Specialistic tendencies of the fac- tory system, 386 Spread of Protestantism, 54 Standard of living, the rule of wages, 207 Standard Oil Trust considered, 410 its effect on civilization in Russia, 413 profits made entirely from former waste material, 413 State action, disadvantage of, 313 sphere of, 316 the dividing line important, 314 — and individual authority, proper sphere of, 315 — definition of the, 295 — functions are protective, judici- ary, educational and impersonal, 317 — socialism the result of Spencer's theory, 307 — the authoritative expression of society, 296 Statesmanship, opposite theories of, 299 — the controlling principle in, 310 Stimulation of desires the first eco- nomic duty, 440 Strikes and corners, 424 — are corners in the labor market, 25 — as frequent in protected as un- protected industries, 350 — diminish as labor organizations increase, 428 — gain and loss by, 431 — though unsuccessful, often worth more than they cost educationally, 43« — why the highest paid laborers cause, 214 Successful strikes a permanent gain, 431 Sulphuric acid manufactured from petroleum by Standard Oil Trust, 413 Sumner and Perry on cheap foreign labor, 331 Superior methods of production l^nefit the community, 260 Supply and demand, agricultural products, 102 doctrine of, 100 does not regulate wages, 106 Gregory King's observa- tions, lOI in its relation to wages, 18S manufactured products, 103 not the law of economic prices, 100 quotation from McCuUoch on, 108 relation of, 109 ratio between, not the basis of economic prices, 108 — ■ caused by demand, ill — depends on the price, 114 — follows demand, III — induced by prices, 112 — origin of, 1 13 — regulates prices, 102 Surplus, capitalists' method of pro- curing, according to Marx, 252 — described, 198 — governs the law of rent, 222 — how replenished, 368 — income best means of taxation, 363 — incomes, how determined, 194 — most advanced laborer and poor- est capitalist have none, 207 — or no rent, 232 — theory of, by Marx broken down, 256 — value fallacy, 254 Survival of the unfit, 291 Table of comparisons of the cotton industry, 347 cost, profit and price by six manufacturers, 259 percentages, wages, salaries and product, 275 Tariff makes readjustment on higher wage - plane necessary, 34S 462 INDEX Tariff policy benefits the whole community, 349 — preventing home products being undersold not a tax upon con- sumer, 344 — prevents wasteful readjustment on lower wage-plane, 345 — promotes growth of manufactur- ing industries, 344 — and profits, 344 — superficial objections to, 342 Tavern one of the early instruments of social progress, 426 Taxation, abolishment of would cause industrial depression, 370 — a perplexing problem, 313 — consumption of wealth in public form, 381 — direct and indirect, 372 — importance of, exaggerated, 370 — like wages, simply a form of consumption, 369 — not necessarily an evil, 370 — question of much less funda- mental than usually made to ap- pear, 381 — ultimate effect upon general wealth of the community, 367 Taxes and commodities relatively compared, 342 — are investments, 343 — drawn from the surplus, 367 — economic mobility of, and their relation to wages, 364 — how can they be equitably levied, paid and collected, 372 obtain greatest indirectness and least cost of collection, 377 to be drawn from economic surplus, 364 — necessarily an evil an erroneous assumption, 373 — should be based upon individual ability, 363 — social development its only jus- tification, 370 — tend to increase as society ad- vances, 367 — the employer's position in re- gard to, 366 shifting process from one to another explained, 369 Taxes, to wages, relation of, 365 — transferred from the laborer to the employer, 366 — what should they be levied upon, 372 Tax on raw material, its effect upop the finished product, 379 — upon commodities paid by the consumer, 364 — — objects of art enters mainly through the labor, 379 Tendency of economic prices, 1 1 8 — — the arts and sciences on social progress, 19 The higher needs protection against the lower, a general principle, 339 The nation is social, 322 the people, 322 The state as a factor in civilization, 310 The true ideal, 440 Theory of Marx on capital and labor, 252 surplus, cause of Marx's er- ror, 256 wages, 184 wages — Prof. Clark and Hen- ry George coincident, 193 Towns, influence of, over feudal- ism, 47 — the revolt of, 36 Trades unions and wages, 423 are essentially economic in- stitutions, 428 as an educational institution, 426 form a preparatory social op- portunity for the laborer, 429 objected to as being uneco- nomic, 423 objections to, 417 take the place of the tavern, 426 Transportation, cost of, considered, 27s — improved methods caused by in- creased consumption, 230 — of oil by pipe line — effect on prices, 410 Trusts for productive purposes not to be compared with corners, 414 INDEX 463 Trusts, effect of, on prices, 409 — syndicates, and corporate com- binations alarm the people, 397 Two functions of government, 371 u Underselling, establishes the meth- ods of success, 191 Uneconomic production, 334 Uniformity in hours and wages necessary under the factory sys- tem, 421 Unremunerative capital the menace of large combinations, 406 Unscientific interference may be worse than laissez faire, 289 Use of productive wealth, 177. Utility, meaning of, explained, 91 — relation of to value, 91 Utilizing waste, effect of, 412 Valuable commodities manufact- ured from material previously wasted, 412 Value and price are interchangeable terms, 93 relation of, 92 — is not wealth, go the relation of things to men, 95 ' - its three necessary elements, 92 — meaning of explained, 92 — relation of to utility, 91 — and product compared, 264 — the ratio of exchange, 156 Variation in labor in different sec- tions of the world, 143 Variations in prices, 129 Various kinds of productive labor, 71 Vote, right to, extended to the la- boring classes, 57 w Wages, actual rise of, 279 — a definite, not a contingent in- come, 202 Wages and price not interchange- able terms, 93 prices from 1752, 264 profit compared, 250 profits — three important facts, 262 purchasing power, table of percentages, 408 — cost of living the basis of, 204 — depend upon social character of laboring classes, 216 — determined by conditions affect- ing character and cost of laborer, 267 what the laborer is, 268 — differences between Marx and Wood, 188 — do they equal interest, if so what is the result, 188 — economic law of, 200 — general rate of in different coun- tries, 191, 208 — how affected by tariff, 353 — labor rents superseded by, 46 — must rise as surplus increases, 23s — not regulated by supply and de- mand, 106 — Prof. Clark's theory, 192. — regulated by cost of living, »36 — relation of to economic distribu- tion, 179 — relation of to machinery, 144 — relation to the market, 144 — rise of, promotes the use of cap- ital, 148 — should they rise in proportion to product, 266 — system, influence of, 13 — system, rise of, 46 — tending toward greater diver- sity, 187 — the chief problem in connection with distribution of wealth, 436 — the law of, 200 — theory of, 184 — the price of labor, 201, 235 term and its meaning, 200 Wage-earners, savings banks de- posits of, 209 464 INDEX Walker's origin of capital, 77 — definition of wealth, 64 — support of the Ricardian theory of rent, 223 Wants classified, 82 War, the Jacquerie and Peasant, 52 Wat Tyler insurrection, 51 Wealth, advancement of social wel- fare depends on cheapening of, 117 — and freedom the important fac- tors in society, 310 its relation to man, 199 the law of its production, 63 — essential elements of, 65 — and money, difference between explained, 151 value distinguished, go — author's definition, 67 — cannot be cheapened if not re- ducing cost of production without diminishing wages, 335 — consumable, use of, 178 — distribution of inseparable from production, 175 — economic distribution, facts con- cerning, 178 — for all is cheaper than poverty, 441 — how it exists, 74 — human ability does not consti- tute, 66 — may be money, 151 Wealth, metallic currency is, 163 — Mill's conflicting definition of, 63 — nature and meaning of, 63 — of middle classes increased, 48 — only cheapened by reducing price of commodities relatively to wages, 333 — Perry's substitution of property for, 64 — principal divisions of, 175 — productive use of, 177 — result of research in and produc- tion of principles relating to the professions, constitutes, 66 — subject to the law of prices, 115 — superficial reasoning in relation to, 336 — two kinds of, 399 — Walker's definition of, 64 Wheat, cost of reduced by use of capital, 225 Where cereals are staple articles of diet progress is not apparent, 28 WiclifTs doctrines, effect of, 50 Wittenberg, Luther's ninety-five objections posted, 53 Wood, Dr. Stuart, theory of wages, 184 Wood's mistaken theory, 146 Women, the wages of, 20S Workingmen's homes, should they be taxed, 375 WEALTH AND PROGRESS. A CRITICAL EXAMINATION OF THE LABOR PROBLEM. BY GEORGE GUNTON. 12M0, 400 PAGES. PAPER, 50 CENTS; CLOTH, *t.OO. OPINIONS OF THE PRESS. "Mr. Gunton has written one of the ablest works on a question of vast interest which has issued from the press in many years." — Chicago Times. "It is a plain, practical, common-sense view by a sensible American, where every point is argued and a plain reason given for its adoption." — Chicago Inter-Ocean. " The book is one of infinite suggestion and also of practical value." — Boston Traveller. " No one can rise from the reading of ' Wealth and Progress ' without the profound conviction that it contains the first attempt ever made to put the claim for an eight-hour system on a truly economic and scientific basis." — New York Star, " Mr. Gunton's work may be declared without hesitation to be the most notable contribution to the science since Walker's ' Wages Question.' " — Po- litical Science Quarterly. " The book contains a great deal of good sense, especially in its criticism of the one-sided views of the standard economical teachers." — New York Sun. " The book contains an immense amount of exact information regarding all branches of the subject, and will be valuable as a book of reference to all students of the economical question. " — New York World. " Mr. Gunton has performed his task in a brilliant and masterly manner, and with a logical clearness and accuracy in argument that leaves scarcely a question of the truth and soundness of the position he has taken. The book is in many respects the most important, most thorough, and most satisfying that has been added to the literature of the subject." — Boston Evening Gazette. " The author is very thorough, and contributes much valuable thought to the subject. " — Brooklyn Eagle. "The author presents a picture of the "social crisis,' and develops his theory by historical illustration and demonstration. His presentation is fas- cinating and skilful." — Boston Journal. " It is at once philosophic and eminently practical. It announces the natural laws which lie at the basis of the labor problem, elucidates them by historical data, and enforces their soundness with a logical cogency that carries conviction." — Eastern Argus (Portland. Me.).. " Mr. Gunton is the latest comer in the field, and he performs the job that he undertakes. We have never seen a neater piece of refutation than that to be found between pages sixty and seventy, wherein the George theory is particularly analyzed." — Journal of Commerce (New York). "The practical experience of Mr. Gunton gives particular interest and value to his book, which in manner and matter would do honor to the most practised writer." — Commercial Advertiser (New York). " It is the most thorough and comprehensive treatment of the labor ques- tion ever presented. " — Pater son Labor Standard. ' ' The book is conspicuous for its close backing of all theory by practical demonstration." — North American Review. " His book is the work of a sincere man and careful thinker, and deserves wide reading." — Boston Post. "If any one cares to know what makes for human progress in the field of economics, here is the book of all books which America has ever produced. " — The Public (Abington, Mass.). "We commend Mr. Gunton's book as a calm and instructive argument, which is entitled to serious consideration, and he deserves the thanks of all sound economists." — The American (Philadelphia). "Mr. George Gunton has done a real service in publishing his 'Wealth and Progress.' It is refreshing to read the utterances of a man whose tal- ents and studies have fitted him for the work he has undertaken." — Boston Advertiser. " If the arguments in this book could be taught in every high-school and college in the land, we might hope for a speedy settlement of the trouble- some and knotty problems of the day." — Public Opinion (Washington, D. €.). " It is the most noteworthy of recent American contributions to the eco- nomics of the labor problem. It will at once give its author an assured standing as a political economist." — Chicago Dial. " It contains much originality of thought, boldly asserted and consistently maintained, and is presented in such pleasant and attractive form that much of it possesses the interest of a novel." — Pall River News (Mass.). "We are impressed with the thoroughness of the author's investigation and the strength of his argument, no less than by the clearness and vigor of his style." — Christian Advocate. ' ' The argument of Mr. Gunton is supported by many facts well calculated to prove his theory." — -Chicago Herald. "It is a very remarkable book, and at the outset it will be very highly appreciated by those best versed in economic science." — Sunday Tribune (Minn.). " ' Wealth and Progess ' is a handsome contribution to the science of eco- nomics which is sure to command attention."— iV^w Orleans States. " It is a contribution to economical literature of marked value." — Scien- tific Arena. "Mr. Gunton has brought to his task a large practical experience with industrial affairs, extended observation both in Europe and America, and clsse study of economic questions." — San Francisco Bulletin. " The book is well written, and, while wholly opposed to socialism or the vagaries of Henry George's school, is yet strongly in the interest of the laboring classes." — San Francisco Call. " It is one of the most comprehensive discussions of the labor question of the day." — Buffalo Advertiser. " The subject is treated in a masterly manner, and will not fail to instruct and profit those who are interested in that all important theme. — New Bed- ford Standard (Mass.). ' ' We have in this volume the last contribution of science to the science of political economy, and, as it seems to us, the most valuable." — Daily Herald (Omaha). " The present volume is clearly written, and is, to our mind, one of the ablest contributions which has of late been made upon the vexed subject." — Buffalo Times. ' ' ' Wealth and Progress 'is a book designed to mark a new era in the history of political economy." — Commonwealth (Boston, Mass.). " The author makes an exhaustive and able presentation of the subject, and his work is entitled to serious consideration." — Syracuse Journal, ' ' The book contains a large mass of valuable statistical information, and should be in the library of every student of the social problem." — Labor Leader (Boston). " The author has produced a decidedly readable and suggestive work, giving good proof that political economy has become a study of prominent interest. He is no visionary socialist, but builds his propositions on facts and sound common-sense." — The Moravian. ' ' It will be readily admitted that he has in this volume made a valuable contribution to the discussion of one of the burning questions of the day. " — Washington Post. "We may fully commend it as presenting many aspects of the great ques- tion with remarkable force." — Hartford Courant. "By none could such ■-- work have been written but by a master of eco- nomic science, a thorough reader of statistics, a lucid and comprehensive thinker." — Catholic Quarterly Review. ' ' ' Wealth and Progress ' will in time effect a revolution in what is known as political economy." — Record and Guide (New York). ENGLISH NOTICES. "Mr. Gunton is known in the United States as a hard student of eco- nomic questions, and as a writer of high ability. That character is fully borne up by his volume ' Wealth and Progress.' " — The Scotsman. " Mr. Gunton throws fresh light on a much-discussed subject, and we cor- dially recommend his book to our readers. " — Belfast Northern Whig. " The work contains immense and laborious research, and is entitled to a thoughtful perusal and unqualified respect. " — Liverpool Post. ' ' Mr. Gunton's book is a very important contribution to economic science, and deserves the most earnest consideration from all classes in the commu- nity." — Literary World (London). ' ' ' Wealth and Progress ' is certainly a work of great suggestiveness and usefulness. The practical value of its conclusion is undeniable. Its theory goes beyond explanation, and guides action — giving, indeed, a new scien- tific sanction to schemes of social amelioration hitherto taken in a spirit of vague philanthropy. He has gone far to achieve what economists and so- cialists alike have failed to do. He has developed a theory of wages in harmony with the social instincts and tendencies of to-day." — Scottish Leader. ' ' The performance leaves little to be desired for clearness of statement or for aptness of illustration." — St. James's Gazette (London). " The idea is presented with clearness, and the arguments in its favor, as well as some of the objections to its practical workings, are ably stated." — Morning Post (London). ' ' The importance of the question, the ability, earnestness, and experi- ence of industrial affairs which Mr. Gunton brings to the study of a difficult problem, entitle his work to respectful consideration. Mr. Gunton's book is very welcome, as it enforces from an economical point of view the great importance which must be attached to character." — Charity Organization Review (London). " Mr. Gunton's book is written with great clearness and force of style and thought, and attacks two of the most long-standing doctrines in Political Economy — the doctrine of the wages-fund, and the determination of wages by supply and demand."— The Spectator (London). Eor sale by booksellers ; or will be sent by mail, postage-paidy on receipt of the price, one dollar. D. APPLETON & Co. MACMILLAN & Co. I, 3 & 5 Bond St., New York London, Eng.