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 L 
 
THE 
 
 ELEMENTS 
 
 OF 
 
 POLITICAL ECONOMY. 
 
 BY 
 
 FRANCIS WAYLAND, D.D., 
 
 LATB PRESIDENT OF BROWN ITNIVERSITT. 
 
 RECAST BY 
 
 AAEON L. CHAPIN, D.D.. 
 
 PBEBIDENT OF BELOIT OOIXKOX 
 
 f 
 
 ^-^K^YoTcoiyeJ^ 
 
 f» ':»•■> 
 
 :>F wASHm^il^- 
 
 NEW YORK: 
 
 SEEL DON & COMPANY, 
 
 8 Murray Street. 
 
 1885. 
 
DR. FRANCIS WAYLAND'S TEXT-BOOKS. 
 
 SaORAl^ SCIENCE, t vol. 12mo. Bevised Just before the author** 
 
 dea th . 
 MORAL, SCIENCE, 1 vol. ISmo. Abridged by the author and 
 
 adapted to schools and academies. 
 INTELLECTUAlj raiLOSOril Y, J vol. 12rno. Revised just 
 
 before the author's death. 
 POLITICAL ECONOMY, 1 vol. 12mo. Revised by A. L. Chapin, 
 
 in 187 S. 
 POLITICAL ECONOMY, ISmo. Ahridycd by the author and 
 
 adapted to schools and academies. 
 
 As an educator, no man in this country ever stood higher than Dr. Way- 
 land. These books were built up from his work in the class-room, and are, 
 therefore, adapted to meet the wants of both teacher and scholar. Thoy are 
 aow used in most of the leading schools and colleges in t ne country. 
 
 CtomnoHT, 1878, bt Sheldon & CowPAjsr 
 
r^R. WATLAN'D'S work on Political Economy wae 
 -■-^ the first attempt in mir country to present the 
 principles of that science in the form of a text-book of 
 instruction. His aim was to put into simple statement 
 under a natural and methodical arrangement, the doc- 
 trines of Adam Smith, Say and Ricardo, who were in 
 his day, as they still continue to be, leading authorities 
 on the subject. To the public generally the whole sub- 
 ject was new. Dr. Wayland therefore used abundaflt 
 illustration and frequent repetition in this introduction 
 of the science to youth and practical business men. His 
 effort was attended with remarkable success, and no 
 other text-book on the subject has gained such general 
 acceptance and been so extensively and continuously 
 used. 
 
 But the forty years that have elapsed since Dr. Way. 
 land finished his work, have been years of wonderful 
 activity and enterprise in all departments of productive 
 industry and trade. Many practical problems of Politi- 
 cal Economy have thus come to be studied in a new light 
 and have elicited discussions earnest and profound from 
 
U PREFACE. 
 
 philosophers, statesmen, and practical manufacturers and 
 merchants. The science itself has made progress, and its 
 elementary principles ha^^e become more or less familiar 
 and are readily apprehended by all. Special treatises on 
 Capital, Labor and Wages, Money and Currency, Taxa- 
 tion, Free Trade, etc., have thrown much light on the 
 complicated problems which concern the development 
 and distribution of wealth. While these things have 
 caused little change in the real elements of the science as 
 presented by our author, they demand that as a text-book 
 of instruction adapted to our times, his work should be 
 very considerably modified. 
 
 Some months ago, the present publishers of Dr. 
 Wayland's book requested the writer to make a revision 
 of that work. Fully believing that the doctrines and 
 the general aim and methods of that eminent instructor 
 on this subject were sound and wise, and that the press- 
 ing want of the class-room in our institutions of higher 
 education, was not fully met by any one of the excellent 
 treatises before the public, he consented and assumed the 
 undertaking. It was soon found, however, that a mere 
 revision of the hook would not accomplish the desired 
 object. Comparatively few pages of the original work 
 could be used as they stood. In the result, while scarcely 
 any change has been made in the opinions presented, the 
 arrangement and the forms of statement have been quite 
 iTcnerally recast with considerable condensation and maujf 
 needed additions. 
 
t*&BFAO£:. Ill 
 
 In the prosecution of his work, the writer has had 
 chiefly in mind the wants of the class-room as suggested 
 by an experience of many years in the instruction of 
 tjuccessive classes in college. His aim has been to give 
 in full and proportioned, yet clear and compact statement 
 the elements of this important branch of science, in their 
 latest aspects and applications. In thus recasting the 
 treatise, he has followed his habit before his own classes, 
 and drawn freely from various writers, sometimes in 
 formal quotations, but oftener by catching apt thoughts 
 and happy expressions as they might serve his purpose. 
 The writings of McCulloch, Mill, Fawcett, Thornton, 
 Jevons, and Brassey, of England, and those of Bowen, 
 Perry, Carey, Thompson, A. Walker, F. A. Walker, 
 Sumner, and D. A. Wells, of our own country, have 
 been thus freely referred to and drawn upon. 
 
 The work in its present form is offered to the public, 
 not as an original contribution to the science treated of, 
 but as a compilation of well defined principles of the 
 science, which, in the writer's view, are to be accepted 
 as sound and true. On some disputed topics, positive 
 opinions are expressed, with due respect for the sincerity 
 of those who may think differently, but in the strong 
 conviction that they will stand the test both of philosophy 
 
 and of practical experience. 
 
 A. L. 0. 
 
 BiLoiT CoLUceK, U<urch 1, 1878. 
 
CHAPTER I. 
 Preliminary Observations. 
 
 Pi CM 
 
 Origin and Definition of Political Economy 8 
 
 Fundamental Laws 4 
 
 1. Men's Desires and Nature's Resources. 2. Labor neces- 
 sary. 3. Labor estaullslies tlie Rigiit of Property. 4, The 
 Right of I^roperty brings the Possibility of Exchange. 
 
 Materials of the Science (J 
 
 Motive to eflFort, — Conflicting desires - 7 
 
 CHAPTER II. 
 Definitions and Divisions. 
 
 Wealth, — Errors respecting it 8 
 
 1. Not identical with Money. 2. Does not include human 
 beings and capacities. 3. Evidences of debt no part of 
 general wealth. 4. Includes some things not tangible 
 and durable. 
 
 Sources of Wealth — Original — Secondary 10 
 
 How Wealth is increased 11 
 
 Value, — its strict definition 11 
 
 Distinct from Price, and from Utility. 
 
 Limits of Value — Utility — Cost 13 
 
 Law of Supply and Demand — Monopolies 14 
 
 The Practical End of the Science 15 
 
 Ub four leading Divisions 15 
 
▼UJ CONTENTS. 
 
 FII\^ST DIVISION. 
 
 CHAPTER Iir. 
 Production. 
 
 Its Elements — Nature's Gifts — Human Labor 17 
 
 Threefold Subdivision . . , , 18 
 
 Labor — Capital — The Cooperation of these two forces. 
 
 CHAPTER IV. 
 Labor. 
 
 Definition — A Measure of Value 19 
 
 Kinds of Labor. 1. Physical labor. 2. Mental labor 20 
 
 What Physical labor does 20 
 
 What Mental labor does directly 21 
 
 1. Discovery. 2, Invention. 3. Oversight. 
 
 Labor indirectly concerned in production. 24 
 
 Labor as Productive or Unproductive , 25 
 
 This distinction discarded. 
 
 Changes effected by Labor 26 
 
 1. Transmutation. 2. Transformation. 3. Transportation. 
 
 Their Relation to each other 28 
 
 CHAPTER V. 
 
 Means for Increasing the Effectiveness of 
 Human Labor. 
 
 Natural Agents defined 32 
 
 Agents which create Momentum 35 
 
 Animate Agents 35 
 
 Inanimate Agents 30 
 
 1. Gunpowder, Dynamite. 2. Wind. 3. Water-power. 
 4. Steam. 
 
 A.dvantages of Inanimate over Animate Agents 4C 
 
 1. Amount of Momentum. 2. Continuity. 3. Economy. 
 4. Personal Safety. 5. Freedom from Pain. 6. Increased 
 Velocity. 
 
COKTE:NtS. 11 
 
 PAGE 
 
 Agents by wliich Momentum is applied ^ Aii 
 
 Effects produced 45 
 
 1. Change of Direction. 2. Power for Velocity. 3. 
 Power concentrated. 4. Delicate operations. 5. Power 
 accumulated. 6. Sudden force made continuous. 
 ix)rd Jeffrey's description of the Steam-engine 47 
 
 CHAPTER VI. 
 Division of Labor. 
 
 The Principle — how illustrated 48 
 
 Essential to Civilization 49 
 
 The Principle implies two things 51 
 
 1. Analysis. 2. Distribution of parts. 
 
 Advantages of Division of Labor. 51 
 
 1. Shortens apprenticeship, 3. Saves time in changing 
 operations. 3. Saves time in adjusting tools. 4. In- 
 creases skill. 5. Suggests inventions. 6. Employs di- 
 verse capacities. 
 
 Application to Intellectual Labor 56 
 
 CHAPTER YII. 
 liimitations to Division of Labor. 
 
 Four Restrictions 68 
 
 1. The Nature of the Process. 2. Deficiency of Capital. 
 
 3. Limited demand — Circumstances affecting demand. 
 a. Number of Consumers, b. Wealth of people, c. 
 Cost of the article, d. Facilities of Transportation. 
 
 4. Limits of Executive Capacity. 
 
 Evils incident to Division of Labor 64 
 
 1. Danger to Health. 2. Contraction of Mind, 3. Loss 
 of Independence. 4. Combinations. 
 
 International Division of Labor 66 
 
 Conditions of increase of Wealth j 71 
 
 1. Understanding Nature's Laws. 2. Means of applying 
 them. 3. Adjustment of Labor, 4, Regard to local Re 
 0oarees. 
 
X CONTENTS. 
 
 CHAPTER VIII. 
 Capital. 
 
 FAfiX 
 
 Definition of Capital Ti 
 
 Not identical with wealth — Not synonymous with Money. 
 
 In Oiigin, the fruit of past labor saved 74 
 
 Forms of Capital 76 
 
 1. Materials. 2. Implements and Machinery. 3. Means 
 of Sustenance. 4. Finished products. 
 
 Consumption of Capital 79 
 
 Destruction necessary to production of value. 
 
 Productive and Unproductive Capital 81 
 
 This distinction discarded. 
 
 Fixed and Circulating Capital 83 
 
 The line of distinction not absolute. The tendency to 
 turn circulating into fixed capital involves two dangers — 
 1. That of over-production. 2. That of too sudden ab- 
 sorption of available means. Money to be classed as 
 fixed capital. 
 
 CHAPTER IX. 
 Co-operation of Iiabor and Capital. 
 
 Labor and Capital true Partners 88 
 
 Most harmoniously united in one person 89 
 
 Reasons why this cannot be universal 90 
 
 1. Capital tends to rapid increase. 2. Men have diverse 
 capacities and tastes. 3. Large establishments necessary 
 to some forms of production. 
 C<iiiditions which favor the Union of Labor and Capital .... U? 
 1. General distribution of capital. 2. Ratio of capital to 
 number of laborers. 3. Assurance of just reward to 
 each. This depends on a. Division of property, b. 
 Just laws. c. Unrestricted freedom. 4. Intellectual 
 and Moral culture. 
 Combinations and Co-operative Associations IIG 
 
OOKTBKIS. 
 
 SECOND DIVISION. 
 
 OHAPIER X, 
 Consumption. 
 
 The Natare of Consumption 112 
 
 Forms of Consumption , , . . , 114 
 
 1. May be of labor or of capital. 2. Voluntary or In- 
 voluntary. 3. Rapid or gradual. 
 
 Objects of Consumption 116 
 
 Consumption for Reproduction 117 
 
 Economic rules for capital. 
 
 a. For a given result, use as little as possible, b. Use 
 capital of no greater value than necessary, c. Con- 
 sume every utility of a substance — all the fragments 
 — all the values. 
 
 Economic rules for labor 130 
 
 a. Employ no more labor than is needed, b. Employ 
 labor of no higher price than is necessary, c. See la- 
 bor paid for, performed. This requires superintend- 
 ence, regularity and proper tools. 
 
 Consumption for Gratification 135 
 
 Kinds of Gratification, a. Those which sustain health 
 and life. b. Those which delight sense and taste, c. 
 Intellectual gratifications, d. Social gratifications. 
 e. Moral gratifications. 
 
 Economy in gratifications 138 
 
 Household economy — Economy of Intellectual and Moral 
 Gratifications 
 
 CHAPTER XL 
 Public Consumption. 
 
 ItB Nature 186 
 
 Means provided by Taxati<m 136 
 
Hi CONTENTS. 
 
 Pn rpr.Ros to which it is applied 189 
 
 1. For support of Government. 2. For works of public 
 advantage. 3. To advance science and diffuse intelli- 
 gence. 4. For popular education — How far should the 
 State provide higher education ? 5. For the care of the 
 insane, the blind, the deaf,^ etc. 6. For the Relief of 
 Poverty. 7. For the Nation's Defence. 
 The Scale and Agents of National Expenditure 15C 
 
 THII\D DIVISION. 
 
 CHAPTER XII. 
 Distribution. 
 
 The Scope and Definition of this Division 151 
 
 The Parties to be recognized 152 
 
 Laborers — Owners of Capital — The Government. 
 Sub-divisions 153 
 
 CHAPTER XIII. 
 The Remuneration of Labor. 
 
 Terms used — Wages — Salaries — Fees .... 154 
 
 Distinction of Nominal and Real Wages .... 156 
 
 The difference caused by, 1. Fluctuations in purchasing 
 power of money. 2. Forms of payment. 3. Regularity 
 of employment. 4. Duration of power to labor. 
 
 Nominal and Real Cost of Labor 16C 
 
 Difference in industrial efficiency caused by, 1. Peculiari- 
 ties of race. 2. Qualities of diet. 3. Personal habits. 
 4. Intelligence of the laborer. 5. Technical education 
 and environment. 6. Cheerfulness and hopefulness in 
 labor. 
 
 Leading Considerations determining Wages 196 
 
 1. Cost of living. 2. Value of products — The wage-fund 
 theory. 3. Customary rate of wages. 4. Most influen- 
 
CONTENTS. XIU 
 
 TAan 
 tial of all, competition. Combinations to resist competition 
 — Strikes — Trades-unions — Combinations of employers. 
 5. The Golden Rule. 
 The General Law of Wages 181 
 
 CHAPTER XIV. 
 Variations in the Remuneration of Labor. 
 
 eJpecial Circumstances affecting Wages 182 
 
 Ease or difficulty of employment — Skill required — Con- 
 fidence reposed — Constancy of employment — Certainty of 
 success. 
 
 Salaries, Commissions and Fees 185 
 
 Self-made men — Educated men — The learned professions - 
 — Artists, Authors — Force of custom — Offices of honor. 
 
 Remuneration for Women's labor 190 
 
 a. Physical and mental constitution. 6. Home sphere. 
 c. Prospective marriage, d. The actual organization 
 of industry, e. Feminine instincts. /. Partial sup- 
 port from friends. 
 The case of women of genius — Conclusions, 1. Absolute 
 equality between the sexes unattainable. 2. Present in- 
 equality unreasonable. 3. The true aim of efforts for 
 reform. 4. Woman an equal partner in the home. 
 
 CHAPTER XV. 
 Remuneration of Capital. 
 
 Capital entitled to Remuneration 197 
 
 Rent — its Definition 198 
 
 Several kinds of rent — Ricardo's theory. 
 ftent of agricultural lands depends on 202 
 
 1. Productiveness, by reason of a. Fertility, b. Situ- 
 ation. 
 
 2. Growth and Concentration of Population. 
 
 3. Incidental circunistauces. k. Natural beauty of situ- 
 ation, b. Character of neighborhood, c. Improve- 
 ments. 
 
xiv coNTBirrs. 
 
 Rent of Mining Lands 209 
 
 Rents in Cities 210 
 
 The Fashionable quarter — Business centres. 
 
 Why Rent is less than Interest 212 
 
 1. Security of property in land. 2. Title easily estab- 
 lished. 3. Influence of landholders. 4. Prevalent desiiea 
 of men. 5. Prospective increase of value. 
 
 CHAPTER XVI. 
 Interest. 
 
 Definition -. 215 
 
 Considerations determining Rate of Interest 218 
 
 1. Risk, depending on a. Mode of employing capital. 
 
 6. Character of borrowers, c. Character of govern- 
 ment. 
 
 2. Convenience of investment 221 
 
 a. Facility of transfer. &. Permanency of investment, 
 c. Punctuality of payment. 
 
 3. Productiveness of capital 223 
 
 a. Fertility of land. h. Productiveness of industry. 
 c. Demand for exchange. 
 
 4. Ratio of Demand to Supply of Capital . . . . ! 224 
 
 Why Interest in a new country is high 225 
 
 Advance of Settlement reduces Interest 226 
 
 Fieedom of Capital adjusts Supply and Demand 227 
 
 Rate of Interest not an index of Prosperity 229 
 
 1. Interest raised by risk indicates adversity. 2. Raised 
 by increased productiveness, prosperity. 3. Reduced by 
 diminished risk, prosperity. 4. Reduced by stagnation, 
 adversity. 
 
 tTsury Laws unreasonable 230 
 
 1. They violate the right of property. 2. Impossible to 
 fix a price for capital. 3. The price of money especially 
 variable. 4. Usury laws increase fluctuations of interest 
 
 5. They cannot be enforced. 
 
 Dividends — Definition 234 
 
 Dividends include Interest and Profits 23'? 
 
C0KTENT8. X^ 
 
 CHAPTER XVII. 
 
 Distribution of Profits. ..^, 
 
 Dtednltion of Profits 239 
 
 Profits increased by spending less or producing more 
 Percentage on capital not a true measure of profits. 
 
 Capita] may not claim all the Profits 243 
 
 Co-operative Associations 245 
 
 Capitalists, Managers and Laborers to share Profits o o <, 246 
 
 CHAPTER XVIII. 
 Revenues of the Government. 
 
 A Problem of Political Economy 248 
 
 Taxation — Adam Smith's Maxims 249 
 
 Direct and Indirect Taxation 250 
 
 Heavy taxes on injurious articles 252 
 
 Tariffs — Specific and Ad valorem Duties 253 
 
 Two Systems of Taxation in America 254 
 
 National Taxation chiefly Indirect by duties 255 
 
 Also, a. Excises, b. Stamps, c. Licenses, d. Income tax. 
 
 State Taxation — Direct 258 
 
 Mode of assessment and collection. 
 
 Taxing Evidences of Debt involves double Taxation 259 
 
 FOURTH DIVISION. 
 
 CHAPTER XIX. 
 Exchange. 
 
 PTature of Exchange 863 
 
 7'alue the central term 264 
 
 Purchasing power — A relative term — Distinct from price 
 ■ — Implies utility and cost — Maximum and minimum lim- 
 its — The general formula of value 
 
 The effect of variation of demand and supply depends on 
 a. Durability of the article, b. Ease of increasing sup- 
 ply. c. The article as a necessity or a luxury, d. 
 Relation to fashion. 
 
m CONTENTS. 
 
 4 S. Mill's Fundamental Principles of Exchange 267 
 
 Three classes of articles. 1. Things which cannot be in- 
 creased. 2. Things multiplied at moderate expense. 3. 
 Things multiplied at extraordinary cost. 
 Respecting these it is to be observed, 
 1. Value is a relative term, hence a general rise or fall of 
 all values impossible. 2. Market value depends on de- 
 mand and supply. 3. Things have a natural value to- 
 wards which market value tends, 4. Natural value = 
 cost value except with some things which have a scarcity 
 value. 5. Things which cannot be increased have a per- 
 manent scarcity value. 6. Monopoly value means scar- 
 city value. 7. The cost value of a thing=cost value of 
 the most costly portion of it, sold. 8. Causes of perma- 
 nent high value. 
 
 The Necessity of Exchange 270 
 
 International Exchange 272 
 
 Agents of Exchange 275 
 
 Retail merchants — Middle-men — Factors — Jobbers — Ship- 
 ping merchants — Importers — Bankers — Brokers — Under- 
 writers. 
 
 CHAPTER XX. 
 Money an Instrument of Exchange. 
 
 Difficulties of Exchange by Barter 282 
 
 Money Defined — Its two Functions. . . 284 
 
 A Standard of value — A Medium of exchange. 
 
 Whatever measures Value must possess Value 285 
 
 Essential qualities of a Medium of Exchange 287 
 
 Stability and precision of value — Universal acceptable- 
 ness — Divisibility. 
 
 Articles used as Money 389 
 
 N^ecessary qualities of Money 290 
 
 Qualities which fit Gold and Silver for the purpose . . .' . 293 
 
 1. Intrinsically desirable. 2. They cost labor. 3. Large 
 value in small bulk. 4. Divisible without loss. 5. Qual- 
 ity uniform. 6. Value easily verified. 7. Indestructible. 
 8. Adapted to each other. 
 
CONTENTS* XTll 
 
 PASS 
 
 (teneral Truths concerning Money 396 
 
 1. Money and the article exchanged for it equal in cost. 
 3. Universal commerce equalizes cost and supply of money. 
 3. The amount of money small in proportion to the whole 
 trade. 4. Increase of production and trade demands in- 
 crease of money. 5. Abundance of money not a certain 
 index of prosperity. 6. A false maxim refuted. 
 
 Agency of Government respecting Money 3d8 
 
 1. To define a legal tender. 3. To coin the metals. Coin- 
 age must have regard to, 1. Purity of metal. 3. Size. 
 3. Form. 
 Seignorage — A uniform international coinage desirable. 
 
 The question of a Double Standard . . . . 305 
 
 CHAPTER XXI. 
 Credit an Instrument of Exchange. 
 
 The Nature of Credit 309 
 
 The Forms of Credit 310 
 
 1. Book Accounts. 3. Loans. 3. Mercantile Paper. 4. 
 Bank Deposits. 5. Stocks. 6. Bonds. 7. Notes for Cir- 
 culation. 
 
 The Useful Functions of Credit 318 
 
 1. It brings wealth into use as capital. 3. Gives efficiency 
 to industrial talent. 8. Quickens exchanges. 4. A direct 
 instrument of exchange. 5. Credit may under limitations 
 enter into currency. 
 For all, a basis of sound money indispensable. 
 
 The Mischievous Abuses of Credit 321 
 
 I. Too freely granted. 2. Used for wild speculation. 3. 
 Extravagance of debtors. 4. Confidence operations. 5. 
 Over-estimate of assets. 6. Betrayal of trusts. 7. Ex- 
 cessive issue of currency. 
 
 Consequent Mischiefs 328 
 
 a. Fluctuating prices, b. Enhanced risks of business. 
 c. Trade made a game of chance, d. Moral sense 
 deadened, e. Force of contracts relaxed. 
 
XVlll COJ^ TENTS. 
 
 CHAPTER XXII. 
 Banks and Ciirrency. 
 
 Banks, Agents of Oedit 829 
 
 Three Offices of Banks . . 321) 
 
 1. To collect and hold money in safe keeping. 2. To loan 
 and discount money. 3. To issue circulating notes. 
 
 Facts from the History of Banks 332 
 
 Bank of Venice— of Genoa — of Amsterdam and Hamburg 
 — of England — Scotch Banking System — Bank of France. 
 
 Banks in the United States 336 
 
 State banks — The Suffolk bank system — Safety-fund 
 banks — Free banking — Two United States banks — The 
 National bank system — Private banks — Savings banks. 
 
 The Liabilities and Eesources of our National Banks 341 
 
 Liabilities. 1. Capital Stock. 2. Circulation. 3. Deposits. 
 4. Balances due other banks. 5. Reserves. 6. Undivided 
 Profits. 7. Miscellaneous liabilities. 
 
 Resources. 1. Loans. 2. U. S. bonds deposited for cir- 
 culation. 3. Bonds and stocks held as investments. 4. 
 Balances due from other banks. 5. Real estate. 6. Cash 
 items. 7. Currency. 8. Funds to redeem circulation. 9. 
 Miscellaneous items. 
 
 The Sources of Profits of National Banks , 343 
 
 1. Interest — a. On U. S.. bonds, h. On circulating notes. 
 c. On remaining capital, d. On deposits loaned. 
 
 2. Premiums on exchange. 3. Commissions for collec- 
 tions. 
 
 Currency — Four Kinds 344 
 
 1. Value currency. 2. Mercantile currency. 3. Mixed 
 currency — Distinction between ultimate redemption and 
 immediate convertibility — Precautionary measures of 
 Bank of England. 4. Credit currency, transfers without 
 paying debts — Cannot go abroad — Keeps prices fluctuat- 
 ing — Lays a direct tax on the people — Is a forced loan — 
 Disturbs commerce and industry — Demoralizes a people 
 
CONTENTS. XU 
 
 CHAPTER XXIII. 
 Free-Trade vs. Protection, 
 
 Definition of the two terms 354 
 
 The Presumption in favor of Free-Trade 35^ 
 
 1. Freedom a general economic law. 2. The right of 
 property implies freedom. 3. Social instincts prompt to 
 free exchange. 4. Free-trade promotes the peace of na- 
 tions. 5. Nature's varied gifts designed for one human 
 family. 
 
 Arguments for Protection . 35S 
 
 1. Necessary to varied industry — a. Every country has 
 varied resources. 6. Also diversity of talent, c. Men 
 have diverse wants, d. Varied industry makes a 
 home-market, e. Promotes social and moral ad- 
 vancement. 
 All this admitted. But is Protection necessary to secure 
 these advantages ? — It cannot add to natural resources — 
 nor create capital — nor multiply labor — It only changes 
 direction of labor and capital — No protected infant indus- 
 try ready to dispense with this aid. 
 
 The result is reached in a better way 364 
 
 a. Human industry has a natural development, h. 
 Free competition is its best stimulus, c. As labor 
 and capital increase all resources are used. d. The 
 instinct for accumulation a safe guide, e. Artificial 
 forcing produces reaction. /. Foreign products pur- 
 chased by fruits of home-labor, g. Foreign competi- 
 tion cannot crush the natural growth, h. Artificial 
 nursing makes a sickly growth. 
 3. Protection maintains National Independence 365 
 
 3. Agricultural products need a home-market 367 
 
 4. Protection must resist the competition of pauper labor 369 
 5 Protection develops skill 369 
 
 6. Protection a means of retaliation 370 
 
 7. Protection sustained by wise advocates and by past 
 usage of nations 370 
 
 Toftitive Objections to Protection 373 
 
 1 It fosters antagonism of industries. 3. It leads to 
 
PAGl 
 
 over-production and stagnation. 3. It lays a heavy tax, 372 
 yet reduces revenues. 4. It is an unstable policy. 5. 
 Demoralizes legislation. 6. Corrupts public morals and 
 civil service. 
 
 historical Results examined. . . 377 
 
 Protection a relic of Feudal restriction and isolation — 
 The experiment of Free-trade between our States. 
 
 CHAPTER XXIV. 
 Railvray Corporations. 
 
 Benefits of Railways, words of Judge Paine 381 
 
 Nature of a Railway Corporation 382 
 
 1. A creature of the State. 2. An agent of the State. 3. 
 A practical monopoly. 
 
 [Relations of Railway Corporations to general industry 385 
 
 1. They give the last addition of value. 2. Enlarge the 
 market. 3. Quicken exchanges. 4. Depend on produc- 
 tiveness of industry. 5. May diminish returns of in- 
 dustry. 
 
 Administration of Railway Corporations 386 
 
 A few managers wield great power. 
 
 Abuses in the management 387 
 
 Reckless expenses and credit — Interests of stockholders 
 sacrificed by leases and combinations — Credit Mobilier — 
 Stock speculations — Watering stock — Ruinous competi- 
 tions — Carrying legislation by bribery. 
 
 Statesmanship and public sentiment must correct evils 390 
 
 CHAPTER XXV. 
 Commercial Crises. 
 
 .^peculation the prime cause 891 
 
 ^ Panic the turning point 39? 
 
 The Gold Bank and Trust Company of San Francisco — 
 The Tea specalation of 1839 in England — Tobacco-raisers 
 on the Connecticut River — Western land speculations and 
 the crisis of 1837. 
 
CONTENTS. XX' 
 
 PA(iB 
 
 The practical problem of commercial crises 397 
 
 Economic principles to be regarded. 
 
 The world-wide financial derangement from 1875-8 398 
 
 Causes, 1. Increased production by labor-saving machin- 
 ery. 2. Expansion of credit necessary to large establish- 
 ments. 3. Extravagant ways of business and of living. 
 4. Increased expense of wars and expanded national 
 credit. 5. The United States war of the Rebellion and 
 Franco-German war. 
 
POLITICAL ECONOMY. 
 
 CHAPTER I. 
 
 PRELIMINARY OBSERVATIONS. 
 
 Origin of the Name. — Mankind are constituted 
 
 mutually dependent and cooperative. Hence by neces- 
 sity, they live in Society and the highest good of the 
 individual is identified with a common good. The first 
 and simplest form of society is the Family, living under 
 a common house-roof. Thus, very naturally, the Greeks, 
 whose inquisitive minds pried into the philosophy of all 
 things, grouped the elementary principles of men^s social 
 life under the term oiKovofita, — economy, the law of the house. 
 They used the term with reference mainly to a thrifty 
 provision of comforts for the well-being of the members 
 of the household. 
 
 As individuals make up families, so families make up 
 cities and states. The elementary principles of the 
 broader association are essentially the same with those of 
 the primary societies. Hence the term Political Econ- 
 omy, applied to the community, in a body politic, as 
 domestic economy is to the household. Aristotle first used 
 the term with a signification vague and general. It has 
 come now to have a technical meaning. Usage has re- 
 cognized its intrinsic fitness to indicate that department 
 of truth which is concerned with the well-being of men in 
 
4 POLITICAL ECOKOMf . 
 
 society as affected by wealth. It is not likely to give plac« 
 to any substitute. The adjective ^'Political" mean* 
 simply pertaining to the city or state. It implies nothing 
 ol politics in the ordinary sense of that word. 
 
 Its Definition. — Political Economy is that branch of 
 Ihcial Science lohich treats of the 'production and applicn- 
 Hon of luealth to the loell-heing of men in society. It is a 
 branch of true science. 
 
 By Science, as the word is here used, we mean a Sys- 
 tematic arrangernent of the laivs which God has established, 
 so far as they have been discovered, of any department of 
 human knozoledge. It is obvious, upon the slightest reflec- 
 tion, that the Creator has subjected the accumulation of 
 the blessings of this life to some determinate laws. Every 
 one, for instance, knows that no man can grow rich, with- 
 out industry and frugality. Political Economy, 
 therefore, is a systematic arrangement of the laws by 
 which, under our present constitution, the relations of 
 man, whether individual or social, to the objects of his 
 desire, are governed. Man's hand joins with the hand of 
 fellow-man and with the powers of nature to produce 
 wealth. Hence the processes and the legitimate end of 
 the science imply a combination of the laws of the material 
 world with the laws of man's social nature. 
 
 Fundamental Lavrs. — The science is based on four 
 fundamental laws. 
 
 1. God has made man a creature of desires and con- 
 stituted the material world in which he lives with qualit»es 
 and powers available for the gratification of those desires. 
 As men advance in individual and social development, 
 their desires are multiplied. At the same time by tlieir 
 increased intelligence and ingenuity, the resources of 
 nature are unfolded in full proportion. Desire stimu. 
 
PttJELIMlKAEY OBSBRVAtlOKS. 5 
 
 lates invention and snooospfnl ir.Tcntiorj wakes new desires. 
 There is no assignable limit to the development of eifJier 
 men's desires or nature''s resources. 
 
 2. For desires above the very simplest wants of the 
 inimal, mail must, hy Lahor, force nature to yield her hid- 
 den resources. Things most essential to mere animal life 
 ire furnished by nature in available form, demanding, on 
 the part of men, only such exeririon as is necessary to take 
 and use them. We can hardly avoid the light, or refrain 
 from breathing the air. Water bubbles up from the ground 
 to quench thirst, and the spontaneous vegetation of the 
 earth offers something already prepared for food. But for 
 those desires which unfold with the exercise of our rational 
 faculties, from anticipations of the future, from the con- 
 ception of possible enjoyments, from the choice of a free- 
 will making selection according to taste, from the love of 
 admiration, from the love of power, from the spirit of 
 benevolence — for these, nature hides the means of gratifi- 
 cation and yields them only to the toil of contriving mind 
 and muscular force. The conveniences and comforts oj 
 civilized life are the fruits of human Labor, 
 
 3. The exertion of labor establishes a right of Property 
 in the fruits of labor, and the idea of exclusive possessions^ 
 a necessary consequence. Personal rights begin with the 
 consciousness of individual being and of individual achieve- 
 ment ; and the idea of labor expended in the production 
 underlies directly or indirectly the property-right to any- 
 thing. Originally the thing produced belongs to him who 
 produced it by an intuitive conception of right, and the act 
 A appropriation is as instinctive as the act of breathing. 
 
 4. With the right of property, comes also the possibility 
 and the right of Exchange, or the mutual transfer of 
 possessions between man and man, and between different 
 communities and countries. One may do what he will with 
 his own. The transfer in good faith and perpetuity of an 
 
6 POLITICAL ECOKOMT. 
 
 object gained by Libor constitutes ii title to possession a6 
 well grounded as that which rests immediately on labor 
 perfornied. We are brought thus into the sphere of man'a 
 social life with its manifold and complicated relations, from 
 which proceed the most powerful iucitemcnts to stimulate 
 desire, to nerve up labor, to maintain rights and to multi- 
 ply and distribute the innumerable elements of wealth. 
 
 Materials of the Science. — The materials of this 
 branch of science lie fixed in the nature of man, and of 
 the physical world which he controls, and in the structure 
 of human society. They are drawn out by the study of 
 men^s wants, the investigation of 7iature^s resources, the 
 sttidy of statistics of human invention and industry, arid 
 the defining of priyiciples for common and reciprocal agencies 
 in social relatio7is. This science combines elements of 
 both physical and metaphysical philosophy. It differs from 
 the purely physical sciences in that the phenomena of 
 \uman volition are continually involved in the system. It 
 differs from the branches of hitellectual and moral science 
 in that it contemplates all soul-phenomena with reference 
 mainly to certain physical results. Its leading propositions 
 must often express tendencies rather than actual facts. Its 
 conclusions must rest often on the balance of probabilities, 
 rather than on pure and perfect demonstrations. 
 
 The Motive to Effort. — Political Economy regards 
 self-interest as a universal motive of human action, and it 
 studies the mutual relations and intercourse of men as gov- 
 erned by that motive. It assumes that labor is irks^ome, 
 and that every body desires the utmost possible gratifica- 
 tion with the least possible exertion. Its great problem is 
 to find a common interest which, as the resultant of indi- 
 vidual self-interest, properly combines and regulates the 
 separate forces. Its principles point to the golden rule oj 
 
PRELIMINARY OBSERVATlOifS. 7 
 
 Christ a,s the tovmiila by which the problem mast be finally 
 solved. 
 
 Conflicting Desires. — Three desires inherent in 
 every man contend for the mastery. 
 
 1. Desire of Base. 
 
 2. Desire of Present Gratification. 
 
 3. Desire of Means to ensure Future Gratification. 
 The resultant of these conflicting desires measures for 
 
 any one his interest in the accumulation of wealth. The 
 degree in which the other two are held subordinate to the 
 third determines the productive activity of a community. 
 
CHAPTER 11. 
 
 DEFINITIONS AND DIVISIONS. 
 
 Wealth. — This is the central term in Political Econ- 
 omy. The word is commonly used loosely and vaguely. 
 A clear and strict definition of it is essential to a right 
 understanding of this science. 
 
 The generic term Wealtli emir aces all useful tilings which 
 can be appropriated and exchanged. This definition com- 
 bines two qualities, first. Utility or fitness to gratify desire ; 
 second, AppropriaMlity, or fitness to be seized and held in 
 exclusive possession. Whatever has both these qualities in 
 any degree, is a part of wealth. Whatever lacks either is 
 excluded from wealth. Perhaps we cannot say of anything 
 that it has absolutely no utility, for G-od has made nothing 
 in vain. But in their place, relatively to gratifying any 
 desire of man, the sand on the sea shore, the crags of the 
 mountain-top, the debris of a demolished building are 
 without utility. No accumulation of such things can be- 
 come luealth. On the other hand, such things as the air 
 and the sunlight have the very highest utility, insomuch 
 that they are essential to the very life of every man, but 
 their universal diffusion precludes their being appropriated 
 as the exclusive possession of any. Therefore they form 
 no part of wealth. 
 
 Errors respecting Wealth. — 1. It is an error to 
 
 identify wealth with money. Money, though it measures 
 all things, and is a medium of excliange for all, itself forms 
 
DEFINITIONS AND J)lVItSiONS. 9 
 
 but a small part of the sum of wealth. It is desirable not 
 for its own sake but for the wealth in other forms which 
 it can purchase. The so-called ^^ Mercantile System'' 
 which long ruled the policy of nations with mischievous 
 effects, rested upon this radical error. Its doctrine was 
 that whatever tends to heap up money or bullion in a 
 country adds to its wealth, and whatever sends the precious 
 metals out of a country impoverishes it. Hence commerce 
 was conducted with a sole view to bringing gold and silver 
 into a country. That system is now exploded, but the 
 false idea still lingers in many minds to confuse and com- 
 plicate problems of both private and public finance. 
 
 2. It is an error to class as wealth human beings or their 
 native capacities or acquired abilities. Physical strength, 
 intellectual genius, moral character, professional skill are 
 possessions of highest worth. But they are an inseparable 
 part of one's own being. They cannot be directly trans- 
 ferred from one to another. They are powers for the pro- 
 duction of wealth, but only the products which come from 
 their exercise can be counted into the sum of wealth. 
 
 3. It is an error to regard mortgages, bonds, stocks and 
 the like as a pai't of general wealth. These things only 
 indicate a title to possession, a mode in which some real 
 wealth is distributed. The mortgage which one holds 
 simply divides the farm on which it rests between the 
 nominal owner and his neighbor. The wealth is in the 
 farm. It is not increased a whit by the mortgage itself. 
 A bond of the United States for one thousand dollars, only 
 gives its holder a lien on the solid wealth of tlie country 
 for that amount, to be drawn some day from the tax-payers, 
 A. B.'s certificate for fifty shares of stock in a railroad, 
 means that he is the owner of that proportion of the land, 
 the rails, the engines, the cars and whatever else constitutes 
 the property of that corporation. Its division into one 
 hundred thousand shares distributed to one thousand dif- 
 
10 POLITICAL ECONOMY. 
 
 ferent persons makes no more of that wealth than if a 
 Vanderbilt owned it all. In the estimate of one's individ- 
 ual property, he may count in all that he owns of this kind. 
 The fact to be noted is that these do not add to the sum 
 of general wealth, but only show how some portion oi 
 wealth is distributed. They are Symbols not Substance, 
 Many a mischievous illusion comes from mistaken views 
 )f these things. 
 
 4. It is an error to exclude from the category of luealth 
 everythiiig loliich is not tangible and durable. The song of a 
 Jenny Lind and the eloquence of a Wendell Philips impart 
 a high gratification which can be appropriated by those 
 who gain admittance to the hall where they are j^roduced. 
 The song is produced by labor applied to the air, which 
 develops hidden properties of sound, viz., tone, melody, 
 rhythm, which meet a human desire. What more can be 
 said of a coat made by a tailor ? The two products diffei 
 only in that the coat gives a moderate pleasure, prolonged 
 for months, and may be laid up in store ; while the song 
 gives a keen, it may be ecstatic enjoyment for an hour, 
 only the cherished memory of which can be retained. It 
 is wealth, impalpable, evanescent, consumed as soon as pro- 
 duced. It meets our definition, though it cannot be stored 
 or counted. 
 
 Sources of Wealth. — The original source of wealth 
 is the bounty of God in nature. Man can neither create a 
 particle of matter nor impart to it any new property. He 
 can only develop and modify what God has made, which is 
 free to all, restricted only. when actually appropriated by 
 labor. Over the whole material creation, he is set in full 
 luthority to soarcli, to subdue, to control and to use. 
 
 The secondary source of wealth is human labor exerted 
 to bring forth the bounty of nature in form, in time, in 
 placet suited to meet the desires of men. I'his gives the 
 
DEFINITIONS AND DIVISIONS. 11 
 
 right of possession which controls both the gift of nature 
 and the added utility imparted by labor. 
 
 How Wealth is increased. — Wealth in every form 
 !nust be perpetually reneived. It is maintained only by 
 d constant process of reproduction, i. e., of consumption foi 
 rcj) reduction. It grows only as that which is produce*! 
 exceeds that which is consumed in capacity to gratify 
 desire. Mill says, '^ The greater part of England's wealth 
 to-day was produced within the last twelve-month." To 
 accumulate wealth, labor must go beyond what is essential 
 to meet immediate necessities ; and the check of fore- 
 thought and abstinence must be laid on the immediate 
 consumption of the products of labor. Hence industry and 
 frugality are indispensable conditions of the increase oj 
 wealth. These are characteristics which distinguish civil- 
 ized from savage men, and thus wealth becomes a sign of 
 Civilization. 
 
 Value. — In ordinary usage, this word often expresses 
 only a vague idea that the thing to which it is applied is 
 desirable. But as a technical term, in Political Economy, 
 it holds a place of highest importance. Ambiguity in its 
 use causes much confusion of ideas on economical problems. 
 Hence the necessity of a strict definition to be strictly 
 adhered to. Formerly a distinction was made between 
 Intrinsic Value and Exchangeable Value. But all that 
 was meant by intrinsic value is better expressed by the 
 word Utility, and this is now quite generally adopted in its 
 place, leaving value with one distinct signification which 
 may be stated thus. 
 
 Value is Purchasing Power, or that quality in an (jljjeet 
 vliicli gives it power to command other objects iii exchange. 
 It supposes always a com})arison of two objects in vie^ 
 of 'in exchange, actual or contemplated. It is not lik( 
 
l>i POLITICAL LCOKOMY. 
 
 weight, an absolute, inherent quality of a substance. It 
 cannot be discovered b}^ examining an article by itself. 
 Value is always a relative term. The measure of it pertain- 
 ing to anything can be expressed only by naming somt' 
 other thing for which it can be exchanged — the quid pro 
 quo. Thus the value of a hat may be set down at four 
 bushels of wheat or a quarter of an ounce of gold, oo- 
 cause it will command so much of one or the other in 
 exchange. 
 
 Value in Distinction from Price. Value is the power 
 to command commodities generally. Price is that power 
 with reference to a single article, viz., Money. Money is the 
 general standard of value, and so value may be indicated 
 by a comparison of prices, but it is important to observe 
 the distinction between the two terms. The value of a 
 specific commodity may rise or fall. Thus the hat which 
 brought four bushels of wheat last year, may bring but 
 three this year. To discover which of the two has changed 
 in value, the cause affecting one or the other must be in- 
 quired into. It may be that a failure of crops has en- 
 hanced the vahie of wheat, or that some new invention, 
 cheapening the process of manufacturing, has lessened the 
 value of the hat. But there can he no general rise or 
 fall of all values. ' There may be however, a general 
 rise or fall of prices in consequence of some cause, like 
 an expansion or contraction of paper currency, whicli 
 affects money, the one object with which all things are 
 compared. 
 
 Value in Distinction from Utility. — Utility is simply 
 •idaptedness to satisfy a want, or to gratify a desire. 
 Things that have value, have always utility in this sense of 
 (capacity to gratify desire, without reference to the quality 
 of the desire as right or wrong, wise or foolish. The power 
 of a commodity in exchange is measured by its desirable- 
 ness, But some things of the very highest utility have no 
 
DEI'INITIONS A^l) DIVISIONS. 13 
 
 value, as for instance air, light, water. We cannot live 
 without them, yet the}^ have no value, no purchasing 
 power, because the supply is so large and so free that who- 
 ever will may take to his satisfaction without labor. They 
 cost nothing, and they cannot ordinarily be appropriated 
 in exclusive possession. 
 
 The Limits of Value. — With these distinctions in 
 mind, it is plain that value may be resolved into two 
 elements, viz. 
 
 1. Utility =■ desirableness for gratification. 
 
 2. Cost = difficulty of attainment, measured by 
 the amount of labor necessary to secure the 
 object. 
 
 By these two elements the limits of value are defined. 
 The Maximum limit of value in any commodity is defined 
 by its Utility. That is, its purchasing power is determined 
 by the intensity of desire for its possession Dy the parties 
 to the exchange. This will depend on a variety of circum- 
 stances, such as the taste of individuals, the fashion of the 
 day, the emergency of the hour, etc. The value may and 
 often does fall short of this, but can never go beyond it. 
 We seldom give for a loaf of bread an equivalent which 
 expresses the measure of its utility to support life. But 
 under the pressure of famine its value is crowded up close 
 to this limit. When a man offers ten thousand bushels of 
 wheat for a choice diamond, he expresses only the intensity 
 of his desire for the glittering gem. 
 
 The Minimum Limit of Value in any article, for any 
 long time, is defined by its Cost, that is, the exponent of 
 the labor either actually expended in its production, or 
 whi'jh must be expended for its reproduction. When the 
 market value of a commodity falls permanently below its 
 cost, its production is suspended. If however, there is 
 good reason to believe that its value will rise again, it may 
 
14 POLITICAL ECONOMY. 
 
 be good economy to tide over the temporary depression b> 
 
 exchanging at a rate less than cost. A diamond of great 
 
 beauty may become the property of one, at the cost oulj 
 
 of the labor of j^icking np what, by good luck, he chanced 
 
 ("o find. Its value is however, estimated by the P£obable 
 
 1 labor involved in a continuous search to obtain its eqnuL 
 
 J (^ I u the last analysis, the comparison is of labor with lal)or, 
 
 r r I and it is true as has been said, that '^ service f 01^ sei^vice 
 
 ^ rather than commodity for commodity is the rule of value 
 
 £"{^ and the law of exchange." 
 
 :^. ? The Law of Supply and Demand. — Between 
 
 ^ these extreme lim.its of value, there is room for a consider- 
 
 X^(^ able variation which is determined hj t\\Q laiu of Sup'ply 
 ^ . and Demand, Concisely stated, this law is that, with cost 
 
 ^ as its stable foundation, value increases directly as the de- 
 
 mand and inversely as tlie supply. Tlie degree of variation 
 ^' > thus caused depends on several circumstances. ^\\Qneces- 
 
 '**^ saries of life are more affected tlum luxuries, by diminished 
 
 supply. Excessive supply reduces the value of perishable 
 articles such as fruits and fish, far more than that of 
 f fs enduring articles like iron and cloth. Commodities that 
 ca?i be quickly produced to meet a special demand will fluc- 
 tuate but slightly in value. The freaks of fashio?i subject 
 fancy goods to far greater variation than staple goods. 
 Reduced value extends demand, and enhanced value re- 
 stricts demand quite beyond the mere ratio of the change. 
 Thus a thousand persons will use cotton cloth at tcL 
 cents a yard, where a hundred would use it at fifty cents. 
 
 Monopolies artificially limit supply for the purpose 
 of increasins: value. Thus it is said that at one time the 
 Dutch, who had a monopoly of the trade in pepper, actuall}^ 
 destroyed part of an extraordinary crop, rather than per- 
 mit the market-value to be reduced. When left free from 
 
DEFINITIONS AND DIVISIONS. Ifi 
 
 artificial interference, demand and supply rnsh towards an 
 equilibrm7}i ; and the condition of stable equilibrium is 
 that things exchange for each other according to the cost 
 of production, or as some express it, according to their 
 natural value. 
 
 The Practical End contemplated in Political Econ 
 omyis the Production of wealth, in the largest measun 
 and of the highest value, and its application to the fullest 
 and most general Satisfaction of men's desires. 
 
 Divisions. — Logically, the science resolves itself into 
 two leading and two subordinate divisions. The two lead- 
 ing divisions are Production and Consumption. 
 
 Production is the act by which we confer a particular 
 value upon any object, or by which we give to an object "its 
 adaptedness to gratify desire. We can neither create nor 
 annihilate any thing. All that we can do, is, to modify 
 what already exists. When we so modify any thing that it 
 is capable of gratifying a desire which before, it was not ca- 
 pable of gratifying, our so doing is called production. Un- 
 der this division are presented the processes and laws which 
 relate to the development of wealth by the creation of Value. 
 
 Consumption is the act of destroying wealth in it? 
 use for the gratification of desire. The destruction of 
 wealth in one form, for the sake of bringing out wealth in 
 another form of greater utility and higher value, belongs 
 to the department of Production. The destruction of 
 wealth without yielding either gratification or increased 
 value, as when goods are swept away by flood or consumed 
 by fire, is of itself, only a calamitous interference with the 
 iaws of our science. Under this second division we study 
 only the laws luhich govern the economical use of wealth to 
 ^ncet wants and impart gratifications. 
 
 All production is for consumption. Yet consumption 
 is antiigonistical to production, as it uses uj) the means oi 
 production. Yet, again, a sound and healthy consumption 
 
J 6 POLITICAL ECOKOMT. 
 
 .s a stimulus to production , and conversely, proli table 
 production increases consumption as it multiplies and 
 cheapens the means of gratification, 
 
 Detween these two leading divisions come in the two 
 iTibo-< dinate divisions, Distributioit and Exchange. 
 
 Wstribution. — The productive effect of human ac- 
 avit\ is greatly increased by union of effort and division 
 of laLur. When the product is realized and the results are 
 to be divided, some equitable law is to be adopted in the 
 distrii ition. Under Distrihutioii therefore, are embraced 
 the p? jcesses and laws which relate to the division of the 
 result . among the parties who unite in producing values. 
 
 U ^change. — The mode of every man's industry is de- 
 cided by his individual tastes, capacities and circumstance*. 
 It is commonly, however, confined to the creation of one 
 kind of product, inasmuch as it is thus vastly more avail- 
 able His desires, on the other hand, are as innumerable 
 as lie objects created to gratify them. He creates but one 
 vabie and he wants a thousand. Hence, he can be gratified 
 by means of no less than nine hundred and ninety-nine 
 'exchanges. He thus parts with various portions of the 
 value which he has created, for the sake of obtaining values 
 ♦vhich others have created. Hence the necessity of uni- 
 versal and ceaseless exchange. Under Exchange are brought 
 to view the processes and laws which relate to the mutual 
 Iransfer of values. 
 
 The channels through which Production, the means, 
 rarries its results on to Consumption, the end, run through 
 die domains of Distribution and Exchange. The processes 
 md laws of Production and Consumption are simple and 
 oasily apprehended. The difficult problems of Political 
 Economy pertain almost entirely to the matters of Dis- 
 tribution and Exchange. 
 
 These four divisions will bo treated of in the order Id 
 w hich they have been here presented. 
 
CHAPTER III. 
 
 EIEST DIVISION.— PRODUCTION. 
 
 Ii is obvious that when man was first created, therf 
 existed nothing but this earth, with its various substan- 
 ces, their qualities and relations ; and man, with his vari- 
 ous physical, intellectual, and moral powers. The dif- 
 ference between tlie present state of man and of the 
 universe around him, and the original state, consists in 
 this : that the qualities and relations of things have now 
 been discovered, and rendered available for the service of 
 man; and the intellect of man has been cultivated, and' 
 his skill improved, so that he is able, more successfully, to 
 avail himself of these qualities and relations. And it is 
 also obvious, that this change in the external world has 
 been produced by the physical and intellectual faculties of 
 man ; that is, by human industry. The whole wealth of 
 the world has been created by the union of human industry 
 with the materials which God had originally spread around 
 us. In simplest statement, we say then. 
 
 Wealth is produced hy the application of labor td natura] 
 objects. 
 
 (a) Some labor is necessary to find and appropriate most 
 of those objects which nature brings forth spontaneously 
 in a form to gratify desire. 
 
 {b) In most cases further labor is requisite tt; bring 
 natural objects into a condition fit for tise. Fig leaves 
 must be sewed together. Game and fish must be divided, 
 cleansed and cooked. Wheat must be ground, and the 
 
18 PRODUCTION. 
 
 Hour kneaded and baked, and so o'.i wp to tlie transforma- 
 tion of sand and sea- weed, — silex and alkali, into glass. 
 
 {c) But most especially tor the advanced processes of 
 production essential to meet the wants of civilized societyj 
 <<(i I lie accumulation of the jJToducts of former labor is requi- 
 i-ite to Icgin with. Materials must be gathered, instruments 
 must be prepared and provision must be made for the sub- 
 sistence of the laborer during the process of production. 
 To these products of former labor, as concerned in pro- 
 duction, the name Capital is applied. 
 
 The Production of wealth thus involves the combina- 
 tion of Labor with Capital, and this branch of the subject 
 may be best studied under the threefold sub-division Labox 
 — Capital — and the Co-operation of these two forces. 
 
CHAPTER IV. 
 
 LABOR. 
 
 Definition. — Labor is the voluntary exertion of human 
 beings put forth to attain some desired object. 
 
 We say " human beings" for the toil of beasts is but 
 the agency of an instrument, reckoned a part of capital. 
 We say ^*' voluntary" exertion, for, in the view of Political 
 Economy, the involuntary work of slaves is like the toil of 
 oxen, the mere use of a thing owned as a part of one's 
 capital. We say also "/or a desired object" for this dis- 
 tinguishes labor from play. In play, we are satisfied with 
 the mere exercise of our faculties. In labor, we seek a 
 further end — a result which comes as an abiding reward 
 for the effort. The exertion put forth in play is often 
 more severe than that of labor, as we see on the ball-ground 
 or in the rowing match ; but the distinction is always clear. 
 The game of a hired base-ball club is never, in any proper 
 sense, play. 
 
 Labor a Measure of Value. — Labor is always irk- 
 some, put forth o-nly for the sake of the object to be attained 
 In any case, therefore, when desire is awakened for a cer- 
 tain object, the question arises. Is the gratification worth 
 the labor necessary to secure it ? When the desire is strong 
 enough to overcome the man's inertia, or love of ease, he 
 will put forth the necessary labor and that labor stands 
 ever, an exponent of his estimate of the object. Ho will 
 part with that, object only for something else which hag 
 cost at least an equal amount of labor. Every man esti- 
 
20 PRODUCTION. 
 
 mnfcs the products of his hibor by the same rale. Thus, 
 ill all exclianges, for the comparison of yaliie or purchasing 
 power, the first question is, liow much labor is involved — 
 what is the cost of the objects offered for exchange ? Laboi 
 thus becomes not the sole element, but always a fundamen- 
 tal and essential element in the measure of value. 
 
 Kinds of Labor. — The processes of production give 
 scope for the exercise of all the faculties of man. So, re- 
 solving the compound of human nature into its two constit- 
 uents, body and mind, we recognize two kinds of labor. 
 
 1. Physical labor in which muscular exertion is the 
 chief thing. 
 
 2. Mental lahor which engages chiefly the faculties of 
 the mind. 
 
 We say " chief ^^ and '^ chiefly,'*^ because in reality all 
 human industry combines some physical and some mental 
 effort — taxes both muscles and brain. The dullest laborer 
 must give some thought to the movement of liis hands ; 
 and the profoundest thinker must task some of his muscles 
 in the labor of writing or dictation to bring before the 
 world the products of his brain- work. In general, manual 
 labor is profitable in proportion as mental effort in the 
 way of skill or contrivance, is blended with it. And minds 
 tasked in study to unfold the secret constitution of nature, 
 continually open the way for new industries, and indicate 
 new methods for the multiplication of wealth. These two 
 kinds of labor are very closely joined in the active industry 
 of the world. Yet the distinction is obvious and impor- 
 tant. To bring it out more fully, we need carefully to 
 consider : 
 
 1.. What Physical Labor does. — All the power 
 there is in these bodies of flesh, comes from the capacity 
 of living muscle to contract and expand. It is simplj 
 
PHYSICAL LABOR. • 21 
 
 power to produce motion. The muscles are strung with 
 uerves through which the will directs their motions. All 
 that man does or can do witli matter is by working his 
 muscles, to bring a pressure to bear on objects to set t]iem 
 ill motion, or to check or modify, or altogether ari-est their 
 {fi jtion, so as to effect a desired result. Physical labor only 
 inoves things. But the power to do this gives man a com- 
 mand, reaching beyond any definable limit, over the forces 
 of nature which are the effective agents of production. 
 Man drops a seed into the ground. Then the vital force 
 hidden in the seed, quickened by moisture and heat and 
 nourished by chemical elements in the soil, brings forth 
 successively, root and blade and leaf and flower and fruit. 
 Man brings coal to the furnace and applies to it a spark of 
 fire. Then a hidden force of nature in the process of com- 
 bustion turns the carbon into heat. Man may lay on the 
 pile, ore dug from the earth, bu t it is nature's force, which by 
 the action of heat makes the iron flow. Man's muscles lift 
 the hammer, but nature's forces, gravitation and density 
 on the one hand, and tenacity and malleability on the 
 other make the blow effective to shape the iron. Thus, 
 through all the processes of production, man moves things 
 into such relations that the forces of nature can act to 
 achieve the results he aims at. He can do nothing alone. 
 Ordinarily, nature will do but little to his purpose without 
 his effort to move things into some sort of adjustment to 
 her laws. We are brought thus to consider next : 
 
 2. What Mental Labor does directly for the pro- 
 duction of wealth. For the wisest and most effective appli- 
 cation of physical labor touching material objects just to 
 move them, men must know as much as possible of the 
 properties of matter and of the forces of nature by which 
 those properties can be developed and modified. Such 
 knowledge comes through labor of the mind, searching out 
 
22 ' PHODUCTTON. 
 
 the constitution and the laws of matter. After this knowl- 
 edge is gained, hnman minds must be further tasl^ed to 
 demise means and instruments for applying it in efforts for 
 the increase of wealth. Still further, when the elements 
 and laws of nature are understood, and instruments are 
 made and adjusted to them, the mind must be exercised in 
 close attention to superintend the operations, so as to hold 
 all instruments and their movements true to the principles 
 of their construction, and to the end aimed at. By habit- 
 ual exercise, one acquires quickness of perception, and 
 readiness and precision in manipulation, that is shill, vv'hich 
 is, in essence, a power of mind more than of muscle. We 
 define then three distinct forms in which mental labor is 
 concerned in the production of wealth. 
 
 1. The labor of hivesfAgation and Discovery, through 
 which the properties and laws of nature are made known. 
 Newton labored in this department, when he discovered 
 the laws of gravitation, of optics, and of the motions of 
 the heavenly bodies ; Franklin, when he discovered the 
 laws of electricity ; and Sir Humphrey Davy, when he 
 discovered the alkaline bases, and the laws of their combi- 
 nation. The labor of each of these men was also of the 
 same kind, when they made known these laws to the pub- 
 lic. The labor of students of science in all departments, 
 belongs to this category. 
 
 2. The labor of Invention, employed in devising instru- 
 ments of production adjusted to the discovered principles 
 and properties of nature. Newton performed this labor 
 when he invented the telescope ; Had ley when by means 
 of the quadrant, lie applied the laws of light to the meas- 
 urement of angles ; Watt when he devised an engine to 
 control and utilize the expansive force of steam ; Ark'wrigbt 
 when he invented the spinning-jenny ; Morse when, by 
 contriving the telegraphic register, he bound electricity to 
 do man's bidding, and Daguerre when he found a way tc 
 
Mental laboil 23 
 
 apply the actinic properties of lights and set the sun him- 
 self to mn1\ing pictures for ns. The mathematician in his 
 study, puzzling his brain with problems of number and 
 quantity, lines and angles, seems far removed from the 
 practical work of life. Yet the fruit of his labor enters 
 into all effective machinery, in a way to multiply comfortfi 
 for men, beyond all computation. 
 
 3. The labor of skillful Oversight and Superi7ite?idenoe. 
 In its lowest form, this is joined immediately with the mus- 
 cular action of physical labor, as in the case of the me- 
 chanic using simple tools to Avork wood or metal, accord- 
 ing to its nature, for a definite purpose. In higher forms 
 it watches and guides the running of a complicated engine, 
 or presides over a department of labor to combine the pro- 
 ducts of many working hands and minds, or manages the 
 business of a great manufactory, the observing eye and 
 governing will by which manifold processes are made to 
 coalesce for the one end of producing things that will grat- 
 ify men's desires. Through the whole range, iiitelligence 
 and judgyneyit are exercised to regulate the motions of 
 physical labor, by means of inventions, and according to 
 discoveries previously made. 
 
 These three forms of mental labor continually run into 
 each other, as Sir Humphrey Davy discovered the nature 
 of choke-damp in mines, and invented the safety-lamp, or 
 as Sir Richard Arkwright, a thoughtful spinner, invented 
 the spinning machinery now in common use. It is obvious 
 therefore, that the wide diffusion of knowledge, and the 
 culture of habits of close observation, tends directly to in- 
 crease the effectiveness of labor. In the actual progress 
 of industry, the order of these forms of labor is commonly 
 reversed. Men begin with simple muscular efforts. 
 Thinking mind attending these efforts, invents means of 
 easing labor or of increasing its effectiveness. The effort 
 of invention leads to the discovery of properties and law? 
 
24 . piiODucTioir. 
 
 which, in turn, wakens new interest and leads to new inven- 
 
 H(His. The spring of advancing civilization is thus th€ 
 adivity of the human mind directed to the })rodi::-tion of 
 wealth. 
 
 Labor indirectly instrumental in Production. — Under 
 liis head, we refer to that labor, chiefly mental, which has 
 to do, not with the immediate production of material 
 objects, but with the general conditio7is most fiivorable to 
 successful industry of whatever kind. Health, intelligence, 
 cheerfulness, integrity, social order, security to property, 
 good government, refined manners, high-toned moral and 
 religious sentiments — all these are conditions on which de- 
 pend, in no small degree, the results of labor for the actual 
 production of wealth. This labor is applied immediately 
 to human beings, to rear them so as to keep up the supply 
 of laborers, and to give them physical vigor and spiritual 
 capacity and energy ; and also to huma7i society, to main- 
 tain order and security, and a tone of sentiment most 
 favorable to cheerful toil and to good-will and happiness 
 in all the associations of life. To this class of labor are 
 referred the mother^s unwearying care and effort in 7iurS' 
 ing and training children, the services of the physician, 
 who studies and applies to individuals and to communities 
 the laws of health, and the labors of the teacher, which de- 
 velop the mental poiuers of the young and diffuse in a com- 
 munity intelligence which quickens and guides all industry. 
 Here too, belong the busy brain-work of the laioyer, who 
 labors to define and maintain rights and obligations as they 
 spring up in the intercourse of men with one another, 
 under the rule of civil law; and that of the minister of 
 religioji who plies the truths and precepts of ^^the higher 
 law" of God, to form good consciences and improve the 
 public moral sense ; and that also of legislators and officers 
 of government^ on whose ordinances and administration oi 
 affairs, the stability of the whole structure of society 
 
PEOUUOllV^E AUD L'KPEODUCTIVE LABOR. 35 
 
 depends. It is quite obyious that all these labors, though 
 they do not directly bring forth material products, never- 
 theless enrer into the general productive industry of a peo- 
 ple, and are as essential to the best results of its processes as 
 the manual labor of the farmer or- the blacksmith. The 
 support and the rewards of this kind of labor must come 
 from the wealth produced. And it is wise economy to 
 make ample provision for these services to be rendered by 
 persons who make them their study and piofession. 
 
 Labor as Productive and Unproductive. — Many writers 
 on political economy make much of this distinction. Mr. 
 Mill understands by '^ productive labor, only those kinds 
 of exertion which produce utilities embodied in material 
 objects," and by unproductive labor, that " which does not 
 terminate in the creation of material wealth." We are 
 however disposed to discard this distinction and to substi- 
 tute for it that of lal)or as directly or indirectly concerned 
 in production, according to the views just presented. In 
 his own presentation of the matter. Mill's definition breaks 
 down when he tries to include in productive labor, the 
 labor of officers of government, recognizing it to be " in- 
 dispensable to the prosperity of industry." The same thing 
 certainly must be said of all that has been referred to as 
 ** labor indirectly instrumental in production." Whatever 
 efforts tend to improve the condition of men for the work 
 they undertake, or to improve the condition of society for 
 securing to men the reward of their toil and the healthful 
 snjoyment of life ought to be reckoned as Productive Lalor. 
 Then for the other side of the distinction, we may recog 
 nize in every community a class of non-producers — persona 
 who do nothing directly or indirectly to increase wealth or 
 promote the welfare of mankind, who are at best only con 
 sumers of the products of other iiieir? iaboi's. W'c have t(j 
 recognize also a class of Destructives, persons whose ener- 
 gies are put forth to hinder all productiNO industry and 
 2 
 
36 PEODUCTION. 
 
 destroy its fruits. Here must be included those who pan- 
 der to the vices that unfit men for effective labor, those 
 who as thieves, burglars, counterfeiters and swindlers, task 
 muscles and brains, by force or knavery to rob their felloAV- 
 men, and the whole -race of gamblers and speculators^ 
 irh ether their operations be carried on at the faro-table, or 
 tbe pool-room, or the board of trade, or the stock-exchange. 
 Tliis whole class not only add nothing to the sum of wealth 
 produced, but positively reduce it, by unfitting men for 
 useful service and by unsettling the basis of industry, 
 making its results uncertain. 
 
 Changes effected by Labor. — We have seen that 
 wealth is produced by the application of labor to existing 
 natural objects. No human effort can create a particle of 
 matter. All that it can do is to effect changes in the mat- 
 ter to which it is applied. For the production of wealth, 
 labor is directed to develop the utilities which are embodied 
 in the constitution of material things so that they can be 
 available for the gratification of desire. We have already 
 shown that strictly speaking, labor can do no more than^o 
 move things. But through the exertion of his mental fac- 
 ulties in discovery and invention man gains control of the 
 forces of nature, by or in accordance with which, most of 
 the desired changes are wrought. Here, we may in a gen- 
 eral way speak of labor as working by and with the forces 
 of nature to multiply useful things ivhich can he appropria- 
 ted and exchanged, that is wealth. 
 
 Now, the changes which may bo produced in the ob- 
 je<'ts of nature may all be reduced to three, and concise!} 
 stated in the alliteration of three significant words, viz, 
 Transmutation — Transformation — Transporta- 
 tion. 
 
 1. Transmutation. — Man may change the dementary 
 form of matter. The farmer by means of seed, manure 
 
CHANGES EBPECTED BY LABOR. 27 
 
 and cultivation, aided by the agencies of tlie sun and the 
 earth, of rain, and the atmosphere, transforms the elemen- 
 tary forms of carbon, gases, and water, into wheat. The 
 chemist changes the elementary forms of acids and alka- 
 lies into salts. The dyer changes the elementary forms of 
 iron and tannin into coloring matter ; and the case is the 
 dame with various other forms of human occupation. 
 
 2. Transformation. — Man may change the aggregate 
 form of matter. The cabinet-maker changes the form of 
 a board into that of a desk or a table ; the smith, a piece 
 of iron into a horse-shoe or a nail ; the mason changes a 
 pile of bricks and mortar into a wall ; the cotton spinner, 
 a bale of cotton into thread ; the weaver, this thread into 
 cloth. And, in general, the labor of mechanics and man- 
 ufacturers is employed in effecting changes in tlie aggre- 
 gate forms of matter. 
 
 3. Transportation. — Man may change the place of 
 matter. Thus, the shipmaster transports a cargo of cot- 
 ton from New York to Liverpool, and brings back a cargo 
 of cotton goods, of crockery, or of hardware. The team- 
 ster receives a wagon load of merchandise in one town and 
 transports it to another. The owner of a canal boat re- 
 ceives manufactured goods in Albany, transports them to 
 Buffalo, and brings back to Albany, in return, a freight 
 of agricultural produce. The agent of a railroad receives 
 a hundred boxes of merchandise in Manchester, and trans- 
 poi ts them to Liverpool. And thus, also, a large number 
 of tne inhabitants of every populous town derive their sub- 
 sistence, and frequently grow rich, simply by transporting 
 wares and merchandise from one part of the town to another. 
 
 These divisions, in general, correspond with the agrU 
 mltural, mechanical, and commercial departments of hU" 
 man industry. We have adopted a different ti-i-ininology, 
 because it seems to form a more generic and better limited 
 
28 PEODUCTIOK. 
 
 division, and one more conformable to the facts in the 
 case. 
 
 1. Concerning these divisions, it is proper to remark, 
 tliat, though these are the various objects of human indus- 
 Irj, yet it frequently happens that, he who labors in one, 
 is also obliged to labor in one or both of the others. Thus^ 
 the farmer who raises a crop, is obliged to transport the 
 see 1 to the field, and frequently to transport his harvest to 
 market. The cabinet-maker who manufactures a table, 
 may transport his materials from the lumber yard. The 
 engineer, on the railroad, is obliged to change the elemen- 
 tary form of wood, in order to produce the caloric, neces- 
 sary to move his locomotive. We designate the class of 
 laborers to which a man belongs, by the ultimate object 
 which he has in view in exercising his profession. 
 
 2. Each one of these forms of industry is equally im- 
 portant in developing the utility of substances, that is, in 
 giving them capacity to gratify human desire. Thus we 
 see that the ore in the mine has no power to gratify desire, 
 until it is made into iron or steel. The steel is worthless 
 for the purpose of cutting, until it is transformed into a 
 knife, an axe, or some cutting instrument ; and, if I want 
 to make a pen in New York, a knife is utterly useless to 
 me for this purpose, while it remains in Sheffield or Liv- 
 erpool. Unless these several utilities are all conferred up- 
 on it, it would be of no service to me. Hence, in purchas- 
 ing a knife, I pay for them all, and as willingly for one as 
 tlie other. 
 
 3. Hence we see how incorrect is the notion sometimes 
 iidvanced, that allioeaWh is the production of one or ofttvo, 
 Mid not of all these forms of human industry. All these 
 changes must be effected in almost every article which we 
 consume, and if either of them were to be suspended, our 
 desires would not be gratified, and the other two must also 
 be discontinued. He who transports flour, performs an 
 
CHANGES EFFECTED BY LABOR. 29 
 
 Hct of as essential importance to the sustentation of the 
 human race, as he who raises wheat. He who brings » 
 knife from Liverpool to me, performs a labor as important 
 to me, as he who manufactures the knife ; for, if it were 
 three thousand miles off, it might, for all the purposes for 
 which I want it, as well not be in existence. And yet 
 more, if one of these forms of labor should cease, the others 
 must soon cease with it. Of what use would wheat or wool 
 be to the farmer, if they could not be transported from his 
 farm ? And again : what gain could be derived from 
 either, if there were no means of grinding the one, or of 
 manufacturing the other ? Hence we see that all the forms 
 of industry miitually swp'port, and are supported hy, each 
 dther ; and hence, also, we see that any jealousy between 
 different classes of producers, or any desire on the one part, 
 to obtain special advantages over the other, are unwise, 
 and, in the end, self-destructive. The fact is, that if left 
 to themselves, they all flourish, and they all suffer together. 
 Nor can either one be depressed, for any considerable 
 period, without injuriously affecting both the others. 
 
 These various forms of human labor enter, in different 
 degrees, into the value of different articles of use. For in- 
 stance, butchers' meat and green vegetables derive almost 
 their whole value fi'om the first hind of lahor, as they re- 
 quire A^ery little modification, and will bear but short trans- 
 portation. On the contrary, salted provisions may derive 
 a large portion of their value from change of place. Cloth- 
 ing, cutlery, and what are commonly denominated manu- 
 factures, derive the greater portion of their value from 
 change in the aggregate form. The original material con- 
 stitutes, in general, but a small part of their price, and, 
 not being of great bulk, their transportation is not very 
 expensive. The steel that would make a pair of razors, 
 and the cost of transporting them from Sheffield or Paris 
 to New York would form but a very small portion of their 
 
30 PEODL'CTION. 
 
 price. On the contrary, bulky articles, such as coal and 
 iron, derive a very lai'go portion of their cost from trans- 
 portation. Coal, that has but little value in the coal mines 
 of Pennsylvania, is sold for six or eight dollars a ton ii. 
 Chicago And all the labor employed upon it, is thai 
 svhich is necessary for breaking it in pieces, and removing 
 it from its bed to the house of the consumer. 
 
 As, however, the human race is scattered over the face 
 of the globe, and as their wants in all latitudes are so 
 nearly the same, while no country affords facilities for 
 supplying more than a very small number of these 
 wants, it is evident that the labor employed in change of 
 place must, in civilized countries, be most universal^ 
 and must enter essentially into the greatest number of 
 commodities. Of this every one will be convinced who 
 will take any article of dress, of furniture or of food, and 
 consider the amount of transportation that has entered into 
 its production ; and, especially, if he take into account the 
 transportation which has entered into the formation of the 
 instruments by which it had been produced. The same 
 truth is also illustrated by the fact, that whole nations, 
 with very small natural advantages, as Holland and Veni ^e, 
 have, in a short period, become immensely rich, merely by 
 conferring change of place on tlie merchandise and \ ro- 
 ductions used by other nations. Water communication^ in 
 the early stages of society, greatly diminishes the cos^ of 
 transportation, and, of course, increases the facilities of 
 exchange. It is on this account that the first settlements 
 of nations are always either on the shores of the ocean, or 
 along the banks of navigable rivers. 
 
 It may also be worthy of remark that, thus far in tnc 
 progress of society, the ingenuity of man has been more suc- 
 cessful in devising means for increasing the productiveness 
 of labor in the second and third, than in the first kind of 
 nuraan industry. Improved agricultural utensils, a better 
 
CHANGES EiTECTED Bl LABOB. 31 
 
 knowledge of the nature of soils, and of the different kinds 
 of grain and edible vegetables, and of manures have adder] 
 considerably to the quantity of product that can be raised 
 by a given amount of labor. But this increase is small ii/ 
 proportion to that effected by the use of machinery in th( 
 case of the cotton manufacturer, and by the use of th( 
 \ )comot ve and many other forces. It is, doubtless, wisely 
 ordered that it should be so. Agricultural labor is the 
 most healthy employment, and is attended by the fewest 
 temptations. It has, therefore, seemed to be the will of 
 the Creator, that a large portion of the human race should 
 always be thus employed, and that, whatever effects may 
 result from social improvement, the proportion of men 
 required for tilling the earth should never be very greatly 
 diminished. It is also to be remarked, that division of 
 labor, which so greatly increases the productiveness of 
 human industry in the other modes of production, can be 
 apphed but in a small degree to agriculture. No man can 
 devote himself exclusively to ploughing, sowing or reap- 
 ing ; 'because only a small part of the year can be employed 
 in either of these occupations. The farmer, must, there- 
 fore, practise them all, at different times ; and, of course, 
 every farmer must be able to perform not one, but all the 
 several operations required in his trade. This forms 
 another reason why the increase of productiveness of 
 human industry, in this department of labor, has not kept 
 pace with that which has been witnessed in manufactures 
 and commerce. 
 
CHAPTER V. 
 
 SIEANS FOR INOREASING THE EFFECTIVENESS 
 OF HUMAN LABOR. 
 
 The physical power of man is extremely limited. His 
 strength is soon exhausted. His hmbs and mnscles un- 
 assisted, are insufficient to meet his simplest wants. He 
 needs shelter, cooked food, and clothing. But he could 
 not, with his teeth and nails, cut down a tree and fashion 
 it into a cabin. He cannot, by his hands, either cook his 
 food, or manufacture a fabric suitable for clothing. All 
 these can, however, be done by other agents which he can 
 command and control. Thus, iron can be made to cut 
 down and fashion a tree, fire to cook his food, and a spin- 
 ning wheel and loom can be made to furnish him with 
 clothing. 
 
 As mankind multiply and are bound together in society, 
 individuals are found to differ in capacity. One has spe- 
 cial endowments for one kind of labor, another for another. 
 Hence there naturally springs up some systematic arrange- 
 ment for mutual cooperation to increase the productiveness 
 of the community, by assigning to each the labor for which 
 he is best fitted, and giving all something to do. 
 
 Two means by which the effectiveness of human labor 
 •s increased, are thus indicated. They are The Use of 
 Statural Agents, and The Division of Labor. 
 
 1. Natural Agents. — A natural agent, is any qual- 
 ity or relation of things which can be used for the purpost^ 
 
NATUKAL AGENTS. 33 
 
 of assisting us in production. Thus, the light and heat of 
 the sun are natural agents, without t1:e aid of which we 
 could not ci-eate vegetable products. Caloric or artificial 
 heat, is a natural agent, without which we could neitlici 
 cook our food, prolong our lives in cold climates, give anv 
 valuable quality to metals, nor create steam for the pur- 
 pose of machinery. Magnetism is a natural agent, bj 
 which we are enabled, in any part of the earth, to know in 
 what direction we are moving. The various powers aid 
 instincts of animals are natural agents, by which we accom- 
 plish purposes which could not be accomplished without 
 them. Thus, the farmer avails himself of the muscular 
 power and docility of the ox and the horse ; the huntsman, 
 of the fleetness and scent of the hound, etc. Wind, the 
 gravitating power of water, and steam, are natural agents, 
 by which we create the momentum necessary to various 
 operations in the arts. 
 
 A tool, or a machine, is any combination of matter, by 
 means of which we are enabled to avail ourselves of the 
 qualities or relations of a natural agent. Thus, a lens 
 or burning glass, is a tool, by means of which we concen- 
 trate, for useful purposes, the rays of the sun. 
 
 A stove, or a fire place, is an instrument, or tool, by 
 which we avail ourselves of the calorific properties of fuel. 
 
 A mariner's compass is a tool, by which we avail our- 
 selves of the peculiar quality of the magnetic needle. 
 
 A loater ivheel is a tool, by means of which we avail 
 ourselves of the gravitating power of water. 
 
 A steam engine is a tool, by means of which we avail 
 ourselves of the expansive power of steam. 
 
 The only difference between a tool and a machine is, 
 that the one is more com.plicated than the other. A com- 
 mon hammer i^ a tool, by means of which we avail our- 
 selves of the gravity and density of iron, and of the power 
 of the lever. A trip-hammer, by which large masses of 
 2* 
 
34 PilODUCTlOK. 
 
 iron are fashioned and wrought, is called a machine, but 
 the principles employed nre, in hoth cases, the same, only 
 tlie li ip-hammer is moved by a natural agent, water, or 
 steam, while the common hammer is moved by the hand. 
 
 The qualities and relations of natural agents are the gift 
 af God, and, being His gift, they cost us nothing. Thus, 
 in order to avail ourselves of the momentum produced by 
 a water-fall, we have only to construct the water-wheel and 
 its necessary appendages, and place them in a proper posi- 
 tion. We then have the use of the falling water, without 
 further expense. As, therefore, our only outlay is the cost 
 of the i7istrument by which the natural agent is rendered 
 available, this is the only expenditure which demands the 
 attention of the political economist. 
 
 If we reflect upon the various natural agents employed 
 by man, we shall see that some of them can be used with- 
 out any tools whatever. Such is the case in agricultural 
 labor, with air, and the light of the sun. Others require 
 only so simple instruments, that their effect upon price is 
 not appreciable. Thus, a mariner's compass, which would 
 last for twenty years, and assist in the transportation of 
 .lalf as many millions' value'. of merchandise, would cost 
 but a few dollars. Others are used by few persons, and 
 for particular and unusual purposes, as the lens, or the mi- 
 croscope. It is only those agents which require for their 
 employment, machinery of which the cost is appreciable, 
 and which are of so general necessity, that their use enters 
 into consideration in estimating the expenses of produc- 
 tion, that require to be specially noticed in Political 
 Economy. 
 
 The means most universally required for creating 
 change, is momentum, or, as it is commonly called, power. 
 Without this, in agriculture, no change in elementarv 
 form, and, in mechanics, no change in aggregate form, and 
 in transportation, no change in place, can be effected. 
 
NATURAL AGENTS. 35 
 
 The "natural agents connected with tlie use of momen- 
 tum, may be divided into two classes : 
 
 1. Those which create momentum. 
 
 2. Those which direct it. 
 
 1. Of those which create Momentum, we ha\c 
 
 two kinds : Animate, and Inanimate. 
 
 1. Animate. These are, beasts of draft and burden, 
 generally. The most common of these are, the ox, the 
 horse, and the mule ; others in use in particular districts, 
 are the camel, the elephant, the dog and the reindeer. 
 
 The subjection of animals to the human will, marks an 
 era in the progress of civilization ; and teaches us that the 
 first important step has been taken in the improvement of 
 the condition of man, and of the productiveness of human 
 industry. The ox and the horse have much greater physi- 
 cal power than man. They may also be sustained at a 
 much less expense. Their food is the spontaneous produc- 
 tion of the earth, which, for a large part of the year, they 
 gather for themselves, and which requires no labor of 
 preparation. They need no clothing in any latitude, and 
 in the warmer parts of the temperate zone, need no shel- 
 ter. But, in consequence of his superiority in intellectual 
 endowment, man can direct and govern the physical power 
 of several of these animals, and, by attaching theni to agri- 
 cultural machines, can command that power at his will. 
 If, then, by the use of animals, one man can wield a physi- 
 cal force equal to that of ten men, he will be able to pro- 
 duce, by the labor of a day, ten times as much as he could 
 before the introduction of animate agents. He will, there- 
 fore, by the same amount of labor, produce ten times as 
 large an amount of objects of desire ; that is, of means of 
 humaL happiness. 
 
 In the earliest stages of society, animate power must be 
 used for the production of momentum, in all the three de 
 
36 PRODUCTIOl^. 
 
 pftrtnicnts of hiiinaii industry. In the labors of agricul- 
 ture,, it is still employed, and must probably be thus era- 
 ployed forever. Nothing has yet superseded it, and there 
 IS reason to doubt whether any thing ever will to any great 
 extent supersede it. The improvements that have been 
 made by the introduction of other creative forces, have foi 
 tlie most part, been connected with the other modes of 
 operative industry. 
 
 2. Of Inanimate Natural Agetits. The inanimate 
 agents, most commonly in use, are : The explosive force 
 of Gunpowder y Dynamite, etc. j Wind ; The gravitating 
 poiver of Water ; and The eocpansive power of Stea7n. 
 
 1. Gunpowder is used in the blasting of rocks, in hunt- 
 ing, and in war. Its value, in the blasting of rocks, is very 
 considerable. By drilling a small hole, whicli may be done 
 by one man in a day, and by the use of a few ounces of gun- 
 powder, a force may be exerted, in an instant, producing 
 an effect which twenty men, for several days, could not 
 otherwise have exerted. Hence, it is of very great use in 
 all works of internal improvement, where rocks must be 
 removed, in order to admit the passage of raikoads and 
 canals. In fact, it is doubtful whether many of the most 
 important of these works could ever have been executed, 
 but for this agent. Others, if the execution of them were 
 possible, must have been accomplished at so great an ex- 
 pense, that the investment of capital in them would not 
 have been profitable, and, of course, it would not have been 
 made. Nitro-glycerine, a recent invention, has greater ex- 
 plosive force than gunpowder and in the form of dynamite 
 and other preparations is now commonly substituted for it 
 in heavy blasting. 
 
 Gunpowder is also used extensively in loar. If war be 
 beneficial, or even necessary, gun230wder is an agent of the 
 utmost importance ; for, by no other means yet discoTered, 
 is it possible to destroy so many men with so little physi 
 
NATURAL AGENTS. 3"? 
 
 cal suffering, and with ^o little personal Inhoi-. [t has also 
 a moral advantage oyer other methods of slaughter, inas- 
 much :i8 the destruction of human life, in this nciuner, 
 oxcites less sensibly the ferocity of the human heart. On 
 this account, wars, since its introduction, have been con- 
 ducted on more humane principles than formerly. It has 
 also been a valuable auxiliary to the progress of civilization, 
 since it has conferred on civilized, an undisputed mastery 
 over uncivilized nations. There has not been, for centuries, 
 any danger to Christendom from barbarian invasion. Be- 
 sides, the more energetic are the means of destruction in 
 war, the less is the loss of life in battle. Hence, of a given 
 number of combatants in an engagement, a much smaller 
 proportion is now slain than formerly. This might almost 
 give rise to the paradoxical hope, that some means of de- 
 struction might yet be invented, so overwhelming in its 
 eifects, as to put the smallest number of men on a level 
 with the greatest, and hence to put an end to wars al- 
 together. 
 
 2. Wind is another agent used for the creation of mo- 
 mentum. As a stationary agent it is an important me- 
 chanical power, in countries destitute of water power, or 
 of the fuel necessary for the production of steam, or of the 
 capital which must be invested in the machinery required 
 in the use of more expensive agents. Its principal advan- 
 tage is its cheapness. It costs nothing to create it, and the 
 machinery, by which it is applied, is simple, and easily 
 constructed. 
 
 The disadvantages of wind are its uncertainty, both in 
 quantity and in time, and the difficulty with which it is 
 regulated. In consequence of the irregularity of its force, 
 it is impossible to employ it in labor requiring delicacy of 
 operation : and, in consequence of its uncertainty in time, 
 it could not be employed where the labor of many personi 
 was dependent on its assistance. 
 
38 PEODUCTIOK. 
 
 As a locomotive power on water, wind was until recently 
 almost universally used in navigation. Tliough the direc- 
 tion Id which it acts is variable, yet nautical skill enables 
 us to use it when blowing from almost any point whatevei-. 
 Its variation, in the quantity of force, is here also a mattei 
 of less consequence, since this circumstance can affect the 
 operation to be performed only in respect to time. And 
 variation, even in this respect, has in a great degree yielded 
 to science and enterprise. It is astonishing to observe with 
 what precision and certainty voyages were made by sail 
 between New York and Liverpool. Bat with the inven- 
 tions of Fulton a new era commenced. Steam very soon 
 was employed in the place of wind in the navigation of 
 rivers and along the seabqard. It was not, however, until 
 the year 1837 that the experiment was successfully made, 
 of establishing a regular communication between Europe 
 and America by means of steam. In May of that year, the 
 steamers Sirius and Great Western, the former from Liver- 
 pool, the latter from Bristol, arrived in New York. Siuce 
 that time passages have continued to be made between the 
 above ports with great regularity, and thus far with few 
 disasters. It is demonstrated that the navigation of the 
 Atlantic, by steam, is as perfectly within the power of man, 
 as the- navigation of the Thames or the Hudson. 
 
 3. The gravitating poiver of Water is another agent em- 
 ployed for the creation of momentum. This is used only 
 as a stationary agent. Its advantages are that it is cheaj\ 
 tolerably constant, and frequently is capable of exerting 
 great mechanical force. Its disadvantages are, that it is 
 stationary; that is, that it can be used only in situations 
 where it has been created by nature. Hence, it is fre- 
 quently at a considerable distance from the seaports whence 
 the manufacturer derives his supplies, and whence he ex- 
 ports his products. In such cases, the cost of traLsporta.- 
 tion must be deducted from the profits of the establish- 
 
INANIMATE AGENTS. 3S 
 
 tnent, aud is of course, to this amount, a diminution of 
 the profits. 
 
 Water cannot always be commanded in suJUcienl qyaih 
 tity. Very few mill-seats are secure from the liability ic 
 8u:ffer from the want of water. This is a great inconveni 
 ence, inasmuch as, in seasons of drought, a large numbei 
 of the laborers must be unemployed, and a large i)ortion 
 of the expenses of the establishment must be incurred, 
 without yielding any remuneration to the proprietor. 
 
 Another disadvantage of water power is, that it is lia- 
 ble to danger from inundation. Though this may be 
 guarded against in many cases, yet it frequently can be 
 done only at an expense which greatly reduces the cheap- 
 Dess of the agent. Notwithstanding these disadvantages, 
 water power will probably be always used, where great 
 mechanical force is required ; where the machinery to be 
 employed is simple, and where the operation does not re- 
 quire the greatest possible nicety of execution. Recent 
 inventions, however, have greatly improved the steadiness 
 of this power and men's control of its action. 
 
 4. Steam is the power, however, most commonly in 
 use at present. Its advantages are, that it can be used to 
 create any required degree of mechanical force ; that it is 
 perfectly under human control ; that it may be created in 
 any place where fuel can be obtained ; that it can be used 
 at will, either as a stationary, or a locomotive power ; and 
 that it can be made to act with perfect regularity. Its 
 only disadvantage is its expensbveness. The machinery by 
 which it is generated is costly, and requires frequent 
 repairs ; and the fuel, by which it is maintained, is a very 
 serious item of consumption. The piice of engines, how- 
 ever, has been much reduced, as the demand for them liaa 
 mcreased. And by improvement in their construction, 
 the consumption of fuel has been greatly diminished, 
 while increased facilities for transportation have mate- 
 
40 PRODUCTIOK. 
 
 rially reduced its price. The introduction of Bteana 
 power greatly reduced the i)rice of fuel in G-reat Britain, 
 until the rapid consumption tlireatened to exhaust her 
 
 stores. 
 
 The question whether steam or water power should be 
 used in any particular case, is commonly to be decided by 
 their relative expensiveness. This will be decided, princi- 
 pally, by the 'place in which the power may be required. 
 Water power will generally be the cheaper where it can be 
 procured in abundance, and sufficiently near to a market 
 or to tide water. But where it is variable in quantity, or 
 is at a considerable distance from the place of delivery, the 
 cost of transportation will frequently overbalance its other 
 advantages, and render steam power the more economical. 
 Machinery, propelled by steam, can be erected and carried 
 on Lipon a wharf, or in the midst of a city ; and hence it 
 avoids all the cost of unnecessary transportation. Ma- 
 chinery propelled by water power can be erected only at 
 the place where the water power exists, and of course, is 
 subject to all the expense of transportation between that 
 place and the market. 
 
 The ADVANTAGES of inanimate over animate natural 
 agents, are several 
 
 1. Inanimate agents can, within a small compass, and 
 with comparatively little weight, produce a vastly greater 
 amount of momentum, than animate agents. Thus, a 
 steam engine, of one hundred and fifty or two hundred 
 horse power, occupies but a small space, and forms but a 
 small part of the cargo of a vessel. I^ut so great a num- 
 ber of horses could scarcely be carried in any vessel de- 
 signed to transport either freight or passengers ; and 
 besides, no mechanical arrangement has yet been devised, 
 by which such a number of animals could conveniently be 
 employed upon one operation. 
 
ANIMATE AND INANIMATE AGENTS. 41 
 
 2. They are continuous ; that is, they are never liable 
 to fatigue, and never need rest. Animals must spend the 
 greater part of their time in feeding or in repose. Espe- 
 cially is this the case, if they are worked rapidly. During 
 this time, the labor which they perform must either be 
 suspended, or else other animals must take their place. 
 A. horse cannot labor severely for more than eight hours iu 
 twenty-four. Hence, if the uninterrupted labor of horses 
 were required for twenty-four hours, three relays n^iust be 
 provided. Thus, if a boat were required to perform a 
 voyage in twenty-four hours, she must employ three relays 
 of horses ; that is, a steamboat, worked by a -power equal 
 to that of one hundred and fifty horses, would require four 
 hundred and fifty horses, in order to create the necessary 
 momentum. 
 
 3. Hence, there is a great gain in Economy. The first 
 cost of inanimate is generally less than that of animate 
 agents ; they are liable to no diseases ; they require no 
 food ; and create expense only while they are performing 
 their work. Were the labor now performed by steam, to 
 be performed by horses, the price of the ordinary necessa- 
 ries of life would be quadrupled, and many articles of ordi- 
 nary use would be placed out of the reach of any but the 
 most opulent. Nor is this all. The substitution of inani- 
 mate for animate power has a great tendency to reduce the 
 cost or to increase the supply of all agricultural products. 
 Suppose that, by the use of steam, one thousand horses 
 can be dispensed with. A horse requires for sustenance, 
 throughout the year, as much agricultural produce as 
 ♦\'ould support eight men. If, then, these one thousand 
 horses can be dispensed with, there may be produced, on 
 tlie land which was formei'ly employed for the production 
 of hay, as much wheat as will support eight thousand men. 
 This must, at first, reduce the price of wheat ; and the 
 
42 PllODUCTION. 
 
 result would be, that the district would support eight thoi 
 sand more men than before.* 
 
 4. There is also, commonly, a gain in personal safety. 
 Inanimate agents act under laws which may be known and 
 obeyed, and of which the results may be commonly foreseen 
 and guarded against. Animals are endowed with passions 
 and will, which we can frequently neither control nor in- 
 fluence. Besides, the greater expensiveness of the individ- 
 ual machines employed in the use of inanimate agents, 
 renders it for the interest of the proprietor to employ men 
 of experience and responsibility to manage them. This 
 very sensibly diminishes the risk. When we reflect upon 
 the vast amount of travelling by steamboats and railroads, 
 it must be evident that, notwithstanding the accidents to 
 which they are liable, a vastly greater amount of human 
 life would be sacrificed, if the same number of persons 
 were transported by horses. 
 
 5. Inanimate agents can be used without tlie injiictio7i 
 of pain. Inanimate agents are insensible. Where the 
 iabor to be accomplished is either severe, or where it 
 requires great speed, animals must be rapidly destroyed. 
 This exposes them to great suffering. A horse in a stage 
 coach can rarely travel rapidly, more than ten miles a day ; 
 and most horses will endure even this labor but for a short 
 time. From this suffer-ng, inanimate power is exempt. 
 It never endures pain from being over driven. 
 
 6. Animate power decreases with velocity. Hence, we 
 must soon arrive at a point beyond which it can no further 
 be used to create momentum. If we represent the trac- 
 tive force of a liorse, when moving at two miles an hour, 
 at one hundred, his force at the rate of three miles, will be 
 
 * These stateuients are allowed to stand as written by Dr 
 Way land. But experience has shown that the use of steam has, bj 
 the stimulus given to industry, caused an increase rather *han a dim 
 inution of the number of horses kept. C. 
 
AGENTS FOR DIRECTING MOMENTUM. 43 
 
 eighty-one ; at the rate of four miles, sixty-four ; at the 
 rate of five miles, forty- nine ; at the rate of six miles, 
 thirty-six; while at the top of his speed, he can carry 
 nothing more than his own weight. An engine, on the 
 contrary, may be made to work within certain limits, as 
 oowerfnlly at one degree of velocity as at another. In all 
 .•ascs, therefore, in which both great power and great 
 velocity are required, inanimate power must, of necessity, 
 be employed. 
 
 From these causes, we see that inanimate is rapidly tak- 
 ing the place of animate power, both where stationary and 
 where locomotive force is required. By the additional 
 speed which it is capable of producing, it gives rise to great 
 economy of time. This, to all persons engaged in active 
 employments, is a consideration of vast moment. Being a 
 continuous agent, it is also enabled to act with the great- 
 est certainty. Hence, men may adjust their transactions, 
 in different places, with entire precision. This is also 
 another source of economy, both of time and of capital. 
 And, besides, notwithstanding the expensiveness of the ar- 
 rangements for the use of locomotive forces, the amount 
 of additional travelling to which they give rise, is so great 
 that the expensiveness of transportation between different 
 places is, in general, materially diminished. 
 
 Of the Natural Agents by which Momentum 
 is directed and applied. — It is obvious that a great 
 addition is made to human power, where the agents for 
 creating momentum have been discovered. But this is not 
 all. Several combinations of matter may be formed, by 
 which mere human force may be greatly assisted, and 
 'vhicn, by being united with the agents for creating mo- 
 inontum, may greatly increase and vary and give adapta- 
 tion to its utility. These arc called Mechanical poivcrs, 
 which are treated of at large in works on Mechanics and 
 
44 PEODUCTION. 
 
 Natural Philosophy. In their simple form, they are the 
 lever, the wheel and axle, the inclined plane, the screw, the 
 pulley, and the ivedge. They are variously combined for 
 producing the different results of mechanics, but may be 
 all reduced to these simple elements. 
 
 By means of these, the muscular power of man is en- 
 abled greatly to increase its effect ; that is, a man by hi^ 
 own strength can now accomplish labor which he could not 
 accomplish without them. Though these instruments give 
 no new strength, yet they greatly increase the effectiveness 
 of that which already exists ; and hence, their invention 
 marks an important era in the progresg of civilization. It 
 is also to be remarked that their origin, in point of time, 
 is far in advance of the discovery of the creative agents. 
 Archimedes had made great progress in the discovery and 
 application of these modifying powers when the use of crea- 
 tive agents was almost unknown. 
 
 The triumph of human skill is, however, achieved when 
 these two forms of natural agency are combined in a single 
 machine. By the one we generate power to what extent 
 soever we choose ; and by the other we modify it in any 
 form, give to it any application, and direct it to any pur- 
 pose that our convenience may require. It is in this man- 
 ner that man renders all the various powers of nature 
 tributary to himself. He can thus create and use as he 
 pleases as gi-eat a power as he desires. He devolves the 
 labor on nature, and he has only to fabricate the instru- 
 ments and give them their direction. He is successful just 
 in proportion as he does this ; since nature always works 
 with undeviating accuracy, with unerring skill, with inde- 
 fatigable perseverance ; and she always works for nothing. 
 
 It may be useful to specify some of the results accom- 
 plished by the various instruments which man employs foi 
 modifying that momentum which is exerted by the first 
 class of natural agents. 
 
AGEifTS i'OK DiKECiiNG MOMENTUM. 45 
 
 1. We are thus enabled to climige the direction of the 
 power. Thus, in the cylinder of the steam engine, the 
 momentum is created either in perpendicular or horizontal 
 strokes. This, being by means of an arm and a crank 
 changed into a circular motion, moves the paddle-wheels 
 of a steamboat. Thus, als:^ in the machinery for moving 
 a trip-hammer, a circular is changed into a perpendicular 
 motion, by the striking of the cogs of a wheel upon the 
 short arm of the lever, while the hanimer is attached to the 
 other arm. 
 
 2. We exchange power for velocity. This is done m all 
 spinning machinery. By water or by steam, we cause a 
 large wheel to revolve ten, twenty, or thirty times in a 
 minute, and with a power equal to that which could be 
 produced by fifty or one hundred horses. In spinning, 
 however, we need small power but great velocity. Hence, 
 by the combination of various large and small wheels we 
 produce a velocity, in a thousand spindles, equal to many 
 thousand revolutions in a minute. The whole of this fifty 
 or one hundred horse power is thus spread over a large 
 manufactory, and adapted by various contrivances to every 
 degree of velocity and every form of motion that may be 
 required. 
 
 3. We are thus enabled to exert forces too great for 
 animate power. By water power or by steam we can gen- 
 erate as great a force as we please ; and we have only to 
 combine with it the proper adjustments, in order to exert 
 upon any point any momentum which we desire. The 
 power required to roll and hammer iron or copper, to pro- 
 pel steamboats, to forge anchors, and that used in several 
 Dther of the arts, is greater than could be exerted by any 
 animate force with which we are acquainted, uidess it were 
 exerted by means of some combination of the meclianical 
 forces. 
 
 4. We are thus also enabled to execute operations too 
 delicate for human touch, Verv delicate operations soon 
 
46 PRODUCTION. 
 
 weary the nervous system by the excessive attention which 
 tliey of necessity require. Thus, in order to spin the finest 
 tliread on a spinning wheel there must be great accuracy, 
 both in the velocity of the wlieel and in the muscular power 
 exerted in drawing out the thread. This requires an effort 
 of attention which tlie human system cannot long maintain, 
 aad of course, the thread will frequently be uneven. But 
 by means of machinery both of these operations may be ad- 
 justed with mathematical accuracy ; and as machines have 
 no nerves, they will be perfectly faithful to that adjustment. 
 Hence machinery is necessarily used in tlio manufacture of 
 such articles as require for their formation identity of re- 
 sult, such as screws, types, etc. Nevertheless it is a singu- 
 lar fact that no fabrics have yet been produced by machin- 
 ery equal to the Belgian lace or the India shawls wrought 
 by hand. Careful training and hereditary knack, cultivated 
 through many generations, enable liuman nerves and mus- 
 cles to bring forth the most delicate and perfect products of 
 labor and skill, though at an immense expenditure of labor. 
 
 5. By means of machinery, we are enabled to accumu- 
 late power. We thus exchange a continuous and small 
 force for a sudden and violent one. Such is the case with 
 the pile-driver, and the common beetle or mallet, when 
 used in combination with the wedge. 
 
 6. By the same means we are enabled to exchange a 
 short and irregular effort for a continuous and regular move- 
 ment, or to spread the action of a short, over a long period 
 of time. This is done in clocks, watches, and other similar 
 machinery. Here we spread the action of ^ minute over a 
 day, or a week, and with almost mathematical accuracy. 
 
 In consequence of the above mentioned application of 
 machinery, various other advantages are realized in pro- 
 duction. For instance ; there is frequently a great saving 
 of material, as in the change from making boards with the 
 adze, to that of making them with the saw ; and again the 
 labor of natural agents is so much cheaper, that many arti- 
 
actEn^ts for directing momentum. 4? 
 
 cles, which would otherwise have been worthless, are now 
 deserving of attention, as they may now be profitably en- 
 dowed with some form of value. 
 
 We append to these remarks upon the use of natural 
 agents an extract very graphically describing the power 
 of the steam engine, which has commonly been ascribed to 
 Lord Jeffrey, of Edinburgh : 
 
 ' ' It (the steam engine) has become a thing, stupendous alike 
 for its force and its flexibility ; for the prodigious power which it 
 can exert ; and the ease, precision, and ductility with which it 
 can be varied, distributed, and applied. The trunk of an ele- 
 phant, that can pick up a pin or rend an oak, is as nothing to it. 
 It can engrave a seal, and crush masses of obdurate metal before 
 it ; draw out, without breaking, a thread as fine as a gossamer ; 
 and lift up a ship of war, like a bauble in the air. It can embroi- 
 der muslin, and forge anchors ; cut steel into ribbons, and impel 
 loaded vessels against the fury of the winds and waves. 
 
 ' *■ It would be difficult to estimate the value of the benefits 
 which these inventions have conferred upon the country. There 
 is no branch of industry that has not been indebted to them, and 
 in all the most material, th^ have not oiiiy widened most mag- 
 nificently the field of its exertions, but multiplied, a thousand 
 fold, the amount of its productions. It is our improved steam 
 engine, that has fought the battles of Europe, and exalted and 
 sustained, through the late tremendous contest, the political gi'eat- 
 ness of our land. It is the same great power, which enables us to 
 pay our national debt, and to maintain the arduous struggle in 
 which we are still engaged, with the skill and capital of countries 
 less oppressed with taxation. 
 
 "But these are poor and narrow views of its importance. It 
 has increased, indefinitely, the mass of human comforts and enjoy- 
 ments, and rendered cheap and accessible, all over the world, tlie 
 materials of wealth and prosperity. It has armed the feeble hand 
 of man, in short, with a power to which no limits can be assigned ; 
 completed the dominion of mind over the most refractory quali- 
 lics of matter ; and laid a sure foundation for all those future 
 ouiracles of mechanical power, which are to aid and reward the 
 labors of after generations." 
 
CHAPTER VI. 
 
 DIVISION OF LABOR. 
 
 The effectiveness of labor is increased by systematizing 
 its opeiiitions. The principle is that different kinds of 
 labo?' be distributed to different classes and individuals, so 
 that each shall do that for ivhich he is best fitted. 
 
 The principle comes out of that order of nature which 
 has given to certain regions of the earth peculiar adapta- 
 tions for certain productions and to certain individuals pe- 
 culiar endowments for certain kinds of work ; and also 
 from providential circumstances which, have directed the 
 efforts of different nations and classes and individuals, t.» 
 specific forms of production. 
 
 It is illustrated on a broad scale, in the different indus 
 tries of different nations, adapted to their respective advan- 
 tages. It thus gives rise to the wide commerce of the 
 world. It is illustrated also in all civilized communities, 
 in the distribution of the various forms of service, trades 
 and professions to different people, according to their seve- 
 ral capacities, tastes and circumstances. It thus gives rise 
 to the multifarious exchange of values in detail, wliich 
 passes objects of desire from producers to consumers, and 
 constitutes so large a part of the business of every civilized 
 community. It is manifest that the results of productive 
 labor are botli increased and improved wlien the farmer 
 and the baker, the blacksmith and the jeweler, the weaver 
 and the tailor, the merchant, the lawyer, the doctor, etc., 
 
DIVISION OF LABOR. 4:9 
 
 each devotes his energies to the work of liis particulcii 
 calling. 
 
 Some application of the principle is essential to the or- 
 gani :ation of civilized society ; and civilization advances a3 
 this principle is carried out in minute details. The rami- 
 fications of the principle are many and exceedingly intri 
 cute. For illustration, we may start with the loaf of bread 
 on our table and trace out the various forms of laboi 
 directly or indirectly concerned in bringing it before us, 
 lit for food. The loaf came to us from the baker, who 
 received his flour from the miller, who in turn received 
 his grain from the farmer. This line of connection is sim- 
 ple and direct. But if we step into the bakery, we see at 
 once that many other forms of labor are involved in this 
 product. The mason and the brick-maker and the lime- 
 burner have all done something to build the oven ; the 
 services of the carpenter^ the blacksmith and the tinner, 
 were necessary to form the few simple tools required : 
 another line of laborers were employed to cut or dig, to 
 transport and to prepare the fuel ; others still were con- 
 cerned in producing the salt, the yeast and the soda mixed 
 with the chief ingredient ; and the tools and materials of 
 each of these branches of labor required many other kind;: 
 of labor. We pass to the mill whence the flour came, and 
 here we have to recognize besides the miller and his im- 
 mediate helpers, the various laborers who improved the 
 water-power, built the mill, prepared the mill-stones, con- 
 trived and framed the machinery, consisting of many 
 parts, each involving diverse labor and skill, and those who 
 made the barrels, and packed and transported the flour ; 
 and in addition to these, are the many a little further ofi 
 who furnished the instruments and materials for tlicir varied 
 work. We pass on to the farmer who raised the wheat, 
 and with him pass before us all concerned in the culture 
 and harvesting of his crop, all who had to do with clearing, 
 
50 PRODUCTIOJ^. 
 
 fencing and draining the liclds, and all employed in the 
 rnaiHifacture of his divers tools. Then, back of all these, 
 Avas the seed-wheat and the coni[)lication of labor involved 
 ill its production ; and in each Hne of industry noticed, 
 t]ie ramihcations run back indetiniLely to the labor of 
 many grou))s and successive generations of men. Wbr 
 can reckon up all the different persons and forms 0/ 
 labor represented thus in the bread just ready to bo 
 eaten ? 
 
 Contrast with this complicated division of civilized in- 
 dustry, the rude efforts of the savage who combines in one 
 person all kinds of labor. The Indian squaw makes her 
 own hoe, scratches the ground, plants her corn, tends it, 
 gathers it, pounds it into hominy, brings in her own fuel, 
 wets up her cake and bakes it in the ashes. The cost of 
 this imperfect product, reckoned in hours of toil spent 
 upon it by the single laborer, is fnore than a hundred fold 
 greater than that involved in producing the bettor article, 
 which represents an intinitesimal quota of labor expended 
 by each of a hundred or more persons contributing to the 
 common result. 
 
 From this broad, general view, it is evident that this 
 principle of Division of Labor must enter into every de- 
 partment of Political Economy. Indeed, the whole science 
 grows out of the manifold bearings of this principle in the 
 structure and functions of civilized society. 
 
 But as it relates to the department of Production, the 
 principle is presented in a narrower and more specific view. 
 Here the expression Division of Labor has a technical 
 meantfig, respecting the production of one or another par- 
 ticular product. Suppose an establishment for the maun- 
 facture of an article, watches for instance, is projected. 
 The largest and best results with the least expenditure of 
 labor are desired. Obviously it will greatly economize labor 
 to give to each man or set of men one part of the watch to 
 
DIVISION OF LABOR. 6 J 
 
 maKG. In the techniciil sense, then Division of Labor im 
 pUes two things. 
 
 1. A71 analysis of the article to be produced, and of the 
 fvork to be done into distinct and simple parts. 
 
 2. A distribution of these parts to the persons env 
 ployed, such that each workman shall confine himself, a§ 
 nearly as possible, to a single operation. 
 
 The arrangement contemplates such an adjustment of 
 the processes that tlie several operations shall keep each 
 other going. One man's work on one part, may balance 
 that of three or four on another. The system is complete 
 and perfect when there are no superfluous hands and none 
 are kept idle, waiting on others' movements,— when the 
 several processes fit into each other like the gearing of 
 smooth running machinery. 
 
 The Special Advantages of Division of Labor may 
 be stated as follows : 
 
 1. Division of labar sJiortens the period required for 
 learning an operation. The more complicated the opera- 
 tion, the longer is the time necessary for acquiring the 
 skill requisite to the performing of it successfully. But 
 this time- spent in learning, is useless to the operator and 
 to society, except in so far as it is necessary to the crea- 
 tion of the product. The longer the time necessary for 
 learning an operation, the higher must be the wages of tlic 
 operator for the remainder of his life ; and also, of course, 
 the greater must be the price of his products. If this can 
 be lessened, the price of course will fall. That this is les 
 sened by division of labor is evident from an obvious ex- 
 ample. Suppose that a given process, say the making of 
 nails, consists of seven operations ; and that each of these 
 operations required one year's practice before it could be 
 successfully performed. Now, if seven men were to learn 
 this occupation and each one were obliged to learn everj 
 
62 PRODUCTIOlf. 
 
 operation, the time required would be 7x7== 49 years 
 whereas, if each of them were required to learn but one, 
 the time would be but 7x1 = 7, or, the difference would 
 be 49 — 7=42 years of human labor, or six-sevenths ol 
 the whole time, which would thus be saved. There would 
 be six years more of productive labor in the life of each o^ 
 these men ; and, as they had spent less time in acquiring 
 their art, they could afford to exercise it for lower wages. 
 
 Besides, there is intimately connected with this cause 
 another of considerable importance. Every one in learn- 
 ing an art, must, by unskilfuhiess, destroy a considerable 
 portion of capital. And this amount of capital will be in 
 proportion to the number of operations which he is obliged 
 to learn. Thus, suppose that a man learns seven opera- 
 tions, and, in learning each destroys ten dollars' worth 
 of capital, the amount which he will destroy in acquiring 
 his whole trade will be 7 X 10=70. If he have to learn 
 but one, it will be but ten dollars ; and thus, the difference 
 will be 70 — 10=60 dollars, upon every such individual. 
 A difference so great as these two combined, when spread 
 over the whole face of society, will have no inconsiderable 
 effect upon the annual net revenue of a community. 
 
 2. When one man performs all the operations required 
 in a complicated process, much time is lost in passing from 
 one operation to another. By division of labor, this loss is 
 avoided. 
 
 The effect of habit is known to every one. It renders 
 any operation easy, which is frequently repeated. The 
 mind and the muscles become adapted to a particular form 
 of labor ; but if that form of labor be suspended and our 
 attention be directed to another, it requires a considerable 
 time before we can acquire a different habit, and, in the 
 mean time, the good effects of the preceding habit are, to a 
 considerable degree, lost. Hence, he who is frequently 
 passing from one occupation to another, is in the condition 
 
DIYISION OF LABOR. 53 
 
 of him who is, (luring his whole life, fonning habits ,• and 
 never in the condition of him who has the advantage of 
 habits already formed. Besides, this long habit produces 
 in the muscles a cai^acity for continued exertion. He wlio 
 Is in the liahit of performing an operation, can perform it 
 without sensible fatigue for several hours together. Every 
 one who has ever sawed wood or used a spade in a garden, 
 is sensible of this fact. Now, all this advantage is lost by 
 frequently turning from one operation to another. 
 
 3. Where complicated tools are to be used and there is 
 no division of labor, much time is also lost in adjusting 
 them to the different kinds of work. By division of labor 
 this disadvantage is obviated. Suppose that nails of differ- 
 ent sizes are to be made, and it is necessary that the ma- 
 chinery, in order to adapt it to the different kinds of work, 
 should be frequently adjusted ; the time so occupied pro- 
 duces nothing and is lost. If, on the contrary, one machine 
 is permanently used for the manufacture of nails of one 
 particular size, all this loss is avoided. This is also more 
 obvious when the adjustment involves expense ; as, for in- 
 stance, when a furnace is used. If a furnace be heated, 
 and then suffered to cool while the operator is performing 
 some other labor, the fuel consumed after he leaves it, and 
 that which is used to bring it again to the requisite tem- 
 perature are a total loss, in addition to that of the time 
 and labor required in kindling the fire, and in waiting for 
 the rise of temperature. By dividing the labor so that one 
 person shall be always employed at the furnace, while others 
 are employed at other parts of the process, much capital 
 and labor will be saved. 
 
 4. By constantly pursuing the same occupation, a 
 degree of shill and dexterity is acquired, which greatly 
 increases the productiveness of human labor. This advan- 
 tage is lost by employing the same individual upon several 
 operations. Adam Smith informs us, that a blacksmith 
 
54 PRODUCTION. 
 
 who occasionally makes nails, but whose whole business ie 
 not that of a nail- maker, can make but from eight hun- 
 dred to one thousand nails a day ; while a lad who has 
 never exercised any other trade, can make upwards o( 
 twenty-three hundred a day. All who have been accus- 
 tomed to visit manufactories, must have been surprised to 
 observe the dexterity which is acquired even by children 
 in performing the operations in which they are exclu- 
 sively engaged. It is probable that the performers of jug- 
 glery, or sleight-of-hand, derive their skill almost entirely 
 from this cause. They seldom perform more than a few 
 operations, but by practicing these, and these alone, for a 
 great length of time, they at last attain to a proficiency 
 which, to a spectator, is incomprehensible. 
 
 5. Division of labor suggests the contrivance of tools 
 for the performance of the operation in which it is em- 
 ployed. 
 
 The more completely any process is analyzedj the sim- 
 pler must become the individual operations of which it is 
 composed ; and the simpler any operation is, the easier is 
 it to contrive a tool or an adjustment by which it may be 
 performed. Adam Smith informs us, that in the first 
 steam engines, boys were constantly employed to open a 
 communication between the boiler and cylinder, according 
 as the piston ascended or descended. One of these boys 
 observed, that, by uniting the handle of the valve which 
 opened this communication with another part of the ma- 
 chine, the valve would open and shut wdthout his assist- 
 ance and leave him at liberty to play with his fellows. 
 One of the most important improvements of this machine 
 was thus by division of labor, brought within the capacity 
 of a playful boy. It would have been very difficult to 
 invent machinery for the making of nails, when all the 
 processes were considered as a complicated whole. But 
 after the several operations are divided and are assigned to 
 
DIVISION OF LABOR. . 6t 
 
 individuals separately, it becomes comparatively easy tc 
 construct an adjustment by which any of them, singly, 
 could be performed. This is the first step in invention. 
 But this is not all. After these several single instruments 
 have been invented, the next step is to combine them to- 
 gether. This is the most finished effort of mechanical 
 genius. This is the principal differenca between a tool 
 and a machine. A tool performs one single operation ; a 
 machine combines several tools together, and accomplishes 
 either the whole, or a considerable part of a complicated 
 process. 
 
 6. Every one at all acquainted with manufacturing 
 employments, must have observed that some of the opera- 
 tions in a given process, require greater muscular power or 
 greater skill or greater dexterity than others. Some, for 
 instance, can be performed only by the most experienced 
 workmen, while others can be perfectly well performed by 
 children. Now, by division of labor a manufacturer is 
 enabled to employ upon each operation precisely the labor 
 adapted to it, and is obliged to pay for each portion of the 
 labor no more than it is actually worth. This must greatly 
 diminish the cost of production. Thus, the manufacture 
 of pins is divided iiito ten different operations, and each 
 operation employs one laborer. But some of those laborers 
 are men ; others are women and children ; and their wages 
 vary from six shillings to four and a half pence sterling a 
 day. If the labor were not divided, one person must 
 understand the whole process, and therefore, must be em- 
 ployed at the highest price of labor ; and hence, he must 
 be paid at the rate of six shillings a day for that part oi 
 the work which is worth only four and a half pence a day. 
 Ever5^ one must see that this would greatly increase the 
 price of pins, and also occasion a great deficiency in labor. 
 It is by this means, also, that occupation is provided for 
 the weak and the aged, for females and for children who 
 
56 , PRODUCTION. 
 
 would otherwise be unable to earn any thing. Thus, atl 
 
 flip labor of the coinmunity is rendered productive, and an 
 iijiinense amount is annually added to the revenue of a 
 country. Nor is the gain to be estimated at simply what 
 is thus earned. The whole community is thus acq"^ring 
 those habits of industry and self-dependence, wh ch are 
 essential to its happiness and well-being, no less than to 
 the rapid accumulation of its capital. 
 
 Nor are the benefits of the division of labor confined to 
 mechanical processes. The results have been equally inter- 
 esting in those cases where this principle has been applied 
 to iiitellectual labor. The effect of such a division is seen 
 in the following account, which is introduced here, not 
 only because it very happily illustrates this whole subject, 
 but also because it may suggest to scientific men some 
 other cases in which it may be again applied with similar 
 benefit. 
 
 *' During the period of the French Revolution, the government 
 was desirous of producing a series of mathematical tables, in order 
 to facilitate the extension of the decimal system, which had been 
 recently adopted. They directed their mathematicians to con- 
 struct such tables on the most extensive scale. Tlie superintend- 
 ence of the work was confided to M. Prony. It happened that 
 shortly after he had undertaken it, he opened in a bookstore 
 Adam Smith's "Wealth of Nations," and, by accident, turned 
 to the chapter on division of labor. The thought immediately 
 suggested itself that this might be adopted in the work in which 
 he was engaged. He immediately followed out the suggestion, 
 •md arranged his plan accordingly. He divided the persons who 
 were to execute the labor into three sections : 
 
 The first section was composed of five or six of the most ami - 
 nent mathematicians of France. Their duty was to ascertain the 
 analytical expressions which were most readily adapted to simph 
 numerical calculation, and which could be performed by manj 
 individuals employed at the same time. The formulae on tlie use of 
 wliich it had decided, were to be delivered to the second section. 
 
DIVI8I0IJ OF LABOR. 5? 
 
 The second section consisted of seven or eight persons of consid- 
 erable acquaintance with mathematics, whose duty it was to con- 
 vert into numbers the formulas put into their hands by the first 
 section ; and then to deliver out these numbers to the members of 
 the third section, and to receive from them the finished calcula- 
 tions. These they could verify without repeating the work. 
 
 The third section consisted of sixty or eighty persons. Thej 
 received the numbers from the second section, and, using nothing 
 more than addition and subtraction, returned to that section the 
 finished tables. Nine-tenths of this class had no knowledge of 
 arithmetic beyond its first two rules ; and it is remarkable that 
 these were usually found more correct in their calculations than 
 those who possessed a more extensive knowledge of the subject. 
 The extent of the labor which was thus executed in a remarkably 
 short space of time, may be estimated when it is stated that the 
 tables thus formed are computed to occupy seventeen large folio 
 volumes. And yet we see that the greatest part of the labor was 
 actually accomplished by persons who might be employed at very 
 small expense, and who could do the work assigned them as per- 
 fectly as those whose labor was the most expensive.* 
 
 * Babbage on Economy of Machinerv 
 
 8* 
 
CHAPTER VTI. 
 
 LIMITATIONS TO THE DIVISION OF LABOR. 
 
 The principle so beneficial in its varied application, is 
 limited by certain conditions which cannot be set aside. 
 We may notice four such restrictions. 
 
 1. That which comes from the Nature of the Process. 
 Every process can be analyzed into its ultimate elements ; 
 that is, into the various simple processes of which it is 
 composed. Thus in pin-making the straightening of the 
 wire is one operation, the cutting it into equal lengths is 
 another, the sharpening of the points is another, the head- 
 ing of the pin is another, etc. But when we have reduced 
 the operation to its simple elements we can proceed no 
 further. Hence, here is our necessary limit ; for it is no 
 ■iivision of labor to employ two men to perform precisely 
 the same operation. Hence an establishment which car- 
 ries division to this limit, will be able from what has been 
 said, to undersell another which does not carry it to the 
 same degree of perfection. And hence, in establishing 
 a manufactoi-y, it is important so to adjust the number 
 and kind of workmen, that, when the different operations 
 of a process have been assigned to different persons, these 
 mrsons may le in sucli ^proportions as exactly and fuUy to 
 employ each other. The more perfectly this is accomplished 
 the greater will be the economy. And, this having been 
 once ascertained, it is also evident that the establishment 
 
LIMITATIONS TO DIVISION OF LABOR. 59 
 
 caLLnot be successfully enlarged, unless it employ multiples 
 oi uhis number of workmen. 
 
 2. Divisio7i of labor may he limited hy Deficiency of 
 Capital. Division of labor in manufactures, cannot be 
 carried on unless the proprietor have sufficient capital to 
 employ, at the same time, all the persons necessary to such 
 a division, and to keep them so employed until the pro- 
 ceeds of their work enable him to furnish them again witl 
 fresh material. This is of course a considerable outlay, 
 and supposes a considerable accumulation of the proceeds 
 of pre-exerted industry. Hence, in a yoor or in a new coun- 
 try, there can he hut little division of lahor. No one has 
 more than enough capital to employ himself, and, perhaps 
 one or two laborers ; and hence each individual performs 
 all the operations of each process, and frequently those of 
 several processes. The same individual is the farrier, 
 blacksmith, cutler, and perhaps wheelwright, for a whole 
 settlement. To illustrate this by a single instance : If a 
 nailer be able to purchase no larger amount of iron and 
 coal than he can use in the manufacture of nails in a day, 
 he must perform all the parts of the process himself ; and 
 of course must labor very disadvantageously. As soon 
 however, as he is able to double his capital, he may employ 
 another pei'son to work with him, and they may then in- 
 troduce a division of labor. When he has tripled his capi- 
 tal he may employ another workman and carry his division 
 still further. He may thus go on until he has reduced the 
 process to its simplest elements. When he has gone thus 
 far, the accumulation of his annual capital will enable him 
 to invest something in fixed capital. He will thus be able 
 to purchase some of the simpler machines by which some 
 of the parts of his process may be executed. To these he 
 will axid others as he advances in wealth, until his accumu- 
 lated means enable him to combine them into one machine 
 for completing the whole process. Thus he becomes a 
 
60 PKODUCTION. 
 
 manufacturer, and derives the larger part of his revenue 
 trom the use of his tixed capital. At every step his gains 
 will be greater, and at the^ same time the price of his pro- 
 duct will become less. It is not pretended that all these 
 changes always, or frequently, take place within the life 
 time of a single individual. The progress of society is noi 
 generally so rapid. Yet thej sometimes occur in the man 
 ner stated. The illustration shows the tendency of tilings. 
 But whether the results are comprised in the life-time of 
 one, two, or three individuals, the principle is the same. 
 
 3. Division of labor may he limited by the Demand for 
 the article produced. Suppose that, in a given district, 
 there is a demand for one hundred pounds of nails per day 
 and that these can be made by two men. If three men 
 could, by division of labor, make two hundred pounds per 
 day there would be but small gain either to the workmen 
 or to the public ; because these men would of course lie 
 idle half of the time, and for this time they must be paid 
 as well as for the time in which they are employed. Or, 
 if they did not lie absolutely idle, that portion of the time 
 which was employed on other labor would be of compara- 
 tively small value ; and they by attending to other busi- 
 ness, would lose the skill which complete division of labor 
 confers, and which is one of its principal benefits. The 
 case is still stronger, if we take into view the fact that 
 division of labor supposes a large investment of fixed capi- 
 tal, and that those who are educated to any manufacturing 
 business, can rarely employ themselves upon any thing 
 else. If the laborers at any of our manufactories were 
 L'mployed only half the time their wages must be doubled ; 
 for their families must be supported one day as well aa 
 another, and thus the interest of the whole investment 
 must be charged upon half the quantity of product. These 
 causes together with the loss of skill in workmen, would 
 more than double the price of products, and would of ne- 
 
LIMlTATlOiq^S TO DIVISIOJ!^ OF LABOR. 6i 
 
 eossity, carry back the division of labor to its less perfect 
 state. 
 
 But this demand must depend upon sereral ciitum- 
 stances. The most important of these are the following : 
 
 a. The Number of the Consumers. When the number 
 of inhabitants is small as in a new settled country, or in 
 an isolated situation, the demand must of course corre- 
 spond to their number. One hundred men will require 
 but one-tenth as many hats or shoes as one thousand men. 
 It is on this account that wealth accumulates most rapidly 
 on navigable waters, because the market of the producers 
 is not limited to themselves, but may be easily extended 
 to other places. 
 
 h. The Wealth of the inhabitants. Demand does not 
 signify simple desire for an article, but desire for it, 
 combined with the ability and luillingness to give for it 
 what will remunerate the producer. Hence, the greater 
 the ability in a given population to remunerate tlie pro- 
 ducer, the greater will be the demand. The demand for 
 hats in a population of one thousand men, would be lim- 
 ited to those persons in that population who ivere able to 
 buy a hat. The larger the proportion of such individuals, 
 the better it would be for the hatter and for every other 
 producer. Hence we see that every individual is intei- 
 ested in the prosperity of every other individual in the 
 community, 
 
 c. The Cost of the article. The greater the cost of 
 the product, the smaller will be the number of persons 
 who are able to purchase it. Hence the less will be the 
 demand ; and hence, also, the less opportunity will then 
 be for division of labor. And besides the greater the cost 
 of the article, the greater amount of capital is required in 
 order to produce it by division of labor. Hen )e, this 
 cause operates in two ways to prevent the employment ol 
 this means of effecting the reduction of price. Thus, if a 
 
62 PRODUCTION. 
 
 community consist of one thousand men, and of these one 
 hundred be worth one thousand dollars per year ; foui 
 hundred be worth five hundred dollars ; and the remain- 
 der be worth but two hundred and fifty dollars per year ; 
 and an article be produced within the reach of only the 
 first of these classes, it can have but one hundred pur- 
 c-hasers ; if it come within the reach of the second class, it 
 will have five hundred ; and if it come within the reach 
 of the third class, it will have one thousand purchasers. 
 Hence it is that division of labor is but sparingly used in 
 the manufacture of rich jewelry, and in articles of expeu- 
 sive luxury ; while it is so universally used in the production 
 of all articles of common use. Hence we see, that the 
 benefits of the use of natural agents and of division of 
 labor, are vastly greater and more important to the mid- 
 dling and poorer classes, than to the rich. These means 
 of increased production, reduce the cost of the necessaries 
 and of the essential conveniences of life to the lowest rate, 
 and of course bring them, as far as possible, within the 
 reach of all. 
 
 d. Facilities of Transportation. This is evident, 
 from what has been said. The cost of an article depends 
 not only on the cost of its original production, but also 
 upon the cost necessary to bring it to the consumer. Coal 
 may be very cheap at a coal mine, but if it must be borne 
 on the shoulders of men to the consumer, it would at a 
 few miles from the mine become so dear that no one would 
 be able to use it. The demand would be so small that 
 there would be no profit either in investing capital in the 
 machiner}', or in employing division of labor to raise it 
 from the mine. But if horses be used to transi)ort it t(. 
 the consumer, the demand will increase. Again, if for 
 horses, canals and railroads be substituted, it will become 
 cheap, and the demand will increase still more ; and, with 
 every such improvement that circle of consumption ex- 
 
LIMITATIONS TO DIVISION OF LABOR. 63 
 
 pands, of which the mine is the centre. The same princi 
 pie applies to manufactures, specially those of iron oi 
 he.ivy ware, and it applies just in proportion as transpoV' 
 tation forms a large or small part of the cost to the con • 
 snmer. And thus, in general, we see the principle on 
 which facilities for internal communication improve the 
 condition of both the other branches of industry. For this 
 reason the price of land and grain rises in a district through 
 which a canal or a railroad passes ; and for the same rea- 
 son manufactories may at one time be successfully estab- 
 lished in situations where they at another time would ha\e 
 been useless, if not ruinous to the proprietor. And still 
 more generally, we see the manner in which all the branches 
 of labor assist each other. A railroad or a canal can never 
 profitably be constructed m a country where there is noth- 
 ing to be transported. But where agriculture, manufac- 
 tures and commerce are productive, and hence require a 
 large amount of transportation, there these facilities are 
 immediately in demand. Were Liverpool and Manchester 
 to decline, of what use would be the railroad between 
 them ? And, on the other hand the railroad between 
 them, by reducing the cost of all articles bought and sold, 
 diminishes the cost of living in both places, enables the 
 producer to come into market with greater advantages, in- 
 creases the profits m all kinds of industry, facilitates the 
 accumulation of capital and thus adds greatly to the annual 
 revenue of both cities. 
 
 4. TJie Division of Labor is limited also by the Execu- 
 tive capacity of man. In every large establishment there 
 must be one person at the liead, whose supervision must be 
 felt in all departments, to hold every one employed to strict 
 responsibility and fidelity in his particular service. His 
 judgment must determine a thousand questions respecting 
 both general results and detailed operations. Ana his will 
 must pervade the whole system of divided labor, as a guide 
 
64 PEODUCTIOK. 
 
 and stimulus to many subordinate wills, that all may work 
 in harmony for a common end. The qualities which fit 
 one for these exercises we call executive capacity. The 
 -Qccessfal management of a great manufactory thus re- 
 '|uires talents of the highest order. But in the man most 
 iiighly endowed, there is a limit of both capacity and en- 
 lurance. Theoretically, it would be an advantage to have 
 the entire industry of a state perfectly systematized on the 
 principle of division of labor. But no one human head 
 would be equal to the supervision and control essential to 
 the harmony and success of such an arrangement. We 
 have frequent and sad instances of minds deranged, of 
 lives sacrificed" and of great enterprises wrecked by an ex- 
 pansion of business beyond the capacity of the manager's 
 mind. In these days, this limitation of the principle 
 under consideration is too little regarded. 
 
 Evils incident to the Application of this Prin- 
 ciple. — Under the division of labor so advantageous in 
 most respects, there are liabilities and tendencies to evil 
 which must be noticed. We mention 
 
 1. The Danger of impairing physical Health and Vigor, 
 k variety of exercise is essential to the full and healthful 
 development of the faculties and functions of the body. 
 But the division of labor often involves long and close con- 
 finement to a single operation — an overtasking of some one 
 limb or set of muscles — a posture which may cramp and 
 oppress the vital organs — exposure to deleterious gases and 
 exhalations — the breathing for hours in crowded rooms of 
 air bereft of oxygen and charged with carbonic acid. It 
 offers also strong temptations to the confinement and 
 severe labor of children not yet grown, by which tlieir 
 !iodies are depressed and their lives are shortened. Thf 
 vital statistics of large manufacturing towns present too 
 many painful facts illustrating this evil. There is a real 
 
BVILS iKClDE^t TO DiVISION" OF LABOR. 65 
 
 danger here, but it may be in great measure counteracted 
 by the careful study of sanitary measures. Wise economy 
 dictates the introduction and use, even at some expense, 
 of appliances which secure to laborers of every kind pure 
 air and varied johysical exercise. 
 
 2. The mind is liahU to he Contracted and EnfeelUd 
 When one's attention and energies are all absorbed in £ 
 minute operation, such as sharpening pins or counting 
 buttons by a machine, the free development of the mind 
 is likely to be cramped and hindered. This liability must 
 be recognized. It is however relieved in part by the law 
 of habit, inherent in the very constitution of the mind. 
 Under this law, the mind's action in the particular opera- 
 tion by constant exercise runs on almost unconsciously 
 with the machine, as though identified with it, and the 
 other faculties are free to be engaged about other matters ; 
 just as when walking, while each step really requires an 
 exercise of attention, judgment and will, the whole action 
 is so much a matter of habit that the mind is free for the 
 exercise of fancy or profound thought on a wide range. 
 Moreover, the association of numbers in large establish- 
 ments, gives scope for the introduction of means of intel- 
 lectual improvement, such as schools, lyceums, reading- 
 rooms and lectures which may effectually counteract this 
 tendency, and become a real advantage to the whole com- 
 munity of laborers. 
 
 3. The Division of Labor may involve some loss of In- 
 dependence and Self- Respect. It diminishes the numbers 
 of those who manage business for themselves and thus 
 throws into the class of workmen dependent on wages, 
 many capable and worthy men whose manliness and char- 
 acter would be better developed, and whose chances for 
 acquiring wealth would be greater under the responsibility 
 of a business of their own. In large establishments, also, 
 the fate of a great body of workmen hangs on the succesa 
 
66 PllODtJCTtOK. 
 
 or failure of a few maiuigcrs and capitalists. The failure 
 of a single manufacturing company tlius involves a sweep- 
 ing disaster, and the mischiefs of a general financial crisis 
 are aggravated as all are involved together. This evil may 
 bo relieved by devices for giving employes a personal ir 
 terest in the business and by a system of promotion to 
 higher and more responsible trusts on the ground of fide! 
 ity and efficiency. There can be no doubt that on the 
 whole, the average condition and prospects of working men 
 are improved by the systematic arrangement which under 
 the principle of division of labor prevails in large industrial 
 establishments. 
 
 4. The principle of division of labor favors comhina- 
 tions and strikes ^ as it brings together and holds in inti- 
 mate association, as a class, great numbers of dependent 
 and often unintelligent workmen. We only mention this 
 item in this connection. The full discussion of this topic 
 belongs to the third division of our science — distribution, 
 and will there be treated at some length. 
 
 These incidental evils are greatly overbalanced by the 
 advantages which proceed from the application of this law. 
 Yet they are of importance enough to deserve serious con- 
 sideration and to engage earnest study to devise means for 
 their relief. Far-seeing self-interest, no less than the spirit 
 of philanthropy prompts to such study and such efforts. 
 
 International Division of Labor, — This phase 
 of our subject demands some special notice and illustration. 
 
 It is manifest that the different portions of the same 
 country possess different facilities for producing the objects 
 of human desire. No district possesses advantages for 
 producing everything ; but almost every district possesses 
 peculiar facilities for producing something. Now, natural 
 advantaaes are clearly nothing more than means of in- 
 creased vrocLuctiveness-of labor in the creation of any par- 
 
iKTERIifATIONAL DIVISION^ OF LABOR. 67 
 
 ticnlar product. If one soil will produce forty bui=;"hols oi 
 wheat to the aci'e, with the samo labor that another will 
 produce twenty, th*;' labor upon the first is twice as })io- 
 ductive as that upon the second ; that is, the owner of :hc 
 one has a machine oy which he can, with the same lalor, 
 produce twice as mn^h as his neighbor. But perhaps the 
 soil which will produce only twenty bushels of wheat, will 
 produce forty bushels of corn per acre, while the other 
 soil will produce only twenty. This second soil is there- 
 fore an instrument which gives a double productiveness to 
 labor in the raising of corn. Now it is manifest that if 
 each one devotes himself to the production of that for 
 which nature has given him peculiar facilities, his amount 
 of production will be greater, he will himself be richer, and 
 the whole communi<-y will be supplied at a diminished cost. 
 Suppose that each occupied twenty acres, and each pro- 
 duced the crop for which he had the greater advantages ; 
 the result would be .20x40 = 800 of wheat, and the same 
 of corn ; =800 bushels of wheat and 800 of corn. Suppose 
 again they divided tlieir crops, and each appropriated ten 
 acres to wheat and ten to corn ; the result would be 
 10X40 = 400 of wheat, and 10x20=200 of corn; and 
 10x40=400 of corn, and 10x20=r200 of wheat; that is, 
 600 of wheat and 600 of corn ; that is, there would be 600 
 instead of 800 bushels of each raised, and the loss to both 
 and to the community would be 200 bushels of each a year. 
 By so much would ^hey both be poorer than by devoting 
 themselves wholly to that ])roduct for which each had the 
 greatest natural advantages. 
 
 Or, to take another case. Suppose one district rich in 
 soil and adapted to the production of wheat, but. level and 
 far inland, and therefore iinadapted by position and want 
 of the proper natural agents, to the production of manu- 
 factures ; and another district on the sea-board hilly and 
 sterile, adapted to manufactiires but unadapted to the cul- 
 
68 PRODUCTIOK. 
 
 ture of wheat. On fclie first, with one day's labor, a man 
 may raise two bushels of wlieat, but could produce but four 
 yards of cloth. On the other, by the same labor, a man 
 can produce twelve yards of cloth, but can raise only one 
 bushel of wheat. Now it is manifest that by each district's 
 devoting its labor to that kind of production for whicli it 
 has the greatest natural facilities, the production of the 
 whole country will be increased. It is also evident that a 
 man in' the wheat district will provide himself with cloth 
 at a cheaper rate by raising wheat and procuring cloth by 
 exchange, than by manufacturing it himself ; and on the 
 other hand, that the manufacturer will provide himself 
 with wheat at a much cheaper rate by making cloth, than 
 by raising wheat himself. Thus by this form of division 
 of labor, the productive power of both is increased ; their 
 desires are gratified at the expense of less labor ; and thus 
 both are rendered richer and happier. 
 
 All this seems obvious, if only the several districts of 
 the same country be compared. And it is obvious, because 
 every one perceives that God has bestowed upon different 
 districts of the same country different advantages, which 
 it is for the interest of that country that each district 
 should improve to the utmost. But every one may see 
 that the same principles apply to different nations inhahit- 
 ing tJie different quarters of the glole. The separation of 
 (.lie earth into warring nations, is nothing but the arbitrary 
 work of man ; it alters neither the qualities nor the rela- 
 tions which God has given to things, nor the laws under 
 which he has constituted man. If a man own a farm of 
 which one part is suited only to tillage, and another part 
 only to grazing, and he divide it and sell the pasture land 
 to his neighbor ; this does not alter the nature of the 
 soil. Will it not be Just as profitable to appropriate each 
 part to the purpose for which God designed it, after the 
 purchase as before ? 
 
iNTEBNATIONAL DIVISION OF LABOR. 69 
 
 Every man needs, for the gratifir'afion of his innocent 
 desires, nay, for his conveniences and even necessaries, the 
 product ions of every part of the globe. To be convinced ol 
 this, we have only to enumerate tlie articles which furnish 
 our houses, the food that covers our tables, and the rai- 
 ment which clothes our bodies. How greatly would all 
 our means of happiness be diminished, were we deprived 
 of the iron, the furs, and the hemp of the North ; the cof- 
 fee, teas, sugar, rice, fruits, and spices of the South ; or 
 the wool, the wheat and the manufactures of temperate 
 climates. Every one must be convinced that the happiness 
 of every man is increased in proportion as he is furnished 
 with the greatest number of these objects of desire ; and 
 furnished with them in their greatest perfection and at the 
 cheapest rate. 
 
 But it is evidently the will of our Creator, that but few 
 of these objects, every one of which is necessary to the 
 happiness of every individual, should be produced except 
 in particular districts. Others, if they can be produced 
 in several places, can be produced much more cheaply, and 
 in greater perfection in some places than in others. Every 
 part of the glole possesses peculiar advantages for the pro- 
 duction of something ; but no part possesses advantages for 
 the production of every thing. Hence we see on the prin- 
 ciple illustrated above, that the anyiual production of the 
 globe will be greatest j that is, there will be the largest 
 amount falling annually to the share of every individual ; 
 that is, every individual will be richer and happier, when 
 each portion of the globe devotes itself to the creation of 
 those products for luhich it has the greatest nat%iral facili- 
 ties. If a man in New York can produce by one day's 
 labor, one hundred pounds of flour, but could not produce 
 more than one ounce of coffee ; and a man in Cuba can 
 produce twenty-five pounds of coffee, but cannot produce 
 more than one pound of flour, and they exchange as we 
 
PRODUCTIO:JC. 
 
 have before seen they must exchange, labor for labor ; the 
 one will produce by a day's labor twenty-five pounds of cof- 
 fee instead of an ounce ; and the other one hundred pounds 
 of flour instead of a pound. Is not this better than foi 
 the Kew York farmer to raise his coffee in a hot-house, 
 at the expense of a day's labor for an ounce ; and the 
 West Indian to raise his wheat on the mountains, at the 
 expense of a day's labor for a pound? Such are the advan- 
 tages of that division of labor suggested hy Geograjjhical 
 Position. 
 
 And the Final Cause of all this is evident. God in- 
 tonded that men should live together in friendship and 
 harmony. By thus multiplying indt-finitely their wants, 
 and creating only in particular localities the objects by 
 which those wants can be supplied, he intended to make 
 them all necessary to each other, and thus to render it no 
 less the interest than the duty of every one, to live in 
 amity with all the rest. 
 
 Nor is the application of this principle confined to 
 geographical localities. The simple fact that a nation 
 possesses facilities, be they either natural or acquired, for 
 creating any product at a cheaper rate than any other 
 nation, is a reason why that nation should devote itself to 
 the creation of that product; and why another nation 
 should for the same reason improve its own peculiar ad- 
 vantages. Thus, there are certain states of society, and a 
 certain amount of accumulation of capital, most favorable 
 to the creation of certain products. A nation in this State 
 and with this accumulation, can furnish these products 
 cheaper than her neighbors ; and this is a reason why they 
 should purchase them of her. Could not one of our old 
 States supply one of the new States with manufactures, 
 cheaper than the new State could produce them herself ? 
 And is thi3 not a reason why the new State should procure 
 them by exchange rather than by direct production ? Is 
 
IKTEEKATIOKAL DIVISION OF LABOR. 'il 
 
 it not cheaper for an Indian to buy a rifle of an European 
 than to attempt to make one for himself ? 
 
 This is however by no means to assert tliat such ar- 
 rangements and relations are to be permanent. As a 
 country accumulates fixed capital, it creates its own facili- 
 ties for creating almost every kind of manufactured pro 
 duct. One nation will naturally begin to do this at thi 
 same point of accumulation at which another began to do 
 it. And the way in which to arrive at this point the 
 soonest, is to become 7'icJi as fast as possible; that is, to buy 
 as cheap as we can, or in other words to procure annually 
 as many objects of desire as possible, for a given amount 
 of labor. A tribe of Indians would much sooner be able 
 to make rifles for itself, by purchasing at first rifles of an 
 European, than by determining that it would never use 
 rifles until it could manufacture them for itself. As the 
 use of a rifle would render industry more productive, and 
 thus render the tribe richer, it would bring them one step 
 nearer to that degree of accumulation at which they might 
 begin to make rifles for themselves. But the resolution 
 not to purchase of others would have no such tendency, 
 inasmuch as it would do nothing whatever toward accumu- 
 lating production ; but would on the contrary, shut them 
 out from the very means oflered them for most rapidly 
 benefiting their condition. 
 
 To sum up what has been said. It will be seen that 
 production will be increased ; that is, men will be richer 
 and therefore may be happier, as the following conditions 
 are complied with : 
 
 1. As the laws of nature, designed by our Creator for 
 our benefit, are understood ; 
 
 2. As the means are devised for availing ourselves, 
 in the most successful manner, of the utility of these 
 laws ; 
 
 3. As the human labor necessary to be expended is sc 
 
73 PRODUCTION. 
 
 arranged as, with a given expenditure, to produce the 
 
 greatest and most perfect result ; and 
 
 4. As the inhabitants of the earth in different locali- 
 ties, devote themselves most exclusively to the production 
 of those objects of desire, for the production of which they 
 have received, either directly or indirectly, from their 
 Creator, the greatest facilities. 
 
 Or, still more generally, production will be abundant ; 
 that is, man will enjoy the means of physical happiness 
 in proportion to his individual industry, both of body and 
 mind ; and to the degree of harmony and good feeling 
 which exists between the individuals of the same society ; 
 and also between the different societies themselves. 
 
CHAPTER VIII. 
 
 CAPITAL. 
 
 Its Definition. — Capital is that part of Wealth luhich 
 IS employed in Production. The word is often used 
 vaguely and with diverse meanings. We need to adhere 
 to a strict definition. The generic idea is, as stated, 
 wealth set apart to be consumed in the reproduction of 
 wealth. The technical use of the term always has refer- 
 ence to Production. 
 
 All capital is wealth, hut all wealth is not capital. 
 Suppose a farmer's crop this year gives him a hundred 
 bushels of wheat to spare. He may exchange this surplus 
 for gold, and bury the gold for safe-keeping. That gold 
 is wealth, but it is not capital ; for while buried it can 
 contribute nothing to the further production of wealth. 
 He may exchange his wheat for a beautiful painting to 
 adorn his home. The picture is still wealth, but, hanging 
 on the wall, it will do nothing to increase the next year's 
 crop — it is not capital. He may exchange his surplus of 
 wheat for a horse, or for labor in clearing and draining 
 another field. Now the wheat is gone and the money is 
 gone, but the wealth is still his, in the horse or in the im- 
 proved land, turned into means for the production of a 
 larger crop next year ; that is, he has turned this part of 
 his wealth into Capital. 
 
 Capital is not synonymous with Money, as too many 
 supjiose. The money for which the farmer sold his wheat, 
 while simply hoarded, is wholly withdrawn from produc- 
 
74 PJIOOUCTION. 
 
 tion, and though he may think himself rich in its posses- 
 sion, it is not capital for him or anybody else. If he holds 
 it as a fund for the payment of laborers' wages and the 
 purchase of implements next year, it is prospective capital 
 and may be all that will be required for these purposes ; 
 but as money, it cannot itself assist his production. What 
 he wants is what the money will buy, and in any view, it 
 constitutes but a small part of liis real capital. His land, 
 Ills buildings, his live-stock and his tools, make up the 
 bulk of his capital. So money in circulation as an instru- 
 ment of exchange, performs an important function in the 
 productive industry of a country, as will hereafter be 
 shown. But in the case of an individual, or a joint-stock 
 company, in a community or a nation, though the whole 
 capital is estimated in terms of money, the money in hand 
 amounts to very little in proportion to the capital, in other 
 forms, actually in use. 
 
 The Origin of Capital. — Capital is ahvays the 
 fruit of past labor y saved. A farmer's boy once received as 
 a reward for a bit of work, the gift of an ewe-lamb. It 
 was the first thing he ever earned. He might have sold 
 the lamb to a butcher and spent the avails for his imme- 
 diate gratification. Instead of that, he kept his lamb and 
 cared for her and her young. The clip of wool and the 
 natural increase from year to year, were saved in like man- 
 ner, till lie came into possession of a valuable flock. In 
 due time he sold the flock, and with the avails commenced 
 business as a merchant. Maintaining still the habit of his 
 youth, he labored diligently, and saving the profits, stead- 
 ily added to his capital, till he stood in the foremost 
 rank of the merchant princivs of New York, using a vast 
 cai)ital to combine the industries of two continents. MMie 
 lamb, the first fruit of his labor, saved, was the bcginniui]; 
 of his capital — the nucleus of his subsequent fortune. 
 
CA.PITAL. 75 
 
 Such is universally the origin and the growth of capital. 
 It begins in saving and grows by the continued exercise oi 
 i7idustry and frugality. Labor produces wealth. That 
 portion of wealth which is saved from consumption for 
 immediate gratification and appropriated to increase future 
 products, is capital. The term can properly be applied to 
 nothing else. 
 
 Even the savage will spend some labor in makmg a 
 bow and arrows that he may obtain larger returns from 
 hunting. But he accumulates little or no capital beyond 
 this, simply because he is indolent, thriftless and self-in- 
 dulgent. He will work only when the necessity of the 
 hour compels him to do so. He consumes the fruit of his 
 labor at once, on present gratification, reckless of future 
 needs. His first step toward civilization is to learn fore- 
 thought and self-denial — a hard lesson always with most 
 civilized men, as well as with savages. The hardest tlung 
 about it is to make a beginning. The first step taken, 
 there is a joy in conscious possession and a hope of accumu- 
 lating more which ^ive zest to further effort till the exer- 
 cise grows into a h^it and sometimes into a morbid pas- 
 sion. To provide facilities for guarding and utilizing the 
 smallest savings and to encourage all to exercise self-restraint 
 and forethought with reference to a future good, are im- 
 portant means for increasing capital and enlarging the 
 production of wealth. 
 
 But we need to emphasize this principle in one aspect 
 of it. Many are disposed to think of Labor and Capital 
 as things quite diverse in their nature and necessarily an- 
 tagonistical in their respective interests. But as we see, 
 the truth is that capital is nothing hxni joast labor embodied 
 and reserved for present labor to work loith. They are 
 indispensable to each other, and in the processes of pro- 
 1 notion must always combine for a common end. What- 
 ever injures either works a common damage — whatever iu- 
 
76 PRODUCTION. 
 
 creases the efficiency of either works a common benefit 
 When the representatives of these two natural partners in 
 production are arrayed against each other, there must be 
 something radically false and wrong in prevalent popular 
 sentiment, or in the social organization. 
 
 Forms of Capital. — The products of previous labor 
 appear as capital in four distinct forms. 
 
 1. In the form of Materials to which present lalor is to 
 be applied.- The farmer must have seed, manure, breeding 
 animals, etc., which by labor must be piit into fit condi- 
 tions for the processes of Transmutation to produce in- 
 crease. The manufacturer must have lumber, cotton, 
 iron, wool, leather, etc., which labor shall Transform into 
 articles adapted to men's comfort and gratification. The 
 merchant's materials are the goods which make up his 
 stock, by Transportation to be brought, with increased 
 value, within convenient reach of those who desire them. 
 Obviously, all these things are the products of former 
 labor, on which present labor works to increase value and 
 swell the sum of wealth. 
 
 2. Capital takes the form of Implements and Machinery 
 by luhich present labor is made effective. A man's hands 
 and limbs and muscles alone can do little or nothing with 
 the materials just named. The farmer must have ploughs 
 and carts, divers tools, machines, working animals, etc. 
 In this category also must be included the land, wbicli is 
 his great instrument of production. The mechanic must 
 have axes, planes, hammers, a full chest of tools, and the 
 manufacturer, engines to create momentum and ingenious 
 md complicated machines for directing it in adjustment to 
 tlie materials employed and the articles to be produced. To 
 this division belong also the teamster's wagon, the mer- 
 chant's ship, the entire structure and rolling-stock of the 
 railway company, and whatever facilitates the transporta- 
 
FOKMI-' OF CAPITAL. *7*t 
 
 Hon of goodS; their exhibition for sale and the financial 
 
 negotiations of every sort incident to the transfer of com- 
 modities from producers to consumers. All these are the 
 products of past labor, infinitely varied. As the introduc- 
 tion of natural agents and division of labor to increase pro- 
 ductiveness is extended, the amount of capital employed in 
 this form is increased, and production in almost all de- 
 l)artments is thrown into large establishments. The 
 power-loom makes one man's labor equal to that of ten 
 with the old hand-loom, and hence the independent weaver 
 has no chance in competition with the great factory. 
 
 3. Capital takes the form of Means of Sustenance for 
 laborers. Present labor does not yield immediately the 
 food and clothing necessary to keep the laborer alive. 
 The crops of last year must provide for the support of the 
 farmer and his help, while this year's crops are maturing. 
 Out of the proceeds of previous industry, both the manu- 
 facturer and the merchant must furnish present means of 
 nving for all in their employ. Under this head must be 
 embraced therefore, the houses and all the various kinds 
 of clothing and food necessary to protect and sustain men 
 while at work, and to provide for the comfort of their fami- 
 lies. We can suppose an establishment, set up complete 
 in itself, so that tenements and rations of food and cloth- 
 ing are directly supplied to those who carry on its opera- 
 tions. But ordinarily these items are provided for in de- 
 tail by the laborers themselves out of their wages. Nev- 
 ertheless, the fund for the payment of wages is an essential 
 part of the capital and comes always from the proceeds of 
 previous labor. If, as is often the case, by the use of credit, 
 the product of present labor is anticipated for these pur- 
 poses, the fact is still the same. What is actually con- 
 sumed to sustain the workmen is the fruit of previous labor 
 borrowed for the time. 
 
 4. For a longer or shorter period, as the process of pro- 
 
78 PRODUCTION. 
 
 duciion goes on, more or less of Capital takes the form of 
 Finished Products, wailing for a market. The process ol 
 production is not completed till the i)roducts pass out of 
 the producer's hands. Commonly, the farmer will find it 
 for his convenience or advantage not to dispose of his crop 
 as soon as it is gathered. While lie holds it back from 
 sale, it is capital in his hands, just as truly as his barns 
 and tools are. Sometimes business is so active that a man- 
 ufacturer's orders will be in advance of his production, but 
 oftener he must liold a portion of his products waiting 
 orders. It would be bad economy to suspend operations 
 and kct-p both labor and capital, in other forms, idle till a 
 purchaser appears, when there is a tolerable certainty that 
 the product will in due time find a market. Therefore, 
 in estimating the amount of capital required to carry on 
 any line of productive industry, some allowance must be 
 made for the value of the products which must thus be 
 carried for a time. 
 
 In some or all of these four forms, all actual capital 
 exists ; and in civilized society, no kind of production can 
 go on without something in these forms as capital. Even 
 tlie wood-chopper must have his axe, the clothes he wears 
 and something to eat for the day, all the fruit of previous 
 labor, before he can go forth to his simple work. The 
 blacksmith wlio works alone, capitalist and laborer, both 
 in one, must have some iron for material, forge and anvil, 
 hammer and tongs for instruments, a home for his shelter, 
 bread and meat for food, and a few finished horse-shoes 
 hanging in his window ready for the first call. So like- 
 wise, the millions of capital invested in the great Pacific 
 mills of Lawrence may be all resolved into these four forms, 
 or temporarily, in small part, their money-representative. 
 
 Banking eapitaJ will be considered at length in another 
 connection. Since much of it is directly concerned in 
 production, however, it may relieve a question arising in 
 
CONSUMI'TION OK CAPITAL. 79 
 
 some mind, to say a few words concerning it here, A 
 bank is simply a credit-agency. When a manufacturer is 
 out of cotton, or wants a new engine, or lacks means for 
 the sustenance of his employes, he might borrow what 
 be needs directly of the cotton-hroker, or of the macliiuist 
 or of the farmer, but it is often more convenient to 
 borrow money of the bank and with it purchase those 
 things. But the money is exchanged at once for the 
 things wanted, and so its value really goes into production 
 in one or other of the forms named. Then the note left 
 at the bank means that so much of the capital as is thus 
 borrowed, belongs not to the manufacturer but to the 
 banking company. So far as the capital of the bank is 
 represented by suph notes, it is employed in production in 
 the forms mentioned ; and the bank as a credit-agency 
 simply effects a partnership of different persons for pro- 
 ducing certain articles. The act of borrowing and lending 
 has added nothing to the sum total of capital. It has only 
 served to distribute existing capital for profitable use. 
 Banks, therefore, are store-houses for the safe keeping and 
 ready distribution of money, the instrument of exchange. 
 Their capital renders an important service to produjctive 
 industry through its entire range, and really comprises the 
 greater part of the active productive capital of a commu- 
 nity which exists in the form of money. Yet as money, it 
 is a simple instrument, and belongs to our second division, 
 just as a wagon or a plough does. 
 
 The Consumption ol Capital.— According to our 
 delinition, capital is wealth set apart to bo destroyed for 
 the production of more wealth. *^ Except a corn of wheat 
 fall into the ground and die, it abldeth alone, but if it die^ 
 it bringetli forth much fruit" 80, the great teacher, 
 Jesus, stated a fundamental principle of Political Economy. 
 Labor applied to capital destroys value of one kind, ir 
 
80 PRODUCTION. 
 
 order to bring forth a superior value of another kind. In 
 the process of production, this change passes upon capital 
 in each of its forms. The materials are immediately con- 
 sumed. The seed-corn dies and the cotton is destroyed as 
 (!otton-wool, when it enters into the fabric of cloth. By 
 use, the instruments slowly but surely wear away and go 
 to decay. Food is rapidly coi:sumed, clothing more gradu- 
 ally, and more slowly still, the house which gives shelter ; 
 but on all. the changes are in one direction, toward destruc- 
 tion. The finished product too, is disposed of to others 
 and so is lost to the producer, to appear again in new ma- 
 terials, new implements, new means of subsistence and 
 new products. 
 
 Thus, under the application of laboi;, capital is under- 
 going perpetual changes which involve the destruction 
 of value. But these changes are guided by the purpose, 
 through that destruction, to bring forth products of greater 
 value. If the labor be skillfully directed, the product will 
 have a value sufficient to replace the capital, that is, all 
 the materials destroyed, the implements worn out and the 
 means of sustenance consumed, with a surplus, which is 
 profit. This profit is measured always by the difference 
 between the value consumed and the value produced. It 
 is obvious, that it matters not in what form capital re-ap- 
 pears, if it only re-appear in a form bearing a greater 
 value. The smith exchanges gold or silver for coal ; he 
 burns up his coal, and nothing is left but ashes. But it 
 has produced an invisible substance, called caloric, by 
 means of which he has been able to give such an increased 
 value to iron, as will not only replace his gold and silver 
 but also the iron itself, and will also pay him for his labor. 
 The farmer exchanges his gold or silver for manure, but 
 chis manure will so increase his harvest, that he will be 
 able to replace his gold and silver, and also be abundantly 
 repaid for his labor. The principle is the same in all casea 
 
PRODUCTIVE AKD UNPRODUCTIVE CAPITAL. Bl 
 
 of change of capital. It matters not into what we change 
 our capital, nor how valuable the substance may be that is 
 exchanged, il we only receive in return a greater amount 
 of value, or that which will -procure for us a greater amount 
 of objects of desire. 
 
 We see hence in what manner nations and individual- 
 grow ricli. It is by uniting the industry of this year to thr 
 capital of last year, and by this process creating an augmen- 
 tation of capital. This augmentation will be either greatei- 
 or less, in proportion as our industry has been successful 
 in giving additional value to thatvalue which previously 
 existed. If we destroy a value and produce another only 
 equal to it, we lose our lahor. If we destroy a value and 
 reproduce nothing, we lose both labor and cajntal. It is 
 only as the value created is superior to the value of labor 
 and capital consumed, that we are enriched. Hence we 
 see that the rule of economy in the use of capital is to con- 
 sume as little as possible for a given result, and out of a 
 given consumption to bring the largest possible product. 
 The ever recurring problem is how to consume less and to 
 produce more. 
 
 Productive and Unproductive Capital. — Care 
 ful adherence to our definition, in great measure does 
 away with this distinction which many writers make promi- 
 nent. By our definition, capital is meant to be aliuays 
 productive, and wealth unproductive is not ca2ntal. But 
 occasionally, through mistaken application, capital is in- 
 volved in unprofitable investment, as in experimental 
 machinery found unsuitable for its purpose, or in the 
 grading of a line of railway, afterward abandoned. A 
 financial revulsion may compel the suspension of business 
 so that great factories must stand idle, or it may produce 
 a stagnation of trade, such that large stocks of goods must 
 be held for many months unsalable. A great railway, af toi 
 i* 
 
B^ PRODUCTiOl^. 
 
 large outlays for its construction, may have business enouglj 
 barely to meet its running expenses and repairs, yielding 
 no returns for the capital, hi these cases, it may be said 
 that for the time capital is unproductive. But as soon aa 
 it appears clearly that the investment is unproli table, so 
 much of tlie capital as can be saved, will be withdrawn aud 
 applied to some other mode of production. The rest musl 
 be set down as lost and is no longer capital. 
 
 Many persons who have been induced to furnish means 
 for constructing a railway to run near their property, thus 
 becoming stockholders in the company, have lost the capi- 
 tal thus invested, so far as dividends are concerned ; per- 
 haps the entire railway property has passed into the hands 
 of bondholders, beyond recall. Yet they may have been 
 fully compensated by the increased facilities for business, 
 and the enhanced value of their property which the road 
 has secured. In this case, their stock-investment is un- 
 productive, utterly lost perhaps, yet the capital put in is 
 still there, productive, as it favors every branch of industry 
 in the community, their own with the rest. The greater 
 hardship falls on those who have put their means into 
 the stock without a chance to share in the benefit of the 
 improvement. To them their capital is simply lost, 
 though it is still aiding the general production of the 
 country. 
 
 While capital is unproductive, it may be considered as 
 losing annually its ordinary rate of interest. Hence every 
 wise economist desires to have the whole of his capital pro 
 luctively invested. Thus the thrifty farmer will spread 
 his manure on his fields, instead of leaving it to waste ir. 
 bis farm-yard. The efficient merchant will keep his ship3 
 moving and push his goods off his bauds as fast as possible. 
 And the enterprising manufacturer will be careful not to 
 extend his machinery beyond his ability to keep it run- 
 ning. Sound economy prompts every one to unite every 
 
FIXED AND CIRCULATING CAPITAL. 83 
 
 tihing which he can turn into capital, with labor, and to 
 keep it so united continually. 
 
 Fixed and Circulating Capital. — Our statement 
 of the forms of capital simplifies this distinction. Mr. Mill 
 presents this distinction substantially thus. Circulating 
 capital fulfills its office in production, by a single use, and 
 brings its returns at once. Fixed capital takes a perma- 
 nent form, and fulfills its function in production by many 
 repetitions of its use, and gathers its returns in quotas 
 spread over a period of time. Under this view, it is evi- 
 dent that our second form of capital, viz., implements and 
 machinery, embraces almost everything which is properly 
 called fixed capital. We need to add only so much of the 
 third form as is put into permanent dwellings. All the 
 other forms are circulating capital. Thus, materials are 
 consumed at once, and cannot again render the same ser- 
 vice, as, when leather is transformed into shoes, it is de- 
 stroyed as leather, though its value in the shoe is much 
 enhanced. So, too, the portion of capital devoted to the 
 subsistence of laborers, represented generally by wages is 
 consumed when paid over to the laborers. Its service can- 
 not be repeated. The wages paid weekly to the hands in 
 a cotton-mill no longer exists as the capital of the company, 
 though its value reappears in the health and vigor of the 
 workmen, and with some, in that which they may save as 
 capital to be used for other purposes. In like manner, 
 capital in the form of goods or finished products, fulfills itt 
 function for the manufacturer as soon as they find a pur- 
 chaser, though the avails may be applied to rej^lace mate- 
 rials, wages or the wear of machinery in the same estab- 
 lishment. All this therefore is called circidating capital^ 
 though the name is not altogether appropriate. On the 
 other hand, the buildings, the machinery, the tools, the 
 land and whatever i^ put into its permanent improvement, 
 
84 PRODUCTION. 
 
 ships and railways are fixed and dnrable and over and over 
 again for years, it may be for a lifetime, repeat their ser- 
 vice, subject only to gradual decay or occasional breakage. 
 
 Economical production requires that the single use ol 
 circulating capital shall reproduce a value equal to that of 
 the original expenditure, with something added for profit 
 Fixed capital answers its purpose, if during the whole pe- 
 riod of its repeated use, it brings in enough to pay for itself 
 and needed repairs and a profit equal to ordinary interest 
 on its entire value. 
 
 The line of distinction between circulating and fixed 
 capital cannot he drawn absolutely by naming commodities 
 on either side. A plough regarded as a finished product 
 held by the manufacturer, or as a part of the stock of a 
 dealer in agricultural implements, belongs to circulatifig 
 capital. But as soon as it is taken home for the farmer's 
 use, it becomes a part of his fixed capital. Just so it i? 
 with a turbine wheel or a steam-engine. We class either 
 with circulating capital while in the hands of the machin- 
 ist, finished, but not sold ; with fixed capital, as soon as 
 transferred to the place of service for which it was.intended 
 in the mill. 
 
 As production increases wealth, the tendency is always 
 to put more and more of the accumulating wealth into forms 
 of fixed capital. Men wish to use the surplus of value 
 gained this year in some way to bring them a larger sur- 
 plus next year. Thus a profitable establishment naturally 
 expands itself. If ten thousand dollars, invested in build- 
 ing and machinery has yielded a profit of two thousand— 
 the introduction of additional machinery, costing it may 
 be, only two thousand five hundred dollars, may double 
 the product and the profit. So it is in the unfolding in- 
 dustry of a new country or a young community. At first 
 the amount of capital is necessai'ily small. But as every 
 year's production gives a surplus, more or less of that sur- 
 
FIXED AND CIRCULATING CAPITAL. 85 
 
 plus will be put into machinery for increased production 
 Thus in its steady increase, capital naturally seeks out new 
 methods of employment in divers manufactures, and the 
 manufacturing interest grows as a tree grows. The sur- 
 plus of wealth produced, spontaneously seeks investment 
 as fixed capital. In their proper and natural time, there- 
 fore, manufactures must le established, and as that time 
 arrives, they ivill he established without the aid of legisla- 
 tive enactment, and according to the very laws by which 
 accumulation is governed. 
 
 This tendency to the increase of fixed capital, works, 
 for the most part, healthily and advantageously for both a 
 particular industry, and for the general industry of the 
 whole public. But there are two dangers attending it. 
 
 1. There is danger of over-production of certain com- 
 modities. If a paper-mill has produced fifty thousand dol- 
 lars-worth of paper, and earned a handsome profit, it is 
 very natural to suppose that doubling the product will 
 double the profit, especially if it is found that a compara- 
 tively small addition to the machinery will so increase the 
 production. But the market may not demand this en- 
 larged supply, or it may be that a dozen paper-manufac- 
 turers will be thinking and doing the same thing at once, 
 and what would have been advantageous to one, proves 
 disastrous to all. 
 
 2. There is danger also, of a too sudden and rapid 
 al)Sorptio7i of available means in fixed capital. A due pro- 
 poition, not exactly definable, must always be maintained 
 between fixed and circulating capital. If a manufacturing 
 company adds largely to its fixtures, there muse be a cor- 
 responding increase of its working capital, or embarrass- 
 ment and perhaps failure will follow. The same thing is 
 true of the general operations of a community. It hap- 
 pens not infrequently, that a period of prosperous industry 
 '^nduly stimulates the manufacturing interest, or the ship- 
 
86 PRODUCTION. 
 
 ping iriU'rest or the railway interest so that before men 
 are aware, a large portion of the (cipital of a country is 
 locked up in instruments for increased production, leaving 
 quite insutficient means for carrying im the enlarged opera- 
 tions. Thus, a few years ago, all I.ngland was convulsed 
 by a financial crisis, caused in a great degree by a sudden 
 ttLd very mpid absorption of capital in railways, whicTi 
 while they might ultimately favor the productiveness of all 
 industry, could bring in their returns only after a lapse of 
 time. This mischief is always aggravated by any inflation 
 of the currency, or increase of that whicli passes for money. 
 In this connection, therefore, it is to be Observed tliat 
 
 Money, thougli circulating mme freely than any thing 
 else, must really he classed as fixed capital. In the busi- 
 ness operations of an individual or an incorporated com 
 pany, some money is essential. There, it ordinarily repre- 
 sents circulating capital in transition, as when the manu- 
 facturer has sold his products and holds the money received, 
 waiting for his next purchases of materials or his next pay- 
 ment of wages. But, viewed in its true nature, with 
 respect to its broad, general function, money is but an in- 
 strument of exchange — an instrument, when genuine, 
 made of gold or silver, to serve a certain end in the opera- 
 tions of industry, just as an anvil is made of iron for its 
 specific purpose. The gold might have been transformed 
 into a watch-case or a finger-ring, for the gratification 
 of desire. Instead of that, it is turned into coin and so 
 set apart to serve the production of wealth by a thousand 
 repetitions of its function as an instrument of trade. The 
 same coin, say an eagle, may go out of the bank in the 
 morning, run around a busy circuit and get back in the 
 afternoon. The manufacturer, for example, draws it from 
 th^3 bank and pays his laborer ten dollars of wages — he 
 transfers the same money to the farmer for a load of pota- 
 toes — the farmer passes it to the plough-maker for a 
 
MONEY-CAPITAL. 87 
 
 plough — he in turn pays it to the hardware merchant for 
 iron, and tlie merchant deposits it again in the bank. Dur- 
 ing the day, it has represented four kinds of circulating 
 capital, carr3^ing each to its appropriate place, but it comes 
 back to the bank, just what it went out, money, the same 
 thing unchanged. It has rendered important service iu 
 production, but its service is like that of a wheel-barrow, 
 which has transferred to different parties four different 
 loads. The money could not do the work of the laborer, 
 the laborer could not eat it, the farmer could not plough 
 with it, the plough-maker could not work it into a plough, 
 and the merchant could not store it with his goods. But 
 it has brought to eacli just what he needed, and there it 
 still is, in its proper depository, ready to repeat like servi- 
 ces to-morrow. We see then that real money is a part of 
 the products of former labor, saved and set apart for tliis 
 service. It is capital in the form of a permanent instru- 
 ment to aid production, hence fixed capital. It is subject 
 to slow wear which must be replaced by gold or silver from 
 the mines, a part of the circulating capital of the country. 
 Hence, as any country may have a greater amount of 
 fixed capital than it needs, for instance, of some particular 
 kind of machinery ; and as, when this is the case, it sends 
 it abroad, or in other words, makes it an article of export, 
 or changes it into circulating capital, so is it with money. 
 If a country has more money than is sufficient to accom- 
 plish its exchanges, it sends it abroad, and receives back 
 something that it needs more. Such is, permanently, the 
 c ise in mining countries ; and such is at times, the condi 
 tiou of almost every commercial nation. 
 
CHAPTER IX. 
 
 00-OPERATION OF LABOR AND CAPITAL. 
 
 The true relation of Labor and Capital is that 
 of Partners, Co-adj utors for a common end, — Sharers 
 in a joint result. This is evident from what has been said 
 of the nature and function of each, considered separately. 
 In the production of wealth, each is necessary to the other ; 
 each is helpless without the other. Antagonism between 
 the representatives of these two essentials to the increase 
 of wealth is unnatural and ruinous to the interests of both. 
 The most stalwart and vigorous man can effect nothing 
 without the fruit of previous labor, that is capital, in the 
 form of food and clothing, materials and tools. With 
 nothing to live on and nothing to work with, he can but 
 pine away and die. On the other hand, warehouses full 
 of cotton, factories filled with ingenious machinery, stores 
 stocked with goods, — capital in whatever form, accumulated 
 to whatever extent, can do nothing to increase itself. Let 
 alone, it can only rot or rust and go to decay. Productive 
 industry begins with the hands of labor laying hold of the 
 materials, guiding the machinery, transporting the goods, 
 and so working changes which impart new utilities, or in- 
 crease existing value. 
 
 This general fact is recognized in many common 
 forms of speech. Thus when industry is directed to a 
 particular employment, the act is spoken of as applyhig 
 capital to the employment. When land is improved, capi- 
 tal is applied to farming. When a factory is set up, capi- 
 
CO-OPEIIATIOJSI OF LABOR AND CAPITAL. 89 
 
 tal is invested in manufactures. In all such cases, labor is 
 the thing really applied, but the phrase is very naturally 
 used, because it is understood that capital is an indispens- 
 able condition of the proposed industry. So we often meet 
 mi\\ the expression ''the productive powers of capital.'' 
 This is not strictly correct, for capital has in itself no 
 po\ver at all. Really the only productive powers are labor 
 and the natural agents which labor directs. Yet the ex- 
 pression does not mislead men, because the very term capital 
 carries with it the idea of its correlative and supposes labor 
 joined with it to make it productive. The common sense 
 of men, indicated by their current forms of language, is 
 altogether sound on this matter. It most fully recognizes 
 labor and capital as the two 7iecessary and inseparable 
 factors in the production of wealth. It is pitiable to see 
 how often minds are sophisticated by some sort of false 
 philosophy so as to lose their commoii sense with respect 
 to these things. Here, as elsewhere generally, plain com- 
 mon sense is but another name for the universal, intuitive 
 perception and acceptance of the first principles of sound 
 philosophy. Such a truth is this of the essential equality 
 and necessary harmonious tmion of labor and capital in 
 all productive industry. 
 
 Abstractly considered, labor and capital stand toward 
 each other on an Equality. If there is any difference, 
 capital is the more helpless of the two. For it is nothing 
 but dead matter, whereas labor is a vital force which can 
 move itself and pick berries and possibly run down a rab- 
 bi i or catch a bird by bare human hands and feet. Dis 
 regarding this difference, we may say that as factors Ox 
 prorluction, they are equal. 
 
 For their Co-operation, Utese elements meet most 
 harmoniously i)i tlie same person, — that i^, wlien the laborer 
 owns capital enough to employ his own labor. This biinga 
 
90 PliODUCTlON. 
 
 both elements under the control of one and the same will, 
 to be governed by onQ self-interest. All rivalry and antag- 
 onism are excluded, and according to the measure of his 
 capital and his physical and mental capacity, the man will 
 multiply products. 
 
 But for several reasons, this adjustment cannot be made 
 universal. 
 
 1. Such is the tendency of capital to increase under the 
 steady application of labor, that the man will soon find in 
 his hands a surplus, to employ which, he must either bring 
 in another who has only labor, to work under him, or lend 
 it, as capital to another independent worker. Thus a dis- 
 tinction between laborer and capitalist is sure to arise. 
 The only alternatives are either to store away the surplus 
 as hoarded wealth, — not caj^ital, — or to consume it in a 
 more luxurious style of living, or to diminish the amount of 
 labor, so as to avoid tlie increase of capital, all of which 
 are against the dictates of sound economy. 
 
 2. A greater difficulty comes from the great diversity 
 of capacities and tastes among men. Some who are strong 
 for physical labor, lack managing skill and tact in saving, 
 and so are unable to accumulate and employ capital, acting 
 independently. Others, pecaliarly endowed in these re- 
 spects, are feeble in body and unfit for manual toil. To 
 many, labor is peculiarly irksome and they will seek exemp- 
 tion from it, as soon as their increased capital enables them 
 to do so. To others the care of managing business is no 
 less distasteful, and they choose to labor on, passing their 
 accumulating capital into other hands. 
 
 3. Many forms of production of highest consequence in 
 ci^ ilized society, must ie carried on in large establishments, 
 where are combined a great amount of capital and great 
 numbers and divers grades of laborers. In no other way 
 can the full advantage from the use of natural agents and 
 the application of the principle of division of labor be 
 
CO-OPERATION OF LABOR AND CAPITAL. 91 
 
 realized. As active invention multiplies labor-saving ma- 
 chinery, many of the common articles formerly made by 
 hand, by members of the household, have now to be pro- 
 duced on a large scale, involving a company of capitalists 
 who employ a company of laborers. 
 
 These causes tend to separate the two elements, so that 
 capital fails to some and labor to others. The abstract 
 equality and mutual dependence just spoken of is thus dis- 
 turbed. As the parties meet to enter into contract with 
 each other, the capitalist has the advantage, because he can 
 live on his capital without labor, but the laborer must earn 
 the necessities of life by working with somebody's capital. 
 Under the sway of short-sighted self-interest, capitalists 
 are tempted to use this advantage to dictate terms and 
 oppress laborers. We say short-sighted self-interest, for in 
 the long run, and in the broad view, such oppression must 
 react against the oppressors. When laborers are held down 
 to starvation wages, capital must be heavily taxed for the 
 support of paupers, and in time, there will surely come an 
 insurrection to make capital insecure. The consciousness 
 of dependence tends to make laborers sensitive to the 
 least real wrong and suspicious of wrong where none exists. 
 On the other hand, where laborers rally to maintain their 
 rights, capitalists grow distrustful and either withdraw 
 their wealth from production, or burden its use with em- 
 barrassing conditions. Against their own true interests on 
 both sides, the parties are thus led to array themselves 
 against each other. The strength of this tendency, and 
 the mischiefs flowing from it, as revealed in England and 
 recently in our country, demand thoughtful consideration. 
 How to guard the rights of both parties so that they shall 
 be bound by their natural common interest, in harmonious 
 union with each other, is an important and difficult prob- 
 lem of political economy. Without attempting here, a 
 full discussion of that problem, we may state certain 
 
92 PRODUCTION. 
 
 Conditions and Circumstances V7hich favor 
 the harmonious Union and effective Co-opera- 
 tion of Labor and Capital. 
 
 1. A general Distribution of Capital is a matter 
 of prime importance. By this is meant such a condition 
 of things that the capital of a country shall be in manj 
 hands rather than few, — that laborers themselves shall have, 
 or be encouraged to secure some capital. So distributed, 
 capital is most closely joined with labor, and is used most 
 economically. At the same time, labor is stimulated to 
 its highest effectiveness. Very many persons are both 
 capitalists and laborers, in a position to see most clearly the 
 common interests, as requiring mutual good -will and 
 hearty union. They will therefore, be inclined to oppose 
 the drawing of lines to separate these classes, and all influ- 
 ences which tend to produce antagonism between them. 
 Some concentration of capital is, as we have already seen, 
 essential to the most effective division of labor. But 
 beyond this necessity, the great aggregation of capital in 
 the possession of individuals, is disadvantageous because it 
 leads inevitably to despotic assumption on the one hand, 
 and to envyings and jealousies on the other. 
 
 Such a general distribution of capital is opposed by 
 anything in the social organization luliich creates or sustains 
 privileged classes. No aristocracy can long be maintained 
 without some provision securing to a class special advan- 
 tages for the possession and transmission of property. In 
 the histary of nations, we find the most common form of 
 3uch provision to "be by restrictions on the division or dis- 
 posal of lands. Whatever also, in legislation or usage by 
 the easy allowance of public opinion tends to create or 
 maintain mono2)olies, opposes the general distribution of 
 capital. If no hindrances are in the way and no special 
 protection is accorded, the natural working of things on 
 
CO-OPERATION OF LABOK AND CAPITAL. 93 
 
 [)rinciples of self-interest will promote a general distribu- 
 tion of capital. 
 
 This end may be promoted by all rneasures ivliich en- 
 courage savwf/,^ especially on the part of laborers. Savings- 
 banJcSy established on a sound basis and honestly managed, 
 such as New England has had and has profited by for 
 more than a century, or perliaps better still, a government 
 savings-bank, through a modification of the postal order 
 system, on the plan now in successful operation in England, 
 render valuable service in this matter. Moreover, tJic 
 stock of large manufacturing coinpanies may be divided 
 into small shares and brought within the reach of the oper- 
 atives, so as to induce them by their savings to become 
 owners in part of tlie capital, and so to be entitled to divi- 
 dends in addition to their wages. Such measures elevate 
 labor and give it independence, and also increase capital 
 by devoting much wealth, that would be otherwise wasted, 
 to production. Capital thus distributed stimulates energy, 
 develops talent, comes closer to labor, better defends 
 itself and superintends operations by having in each work- 
 man an interested observer of both his own and others' 
 work. 
 
 2. The Ratio of the amount of Capital to the 
 number of Laborers and the ratio of the Increase 
 of Capital to the Increase of Laborers must have 
 an important bearing on the co-operation of these two 
 forces. We cannot too often reiterate, nor too strongly 
 emphasize the fundamental principle that Industry is lim- 
 ited by Capital, and that every increase of capital demands 
 increase of labor. When the number of laborers is great 
 and the amount of capital small, there will be a competi- 
 tion of laborers for work. This tends at once to i-educe 
 the rate of wages and some will fail to obtain employment 
 and others will receive barely enough to avoid starvation. 
 
94 PRODUCTION. 
 
 There is consequently great distress, general discontent, 
 and often violent insurrection which aggravates the whole 
 diflQculty. 
 
 On the contrary, when the number of laborers is small 
 and the amount of capital great, there will be competition 
 among capitalists for labor, and the wages or price of labor 
 will rise. This may so enhance the cost of products, as to 
 make industry in certain lines of production unprofitable. 
 Hence capital must wait, unemployed, for an inflow of 
 laborers. This difficulty is more easily relieved than the 
 other, because capital invites labor to itself, and a brief time 
 will ordinarily adjust the proportions, so that the two ele- 
 ments will work harmoniously together for their common 
 advantage. 
 
 No universal rule can be given for this proportion. It 
 will vary somewhat according to the circumstances of each 
 country and the spirit of its people. The age of a coun- 
 try, its natural advantages and the general occupations of 
 its people must be taken into account. In a newly settled 
 country of great fertility, a vast amount of land is open foi- 
 cultivation which will yield rich returns for labor expended 
 on it. This of itself may serve as a peculiar stimulus to 
 labor. But this advantage may be balanced by distance 
 from the world's market, and consequent cost of transpor- 
 tation and difficulty of obtaining other objects of desire 
 than the fruits of husbandry. Generally, however, in a 
 now country, occupied by a thrifty people, capital increases 
 faster than labor, and there we see always the highest stim- 
 ulus to production and the most effective cooperation of 
 labor and capital. 
 
 For all countries and for all people, the thing to be 
 desired and aimed at is ihaf tlierc shall be labor enough to 
 use the capital and capital c?iough to employ the labor, giv' 
 ing it due reward. A perfect balance is perhaps nowhere 
 realized, and if once attained it is liable to be disturbed. 
 
CO-OPEKATIOX OF LA BO 11 AifD CAPITAL. 95 
 
 Yet, if labor and capital are free, the flow of each, under 
 the law of competition, toward an equilibrium, is as natu- 
 rai as that of the waters of tlie ocean under the action of 
 gravitation. In the order of nature, undisturbed, there is 
 provision for the steady increase of both capital and hibor, 
 in something like a definite proportion. There is no danger 
 of a sur})kis of either for the whole world, nor for any one 
 country, if only the passage is open and free for the out- 
 flow and inflow of both and of their joint products. 
 
 In this view, it is evident that the accumulation of 
 capital is more for the advantage of laborers than oi' 
 capitalists. The greater the ratio of capital to labor, the 
 greater will be the share of the product that falls to the 
 laborer. The greater the ratio of labor to capital, the 
 greater will be the shai'c of the product that falls to the 
 capitalist. Hence, the laboring classes are really more 
 interested in the increase of the capital of a country, than 
 the wealthy classes. When one class of the community 
 repine at the prosperity of another class, they repine at 
 their own mercies, and the means of increasing their own 
 rate of compensation. 
 
 It is however evident, that the accumulation of capital 
 in any nation does not depend simply upon its annual 
 production, but upon the proportion that its annual pro- 
 duction bears to its annual expenditure. A country that 
 annually expends all its production, let it produce ever so 
 much, will never increase its capital. A country that pro- 
 duces ever so little, if it annually expend somewhat less 
 than its revenue will be accumulating something ; au'l 
 must in progress of time become richer than its moi-e 
 highly favored neighb(jr. This ex])lains the fact that the 
 countries blessed with the richest soils and the greatest 
 natural advantages, have not generally become the richest. 
 The result has within moderate limits been almost tho 
 reverse. 
 
96 PRODCJCTIOK. 
 
 Hence we see that every mode of unnecessary expendi- 
 hire, whether individual or national, by diminishing the 
 annual accumulation of capital, tends directly to lower the 
 rate of wages, and thus injure the condition of the labor- 
 i ng classes. The millions which are wasted and destroyed 
 by intemperance, if saved, would add to the capital of a 
 -country, and thus increase the demand for labor. All 
 unnecessary expenditure for the maintenance of civil gov- 
 ernment, has of course, the same tendency. Hence arises 
 also, one of the most afflicting consequences of war. Had 
 the almost incalculable sums which Great Britain has ex- 
 pended in wars for the last hundred years, been added to 
 her operative capital, and but for these wars, it would 
 have been so added, all her inhabitants would have found 
 iit all times abundant employment, and at a rate of wages 
 which would by this time, have banished almost the recol- 
 lection of poverty from her shores. 
 
 3. The happy co-operation of labor and capi- 
 tal depends on the certainty that each shall 
 have its just reward. — Nobody questions the right of 
 the laborer to the fruit of his toil. The expectation of 
 enjoying some advantage thereby prompts the exertion of 
 his powers, and the common sense of men affirms that he 
 ought not to be deprived of that advantage. The right of 
 capital to its reward, though questioned by not a few, 
 stands on the same basis of intrinsic justice. Capital is 
 but the fruit of previous labor saved. The labor that pro- 
 duced it was like present labor, a cross, endured in expec- 
 tation of its acquisition as a reward. To that was added 
 che cross of self-denial, by which it was saved instead of 
 being expended on some immediate gratification. On both 
 grounds its owner justly asks that he shall receive some 
 jompcnsation for its use. Since labor can earn nothing 
 without capital to work with, and capital can yield no 
 
DIVISION OF PROPERTY. 9t 
 
 revenue unless labor be applied to it in actual use, each ia 
 entitled to its share of the product of their union. Noth- 
 ing else so disables industry and hinders the growth of 
 wealth as the selfish greed which would rob either partner 
 of his reward or make it insecure. To ensure to each thi? 
 certainty of reward, several things are essential. 
 
 a. There must be Division of Property — personal own- 
 ership in everything that can by labor be made an object 
 of value, and appropriated. Without this, capital cannot 
 be. On common property, men will not labor except on 
 the compulsion of force or stern necessity. When prop- 
 erty is held in common, every individual of the society to 
 which it belongs, has an equal, but an undivided and inde- 
 termined right to his portion of the revenue. Hence, 
 every one is at liberty to take what he will and as muc? 
 as he will, and to labor as much or as little as he pleases. 
 There is therefore, under such an arrangement, no c07i- 
 nection between labor and the reivards of labor. There is 
 rather a premium for indolence than for industry. In 
 such a case there will be no regular labor, if indeed there 
 be any labor at all ; and what is still worse, even the scanty 
 and spontaneous productions of the earth will frequently 
 be gathered before they are ripe, since every one fears 
 that, if he do not seize them now, he will never enjoy them 
 at all. The forest of an Indian tribe is held in common 
 and a few hundred families barely subsist upon a territory 
 which, were it divided and tilled, would support a million 
 of civilized men. The little that it produces to him is the 
 result of division of property. His bow and arrows, his 
 wigwam, and his clothing are acknowledged to be, in the 
 fullest sense, Ms own. Were these to be held, like his 
 land in common, the whole race would very soon perish 
 from want of the necessaries of life. 
 
 On the contrary, as soon as land with all other prop- 
 erty is divided, a motive exists for regular and voluntary 
 5 
 
^8 PRODUCTIOK. 
 
 Ifibor, inasmuch as the individual knows that he, and noi 
 his indolent neighbor, will reap the fruit of his toil. 
 Henceforth he begins to create a regular supj)ly of annual 
 [iroduct. With increased skill, this annual product in- 
 •1 eases, and he begins to convert it into fixed capital. 
 Every accession to his fixed capital renders his laboi* more 
 productive, and hence it creates a stronger stimuius to 
 mcreased exertion. With increased exertion, his annual 
 capital is increased, and a greater surplus remains to be 
 changed into fixed capital. Increased production stimu- 
 lates industry, and increased industry results in more 
 abundant production. Thus division of property, or the 
 appropriation to each of his particular portion of that which 
 God has given to us all, lies at the foundation of all accumu- 
 lation of wealth, and of all progress in civilization. 
 
 It is for this reason that property held in common is so 
 generally prejudicial to the best interests of a society. A 
 common, where every one at will may pasture his cattle, 
 and a forest, from which every inhabitant may procure his 
 fuel, are encouragements to indolence, and serve to keep a 
 community poor. Thus, also, funds left at large for the 
 support of the poor, on which every one is supposed to 
 have an equal right to draw, have generally been found to 
 foster indolence. Poor-laws, in so far as they are to be 
 considered a fund for tliis purpose, have the same sort of 
 injurious tendency. Societies like those of the Shakers or 
 the German Am-a-na, organized for a sort of common fam- 
 ily life with common property, seem to prosper. In reality, 
 however, these are only joint-stock companies, holding 
 and managing property in a peculiar way. Their suc- 
 cess, like that of any other corporation, depends on the 
 fact that the principle of division of property prevails all 
 around them and that they are subject to its law. Each 
 member simply merges his individual interest in that ol 
 the commnnity and is represented in the corporation, 
 
SECURITY to PROPERTY. 99 
 
 Which, in the eye of the law, is a personality with distinct 
 property-rights. 
 
 b. TJiere mud be also Security to all Projperty-righis bi/ 
 both prevalent moral sentiment and just laws oqnitably 
 api')lied and faithfully executed. As no one will labor, 
 unless he knows that he shall reap the fruit of his toil, so 
 uo one will take the pains to reap the fruit of his toil, 
 unless he also know that he will be able to hold it, and 
 appropriate it to the purposes of his own gratification. 
 And hence, we see that human labor is exerted in different 
 countries, very much in proportion as the right of prop- 
 erty is both understood and enforced. 
 
 The right of property may be violated by the Indi- 
 vidual or by Society. It is violated by the i7idividual by 
 cheating, stealing, robbery, and violation of contracts. 
 And, universally, just as these crimes prevail, production 
 languishes, industry diminishes, and the richest soil fails 
 to support its few and impoverished inhabitants. Such 
 was the case in Europe, during the era of feudal oppres- 
 sion. There was then no encouragement to labor, because 
 no one knew whether he, or a -baronial tyrant, would reap 
 the fruit of his industry. 
 
 Hence, we see the economical importance of means 
 which shall prevent the individual violation of the right 
 of property. These means are two. 
 
 The first is, the inculcation of those moral and reli- 
 gious principles, which teach men to respect the rights of 
 others as their own, that is, to obey the law of reciprocity ; 
 and which present the strongest conceivable reasons for so 
 doing. This is the most certain method of preventing the 
 violation of the right of property, inasmuch as it aims to 
 eradicate those dispositions of mind from which all viola- 
 tion proceeds. It is also the cheapest, as it aims 2X preven- 
 tion, which is always more economical than cure. It is 
 also necessary, inasmuch as good laws will never be enacted, 
 
loo PRODUCTION. 
 
 or if enacted will never be obeyed, only in so far as IheM 
 exists a moral character in tlie comnuinity sufficiently pure 
 to sustain (hem. In proportion as these are efficacious, all 
 other means are needless. Hence, we see the reason why 
 moral and religious nations grow wealthy so much more 
 rapidly tlian vicious and irreligious nations. Tlie feeling 
 ol perfect tranquillity and security, which a liigh social 
 morality diffuses over a whole community, is one of the 
 most beneficial, as well as one of the strongest stimulants 
 to universal industry. This is one of the temporal rewards 
 which God bestows upon social virtue. And, inasmuch as 
 no one can enjoy this reward, simply by being virtuous 
 himself, but only as his fellow-citizens also are virtuous, we 
 see the indication in our constitution, that it is the duty, 
 as well as the interest, of every man, to labor to render 
 other men more virtuous. 
 
 But second, inasmuch as all men are not influenced in 
 their conduct by moral and religious principles, it is neces- 
 sary that aggression be somehow prevented, and violations 
 of property, in so far as possible, redressed. Hence the 
 importance of wholesome and equitable laws, of an inde- 
 pendent and firm judiciary, and an executive, which shall 
 carry the decisions of law faithfully into effect. The ex- 
 pense necessary for the most perfect administration of jus- 
 tice, is among the most productive of all the expenditures 
 of society. Good law, and the faithful administration of 
 it, is always the cheapest law, and the cheapest adminis- 
 tration of it. The interests of man require that law 
 should be invariably executed, and that its sovereignty 
 should, under all circumstances, be inviolably maintained. 
 
 But the right of property may be violated by Society. 
 It sometimes happens, that society, or government, which 
 is its agent, though it may prevent the infliction of wrong 
 by individuals upon each other, is by no means averse to 
 inflicting wrong or violating the right of individuals itself. 
 
SBCtJRtTV TO PROPBRtY. 101 
 
 This is done where s^ovonimcnts seize upon the property 
 of individuals by mere arl)ifcr;iry act, a form of tyrnnny 
 with wliieh all the nations of Europe were, of old, too well 
 acquainted, It is also done by unjust legislation ; that is, 
 when legislators, how well soever chosen, enact unjust 
 laws, by which the property of a part or of the whole ia 
 unjustly taken away, or what is the same thing, subjected 
 to oppressive taxation. 
 
 Of all the destructive agencies which can be brought 
 to bear upon production, by far the most fatal is public 
 oppression. It drinks up the spirit of a people, by inflict- 
 ing wrong through means of an agency which was created 
 for the sole purpose of preventing wrong : and which was 
 intended to be the ultimate and faithful refuge of the 
 friendless. When the antidote to evil becomes the source 
 of evil, what hope for man is left ? When society itself 
 sets the example of peculation, what shall prevent the in- 
 dividuals of the society from imitating that example ? 
 Hence, pul)lic injustice is always the prolific parent of 
 private violence. The result is that capital emigrates, 
 production ceases, and a nation either sinks down in hope- 
 less despondence ; or else the people, harassed beyond en- 
 durance and believing that their condition cannot be made 
 worse .by any change, rush into all the horrors of civil 
 war ; the social elements are dissolved ; the sword enters 
 every house ; the holiest ties which bind men together are 
 severed ; and no prophet can predict, at the beginning, 
 what will be the end. 
 
 Hence we see the importance to the industry of a coun- 
 try of a constitution which guarantees to the individual 
 immunity not only from private, but also from public op- 
 pression. Wherever this immunity is wanting, the pro- 
 gress of a nation in wealth will be slow. It is owing rather 
 to the freedom of her institutions and the equity of her 
 laws, than to her physical advantages, that Great Britain 
 
102 PRODUCTION. 
 
 has so far outstripped all other European nations in the a6- 
 cumulation of wealth, and in every thing tliat confers social 
 power. It is almost superfluous, however, to add, that a 
 free constitution is of no value unless the moral and iniol- 
 lectual character of a people be sufficiently elevated to 
 avail itself of the advantages which it offers. It is merely 
 un instrument of good, which will accomplish nothing un- 
 less there exist the moral disposition to use it aright. 
 
 c. There must be for both capital and labor, inrfeci 
 Freedom unrestricted hy monojjolies or special legislation. 
 A special favor in these relations of labor and capital in- 
 volves an infringement of freedom on one side or the other 
 and that is an interference with natural law, — a hinder- 
 ance to the best results. A man's possessions are his tal- 
 ents, faculties, skill, and the wealth and reputation which 
 these have enabled him to acquire ; in other words, his in- 
 dustry and his capital. In order that industry be applied 
 to capital with the greatest energy, it is necessary that 
 every man be at liberty to use his own as he will ; that is, 
 that both of them be free. 
 
 And first, of industry. The aptitudes of men for 
 different employments are very dissimilar. The choice of 
 every man naturally leads him to that employment for 
 which he is best adapted. By allowing every man^ there- 
 fore, to employ his labor as he chooses, every man will be 
 employed about that for which he is best adapted ; and 
 hence, the production of all will be greatly increased, be- 
 cause we thus avail ourselves of the j9ec2/Z{«r productive- 
 ness of every individual. Nor is this all. By allowing 
 every man to labor as he chooses, we very greatly increase 
 the happiness of every individual. And every one knows 
 that a man will labor with better success when his labor is 
 pleasant, than when it is irksome. 
 
 The case is the same with respect to capital. Every 
 man is more interested in his own success, than any othei 
 
FREEDOM TO LABOR AND CAPITAL. 103 
 
 man can be interested in it. Hence^ every niRii is likely 
 to ascertain more accurately in what manner he can licst 
 employ his capital, than any other man can ascertain it 
 for him. If every man, therefore, be allowed to invest his 
 capital as he will, the whole capital of a country will be 
 more proGtably invested, than under any other circum- 
 stances whatever. And since, when he is left thus at 
 liberty, there will be the greatest gain to the capitalist, 
 there will also be the greatest stimulus to his industry ; for 
 the stimulus to labor is always in proportion to the rewards 
 of labor. And, on the contrary, in just so far as, by any 
 means, this productiveness is diminished, the stimulus to 
 labor is also diminished with it. 
 
 It may be said that men, if left to themselves, will be 
 liable to invest their capital unwisely. This may be 
 granted. Man is not omniscient and therefore this liabil- 
 ity cannot be avoided. The question is how shall it be 
 rendered as small as possible. Will a man who reaps the 
 benefit of success and suffers the evils of failure, be less 
 likely to judge correctly, than he whose faculties are 
 quickened by no such responsibility ? Nor is this all. 
 Not only are legislators who generally assume the labor of 
 directing the manner in which labor or ca]7ital shall be 
 employed, in no manner peculiarly qualified for this task, 
 they are in many respects, peculiarly disqualified for it. 
 The individual is liable to no peculiar biases in making 
 up his mind in respect to the profitableness of an invest- 
 ment. If he err, it is because the indications deceive him. 
 The legislator, besides being liable to err by mistnking 
 the indications, is liable to be misled by party zeal, by 
 political intrigue and by sectional prejudice. What in-.li- 
 vidual would succeed in his business if he allowed himself 
 to be influenced in the manner of conducting it by such 
 considerations ? And must not like causes always produca 
 like results ? 
 
104 PRODUCTIOI^". 
 
 Besides, every man feels instinctively that he has A 
 right to use his capital and his industry as he pleases, pro- 
 vided ho interfere not with the rights of another, and 
 that to restrict him in this use is injustice. We have before 
 said, that nothing paralyzes industry like oppression, and 
 it is as true in this case, as in any other. If this sort of 
 interference be violent or frequently repeated, capital and 
 labor, whose motto, like that of Dr. Franklin is, " Where 
 liberty dwells, there is my country," will emigrate to some 
 more congenial social atmosphere. And if the interfer- 
 ence be not so intolerable as to produce these results, yet, 
 in just so far as it has any effect, it is all of this kind and 
 by its whole operation must diminish the incitements to 
 industry. 
 
 And, on the contrary, just in proportion as every indi- 
 vidual is free to employ his industry and capital as he 
 chooses, and thus both to receive a larger compensation for 
 his labor, and also to labor more happily, will be the in- 
 ducements to industry and to the investment of capital. 
 
 Hence, we see the mischievous effect of Monopolies. A 
 monopoly is an exclusive right granted to a man, or to a 
 company of men, to employ their labor or capital in some 
 particular manner. Such was the exclusive right granted 
 to the East India Company to import into the ports of 
 Great Britain or her territories the productions of all coun- 
 tries east of the Cape of Good Hope. Such w^ere the priv- 
 ileges granted formerly by Spain to particular individuals 
 or companies, of importing foreign commodities into the 
 ports of her colonies in South America. The result of 
 this exclusion was to prevent all other persons, except 
 those thus favored, from investing their capital in this 
 manner ; and hence, to reduce the value of that capital by 
 precisely the amount of this effect. Nor is this all. Those 
 who hold this exclusive privilege, being liable to no com- 
 petition, may charge for their commodities whatever the^ 
 
FREEDOM TO LAI30K AND CAPITAL. 105 
 
 choose. Here is therefore, a two-fold injustice ; first, the 
 means of the consumer are diminished ; and second, the 
 price which he must pay, is enhanced at the mere will of 
 his oppressor. 
 
 We see also the impolicy of obliging an individual, or 
 n class of individuals, to e7igage in any labor or to make 
 any investment contrary to their wishes. Thus, we are 
 told that during the French Revolution some individuals 
 were punished capitally for raising cattle instead of wheat. 
 Men may call this legislation, but the true name for it is rob- 
 bery. To oblige a man to raise a crop worth fifteen dollars 
 per acre, when he would otherwise have raised one worth 
 twenty dollars per acre, is just the same thing as to let 
 him do as he pleases and then rob him of five dollars an 
 acre afterwards. The wrong is the more intense in the 
 former case, inasmuch as it is done under the semblance 
 of justice, and by men who claim, as the robber does not, 
 that they have the right to do it. Such legislation as this 
 will in any country soon produce a famine. 
 
 Another form of injury under this class is seen in the 
 restrictions upon industry, formerl3^ if not now existing 
 in many of the countries in Europe, and which certain 
 combinations are now trying to foist upon free Americans. 
 By these regulations artisans were prohibited the exercise 
 of more than one trade ; they were not allowed to exercise 
 that trade unless they had served a prescribed apprentice- 
 ship ; nor unless they joined a particular trade-society 
 and bound themselves to comply with certain restrictions, 
 as, for instance, to sell at particular prices and never to 
 employ beyond a certain number of apprentices. The 
 result of all this oppression is most iniquitous. It reduces 
 the value of skill and industry, the sole estate of the 
 Jabor<^r ; and places him in the power of those whose inter- 
 est it is to reduce the supply as much as possible, in order 
 to secure to themselves the most exorbitant profit. Id 
 
106 PKODUCTIOi^. 
 
 such cases, a large amount of available industry must be 
 kept out of employment, and of course production is to 
 this whole amount, diminished. The tyranny of trades- 
 unions, though emanating from the people instead of the 
 gcvernment, produces precisely this effect. 
 
 Tlie same effect is partially produced by any mode of 
 legislation, by which, in consequence of favor shown to 
 one pirty, which of course another party must pay for, 
 men are obliged to exchange an employment for which they 
 have peculiar facilities, for another which they do not pre- 
 fer and for which they have not the same facilities. The 
 manner in which this would lessen the stimulus to indus- 
 try has already been illustrated. Thus, should our govern- 
 ment, believing that commerce was more valuable to this 
 country than manufactures, lay a tax sufficient to meet 
 the expenses of the government upon all American manu- 
 factures, in order to increase the amount of foreign im- 
 portation, this would drive manufacturers out of business 
 and oblige them to become merchants and agriculturists. 
 I think that every one must see that this would diminish 
 the stimulus to labor throughout the whole country. Men 
 would not voluntarily engage in manufactures in prefer- 
 ence to commerce, unless they found manufactures to be 
 more profitable ; and to oblige them to exchange the one 
 for the other, is therefore, to oblige them to leave a more 
 productive for a less productive mode of employment. 
 By all this difference is the country the loser and the in- 
 citement to industry diminished. 
 
 We also see the impolicy of laws regulati7ig consmnp- 
 Hon. Such are sumptuary laws ; or those which limit the 
 degree of expensiveness in our dress, clothing or equipage. 
 These were formerly common in Europe. Such also are 
 laws which forbid or restrict the expenditure of money for 
 the 1 urposes of benevolence, religion, or anything of this 
 sort. Every t^ne must see that one of tlie incitements to 
 
INTELLECTUAL AND MORAL CULTURE. 107 
 
 industry, is the pleasure which men expect to derive from 
 expenditure. Now, if this expenditure be innocent, it 
 matters not what sort of expenditure it is. Society has 
 nothing to do with it, and it can in no manner interfere 
 with it without doing injustice and taking away one of 
 the strongest inducements to industry. The only exce])- 
 tion to be made here, respects expenditures which involve 
 vices destructive to the individual and disturbing to the 
 peace and order of society. 
 
 After centuries of wrong and mischief, the world is 
 opening its eyes to the fact that the business of govern- 
 ments respecting the relations of capital and labor is sim- 
 ply to protect the rights of each and to hold other things 
 in even balance for the free working of natural law, — to let 
 both alone, giving neither any advantage, but both the 
 utmost freedom. They are natural partners, and if not 
 interfered with, will spontaneously seek each other as 
 birds mate in the spring for a happy, fruitful union. 
 
 4. The General Intellectual and Moral Cul- 
 ture of a people is an important condition of the har- 
 monious cooperation of labor and capital. In every line of 
 industry, intelligence in the laborer adds greatly to his effi- 
 ciency. Capital too, is more safely entrusted to such as 
 have mi7id as well as muscle, — who see the relation of means 
 to ends and thinlc while they tuorlc, — who add to their skill 
 in mechanical processes some knowledge of the nature and 
 laws of the material and forces with which they work. 
 
 But with reference to the cooperation now under con- 
 sideration, it is of the highest importance that both par- 
 ties as tliey meet, should be capable of taking broad views 
 of their common interests and mutual dependence. So 
 long, as the mass of laborers are ignorant and nariow- 
 niinded and thus greatly inferior to capitalists, the dis 
 tinction of classes is more strongly drawn and there is on 
 
108 PBODUCTION. 
 
 one side, some temptation to take advantage of the supe- 
 rior knowledge, in a way to wrong and oppress the weak 
 and dependent ; and on the other side, there is a tendenoy 
 even stronger, in the consciousness of weakness and igno- 
 rance, to suspect wrong, to chafe and complain and make 
 unreasonable demands, and to rush madly into violent 
 measures. Harmony between the two requires mutual 
 respect, and the basis of this mutual respect is self-respect 
 on the part of each, which springs from a clear, intelligent 
 understanding of relations, rights and privileges. Here 
 capitalists as well as laborers need to study first principles. 
 If laborers are to be kept in ignorance and held down, as 
 a lower stratum of society, then, no doubt, the despotism 
 of slavery, the compulsion of force is best adapted to har- 
 mony and order in the processes of production. But all 
 history shows that under such a regime, there is little 
 chance for improvement, little stimulus to progress on 
 either side. Self-interest, as the main-spring of human 
 exertion, is, as we have seen, a prime element of the science 
 of political economy. It demands freedom for every man 
 to make the most of himself, and to do the best for him- 
 self. For a wise judgment, choice and action, every man 
 needs the intelligence which comes by education. Sound 
 political economy therefore, prescribes the free, general 
 education of a people by all means which tend to increase 
 and diffuse knowledge, as an essential condition of the 
 most effective union of labor and capital for the produc- 
 tion of wealth. 
 
 Still more important is the moral culture of a people ; 
 for on it depends the justice of the laws and the force of 
 public sentiment which sustains them, respect for individ- 
 ual right, security to property and individual and social 
 virtue which alone can make wealth a source of happiness, 
 intellectual cultivation may exist without promoting recti- 
 tfUde and virtue. In this case, however, its only effect is tc 
 
INTELLECTUAL A^'D MORAL CULTURE. 109 
 
 stimulate desire, unbalanced by the love of right, until the 
 mad passions of men break down the very structure of society 
 and self-interest reduced to pure selfishness, destroys mu- 
 tual confidence and cooperation, and reigns supreme in 
 anarchy, fatal alike to the production and enjoyment of 
 wealth. On principles of political economy, therefore, we 
 may advocate also, such means of moral culture as the free 
 circulation of the Scriptures and the inculcation of moral 
 and religious truth upon the minds of men, through Sab- 
 bath-schools and the preaching of the gospel. They have an 
 important bearing on the productive energies of a country. 
 The argument is very short, but it seems very conclusive. 
 No nation can rapidly accumulate or long enjoy the means 
 of happiness, except as it is pervaded by the love of indi- 
 vidual and social right ; but the love of individual and 
 social right will never prevail without the practical influ- 
 ence of the motives and sanctions of religion; and these 
 motives and sanctions will never influence men, unless 
 they are, by human effort, brought to bear upon the con- 
 science. 
 
 The same principles will defend, on economical grounds, 
 the efforts of benevolence on hehalf of foreign nations. In- 
 telligence, virtue and equitable laws, will have the same 
 effect upon other men that they have upon us. They will 
 render men industrious, frugal, and consequently rich, and 
 raise them from a savage to a civilized state. Just in pro- 
 portion as a nation is thus transformed, are its products 
 increased ; the riches of the whole world are augmented ; 
 the portion of wealth which falls to the share of each man 
 is rendered greater ; and the ratio of capital to labor is 
 higher. Just as a nation becomes intelligent and rich, its 
 wants are multiplied, and the means for supplying them 
 are provided. Hence, it becomes a better customer to 
 other nations ; it gives an additional impulse to their 
 industry ; and it repays them for their products with 
 
110 PRODUCTIOK. 
 
 whatever God has bestowed upon it, which will add to the 
 
 happiness of others. 
 
 Some particular measures for the better harmonizing of 
 capital and labor will come up for consideration hereafter, 
 in another connection. A few general thoughts on the 
 present aspect of the question may fitly conclude what we 
 have to say here. It must be acknowledged that througli 
 greater facility for organization, throug]i false views which 
 have gained acceptance in the current usage of business, 
 and through mistaken legislation in some things, capital 
 has ieen unduly favored. It has the advantage, and in- 
 clines to oppress labor. Laborers have some reason to 
 complain and ask for relief. Justice and philanihropy 
 require that every man who fears God and loves )\i8 fel- 
 low-man, should consider the rights involved and lend a 
 helping hand to the weak. 13ut, admitting this, it is obvi- 
 ous from the view presented, tliat any measures which 
 directly increase jealousy between tlie parties, any organiza- 
 tion which contemplates open war between labor and capi- 
 tal, will only aggravate the evil and work damage to both 
 sides. Combinations of employers on the one hand to rule 
 out fair competition and arbitrarily fix the wages to be 
 paid, — or of laborers on the other, to agree on what they 
 will demand, and in general strikes and trades-unions as 
 ordinarily conducted, are in this light positively mischiev- 
 ous. The great interests of both are common and the true 
 relief must come from a better understanding and a con- 
 trolling regard for these common interests. 
 
 On the other hand all measures which tend to increase 
 the intelligence and promote the thrift and independence 
 of laborers and so to inspire them with self-respect and 
 confidence as they come into contact and union with capi- 
 talists, are helpful. Cooperative associations which gather 
 up the scattered capital of many laborers to be used in the 
 
C0-0!'KKATIOX OP LABOR AN^D CAPITAL. Ill 
 
 employment of their own industry, and those which are 
 designed to favor economical expenditures for the means 
 of living and to promote social culture and enjoyment, 
 may fitly be commended and encouraged. If capital has 
 gained an advantage by special legislation, this is to be 
 counterbalanced, not by special legislation to favor the 
 other side_, by attempts to fix the hours and wages of labor, 
 but by earnest united protests against all special legisla- 
 tion — by insisting on freedom as the fundamental law of 
 productive industry. Freedom to luorh and honest pay for 
 honest work luell done is the universal maxim of wisdom 
 for genuine thrift. The mischief is that thousands are 
 studying and struggling all the time, to thrive by the op- 
 posite course, reaching on the one hand after the fruit of 
 honest work without rendering honest pay, and on the 
 other, reaching after dishonest pay for dishonest work. 
 The grand correction for this condition of things, is to be 
 found in a more sacred regard on all hands to that great 
 command uttered by Jehovah at Sinai a few thousand years' 
 ago, "Thou shalt n^ot steal." 
 
 The discussion of the bearing of Protective Duties on 
 Production will be deferred, until we have presented the 
 laws of Exchange, with which the principle of such duties 
 is also most closely concemed. 
 
CHAPTER X. 
 
 SECOND DIVISION.— CONSUMPTION. 
 
 The Nature of Consumption. — All the processes oi 
 Political Economy contemplate actual gratifications as the 
 ultimate end. This end can be attained only by consuming 
 the results of production. This is the legitimate Use of 
 wealth. Consumption is thus the counterpart of Produc- 
 tion. In its widest signification it is the Destruction of 
 Value. By this is not meant the annihilation of the mate' 
 rial, but only of a particular form of utility, the prime ele- 
 ment of value. Thus, if gunpowder be burned, if bread be 
 eaten, if a tree be felled, the particular utility which each 
 ' originally possessed, is destroyed forever. And this destruc- 
 tion of value takes place, altogether independently of the 
 result which may in different cases ensue, because that de- 
 struction is as truly effected in one case as in another. A 
 load of wood, once burned, as truly loses its utility, that is, 
 its power of creating heat, when it is destroyed in a con- 
 flagration, as when it is consumed under a steam boiler, or 
 in a fire place, though the result in the two cases may be 
 very dissimilar. If bread be thrown into the sea, its utility 
 is destroyed, just as much as if it were eaten, though in 
 the one case there is no result from the consumption, and 
 in the other, it is the means of creating the vigor necessary 
 to labor. 
 
 Hence consumption, viewed simply by itself, may be 
 considered in the nature of a misfortune. It is the de- 
 struction of so much wealth as is consumed. A man, if he 
 had his choice, would rather create one product without 
 
dOKSUMPtlON^ OF CAPITAL. US 
 
 destroying another, or enjoy a gratification, if it were 
 possible, without rendering the thing enjoyed useless. 
 But, inasmuch as it is the hiw of our Creator that we shall 
 obtain our possessions, and gratify our desires, on no other 
 conditions than that of the destruction of value, wo have 
 no choice. We cannot cut up a hide of leather for th( 
 purpose of making shoes, without destroying forever itt 
 utility as a hide of leather. We cannot cut down a tree, 
 and saw it into boards without destroying forever its utility 
 as a tree. We cannot enjoy the pleasure of eating an 
 orange, without destroying forever the power in that 
 orange of affording to any one else the same pleasure. 
 And thus, in general, consumption is one part of an ex- 
 change, in which we surrender a value with the hope of 
 securing a gratification or of obtaining another value. 
 Whether the hope be realized or not, the value consumed 
 is surrendered, and surrendered forever. 
 
 When, however, it is said, that the utility consumed is 
 destroyed forever, we mean only to speak of tliis particu- 
 lar utility. There may yet remain some valuable quality 
 which has not yet been affected. Thus, if a linen garment 
 be worn out, its utility as a li7ien garment is destroyed for- 
 ever. It may, however, still possess an important utility, 
 as a material for the manufacture of lint or of paper. 
 Wood may be consumed for fuel and its utility as fuel may 
 be destroyed forever. A quantity of ashes however re- 
 mains, which possesses utility for the manufacture of soap. 
 Hence we see the importance, in all cases, of entirely ex- 
 hausting all the values contained in any product before wo 
 surrender it up as worthless. For the want of this care, 
 millions of property are annually wasted. The difference 
 between the cost of two establishments, in the one ol 
 which every utility of every substance is consumed, and in 
 the other of which, only the first utility is consumed, is 
 frequently as great as the net profits realized in the ordi- 
 
114 rOKSUMPTlOlfr. 
 
 Qary employments of industry. A prominent advantage of 
 largo manufacturing establishments is that they can afford 
 to utilize many minor forms of value which, in production 
 on a small scale, would be wasted. 
 
 Forms of Consumption. — 1. Consumption may be 
 
 bither of labor or of capital. A mechanic who bestows a 
 day's labor upon a table, consumes that amount of labor 
 upon it. He also consumes the material upon which he has 
 labored. He has received in return the table, and, if his 
 labor and capital have been well employed, the result will 
 recompense his consumption, both of labor and capital. 
 So he who employs laborers to work for him, consumes all 
 the labor which he purchases. Hence every day spent is, 
 in fact, so much value consumed. If it bring no profitable 
 result, it is so much value wasted. 
 
 2. Consumption may be either voluntary or involuTV- 
 tary. It is voluntary when it is effected by design. It is 
 involuntary when it is the result of accident. In either 
 ease, if there be consumption, there is value destroyed. 
 The difference is, that, in the one case, there is a profit- 
 able result expected ; in the other case there is none. If a 
 loaf of bread become mouldy by neglect, its value is de- 
 stroyed just as much as though it were eaten. The differ- 
 ence is, that, in the one case the loss is total ; in the other 
 case the consumption of value creates a power to labor 
 which is of more value than the loaf itself. If, for the 
 want of a fender, the fire fall out of the fire-place and burn 
 the carpet, the carpet is as effectually consumed as if it 
 were worn out by use. The difference is, that, in the one 
 case it affords a substantial convenience, and in the other it 
 affords none. If, by forge tfulnoss or neglect, a gate is loft 
 unlatched, and it is beaten in pieces by the wind, it is as 
 effectually consumed as by the wear of several years. The 
 difference is, that, in the one case it answers for a long 
 
FORMS OF COKSUMPTIOK. 115 
 
 time the purpose of iuclosure, in the other case it answera 
 no purpose ut all. Hence the necessity of care and vigi- 
 lance in all the business of life. Almost every thing ig 
 constantly tending to destruction. Vegetable matter de 
 cays Animal matter putrefies. Most of the metals may 
 be corroded. Almost all our possessions are liable to acci- 
 dental destruction, from fire, or flood, from the frosts of 
 winter or the heats of summer. Hence, without our con- 
 tinual care, a continual process of consumption will be 
 going on, by which our capital will be diminished. 
 
 3. Consumption is either rapid or gradual. The con- 
 sumption of wood for fuel is rapid. The consumption of 
 wood in consequence of the wear of a dwelling house, is 
 gradual. But gradual consumption is as sure and as cer- 
 tain as though it were rapid. Hence, in estimating cost 
 and expenses, unless an allowance be made for wear and 
 tear, our calculations will not agree with the fact. If a 
 man's furniture be wearing out every year, this average of 
 loss is as much to be taken into account, in estimating 
 his expenses, as the cost of the fuel which he consumes. 
 Value may be consumed at the very moment of produc- 
 tion, as in the case of the pleasure afforded by a concert oi 
 a theatrical exhibition. 
 
 The annual consumption of an individual, is the sum 
 total of all the values which he destroys. Hence the 
 materials upon which he operates, the tools which he 
 wears out, the expenses of his household, both for ma- 
 terials and for labor, are all to be reckoned as parts of hi> 
 annual consumption. So, also, the values destroyed by a 
 nation, are the national consumption. The exports of a 
 country are a part of national consumption, since value 
 to the full amount of the exports is abstracted from the 
 capital of the country. On the contrary, the imports are 
 the product, or what the country receives back again in 
 return for its exports or consumption. 
 
116 CONSUMPTION. 
 
 Every man in the country is a consumer. Without 
 consuming he could not sustain life a day. He must con- 
 sume the food which he eats, the clothes which he wears, 
 and the dwelling that shelters him. Hence, if one is doing 
 nothing directly or indirectly to promote pi-odu<^.tion, he 
 must be accounted a useless burden upon the community. 
 If the benefit of his services falls short of the values he 
 consumes, he is, by the whole amount of that deficiency, 
 an unprofitable member of the body politic. 
 
 Objects of Consumption. — All voluntary consump- 
 tion of wealth is for an anticipated good. There are two 
 kinds of good on the one or the other of which the con- 
 sumer fixes his aim and expectation. The one is the in- 
 crease of wealth hy Reproduction. The other is an immedi- 
 ate Gratification. Productive consumption requires care, 
 skill and labor, while consumption for gratification requires 
 neither. Hence ordinarily, productive consumption is not 
 itself a pleasure, but consumption for the other object is 
 a present joy. 
 
 We can rarely use the same value for these two distinct 
 and opposite purposes. If a man consume one hundred 
 dollars in amusement, or in ostentation, he cannot have it 
 also as capital, to be employed in his trade. And, not 
 only can he not have it noiv, but he can never have it 
 again. If it be invested in reproduction this year, it may, 
 by next year, amount to one hundred and fifty dollars, 
 and the year after, to two hundred dollars, and in twenty 
 years it may become five thousand dollars. If it be spent 
 on an entertainment, or a journey of pleasure, it is lost, 
 and all that it might have subsequently become, is lost 
 forever. This should be borne in mind by every man who 
 wishes to rise to independence. Every dollar which is 
 ppent in self-gratification, is so much capital placed forever 
 out of his power. And, on the contrary, every dollar 
 
ECONOMY OF CAPITAL. 11*? 
 
 which he invosts m reproductive employment, may iil s mh«^ 
 future time minister to gratification, or it may provide the 
 means of much more vahiable gratification, in subseciuent 
 
 life. 
 
 In order to present the principles of sound economy as 
 applied to them we must consider these two phases of con- 
 sumption separately. 
 
 1. Consumption for Reproduction.— In treating 
 
 the laws of Production, it has been already shown that 
 the creation of values always involves a meeting of Capital 
 and Labor in which both are consumed. 
 
 With respect to the consumption of Capital the follow- 
 ing economical rules may be laid down. 
 
 a. To produce a given result, the consumption of capi- 
 tal should he as small as possible. The ordinary maxim is 
 as true as it is common, a penny saved is a pe7iny earned. 
 In estimating the profits of any operation, it is manifest, 
 that he who has produced a value worth one hundred dol- 
 lars, at an expense of sixty dollars, reaps a profit of twenty 
 dollars more than he who has produced the same value at 
 an expense of eighty dollars. Thus, the farmer should 
 economize to the utmost all his materials. He who saves 
 half a bushel of seed in sowing an acre, enriches himself 
 as much as though he had reaped half a bushel more per 
 acre. It is said that in China, sowing is always done by 
 drilling. One of Lord Macartney's suite estimated that 
 the saving throughout the whole empire from this im- 
 provement is sufiicient to feed the whole population^ of 
 G-reat Britain. The same principle applies to mechanics, 
 manufacturers and all consumers whatever. It is, unfor- 
 tunately, the case that, from want of care and ingenuity, 
 a much larger portion of value is commonly consumed, 
 than is necessary for the production required. This ia 
 especially the case with fuel. Probably not more than one- 
 
118 CONSUMPTION. 
 
 tenth of the heat giyen off by wood is rendered service- 
 able by Mil open fire-place. 
 
 l. We sJionld employ capital, of no greater value than 
 iS necessary to effect the production intended. Hence, 
 every producer should make it an object of inquiry, to as- 
 certain, so far as the present state of knowledge may eu- 
 able him, in what manner he may effect his purposes by 
 the least costly materials. The merchant, on this princi- 
 ple, should, before making an exchange, ascertain what is 
 the cheapest product at home, with which he will be able 
 to procure a given amount of a product from abroad. 
 Very much of the success of a producer must, of course, 
 depend upon his skill in this respect. The discovery of a 
 cheaper dye stuff of equal goodness, or the exchange of 
 one export for another, may frequently, of itself, be suf- 
 ficient to render a man independent. We do not, of 
 course, suppose that any man will be so simple as know- 
 ingly to expend more in production than he supposes 
 necessary. To guard him against this folly is not our 
 object. It is rather to incite every man to a more thorough 
 and intimate knowledge of the principles on which the 
 operation which he conducts, depends. 
 
 c. It is important that every utility possessed hy any 
 substance he entirely consumed. 
 
 In order to secure this result, attention must be paid 
 to two circumstances. First. All the fragments and 
 remnants should be, so far as possible, employed to some 
 valuable purpose. This principle is well illustrated in the 
 various uses to which the horns of cattle are applied. The 
 horn consists of two parts, an outward horny case and an 
 inward conical shaped substance. The first process con- 
 sists in separating these two parts by means of a blow 
 against a block of wood. The horny exterior is then cut 
 into three portions by means of a frame saw. 
 
 1. The lowest of them, next to the root of the horn, 
 
UCON^OMY OF CAPITAL. 110 
 
 after undergoing several processes by which it is rendered 
 flat, is made into combs. 
 
 2. The middle of the liorn, after being flattened by 
 heat, and its transparency improved by oil, is split into 
 tliin layers, and forms a substitute for glass in lanterns. 
 
 3. The tij) of the horn is used by the makers of knife 
 handles, and of the tops of whips. 
 
 4. The iiiterior or core of the horn, is boiled down in 
 water. A large quantity of fat rises to the surface. This 
 is sold to the makers of yellow soap. 
 
 5. The liquid itself is used as a kind of glue, and is 
 purchased by the cloth dressers for stiffening. 
 
 6. The bony substance which remains behind, is sent 
 to the mill, and being ground down, is sold to the farmers 
 for manure. 
 
 7. The clippings and shavings are also sold to the far- 
 mers for manure, or are used, in small quantities, for the 
 manufacture of toys.* 
 
 Now, it is evident that if any part of this material were 
 wasted, the cost of the manufactured articles would be 
 higher, and the gains of the producer less. And we also 
 see that he who first discovered the mode of rendering any 
 one of these portions of a horn useful, must, by this single 
 discovery, have made himself rich. 
 
 Second. All the values must le consumed in the most 
 profitable manner. It frequently happens that a producer 
 wants but one value from a substance for his particular 
 purpose, while another and an important vahie remains 
 unappropriated. It is always a matter of importance to 
 employ, in the best manner, every value which a substance 
 is known to possess. Thus, after we have derived from 
 wood, all the heat which it can evolve, it leaves ashes, 
 which possess an important value. After the oil has been 
 expressed from flax seed, the residuum is valuable food for 
 
 * Babbage on Manufactures. 
 
1^0 CONSUMPTIOK. 
 
 cattle. The employment of this iitilit}^ of course, lessens 
 the price of oiL and increases the demaiirl for it. Hence, 
 the superiority as to the economy, of large establislmienta 
 ovs? smaller ones. A large mannfacturing establishment 
 can carry on several distinct operations, for the sake of 
 using these secondary utilities. In a small one, this would 
 be impossible, and much must in consequence be wasted. 
 Thus, in connection with a large slaughter-house, a soap 
 and candle manufactory, a manufactory of glue, and one 
 of neat's foot oil, may be sustained, while a large number 
 of hogs are fattened with the refuse of these several estab- 
 lishments. In this manner, every part of the slaughtered 
 animal is profitably consumed. In small establishments, 
 a large portion of these fragments would be wasted. 
 
 With respect to the Oonsumption of Labor, true econ- 
 omy requires us 
 
 a. To employ precisely as much labor as is necessary to 
 accomplish the intended result. We should never employ 
 more than is wanted. This generates idleness and negli- 
 gence. One supernumerary laborer is not only useless him- 
 self, but he generally requires the time of two or three 
 others to bear him company in idleness. 
 
 We should never employ less labor than is wanted. 
 This produces confusion and destroys the advantages of 
 correct division of labor. It saves nothing to employ one 
 person less than is necessary in an establishment, and to 
 suspend the labor of others several times in a day, in 
 order to do the work which that one should have accom- 
 plished. 
 
 In general, provided of course, the work be well done, 
 the less the consumption of labor tlie better for the pro- 
 ducer. Hence, the economy of labor-saving machinery. 
 He who, by an ingenious contrivance, is able to save the 
 hire of one laborer, will find himself, at the end of the 
 year, richer by precisely this amount saved. 
 
BOOKOMY OF LABOR. 121 
 
 b. We should employ labor at no higher price, than is 
 necessary to accomplish our object. 
 
 Every important operation consists of several subordi- 
 Date operations, requiring very different degrees of skill in 
 their execution. According to these degrees of skill, the 
 wages of labor are adjusted. Now, economy demands, 
 that labor of no higher price should be employed on each 
 several operation, than the importance of the operation 
 requires. He who is able so to arrange his laborers, as to 
 execute, by labor worth fifty cents, what was formerly 
 executed by labor worth one dollar, makes a gain of fifty 
 cents a day. Thus, in the power-press, the labor of 
 })ress-work which formerly employed two able-bodied men, 
 is executed, in part, by animal force, or by steam power, 
 and the remainder by women. The reduction in price 
 thus effected is very considerable. 
 
 But while this is the fact, it is also the fact, that it is 
 never profitable to employ laborers incapable of accom- 
 plishing the result. If a particular part of an operation 
 require skill and labor worth five dollars per day, it is bet- 
 ter to give this price than to confide it to an incompetent 
 person who is willing to work for two dollars per day. 
 Thus, a good painter of calico patterns, a good calico en- 
 graver, or dyer, may be cheaper at five dollars per day, 
 than an inferior artist, even if the latter would perform 
 the labor for nothing. 
 
 Hence, the importance of an accurate knowledge of 
 principles to every one engaged in extensive production. 
 It is by deep and thorough reflection upon every part of 
 the process which he conducts, that a manufacturer is able 
 to keep up with, and especially to add to, the improve- 
 ments of the age, and to prevent himself from being un- 
 dersold by his more enterprising and intelligent neigh- 
 bors. 
 
 c. The laiboY paid for, should all he performed. Time, 
 6 
 
122 COifSLMPTIOK. 
 
 as it is frequently said, is money. It is surely money to 
 him wlio pays money for it. And, of course, every hour 
 for which he pays, that is spent in idleness or useless- 
 ness, is so much useless consumption, or so much absolute 
 loss. 
 
 The causes of the waste of labor are various. Some of 
 I he more common are : 
 
 Wa7ii of superintendence. It cannot be supposed that 
 laborers, if left alone, and if paid by the day, will labor 
 as faithfully as if laboring for themselves. Hence the 
 necessity and the economy of efficient superintendence. 
 He who employs twenty men by the day, to perform a 
 particular piece of work, will find that an efficient super ■ 
 intendent will, by preventing idleness, sauntering, and 
 story-telling, save much more than his wages. Hence, 
 commonly, where the labor is of such a nature as to allow 
 of it, it is cheaper to pay by the piece than by the day. 
 In the one case if a laborer be idle he wastes his oimi, 
 time ; in the other case the time of the employer. It 
 is easy to perceive which case is the more favorable to 
 industry. 
 
 Irregularity. This is a great source of waste of labor. 
 Where tools are allowed to get out of place, materials to be 
 deficient or unsuitable : or where several laborers are 
 obliged to stand idle, to wait for the completion of an 
 operation which is done out of season, much time must of 
 necessity be lost. In a shop containing a dozen workmen, 
 if each one spend, on an average, half an hour a day in 
 looking for misplaced tools, or in waiting for materials not 
 at hand, this is a loss of more than half the wages of one 
 laborer a day. This, in a year, would be sufficient to pur- 
 chase the clothes of a small family. 
 
 Defective tools. In order that the economy of labor 
 may be as great as possible, the tools by which labor is 
 saved, should be as perfect as possible ; otherwise we derive 
 
ECOlfOMY OF LABOR. 123 
 
 «9nly a partial benefit from the invention. He who em- 
 ploys a man to chop wood, would certainly see the impor- 
 tance of furnishing him with a sharp axe. He who erects 
 a fence, to save the labor of guarding his cattle, will cer- 
 tainly do wisely to keep his fence in good order. It is 
 surely less labor to mend a gap in a fence, than to be obliged 
 to plant a field a second time, because the grain has been 
 destroyed by cattle which that gap permitted to enter. It 
 takes less labor to mend a leakage in a mill dam, than to 
 rebuild the dam after it has been, by means of that leak- 
 age, carried away. Hence the importance of keeping 
 every part of an establishment in perfect order, and of 
 allowing nothing to be out of repair, if it be possible to 
 repair it. 
 
 "I remember," says Say, " being once a witness of the number- 
 less misfortunes which a neglectful house-keeping entails. For the 
 want of a small latch, the gate of the poultry yard was forever open, 
 there being no means of closing it externally, and many of the poultry 
 were lost in consequence. One day, a fine young porker made his 
 escape into the woods, and the whole family, gardener, cook, milk- 
 maid, etc., presently turned out in quest of the fugitive. The gar- 
 dener, in leaping a ditch, got a sprain that confined Mm to his bed 
 for a fortnight. The cook found the linen burnt that she had left at 
 the fire to dry. The milk-maid forgot, in her haste, to tie up the 
 cattle in the cow house, and one of the loose cows broke the leg of a 
 colt, that was kept in the same shed. The linen burnt, the garden- 
 er's work lost, were worth twenty crowns, and the colt as much 
 more, so that forty crowns were, in a few minutes, lost, for want of 
 a latch that would not have cost more than a few sous." [Pol. 
 Economy, Book 2d, chap. 5. 
 
 Qlustrations of the importance of having every instru- 
 ment in order, and in place, are occurring in most estab- 
 lishments every day. They teach us, that economy of 
 capital, as well as of labor, requires, that e^ery thing 
 should be done in time, and in season ; that if a thing 
 need to be done to-day, we have no means which shall en- 
 
124 CONSUMFIION. 
 
 able us to estimate the loss that may ensue by putting it 
 off until to-morrow ; and, that negligence is as much at 
 variance with the laws of our Creator, as absolute waste- 
 fulness, inasmuch as it exposes us to equally severe punish- 
 ments. 
 
 Supposing now that both labor and capital have been 
 invested upon the most economical principles. The ob- 
 ject for which they have been invested is the creation of 
 products. Hence, the greater this product is, the more 
 successful the investment, the better is it for the individ- 
 ual, and the better is it for the community. The object 
 of the farmer is, with a given soil, a given expenditure of 
 labor, of seed and of manure, to raise the greatest amount 
 of valuBj in a harvest. This will generally, though not 
 always, be as the quantity. Fifty bushels of common 
 apples will not sell for so much as forty bushels of good 
 ones. One hundred pounds of coarse wool, will sell for 
 much less than one hundred pounds of fine wool. Hence, 
 his object should be, from a given expenditure^ to derive 
 the greatest amount of profit. It is by thus adjusting his 
 expenditure, and thus calculating the results, that an 
 intelligent and thoughtful farmer will grow rich, while 
 all around him are remaining stationary or are growing 
 poor. 
 
 So, it is the business of the manufacturer to create, 
 with a given expenditure, the greatest amount of value. 
 If he can succeed in giving to his cloth a better dye, or can 
 produce a more durable or a more tasteful fabric, or can 
 hrJapt it better to the satisfying of any human want, its 
 value is, by so much increased, and he and the commu- 
 nity are the better for the increased value of his produc- 
 tion. 
 
 It is evident, that, in order to do this, a systematic 
 knowledge of the principles of any employment is neces- 
 
ECOKOMY OF LABOR. VZh 
 
 sary to the individual by whom it is carried on. A man, 
 in order to be a skilful producer, must be acquainted with 
 tlie laws of production, that is, those laws of nature and of 
 society which govern the transaction in which he is en- 
 gaged. Hence the importance of accurate knowledge, and 
 sound mental discipline, to all classes of society. 
 
 We see, in the above remarks, another illustration of 
 the truth, that the benefit of one is the benefit of all, and 
 the injury of one is the injury of all. If a man economize 
 labor and capital, he increases his own wealth, and he also 
 rescues as much as he saves, from actual destruction. The 
 whole of this amount may go to the further increase of 
 production, or to the satisfying of human wants. The 
 more he produces, the greater is his wealth ; and the 
 greater is the value which is created for the good of the 
 whole community. 
 
 As it is manifestly for the interest of the individual, so 
 is it for the interest of the society, that every producer 
 should consume as little value, and produce as great value, 
 as possible. Hence the impolicy of those restrictions 
 which will not allow the individual to purchase and to sell 
 where he pleases. If he must give a higher price than is 
 necessary for his material, this is, by the difference, un- 
 profitable consumption. If he cannot dispose of it where 
 he pleases, this is by so much, unprofitable production, 
 because he is unable to realize from his production as 
 much as he would be able to realize were he left to him- 
 self. 
 
 2. Consumption for the Gratification of De- 
 sire. — Under this head the following kinds of legitimate 
 gratification may be enumerated. 
 
 a. Gratifications which pertain directly to the preserva^ 
 ^ion of Health and Life, What are called the necessaries 
 of life, food, clothing and shelter, are here included. All 
 
126 CONSUMPTION. 
 
 men require these in some form and in some degree. Tc 
 provide all with a due quota of them is a matter of first 
 importance. It is impossible to draw an absolute line of 
 demarcation between necessaries and superfluities. The 
 terms are always used relatively, having respect to climate^ 
 grade of civilization, occupation, social position, private 
 property, — the varying outward circumstances of men: 
 ind also to the taste, temperament, education and bodily 
 health of different persons. For the pariah of India, a 
 bamboo hut, a measure of rice and a few yards of cotton 
 cloth provide all the necessaries of life. A respectable 
 citizen of New York would require values a hundred-fold 
 greater to meet his necessities. Yet every man has more 
 or less distinctly defined to his own mind, a list of things 
 which are for him and his family, necessities, things that 
 must be provided and consumed to sustain life, as they 
 live. 
 
 h. Gratifications which delight the Senses and Tastes. 
 This class, in addition to things indispensable, includes 
 delicacies for the table, elegancies of dress and equipage, 
 ornaments, beauties of fine art in painting, statuary, archi- 
 tecture and music, public exhibitions to please the eye and 
 the ear — what are commonly termed Luxuries. The de- 
 sires which run in this direction are natural. They are 
 multiplied and stimulated by individual and social culture. 
 Their gratification properly regulated, is elevating and re- 
 fining and has the effect indirectly to incite invention, 
 quicken industry and increase production. Under the 
 exercise of sound economy, means for these gratifications 
 may be drawn from the resources of nature, by human 
 skill and genius, and may be quite generally distributed. 
 It is morally and socially healthful for people of every class 
 •i!id condition to enjoy some things which they esteem 
 luxuries. The potato-patch will yield no less for the 
 beauty of flowers growing on the border. The necessaries 
 
INTELLECTUAL GKATl^lCATIONS. 127 
 
 of the home will be enjoyed with a better relish for a taste- 
 ful carpet on the floor and bright pictures on the walls. 
 
 There is need however, to note the danger of excess and 
 abuse connected with this class of gratifications. Appe- 
 tites unnaturally formed and unduly pampered, run into 
 passions which cannot be satisfied, and lead to indulgences 
 which are ruinous to body and mind, producing misery 
 instead of happiness. Where objects of beauty, the pro- 
 ducts of fine art, are valued only as things that everybody 
 cannot have, and minister chiefly to a desire for vain osten- 
 tation, they breed discontent, envyings and jealousies 
 which are the bane of happiness. Fashion often usurps 
 the throne and rules with despotic tyranny in this depart- 
 ment of gratification, commanding wasteful and exhaust- 
 ing extravagances. The Scriptures therefore justly con- 
 demn these excesses and perversions of sense and taste as 
 " the lust of the flesh, the lust of the eye and the pride of 
 life." 
 
 The degree to which a person may properly expend his 
 means on these gratifications, must depend on the wealth 
 at his command, his social position, his culture and his 
 true and healthy taste. The desires need to be regulated 
 by a due regard to the future as well as to the present 
 well-being; and actual practice should be modified by 
 regard to others' well-being as well as one's own. 
 
 c. Intellectual Gratifications derived from the very ex- 
 ercise of the mind's powers and the acquisition of knowl- 
 edge. The chief outlays here are for books, apparatus, 
 experiments, lectures, etc. These affect the higher part 
 of men's nature and yield a kind of pleasure exceedingly 
 rich and pure, while the consuhiption of wealth involved 
 is very small in proportion to the satisfaction realized. 
 All are capable in a greater or less degree of enjoyment 
 from this source, and the capacity for it increases aa 
 provision for it is enlarged. The highest welfare of indi- 
 
128 CONSUMPTION. 
 
 vi duals and of society is promoted by ministering such 
 gratifications. By offering a fit substitute, they furnish 
 the best check to ruinous sensual indulgences. Hence it ia 
 wise economy to foster desire in this direction by ample 
 provision for its gratification. 
 
 d. Social Gratifications through the exercise of hospi 
 lality and all acts of friendliness, and through the varied 
 contact of men with one another, in the small circle of 
 intimate associates, in festive assemblies and in extensive 
 travel about the world we live in. The desire for such 
 gratifications springs from the constitution of our nature, 
 as beings formed for mutual intercourse and fellowship. 
 By them, society is bound together by the most healthful 
 and the strongest ties, and the general happiness is greatly 
 promoted. 
 
 e. Moral Gratifications through the culture of a good 
 conscience totoard God and toicard men and the exercise of 
 benevolence. These involve some expenditures for the sup- 
 port of religious institutions and in the charitable bestow- 
 ment of a portion of one's wealth on others for their tem- 
 poral relief and their spiritual improvement. They touch 
 the noblest and purest capacities of our nature and yield 
 the richest satisfaction — a satisfaction not limited to the 
 moment of gratification, but abiding for the life-time of 
 the soul. This kind of gratification may come within the 
 reach of all. The degree of satisfaction is measured, not 
 by the grandeur of the religious service, nor by the amount 
 of the beneficent gift, but by the sincerity and heartiness 
 of the worshiper and the self-sacrificing good-will of the 
 giver. 
 
 Some Rules of Economy which apply to consump- 
 'ion for the gratification of desire are worthy of notice. 
 As in consumption for Reproduction, so here, they respect 
 both capital and labor. 
 
IBCOKOMY liT GRATIFICATION'S. l29 
 
 A particular gratification having been resolved npoii, 
 sound economy dictates that the consumption of values be 
 as small as is consistent tvith the accomjolishment of our 
 pvrposB. This forbids us to purchase more of any value 
 than is wanted. The articles ordinarily consumed in a 
 family, are rapidly destructible. If more be purchased 
 than is wanted, it is liable to become useless, and in thit 
 case, the loss of this excess is total. By having a supera- 
 bundance of any thing consumable, it becomes in the eyes 
 of those who use it, less valuable, and is used less care- 
 fully. And if neither of these results be experienced, if 
 an article be purchased a year before it is wanted, the pur- 
 chaser loses the interest for a year of the money expended. 
 This must be considered in deciding the question whether 
 to purchase supplies by wholesale or by retail. 
 
 By this rule, it is unwise also to purchase any thing 
 because it is cheap. If a man need any thing, its cheap- 
 ness is a reason why he should buy, but if he do not want 
 it, its cheapness is no reason at all. A man may buy 
 stones very cheap, but it is doubtful whether he would be 
 either enriched or made happier by the purchase. Many 
 a garret is filled with great bargains, which were pur- 
 chased because they were cheap, and then laid away to 
 rot. 
 
 Again, the consumption should he as perfect as possible. 
 When we have possessed ourselves of a substance, it should 
 not be thrown away until every utility which it possesses 
 has been exhausted. Thus an article of clothing which 
 will not answer any longer for one purpose, may answer 
 very well for another. An article of food, which may not 
 be used in one form, may be used in some other form. 
 And hence, in general, nothing should come into a house 
 unless it be wanted, nor in a larger amount than is 
 wanted ; and nothing should leave it until aU its utility la 
 exhausted. 
 
 6* . 
 
130 coNsuMPtrolf. 
 
 Economy dictates furtlicr tlmt all means should be pro- 
 vided for the most perfect consumption of values. Hence, 
 every useful utensil sliould be furnished, and should be 
 the most perfect of its kind. It is cheaper to buy a coal- 
 hod than to carry coal in a basket, and by saving a dollar 
 in a utensil, ruin a carpet worth fifty dollars. It is 
 cheaper to have every description of culinary vessel that 
 may be needed, than to have food spoiled by being cooked 
 in an unsuitable instrument. It is cheaper to have a bad 
 fire-place altered, at an expense of fifteen dollars, than to 
 consume annually ten dollars worth more of wood than is 
 necessary. 
 
 Hence, it is also important that every article purchased 
 be of such a nature as will admit of the most profitable 
 consumption. If a man buy fuel which gives off very lit- 
 tle heat, because it is at a low price, it is by no means 
 certain that he has made a successful purchase. It should 
 always be remembered that we want a given amount of 
 utility, and not the mere form in which it seems to reside. 
 It is cheaper to purchase a dollar's worth of utility for a 
 dollar, than half a dollar's worth for seventy-five cents. 
 
 The same principles apply to lahor. Economy directs 
 that in a household we should purchase as much labor as 
 we need, and of the kind that we need, but no more than 
 we need. When we pay for useless labor, we throw money 
 away ourselves. When we employ incompetent labor, we 
 pay others to throw it away for us. 
 
 These are the principal considerations which should 
 govern our expenditures. And it will be seen that they 
 apply to all the conditions of men. Whether our expen- 
 diture be large or small, it should be conducted with 
 economy. The object to be attained is, to secure as large 
 an amount of gratification, at as small an expenditure as 
 possible. To the man who has but two hundred dollars 
 per year to spend, it is certainly important to spend it 
 
HOUSEHOLD ECOKOMY. 131 
 
 economicully. To the mau wlio has ten thousand dollars 
 per year, it will generally be found convenient. 
 
 Hence, it will be seen that in oider to enjoy the com- 
 forts or the luxuries of life, at the least expense, care and 
 supermtendence and knowledge of the various operations 
 performed in a household, are absolutely necessary. And 
 as this department of consumption generally devolves 
 upon the mistress of a family, we see how important to 
 the execution of it with success, must be vigilance, care, 
 intelligence and industry. The husband, by the employ- 
 ment of capital, labor and skill in productive consump- 
 tion, secures an annual revenue for the purpose of con- 
 sumption in the various means of gratification, whether 
 necessary or superfluous. The expenditure of this annual 
 revenue, or the making of those arrangements which gov- 
 ern the expenditure, generally devolves upon the wife. 
 If that expenditure be made without economy, either the 
 gratifications which it might procure are never enjoyed, 
 and by all the consumption, neither comfort nor pleasure 
 is obtained ; or else if the gratification sought for be ob- 
 tained, it is obtained at an expense absolutely ruinous. 
 Hence, it will be seen that the physical comfort, as well 
 as the means of happiness of both parties, depends more 
 on the domestic education of the female sex than is ordi- 
 narily supposed. Affection will rarely exist in the atmos- 
 phere of self-inflicted poverty. No man can respect a 
 woman, by whose caprice and ignorance of her appropriate 
 duties, he is plunged into disgraceful bankruptcy, and 
 wedded to hopeless penury. Nor let it be supposed that 
 no talent is requisite skillfully to superintend a household. 
 It requires at least, as much ability to direct with skill, 
 and on principle, the affairs of a domestic establishment, 
 as to select a ribbon or dance a minuet, to finger a piano 
 or to embroider a fire-screen. 
 
 Sound economy also suggests certain considerations 
 
. 132 CONSUMPTION. 
 
 respecting the selection of our gratifications. Where the 
 aiuoLint of gratification in two cases is equal, it is wise to 
 choose that luhicli is the least expensive. The reason for 
 this is too obvious to need much illnstration. If a particu^ 
 lar gratification can be procured for one hundred dollars, 
 and another which will afford an equal amount of happi- 
 ness can be procured for ten dollars, the cheaper is to bo 
 preferred ; because, while in this case we obtain an equal 
 gratification, we have ninety dollars remaining with which 
 to purchase other objects of desire. 
 
 When two modes of gratification are in themselves 
 equally productive of happiness, but of which one tends to 
 the ivealth, and the other to the poverty, both of the indi- 
 vidual and of society, the former is to be preferred. 
 Thus, if it cost the same sum to spend an evening in in- 
 tellectual improvement that it would cost to spend it in 
 a drunken frolic, and the pleasure in the two cases were 
 the same, inasmuch as intellectual cultivation tends to 
 knowdedge, which is a valuable consideration to every pro- 
 ducer, and a drunken frolic has no such tendency, econ- 
 omy would teach us to spend the evening in intellectual 
 cultivation. 
 
 If now we compare the various modes of expenditure 
 most common among men, it will appear evident that 
 the economy of the moral and intellectual pleasures is 
 somewhat overlooked. 
 
 The expenditures for all the real wants and conve- 
 niences of a human being, may, by industry and frugality, 
 without great difficulty be supplied. It does not cost 
 much to provide all that we need for wholesome and pal- 
 atable food, for comfortable clothing and shelter, and for 
 all the furniture demanded for convenient domestic ar- 
 rangements. Our greatest expenses are for those objects 
 which yield no other utility than the mere gratification of 
 the senses, or, which are rendered necessary by command 
 
MOEAL AKi) INTELLECTUAL GRATIFICATIOKS. 133 
 
 of fashion, or the love of ostentation. Thus, in the pur- 
 chase of a garment or of an article of furniture, a part of 
 the price is paid for the real utility which it possesses, and 
 the remainder for that particular form, or color, or work- 
 manship, which is designated by fashion. Now, it fre- 
 quently happens that this latter portion of the price is 
 far greater than the former. The same may be said of 
 many of our expenses of the table, and of various others. 
 
 Now, that men should not, if they have the ability, in 
 any manner gratify their senses, and yield obedience to 
 fashion, it is not necessary here to affirm ; nor is it neces- 
 sary that political economy should prescribe the limit 
 within which these gratifications shall be confined. A few 
 considerations, for the sake of illustrating the comparative 
 economical advantages of other modes of gratification, is 
 all that will be here attempted 
 
 Moral and mtellectual pleasures are hy no means expen- 
 sive. To spend time in moral cultivation, is no more ex- 
 pensive than to spend it thoughtlessly and frivolously. The 
 time consumed in thoughtless dissipation, if employed in 
 moral culture, would be sufficient to effect great changes 
 in our habits and tastes. 
 
 The pleasures of leiievolence, so far as pecuniary Con- 
 sumption is concerned, are less expensive than those of the 
 senses. Were the sums lavished in thoughtless caprice in 
 obedience to fashion, or in the gratification of appetite, to 
 be reserved for charity, how great an amount of happi- 
 ness might be created both in the benefactor and the re- 
 cipient. 
 
 The same may be said of intellectual pleasures. Books, 
 and all the means for intellectual gratification, may be had 
 at an expense within the reach of a very large class of the 
 community. The useless ornaments of a drawing room, 
 would frequently purchase a considerable library. The 
 sums of money annually paid by most families, to satisfy 
 
134 CONSUMPTIOi^'. 
 
 the demands of fasliion. would provide them with as much 
 reading as they would desire. Now, when these two kinds 
 of pleasure arc equally set before us, and when the one 
 may be procured at so much less expenditure than llio 
 other, it surely is worth the attention of every man, de- 
 liberately to inquire by which mode of investment he will 
 best secure his own happiness. There seems something 
 ill-adjusted, when the habitation of a moral and intellect- 
 ual being reminds us of everything thing else rather than 
 that he is either moral or intellectuaL 
 
 Moral and intellectual pleasures tend to the wealth both 
 of the individual and of society. 
 
 The exercise of benevolence has several important eco- 
 nomical tendencies. For instance, it tends directly to cul- 
 tivate the habits of self-denial and self-government which 
 are so essential both to industry and frugality. Sensual 
 self-indulgence tends directly to produce both indolence 
 and capricious and reckless expenditure. 
 
 Again, the habit of benevolence tends to moderate and 
 correct that intense love of gain, which is so frequently the 
 cause of ruin to enterprising men. In the management 
 of any hazardous business, he will be the most likely to 
 succeed who looks with entire coolness on the chances of 
 loss and gain. The too eager, governed by their imagina- 
 tion, rush into needless danger. The too cautious allow a 
 fair prospect of advantage to pass by unimproved. The 
 one is as liable to fail as the other. He who, by the prac- 
 tice of benevolence, has learned a more accurate estimate 
 of the blessings of wealth, will more probably than either, 
 judge correctly. The miser and the sensualist will fall 
 into opposite extremes, one upon each side of him. 
 
 Besides, the social benefits of benevolence are incalcu- 
 lable. It unites together the various classes of men by the 
 strong ties of affection and gratitude. By bringing all 
 classes of men more directly under the view of the whole 
 
MOHAL AHJ) INTELLECTUAL GRATIFICATIONS. 135 
 
 mass of societyj social responsibility is increased, and the 
 encouragements to virtue and the restraints upon -sice are 
 strengthened. When the rich are liard-hearted and hixu- 
 rious, the pool are disaffected, anti-social, and destructive. 
 In so far as benevolence, therefore, tends to the improve- 
 ment of the social dispositions of men, it may lay claim tc 
 great economical advantages. 
 
 And the same is true of intellectual pleasures. A man 
 cannot enjoy these without improving his mind, and ren- 
 dering it a more valuable instrument both for the promo- 
 tion of his future happiness, and the accumulation of 
 wealth. Knowledge is power, in what sphere of life so- 
 ever it be exerted. The gratification of the senses ener- 
 vates the body, enfeebles the mind, and tends to render 
 intellectual exercise unpleasant, and to unfit us for any 
 important or highly responsible exertion. 
 
CHAPTER XI. 
 
 PUBLIC CONSUMPTION. 
 
 The Nature of Public Consumption. — The gath- 
 ering of many individuals into a community gives rise to a 
 peculiar class of common wants, which may be termed the 
 wants of Society. To satisfy these wants, a part of the 
 annual revenue of every member of society is contributed 
 in some measure to the public and is expended by the pub- 
 lic agents, that is by the Oover7iment. 
 
 This expenditure is provided for by means of Taxation. 
 When a given sum is to be raised for the accomplishment 
 of any object, it is, by some mode of assessment, distrib- 
 uted among the various individuals of the community, and 
 every one is obliged to pay the proportion with which he is 
 charged. The sum thus collected is then, for the accom- 
 plishment of various purposes, consumed by public agen- 
 cies. The consumption itself is of precisely the same 
 nature as that effected by individuals, that is, the value is 
 destroyed, the utility consumed is annihilated. If an in- 
 dividual burn gunpowder, its value, measured by the labor 
 and material by which it was produced, is destroyed ; if a 
 hundred or a thousand men do it, the result is the same. 
 If a man in the digging of a ditch consume the labor of a 
 thousand workmen, and use the provisions necessary for 
 their sustentation, the whole value thus expended is annihi. 
 lated. And if a thousand men unite in the undertaking, 
 the annihilation is the same. In a word, government is 
 
PUBLIC EXPENDITURE. 137 
 
 nothing but a system of agencies ; and property consumed 
 by the government, is as really consumed, and its value as 
 really destroyed, as though the individual citizens con- 
 sumed it themselves. 
 
 Now, this being the fact, the rule by which consump 
 tion is to be judged of, is precisely the same, whether it in 
 public or private. If the product created by the consump- 
 tion, whether that product be material or immaterial, is 
 of greater value than the product consumed, it is profitable 
 consumption ; that is, the public receive in return a 
 greater value than they parted with. If a less valuable 
 product be created than is consumed, it is unprofitable 
 consumption, and the value might better have remained in 
 the hands of individuals. If no product whatever be real- 
 ized, it is a total loss, and the value taken from the indi- 
 viduals might as well have been thrown into the sea. Nay, 
 had they themselves thrown the value consumed into the 
 sea, there would have been a gain, as the expense of col- 
 lecting and consuming it would have been saved. And 
 still more, if the value consumed produce no valuable 
 results, but on the contrary, be employed to promote the 
 purposes of oppression and misrule, the evil is enormous. 
 The possessions of the individual are taken away, not only 
 without rendering him an equivalent, but for the sake of 
 employing other men to torment, and deprive him of his 
 dearest rights. 
 
 It is frequently asserted, that public expenditure en- 
 riches a country, or that at least, it is wholly innocent, 
 since it quickens the circulation of money, and does no 
 harm, inasmuch as all the money always remains in the 
 eouutry. To obviate such an objection, let us trace, from 
 first to last, the passage of a product toward ultimate cou- 
 sumption on the public account. 
 
 "The government exacts from tlie tax-payers, the payment of a 
 given sum in the shape of money. To meet this demand, the tax 
 
138 COKStlMPTION. 
 
 payer exchanges part of the products at his disposal for coin, which 
 he pays to the tax-gatherer. A second set of government agents i» 
 busied, in buying with that coin, clothing and other necessaries foi 
 soldiery. Up to this point, there is no value either lost or consumed ; 
 there has only been a gratuitous transfer of value and a subsequeni 
 act of barter, but the value contributed by the citizen still exists i» 
 the shape of stores and supplies in the military depot. In the end 
 however, this value is consumed, and then the portion of wealth 
 which passes from the hands of the tax-payer into those of the tax- 
 gatherer, is destroyed and annihilated. 
 
 " Yet it is not the sum of money that is destroyed ; that has only 
 passed from one hand to another, either with or without any return, 
 as when it passed from the tax-payer to the tax-gatherer ; or in ex- 
 change for an equivalent, as when it passed from the government 
 agent to the contractor, for clothing and supplies. The value of the 
 money survives the whole operation, and goes through thr^e or four, 
 or a dozen hands, without any sensible alteration. It is the value oj 
 the clothing and necessaries that disappears, with precisely the sam» 
 eflfect as if the tax-payer had, with the same money, purchased cloth 
 'ng and necessaries for his own private consumption." * 
 
 Consumption, then, is of the same nature, whether it 
 be public or private. It is a destruction of value ; and 
 the rule by which we are to determine whether it be profit- 
 able or unprofitable, is the same in both cases. It is by 
 inquiring, whether the benefit created by the consumption 
 is greater than, equal to, or less than, the value of the pro- 
 duct consumed. 
 
 While, however, this rule is always to be adopted, it is, 
 as in the case of individual consumption, to be interpreted 
 with a liberal and intelligent forecast. It must not, of 
 course, always be expected, that the product created by 
 consumption, will be a visible, tangible, material sub- 
 stance. Thus we see no physical, tangible product, as the 
 result of taxes for the support of civil government. But 
 we receive the benefit in security of persons, property, and 
 reputation ; or in that condition of society which, though 
 
rUBLIC EXPENDITURE. 139 
 
 it be incapable of being weighed and measured, is abso- 
 lutely essential both to individual happiness, and individ- 
 ual accumulation. The same may be said, in substance, 
 concerning the taxes paid for general education. Here, 
 whether the tax-payer receives his remuneration in instruc- 
 tion given to his own children, or not, he yet receives it. 
 in the improvement of the intellectual and social character 
 of his neighbors, by which his property is rendered more 
 secure, the labor for which he pays is better performed, 
 and the demand for whatever he produces, is more universal 
 and more constant. The same may be said of that public 
 expenditure by which the moral and social character of a 
 community is elevated, the taste of a nation refined, and 
 an impulse given to efforts for the benefit of man. With 
 this view, no one could oppose the expense incurred in be- 
 stowing upon public edifices elegance, or even, in some 
 cases magnificence of structure ; in the public celebration 
 of remarkable eras ; and in the rewards bestowed upon 
 those who have by their discoveries enlarged the bound - 
 aries of human knowledge, or by their inventions, signally 
 improved the useful arts. Political Economy is opposed 
 to none of these forms of expenditure ; all that she requires. 
 is, that a valuable consideration be received in return foi 
 the consumption ; and that the consumption be not dis- 
 proportionate to that consideration. 
 
 The principles and methods of Taxation come more 
 properly under the head of Distribution and will be dis- 
 cussed in our third Division of the science. 
 
 The Purposes to which Public Consumption 
 Is properly applied may be specified as follows. 
 
 1. For the Swpyort and Administration of Government . 
 
 This is by far the most necessary of any of the objects 
 oi public expense. Without government there could bo 
 ao society, and without society, there could neither be re- 
 
1 4:0 COif SUMPTIOiq^. 
 
 dress of wrong, nor security of property. But government 
 
 cannot be administered without officers, and no one will 
 devote himself to the discharge of the duties of civil office, 
 unless he be paid for it. 
 
 The principles which should govern this branch of ex- 
 penditure, are few and simple. 
 
 Economy requires that precisely such talent shoul.l bo 
 employed, in the various offices of civil government, as 
 may be necessary to insure the discharge of the duties of 
 each office in the best possible manner. Many of these 
 offices can be discharged successfully, only by the first 
 order of human talent, cultivated by learning and disci- 
 pline, and directed by incorruptible integrity. Now it is 
 certainly bad economy, to employ inferior talent to do 
 badly, that which can be of service only when it is done 
 well. 
 
 Hence the salaries of judicial, legislative, and executive 
 officers should be such as will command the service of such 
 talent as the duties of each office require. It is most un- 
 wise parsimony, to give to a judge such a salary as will 
 command the services of nothing more than a-third rate 
 lawyer : and it is mean to ask an individual to do a ser- 
 vice for the community, at a lower rate than that at which 
 he would do it for an individual. 
 
 In answer to this, it may be said, that by bestowing 
 large salaries upon the officers of government, we present 
 temptations to avarice. But the reduction of salaries b}' 
 no means diminishes the evil. Were emolument to be 
 reduced, there would always be a contest for office. The 
 only question then is, whether we shall have the contest 
 between men of high or between men of loiv character ; 
 lietween those who are capable of serving us to our advan- 
 'age, or those who are only capable of serving us to our 
 disadvantage. Were the most important trusts in the 
 government to command no higher salaries than the wages 
 
EXPEND1TUKE6 h'OR CIVIL SEKVIOE. 141 
 
 of day laborers, there would be as great competition for 
 them as at present ; only then, the great contest would be 
 between day laborers, instead of being between men of 
 professional ability. 
 
 Here, however, the general principles of wages should 
 have their full effect. For instance, where an office con- 
 fers rank or dignity, or indicates professional eminence, 
 the emolument should be less than would otherwise be 
 paid for the same amount of service. Again : when an 
 office is permanent, the emolument should be less than 
 when it is temporary. But on the other hand, if it be in- 
 sisted upon, that neither rank nor consideration shall be 
 allowed to the public officer, but that all men are and 
 must show themselves to be on a level, the remuneration 
 of office should be higher. And also, when an office is 
 temporary, and the having held it, disenables the incum- 
 bent for subsequent professional employment, the remu- 
 neration should rise accordingly. In such cases a pension 
 should be attached to the office, if its duties for a given 
 time have been faithfully dischaTged. 
 
 Altogether at variance with these principles is the prac- 
 tice of making appointments to civil office as a reward for 
 partisan political activity, or from personal relationship or 
 attachment, without regard to fitness for the duties. Con- 
 sidering the amount and variety of service needed and the 
 responsible trusts involved, true economy, which always 
 means efficiency in the administration of public affairs, 
 demands that in the civil, as in the military and naval 
 service, there should be a preliminary training, tested by 
 thorough examinations, and a regular systein of promotions 
 according to merit and time of service, with emoluments 
 sufficient to encoui-age permanence and fidelity. When in 
 these m-itters, the science of Political Economy shall sup- 
 plant the chicanery of Party Politics, the nation will be 
 saved millions of wealth as well as the mischief and shame 
 of abounding corruption. 
 
142 COXSUMl'TiOX. 
 
 2. Expenditures for Works of pifblic Convenience and 
 Advantage, commonly called Public Improvements. In 
 this category are included such items .is paving, cleaning 
 ind lighting the streets of a city, providing water-wort? 
 and sewerage, constructing roads, canals and railways, im- 
 proving harbors,' building and sustaining light-houses, 
 making surveys for the safety of navigation, clearing the 
 channels of rivers and raising dykes or embankments to 
 keep rivers in or to keep the sea out. The main feature 
 of all these works is that they confer benefits upon the entire 
 conmiunity. They also involve an exercise of the right of 
 eminent domain, that is, the right of a government, under 
 certain circumstances and on equitable conditions, to take 
 private property for public use. 
 
 Some of these works are of such a nature, and such is 
 the benefit they yield that it is impracticable to derive 
 any income from the capital expended. Hence they must 
 he provided for by public funds. Others of them come 
 within the scope of private enterprise, and under wise 
 management, may be made to yield a fair profit on the 
 capital invested, by charges for their use. Many writers 
 affirm therefore, that a government should never assume 
 any of these works which individuals are willing to under- 
 take. But private enterprise can do nothing with them 
 without action of the government authorizing the works 
 and conferring privileges and powers for their construction 
 and management. There is danger that these powers will 
 be abused for selfish interests, in disregard of the public 
 good. Some of them also, like the Pacific railway, are of 
 too great magnitude for private enterprise unaided, and it 
 may be wisest and best that the government should con- 
 trol those works to which it must contribute aid. Recent 
 experience with some of our great railway corporations 
 gives much weight and importance to these considerations 
 and complicates the question as to what should and what 
 
PUBLIC IMPROVEMENTS. 143 
 
 should not be undertaken directly by the government. 
 
 Without entering into the discussion of this question here, 
 we may say that, in the light of political economy, it is 
 evident that the interests of the whole public should alwayt 
 take precedence of all private interests, and that a govern^ 
 ment should never , hy any grant or charter, alienate its 
 right or its poiuer to guard and serve the puUic interests 
 as they are concerned in these works. 
 
 3. Expenditures for advancing Science and diffusing 
 Intelligence for common interests. This class of expendi- 
 tures is closely allied with that last referred to, but it 
 deserves a distinct notice. It embraces exploring expedi- 
 tions to remote and unknown parts of the earth, expedi- 
 tions to localities most favorable for important astronomi- 
 cal observations, geological surveys, coast surveys, meteor- 
 ological observations, entomological investigation, and the 
 whole post-office system as a means of diffusing intelligence 
 and promoting social intercommunication. Some of these 
 Lxpenditures do not contemplate a present imperative need, 
 nor an immediate pecuniary advantage, but they do all 
 yield broad, general benefits, of the highest importance 
 even in their economical aspect, which justify the judi- 
 cious application of the public funds to provide for them. 
 
 In a thickly populated country of limited extent, a 
 postal system may be made self-sustaining by a very low 
 charge for the service rendered, and might be maintained 
 by private enterprise. But no doubt, it is even then safest 
 and surest under the control of the government. In a 
 country like ours, however, so broad, and in many parts so 
 thinly inhabited, it must be maintained by the government, 
 and the common interest justifies a low rate of postage, 
 though for a time, it may make considerable drafts on the 
 public treasury. The time is, probably, not far distant 
 when a Hke common interest in the use of the magnetU 
 
144 CONSUMPTIOlir. 
 
 telegraph, as a means of communication, will require the 
 government to connect it directly with its postal system. 
 
 4. Expenditures to promote the General Education of the 
 people. This is a proper object for national expenditure, 
 because the prosperity of a country depends very much on 
 the general intelligence of its population. General educa- 
 tion causes industry to be more intelligently applied and 
 makes it more effective. It brings labor and capital more 
 nearly upon a basis of equality, as they meet for mutual 
 contracts and cooperation, and guards against the disturb- 
 ing outbreaks of ignorant and unreasoning masses. It 
 qualifies all to discern what are their best interests, and 
 wisely and hrmly, without violence, to stand for those in- 
 terests in the sharp competitions of industry and trade. 
 It is for every man's interest that he have intelligent men 
 to associate and to deal with. 
 
 A system of public education must provide free schools 
 open to all classes, in which children may be taught to 
 read and write with accuracy their vernacular language, 
 to use numbers freely and correctly in their various com- 
 binations as involved in the ordinary transactions of busi- 
 ness, and to master the elementary facts of geography, 
 history and science, essential as a beginning of that gen- 
 eral information in the acquisition and use of which the 
 mind should be growing through all the years of after life. 
 No doubt there are communities in which the full benefit 
 of such a system can be secured only by making attendance 
 compulsory ; but in general, a prevalent popular sentiment, 
 such as is formed by the presence and influence of good 
 schools, will be found better than direct legislation to 
 bring the children of all classes under instruction. 
 
 Many of our American states are provided with general 
 school funds which yield an income devoted to sustain a 
 system of public education. These are rarely sufficient to 
 
EXPENDITURES FOR EDtJCATION. 1 l5 
 
 provide for the entire cx})cnse of schools ; nor is it host 
 they should he, since ji local interest in each school ia 
 more likely Lo be sustained when the people themsclvcti 
 contribute something for their support. For the distribu- 
 tion of these general funds, a rule which seems wise ii 
 commonly adopted, making the amount of appropriatioii 
 to each district depend upon the amount of tax levied in 
 the district, as well as upon the number of scholars. To 
 make the system complete, it seems necessary, that every 
 :listrict sufficiently large to maintain a school, should be 
 obliged to maintain one, and that for this purpose, the 
 necessary funds beyond what the general school-funds may 
 furnish be raised by the authority of the public from the 
 district. When, however, these funds have been raised, 
 they may safely be left in the power of each district itself, 
 in the belief, that those who have themselves earned and 
 contributed the money, will be more likely than any other 
 persons to disburse it skillfully arud economically. Besides 
 this, as upon such a system, teachers will be wanted in 
 large numbers, it may be desirable that normal-schools be 
 established for the special purpose of educating them. 
 This will give uniformity to the system of instruction, and 
 enable the science of education, throughout a whole com- 
 munity, the more easily to keep pace with the progress of 
 science in other departments of knowledge. 
 
 There can be no question, that the safety and best 
 good of society, economical as well as moral, require the 
 state to provide for the gratuitous education of all classes 
 in the rudiments of knowledge. How far beyond this, the 
 public system should be extended, and especially whether 
 the state should set up and maintain by general taxation, 
 higher institutions such as colleges and universities, to 
 make a scientific and professional education also gratuitous^ 
 is a question which demands the thoughtful consideration 
 of the economist, the statesman and the Christian. We 
 7 
 
146 cONsuMPTioir. 
 
 can offer here only a few thoughts bearing on that ques- 
 tion. No doubt, it is for tlie advantage of the whole state, 
 that some of its citizens should be well trained to become 
 leaders of lliought and influence in society. It is clear also 
 that the actual expense of a tliorougli liberal education is 
 sjo great tliat if, by charges for tuition, raised to the full 
 measure of the cost, the burden of giving their own chil- 
 dren its advantages were thrown entirely upon parents, only 
 the children of the rich could enjoy the privilege. On 
 the other hand, it is evident that few comparatively can 
 enjoy the direct benefit of these institutions and it seems 
 unjust that the whole community should be heavily taxed 
 to make these advantages gratuitous for the few. Under 
 the control of the state, such institutions must be more or 
 less involved in the conflicts of political parties^ in a way 
 unfavorable to the most successful prosecution of their 
 work. Under such control also, it is difficult, not to say 
 impossible, to adjust the treatment of moral and religious 
 subjects, which cannot be excluded from a course of liberal 
 education, so as to satisfy all. Moreover, it is healthful 
 for a people that wide scope be given for the action of 
 private beneficence in endowing institutio7is of lear7iing ; 
 and tlie education that costs the young man and his 
 parents and friends some direct sacrifice, is most likely 
 to be appreciated, made thorough in its processes and 
 turned to good service in its practical use. Experience in 
 our country has shown that institutions so established and 
 maintained, do send forth men well fitted to lead and mold 
 public opinion and to make the learned professions strong 
 and influential for the highest welfare of society. They 
 deserve, as they have received, the fostering care of the 
 state. 
 
 The importance of this work of higher educatior, as a 
 conservative power for the industrial, social and moral 
 well-being of a people, cannot be overestimated. The 
 
EXPENDITURES FOR EDUCATIOIS". 14*? 
 
 government needs to foster and sustain it by every legiti- 
 , mate means. The main question is simply whether or not 
 the state shall undertake by general taxation to build up a 
 public university to be conducted under its own control. 
 This question demands a broad, candid and disinterested 
 discussion. 
 
 5. Expenditures for the care of classes afflicted hy pecu- 
 Lar calamities or Deiyrivations. Under this head are con- 
 templated chiefly hospitals for the insane and institutions 
 in which the deaf and dumb, the blind and the feeble- 
 minded, may, by peculiar processes of education, be fitted 
 to become useful and happy members of society. Our 
 common sympathies and benevolence dictate that such 
 means for relief of the unfortunate should be provided. 
 Evidently, they can be most economically provided by the 
 state. The benefits also must be very largely gratuitous, 
 because such calamities come in the largest proportion upon 
 the poor. Lavish expenditures, in this exercise of public 
 beneficence are, however, to he deprecated. Institutions 
 may be set up and carried on in a fftyle so costly as need- 
 lessly to increase the burdens of taxation and to be a dis- 
 advantage to their inmates, accustoming them, for a brief 
 period, to luxuries which tend to make them, in after-life, 
 discontented with their plain homes. A wise frugality 
 needs to be observed even in the exercise of charity, both 
 by individuals and by the state, that means may be exactly 
 adapted to their end. 
 
 6. Expenditures for the Relief of Poverty. To relieve 
 the sick, the destitute, and the helpless, is a religious duty, 
 and therefore should, like every other religious duty, be a 
 voluntary service. Hence, charity in a moral and reli- 
 gious community, should generally be dispensed by individ- 
 uals from their own resources, or from the resources of 
 voluntary associations. 
 
14S CONSUMPTiOis^. 
 
 Nevertheless, as cases frequently occur which could not 
 with sufficient promptness, be relieved by the aid of indi- 
 viduals, or in which the burden would press too heavily 
 on the most charitable, it may be proper that some 
 public provision should be made for the relief of those 
 whom old age, or infancy, or sickness, or sad calamity has 
 deprived of the power of providing the means necessary 
 for sustenance. 
 
 By far the greater number of persons requiring such 
 aid, are, however, capable of some labor, and are also pos- 
 sessed of some skill. They are also far happier, when en- 
 gaged in suitable labor, than when idle. It is therefore, 
 the dictate of benevolence, as well as of economy, to pro- 
 vide them with means of profitable occupation. This 
 labor and skill, if judiciously employed upon capital, will 
 commonly defray the expenses of the support of paupers. 
 Hence, the best method of relieving the poor, is to provide 
 some establishment furnished with sufficient capital, in 
 which all the poor who need assistance may be employed 
 and supported. In many cases in New England and New 
 York, farms have been purchased by towns or by counties 
 for this purpose. It has generally been found, that 
 the only expense necessary to be incurred, is the pur- 
 chase of the farm, or the first investment of the capital. 
 The establishment after this, under judicious management 
 has generally paid its own expenses and, in some cases, it 
 is said, has even yielded a revenue to the public. The ex- 
 penses of pauperism, if they be defrayed in this manner, 
 must of necessity be very moderate, while a competent and 
 convenient provision may be made for every individual 
 who actually deserves assistance. 
 
 7. Expenditure for the Nation^s Defence, The first 
 duty of a government is to maintain its own life and give 
 full protection to all its subjects, in the enjoyment of their 
 rights. If justice and benevolence universally prevailed, 
 
EXPEN"DrrURES FOR DEFENCE. l49 
 
 this would ho ;in easy task. But the world is yet fur from 
 witnessing the full prevalence of these principles. Hence, 
 every nation is liable to be assailed by enemies from with- 
 out, and to be convulsed by insurrection and rebellion 
 within its own borders. Exigencies will thus arise, when 
 nothing but military force will save a natioi 's life. True 
 economy therefore, dictates that provision be made for 
 such exigencies by due appropriations for armies, navies 
 and the munitions of war. When the necessity comes 
 and war is inevitable, then no expense is unreasonable 
 which is necessary to prosecute it with the utmost vigor. 
 
 Yet, it must be remembered that war is always de- 
 structive, terribly destructive of both wealth and men who 
 produce wealth. In the history of the world, thus far, 
 much the largest part of national consumption in all coun- 
 tries, has been for this -purpose. This is attested by, the 
 millions upon millions of public debt with which all 
 nations are burdened, the greater portion of which were 
 incurred in wars. In view of these facts, it certainly be- 
 hooves all statesmen, all patriots and all philanthropists 
 to favor to the utmost that conduct in "the intercourse of 
 nations which will be so frank, so true, so just as to arrest 
 jealousies and disputes ; and to further all measures 
 which may lead to the settlement of controversies where 
 they arise, by arbitration rather than by arms. The varied 
 industries, the expanding commerce and the improving 
 moral sentiments of the nations, on the one hand, and the 
 ever increasing expensiveness of wars on the other, present 
 hopeful signs that the era is approaching when social and 
 moral forces will be more effective than militarv forces to 
 guard the life of nations and keep the peace of the world 
 God speed the good day ! 
 
 With reference to the whole range of public consump- 
 tion, sound economy dictates two plain and simple rules. 
 
iftO COKSUMFTlOlf. 
 
 1. The Style and Scale of National Expenditures 
 should be such as to command the respect and honorable 
 pride of the people without useless display. 
 
 2. The Methods of National Expenditures should he 
 such as to hold all the agents of government to a direct and 
 particular responsihility and to ensure the utmost idel%i% 
 in the discharge of all trusts. 
 
CHAPTER XIL 
 THIKD DIVISION.— DISTRIBUTION. 
 
 Tlie Scope of this Division. — We have seen that 
 in orJer to the production of wealth, labor must be joined 
 wi^h capital ; also that yarious kinds of labor and divers 
 forms of capital are involved ; and further, that in every 
 process of prodnctiou, there must be a consumption of 
 both labor and capital, out of which new forms of wealth 
 appear with increased value. In some cases, the same 
 person both owns the capital and performs the labor. 
 More commonly, however, those who labor, work with 
 capital which belongs to others. In all cases, the profits, 
 that is, the actual increase of value, can be properly 
 estimated only after due allowance is made for capital 
 consumed, and for the reward of both laborers and 
 capitalists. 
 
 Moreover, the general productive industry of a people, 
 m its wide range, includes, as we saw, many kinds of labor, 
 such as that of the learned professions, which are indi- 
 rectly, yet really concerned in production. Evidently, the 
 compensation of all such labor must be derived from the 
 results of production, and must be adjusted to some defined 
 and recognized principles. 
 
 It is obvious also, that the protection of good govern- 
 ment, giving security to persons and property, is essential 
 to prosperous industry, and that the means for the support 
 of the government must be drawn from the proceeds of 
 productive industry. This item, therefore, must be in- 
 
152 DISTRIBUTION. 
 
 eluded with those just named in the estimate of expenses 
 
 of ])roduction. 
 
 Then beyond these^ is the surplus of wealth produced 
 over all consumed, that is, the profits, the anticipation of 
 wiiich is the chief stimulus to industry and enterprise. 
 Tlie question, to whom and in what proportion shall these 
 profits be assigned, is one of prime importance, for the set- 
 Llement of which our science should define some fixed 
 principles. All of these matters are properly embraced 
 within the range of this third division of our subject, 
 which may be defined thus : 
 
 Distribution is that department of Political Economy 
 which determines the principles on luhich the 2^roceeds of 
 industry are divided among the parties concerned in their 
 production. 
 
 The Parties to be Recognized. — In any branch 
 of industry and in the general productive industry of a 
 nation, three parties are to be considered. First, tlic 
 Laborers of all grades whose energies, physical and mental, 
 are directly or indirectly engaged. Second, the Oivners 
 of the Capital, which is the fruit of past labor, saved and 
 now combined with present labor for a joint result. 
 Third, the Government which draws on the proceeds of in- 
 dustry generally, for its own maintenance, with a view, 
 alike to the security of the rights of all in the pro- 
 cesses of production, and to the highest happiness of 
 all in the enjoyment of its fruits. In the cases before 
 referred to, where the laborer combines in himself muscu- 
 lar power, acquired skill, inventive genius and managing 
 capacity, and works on his own capital, the entire proceeds 
 of his labor must go to him, subject only to the claims of 
 the government. But even then, it is easy and it is well, 
 agreeably to the principles of distribution, to set down one 
 portion of the proceeds as compensation for the use oi 
 
SUBDIVISIONS. 153 
 
 capital, another portion as the reT^ard of simple labor, and 
 yet another as a premium for the wise management of the 
 business. 
 
 This department naturally resolves itself into four sub- 
 divisions which will be treated in their order. 
 
 1. Tlie Remuneration of Labor, 
 
 2. The Remuneration of Capital, 
 
 3. The Distribution of Profits. 
 
 4 The Revenues of the Government, 
 
CHAPTER XIII. 
 
 THE REMUNERATION OF LABOR 
 
 Terms used. — The compensation of labor is repre- 
 sonted by several terms which correspond to different 
 kinds of labor. The term most common and applicable 
 to the greatest number of persons is Wages. It means the 
 stipulated reward for services rendered, rated either by the 
 time occupied, as when men are paid by the day or month, 
 or by the work accomplished, as when men are paid by the 
 piece, — so much for each article made. This term is ap- 
 plied especially and chiefly to manual labor of all grades, 
 including simple labor in which little more than muscular 
 strength is required, and skilled labor which involves intel- 
 ligence and training. It presupposes the relation of 
 employers and employes, bound by a mutual stipulation 
 or contract which may be varied or terminated on short 
 notice. 
 
 The term Salary expresses a fixed sum of money to be 
 reckoned usually by the year, for services which ordi- 
 narily involve some brain-work and responsible trust. 
 Thus in a large manufactory, while the mass of laborers 
 receive wages, the book-keeper, the cashier, the superin- 
 tendent and the general manager, who may be the presi- 
 dent of the stock-company, have salaries. The compensa- 
 tion of clergymen, teachers and civil officers is commonly 
 adjusted in this form. Generally, the term imj^lies an 
 engagement of some permanence, and a grade of service 
 requiring special qualitioations and previous education. 
 
 In some kinds of business, agents are employed whose 
 
EEMUJS^E RATION OF LABOR. 156 
 
 » 
 
 labors are compensated by Commissions, that is a certain 
 rate per cent of the value involved in each transaction. 
 Thus brokers, or persons engaged in the purchase of stocks, 
 real estate, etc., insurance agents, collectors of debts, trav- 
 eling clerks who solicit orders of goods for mercantile or 
 manufacturing establishments, are compensated for their 
 labor by stipulated commissions. In this case, the em- 
 ployer or the party who engages the service, makes him- 
 self, responsible only for what is actually done, and the 
 agent's reward will depend very much on the enterprise, 
 tact and fidelity with which he prosecutes his work. 
 
 Lawyers, physicians, and certain civil officers are re- 
 munerated by Fees. This form of compensation originated 
 probably, in the gratuity formerly offered for a service 
 rendered, by the party benefited. Hence there has always 
 been more or less of indefiniteness connected with this 
 mode of remuneration. It is adjusted for each particular 
 service, at rates determined in part by usage and in part 
 by the arbitrary demand of the party rendering the service, 
 or by the good-will of the party served. 
 
 From the mere statement of these distinctions, it \» 
 evident that the questions respecting wages involve the 
 most difficult problems of distribution, and must therefore 
 command our first and chief attention. Mr. Francis A. 
 Walker, after limiting the wages-class to "persons who 
 are employed in production with a view to the profit of 
 their employers, and are paid at stipulated rates," esti- 
 mates that "of English-speaking people, three-fourths 
 probably, two-thirds certainly, subsist on wages." They 
 compose the class who without resources and defences of 
 their own, stand exposed to the operation of laws which 
 are, in their very nature, fixed, and which work with a 
 kind of relentless severity. 
 
 Before attempting to state the laws which govern the 
 rate of wages, we need to notice some important distinc- 
 
166 DISTRIBUTION. 
 
 tions, the neglect of which often canses error and confu- 
 sion in the discussion of this subject. 
 
 Nominal and Real Wages. — The rates of wages 
 arc usually stated in terms of money. This money-rate is 
 what is meant by nominal wages. But, as actual remun 
 eration of the hired laborer, wages are measured by the 
 necessaries, comforts and luxuries of life which they vvil] 
 command. Real wages are so estimated. It is of the 
 highest importance to observe this distinction, in compar- 
 ing the rates of wages in different countries, or at diiferent 
 periods. The money which a skilled mechanic in Eng- 
 land receives for a day's work is much less than that re- 
 ceived by one of the same class in the United States. Bu< 
 .actual investigation shows that the English workman'? 
 smaller pay will bring him the larger quota of those thing? 
 which minister to the enjoyment of life. In our country, 
 the wages of a common day-laborer in 1843, were one dol- 
 lar per day ; in 1865, the nominal rate was (Joubled. Yet 
 the low rate of 1843 would secure for him full one-third 
 more of articles necessary for his comfort, than the double 
 rate of 1865. 
 
 Several causes operate to produce this difference. 
 
 1. The most influential of all is the Fluctuations in the 
 purchasing power of money, under sudden expansions and 
 contractions of the currency. An increased production of 
 gold and silver, at times, has added suddenly to the money 
 of the world. In former times, sovereigns used to debase 
 the coin of their realms, in order, for their own advantage, 
 to make out of the same weight of gold and silver, twice as 
 much money. And in modern times, the invention of 
 paper substitutes for coin, especially when issued as incon- 
 vertible government-notes, has done more than all else tc 
 produce sudden expansions of that which passes as money. 
 
NOMINAL AND REAL WAGES. 167 
 
 Any such increase of current money soon shows itself iri 
 a diminished purchasing power, that is in enhanced prices 
 for all commodities. The worst mischief of such fluctua- 
 tions falls upon those whose living depends on wages. 
 
 It may be said that with the advancing price of com- 
 modities, 2uages also rise. This is true to some extent, but 
 ordinarily, wages do not rise in full proportion to the ad 
 vance of prices generally. The change in wages comes 
 lagging slowly after the other changes ; it stops considera- 
 bly short of the full expansion in other matters ; and the 
 reaction which brings a decline, is apt to affect wages 
 sooner than the prices of merchandise. The reason for 
 this difference is well stated by Mr. Amasa Walker thus : 
 
 "For nearly all products, there is both an actual and specu- 
 lative, or a present and prospective demand ; for labor there ifc 
 only an actual present demand. When business begins to be par- 
 ticularly prosperous, there is a general demand for all kinds ot 
 merchandise, and prices gradually begin to improve. This, at 
 once, occasions a speculative demand ; for to buy will l)e to realize 
 an advance ; the larger the purchases, the greater the amount of 
 the profit. Every operation pays. The rise continues until evcr> 
 article bought and sold as merchandise goes up to the highes 
 point. But no one speculates in wages. No one can, if he would 
 buy a hundred thousand dollars worth of labor and hold it for a^ 
 advance, as he can of flour, sugar or tea. On the other hand, 
 when the tide turns, the fall of merchandise is broken by the dis- 
 position and ability of the owner to hold his goods and, as far as 
 possible prevent loss ; but the laborer cannot do this — he must 
 sell his services at once for the most they will bring." 
 
 These views are somewhat qualified by the fact that 
 speculation, for the time, stimulates production so as to 
 increase the demand and raise the wages for labor. This, 
 however is an unnatural stimulus, which leads inevitably 
 to over-production. In the day of highest activity and 
 apparent prosperity, laborers fail to get their full share of 
 the advantage, and when the reaction comes, there is no 
 
168 DISTRIBUTION^. 
 
 alternative but that many forms of production must bt 
 curtailed or wholly suspended, and multitudes of laborers 
 must be thrown out of employment altogether. Thus, the 
 financial revulsion of 1873, which was a necessary conse- 
 quence of the speculation and over-production incited by 
 (he inflated currency of the ten years previous, brough 
 its saddest results on the class who depend on wages, cut 
 ting of[ the means of lining with many, and perpetuating 
 ♦ihe distress through a series of years following. 
 
 2. Another cause producing a difference between nomi- 
 nal and real wages is found in. the Forms of Payment. 
 While wages are generally reckoned in money, they are 
 not always jpaid in money. Almost everywhere, unmar- 
 ried agricultural laborers have their board counted in as a 
 part of their wages. In some countries farm hands are paid 
 almost entirely in kind, that is in a portion of the pro- 
 ducts, in the rent of a cottage, the use of a patch of ground 
 for themselves, the privilege of keeping a cow or a pig and 
 certain perquisites such as the hauling of peat or coal. 
 With some manufacturing establishments, a store is con- 
 nected and a considerable part of the wages of employes is 
 paid by orders for goods, whose price and quality may be 
 such as materially to reduce the wages when measured by 
 necessaries and comforts actually obtained. In our coun- 
 try, this ^* truck-system" is much less common now than 
 it was fifty years ago. In France, the artisan classes have 
 always resented it, and in Germany, the Industrial Code 
 of 1869 forbids this form of payment. It is to be hoped 
 the day will soon come when it will be everywhere aban- 
 doned. 
 
 3. The greater or less Regularity of employment also 
 LToates a difference between nominal and real wages. This 
 is affected by the nature of the occupation, as in agricul- 
 
KOMIIfAL AND EEAL WAGES. 169 
 
 ture, brick-making, house-building, the fisheries and the 
 like. In a climate like ours, some parts of labor in these 
 eajlings, are precluded at certain seasons and are crowded 
 at others. In some Catholic countries, the observance of 
 numerous holidays causes considerable irregularity of em- 
 ployment. The concentration of labor in large establish- 
 ments for production on a large scale, with the methods 
 of modern trade, almost inevitably causes alternations ol 
 periods of great activity with periods of dullness and de- 
 pression. In this connection must be noticed also, the 
 interruption to regular industry caused by strikes. In 
 illustration of these irregularities and of their effect on 
 wages, we present the following facts stated by Mr. Bax- 
 ter, an English writer. Speaking of the building-trades, 
 he says : 
 
 ' ' These trades form a whole and include carpenters, brick- 
 layers, masons, plasterers, painters and plumbers, and number in 
 England and Wales about three hundred and eighty-seven thou- 
 sand men above twenty years of age. It is only the best men, 
 working with the best masters, that are always sure of full time. 
 These trades work on the hour-system, introduced at the instance 
 of the men themselves, but a system of great precariousness of 
 employment. The large masters give regular wages to their good 
 workmen, but the smaller masters, especially at the east end of 
 London, engage a large proportion of their hands for the job, 
 and then at once pay them off. All masters, when work grows 
 slack, immediately discharge the inferior hands and the unsteady 
 men, — of whom there are but too many among clever workmen, — 
 and do not take them on again until work revives. In bad times, 
 there are always large numbers out of employment. In prosper- 
 ity, much time is lost by keeping " Saint Monday^'' and by occa- 
 sional strikes." 
 
 All this clearly shows that the real remuneration of the 
 laborer must be estimated, not by the wages of one day of 
 the week or one month of the year, but by that rate, as 
 qualified by the regularity or irregularity of his employ- 
 ment. In reckoning annual earnings, it is common to 
 
160 DISTRIBUTION. 
 
 count three hundred working days to the year. For a 
 majority of occupations, however, this is probably too high 
 an estimate. 
 
 4. In determining the difference between nominal and 
 real wages, regard must also be had to the Duration of the 
 voicer to labor, that is to the number of years during which 
 the man can expect to have strength and vigor to earn 
 Nvages. Vital statistics indicate that this period varies 
 considerably with men of different nationalities, — in differ- 
 ent climates, — and in different occupations. To know the 
 real compensation of labor, we must estimate the wages of 
 a lifetime. Where the conditions of labor involve early 
 mortality or disability, as is the case with almost all work 
 in mines, the life's earnings are proportionately reduced. 
 The rate of nominal wages is generally somewhat higher 
 on account of such special exposure, but seldom is the in- 
 crease at all commensurate with the risks involved. 
 
 The extensive use of labor-saving machinery introduced 
 witnin the last fifty or sixty years, has no doubt tended to 
 depress the nominal wages of labor. But the same cause 
 has very greatly multiplied and cheapened the necessaries 
 and comforts of life ; so that real wages now reach a 
 higher measure than formerly. The laborer of to-day 
 enjoys a hundred comforts which either were not known a 
 half-century ago, or were then quite beyond the reach of 
 persons of his class. He may well congratulate himself on 
 his improved condition. At the same time, however, the 
 fact of liis having enjoyed these things so freely, makes 
 them seem necessities and aggravates the hardship of 
 being, in any degree, deprived of tliem. 
 
 Nominal and Heal Cost of Labor. — In presenting 
 ihe previous distinction, wages were considered from the 
 
IIOMIKAL AND REAL COST OF LABOR. 161 
 
 laborer's point of view. The question then was, what are 
 the wages at a given rate, worth to him who earns them ? 
 We need to look at the same thing also from the employer's 
 point of view. Now the question is what is the labor per- 
 formed worth to him who pays the stipulated wages ? Wc 
 shall see that in this case, as in the other, the rate oi 
 wages, by itself, is not a certain exponent of real value. 
 Mr. Brassey, drawing his conclusions from the actual expe- 
 riences of his father in conducting vast industrial opera- 
 tions, especially the building of railways in many lands, 
 maintains unhesitatingly ^' that daily wages are no criterion 
 of the actual cost of executing works or of carrying out 
 manufacturing operations. On the contrary, experience 
 teaches that there is a most remarkable tendency to equality 
 in the actual cost of work throughout the world." 
 
 The fact is simply tliat labor, as an element of cost in 
 production, must be estimated not by the time occupied, 
 nor by the rate of wages paid, but by the efficiency of the 
 labor itself. With respect to this element of efficiency, 
 men differ very greatly. Mr. Brassey states many facts 
 illustrating this difference. We give two or three of them : 
 
 "On one side of a building, a London bricklayer was employed 
 at five shillings and sixpence a day, and on the other, two country 
 bricklayers at three shillings and sixpence a day. It was found 
 by measuring the amount of work performed, without the knowl- 
 edge of the men employed, that the one London bricklayer laid, 
 without undue exertion, more bricks in a day, than his two less 
 skillful country laborers." "On the Grand Trunk Railway (of 
 Canada), a number of French Canadian laborers were employed. 
 Their wages were three shillings and sixpence a day, wliile the 
 Englishmen received from five to six shillings a day, but it was 
 found that the English did the greater amount of work for the 
 money." "By a verj'^ careful inquiry, at a large iron establish- 
 ment in France, it was ascertained that forty-two men were there 
 employed to carry out the same amount of work which twenty- 
 five men were able to do at the Clarence factory on the Tees." 
 
U\^ DISTRIBUTION. 
 
 There are many other like facts that show clearly that 
 the ditferent wages paid in different countries for a day's 
 labor, are no trustworthy index of the real cost of labor. 
 Often it is the best economy to employ men at the highest 
 A ages, because from superior skill or greater energy, they 
 will achieve most for the money. The difference is quite 
 generally overlooked, when, in discussing the advantages 
 of a protective tariff, a comparison is instituted of the rates 
 of wages in dtfferent countries. It is often wholly disre- 
 garded in the demands which laborers endeavor to enforce 
 by strikes. It sometimes happens that, even w4iere there 
 is a great demand for labor, many persons are unable to 
 obtain employment, because the demand is not for certain 
 hours of nominal work, bat for labor that is intelligent, 
 trained, efficient. As Mr. F. A. Walker says, " It must 
 be held constantly in mind that the vahie of the laborer^s 
 services to the employer is the net result of tiuo elements, one 
 positive, one negative, namely. Work and Wasted The lat- 
 ter term includes breakage, the wear and tear of imple- 
 ments and machinery, the destruction or impairment of 
 materials, and the cost of supervision and oversight. The 
 more delicate the machinery and the more costly the ma- 
 terials, the greater is the liability to waste by unskilled 
 hands. 
 
 The Various Causes to which these diffei-ences in in- 
 dustrial efficiency may be referred are grouped by Mr. 
 Walker under six heads. In stating them, we adopt his 
 terms and follow his order with very brief expansion. 
 
 1. Peculiarities of stock a7id hreeding. Men of differ- 
 ent races are found to differ greatly in physical structure, 
 in height, weight, muscular strength, nervous force and 
 spirit. The development theory of modern science, no 
 doubt properly, refers this difference to certain physical 
 causes, such as local climate, customary food and habits of 
 
INDUSTRIAL EFFICIEKCT. l6^ 
 
 life, continued throiigli many generations. Certain social 
 and industrial causes are also to he recognized. The 
 standard of height in the French army lias been reduced 
 during the eighty years, since 1793, from five feet foui 
 inches to five feet one and one-half inches. This is ac- 
 counted for by the fact that for more than two generations, 
 the strong, healthy, brave men of the nation have been 
 drawn off to the wars and used up, leaving the feebler 
 males at home to propagate the stock. The employment 
 of women and children of tender age at hard labor and 
 under great exposure, in mines and factories, must after a 
 generation or two, depreciate the stock. Peculiar charac- 
 teristics thus formed become hereditary, and are perpet- 
 uated in individuals whose circumstances and habits are 
 altogether changed. 
 
 2. The Mmgreness or Uherality of Diet. Food is to the 
 human frame what fuel is to the steam-engine. " What 
 the employer will get out of the workman will depend 
 very much on what he first gets into him." The case 
 demands only food, in quality nourishing, and in quantity 
 sufficient to keep the man in the best working condition. 
 Luxuries and abundance beyond this, mar digestion and 
 diminish physical power. This matter is carefully studied 
 in the treatment of our working animals ; why should it 
 not be also regarded with respect to our working men ? In 
 this connection, the matter of clothing is an important 
 consideration ; for clothing and food help each other in 
 maintaining the necessary warmth of the body. A sheet 
 iron jacket is put around a steam-boiler to prevent the 
 waste of heat ; is it any less a matter of economy that a 
 tvoolen jacket be put about the body of the laborer for the 
 same purpose ? 
 
 3. Habits voluntary or involitniary respecting cleanliness 
 of person and purity of air a?icl water. Whatever depresses 
 
164 DI8TRIBUTI0K. 
 
 the vitality of a man must diminish his efficiency for labor. 
 Whiit can more effectually impair the quality of the blood 
 and depress the nervous force than to live as millions of 
 laborers do, crowded with their families in narrow, filthy, 
 unwholesome tenements, where the bright sunlight is ex- 
 cluded and the water they drink is contaminated with 
 sewage matter, and the air they breathe is charged with 
 noxious poisons ? Sad and sickening are the reports of 
 parliamentary investigations in England on this subject. 
 We congratulate ourselves that, in our country, working- 
 men, especially those connected with our large manufac- 
 tories, are better provided for. Yet the evil referred to is 
 growing upon us, particularly as respects laborers of the low- 
 est grades in our great cities. Philanthropy and economy 
 alike should prompt the use of all proper means to guard 
 against this evil. Employers may do something to secure 
 decent homes for their workmen as well as to make wages 
 just. But as shiftlessness and intemperance are prime 
 causes of the degradation of labor, so the chief remedy 
 and safeguard must come from laborers themselves culti- 
 vating self-respect and will-power for self-restraint. 
 
 4. Tlie general Intelligence of a laborer goes far to 
 determine the measure of his efficiency. A man who has 
 learned to read and write, has thereby improved his ca- 
 pacity to learn a trade or any particular form of work. 
 Men intelligent enough to go beyond the mere mechanical 
 routine which occupies their day, so as to understand the 
 object to be attained and the reason for every step of the 
 process, need less superintendence than the dull plodders 
 who never think for themselves. Intelligence in the 
 laborers may also save much waste of materials. This is 
 an important consideration, especially in those branches of 
 mechanical industry in which the outlay for materials far 
 exceeds the amount paid for wages. Many, through sheei 
 
IKDU8TBIAL EFFICIEKCT. 165 
 
 ignorance, are utterly incompetent to nse delicate and 
 intricate machinery, which ])roperly managed groatly 
 enhances the profit of production. IntelHgent minds, 
 while busy with such machinery, have their invention 
 quickened to devise new improvements. All these consid- 
 erations clearly show that intelligent workmen employed at 
 high wages diminish instead of increasing the real cost of 
 labor, measured by the results produced. 
 
 5. Technical education and industrial enviromuent add 
 much to the efficiency of labor. The reference here is in 
 part to thorough apprenticeship, but more to the inherited 
 instinct and the unconscious tuition acquired by contact 
 and familiarity with well organized systems of industry, 
 vigorously maintained. ^^In some communities, a child is 
 brought into the world half an artisan." In association 
 with good workmen and their operations, a boy grows into 
 habits of accurate observation and of manual dexterity, 
 and learns the best part of his trade before he begins his 
 regular apprenticeship. Then, he falls naturally into his 
 place in the organized routine of daily labor, and quickly 
 acquires expertness, despatch and endurance. Every well 
 organized and administered manufactory is thus a school, 
 an educational institution for training all engaged and all 
 who come in contact with it, to habits of subordination, 
 regularity and co-operation, the prime elements of effi- 
 ciency in labor. 
 
 6. Cheerfulness and Hopefulness in lalor, growing out 
 of self-respect and social ambition, and the laborer's per- 
 sonal interest in the result of his work. For the lack of 
 these elements, slave labor is always inefficient and costly 
 labor. No pressure of a master's authority, no driving 
 under the lash can bring out such results of .labor as come 
 from the springs of cheerfulness and hope in the 
 
166 DISTRIBUTION. 
 
 breast of the worker who respects himself as a free man, 
 and whose personal interest in the results of his toil gives 
 wide scope to a noble ambition to make the most of him- 
 self. The wages of free laborers may be so low as to reduce 
 them almost to the level of slaves. But this always involves 
 in the long run, a ruinons reduction also of the pi'ofits of 
 production. It is for the interest of the employer no less 
 than for that of the laborer, that wages should be such as 
 to promote cheerfulness and inspire hopefulness ; giving 
 him who depends on them a chance, by careful thrift and 
 determined energy, to better his condition as the years of 
 his life run on. 
 
 The Leading Considerations which determine 
 the rate of Wages. — According to our definition, wages 
 imply always a contract, a stipulation between two parties 
 — a promised reward for promised services. The two par- 
 ties come together for their mutual advantage, yet, in 
 making the contract, each looks at his separate interest. 
 The wages agreed on must have some regard to each of 
 these separate interests. Neither will be the absolute and 
 all controlling consideration to determine the result. 
 Other considerations may have more weight than either or 
 both, but each of these will have some weight and claim 
 some regard. Looking at the laborer's interest, 
 
 1. The first thing to be considered is the Cost of Liv- 
 ing — what is necessary for the support of the laborer, 
 according to the standard of his class. Obviously, the 
 individual laborer must have something to live on which 
 will keep him m bodily health and vigor, fit for work. 
 But this is not all. Man is short-lived. The species is 
 kept in existence by succession. Children must be reared. 
 To keep the number of laborers the same in any country, 
 wages must be sufficient to provide food and clothing foi 
 man and wife and at least two children, until they are 
 
NECESSARY WAGES. 16^ 
 
 able to support themselves. SomethiDg further must be 
 added to provide for the laborer in his old age, when lie is 
 too feeble to work. More than all this is needed, for 
 nature has ordained that the human species shall incioase 
 at a rate more rapid than that of two children to each 
 married pair. Hence, in the settlement of wages, regard 
 must be had to the rearing of such a number of children 
 as ordinarily, in the course of nature make up one family. 
 This consideration alone would determine what some 
 writers call Necessary Wages. David Eicardo writing in 
 1817, propounded the theory, which was for many years 
 quite generally accepted, that " the natural price of labor 
 depends on the price of the food, necessaries and conve- 
 niences required for the support of the laborer, so that with 
 a rise in the price of food and necessaries, the price of 
 labor will rise ; with a fall in their price, the natural price 
 of labor will fall." There is a measure of truth in this 
 view. This is a consideration which must affect wages. 
 But this is not, as Ricardo's theory represents, the domi- 
 nant factor in settling the contract. It may be uppermost 
 in the mind of the laborer, as he comes to the negotiation. 
 He will naturally urge his claim for a compensation which 
 will not merely keep him and his family alive, but which 
 will enable him to multiply comforts and improve their 
 condition. The main force of this consideration is how- 
 ever, to define a limit below which wages cannot be set, to 
 continue long, without producing misery, a fearful mor- 
 tality of children, and a sad waste of the very nerves and 
 sinews of effective industry. Nevertheless, that which it- 
 all in all to the laborer, has little place in the thoughts of 
 the employer. Looking now to his interest, 
 
 2. The seco7id thing to le considered is the Value of tha 
 Products — what returns will be given for the capital which 
 engages labor and for the abilities, time and responsibility 
 
168 ©ISTSIBUTION. 
 
 involved in managing the business. Only the hope of 
 such reward draws capital, tlie fruit of past labor, into union 
 with preseiit labor. If that hope is cut oS., capital is 
 withdrawn, wages cease and the industry is suspended. A 
 person who has wealth embarks a portion of that wealth, 
 .as capital, in some enterprise of production, not because he 
 desires to keep it employed, but because he desires to in- 
 crease his s'ore by the profits of production. The employ- 
 er's ability and his readiness to pay wages depend on the 
 measure of these profits. With increased profits he can 
 afford to pay more wages. With diminished profits, he is 
 prompted to make new stipulations for reduced wages. 
 When the business yields no profits, or involves loss, his 
 study is how to close the business and extricate his capital 
 at the least possible sacrifice. The only exception to this 
 course is when the unfavorable result is due to some 
 temporary cause, and regard for his honor as respects en- 
 gagements already made, and the hope of better times 
 prompt him to continue his business even at a loss. It 
 stands fixed as a general law, that the employer hires his 
 workmen and adjusts their wages with reference to his 
 own profit from the products of the business. 
 
 It cannot be said, however, that this alone, any more 
 than that previously stated, is the all-controlling consider- 
 ation. It is one of prime importance in the view of the 
 employer as he enters into the contract. Its chief force is 
 to define a limit on the other side, — a limit above which 
 wages cannot rise to continue long, without causing capi- 
 tal to withdraw and wages to cease altogether on the sus- 
 pension of production. The laborer comes to the negotia- 
 tion pressing his demand fc r such wages as he deems 
 necessary for Ms support. The employer comes offering 
 such wages as he thinks tlio profits of the biisiness icill 
 enable Mm to pay. The one seeks as large and liberal a 
 support as he can get, and so sets his mark for wages as 
 
THE WAGE-FUKD THEORY. 169 
 
 high as possible. The other seeks as large and munificent 
 profits as he can secure and so sets his mark for wages 
 as low as possible. The actual agreement will strike a 
 point between the two, to be definitely determined by con- 
 siderations not yet named. These two considerations sim- 
 ply determine the minimum limit, below which for the long 
 run, wages cannot fall, and the maximum limit above 
 which for the long run, wages cannot rise. The minmium 
 limit is the rate necessary for the support of the laborer and 
 his family. The maximum limit is the rate ivhich will 
 leave to the employer, out of the profits, a fair return for 
 tjie use of the capital and for the care and responsiMlity of 
 management. No lines cari be drawn absolutely fixing 
 these limits for all cases. They will ever vary with cir- 
 cumstances. It will always be an open question with the 
 laborer, how little he will try to live on, and with the em- 
 ployer, with how little profit he will be content. But like 
 certain formulas of mathematics, the statements indicate 
 limitations, fixed in the nature of things, within which the 
 equation of wages will be found. 
 
 The Wagefund Theory as it is called, demands some 
 notice in this connection. This theory is summarily stated 
 by Mr. J, S. Mill, as follows : 
 
 "There is supposed to be, at any given instant, a sum of 
 wealth which is unconditionally devoted to the payment of wages 
 of labor. This sum is not regarded as unalterable, for it is aug- 
 mented by saving and increases with the progress of wealth ; but 
 it is reasoned upon as, at any given moment, a predetermined 
 amount. More than that amount, it is assumed the wages- 
 feceiving class cannot possibly divide among them ; that amount 
 and no less they cannot but obtain. So that the sum to be di- 
 vided being fixed, the wages of each depend solely on the divisor, 
 the number of participants." 
 
 As embodying the fundamental principle that capital 
 is a prime factor in all productive industry, so that labor- 
 
170 DISTRIBUTION. 
 
 ers must be idle till capital is furnished for them to wori 
 upon and to work with, and the rate of wages must depend 
 on the ratio between the amount of capital and the num- 
 ber of laborers seeking employment, there is an element 
 of truth in this theory. But as a solution of the problem 
 of wages, it is unsatisfactory and misleading. For its basis 
 is a purely ideal supposition. As a palpable fact, the sup- 
 posed fund has no existence. If there were such a general, 
 national fund as the theory defines, it must be an aggre- 
 gate made up of smaller funds of the kind possessed by 
 the individual employers of the nation. But what employer 
 can ever point to a specific portion of his capital which Ije 
 feels that he must expend in wages ? 
 
 That which draws out wealth to be joined, as capital, 
 with labor in production, is a lioyeful opportunity for in- 
 creasing ivealth ly the profits of production. In starting 
 an enterprise, a certain amount of capital must be provid ^d. 
 The bulk of this capital is put into what English people 
 call the ^^ plant, ^^ that is fixtures, buildings, machinery, 
 etc. A portion is also used in the purchase of a first stock 
 of materials. For wages, it may be that a small portion of 
 the original capital will be reserved, but 'it is only just 
 enough to support the laborers in the outset, till the avails 
 of the products come in. More likely what is needed for 
 wages will be borrowed from the bank, in anticipation of 
 coming sales. After the returns begin to appear, they 
 are thenceforward depended on, first for the payment of 
 wages, then to keep the plant in repair and to replenish 
 materials, and finally to reward the capitalist. According 
 to the measure of the profits, the work will be extended, 
 new laborers will be called in and higher wages will be 
 ])aid. The manager recognizes no such thing as a wages- 
 fund, but he does most carefully consider the profit and 
 loss item on his balance-sheet. 
 
 At this present writing in 1877, we have seen for two 
 
OUSTOMAKY RATE OF WAGES. 171 
 
 or three years much capital idle, locked up in factories 
 which are closed, and thousands of laborers without work 
 and without wages. In other cases, the business is still 
 run on reduced time and reduced wages, with no profit. 
 At the same time, we have seen the banks overloaded with 
 a plethora of money, whose owners are most anxious to 
 lind some way of putting it into profitable investment. 
 This condition of things is explained by the fact that from 
 certain causes, which we will not now attempt to name, 
 industry failed to yield its customary and expected returns. 
 There were no profits, and hence employers could pay no 
 wages or could pay but a part of what they had previously 
 paid. They could bear, for a time, to lose the remunera- 
 tion of the capital invested in the mills, but to add to this 
 the steadily exhausting payment of wages would be ruin- 
 ous. They dare not borrow and the banks dare not loan 
 money to be so used. Now it makes the case no plainer, — 
 does it not rather confuse matters, to say that somehow the 
 financial revulsion curtailed the wages-fund? Is it not 
 more philosophical and more in accord with common sense 
 to say that wages fail or decline because industry fails to 
 yield the necessary profit? This is the plain matter of 
 fact. Ideal funds, ideal divisor and dividends, ideal aver- 
 ages cannot clear up the problem. What has been, must 
 be, whenever, for whatever reason, values produced fail to 
 show a sufficient surplus above the values consumed. 
 
 3. What has been the Customary rate of Wages is a 
 consideration of some force in determining the rate that 
 shall be. This means no more than that there is always a 
 presumption in favor of existing usage, which on one side 
 or the other may be more or less effectually pleaded in the 
 negotiation between the parties. This consideration 
 alwa3s resists a contemplated change, and when necessity 
 compels a change to be made, it essentially modifies the 
 
172 DISTRIBUTION. 
 
 degree and the time of that change. Thus when in 1866, 
 an inflation of the currency in the United States had 
 raised prices and increased the cost of living, and had at 
 the same time stimulated production and increased the 
 value of its returns, both necessity on the one hand, and 
 ability on the other called for an advance of wages. But 
 employers clung tenaciously to the customary rates and 
 yielded very slowly and reluctantly to the call, and after 
 all, stopped short of advancing wages in full proportion to 
 the enhanced prices and profits. Ten years later, we find 
 a condition of things just the opposite. Both profits and 
 the cost of living were greatly reduced, and employers 
 were constrained to reduce wages accordingly. But then 
 the laborers clung to existing rates and resisted the reduc- 
 tion, in many cases with violence. This tendency always 
 appears qualifying the effect of other considerations. It 
 is like the law of inertia in physics. It resists or impedes 
 all changes of wages, and though an incidental, and com- 
 paratively unimportant consideration, it needs to be recog- 
 nized and regarded. 
 
 4. Gompetition is beyond all others the controlling con- 
 sideratio7i in determining wages. We cannot say of this 
 tliat it is absolutely controlling. For the considerations 
 previously named must be to some extent respected. But 
 we do recognize competition as more influential than any 
 or all of these. It cannot nullify, but it does, in a meas- 
 ure, overbear them. 
 
 Competition is the endeavor of tmo or more persons to 
 gain the same thing, at the same time. In this matter of 
 wages, it a])pears in either or both of the parties to the 
 contract. Many laborers are seeking wages and good 
 wages at the same time. Many employers are seeking 
 profits and large profits at the same time. Competition 
 becomes active just in proportion to the comparative mim- 
 
OOMPETiTION-. 173 
 
 hers on either side. If the number of laborers is just 
 sufficient to do the work desired by the employers, on 
 terms satisfactory to both parties, there will be no compe- 
 tition on either side ; but that balance is seldom realized, 
 and never stable. Whenever it is disturbed, competition 
 Bets in. If the number of laborers is large in proportion 
 to the employment offered, the competition is active among 
 the laborers. Each rather than lose his chance for wages, 
 will lower the price demanded for his labor. If the num- 
 ber of employers and the amount of capital they command, 
 is large in proportion to the number of laborers, the com- 
 petition is active among employers. Each rather than lose 
 his chance for anticipated profits, will raise the price 
 offered for the labor he wants. Thus, as Mr. F. A. 
 Walker states the case, *^ Each laborer will sell his labor 
 at the highest price which any employer can afford to give, 
 since the employers are in competition among themselves 
 for labor. Each employer will get his labor at the lowest 
 price at which any laborer can afford to sell it, since the 
 laborers are in competition among themselves for employ- 
 ment. The lowest jt^rice at which any laborer will sell his 
 labor, is thus the highest price which any employer can 
 afford to pay.^^ 
 
 If for any reason, the wages in a particular branch of 
 industry rise above the ordinary rate, a speedy rush of 
 laborers into that employment intensifies competition till 
 the wages are brought down. If, on the other hand, a par- 
 ticular form of production yields profits above the ordinary 
 rate, there comes a rush of employers with their capital 
 into that branch of industry and in their competition with 
 each other, wages are raised, products are multiplied and 
 cheapened till the profits are brought down to the ordinary 
 level. The principle of competition tends to adjust to 
 each other the natural increase of population on the one 
 side, and the natural increase of capital on the other, sc 
 
174 DISTRIBUTION 
 
 as to keep the ratio uniform and hold wages steadily in an 
 equilibrium most favorable to the interests of all. The 
 tendency is manifest, though a perfect result is hinaered 
 by the inherent difficw^ty of transferring laborers from one 
 place or occupation to another, as compared with the 
 facility with which capital and commodities are tran» 
 forred. 
 
 If competition were universally /ree and fair, no doubt 
 present inequalities of condition would be removedj and 
 the burden and the benefits of human industry would be 
 equally distributed. Conflicting interests would be har- 
 monized by it, so as certainly to secure the greatest good 
 of the greatest number. It would adjust the customary 
 rate of wages at that golden mean which would ensure a 
 comfortable support to laborers and adequate profits to 
 employers. Something like this is the theoretical ideal of 
 Political Economy toward which its principles tend. As 
 the science is more fully unfolded and more freely applied 
 to all industries, and all classes, competition does become 
 nore free and fair, and more efficient, as the grand regu- 
 lator of production, distribution and exchange. But to 
 study the practical problems of human industry, especially 
 this problem of wages, on the assumption that this ideal 
 is or can be made actual, is as absurd as it would be, in 
 practical mechanics, to take as actual facts, the mathe- 
 matical ideals of points and lines and forces and motions, 
 and proceed to plan an engine without regard to the gross- 
 ness of matter, or the resistance of the atmosphere, of 
 friction and of gravitation. As the world goes, self-inter- 
 est pushed to the extreme of ovcr-rcacliing selfishness, is 
 continually interfering with competition to make it 
 neither free nor fair. Thus, in the actual working of 
 competition, falsehood, trickery and fraud are introduced 
 in mani'old and subtle forms. In the intense struggle of 
 C07iflicting interests also, high-handed measures are adojited 
 
STRIKES AND TRADES-UNIONS. 175 
 
 to restrict or rule out competition, because in its nor- 
 mal working, it hinders selfish greed from attaining 
 its ends. 
 
 Hence, the Oomhmations to resist competition, which 
 are entered into on either side, demand some notice in this 
 connection. Combinations of laborers with respect to 
 wages take two forms, which though often blended, may 
 be best presented separately. They are Strikes and 
 Trades-unions. 
 
 A Strike is a mutual agreement of a numler of work- 
 men to demand of their employers certain terms, and to 
 stop work till the demand is granted. The right of a 
 laborer to define the terms of the contract with his em- 
 ployer so as to secure his own interest cannot be questioned. 
 That involves also the right to refuse to labor except on 
 those terms. Neither can the right of numbers, having 
 common interests, to combine in counsel and effort to pre- 
 sent and maintain their claim be questioned, so long as 
 they do not interfere with the freedom of others. When, 
 however, the striking party uses force either to compel 
 others to join the combination or to prevent their working 
 except on the terms which they dictate, there is a mon- 
 strous violation of a most sacred right, — a right which 
 should be ever dearest of all, to the laborer, — the right to 
 do what he will with hbnself, his time, his strength, his 
 skill. Yet to be effective, the strike must suppress all 
 competition. That is its chief aim. It must bring all 
 competent to perform the labor in question into the com- 
 bination, or prevent those outside from coming in to fill 
 the places vacated by the strikers. Hence strikes almost 
 inevitably lead to a violent outrage upon the most precious 
 right of freemen. Turgot, the great financial minister of 
 the French King Louis XVL, said, a hundred years ago, 
 ^* God in giving to man wants, has made the right to laboi 
 
176 DISTRIBUTION. 
 
 the property of all men, and this property is the first, the 
 most sacred and the most imprescriptible of all." 
 
 Apart from this great wrong, a strike may do some 
 good service as a strong and determined assertion of a rea- 
 sonable claim. The claim is reasonahle only when the 
 necessities of the laborers require and the actual profit of 
 the industry permits the increase of wages, or whateyer of 
 better terms is insisted on. In such a case, the measure 
 may prove successful and yield an advantage sufficient to 
 compensate for the temporary serious sacrifice involved. 
 If, however, the terms demanded will so reduce or endan- 
 ger the profits as to leave no inducement for the em- 
 ployer to devote his energies and capital to the business, 
 the effect of the strike can be only disastrous to all parties. 
 It is evident, therefore, that strikes cannot absolutely con- 
 trol wages. There is a chance that in occasional instan- 
 ces, they may yield a real benefit. But the probabilities 
 are, as illustrated by many facts, that they will be attended 
 with grievous wrong and in the end, aggravate, rather 
 than relieve the evils which prompt them. Mr. Brassey 
 says, ^^ Strikes against a falling market aUvays faiV^ 
 
 Trades-unions are connbinations of laborers of imrticu- 
 lar trades, in loermanent organizations., to promote the gen- 
 eral interests of their respective fraiernities. These organi- 
 zations had their prototype in the ^' guilds^' of the middle 
 ages. Then the condition of society was such that no 
 rights were sacred or safe except as they were defended by 
 the strong arm of might, and all privileges were held 
 under a law of restriction and isolation. Each guild stood 
 for itself against other guilds and against the community 
 generally. Trades-unions of to-day appear in a better 
 character They aim at a variety of objects for the mutual 
 benefit of the members, such as contributions for the relief 
 of the sick, disabled and distressed, and measures to pro- 
 mote sympathy, social enjoyment and some mental culture. 
 
tRADES-UNION"S. 17? 
 
 In this aspect, they render beneficial service, and are wor- 
 thy of praise ,*nid enconraocment. 
 
 But often, they attempt also, to use their power ot as> 
 sociation with some accumulated money-power, to regu- 
 late the rate of wages against the normal action of free 
 competition. They do this in two ways, by promoting anc 
 mstaining strikes and by restricting apprenticeship. A 
 strike under the direction of a trades-union, is likely to be 
 better organized than an independent strike, more wide 
 sweeping, more persistent, and in its first stages more re- 
 strained from violence. But according to actual experience 
 thus far, it is liable to insist on unreasonable demands, 
 and in the extreme issue, it becomes uncontrollable and 
 runs into wild and disastrous excesses. In such move- 
 ments too, tiie union almost necessarily aims to establish 
 uniformity of luages, irrespective of the varying oMlities 
 and efficiency of different workmen, which is an injustice 
 to the superior artisans as well as to employers. 
 
 The attempt arbitrarily to limit the number of appren- 
 tices to any trade, is directly opposed to free competition 
 and aims simply at establishing monopolies. It involves 
 therefore, the injustice and mischief which are inherent in 
 the very principle of monopoly. It is ever a forced exac- 
 tion on the whole community for the benefit of a few. If 
 the measure could be carried out universally, it would 
 simply make every trade a monopoly and set the various 
 branches of business in antagonism with each other, so as 
 seriously to obstruct all industry. Mr. Brassey, speaking 
 of this part of the policy of trades-unions says, '^ Theii 
 influence has too often been essentially illiberal, anti- 
 social and calculated to establish among the industrial 
 classes of the countrv. that subdivision of Caste which has 
 been the great curse of India." Hence, we may add, this 
 policy is in its very nature self-destructive and impractica- 
 ble. The most that can be attained is a partial and fcem- 
 
its DISTRIBUTiOK". 
 
 porary adA^antage, to be more than counterbalaLced in the 
 reaction which is sure to come. 
 
 It is further to be observed that the maintenance of 
 these trades-nnions involves a heavy tax on the memhers. 
 Tlie funds thus raised and the affairs of the union are put 
 into the hands of leaders who gain their official positions 
 iiainly by reckless declamation against the rapacity of em- 
 ployers and by loud professions of sympathy with the 
 wrongs of the laborers. These leaders are apt to exercise 
 their power with despotic authority, and are held to 
 slight responsibility for tlie disposal of funds. They have 
 thus a personal interest in retaining or exercising their 
 offices, which may be quite at variance with the real inter- 
 ests of the body of workmen. When an issue is fairly 
 joined, public interests are apt to be recklessly sacrificed, 
 until public opinion which naturally inclines to favor the 
 wage-receiving class, is turned against them, and the power 
 of the government is called to interpose. Then the move- 
 ment breaks down, having effected only loss and damage 
 to both parties, — a damage most severely felt by the labor- 
 ers, the party least able to bear it. All this was clearly 
 illustrated in the disastrous action of the railroad brake- 
 men and firemen in 1877. 
 
 If the prominent object of trades- unions were, instead 
 of directly resisting competition, to heep competition free 
 and fair ; and if, in the furtherance of this object, the as- 
 sociation would carefully study the essential conditions of 
 the wages-problem, and inform themselves concerning the 
 actual state of their respective trades, with the means of 
 improvement for the benefit of all, employers as well as 
 employ6s, they might be made to secure valuable purposes. 
 Then, the advantages of association and the power of com- 
 bination would conduce to the real and abiding prosperity 
 of all productive industry. 
 
COMBlKAtiOlSrS OF EMPLOYERS. 1?9 
 
 « 
 
 On the other side, Combinations of Employers are often 
 formed with a similar aim, that is, to resist the natural 
 working of competition, for a supposed advantage of their 
 own. Such combinations sometimes aim to regulate Liic 
 exchange of products by an agreement of those engaged 
 in a particular trade not to sell below a certain price. 
 This simply creates a form of monopoly in the general 
 market of commodities, and belongs to the department of 
 exchange. We have now^ to consider these combinations 
 only as they attempt to regulate the rate of wages by agree- 
 ments not to pay above a certain rate. It must be ad- 
 mitted that every man who possesses wealth has the right 
 to do what he will with his own. He has the right to say 
 what portion of it, if any, shall be employed as capital in 
 production. And as an employer of labor, he has the 
 right to say what wages he is willing to pay for certain 
 services. A number of employers have also the right to 
 unite for counsel and action with respect to their common 
 interests, and the matter of wages may properly be con- 
 sidered in such associations, provided they lay no constraint 
 upon the freedom of other people to exercise similar 
 rights. The question before us is one, not of abstract 
 right but of ivhat is feasible and ivise. Can such combi- 
 nations arbitrarily determine rates of wages ? Is it wise for 
 them to attempt such control ? 
 
 It is obvious that, to be effective, the combination 
 must embrace all who are engaged in the particular indus- 
 try. This is not an easy thing to accomplish. Any who 
 remain outside the combination may overbid for labor, and 
 so open the door for renewed competition. Much more 
 difficult is it, nay, impossible to hold all the capital of a 
 country bound by the rules of the combination. If the 
 wages agreed on are such as to insure a margin of profits 
 above those of business generally, free capital will rush in 
 to engage in the industry, and make its own terms foj 
 
180 DISTRIBUTIOK. 
 
 laboi", just as certainly as air will rush in to fill a Tacuiim, 
 or as water will flow to i-estore its equilibrium, disturbed. 
 These considerations preclude the success of such attempts 
 to dictate wages, except for temporary emergencies, as 
 when laborers are thrown out of other employments and 
 can be easily substituted for those who refuse to work for 
 the wages offered, or when for some reason the actual em- 
 ployes are unable to change their situation. 
 
 The attempt to control wages by the arbitrary dictum of 
 such combinations against the normal working of competi- 
 tion is imivise, even if it could be successful, because, more 
 than anything else, it produces the impression that capital 
 is tyrannizing over labor. This causes suspicion and discon- 
 tent, and incites antagonism and combinations on the other 
 side. Thus, the cheerful cooperation of labor and capital 
 essential to prosperous industry is effectually prevented. 
 
 The true function of such associations is to secure a 
 better understanding of the laws of production and of the 
 actual condition of particular branches of trade and of the 
 causes, manifest and hidden, which vary the proceeds of 
 industry. Associations of employers generally embody 
 more intelligence than those of laborers. More of reason- 
 able discussion and of broad, fair-minded conclusions may 
 therefore be expected of them. 
 
 Our conclusion is then that combinations on either 
 side, so far as they attempt to resist or prevent free com- 
 petition, cannot, in the long run, materially influence the 
 rates of wages. If, however, representatives from both 
 sides could often and freely meet for mutual explanations, 
 candid discussions and the communication of information 
 concorning the labor-market and the market for products, 
 many evils that spring from vicious, fraudulent and per- 
 verted competition might be averted and both wages and 
 profits would be more permanently settled on the basis of 
 even and stable iustice to all 
 
THE GENERAL LAW OF WAGES. 181 
 
 5. The Golden RvJe of ClirUl, '' Wliatsoever ye would 
 'hat meii sliould do to you, do ye even so to thcni,^^ presents 
 mother consideration of some weight in determining 
 wages, which Political Economy as well as Christian 
 Ethics may fitly recognize and enforce. This rule embod- 
 ies a principle which tends to harmonize the action of self- 
 interest among men, in all relations. Genuine self-interest 
 as distinct from rank selfishness, culminates in the adop- 
 tion of this rule. There are pleasing indications that it is, 
 in increasing measure, regarded in the relations before us. 
 In many large establishments like that of Mr. Bright in 
 England, and some large factories in our country, it is 
 made evident that even corporations can have souls, and 
 that employes may perform their labor with heartiness 
 and good- will, for the advantage of employers, no less than 
 for their own. We cherish the fond hope that this rule 
 of wisdom and true policy is destined steadily to gain a 
 wider ascendency, softening animosities, inspiring mutual 
 confidence and effecting genial cooperation, so as to bring 
 out the full power of productive industry in results, larger 
 and more equably distributed than the world has ever yet 
 known. 
 
 The general law of wages may be concisely stated thus : 
 By free Cornpetitmi, wages are adjusted to the ratio 
 between the amount of Cayltal seeking labor and the num- 
 ber of Laborers seehing employment ; competition itself 
 being modified by some regard to the cost of living, the pro- 
 ductiveness of industry, established custom, and the prompt' 
 ing$ of good-2vill between man and man. 
 
CHAPTER XIV. 
 
 OAUSES PRODUCING VARIATIONS IN THij 
 REMUNERATION OF LABOR. 
 
 Special Circumstances by which Wages are 
 affected. — While the general law stands as just stated, 
 it is foiuid that the rates of wages differ considerably m 
 different employnioiits. These variations spring mainly 
 from causes which vary the intensity of competition in cer- 
 tain cases. They deserve however a brief, distinct notice. 
 
 Wages ai'e affected hy the ease or difficiiUy, tlie pleasant- 
 ness or unpleasantness, of the employme^it. When the em- 
 ployment for instance requires great muscular effort, the 
 number of persons who can accomplish it, is comparatively 
 small. This diminishes the supply, and of course increases 
 the price. When this is the case, as men are not usually 
 attracted by the prospect of hard labor, a smaller number 
 apply for this kind of employment. This still further di- 
 minishes the supply. Hence, the price will rise, as the 
 wages must be increased sufficiently to overcome this repug- 
 nance. On the contrary, when the labor is easy, the number 
 of persons both able and willing to perform it, is increased ; 
 thus, the supply is large, and wages fall in proportion. 
 
 The same effect is produced by the general estimation 
 of the pleasantness or unpleasantness of the employment. 
 Any kind of industry which, from necessity, is uncleanly, 
 commands higher wages than one which can be performed 
 without interfering with personal neatness. One which 
 is considered disgraceful, can be supplied with laborers, 
 
CAUSES AFFECTIN^G WAGES. 18S 
 
 only by paying an unusual price. The business of a pub- 
 lic executioner, though not difficult, is disagreeable, and 
 generally considered disgraceful ; and hence, in countries 
 where it is made a distinct profession, it commands high 
 wages. 
 
 Wages are affected hy the Skill required in 2^ er forming 
 the operation. This arises from two circumstances : First. 
 skill can be acquired only by practice and education, 
 This is in itself costly, and is an investment, for which 
 the possessor justly receives a compensation. And Second, 
 unusual skill generally supposes some" unusual endow- 
 ment. But in proportion to the rarity of the endowment 
 must be the smallness of the supply, and of course, the 
 rise of price which must be paid for the product. 
 
 Wages are aff'ected hy the Confidence reposed. Wherever 
 a great amount of capital is employed, it must, to a very 
 considerable degree, be placed in the power of some one 
 or more agents. Hence, if this power be abused, or used 
 unwisely, the whole is liable to be lost. If the manager be 
 careless, he may destroy it by negligence ; and if he be dis- 
 honest, he may convert it to his own emolument. Now, 
 this union of judgment with incorruptible integrity, is ab- 
 solutely necessary in many of the operations of production. 
 But such a union is rarely to be found. Hence, while the 
 demand is imperative, the supply is small. On this 
 account, though the wages of such persons are high, it is 
 generally found more economical to employ them at any 
 price, than to intrust important affairs to the incompetent 
 and the vicious. This is one of the rewards which, in the 
 course of human events, God bestows upon wisdom and 
 virtue. 
 
 Wagei> are aff^ected by certainty or uncertainty, con- 
 stancy or inconstayicy of enij^loyment. Division of laboi 
 requires that a man devote himself exclusively to a single 
 employment, and therefore that his whole emolument be 
 
184 DISTBIBUtlOK. 
 
 deriyed from that employment. Hence, when the oppor. 
 
 timities of employment are rare, the wages for each par- 
 ticnlar operation must be greater, since we must pay, not 
 only for the time actually employed, but also for that time 
 which is lost to the laborer, while waiting for employment. 
 We pay more money for riding a mile in a hackney-coach 
 than for riding the same distance in a stage-coach, because 
 tlie hackney-coachman may stand half a day in waiting, 
 before he finds another customer. Thus also, when a trade 
 can be exercised for only a part of the year, as in the case 
 of a bricklayer, you pay to the laborer higher wages, be- 
 cause he must receive enough to compensate him for the 
 time in which he is obliged to be idle. The crews of whal- 
 ing vessels are paid partly in shares of the oil taken. Their 
 pay for a successful voyage must therefore exceed ordinary 
 seamen's wages to balance the occasional loss when the ship 
 comes home " clean" or withDut any oil. 
 
 Ajiother circumstance tuhich affects the price of wages, 
 is the certainty or uncertainty of success. In the ordinary 
 avocations of lite, if a man acquire the requisite skill, he 
 will almost invariably find employment. In the profes- 
 sions it is not so. Those who have prepared themselves at 
 great expense for the practice of a profession, unable to 
 find employment, sometimes relinquish it for another pur- 
 suit. When such a risk exists, the wages of labor should 
 be greater, for the laborer is entitled to a remuneration for 
 the risk of this loss of time and of capital. 
 
 These are presented by Adam Smith, as the principal 
 circumstances on which, irrespectively of the influence of 
 capital, the price of labor depends*. It will be at once 
 seen that they are susceptible of very great varietj'' of modi- 
 fication and combination, and that frequently, several of 
 them must be taken into the account, in order to explain 
 the reason of the high or low price of any particular form 
 of labor. 
 
SALARIES, COMMISSIONS AND FEES. 185 
 
 The Remuneration of labor by Salaries, Com- 
 missions and FeeS; while goyerned to some extent by 
 the principles of wages, involves also some peculiarities 
 which must be mentioned. Generally the labor which is 
 thus compensated is of a kind that requires both superior 
 natural gifts and special and eo'pensive education. It is 
 abo true of it that, on the one side, personal character and 
 veputation, and on the other, tlie respectaUlity , dignity 
 and permanence of the service are estimated as of much, 
 consequence. These considerations more or less rule out 
 ordinary competition, and put the mutual contract, in 
 each case, on special grounds. 
 
 The whole number included in the classes whose labor is 
 thus compensated, is small compared with the great body 
 of those who receive wages. Yet to the few so favored, a 
 large share of the proceeds of industry is actually dis- 
 tributed. At first view, this looks like a grievous injus- 
 tice. But it must be remembered that all private interests 
 are promoted when public affairs are guided by men of 
 ability and integrity, and that a wise and vigorous executive 
 administratio7i is all essential to make any business profit- 
 able. Wages must come ultimately out of the proceeds 
 of the labor done, and the amount of these proceeds 
 depends much on active invention and efficient manage- 
 ment. Hence it is for the advantage of every ordinary 
 laborer that the places of special trust above him be filled 
 by men of capacity well trained. Such men are compara- 
 tively few. They are wanted everywhere, and therefore 
 they can, to a great extent, make their own terms of service. 
 At the same time, it is good economy, as we have seen in 
 a previous chapter, to pay the price necessary to secure 
 such service. 
 
 In mechanical industry, the qualifications which set 
 one and another above the wage-receiving class, are of- 
 ten brought out in self-made men so culled — men who 
 
186 DlSTKlJiUTlOK. 
 
 begin in the lowest rank of laborers^ and reveal their rare 
 endowments under a process of self-developmeni, c^d oppor- 
 tunity is offered. Thus George Stephenson began his in- 
 dustrial career as an engine-boy at the lowest wages. 
 Slowly and steadily, as his natural aptness found oppor- 
 tunity to exercise itself, he rose in grade as a workman, 
 until at the age of thirty, he was made an engine- wright 
 at Killingworth colliery, at a salary of one hundred pounds 
 a year, when he declared that his fortune was made. And 
 so it was, but in another sense than he dreamed. For 
 that position brought him into connection with the 
 first efforts made to construct a locomotive-engine, and 
 soon his latent genius flashed out in those splendid 
 achievements which gained for him the title of ^^ the father 
 of railway s.^^ For the services of his later years, he re- 
 ceived munificent remuneration. But that seems of little 
 account compared with the benefit conferred on all depart- 
 ments of industry and on the civilized world by the fruits 
 of his inventive genius and trained judgment. One such 
 eminent example quickens and encourages the activities of 
 thousands who raise themselves from the ranks to various 
 positions of responsibility, for the advantage of all, no less 
 than for their own emolument. 
 
 In other cases, long years of careful study with the best 
 facilities for education, give to the man a special prepara- 
 tion for the special service of his life. So it was with 
 Robert Stephenson, the son of George. His father, well 
 appreciating the value of advantages he had never enjoyed, 
 ?pared no expense to add to the son's inherited genius for 
 mechanics, the culture and discipline of an excellent edu- 
 cation. Enabled thus to start in a position where he com- 
 manded a high salary, he pressed his way rapidly on to the 
 highest eminence, as a constructor of some of the most 
 gtupendous iron bridges in the world, to a seat in the Brit- 
 ish parliament also, and to places of honor in scientific 
 
SALARIES, COMMISSIONS AND FEES. 187 
 
 associations. He distanced all competitors and was paid a 
 rich reward for his labors, but these labors enriched the 
 world in a far higher degree. 
 
 In the learned professions, especially those of law and 
 medicine, a man of marked ability, trained ly thorough 
 education, enriched ly varied experience, and having at 
 command the treasures of learning, receives for his services 
 extraordinary remuneration. When personal liberty and 
 security, or great amounts of property are at stake, all men ' 
 reason that it is sound economy to employ the best legal 
 talent, at any price. Such men as Webster, Choate and 
 Evarts have retaining fees thrust upon them, more than 
 they desire, and for their own relief are almost forced to 
 sift out the business offered, by high charges. So too, 
 when health and life are endangered by disease, all are 
 moved to seek the best medical counsel. Such physicians 
 as Nelaton, Mott and Parker would be overrun with calls 
 if they did not set their fees so high as to rule out many. 
 In these cases, acquired reputation comes in always to en- 
 hance the remuneration asked and freely given. That 
 reputation has been gained at the cost of years of careful, 
 faithful, successful practice^ and has a corresponding value. 
 It may be that, for a much smaller compensation, the 
 young, talented, well-read lawyer would manage a case as 
 well or better than the old practitioner of note ; but you 
 have no assurance of this, while the other's reputation 
 does give a certain promise of effective service. 
 
 Most marked of all is this difference of remuneration 
 in the departments of Fine Art ; for it is here that genius 
 brings forth its most brilliant productions, which seem in 
 some cases, almost supernatural. A few lines from the 
 pen of a Bryant or a Longfellow, a few strains from a 
 Jenny Lind or a Kellogg, a painting done by a Church or 
 a Bierstadt, a statue wrought by the chisel of a Thorwald- 
 Ben or a Powers, command prices that seem to common 
 
188 DlSTRIBUTIOI^r. 
 
 folk absurdly extravagant. But these products bear each^ 
 some charms, the strokes of genius, which only the gifted 
 few can render, — which are inimitable. Those endowed 
 with the capacity for such work are set above the reach oi 
 competition, in the enjoyment of an unrestricted monopoly. 
 
 Authors of books are generally compensated by a com- 
 mission or percentage of the price of each book sold. 
 Often, the actual remuneration received has but little 
 respect to either the genius, the learning or the labor of 
 the author. The popular taste or want, and the manner 
 in which the production meets a present condition of the 
 public mind, are often of more account than all other 
 considerations. Thus the richest returns are commonly 
 won by publications which are ephemeral and trifling. In 
 many cases such success seems a matter of mere chance, 
 and one successful hit gives no certain assurance of a sec- 
 ond like result. 
 
 To account for the high scale of remuneration awarded 
 to the kind of service we have been considering, it is often 
 said that the expense of time and money involved in oMain- 
 ing the requisite education, inust he compensated by adding 
 to common wages enough at least, to pay ordinary interest 
 on the original outlay, — also that success in these profes- 
 sions is unce7'tain, and the remuneration must therefore 
 cover the greater risk, so far at least, as to balance the 
 reward of eminent success, against the loss of many by 
 utter failures. These considerations do indeed justify the 
 extraordinary compensation on grounds of equity. But 
 in the actual contract between parties, they are seldom, if 
 ever regarded. The estimated importance of the service 
 or the special desirableness of the product on the one side, 
 and the diminished force or entire absence of competition 
 on the other, prevail to settle the compact. 
 
 Custom or some general agreement, formal or informal, 
 fixes rates of remuneration for various grades of service 
 
PROFESSIONAL FEES. 189 
 
 1ieio"w those of singular eminence. Thus for book-l^eepeis, 
 cashiers, foremen, superintendents of departments, travel- 
 ing agents, etc., there is recognized an ordinary rate of 
 salaries or commissions, with room for some variation out 
 of regard to comparative ability and trustworthiness. In 
 the legal and medical professions, the fees are fixed by a 
 general agreement or understanding, at a scale which is sus- 
 tained by the ^'esprit du corps. ^^ Where public interests 
 are involved, legislation is sometimes called to define the 
 fees that may be collected by legal process. Perso7ial con- 
 siderations also have some weight. A man's relationship 
 to the leading manager of a business, sometimes secures 
 for him special remuneration. Another's long continued, 
 faithful service is justly regarded as having earned for him 
 a right to his position and compensation, against the com-^ 
 petition of new and untried men. 
 
 In connection with great stock-corporations, an abuse 
 sometimes appears, when the salaried managers, having 
 contrived to control a large majority of the stock, appoint 
 themselves and fix their compensation at their own will. 
 This must be set down as a purely arbitrary exercise of 
 power, unrestrained by right or reason. Very often, it 
 involves direct fraud on other stockholders, and leads to 
 ruinous mismanagement. Sound economy and moral in- 
 tegrity join to reprobate such action. 
 
 The honor, dignity and 'permanence of certain positions 
 demanding a high order of talent, are considerations which 
 often make men willing to accept a less remuneration than 
 their services elsewhere might command. Thus a lawyer 
 of eminence whose annual income from practice at the 
 bar would be twenty-five thousand dollars, may accept a 
 place for life on the bench of the United States Supremr 
 Court at a salary of only ten thousand dollars. These 
 considerations are of much account in the remuneration 
 of clergymen and teachers. Men in those professions are 
 
190 DISTRIBUTION. 
 
 confessedly underpaid, when compared with men of equal 
 ability and attainments in other occnpations. But then 
 offices secure .to them social standing and respectability, 
 and their duties are congenial to cultivated minds. But 
 Above all these, especially with clergymen true to their 
 high calling, there is a spirit of devotion to the work '/ 
 Christian heneficence for the well-being of mankind, which 
 finds a satisfaction and joy in the service itself ; and thus 
 goes far to balance in their estimation, the meagreness of 
 their pecuniary reward. 
 
 The Remuneration for Women's Labor in most 
 employments, is less than that of men for similar services. 
 The fact of this difference is apparent on every hand, and 
 the exceptions are few. Is it right or reasonable that it 
 should be so ? The answer to this question can be reached 
 only as the reasons which account for the fact are fairly 
 weighed. We attempt therefore a concise presentation of 
 these reasons. 
 
 a. It is a prevalent opinion that for miscellaneous labor, 
 women are by physical and mental constitution inferior to 
 men in the qualities essejitial to highest efficiency. This 
 may be a mistaken opinion, based upon prejudice and 
 confirmed by long usage. Yet so long as it prevails, it 
 will determine practice. We step into a cotton factory, 
 and in the spinning-room we see men employed 
 almost entirely, because women have not the strength 
 needed to handle the jennies. In the weaving-room we 
 find two or three men working with a hundred women. 
 The work is light for all. The women attend the looms as 
 well or better than the men, but it would not be safe to 
 "leave the room wholly to their charge, because there come 
 exigencies when some qualities are needed which the womaL 
 has not and the man has. This is especially true with 
 respect to the oversight of numbers. For general superin 
 
womejjt's wages. 191 
 
 tendence, some masculine qualities are supposed to be 
 essential. Just so it is in a large public school. For the 
 giv^ater part of the details of instruction, female teachers do 
 us vvell or better than those of the other sex, but it is the 
 geneial belief that to work well, the school must have a 
 man at its head. Mothers themselves are distrustful of 
 any large school which has not a man near enough for 
 timely interposition to meet emergencies. To change this 
 general opinion will require something more than an occa- 
 sional instance of a woman possessing what must still be 
 termed masculine force and executive ability. 
 
 h. hi the order of nature and in the constitution of society, 
 the sjihere of activity for most women seems ordained to be 
 in the Home, each the solace and help of a husband, by 
 whom she is supported and protected, and the nourisher 
 and mentor of the children. This is prescribed by nature 
 as the first, simplest and most universal application of di- 
 vision of labor. The numbers of the two sexes are almost 
 precisely equal the world over. As a rule, it is not good 
 for man or woman to be alone. Where marriage is dis- 
 couraged, there is something radically defective in the 
 structure or vicious in the habits of society. All this 
 bears on the question before us, since it tends to rule out 
 women from many common occupations of productive in- 
 dustry, and to create the impression that it is univomanly 
 to enter them. This impression may run to the extreme 
 of a false delicacy, and so unduly limit the occupations in 
 which women who are thrown upon their own support are 
 willing to engage. But nevertheless, there is, in the very 
 nature of things, some check on their freedom, from this 
 cause. 
 
 c. The wages of men are adjusted to the presumption 
 Ihat each has or ivill have a family to provide for, and those 
 of women to an anticipation that each will in due time, by 
 marriage, he relieved of her own support. A very large 
 
193 DISTRIBUTIONS". 
 
 proportion of the women who to-day, depend on their 
 own labor, are young persons who are passing, one after 
 another, into new relations, where they are to be cared for 
 by men's earnings. We recognize the hardship which thia 
 order of things brings on some women who, in the vicissi- 
 tudes of life, are compelled by their own labor to support 
 not only themselves but their children, and it may be sick 
 Dv intemperate and thriftless husbands. But the number 
 of these is comparatively small. The laws of our science, 
 like the laws of material nature, are adjusted, on general 
 principles, to general conditions. Some incidental, occa- 
 sional distress is produced by their injiexihiUty , and yet 
 that very feature of the laws may be necessary to secure 
 the greatest good of the greatest number. 
 
 d. The actual organization of 'productive industry, in 
 all departments which give place to both sexes, is established 
 on this hasis of less compensation for women^s luork. In 
 most cases, the greater cheapness of female labor is the 
 chief reason for employing it. The cost of production is 
 diminished thereby. The prices of all commodities into 
 which this kind of labor enters are determined accord- 
 ingly. The universal competitions of trade with their 
 manifold complications are threaded through and through 
 with this element of icomen^s cheap lahor. The whole 
 body of consumers are accustomed to enjoy a benefit from 
 it. Hence the principle cannot be easily eliminated. If 
 the rule is a false one, it cannot be suddenly changed 
 without deranging the entire systems of production and 
 exchange. If the prices of men's labor be reduced to the 
 level of women's wages, widespread and aggravated distress 
 among all the laboring classes must follow. If the change 
 be on the other side, the prices of goods included among 
 "he necessaries of life, must be raised p]-()portionally, pro- 
 ducing general distress in another way. All this indicate!^ 
 that the. established order of things presents such obsti'uo- 
 
Women's wages. 193 
 
 tions, that any change must be gradual, and that there 
 are great general interests to be regarded in every step of 
 the movement. 
 
 e. There are feminine instincts which prompt women to 
 drato hack from many occupations hecause they are coarse ^ 
 or involve too rough jostliiig with the world. These in- 
 Btincts need carefully to be preserved, for the charm oi 
 womanhood is gone when they are crushed out. The pre- 
 vailing tendency is to make them excessive so that they 
 grow into the sentiments of false delicacy before alluded 
 to. Hence few occupations are open to women, and these 
 are so crowded that competition is intense and low wages 
 are inevitable. It is no more in the power of employers to 
 resist this pressure than it would be in the power of a man 
 with his bare arm to stem the Mississippi's current. All 
 the considerations before named, concentrate here, and 
 here, whatever means are employed to relieve the evil or 
 the wrong, must find their application. False ideas of 
 respectability keep thousands of women in lone garrets, 
 plying their needles for a reward which barely saves them 
 from starvation, while there is a steady demand for em- 
 ployment in domestic service, where, well fed, in comforta- 
 l)le homes, they might earn wages which would enable 
 them steadily to lay up a little surplus. 
 
 /. This sharp competition is greatly intensified by the 
 fact that many women who seek employment are partly or 
 wholly supported hy other resources than their own lahor. 
 Some, under the pressure of necessity, simply to escape 
 the ennui of idleness, or to make their lives useful, and 
 very many, aiming only to secure some addition to a par- 
 tial income from other sources, seek a share in the limited 
 occupations open to females. These are willing, because 
 they can afford to work for less compensation than is 
 needed by those who have nothing but their labor to de- 
 pend on. And often the fact of their better circumstances, 
 9 
 
i94 bisTHiBUTioir. 
 
 their better appearance and it may be their superior intel- 
 ligence secures for them the preference. Of necessity, 
 therefore, excessive competition crowds the other clasa 
 more closely to the wall. Certainly it is desirable to 
 ; ncourage in young women a spirit of independence, and 
 m acquaintance with and a love for useful occupation. 
 ^Tet as things are, the services of this class come into com- 
 petition with those of the more needy ones, and cause inci- 
 dental hardship. 
 
 Notwithstanding all that has been said, where a woman 
 hy superior energy or genius, makes eminent achievements, 
 her services are appreciated in full measure according to 
 the standard of nie^i's luork of the same kind. This is true 
 especially of women's work in fine art. The female stars 
 in music and the drama, such as Kellogg and Siddons — in 
 painting and sculpture, such as KosaBonheur and Harriet 
 Hosmer — in poetry and light literature, such as Mrs. 
 Browning and Mrs. Stowe, have no reason to complain 
 of the remuneration awarded by an admiring public to 
 their productions. So too, occasionally we see a woman 
 managing extensive business with great executive ability. 
 In sucli a case, the reward is no whit short of that won by 
 like energy on the part of the other sex. These exceptions 
 however, rather prove than controvert the rule. And with 
 the sole exception of vocal music, we fail to find in any 
 department of art or business, women, reaching eminences 
 so high that there are not men still above them. 
 
 From all these considerations, we reach the following 
 conclusions in answer to the question with which our dis- 
 cussion opened. 
 
 1. In the nature of things, there is some good reason 
 why the re^nuneration of uwmen should generally fall belon 
 that of men for similar services. Absohde equality between 
 the sexes in this respect, is not likely ever to be attained 
 
Women's wages. 196 
 
 They who contend for that extreme result, are fightinf^ 
 against nature's Liws and assailincr the only safe founda- 
 tions of civilized society. 
 
 2. This inequality, as a present matter of fact, is muth 
 (jreaier than is either right or reasonahle or necessary. 
 The distress that comes from it, cries out therefore, ii; the 
 name of justice and of philanthropy for relief. Efforts for 
 relief put forth in the right direction, will not be unavail- 
 ing. They may be prosecuted with good hope of success, 
 and deserve encouragement and support on all hands. 
 
 3. The chief aim of these efforts must be to hreah the 
 tyranny of fashion and jprejiidice and maivkish sentimen- 
 talism, and to open for women, free access to all fit occupa- 
 tions. Thus the sphere of competition will be widened 
 and its intensity relieved. Under that tyranny, the se- 
 verest ban is that imposed by women themselves on one 
 another. A change of opinion in female circles, will be a 
 change of public opinion. No satisfactory reason can be 
 given why with women and with men alike, honest work 
 well done should not be always respected and honored. No 
 great danger can come from giving the widest range of ex- 
 periment for women to try their powers. When the bar- 
 riers set up by the false whims of artificial society are 
 removed, the native instinct of the sex may safely be 
 trusted to choose fit and congenial occupations. Then 
 the average rewards of labor, even at women's rates, will 
 be raised at least, to the standard of general comfort. 
 
 4. In the quiet sphere of domestic life, woman renders 
 to society her noUest, most blessed service. The real worth 
 of that service cannot be estimated in terms of current 
 money. Its legitimate reward comes not in separate 
 wages but in hei rightful partnership, as a necessary 
 helper, in all that man, the husband, the father, the 
 brother, quickened, stimulated, sustained by her genial 
 influence in the home, can gather on the world's open 
 
196 DISTRIBUTION. 
 
 liolds of struggle. When necessity carries- her out to act 
 for lierself in those open fields, her true mission will still 
 remain that of a Helper, not a Principal. The outlook of 
 to-day is full of hope for the success of a Conservative 
 Reform, which shall move on, safely balanced by a due 
 regard always to that highest honor, to those most sacred 
 rights of woman which centre in the true unit of society, 
 the Home, 
 
CHAPTER XV. 
 
 THE KEMUNERATION OF CAPITAL. 
 
 Capital, as we have seen, is a factor, all-essential in 
 the production of wealth. The most important forms 
 which it takes in the process are two, viz., buildings^ tools 
 and macJiinery to work in and to work witli, and materials 
 to work upon. Labor and skill are unavailable till these 
 are provided. En the process of production, capital in 
 these forms is consumed. The materials are immediately 
 destroyed; Buildings and instruments slowly but surely 
 wear away. Hence, the first appropriations from the pro- 
 ceeds of industry must be always to make good this loss, — 
 to make necessary repairs, to buy new materials and thus 
 to replace the capital consumed. Unless the business is a 
 failure and must cease, this provision must first be made. 
 The compensation of labor, the reward of capital and the 
 profits must be reckoned after that is done. We here 
 simply recognize this replacing of capital as a necessity. 
 It forms no part of the remuneration of capital which we 
 are now to consider. 
 
 The Principle on which the claim of Capital 
 to Remuneration rests, is essentially flie same as thai 
 which sustains the compensation of labor. By its defini- 
 tion, capital is the fruit of past labor preserved by self- 
 denial to be employed in further production. One's right 
 of property in that whicli he has earned and saved is inde- 
 feasible, it is precisely the same as his right to liis own labor, 
 for his own labor may have produced this capital, and it is 
 
Ids DISTRIBUTIOif. 
 
 but simple justice that if the owner allows another to use his 
 property instead of using it himself, he should be compen- 
 sated. iSTo man expects to put forth his powers in present 
 labor without some reward. Why then, should one be ex- 
 pected to give the use of the fruits of his past labor and self- 
 denial without reward ? The hope of such reward i§ the 
 special inducement for saving. Suppose James Brown to 
 have health and strength and skill as a blacksmith, but 
 no shop, no tools, no iron. John Smith has, by previous 
 labor and thrift, become the independent owner of a shop 
 and its appurtenances, but is broken in health and unable 
 to work. Each is evidently helpless without that which 
 the other can furnish. Both will derive advantage from 
 the union of the two properties,— the personal qualities on 
 the one hand, and the accumulated means on the other, — 
 in other words, the labor and the capital. This may be 
 done in either of two ways. Smith may hire Brown to 
 work in the shop, and with his tools, and pay him stipu- 
 lated wages, reserving from the proceeds of his labor, 
 something for himself. Nobody can question the rightful 
 ness of that course. Or, Brown may hire Smith's shop 
 and tools for a stipulated rent, and after paying that, have 
 for himself the surplus of all he can earn by his work. 
 On what ground can the rightfulness of this course any 
 more be questioned ? The latter method establishes the 
 relation of horroiver and lender, as the former does that of 
 employer and employe. It grows out of a common neces- 
 sity. It yields a mutual advantage. A division of the 
 joint result' may give each the living he needs. The one 
 lives by his present labor, the other lives by his past labor, 
 that is, on his capital. ^ Is not each an honest way of living : 
 Would it not be a grievous wrong for either to demand 
 the benefit of the other's possession without paying for it ? 
 This simple case illustrates the whole matter in all its 
 varied and complicated aspects. The principle seems too 
 
JtENt. 199 
 
 plain to need even so much of exposition. But the Com- 
 munist pMlosuphy, so called, which denies tJie rights of 
 capital, is gaining some acceptance even in our enlightened 
 country, and its sophistry is best exposed by the clear 
 statement of elementary principles. Everywhere, laboi 
 and capital enter into a partnership. He who provides 
 the capital justly claims to share with the laborer in the 
 results of their union ; and the laborer can well afford to 
 pay for the advantage he gains. 
 
 It matters not in ivliat form the capital is furnished ; 
 the principle is the same. The laborer may, as in the case 
 supposed, use the shop, tools, etc., of another for which 
 he pays Bent. He may make a formal loan, borrowing 
 money with which to purchase these things and paying 
 l7iterest. The capital may be contributed by a hundred 
 different persons, uniting in a stoclc- company, which 
 through its agents employs a hundred other persons as 
 laborers. It is in this last case, just as really a partner- 
 ship, as though each laborer made a bargain with some 
 one capitalist, but here the compensation for the capital 
 comes in the form of Dividends. The remuneration of 
 capital thus appears in these three forms, Rent, Interest, 
 Dividends. "We have said that tlie fundamental principle 
 is the same in all, yet each form has some peculiar phases 
 which require a distinct presentation. 
 
 Rent, is the compensation y aid for the use of cajntal in 
 the form of land and its appjendages, commonly called Real- 
 estate. Eent implies oiunership of land. It belongs not 
 to our science to discuss the abstract right of property in 
 land, or to determine the basis of that rio^ht. It is enonoii 
 here to say that the wealth which God has hidden in tlie 
 vegetable and mineral resources of the earth cannot be de- 
 veloped without some exclusive possession and control of 
 the land itself. So too, the advantages of a particular 
 
^00 DISTKIBUTIOij. 
 
 location, as a place of residence or of trade, can be ap- 
 propriated only in connection with a title of posses- 
 sion to that piece of land. When appropriated, la7id 
 must be reckoned as capital, partaking of the nature both 
 of material to which labor may be applied, and also of an 
 in>iruinent of labor. Unless excluded by special provision, 
 the title to the land carries with it all improvements and 
 permanent structures pnt ujjon it, the term real-estate in- 
 cluding all. The use of capital in this form, as well as its 
 ownership, may be transferred, and rent is simply the 
 compensation paid for such use. 
 
 Several hinds of rent are indicated by different names ; 
 the distinctions having originated mainly in the peculiar 
 features of the feudal-system and the laws of primogeni- 
 ture and entail to which that system gave rise. Some of 
 these may be mentioned in passing. A Rent-cliarge 
 means a fixed sum paid annually as a commutation for 
 military services or other obligations due from the occu- 
 pant of land to its feudal proprietor. Quit-rent is a defi- 
 nite reserve, specified in grants of land, by the annual 
 payment of which the tenant is quieted or quit from all 
 other services to a feudal lord. Metayer-rent is an equal 
 division of the actual products between the cultivator and 
 the owner of the land. Rach-re7it is rent raised to the 
 utmost by forced competition. Cottier-rents is a term ap- 
 plied chiefly to the usage in Ireland, where sub-tenants 
 rent each a cottage and an acre or two of land from the 
 small farmers, the amount of the rent being ordinarily 
 paid in labor at a money valuation. Ground-rent, a mod- 
 ern term applied mostly to city lots, is compensation paid 
 for the occupancy of the ground alone, the lease usually 
 providing for an equitable valuation of the structures 
 erected on it, with a view to their separate disposal, on the 
 termination of the contract. 
 
 In Great Britain, the influence of the old feudal system 
 
RICAKDO'S THEORY. 201 
 
 is still felt in the monopoly of the lands of the kingdom 
 by a few families of the nobility and rich gentry, and in 
 many restrictions on the transfer of titles. There conse- 
 quently, the problems of rent are many and complicated, 
 and English writers on political economy give large place 
 to this topic. We need not follow their extended and 
 elaborate discussions, since they are ill suited to the condi- 
 tion of things in our country. 
 
 The famous theory of Ricardo, however, deserves a 
 brief notice. His work on political economy is devoted 
 chiefly to this subject, and the theory he propounds has met 
 with general acceptance. Its leading idea is that rent ad- 
 vances with the progress of society from the first settling 
 of a country, when, on account of the abundance of fertile 
 land, there will be no rent, up to the time when the neces- 
 sities of the growing population compel the bringing into 
 cultivation, at the expense of greatly increased labor, the 
 poorest of the land. The rent therefore, ivhich any piece 
 of land vjill yield is just the difference letweeoi the value 
 of its products and the value of the products of the jworest 
 land in cultivation. The increase of population causes an 
 increase of rent, and with the advancing rent, the cost of 
 food must steadily advance. So by inference, this theory 
 was made to sustain the Malthusian theory of population, 
 winch presents general starvation and wretchedness as the 
 certain result in a not distant future, unless some restric- 
 tions are laid on the natural increase of population. 
 
 The elementary principle of this theory, that the rent 
 of land for agricultural purposes, must depend chiefly on 
 its productiveness is true. Bnt the representation of the 
 manner in which lands of different grades are brought 
 under cultivation is ideal rather than real. The deduction 
 from the theory can stand only on the assumption tliat 
 the food of a country must be provided entirely from ita 
 own soil, limited in extent. The repeal of the corn-laws 
 
202 DISTRIBUTION. 
 
 and tlie adoption of the principle of free-trade have shown 
 that even England has little occasion to apprehend the 
 sad consequences of the so-called E-icardo-Malthusian sys- 
 tem. When all artificial restrictions are removed, the 
 natural equilibrium of supply and demand will provide 
 food for a people, irrespective of the more or less that may 
 be raised within their own territory. Then too, the same 
 law will determine the value of the products of the land, 
 and rents will be adjusted acnordingly. 
 
 In our country, by the constitutions of most of the 
 states, lands are declared to be allodial and feudal tenures 
 are prohibited. The property- right to all lands rests 
 upon a title in fee- simple, unencumbered by entails and 
 mortmain holdings. This makes the ownership absolute 
 and its transfer easy and direct, free from burdensome re- 
 strictions. At the same time powerful influences oppose 
 the aggregation of great landed estates, and favor the 
 acquisition of such property, in comparatively small tracts 
 by the industrious and thrifty of all clashes. Here there- 
 fore, the principles of rent are very simple. For agricul- 
 tural purposes, the rent of land is determined mainly by 
 three considerations. 
 
 1. Productiveness. Land is the instrument by which 
 the farmer produces the various vegetable and animal sub- 
 stances which he offers in exchange. 
 
 Like any other valuable instrument, it of course, com- 
 mands a 'price according to its productiveness.^ He who 
 hired a loom, would pay more for a loom with which he 
 could weave twenty yards a day, than for one with which 
 be could weave but ten yards a day. The case is the same 
 with land. But the productiveness of land depends on 
 two circumstances, viz., its Fertility and \i%' Situation 
 with respect to a market. 
 
 a. Fertility. We all know that the productiveness of 
 
COifSIDERATIONS AFFECTHS^G REIfT. 203 
 
 iiifferent soils is very diverse. Some soils will produce 
 thirty, or forty, or fifty bushels of wheat to the acre, while 
 others will produce, at the cost of more labor, not more 
 than ten or fifteen bushels to the acre. Some soils will 
 produce the most valuable vegetables ; and others, only 
 the most common, and comparatively worthless. Some 
 .-oils will produce no wheat whatever; and otheis will, 
 without manuring, produce a luxuriant crop every yean 
 Some, wholly unfit for tillage, can be used only for grazing ; 
 and even when thus employed, yield to their stinted flocks 
 but a meagre subsistence. Hence, we see a reason for a 
 great diversity in the price of land. And we see at once, 
 that a farmer might more profitably pay a rent for one 
 farm, than occupy another farm for nothing. 
 
 h. Situation. The products of the farmer are all 
 bulky, and of course, acquire a very considerable addition 
 to their cost by transportation. Hence, if A raise wheat 
 within a mile of a market town, and sell it for one dollar 
 a bushel, and B live one hundred miles off, and bring his 
 wheat to the same market, he must sell it at the same 
 price. The merchant who buys wheat can give no more 
 than the market price for wheat, whether it has been 
 raised near or far off. It is no more valuable to him for 
 having been brought one hundred miles. If now, the price 
 of bringing a bushel of wheat one hundred miles be fifty 
 cents, B actually receives but fifty cents a bushel for his 
 wheat, while A receives a dollar. If the farms of both 
 were of equal fertility, that is, if both produced twenty 
 bushels to the acre, the farm of B, would be only half as 
 productive as that of A ; that is, he would receive only 
 ten dollars per acre, while A received twenty dollars. 
 This amount of difference in situation, would be the same 
 as a difference of one-half in fertility, or actual produo 
 tiveness. 
 
 Hence, fertility being the same, productiveness will l)c 
 
204 DISTRIBUTION. 
 
 as situation ; and situation being the same, productive- 
 ness will be as fertility. And we see that these circum- 
 stances will always, when opposed, counterbalance each 
 other ; that is, land at such a distance from the market 
 that it costs one half the price of products to transport 
 them, will be of the same value, or actual productiveness, 
 as land of half its fertility, contiguous to a market. 
 And hence, in estimating the productiveness of land, these 
 circumstances are always to be considered together. And 
 we see that land of the greatest fertility may be so far from 
 a market, that the cost of transportation will leave a profit 
 insufficient to repay the cost of cultivation. In such a 
 case, such land will be worth nothing. 
 
 Tfie liigliGst degree of productiveness is realized luhen 
 these two circumstances are combined. Fertile lands near 
 to a market always command a high rent. Internal im- 
 provements which diminish the cost of transportation have 
 the effect of thus combining fertility and situation. This 
 has been one important cause of rapidly enhancing the 
 value of agricultural lands in the valley of the Mississippi, 
 where distance from the sea-board and the consequent ex- 
 penses of transporting their produce balanced all the 
 advantages of their superior fertility, until steam naviga- 
 tion and railways were extended thither. 
 
 In the settlement of a new country, another considera- 
 tion has weight in the choice of lands first occupied. The 
 most fertile lands and those most favorably situated may 
 require great labor to bring them under cultivation, and 
 hence inferior lands may be first selected. This however 
 is only another aspect of the same principle. For in any 
 branch of industry, our estimate of productiveness must 
 take into account the cost of labor necessary to secure the 
 j>roduct. No agricultural lands will command a rent, 
 wliose crops do not yield a surplus above what is necessary 
 to support the laborer. While the process of clearing 
 
CONSlDEKATiU^'6 AyPECTIifG KEii^T. 205 
 
 heavily timbei'^d land is going on, the crops will hardly 
 keep the laborer alive, though the crops of subsequent 
 years may yield a full compensation for that first cost. As 
 these later returns come in, such lands yield rent which 
 steadily increases until the full measure of its productive- 
 4iess ds jreached. 
 
 2. The Growth of Population and its coiicentration in 
 new centres. This means only that whatever increases the 
 demand for agricultural products, or in any way improves 
 the market for them, enhances the value of the lands and 
 warrants the payment of increased rents. The natural 
 growth of a population devoted chiefly to agriculture mul- 
 tiplies various wants which can be met only by some forms 
 of mechanical industry and mercantile enterprise. Those 
 who are thus employed, by necessity collect together into 
 towns and villages. Thus a large population is collected, 
 which raises nothing from the earth, and their wants must 
 be supplied by the agriculturists in their neighborhood. 
 Henoe, immediate markets for produce are created in 
 ■every district ; that is, although the farmer cannot remove 
 fcis farm nearer to market, the market has removed nearer 
 to him, and the diminution of distance has increased the 
 productiveness of his farm, as much as though its fertility 
 had been increased, or it had been removed to the sea- 
 board. Thus, within fifty years after it was occupied by 
 farming emigrants, Western New York was studded with 
 \rillages, many of which soon grew into large cities. The 
 same thing has been illustrated on a still larger scale in the 
 rapid increase of population and wealth through all the 
 western states. With all this development, agricultural 
 lands have increased in value, and command rent accord- 
 ing to their proximity to the new markets thus formed. 
 
 The development and use of waier-poivers and other 
 facilities for manufacturing has the same effect. Such 
 
206 DISTRIBUTION. 
 
 enterprise brings in a rapid increase of population by im- 
 migration, who must be. to a considerable extent, fed b} 
 tlie products of land in the vicinity. Agricultural and 
 manufacturing industry have thus a most intimate relation 
 to each other, and the free growth of both in near prox- 
 imity, promotes tlie most general and genuine thrift. By 
 the forming of such near markets, lands of inferior fertility 
 may come to bear a considei'able rent, because every such 
 community requires large supplies of vegetable products 
 which do not well bear long transportation. The develop- 
 ment of manufacturing industry in New England has 
 thus kept up the value of her poor farming lands in spite 
 of the competition of the richer soils of the west, which 
 through facilities for transportation have sent on immense 
 quantities of produce. It will not pay for the New Eng- 
 land farmers to raise wheat, but for potatoes and other 
 vegetables, bulky and perishable, needed in the manufac- 
 turing towns close by, they have a market of their own 
 which sustains the value of their lands. 
 
 3. Rents are affected hy some Incidental Circum- 
 stances. 
 
 a. Natural Beauty of Situatio7i adds to the value 
 of a farm. Of two farms equally productive, many 
 men would give a decided preference to that which com- 
 manded a view of the richest and most beautiful prospect, 
 or of which the trees and shrubbery were so arranged, as 
 to give the greatest pleasure to the beholder. For this 
 pr/.'ference, most men would be willing to pay an additional 
 price. This additional price will increase with the wealth 
 and the improving tastes of the community. This is a 
 circumstance which should always be borne in mind by 
 the occupiers and owners of land. It costs but little moic 
 labor to lay out an orchard regularly and beantifully . than 
 *;o lay it out irregularly and clumsily. It costs nothing to 
 
COXSI DERATIONS AFFECTING RENT. 207 
 
 let a tree stand where it adds beauty to a prospect, and 
 it costs very little to plant one, where it will have thf 
 same effect. A neat and convenient house consume? 
 neither more lumber nor nails, nor labor, than a slovenly 
 and inconvenient one. And yet on these differences, very 
 much of the value of a farm depends. 
 
 h The value of land depends much on the Intellectual 
 and Moral Character of the Neighborhood. 
 
 Of two farms of equal productiveness, but m very dis- 
 similar moral and intellectual communities, almost every 
 one would prefer that which, in these respects, possessed 
 the greater advantages. A man who has in any degree 
 cultivated his own intellect, prefers the society of those 
 whose intellects are also cultivated. A parent would 
 always prefer a neighborhood in which his children would 
 receive the advantages of education. A man who had 
 been accustomed to religious observances, would choose to 
 reside where he could enjoy the benefits of religious in- 
 struction. And every man, let his dispositions be what 
 they may, will choose to live in a neighborhood, in which 
 the moral character of the people is a protection from dis- 
 honesty and robbery, and where his children will be, as 
 little as possible, exposed to the contaminations of vice. 
 It is manifest that each of these considerations would 
 form aground of preference, for one situation over another, 
 and for this preference, every reasonable man would be 
 willing to pay. Were two farms thus differently situated, 
 there would be many more buyers for the one than for the 
 other, and the advantage would all be on the side of the 
 most intelligent and moral community. 
 
 Hence we see that, besides the advantages which intel- 
 ligence and virtue confer upon the character of a people, 
 iliere is also an additional advantage in the increased value 
 of property which they produce. It may be fairly ques- 
 tioned, whether this, of itself, be not sufficient to repay the 
 
208 DISTRIBUTIOX. 
 
 whole expense of literary and religious institutions. There 
 are towns in New England in which, in a few years, the 
 price of real estate was doubled, for no other assigna- 
 ble reason, than that of the literary and moral advantages 
 which they hold out to residents. This mode of increas- 
 ing the value of property, is deserving of more attentior 
 than it has generally received. 
 
 c. Improvements put upon the land are also to be 
 taken into account. Under this term are included drain- 
 age and fertilizers applied to the soil, the benefit of which 
 runs through a series of years ; also fences, barns and other 
 outhouses and a residence for the family. These things 
 are indispensable to successful agriculture and every addi- 
 tion increases the utility and desirableness of the land. 
 The unthrifty appearance of a farm whose improvements 
 are neglected and run down, is in itself repulsive, enough 
 so, often, to overbear other considerations. One is hardly 
 willing to stop and inquire about the intrinsic fertility of 
 such a piece of land. He will fix his choice rather on even 
 wild land, untouched, at least unmarred by the hand of 
 man. 
 
 It is to be observed however, that where the improve- 
 ments are in excellent condition, rarely is the value of the 
 land, indicated by either rent or purchase-price, increased 
 in proportion to the expenditures laid out on these im- 
 provements. The reason of this is that, with respect to 
 some of these outlays, the benefit is hidden, not apparent 
 to the eye, as in the case of drainage and fertilijers ; 
 respecting others, as of the barn and the dwelling, every 
 man has his own taste, and what may have been of great 
 interest to the original proprietor, may fail to be apprecia- 
 ted by a purchaser or tenant. Often a dwelling house 
 "s erected costing as mucli as the whole farm without it is 
 worth, thus doubling the capital invested. But all this 
 will add nothing to the actual products, the matter of 
 
KENT OF MINlifG LA.ND8. 50i) 
 
 chief consequence in tlic mind of one proposing to buy or 
 rent the place. 
 
 It must l>c added that in this country, almost invaria- 
 bly, rented farms are rapidly deteriorated with respect to 
 both fertility and improvements. The temporary tenant 
 seeks to realize tlie largest profits from immediate harvests^ 
 having no interest in the continued productiveness of the 
 land. Hence, unless he is occupying the farm on long lease, 
 he will not spend much in enriching the soil or in keeping 
 buildings, etc., in repair. To avoid this deterioration, the 
 terms of the lease are sometimes so drawn as to require 
 certain outlays annually, to keep up the land and its ap- 
 pendages. 
 
 For Mining Lands rent is determined almost entirely 
 by productiveness, real or prospective. On the first dis- 
 covery of mineral treasures, the value of the land in which 
 they are found, is at once increased according to the profit 
 anticipated from working them out. 
 
 Suppose a farm to be worth the ordinary price of land ; 
 and the owner discovers on it a bed of iron ore which, 
 after deducting the necessary expenses of working it, and 
 paying the labor and skill necessary to the operation, will 
 yield one thousand dollars a year. The farm or the land 
 necessary for the mining operations will rent for one thou- 
 sand dollars a year, or will sell for such a sum as will yield, 
 at the ordinary rate, one thousand dollars as interest. In 
 this case it is manifest that the original owner of the prop 
 erty will be a gainer by the discovery, to the full amount oi 
 the increase in the price of his land. But here the peculiai 
 gain ceases. To other holders who may come after him, 
 it is merely an investment of the same nature as any other 
 investment, and will yield no more than the ordinary rate 
 of profit. 
 
 The case is the same with a copper, a silver, or a gold 
 mine. The owner of the land at the time of the discovery, 
 
2l0 iHSTRIBU'TlOI^. 
 
 becomes greatly enriched in consequence of this new pro- 
 duct, which may be derived from his property. But after 
 this rise, when a new purchaser comes into possession, the 
 jjecuUar'ity of the gain ceases. A rich gold mine will rent 
 or will sell for more than a poor one, and its price or its 
 rent, will be in exact proportion to its produrtivenoss. just 
 is a farm, ti mill privilege, or any other property. It is a 
 somewhat remarkable fact, that mines of the precious 
 metals are in general, singularly unprofitable, after they 
 have passed out of the hands of the original owners. It 
 has grown into a proverb in South America, that if a man 
 own a copper mine he will grow rich, if he own a silver 
 mine he will gain nothing, but if he own a gold mine he 
 will certainly be ruined. The fact, however, may be easily 
 accounted for. The imaginations of men are always 
 strongly excited by the contemplation of the precious metals, 
 and it is rare that anything but experience can teach 
 them, that they may buy gold too dear. Hence, they do 
 not compute the chances of profit in the production of 
 gold, as coolly as they do in any other case. But the pro- 
 duction of gold is governed by as fixed laws as the produc- 
 tion of wheat. Grold cannot, any more than wheat, be 
 produced by an effort of the imagination. It is the result 
 of labor and skill and expense. And if these be greater 
 than the revenue, a man will as assuredly be ruined by 
 producing gold, as by conducting any other unprofitable 
 business, his imagination to the contrary notwithstanding. 
 
 In cities y where population is concentrated within nar- 
 row limits, rents for lots and buildings are determined 
 almost entirely by location, with respect to facilities for 
 business, the social character of the neighborhood, and the 
 freaks of fashion. A man needs a house which will furnish 
 the necessary conveniences for his family, He also wishes 
 one within a convenient distance from his place of emplo/- 
 
RENT OP CITY LOTS. 211 
 
 ment. The further his dwelling is removed from his store 
 or his counting- room, the longer time is occupied in pass- 
 ing from the one to the other, and the less are the conve- 
 niences of his residence. Hence, he will be willing to ])ay 
 for the choice, and thus the price of land gradually di- 
 minishes from the centre to the circumference of a tliickly 
 settled town. Often also, he is willing to pay an extia 
 price for a residence in a respectable, or fashionaUe quar- 
 ter of the city. 
 
 In a place of great commercial activity, another class of 
 buildings is needed for the transactmi of business. Where 
 many exchanges are to be made in the course of a few 
 hours every day, it is of importance that the exchanges 
 should be as near together as possible. And where a large 
 number of strangers is daily collected for the sake of mak- 
 ing purchases, it is important to the seller to be so situa- 
 ted as to be in their immediate vicinity. A merchant 
 whose store is in the centre of business, can easily sell ten 
 times as much in a day as one who is half a mile off from 
 the centre. Hence, he is able from the mere fact of differ- 
 ence in situation, to realize a much greater annual profit 
 in the one place than . in the other. For this difference 
 of productiveness, he will be willing to pay a price ; and 
 hence, in large cities, the most central situations, or, as 
 they are called, the best stands for business command a 
 very high rent, and a corresponding price. A few square 
 feet of land in the centre of the city of New York, will 
 sell for more than many acres of the most productive soil 
 in any part of the Union. And as the price of land in 
 such cases, is owing entirely to the demand for the pur- 
 poses of facilitating trade, it can only rise with the increas- 
 ing prosperity of the place. Hence, the rise or fall of real 
 estate in any town, if it be truly a rise in value, and not a 
 rise from speculation, is one of the surest indications of its 
 mercantile prosperity, or of the reverse. 
 
212 DISTRIBUTION. 
 
 With the growth of cities, the centres of business are 
 Mihject to change from time to time, occasioned sometimes 
 by the need of enlarged space, often by the mere whims of 
 fancy or bold speculation. Forty years ago, most of the 
 jobbing business in New York was done in Pe-irl Street, 
 and property on that street commanded the best rents ir 
 the city. In course of time, that branch of business was 
 transferred to another quarter, and Pearl Street stores to- 
 day, rent for a small fraction of their former rates. The 
 bold speculation of one man had the effect to transfer the 
 fashionable retail business of Chicago, from Lake Street to 
 State Street with a corresponding revolution in rent. Par- 
 ticular branches of business are apt to concentrate, each in 
 its own part of a city, and often for reasons which nobody 
 can explain, and in spite of great inconveniences. Thus 
 more or less of uncertainty is attached to city property 
 rented for business, and this fact must be considered when 
 capital is invested in that way. 
 
 The remuneration of capital in the form of real-estate 
 is, except in the favorite locations of great cities, generally 
 less than the average rate of profits from business. We 
 may name several reasons for this difference. 
 
 1. Property in land is considered more secure than any 
 other property. The principal may be considered inde- 
 structible. Hence, it is the safest of all investments, and 
 nothing is paid for the I'ish. 
 
 2. The title to lands can he more definitely secured than 
 that of any otlier property. The legal instruments by 
 which it is secured to the individuals, are a matter of pub- 
 lic record. The boundaries of land can be, and commonly 
 are, ascertained with entire precision. The land itself can 
 not be removed. Hence, tlie ownership of it can be always 
 ascertained and conveyed to posterity. 
 
 3. Men generally derive some influence and considera- 
 tion from the ownership of land, which they do not derive 
 
ilENt LESS THAN ORDtJirARY lisTTEREST. ^13 
 
 from any othor possessions. Formerly, the right ul suf- 
 frage was restricted to landholders. The existence of this 
 rule shows the degree of consequence which attached to 
 this sort of possession. And the fact that it has so fre- 
 quently existed, while the contrary rule has never existed, 
 shows the general tendency npon the subject. 
 
 4. There seems to be in the human race a strong dispo- 
 sition 10 become the oiujiers of land, and a natural love for 
 the pursuit of agriculture. Men of all professions look 
 forward to some period of life, in which, relieved from the 
 toils of business, they may retire to the quiet country. 
 To whatever extent this disposition exists, it of course tends 
 to raise the price of land above that of other property, 
 paying the same rate of profit. If a man receive a part of 
 his remuneration in pleasure, he will be content to receive 
 less in the form of money. 
 
 5. The natural progress of society tends to increase the 
 value of landed property. This has been already illustrated 
 in general, in the remarks which have been made upon 
 rent. And it must be evident that, land remaining the 
 same, and the population continually increasing, the de- 
 mand for land must continually increase. And, besides 
 this, the progress of society creates not only a more exten- 
 sive demand for land, but a much greater variety of de- 
 mands. As such is the tendency, men are willing to hold 
 land at a less interest than other property, in the hope 
 that the rise of price at some future time, will compensate 
 for their present loss. Thus men frequently invest money 
 in wild lands, expecting to reap no profit from them for 
 many years, but calculating upon a rise of price at some 
 time o^ other, which shall abundantly repay both princi- 
 pal and interest. 
 
 Property in land cannot be run away with, nor destroyed 
 nor fraudulently disposed of. . Meantime, while society is 
 advancing, its bottom-value steadily increases. In cases 
 
214 DISTRIBUTIOK^. 
 
 Dot a ItiW, we have seen a small capital, in this way grow 
 into a fortune. For this reason, an owner of city-lots is 
 willing for a very moderate ground-rent, to grant others 
 the privilege of building on his land, since he runs no risk 
 and has the benefit of increased value at the end of the 
 lease. The only drawback is in the hability to excessive 
 taxation by corrupt ^^rings" in city-governments. 
 
CHAPTER XVI. 
 
 INTEREST. 
 
 Interest is the compensation paid for the use of money 
 borrowed. The most convenient form of capital to be 
 loaned, for both lender and borrower, is money. Loans 
 are therefore most commonly made in money. Interest is 
 always reckoned at a certain per cent of a defined sum of 
 money, which is called the /?ri/iCi}jaZ. The percentage 
 agreed on is called the rate, and is usually stated as the 
 rate per annum, though often payable at shorter intervals 
 than a year. In cases where other kinds of property are 
 transferred, while payment is deferred, an estimate is com- 
 monly made of the value in money, and interest is charged 
 accordingly on the deferred payment, at the current rate. 
 When credit is extended in any way beyond a limited 
 time, the value involved is set down in terms of money, 
 and interest on the debt is reckoned at some rate agreed 
 on by the parties. Thus one may buy land for a site, and 
 have a building erected on it, and purchase a steam-engine 
 and machinery for a mill, and cotton to be worked up in 
 the mill, and at each step give his note, for a part of the 
 value, to be paid at a certain date, with interest. Or, in- 
 stead of doing this, he may borrow of a friend the money 
 which will meet his deficiency, giving his note for the 
 whole on interest ; and then set up his establishment com- 
 plete by purchases made for cash. The transactions are 
 essentially the same. The land, the mill, the engine and 
 the cotton are what he wants, and what he actually bor- 
 rows and uses as a part of the capital of his business. In 
 
216 DISTRIBUTION. 
 
 one way or the other he becomes owner of the property^ 
 but debtor to some party for its value, and since it is con- 
 templated that the debt will be paid in money, it is essen- 
 tially the same as if the credit were given in the form of 
 a money-loan. 
 
 Hence, interest is commonly called the price for money, 
 b: is evident, however, that it is not the money, but the 
 capital which is wanted ; because as soon as the man 
 obtains the money he at once exchanges it for cajntal. 
 This, therefore should always be borne in mind, that when 
 we speak of the price of money, we mean the price of 
 capital, which the money represents and for which it is 
 always exchanged. It is evident that the laborer may 
 derive very great benefit from the loan of money, that is, 
 of capital. He is thus enabled to employ advantageously 
 all his skill : and thus a loan for a few years is very fre- 
 quently the commencement of a fortune. Hence we see 
 how very absurd is the prejudice so commonly excited 
 against money-lenders and money-lending institutions. 
 Were there no money-lenders, there could be no money- 
 borrowers ; and were therfi no money- borrowers, the indus- 
 trious artisan would surely be the greatest sufferer. It is 
 not denied that the money-lender loans for his own advan- 
 tage. But is it any more odious for one man to lend for 
 his own advantage, than for another man to borrow for his 
 own advantage ? It is not pleaded that the one, any more 
 than the other, is benevolent. This is quite another ques- 
 tion. All that is pleaded is, that both, in so far as the 
 things themselves are concerned, are equally honest and 
 honorable. In both cases the man benefits himself while 
 he benefits others ; and this is all that can be said in favor 
 of any other exchange. It is not of course denied, that 
 the lender may be oppressive, tyrannical and avaricious ; 
 nor that the borrower may be fraudulent, indolent, and prof- 
 ligate. But this does not affect the nature of the transac- 
 
INTEREST. 217 
 
 tion per se. We here speak of the thing itself, aud not of 
 the manner in which either party may act, in consequence 
 of or in connection with it. 
 
 The term " mteresf is a Latin verb in the impersonal 
 form, and means it is of advantage. Recognizing the nat- 
 ural and necessary partnership of capital and labor in pro- 
 ]acino" wealth, the term implies always a mutual advan- 
 tage to borrower and lender. This interest, or nuitual 
 advantage marks the prime difference between a loan and 
 a gift. It is therefore, altogether equitable that capital 
 loaned, should be paid for. Interest is no extortion, and 
 no unreasonable demand. It is for the advantage of the 
 skilful laborer to borrow at a reasonable interest, as much 
 as it is for the advantage of the capitalist to loan ; and it 
 is as much for the advantage of the laborer as the capital-, 
 ist, to enter into that partnership, by which they share the 
 profits of the operation between them. It is by reason of 
 this partnership, that the laborer receives the wages of 
 skill, instead of the wages of mere physical force ; and the 
 ■ capitalist is able to employ all his capital in production, 
 instead of employing only that portion of it which he could 
 employ with simply his own personal industry and skill. 
 
 When money is borrowed to provide for the immediate 
 support of an individual or a family, or for some present 
 gratification, the property which it represents is consumed 
 at once without returns of added wealth ; but the loan is 
 made in some anticipation of means to be realized from 
 labor or other sources at a future day, and the considera- 
 tion is even then, a supposed advantage to the borrower as 
 well as to the lender. 
 
 Loans made to an extravagant spendthrift who has 
 property, simply anticipate the avails of that property, tc 
 bo sold at a futurt' day. On tlie side of the borrower, 
 present indulgence is the only advantage ; if there is no 
 property to secure the loan, it is to the lender, all the same 
 10 
 
218 DISTIUBUTION. 
 
 as money thrown away. When a loan is asked to relieve 
 the immediate needs of one reduced to poverty, the appeal 
 is to one's be7ievolence rather than to his interest. If tlie 
 favor is granted, though for form's sake or to relieve the 
 sensitive feelings of the applicant, a promise to pay with 
 interest may be accepted, it is really an act jf charity y and 
 may as well be so accounted. 
 
 The leading Considerations "which determine 
 the Rate of interest, are four, viz., lUsk^ Convenience 
 of Investment, Productiveness of Capital^ and the Ratio 
 between Sujjply and Demand of Capital . 
 
 1. Risk. A loan is made on the promise of future pay- 
 ment. There is always a risk that the promise may fail. 
 The rate of interest must be adjusted to the degree of the 
 risk. He who would loan to one man at six per cent when 
 he was sure of being repaid, surely would not loan to 
 another man at the same rate, when there were fifty chan- 
 ces in a hundred that he would lose both principal and 
 interest. At any rate he who did so, would very soon cease 
 loaning altogether. 
 
 This risk depends upon several circumstances. 
 
 a. There is a difference in risk, arising from the differ- 
 ent modes of employing capital. For instance, property at 
 sea is more liable to destruction than property ^n land. 
 Hence, the ancient Athenians made a diffei-ence between 
 land and marine interest. The former was at twelve, and 
 the latter as high as sixty per cent per annum. Pro])erty 
 in merchandise is more liable to be destroyed, than prop- 
 erty in houses ; property in houses than property in farms, 
 A house in the country is safer than a house in town : 
 and a stone house is safer than a wooden house. Property 
 employed in the manufacture of cotton, is less liable to be 
 destroyed than property employed in the manufacture of 
 
INTEREST AFFECTED BY RISK. 219 
 
 gunpowder. Now when a capitalist makes a loan to be 
 invested in some one of the above forms of capital, and his 
 only security for payment consists in his hold upon the 
 property in which it is invested, it is evident that hia 
 riskj other things being equal, will depend upon the safety 
 of that property. Hence, it is reasonable that his remun- 
 eration for risk should correspond with the greatness of 
 that risk. 
 
 h. The second circumstance which enters into risk, is 
 the personal character of the horroiuer. This is made up 
 of industry, skill, knowledge of business, pecuniary ability, 
 and moral character. When these have not been tested, 
 or where, having been tested, they have been found insuffi- 
 cient to the safe conduct of business, there will be a corre- 
 sponding indisposition to loan to a man of such character, 
 because every one feels that there is in this case, more than 
 usual risk. Hence, such a person cannot borrow, unless 
 at an advanced premium, or at a higher rate of interest. 
 On the contrary, if a man has conducted an extensive busi- 
 ness for a long period with undeviating success, he attains 
 to a high mercantile credit, and is enabled to borrow 
 money at the lowest rates. But if a merchant is known 
 to be frequently embarrassed, if he has ever, especially more 
 than once failed, mercantile confidence in him is destroyed. 
 No one will lend him, except on the most unfavorable 
 terms. 
 
 These two causes of variation of risk are apparently 
 modified by the practice of endorsing private notes. If I 
 want money for the most hazardous investment, or am of 
 bhe most doubtful credit, if I can offer my note endorsed 
 by persons of established mercantile character, it is raised 
 at once to par ; that is, the extra risk is immediately 
 removed. But thi.s modification is only apparent. The 
 endorser will rarely do this for nothing. He either him- 
 self receives a premium for it directly ; that is, he is paid 
 
320 DISTRIBU'J'iOIf. 
 
 for taking the risk of default of payment ; or else two per* 
 sons mutually endorse lor each other, and thus, the risk 
 which A assumes for B, is paid for by B's assuming a 
 similar risk for A. It is singular that any one should ever 
 ask another to endorse his note merely as a matter of 
 comity. It should always be a matter of business, and be 
 paid for like any other business transaction. A merchant 
 should no more ask another to endorse his note gratui- 
 tously, than he should ask him to insure his house gratui- 
 tously. The nature of the transaction is precisely the 
 same. The risk in the one case, is frequently as great as 
 in the other, and it should always, as much in the one case 
 as in the other, be a matter of compensation. 
 
 c. The risk incurred in lending capital, is affected hy 
 the cliaracter of the Government. This affects both private 
 and public contracts. 
 
 If justice is well administered, and every man has 
 all reasonable security that he will have the whole power 
 of the society at his disposal, in order to enforce a just 
 contract, of course the risk is less, and the rate of interest 
 lower, than when experience has shown that no such 
 security exists. Hence, we see the economy of good legis- 
 lation, and of a wise, just, and incorruptible judiciary. 
 The additional interest on capital, incurred in consequence 
 of the bad administration of justice in a country, would 
 annually pay the expenses of all the courts of law, ten 
 times over. 
 
 The same results flow from confidence, or the want of 
 confidence in the staMlity of a government. A revolution 
 not unfrequently dissolves contracts, dissipates security, 
 and renders obligations valueless, both by destroying the 
 evidence of their existence, and annihilating the means of 
 enforcing them. Hence, when such an event is feared, 
 men will not loan, except at an exorbitant premium ; and 
 they generally prefer removing their property to some 
 
COKVENIEJS^CE 0-F INVEtiTME^T. 221 
 
 other country, to subjecting it, for any premium whatever, 
 to the risks of a revolution. 
 
 The same may be said of 'public contracts. Govern- 
 ments, in whose stability and good faith undoubted confi* 
 dence is reposed, borrow the most enormous sums at the 
 lowest rates of interest. Those which are in daily danger 
 of being overthrown, can scarcely borrow at all, or, if they 
 do borrow, it is at the most ruinous premium. The South 
 American governments can scarcely borrow at any interest. 
 Great Britain, notwithstanding her present enormous debt, 
 borrows at three or four per cent to any amount she 
 pleases. Nay, so great is the public confidence in her per- 
 manency and integrity, that probably there is scarcely a 
 civilized nation on earth, which does not at present own 
 some share of her national debt. The greater the civil 
 commotions of other countries, the more easily can she 
 borrow, because capitalists naturally invest their property 
 where they are confident of its security, and confident that 
 -its interest will under all circumstances, be regularly paid. 
 
 2. The rate of interest is varied by the Convenience of 
 the investment. The convenience of an investment depends 
 upon several circumstances. 
 
 a. Facility of transfer. When a man loans capital, 
 he is of course ignorant of the future, and does not know 
 how much he may need it at some subsequent time. If he 
 loan at six per cent for two years, he may in six months 
 find some investment in which it would yield him eight 
 per cent, but having loaned it for two years he cannot now 
 withdraw it. Hence, it is a great advantage if it can be 
 60 invested that he may without loss, recall it at any 
 moment. 
 
 h. Permanency of investment. If a man does not wish 
 to withdraw a loan, it is an advantage to him to have it 
 continue for a long period, because he is thus saved the 
 
232 DISTRIBUTION^. 
 
 loss of iiitei-est which would occur during the time of trans- 
 fer, and the trouble and inconvenience of finding another 
 borrower. This is of special benefit to widows, orphans, 
 persons retired from business, and all those persons who 
 wish not to labor with their own capital themselves, but 
 only to live upon the interest of it. 
 
 c. Punctuality in the payment of interest. It is a 
 great convenience to those who invest capital to be able to 
 calculate with certainty on the payment of interest. They 
 can thus with ease, adjust their expenses, both to the 
 amount of their income, and to the time of their receipt 
 of it. If they wish to re-invest the interest, they can 
 make their arrangements with certainty, and thus in- 
 vest it with the greatest advantage. They are also 
 saved the trouble of looking after their debtors, and 
 they avoid the inconvenience of that j^ersonal alterca- 
 tion, which is liable to arise respecting pecuniary trans- 
 actions. 
 
 When any form of investment combines these advan- 
 tages, men are found to prefer it to one which is destitute 
 of them, and they will loan their money on these terms at 
 a lower rate of interest than on any other. Debts in this 
 form are said to hQ funded, and the creditors are said to 
 hold stoch. Public debts are generally thus arranged. The 
 various companies formed for banking purposes, and pur- 
 poses of internal improvement, are constructed on the same 
 principles. Every one who contributes a certain amount 
 ' toward the capital of such a company, receives a certifi- 
 cate that he owns such a share of that capital. He is en- 
 titled to his portion of the profits at stated times. He 
 may I'etain this certificate himself as long as he pleases, oi 
 he m;iy sell it at any moment, to any purchaser who may 
 want it. Hence, money may always be borrowed under 
 these circumstances, at the lowest rates. 
 
INTEREST AFFECTED BY FKOFIT OF CAPITAL. 223 
 
 3. The rate of interest is affected by the Productiveness 
 uf Capitah 
 
 Wlien the risk is the same, we find interest higher in 
 some countries than in others, and higher in the same coun- 
 My at one time than at another. Thus, when the security 
 is equally good, interest is higher in this country than in 
 Great Britain, and in this country it is higher in the new 
 than in the older states. And, we also find that it is lower 
 now in Great Britain than formerly, and that it generally 
 becomes less as a community grows older. Much of this 
 difference depends on the average Profit of Capital. The 
 profit of capital is that annual value which it yields to the 
 possessor, after he has deducted the principal, and paid 
 the expenses incident to his actual operation. Thus, if by 
 the use of one thousand dollars a year, I am, after re- 
 placing the principal and all the cost of my operation, one 
 hundred dollars richer, this one hundred dollars is the 
 profit of my capital. Now, the greater this is at any time, 
 the greater will be the sum which I shall be willing to pay 
 for the use of one thousand dollars. If by the use of capi- 
 tal, I can, after paying all expenses, realize twenty per 
 cent, I can afford to pay more for the use of it, than if, 
 after paying all expenses, I could realize only five per cent. 
 
 We may specify a few of the causes on which the dif- 
 ference of profit of capital depends. 
 
 a. Fertility of Land. He who wished to borrow 
 money to invest in agriculture, could afford to pay higher 
 interest when the land produced fifty bushels to the acre, 
 than when it produced only twenty-five bushels to the acre, 
 provided he could procure the land for the same purchase 
 money. 
 
 h. Pmdnctivefiess of Industry. The use of natural 
 agents adds greatly to the value annually produced from a 
 given amount of capital. This will tend to raise the price 
 of capital, since a man will give more for money to in- 
 
234 DISTRIBUTION. 
 
 vest in a macliinG which will produce one thousand dollars 
 a year, than in one which will produce only five hundred 
 dollars. It is true that the influx of capital will tend to ' 
 bring any one branch of industry in process of time to the 
 general level. But that progressive increase of productive- 
 ness, which belongs to the progress of civilization, tends 
 to keep up the price of capital, which would otherwise fall 
 unreasonably low. 
 
 c. The Demand for Exchange. The greater the demand 
 for exchange, the more profitable must be that capital 
 which is invested in exchange. In a town where mercan- 
 tile business is brisk, and a man can sell all his stock at a 
 good profit two or three times in the course of a year, 
 money will bear a higher interest than in a town where 
 exchanges are slow, and he must keep his goods on hand 
 for a year or more. 
 
 4. The rate of interest is especially affected by the 
 Ratio hetiueen Suj^ply and Demand of Capital. This pro- 
 duces the same effect upon the rate of interest as upon 
 everything else. Whatever be the profit of capital, if the 
 supply be very small, the price will rise in proportion, 
 since he who, by employing it at a high price can make a 
 small profit, will rather so employ it, than, by doing with- 
 out it, make no profit at all. Thus if, by the use of one 
 thousand dollars for a year, I could realize three hundred 
 dollars, I might be willing to pay two hundred for the use 
 of it, rather than not to have it ; for in the latter case I 
 should gain nothing. If then, there were but little capital 
 in the market, and many persons were as willing to give this 
 rate of interest as myself, I should be obliged to give it. 
 But if on the contrary, there were many persons desirous 
 of lending, and there was much capital in the market, and 
 T were the only person who would be willing to give thi? 
 interest, thev would underbid each other, and I should bt' 
 
lirtBRESt IN- A JTEW C0UJ!^TRY. 225 
 
 able to procure it of him who would loan it to me at the 
 lowest rate. I might then be able to borrow it for one 
 hundred and fifty, one hundred, or even sixty dollars pei 
 annum. 
 
 In a new and prosperous country, interest is always 
 high. This results from several reasons affecting the ratic 
 of Supply and Demand. 
 
 1. Land is very cheap, and at first is all of very nearlj 
 the same market price. In many cases it can be had for 
 almost nothing. 
 
 2. Land is very fertile. The produce of a soil when 
 new is generally greater than ever afterwards. 
 
 3. The soil, not at first needing manure, requires but 
 small investments of capital, and these are very richly repaid. 
 
 4. The inhabitants of a new country can carry with 
 them but few of the conveniences of life. These must be 
 purchased after they arrive there, and must either be made 
 on the spot, or be imported. Neither of these can be done 
 without capital. And as the demand for these conve- 
 niences is imperative, and as the income of land is abun- 
 dant, the settlers are willing to pay a high price for them. 
 Hence, the profit both of mechanical and of commercial 
 labor is very great, and the price which is paid for capi- 
 tal is very high. 
 
 5. The inhabitants of a new country have generally 
 very numerous exchanges with the aborigines. Such ex- 
 changes are exceedingly profitable. But these cannot be 
 carried on without capital. These facts all tend to create 
 a great demand for capital. 
 
 On the contrary, the supply of capital in a new coun- 
 try is generally small, because emigrants are by no means 
 tlie most wealthy classes of a community. Those who are 
 living in peace and prosperity at home, are not generally 
 the most willing to brave the perils and hardships of the 
 wilderness. 
 
 10* 
 
220 DISTRIBUTIOiT. 
 
 Furthermore, those who are not inclined to expose 
 tlieir persons to the hardships of a neAV country, are not 
 inclined to send their capital where they are not present 
 to watch over it themselves. Hence, it is difficult for a 
 wliile, for a new people to horrow, and they can overcome 
 tliis difficulty only by the payment of a high interest. 
 
 These are the causes of the high rate of interest in new 
 countries on the borders of civilization, and generally, 
 wherever savage and civilized nations intermingle. 
 
 As a country becomes settled, however, these causes 
 begin to operate less powerfully and thus the rate of in- 
 terest gradually diminishes. 
 
 1. The annual produce of the earth is, year after year, 
 changed into fixed capital, and thus the demand for capi- 
 tal is met in part by a home supply. 
 
 2. The fertility of the soil diminishes, so that it is ne- 
 cessary to pay less interest. 
 
 3. Land is sold at different prices, according to its fer- 
 tility, and as it rises in price, the degree of profit to the 
 purchaser is diminished. 
 
 4. The wants of the natives are supplied, and hence, 
 one source of gain is dried up. 
 
 5. A more perfect knowledge of the country, and more 
 perfect confidence in its prosperity, diminish the unwil- 
 lingness of persons in older countries to loan, and hence, 
 capital from abroad may be procured with greater facility. 
 
 The gradual operation of these causes must tend to 
 reduce the rate of interest in different countries to the 
 same average. Yet there are always in each country or 
 section of country, peculiar circumstances which fix for a 
 period, longer or shorter, what Mr. Fawcett calls ''some 
 point of steady eqicilihrkim about which the current rate 
 of interest in that countij, oscillates." Thus in England, 
 for many years, the average rate has been about three and 
 a quarter per cent, in Holland it stands as low as two per 
 
INTEREST AFFECTED BY FREEDOM OF CAPITAL. 227 
 
 cent, in New England and New York it is six or seven 
 per cent, in Wisconsin and Illinois it long stood at ton 
 per cent, but is now evidently declining. 
 
 The constant tendency of civilization, is to the reduc- 
 tion of the rate of interest, because wealth increases rapidly, 
 and risk is diminished by more perfect securities. As 
 capital becomes more abundant, in proportion to the uses 
 that are to be made of it, it commands a less price, that 
 is, a man can gain less than formerly with a capital of one 
 thousand dollars, and hence, he is willing to pay a less 
 interest for it. But it is also to be remembered that a 
 much larger proportion of men are worth one thousand 
 dollars than formerly, and that for one that was worth one 
 thousand dollars fifty years ago, there are fifteen or twenty 
 who are worth ten thousand dollars now ; that is, men 
 with the same labor are able to secure as many or more 
 comforts than formerly, but they are obliged to do it by 
 the use of a larger amount of capital. They are obliged 
 to labor with a larger capital, but that large amount is as 
 easily procured as a less amount was formerly. The com- 
 plaint so frequently heard of the increasing difiiculty of 
 accumulating property, is really unfounded ; and taking 
 the difficulty or ease of procuring capital into the account, 
 the more advanced periods of society are as favorable as 
 any to the industrious classes. 
 
 The hest adjustment of supply and demand depends on 
 the freedom of capital. By freedom of capital, is meant 
 the unfettered liberty of the individual to employ his capi- 
 tal in any innocent way that he pleases. When this lib- 
 erty is enjoyed, every one chooses that way in which he 
 supposes that he shall be most successful. The larger the 
 profit he realizes, the larger will be the interest which he 
 will be willing to pay. When he is obliged to withhold it 
 from a mode of investment which he prefers, and to em- 
 ploy it in one which he does not prefer, he must divert it 
 
2^8 DISTRlBUTIOir. 
 
 from a more to a less profitable mode of investment. 
 Hence, as he is obliged to employ it in a less profitable 
 instead of a more profitable investment, he can afford to 
 pay less interest, and the price of interest, by the effect 
 of this interference, must fall. Such must be the effect of 
 all monopolies, and of all means by which the acuvc 
 power of capital is diminished. 
 
 What has been said brings us to the following general 
 conclusions : 
 
 1. That, other things 'being equal, interest loill he high 
 when the risk is great, and low, lohen the risk is small. 
 
 2. That interest will he high, ivhen the profit of capital 
 is great, and low, when the profit of capital is small. 
 
 3. That both of these affect each other tvithin certain 
 limits; that is, tohen profit is great, if the risk be also 
 great, interest will be very high, because the increase of risk 
 diminishes the supply. 
 
 4. But when profit is lotv and the risk is great, there 
 loill be no loaning ivhatever, because ivhat is paid for risk, 
 will be more than can be gained by use, and men could not 
 profit by borroiuing. 
 
 The rate of interest will be always affected by every 
 circumstance which affects either risk or profit of capital. 
 War, or the rumor of war, by increasing the risk, raises 
 the rate of interest in property affected by it. In prop- 
 erty not affected by it, the same cause depresses the rate 
 of interest, because it diminishes the means and oppor- 
 tunity for production, and of course diminishes the profit 
 of capital. On the other hand, the discovery of any new 
 mode of profitably employing capital, raises the rate of 
 interest by creating an increased demand for capital. 
 
 The rate of interest at any particular thne or place, is 
 not of itself an indication of the prosperity or of the de- 
 cline of a country. The indication is to be sought for, not 
 
IKTBEBSST AS AN INDEX OF PROSPERITY. 2^0 
 
 in the rate of interest, bnt in the cmise hy which that rate 
 is affected. 
 
 1. Whenever the rate of interest is raised by increase of 
 risk, this is an indication of adversity. Rise of interest 
 from such a source benefits no one. It is of no service to 
 the lender, because he derives no profit from that part of 
 the premium which insures him against loss. It is as prof- 
 itable for him to loan for five per cent without risk, as to 
 loan for ten per cent, when five per cent is for risk, and 
 five per cent for use. It is an injury to the horroiuer, 
 because one hundred dollars are worth no more to him 
 when he pays five per cent for risk, than when he 
 pays nothing for it. Whatever therefore, is paid for risk, 
 is always a loss to both parties, and the more there ia 
 thus paid, the worse it is for both. Hence, the rise of in- 
 terest caused by bad government, civil commotion, revo- 
 lutions, wars and general immorality, is always an indica- 
 tion of national decline, and the fall of interest produced 
 by the contrary causes, is an indication of national pros- 
 perity. 
 
 2. On the other hand the temporary rise of interest 
 caused by increased prod^ictiveness and the development of 
 new national resources, is an indication of national pros- 
 perity. It shows that more than ordinary valuable modes 
 of employing capital tiave been discovered, and that men 
 can afford to pay a larger price for the use of capital. 
 This is however a temporary rise, because a rise from such 
 a cause will soon equalize itself. Increased productiveness 
 will soon supply capital, or it will be imported from less 
 favored countries. Thus, in new countries the rate of in- 
 terest is high, but this is by no means an indication of ad- 
 versity, for such countries, while paying so high a rate for 
 capital, yet grow rich faster than those from which they 
 borrow. 
 
 i. The gradual fall of the rate of interest caused bj 
 
^30 blSTRiButiOK. 
 
 the diminution of rislc, and the greater abundance of capi- 
 tal, is an evidence of prosperity. It shows that a larger 
 proportion of the means of subsistence is falling to the 
 share of every individual ; that every man can more easily 
 procure capital ; and. tha,t every man in order to support 
 himself, produces a larger amount than formerly, of what- 
 ever will contribute to the comfort and convenience of his 
 neighbor. 
 
 4. On the other hand, the fall of the rate of interest, 
 caused by a stispensio7i of the means of production, is an 
 evidence of national adversity. Suppose a war to occur 
 between this country and France. The capital now em- 
 ployed in transportation, must be almost wholly unproduc- 
 tive. The capital employed in producing our exports to 
 that country, must also be useless. Hence, the rate of 
 interest would fall ; for many men would have no business 
 in which to employ their capital. The case would be the 
 same, were a fall in the price of capital to proceed from 
 civil commotion, or any similar cause. And the adversity 
 would remain until the cause were removed. For if capi- 
 tal were removed out of the country until, from reduction 
 in the supply, the rate of interest rose, the industry of the 
 country would still be depressed, until, by peace, order and 
 good government, it regained its natural advantages. In 
 case of war, the production of articles used in war is greatly 
 stimulated, and business generally is for a time quickened 
 to unwonted activity. But soon after peace is restored, 
 there comes a reaction when the normal and adverse effect 
 of the disturbance appears. 
 
 Hence, we see that in order to form any correct opin- 
 ion respecting the condition of the country from the pres- 
 ent rate of interest, we must always seek for the causes of 
 that rate, instead of deciding from the mere rate itself. 
 
 Usury Laws. — In former times, when money was 
 
USURY LAWS. 231 
 
 borrowed chiefly to be spent in immediate consumption, 
 to take interest seemed to imply taking advantage of men's 
 necessities, and the business of money-lending came intc 
 bad repute. The ban of society was upon those who en- 
 gaged in it, and they were driven to demand exorbitant 
 rates as an offset to the odium under which they lived. 
 This prompted the enactment of laws to restrict and regu- 
 late interest, which were commonly called usury-laws. 
 
 The old Koman laws against insolvent debtors were ex- 
 tremely severe. To escape their penalty, men consented 
 to pay what the lenders were disposed to exact, exorbitant 
 interest. There was therefore a kind of necessity that the 
 borrower should be protected by laws limiting the rate of 
 interest that might be demanded. 
 
 In the middle ages, restriction rather than freedom was 
 the rule in all departments and in all relations of productive 
 industry. Interest therefore, like everything else, was 
 subjected to limitation by law. 
 
 At the present day, the necessary cooperation of labor 
 and capital in the development of trade, is better understood. 
 The advantage to borrower as well as lender, of loans made 
 to be employed in active, profitable business is also appar- 
 ent to all, yet the old prejudice still lingers and perpetuates 
 in the statute-books of most states, usury-laws. The spe- 
 cific object of such laws is to define a certaiii rate as the 
 higJiest rate of interest permissible. Such laws are in 
 direct conflict with the first principles of sound political 
 economy, as several considerations clearly show. 
 
 1. They violate the right of property. A man has the 
 same right to the market price of his capital in money, a.s 
 he has to the market price of his house, his horse, his ship, 
 or any other of his possessions. 
 
 2. The real price of capital cannot lie fixed hy laiv, any 
 more than the real price of flour, or iron, or any othei 
 commodity. There is, therefore, no more reason for as- 
 
232 DisTRiButioir. 
 
 signing to it a fixed value, than there is for assigning a 
 6xed value to any other commodity. 
 
 3. The price of capital or money is really more variable 
 than that of any other commodity. Most other commodi- 
 ties have but one source of variation, namely, use ov profit. 
 But capital in the form of money is hable to two sources 
 of variation, rislc and use. These vary at different times, 
 in different investments, and with different individuals. 
 There is, therefore, less reason why the price of money 
 should be fixed by law, than why the price of anything 
 
 ■ else should be so fixed. 
 
 4. These laius, instead of preventing, give rise to great 
 and disastrous fiuctuations in the price of money. 
 
 Suppose that to-day, money is worth in the ordinary 
 operations of business, ten per cent, and it is worth six per 
 3ent in loan. A man will as soon loan as employ it in 
 business, if he possesses more than he wishes to use. 
 There will then be a fair supply of money in the market. 
 But let the profits of capital rise, so that, in the ordinary 
 operations of business, capital is worth twenty per cent. 
 If now the rate of interest rose with this increased rate of 
 profit, the same individuals would be as willing to loan as 
 before, and thus, the supply following the demand, there 
 would arise no peculiar scarcity. The high rate of inter- 
 est would also attract capital from abroad, and thus in a 
 very short time, it would in this particular place, be 
 brought to the general level. 
 
 But suppose that six per cent were the highest legal 
 rate of interest, and that he who loaned at a higher rate, 
 was liable to lose both his principal and interest, and also 
 his mercantile character. In this case, as soon as the 
 profit of capital in business rose to fifteen or twenty pej 
 cent, no one who could thus employ it, would loan it at 
 six per cent. Hence, the supply would be immediately 
 diminished ; and this would of course, cause a greater r?«e 
 
USURY LAWS. 233 
 
 of interest. Those who from honor or conscience obeyed 
 the laws, would withdraw from the market, and employ 
 their capital in some other way, and no one would loan 
 bat those who were willing to risk the consequences of 
 detection. These, having the money market in their own 
 hands, will of course charge for the use and for the risk of 
 detection, and hence, the price in a few days may become 
 doubled or trebled. At the same time, although the real 
 value of money may be fifteen or twenty per cent, yet be- 
 cause the legal price is six per cent, there is no inducement 
 for capital to come in from abroad, to supply the demand. 
 Hence, the change in the money market has, by reason of 
 this law, no tendency whatever to regulate itself. 
 
 5. Such laius can never he enforced. Men in want of 
 money will pay what they please for it, and those who 
 choose to pay enough for it can generally borrow. The 
 effect then of the usury laws is merely to drive the best and 
 most conscientious lenders out of the market, or else oblige 
 them to lend by means of subordinate and less scrupulous 
 agents. For this agency the borrower must pay, and hence 
 the additional rate of interest. To this it is objected that 
 money is not like other things, inasmuch as it is a neces- 
 sary of life to the merchant, and therefore society must 
 step in to deliver him from the effects of extortion. We 
 may answer : 
 
 1. It is manifest that this interference does not render 
 the merchant's condition the better, but rather the worse. 
 Though the assistance, therefore, be well intended, he may 
 very well dispense with it. 
 
 2. The greater the necessity for money, the more 
 urgent is the necessity of leaving it undisturbed by legisla- 
 tive interference. It makes small difference to the com- 
 munity whether the price of jewelry be fixed by law or not. 
 But suppose that when flour would bring ten dollars a 
 barrel, the government forbade it to be sold for more than 
 
234 DiSTRlBUTIOK. 
 
 seven dollars. Who does not see that the flonr would be 
 all driven away and the people starved ? The same prin- 
 ciple applies to the rate of interest. In all active commer- 
 cial centres, this is now understood and acknowledged. 
 The old prejudice is most cherished among the farmers. 
 
 Every state should have a simple enactment of law ae- 
 fining a legal rate of interest applicable to cases where the 
 contract indicates no specific rate, or where, without formal 
 contract, a debt has been incurred and interest is due. 
 Such a law tends to prevent disputes and is of advantage 
 to both parties. Legislation which attempts to go beyond 
 this is wrong and mischievous. 
 
 Usury-laws offer a premium for the defiance of law, and 
 confer a monopoly on unscrupulous extortioners. The 
 reasons urged for their enactment apply to all other 
 things with equal force, and would require the prices of 
 all commodities to be arbitrarily fixed by law, and this 
 would be as absurd as to try by legislation to regulate the 
 tides of the ocean. Legal sanction and security for all 
 reasonable contracts in loaning capital, encourage free 
 competition and constitute the surest safeguard against 
 excessive interest. The abrogation of usury-laws in Great 
 Britain and in Massachusetts and other American states. 
 may be welcomed as first steps in a reform, destined, v/e 
 hope, soon to be universal. 
 
 Dividends. TJiis term is used to denote the remune- 
 ration of capital invested in 8toch-co7npanies. This form 
 of compensation for the use of capital is marked by some 
 peculiarities which deserve a special notice. 
 
 Stock-companies are designed to unite contributions of 
 capital from a number of persons, for business operations 
 on a scale too large for the means of an individual capital- 
 ist. Such organizations are formed chiefly for manufac- 
 turing in large establishments, for banking, for insurance. 
 
DIVIDENDS. 33t 
 
 for the construction and management of railways, canals, 
 and the telegraph, for express transportation, for working 
 mines and for extended navigation. In forming a company, 
 the enterprise is projected, an estimate is made of the 
 umonnt of capital required, and this is divided into equal por- 
 tions called shares, which are offered more or less freely to 
 the public. Most commonly the shares are one hundred 
 dollars each. Whoever purchases one or more shares 
 receives for his money a certificate of ownership which 
 constitutes him a member of the company, entitled to a 
 vote in the election of directors and to a participation in 
 the proceeds of the business, in proportion to the number 
 of shares standing in his name. These shares are trans- 
 ferable under certain regulations of each company and can 
 be sold, like any other property, at their market-value. 
 The owner for the time being is the stock-holder and rec- 
 ognized member of the company. Ordinarily, a board of 
 directors is annually elected by the stock-holders, and the 
 oversight of the business is entrusted to them. They ap- 
 point a manager and other salaried officers, who attend to 
 details and are accountable to the directors. 
 
 Quarterly or semi-annually, the accounts are balanced, 
 an inventory is made and the profits of the business, after 
 providing for all expenses, are ascertained. On the basis 
 of that showing, dividends are declared, setting down a cer- 
 tain percentage to each share of the stock. In all well- 
 managed companies, before the declaration of dividends, 
 there is set aside from the profits a small reserve to meet 
 emergencies. This reserve accumulates from year to year, 
 adding steadily to the real value of the stock. Sometimes 
 this reserve or a portion of it, is divided among the stock- 
 liolders by an extra cash dividend. Sometimes it is ap- 
 ))ropriated to the purchase of new buildings and new 
 machinery for the expansion of the business. In this case, 
 these outlays are regarded as increasing the capital and a 
 
236 DISTRIBUTION. 
 
 stock- dividend is made, that is, each share-holder receivee 
 au addition to his stock proportioned to the number of hig 
 shares. Thenceforward, the profits are divided pro rata, 
 to the whole amount of stock thus increased. 
 
 For illustration of the whole matter, suppose A. B. took 
 fifty shares of the stock of the Pacific Mills Manufacturing 
 Company, on which he has received returns- for ten years. 
 These shares represented five thousand dollars of capital 
 originally invested in this way. Eegular semi-annual cash 
 dividends of five per cent, that is ten per cent per annum, 
 have been made. Three years after the company was 
 formed, a stock-dividend of twenty per cent was declared, 
 and three years later another stock-dividend of the same 
 amount was made. The company has still a considerable 
 reserve in which every stock- holder has an interest. In 
 view of this reserve, the large profits, and the high char- 
 acter of the managers, this stock when offered for sale, 
 commands a premium of forty per cent, that is, for 
 every share of stock rated at one hundred dollars, purchas- 
 ers are willing to pay one hundred and forty dollars. On 
 these suppositions, A. B.'s remuneration for his capital for 
 ten years will stand thus : 
 
 Cash dividend on $5,000 at ten per cent for ten years, $5,000 
 
 1,000 " " " seven " 700 
 
 1,200 " " " four " 480 
 
 First stock-dividend, 80 per cent on original stock 1,000 
 
 Second " " 20 per cent" increased" 1,200 
 
 Premium of present market value, 40 per cent on $7,200 2,880 
 
 Total $11,260 
 
 This is equal to an average of nearly twenty-three per 
 cent for the whole period. All of this may be set down as 
 earned by the original capital tlius invested. Meantime 
 the ordinary rate of interest in New England where the 
 mill is situated, has been not more than seven per cent. 
 Simple interest on the original five thousand for ten years. 
 
would have amounted to three thousand five hundred. 
 The difference between this amount and the sum given 
 above is seven thousand seven hundred and sixty, which ia 
 therefore profits, the surplus over the ordinary remunera- 
 tion of capital. 
 
 We have thus brought to view the chief peculiarity of 
 this form of returns for capital. Properly considered, 
 Dividends include two elements, interest and profits. If 
 instead of buying stock, A. B. had loaned his money to 
 the manufacturing company, he would have received only 
 interest. But as an owner of stock, he becomes a direct 
 partner in the business, entitled to a share in the profits, 
 liable also to share in its losses. The case we have sup- 
 posed is a favorable one, yet by no means extraordinary. 
 It must be remembered however, that many investments 
 of this kind yield no dividends, or such as amount to less 
 than ordinary interest. In some cases, the capital is lost 
 entirely ; and in certain corporations, such as our national 
 banks, each stock-holder is by law, made liable not only to 
 lose his stock, but to pay an additional amount equal to 
 that of his stock, if necessary, toward liquidating the debts 
 of the company. There are besides, continual fluctuations 
 in the market-value of many stocks, caused by gambling 
 operations of brokers and adventurous speculators, — the 
 bulls and bears of Wall Street. Often, as seen in some 
 railway companies, the managers sacrifice the interests of 
 the corporation, for the sake of making a fortune for 
 themselves through fluctuations in the price of stocks, 
 caused by their own action, and of which they know best 
 how to take advantage. In other instances, as appears in 
 some insurance companies, the officers and managers, hold- 
 ng a majority of tlie shares, vote to themselves salaries 
 which use up a large portion of the profits. Frequent 
 frauds and defalcations also appear, through abuse of trusts 
 in managing business with funds belonging to a common 
 
238 DISTRIBUTIOIir. 
 
 stock. Men of highest character for integrity, have fallen 
 under the delusive snares, the temptations, subtle and 
 slj'ong, which beset these positions. And by wild and 
 utterly baseless schemes of fradulent organizations, many 
 simple ones are induced to embark their carefully saved 
 capital on an open sea, in paper boats, through which it 
 soon sinks to the bottom never to be recovered. Capital 
 invested in this form, is subject more or less to these risks. 
 The interests of the small stock-holder are in other hands 
 than his own, subject often to the will of men of cold mer- 
 ciless selfishness. A careful estimate of the results of such 
 investments, would probably show average returns much 
 less than ordinary interest. Yet, shrewd foresight in the 
 careful selection of stocks may secure a tolerable certainty 
 of dividends, which will yield, besides ordinary interest, a 
 considerable profit. The danger is always that, under an 
 illusion of the imagination excited by occasional singular 
 examples of success in these operations, the risks will be 
 overlooked, sanguine expectations will bo raised, and men 
 will find too late, to their loss and grief, how treacherous 
 are the seas to which capital in such investments is 
 exposed. 
 
CHAPTER XVII. 
 
 DISTRIBUTION OF PROFITS. 
 
 Profit is a term popularly used in a broad sense, tc 
 denote any benefit proceeding from any kind of exertion, 
 as we speak of the profit of study, of physical exercise, of 
 social intercourse, etc. As a technical term of political 
 economy representing the proceeds of industry, it is em- 
 ployed with too much looseness and ambiguity. Most 
 writers define profits to be " the remuneration paid for the 
 use of capital,'' making the term include interest and 
 something more. At the same time, they say that in esti- 
 mating the cost of any product, interest at the current 
 rate on the capital employed, should be reckoned in. Thus 
 gross proceeds are confused with net proceeds under the 
 same term. Mr. J. Stuart Mill says, " The three parts 
 into which profit may be considered as resolving itself, may 
 be described respectively as interest, insurance and wages 
 of superintendence.'' Mr. Amasa Walker makes the mat- 
 ter more definite at least, by representing profits as the 
 share which falls to the employer or manager, or to use 
 the convenient French term *' V entrepreneur," who effects 
 ^ union between capital and labor and directs their active 
 cooperation. This loose and varied use of an important 
 term is certainly not scientific. 
 
 It seems clearer and better to hold this word profits 
 strictly to mean the net proceeds, the surplus after the neces- 
 sary expenses of business have been deducted. A consistent 
 presentation of our science requires just this term and pre- 
 
240 DISTRIBUTION. 
 
 scribes for it this specific meaning. We have seen that the 
 main factors in the production of wealth are labor and 
 capital. We have seen that various kinds of labor are 
 necessary, as simple labor, skilled labor, and labor of over- 
 sight, superintendence and general management. We 
 have seen also that these different kinds of labor are com- 
 pensated by different methods and at different rates. 
 Those engaged in direct, operative labor constitute the 
 great majority of laborers and receive their remuneration 
 in wages j those who have the responsible charge of over- 
 sight and management are compensated by salaries, fixed 
 according to the estimated importance of their service ; 
 and the proper remuneration of capital is interest. All 
 these outlays are to be reckoned as ex^Jenses, and with 
 them are to be included the two other items, insurance, or 
 what is paid to guard against certain risks, and taxes paid 
 for protection by the government. Now, if the products 
 of an industrial establishment, after keeping the capital 
 good, provide for these expenses and nothing more, the 
 business is just sustaining itself, but it yields no profits. 
 In that case, since all parties get their legitimate compen- 
 sation, they may be satisfied to run on so for years. 
 Whatever is realized beyond this, is profit. If the pro- 
 ceeds come short of providing for these expenses, some of 
 the parties must suffer loss. 
 
 When the proceeds just cover the expenses named, 
 while the business as a whole yields no profit, each of the 
 several parties concerned may be earning for himself an 
 individual profit. The laborer, out of his wages at forty 
 dollars per month, may support himself on thirty-five, and 
 have for the year a profit of sixty dollars, deposited in the 
 savings-bank. The foreman from his salary of one thou- 
 iand dollars per year, may lay away in like manner, two 
 hundred as his profit. The manager, with his salary of 
 ten thousand dollars a year, may, if he chooses, spend all 
 
PftOPlTS. 241 
 
 in luxurious living, or by ii little self-denial, he may add 
 one half the amount, his profit, to his accumulating wealth. 
 And the capitalist receiving seven per cent on his fifty 
 thousand invested, may turn a portion, more or less, of 
 this interest to increase his capital and reckon so mucli as 
 his profit. In this "iew of the matter, each individual is 
 regarded with reference to the personal end for which lie 
 employs his labor or his means, that is, to secure a living, 
 and if possible, a surplus beyond. This use of the term is 
 not at Tariance with our technical definition. But in our 
 science, the word is more especially employed in its broader 
 application to the proceeds of industry in which capital 
 and labor are united. 
 
 The principle is the same when one combines in himself 
 the functions of operative, manager and capitalist ^ only in 
 such a case, wages, salary, interest and profits if there be 
 any, all come to him. Even then, the profits of his busi- 
 ness can be distinctly defined, only by setting down a por- 
 tion of the gross proceeds as wages for his labor, another 
 portion as rev/ard for management, another as interest for 
 his capital and something for taxes and insurance. The 
 net proceeds, after deducting these, would be the profits 
 of his business, and in this surplus, if anywhere, he will 
 find the main advantage of conducting an independent 
 business, instead of loaning his capital and engaging his 
 labor and skill in the service of others. 
 
 This rule is especially to be applied in all the complica- 
 ted arrangements of productive industry, where different 
 parties representing different interests are united. In all 
 these combinations, the great aim is to make a profit and to 
 make it as large as possible. It is evident that profits can 
 be legitimately increased only by reducing expenses, or by 
 increasing the amount and the value of the products. The 
 amount of profits will be varied by whatever affects favora- 
 bly or unfavorably either the efficiency and fruitfulness oi 
 11 
 
242 DlSTRiBUTIOl^. 
 
 thi industry, or the expense of carrying it on. Hence, tlie 
 importance of wise and faithful management. This is the 
 most important service and deserves the highest compensa- 
 tion. But this fact does not warrant the appropriation of 
 the entire profits to "the entrepreneur." 
 
 In tl.is connection, another common error mii.st be 
 Loticed. It is that of expressing the measure of profits hi 
 a business, by a percentage on tlie capital invested. If the 
 profits belong exclusively to the capital, there may be some 
 propriety in this usage. But at best, it is an indefinite, 
 almost unmeaning way of stating the matter. In many 
 cases, the labor is of more account than the capital. A 
 laborer may, as we have seen, gain a profit from his indus- 
 try without any capital of his own. A shoemaker with a 
 capital of five hundred dollars, may by untiring industry, 
 make his proceeds count a hundred per cent on that 
 amount and yet receive no sufiicient return for his labor ; 
 his business yields no profits at all. A return of twenty 
 per cent on five hundred thousand dollars, invested in a 
 business done on a large scale, may furnish ample remune- 
 ration for labor and management, with a large margin for 
 profits. Hence, often, a man will find it for his advantage 
 to work for wages or a salary in connection with a large 
 establishment, rather than to attempt an independent busi- 
 ness. So with truth is it said, *^ It is in the nature of 
 trade and manufacture that great capital drives small capi- 
 tal out of the field J it can work for smaller returns." 
 
 With this understanding of the nature of profits and 
 the manifest facts that industry is carried on with a view 
 to profits, and that successful business actually yields prof- 
 its, we come to the question, 'ffozo the profits are to be dis- 
 tributed. Most writers, from Adam Smith to J. S. Mill, 
 have treated profits as the remuneration of capital, and 
 therefore to be assigned wholly to the owners of capital 
 
CAPITAL MAY XOt CLAlxM ALL THE PROFITS. 243 
 
 When the owner of the capital or a large portion of it. is 
 also manager of the business, the power is in his hands, 
 and generally he will use it for his own advantage. This 
 is most frequently the case, and hence, as a matter of fact, 
 the capitalists do quite commonly get the whole benefit of 
 the profits. But our common sense of right cannot be 
 satisfied with such a distribution. The usage may be tol- 
 erated, but the calm sober judgment of men pronounces it 
 not equitable. There is m it an element of tyranny which 
 laborers feel and groan under and complain of, not with- 
 out reason. Take an illustration from agricultural indus- 
 try in England, where capital, in the form of land, is made 
 by law, a monopoly, enjoyed by few. The case comes 
 before us stated hypothetically, but it finds many a coun- 
 terpart in fact. Lord Dundreary, sole proprietor of ten 
 thousand acres, rents his lands to forty tenant-farmers, each 
 having two hundred and fifty acres, at thirty dollars per 
 acre. These farmers, furnishing skill, executive ability 
 and some capital in the form of tools, live-stock, etc., 
 make half as much per acre, as the rent they pay. They 
 employ four hundred laborers — ten for each farm, on 
 wages at about four dollars per week. Then we have the 
 following footing : 
 
 One capitalist receives in rent $300,000 
 
 Forty farmers get for their returns ($3,750 each) 150,000 
 
 Four hundred laborers receive in wages ($200 each per year) 80,000 
 
 Total proceeds of the estate $530,000 
 
 Four hundred and forty-one men, representing 
 probably as many families, are drawing on the pro- 
 ducts of the ten thousand acres. A single one, my lord, 
 the chief capitalist, takes for himself more than hall" 
 the entire proceeds, aisorhmg all the profits. Forty 
 farmers receive a fair compensation for their capital, skill 
 and care in managing the business. Four hundred labor- 
 ers, reduced to the lowest state of penury and degradation, 
 
244 DISTRIBUTION. 
 
 hardly keep soul and body together. In view of such 
 facts, we do not wonder that an intelligent farm -laborer, 
 Joseph Arch, should rise in his place and move for some 
 radical reform and relief ; or, if we may credit the news- 
 paper report of his speech, that Mr. Gladstone should say 
 of the British land-laws, ^' I am in favor of rath.-r bold and 
 important, if not sweeping change. Greatur freedom 
 ought to be established, and I think that not merely eco- 
 nomical but social mischief results from the present system. 
 Therefore, I am prepared to entertain on that suhjeot, a 
 great change." 
 
 In our country, since slavery ceased, so extrenie wrong 
 could not probably exist in the department of agricultural 
 industry, nor perhaps in any other branch of business. 
 But the principle that profits are the reward of capital, 
 exclusively, involves such a wrong in greater or loss degree. 
 Probably, the detailed statement of the disposition actually 
 made of the proceeds of many of our large ma/mfacturing 
 establishments and railway operations, would reveal like 
 inequalities, against which the common mind instinctively 
 protests. It is urged on the other side, that while capital, 
 by having all the profits may receive more than its share 
 one year, yet the very next year or for a series of years, it 
 may receive no reward at all ; that all the labor is first paid 
 for, before capital receives any of its pay ; and that in times 
 of depression, while labor may be forced to take less pay, 
 capital may get nothing and yet it can not be withdrawn. 
 All this is true ; and because capital thus takes the chief 
 bu] den of risk, it may justly claim a proportionately larger 
 share of the profits. But equity and good feeling and the 
 best interests of all concerned will be promoted by holding 
 to the distinction we contend for and recognizing labor as 
 also a rightful partner to some extent, in both the risks 
 and the profits. 
 
 The rule which assigfis the entire profits to the manager 
 
CO-OPERATIVE ASSOCIATIONS. 345 
 
 or employer, seems no less objectionable. The im])orfcance 
 of his judgment, tact and energy to the success of the busi- 
 ness is obvious, and it is readily admitted that his remune- 
 ration is rightfully made larger than allowed to any other 
 oi the parties, and that its amount may probably be made 
 to depend on the actual profits. This consideration, how- 
 ever, hardly justifies the appropriation of all the profits to 
 his benefit. The laborers and the capitalists between 
 whom he stands, the middle-man, agent of both, may justly 
 claim a share. 
 
 Cooper ative Associations have been formed to secure a 
 more equitable distribution of profits, in the interest espe- 
 cially of workmen. In these associations, a number of 
 working-men of a particular branch of industry join their 
 means and their hands to carry on business for them- 
 selves, expecting to divide the entire proceeds among 
 themselves by some defined rule of equity. Some such 
 organizations have been, for a time, partially successful, 
 but they are pretty sure to end in failure at last. The 
 reasons are obvious. It is not easy to rule out jealousies 
 and harmonize the views of such a company. A greater 
 obstacle to success is found in the lach of capital and man- 
 aging ability, two essentials for the continued life and 
 prosperity of any enterprise amid the sharp competitions 
 of the business-world. A military campaign cannot be 
 successfully conducted by the direction of a majority vote 
 in mass meeting. It must have an able leader, trained to 
 command. So, in business, especially where numbers are 
 to be engaged together, ^' a Captain of Industry''' is all 
 essei.tial. Such a man, not every association of a hundred 
 artisans however skilled and efficient, can furnish. Mr. 
 F. A. Walker says that the sole object of this form 6i or* 
 ganized cooperation is to get rid of **' the entrepeneur," and 
 divide his proper remuneration. This means only that the 
 laborers are trying to appropriate all the profits to them* 
 
246 DiSTRIBUTTOlf. 
 
 selves, which involves essentially the same mistake as ap- 
 peared in the other cases. 
 
 For a fair distribution of Profits', there must be a full 
 recognition of that Part^iership which our science presents 
 as an elementary principle of productive industry. Ilc- 
 solvingthis partnership by functions, there are three mem- 
 bers, the Capital, the Executive capacity, and the Labor 
 Each is entitled to a share in the fruits of their coopera 
 tion. We may not say an equal share ; because, in every 
 case, as we have seen, capital takes the greater risk and is 
 liable to the heaviest losses, and it is fair that this chance 
 of greater loss should be balanced by a chance of greater gain. 
 So, too, in every case, the amount of profits is due most of 
 all to the executive wisdom and energy of the manager, 
 and he is entitled to a proportionately larger share in the 
 returns. After due allowance for these, however, there is 
 a share which justly belongs to the labor, and should be 
 distributed among those who make up this third member 
 of the firm, according to each one's merit and grade in the 
 service rendered. 
 
 It is a hopeful sign that public attention is now turning 
 earnestly to consider plans for admitting workmen to a 
 participation in the profits of manufactures. Some inter- 
 esting and successful experiments have been tried. We 
 adduce in illustration of the method, the case of the 
 Messrs. Brewsters, carriage manufacturers of New York : 
 
 **The firm offered to divide ten per cent of their net profits 
 among their employes, in proportion to the wages severally earned 
 by them, no charge to be made by the members of the firm foi 
 their services, prior to the deduction of ten per cent, or for inter- 
 est on the capital invested ; the business of each year to stand by 
 itself and be independent of that of any other year. For some time, 
 the plan worked to the satisfaction of all parties, as high as 
 eleven thousand dollars a year being divided among the hands. 
 The scheme was broken up only when, through strong pressura 
 
WOEKMEX PARTNERS IK PROFITS. 24t 
 
 from outside and the general excitement of the hour, the workmen 
 were carried into the great strike of the trades in New York." 
 
 There are obstacles in the way of the immediate, gen- 
 eral adoption of this measure. False ideas on the part of 
 both workmen and their employers must be corrected, 
 mutual confidence must be established and common usage 
 must be changed ; things which cannot be accomplished 
 in a day. Yet what has been done fully justifies the state- 
 ments of Mr. F. A. Walker. 
 
 "That something of the sort is practicable, with the exercise 
 of no more of patience, pains and mutual good faith than it is 
 reasonable to expect of many employers and many bodies of work- 
 men, I am greatly disposed to believe. Many experiments and 
 probably much disappointment and some failures will be required 
 to develop the possibilities of this scheme and determine its best 
 working shape, yet in the end, I see no reason to doubt that such 
 a relation will be introduced extensively, with the most beneficial 
 results." 
 
 Success in these movements will involve as both cause 
 and effect, a better understanding of the mutual relations 
 of the parties and of the nature of profits on the part of 
 capitalists and managers, broader views of individual inter- 
 ests as inwoven with the common interests, and on the 
 part of workmen, more intelligence, more thrift, and con- 
 sequently more of genuine manhood. Abiding relief for 
 the unnatural and ruinous antagonism of labor and capital 
 and a satisfactory solution of the hard problem of economi- 
 cal science respecting the practical relations of these two 
 factors in production, are to be found in the adoption of 
 measures which aim to establish a7i equitable distribution 
 df profits. 
 
CHAPTER XVIII. 
 
 REVENUES OF THE GOVERNMENT. 
 
 A Problem of Political Economy. — The prosper- 
 ous industry through which men acquire wealth and the 
 well-ordered condition of society by which men are made 
 secure in the possession and enjoyment of wealth, depend 
 on good government, efficiently administered. Every indi- 
 vidual of the state has therefore an interest with regard to 
 his own well-being in the maintenance of government. As 
 a compensation for the service rendered him, he may then 
 properly be called on to contribute a portion of his wealtli 
 for its support. These considerations bring this topic 
 necessarily within the scope of our science ; a,nd it comes 
 under this division which treats of Distribution, because 
 the public revenues must obviously be drawn from the pro- 
 ceeds of a people's industry. Furthermore, since the gov- 
 ernment represents a common public interest superior to 
 any private interest, its claim very properly takes precedence 
 of all others ; in a sense, it has a first lien on the entire 
 wealth of the nation. 
 
 Taxation is the means employed to gather from a 
 people the revenaes of its government. To devise and 
 apply an equitable system of taxation is one of the pro- 
 foundest problems of legislation. It is a problem which 
 the true statesman will study in the light of political econ- 
 omy. In studying the problem, taxation should bo regarded 
 with respect simply to its one object, viz., the ram fig of a 
 
TAXATION. 240 
 
 retinue for the state. In despotic governments, the will 
 of the ruler determines arbitrarily both the methods and 
 the measure of taxation. The people's wealth is conse- 
 quently exposed to the unrestricted plunder of an army of 
 tax-gatherers, and great inequality and oppression prevail. 
 It is a fundamental principle of free and just government 
 that taxes shall he imposed by representatives of the people 
 alone, through proportional and reasonable assessments on 
 all estates ; and that they shall be collected by uniform and 
 responsible agencies acting under defined powers and direct 
 accountability. The one thing to be aimed at is to make 
 the burdens laid on the people as light and equable as pos- 
 sible consistently with providing means ample for the 
 support of the government. For this, two things are 
 essential, first, fair and impartial assessments, and second, 
 efficient and economical collection. A perfect result has 
 never yet been attaijied, for human selfishness opposes 
 many subtle and great obstacles ; but much is gained bv 
 steady contemplation of the philosophical ideal. 
 
 Adam Smith's Maxims.— This father of modern 
 political economy laid down four rules of equitable taxa- 
 tion, as follows : 
 
 1. ' * The subjects of every state ought to contribute toiuard 
 the support of the government, as nearly as possible, m 
 proportion to their respective abilities ; that is, 171 j)ropor- 
 tion to the revenue wliich they respectively enjoy under the 
 proi lotion of the state. 
 
 2. The tax which each individual is bound to pay ought 
 to he certain and not arbitrary. The time of payment, the 
 manner of payment, the quantity to be paid ought all to be 
 clear and plain to the contributor and to every other person. 
 
 3. Every ia.r ought fo be Icrii'd at Ihe lime and in the 
 manner in which it is most liJcely to be convenient for the 
 ootUribuior to pay it. 
 
 11* 
 
250 DISTRIBUTION. 
 
 4. Every tax ought to le so contrived as hoth to take out 
 and to keep out of the pockets of the people as little as possi- 
 ble over and above what it brings iiito the public treasury 
 of the state,'^ 
 
 It may be questioned whether it is true, as seems to be 
 implied in the first maxim, that the abilities of different 
 persons are measured in due proportion by their respective 
 revenues or incomes. It is obvious that the ability of one 
 whose annual income is five hundred dollars, and that of 
 another whose income is fifty thousand dollars, to pay a 
 tax of two per cent on their respective revenues, are not 
 equal. Hence, the need of some further discrimination in 
 estimating abilities. With this exception, these maxims 
 of Mr. Smith are believed to embody principles of equity. 
 They have met with general approval, as furnishing a test 
 to which various schemes of taxation may be referred. 
 
 Direct and Indirect Taxation. — These terms are 
 defined by Mr. Mill thus : ** A direct tax is one which is 
 demanded from the very persons who, it is intended or de- 
 sired should pay it. Indirect taxes are those which are 
 demanded from one person, in the expectation and inten- 
 tion that he shall indemnify himself at the expense of 
 another." A poll-tax. a tax on land, live-stock, tools, 
 goods, etc., and strictly speaking, an income tax, are 
 examples of direct taxes. Duties laid on imported goods 
 and excises on articles of home-manufacture are exam- 
 ples of indirect taxation ; the importer or manufacturer 
 who pa^^s the tax, adding the amount of the tax to the 
 price of the goods, to be ultimately paid by the consumers. 
 Direct taxation, with fair assessments and honest returns 
 of property and income, may be most fully conformed to 
 the equitable principles embodied in the maxims just 
 stated. But if applied to all kinds of propert3\ it involves 
 much labor and expense in collection, and is apt to prompt 
 
DIRECT AND INDIRECT TAXATION. 251 
 
 concealment and evasion and to provoke dissatisfaction 
 and complaint on the part of tax-payers, because they 
 know precisely when and how much they have to pay and 
 feel the full force of the burden. Indirect taxes, on the 
 other hand, are more cheerfully submitted to and more 
 easily collected, because laid on the goods at the port of 
 entry or at the manufactory, and so distributed in small 
 quotas through the increased prices, that no one thinks of 
 the tax he pays, when he makes his purchases. But this 
 method violates nearly all of Mr. Smith's maxims. Under 
 it, the burden is imposed very unequally, each one's pro- 
 portion being determined not at all by his ability but by 
 his necessities. Often a poor man, with a large family to 
 provide for, actually contributes more for the support of 
 the government, than his neighbor with ten times his 
 wealth and ability. It is only a partial relief to this in- 
 equality which is gained by a discrimination that lays 
 heavier duties and excises on luxuries than on the neces- 
 saries of life ; for the proportion which each beai-s of the 
 burden is still determined not by his ability, but by what 
 he consumes. Hence, direct taxes if equally imposed, are 
 commonly more just ; that is, they derive the support of 
 government from individuals more in proportion to their 
 respective abilities, and to the degree of benefit which each 
 derives from the government. 
 
 In favor of direct taxation, it may also be added that 
 it is decidedly more in harmony with the genius of a 
 republican or representative government. Such a govern- 
 ment proceeds upon the principle that the people are the 
 fountain of power, and are competent to govern them- 
 selves. Now, such a government ought not surely to act 
 up*n the directly opposite principle, that the people maj 
 not know wliat they pay, or ivhen or lioio tliey pay. They 
 are the party from which especially, nothing of thii^ sort 
 should be concealed. They should know what and how 
 
252 DISTRIBUTIOK. 
 
 much they contribute ; and also in what manner whatevef 
 they contribute is expended. It is in this knowledge and 
 in the judicious use of it, that their safety consists. 
 Therefore the consideration so frequently urged in favor 
 of indirect taxation, that the people do not feel it, is one 
 of the strongest arguments against it. The more a peo}>lo 
 feel taxation, and the more jealously they watch over the 
 public expenditure, the better it is for them and for their 
 rulers. Yet, until there is attained a higher standard of 
 intelligence, honesty and patriotism than has been reached 
 by any people hitherto, governments will still be compelled 
 to employ this more convenient and easy method of rais- 
 ing their revenues. 
 
 In most countries it is now adopted as a rule of indi- 
 rect taxation that tliose commodities, such as intoxicating 
 liquors, the consumption of luhich is regarded as injurious, 
 shall he most heavily taxed. Experience has shown that 
 the consumption of such articles is not materially dimin- 
 ished by the tax. As a check on immorality, the measure 
 is therefore of little avail ; but as a source of revenue, it 
 is found to yield large results. The greater part of the 
 revenue of the British government from customs, is de- 
 rived from duties on tobacco and intoxicating liquors. 
 When however, the duty or excise is so high as to raise 
 the price of the article very mucli above the cost of pro- 
 duction, the temptation to smuggling and illicit manu- 
 facture is very strong, the expense of maintaining the law 
 and collecting the tax is immensely increased, and corrup- 
 tion, more or less, on the part of revenue officers is almost 
 inevitable. This folly was sadly illustrated, when the 
 United States government laid a tax of two dollars per 
 gallon on distilled spirits which could be manufactured for 
 twenty cents a gallon. The revenues from this source, 
 instead of being increased, w^ere greatly reduced by this 
 over-taxation, the price of the article in the market was 
 
TARIFFS 5^53 
 
 steadily less than the amount of the tax, and all over the 
 country, revenue officers were corrupted, the members of 
 *• whisky-rings " made enormous gains, under cover of the 
 law which they evaded and defied, and the public senti- 
 ment was generally demoralized. 
 
 Tariffs. — This term signifies strictly the lists of im- 
 ported articles which are subject to tax, with the duties 
 laid on each. The word is quite commonly used to em- 
 brace also the legislative action on the subject. Protective 
 tariffs so-called, designed to encourage certain kinds of 
 home manufactures will be considered in another place. 
 The topic is here to be noticed only as a 'revenue ineasure, 
 one form of indirect taxation. The duties on all articles 
 included in the tariff are paid by the importer, at the port 
 of entry, before he can take possession of his goods. 
 
 Duties are imposed in two forms, specific and ad-valorem. 
 Specific duties are certain sums charged on articles, by the 
 2)iece, the pound, the yard, the galloji, etc., without refer- 
 ence to the value. Ad-valorem duties are indicated by a 
 defined percentage of the value of each class of goods, as 
 named in the importer's invoice. Each of these forms has 
 its advantage and its difficulties. Specific duties are sim- 
 ple and clear. The collector needs to know only the 
 quantity of the goods, and easily reckons the duty to be 
 paid. But the tax in this case is very unequal. Suppose 
 the duty laid on tea to be ten cents per pound. The tea 
 which the poor consume, costs thirty cents a pound ; the 
 better quality used by the rich costs a dollar or more. 
 This involves a tax in the one case, of thirty- three and 
 one-third per cent, and in the other of only ten per cent. 
 Ad-valorem duties lay the taxes more equally, but involve 
 more difficulty in the collection, since the value as well as 
 the quality of the goods must be ascertained. Hence a 
 temptation on the part of the importer to present a false 
 
254 DISTRIBUTION 
 
 invoice. To counteract this, the government must employ 
 a host of experts to examine and estimate the values oi 
 goods. These often come into altercations with the im- 
 porters, and sometimes refuse to recognize an invoice that 
 is honest and true. In American tariffs, sometimes the one 
 principle and sometimes the other has prevailed. Some- 
 Limes, as in the tariff now in force, both are combined, 
 producing intricate and vexatious complications, and 
 greatly enhancing the expense of collections. There can 
 be no doubt that on the whole, both for the people and for 
 the government, the best tariff is one which lays a specific 
 duty, of moderate amount, on a comparatively short list oi 
 articles, which are not produced at home, and must there- 
 fore be imported from abroad. 
 
 American Taxation. — In the United States there 
 are two general systems of taxation — that institided 
 hy the National government, and that instituted hy the 
 several State governments. The latter includes all local 
 taxes imposed under authority of each state by counties, 
 cities, towns and school-districts. The national constitu- 
 tion authorizes Congress to impose taxes in every form, 
 subject only to the qualification that direct taxes must be 
 apportioned to the several states according to their respec- 
 tive populations, and that all duties, imposts and excises 
 shall be uniform throughout the United States. It ex- 
 pressly forbids any state to lay any imposts or duties on 
 imports or exports, except for executing its inspection 
 laws. In consequence of these constitutional provisions, 
 the taxes paid by the national government have been 
 hitherto, with only slight exceptions, indirect, while the 
 state o-overnments relv almost exclnsivelv on direct taxes. 
 The two systems thus combine two methods, in a way 
 which secures the advantages of each, with as little draw 
 back of disadvantage as is possible. 
 
i^ATlOJ^AL TAXATION. 256 
 
 The proceeds of duties on imports proved sufficient tr 
 meet the needs of the general government, for the most 
 part, until the recent war of the Rebellion. To providt 
 for the heavy expenses of that war, and for the consequent 
 debt, resort was had to four other forms of taxation, which 
 deserve a brief notice. 
 
 a. Excises. These are imposts laid by Congress on cer- 
 tain specified articles of domestic manufacture. They arc 
 collected by the sale of stamps to be affixed by the manufac- 
 turer or by an officer of government, before the goods are 
 thrown upon the market. The amount of the excise is in 
 each case added to the price of the article, and thus the 
 tax is paid by consumers. Such a tax must work to the 
 disadvantage of home-production, unless corresponding 
 duties are imposed on the same articles when imported. 
 It involves the inequality which we have seen to be inci- 
 dent to all indirect taxes. It also involves great expense 
 in collection, since the government must keep agents in 
 every part of the country, watching the manufacturing 
 establishments and the markets, to guard against evasion 
 of the tax. The number of articles thus taxed was quite 
 large at first, but now, liquors and tobacco yield the 
 greater part of the internal revenue from this source. 
 
 b. Stamps. This is a tax levied by requiring a stamp 
 representing a small value, to be attached to various instru- 
 ments and forms of business, in order to give them legal 
 force. The expense of the postal service is nearly pro- 
 vided for by this means, at a very slight charge to the peo- 
 ple. This method is also applied to bank-checks, notes, 
 deeds, mortgages, contracts, wills, etc. Such a tax touches 
 directly the wealth of the country in transitioji, and just 
 at the points too, where it needs government protection to 
 give it a certain kind of security. It comes upon those 
 best able to bear the burden. It accords with Mr. Smit h'g 
 fourth maxim, for the cost of collection is very light and 
 
256 DISTltlliUTlOK. 
 
 nearly the entire amount taken from the people's pockets 
 goes into the government treasury. When first introduced, 
 it seems a little vexatious, and it takes time for a people 
 to become habituated to it, but once fairly instituted, it is 
 hardly felt, and is found an economical and equitable 
 mode of distributing the public burdens. Great Britain 
 employs it very successfully, raising over fifty million? 
 each year from the sale of stamps, to be thus applied. It 
 is to be regretted that our government almost entirely 
 abandoned this measure, just when it was fairly inaugura- 
 ted after the war. 
 
 c. Licenses. This is a form of tax quite akin to that 
 last named. It is imposed by requiring men to buy of the 
 government, at specified rates, certificates authorizing them 
 to engage in certain kinds of business. It has been em- 
 ployed by both the Federal government and by state gov- 
 ernments. It is objectionable because it discriminates 
 unequally among industrial occupations. It is urged in 
 its favor that it draws from certain parties, such as ped- 
 dlers, insurance companies outside of the state and soni' 
 professional men, a just return for the advantage the* 
 derive from the protection of the government, which 
 return could not be secured in any other way. The prin- 
 ciple as applied to occupations regarded as mischievous, 
 such as dram-selling, has another aim than to raise a 
 revenue, that is, to restrict an evil. In that application, 
 it has to do with the morals of society, as much as with its 
 economies. 
 
 d. Income tax. This is a form of direct tax, levied by 
 imposing a certain percentage upon the annual incomes of 
 individual citizens. According to Mr. Mill's definition, 
 this is certainly a direct tax ; although the Amei-ican Con- 
 ;j,Tess when instituting it, declared it not a direct tax in 
 the sense of the term used in the constitution with respect 
 to the apportionment of direct taxes among the states. 
 
tKCOME TAX. 257 
 
 I'heireticftily, this is tlic most equitable of all taxes, since 
 it touches men exactly according to their abilities. But 
 as we have seen, if the percentage is uniform for all in- 
 comes, it involves an inequality which bears heavily on 
 those whose incomes are small. To relieve this, two meas- 
 ures are employed. The first is to exempt all incomes 
 below a specified amount. The other is to establish two 
 or three grades of income, and make the percentage 
 greater on the larger incomes. The chief objection 'to an 
 income-tax is the difficulty, almost impossibility of ascer- 
 taining men's real incomes ; partly because many keep no 
 accurate accounts, and partly because few, comparatively 
 will make truthful report of their incomes. Inquisitorial 
 measures to discover actual incomes are exceedingly offen- 
 sive. Moreover, as in the case of excises, the labor and 
 cost of collecting this tax involves a serious drawback on 
 the public treasury. Notwithstanding all this, the British 
 government has employed this method of taxation for 
 forty-five years, with such success that nearly one-sixth of 
 the annual revenue of the kingdom is estimated to come 
 from this source. The United States collected an income 
 tax for ten years, from 1863 to 1872 inclusive. The lar- 
 gest amount raised in any one year, by this means, was 
 about sixty-one millions in 1866, from four hundred and 
 sixty thousand one hundred and seventy persons assessed. 
 Actual experience under the law tended to relieve difficul- 
 ties and objections. When most efficiently carried out, 
 concealment and dishonesty were not probably greater 
 under this form of tax than are practised continually 
 under the attempts of the states to levy taxes on miscella- 
 neous personal property. In both cases the needed relief 
 must come from the moral culture which forms good con- 
 sciences. 
 
 State Taxation. — Under state authority, all taxea 
 
268 DISTRIBUTION. 
 
 art! direct, laid upon j^Pt'-'^ons by poll-taxes, upon property 
 by assessment and upon certain kinds of business bj 
 bcenses. The poll-lax is ordinaiily a small amount leyjed 
 upon every male citizen who has reached his majority. It 
 recognizes the protection which the government extends tc 
 persons as well as to property. It is made in theory, a 
 condition of the electoral franchise ; he who pays the tax 
 and votes being regarded as the head of a family, in both 
 acts, representing a household. It is found difficult and 
 expensive to collect this tax from all, and hence the theory 
 is seldom carried out. Some of the states lay no poll-tax. 
 
 Taxes on property are imposed in all states by essen- 
 tially the same method. The state authority, by statute, 
 requires the election or apj)ointment of assessors in every 
 town and city, who make a valuation of all property which 
 the law subjects to taxation. Real estate, and articles open 
 to their inspection, such as live-stock, vehicles, etc., are 
 estimated by the assessors. Other personal property is 
 returned in prepared lists by the owners, who may be 
 required to make oath to the completeness and truthful- 
 ness of their returns. 
 
 In some states, however, the assessor sets down his es- 
 timate of each one's personal property, and if the taxpayer 
 thinks the estimate too high, he is permitted '^ to swear it 
 down," as the phrase is, that is, to declare under oath what 
 is the true amount of his personal property after deducting 
 his indebtedness. 
 
 Eeal estate is commonly set down at from twenty-five 
 to thh'ty per cent less than its market value. Since as- 
 sessors in different places may adopt different standardi 
 of valuation, the original assessments are in most of the 
 states referred to hoards of equalization appointed for 
 each county, and their judgment is subsequently re- 
 viewed by a general board for the state. Upon the ba- 
 sis of the valuation of property so determined, the taxes 
 
STATE TAXATION. 250 
 
 for state purposes are apportioned to each county, city 
 and town. By general statute, or by special city char- 
 ters, each county, city, town anu school-district is au- 
 thorized to levy taxes for local purposes. These also are 
 apportioned on the basis of the state valuation, except in 
 case of certain improvements in cities, such as opening, 
 paving and lighting streets, which are charged upon the 
 adjoining property in proportion to the benefit conferred. 
 Generally, all these taxes both for state and local purposes 
 are collected in each town or city ward, at one time, by 
 one collector, who is furnished with a tax-list covering 
 all. 
 
 If other means fail, goods may be levied on to secure 
 the taxes, and according to prescribed forms of law, lands 
 may be sold for delinquent taxes, the title thus given, be- 
 ing made complete and valid after a certain period allowed 
 the original owner for redemption. 
 
 [n most of the states, local taxes are adjusted on the 
 principle generally admitted that equitable taxation re- 
 quires property of every hind to be assessed. In actual ex- 
 perience however, property in the form of real-estate bears 
 by far the larger share of the burden. Personal property 
 can be easily concealed or removed by those who wish to 
 evade their share of contribution to the public weal. On 
 this subject, the prevalent moral sentiment is low and 
 consciences are weak to resist the strong temptation to 
 make false returns and even to commit perjury, when 
 detection is almost impossible. The difficulty of attaining 
 a perfect result is aggravated by the complexity of our 
 government. Property in railways, banks, etc., being 
 within the jurisdiction of one state, while the owner resides 
 in another, involves peculiar difficulties. These and othei 
 like considerations have occasioned much earnest discus- 
 sion, on the part of economists, lawyers and statesmen, 
 respecting the property on which taxes should be imposed. 
 
260 DISTRIBUTION". 
 
 VV"e may not here enter at length into these discussions, 
 but one question which especially involves some principles 
 of our science deserves some notice. 
 
 Are Evidences of Debt, Property, on which 
 taxes sliould he levied? In defining wealth, we showed 
 that notes, bonds, mortgages and the like are not, of them- 
 selves, any part of the general wealth. They indicate only 
 what the lawyers call '^ an inchoate title " to possession, a 
 mode in which some real wealth is distributed. They are 
 symbols, not substance, whose multiplication makes no in- 
 crease of real wealth. Suppose A. B. holds his neighbor's 
 note for two thousand dollars, secured by mortgage on his 
 farm worth four thousand. The property is one, the 
 farm. The note and mortgage only indicate that A. B. 
 has a lien on that property for one half its value. The 
 loan made and the security given have added nothing to 
 that value. That property is rightfully subject to taxa- 
 tion. Who shall pay the tax ? Strictest equity might 
 admit that each of the parties should pay a half ; and that 
 might be established as the rule. But in the very terms 
 of the mortgage, the owner of the farm engages to pay all 
 taxes that may be levied on the land, and this is a part of 
 the contract, the interest to be paid on the amount bor- 
 rowed, being adjusted to that usage. Now, if the owner 
 of the farm is taxed for its full value, and A. B. is also 
 taxed on the mortgage he holds, there is a double taxation 
 on two thousand dollars. The fact is obvious and cannot 
 be controverted. Where this rule prevails, there is evi- 
 dently an obstruction to the free flow of capital, which 
 works disadvantage to all economical interests. 
 
 The case of a note given without security is essentially 
 the same. Suppose for instance, that C. D. sells his 
 neighbor a horse for one hundred dollars and takes in pay- 
 ment a note for the amount, payable at the end of six 
 
DOUBLE TAXATIOIS^. 261 
 
 months, withoufc security, depending on the man's ability 
 to pay out of the avails of his industry, in the menntimo. 
 Here evidently, there is only one item of property, that ih 
 the horse. To lay a tax on the horse for its new owner to 
 pay, and to tax 0. D. on the note he holds, is evidently 
 doubling the taxation. When the note is paid, the horse 
 being in good condition, another property appears in the 
 eq:iivalent received by C D., and on that he may properly 
 be taxed. To vary the case a little, suppose that instead of 
 a note payable in money, the purchaser of the horse, being 
 a wagon-maker, gives an obligation to build for C. D. a 
 wagon worth one hundred dollars, to be finished and deliv- 
 ered at the end of six months. Evidently, the horse is, 
 but the wagon is not in existence when the contract is 
 made. When the obligation matures and is fulfilled by 
 the delivery of the wagon, there are two items of property, 
 both rightfully taxable. But the promise pending has in 
 it nothing real, nothing taxable. The principle runs 
 through the whole system of m^edit. Prosperous industry 
 is continually creating new items of property but the credit 
 that runs in divers forms through all the ramifications of 
 business, of itself creates notMng, and has not that ^^ physi- 
 cal actuality " which is essential to the idea of property. 
 
 A case involving this question and also the question of 
 state jurisdiction respecting taxes has recently occupied 
 the attention of the Supreme Court of Errors of the State 
 of Connecticut, and is now, on appeal, before the Supreme 
 Court of the United States. Mr. K., a citizen of Connec- 
 ticut, had loaned money through an agent, a citizen of Illi- 
 nois, on bonds secured by deeds of trust, on real estate, in 
 the city of Chicago. Each deed of trust provided that 
 the borrower should pay all taxes assessed on the property 
 without abatement on account of the mortgage lien, and 
 the taxes on the entire property were accordingly paid 
 under the laws of Illinois. The Connecticut coUectoi 
 
262 biSTRIBUTIOK. 
 
 added the amount of the loan to Mr. K.'s tax list in that 
 state, and when payment of the tax was refused, proceeded 
 to levy his tax- warrants on real estate belonging to Mr. K. 
 He brought the case before the court, by petition for an 
 injunction. A majority of the judges on the bench decided 
 that the bonds were taxable, and that it came within the 
 jurisdiction of Connecticut to lay and collect this double 
 tax. Judge L. S. Foster, however, gave a dissenting 
 opinion. His judgment on the question now before us is 
 thus clearly and forcibly expressed. '" Property and a 
 dedt, (considered as a representative of the property 
 pledged for its payment,) constitute but one subject for the 
 purpose of taxation. The tax being paid on the property, 
 without diminution on account of the debt, nothing 
 remains to be taxed. The debt indeed, aside from the 
 property behind it, and of which it is the representative, is 
 simply worthless." We believe that this opinion has all the 
 force of an axiom of political economy. We trust that 
 the court of last appeal will sanction this opinion and thus 
 hasten the day when it shall be generally acknowledged 
 and applied in the imposition of taxes, to the correction of 
 much unsound and mischievous legislation, and to the 
 promotion of equity and morality.* 
 
 * In November, 1879. the United States Supreme Court gave its decision in 
 this case as foilowfj : "The question presented by this case is whether plaintiff 
 in error, a citizen of Connecticut, can be riglitfully taxed by that State under its 
 laws upon certain bonds owned by him, but lield in the city of Chicago !uid 
 secured by deeds of trust on real estate located in that city. The Supreme Court 
 of Errors of Connecticut held that the assessments of which the plaintiff in error 
 complained were in conformity to the State laws, and that the law did not infringe 
 any of complainant's constitutional rights. This court sustains the view taken 
 by the lower tribunal, and holds that the locality of the debt for purposes of taxa- 
 tion is not affected by the fact that it is secured by mortgage upon real estate 
 situated in Illinois (State tax on foreign freehold bonds, 15 Wall, 3-23), that the 
 debt has its situs at creditor's residence, and it is for the State to determine 
 whether it shall be taxed. The discretion of the State in this respect is not, 
 in the opinion of this court, subject to supervision or control by the Federa 
 Government in any of its departments, for the reason that such taxation violates 
 no provision of the Federal constitution." 
 
 This decision does not touch the main question of equity involved. It only 
 says that if a State's constitution and laws authorize an unjust tax, the Federal 
 Courts aflford no remedy unless some express provision of the Federal constitu- 
 tion is violated. 
 
CHAPTER XIX. 
 
 FOURTH DIVISION.— EXCHANGE. 
 
 The Nature of Exchange.— In a broad, general 
 new, Exchange is ajjartofthe machinery of society for the 
 transfer of wealth fwn producers to consumers. It is a 
 very complicated piece of machinery, as clearly appears if 
 one will undertake to trace the cotton which enters into 
 the structure of the shirt he wears, back to the field on 
 which it grew. It is a machinery whose range of opera- 
 tions is co-extensive with the surface of our globe, as will 
 be seen, if one will but consider how many parts of the 
 world are made to contribute to the sum of daily comforts 
 with which his table and his home are furnished. Hence, 
 in the science of Political Economy, it holds a place of 
 highest importance ; so that it has been proposed to sub- 
 stitute as a title for the science, the term Catallactics or 
 the science of Exchanges. 
 
 The general arena of exchange is called the Market, 
 and in all the processes of production, the market is the 
 object most nearly and directly contemplated. There, 
 whatever is produced, except the very little of his own pro- 
 ducts which a man consumes, is first to be disposed of ; 
 and in every step of the process, the question is before the 
 producer's mind, what will this article bring in tlie mar- 
 ket ? This will be determined by the answer given to two 
 other questions. First, What want or desire of man will 
 this article gratify and hoiv intense is that desire 9 and 
 Second, Wiat outlay of labor and capital is requisite to 
 
264 EXCHAKGE. 
 
 produce tMs article 9 Thus, on the broad field of the 
 world's excliaiiges, commodities, in almost infinite variety, 
 meet and mingle, each marked with a sign of Value which 
 is a simple exponent of these two elements, utility^ or de- 
 sirableness and cost. 
 
 More specifically, we may say, Exchange is a transac- 
 iicn in v)]iich tivo parties voluntarily transfer to each othe'< 
 the right of irroperty in certain items of icealth, ivhich an 
 regarded as equivalents. This transfer must be voluntary 
 by both parties, else it involves robbery. If without the 
 right of property, anything is given in exchange, it is 
 fraud. If one gives in exchange a horse which does not 
 belong to him, he confers no right of property, for he has 
 none to confer, since the real owner may, at any time, 
 reclaim the animal. It is often said that exchange may be 
 either of commodity for commodity, as when one gives a 
 table for a pair of boots ; or of commodity for labor, as 
 when one gives fifty pounds of flour for a day's work at 
 mowing ; or of labor for labor, as when a mason gives a 
 day's work to a carpenter on condition that the carpenter 
 shall on call, give a day's work at his trade, in return. 
 This is proper enough as indicating in each instance, the 
 precise form of the transaction. But in reality, the labor 
 is not ever, itself the thing contemplated, but the value, 
 in some form of wealth, which is the product of the labor. 
 In discussing the principles of distribution, we saw that 
 even when wages are paid for labor, the employer has his 
 eye always on the value to be produced, though it may be 
 that several kinds of labor must be combined before the 
 value appears in a form to be exchanged. 
 
 Value is thus the central term of this branch of our 
 science. Let its definition, as given in the second chapter, 
 be here distinctly recalled. 
 
 Value is purchasing power ^ or that quality in an ob- 
 
VALUE. 365 
 
 ject which gives it power to command other objects 
 in exchange. 
 
 Value is ahvays a relative term, and indicates not an 
 absolute quality of an object, but a power revealed by a 
 comparison of it with another object. 
 
 Value may be determined ly comparison hetwee^i any 
 two oljectSy and must not be confounded with price which 
 makes money the one thing with which every thing else 
 must be compared. 
 
 Value implies utility, or adaptedness to gratify desire, 
 but is to be distinguished from it, since many things of the 
 highest utility such as the air we breathe, have no value, 
 because they are not the fruit of labor, and cannot be ex- 
 clusively appropriated. 
 
 Hence, as was just stated, Value is a simple exponent 
 df the two elements, utility and cost. These terms respect- 
 ively define the limits of value. The maximum limit of 
 value in an object, is defined by its utility or desirableness. 
 The minimu7n limit of value in an object, is fixed by its 
 cost. Objects presented for exchange are always primarily 
 compared with respect to these two considerations. 
 
 Between these two extreme limits however, there is 
 room for considerable variation of value under the law of 
 supply and demand. By demand is meant the extent of 
 desire for any article. Supply expresses the quantity of 
 the article in the market, ready to meet that desire. When 
 demand is great in proportion to supply, value is enhanced. 
 When supply is great in proportion to demand, value is 
 reduced. The law is expressed in a simple formula, appli- 
 cable to all things that can be exchanged, tlius, Value rises 
 directly as the demand, inversely as the supply. Hence in 
 all transactions of exchange, the state of the market needs 
 to be carefully considered. There, free competition tends 
 to produce an equilibrium between supply and demand. 
 When the supply of any article is excessive, its value sinks 
 1% 
 
256 EXCHANGE. 
 
 80 that it will not command an equivalent for the laboi 
 
 and capital necessary to produce it ; the production of it 
 is therefore 3urtailed till the supply is reduce! to a level 
 with the demand. When on the othtr hand, the demand 
 for an article is excessive, the consequent rise in value 
 makes labor and capital in that form of industry more 
 remunerative than ordinary, and thus its production is 
 stimulated till the supply is brought up to a level with the 
 demand. To express the expense of labor and capital in- 
 volved in the production of any commodity, the term Cost 
 is employed. Competition tends to make cost the general 
 standard of value. Hence we have for the rates of ex- 
 change, or the value of articles transferred, this general 
 formula. 
 
 Value=cost-\-or — the effect of the ratio of demand to 
 
 sup2)ly. 
 
 The effect produced by variation of the ratio between 
 demand and supply will be greater or less according to 
 several circumstances. 
 
 a. The Dit^raMlity of the commodity. An increased 
 supply of articles, such as fresh fruit and fish, which are 
 quickly perishable, causes a great reduction of value. On 
 the contrary, the market value of a durable article like 
 iron ware and cloth, is but slightly affected by increased 
 supply. 
 
 I. The Ease or Difficulty of Increasing the Supjpily. 
 Manufactured articles can generally be produced easily and 
 quickly, after the facilities are once established. The 
 farmer's crops come in but once in a year. Hence a short 
 supply of wheat or potatoes raises the value of those arti- 
 cles much more than a short supply of woolen goods or 
 shoos advances the value of those articles. 
 
 c. The character of the article as a Necessity or a 
 Luxury. Under the pressure of scarcity, men will dispense 
 with luxuries, rather than pay their enhanced price. vSucli 
 
FUNDAMENTAL PRINCIPLES. 267 
 
 articles as bread and fuel, they must have at any price. 
 In the first case, the demand declines as the value rises on 
 account of a diminished supply, and the ratio adjusts 
 itself. In the other case, the demand is intensified as 
 the value is advanced by scarcity, because the limits of 
 man's power to endure hunger and cold admit of but little 
 room for any adjustment, and ^'all that a man hath will 
 he give for his life." 
 
 d. The relation of the article to incoming or outgoing 
 Fashion. The freaks and the tyranny of fashion are pro- 
 verbial. In highly civilized society, her sway is undispu- 
 ted. Those things which are made to meet her demands 
 are called ^^ fancy -goods. '^^ Both the producer of these arti- 
 cles and the dealer in them must study carefully her 
 changing moods. The demand for articles conformed to 
 the latest style is exceedingly intense and gives them a 
 value far above cost ; but the reaction is apt to come sud- 
 denly, following no definable law. An over supply of 
 goods that are just going out of fashion can be exchanged 
 only at a value greatly below cost, though their utility, 
 as means of comfort, may not be in the least impaired. 
 The successful tradesman sees to it that his gains at the 
 hour of flood-tide are sufficient to compensate the loss inci- 
 dent to the ebb. 
 
 The fundamental principles of Exchange then are few, 
 and may be clearly and concisely stated. It is of the 
 highest consequence that they be well understood. There- 
 fore, repeating some things already presented, we give here- 
 a summary statement, adopting the distinctions, and to a 
 considerable extent the precise language, of Mr. J. S. 
 Mill. 
 
 All things that are bought and sold may be distributed 
 rnto three classes. First, There are things of which it is 
 physically impossible to iticrease the quantity hey&nd cer- 
 
268 EXCHANGE. 
 
 tain narrow limits. Such are ancient sculptures, paint- 
 ings of old masters, rare books or coins, and wines that 
 require peculiar conditior 3 of soil, climate and exposure. 
 Second, There are things v)hich at a moderate outlay oj 
 lalor a7id capital, can le multiplied indefinitely. The 
 majority of things bought and sold belong to this class. 
 With laborers and machinery enough, such things as cot- 
 tons, woolens, shoes, hats, might be multiplied a thousand 
 fold, or at least, till the measure of the earth's capacity to 
 afford materials is reached. Third, There are commodities 
 which can he produced in limited quantity at a given cost ; 
 hut to increase the quantity involves a much greater pro- 
 portional cost. To this class belongs the agricultural pro- 
 duce of a limited area of land. A field that yields twenty- 
 five bushels to the acre, maybe made to yield forty bushels, 
 but the cost will be much more than doubled. With 
 these distinctions and points before presented, in mind, 
 the following principles will be plain and almost self-evi- 
 dent. 
 
 1. Value is a relative term. The value of a thing 
 means the quantity of some other thing, or of things in 
 general, for which it can be exchanged. The values of all 
 things can never therefore, rise or fall simultaneously. 
 There is no such thing as a general rise or a general fall 
 of values. Every rise of value supposes a fall, and every 
 fall a rise. 
 
 2. The temporary or market value of a thing depends 
 on the demand and supply ; rising as the demand rises and 
 falling as the supply rises. The demand, however, varies 
 with the value, being generally greater when the thing is 
 cheap than when it is dear ; and the value always tends to 
 adjust itself so that the demand shall be equal to the 
 supply. 
 
 3. Things have also a permanent, or as it may he called 
 a Natural Value, to which the market yalue, after every 
 
FUJS^DAMENTAL PRINCIPLES. 26S 
 
 variation, always tends to return ; and the oscillations com- 
 pensate for one another, so that on the average, commodi- 
 ties exchange at about their natural value. 
 
 4. The natural value of some things is a scarcity value ; 
 but most things naturally exchange for one another in the 
 ratio of their cost of production, or at what may be termed 
 their cost-values. 
 
 5. The things which are naturally and permanently at 
 a scarcity value, are those of which the supply cannot be 
 increased at all, or not sufficiently to satisfy the whole of 
 the demand which would exist for them at their cost value. 
 
 6. A Monopoly value means a scarcity value. Monop- 
 oly cannot give a value to anytliing, except through a limi- 
 tation of the supply. 
 
 7. Every commodity of which the supply can be indefi- 
 nitely increased by labor and capital, exchanges for other 
 things proportionally to the cost necessary for producing 
 and bringing to market the most costly portion of the sup- 
 ply required. The Natural value is synonymous with the 
 Cost value, and the cost value of a thing means the cost 
 value of the most costly portion of it which the market 
 demands, 
 
 8. If one of two things commands, on the average, a 
 greater value than the other, the cause must be that it 
 requires for its production, either a greater quantity of 
 labor, or a hind of labor permanently paid at a higher rate ; 
 or that the capital or part of the capital which supports 
 that labor must be advanced for a longer period ; or that 
 the production is attended with so7ne circumstance which 
 requires to be compensated by a permanently higher rate of 
 profit. 
 
 Assuming that there is, as there ought to be, free com' 
 petition in the processes of Exchange, as in the i)i-ocessea 
 of Production, the perturbations of value caused by varia- 
 tions of demand and supply continue only during a period, 
 which cannot exceed the length of time necessary for alter- 
 
270 EXCHANGE. 
 
 ing the supply. Under the pressure of competition, de- 
 mand and supply always rush to an equilibrium ; but the 
 condition of stable equilibrium .s wiien things exchange for 
 each other according to their cost of p'l oduction, or at "what 
 iS fitly called their natural value. 
 
 The Necessity of Exchange. — If every man were 
 uble and content to live by himself, upon the fruits of his 
 own labor ; or if the members of each household conld 
 satisfy all their desires by the proceeds of their joint indus- 
 try, there would be no occasion for exchanges. But with 
 his unfolding intelligence, man's desires multiply and 
 reach out beyond the range of his present attainments, 
 beyond the range of his own ability too. At the same 
 time, to his searching inquiries, nature reveals new means 
 of enjoyment which both gratify and stim.ulate desire, add- 
 ing to a present gratification of the senses, the zest of 
 discovery and achievement, and the pleasure of hope which 
 fondly anticipates more and better things to come. There 
 are also in man's nature, as a social being, interests, 
 attractions, sympathies which multiply and widen his 
 associations and his opportunities, as both a giver and a 
 receiver of good things. Thus individuals are grouped in 
 families, families unite in communities, communities form 
 states and nations, and nations all round the world, inter- 
 lock their interests. Under a law of interdependence which 
 necessitates mutual exchanges — the giving and receiving 
 of benefits — human intercourse runs into civilization, and 
 no limits can be set to either its extension or the variety 
 and intricacy of its relations. The structure of the world 
 furnishes the means of exchange or trade ; and the nature 
 of man compels him to trade. Exchange is therefore a 
 necessity hy the fixed co7iditions of our heing. 
 
 The same thing appears in another light. We have 
 seen that for the production of wealth, human labor must 
 
NECESSITY OF EXCHANGE. 271 
 
 be applied to objects of fiature. The labor thus put forth 
 establishes a right of property, partial or incomplete, over 
 the objects produced ; and the title to possession thus 
 secured, is exclusive mid transfer cible. But different per- 
 sons are constituted by the Creator with different aptitudes, 
 for different hinds of labor, and with corresponding likes 
 and dislikes with respect to occupations. Both the com- 
 fort of the individual and the general advantage are pro- 
 moted by every one's devoting himself to that occupation 
 which he prefers, and for which he is especially fitted. 
 Each will do his best and achieve the largest results when 
 his efforts are put forth in accordance with the bent of his 
 own genius and inclination. Under such a distribution of 
 employments, however, every man becomes the producer of 
 but a single product, or, at most, of one kind of wealth, 
 and of this he produces far more than he can use for his 
 own gratification. At the same time, he has desires for 
 the enjoyment of a thousand other objects which must be 
 produced by the industry of others, each of whom has a 
 surplus like his own to be disposed of. All this varied, 
 accumulated wealth must be utterly useless, unless by some 
 process of mutual exchanges, each can get what he wants 
 by giving what he can sptare. 
 
 Furthermore, we have seen that for the most economi- 
 cal and profitable production of wealth, a much more mi- 
 nute division of labor is requisite. The diverse labor of 
 twenty men may be combined in the production of a single 
 object. The part which each performs is of little or no 
 use to anybody, except as it enters into the combined 
 result. He who in a watch-factory, for instance, devotes 
 all his labor to making little screws by the thousand, can 
 put the things which he ])roduces to no immediate use for 
 liimself ; pt-ifoct and beautiful as they are, a bushel of 
 them will do nothing to satisfy the cravings of hunger. 
 A hundred men may each contribute some part towards 
 
272 BXCHANOB. 
 
 the structure of a steam-engine and no one of them can 
 ever turn to his own benefit either the part which he makes 
 or the whole machine, if he were allowed to appropriate it. 
 In this ease, and in hundreds of similar cases, there is an 
 absolute necessity of some system of exchanges through 
 which the one total value made up by the labor of many 
 different hands, can he hrohen up and distributed so thai 
 each one^s varied wants may de met and satisfied. 
 
 We may say then, in brief, that the diversity of nature's 
 resources, the diversity of human mpacities, and the wide 
 reach of human desires, all of which prescribe for human 
 industry the principle of division of labor, necessitate ex- 
 change. The conditions of our being demand the pro- 
 cesses of exchange as imperatively as the processes of 
 production. Without exchange, there could be no divis- 
 ion of labor, and of course only the smallest possible 
 amount of production. Without exchange, there would 
 rarely be any stimulus to labor, for labor could add but 
 little to our means of gratification, beyond the most abso- 
 lute necessaries of life. There would be no stimulus to 
 form society, since, as man depended solely on himself, he 
 might as well be solitary as social. Hence, all progress in 
 civilization would be barred, and the generations of men 
 would be held forever within the limitations, doomed to 
 the comparative isolation of the savage state. 
 
 The same principles apply with equal force to the ex- 
 changes between different 7iations. 
 
 The aptitudes of different nations for the creation of 
 different products, has in many cases been fixed by un- 
 changeable, geogra})hical, and physiological law. Cotton, 
 coffee, spices, dye-stuffs, suoar, rice, and many of the most 
 valuable fruits and medicines, can bo cultivated only in 
 southern latitudes. Wool, wheat, and bread-stuffs gener- 
 ally, flax, and the most valuable animals, are produced 
 
INTERNATIONAL EXCHANGlJ. ^1S 
 
 only in temperate climutes. Iron is found in nortlicrn 
 latitudes, and fnrs, hemp, ;ind feathers are brought from 
 climates still further north. One country is better adiqited 
 to commerce, another to agriculture, and another to manu- 
 factures. 
 
 Besides, as we have already shown, a nation at one 
 period of its history, is better adapted to one sort of produc- 
 tion tha7i to another. When capital is scarce and land is- 
 cheap and fertile, a state is better adapted to agriculture ; 
 when capital becomes abundant and land dear, it becomes 
 gradually better adapted to manufactures. Thus nations, 
 as well as individuals, both by oi'iginal endowment and 
 accidental circumstances, have their special adaptations to 
 the creation of particular products. Nations are like indi- 
 viduals, disposed to avail themselves of the peculiar advan- 
 tages bestowed upon them by their Creator. Self-interest 
 teaches them this lesson with sufficient clearness, and they 
 >villingly practice it, if left to their own natural instincts. 
 
 It is also evident that, by each nation's devoting itself 
 to that branch of production for which it has the greatest 
 facilities, either original or acquired, its own happiness will 
 be better promoted, and a greater amount of wealth will 
 be created, than in any other manner. And while all 
 nations thus appropriate their industry, a much greater 
 amount of products will be created for the whole human 
 race, than by any change that could possibly be made. If 
 Cuba should relinquish the raising of coffee and sugar, and 
 devote herself to the raising of wheat, and New York, 
 relinquishing the culture of wheat, should betake herself 
 to the raising of coffee and sugar, would not both com- 
 munities be poorer, and would not the price of coffee, 
 sugar, and wheat be increased over the whole world ? 
 
 But, while it is thus evident that every nation is in- 
 tended by the Creator to improve its own advantages, by 
 producing that for which it has the greatest facilities, it is 
 12* 
 
^^4 EXCHAKG^. 
 
 also the fact, that every nation, and every individual of that 
 nation, desires the prodvctions of every other nation, and is 
 nappy in proportion as they are enjoyed. What nation 
 conld be liappy without the cotton of tlie south, the hemp 
 and iron of the north, or the wool, wheat and manufac- 
 hires of temperate climates ? Nay, let any one look at the 
 clothes which he wears, the furniture of his room, or tho 
 food and utensils of his table, and he will be immediately 
 convinced, that every latitude of both hemispheres, and 
 almost every country on the globe are tributary to his hap- 
 piness. His own country has peculiar adaptations, but 
 they are adaptations for but few products, while every 
 citizen of that country requires for his (Convenience, nay, 
 almost for his existence, the productions of every other 
 country. These desires can be gratified only by national 
 exchanges. Hence we see that national exchanges enter 
 into the constitution of things under which we are created, 
 as much as individual exchanges. 
 
 And the final cause of this constitution is in both cases^ 
 equally evident. Individuals are made thus dependent 
 upon each other, in order to render harmony, peace, and 
 mutual assistance, their interest as well as their duty. 
 
 And for the same reason, nations are dependent upon 
 each other. From this universal dependence, we learn 
 that God intends nations, as well as individuals, to live in 
 peace and to conduct themselves toward each other upon 
 the principles of benevolence. Where all are mutually 
 dependent, no one can prosper without increasing the pros- 
 perity of all, nor suffer without bringing suffering upon all. 
 Hence, it is as truly our interest to seek the happiness, 
 peace and prosperity of other nations, as it is to seek the 
 happiness, peace and prosperity of our own nation. 
 
 The Agents of Exchange. — The business of ex- 
 
ag:Ents of EXCHAi^GE. 2; 6 
 
 change is obviously a distinct department of useful indus- 
 try. By it, commodities, after they are produced, are 
 brought within the reach of consumers, so that they can 
 have them in such places, at such times and in such quanii- 
 ties as are most convenient. This involves labor, and sl 
 far increases the cost of the objects ; it also adds to their 
 desirableness ; hence, in both ways their value is increased. 
 The value of commodities in the last exchange which 
 passes them to the consumer is, on the average, probably 
 double that at which they pass from the hands of the origi- 
 nal producers. We have no reason to complain of this, 
 for their utility as well as their cost, is increased by every 
 step of the process. Goal at the mouth of the Pennsylvania 
 mines cannot minister to the comfort of a home in Chicago. 
 The bales of calicoes which are turned out of the mills in 
 Lowell, cannot clothe the farmers' daughters on the Illinois 
 prairies, until they have been transported, broken up and 
 distributed so that the keeper of the country store can 
 show the goods and measure off by the yard just what they 
 want. The poor laborer, who easily buys a dollar's worth 
 of sugar at a time, would deem it a hopeless undertaking 
 for him to pay for a barrel of the article at once. The 
 consumer can well afford to pay for having things pre- 
 sented, so that he can get them just where and when and 
 as they will best meet his wants. 
 
 On the other hand, the producer is no less benefited 
 by this intermediate agency. In civilized society, labor is 
 divided so that one raises farm produce, another works on 
 iron, another on wood and another on leather, etc. Now. 
 if each one is obliged to suspend his labor and go out to 
 find purchasers for his products, much time will be lost. 
 It would clearly be a great benefit to the whole community 
 if, while others are busy with their various forms of pro- 
 ductive labor, one should devote himself to the business of 
 making exchanges. Each producer might then deposit 
 
216 exchanq:^. 
 
 with him whatever he had to offer in the market, and tafc 
 in exchange whatever he found adapted to his own wants. 
 Meantime, he who gives his entire attention to exchanges, 
 learns the wants of the community, acquires by habi-, 
 good judgment in estimating the quality of the articles he 
 handles^ and exercises his invention to facilitate the sati? 
 faction of wants, to the advantage of all. Thus, the ptin 
 3iple of Division 9f labor which adds much to the economy 
 of production, is equally applicable to the industry of 
 exchange. It requires that certain persons devote them- 
 selves exclusively to this labor of effecting exchanges, and 
 that they receive a fair compensation for their service. 
 Both producers and consumers share in making up that 
 compensation by the percentage charged on the values 
 transferred ; that is, the producer sells his products to the 
 exchanger for a little less than he would receive if he sold 
 them directly to the consumer, and the consumer pays the 
 exchanger a little more for what he wants than if he bought 
 directly of the producer. But the expense of conducting 
 the exchanges is far less than it would be without such 
 intervention. 
 
 Mercliants is a general name for those who devote them- 
 selves to the business of exchange. But the principle oi 
 division of labor applied to this form of industry, intro- 
 duces a considerable variety of agents with a corresponding 
 diversity of names. We shall not attempt to present a 
 Uill list of tlie names, nor a full exposition of the various 
 forms of service rendered. But a few may be specified to 
 set forth in a general way, the phases and functions of the 
 world's multiform and wide-spread commercial operations. 
 Since by its very nature, exchange always involves giving 
 and receiving, we must recognize in the commerce of every 
 community and nation, two great currents of trade — an 
 outgoing mirrent and an incoming current. The outgoing 
 
AGENTS OF EXCHANGE. 277 
 
 current bears away what a people have to spare ; the in- 
 coming current brings back what a people want. Each ol 
 tliese cnrrents has its own agencies, at different stages of 
 ihe movement. 
 
 Let us suppose ourselves in a section of country whoee 
 chief productions are the fruits of agriculture— in the grain 
 regions of the west or the cotton regions of the. south. 
 Each farmer's crops bring him a surplus quite beyond what 
 he, can use for his own needs. How is he to dispose of it ? 
 When the country is new, he has no alternative ; he must 
 himself transport it twenty, fifty, a hundred miles, it may 
 be, to the nearest place of trade, and there make his sale, 
 and with the avails purchase whatever he most needs. But 
 as soon as settlers are sufficiently multiplied, some one 
 opens a store in the farmer's immediate neighborhood. 
 We call him a Retail merchant, for he has all sorts of goods 
 to sell, in quantities as small as any may wish. For the 
 goods he sells, he is willing to receive whatever his custom- 
 ers have to spare, making his own arrangements for trans- 
 porting the produce to a larger market. His title, retail- 
 merchant has respect only to his sales in small quantities. 
 But for the time, he occupies a double position and fulfills 
 a double function. He stands at the extreme end of the 
 line of incoming trade, for the articles which he sells mak- 
 ing the last transfer, that passes them directly to those 
 whose wants they are to satisfy. He stands also at the be- 
 ginning of the line of outgoing trade, gathering up those 
 surplus products of his neighborhood which, starting on 
 their course from his hand, are to float on the current of 
 trade, half round the world, it may be, to find their ulti- 
 mate consumers. As population grows more dense, and 
 wealth increases, another agent appears on the ground. 
 He is called sometimes a middle-man, sometimes a produce 
 buyer, sometimes a commission-dealer. By arrangement 
 with some house at a commercial centre, he is authorized 
 
^tS Exchange. 
 
 to buy fur others the grain, the cotton, the beef, the pork, 
 the wool, the eggs, the butter, the cheese, or whatever of 
 one kind or of many kinds of produce may be ordered, and 
 is compensated by a percentage or commission on the 
 rallies purchased.. To him the store-keeper readily resigns 
 one part of his business, and the rills from many fountains 
 are gathered into a regular flowing stream. With the in- 
 troduction of railways, come in the wareliouse-men, one at 
 every station, who works in a small way to send a portion 
 of the country's products into the great warehouse or ele- 
 vator of his correspondent in the commercial emporium. 
 The farmer now has his option either to sell outright to the 
 agent near home, or to send what he has to the distant 
 city, there, for a small fee, to be stored, while he takes his 
 chances with the general market. So we recognize in the 
 interior city, other agents connected with the outgoing 
 current, such as the Consignee and the Produce-broker, 
 who pass on the stores accumulated in Chicago and Buffalo, 
 to the sliipping-mercharii of the great seaport, New York or 
 Baltimore, thence to be exported to the ends of the earth, 
 as the needs of men may require. 
 
 In former times, when manufactured articles were 
 mostly made by hand in a small way, at the scattered 
 homes of workmen, such products were gathered and 
 thrown upon the current of trade, in much the same man- 
 ner as that just sketched. But the extensive use of machi- 
 nery in these later years, has concentrated manufacturing 
 industry in large establishments, whose products are passed 
 out upon the currents of trade through the agency of Fac- 
 tors or commission merchants. Each large factory or mill 
 has its agent of this kind in one of the great commercial 
 centres, to whom the greater part of the products are sent, 
 ftg soon as. finished, and he manages the sale and distribu 
 tion of them in the general market, receiving his compen- 
 sation, sometimes by salary, oftener by a percentage on 
 
AGENTS OF EXCHANGE. 270 
 
 the amount of sales. A domestic factor is one who 
 renders this service in the country in which the goods are 
 made ; a foreign factor attends to the business in anothei 
 country. 
 
 To understand the functions and agencies connected 
 with the incoming current of trade, we take our stand at 
 the port of entry, say New York. Here the agency of the 
 Im^porter is first to be noticed. He studies the wants of his 
 own country and the products and prices of foreign coun- 
 tries, generally with respect to a particular kind of com- 
 modities ; and as a real purchaser, orders what he thinks 
 the needs of the country demand. The goods thus im- 
 ported he sells generally in bulk, by sample, to the Wliole- 
 sale-mercliant. He opens them more fully and sells by 
 bale or case to the Jobber. Of him the Retail-mercliant 
 buys by the piece and smaller package, and through him, as 
 he passes them to his individual customers in such quanti- 
 ties as they desire, the distribution is complete. 
 
 To all these agents, must properly be added the whole 
 (3lass of Bankers, Brohers and Dealers in exchange drafts, 
 etc., who have to do with money and credit, the instru- 
 ments of exchange ; also, those who as Under ivr iters and 
 Insurers, give special attention to guarding the risks, by 
 land and by sea, involved in trade. But these will come 
 up for more particular notice in another connection. 
 
 Thus in outline, we get a view of the manifold pro- 
 cesses and agencies of exchange. In the actual operations 
 of commerce, these functions are further divided, partially 
 combined, variously diversified, minutely ramified, so tliat 
 the complicalions of trade become extremely intricate ; and 
 yet by some hidden law of self-adjustment, the machinery 
 works out its legitimate result, so that the wants of men 
 are met, with little waste of the products of human indus- 
 try. It is an exceedingly economical arrangement. 
 Though the price which the consumer pays for his yard of 
 
280 EXCHANGE. 
 
 cloth covers something paid to the agent of every succeS- 
 
 A\e transfer through which it has passed, yet it is less, by 
 much, than it must have been without this organized sys- 
 tem of exchange. Exchangers are as necessary to the 
 'jheapness of production, as producers themselves. Let 
 competition be free with both producers and exchangers, 
 and all things will come into the consumers' hands as 
 nearly as possible at their natural value. The machinery 
 of exchange is worth all and more than all it costs. We 
 see how absurd is the outcry sometimes made against those 
 engaged in mercantile business that they produce nothing. 
 The general tendency of their service is to cheapen every- 
 thing offered in the market and to enrich the market by 
 a thousand-fold multiplication of comforts and luxuries for 
 the life of man. The laborer may sometimes feel like com 
 plaining, that the merchant has an easy time sitting at his 
 desk, while he is sweating at his -hard toil ; that the mer- 
 chant rides in his carriage, while he trudges on his weary 
 way afoot ; that the merchant is rich, while he is poor. But 
 if he considers how a hundred merchants fail, where one 
 succeeds ; how intense and wearing is the merchant's hrain- 
 worh ; how sickening often amid his perplexities, is the 
 showy style of his mode of living ; and above all, how inti- 
 mately connected are tlie services of the mercantile class 
 with both the wages which he, the laborer earns, and the 
 cheapness of everything he buys in the market for his sup- 
 port, he will hush his complaint, under the conviction that 
 no lot in life is free from its trial, and that the interests of 
 men of different occupations are so woven together that 
 adversity to one class is adversity to all, and true prosper- 
 ity for one is prosperity for all. 
 
 While we thus fully recognize the useful, indispensable 
 sei'vice rendered by the agents of commerce, sound econ- 
 omy requires that the number and expense of these agen- 
 cies be reduced as far as practicable, consistently with the 
 
AQEKTS OF EXCHANGE. 281 
 
 free and effective action of this important machinery of 
 civilized society. At the same time, there is occasion for 
 warning and protest against the abuse of the power in their 
 hands which we see sometimes practised by these agents. 
 A single trader or a company of traders combining may 
 avail themselves of their knowledge of the state of the 
 market to produce an artificial scarcity, that tliey may bv 
 suddenly raising prices rob the people and enrich them- 
 selves. Thus in the grain trade which centres in Chicago, 
 by secret conspiracy, such '' corners in wheat, ^^ have been 
 produced, to the serious injury of other dealers, and of 
 consumers and indirectly of the farmers with whose pro- 
 duce they thus gamble. Sometimes an opposite course is 
 taken, and the trader uses an advantage he has gained for 
 the hour to produce an artificial but temporary cheapness, 
 to be followed by a sudden rise of prices which will more 
 than compensate his first loss. Too many of the so-called 
 "■ Boards of Trade," not only tolerate but countenance and 
 encourage such abuses of trust and power. Both justice 
 and philanthropy cry out against such proceedings, and 
 the word of God seems to w^arrant the ban of righteous 
 indignation — '^ He that withholdeth corn, the people shall 
 curse him ; but blessing shall be upon the head of him 
 that selleth it" 
 
CHAPTER XX. 
 
 VfOT^EY AS AN INSTRUMENT OF EXCHANGE. 
 
 Money. — Exchange, like every othr,r department ol 
 industry, may be greatly facilitated by the use of proper 
 instruments. Simple Barter, that is the exchange of one 
 commodity for another without the intervention of any 
 common standard or medium, may meet all the exigencies 
 of savage life, where private property is restricted to a 
 narrow range and exchanges are few. But as society 
 emerges from that state into civilization, exchange in kind 
 becomes embarrassed by many and serious difficulties. 
 
 Suppose a man has made a table with which he desires 
 to buy bread, meat and shoes. If shut up to barter, he 
 must first find some one who wants a table of just that 
 size and style. Then he must find probably three other 
 parties who make and have to spare the articles he wants. 
 Then by a series of negotiations with them and others, he 
 must bring about such a division and distribution of the 
 value of his one table, as shall give to the baker, the 
 butcher and the shoemaker a /<35iV equivalent for that which 
 he desires from each. The outlay of time and labor neces- 
 sary to effect the desired exchange in this way, must be 
 fully equal to that required for making the table. The 
 question naturally arises, is there not some means by 
 which this expenditure, or the greater part of it, can be 
 saved ? 
 
 The difficulty is still greater when a compensation is to 
 he provided for labor. The farmer, in the spring, calls in 
 the help of a man to plow and cultivate his fields. This 
 
DIFFICULTIES OF BARTER. 383 
 
 labor will create value, but months must pass before that 
 value will appear in form to be exchanged. Meantime, 
 tlie laborer has wants that clamor iov present satisfaction ; 
 but how can those wants be provided for unless by some 
 device which shall permit the fruits of his labor to be 
 Irawn upon, before they appear in the ripened crop ? The 
 case is yet worse with the workman in an iron foundry. 
 How can he and his family be fed and clothed, if he must 
 take his pay in the iron which he helps to produce ? 
 More embarrassing still is the difficulty as labor becomes 
 minutely divided, for the most productive methods of 
 civilized industry. When a man devotes himself wholly 
 to making rivets for knife-handles, or to givmg edge or 
 polish to knife-blades, how is he to subsist by exchange in 
 kind? 
 
 It would bring some relief to these embarrassments if 
 an establishment were set up and opened as a store, where 
 all the various articles which any in the community desire 
 to exchange might be gathered under the charge of some 
 one especially skilled in negotiating exchanges. But 
 then, an ever recurring difficulty would be experienced in 
 adjusting the equation of value letween different articles, a 
 shovel and a pair of boots, for instance ; and for the com- 
 pensation of labor, especially under the minute division 
 of labor, scarcely any relief could be obtained. Under the 
 pressure of these difficulties, men have been driven to the 
 invention and adaptation of certain instruments, which 
 bear the same relation to the operations of exchange, which 
 tools and machines do to the processes of mechanical indus- 
 ♦.ry. By a common instinct of discovery and- adaptation 
 to a need universally felt, peoples of different ages and 
 countries have taken up essentially the same means of 
 relief; and their evident fitness for the purpose, rather 
 than any autln^ritative enactment, has secured their uni- 
 versal adoption. 
 
384 EXCHANGE. 
 
 Money and Credit constitute the two great instru- 
 ments of exchange. Of the two, money is both in order 
 01 time and of importance, first. It is all essential to civil- 
 ized trade, and without it the other has little or no mean 
 ing. Yet credit, though only a representative or symbol 
 of money, and always subordinate to its control, is reall} 
 the working-engine which accomplishes far the greater 
 ■part of the work ; when properly regulated, giving effect- 
 iveness and balance to a world-wide commerce, but when 
 abused, causing disturbance, convulsion and disaster 
 through the entire system. A clear apprehension of the 
 nature and functions of these two instruments of exchange 
 is of the highest importance to an understanding of the 
 science of political economy ; it is of no less consequence 
 to the successful practical management of mercantile busi 
 ness and of public finance. We attempt, therefore, a clear 
 and distinct exposition of elementary truths pertaining to 
 these two things, with fullness enough to indicate at least, 
 the chief points of its practical application. 
 
 Money may M defined to he some useful 'product of labor 
 ivhich serves as a standard of value hy wliich wealth of every 
 Jcind is measured^ and as an instrument hy which one kind 
 of tvealth can be exchanged for another. 
 
 Let the two functions of money be carefully observed. 
 
 First, Money establishes a universal standard of Value 
 
 Second, Money is a Medium for the exchange of Values. 
 
 In its first-named function, as a means of ascertaining 
 the relative value of different commodities, money per- 
 forms an office precisely like that of a pound-weight, or a 
 yard-stick or a gallon-measure. As each of these is ad- 
 justed to be a standard measure of a certain quality, one 
 of weight, another of lengtli, and another of capacity, so 
 the money-dollar is adjusted to be a standard measure of 
 the quality called value. Whatever is thus used for the 
 
MOKEY A STAND AKD Oi^' VALUE. 285 
 
 measurernent of a quality must itself j^ossess the quality in 
 question. You cannot weigh a piece of meat with a raj 
 of moonlight, nor get the length of a piece of cloth by 
 means of a drop of quicksilver, nor measure a gallon of 
 alcohol with the edge of a knife-blade. No more can you 
 define the value of these or any other objects by unreal 
 notions or shadowy symbols. Only a thing of value can 
 measure value. 
 
 According to our definition, value maybe resolved into 
 two elements, viz., utility or desirableness, and cost, the 
 exponent of labor. Whatever substance then, is used as 
 money, must be capable, in some way, of ministering to 
 me?i^s gratification, so tliat it shall be generally desired, 
 and the nearer it comes to being always and everywhere 
 desired, the better is it fitted for its purpose as money. It 
 must be also a substance which can be obtained only hy 
 labor, and the more uniform the amount of labor found 
 necessary to obtain it, the better is it fitted for its purpose 
 as money. These elements must be combined^ neither is 
 suflScient of itself to form value. Nothing in the world is 
 m.ore useful than the air we breathe. All men desire it ; 
 without it they die. But it has no value. You cannot 
 bring it into the market as an article of exchange, because 
 it is furnished freely to all, without labor — it costs noth- 
 ing. So too, there may be exhibited to you the result of 
 weeks and months of labor on the part of one who tried to 
 make a flying machine. After all is done, the thing has 
 no beauty to cause it to be desired. There is no want of 
 man which it can possibly be made to gratify. It has cost 
 a deal of labor, but it has no value, for it can be put to no 
 use whatever. The value of money therefore depends upon 
 the combination of these two elements in the substance 
 employed. Both are indispensable. Hence in our defini- 
 tion, we say that the substance of money is ** some useful 
 product of labor J*' 
 
'ZS6 EXCHANGE. 
 
 It is of the highest importance that any standard of 
 measurement should be fixed luitli ea-actness and Tcept m 
 invariable as possible. When a standard unit of measure- 
 ment for the material qualities of length, surface, volume 
 and weight was to be determined for the French govern- 
 ment, nearly a hundred years ago, the Academy of Sciences 
 recommended that one ten millionth of the quadrant 61 a 
 terrestrial meridian be taken. Seven years of great labor 
 were occupied in ascertaining with nicest exactness the 
 length of that linear base, called the Metre. By this, the 
 unit of surface, the unit of volume, and the unit of weight 
 were determined wdth equal care and the metric system 
 was made as nearly perfect as any human device can be. 
 Nature furnishes us no such absolutely fixed and invaria- 
 ble unit of value. But it certainly behooves men to select 
 for their standard of value, the most stable and unaltera- 
 ble thing to be found in nature. All the transactions and 
 contracts of trade depend upon precise determinations of 
 the values involved. If the standard of measurement is 
 variable, all these operations must be attended with uncer- 
 tainty and confusion. Hence the importance of securing 
 to money the utmost possible precision and stability of 
 value. " All substitutes for it, all modes of economizing 
 or facilitating its use, are equitable and legitimate only so 
 far as they preserve its essential attributes of precision and 
 unchangeableness." All things are exchanged with refer- 
 ence directly or indirectly to their prices ; but price is 
 value measured by money. Hence money, as a universal 
 standard for the measurement of value, is an indispensable 
 agent of commerce. 
 
 Money in its second function, as a Medium of exchange ^ 
 also performs a very essential service in the commerce of 
 the world. The real object of all trade is to effect an in- 
 terchange of commodities. The actual wants of men are 
 
MON^EY A MEDIUM OF EXCHANGE. 287 
 
 met only as every one, by parting with one article, may 
 secure some other article which he needs. The viiflBculty 
 of doing this directly has been already noticed. Thai 
 difficulty is overcome by the intervention of Money, a third 
 article, which all desire, partly for some intrinsic qualities 
 wliich it possesses, but more for its adaptedness to just 
 tllis function of a medium. By means of it, what cannot 
 be effected by one exchange may be easily accomplished by 
 two. The man can sell his table for money. The money 
 is easily divided, and the baker, the butcher and the shoe- 
 maker are quite ready for their respective portions, of the 
 monev, to sell him the bread and meat and shoe.< which 
 will satisfy his pressing wants. Through this m:.Jium, by 
 two exchanges, the end is easily attained, which oould not 
 be attained by one exchange without vastly more of trouble 
 and labor. This common medium must eviden ly be some 
 emhodiinent of value, which one can safely receive for the 
 commodity he wishes to part with, because he Knows that 
 it will be received by others at the same valuation, for 
 whatever he may wish to purchase. 
 
 The essential qualities of such a common medium of 
 exchange, are three : 
 
 First, Precision and Stalility of value, the same qual- 
 ity which we saw to be of highest consequence, for the 
 first named function of money. 
 
 Second, Universal Acceptahleness so that it will readily 
 be received by everybody for whatever he has to dispose of. 
 
 Third, Divisibility into parts, representing, without 
 loss of value, different degrees of value, so as to furnish an 
 exact equivalent of any required amount. 
 
 We can conceive that one substance might be adopted 
 as a standard of value, and another employed as a medium 
 of exchange. Thus wheat might be selected as the standard 
 to which every thing else should be referred, and certain 
 beautiful African shells called cowries, having been first 
 
288 EXCHANGE. 
 
 measured and marked by that standard, might be used as 
 counters in the actual transfer of articles. But such an 
 arrangement would involve many inconveniences. There 
 would always be something arbitrary and uncertain in the 
 adjustment of the two to each other, and the necessity of 
 keeping in mind two objects, so different, would confuse 
 and complicate all operations. Hence the necessity that 
 the same substance should fulfill these two functions, and 
 that it should combine the qualities necessary for both. 
 
 This does not imply hoiuever, that money as a 7)iedium 
 must be actually used in every exchange that is made. 
 When once a standard of value is defined, different com- 
 modities can be measured by it, and then interchanged by 
 being offset against each other according to their respect- 
 ive values. Thus the farmer's wife brings her basket of 
 eggs and her firkin of butter to the village grocer. In 
 terms of money, she sets her price for these articles, and 
 he in like manner, names his prices for the tea and sugar 
 and spice she wants, and the trade is at once adjusted and 
 consummated without any payment of money on either 
 side. The same thing is going on all the time, on an im- 
 mense scale, in the commerce between New York and 
 Liverpool. By processes hereafter to be explained, ship- 
 loads of wheat are balanced off against ship-loads of manu- 
 factured goods, the values on either side amounting to 
 millions of dollars, without the actual payment of any 
 money. Thus through the function of money as a meas- 
 ure of value, the greater part of the trade of the world 
 oecomes really exchange in kind. Yet this cannot be, 
 except as there is money within reach to be used as a 
 medium of exchange when an exigency demands its inter- 
 position. Li the last settlement, the balance must be paid 
 \n money, and at every step the reclconing is kept in money'' s 
 ■vorth. 
 
 Since wealth is continued and increased only })} 
 
ARtTPLES USED AS MONEf. 289 
 
 fepeated prooeRses of consumption and reproduction, in- 
 \rolvingan interminable succession of exchanges ; and since 
 money is the constant medium of exchange, wealth of 
 every kind must more or less frequently, for a longer or 
 shorter time, appear in the form of money. Every thing 
 that has value ivill come at some time or other to have it.'- 
 price and be estimated in terms of money. This close iden- 
 tification of all wealth with money, in whose form it some- 
 times appears, has occasioned the mistake noticed in a 
 previous part of this work, of resolving all wealth into 
 money, so that money is regarded as the most desirable of 
 all things to be brought into a country. The best correc- 
 tion of this mistake comes from a clear apprehension of 
 the true nature of money, as a simple instrument of ex- 
 change, fulfilling its two important functions ; itself form- 
 mg but a very small part of the world's wealth and capable 
 of increasing wealth only indirectly, as it facilitates those 
 multifarious exchanges which carry every kind of wealth 
 where it is most needed to satisfy the wants of men. 
 
 Any article which has value may be made to perform 
 the functions of money. Thus by different nations and in 
 different ages of the world, various articles have been em- 
 ployed. Among pastoral nations, cattle have been quite 
 commonly employed as the chief instrument of exchange. 
 Homer tells us that the armor of Diomede cost nine oxen. 
 So the wealth of the patriarch Job is estimated by 
 the number of his sheep and camels and oxen and asses. 
 Hence, probably, arose the custom among the Greeks and 
 Romans of stamping their earliest coin with the figure of 
 an ox or sheep. Thus the Latin word for money, pecunia 
 is supposed to be derived from peciis, cattle. In ancient 
 Syracuse and Britain, money was made of tin, in Sparta of 
 iron. We find used for the same purpose, a preparation 
 of leather among the Oartliaginians, platinum in Russia, 
 13 
 
290 fixcfliKG:fi. 
 
 lead ill Burmah. nails in Scotland, pieces of silk among the 
 Chinese, cubes of pressed tea in Tartary, salt in Abyssinia, 
 cowrie shells on the coast of Africa, slaves among the 
 Anglo-Saxons, tobacco in Virginia, codfish in Newfonnd- 
 Inud, bullets and wampum in the early history of Massa- 
 chusetts, logwood in Campeachy, sugar in the West-Indies, 
 soap in Mexico. But from the time of Abraham, when he 
 paid (Gen. xxiii : IG) to the children of Heth " thr^ee hun- 
 dred shekels of silver, current money lolth the merchant " 
 — the earliest record of a purchase with money — till now, 
 gold and silver have been employed as the money of the 
 world with civilized and commercial people. In most of 
 the cases mentioned, when other articles were employed, 
 the standard of value was recognized as set by the precious 
 metals, and on account of the scarcity of these metals, the 
 other things named were used as a medium of exchange. 
 Thus the wampum and bullets of Massachusetts, the 
 tobacco of Virginia and the sugar of the West Indies, 
 passed from hand to hand, to effect particular exchanges, 
 with a commercial value, more or less distinctly recognized 
 in terms of silver or gold. It should be noted that when 
 anything that has been used as money is devoted to any 
 other use, its functions as money cease. Gold coin turned 
 into gold plate, just as really as tobacco or sugar passed to 
 a consumer, is no longer money. 
 
 Whatever Substance is used as Money must 
 be Universally desired as such. — Its object is to 
 facilitate exchanges, but it can accomplish this object only 
 oy means of the willingness of the whole community to 
 exchange for it everything which they are willing to jiai t 
 with. If one individual of a community prefers one sub- 
 stance, and another individual another, exchanges will be 
 embarrassed by unnecessary complication, and by the use- 
 less consumption of time. And if on the other hand, any 
 
KECESSARY QUALITIES OF MONEY. 291 
 
 substance is thus universally desired, on account of the 
 great facilities which it offers, and the great saving oi 
 labor which it effects, it will be immediately used for this 
 purpose. And it will be so used without any agency of 
 government, and even though a government did not exist, 
 just as a man will use any other instrument for increasing 
 the productiveness of his labor as soon as he can procure 
 it, simply for the reason that it is for his advantage. 
 
 , If the exchanges of a country were wholly internal, it 
 would be suflBcient that such a medium were universally 
 acceptable in that country alone. But, inasmuch as every 
 nation has important and extensive exchanges with other 
 nations, it is an additional advantage to have the same 
 substance used as a medium of exchange. That exchange 
 is the most profitable for a country, in which it exports 
 what is relatively most abundant at home, and imports 
 that which is relatively most wanted at home ; and imports 
 it from that country in which, what it exports is most 
 wanted, and what it imports is most abundant. Now it is 
 evident that money may be accumulated in any country, 
 so that it shall be relatively lower in value than other com- 
 modities. Thus, the precious metals may be so abundant 
 in this country, that a merchant can procure more iron in 
 Kussia by sending a given amount of gold, than by send 
 ing the flour which would here be equal in value to the 
 gold. It is therefore for his advantage to send the gold, 
 and it is equally for the advantage of his country. And 
 for the same reason, if in this country there is a relative 
 scarcity, it will be for the advantage of other nations, as 
 well as for our advantage, that they should send gold or 
 siher in exchange for onr products. In this manner, ex- 
 changes are made, of that which is least wanted by both 
 parties, for that which is most wanted by both. This 
 enables both parties to supply themselves at the lowest 
 rates. 
 
292 BCXHAKGfi. 
 
 Besides, it ia very desirable that the value of money M 
 as mile as possible liable to fluctuatioji. Now if the same 
 substances are used in all the civilized world, this fluctua- 
 tion, if not absolutely prevented, will be so restricted, as 
 to produce the least possible amount of evil. When ex- 
 (;hanges between countries are frequent and numerous, 
 and the prices of all commodities are universally known 
 by the merchants of both, as specie may be sent abroad 
 with very little cost of transportation, a very sl'ght advance 
 in its relative value will cause it to flow in from other 
 countries, and a very slight surplus will cause it to flow to 
 other countries, until the common equilibrium is restored. 
 In this, we see in what manner the universal employment 
 of the same substances, by all nations holdinfj intercourse 
 with each other, will be an advantage to all ; inasmuch as 
 it will prevent any great fluctuation in their rektive value 
 in any particular country. 
 
 The adoption by a community or state of a kind of 
 money which is not acceptable in other countries, neces- 
 sarily excludes that people in great measure from the com- 
 merce of the world. Thus in ancient Sparta, in order to 
 maintain the policy of isolation which ruled the state, and 
 to restrict all foreign commerce, it was enacted that the 
 money of the state should be of iron alone. This measure 
 had the effect to repress trade, but it also made the Spar- 
 tans the most venal and corrupt of all the peoples of 
 Greece. For the free and prosperous commerce of civil- 
 ized nations, it is of the highest importance that the stand- 
 ard of value and medium of exchange adopted by them be 
 uniform. The circulation in a country of an irredeema- 
 ble paper money, or the adoption of a standard of specie, 
 at variance with that in use among other commercial 
 nations, must inevitably impede the trade and impair the 
 industry of that country. 
 
QUALITIES OF GOLD AI^D SILVER. 293 
 
 The special adaptedness of Gold and Silver 
 for the functions of money is due to certain qualities 
 which ui-e found peculiarly combined in these metals. 
 These qualities should be specifically noticed. 
 
 1. Gold and silver are intrinsically desiraUe. Their 
 brilliancy, their malleability, their resistance of corrosion 
 and their permanence fit ttiem especially for ornaments 
 for the person, for plate and for the manifold decoration 
 of temples, houses and equipages. Articles made of these 
 materials or adorned by them have an intrinsic beauty 
 which gratifies the taste of men universally. They are 
 desired by rude and cultivated people alike. This taste, 
 which has been uniform and enduring through the ages, is 
 not likely ever to change or pass away. We have reason 
 to believe that those which are fitly called the 2)recious 
 metals will always be sought after for tliese and other 
 more substantial uses to which they may be applied. Their 
 further use as money only enhances and makes more con- 
 stant and steady their general desirableness. 
 
 2. These metals «re obtainable only by labor ; and the 
 amount of labor necessary to obtain them is more invariable 
 than that which inrtains to other siibstances. Occasionally 
 in California or in Australia, one mav have chanced sud- 
 denly to find a nugget of pure gold, but ordinarily, gold 
 and silver are obtained as the fruit of labor in long and 
 patient search, washing sands, breaking rocks, reducing 
 ores and separating the metal from other substances with 
 which in nature it is associated or combined. The amount 
 produced is directly and immediately dependent on the 
 labor employed Twice in the history of the world, viz., 
 on the first discovery of America, and on the unfolding of 
 the mineral treasures of California, Australia and the 
 Rocky Mountains, there was a sudden increase of the 
 amount of these metals in the world's market. But in 
 both cases, this increase of the material of money was fol- 
 
§94 EXCHANG E. 
 
 lowed very closely by nn expansion of the commerce of the 
 world which caused a corresponding increase in the demand 
 for money, so that the equilibrium between supply and 
 demand was but slightly disturbed. 
 
 As we have seen, the two elements of value are desira- 
 bleness, and cost measured hy the Idbornecessary to obtain a 
 rfivcn object. In respect to both these elements, gold and 
 silver are permanent and uniform beyond any other pro- 
 ducts of human labor. Hence their value is less fluctua- 
 ting, more stable than that of anything else, and therefore 
 they are best adapted to fulfill the functions of money. 
 
 3. These metals concentrate within a small bulk a large 
 amount of value. In the use of them as the instrument of 
 exchange, much labor of transportation is saved. They 
 are conveniently portable. A man may easily carry in his 
 pocket, the value of a wagon -load of wheat, or a car-load 
 of cattle, when put into the form of gold. At the same 
 time, their value is not too much concentrated as is the 
 case with diamonds. 
 
 4. These substances are ca'pahle of minute Division 
 without loss of value. This is a quality essential for facili- 
 tating all sorts of exchanges. A gold eagle or a silver dol- 
 lar may be divided into ten equal parts and each piece will 
 have the value of just one- tenth of the original coin ; the 
 value of all the pieces together will be equal to the value 
 of the one whole piece. A large diamond is worth several 
 times its weight of small diamonds, and once broken into 
 pieces, its original value can never be restored. 
 
 5. These metals are of uniform Quality. Gold and 
 silver pure are always and everywhere the same. At the 
 same time they may be readily alloyed that they may 
 be rendered harder and so better adapted to use as money. 
 But they can easily be refined and restored to their origi- 
 nal purity without loss. 
 
 6. These substances are of such a nature that their value 
 
QUALITIES OF GOLD AND SILVER. 295 
 
 can be easily verified. They are malleable^ easily wrought 
 into auy shape, and capable of receiving and retaining a 
 distinct impression. Their brilliant lustre, their unifoi-n: 
 weight and their resistance to the action of acids, make it 
 easy to distinguish them and to detect adulteration. 
 
 ?. These metals are nearly IndestrudiUe ly accident Of 
 use. No ordinary fire consumes them. They are not de 
 composed by atmospheric influences. They wear away 
 very slowly. "It has been asc-ertained, from data care- 
 fully obtained in the bank of England, that gold in coin 
 loses only 4.16 per cent in one hundred years, or about one 
 per cent in twenty-five years." 
 
 8. These ttvo metals are adapted to each other, for the 
 different exchanges, large and small, ivhich the trade of civ- 
 ilized countries requires. If gold should be so minutely 
 divided as to represent very small values, the pieces would 
 be counted with difficulty, and easily lost. If silver alone 
 were used for all exchanges, its great bulk, when large 
 values were represented, would involve much inconve- 
 nience. It is a great advantage to have the two metals, to 
 be used as money, the one for large, and the other for 
 small values. If each has its natural sphere defined, and 
 is held to its own peculiar function, the slight variations 
 in their relative value, which from time to time occur, will 
 work no serious evil. 
 
 It is because gold and silver possess these essential 
 qualities for the functions of money, that they have been 
 so long and so universally employed as the money of the 
 world. We use them as an instrument of excliange. not 
 because they bear a certain stamp, nor because government 
 has made them a legal tender, but because we know tliat 
 they represent a given amount of value, and that therefoi'e 
 we can exchange them for the same amount of value when- 
 ever we please. In the strictest sense, the only Real 
 money consists of these precious metals in the form of coin 
 
296 i!XCHAKGK. 
 
 stamped and issued by government authority. The various 
 representatives and substitutes for this ■which are employea, 
 are properly embraced in the broader term currency, and 
 will be noticed in treating of credit. 
 
 The views given of the nature and functions of money 
 establish certain truths which are worthy of distinct state- 
 ment. 
 
 1. Since cost of production is the basis of value, in 
 every exchange the cost of the money employed is to he 
 regarded as equal to the cost of the article for which it is 
 exchanged. If a barrel of flour in Lima is exchanged for 
 ten dollars, the cost of producing the flour and of trans- 
 porting it to Lima is equal to the cost of producing the 
 silver and transporting it. Mr. McCulloch says, " What- 
 ever may be the advantages attending the use of coined 
 money, its introduction does not affect the nature of ex- 
 changes. Equivalents are still given for equivalents. The 
 exchange of a quarter of corn for an ounce of pure unfash- 
 ioned gold bullion is undeniably as much a real barter as 
 if it had been exchanged for an ox or a barrel of beer. 
 But supposing the metal to have been formed into a coin, 
 that circumstance, it is plain, could have made no change 
 in the barter. A coin is merely a piece of metal of known 
 weight and fineness ; and the commodities exchanged for 
 it are always held to be of equal value." 
 
 2. The general use ly all nations of the same hind of 
 money as the i^istrument of exchange, and the U7iiversal 
 freedom of commerce everywhere must serve to equalize any 
 variations in the cost or in the supply of rnoney. The 
 opening of new and richer mines, or the use of improved 
 means for extracting the metals, may cheapen money. 
 The value of money, like that of any other commodity, is 
 also affected in short periods by fluctuations of supply and 
 demand. But the commerce of the ivcrld is the great reser- 
 
PROPORTIOi^ OF MOifEY TO AMOUNT OF TRADE. 297 
 
 voir, the ocean encompassing the globe, into which all con- 
 tributing streams of money flow, and its level is essentially 
 the same everywhere, varied only by considerable lapses of 
 time. If there is more money in a country than is needed 
 for its exchanges, the price of goods is raised and it is sent 
 abroad for new purchases. If there is a scarcity of money 
 in a country, the price of goods declines and money comes 
 in from other lands to be exchanged for them. Thus by 
 a law as simple and constant as that of the tides, the 
 money-market regulates itself, provided only trade is free 
 and money is real and the same everywhere. 
 
 3. The amount of money in any one country and in all 
 countries is very small in proportion to the lohole amount 
 of wealth and of values exchanged. As a standard of value 
 money may be said to regulate all exchanges. As a medium 
 of transfer, it is actually employed in comparatively few, 
 and performs its office with great ra'pidity. By the simple 
 process of keeping accounts, which are occasionally bal- 
 anced, a little money suffices for the exchanges of any 
 community. By like means, in yet greater degree, are the 
 large operations of trade between different nations, con- 
 ducted without the transportation of much money. It 
 flows from one country to another only in the process of 
 equalization just spoken of. So far as it is employed in a 
 particular community, the same money may be used ten 
 times or more in a day, each time fulfilling its purpose. 
 In general, the more freely it flows, the more rapidly it 
 passes from hand to hand, the better for the prosperity of 
 business. 
 
 4. An increase of the amount of money in a country is 
 of no advantage unless it is demanded by an increase of 
 production and of active trade. It must be remembered 
 that money is only an instrument or a machine like a 
 plough or a power-loom. It is of no advantage to a com- 
 munity to have a hundred ploughs when only fifty can be 
 
 X3* 
 
298 EXCHAKGE. 
 
 used, or forty looms when twenty will do all the work. 
 So, if one million dollars serves all the purposes of exchange 
 in a city, to double the amount of money will bring no 
 benefit. If it is a city isolated from the rest of the world, 
 such an increase will merely double prices, that is, twice 
 as much money will be used in every exchange. If its 
 trade with other places is free, the superfluous money will 
 float away on the tide of commerce to some point where it 
 is needed, just as a surplus of wheat or cotton goods or 
 any other commodity must do. 
 
 5. The abundance or scarcity of money in a country is 
 not of itself a trustworthy itidex of prosjjerity. We need 
 to look back of the fact to its cause. If money is abundant 
 because business is stagnant and exchanges are few, it is a 
 sign of adversity rather than of prosperity. If a scarcity 
 of money is caused by an increase of products and great 
 activity of trade, it indicates a prosperous condition. In 
 countries containing rich mines of the precious metals, 
 money or the material for money becomes a product of 
 regular industry, and its abundance is a favorable sign. In 
 another country money may be very scarce, because from 
 its scanty resources or on account of the degradation of its 
 people, little is produced which can be exported to bring 
 money in exchange. In this case the scarcity of money is 
 a sign of poverty. 
 
 6. The oft-repeated maxim, '' It matters 7iot what be- 
 comes of property, so lo7ig as the 7noney is in the country, ^^ 
 IS false and mischievous. The great fire of 1872, in Chi- 
 cago, within thirty-six hours, consumed property valued 
 at about two hundred million dollars. But the vaults 
 and safes of the banks protected the money of the city so 
 that at most, a few thousand dollars would cover all that 
 was lost in that form. Did the fact that the money was 
 ^;;ved compensate in the least for that wasteful destruc- 
 tion of every other kind of wealth ? Contributions from 
 
AGENCY OF GOVEKNMENT. 299 
 
 all parts of the world provided immediate necessities for 
 the relief of suffering. With means obtained largely bj 
 credit, the city was rapidly rebuilt. The pressure of the 
 burden of loss was thus eased and postponed for a time. 
 But at length by the embarrassments and failures of 1876-7, 
 the people of that city and many in other parts of the 
 country were made to understand that it does matter what 
 becomes of the property of a country. Labor and capital 
 valued at a million dollars may have been expended inset- 
 ting up a great manufactory which has proved an utter 
 failure. So much property is thereby lost. Are not those 
 who so invested their capital and the whole community so 
 much poorer for that useless outlay ? Does the fact that 
 the money paid out in erecting and putting up the estab- 
 lishment is still circulating among the people change the 
 essential feature of a dead loss ? That money was but the 
 instrument by which so much wealth was thrown away ; 
 whatever other purposes it may serve, it cannot now bring 
 back to the owners what they have lost. If a thief in the 
 night had emptied your store-house with a wheel-barrow, 
 you could not easily be convinced that it made no differ- 
 ence, you were no poorer, since he had left the wheelbar- 
 row behind. 
 
 It is the complications of credit with money, hereafter 
 to be considered, which mystify most minds on this sub- 
 ject and really produce a great part of the apparent varia- 
 tions in the value of money, in different countries and at 
 different epochs. 
 
 The Agency of Government with respect to 
 Money. — Men use money in exchanges, for the same 
 i-eason that they use hammers for the purpose of driving; 
 '\iiils, because they find that they thus save time and labor. 
 
 Had governments no agency at all in the matter^ the 
 precious metals, as an instrument of exchange, might have 
 
300 EXCHANGE. 
 
 been both introduced, and universally employed ; and they 
 would have been so introduced and employed, as they act- 
 ually luere in the time of Abraham. Hence, as we have 
 before remarked, these metals derive their use as money 
 from their inherent fitness, and the desire of men so to 
 employ them, and not from any agency of government. 
 While, however, this is the case, and while this is always 
 to be borne in mind, there is yet some agency, which 
 society, or government, which is its agent, may exert, that 
 shall increase the convenience of whatever may be used 
 as money. 
 
 This agency has reference to two objects. 
 
 Birst, Whenever any substance has been found univer- 
 sally adapted for the purposes of exchange, it is importani 
 that it should be used by all men, unless something to the 
 contrary be specified by particular contract. If I owe a 
 man for a hat, and when I come to pay him, he demands 
 payment, not in silver, but in beaver skins, I may not be 
 able to procure them and he may hold me his debtor and 
 deal with me accordingly. If, instead of paying liim in 
 silver, I offer him leather, and declare that I will pay him 
 nothing else, he will be defrauded out of his due. Now, 
 to prevent disputes without end, it is desirable that some- 
 thing be fixed upon, the tender of which shall discharge 
 forever the debtor's obligation. And as this would most 
 naturally and most justly be the substance which all men 
 accept as money, this is most properly chosen. Hence, 
 society or government has a right to establish the precious 
 metals as a Legal Tender j that is, to enact that if a man 
 declares that I owe him ten dollars, and I offer him ten 
 silver dollars, if he chooses not to receive them, I am 
 nnder no obligation to give myself any more trouble about 
 it. The tender, on my part, is a full release. I am under 
 no obligation to offer anything else ; and he has no right 
 to demand anything else. Nor is there in this any oppres* 
 
COIKAGE. 301 
 
 sion. If a man wishes to be paid in something besides 
 money, he can always specify it in the contract, and thus 
 his object can be accomplished. The whole effect of such 
 a law is to prevent disputes, and to enact what shall be a 
 full and valid release from obligation, when nothing spe 
 cific has been agreed upon. 
 
 Second, The utility of whatever is used as money 
 will be greatly increased by its careful preparation for its 
 purpose. This is accomplished by the process called 
 CO tuning. 
 
 It is evident that the preparation of coin for the public 
 use could never be safely entrusted to individuals. The 
 temptations to dishonesty are too great for ordinary human 
 virtue. Such a work should be executed by those, whose 
 interest would lead them to perform it with the greatest 
 possible fidelity. Hence, in all civilized countries, indi- 
 viduals have surrendered the right of coining money to 
 the government, to be exercised by agents appointed for 
 that purpose. These agents should be men of science and 
 skill, acting in such circumstances that their interest will 
 be strongly on the side of honesty, and under such super- 
 vision that any failure of either skill or integrity can be 
 easily detected. 
 
 In coining the precious metals to make them money, 
 the government must have regard to the convenience of the 
 public in three particulars, viz., the Quality of the coin, 
 its Size and its Form. 
 
 1. The metal of the coinage must be of uniform purity. 
 Were it otherwise, every piece must be tested by chemical 
 analysis. Since money is liable to loss from wear, and 
 since it is very difficult to bring the precious metals to a 
 condition of absolute purity, it is found of advantage to 
 mingle some portion of alloy Avitli the metal as it is pre- 
 pared for coining. This renders the metal harder, and 
 makes it feasible to set the standard of purity at an exact 
 
302 ^ EXCHANGE. 
 
 point. The degree of this adulteration should, however. 
 be fixed by law, making it invariable and publicly known. 
 
 2. The coins imist be of Sizes most convenient for tht 
 purposes of excliange. If made too large, they cannot well 
 be carried about ; if too small, they are easily lost and in- 
 volve much time and trouble in counting. Hence, the 
 advantage of using two or three diiferent metals, gold for 
 the higher values, silver for a lower grade, and copper for 
 the lowest of all. The relative proportion of the pieces to 
 each other should be adjusted so that all can be conve- 
 niently enumerated. On this account, the decimal system 
 adopted in the United States and in France is probably 
 preferable to any other. The size once fixed upon should 
 remain invariable. 
 
 3. The coins should hear such Forms that each piece shall 
 indicate distinctly its value. If any portion of the metal 
 has been feloniously abstracted, the fact should appear in 
 a change of form. For convenience in counting and pil- 
 ing, flat coins are preferable. To present the least surface 
 to friction, some thickness is desirable. The surface needs 
 to bear some variety of impression, so that if the metal 
 is filed or worn away, it may be apparent ; the same pur- 
 pose is subserved by milling the edges. The effect of 
 friction is further obviated by raising a rim on the edge of 
 the coin. It would be of advantage also, if the amount of 
 pure metal in every piece were stamped upon its face, so as 
 to give assurance that the quality of the coin is unimpaired. 
 
 The true office of the government in this business of 
 coining money is simply to promote the convenience of the 
 public by verifying and giving definite form to that which 
 is the world's chosen standard of value and medium of ex 
 change. In principle, it is precisely the same thing which 
 it does in establishing standard measures of length, sur- 
 face, weight and capacity. Its action in the two cases 
 differs only in this, that with respect to the other meas- 
 
COINAOB. 303 
 
 ures, it can safely leave anybody to manufacture the instru- 
 ments to be used, if they will but bring them to be veri- 
 tied by comparison with its established standard ; but in 
 the case of money, there is a special liability to fraud and 
 deception, which is best obviated by the government pre- 
 paring, under its own authority and supervision, the instru- 
 ments which are to be used in measuring values. 
 
 Since the manufacture of coins requires considerable 
 labor with expensive machinery, and since the metal coined 
 has additional value from the means of verification con- 
 ferred upon it, which inures to the benefit of the owner, it 
 is right that the oioner should pay for the service ren- 
 dered. It is common therefore, when a person brings bull- 
 ion to the mint to be coined, for the government to require 
 a small payment for the operation. This charge is techni- 
 cally called Seignorage. It should be no more than just 
 sufficient to defray the expenses of the work, otherwise 
 private individuals will be tempted to undertake the busi- 
 ness for gain. The machinery and processes for coining 
 under the direction of the government are now brought to 
 such perfection, that the actual expense is very trifling. 
 It is computed to amount to only one-fifth of one per cent 
 for gold coins, and this is now the rate charged by the 
 United States government. 
 
 In continual use, coin becomes worn so that its impres- 
 sion is effaced and its value is diminished. When thus 
 unfitted for circulation, it is but fair that the government 
 should make arrangements under certain limitations, to 
 repair the loss at its own expense. It would not be right 
 that the entire loss should fall on the last holder. Accord- 
 ingly, by law, gold coins of the United States are receiva- 
 ble at the treasury, at their denominational value, when 
 not reduced in weight, after a circulation of twenty years, 
 as shown by the date of coinage, more than one half of one 
 per centum. 
 
304 EXCHANGE. 
 
 The government must also have some authority to con 
 fcrol the circulation, within its own territory, oi foreign coins. 
 Otherwise, worn and depreciated coin of other countries 
 may come in and drive out its own superior money. Some 
 years ago, our country was flooded with Spanish and 
 Mexican silver coins greatly worn, which caused our own 
 better coin to disappear. The evil was relieved by an act 
 ordering that the foreign pieces should be received only at 
 a discount of twenty per cent on their face value, though 
 they had really lost only ten per cent. The old coins were 
 immediately collected and melted up. 
 
 In the operations of international commerce hitherto, 
 great inconvenience has been caused by the heterogeneous 
 character of the monetary systeryis of different countries, in- 
 volving troublesome fractional operations in reducing the 
 coinage of one country to that of another. This matter has 
 attracted much attention of late, and earnest attempts 
 have been made to bring the civilized nations of the world 
 to adopt a system of correlated international coinage. 
 This would require only that each nation should adjust its 
 coinage to the same gold standard, determine the units of 
 its system so that they shall all possess simple numerical 
 relations, as to weight, with the gramme, the metric unit 
 of weight, and give a decimal character to the standard of 
 purity, that is, to make the coins of nine parts pure metal, 
 (gold or silver as the case may be) and one part alloy. A 
 slight change in the systems of the leading commercial 
 nations would secure this uniformity, and we trust at no 
 distant day, it will be accomplished. If with this change, 
 there could also be more fully adopted a uniform system 
 of weights and measures, the exchanges of the world 
 would bo greatly facilitated. 
 
 The legitimate agency of government with ies])ect to 
 money extends not much beyond the action we have con- 
 sidered. Laws forhidding the exportation or importation 
 
QtJUStlOK OF DOUBLE STANDARD. ^6h 
 
 of mofiey are unjust and wiscliievons. Money, like ai^j 
 other commodity, if let alone, will regulate itself. It will 
 be sent abroad or brought into a country, just as will be 
 most for the common advantage. Such restrictions inter- 
 fere with individual property-rights. A man has the same 
 right over the money he may possess, that he has over hii^ 
 cotton or wheat, or any thing else, that is, a right to ex- 
 change either loith any one or for anything on which the 
 parties may agree, as may seem for his advantage. 
 
 There may be occasion for a government, at times, to 
 alter the value of its coinage. But this ought never to be 
 done arbitrarily, nor for the advantage of the government 
 itself, nor of any class or party, but solely to subserve the 
 public convenience or advantage. Such changes neces- 
 sarily interfere with private contracts and in the relation 
 of creditors or debtors, wrong one side or the other. 
 These interests, therefore, should be carefully protected in 
 any acts changing the value of money. 
 
 For the same reason, it is obvious that nothing but ex- 
 treme necessity involving the very existence of the natioTi 
 can warrant a government in making any tiling hut gold 
 and silver a legal tender. In such an exceptional case 
 when the exigency is passed, sound policy demands that 
 the general finances of the country be restored to the basis 
 of real money, with as little delay and with as little shock 
 as possible. 
 
 The question of a Double Standard. — We have 
 seen that the use of both gold and silver as money, for 
 convenience in the adjustment of exchanges where diiferent 
 degrees of value are concerned, is highly advantageous, 
 almost indispensable. Should the standard of value be 
 defined in terms of each metal and both be made legal 
 tender to an unlimited extent ? This is a distinct ques- 
 tion, and one of no little importance. 
 
J06 EXCHANQt. 
 
 As these pages are passing through tlie press, our cotiii 
 try is much agitated ahout a proposed law for the '* re 
 yio/u'iizaiion of silver, designed to withdraw existing 
 restrictions on the coinage of that metal and to make sil- 
 ver coin an unlimited legal tender. It will not be perti- 
 nent here, to discuss this as a political measure, complies 
 ted with past acts of Congress on the subject, and witli 
 the difficult problem of a return to specie payments aftei' 
 large issues of a paper currency which the law has made a 
 legal tender for several years. Two or three phases of the 
 matter may, however, be properly noticed in the light of 
 principles already defined. 
 
 However it may be accounted for, the fact is that the 
 value of our smaller silver coins now stands at about 
 eight per cent below the standard of gold. Even the 
 trade-dollar, so much called for, though it contains a 
 larger proportion of pure metal, is still four per cent 
 inferior to gold. Silver has been legally for four years, 
 ^radically for forty years a tender only for small amounts. 
 In these circumstances, as its first effect, the proposed 
 measure would simply warrant the payment of the debts 
 of the government, and of all private debts with a depre- 
 ciated 7}ioney. So far, it impairs existing contracts and 
 works a wrong of the same i\ind with that involved in the 
 action of kings of the middle ages when they debased the 
 coin of the realm. Seen in its true light, the measure in- 
 volves this. It says to every debtor, as did the defaulting 
 steward of Christ's parable, "Sit down quickly and take 
 thy bill and write ninety-two for every hundred." In this 
 aspect, the measure is unjust and conflicts with the funda- 
 mental principles of our science. Is the necessity of the 
 case so extreme as to justify it ? 
 
 Besides, it is a law as fixed as the law of gravitation, 
 that when two kinds of money of different valuation are 
 thrown together without limitation, into the trade of a 
 
OBJ KCT Lois' S TO A DOUBLE STANDARD. SOl 
 
 country, the more valuable, as the lieavier, will sink and 
 disappear, leaving only the lighter to float on the surface 
 of current exchange. Thus the requisition that silver coin 
 shall pass, under no restriction, at the same nominal rate 
 with gold coin, which has a superior value, must inevitably 
 drive out the better money and leave the counti'y with only 
 silver money. Silver must flow in from everywhere to 
 displace the gold we now have. For in most of the civil- 
 ized nations with which our people have commerce, silver 
 is by law, or by established usage which has the force of 
 law, employed only as a subsidiary coin;ige for exchanges 
 of limited value. The effect of the measure would thus 
 be to bring into universal use in our country, a money 
 which is not generally acceptable to other nations, and so 
 Ifo throw our industry out of relation to the commerce of 
 the world, except at a disadvantage. 
 
 Furthermore, we have seen that it is of the highest 
 importance that the standard of value be as mvarialle as 
 possible. Gold and silver are both liable to some fluctua- 
 tions as the cost of their production varies, but experience 
 nas shown that of the two, gold is the more stable and 
 hence preferable for the standard. The attempt to unite 
 the two in a double standard involves the special difficulty 
 of determining and maintaining the relative values of the 
 two metals. But the ratio of these two values is very in- 
 constant. However carefully adjusted at one time, it 
 is impossible to keep it fixed. As soon as any material 
 difference appears, the cheaper will be chosen for the pay- 
 ment of obligations, and the dearer will be transferred to 
 other countries or melted up because it has a higher value 
 as bullion than as coin. Hence the necessity of frequent 
 interferences of the government with the money of a 
 country, to the disturbance of its true functions. 
 
 These fluctuations might be relieved in part, if all 
 countries were to adopt the double standard. Then money 
 
308 BXCHAKGB. 
 
 of oitlicr kind, being acceptable everywhere, whichevei 
 was in excess in one country, might find its way to some 
 other country where there might be a deficiency. Even 
 then, however, there would be a necessity, from time to 
 time, for some kind of a congress of nations to determine 
 tlie relative value of these metals. For one country by 
 itself to adopt the double standard without qualifications, 
 must inevitably work to its disadvantage, by embarrassing 
 the movements of exchange with other parts of the world. 
 The employment of silver as a subsidiary coin, making 
 it a legal tender in exchanges within defined limits of 
 value, involves no such evils and secures in the highest 
 degree, the advantages of the two metals, as each lecomes 
 the complement of the other, each fulfilling its function as 
 money, in a sphere to which the other is not adapted. 
 
CHAPTER XXI. 
 
 (^EDIT AS AN mSTEUMENT OF EXCHANGE. 
 
 The Nature of Credit. — In its generic sense, Credii 
 ih. Rehance on the trutJifulness and integrity of one's fel- 
 low-we7i. Some exercise of it is essential to the very exist- 
 ence of society. With the advance of civilization it works 
 naturally and necessarily into all the mutual relations of 
 mankind, and especially into their business intercourse. 
 According to its extent and .the soundness of its basis, it 
 becomes a sign of the social condition and character of a 
 people. It marks the chief distinction between civilized 
 and savage life. 
 
 The simplest services cannot be interchanged without 
 credit. If you hire a laborer to do a day's work, you must 
 trust him as one able and faithful to do what you wish, 
 and he must trust you for his pay until the end of the 
 day. When you take your horse to the blacksmith to be 
 shod, you commit your property to his charge, confident 
 that he will not abuse the animal, and he lays out his labor 
 and skill, assured that you will not drive off with the bene- 
 fit of his work without making due compensation. The 
 merchant puts his goods into your hands, believing that 
 you will hand him in return, the money wliich is their 
 price. So in every kind of transaction between man and 
 man, there is an interval, it may be a minute, it may be a 
 year, it may be a term of years, during which trust on one 
 or both sides must be exercised. 
 
 As a technical term of Political Economy, Ch^dit U 
 
310 t:xcfiA>fGfi. 
 
 Trust in the pro7nise of an equivalent to be rendered at a 
 future time for values immediately transferred. In the 
 machinery of Exchange, credit is thus a substitute for 
 money, with which it is more or less combined in all oper- 
 ations, exerting a mighty power for good or evil. It is 
 the chief cause of ihQ fluctuations of trade. As an instru- 
 ment of exchange, it is indispensable and yet it must oi 
 regarded as a dangerous instrument, needing to be used 
 always with some precaution. 
 
 In further treating the subject, we shall present, first 
 the Forms of credit, second the useful Functions of credit, 
 and third, the mischievous Abuses of credit. The suc- 
 ceeding chapter will be occupied with Banks as the Agents 
 of credit. 
 
 The leading Forms in which credit enters into the 
 operations of Exchange are 
 
 1. Booh- Accounts. A seller extends credit to a buyer 
 for such timQ as they may agree that the account shall 
 run. The butcher wants the baker's bread and the baker 
 wants the butcher's meat. Each makes his morning pur- 
 chase of the other to be charged in account. On the day 
 of settlement, the balance is struck and the deficiency, on 
 whichever side it may be, is paid in money, or carried to 
 new account. So a farmer may anticipate the returns of 
 his harvest by a running account at the store. In this 
 case, the promise is implied in the direction to make each 
 charge. 
 
 2 Loans. A lender gives credit to the borrower on 
 the strength of his formal promise, generally written, to 
 pay at a definite time in the future with interest, the 
 money now advanced. Thus a farmer may have a surplus 
 of products not needed for his own use. These he turns 
 into money and lends it to the blacksmith for the purchase 
 of tools and materials to set him up in business, trusting 
 
:^ORMS OF CREDIT. 311 
 
 in his iibilitj to refund him from the products of his work. 
 The promise may be sustained by security pledged, as a 
 chattel-mortgage or a mortgage on real estate. 
 
 3. Mercantile Paper. Goods are transferred from a 
 manufacturer or an importer to a jobber, or from a job- 
 oer to a retailer, to be paid for after thirty, sixty or ninety 
 days, out of the avails of a second sale. In this case, the 
 promise takes the form of a negotiable note, and the 
 extent of the credit will be limited by the character and 
 ability of the buyer. This paper may be and often is 
 passed to other hands, according to the exigencies of the 
 holder, and thus, to a limited extent, it floats in the com- 
 munity as a marketable article, subject to the regular 
 dealings of brokers and money-lenders. 
 
 4. Baiilc-deposits. The depositor gives his banker 
 credit for money put into his hands, to be paid on his order, 
 and accepts a certificate or an entry in his bank-book, as 
 the promise, the voucher for the transaction. The orders 
 by which these deposits are drawn out are called checks, 
 by means of which, credit in this form, may float about 
 with a limited circulation, at home ; and as the basis of 
 bills of exchange, hereafter to be more fully explained, 
 credit may thus reach round the globe, performing a very 
 important part in the exchanges of individuals and of 
 nations. 
 
 6. Stocks. A number of individuals may enter into 
 association, combining their capital for banking, manufac- 
 turing, building a railway or any other business. Each 
 gives credit to the association for the capital he puts in 
 and accepts a certificate of stoch as the promise or voucher 
 of the association. His trust is in the honesty and skill 
 of the officers and directors to make the business safe and 
 profitable. These stock-certificates, being transferable, 
 may pass into other hands or be thrown upon Ithe market, 
 at the will of the holder. Thus credit may become itseli 
 
312 EXGHAKOB. 
 
 an article of merchandise with a current price, determined 
 
 by the public estimate of its safety, or expectation of its 
 profitableness, which will fluctuate under the influence of 
 various causes, natural and artificial. 
 
 6. Bonds issued by corporations, cities, states and 
 nations. Whoever receives and holds these for money 
 paid gives credit to the body corporate or politic, whose 
 promise is embodied in the bond. Their value is estima- 
 ted by the degree in which they command the public con- 
 fidence, and they bear a price accordingly. These, like 
 stocks, are made articles of merchandise in a regular and 
 legitimate trade. They are sought by many for the in- 
 vestment of money, because they combine the advantages 
 of known security, long time and ease of transfer. When 
 however, for any reason, they become uncertain or unsta- 
 ble, they are made the sport of wild and reckless specula- 
 tion. In such cases, credit furnishes the instruments for 
 stock- gamblers to play with. 
 
 7. Promissory Notes issued by banks or governments, 
 and designed to pass from hand to hand as Currency. 
 The public, receiving and using these, gives credit to the 
 banks or governments, and confidence rises or falls with 
 all causes which affect the ability or the stability of the 
 promissor. We include here, all the forms of paper money 
 — the purely Credit currency, like our greenbacks, where 
 the promise rests on the simple wording of the paper — 
 Mixed currency, like that of the old state-banks and of 
 our present national bank notes, where the promise is sus- 
 tained by a quota, great or small, of bullion or by govern- 
 ment bonds, held for its fulfillment — and Mercantile 
 currency, as it is sometimes called, like the notes of the 
 hank of Hamburg, where is kept in the vault of the bank 
 a gold dollar for every paper-promise of a dollar in circu- 
 lation. These all involve credit, they differ only as 
 respects the ground for trust, in actual resources for the 
 
FUNCTIONS OF CREDIT. 313 
 
 fulfillment of the promise. In this form, credit flies every- 
 where and attaches itself to every transaction of business ; 
 safe and helpful, or liable, like a bubble, to sudden infla- 
 tions and collapses, according as it is restricted and regU' 
 lated, or left to the freaks and fancies of men's fluctuating 
 hopes and impulses. 
 
 Under one or other of these heads, all the forms of 
 credit in common use may be classed. The concise state- 
 ment brings out both their distinctive and their common 
 features. 
 
 In all cases, the true hasis of credit is real wealth, ex- 
 isting or prospective, which is or is expected to be at the 
 command of the party trusted. Its essence is confidence 
 in the aUlity, truthfidness and integrity of the party 
 trusted. When either of these is weakened, credit wavers. 
 Just in proportion as credit is pushed out by the sanguine 
 hopes and expectations of men, beyond the solid ground of 
 existing values, it tends to become illusive and dangerous. 
 
 The useful Functions of Credit. — As we take up 
 this topic, a few words are needed to clear away some con- 
 fused and erroneous notions which are quite commonly 
 entertained. 
 
 Credit is not Capital. It is only a means of transfer- 
 ring capital from one person who cannot use it to another 
 who can. If a man has borrowed ten thousand dollars 
 to set up a flouring mill, the property in the mill is so far 
 not his own, nor are the proceeds of running the mill all 
 his own. The interest to be paid on this borrowed capital 
 IS so much added to the necessary outlays of his business. 
 His returns must be by so much reduced. 
 
 Credit does 7iot of itself create Capital It cannot by 
 
 any magical power, make something- out of nothing. 
 
 Wealth does not grow by the mere act of passing from 
 
 hand to hand. Its increase comes only from its union 
 
 14 
 
314 EXCHAiTGE, 
 
 with labor. The transfer may favor such a union ; it cai 
 do no more. 
 
 The same capital cannot he used both hy the owner and 
 oy him to whom it is lent, at the same time. It is plain 
 that a farmer who has lent his plough to a neighbor, can- 
 not, at the same time use his plough on his own field, 
 No more can B use for his own purposes the thousand 
 dollars which he lent to A. He may use A's note as 
 security in borrowing the same amount of 0, and may 
 use it again to borrow of D, and so the series may be ex- 
 tended to Z. But there is only one thousand dollars of 
 capital to be recognized, and the whole series of transac- 
 tions is settled by a single act, when A pays that amount 
 to Z, the last holder of his note. 
 
 But indirectly, credit when held to its legitimate func- 
 tions, does render important services to all departments of 
 industry. 
 
 1. Credit brings wealth into the form of Capital and 
 makes it available for the i^icrease of wealth. Many persons 
 possessing wealth are in circumstances which forbid their 
 employing it themselves in a way to make it productive. 
 Widows, minors, aged persons, professional men otherwise 
 occupied and unfamiliar with trade and manufactures, are 
 often the owners of property from which they need an in- 
 come, but they cannot by their own labor, make it produc- 
 tive. In every community, there are many engaged in vari- 
 ous forms of active labor, who can, year by year, lay by little 
 savings, but they cannot bring these savings at once into 
 union with their own labor. If there were no such thing as 
 credit, or if from want of mutual confidence among men, 
 it were scantily practised, all this wealth in the aggregate 
 amounting to millions of value, must be idle, or be wasted 
 in unskillful and unsuccessful attempts to make it yield a 
 profit. The various forms of credit furnish facilities for 
 transferring whatever surplus wealth any one may have to 
 
FUNCTIONS OF CREDIT. 315 
 
 the hands of those producers or traders, who, in active 
 business, have the means of employing it to best advan- 
 tage. Thus while credit is not itself capital and oannoi 
 create capital, it does greatly increase the sum of wealth 
 available as capital for profitable uses, much to the benefit 
 of both borrower and lender, 
 
 2. Credit gives efficiency to the industrial talent of a 
 country. Many a person who has strength and skill, and 
 all needed qualifications for business, has no capital of his 
 own. Without credit, his peculiar, it may be eminent 
 capacities must be partially or wholly unemployed. By 
 means of credit, however, he is enabled to obtain control 
 of capital, on which his energies may be expended so as to 
 bring in large returns both for himself and for whoever 
 trusts property to his hands. In our country, those who 
 have proved most effective in increasing wealth have been 
 almost invariably, persons who have begun business with 
 only their own energies and a character to inspire the con- 
 fidence of others. Patient, effective industry needs con- 
 tinually to be sustained by the judicious exercise of credit. 
 The best encouragement for a young man to make the most 
 of himself is the assurance that his energy and fidelity will 
 be a ground of confidence which will secure to him all 
 needed means for the employment of his capacities. By the 
 general increase of both enterprise and wealth, the whole 
 community derives a benefit from such exercise of credit. 
 
 Credit is then, in the light of these two views, indis- 
 pensable both to the drawing out of the entire capital of a 
 country, and also to the most effective development and 
 exercise of the industrial talent of a country. These we 
 licive seen to be the two elements of production by which 
 wealth is increased. Thus the free exercise of credit on a 
 sound and stable basis, touches the very springs of indus- 
 trial enterprise. 
 
 3. Credit quickens exchanges. The most important 
 
316 EXCHANGE. 
 
 functions of credit pertain to the sphere of Exchange. In 
 that sphere, first in order comes the office named. Pro- 
 duction must generally be more or less in advance of the 
 demand for commodities. The produce of the farmer 
 stored in his granary, and the products of the manufac- 
 turer waiting for purchasers, are so much capital lying 
 idle. It will be of advantage to the producer to make this 
 portion of his capital available at once. By selling his 
 products for the note of a responsible buyer, payable at 
 the end of three months, he is able to do this. For, this 
 note in the form of what we have called " Mercantile 
 Paper," can be used immediately as the basis of a loan 
 and so becomes as serviceable as if the goods had been 
 sold for money. The first sale may be to a middle-man or 
 a commission merchant, and so it stands at the beginning 
 of a series of exchanges through which the goods must 
 pass before they reach the consumer. Each sale may be 
 facilitated in the same way by the use of credit, and thus 
 the articles are brought within reach of the public, just 
 when and where they are needed, and the capital repre- 
 sented by their value, is turned over by each party with- 
 out delay. It is, as we have seen, only one capital, but 
 credit keeps it moving along the whole line of exchanges 
 in repeated service. Without this facility, there must be 
 temporary suspensions of industry, and long pauses in ex- 
 change. This function of credit has very much to do 
 with keeping the market of a community supplied all the 
 time with things needed. 
 
 4. Credit serves directly as an histrument of Exchange. 
 The simplest phase of this function in hoolc- accounts has 
 been already noticed. A buys of B on credit, and B 
 buys of A on credit. At the years end, the books on 
 cither side are balanced, by the payment of the difference 
 or by simply carrying it over to begin the account current 
 for the next year. 
 
THE CLEARIJ^G HOUSE. 317 
 
 The same thing is accomplished on a larger scale by 
 credit in the form of Bank-deposits. Suppose a commu- 
 nity in which the leading business men make their deposits 
 in a single bank. Then, if A makes a purchase of B worth 
 a hundred dollars, he will make his payment by a check 
 which B will send to the bank, and the amount will be 
 added to his deposit account. The check simply withdraws 
 a hundred, dollars from A's to be added to B's account on 
 the books of the bank. B, on the same day, and in the 
 same way, may make a payment of the same amount to 
 and to D and D again to A. Four payments have 
 been made by four checks passed into the bank. On each 
 of four accounts, two corresponding entries have been 
 made ; and yet at the close of the day, the four accounts 
 stand just as they did at the beginning. For these trans- 
 actions, not a dollar has been drawn out of the bank or 
 even counted in it. Credit has been the sole instrument 
 of exchange employed. All the business-men in the com- 
 munity are using it in a greater or less degree, to fulfill the 
 same office. 
 
 In a large commercial city like New York, through a 
 hundred or more banks and exchange-brokers, credit is 
 doing the same thing every day, for fifty thousand people. 
 There, since each bank receives more or less checks on 
 other banks, one additional agency is needed to adjust 
 accounts between the banks themselves. This is provided 
 for in the Clearing House, which is only a kind of central 
 bank of deposits for the banks. Each bank keeps a de- 
 posit of money at the Clearing House. At a certain hour 
 every day, messengers present, at their respective desks, 
 the checks, drafts and demands received by the several 
 banks, the day previous, carefully sorted. By a system- 
 atic arrangement, the exchange of checks is all effected 
 in ten minutes. Thirty-five minutes more are allowed for 
 the clerks inside to make their entries, report and prove 
 
318 EXCHANGE. 
 
 their work. A little further time is given to the detection 
 and correction of errors, and ordinarily the entire business 
 of the morning is accomplished in one hour. If the de- 
 posit of any bank is found to be overdrawn, notice is given 
 at once and the deficiency must be supplied during the 
 Lanking-hours of that day. No transfer of money is 
 require-i. except to make up these deficiencies. Transac- 
 tions of exchange amounting in one day to more than two 
 hundred million dollars have thus been settled in the 
 space of an hour, saving much of both labor and danger, 
 involved in the transfer of money from bank to bank. 
 
 Credit fulfills a like office in adjusting exchanges 
 between two distant cities. It is to be borne in mind that 
 the sales and purchases of every community, as well as of 
 every individual must be substantially equal. A man can 
 buy only as much as he can pay for, and as much as he 
 can pay for, he will generally buy, and what he produces 
 must pay for what he buys. So it is between two cities, 
 Chicago and New York, for instance. The agricultural 
 products sent from Chicago must pay for the goods 
 brought from New York. The chief instrument of this 
 exchange is credit. Thus produce-dealer A in Chicago, 
 ships to B, his consignee in New York, ten car-loads of 
 wheat whose market-price, at the sea-board, is five thou- 
 sand dollars. When the wheat is delivered, A makes a 
 draft on B for the five thousand dollars and deposits it to 
 his own credit in his bank in Chicago. The bank for- 
 wards the draft immediately to the bank in New York 
 with which it keeps open account, and the same day sells 
 to C, a dry-goods merchant in Chicago, its draft for five 
 thousand dollars to pay for goods received from an im- 
 porter in New York. Credit in the form of bank-deposits 
 has thus effected an exchange between these distant cities, 
 of wheat for dry- goods, with only the labor of writing a 
 letter or two, and making a few ledger-entries. We have 
 
CREDIT IN FOREIGN TRADE. 319 
 
 taken a very simple transaction out of a thousand ex- 
 changes more or less complicated, yet all accomplished by 
 the same means, every day. If the exchanges between 
 two places are equal, the whole business between them 
 may be thus adjusted without the transfer of any money. 
 
 If, however, the 'balance of trade between the two places 
 is against Chicago, that is, if the value of the goods which 
 Chicago buys of New York, is greater than that of the pro- 
 duce which New York buys of Chicago, the difference 
 must be made up in some other way. It might be by 
 sending money. But perhaps it will be more advantageous 
 to bring accounts with another city into the negotiations. 
 Thus, if the balance of trade between New York and New 
 Orleans is in favor of New Orleans and the balance of 
 trade between Chicago and New Orleans is in favor of Chi- 
 cago, credit may still fulfill its function through deposit 
 accounts in New Orleans. The Chicago merchants may 
 pay for their goods from New York in part, by drafts of 
 the Chicago banks on the New Orleans banks, based 
 on wheat, or other products sent thither. So by the in- 
 strumentality of credit, in a triple exchange, the products 
 of the western prairies may be made to pay for the goods 
 brought from New York. 
 
 The case is essentially the same between the chief trad- 
 ing cities, all over the world. The foreign trade of Boston 
 is mainly an account current with all the cities of the 
 world with which she has commerce. Charges on one side 
 are set off by charges on the other, and a very small 
 amount of money adjusts the final balances. The value 
 of the tea which Boston imports from China exceeds that 
 of the merchandise sh(^ sends to that country. But she 
 sends to the British West Indies, provisions whose value as 
 much exceeds that of the goods she imports from those 
 islands. The West Indies may settle their debt to Boston 
 by bills of exchange on London, and these in turn will 
 
320 EXCHANGE. 
 
 pay Boston's debt to China. In reality, the flour sent 
 from Boston pays for the sugar sent from Jamaica to Liv- 
 erpool, and the goods sent from Liverpool to China pay for 
 the tea sent from China to Boston, and when the circle is 
 complete, the accounts all around are settled. Credit in 
 the form of bills of excliange based on bank-deposits is the 
 convenient instrument through which all this is effected. 
 This manifest advantage to all concerned is greater just in 
 proportion as communication and trade between all parts 
 of the world are made more free. 
 
 5. Credit, to a limited extent, may he safely put into 
 the form of currency, and become an actual substitute for 
 inoney. The whole subject of currency will be more fully 
 - presented in another connection. Here, we only state this 
 as one of the possible useful functions of credit. It is a 
 rule of sound economy to use always the cheapest tools 
 which will serve well the purpose contemplated. If a 
 paper currency, in the form of promissory notes of banks, 
 to an amount equal to double the specie which they hold, 
 will effect exchanges well and safely, the real value of half 
 the gold and silver fixed in money may be devoted to other 
 purposes. So far the instrument of exchange is cheap- 
 ened and there is an advantage in using credit for a por- 
 tion of the currency. We recognize the fact and yet the 
 statement must be qualified by a caveat. This use of 
 credit runs always close upon the line of danger, and needs 
 more careful restrictions than can ordinarily be imposed 
 or maintained. 
 
 It is to be observed with reference to all these functions 
 )f credit, that a basis of sound money is indispensable. 
 Tlie value of every thing in whatever way it nuiy be ex- 
 changed must be estimated by a standard universally rec- 
 ognized. We have seen that nothing but real money made 
 of gold and silver can furnish the universal standard oi 
 
ABtJSES Of CREDIT. 32i 
 
 value required. Real money is the ballast of the ship of 
 trade. Credit furnishes the sails. Any ballast that easily 
 shifts in a storm is sure to bring danger to the ship. 
 Hence, the more fully credit is employed as an instrument 
 of exchange, the greater the necessity that money, th(' 
 standard of value, be as invariable as possible. Moreover, 
 in all the transactions of credit to which we have referred, 
 money as a medium of exchange mingles more or less. II 
 must be good money, else the whole system of credit wavers 
 with uncertainty. The credit which circles the world and 
 binds all civilized nations together by the common inter- 
 ests and mutual service of universal commerce, must be 
 sustained by the all pervading presence of money whose 
 value is uniform and stable. Quality in this matter is of 
 more consequence even than quantity. The nation that 
 robs its money of these qualities of stability and uniform- 
 ity with that of the rest of the world, rules itself out oj 
 free and equal commercial relations with other nations. 
 
 The Mischievous Abuses of Credit. — We must 
 recognize credit as an indispensable instrument of ex- 
 change. But, like every other good thing, it may be per- 
 verted and abused so as to be productive of vast evil. The 
 illusory nature of credit as it springs out of men's hopes 
 and builds on prospective rather than real wealth, keeps 
 an element of danger always in close connection with its 
 legitimate use. It is important therefore, that the abuses 
 as well as the uses of this instrument be distinctly appre- 
 hended. 
 
 1. Credit is abused wlien too freely granted. Poor 
 human nature is weak and false, l^ot every fair prom- 
 ise is to be trusted. Some proof of cliaracter may fitly be 
 asked of those who solicit our confidence. The real or 
 probable ability of the party trusted, to return at a future 
 day, an equivalent for values immediatelv transferred must 
 14* 
 
325J EXCHANGE. 
 
 also be rememberc<l. But some in their eagerness to trade 
 and some through lack of judgment or nerve to make the 
 discj'imination. set aside these rules of prudence. Hence 
 the ledger of the retail merchant shows many an account 
 !50ver settled except by an entry on the debtor side of the 
 profit and loss account. Into every little western city, a 
 stranger comes occasionally with a stock of goods bought on 
 credit in New York which are rapidly sold off at very low 
 prices, and then the stranger disappears just as his notes to 
 the jobber in the commercial emporium fall due. Men 
 wonder how such an adventurer obtained credit. Again 
 and again have bankers occasion to mourn over their too 
 easy allowance of over drafts to men who turn out insolvent. 
 Besides the immediate losses involved, such proceedings 
 seriously mar the course of regular business ; the honest 
 merchant is robbed of his trade by knavish adventurers and 
 the community is demoralized ; and many fear to give credit 
 to those who really deserve it. 
 
 2. Credit is abused by the wild speculation of borroivers. 
 One may do what he will with his own, but when doing 
 business with another'' s capital, he is bound to avoid great 
 risks. Yet too often we see the borrowed capital recklessly 
 thrown out upon uncertain ventures, in utter disregard of 
 the creditors claims. Thus, even the capital of banks, not 
 infrequently, becomes involved in the gambling operations 
 of the stock-exchange. 
 
 3. Credit is<ibused by the extravagant living of debtors. 
 A young merchant who has stocked his store with goods 
 prmcipally bought on credit, has need to husband his 
 gains with strictest care in anticipation of the pay-day soon 
 to come. Instead of this, one so situated sometimes 
 adopts a lavish style of living, as though his fortune were 
 already made when his store is opened and his trade 
 begins. It is said that of those who enter tlie mercantile 
 profession, ninety-nine in every hundred fail. The major- 
 
CONFIDENCE OPERATIONS. 323 
 
 ity of these failures are caused by rash ventnres ani ex 
 travagant expenses. 
 
 4. Credit is abused by conjidevrc operations. Under 
 this head we include schemes of speculation which have 
 only credit for their basis, whether organized with the in- 
 tention of swindling a credulous public, or projected under 
 a temporary illusion by which all concerned are misled. 
 In London, a few years ago, with great parade of adver- 
 tisements, prospectuses and posters, the *'• Cooperative 
 Credit Bank " was opened to receive deposits. Eighteen 
 per cent per annum payable monthly was the enticing rate 
 of interest offered. Some persons of eminence were 
 named as trustees. To matter-of-fact inquirers, the single 
 shrewd manager said that the way he had of handling the 
 money in connection with ^' the Gilbert & Chaudiere gold 
 fields " enabled him to realize so large a percentage. All 
 sorts of fish came into the net. A Church of England rec- 
 tor put in eleven thousand dollars ; a ship-chandler depos- 
 ited five hundred that it might be in a safe place ; a hard- 
 working man with a wife and five children sent the bank 
 one hundred and fifty dollars, being fifteen years' saving 
 out of his scanty pay of five dollars a week, and so on. 
 During the two years of the bank's existence, the balance- 
 sheets were of the most flattering character and their cor- 
 rectness was certified by a firm of respectable accountants 
 who took the manager's word for the genuineness of bogus 
 accounts. When the bubble burst, instead of two hundred 
 thousand dollars which ougkt to have been on deposit, the 
 receiver of the bank found the sum of seventv-five cents, a 
 sample of gold dust and a quantity of mining shares. 
 
 The wild speculations in western lands so rife in our 
 country in 1836, furnish examples of the other kind of 
 operations. Hundreds of ministers and other good people 
 were easily drawn to invest their savings in a scheme pro- 
 jected by an eminent American divine, for endowing a 
 
324 EXCHANGE. 
 
 co]legt3 in Missouri by the purchase and sale of westerL 
 lands. It was confidently expected that the money ad- 
 vanced would prove a profitable investment for each of the 
 contributors, and at the same time provide a rich endow- 
 ment for the college. "Without deception or fraud, tlie 
 scheme failed ; the money paid in was all lost and further 
 pledges unfulfilled involved some in expensive suits at law. 
 The sufferers waked from their fondly cherished dreams, 
 wondered at their own delusion and learned how treacher- 
 ous a thing is credit abused. 
 
 5. Credit is abused by the over-estifnate of assets, some- 
 times for purposes of fraud, sometimes through simple 
 self-deception, every man desiring to see the bright rather 
 than the dark side of his business prospects. A Register in 
 Bankruptcy recently prepared a list of over a thousand 
 assignments made within two years. It exhibits enormous 
 discrepancies between the nominal values presented and 
 the values realized, one estimate of $300,000, yielding but 
 $12,000, another of $800,000, shrinking to $24,000. 
 This difference is explained in part, by the natural effect of 
 sudden and forced settlements in a time of general depres- 
 sion, which always causes a shrinkage of assets ; but evi- 
 dently a larger part is due to fraud or delusion in the esti- 
 mates. The list furnishes also significant illustrations of 
 the looseness with which credit is granted on the most 
 slender basis. 
 
 6. Credit is abused by the betrayal of trusts. This 
 item in the category needs only to be mentioned. It is 
 sadly illustrated by recent failures of Savings Banks and 
 Insurance companies, and the sudden collapse of fairest 
 reputations. Presidents perjure themselves, swearing to 
 false statements ; notes of stockholders are reckoned as 
 part of cash capital ; collateral securities held in pledge are 
 used as the basis of new loans ; and one whose character 
 was never suspected, borrows money at will on stock-cer- 
 
MISCHIEFS CAUSED BY CREDIT ABUSED. 33o 
 
 tificates raised by fraudulent chnnges of figures, to pass for 
 tenfold their true value. 
 
 7. TJie mof^t sweeping and mischievous abuse of credit 
 appears in the excessive issue of Credit Currency. Of thia 
 we shall speak more fully hereafter. We do but name it 
 in this connection as a most subtle and dangerous disturber 
 of all the processes of exchange. 
 
 Some of the mischiefs caused by these abuses of credit 
 must be brieflynoticed. 
 
 a. From this cause proceed ruinotis fluctuations of 
 prices. Mr. Mill says, " Tlie amount of purchasing poiue7 
 which a person can exercise is composed of all the money in 
 his possession or due to hiin, and of all his credit,^^ and 
 again, " In a state of commerce in which much credit is 
 habitually given, general prices at any moment depend 
 much more upon the state of credit than upon the quan- 
 tity of money." In the ordinary course of business, prices 
 are regulated by the simple ratio of demand to supply. 
 Suppose now, a far-seeing merchant anticipates an unusual 
 demand for certain commodities. Desiring to secure to 
 himself as large a profit as possible from the consequent 
 rise of price, he begins to purchase largely beforehand. 
 He invests fii'st his ready money, then all he can collect 
 that is due to him, and at last pushes his credit to the ut- 
 most. This creates an uncommon demand at once. The 
 market feels it and prices begin to rise. Others begin to 
 have large expectations and follow the example. Thus a 
 general demand is created which sends up prices rapidly, 
 and the thing expected seems to be realized. The move- 
 ment is not confined- to certain articles, for the spirit of 
 speculation is contagious. Trade becomes active in all 
 departments, and all, desirous to get a share of the golden 
 harvest, push out their whole purchasing power to its 
 extreme limit. Prices rise beyond all reasonable grounds 
 
326 ExcHAifaE. 
 
 and still the illusion is cherished. But at last the spell is 
 broken. Then they who were so eager to buy are anxioua 
 only to sell. In the rush of goods into the market, prices 
 go down faster than they went up, and the bubble of specu- 
 lation bursts, and with it, in the case of not a few, money 
 credit, all are gone. Something like this might happen, 
 if purchases were made with ready money, but in that case, 
 there is a fixed limit to the fund available for purchases. 
 But by an extension of credit, men draw upon an ideal 
 fund which is unlimited. From such fluctuations even 
 the most prudent must suffer to some extent. The abuse 
 of credit is the chief originating cause of commercial crises, 
 panics and revulsions. 
 
 h. The losses which ejisue from the abuses of credit en- 
 hance the risks of business, and for those risks the com- 
 mimity must pay. To make good his bad debts, the retail 
 merchant must get a larger profit out of his paying cus- 
 tomers. In speculations carried on by credit, the apparent 
 gain of one involves another's loss, and the aggregate loss 
 of the community surpasses all the gains made. 
 
 c. These abuses of credit tend to turn all trade into a 
 game of chance. Here and there a splendid prize is won. 
 It dazzles the eyes of men. They turn from the patient 
 toil and prudent thrift, which are the conditions of a slow 
 but sure success, hoping by some bold venture to jump at 
 once into a fortune. The general usage makes it difficult 
 for those who would, to conduct business on other pi inci- 
 ples. 
 
 d. Through familiarity with failures and frauds, the 
 moral sense is deadened luith respect to a debtors obligations. 
 By the abuse of credit, the standard of honesty is lowered. 
 Public sentiment becomes tolerant of delinquencies, eva 
 sions, downright defalcations. One who is known to have 
 enriched himself by repeated failures, hardly loses his 
 standing in society. Hence, a scrupulous conscience with 
 
CREDIT TO BE SACREDLY GUARDED. 327 
 
 respect to a promise to pay, is pitied rather than praised. 
 It is deemed of little importance even to a reputable Cliris- 
 tian profession ; for a man rerscd in the ways of the 
 world, it is a troublesome appendage. Why then shonld 
 one restrict his indulgences in order to pay his debts and 
 maintain his integrity : 
 
 e. The abuse of credit te^ids to relax the hands of lain 
 for the enforcement of contracts. In consequence of this 
 abuse, the debtor class is multiplied, many without special 
 fault of their own are borne on by the general tide, till 
 their credit is extended quite beyond their ability to pay ; 
 delinquency is regarded as more a misfortune than a fault, 
 and so strong are sympathies for so-called unfortunate 
 debtors that the collection of debts by legal process becomes 
 difficult, almost impossible. The same cause leads to mis- 
 chievous legislation which impairs the force of mortgages 
 and other securities, and by granting large exemptions, 
 furnishes the means of gross evasions and a temptation 
 to fraud. 
 
 The remedy for these manifold evils must be found 
 chiefly in a change of public sentiment and common prac- 
 tice. While we are writing, it comes as the lesson of the 
 hour, emphasized by the universal depression of business 
 and consequent extreme distress in many quarters, that 
 the usages of trade must be changed so as to lay checks 
 upon the unlimited extension of credit in the case of indi- 
 viduals, of corpo^*<itions, of cities, of states. It is of far 
 more consequence lo healthful industry and trade that 
 Americans return to the luisdom and prudence of " tJie 
 fathers" than that the much talked of ''dollar of the 
 fathers^'' be restored. Commercial credit, Hke woman's 
 chastity, needs to be sacredly guarded. Its brightness and 
 worth are marred by one blot of dishonor. The fault may 
 be condoned, but confidence is impaired ; the wound may 
 
328 EXCHAN"GE. 
 
 be healed, but the scar remains. The maxim of caution 
 put into crude verse and current in New England, a hun- 
 dred years ago, is good for all men, for all countries, foi 
 all times : 
 
 Ever thy Credit keep, 'tis quickly gone, 
 Being got by many actions, lost by ont. 
 
CHAPTER XXII. 
 
 BANKS AND CURRENCY. 
 
 The word Bank is of Italian origin. In the infancy of 
 European commerce, the Jews in Italy were wont to as- 
 semble in the market-places of the principal towns, seated 
 on benches, ready to lend money ; hence the terra hank 
 from banco, a bench. When any of these money-lenders 
 failed, his bench was broken, and so we have the word 
 bankrupt. 
 
 Banks are Agents of Credit. — We have already 
 seen how extensive and important are the functions of 
 credit in the exchanges of the world. Its complicated 
 operations require special attention and management. 
 The economical principle of division of labor demands 
 that some persons should make it their business to develop 
 and direct this part of the machinery of exchange. Banks 
 are institutions devised for systematizing credit, and 
 bankers are or should be well versed in the operations of 
 credit. 
 
 Three distinct Offices of Banks are to be recog« 
 aized. 
 
 1. The collection and custody of Money-deposits to be 
 the basis of credit in trade. If all the exchanges of a 
 community were to be effected by money alone, evei*y 
 business-man must have in his own keeping a considerable 
 amount of money. To keep this secure from robbery and 
 loss would involve no little pains and expense. Much 
 
330 EXCHANGE. 
 
 labor would also be required to count the specie paid and 
 received, and the cost of doing business would thus be in- 
 creased. Suppose that, instead of every man's doing all 
 this for himself, the business-men agree that one person 
 shall procure a safe repository for all the specie in the 
 neighborhood, and become responsible for its safe-keeping 
 and transfer, as ordered. This would provide a bank and 
 a banker for the community. Then as each deposits what 
 he receives and draws for what he pays, credit is made to 
 effect exchanges in the manner heretofore described, and 
 the money lies for the most part secure in the vault? of the 
 banks. From this simple nucleus, the system may be ex- 
 tended so as to combine a number of banks in a large city, 
 the banks of cities in different parts of a country and the 
 banks of different countries. At the same time such an 
 institution would render important service in gathering 
 up a great deal of capital which would otherwise be scat- 
 tered and useless in the hands of persons unable to em- 
 ploy it, and making it available for the office next to be 
 named. 
 
 2. The second office of hanks is to loan and discount 
 both money and credit. We have seen that for the increase 
 of wealth, labor and capital must be combined. But 
 often, one man has the capital and another the capacity to 
 labor. It is the office of the bank to bring the two ele- 
 ments together in the most expeditious and convenient 
 way. He who has the capital, may put it into the bank 
 to be loaned for him. He who needs the capital can go 
 directly to the bank and borrow. The banker, devoting 
 himself to this occupation of loaning, becomes expert in 
 such negotiations, keeps himself informed as to the char- 
 acter and responsibility of borrowers and understands all 
 tlie legal forms necessary to a valid contract. 
 
 The terms loan and discount mean essentially the same 
 thing, but indicate two distinct modes of lending adopted 
 
THE OFFICES OF BAliTKS. 331 
 
 by different classes of banks. Saving s-lanh^ leceive on 
 deposit the small savings of great numbers of people oi 
 limited means, make loans generally on long time, secured 
 by real-estate or other ample sureties, and collect the in- 
 terest semi-annually, as it accrues. Commercial-banhs 
 gather funds of the wealthy as their capital and the tern- 
 {)orary deposits of men in active business, and make their 
 loans for short time, sixty or ninety days, on personal 
 security, taking interest in advance, as a discount or de- 
 duction from the principal sum borrowed. Often also, the 
 amount thus borrowed is simply credited to the account of 
 the borrower, to be drawn on as other deposits are by 
 checks, without the withdrawal of any money at all. It 
 becomes thus, in whole or in part, a loan of credit rather 
 than money. 
 
 3. Tlie third office of banks is to issue promissory notes 
 for general circulation as substitutes for money. This 
 creates a paper currency. In the simplest method of 
 doing this, the bank loans not the specie which it holds, 
 but its own notes payable in specie, receiving in return the 
 notes of individuals, guaranteed by endorsers, for the 
 amount loaned, to be paid at a future day. From this, a 
 two-fold advantage is derived. In the first place, these 
 notes become a medium of exchange more convenient than 
 specie, because lighter and more easily and safely carried 
 about. If the amount of notes issued is just equal to the 
 amount of specie in the vaults, the holders would always 
 have a double security, viz., the specie in the bank and 
 the obligations of those to whom the notes were loaned. 
 The law often makes individual stockholders also liable 
 for an additional amount equal to that of their stock. Pa- 
 por in the form of checks of individuals on a bank of dis- 
 posit, might be made to circulate to some extent as a 
 substitute for money, but it could be only as each man's 
 character and standing were known. The bank is a public 
 
332 EXCHANGE. 
 
 institution in which all have confidence anjd hence its notes 
 are readily accepted by all. 
 
 The other advantage is that paper, a substance much 
 cheaper than gold and silver, may, within certain limits, 
 fulfill all the functions of an instruUatnt of exchange, and 
 permit a portion of the precious metals to be applied to 
 other uses. There is economy in thus cheapening the 
 instruments of trade, provided the restrictions are such 
 that their fitness for the required service is not impaired. 
 The bank-notes may safely be issued in excess of the specie 
 held in reserve ; for they can never all be presented at 
 once, and the notes of borrowers falling due day by day, 
 may be relied on to provide in part for the redemption of 
 the notes as they may be presented. This view is sound 
 provided the safeguard of fixed limits to the amount of 
 notes thrown into circulation is rigidly maintained. 
 
 Banks, in the fulfillment of these offices, confer another 
 incidental benefit, especially in a new country. As public 
 corporations of known character, they offer inducements 
 for the introduction of foreign capital. In a young and 
 growing country, capital is scarce and at the same time, 
 more productive than in older countries. The higher 
 rate of interest offered is a strong attraction to capital 
 from abroad, and banks properly established provide a 
 safe channel through which it may come in. 
 
 Through these offices, banks have also rendered very 
 important services to the finances of sovereigns and states, 
 steadying and strengthening the bands of government and 
 furnishing efficient aid in the emergencies of war and oi 
 great national enterprises. 
 
 A few facts drawn from the history of banks will 
 furthei illustrate their nature and operations. 
 
 The Ba7ik of Ve?iice, founded a. d. 1171, was the ear- 
 liest banking institution in Europe. It was based upon a 
 
BANKS OF VE^^'ICE, UE^OA AND AMSTERDAM. 333 
 
 forced loan of the Republic, The reigning duke, in order 
 to raise means for carrying on a crusade, obliged a number 
 of the most opulent citizens to advance funds to a '^ Cham' 
 ler of Loaiis^^ to which the contributors were made cred- 
 itors, receiving a yearly interest of four per cent. The 
 funds so deposited could not be withdrawn, but were trans- 
 ferable on the books, at the pleasure of the owner. It 
 provided also for the safe custody and transfer of special 
 deposits. The bank credits, in form like modern certifi- 
 cates of deposit, were at a premium for purposes of trade. 
 This bank of Venice served well the exigencies of the 
 state, and was of great advantage to its wide-spread com- 
 merce. Its operations, thus confined to the regulation of 
 credit, as based on deposits, were maintained in full vigoi 
 for four hundred years, and its existence continued till 
 the year 1797, when it fell, with the city itself, at the con- 
 quest of Italy by Napoleon. 
 
 The Bank of Genoa, established in 1407, also to meet 
 the necessities of the state, was the first to issue circulat- 
 ing notes. These, however, were not made payable to 
 bearer, but passed only by endorsement. They were 
 probably issued only for large amounts and employed in 
 large transactions. 
 
 The Bank of Amsterdam, established in 1609, was the 
 first instituted expressly to promote the interests of com- 
 merce. Its primary object was to remedy the inconvenience 
 arising from the great quantity of clipped and worn coin 
 in circulation. It was a bank of deposit only, the credit 
 given in the bank-book for coin deposited was called bank 
 money. The regulations of the country directed that all 
 bills drawn upon or negotiated at Amsterdam, above a 
 certain amount, should be paid in bank-money. This 
 obliged every merchant to keep an account at the bank, 
 and heli its money at a pr-emium. The Bank of Haiti- 
 hurg was established ten years later on the same plan, 
 
334 EXCHANGE. 
 
 Its deposits however, were in the form of bars of silvei 
 bullion. Both these banks professed to lend out no part 
 of their deposits. But the guardians of the bank of 
 Amsterdam proved at last unfaithful to their trust in this 
 respect and caused its ruin. The bank of Hamburg con- 
 tinues to this day, commanding the highest confidence of 
 the commercial world. 
 
 The Banlc of England, founded in 1694, was the first 
 institution that was authorized to issue hemic hills payahle 
 to hearer at sight. It has been from the outset, an agent 
 of credit for both the finances of the government and the 
 service of commerce. Its entire capital now amounting 
 with accumulated profits to eighty-eight million dollars, is 
 permanently loant?d to the government. It fulfills all of 
 the offices we have named, being a bank of deposit, of loan 
 and discount, and of circulation. It can issue seventy 
 million dollars of notes, (none under five pounds, or 
 twenty-five dollars) against that amount of government 
 securities set apart for the purpose. It may also issue 
 notes beyond this, against an equal amount of gold and 
 silver held in reserve. Its notes are practically a legal ten- 
 der everywhere in the kingdom except in payments by the 
 bank, though the constitutionality of the law in this 
 respect has been questioned. No note returned to the 
 bank is ever re-issued. The bank is itself a private corpo- 
 ration, but it has the state for a partner, and the two 
 stand together for mutual support. It acts as the agent 
 of the government in managing the national debt. Dur- 
 ing the long Napoleonic wars, it rendered indispensable 
 aid to the government, and under the pressure of urgent 
 necessity, it was allowed in 1797, to suspend specie pay- 
 ment, and the suspension continued through twenty-five 
 years. In England, outside of London and its vicinity, 
 there are mary joint-stock banks which also issue notes oi 
 circulation. But the bank of England is the great ri'gu- 
 
THE BANK OF FRAN-CB. 336 
 
 lator of credit in all forms. It is the xnost powerful of all 
 modern banks and its influence affects the commerce of all 
 nations. 
 
 The Scotch banking-system is peculiar in its method 
 of giving what are called cash-credits. When a man 
 wishes a cash credit, he finds a bondsman, who promises 
 to indemnify the bank for all that it may lose, by loaning 
 to him within a certain sum ; or else he places real estate 
 in the power of the bank, to a sufficient amount to render 
 it secure within the sum which he wishes to borrow. The 
 bank then opens with him a cash account, or allows him 
 to draw for any sum within the specified amount. He is 
 charged interest only for the amount which he borrows. 
 As fast as he is in funds, he deposits all he can spare, in 
 the bank, and for everything thus deposited, he is allowed 
 interest ; so that his interest on deposits always diminishes 
 the interest on his debt. Thus he borrows and pays, suc- 
 cessively, and at stated seasons, the accounts are adjusted. 
 This system is especially favorable to men of small means, 
 and furnishes full security to the banks. 
 
 The Bank of France is like that of England, a private 
 corporation, but unlike that of England, it does not 
 directly manage the revenues of the state ; but by lending 
 freely to the government, it has borne it safely through 
 extraordinarv exiarencies. Founded in 1800. since 1803 it 
 has had the exclusive privilege in Paris, and since 1857, in 
 France, of issuing notes payable on demand. Its notes 
 are a legal tender in payment of all debts, public and 
 private. During the revolution of 1848, and again on the 
 breaking out of the war with Prussia in 1870, it was au- 
 thorized to suspend specie payments. But so wisely were its 
 affairs managed and so faithfully did the government keep 
 cts promises, that notwithstanding it has loaned to the 
 government since 1870, six hundred million dollars, its 
 notes have, except for a brief period, remained at par and 
 
336 BXCHAIS^GB. 
 
 now, January, 187.8, it is resuming specie payment. The 
 
 secret of its soundness and strength is the policy of keep- 
 ing large reserves of coin in proportion to its circulation. 
 
 The first Bank authorized in the United States, origi- 
 nated in a union of citizens in Philadelphia, in 1780, to 
 supply the army with rations. They were allowed to form 
 a bank and to issue notes to buy the articles required. In 
 December, 1781, this bank was chartered by the Congress 
 of the Confederation, under the name of the Bank of 
 North America, with a capital of four hundred thousand 
 dollars. The next year, a charter was also granted to the 
 company by the legislature of Pennsylvania. It still 
 exists, being now one of the national banks of our coun- 
 try. In three or four of the other states, banks were soon 
 after chartered in the same way. 
 
 The new constitution under which the government^ 
 was organized in 1789, contains the clause that no state 
 shall ^'^ coin money, emit Mils of credit or make anything 
 hut gold and silver coin a tender in payment of dehts^ 
 This clause was no doubt, designed to prohibit the issue of 
 a paper currency, from the evils of which the country had 
 suffered severely. Under it, however, two questions have 
 been raised. First, can a state authorize hanks to do what 
 it cannot do itself ? Second, can the national government 
 do what the states cannot do in respect to •'* bills of 
 credit ? " Both questions have been answered in the 
 affirmative. Bank notes are not considered " bills of 
 credit " in the sense of the prohibition. And the general 
 government has been justified by the Supreme Court in 
 making its notes, the greenbacks of to-day, which are 
 simply *' bills of credit," legal tender. Great numbers of 
 State hanks have accordingly been authorized and two 
 lanks of the United States have been chartered by 
 Congress for limited periods. All of these banks fulfilled 
 the three offices named, under various regulations such as 
 
STATE BAKK8. 33 "^ 
 
 di:fEerent legislatures stiw fit to impose, and hence wcro 
 very diverse in their character and in the quality of the 
 currency issued by them. 
 
 The old State hanhs were created by special charters of 
 incorporation from the legislatures, and had more or les> 
 the character of monojwlies. Sometimes the banking com- 
 pany was required to pay a bonus to the state for its pecu- 
 liar privileges. The early banking of New England in 
 the first years of this century was very loose. Each 
 charter named the amount of capital stock to be provided. 
 But in many cases, subscribers to the stock, instead of 
 paying in cash, simply gave their notes for the amount of 
 vheir shares. On this frail basis, a bank issued circulating 
 notes freely, sometimes in denominations as low as twenty- 
 five cents. Such a currency necessarily drove out specie, 
 till but little was left in the region. That little was 
 moved from bank to bank to keep up a show for the visits 
 of inspectors. In due time, a collapse came. One bank 
 m Rhode Island, founded in 1804. had a nominal capital 
 of a million dollars. Of this, less than twenty thousand 
 dollars was ever paid in. The directors, soon after begin- 
 ning business, withdrew what they had paid in, leaving 
 only about three thousand dollars. This was afterwards 
 absorbed by one director, who bought out his eleven col- 
 leagues, paying them with bank funds, and then borrowed 
 of the bank over seven hundred thousand dollars. "When 
 it failed, this bank had in specie $86.46, and its outstand- 
 ing bills were estimated at nearly 1600,000. Similai 
 frauds were committed in Michigan and other western 
 states, from 1833 to 1840, with like mischievous results. 
 This mode of doing things was then fitly termed ^' luild- 
 cat baulking." 
 
 The crash in New England led to the passage of stric 
 banking laws and to the general demand for higher in- 
 tegrity in the management of such institutions. Thus 
 15 
 
338 EXCHANGE. 
 
 many of the state banks of that section were placed on a 
 sound basis and have maintained their credit unquestioned 
 to the present time. 
 
 Various measures have been adopted from time to 
 rime for the purpose of keeping bank notes good. Hit 
 Suffolk hank system of Massachusetts required each coun- 
 try bank to keep a certain amount of specie on deposit 
 with the Suffolk bank in Boston for the redemption of its 
 notes, and bound the banks together for mutual support. 
 The Safety-Fund act of New York required each bank to 
 put into the hands of the State Treasurer an amount of 
 specie equal to three per cent of its capital stock. The 
 safety-fund thus gathered was held to make good the debts 
 of any bank that might become insolvent. This made it 
 a matter of common interest for the banks to watch over 
 and sustain each other. 
 
 The Free 'banking system was introduced in New York 
 in 1838, as a substitute for the method of granting special 
 charters. This allowed any number of persons to form a 
 banking association on meeting certain prescribed condi- 
 tions. Under this system, the redemption of bank-notes 
 was provided for by the deposit with a bank-comptroller 
 appointed by the state, of stocks of states and of corporations 
 and bonds and mortgages, the issue of each bank being 
 limited by the amount of securities held on its account. 
 The value of this security would of course vary with the 
 character of the deposit. This system was adopted quite 
 generally by the states west of New York and continued 
 until the present national bank system. 
 
 Two Banks of the United States have place in our 
 nation's history; each continued for a period of twenty 
 years. The first, projected by x\lexander Hamilton, was 
 chartered by act of Congress in 1791, with a capital of 
 $10,000,000. Its charter expired in 1811, and was not 
 renewed. The second was chartered in 1816, with a capi- 
 
1:HE national IJANK SYSTEM. 339 
 
 tal of $35,000,000. A bill for the renewal of its charter 
 passed both houses of Congress, but was vetoed by Presi- 
 dent Jackson, and in 1836, it was closed as a government 
 institution. Each o'f these banks rendered important ser- 
 vice in the management of the national finances and as a 
 bank of deposit, discount and circulation, helped to steady 
 credit and to promote exchanges in all parts of the coun- 
 try. In the discussions concerning the re-charter of the 
 bank, however, it plainly appeared what a political power 
 such a corporation might become. The bribery, misman- 
 agement and bold speculations with which the last bank 
 closed its career, under a charter from the state of Penn- 
 sylvania, also clearly showed that such an institution 
 might work mischief on a scale proportioned to its great- 
 ness. The people have therefore" acquiesced in the decree 
 which terminated its existence, and it is not likely that 
 another bank of the United States will soon, if ever be or- 
 ganized. 
 
 Under the system of state banks, frauds and failures 
 were frequent, entailing heavy losses on the holders of 
 bills, and much distrust in business circles. Exchanges 
 between distant parts of the country were thus embarrassed. 
 For many years the premium paid in Wisconsin for New 
 York money or drafts was from three to five per cent, add- 
 ing so much to the prices of all goods brought from the 
 East. 
 
 The existing National Banh system was established in 
 1863, by act of Congress, and the next year it was put 
 under the charge of a bureau of the Treasury Department^ 
 the chief officer of which is the comptroller of the cur- 
 rency. Under this act, a national bank may be organized 
 by any number of persons, not less than five, the capital 
 in any instance, to be not less than $100,000, — except that 
 in cities containing a population not exceeding six thou- 
 
340 EXCHANGE. 
 
 sand, banks may be established with a capital of not less 
 than $50,000. The capital stock in cities liaving a popu 
 lation of fiftv thousand must be not less than $200,000. 
 ISTot less than one-third of the capital must be invested in 
 United States bonds, upon which circulating notes may be 
 issued equal in amount to ninety per cent of the current 
 market value, but not to exceed ninety per cent of the pai 
 value of the bonds deposited. The notes officially certified 
 are receivable at par in the United States in all payments 
 to and from the government, except for duties on imports,, 
 interest on the public debt and in redemption of the 
 treasury notes. They are redeemable on demand in lawful 
 money of the United StateSc 
 
 Soon after this system was instituted, an act of Con- 
 gress imposed a tax of ten per cent on the notes of state 
 banks used for circulation after August 1, 1866. This, of 
 course, excluded these notes from further circulation and 
 most of the old state banks reorganized under the national 
 system. The present bank currency of our country, 
 therefore, consists of notes of national banks which are of 
 uniform value in all parts of the country and the payment 
 of which is guaranteed by the United States. The whole 
 amount of these notes which could be thrown into circula- 
 tion was at first limited to $300,000,000 ; subsequently it 
 was raised to $354,000,000, but it is now unlimited. The 
 amount actually in circulation, Nov. 1, 1877, was nearly 
 $317,000,000. These banks receive deposits, sell bills of 
 exchange and loan money at the rate of interest allowed 
 by law in the states where they are located. For the cir- 
 culating notes, this system provides all the security which 
 the credit of the United States can give, but offers none for 
 deposits and other liabilities except that all shareholder? 
 jire held individually liable to the extent of the amount of 
 their stock, in addition to the amount invested therein. 
 In case of the failure of a national bank, a receiver may 
 be appointed by the comptroller to wind up its affairs. 
 
LIABILITIES AN-D RESOURCES OF BAN^KS. 341 
 
 Private Banking houses exist in all parts of the conn- 
 try, which receive deposits, make loans and negotiate ex- 
 change, but issue no circulating notes. Some of these 
 have gained a character and standing and extent of busi- 
 ness fully equal to those of strong banks. Their credit 
 rests upon personal integrity, wis^ management and large 
 resources accumulated through years of devoted industry. 
 
 Savings Banhs, for the most part, without capital, sim- 
 ply receive and loan deposits. It was estimated in Janu- 
 ary, 1877, that the savings banks of our country held de- 
 posits amounting to one thousand million dollars. The 
 entire banking business of the country, at that date was 
 represented by seven hundred million of capital and two 
 thousand million of deposits. 
 
 The Liabilities and Resources of Banks under 
 the present system, set down in distinct statement, will 
 further illustrate the principles and usages of these insti- 
 tutions. 
 
 Tlie Liabilities are embraced in the following items : 
 
 1. The Capital Stock, which is the amount paid in as 
 the basis of business, and for which the bank is responsi- 
 ble to the several shareholders, 
 
 2. The Circulation, which consists of promissory notes, 
 signed by the officers of the bank, payable on demand, and 
 circulating in the community as substitutes for money. 
 
 3. Deposits, which includes all sums standing on the 
 books of the bank to the credit of individuals, partnerships 
 or corporations, that are payable on demand. 
 
 4. Balances due to other Banks. This is a form of 
 deposits incidental to the necessary open accounts of banks 
 with one another, but they deserve a distinct notice on 
 account of a peculiar danger which attends them. The 
 exigencies of business require that the small interior banks 
 should all have funds deposited with leading banks in tlie 
 
S42 EXCaANGti. 
 
 great centres of commerce to draw against. The banka 
 of the great cities accumulate liabilities of this kind to a 
 large amount. In any emergency, these deposits are lia- 
 ble to be drawn out so rapidly as to bring on oi aggravate 
 a commercial crisis. 
 
 5. Surplus funds or Reserves, held to strengthen the 
 bank against contingencies. The national bank ae^ 
 requires each bank statedly to carry a portion of its net 
 profits to such a fund until it amounts to twenty per cent 
 of the capital. The reserve is really an addition to the 
 capital, and belongs to the stockholders, enhancing the 
 market value of the stock. Hence it is properly reckoned 
 with the liabilities. 
 
 6. Undivided Profits and unpaid Dividends. As the 
 business of a bank runs on, there is more or less of cur- 
 rent profit undisposed of, and some dividends are uncalled 
 for. For all these the bank must hold itself accountable. 
 
 7. Miscellaneous liabilities embracing little obligations 
 of various kinds not classified. 
 
 The Resources of banks may be distributed in the fol- 
 lowing classes : 
 
 1. Loans. This item includes all that is due a bank 
 from its customers for discounts and advances represented 
 by notes or other obligations, payable from day to day as 
 they mature. 
 
 2. United States Bonds deposited with the comptroller 
 of the currency to provide for the ultimate redemption of 
 the bank-notes. These are held sacred for that liability, 
 but have a value more than sufficient to cover it. 
 
 • 3. Uiiited States Bonds and other stocks, bonds, etc., 
 purchased and held for investments, that the means of the 
 bank may be productive and at the same time more readily 
 available than they would be if loaned to individuals. A 
 portion of the Reserve is often held in this form. 
 
1?R0FITS OF BAKES. 343 
 
 4. Balances due from other Banks. This corresponds 
 to the similar item on the other side, and is incidental to 
 the open accounts between banks. 
 
 5. Bsal estate, inchiding a place for doing business and 
 such other property of this kind as may, in settlement witli 
 "Is debtors or otherwise, come into the possession of a bank. 
 
 6. Exchanges and Cash items, embracing checks, sight 
 drafts and bills of exchange, more or less of which are each 
 day found with a bank in transitu. 
 
 7. National lank notes and Legal tender notes held to 
 meet daily calls for currency. 
 
 8. Legal tender notes and specie, held for the home re- 
 demption of circulating notes. 
 
 9. Miscellaneous Resources, a general term for various 
 assets which find no place in the previous classification. 
 With a sound bank, the amount under this item is small. 
 
 In a regular bank statement, the liabilities and re- 
 sources thus presented, always balance each other, and the 
 items on either side show the actual condition of the bank. 
 
 The Sources of Profits of Banks. — 1. The chief 
 profit of a bank comes through Interest received. Under 
 the national system several distinct sources of interest may 
 be noticed. 
 
 a. Interest on United States bonds, amounting to at 
 least one-third of the capital, deposited with the comp- 
 troller of the currency. This at from four to five per cent 
 inures to the benefit of the bank, unless its waning credit 
 compels the comptroller to retain it for additional security. 
 
 I). Interest on the amount of circulating notes issued in 
 loans, at the legal rates. This is so much added to inter- 
 est on the bonds, except for the surplus of bonds above the 
 amount of notes. 
 
 c. Interest on the remaining Capital, loaned to CUS' 
 tomers or held in productive stocks. 
 
344 BXCHAKGi. 
 
 d. Interest on a portion of the deposits held. Since 
 jronerally the amount of deposits brought in each day ia 
 about equal to the amount withdrawn, a bank may 
 nafely loan a portion of its average deposits. The sum 
 total loaned by a bank is thus often two or three times 
 tlie amount of its capital stock. Banks are strongly 
 tempted at times to carry this loaning of deposits beyond 
 due bounds so as to endanger the interests of both depos- 
 itors and the banks themselves. 
 
 2. Premiums on Exchange. A small percentage, vary- 
 ing with the state of the market, is charged for drafts or 
 bills of exchange on banks in other places. The aggregate 
 of these premiums is considerable, and for the most part 
 is clear profit. 
 
 3. Commissions for Collectio7is. Banks, as institutions 
 well known and of established credit, often have sent to 
 them claims to be collected. As agents of credit in this 
 form, banks assume no risks, but charge a small percent- 
 age for their service. 
 
 With prudent management, the profits of banks are 
 sure and compare favorably with those of any other busi- 
 ness. Of late, there has been some drawback from heavy 
 taxation of these institutions by both the state and the 
 federal government. The undue expansion of loans in 
 order to increase profits, involves the danger of throwing 
 the centre of gravity outside the base, with a conseouent 
 downfall. 
 
 Currency. — In its broadest sense, this term embraces 
 whatever in the usages of trade passes from hai.d to hand 
 as a medium of exchange. Following the distinctions 
 made by Mr. Amasa Walker, we may specify four kinds of 
 curre icy. 
 
 1. Value Currency. This consists of coined money, 
 made of the precious metals, and having in itself a uni- 
 
UUKREKCY. 345 
 
 versally recognized value which makes it always accepted- 
 It needs no security except safeguards against counterfeit- 
 ing and debasement. Respecting this, nothing need be 
 added to what has been already said in treating of Money. 
 
 2. Mercantile Currency. This is a term adopted b\ 
 Mr. Walker to signify promises payable on demand, issueii 
 by responsible parties for the payment of which in full, 
 coined money or bullion of equal amonnt is held in trust 
 by the promisors. This adds to the security of hard 
 money the convenience of paper to represent real values. 
 Su:h are the notes of the bank of Hamburg, and such 
 were those of the bank of Amsterdam, in its best estate. 
 That such a currency is both practicable and very service- 
 able i* proved by actual experience in the past. It would 
 need no restriction upon its issue. It would take care of 
 its own reputation and would always be a satisfactory ten- 
 der in payment of debts, without any enactment of law to 
 that effect. It would also furnish ample scope for profita- 
 ble and safe banking. It may, however, be questioned 
 whether such a currency, with all the specie that could be 
 brought into use by its side, would be sufficient for the 
 requisitions of modern trade. Since credit has complica- 
 ted itself so extensively with the currency of all the lead- 
 ing commercial nations, it will probably be impossible now 
 to bring the commercial world back to the adoption of this 
 basis exclusively. To attempt some approximation to it 
 mav be successful so far as to vield real advantao:es. 
 
 3. Mixed Currency. This is formed of written prom- 
 ises to pay specie on demand, issued in excess of the actual 
 amount of specie held by the promisors for their redemp- 
 tion. It is called mixed because its basis is partly coined 
 money of real value at hand, and partly credit in the form 
 of notes discounted by the banks which throw it into tir* 
 culation. The presumption is that the payment of cus- 
 tomers' notes as they mature, will keep tlu; bank provided 
 
 15* 
 
346 EXCHAiJ^GE. 
 
 with whatever additional means may be required above 
 the specie in the vaults, to meet the circulating notes as 
 thev are presented. The currency of the old state banka 
 of our coiijii try was wholly of this character. Its security 
 depended on the proportions of the specie and the credit 
 severally to the amount of currency issued. In some 
 states, these proportions were regulated by law so as to 
 secure general soundness of this currency. In the so- 
 called " wild-cat " banking before described, all such pre- 
 cautions were wanting, and the results could only be dis- 
 astrous. In this category of mixed currency, our present 
 national bank notes must also be placed. - They are pecu- 
 liar only in this respect, that the credit which enters into 
 their basis, is the credit of the nation, and its strength is 
 supposed to be such that only a small proportion of specie 
 will need to be kept in store, even when specie payments 
 shall be generally resumed. 
 
 In considering this kind of currency, it is important to 
 note the distinction between its ultimate redemption -and 
 its immediate convertibility. Legitimate banking would 
 always show a large margin for the ultimate redemption 
 of the currency ; and yet this might be with very insuffi- 
 cient provision for its immediate convertibility. This 
 point is well illustrated by Mr. Walker in some statistics 
 respecting the condition of the state banks in our country 
 on the first of January, 1860. At that date the immediate 
 liabilities of the banks of the United States were — 
 
 Circulation $207,102,477 
 
 Deposits 253,802,129 
 
 Due other banks. . , .• 55,932,918 
 
 Other liabilities 14,661,815 
 
 $531,499,339 
 
 Immediate resources : 
 
 Specie $83,594,537 
 
 Cash items 19,331,521 
 
 Notes of other banks 25,502,567 
 
 Due by other banks '. 67,235,457 
 
 $195,664,082 
 
 Excess of immediate liabilities over immediate resoorcet. . . . $335,835,257 
 
MIXED CURRENCY. 347 
 
 It is evident from this statement that a special run 
 upon the banks for the payment of circulating notes or of 
 deposits, or both, (for both are apt to move together) 
 would reveal their inability to meet their obligations. Yet, 
 at the same date, the banks held the following assets as 
 ultimate resources : 
 
 Loans $691,945,580 
 
 Stocks 70,344,343 
 
 Real estate 30,782,131 
 
 Other investments 11,123,171 
 
 Total $804,195,225 
 
 Deducting the excess of immediate liabilities as 
 above 335,835,257 
 
 Surplus $468,359,968 
 
 This margin seems quite sufiBcient to guarantee pei 
 fectly the ultimate redemption of the currency. The 
 trouble is that under a panic the banks cannot realize 
 funds from their assets, fast enough to meet the calls for 
 the redemption of their notes and deposits. If they could 
 do so, the necessity of declining to renew their loans 
 would produce a commercial crisis, and cause a genera^ 
 bankruptcy of men in business. In such exigencies, the 
 only relief is for the banks to suspend specie payments. 
 This is a measure adopted not so much for the relief of the 
 banks themselves, as for that of the entire community. 
 The hanks might perhaps save themselves, but it would 
 be at the expense of almost certain ruin to hundreds, and 
 of immense loss to all engaged in trade. The effect 
 of a suspension is really to gain time for all parties 
 to turn assets, curtail credits and bring the operations of 
 ousiness on to a sounder basis. It is always an evil but 
 ^ften a necessary evil which leads to wholesome results. 
 The undue expansion of credit during a period of suspen- 
 sion, is an abuse which can only aggravate the mischief. 
 
 Oui national bank system furnishes no certain safe- 
 
348 EXCHANGE. 
 
 guard against this contingency. Ordinarily, the govern 
 ment bonds can be converted into cash at once, and so far 
 they are better than the discounted notes of individuals 
 for the immediate conversion of circulating notes. But it 
 is easy to conceive of an emergency when the credit of the 
 government might be impaired or subjected to a special 
 strain, so that the market would be glutted with bonds, 
 Coincident with this, a run on the banks for the payment 
 of deposits would be likely to take place and the immediate 
 redemption of circulating notes would be quite impossible. 
 
 The mixed currency of England is in some degree 
 guarded with respect to this liability by precautionary 
 measures of the Banh of England. Its officers have an 
 eye continually on the flow of specie. As soon as it ap- 
 pears that the stock of specie in the country is diminishing, 
 the bank raises its rate of interest. This tends to reduce 
 the discounts and is a signal to all of danger and a call to 
 curtail credits. As a consequence, the bank of England 
 and all other banks of circulation fortify themselves by 
 adding to the amount of their specie reserves. Thus, often 
 by timely precaution, the danger is averted. When on 
 the other hand, the amount of specie seems superfluous, 
 the opposite course is taken ; the rate of interest is reduced 
 and through increased loans, the funds go into circulation. 
 The central banking institution serves as a great balance- 
 wheel to regulate within certain limits both the currency 
 and credit in trade. 
 
 4. Credit Currency. This consistp A engraved notes 
 bearing promises of a government to pay specified sums of 
 money, at a distant or indefinite period in the future. 
 These by force of law or peculiar circumstances, are ac- 
 cepted as money and fulfill its functions. The ^^ Oonti- 
 aental money " of revolutionary times, the French '^ As- 
 signats" of 1790, and the United States treasury notes, 
 now in circulation, known as ^* greenbacks," are examples 
 
CREDIT (JUKREi^CV. 349 
 
 of this kind of cuiTGiicy. It lias no basis but the credit of 
 the nation. It is but a symbol of value, and has purchasing 
 power only as men have faith in the promise. If the 
 course of the government is such as to impair that faith, 
 the purchasing power of these symbols declines, until at 
 last it utterly fails, as was the case with the American con^ 
 tinental currency and the French assignats. 
 
 On the face of the ^^ greenback" before us we read 
 " The United States ivill pay the hearer ten dollar s.^^ 
 The seal of the United States treasury and the signa- 
 tures of the Treasurer and of the Register of the treasury 
 certify the genuineness of the promise and bind the gov- 
 ernment to its fulfillment. On its back we read, '^ This 
 note is a legal tender at its par value for all debts public 
 and private, except duties on imports and interest on the 
 public debty This engraved slip of paper is then simply 
 an evidence of debt. As it circulates from hand to hand, 
 it can only transfer debts ; it cannot pay them. You may 
 offer this note to your butcher in payment of his bill. He 
 is obliged to accept it, but by the transfer, the government 
 just takes your place as his debtor. It is not itself, as a 
 gold eagle would be, a ''quid pro quo" for the meat he 
 has furnished you. When passed back to the government 
 for taxes or other public dues, it is a mere counter for 
 canceling reciprocal obligations. Its only support, as it 
 flies hither and thither, is that word '* dollars " which 
 means real value — a certain weight of gold or silver — 
 which, some day, it will bring to its bearer. Withdraw 
 that word or nullify its meaning by a hint or a suspicion 
 that the government never means to redeem the promise, 
 and it will drop at once, like a dead leaf to the ground, 
 speedily to decay. Yet, men talk as if a nation's trade 
 could be carried on with a currency made of these govern- 
 ment promises, forecer irredeemable. 
 
 A credit currency can circulate only in the country 
 
350 EXCHANGE. 
 
 where it is issued. There it inevitably supplants gold and 
 silver which are sent abroad to adjust exchanges with 
 other countries. If, as is sure to be the case, these notes 
 are issued to an amount exceeding the natural demands of 
 trade for a medium of exchange, their value will be depre- 
 ciated, and specie, as compared with them, will bear a 
 premium. That premium will rise or fall as men's confi 
 lence in the ability or policy of the government varies, and 
 its amount indicates the extent to which the currency is 
 depreciated. It is not the value of gold which changes, 
 but that of currency only. In such circumstances, no 
 direct legislation can prevent or fix the pi'emium on gold, 
 nor change it except for the worse. The force of civil law 
 is as powerless to resist the operation of the laws of value, 
 as was the voice of the old Danish king in England to stay 
 the inflowing ocean-tide. 
 
 A credit currency tends to raise the prices of all com- 
 modities, and to keep prices fluctuating. The paper sym- 
 bol comes necessarily into comparison with values of every 
 kind. It has in itself no natural basis of value. It rests 
 on credit only, not at all on its cost. Its acceptability de- 
 pends mainly on the hopes, wishes and anticipations of 
 men. In a time of general confidence, the government is 
 led to over-issue its promises. The effect is at once to en- 
 hance prices ; and the first consequence of this is that 
 trade is unnaturally stimulated and demands a yet larger 
 issue of currency, until the day of reaction and distrust 
 comes. In the actual experience of nations as recorded in 
 history, it appears that no government, once drawn into 
 the issue of a credit currency, has been able to adhere to 
 its purpose, often taking the form of a distinct promise, to 
 limit the issue to a certain amount. The door once open 
 is not easily shut — the power released is not easily curbed 
 again. Mr. Walker ss^js with trutli, " When the Secre- 
 tary of the United States Treasury endeavored to ^' float " 
 
CBEDIT CURREJ^CY. 351 
 
 his bonds by the issue of credit currency, he unfortunately 
 floated all the merchandise of the country at the same 
 time, so that the rise of prices compelled him to pay 
 double for all the government needed ; and hence he lost 
 at least one-half of all the bonds that were thus sold." At 
 the same time, it produced a mischievous disturbance ir 
 all commercial transactions, essentially changing the fo:co 
 of existing contracts and reducing the value of fixed 
 incomes. 
 
 Through this enhancement of prices, a credit currency 
 lays a direct tax on a people, which is measured by the 
 degree in which the currency is depreciated. If a ten 
 dollar treasury note will buy only eight dollars worth of 
 merchandise, at the gold prices, he who uses the note 
 really pays a tax of two dollars in making that purchase. 
 The government laid this tax, though it gets no benefit 
 from it, except through the extension of its credit. If 
 such a currency is never redeemed, the country is taxed for 
 its whole amount, but the tax is very unequally distrib- 
 uted. If it is finally paid, the sum total is greatly increased 
 through the enhanced prices paid by the government for 
 things needed in the hour of its extremity. For that 
 final payment, some contraction of currency is inevitable, 
 and while it is going on, business has to be done on a 
 "falling market," that is, with prices declining. This 
 makes men groan and murmur ; they forget that they are 
 only paying the cost of their cherished illusion — the appar- 
 ent prosperity of the day when the inflation of the cur- 
 rency gave them what they deemed the benefit of ''a ris- 
 ing market." 
 
 A Credit currency is a forced Loan. This appears 
 from the manner in which it is issued. Note for example 
 the course of our government in issuing its treasury notes. 
 It "Was in immediate need of provisions and munitions of 
 war. Instead of raising means for this exigency by taxea 
 
353 EXCHANGE. 
 
 or the sale of bonds, only, it contracted with manufactur- 
 ers and producers for the articles needed and gave in pay- 
 ment these promises. In other words it borrowed the 
 ships, guns, ammunition, provisions, etc., in the first in- 
 stance of those who produced them, and then to relieve 
 them from carrying the whole burden of this loan, by the 
 legal tender act, it obliged everybody to share it. All 
 5\^ere compelled to accept greenbacks for whatever might 
 bo due them, and so every bearer of a greenback is made 
 for the time a creditor of the government. 
 
 A credit currency thus involves a violation of the 
 Jaius of value a7id an mevitahle disturbance of the com- 
 merce and industries of a natio7i. It has also a demoraliz- 
 ing effect on the honor and integrity of a people. The 
 longer they are kept familiar with it, the more is the tone 
 of moral sentiment among them corrupted. Austria pre- 
 sents a sad example in point. We give the sketch as 
 drawn by a trustworthy historian for the state of things 
 in 1816. Though that state is in a better condition now, 
 her moral and commercial character still suffers from the 
 same malady. Thus we read : 
 
 "Undeniably the paper money exercised the worst in- 
 fluence on the morale of the people. Frugality and dili- 
 gence were lost virtues. Vulgar pleasure-seeking and 
 wild extravagance became habitual even in the lowest 
 classes. Of what use to care for the future ? Why not 
 enjoy to-day all the pleasures of the senses ? How could 
 any one hesitate to pay two hundred gulden for admission 
 fco a ball ? In fact, the "money" had no value, and if 
 one stood reflecting, he might lose ball and money both. 
 The very fact of speaking continually of largo sums, which 
 however in truth amounted to but very small value, stim^ 
 nlated to frivolity and folly. So the ground was prepared 
 for developing the celebrated * Viennese ■ disposition ; and 
 the loafer-life in which the hot-spiced pleasures of the 
 
CHEDIT CtJRRENCY. 353 
 
 palate seemed the highest good, became indigenous to the 
 nniqiie city of the emperor." 
 
 No thonghtful observer can fail to observe similar ten 
 dencies grow^ing steadily stronger in our country, as our 
 credit currency continues its presence and influence in the 
 land. The act of a government creating such a currency 
 is a direct interference with the rights of property and 
 with the fundamental law of exchange, which requires the 
 free consent of parties to all transfers, and the mainte- 
 nance of contracts in full force. That act can be justified 
 only by stern necessities, in circumstances which jeopard 
 the nation's existence. When the crisis is safely passed, 
 the nation is under the highest conceivable obligation to 
 bend all its energies to fulfill its promises, to relieve the 
 general disturbance and distress, and to restore the bright* 
 ness of its commercial honor, as speedily as possible 
 
CHAPTER XXIII. 
 
 FREE-TRADE vs. PROTECTION. 
 
 Definitions. As ;i term of Politiciil Ecoiiomy, 
 Free-trade expresses the principle that a 7iation''s wealth 
 and prospenty are best jji'ovioted by securing the titmost 
 freedom for the exchange of all commodities among its oivn 
 people, and 'with the people of oilier vonntries. 
 
 As a term of the same science. Protection expresses 
 the principle that in order to promote home-industry, the 
 importation of certain articles from coicntries where they 
 can be produced cheaper tlian at home, should be prohibited 
 or restricted by heavy duties. 
 
 From the bare statement of these principles, it is evi- 
 dent that they are opposed to each other, propounding 
 two distinct and conflicting economic systems. We have 
 accordingly two schools of })olitical economy in which the 
 expounders of the science are classed as they advocate the 
 one or the other of these principles. In practical legis- 
 lation, also, two opposing policies corresponding to these 
 two principles have been in conflict through all the history 
 of our country. The issue may be best considered with 
 the two principles distinctly b.efore us. 
 
 It is obvious also that the system of protection touches 
 all of the foil" branches of political economy. As propos- 
 ing measures to stimulate home industry, it is directly 
 concerned with the department of Production. As it 
 aims to enhance the prices of certain commodities, it as 
 directly affects Consumption. As it modifles both private 
 profits and public taxation, it comes into contact with the 
 
THE PJIESUMPTION IX FAVOR OF I'RFA-] 'J'llADE. J355 
 
 laws of Distribution. And as it obstructs to some extent 
 the freedom of commerce, it has lo do especially with Ex- 
 chamjG, Such being tlie case, an advantage conferred l>y 
 the system in one direction, may be offset by a disadvan- 
 tage produced elsewhere. Hence, for the intelligent dis- 
 cussion of the question before us, the elementary princi- 
 ples of our science in all of its departments mnst be kept 
 in view. We have therefore chosen this place for the 
 treatment of this subject, after the presentation of the 
 elements of our science under its several divisions. 
 
 The Presumption is in favor of Free-trade. 
 
 This appears from sevei'al considerations. 
 
 1. For all economic processes and resnlls, in their gen- 
 eral aspect, the law of freedom is most favorable. This 
 fact has come distinctly to view through all our previous 
 discussions. Thus we have seen that for the production 
 of wealth, labor and capital meet most advantageously 
 when each is free to apply itself to whatever industry 
 promises the largest returns. Economy in the constimp- 
 tio7i of wealth demands that all be free to purchase the 
 means of gratifying their desires at the least expenditure 
 of value practicable. The individual needs to buy where 
 he can get the most for his money. It is equally for the 
 interest of the community to bring its supplies from the 
 cheapest market. We have seen too, that /rce competition 
 is the grand regulator iii distributing the proceeds of in- 
 dustry to the parties concerned, so that the labor, the 
 skill, the capital and the managing capacity shall each 
 receive its due share. It has further been made plain that 
 the ultimate disj)osal of products, through the processes of 
 exchange is most jH'ofitable with the widest range of market, 
 the freest chatmels of com?ftu7iicalion and the best facilities 
 for transportatioti. The interests of these several depart- 
 ments of economic action are linked together and in the 
 
356 . EXCHAKGE. 
 
 lirst aspect, the rule of freedom appears essential to the 
 prosperity of all. 
 
 2. Tilt right of Property implies freedom for every one 
 to do what he will with Ms own, provided he does not in- 
 fringe the rights of others. Any law restricting the free 
 exchange of one form of property for any other, or its fret 
 transfer from one place to any other is ^' prima facie ^^ a 
 violation of a natural, universal, inherent right. Every man 
 is entitled to use the products of his own labor as may 
 seem most for his advantage, to exchange them with citi- 
 zens of his own country or with foreigners, as he may get 
 for them the largest compensation. The denial of this 
 right or the interference with it by a government, bears a 
 semblance, to say the least, of oppression, of robbery. 
 The presumption is against it. 
 
 3. The Social Instincts of men prompt them to the 
 practical adoption of this principle of freedom of exchange. 
 A solitary settler in the wilderness reduces his wants to 
 the minimum, and turns his hand to all sorts of occupa- 
 tions to satisfy them, making himself hunter, fisherman, 
 farmer, builder, blacksmith, and so on. When another 
 joins him, a division of labor and free exchange begin. 
 As numbers increase and a community is formed, diverse 
 employments are more and more distinctly defined and 
 distributed, mutual exchanges are multiplied, and both 
 wants and the means of gratifying them rapidly increase. 
 An impulse of our nature leads to the opening of com- 
 munication with other settlements, and to the making of 
 that communication as free as possible. Thus one after 
 another, physical obstructions are removed, the winding 
 trail gives place to an open road, bridges are thrown across 
 the streams, steam supersedes sails for navigation, the 
 locomotive and rail-car are brought in to shorten distance 
 as measured by time, and the electric telegraph, set up be- 
 tween different and distant localities, annihilates time and 
 
THE PRESUMPTTOK IN^ PAYOR OF FREE TRADE. 357 
 
 space and permits contracts and all operRtions of the com- 
 merce of the world to be adjusted to present facts in all 
 parts of the world. Every new discovery or invention 
 which tends to increase freedom and facilities for ex- 
 changes is hailed with joy by all civilized people. The 
 Cinnmon sense of men, expressed by their instinctive 
 action, thus pronounces universal freedom of trade a com- 
 mon blessing. The civihzation of the world seems to ad- 
 vance in accord with this principle. Hence, the presump- 
 tion that it is a wise and right principle. 
 
 4. Free commercial inter course 'between the nations of 
 the earth tejids evidently to establish their mutual relations 
 upon a basis of peace and good-tvill. By the mutual ex- 
 change of values, different peoples become acquainted and 
 assimilated with each other, and the feeling of interdepend- 
 ence creates a common interest out of Avbich grow the 
 bonds of abiding friendship. Within the last two hun- 
 dred years, international law has come to the dignity of a 
 distinct science. Its development and growth have been 
 coincident with the expansion of commerce under the im- 
 proved facilities secured by recent inventions. The spon- 
 taneous and necessary intercourse of nations originates in- 
 ternational law, and leads to the establishing of rules for 
 governing that intercourse. The more the principles and 
 rules of this department of law are studied, the more 
 clearly does it appear that through free commercial rela- 
 tions, the separate interests of all nations are bound to- 
 gether in one, so that each is concerned in the welfare of 
 every other, and each is induced to place itself in an atti- 
 tude of friendship, rather than of enmity towards others. 
 Free-trade appears thus the promoter and pledge of peace 
 in the world. The broad competition which it incites 
 tends to swell the sum of human comforts and joys, and to 
 impel every branch of the race to improve to the utmost 
 the conditions of human living. 
 
B68 JEXCHAKQE. 
 
 6. Tlie nations of men are of one blood and consiituie 
 one family ; and all the face of the earth with its great 
 diversity of resources and productio7is is given to the on-i 
 human race. The blessina^s which the earth has to yicl 1 
 are developed in largest measure, as the people of ever}' 
 land devote themselves to the production of those forms of 
 wealth for which their country is best adapted ; and the 
 happiest distribution of those blessings is secured by inter- 
 communication and mutual exchanges made as free as pos- 
 sible between all nations. In the constitution of our 
 nature, in the divine Scriptures and in the records of 
 human experience alike, we read this . fundamental, eco- 
 nomic law. The enmities, the restrictions, the isolations 
 which human selfishness has prompted and maintained are 
 in violation of this law. The miseries consequent, 
 under which the nations have groaned, are but the penalty 
 of violated law. The broad philanthropy which Chj-is- 
 tianity inculcates and aims to make universal for the 
 world's emancipation from all evil, embraces this principle 
 of freedom for trade. 
 
 In view of these things thus concisely presented, we 
 are certainly justified in saying that in the issue before us, 
 the presumption is strongly in favor of free-trade. On 
 the advocates of Protection therefore is thrown the burden 
 of proof for their principle of restriction. Let their argu- 
 ments be fairly stated and candidly considered. 
 
 Arguments for Protection. — These arguments 
 concentrate on the promotion of home-industry, and vary 
 only as they severally present different aspects of the lead- 
 ing thought. It is said, 
 
 1. Protection is necessary to secure that variety of in- 
 dustry and that balance of different industries which are. 
 essential to a peojjle^s prosjjerity. This is the broad propo- 
 sition which underlies all, and in a sense, includes all the 
 
ARGUMENTS FOIl JPROTECTION. 359 
 
 lines of argument adopted'by the advocates of this system. 
 The proposition embodies two statements which are the 
 premises of a syllogism. The major premise is that a bal- 
 anced variety of industry is essential to a people's prosper- 
 ity. The minor premise is that Protection is a necesiurv 
 means to this varied industry. If both are established as 
 sound and true, the conclusion follows that the protective 
 policy is a necessary means of highest prosperity. 
 
 The first statement may be resolved into several par 
 ticulars to bring out its full force, as follows : 
 
 a. Every country has a great variety of resources, and 
 the development of all its resources conduces to its great- 
 est wealth. 
 
 Z». Among the population of every country, there is a 
 corresponding diversity of native talent, and labor is most 
 effective when every one has scope fordoing that for which 
 he is best fitted. 
 
 c. The actual wants of men are equally diverse, and 
 the highest happiness of a community depends on the 
 degree in which all are provided for. 
 
 d. A diversity of occupations makes a home-market for 
 all sorts of products, saving cost of transportation, favor- 
 ing division of labor, and binding all classes together by 
 ties of mutual helpfulness and common interests. 
 
 e. Varied industry favors the social and moral advance- 
 ment of a people, quickening and broadening minds, en- 
 larging hearts and impelling to noblest action in the lines 
 of reotitude and benevolence. 
 
 We recognize all of these statements as elementary 
 principles of our science which have come before us repeat- 
 edly through our previous discussions. They need but a 
 single qualification to secure universal acceptance. It does 
 not follow from the general advantage of varied industry, 
 that a people must always hasten to develop every source of 
 wealth existing among them, or maintain at all hazards. 
 
360 EXCHANGE. 
 
 every possible form of industry. In exceptional cases, a 
 nation may have sucli peculiar advantages for a certain 
 kind of production, that its wealtli will be most increased 
 by concentrating its energies on that to the neglect of 
 others. The people of Barbadoes have ample facilities for 
 raising provisions, but they have much greater advantages 
 for raising sugar. Therefore, it is good policy for them 
 to produce mainly sugar, and get provisions by exchange 
 from countries where the cost of raising them is greater 
 even than it would be on their own soil. With this quali- 
 fication, the advocates of free-trade not only admit the ad- 
 vantages of varied industry, but magnify them in support 
 of their own theory. It is on the second premise that the 
 real issue is joined. 
 
 The affirmation is that protection is necessary to secure 
 diversified industry. The strong reason urged in support 
 of this proposition is thus presented : ^' Foreign competi- 
 tion crushes out the home production of all but the rudest 
 and coarsest articles of manufacture, and prevents the es- 
 tablishment of a varied industry, unless the government 
 interfere, as the personification of the nation, and its co- 
 ordinating power, to restore the equilibrium by discour- 
 aging imports." 
 
 We may fairly ask how foreign competition is able to 
 do this. The answer must be that in some other country, 
 certain articles can be produced more cheaply than at 
 home. We ask again, why their production costs less 
 abroad. According to the principles of our science, the 
 answer comes that it must be on account of peculiar ad- 
 vantages in three respects. Either the foreign country 
 has superior natural resources, or it has 7nore abundant 
 capital, free to be employed in the contemplated indus- 
 tries, or it has laborers in greater numbers and better 
 skilled for the work to be done. The argument implies 
 that the interference of government discouraging imports, 
 
argume:nts ion ntoTECTiox. 361 
 
 tends to counterbalance those advantages which the for- 
 eign land possesses. AVe can readily see that it will do 
 this, so far as those engaged in the protected manufacture 
 are concerned. The action of the government forces up 
 prices so that they can make the goods and realize a profit. 
 But evidently, this is at the expense of the community 
 generally. Tlie duty is a tax laid upon the many for the 
 benefit of a few. 
 
 For illustration, suppose that English broadcloth can 
 be sold in Beloit, at five dollars per yard, but it will cost 
 eight dollars a yard to manufacture cloth of the same 
 quality here. To encourage home-industry, a duty of 
 three dollars per yard is laid on all English cloths im- 
 ported. This will prepare the way for that industry to be 
 set up ; but plainly it is sustained only by a tax of three 
 dollars a yard, paid by every one who wears broadcloth of 
 either domestic or foreign production. The real benefit 
 of this tax goes to the manufacturers. The case is the 
 same as it would be if, without the duty, every man had 
 been allowed to buy cloth at five dollars a yard, but had 
 been obliged for every yard that he bought to pay three 
 dollars to the home-manufacturer. This is a steady draft 
 on the capital of the country — a burden laid upon the pro- 
 ducts of other forms of industry. 
 
 To relieve this aspect of the matter, it is said that this 
 burden is but tem'porary, and will be more than compen- 
 sated by the greater ultimate benefits of a diversified in- 
 dustry fully established. Protection is needed only to 
 nurse our manufactures in their infancy, and to hasten 
 their development. After being thus supported for a 
 time, they will grow strong enough to defy foreign compe- 
 tition. Then prices will be reduced, the tax can bo 
 removed and a lasting benefit will be realized. 
 
 The question arises again how is this result to be 
 bi ought about ? Recurring to the laws of production with 
 
362 EXCHANGE. 
 
 reference to the three particulars of resources, capital and 
 laborers, it is quite evident that protection cannot add to 
 the natural resources of a country, so as to put all coun- 
 tries in this respect on a level. Protection can never give 
 to France the coal-fields of England, nor furnish the 
 prairies of Illinois with the water-powers that abound in 
 New England, nor secure to Germany the facilities for 
 raising cotton which the "southern states of our republic 
 enjoy. 
 
 What protection does to accomplish the result claimed 
 for it, must be then, through its effect on cajntal or lalor. 
 The enactment of a protective tariff obviously cannot 
 create capital. Capital springs and grows only by industry 
 and frugality. It is the fruit of saving. As products are 
 increased and expenses diminished, there is a chance for 
 adding steadily to capital the difference between wealth 
 consumed and wealth produced. But, as we have seen, a 
 protective tariff enhances the price of certain articles of 
 general consumption. It may touch the materials of in- 
 dustry ; it may touch things necessary to the support of 
 laborers. Just so far as it does this in either direction, it 
 increases the cost of production and the cost of living, and 
 thus diminishes the chance for saving. It makes capital 
 less effective except in the line of the protected industry. 
 The capital of the community generally is impaired, not 
 strengthened. 
 
 Much the same thing must be said of the effect of this 
 policy on labor. Legislation has no power to create men. 
 The natural increase of population depends chiefly on the 
 means which a country possesses for the support of a popu- 
 lation, and the facilities it offers for the accumulation of 
 wealth. Where the necessaries of life are abundant, and 
 there is free scope for profitable employment, large fami- 
 lies are raised. The same considerations constitute the 
 chief attraction to draw in foreign laborers. Men emi- 
 
AKGUMEXTS FOLt P.iOTECTIOI^. 363 
 
 grate to better their condition. The first effect of protec- 
 tion is simply to concentrate labor on one employment, and 
 to lay a special burden on all others for the benefit of the 
 favored occupation. Nominal wages may thus be raised, 
 but real wages are reduced by the enhanced price of the 
 necessaries and comforts of life. This means that the 
 ^itimulus to labor generally and its efficiency are impaired. 
 
 The advocates of protection in their reasoning, seem to 
 lose sight of the fact that this policy can do little more than 
 to change the direction of both capital and labor. When 
 articles of foreign production are imported, they are to be 
 paid for by the products of home labor and capital, and 
 the question of economy is, which is the cheapest — which 
 will bring the largest returns for a certain amount of labor, 
 to make these articles ourselves or to make something 
 else with which to buy them ? Left free from government 
 interference, home labor and capital will lay hold of what- 
 ever natural resources a country possesses, and with refer- 
 ence to both home wants and foreign wants, produce the 
 things most feasible and desirable, at the cheapest possible 
 rates. The surplus of these products will pay for the for- 
 eign goods purchased. Intelligent judgment and free 
 choice determine the direction given to capital and labor, 
 to establish those industries which are most advantageous. 
 But protection comes in to overrule this spontaneous 
 action. It assumes that a government can judge bettei 
 than themselves what is for the people's advantage, and so 
 dictates a diversion of capital and labor to new employ- 
 ments. Such a change is in itself a disadvantage. It 
 involves more or less loss of capital and of skill in labor. 
 
 The protectionist says, ^' Nobody asks that protection 
 as a system shall be permanent.'^ Yet it is an incontro- 
 vertible fact that in the history of protective legislation, 
 no '•' infant industry" that has been nursed by this policy 
 has ever grown to such maturity of strength and self-sup- 
 
364 EXCHANGE 
 
 port as to be ready, voluntarily, to dispense with the help* 
 ing hand of law and face foreign competition in its own 
 strength alone. The English landholders clung to their 
 corn-laws to the last. The iron manufacturers in our 
 country have at times, under high tariffs, done extensive 
 business and made great profits, but they have kept up the 
 prices of their product and always resented every proposed 
 reluction. of the duty. Is not this fact a virtual confes- 
 sion that '^Protection fails to protect," that this interfer- 
 ence of government to direct the industries of a people 
 fails of its aim ? 
 
 But against the assertion that protection is necessary 
 to develop varied industry, it may be positively affirmed 
 that there is a hetter and surer way of reaching that result. 
 Where no interference or obstruction is allowed, there 
 comes a spontaneous development which is safe and con- 
 stant because it is in accordance with nature's law. We 
 may unfold the thought in a few distinct yet connected 
 propositions as follows : 
 
 a. There is a natural growth of human industry, the 
 laws of which are as fixed and certain as those which per- 
 tain to the growth of vegetation. 
 
 b. Free competition is the healthy stimulus to that 
 growth. 
 
 c. Under the natural law of development, industry 
 will be applied to the several native resources of a country 
 as fast as the increase of labor and cajntal will warrant. 
 
 d. Men^s instinct for accumulation following diverse 
 individual capacities, tastes and predilections, is the safest 
 gtiide to determine the order in which labor and capital 
 shall be applied to those various resources. Under it, 
 wliatever promises a profit will be undertaken as soon as it 
 can be without sacrificing a greater profit elsewhere* 
 
 e. The attempt to force labor and capital into certain 
 employments before their time, deranges the order of 
 
ARGUMENTS VOR PKOTECTION. 36b 
 
 nature and produces reactions which hinder the desired 
 result. 
 
 /. At any stage of this development, if exchange is 
 tree, for eigii products are purchased tuith the fruits of a 
 peopWs most efficient labor, that is, with those articles 
 which they can then produce to the best advantage ; 
 which they can best afford to part with, because they are 
 obtained at the least cost. By all such advantageous 
 trade, capital, the prime element of varied industry, is in- 
 creased and labor is sustained. 
 
 g. When by this natural progress, a people come to 
 take up a new industry for which they have natural advan- 
 tages and God- given capacity, no foreign competition can 
 crush it, for even in its infancy, it is charged with the 
 nation's life and strength. 
 
 h. An industry which is not indigenous, which has no 
 natural advantages, or which is prematurely set up and 
 fostered by artificial means, can have only a sickly, uncer- 
 tain life, and is supported at a wasteful expenditure of a 
 nation^ s resources, 
 
 2. It is strongly urged as an argument for protection, 
 that it is a necessary means of maintaining national inde- 
 pendence. This is a very specious argument, because the 
 term national independence has a patriotic ring to which 
 the popular ear and the popular heart are peculiarly sensi- 
 tive. But as used in the proposition before us, it simply 
 covers a subtle sophistry and makes it pass for sound rea- 
 soning. For an individual and for a nation, there are tw( 
 kinds of independence. One may withdraw from his fel 
 low-men to a cave in the wilderness and in contact with 
 none else, keep himself alive and possibly find interest and 
 enjoyment in a hermit life. He may glory in his nde- 
 pendence. But is there anything noble in such isolation ? 
 Is it the way for a man to make the most of himself ? Is 
 
366 EXCHANGE. 
 
 this the kind of independence which young men should be 
 taught to aspire to and maintain ? The independence of 
 genuine manhood is of another sort. It is individuality 
 of capacities, acquisitions and character which is able to 
 stand on its own basis in full and free relations with fel- 
 low men. It is, in the midst of society, a distinct person- 
 ality, giving and receiving, supporting and supported, 
 blessing and blessed through the varied intercourse which 
 nature prompts and by which the completest development 
 of the man and of the race is advanced. 
 
 The same distinction is to be recognized with respect 
 to nations. There is an independence of isolation such as 
 China and Japan, until recently, maintained — such as the 
 despot Francia attempted to secure for Paraguay, when he 
 stopped all ingress and egress, held the shipping in the 
 river till it rotted and fell to pieces, and compelled his 
 people to restrict their desires to those things which they 
 could produce for themselves. But that independence 
 which is the strength and glory of a nation is of another 
 kind. It is an iridividuality of national resources and 
 character which stands up in the full brotherhood of 
 nations, and in the consciousness of its own strength enters 
 into all offices of mutual dependence through which nations 
 grow and civilization makes progress. 
 
 The policy of protection fosters the narrower kind of 
 independence. It is a restrictive policy. Carried out to 
 its logical conclusion, according to its manifest tendency, 
 it leads to isolation. The sophistry referred to consists in 
 the concealment of this fact, while the term " national in- 
 dependence " is used in its broader, nobler sense. To link 
 protection as a cause with such independence is a pure as- 
 Buniption, false and deceptive*. 
 
 In an economic point of view, the real independence 0/ 
 a nation is commercial independence. That is reached and 
 secured, as a people, by the development of their own 
 
ARCtUMENTS FOR PROTECTION. 367 
 
 resources, are able to provide for themselves, in part by 
 their own productions,, and for the rest, by commanding 
 the needed productions of other nations, by offering in the 
 market of exchange, what other nations want. The basia 
 of such independence is tlie home production of wealth. 
 But the way to increase wealth is to use to the best possi- 
 ble advantage the gifts of nature, and then, in the world's 
 great mart, sell where things can be sold on the best terms 
 and buy where things can be bought on the best terms. 
 That nation is strongest and most complete in her inde- 
 pendence, which can open most freely every avenue for the 
 wealth of the vsrorld to flow in upon her, because, as the 
 fruit of her own vital energies, freely exerted, she has 
 wealth in abundance to give a fair equivalent. 
 
 A nation comes to this full maturity by a steady nat- 
 ural growth, just as a child comes to full manhood. In 
 both cases, freedom is the law of growth. The old myth- 
 ology tells us that once the head of Zeus was opened, 
 and there leaped forth into the world a virgin full grown 
 and full armed. But not even in myth or legend, do we 
 read of any nation thus born in full maturity of strength. 
 The effort by protection to hasten a nation's independence 
 is like binding an infant's limbs in splints, that it may 
 sooner stand alone. The artificial appliance may develop 
 prematurely a single function, but it is at a wasteful 
 expense of general vigor, and is quite sure to induce 
 chronic weakness and deformity. 
 
 The presentation of these two arguments has covered 
 nearly the whole ground of the discussion, and brought 
 into view the leading points. A few words will suf' 
 fice to dispose of what other arguments we need to 
 notice. 
 
 3. The advantages of a home-market for agriciiUural 
 products are often urged in favor of the protective system. 
 
368 EXCHANGE. 
 
 Certainly it is an advantage to a farmer to find in a man 
 ufacturing village near, a market for his produce. It will 
 save him a part, at least, of the cost of transporting it to 
 the distant commercial city. But if this market is made 
 and sustained for him by a protective taiiff, he must pay 
 for tools, for salt, for dry-goods, for all the manufactured 
 articles he needs, from twenty to fifty per cent more than 
 they would cost him under the rule of free-trade. May 
 not this offset all the gain on the other side ? 
 
 The assumption that protection creates the home- 
 market is a fallacy. These centres of varied industry 
 grow up naturally and healthily with the increase of popu- 
 lation and wealth. Mechanical genius, the investigating 
 turn of mind, the energy of will-power, managing capa- 
 city — these qualities come not of protective tariffs. They 
 are the gifts of God to men. Left to themselves, they go 
 out spontaneously to lay hold on all gifts of God in nature, 
 a-id using all available capital, set up the workshops of 
 industry, and bring out the treasures of wealth in ever- 
 increasing measure. 
 
 Furthermore, the term " home-market " has force in 
 this discussion, only as it implies the production at home 
 of all manufactures wanted and the consumption at home 
 of all agricultural produce raised — a condition of things 
 attainable, if at all, only after the lapse of centuries. 
 Meantime, a people must buy the things they cannot pro- 
 duce, by selling the surplus of that which they can pro- 
 duce. For a long time to come, this country will have a 
 large surplus of breadstuffs, cotton, petroleum, silver and 
 gold to dispose of. We can sell to others only as we give 
 others a fair chance to sell to us. Domestic commerce and 
 foreign commerce are necessarily interlocked. The prices 
 of agricultural produce in our home-markets are deter- 
 mined by the prices in markets abroad. Where trade is 
 freest, the prices will on the average be the best. Hence, 
 
ARGUMENTS FOR PROTECTION. 369 
 
 free-trade is the essential condition of a sovnd and Jicalf/iy 
 home-market. 
 
 4. If is said that the free introduction of foreign 
 fabrics tends to bring our American laborers doivn to the 
 level of the '^ pauper labor''' of the old world. The expres 
 sion "^pauper labor " suggests something frightful to inde 
 pendent freemen, and hence with our common people, ihi^^ 
 plea is probably more effective than any other ; but a few 
 simple facts take away the point of this argument. The 
 laborers in England, which is the old country chiefly 
 referred to, who are the lowest in the scale of living, arc 
 those engaged in agriculture. Our agricultural laborers, 
 though they have no benefit from protection, may safely 
 defy their competition. The nominal wages of skilled 
 labor employed in manufactures in England, are lower 
 than those of the same class in this country. But careful 
 inquiry shows that the low wages of the English artisan 
 will go quite as far as the higher rates paid here in secur- 
 ing the necessaries and comforts of life. The competition 
 then, is unequal only in appearance. It can have no 
 effect to degrade our working-men. If our protective 
 duties were removed, wages might decline in full propor- 
 tion. Even if the case were as strong as the argument 
 implies, the low wages of foreign labor would be of advan- 
 tage to all consumers at home, including our laborers. 
 We should get certain articles all the cheaper, and our 
 labor devoted to other forms of production for which we 
 have advantages, would bring larger returns through the 
 exchange. 
 
 5. It is said again that protection is necessary to the 
 
 development of skill 171 manufactures. We may turn the 
 
 previous argument to meet this. So long as wages are 
 
 higher in our country than abroad, they will bring over tc 
 
 16* 
 
^70 EXCHANGE. 
 
 our aid the best acquired skill of the old world. For thi 
 development of advanced skill and the invention of new 
 devices, free, sharp competition is the highest stimulus. 
 Protection interferes with this and thus removes the spur 
 to best endeavor. 
 
 6. Protection is often advocated as a means of Retalia- 
 ion. A nation will not fully receive our products and we, 
 
 -n order to punish her and oblige her to change her policy, 
 refuse to receive hers. This certainly is not a virtuous nor 
 an honorable motive to action in either an individual or a 
 nation. Eetaliation is not generally wise, since in the hot 
 spirit of vindictiveness, it prompts men to measures which 
 are likely to injure themselves as much as their opponents. 
 A worthy example of self-reliance and manly generosity 
 will be more effective to lead another country to change 
 her policy, than any threat or act of retaliation. If the 
 narrow policy of another nation excludes our products, so 
 that we cannot trade directly with her, it may yet be both 
 feasible and profitable to procure her products by means 
 of a double exchange through a third country. We surely 
 injure ourselves when we pay five dollars for an article 
 which we could just as well get for three. There is no 
 profit in the mere gratification of spite. 
 
 7. It may be asked, if the policy of protection is so nn- 
 reaso7ial)le, lioiu is it that so many men of clear intellect and 
 practical luisdom approve and maintain it, and thai, 
 through the centuries past, it has ieen by the 7iations so 
 generally adopted ? The question is well answered by the 
 French economist Bastiat, in a paper entitled " That 
 which IS Seen and that which is not Seen," in which l.e' 
 allows that protection is maintained principally by a view 
 of what the few producers gain and a concealment of 
 what the many consumers lose ; and that if the losses of 
 
ARGUMEIiftS FOR PROTECTION". 37i 
 
 fche million were as patent and palpable as the profits of 
 the few, no nation wonld tolerate the system for a day. 
 The apparent benefit of protection is concentrated and 
 strikes the eye at once, while its evils are widely diffused 
 Hud escape notice except on thoughtful investigation. 
 
 T_ie theory of protection indeed, comes to us, an in- 
 heritance of the past, supported by a kind of prescriptive 
 right from long usage. But tracing it back we find its 
 origin in the old doctrines that nations are natural ene- 
 mies to each other, that in every profitable exchange, 
 "What one man gains must be another man's loss." that 
 commerce can benefit one country only as it injures 
 another, and that a nation's wealth is increased only as 
 money is brought in and held fast. These false doctrines 
 led to the most harassing restrictions on all commercial 
 intercourse. The different trades were organized as rival 
 guilds, each fenced round with secrets and endowed with 
 peculiar privileges. Tolls were collected at every city's 
 gates on all goods brought in. Each nation sought to 
 build up its own industry by breaking down that of 
 others. Strange enactments were made to favor particular 
 manufactures. Thus to protect tlie woolen manufacture 
 in England, it was ordained that no man might bny wool 
 within fifteen miles of the sea without permission of the 
 king, and that every corpse should be buried in a woolen 
 shroud. Not a century and a half ago, a great statesman 
 of England said in the house of Lords, " If our wealth is 
 diminished, it is time to ruin the commerce of that nation 
 which has driven us from the markets of the continent, by 
 sweeping the seas of their ships and blockading their ports." 
 Happily, with the advance of civilization, other and better 
 views have supplanted those old doctrines and the absurd 
 regulations have, for the most part, disappeared from the 
 statute-books. The protective system, however, still lin- 
 gers, the last phase of feudal isolation, and, strange to say, 
 
372 EXCHANGE. 
 
 rules with strongest sway the policy of our free republic. 
 How long shall it resist the spirit of liberty and fraternity 
 which is rallying all nations to mutual good-will and 
 cooperation ? 
 
 Positive Objections to the system of Protec* 
 tion. — From the actual operation of the system, evils pro- 
 ceed which expose its inherent impolicy and injustice. 
 Here we deal with plain facts. 
 
 1. Protection introduces and fosters antagonism between 
 the different industries of a country. The idea of giving 
 protection to every branch of industry is absurd. The 
 theory implies special encouragement to the production of 
 certain articles. But when government interferes to favor 
 one industry by raising the price of its products, it taxes 
 all other interests. The duty on foreign coal is a benefit 
 to those who work our coal-mines, but an injury to every 
 manufacturer who uses coal. Hence collision of interest? 
 between the producers and the consumers of coal. The 
 wool-grower finds that the duty which protects the 
 woolen manufacture increases the cost of his clothing, 
 while the competition of cheap wools from abroad keeps 
 down the price of his product. He applies for protection. 
 But if granted, this will reduce the manufacturer's profit, 
 and he protests and resists. Thus two parties whose in- 
 terests are really one, are set against each other in a con- 
 flict injurious to both. The boot and shoe manufactures 
 of our country, through the Yankee genius for invention, 
 with no special protection, grew naturally into one of our 
 most profitable branches of industry. But a duty laid on 
 leather and hides, for somebody's protection, robbed our 
 manufacturers, in part at least, of their rightful advantage 
 in the world's market. The main point of our objection 
 is very^clear in the case of the duty on foreign steel, as 
 presented by Mr. Amasa Walker. ^*The whole num- 
 
OBJECTTO:firS TO PROTECTlOi?^. 37S 
 
 ber of persons engaged in the direct manufacture of 
 steel in the United States, as the special Oommissioner ol 
 Revenue informs us, does not exceed three thousand five 
 hundred ; while the number of those who use steel as 
 I raw material for the manufacture of axes, chisels, files, 
 outlei-y, spades, shovels, pistols, machinery and other 
 tools and implements, is not less than two hundred 
 thousand ; while an addition of those indirectly inter- 
 ested in having cheap steel would swell this number to 
 one million, five hundred thousand." In this case, the 
 few more easily combine to perpetuate their advantage, on 
 account of each one's large and immediate interest ; while 
 the disadvantage is distributed in smaller proportions to 
 the many and their eyes are only half opened to discern 
 its measure and its cause. But the conflict begins to be 
 defined and the issue must in due time be joined. 
 
 2. Tfie unnatural stimulus given hy protective legisla- 
 tion leads to over-production and consequent stagnation 
 and failure. The first effect of a high duty is to raise 
 prices and so to increase the profits of the protected indus- 
 try. Men eager to g^i this advantage turn capital and 
 labor into this form of production and push their business 
 with great zeal. Old establishments are enlarged, new 
 establishments are hastily and ignorantly set up. They 
 are run by untried managers, worked by inexperienced 
 hands and turn out an imperfect product in great profu- 
 sion, till the market is glutted, prices decline and the end 
 is stagnation, and with many bankruptcy. All this was 
 strikingly illustrated by facts in the manufacture of paper. 
 During the late war, a heavy duty was laid on the import 
 of paper, and at the same time, the demand was greatly 
 increased. The price of the article rose rapidly, yielding 
 extraordinary profits to the mills already established. 
 This led to the enlargement of the old mills, and a host 
 of new men rushed into the business. During the years 
 
374 BXCHAKGE. 
 
 1864-G, just as the war was closing, more paper-mills wer« 
 set up than during the twelve years previous. As a conse- 
 quence, the market was over-stocked just as the special 
 demand ceased, prices fell and general stagnation followed ; 
 and when in 1869, a great freshet in Massachusetts swept 
 off a number of these mills, a journal devoted to the ad 
 rocacy of protection said, *' This disaster will work to 
 the advantage of those who escaped the flood, and we 
 doubt not that those mills that did stand will do a better 
 business in consequence of the lessened supply." Surely 
 there must be something wrong in a policy which causes 
 the sweeping destruction of property to be regarded as a 
 public blessing. We find a fit counterpart to this fact in 
 the salt-manufacturers of Ohio, who in order to keep up 
 their profits united to lease the Kanawha salt-works of 
 Virginia, with their superior facilities, only to close them 
 up and forbid competition from that quarter. 'No branch 
 of industry has been more clamorous for protection than 
 the iron interest. None has been more constantly favored, 
 and in none have these fluctuations been greater. As the 
 year 1878 opens, it is prostrate. The diagnosis of the case 
 by the economic physician declares it ^' siclciuell nigh unto 
 death hy reaso7i of excessive protection. " 
 
 3. Protection diminishes the legitimate revenues of the 
 government, at the same time that it lays a heavy tax on 
 the people. A government must be sustained by revenues 
 derived from taxation. The imposition of equitable 
 duties on imports is admitted by the advocates of free 
 trade as a legitimate mode of raising a revenue. A strictly 
 revenue tariff has no disturbing influence on trade, nor 
 does it conflict with the free development of a nation's 
 varied industry. But a protective tariff has another end 
 in view. That end would be most fully attained Ly duties 
 high enough to prevent altogether the importation of cer- 
 tain articles. If it attains its end in any degree, it must 
 
OBJECTIOKS TO PROTECTION-. 375 
 
 restrict importations. In either case,, it reduces the reve- 
 nue actually derived from this source. Meantime, the 
 whole community is taxed by the extra thirty, sixty, oi 
 whatever per cent is added to the price of every yard oi 
 silk, and every pound of iron, etc., consumed. 
 
 If therefore, it were wise for the government directly 
 to encourage particular industries, a system of Bounties 
 would be far more economical than that of a protective 
 tariff. If foreign silk can be sold in our market for three 
 dollars a yard, while it costs five dollars a yard to produce 
 an article of the same quality here, a bounty of two dol- 
 lars a yard, paid by the government to the home-manufac- 
 turer, will put him on a level with the foreign manufac- 
 turer. The people then, can buy all the silk they need at 
 three dollars, choosing freely between the home and the 
 foreign product. Consumption is not diminished by an 
 enhanced price, and the only public burden involved is to 
 provide for the bounty on the home product. Every dollar 
 of the tax drawn from the people goes directly to its object. 
 In such a case however, it would be clearly seen just what 
 the artificial stimulus to the silk manufacture coiets ; and 
 this is the chief reason why the system of bounties is not 
 employed. The inequality and injustice of the principle 
 common to both this and the protective system would be 
 too apparent to be long tolerated. 
 
 4. The policy of protection, i?i its ap^ylication 7nust he 
 unstatle, didiir'hing the co2irse of industry hy frequent 
 changes. This follows inevitably from the conflict of in- 
 terests referred to. As soon as a high duty on iron shows 
 its effects in prices, all who use iron as the material of 
 their industry begin to clamor for a change of the tariff in 
 that particular. Again, the advantage which protection 
 gives is eagerly sought by all. Hence on the one side, a 
 pressure to extend the tariff-list, is resisted on the other by 
 an effort to make the singular privilege exclusive. Under 
 
376 EXCHANGE. 
 
 these influences, it is impossible to settle an order wkich 
 sh;ill be permanent. It is a historical fact that scarcely 
 a session of our Congress passes without attempts to change 
 the tariff. It never is nor can be made satisfactory to all. 
 This changeful legislation works disaster on particular en- 
 terprises, and throws uncertainty into all arrangements 
 and plans of business. A protective tariff can never be 
 made fair and equal to all, for its fundamental principle 
 is an unjust favoritism against which those not favored 
 instinctively protest and contend. 
 
 5. Protection tends to demoralize our national legisla- 
 tion. The so-called ^^ loMy influence " at Washington has 
 become proverbial. It is an influence which works to 
 carry through enactments of law by regard to private in- 
 terests, rather than to principles of right applied to the 
 public weal. The lobby is thronged with representative? 
 of certain manufactures seeking to obtain or to perpet 
 uate special protection. They use money freely, not per- 
 haps in the way of direct bribery, but in a way to work 
 influence. The consequence is that, to a great extent, 
 legislati(jii on the tariff is determined by the bearing of 
 certain measures on a pending election, or on interests 
 which especially concern the constituents of congressmen. 
 Bargains are made to combine the friends of separate 
 measures, when votes are given. This mode of disposing 
 of questions becomes habitual. It opens the door for 
 subsidies and other corrupt measures. All proposed acts 
 come to be judged of not by their real merits as right 
 and good for the state as a whole, but by their relation to 
 personal emolument, place and power. Genuine states- 
 manship is thus over-ruled and degraded. We do not 
 charge these tendencies wholly on protection. But it i? 
 evident to every careful observer that these corrupting in- 
 fluences are the natural outgrowth of this policy, and con- 
 centrate around the measures which it dictates. 
 
HISTORICAL RESULTS. 37? 
 
 6. Protection tends to corrupt the piiUic morals a7id the 
 public service. It offers strong temptations to the viola- 
 tion of law by smuggling. Against this temptation, the 
 consciences of men oppose but slight resistance, because 
 the tariff law rests on no grounds of absolute right. On 
 the contrary, it is easy for men to persuade themselves 
 that these enactments are unjust. Respect for the law 
 and its force, as a rule of action generally, are thus im- 
 paired. The nice sense of honor and right is deadened 
 and the making of false invoices, the swearing of false 
 oaths and direct bribery at the custom-house are regarded 
 as venial sins. Very naturally, government officials are 
 drawn into direct collusion and partnership with these 
 crimes and betray the sacred public trusts with which they 
 are charged. The corruption which thus attends the col- 
 lection of duties at the port of New York is notorious. 
 For many months, honest importers have been compelled 
 to abandon the attempt to bring in foreign silks, paying 
 full duties, because the market is full of smuggled goods. 
 The same thing is true of many other articles on which 
 ■ the duty is high. The Hercules who is equal to the task 
 of cleansing that Augean stable, by some measure of 
 ** civil service reform " has not yet appeared. The evil is 
 so inherent, that we have reason to believe it cannot be 
 eradicated except by the overthrow of the system ; mean- 
 time it is diffusing a subtle moral poison through our 
 whole body politic. 
 
 We may conclude this discussion with a few words 
 respecting Historical Results, often brought forward 
 with confidence by the advocates of protection. The his- 
 torian Froude says ** It often seems to me as if history was 
 like a child's box of letters with which we can spell any 
 word we please." In the use of this kind of argument, 
 there is constant danger of running into the logical fallacy 
 
378 EXCRAifGE. 
 
 of " non causa pro causa " — of giving a mere coincidence 
 the force of a cause. The remark is especially true con- 
 cerning the subject before us, because Avhat seems like a 
 state of industrial and commercial prosperity is often illu- 
 sive, and where it is real, it is the effect of many causes 
 combined, or the resultant of opposing forces. Thus tho 
 wonderful activity of business in our country just after the 
 late war closed, was generally considered as betokening 
 sound prosperity. Later experience has shown that the 
 nation was then acting under the wild delirium of a burn- 
 ing fever. 
 
 It is a fact that the Jewish money-lenders in mediaeval 
 times, grew rich and thrived when persecuted, defrauded 
 and oppressed without mercy by kings and feudal lords. 
 Shall we say that their wrongs wore the cause of their 
 thrift ; or that by their persistent energy under the passion 
 for gain, they grew rich in spite of oppression ? So also the 
 industry and commerce of European cities from the twelfth 
 to the fourteenth centuries steadily increased amid hostile 
 rivalries between themselves, narrow restrictions on con- 
 flicting guilds and constant exposure to plunder by robber 
 barons. It would surely be a mistake to say that the sub- 
 jection to these rivalries, restrictions and robberies was the 
 cause of their prosperity. It is a fact that in England, 
 the protective policy has been till within the last forty 
 years, persistently and vigorously maintained. It is also a 
 fact that while this policy prevailed, England grew in 
 wealth and power through her manufacturing and com- 
 mercial industries. But does the coincidence of these two 
 facts in time establish the relation of cause and effect 
 between them ? The truth is that where there are large 
 material resources in a country, and vital energy in its 
 people, industry will develop wealth in spite of all obstruc- 
 tions, just as from the vital force of an acorn dropped into 
 a cleft of the mountain, will spring the oak, in its steady 
 
HISTORICAL RESULTS. 371? 
 
 growth rending the rocks that cramp its roots, and defy- 
 ing the whirlwinds that twist and strain its gnarled 
 branches. 
 
 Until within the last half century, the protective policy 
 has ruled the industry of the world. Free trade has had 
 scarcely a chance to try its experiment. Yet its princi- 
 ples have been clearly illustrated and sustained in the hun- 
 dred years' history of our nation's independent life. The 
 states of our republic, in their extent of territory, their 
 diversity of resources, the varied races and endowments of 
 their population and their distinctive interests, constitute 
 a world by themselves. Fortunately, our constitution for- 
 ever forbids the protective policy to restrict their trade with 
 each other. A broad arena is thus presented for the ex- 
 periment of free trade. For nearly forty years, we have 
 watched the course of that experiment in the unfolding 
 growth of the young state of Wisconsin. Her main in- 
 dustry was at the first and must long continue to be agri- 
 culture. But as population has poured in, and agriculture 
 has yielded a surplus of home-capital, and a basis of credit 
 has been laid for the introduction of eastern capital, every 
 kind of industry suited to her climate and conditions has 
 been successfully established. Her mines have been 
 worked, her water-powers have been utilized, villages and 
 cities have sprung up spontaneously, and the diverse gen- 
 ius and taste of her sons have found at home ample scope 
 and stimulus for profitable exercise. According to the 
 theory of protection, the competition of New England 
 manufactures, brought in freely by the best facilities for 
 transportation, should have precluded the making of like 
 products here. But the facts are all against the theory. 
 We have seen woolen factories, cotton factories, shoe fac- 
 tories, watch factories, iron works, machine shops, paper 
 mills, establishments for making agricultural instruments, 
 etc., all started, on a comparatively small scale indeed, but 
 
380 EXCHANGE. 
 
 with a success and prosperity that promise to be abiding 
 and expanding. This is the result of a brief but fair ex- 
 periment of the principle of free trade. It confirms every 
 phase of the theory and shows that what is philosophically 
 sound and true is also practically safe and wise. 
 
CHAPTER XXIV. 
 
 RAILWAY CORPORATIONS. 
 
 The operations of exchange are aided by all facilities 
 for free communication and for the transportation of per- 
 sons and goods between different sections of a country and 
 different parts of the world. Steamships and ocean tele- 
 graphs have chanaed the methods of foreign commerce. 
 Domestic trade and industry have been yet more affected 
 by the modern system of Railway transportation. The pen 
 of an eminent lurist has set forth with both truth and elo- 
 quence the benefits derived from this means of swift pas- 
 sage. ^"Railroads," says Judge Paine, "are the great 
 public highways of the world, along which its gigantic 
 currents of trade and travel continually pour — highways 
 compared with which the most magnificent highways of 
 antiquity dwindle into insignificance. They are the most 
 marvelous invention of' modern times. They have done 
 more to develop the wealth and resources, to stimulate the 
 industry, reward the labor and promote the general com- 
 fort and prosperity of the country, than any other or per- 
 haps all other mere physical causes combined. There is 
 probably not a man, woman or child, whose interest and 
 comfort has not in some degree been subserved by them. 
 They bring to our doors the productions of the earth. 
 They enable us to anticipate and protract the seasons. 
 They enable the inhabitants of each clime to enjoy the 
 pleasures and luxuries of all. . . . There is scarcely 
 a want, wish or aspiration of the human heart which they 
 do not in some measure help to gratify,'" 
 
382 EXCHANGE. 
 
 But every power for good may be abused and perverted 
 into a power for evil. Experience reveals a tendency in 
 great railway corporations to acquire and to exercise des- 
 potic power, in a way to obstruct trade and to bring a 
 blight upon productive industry — a power which sometimes 
 aims by base means to control legislation, and sometime? 
 attempts to defy the law. Grave and complicated prob' 
 lems are thus presented which need to be studied in the 
 light of economic principles. Our science has certainly 
 something to contribute towards the practical solution of 
 these problems. 
 
 The Nature of a Rail"way Corporation. There 
 are to be recognized three distinctive features. 
 
 1. Such a corporation is a Creature of the State. It 
 originates in a legislative act. This must be so for three 
 reasons. First, because it is peculiarly a function of the 
 State to provide highways of travel and trade for the gen- 
 eral benefit of its people. Second, because the making of 
 such highways involves an interference with private prop- 
 erty which can be warranted only by the authority of the 
 State in the exercise of its sole right of '' er)iinent domain" 
 for a public advantage. And Third, because the con- 
 struction, equipment and operating of an extended railway 
 is an operation of such magnitude as to require the capital 
 and energies of many to be combined. 
 
 2. Such a corporation is an Agent of the State. The 
 considerations just named would justify the government 
 of a State in taking upon itself to provide and manage 
 railways for tlie public good, Belgium and some other 
 European states do thus entrust this entire interest to the 
 direction of government oflRcials. But the policy of our 
 government is, in accordance with the economic principles 
 heretofore presented, to enlist private enterprise as far as 
 practicable in all undertakings which directly concern in- 
 
RAILWAY CORPORATiOKS. 383 
 
 dustry and trade. Accordingly in the legislative act which 
 creates a railway corporation, the government does two 
 tliings. First, it constitutes of a number of associated 
 individuals an artificial perso7i with a distinctive name, to 
 act by one united will, capable of receiving, holding and 
 conveying property, of entering ioto contracts and incur-' 
 ring debts, of suing and being sued. The body corporate 
 thus formed, is in the eye of the law, a civil person possess- 
 ing certain rights, enjoying certain privileges and exercis- 
 ing certain functions for a specific object. Second, tiic 
 government transfers to this body corporate certain of its 
 own sovereign powers, especially that of eminent domain, 
 that is the power to take private property for public use 
 on making due compensation to the owners ; and charges 
 it with the fulfillment of its own legitimate functions, 
 namely, providing the public with facilities for the trans- 
 portation of persons and goods. The powers are granted 
 with reference solely to the function contemplated. A 
 decision of the United States Supreme Court declares that 
 ** building a railroad, though it be built by a private cor- 
 poration, is an act done for a public use," and again '*' in 
 their very nature railroads are public highways." Chief 
 Justice Shaw, of Massachusetts, says, '^the real and per- 
 sonal property necessary to the establishment and manage- 
 ment of a railroad is vested in the corporation, but it is in 
 trust for the public.''^ It is therefore, as a7i agent of the 
 State, that a railway corporation takes land from its citi- 
 zens and establishes a highway of intercourse and commerce 
 for the public service. Hence in the very nature of the 
 case, its powers and vested rights cannot be held and exer- 
 cised independently of the State. The government is 
 false to its own sacred trusts, if it does not hold such cor- 
 porations ever responsible in all respects for their conduct 
 in the discharge of their proper functions. 
 
 3, A railway corporation is in some degree a practical 
 
384 EXCHANGE. 
 
 Monopoly. The private enterprise which undertakes, as 
 
 an agent of the State to perform the service named, is en- 
 titled to a just compensation. Tlie members of the com- 
 pany invest their capital for expected profits. Their pri- 
 vate interests are to be carefully conserved. The corpora- 
 tion gets its compensation by collecting fares and freight 
 charges for the actual transportation of persons and goods. 
 That is, as an offset for the service rendered, the govern- 
 ment allows a private company to tax tiie public who have 
 the benefits of that service. But after a railway is once 
 established, it controls the business of transportation for 
 the section through which it runs. The only competition 
 possible is that of parallel railways or water transportation. 
 Hence the arrangement itself gives to the corporation a 
 practical monopoly with the power of taxing the com- 
 munity. 
 
 « This is probably the best way of making remuneration 
 for the service. If the government performed the same 
 service by a bureau of its own appointed officers, it would 
 tax the community in the same way. There is no just 
 ground for complaint of this monopoly as a method of pay- 
 ing for a valuable service ; nor of its legitimate exercise to 
 secure generous returns for capital and labor employed. 
 But it is evidently liable to abuse. The government has 
 need therefore, to subject tlie business to reasonable condi- 
 tions and to retain such power over it as to guard the pub- 
 lic against oppression. Mr. Mill very fitly says, " the 
 State should either reserve to itself a reversionary property 
 in such public works, or should retain and freely exercise 
 t;lie right of fixing a maximum of fares and charges and 
 from time to time varying that maximum." 
 
 While railway corporations are creatures of the State, 
 -nulled into being to serve as agents of the State for the 
 iccomplishment of certain purposes, they are also to be 
 regarded as parties to contracts with the State, entitled to 
 
ftAILWAY CORPORATIONS. 385 
 
 just reward for their services, and having private nghh 
 and interests always to be respected and guarded. On 
 the part of the State, the object distinctly contemplated 
 is to develop the material prosperity of the people. On 
 the part of each corporaiiion, the object never lost sight of 
 is to realize a profit foi- the capital and labor which it em- 
 ploys. These two objects are not necessarily opposed to 
 each other. On the contrary, each is best promoted when 
 qualified by respect for the other. This will appear more 
 clearly as we study next. 
 
 The Relations of Railway Corporations to 
 general Industry. 
 
 1. By transportation, they give to all products that 
 last addition of value which comes from their being in the 
 places where they are most needed. They directly perform 
 a kind of labor essential to the increase of wealth. The 
 importance of this labor cannot be over-estimated. It links 
 itself with every other kind of labor and is necessary to de- 
 velop the full results of all industry. 
 
 2. They enlarge the marhet for all products, and so 
 help to maintain the natural equilibrium of supply and 
 demand. They bear away the surplus productions of one 
 section to meet the deficiencies of another, to the relief of 
 both ; and the industry of both is thereby stimulated. 
 
 3. They quicken exchanges and thus hasten the returns 
 from both capital and labor. Hence they tend to reduce 
 prices, and at the same time to make them more remun- 
 erative. 
 
 4. The business of the railways depends upon the pro- 
 ductiveness of industry. The demand for transportation 
 is proportioned to the amount of products to be carried 
 out of a country. We have seen that the ability of a peo- 
 pie to trade depends on the surplus of goods they have to 
 dispose of. That which goes out must pay for what ie 
 
 17 
 
B86 EXCilAKGE. 
 
 brought in. Hence the bonntiful crops which reward the 
 labor of agriculture, large proceeds from the mines, the 
 success of all manufacuiring industry, all subserve the 
 profits of the railways. So too, the use of railways for 
 travel depends on the increase of individual wealtli. It li- 
 for the interest of these corporations that all whom they 
 serve should grow rich. It is better for themselves and 
 for all concerned that their profits should be increased by 
 enlargement of business rather than by increasing the rates 
 of charges. It is both right and politic for railways to 
 favor the prosperity of industry all along their routes, in 
 all intermediate places, as well as at the extremities. 
 
 5. By abuse of their power as monopolies, the railway 
 corporations may diniinish the returns of all industry. 
 They may set their rates so high as virtually to deprive 
 producers of the advantage of an enlarged market. Thus 
 the railway cjiarges for transporting the agricultural pro- 
 ducts of the West to the sea-board sometimes absorb all 
 the difference in prices. When increased demand abroad 
 has raised the price of wheat in the foreign market, the 
 railways have been known to increase their charges so as 
 to cover all the advance, and rob the Western farmej* of 
 his share in the advantage. Such a course must be de- 
 pressing to industry. It is possible in the relations of the 
 parties, but it is a violation of mutual rights in these re- 
 lations. Harmony and co-02)eration characterize the true 
 relation of railways to all other departments of productive 
 industry. It is a foolish short-sighted policy which, for a 
 temporary advantage, disregards this fundamental truth. 
 
 The Administration of Railway Corporations 
 
 The construction and operations of railways require great 
 outlays for which large accumulations of capital are neces- 
 sary. This capital is in part gathered by subscriptions for 
 stock; in part, it is obtained by the use of crodit. The 
 
ABUSES FROM RAILWAY MANAGERS. ZS^ 
 
 original corporators pledge themselves for certain shares. 
 Then the public and especially the people along the pro- 
 posed route are called to add their subscriptions. The call 
 is urged by pleading the benefit to be derived from the 
 road, and by the promise of profits to stockholders. In 
 many cases, farmers and other citizens, unable to advance 
 money, have been induced to give their credit by mortgag- 
 ing their farms and homesteads. Cities, towns and coun- 
 ties also have been persuaded to tax themselves, or to lend 
 their credit in the form of bonds for the benefit of the 
 road. The stock is then widely distributed to great num- 
 bers of persons. The corporation is composed of all stock- 
 holders. Such a body is manifestly unfitted for the details 
 of business. The corporation is therefore organized by the 
 election of a Board of Directors which may be continued 
 or changed at each annual meeting of stockholders. To 
 this Board is entrusted the choice of officers and the gen- 
 eral administration of the company's affairs. A mighty 
 poiver is thus concentrated i7i the hands of a feio managers. 
 Since at meetings of stockholders, votes on all questions 
 are taken by count of shares, absentees voting by proxy, it 
 is not difficult for the managers, by commanding a major- 
 ity of the shares, to control action and retain their power. 
 The minority are helpless to resist this power. The di- 
 rectors mav be true and faithful to the interests of the 
 corporation and of the public, so that all shall be well ad- 
 ministered. They may use their power to subserve inter- 
 ests of their own, antagonistic to both. 
 
 Great abuses proceed from the selfish policy and ruin- 
 ous administration of railway managers. By lavish expen- 
 diture, and the reckless use of credit, the entire property 
 and franchises of many railways have passed under fore- 
 closure of mortgages into the hands of bondholders. In- 
 dividual stockholders thus lose all thev had invested in the 
 
388 EXCHANGE. 
 
 enterprise. Worse than that, many an humble citizen oi 
 farmer has to give up his homestead or farm, or struggle 
 for years to clear it from the mortgage given for his stock, 
 with nothing to offset his loss.. 
 
 The interests of minor stockholders are often sacrificed 
 In another way, which can best be explained by an actual 
 instance. The B. & 0. railway was doing a prosperous 
 business, which paid handsome dividends and commanded 
 for its stock a premium in the market. The B. & D. rail- 
 way, running out of the same city in another direction, was 
 much embarrassed so that it yielded no profits, and its 
 stock was almost worthless. The managers of the B. & C. 
 in concert with some others, bought up at very low rates, 
 the greater part of the B. & D. stock, and then using, or 
 rather misusing the power of their official position, merged 
 the stock of the good road in that of the other. The con- 
 sequence was that the B. & D. stock rose at once to seven- 
 fold its former value, the advantage of which inured to 
 the benefit of its shrewd managers and their friends, while 
 hundreds of innocent holders of the B. & 0. stock saw 
 their dividends cut off and their property reduced in value 
 one-half, by the treacherous act which they had no power 
 to resist and for the wrong of which they had no redress. 
 
 Again we have cases like that of the ^'Credit MoMMer^' 
 on the Union Pacific railway, in which some of the man- 
 agers as individuals were organized into a distinct com- 
 pany to contract for building the road. As managers, 
 they let to themselves, in the above capacity, contracts at 
 such rates as made them rich, but tended to impov- 
 erish the corporation of which they were the official guar- 
 dians. 
 
 Not unfrequently railway directors operate on a large 
 scale, in the speculations of the stock exchange, and manip« 
 ulate the affairs of their own corporations so .as to raise 
 or depress prices as may best suit their own advantage, 
 
MONET-POWER OF RAILWAY COHPO RATIONS. 389 
 
 utterly regardless of the eflFecfp on public interests or on 
 those whose capital is entrusted to their care. 
 
 The process of '' watering stock^^ so-called, in like man 
 Qer sacrifices public interests to the selfish greed of railway 
 officials. Its effect is to lay on the public extra charges 
 that dividends may be paid on double the amount of stock 
 actually paid in. 
 
 Sometimes the officers of a railway engage in the traffic 
 of commerce and change the rates of freights to suit their 
 cwn advantage. Then by alternate ruinous competitions 
 and grand combinations they throw uncertainty over all 
 the transactions of trade, causing fluctuations by which 
 many are made bankrupt while a few of the inside ring 
 are enriched. 
 
 Worst of all, is the abuse of the great money -jJOiver of 
 these corporations to carry measures of legislation for their 
 own interests to the detriment of the public weal. The 
 modest expression, ^^ putting money, bonds or stocks where 
 they will do the most good," means in plain speech, bribing 
 Congressmen of weak consciences and buying up State 
 legislatures. 
 
 In speaking of these things, we have no sympathy with 
 the indiscriminate tirade against these corporations, in 
 which some indulge. We do not charge them as sinners 
 above all others in these respects. Express companies, 
 telegraph companies, insurance companies and other great 
 monied corporations indicate more or less the same vicious 
 tendencies. We advocate no blind ••granger" movement 
 of open hostility. On the other hand, we hold in highest 
 estimation the benefits conferred on the country by these 
 corporations. We count worthy of all honor many men of 
 highest integrity connected officially with them, who stand 
 manfully for the correction of abuses and the just fulfill- 
 ment of their trusts. 
 
 But a clear apprehension and consideration on the part 
 
S90 EXCHAKGE. 
 
 of our intelligent citizens geneniliy. in the light of both 
 economic and moral principles, of the evil as well as the 
 good involved, will work out the surest corrective of the 
 evil and the truest safeguard of the good. Grave ques- 
 tions of legislation are before the country on which the 
 people as well as their law-makers need to have an intelli- 
 gent judgment. How shall the rights of innocent stock- 
 holders be guarded against the machinations of unscrupu- 
 lous managers ? How shall these corporations be protected 
 in their just private rights, and yet be held under restric- 
 tions and responsibilities which will keep them true and 
 faithful in their legitimate functions as agents of the 
 State for great public interests ? Shall all be left to the 
 separate and varying action of the several States, or shall 
 the national Congress exercise its constitutional power 
 to regulate commerce between the States, by enactments 
 which shall be uniform and authoritative over the whole 
 country ? The wisest and profoundest statesmanship in 
 the land is needed for the solution of these problems. 
 
 But back of all legislation, more effective than all stat- 
 utes, is the sound public sentiment, formed and guided by 
 a good conscience on the part of the body of our people — 
 a sentiment which rests on an intelligent regard for the 
 fundamental principles of Political Economy in this as in 
 other applications — a conscience which holds individual 
 conduct to the ways of justice and honor, and which ex- 
 presses itself, through all channels of social intercourse 
 and popular influence, in condemnation of treachery, 
 fraud and robbery, however subtle and shrewd the pro- 
 cesses, however grand the scale of operations, however 
 rich the results of successful wickedness. 
 
CHAPTER XXV. 
 
 COMMEKOIAL CEISES. 
 
 Speculation is the pri7ne cause of conwiercial crises. 
 In its first and best sense,, this word is but a name for the 
 foresight and mutual confidence which are indispensable in 
 all operations of exchange. It has a bad odor only because 
 of its abuse. Mr. McOulloch says ''Every transaction in 
 which produce is bought that it may be afterward sold is 
 in fact a speculation." A merchant's business is to study 
 the market so as to buy goods with a well-founded antici- 
 pation of selling them at a profit. His success must de- 
 pend on the clearness of his foresight and the good judg- 
 ment and energy of his action. Credit too must enter 
 more or less into both the buying and the selling. As the 
 anticipations of profit grow bright and strong, the mer- 
 chant is prompted to exert his purchasing power to the 
 utmost extent of both his capital and his credit. As one 
 does this, others catch the impulse and the spirit of specu- 
 lation pervades the whole community,, stimulating all de- 
 partments of business to unwonted activity. Kept within 
 proper limits, such a movement is healthful and safe. The 
 trouble is that unwittingly, individuals pass the limit of 
 safety and are borne on by forces of which they are not 
 sensible, till over-production, over-importation and the 
 excessive extension of credit bring on a sudden revulsion. 
 
 When for whatever reason, prices are subject to consid 
 erable fluctuations, especially if they are connected with 
 an unstable currency, there springs up what Adam Smith 
 calls " the trade of speculation,'' This is a species of gam- 
 
392 
 
 EXCHAKGiS. 
 
 hling. A class of men devote themselves to the study i 
 fluctuations, with a view not to actual trade, but to betting 
 on the rise or fall of prices. • At tlie Chicago corn exchange, 
 for instance, two men enter into a contract, the one to de- 
 liver and the other to receive ten thousand bushels of wlieat, 
 after thirty days, at a certain price ; the one presuming 
 that the market price will decline before the day of deliver} 
 comes, the other that it will rise. The thought of an ac- 
 tual transfer of the wheat does not enter the mmd of 
 either. The transaction is a mere bet on the future price, 
 and when the time matures, it is closed by the loser's pay- 
 ing the difference between the market price and the price 
 named in the contract. Such men throng the stock-board, 
 the gold room, the corn exchange, the cotton market, the 
 wool market. This, like all other gambling, has its tricks, 
 its artificial appliances to affect prices. The " hulls " use all 
 means possible to raise the market price, and the '* hears^^ 
 labor unscrupulously to depress it. These operations al- 
 ways aggravate the rising fever of speculation in the com- 
 munity. Men grow impatient of the "slow and sure" 
 gains of regular trade, and are dazzled, like those who 
 dabble in lotteries, by the vision of sudden fortunes. 
 
 A Panic is the tiirning-i^oint when the revulsion oc- 
 curs ; when baseless anticipations are disappointed and 
 mutual confidence suddenly gives place to general distrust. 
 When men have entrusted their property to the care of 
 others, whatever comes suddenly to shake their confidence 
 may produce a panic. 
 
 An individual or a corporation may thus be suddenly 
 overwhelmed tvith no just cause. This was illustrated in 
 the case of the National Gold Bank and Trust Company 
 of San Francisco, in 1875. Just after a careful investiga* 
 tion had shown the company to have assets amounting to 
 $1,300,000 in excess of all liabilities, a check for $4000 wa? 
 
PANICS. 393 
 
 presented and payment was deferred in order that some 
 irregularity in the form of the check might be corrected. 
 Thereupon the holder of the check industriously circulated 
 the statement that the bank could not pay a four thousand 
 dollar check. This started a panic. The depositors rushed 
 in to draw out their funds. After paying half a million, 
 the bank was compelled to close its doors and go into liqui- 
 dation. 
 
 Sometimes the undue expansion of credit for purposes 
 of speculation in a smgle hranch of trade, brings on a 
 panic and collapse. Mr. Tooke states a case which shows 
 how credit in the simple form of book accounts may be 
 expanded and lead to this result. In 1839, difficulties be- 
 tween England and China threatened war. Anticipating 
 a suspension of the importation of tea, certain dealers in 
 that article hastened to buy up the stock in the market 
 that they might secure a greater profit on account of the 
 expected scarcity. This action itself disturbed the market 
 as it was, and the price of tea rose rapidly till it was ad- 
 vanced one hundred per cent. The anticipations seemed 
 thus to be realized. One dealer whose capital did not ex- 
 ceed £1200, and that locked up in his business, pushing his 
 credit to the utmost, was able to purchase four thousand 
 chests valued at £80,000. But the enhanced price of the 
 article diminished consumption, and by indirect importa- 
 tion, there came an unlocked for supply. The speculation 
 failed. Those who had freely given credit to the specula- 
 ting dealers were thrown into a panic which precipitated 
 the crisis and aggravated the disaster to all concerned. 
 
 The balance of men's judgment is apt to be disturbed 
 by extraordinary 'profits from any production, and they 
 are tempted to push their credit beyond safe bounds. With 
 increased income, they adopt' a more luxurious style of 
 living. At the same time, they make large outlays to 
 extend what seems a profitable business. Such signs oi 
 
2D4 EXCHANGE. 
 
 prosperity make it easy to borrow, for the excitement 
 affects lenders also. Thus out of a real fact, imagination 
 creates an illusion and all parties are led by a " Will o' the 
 wisp " away from solid ground. Suddenly the deceptiye 
 light goes out, and lost in the swamp, each in the panic 
 of the hour, trying to save himself, pulls his fellow down. 
 'I'hus, a few years ago, thrifty farmers of the Connecticut 
 River Valley realized great profits from the culture of to- 
 bacco. The sudden gains turned their heads. From their 
 old frugal ways they ran into extravagance in living. To 
 increase future profits, more fields were plowed, costly fer- 
 tilizers were applied and expensive help was employed. 
 The merchants and the banks freely gave credit to the 
 prosperous farmers. All promised well, till through some 
 freak of speculators in the market, prices declined. Then 
 the crisis came and the gathered crop was hardly sufficient 
 for a tithe of the debts for which it had been pledged. 
 Under the panic, real wealth was sacrificed by forced sales, 
 and men of integrity and means, who with time to turn 
 what they had, could have met all liabilities, went down 
 with weak and reckless adventurers. 
 
 Often a combination of such influences affects the busi- 
 ness of a whole country through a general expansion of 
 credit and bold speculation. The movement ordinarily 
 starts with some real occasion. There may be on the one 
 side, capital accumulated but unemployed, and on the 
 other, rich resources of wealth which labor is waiting to 
 develop. It is the legitimate office of credit to unite these 
 two elements of production. In such circumstances, 
 their union yields extraordinary profits, and great ex- 
 pectations draw out credit indefinitely. Under this un- 
 wonted stimulus to every department of business, the 
 •rhole community becomes infected with a mania of specu- 
 lation. Credit starting from solid ground, pushes out its 
 structure unsupported over a yawning chasm, till it i? 
 
THE CRISIS OF 183?. 395 
 
 ready to break by its own weight. Then whatever inci- 
 dent comes to test it, reveals its weakness. The first crack 
 of the framework sends out a report which starts a panic 
 and the crash is inevitable. 
 
 All this is well illustrated by facts of the commercial 
 revulsion of 1837. During the earlier part of the preced- 
 ing decade of years, all branches of business were highly 
 prospered. Kail ways and steam navigation on the lakes 
 made an easy way for domestic and foreign emigration to 
 go and develop the rich resources of our Western lands. 
 This gave a healthy stimulus to the productive industry 
 and commercial enterprise of the older States. By credit, 
 unemployed capital was drawn into use and labor was in 
 great demand. Interest, wages and the prices of goods 
 rose together and all over the country, men were really 
 growing rich. But they were not content with the old 
 slow and sure progress. All foresaw that the cheap lands 
 of the West must be rapidly enhanced in value. This 
 promise of the future, working on the imagination, started 
 a fever of speculation which spread like an epidemic. It 
 was fed on credit universally extended. This extraordinary 
 stimulus was intensified by political action connected with 
 the suppression of the United States Bank. The transfer 
 of the government deposits to State banks and the distri- 
 bution of the nation's surplus revenue among the States 
 led to a great increase of the paper currency and to a 
 free extension of credit for all sorts of enterprises. In the 
 West, to supply the lack of money, *' wild-cat '' banks 
 were established and issued their baseless circulating notes 
 in profusion. Goods and lands and city lots were ex- 
 changed for small payments of money — itself resting 
 mainly on credit — and a large balance of credit on long 
 time. 
 
 Thus during the years 1835-6, the bubble of speculation 
 was inflated to its utmost dimensions by the expansion of 
 
390 EXCHANGE. 
 
 credit in every form. In the beginning of the year ISB*? 
 
 there were in the country 634 banks, with less than $38,- 
 000,000 in specie issuing $150,000,000 of notes and dis- 
 counting $525,000,000 of paper. Individual credit was 
 proportionally extended. The wildest speculation was en- 
 gaged with Western lands and city lots. Not only the bold 
 pioneers of the frontier but thousands of sober Eastern 
 people were drawn into hazardous ventures. The site of 
 Milwaukee was opened to white settlers in 1835-6. Its 
 advantages were quickly discerned, and adventurers has- 
 tened thither by hundreds. A city was laid out, and the 
 prices of lots doubled every few weeks. Men who came 
 with nothing soon counted their wealth by thousands 
 But sales were made almost entirely on credit, and thr 
 quickly made fortunes really consisted of piles of promis 
 sory notes, or of figures doubled in the inventory of lots 
 whose estimated value could be realized only by the city's 
 growth for twenty years. Yet nobody perceived the illu- 
 sion ; the dream seemed reality for the time. Even the 
 honest Erench trader, the original owner of the site, who 
 was paid a substantial compensation for his title, embarked 
 his little fortune again on the sea of speculation to be lost 
 forever. Similar transactions were going on in hundreds 
 of other places. 
 
 At the same time, in the East, ideal fortunes suddenly 
 acquired, prompted extravagance in dress and living which 
 caused large importations of foreign goods. The real 
 wealth of the country must go out to pay for tliese, es- 
 pecially the gold and silver ; for credit currency never goes 
 abroad. The way was thus prepared for a sudden and dis- 
 astrous collapse. Its immediate cause was, strange to 
 say, the unusually large crop of cotton in 1836. Southern 
 merchants and brokers had given the planters credit in the 
 expectation that previous high prices would continue. But 
 the price in the foreign market declined. The planters 
 
THE PBOBLEM OF COMMEllClAL CRISES. 39? 
 
 conld not make good the difference, hence the cotton fac- 
 tors could not meet their obligations to their New York 
 correspondents, and their paper was dishonored at the 
 banks. These failures created distrust, the panic followed 
 and the bubble burst. Prices suddenly fell, banks sus- 
 pended, business stopped and the financial chaos with its 
 attendant stagnation and distress was universal, and con 
 tiuued for several years. 
 
 Such, with manifold slight variations, is the ordinary 
 course of things in a general commercial crisis. The real 
 mischief is done in the earlier stages, when all goes on so 
 well that nobody thinks of danger. The panic is inev- 
 itable as soon as men begin to see on what a slender base 
 they have been building their hopes and working out their 
 schemes. The lessons of sad experience are, however, very 
 soon forgotten, and these phenomena recur quite regularly 
 in smaller and larger cycles of ten and twenty years. 
 
 The practical problem is how to preserve and perpetu- 
 ate the balance between confidence and caution — how to give 
 scope for the use of credit with proper checks against its 
 abuse. Legislation may be called on to establish a stable 
 currency and then to keep it stable by letting it alone ; also 
 to provide equitable laws for defining and enforcing con- 
 tracts, and then to maintain these laws with the least va- 
 riation possible. As the chief means for avoiding the re- 
 currence of these fearful convulsions, we must have a 
 more thorough incorporation into the usages of business, 
 of the simple principles of Political Economy. As of 
 special importance in their bearing on this problem, we 
 reiterate the following : 
 
 1. The natural standard of value and price for all arti 
 des is the cost of production including a fair profit. 
 
 2. Though the alternations of supply and demand pro- 
 dnce more or less of temporary variation, there is a natural 
 
598 EXCHAiq^GE. 
 
 tendency to an equilibrium of prices on this constant basis 
 of cost. 
 
 3. Stable and healthy prosperity of business depends on 
 maintaining this equilibrium generally ; but mischievous 
 speculation aims always to disturb it 
 
 4. The true functions of credit are to bring accumulated 
 capital into productive union with labor, and to facilitate 
 exchanges by bridging over gaps of time and distance. 
 
 5. When men purchase with credit, they draw upon a 
 fund which has no definable limit. High hopes impel 
 men to extend their purchasing power to the utmost by 
 adding to their ready money all the credit they can com- 
 mand. This is the point of danger. 
 
 6. This element in the market disturbs the equilibrium 
 of prices without respect to the true standard ; an artifi- 
 cial demand is created which finds no check because ad- 
 vancing prices and profits apparently increased, seem to 
 warrant the further expansion of credit. 
 
 7. Hence comes that ^^ excess of speculative pur chases ^^ 
 which Mr. Mill calls the prime cause of a commercial crisis, 
 and which leads to the sudden recoil of prices an4 the con- 
 sequent collapse. 
 
 8. The panic which follows is as rash and un*'<fasoning 
 as was the confidence which blew the bubble, and precludes 
 the application then, of any effectual relief. 
 
 9. The necessity of turning all kinds of property into 
 money to meet indebtedness, Jills the market with selhrs, 
 while few are ready to buy, and prices sink as far below 
 the standard as they were previously raised above it. 
 
 10. Then production must be suspended and business 
 stand still, till adjustments are made and the basis is laid 
 for starting again by the true standard, with mutual con 
 Qdence qualified and restored. 
 
 At this date, 1878, the financial condition of the whole 
 
A WORLD-WIDE CRISIS. 399 
 
 civilized world is and has been for three years, snch as was 
 probably neyoY known before. Heretofore, separate nations 
 have had their commercial crises from time to time, trace- 
 able to peculiar local causes. Now all civilized nations 
 seem to be brought at once and together into this condi- 
 tion. Each country shows some symptoms peculiar to it- 
 self, but in its general features, the distemper is one and 
 tho same everywhere. Suspended production, stagnation of 
 trade, general distrust, bankruptcies, defalcations, strikes, 
 idleness and distress of workingmen are reported from 
 every quarter. We cannot pretend to offer a full explana- 
 tion of the case, much less to prescribe a certain remedy. 
 Some things are apparent, however, which have contrib- 
 uted to this result, and may be concisely stated. 
 
 First. Within the last sixty years, the invention and 
 introduction of labor-saving machinery has changed the 
 methods and greatly increased the results of productive 
 industry. The wealth thus produced is not at all in ex- 
 cess of the needs of men, but the problem of its wise dis- 
 tribution to meet those needs is not yet solved. 
 
 Second. The use of expensive machinery for manufac- 
 tures and of steam for transportation, requires that every 
 kind of business be conducted on a large scale, with large 
 capital, and in large establishments. Hence a necessary 
 expansion of credit and greater risks, both tending to in- 
 crease the speculative character of business. 
 
 Third. This large way of doing things, in connection 
 with the multiplied conveniences, comforts and luxuries 
 of living, has induced a sudden increase of extravagance 
 quite universal, in the habits both of business and of do- 
 mestic life. 
 
 Fourth. Steam navigation, railways and telegraphs now 
 hold all nations in such close commercial intercourse, that 
 when one suffers all must suffer with it. 
 
 Fifth, Wars now produce much more disturbance of 
 
400 IBXOHAKGE. 
 
 general commerce than formerly. They are also vastly more 
 expensive, and leading to the extension of national credit, 
 they work a yet greater disturbance of the world's finances. 
 
 Sixth. Within the last twenty years have occurred 
 two wars— that of the Rebellion in the United States and 
 the Franco-German war in Europe — both affecting very 
 closely the vital centres of the world's industry and com- 
 merce. 
 
 These causes, many of them working silently and un- 
 noticed for years, seem to have gathered to a head in these 
 passing years, with such sad results as have been noticed. 
 We cherish the fond hope that out of the present evil will 
 come a greater good, in the better apprehension of the true 
 brotherhood of nations, of the fundamental principles of 
 Political Economy and of the application of these princi- 
 ples both in minute details and in broad geueralizationgj 
 to human industry and trade the world over. 
 
 TXl VMIK 
 
"j ^ s ■!; 7 1-^ 
 
 A.. 
 
 Adam Smith's Maxims on Taxation, 248. 
 
 Afflicted Classes, expenditures for, 147. 
 
 Agriculture, a healthful employment, 
 31; rent of lands for, 202; chief 
 industry of Western States, 379. 
 
 Agricultural products, home market 
 for, 368. 
 
 Amsterdam, Bank of, 333. 
 
 Artists, compensation of, 187. 
 
 Authors, compensation of, 188. 
 
 Banks, origin of name, 329; agents of 
 credit, 329; offices of, 329; histori- 
 cal facts of, 332 ; of Venice, Ge- 
 noa, Amsterdam, Hamburg, 333 ; of 
 England, 334 ; Scotch system, 335 ; 
 of France, 335; U. S. Banks, a38; 
 State Banks, 337 ; safety fund and 
 Suffolk Bank systems, 338 ; free 
 Banking, 338 ; National, 339 ; liabil- 
 ities of, 341 ; resources of, 342; 
 profits of, 343. 
 
 Barter, difficulties of, 283. 
 
 Bounties, 375. 
 
 Brassey on wages, 161. 
 
 C. 
 
 Capital, defined, 73 , origin of, 74 ; 
 forms, 76 ; consumption of, 79, 120 ; 
 productive and unproductive, 81 ; 
 fixed and circulating, 83 ; relation 
 to labor, 88 ; general distribution 
 of, 92 ; ratio of to labor, 93 ; re- 
 muneration of, 197 ; may not claim 
 all profits, 243. 
 
 Clearing House, noticed, 317 
 
 Coinage, purposes of, 301. 
 
 il'ombinations of employers, 110, 179. 
 
 Commercial crises, causes of, 391 ; the 
 turning point, a panic, 392 ; exam- 
 ples, the Gold Bank of S. Francisco, 
 392; the English Tea speculation, 
 393 ; Tobacco raising on the Con- 
 necticut River, 394 ; the crisis of 
 1837, 395; the practical problem, 397; 
 disturbance of the world's finances 
 . in 1878, 398. 
 
 Comijetition, affects wages, 172; com 
 binations to resist, 175. 
 
 Co-operation of labor and capital, th« 
 principle, 88; happiest in one person, 
 89 ; conditions which favor, 92 ; re- 
 ward for each, 96 ; freedom to both, 
 102; promoted by moral and intel- 
 lectual culture, 107. 
 
 Co-operative associations, 110, 245. 
 
 Consumption, its nature, 15, 112 ; forma 
 of, 114 ; objects, 116 ; for reproduc- 
 tion, 117 ; for gratification, 125- 
 public, 136 ; purposes of public, 139. 
 
 Credit an instrument of exchange, 309 ^ 
 its nature, .309 ; forms, 310 ; func- 
 tions, 311 ; abuses of, 321 ; mischiefi 
 of abuses, 325. 
 
 Currency defined, 344 ; four kinds, 344; 
 evils of credit currency, 349. 
 
 D. 
 
 Desikes, conflicting, 7. 
 
 Distribution, what it implies, 16 ; Bcope 
 of, 151; parties to, 152 ; sub-division, 
 153; of profits, 239. 
 
 DividendSjdefined, 234 ; include interest 
 and profits, 237. 
 
 Division of labor, the principle, 48 ; 
 special advantages, 51 ; limitations, 
 58 ; incidental evils, 64 ; interna- 
 tional, 66. 
 
 Duties, specific and ad valorem, 853. 
 
 S3. 
 
 EcoNOMT, rules" of, 128 ; In the house- 
 hold, 131. 
 
 Education, expenditures for, 144. 
 
 England, bank of, 334. 
 
 Exchange, its scope, 16 ; nature of, 263^ 
 fundamental principles, 267. necessi 
 ty of, 270; international, 27^; agents, 
 275 : money its instrument, 282 j 
 credit its instmment, 309. 
 
 Fees, to whom applied, 155. 
 
 Foster, L. S., on taxing mortgages, fSSL 
 
 France, bank of, 335. 
 
402 
 
 INDEX. 
 
 Free-trade, defined, 354; presumption 
 
 in favor of, 355; between American 
 States, 379. 
 
 Genoa, bank of, 333. 
 
 Government, expenditures for, 139; 
 
 revenues, 248; agency respecting 
 
 money, 299. 
 
 EL 
 
 tl A.MBURG, oank of, 333 
 ilome-market. how formed, 368 
 
 I. 
 
 Income tax, 256. 
 
 Improvements public, expenditures 
 for, 142. 
 
 Interest, defined, 215 ; rate how deter- 
 mined, 218 ; why high in a new 
 country, 225 ; not an index of pros- 
 perity, 229. 
 
 .fEFTRET, Lord, description of steam 
 engine, 47. 
 
 Labor, defined, 19 ; measures value, 19; 
 kinds, 20 ; physical moves thin^B, 
 20; mental, what it does directi}', 
 21; what indirectly, 24 ; productive 
 and unproductive, 25 ; changes 
 effected by, 26 ; means of increasing 
 its efi'ectiveness, 32 ; consumption 
 of, 120 ; remuneration of, 154 ; nom- 
 inal and real cost of, 150 ; efficiency 
 affected by various causes, 162. 
 
 Ml. 
 
 Mercantile system, error of, 9. 
 
 Mill, J. S., his fundamental principles 
 of exchange, 267. 
 
 Money, an instrument of exchange, 282 : 
 definition and functions, 284 ^ a 
 standard of value, 285 ; a medium 
 of exchange, 286 ; essential quali- 
 ties, 287, 290 ; articles used, 289; 
 adaptedness of gold and silver, 293 ; 
 general truths concerning, 296 ; 
 agency of government respecting, 
 299 ; coinage, 301 ; double standard, 
 305. 
 
 Monopolies, limit supply, 14. 
 
 Moral and intellectual pleasures, eco- 
 nomical 133 
 
 Natural agents, defined, 32 ; for creat- 
 ing momentum, 35 ; for applying 
 momentum, 43. 
 
 Panics, nature of illustrated by exam 
 
 pies, 392. 
 
 Political Economy, the name, 3 ; de- 
 fined, 4 ; fundamental laws, 4; 
 materials of the science, 6 j regards 
 scili interest, 6 ; its practical end, 
 15 ; divisions, 15. 
 
 Poverty, expenditures to relieve, 148. 
 
 Production, defined, 15 ; involves laboi 
 applied to nature's gifts, 17. 
 
 Profits, meaning of, 239 ; how to be dis- 
 tributed, 242 ; part due to laborers, 
 246. 
 
 Property, right of established by la- 
 bor, 5 ; division of necessary, 97 ; tc 
 be secured by law, 99. 
 
 Protection, defined, 354 ; arguments for, 
 358 ; lays an unequal tax, 361 ; a 
 restrictive policy, 366 ; positive ob- 
 jections to, 372. 
 
 Eailwat corporations, creatures and 
 agents of the State, 382 ; practical 
 monopolies, 384; relations to general 
 industry, 385 ; administration of, 
 386 ; abuses from managers, 387" 
 money power of, 390. 
 
 Rent, defined, 199 ; kinds of, 200 ; Ricar- 
 do's theory, 201 ^ for agricultural 
 lands, 202 ; in cities, 210 ; why less 
 than interest, 212. 
 
 Ricardo's theory of rent, 201. 
 
 Restrictions on industry, mischievous, 
 105. 
 
 S. 
 
 Salaries, how applied, 154 ; principle* 
 governing, 185. 
 
 Science, expenditures for, 143. 
 
 Scotch banking system, 335. 
 
 Speculation, defined, the cause of com- 
 mercial crises, 391. 
 
 Strikes, 175. 
 
 Sumptuary laws, 106. 
 
 Supply and demand, law of, /4 ; ad* 
 justed by freedom, 227. 
 
 T. 
 
 Tariffs, 253, 
 
 Taxation, relation to public expend!" 
 ture, 136, 248 ; Adam Smith's max 
 ims, 249 ; direct and indirect, 250 : 
 American, 254 : National, 255: State 
 257; double on mortgages, 259. 
 
 Trades-unions, 176. 
 
 Transmutation, transformation, trans 
 portation, effected by labor, 86. 
 
 XJ. 
 
 Usury laws, mischief of, 230. 
 United Statea Banks, 336. 
 
IKDEX. 
 
 403 
 
 Valxtr, defined, 11, 264 ; distinct from 
 price and utility, 12, 265 ; limits of, 
 13; determined by cost, 266. 
 
 Venice, bank of, 332. 
 
 If A 9ES, defined, 154 ; nominal and real, 
 156 ; rate of, how determined, 166 : 
 oeceMary, 167; customary, 171; af- 
 
 fected by competition, 172 ; general 
 
 law, 181 ; special causes affecting, 
 
 182. 
 Wage-fund theory, 169. 
 Walker, Amasa, on nominal and real 
 
 wages, 157. 
 Walker, F. A., on industrial efficiency, 
 
 162. 
 War, expenditures for, 149. 
 Wealth, defined, 8 ; errors respecting, f 
 
 sources of, 10 ; how increased, 11 
 Women's labor, remuneration of, 180 
 
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