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PRINCIPLES 
 
 SOCIAL ECONOMICS 
 
 INDUCTIVELY CONSIDERED AND 
 PRACTICALLY APPLIED 
 
 CRITICISMS ON CURRENT THEORIES 
 
 GEORGE GUNTON 
 
 AUTHOR OF " WEALTH AND PROGRESS 
 
 SECOND EDITION, TENTH THOUSAND 
 
 G. P. PUTNAM'S SONS 
 
 NEW YORK LONDON 
 
 2? WEST TWENTY-THIRD STREET 24 BEDFORD STREET. STRAIN?! 
 
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 1897 
 
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 GEORGE GUNTON 
 
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 MAR 1 2 1942 
 
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 Electrotyped, Printed, and Bound by 
 
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 G. P. Putnam's Sons 
 
/ 
 
 PREFACE. 
 
 If there is one subject that should be more attractive to 
 the student and more inspiring to the citizen than an- 
 other, it is that of social economics, because it deals 
 directly and exclusively with the influences and conditions 
 which control all human welfare. It is through a knowl- 
 edge of the principles and laws of human economics that 
 we are enabled to make nature contribute to man's comfort 
 and luxury by substituting abundance for poverty, freedom 
 for slavery, peace for war, intelligence and morality for 
 ignorance and brutality ; in short, a civilization of democracy 
 and culture for one of despotism and degradation. When- 
 ever the science which should furnish the key to nature's 
 bounties and the light to human progress becomes unattrac- 
 tive to the student and repulsive to the average citizen, we 
 may be assured that there is something fundamentally amiss 
 with the conception and treatment of the subject. 
 
 This is precisely the case with political economy to-day. 
 Instead of being the beacon-light of industrial and social 
 affairs, — the source to which all may turn for safe instruction 
 and hopeful guidance, — it is the " dismal science " which 
 students avoid, statesmen and capitalists disregard, citizens 
 ignore, and laborers discredit. Why is a science so dreary 
 and pessimistic, which by its very nature should be fasci- 
 nating and hopeful ? The obvious answer is, that it fails 
 to fulfill its function as a science of industrial welfare and 
 social advancement. On nearly all fundamental questions 
 affecting the production and distribution of wealth its doc- 
 trines are both uncertain and inconsistent. The popular 
 
Vi PREFACE. 
 
 theory of wages has been exploded by experience, and the 
 current doctrines of value, interest, and profit have for gen- 
 erations been subjects of perplexing controversy between 
 experts and sources of utter bewilderment to students. 
 
 This is mainly due to the fact that the accepted theories 
 belong to the hand-labor conditions of the seventeenth and 
 eighteenth centuries, which have very little relation to the 
 factory conditions of the nineteenth century. Nor should 
 this be a matter of surprise, since it is entirely consistent 
 with the law of industrial evolution. In its development 
 society has assumed several distinct and essentially different 
 industrial phases, which have each changed the economic 
 structure of society, shifting the centre of industrial move- 
 ment and the point of view of economic study. 
 
 Under feudalism, for instance, the land-owning class was 
 the centre of all social and industrial movement. Economic 
 policy therefore was considered from the standpoint of a 
 land-owning class. 
 
 With the development of manufacture and trade however, 
 came a radical change in economic relations. Serfs became 
 wage receivers, and the cultivation of the land passed to 
 tenant farmers, which change transferred the distribution of 
 wealth from the domain of authority, to that of economic law. 
 By this transition the social basis of industrial prosperity 
 was broadened, and the centre of economic movement was 
 shifted from the industries required to supply the needs 
 of a small land-owning class to those required to supply 
 the demands of a relatively large commercial class, whose 
 interests were more varied and extensive. In proportion as 
 new conditions developed, the narrow paternal policy which 
 was adapted to the old regime became inimical to the welfare 
 of the community, and a reconstruction of economic doctrine 
 from a new point of view became necessary. The efforts of 
 two centuries to supply this need culminated in the " Wealth 
 of Nations," which really marks the advent of middle-class 
 political economy, whose influence has practically moulded 
 the economic thought of the present century. 
 
PREFACE. Vll 
 
 For the same reason that under feudalism every thing was 
 viewed from the standpoint of the land-owner, every thing 
 was now considered from the standpoint of the manufac- 
 turer and merchant, whose income was derived from trade. 
 
 How to promote sales became the fundamental idea of 
 what has been well named the " Commodities School " of 
 political economy. To sell extensively necessitated pro- 
 ducing cheaply. And since wages formed the greater part 
 of the cost of production, it appeared from the " com- 
 modities " point of view to be as necessary to obtain cheap 
 labor as cheap raw material, and for the same reason. 
 Consequently it became a cardinal doctrine of the ' ; Com- 
 modities School " that large profits depend upon low 
 wages. " It has been my endeavor to show throughout this 
 work," says Ricardo, " that the ratio of profits can never 
 be increased but by a fall in wages." In the days of hand 
 labor and small factories, when the consumption of the upper 
 and middle classes furnished a sufficient market for pro- 
 ducts, this cheap-labor policy was successful in giving profits. 
 
 But this very success led to the development of large 
 factories, which were destined again to revolutionize the 
 economic structure of society. For since these large enter- 
 prises required a more extensive market for their success 
 than any possible increase in the consumption of wealth by 
 the upper and middle classes could furnish, the habitual 
 demands of the masses for the first time necessarily became 
 the foundation of industrial prosperity. Therefore it is in 
 the needs of the masses that the economics of the future must 
 be studied and statesmanship determined. 
 
 To such a change of industrial relations Adam Smith and 
 his followers were altogether oblivious ; their conception of 
 industrial evolution was too limited to enable them to antici- 
 pate it, and their purely " commodities " point of view pre- 
 vented them from observing it. They saw the importance 
 of the factory as a means of making wealth cheap, but they 
 did not see the economic importance of making man dear. 
 Having failed to recognize the laborer as the great factor in 
 
Vlii PREFACE. 
 
 a market whose consuming power must be increased, they 
 continued to treat him only as a productive force in the 
 factory, whose cost should be reduced, on the theory as Mill 
 puts it, that " profits depend upon wages, rising as wages 
 fall and falling as wages rise." 
 
 Thus through an effort to apply erroneous ante-factory 
 theories to factory conditions political economy has for 
 three quarters of a century been made a gospel of cheap 
 labor and an enemy of social advance. 
 
 The growing incompetency of political economy to deal 
 with modern conditions has begun to be recognized by in- 
 ductive economists, and during the last twenty years an 
 increasing departure from economic orthodoxy has been 
 manifest among the younger economists of Europe and this 
 country, which is now developing to the proportions of a 
 new school. 
 
 In breaking from the hard and narrow lines established by 
 the doctrines of early English economists, the " New School " 
 has already rendered an important service to economic sci- 
 ence, by making respectable the re-discussion of the funda- 
 mental principles governing industrial relations and political 
 policy, in the light of modern knowledge. 
 
 Thus far, however, its work has been critical rather than 
 constructive. It has contributed far more to break up the 
 old than to establish a new body of economic doctrine. 
 Although the English theory of wages has been repudiated 
 and the doctrine of laissez /aire rejected by them, no ap- 
 proximately adequate explanation of wage phenomena has 
 been furnished, nor any affirmative principle of public policy 
 suggested. 
 
 In the following pages I have endeavored to discuss the 
 principles of social economics from the nineteenth century 
 point of view. If the facts of modern experience are to be 
 the court of final appeal, the great fundamental fact to be 
 recognized in our society is the democratic basis of industry . 
 
 The factory system has made the use of natural forces 
 (steam, electricity, etc.) necessary to successful industrial en- 
 
PREFACE. IX 
 
 terprise. Nature is intensely democratic. She will only 
 work cheaply when she is serving a large number. Kings and 
 aristocracies may command the unpaid service of slaves, but 
 natural forces will work efficiently only for the million. 
 Millionaires could not travel by steam or communicate 
 by electricity if millions of workmen did not use the same 
 methods. In short, the success of all machine-using industries 
 now primarily depends on the extent to which their products 
 are consumed by the masses. Therefore the prosperity of the 
 community in general and capitalists in particular depends 
 upon increasing the wants and elevating the social life and 
 character of the laboring classes. Considered from this 
 standpoint, the whole subject of economics assumes a new 
 and altogether more rational and humane aspect. It ceases 
 to be a mere " science of wealth," subordinating producers 
 to the product, and becomes a science of human welfare, 
 making the social life of the producers the end to which 
 the creation of commodities is the great means. In other 
 words, it is transformed from a dismal science of pessimism 
 and despair, which complacently sees the masses crowded 
 to the verge of starvation, into a science of optimism and 
 hope, which bears a message of prosperity and progress to 
 the whole of humanity. 
 
 Besides giving economic science a humane, hopeful aspect 
 hitherto conspicuously wanting, this change in the point 
 of view makes it integral, harmonious, and intelligible. 
 Much that has been involved in confusion becomes simple and 
 clear; much that has been mistakenly regarded as unjust and 
 oppressive enough to warrant revolution, becomes obviously 
 beneficent and progressive ; and much that has been dole- 
 fully taught as axiomatic truth is seen to be manifest error. 
 
 Moreover, when we change our point of view from com- 
 modities to men, and make the laborer the initial point of 
 observation, the questions of production and distribution 
 become susceptible of discussion in terms intelligible to ordi- 
 nary minds. We then find value or price assuming a human 
 basis, and commodities are seen to be dear or cheap not as 
 
X PREFACE. 
 
 they will exchange for more or less gold, but as they will 
 exchange for more or less of labor, as economic equivalents- 
 With this idea of value the theory of supply and demand of 
 which Malthusianism and the wage-fund fallacy are a natural 
 outcome, is incompatible. The ratio in which a given quan- 
 tity of cloth or shoes is the economic equivalent of a day's 
 labor can no more be determined by the mere fact of the 
 quantity of cloth or the number of laborers, than can the 
 moral quality of a robbery by the number of thieves. The 
 only basis upon which two things can be economic equivalents 
 of each other is the substantial equality of their cost of 
 production. Upon no other principle can exchanges be 
 economic, equitable, and mutually advantageous. 
 
 The principle of cost, governed as it is by the cost of the 
 dearest portion of the economic supply of any commodity, 
 furnishes a keystone to the arch of economic science. 
 It supplies the basis for a consistent body of economic 
 doctrine capable of explaining the phenomena of wages, 
 rent, interest, and profit upon one general principle of 
 universal application — namely, the law of economic price 
 and its corollary, the law of economic surplus. Instead of 
 a system of " commodity " economics which justifies human 
 degradation as a means of cheapening wealth, we have a sys- 
 tem of social economics, which shows that the most effective 
 means of promoting the industrial welfare of society on a 
 strictly equitable basis, must be sought in influences which 
 develop the wants, and elevate the social life and character 
 of the masses. Here then we have a sound, economic, and 
 broad social basis for intelligent, humane, and progressive 
 statesmanship, which shall promote individuality without 
 incurring the follies of laissez /aire, and utilize the educa- 
 tional and protective functions of the state without incurring 
 the dangers of paternalism. 
 
 New York City, January, 1891. 
 
CONTENTS. 
 
 PART I. 
 
 The Principles of Social Progress. 
 
 CHAPTER I. 
 
 SOCIAL PROGRESS. 
 
 The law of progress the key to history .... 
 
 The nature of progress ....... 
 
 Progress defined and phenomena classified 
 
 Its tendency shown by the primitive condition of man 
 
 By the development of the family as a social unit . 
 
 By the rise of the feudal system ..... 
 
 By the growth of free towns and individual rights 
 
 By the development of the middle class and the factory system 
 Industrial progress different from social and political 
 The source of individual freedom ..... 
 Socializing effect of the wages system .... 
 
 Economic interdependence and social individuality a criterion of civilization, 14 
 
 PAGE 
 
 3 
 4 
 5 
 6 
 
 7 
 8 
 
 9 
 10 
 11 
 12 
 
 13 
 
 CHAPTER II. 
 
 THE LAW OF SOCIAL PROGRESS. 
 
 The elements in social progress 15 
 
 Natural order of social progress ........ 16 
 
 Industrial progress the basis of all progress . . . . . .17 
 
 Comte's mistake ........... 18 
 
 The intellect the servant of human wants ...... 19 
 
 Relation of egoism to altruism ........ 20 
 
 Law of social progress summarized ........ 21 
 
 xi 
 
Xll 
 
 CONTENTS. 
 
 CHAPTER III. 
 
 THE CAUSE OF SOCIAL PROGRESS. 
 
 Human wants the cause of social evolution 
 Effectual and non-effectual desires . 
 The social source of equity .... 
 Intelligence, justice, and virtue have same origin 
 As human wants increase civilization advances 
 
 PAGE 
 22 
 
 23 
 
 24 
 
 25 
 26 
 
 CHAPTER IV. 
 
 VERIFICATION OF THE LAW OF SOCIAL PROGRESS. 
 
 Progress accompanies large consumption of wealth by the masses 
 Small consumption in Oriental countries . 
 Under ancient Greece and Rome, few rich, many poor 
 Slavery preponderates ...... 
 
 Why ancient philosophy long remained without effect 
 Arrested progress cause of Rome's fall 
 
 27 
 28 
 29 
 30 
 31 
 32 
 
 CHAPTER V. 
 
 THE RISE AND SOCIAL POWER OF FREE CITIES AS VERIFYING THE LAW OF 
 SOCIAL PROGRESS. 
 
 Barbarism supplanted by feudalism . . 33 
 
 Concentration of the serfs in the towns 34 
 
 The burgesses secure control of the towns by paying rent . . . 35 
 
 Insurrection of the towns ......... 36 
 
 Transformation of towns into free cities ....... 37 
 
 The cities were the homes of freedom 38 
 
 CHAPTER VI. 
 
 THE FALL OF THE FREE CITIES AND ITS EFFECT UPON SOCIAL PROGRESS. 
 
 Progress arrested by their fall . . . . . . .... 39 
 
 Spain distracted by religious wars . . . . . . . . 40 
 
 Premature development in Italy ........ 41 
 
 German freedom destroyed by imperial alliance 42 
 
 French cities overcome by the barons . . . . . .43 
 
 In England the cities not suppressed ....... 44 
 
 Charters rendered inviolable ......... 45 
 
 Labor rents superseded by wages ........ 46 
 
 Feudalism abolished by expansion of freedom in the towns ... 47 
 Increased wealth of the middle class . . . . . . .48 
 
CONTENTS. 
 
 XIV 
 
 CHAPTER VII. 
 
 THE LAW OF SOCIAL PROGRESS AS VERIFIED IN THE PROGRESS OF t OLITICAI 
 AND RELIGIOUS FREEDOM. 
 
 Political power of English Commons ..... 
 Religious and political liberty follow material development 
 Wicliff's Bible succeeds ; Hussite War a failure 
 Character of the Jacquerie and the Peasant War 
 Social character of the Reformation ..... 
 
 Protestantism due to the social power of middle class 
 Condition of the masses from the fifteenth to the eighteenth century 
 The factory system. Industrial legislation .... 
 Right to vote extended to the laboring classes .... 
 Superior industrial conditions of America .... 
 
 Difference between French and American Revolutions 
 Industrial prosperity cause of our free institutions . 
 
 49 
 50 
 51 
 52 
 53 
 54 
 55 
 56 
 57 
 58 
 
 59 
 60 
 
 PART II. 
 The Principles of Economic Production. 
 
 CHAPTER I. 
 
 WEALTH AND THE LAW OF ITS PROE 
 
 Mill's conflicting definitions of wealth 
 
 Walker's definition . 
 
 Perry substitutes the word property 
 
 Essential characteristics of wealth 
 
 Wealth defined 
 
 Various views of production 
 
 Theory of non-productive labor 
 
 All useful labor productive 
 
 Differentiation of productive effort 
 
 Gratified desires complete the cycle of effort 
 
 Land, labor, and natural forces the necessary factors in production 
 
 Land passive, man and nature active 
 
 Nature and character of capital .... 
 
 Economic use of the term capital .... 
 
 Use of capital determined by increasing returns 
 
 Mistaken praise of parsimony ..... 
 
 Capital the effect not the cause of industrial prosperity 
 
 Capital arises from the hope of gain 
 
 No use for capital in barbarism .... 
 
 Social consumption the cause of economic production 
 
 *3 
 
 64 
 
 65 
 66 
 
 67 
 68 
 69 
 70 
 
 71 
 
 72 
 72 
 73 
 74 
 75 
 76 
 77 
 78 
 
 79 
 80 
 Si 
 
XIV CONTENTS. 
 
 PAGK 
 
 Characteristic simplicity of physical wants 82 
 
 Complexity of social wants ......... 83 
 
 Nature responds liberally only to large demand 84 
 
 New wants make large markets . . . . . . . .85 
 
 High wages lead to low prices ........ 86 
 
 Two kinds of discoveries under ancient and modern civilizations . . 87 
 
 Why ancient civilizations were not self-sustaining 88 
 
 Resume of laws of production 89 
 
 CHAPTER II. 
 
 ECONOMIC VALUE. 
 
 Adam Smith's definition confusing 90 
 
 Relation of value and utility . . . 91 
 
 Definition of value ........... 92 
 
 Price and value identical ........ 93, 94 
 
 Value a relation between man and things ...... 95 
 
 Mistaken point of view .......... 96 
 
 Error of Mill and Cairnes ......... 97 
 
 Value is not the exchange ratio of things to things, but of things to man . 98 
 
 Effect of the new point of view 99 
 
 CHAPTER III. 
 
 DEMAND AND SUPPLY NOT THE LAW OF ECONOMIC PRICES. 
 
 Economic price not governed by demand and supply .... 100 
 
 Gregory King's law IOI 
 
 It applies to agricultural products . . . . . . . 102 
 
 Not to manufactured products 103, 104 
 
 The theory does not fit the facts 105 
 
 Wages do not obey the law of supply and demand ..... 106. 
 
 Economic price the exchange of equivalents ...... 167 
 
 Cost the basis of economic equivalence ....... 107 
 
 Testimony of McCulloch 10S 
 
 Cairnes' error regarding supply and demand ...... 109 
 
 Commodities do not create demand . . , . . . . .110 
 
 Demand the cause of supply .ill 
 
 Origin of price 112 
 
 Initial point of supply 113 
 
 Price phenomena originate in man . . . . . . . . . 114 
 
 CHAPTER IV. 
 
 THE LAW OF ECONOMIC PRICES. 
 
 Exchange ratio of wealth and service . . . . . . .115 
 
 Meaning of economic law . . , . . . . . .116 
 
CONTENTS. 
 
 XV 
 
 PAGE 
 
 Laissez faire not scientific . . . . . . . . .117 
 
 Economic law defined . ..... . . . . . .118 
 
 Maximum and minimum price, how determined . . . . .120 
 
 Cost the point of economic equilibrium . . . . . . .121 
 
 All the factors in production must receive the equivalent of what they con- 
 tribute . . . . . . . . . . .122 
 
 The possibility of an economic surplus . . . . . . .123 
 
 Equity of economic law .......... 124 
 
 How cost of production affects price . . . . . . .125 
 
 Origin of economic profits . . .126 
 
 Their equitable basis . . . . . . . . . .127 
 
 Primary law of price 128 
 
 Character of price variations . . . . . . . . .129 
 
 Prices in the same market tend to uniformity . . . . . .130 
 
 Statement of law of prices . . . . . . . . .131 
 
 Verification of the law of prices ........ 132 
 
 Agricultural prices . . . . . . . . . . .133 
 
 Relation of quantity to price . . . . . . . . .134 
 
 All prices regulated by cost of dearest portion . * . . , . . 135 
 
 Quality of labor determines its cost .136 
 
 Variation in wages ........... 137 
 
 CHAPTER V. 
 
 THE LAW OF THE COST OF PRODUCTION. 
 
 Popular errors regarding cost of production 
 Simple phenomena misleading . 
 Ricardo's illustration 
 Cost and quantity .... 
 Brassey's experience in several countries 
 High wages make cheap wealth 
 Important relation of wages to machinery 
 Use of capital, how determined 
 Nature and function of capital 
 Importance of large market 
 Wages measure the laborer's consumption 
 The true law of prices .... 
 
 138 
 
 139 
 140 
 141 
 142 
 
 143 
 144 
 145 
 146 
 
 147 
 148 
 149 
 
 CHAPTER VI. 
 
 MONEY AND ITS ECONOMIC FUNCTION. 
 
 Walker's definition of money ......... 150 
 
 Money and wealth not identical . . . . . , . .151 
 
 Money an evidence of credit . . . . . . . . .152 
 
 Definition of money . . . . . . . . -153 
 
XVI CONTENTS. 
 
 PAGE 
 
 Function of money , . . 1 54 
 
 Evils of fluctuations in the value of money 155 
 
 Of what should money be made ? . . . . . . . .156 
 
 Essential attributes of money . . . . . . . . .157 
 
 It must have maximum value in minimum form . . . . .158 
 
 Claims of a tabular standard . . . . . , . .159 
 
 Its difficulties ........... 160 
 
 Need of a scientific price-level ........ 161 
 
 Depreciation of money . 162 
 
 Inadequacy of metallic money ........ 163 
 
 Basis of a paper currency . . . . ... . . r64 
 
 Necessity of gold and silver . . . . . . . . .165 
 
 Because universally acceptable . . 166 
 
 Proportion between property and credit money ..... 167 
 
 Herbert Spencer's view . . . . . . . . . .168 
 
 Essentials of a sound monetary system ....... 169 
 
 How to regulate the quantity . . . . . . . . .170 
 
 Advantages of private enterprise ........ 171 
 
 Money should be- taken out of* politics 172 
 
 PART III. 
 
 The Principles of Economic Distribution. 
 
 chapter 1. 
 
 THE DISTRIBUTION OF WEALTH. 
 
 Distribution inseparable from production . . . . . .175 
 
 It is an economic transfer. Difference between consumption and pro- 
 ductive use ........... 176 
 
 Function of productive wealth . . . . . . . .177 
 
 Order of economic distribution . . . . . . . .178 
 
 Walker's inconsistency . . . . . . . . . .179 
 
 Walker's doctrine of " residual claimant " fallacious . . . 180,181 
 
 Historic order of distribution ......... 182 
 
 Economic order — wages, rent, interest, profit ....... 183 
 
 CHAPTER II. 
 
 SOME RECENT THEORIES OF WAGES CONSIDERED. 
 
 Wood's theory of wages . . . . . . . . . .184 
 
 Doctrine of final utility .......... 185 
 
 Mistaken application of ......... 186 
 
 Wages not uniform in all industries ....... 187 
 
CONTENTS. 
 
 XV11 
 
 PAGE 
 
 Laborers' welfare depends on absolute not relative income . . . 188 
 Capital sometimes yields no interest . . . . . . .189 
 
 Wages not determined by rate of interest ...... 190 
 
 Nor must they be confounded with profit ...... 191 
 
 Uniformity in wages and prices ; diversity in profits .... 192 
 
 Prof. Clark's theory of wages ......... 193 
 
 He, like Marx, confounds the last increment with the dearest . 194, 195 
 Price-fixing increment not the same in manufacture as in agriculture . 196 
 
 Confounding wages with rent ..... .... 197 
 
 Price and surplusage 198 
 
 Defects of Prof. Clark's theory summarized . . . . , .199 
 
 CHAPTER III. 
 
 THE LAW OF WAGES. 
 
 Requisites of a sound theory 
 
 Definition of wages . 
 
 Real and nominal wages . 
 
 Wages the economic price of labor 
 
 Statement of law of wages 
 
 Wages determined by standard of living 
 
 Prices of labor and of products move differently 
 
 Dearest laborers fix price of labor 
 
 Poorest capitalists fix price of commodities 
 
 Relation between wages and savings-bank deposits 
 
 Difference in cost of living the source of savings 
 
 Agriculture unfavorable to savings . 
 
 Foreign laborers save more because they cost less 
 
 Very highest-paid laborers strike 
 
 Family income regulated by its cost 
 
 How the cost of living is determined 
 
 Remedy for low wages ..... 
 
 . 200 
 
 . 201 
 
 . 202 
 
 . 203 
 
 . 204 
 
 . 205 
 
 . 206 
 
 . 207 
 
 . 208 
 
 209, 210 
 
 . 211 
 
 . 212 
 
 . 213 
 
 . 214 
 
 . 215 
 
 . 216 
 
 . 217 
 
 CHAPTER IV. 
 
 RENT, ITS ECONOMIC LAW AND CAUSE. 
 
 The Ricardo- Walker definition of rent .218 
 
 Amended definition .......... 219 
 
 Economic production as applied to land ....... 220 
 
 The law of rent stated .......... 221 
 
 Rent governed by the law of surplusage ....... 222 
 
 Walker's explanation of rent ......... 223 
 
 Fertility not cause of rent ......... 224 
 
 Rent has a social origin . 225 
 
 Relation of rent to prices ......... 226 
 
XVU1 
 
 CONTENTS. 
 
 FAGH 
 
 Economic basis of rent . . . . . . ... . . 227 
 
 Effect of population on prices . . . . . . . .228 
 
 Effect of improved methods ......... 229 
 
 Rent follows and leads the movement of wages ..... 230 
 
 Is rent a social tax ? . . . . . . . . . .231 
 
 Difference in the economic order of using land and machinery . . .232 
 Relation of rent to wages illustrated ....... 233 
 
 High wages cause of high rents . . . . . . . . 234 
 
 Effect of abolishing rent . . . . . . . . . .235 
 
 Rdsumd of the doctrine of rent . . . . . . . . 236 
 
 CHAPTER V. 
 
 THE LAW OF INTEREST. 
 
 Interest related to capital as rent is to land ...... 237 
 
 Walker's view considered ......... 238 
 
 Not consistent with facts 239 
 
 No-interest capital common ......... 240 
 
 Economic movement of capital ........ 241 
 
 Economic movement of interest ........ 242 
 
 Improved methods constantly push capital towards the no-interest point . 243 
 
 True law of interest . . . . . . . . . . 244 
 
 The law illustrated ........... 245 
 
 Surplus enlarged by increased production ...... 246 
 
 Entrepreneur's profit comes from surplus above rent and interest . . 247 
 
 The social character of interest . . . . . . . . 248 
 
 CHAPTER VI. 
 
 THE LAW OF PROFIT. 
 
 Orthodox errors the source of socialistic theories 
 
 Employers' view of profit and wages 
 
 Theories of Rodbertus and Marx 
 
 Statement of Marx's theory of surplus value 
 
 Misleading illustrations .... 
 
 Fallacy of his theory demonstrated . 
 
 Relation of labor to value 
 
 Distribution of cost-items does not alter value 
 
 Cause of Marx's error .... 
 
 His mistaken assumptions 
 
 Economic evolution of profit . 
 
 Equity of economic profit 
 
 Surplus does not prove exploitation . 
 
 Ratio of product to profit and wages 
 
 Illustrated by cotton industry . 
 
 249 
 250 
 251 
 252 
 
 253 
 254 
 255 
 256 
 
 257 
 258 
 259 
 260 
 261 
 262, 263 
 . 264 
 
CONTENTS. 
 
 XIX 
 
 Mr. Giffen's view of wages and product . 
 
 His error ...... 
 
 Distribution of economic benefits 
 Ratio of wages and profits to product 
 Defective modes of calculation 
 
 They lead to false conclusions 
 Omitted data vitiate conclusions 
 Salaries and depreciation of capital overlooked 
 Wages have increased relatively to net product 
 Relative decrease of profits ...... 
 
 Correct mode of ascertaining economic condition of laborer 
 Incompleteness of obtainable data ..... 
 
 Table showing ratio of wages to profits .... 
 
 Nature of industrial tendencies ..... 
 
 PAGE 
 
 265 
 266 
 267 
 269 
 
 270 
 
 271 
 272 
 273 
 274 
 
 275 
 276 
 277 
 278 
 279 
 
 PART IV. 
 
 The Principles of Practical Statesmanship. 
 
 CHAPTER I. 
 
 LAISSEZ FAIRE AS A GUIDING PRINCIPLE IN PUBLIC POLICY. 
 
 Origin of laissez-faire doctrine . . . . . . . .283 
 
 Adam Smith and the French Physiocrats . . . . . . . 284 
 
 Negative character of laissez faire . . . . . . . .285 
 
 Its erroneous postulates ......... 286, 287 
 
 False views of competition .288 
 
 Misuse of the term natural law ........ 289 
 
 Natural and human selection ......... 290 
 
 Survival of the unfittest . . . . . , . . . .291 
 
 Government essential to society ........ 292 
 
 Character of economic competition ........ 293 
 
 The competing units must be approximately equal ..... 294 
 
 The necessity of opportunity .... .... 294 
 
 CHAPTER II. 
 
 THE STATE J OR, THE NATURE AND FUNCTION OF GOVERNMENT. 
 
 The state as distinguished from society . 
 
 No absolute rights in society ..... 
 All government is representative . 
 
 The state is the authoritative expression of the aggregate , 
 Relation of the state to the individual . 
 
 295 
 296 
 297 
 298 
 299 
 
XX 
 
 CONTENTS. 
 
 Social-organism theory of Plato, Hobbes, Rodbertus, Marx, and Spencer . 300 
 Spencer's claim that society is an organism, stated .... 301, 302 
 
 His fundamental propositions considered ...... 303 
 
 Radical distinction between society and an individual organism . . 304 
 Society is not an organic entity . . . . . . . .305 
 
 Social evolution different from physical ........ 306 
 
 Mr. Spencer logically supports socialism ....... 307 
 
 Clark's attempt to apply this theory to economics ..... 308 
 
 His position analyzed .......... 309 
 
 The function of government . . . . . . . . .310 
 
 Importance of mutual dependence ........ 311 
 
 Controlling principle in statesmanship . 312 
 
 Individual action preferable to state action 313 
 
 Difficulty of determining their respective spheres .... 314, 315 
 
 Sphere of individual action .. . . . . . . .315 
 
 Sphere of state action . . . . . . . . . 316, 317 
 
 Difference between protection and paternalism 318 
 
 State functions essentially protective and educational .... 319 
 
 CHAPTER III 
 
 THE PRINCIPLE OF INTERNATIONAL TRADE. 
 
 Necessity of national development . 
 Society a means for individual advancement 
 The nation ....... 
 
 Socializing tendency of manufacturing industries 
 
 Importance of their development . 
 
 A large home market necessary 
 Superiority of home over foreign market . 
 Foreign markets and home wages 
 A nation is rich by what it uses, not by what it sells 
 Test of economic cheapness .... 
 False assumption of free-traders 
 Operation of free trade illustrated . 
 Uneconomic competition .... 
 
 Basis of economic competition 
 Popular fallacies regarding the nature of a tariff 
 The law of international competition 
 Weakness of the infant-industry theory . 
 Civilization depends upon protecting the higher against the lower 
 India, Ireland, and Russia .... 
 England, America, and Continental countries . 
 Protection and home prices .... 
 Proper mode of testing a tariff 
 Ultimate effect of a protective tariff on profits . 
 
 . 320 
 
 . 321 
 
 • 322 
 
 • 323 
 
 • 324 
 
 • 325 
 . 326 
 
 • 327 
 
 • 328 
 329, 330 
 
 • 331 
 332, 333 
 
 • 334 
 
 • 335 
 
 • 336 
 
 • 337 
 
 • 338 
 
 • 339 
 
 • 340 
 
 • 341 
 
 • 342 
 
 • 343 
 
 • 344 
 
CONTENTS. 
 
 XXI 
 
 Effect of protecting the higher wage-level . . 
 
 Illustrated by cotton industry ..... 
 
 Led to improved methods of production 
 
 Effect on the industrial development in America . 
 Wages in non-protected industries . . . 
 
 Erroneous views regarding ...... 
 
 Mr. Blaine's mistaken view ...... 
 
 Has not outgrown the English theory of wages 
 How protection affects wages ...... 
 
 Wages can only be raised by social forces 
 
 How to examine wages phenomena .... 
 
 Industrial improvement affects all classes 
 
 Effect of protection upon other countries 
 
 How protection promotes the economic selection of industries 
 
 It leads to free trade ....... 
 
 Its domestic application ....... 
 
 PAGE 
 
 • 345 
 
 • 346 
 
 • 347 
 
 ■ 348 
 
 • 349 
 
 • 350 
 
 • 35i 
 352 
 
 • 353 
 
 ■ 354 
 
 • 355 
 
 • 356 
 357, 358 
 
 ■ 359 
 . 3°o 
 . 361 
 
 CHAPTER IV. 
 
 THE PRINCIPLES OF ECONOMIC TAXAT 
 Basis of equitable taxation 
 
 It should come from surplus incomes . 
 The mobility of taxes .... 
 
 Their relation to wages 
 
 Hoav transferred from laborer to employer 
 
 How he pays them out of his surplus . 
 
 How his surplus is replenished from nature 
 Taxation like wages a form of consumption 
 Economic fmportance of taxation exaggerated 
 Taxes enable government to exercise its functions 
 How taxes shor'.d be levied, paid, and collected 
 Evils of direct taxation .... 
 Property and incomes tax 
 Advantages of indirect taxation 
 Taxes should be levied upon real estate . 
 Equitable nature of a land tax 
 Objections answered .... 
 No profits on taxes. Mill's error 
 Taxation is public consumption of wealth 
 Henry George's delusion .... 
 
 362 
 
 363 
 364 
 365 
 366 
 
 367 
 368 
 
 369 
 37o 
 371 
 372 
 373, 374 
 375 
 376 
 377 
 378 
 379 
 380 
 38i 
 38i 
 
 CHAPTER V. 
 
 BUSINESS DEPRESSIONS. 
 
 How distinguished from famines . 
 Historical facts about depressions 
 
 383 
 384 
 
XX11 
 
 CONTENTS. 
 
 TAOE 
 
 Inadequate causes assigned ......... 385 
 
 Low consumption the real cause ........ 386 
 
 Evils attending factory system ........ 387 
 
 Indications of arrested consumption ....... 388 
 
 Mistaken industrial policy ......... 389 
 
 Economists largely responsible for this ....... 390 
 
 Sound economics would ead to their gradual extinction .... 391 
 
 Two points which should be realized by capitalists ..... 392 
 
 Increase consumption by raising wages ....... 393 
 
 Improve laborers' social condition ........ 394 
 
 Necessity of an industrial barometer ....... 394 
 
 Idleness statistics should be frequently collected 396 
 
 CHAPTER VI. 
 
 COMBINATION OF CAPITAL. 
 
 Social alarm created by spinning-jenny ....... 397 
 
 Modern opposition to trusts of similar nature ...,.„ 398 
 
 Relation of capital to consumption ........ 399 
 
 Combination of capital raises the plane of competition .... 400 
 
 Concentration of capital and competition ...... 401 
 
 Efficiency not number of competitors the criterion of competition . . 402 
 
 Economic incentive .......... 403 
 
 Power of potential competition ........ 404 
 
 Mobility of capital diminishes as that of comsumable wealth increases . 405 
 
 Effect of no-profit capital . . . . . . . . . 406 
 
 Limit of concentration .......... 407 
 
 Purchasing power of wages and the concentration of capital . , 408 
 
 Effects of trusts on prices ......... 409 
 
 Standard Oil Trust .......... 410, 411 
 
 Its economy in utilizing waste . . . . , . .412 
 
 Its economies extended to other countries ..... 413 
 
 Trusts unlike corners .......... 414 
 
 CHAPTER VII. 
 
 COMBINATION OF LABOR 
 
 Combination of labor accompanies that of cap 
 
 Both have an economic function . 
 Objections to trades-unions 
 Concentration the keynote of all progress 
 False notions of individual freedom 
 One-sided economics .... 
 Impossibility of individual contracts 
 Incompatible with industrial complexity . 
 
 tai 
 
 4*5 
 416 
 
 417 
 418 
 419 
 420 
 421 
 322 
 
CONTENTS. 
 
 XX111 
 
 Economic nature of labor organizations . 
 Strikes and corners ...... 
 
 Social contact essential to progress . . . • 
 
 It develops intelligence and refines manners 
 Social effects of labor unions .... 
 Economic effect of labor unions 
 
 Their relation to hours of labor and wages . 
 
 They must be judged by their permanent effect 
 Gain and loss by strikes ..... 
 
 Unfair criticisms ...... 
 
 Trades-unions are necessary institutions . 
 
 PAGE 
 
 423 
 424 
 
 425 
 426 
 427 
 428 
 429 
 430 
 431 
 432 
 433 
 
 SUMMARY AND CONCLUSION. 
 
 Character of social progress 
 Nature of production and of value 
 Nature and order of distribution 
 Duties of statesmanship . , 
 
 434 
 436 
 436 
 
 438 
 
 Index 
 Index to 
 
 Wealth and Progress' ' 
 
 443 
 449 
 
• PART I. 
 THE PRINCIPLES OF SOCIAL PROGRESS. 
 
Principles of Social Economics. 
 
 CHAPTER I. 
 
 SOCIAL PROGRESS. 
 
 SECTION I. — The Nature and Meaning of Social Progress. 
 
 The promotion of social progress may be regarded as the 
 primary object of all human institutions. The wisdom or un- 
 wisdom of any form of government, political and industrial 
 policy, or moral code — regardless of climate, country, or civiliza- 
 tion — depends upon whether or not it tends to promote the 
 social progress of the people. When we can furnish an adequate 
 explanation of the law of social progress we shall be in a position 
 to explain why the march of civilization has been so marked and 
 continuous in some countries and so retarded in others ; why 
 nations once the most advanced are now greatly in the rear ; 
 why the ancients made such progress in art and philosophy, 
 while they lacked simple contrivances with which to procure 
 the common comforts and decencies of daily life ; why general 
 poverty, religious, social, and political despotism prevail in some 
 countries, while comparative abundance with religious freedom 
 and political democracy obtain in others. " The law of prog- 
 ress," says Fiske, 1 " when discovered, will be found to be the 
 law of history. The great fact to be explained is either the 
 presence or the absence of progress, and when we have formu- 
 lated the character of progress and the conditions essential to it, 
 we have the key to the history of the stationary as well as of the 
 progressive nations. When we are able to show why the latter 
 1 " Cosmic Philosophy," vol. ii., pp. 195, 196. 
 3 
 
4 THE KEY TO SOCIAL HISTORY. 
 
 have advanced, the same general principle will enable us to show 
 why the former have not advanced." Indeed, to explain the 
 nature, law, and cause of social progress is not only to lay the 
 foundation for the science of social economics, but it is also to 
 furnish the key to social philosophy, and thereby to establish a 
 rational basis for statesmanship and social reform. This in- 
 volves, first of all, the consideration of what constitutes progress. 
 Unless we understand what social progress is, there can be no 
 intelligent consideration of the law and cause of its development, 
 and hence no approximately correct science, either of economics 
 or of government, is possible. 
 
 Progress is commonly regarded as synonymous with improve- 
 ment. This expression confounds the process with the product. 
 It states what progress does rather than what it is. If asked what 
 constitutes the progress of the plant, it would not be correct to 
 say the flowers, buds, and foliage. Their condition correctly 
 indicates the state of the plant's progress, but they no more con- 
 stitute the progress than the apple constitutes the tree, or the 
 barometer the storm. The progress of the plant consists of a 
 series of changes that take place in its organization before the 
 flower appears, and of which it is the result. So, too, of improve- 
 ment. White progress usually implies a change for the better, 
 the improvement is not the progress, but the result of it ; it is the 
 change of form or condition which precedes and produces the 
 improvement. Although all progress is simply change, all change 
 is not necessarily progress. It may be retrogression. What then 
 are the distinguishing characteristics of the changes which con- 
 stitute progress ? Fortunately science has furnished the answer 
 to this question, so far as physical development is concerned. 
 The investigations of Linnaeus, Wolf, Goethe, Schelling, Von 
 Baer, Darwin, and others have established the fact that the 
 growth or progress of organisms, both vegetable . and animal, 
 consists of a series of structural changes from a relatively simple 
 to a relatively complex state of organization. For more than 
 half a century this definition of progress has so completely stood 
 the test of verification that it has become an accepted scientific 
 truth, and now both plants and animals are classified in the scale 
 of development according to the simplicity or complexity of their 
 organization. 
 
DEFINITION OF SOCIAL PROGRESS. 5 
 
 If we examine the history of social institutions we shall find 
 that this distinguishing characteristic of progress is equally true 
 of society. Although the precise forms of the earliest phases of 
 social life are difficult to determine, modern investigation has 
 proved beyond question that society in its primitive stages was a 
 homogeneous aggregate of human beings without industrial 
 specialization or social or political individuality, and that all 
 progress from that time to this has been a movement towards 
 a greater complexity of life and definiteness of individual, social, 
 and political functions. Progress in general, therefore, may be 
 defined as a tendency to change f rom j. relatively simple to a 
 relatively complex organization. 
 
 Although this movement from the simple to the complex is the 
 distinguishing characteristic of all progress, the form it assumes 
 in physical and social phenomena is very different. In all the 
 phases of physical development the tendency is to produce a 
 greater perfection, individuality, and freedom of the organism, — 
 the highest type of which is man. Society is not an individual 
 organism, but an association of individual organisms. Social 
 development, therefore, does not consist in organic differentiation, 
 but in the differentiation of the social environment of individuals. 
 
 In considering social advancement, therefore, we are concerned 
 only with social phenomena ; that is to say, with the influences 
 which affect the material, political, and moral condition of man 
 in society * nor are we called upon to deal with the origin of the 
 elements in his social character, but only with the development 
 of their expression. 
 
 The phenomena of society may be classified as social and 
 economic ; the former relates to man's political and ethical life, 
 and the latter to his industrial efforts. In order to correctly 
 understand progress in society, it will be necessary briefly to 
 consider the historic tendency of these two phases separately. 
 
 SECTION II. — The Historic Tendency of Social Progress. 
 
 Although the genesis of man is still an unsettled question, the 
 fact that he once existed as a mere physical being scarcely 
 superior to the lower animals is conclusively established. 1 
 
 1 The wild men in the interior of Borneo are described by Dalton as living : 
 " absolutely in a state of nature, who neither cultivate the ground nor live in 
 
6 THE JELLY-FISH PERIOD OF SOCIETY. 
 
 Recent investigations have shown that primitive man was so 
 devoid of social life and character as to neither cook his food 
 nor build himself a hut to live in. In many instances the insti- 
 tution of marriage was entirely unknown ; in others the conjugal 
 ties were so slender that they existed only until the birth of the 
 child. 1 The interminable struggle for life against the elements, 
 wild beasts, and his fellows, made man's localization necessary, 
 and brought him into social and personal relations that gradually 
 assumed a more permanent or tribal character. This may 
 properly be said to constitute the first stage of social existence — 
 the jelly-fish period of society. Here the social homogeneity 
 was such that every thing was owned in common — even wives 
 and children. Authorities agree that " the primitive condition 
 of man socially was one where every man and woman were 
 regarded as equally married to one another," and " any woman 
 who attempted to resist the marriage privileges claimed by any 
 member of the tribe was liable to severe punishment." * The child 
 had no particular father or mother, but belonged to the tribe.* 
 
 The struggle for existence being now between tribes, war was 
 the chief occupation, and those who were most proficient and 
 brave as warriors naturally became the most honored and 
 influential leaders of the tribe. One of the chief characteristics 
 of tribal warfare was that the will of the victor became the law 
 of the vanquished. Accordingly, if the chief desired to take a 
 
 huts, who neither eat rice nor salt, and who do not associate with each other, 
 but rove about some woods like wild beasts ; the sexes meet in the jungle,, or 
 the man carries away a woman from some campong. When the children are 
 old enough to shift for themselves, they separate neither one afterwards think- 
 ing of the other. At night they sleep under some large trees, the branches of 
 which hang low." Sir John Lubbock's " Origin of Civilization," pp. 5, 6 ; 
 Ibid., chapter iii. See also Lichtenstein's "Travels in South Africa," p. 137 ; 
 " Expedition to Borneo," vol. ii., p. 10 ; Lubbock's " Prehistoric Times," pp. 
 563—5, 595, 596 ; Lyell's " Antiquity of Man,"' pp. 377-80 ; Sproat's " Scenes 
 and Studies of Savage Life," p. 120 ; Dubois' " Description of the People of 
 India," p. 3 ; " Transactions Ethnological Society," new series, vol. iii., p. 248. 
 
 1 Lubbock's " Origin of Civilization," pp. 53-57. See also Sir Edward 
 Belcher's " Transactions Ethnological Society," vol. v., p. 45 ; Starke's 
 " Primitive Family," pp. 82-84. 
 
 2 Lubbock's "Origin of Civilization," p. 67; Starke's "Primitive Family," 
 p. 245 ; McLennan's "Primitive Marriages," pp. 229, 230. 
 
 'Lubbock's " Origin of Civilization," p. 71. 
 
THE FAMILY THE SOCIAL UNIT. 7 
 
 woman from among his war captives, he could have the exclusive 
 use and enjoyment oi her as against any and all other members 
 of the tribe. 1 This instituted a departure from tribal homoge- 
 neity which naturally led first to a certain degree of personal 
 domestic exclusiveness, then to individual marriages, and finally 
 to the family group. Thus, through the gradual process of social 
 differentiation and integration, society was slowly transformed 
 from a simple homogeneous mass, in which the tribal aggregate 
 was the only unit, into a relatively complex social organization 
 with the family as the unit, possessing definite social functions, 
 rights, and powers. It should be remembered, however, that 
 this social individuation conferred no rights or powers upon the 
 individual, but only upon the family. 5 Indeed, it is a universal 
 law in society that the exercise of social rights extends only with 
 the growth of the social unit. Hence, when the family became 
 the unit, it acquired all the social rights and powers of the unit. 
 But all rights absolutely stopped at this point. The individual 
 members of the family acquired no more social recognition by 
 this change than had been previously accorded to the individual 
 members of the tribe. The family was recognized solely through 
 its male head, whose power was absolute, even to life and death. 
 
 With the settlement of the family came the necessity of culti- 
 vating the lands. This led to the substitution of an agricultural 
 for a pastoral life, and the right of private for public ownership 
 in land and its products.* 
 
 Another feature of this regime was the practice of enlarging 
 the family by enforced or voluntary adoption ; those entering the 
 family by this means were kinsmen ; — a fiction that nothing but 
 
 1 " A war captive, however, was in a peculiar position ; the tribe had no rights 
 to her ; her capturer might have killed her if he chose ; if he preferred to keep 
 her alive he was at liberty to do so ; he did as he liked, and the tribe was no 
 sufferer." Sir John Lubbock's " Origin of Civilization," p. 71 ; also McLen- 
 nan's " Primitive Marriages," pp. 43, 44. 
 
 '"At the outset, the peculiarities of law in its most ancient state lead us 
 irresistibly to the conclusion that it took precisely the same view of the family 
 group which is taken of individual men by the system of rights and duties now 
 prevalent throughout Europe." — Maine's " Ancient Law," p. 129. " But 
 ancient law, it must again be repeated, knows next to nothing of Individuals. 
 It is concerned not with Individuals, but with Families ; not with single human 
 beings, but with groups." — Hid., p. 250. "Village Communities," p. 10. 
 
 3 Maine's " Early History of Institutions," pp. 1, 2, 73-79. 
 
8 THE PATRIARCHAL FAMILY. 
 
 the absolute authority of the head of the family could have estab- 
 lished. In this way the simple primitive family made up of blood 
 relations, was expanded into the patriarchal family, held together 
 by the tie of a mythical kinship. 1 Greater sacredness of, and 
 protection to, life and property came with this higher state of 
 organization, and " marriage by capture " gave place to marriage 
 by purchase, transferring the selection of a wife from the muscu- 
 lar authority of the savage suitor, to the civil authority of the 
 parent. 5 
 
 These social relations continued theoretically until the Chris- 
 tian era, and practically until the middle of the sixth century. 
 From the time of the Twelve Tables, B.C., 450, to that of 
 the Justinian Code, progress was very tardy, but tended tow- 
 ards a further differentiation of the social polity in the direc- 
 tion of substituting the individual for the family as the social 
 unit. This movement, which is most distinctly indicated by 
 the innovations made upon the domain of patria potestas (the 
 authority of the father over the person and property of his de- 
 scendants), though imperceptible during the latter four hundred 
 years of the Republic, began to show itself in the early days of 
 the Empire. 
 
 If we pass from the ancient to the modern world, where social 
 progress has been more marked, we shall find that its movement 
 has been everywhere distinguished by the same general charac- 
 teristics. During the savage struggle for imperial supremacy 
 which covered the face' of Europe for nearly four hundred years 
 after the fall of the Western Empire, in which all permanent 
 authority and recognized law were practically abolished, 3 the patri- 
 archal system virtually disappeared and society reorganized into 
 the feudal system. Social institutions then assumed a different as- 
 pect. Instead of being composed of family groups, held together 
 
 1 We must look on the family as constantly enlarged by the adoption of 
 strangers within its circle, and we must try to regard the fiction of adoption as 
 so closely simulating the reality of kinship that neither law nor opinion makes 
 the slightest difference between a real and an adoptive connection." — Maine's 
 "Ancient Law," p. 128. See also "Early History of Institutions," p. 310; 
 "Village Communities," p. 115 ; Lubbock's " Origin of Civilization." 
 
 2 Maine's "Ancient Law," pp. 119-133 ; cf. Lubbock's "Origin of Civili- 
 zation," p. 52 ; " Fiske's " Cosmic Philosophy," vol. ii., pp. 220, 221. 
 
 * Guizot's " History of Civilization," pp. 6, 69 ; also Hallam's " History of 
 the Middle Ages," vol. i., p. 92. 
 
SOCIAL CHARACTER OF FEUDALISM. 9 
 
 by a mythical kinship under parental despotism, subject to impe- 
 rial absolutism, society consisted of manorial or baronial groups, 
 held together by mutual dependence upon the land-owner, who, 
 while giving nominal allegiance to the king, was practically inde- 
 pendent of him: 1 The individual instead of the family was the 
 social unit, and industrial interest instead of kinship was the 
 cohesive principle in society 5 ; land, or wealth, instead of birth, 
 became the basis of rank and authority.' 
 
 No sooner had feudalism become the settled order of society 
 than the process of further social differentiation set in. One of 
 the earliest evidences of this was the localization of the serfs 
 on the estates of the respective barons, and their division into 
 classes as "hinds" and "artificers." By this division of labor 
 the former became permanently ruralized, and the latter central- 
 ized, into groups whose history is that of modern civilization. 
 During the tenth century these groups grew into permanent towns 
 and became the centres of trade and industry. As they increased 
 in population and wealth they grew in social activity, intelligence, 
 and power ; and hence became the permanent source of the 
 further division of labor, the specialization of social and religious 
 functions, and of personal and political rights. 
 
 By the middle of the eleventh century we find the burghers 
 asserting their right to the ownership of property, and forcibly 
 resisting the efforts of the barons to despoil them. Early in the 
 twelfth century the towns began to obtain the right of local self- 
 government. During the thirteenth and fourteenth centuries the 
 serf was differentiated from the lord's estate, and became an 
 economic and social individual. The separation of political in- 
 stitutions from the authority of the Church, and the power of 
 Parliament over the Crown were also positively asserted during 
 this period. 
 
 1 ' ' The kingdom was as a great fief, or rather as a bundle of fiefs, and the 
 king little more than one of a number of feudal nobles, differing rather in dig- 
 nity than in power from some of the rest." — Hallam's " History of the Middle 
 Ages," vol. i., p. 136. 
 
 2 " It was feudalism which for the first time linked personal duties, and by 
 consequence personal rights, to the ownership of land." — Maine's " Ancient 
 Law," p. 102. 
 
 3 Hallam's " Middle Ages," vol. i., p. 88; also ibid., p. 122, and Guizot's 
 " History of Civilization," p. 67. 
 
IO FREE CITIES AND THE MIDDLE CLASS. 
 
 This was followed in the fifteenth and sixteenth centuries by a 
 general breaking up of the feudal system and a new formation of 
 social institutions. Throughout Europe the political elements 
 integrated into definite nations. 1 The gentry and inferior no- 
 bility, who were economically and socially segregated from their 
 class, and the superior artisans who, by the growth of manufac- 
 ture and trade in the Free Towns, had become " master artificers," 
 formed a new social stratum — the mercantile or middle class — 
 which henceforth became the enterprising and progressive ele- 
 ment in society. With the rise of this class came a new era in 
 civilization. Under its influence industrial, political, and reli- 
 gious institutions were revolutionized. In this period the dis- 
 covery of America and the passage to India by the Cape of Good 
 Hope, and the use of the mariner's compass were consummated ; 
 painting with oil and the manufacture of paper from linen were 
 invented ; the right of private judgment in religion and the 
 supremacy of parliamentary government were permanently estab- 
 lished. From this came the use of steam, the invention of the 
 spinning-jenny and the power-loom, and the establishment of 
 the factory system, the railroad, steamship, and telegraph, with 
 their natural accompaniments — the daily press, cheap books, and 
 popular education. 
 
 As the outgrowth of these movements slavery has been abol- 
 ished from Christendom and the principle of civil and religious 
 freedom for the individual, without regard to caste, color, race, 
 or sex, has been established in the most advanced countries, and 
 is destined to be extended to the whole human race. 
 
 Thus the universal tendency of progress in society is to in- 
 crease the power, rights, and freedom of the individual, and 
 diminish the arbitrary control of collective authority. 
 
 Section III. — Historic Tendency of Economic Progress. 
 
 Upon the principle that all progress is governed by one general 
 law, it is commonly supposed that progress must assume the 
 same form in economics that it does in society and politics. 
 Consequently, because social progress tends toward greater 
 democracy of administration, it is held that industrial progress 
 
 1 Guizot's " History of Civilization," chap. xi. 
 
CHARACTER OF ECONOMIC PROGRESS. II 
 
 must be in the direction of the public administration of industry. 
 A little reflection will show this to be a mistake. Although 
 industrial progress has a tendency toward greater specialization, 
 the form it assumes differs from that in social and political 
 institutions, as much as progress in the latter differs from that 
 in physical phenomena. 
 
 The essential difference between political and industrial insti- 
 tutions is that the utility of the former consists in their harmoni- 
 ous adaptation to the social habits and character of the people, 
 whereas the utility of industrial institutions consists in their 
 economic efficiency — their capacity of furnishing wealth cheaply. 
 Since social institutions will necessarily more completely reflect 
 the desire and character of the people in proportion as the masses 
 participate in their construction, it follows that progress in 
 society is a tendency towards democracy of administration of 
 political and social affairs. With economics the case is different. 
 No advantage can accrue to the laborer or the community by any 
 change of industrial institutions which does not enable the la- 
 borer to obtain more wealth for a day's work. Whether industry 
 is conducted on the democratic town-meeting plan, or by a few 
 private individuals, cannot possibly affect the welfare of the com- 
 munity, except as it promotes that end. Unless democracy of 
 industrial administration would cheapen wealth, it would be a 
 burden upon the community, without any compensating advan- 
 tage, since it would involve the care of management without any 
 beneficial result. 
 
 A brief survey of the history of industrial progress will show 
 that the increasing efficiency of productive methods, and hence 
 the improvement of the means of getting a living, has two 
 characteristics. One is the division and concentration of labor 
 power, the other is the increase and social diffusion of political 
 power. The former tends to specialize and limit the laborer's 
 economic function, the latter tends to generalize and extend his 
 social function. Thus, as the laborer's industrial individuality 
 diminishes, the influence of his social and political individuality 
 increases. 
 
 Primitive industry, like primitive society, was very simple and 
 homogeneous. Every one performed practically all kinds of 
 labor with equal proficiency. Progress from that point to the 
 
12 MISTAKEN NOTIONS ABOUT FREEDOM. 
 
 present has been a continuous tendency toward a greater divi- 
 sion, and specialization of labor and concentration of capital. 
 The tendency of this movement has ever been to differentiate 
 productive force into numerous portions, integrating the laborer 
 and machinery upon special branches, every one of which is 
 dependent not only upon the action of the others, but upon the 
 united action of the whole. Thus industrial differentiation, in- 
 stead of increasing, tends to diminish the economic individuality 
 of the laborer. It is because of this tendency to make the laborer 
 an almost automatic part of a highly complex productive ma- 
 chine, that the present industrial system is regarded as inimical to 
 his social freedom. Those who take this view, and they are very 
 numerous, lay great stress upon the fact that the laborer is an 
 employe. To them the very stipulation of income means limita- 
 tion of freedom. Of all the objections urged against the wages 
 system, this is probably the most universal, and is regarded as 
 the most fundamental. They think the only conditions under 
 which social freedom is possible, is where the laborers employ 
 themselves. The fallacy in this position arises from a miscon- 
 ception of the idea of freedom. Freedom is not a mere theoretic 
 form, but a sturdy fact. It does not consist in the formal per- 
 mission, but in the actual power, to go or to do. Nothing can 
 give social and political freedom but wealth ; the freedom that 
 wealth affords does not depend upon whether the laborer works 
 for himself or for another, but it depends entirely upon how much 
 wealth he receives. There is no power in nature, society, or 
 government that can make a poor man free. Poverty is social 
 weakness ; it is the source of slavery, and the background of 
 despotism. 
 
 Social well-being consists not so much in doing, as in having. 
 In proportion as man's energies are expended in obtaining a living, 
 the possibilities of his social, intellectual, and moral life and de- 
 velopment are restricted. In order, then, to maximize man's 
 social individuality, it is necessary to minimize the expenditure 
 of his physical energy. This is precisely what the division of 
 labor, the concentration of capital, and the development of the 
 factory system promote. 
 
 The de-individualization of the laborer as a producer promotes 
 his social advancement in many ways. In the first place, it makes 
 
INFLUENCE OF THE WAGES SYSTEM. 1 3 
 
 the wages or stipulated-income system necessary. In proportion 
 as the income of any class becomes stipulated, it becomes less 
 contingent. To the extent that this occurs, material subsistence 
 becomes more certain, which is the first step toward social and 
 intellectual development. So long as the laborer's living is 
 uncertain, he is in a more or less constant state of anxiety and 
 suspense, which tends to make progress in the higher phases of 
 social life impossible. 
 
 Another beneficial feature of this tendency is that it concentrates 
 the laborers, and specializes their occupations. By this means 
 they are not only forced into closer and more frequent intercourse 
 with each other, but it also increases their mutual interdependence. 
 The material condition of the masses cannot be improved, nor 
 can their political freedom or social character be developed, by 
 any thing which does not increase the economic interdepend- 
 ence of the people, and weld them together in social classes. In 
 proportion as this process of social differentiation increases, 
 interests and sympathies broaden, altruism is developed, and the 
 welfare of all becomes identical with that of each. Nothing so 
 surely aids social advancement as that which makes it necessary 
 for millions to rise together. No industrial system, no civiliza- 
 tion, no religion even is worth sustaining which only saves a few. 
 
 Another feature of the wages system is the tendency to promote 
 more constant employment. There is no fact more conclusively 
 established in the history of industrial progress than that the 
 concentration of capital in fixed plants and large enterprises 
 makes a marked increase in the permanence of employment. 
 As industrial establishments increase in size, constant employ- 
 ment of capital becomes necessary. The loss involved in the 
 short stoppage of a large factory will soon be more than equal to 
 the profit of a year's business. Whatever increases permanence 
 in the use of capital necessarily increases the constancy of 
 employment. Thus, as the factory methods develop, the capi- 
 talist has to pay the penalty for enforced idleness through loss or 
 bankruptcy ; and hence permanent employment becomes one of 
 the features of the industrial expertness of capitalistic manage- 
 ment. Under the individual or self-employing regime this was 
 not the case. When the hand weaver failed to sell his cloth or 
 make a living, he could starve, beg, go to jail, or die, as the case 
 
14 ECONOMIC PROGRESS DEFINED. 
 
 might be. His poverty involved nobody else, while under the 
 wages system the great capitalist, nay, the whole community, 
 is involved with the enforced idleness of the laborer. 
 
 Accordingly, the world over, we find that permanence of 
 employment increases and enforced idleness diminishes where 
 the wages system is most developed and capital most concen- 
 trated. This is clearly shown by the currents of emigration. 
 People always leave those localities and countries where employ- 
 ment is the most precarious and least remunerative, and move 
 towards those where it is most permanent and best rewarded. 
 Hence the tendency of emigration is always from those coun- 
 tries where the wages system and factory methods are least 
 developed, to those where they are most highly developed. It 
 is from China, Bohemia, Austria, Italy, Germany, and Ireland, 
 towards England and America, that laborers emigrate, and not 
 from England or America to Continental Europe and Asia. 
 
 The industrial system, which tends to socialize the laborer, in- 
 crease the economic interdependence of the capitalist, consumer, 
 and workman, and make the material well-being of the masses 
 the basis of business success, necessarily possesses all the possi- 
 bilities of an ever-advancing civilization. Progress in politics and 
 society, therefore, may be defined as the tendency to increase the 
 sovereignty of the individual and diminish the arbitrary authority 
 of the state by establishing greater democracy of administration. 
 In economics k may be defined as the tendency to centralize 
 industrial administration and responsibility, de-individualize the 
 laborer as a producer and socialize the results in better and 
 cheaper products. 
 
CHAPTER II. 
 
 THE LAW OF SOCIAL PROGRESS. 
 
 SECTION I. — The Elements of Social Progress. 
 
 In the preceding chapter two facts were established. First, 
 that social progress is the movement of society toward the reali- 
 zation of the highest material, intellectual, and moral possibilities 
 in human life ; i.e., toward the plane of greater human well- 
 being. Second, that this progressive movement consists in a 
 series of changes from a relatively simple to a relatively complex 
 state of social organization. We now come to the consideration 
 of the law by which this movement takes place ; that is to say, 
 the order in which the different phases of social phenomena are 
 developed. These may be grouped under three general heads, 
 as the material, the intellectual, and the moral. The material 
 element in social progress is not merely that which relates to 
 man's physical necessities, but every thing that relates to his 
 wants and desires, of whatever kind, — the gratification of which 
 involves the production of wealth. These will be found to in- 
 clude, not only the necessities for food and shelter, but those for 
 education, art, travel, intellectual and moral culture, and even 
 religion. In fact, there are no desires of which man is capa- 
 ble whose gratification does not directly or indirectly necessitate 
 the production of wealth. The material element in social 
 progress, therefore, includes every thing which relates to the 
 gratification of human wants, desires, and aspirations. The intel- 
 lectual element is that which relates to man's capacity to acquire 
 and apply knowledge ; it is the analyzing, reasoning, judging, 
 and directing element. Morality simply relates to the quality of 
 
 15 
 
l6 THE ORDER OF SOCIAL PROGRESS. 
 
 human conduct. We designate conduct as moral or immoral 
 according as it directly or indirectly tends to promote or retard 
 social well-being or human happiness. 
 
 While these phenomena are distinct in their character they are 
 inseparable in their relation ; hence no differentiation can result 
 in permanent integration and specialization which does not find 
 expression in all these phases of social life. 1 If the development 
 of any one of these elements should be promoted at the expense of 
 the rest, it must necessarily fail of its function because not one of 
 them can permanently exist without the sustaining influence 
 of the others. The increased production and accumulation of 
 wealth, for example, could not continue without the increase of 
 intelligence to devise the means necessary to produce it, and 
 a corresponding advance in the social integrity to sustain it. A 
 general advancement of intelligence is impossible without the 
 relative elimination of poverty and vice ; and no considerable 
 advance in ethics can take place without a previous increase in 
 material well-being. 
 
 Section II. — The Natural Order of Social Progress. 
 
 Although the various elements of social development are in- 
 separably connected with, and constantly act and react upon 
 each other, one of them must necessarily sustain the initiative 
 relation to the others, or no movement could take place. Which 
 of these occupies that position ? The answer to this question 
 must explain the relative position these elements occupy in the 
 scale of development and the historic order of their appearance, 
 — both of which are indicated by their functional relations. 
 
 Morality, being the quality of conduct, necessarily arises from 
 motives, decisions, and actions, and hence must be a resultant of 
 the other elements. Morality is the fruit and not the root ; it is 
 the objective point towards which progress tends, and conse- 
 quently is the last to be developed. 1 The intellect, as already 
 explained, is the reasoning, analyzing, judging faculty ; its func- 
 tion consists exclusively in adapting means to an end. It 
 occupies the position of servant and guide to the other faculties. 
 
 1 "The progress of society is not moral progress, or intellectual progress, or 
 material progress ; but it is the combination of all the three." — Fiske's " Cosmic 
 Philosophy," vol. ii., p. 245. 
 
 5 Ward's "Dynamic Sociology," vol. i., p. 216. 
 
MATERIAL PROGRESS THE FIRST. If 
 
 Human activities are never exerted except for the gratification of 
 some desire, want, sympathy, sentiment, or ambition arising in 
 the feelings. Intellectual or physical effort put forth without 
 some motive or desire would be senseless. 1 Of necessity, there- 
 fore, the material element in social progress is first in the scale of 
 development and supplies the motive which calls the intellect 
 into activity. All the inventions and discoveries in manufacture, 
 science, and literature, all the doctrines of economics, ethics, 
 politics, and religion have been produced by the intellect in its 
 effort to gratify the desires. These efforts have been perpetuated 
 or abandoned in proportion as they were found, by experience, 
 to be favorable or unfavorable to human well-being. 
 
 Clearly, therefore, the natural order of the various elements in 
 social development is : the material, the intellectual, the moral ; 
 the material being the basis or motor force, the intellectual the 
 means, and the moral the result. 3 
 
 Although the fact that progress of society has always been in 
 the ascending order — from the material to the moral — has been 
 generally recognized as a matter of history, it has been almost 
 uniformly ignored as a principle in social philosophy. 
 
 There appears to have been an undefined apprehension that to 
 permanently regard the material as the preponderating element 
 in human progress is to belittle the influence exercised by the 
 intellect upon the advance of civilization. This is a mistake. 
 The danger £>f inverting the order of its operation is what is most 
 likely to occur. It is precisely at this point that some of the most 
 fatal errors have entered the popular theories. The best writers 
 agree that in the early stages of social growth the material 
 element is first in order and influence, but seeing that the mate- 
 rial conditions and moral character advance more rapidly as the 
 
 1 Comte's "Positive Philosophy," pp. 384-500. 
 
 2 " The same may be said of all the so-called virtues — honesty, benevolence, 
 justice, etc. These qualities are the result of his civilization. His moral 
 nature has sprung from his rational faculties, and may be traced back to its 
 origin in sympathy : at first confined to his immediate companions or offspring ; 
 thence gradually extended to embrace his own clan ; then his particular tribe, 
 race, or country ; then, to a limited degree, the whole human race ; and lastly, 
 as exhibiting the highest type, and quite rare even among the most civilized, 
 made to comprehend the lower brute creation in one beneficent scheme of 
 morals."— -Ward's " Dynamic Sociology," vol. i., p. 461. 
 
 ft 
 
1 8 COMTE 'S MISTAKE. 
 
 intellect develops, they appear to assume that the order of prog- 
 ress changes and the intellectual instead of the material element 
 becomes the dominating influence in social progress. Even 
 Comte says : " If our affective faculties were subordinated to the 
 intellectual, all idea of improving the social organism would be 
 senseless. . . . For our affective faculties must preponderate, 
 not only to rouse the reason from its natural lethargy, but to give 
 a permanent aim and direction to its activity, — without which it 
 would be ever lost in vague, abstract speculation." ' After 
 having thus affirmed the truth of the ascending order, he says : 
 " This is the natural order . . . whereas the reverse is the 
 rational one and that which gains upon the other in proportion 
 as the intellect assumes a larger share in the human evolution." 2 
 Thus, according to Comte, upon the dawn of the human intellect, 
 the natural order became irrational. Buckle, Draper, and Guizot 
 all take practically the same position. Though they do not go 
 through the same course of reasoning that M. Comte does, they 
 act upon the same conclusions. They all admit that material 
 conditions must precede intellectual and moral development, and 
 then insist that the intellect is the source of human progress.* 
 
 For the assumption that the order of evolution is thus reversed 
 by the accession of the intellect there is no warrant either in rea- 
 son or fact. That the material element in progress is greatly 
 accelerated by the reflex action of the intellect, and the intellec- 
 tual by the moral, and that progress is greatly enhanced thereby, 
 is unquestionable. But that in no way implies any change in the 
 law of social movement. The fact that the intellect fills a much 
 larger sphere in human life than it once did, does not tend to show 
 that it has in any way changed its relative position. The differ- 
 ence in the activities of man in modern civilized society and 
 those of his savage ancestors simply represents the difference in 
 the quality and quantity of his desires. The intellect, by the 
 very nature of its function, is not a propelling, but a guiding 
 element. It is the servant and not the master of human wants. 
 
 1 "Positive Philosophy," p. 500. American edition. 
 
 a Ibid., pp. 685, 686. 
 
 3 Buckle's " History of Civilization," vol. i., pp. 30, 31 ; cf. also pp. 242 
 and 509 ; Draper's " Intellectual Development of Europe," p. 591 : Guizot's 
 " History of Civilization," pp. 66, S4, 85, and 230. 
 
THE INTELLECT OBEYS THE WANTS. 1 9 
 
 The operation of this principle is clearly illustrated in the social 
 effect of the discovery of the mariner's compass, the art of print- 
 ing, the use of gunpowder, etc. It was not until some consider- 
 able portion of mankind desired the products of other nations 
 that navigation became necessary and the mariner's compass 
 could be of service to man, while gunpowder and printing, 
 having been invented before the desire for them was developed, 
 had to wait thousands of years before they could exercise any 
 influence upon civilization. 1 Although our acquisitions in sci- 
 ence, art, labor-saving inventions, etc., are the work of the intellect, 
 it is only when those achievements minister to human wants that 
 its activities tend to promote human progress. 
 
 It is true, however, that the influence of a new acquisition by 
 the intellect seldom fully expands itself in the satisfaction of the 
 wants to which it directly relates, but it frequently exercises a 
 reflex influence, the tendency of which is to again increase the 
 desire and consequently still further stimulate its own activity. 
 For example, the art of printing not only increased the number 
 of books sufficiently to supply those who had already acquired a 
 positive desire for reading, but it so cheapened them as to put 
 them within the reach of a large class to whom such a luxury had 
 previously been impossible, — thereby greatly increasing the desire 
 for, as well as the possibilities of, obtaining knowledge. Again, 
 when the power-loom and the spinning-jenny were invented, 
 they not only enabled the manufacturers to supply the increasing 
 demand for cotton cloth, but they so reduced its price that it could 
 become an article of common use among the masses. This fact 
 naturally soon gave rise to such desires for other and superior 
 fabrics that the result was to ultimately revolutionize the industrial 
 system of all Europe. 
 
 It is therefore not true that the natural order of social evolu- 
 tion is changed by the development of the intellect. To whatever 
 extent the sphere and activities of the intellect may be increased, 
 its relative position and function must, by the very nature of its 
 constitution, remain the same. 
 
 A similar error prevails in regard to the position of ethics in 
 social progress. Because personal morality, commercial integ- 
 rity, industrial equity, and social harmony are seen to increase 
 
 1 See Part II., chapter i. 
 
20 ERRORS REGARDING ALTRUISM. 
 
 as the altruistic feelings advance in society, it is held that altruism 
 and egoism are essentially antagonistic to each other. Egoism is 
 a term usually employed as relating to self, and altruism as relating 
 to others ; hence all actions and feelings are regarded as egoistic 
 in proportion as they tend to promote the welfare of self to the 
 exclusion of others ; and conversely they are altruistic in pro- 
 portion as they tend to promote the well-being of others to the 
 exclusion of self. 
 
 From this position it has been consistently inferred that self- 
 interest is inimical to the well-being of society. The natural 
 effect of such a conclusion is to create an aversion to all indus- 
 trial institutions in which this principle is recognized and to 
 stimulate the demand for a reconstruction of society on a so- 
 called altruistic basis. This reasoning involves a misconception 
 of the terms egoism and altruism and their logical relation to 
 each other. It is a radical error to regard altruism as anti- 
 egoistic, — or even non-egoistic, in its influence. To injure or 
 ignore the well-being of self is to destroy the first essential con- 
 dition for promoting the welfare of others. We can only be 
 helpful to others in proportion as we are well provided for our- 
 selves. 1 The poor, the weak, and the inferior are always a 
 burden rather than a help to their friends. 
 
 Egoism may be defined as relating to the welfare of self ; and 
 altruism as relating to the welfare of self a?id others. The basis 
 of true altruism is successful egoism. Altruism differs from 
 egoism, not in being opposed, or even indifferent to, the interests 
 of self, but only in embracing the interests of others besides self. 
 Thus all real altruism is highly egoistic, though all egoism is not 
 altruistic. All conduct may be called relatively altruistic accord- 
 ing as it benefits more than one, and relatively egoistic as it 
 benefits less than all. It is a mistake, therefore, to conclude that 
 altruistic conduct in society can be increased only as the princi- 
 ple of self-interest is diminished. 
 
 There is, moreover, unconscious and conscious altruism. The 
 
 1 " The acts required for continued self-preservation, including the enjoyment 
 of benefits achieved by such acts, are the first requisites to universal welfare. 
 Unless each duly cares for himself his care for all others is ended by death ; and 
 if each thus dies there remains no other to be cared for. This permanent 
 supremacy of egoism over altruism, made manifest by contemplating existing 
 life, is further made manifest by contemplating life in the course of evolution." 
 — Spencer, " Data of Ethics," pp. 187, 188. 
 
THE LA W OF SOCIAL PROGRESS. 21 
 
 former is altruistic conduct prompted by egoistic motives ; the 
 latter is that inspired by altruistic motives. In the progress of 
 society unconscious altruism precedes and tends to develop con- 
 scious altruism. Much the larger portion of the altruistic con- 
 duct in the world to-day is of the unconscious class. The great 
 improvements in manufacture and commerce that have put so 
 many luxuries and refinements within the reach of the average 
 citizen have, for the most part, been created by egoistic motives. 
 It is because the industrial policy of the employing class has been 
 dominated too much by the idea of benefiting self to the exclu- 
 sion of others that it has received so many disastrous checks. 
 We shall hereafter see that industrial depressions, bankruptcies, 
 enforced idleness, and their accompanying evils, are the economic 
 penalty for ignoring the interests of others in the efforts to bene- 
 fit self. Those who are excluded from the benefits we enjoy 
 become a menace to our well-being and a hindrance to our prog- 
 ress ; and conversely, the more completely the welfare of others 
 becomes identical with our own the more is our own increased. 
 Altruism, then, is not opposed to egoism ; it is simply a higher 
 phase of it. Obviously, altruism — the highest form of ethical 
 conduct — is the consequence of broadening the egoistic activities 
 of the material and intellectual elements, and hence is necessa- 
 rily last in the order of development. We are therefore war- 
 ranted in concluding that the progress of society toward greater 
 complexity of organization, in which the necessity of physical 
 effort is diminished, intellectual power and personal freedom 
 increased, and moral character elevated, is always in the ascend- 
 ing order from the material to the intellectual and moral ; — the 
 material being the basis, the intellectual the means, and the moral 
 qualities the result. 
 
 What then are the influences by which exclusive egoism is 
 transformed into all inclusive altruism, and savagery is converted 
 into civilization ? To answer this question is to explain the cause 
 of social progress and will be the subject of the next chapter. 
 
CHAPTER III. 
 THE CAUSE OF SOCIAL PROGRESS. 
 
 It is not enough to known what progress is, or even to know 
 the law of progress ; but the cause of progress must also be under- 
 stood before a true system of social philosophy can be established. 
 
 We have seen : (i) that social progress consists in changes of 
 man's social polity, or institutions, and not in his physical organ- 
 ism ; (2) that while all progress is change, only those changes 
 are progressive which tend to further social differentiation ; (3) 
 that while there can be no social progress without differentiation, 
 only that differentiation is progressive which results in new inte- 
 grations and greater complexity of social relations. 
 
 What then is the force which produces the changes that result 
 in integrating differentiation ? If we examine the history of 
 social institutions from their simplest beginnings, or trace them 
 from their most complex stages back to the earliest times, we 
 shall find that every change in the polity of society — whether in- 
 tellectual, political, moral, or religious — has been brought about 
 by man's conscious effort to adapt social institutions to his own 
 needs and desires. Social institutions are established by man 
 exclusively for men. It may be said that the changes in social 
 institutions are the work of the human intellect ; that, where 
 man's social wants are the most numerous his physical and intel- 
 lectual activities are the most varied and all phases of social 
 institutions are the most highly differentiated. In the last analysis 
 the proximate cause of social progress is human wants. 
 
 In the first place, it will be observed that all desires, of what- 
 ever character, are simply states of feeling, the distinguishing 
 characteristics of which are pleasure and pain. In proportion as 
 
DESIRE THE CAUSE OF EFFORT. 2$ 
 
 pleasure exceeds pain in human experience happiness prevails 
 and life becomes attractive and desirable ; and conversely, as pain 
 exceeds pleasure misery prevails and life becomes undesirable. 
 These antithetical states are completely represented in the terms, 
 want and satisfaction. Want is pain ; satisfaction is pleasure ; 
 and the extent to which the latter exceeds the former is the true 
 measure of happiness. To increase the proportion of pleasure 
 to pain, therefore, is the primary purpose of all human effort and 
 the immediate cause of social differentiation. Although all effort 
 is exerted for the gratification of some desire, there are many 
 desires that fail to call forth sufficient effort for their satisfaction. 
 Effectual desires are those which incite the necessary activity for 
 their gratification ; those which fail to call out such effort are in- 
 effectual. Only effectual desires cause progress. Why are some 
 desires effectual and others ineffectual ? it may be asked. Upon 
 what principle is effort expended for the satisfaction of some 
 wants and not for others ? A moment's consideration will show 
 that this is all determined by the relative degree of pain and 
 pleasure involved. Hence, the gratification of any given desire 
 must finally turn upon the choice between a relatively painful 
 want and a relatively painful effort, the decision always being in 
 favor of the minimum pain. If this be true, it follows that human 
 wants are not only the cause of social progress, but that advance- 
 ment toward a higher plane of happiness can only take place on 
 the egoistic- principle of obtaining the maximum pleasure for the 
 minimum pain. 
 
 It thus appears that self-interest in man is not an evil element, 
 as we have been taught to consider it, but that the principle of 
 egoism affords the basis of, and inspiration to, social develop- 
 ment. Man in his most primitive state was exclusively egoistic 
 in his desires and in his conduct. Altruism was not visible in 
 any thing that he did. Having no social or physical interest in 
 his fellow-man, there was no more economic or ethical reason, 
 why he should not steal from, or even kill and eat, him, than 
 that the lion should not devour the lamb. 
 
 As his wants became more numerous the efforts to satisfy them 
 became more burdensome, and the contest between want and 
 effort began. The want must remain ungratified or a means of 
 gratifying it less painful than the want itself must be devised. This 
 
24 THE ORIGIN OF EQUITY. 
 
 could only be accomplished by inventing labor-saving con- 
 trivances ; and invention is exclusively the function of the mind. 
 The greater the demand for this mental activity the more rapidly 
 are the intellectual faculties developed, and the more easily are 
 wants gratified. It was precisely upon this principle that the 
 crude tomahawk, bow and arrow, and canoe were first employed, 
 and the division of labor became a necessity. With the division 
 and specialization of labor, exchange of products became indis- 
 pensable to the gratification of wants, and some degree of inter- 
 course having been established, a beginning of confidence became 
 inevitable. As the wants of men increased, and they became 
 more dependent upon each other for the means of satisfying 
 them, they naturally became more settled and social in their 
 mode of life, and as soon as the crudest form of association be- 
 came necessary, altruistic conduct began. The fact that asso- 
 ciation arose from self-interest made it indispensable that the 
 advantages should be mutual to some extent. Thus from purely 
 egoistic motives it became absolutely necessary that the efforts 
 to benefit self should be so directed as to confer some benefit 
 upon others. 
 
 Through this closer social contact wants became still more 
 varied and efforts more specialized ; intellectual activity in- 
 creased and individuality grew more pronounced. When, from 
 these influences, exclusive family relations, with the permanent 
 care of offspring, developed, and the private ownership of prop- 
 erty became customary, it was obvious that one of two things 
 must occur, — either the security of life and property must be 
 increased, or these complex social relations must be abandoned ; 
 otherwise the danger to life and property would neutralize all the 
 new advantages. Thus a certain degree of morality became in- 
 dispensable to self-interest, and the murder, theft, and treachery 
 which a more simple life induced, having proved injurious to. all 
 and permanently beneficial to none, were pronounced capital 
 offences. The more closely we consider history in this light, the 
 more clearly it appears that the same principle applies to the 
 whole moral code. Just as fast as the quality of an action 
 becomes uniformly recognized it is designated moral or immoral, 
 and passes from the sphere of conscious expediency to that of 
 moral principle. 
 
DEVELOPMENT OF MORALITY. 2$ 
 
 In this way virtue tends to perpetuate itself, while vice or 
 immorality tends to its own elimination. The object of intel- 
 lectual activity being to serve the desire for happiness, it is neces- 
 sarily employed in devising means for eliminating the painful 
 without reducing the pleasurable experiences, and it is only as 
 this eliminating process takes place that new social integrations 
 become permanent and the best results of progress are secured. 
 This principle applies to all phases of human conduct. All the 
 improvements in medicines, ethics, politics, and economics are the 
 direct results of this eliminating process. 
 
 It may be urged that the altruism, or morality, thus evolved 
 from egoistic motives, is only of the unconscious kind, and is very 
 different from the conscious altruistic feeling which we recognize 
 in the highest moral characters. If we pursue the enquiry a little 
 further we shall see that volitional altruism is but a higher phase 
 of the unconscious expedient. The same principle which leads 
 men to repeat the conduct that produces beneficial results, also 
 leads them to have a common interest in, admiration for, and 
 sympathy with, those identified with such beneficial efforts. 
 
 It should be remembered, however, that social progress is not 
 a simple, direct movement, but a resultant of the action and 
 reaction of a variety of social currents, and that with each suc- 
 cessive increase in the social complexity the influences affecting 
 their differentiation become more subtle and involved. 
 
 The increasingly frequent personal intercourse which inevitably 
 arises from more complex social relations, and the greater identity 
 of interests, naturally tends to promote a greater reciprocation of 
 sympathetic feelings. It is a universal principle in sociology that 
 the more frequently we repeat acts which command our own and 
 others' approval, the more they tend to become habitual and 
 automatic ; and in proportion as any conduct tends to become an 
 unconscious part of daily life, it forms a fixed element of social 
 character. Accordingly, in the most advanced countries, where 
 the wants and desires of the people are the most numerous and 
 their industrial and social relations the most complex, we find the 
 greatest degree of honor, virtue, integrity, fair dealing, general 
 honesty, and public and private justice ; in short, the highest 
 phase of moral conduct. To such an extent is this true that con- 
 tracts, sometimes covering millions of dollars, are daily made 
 
2.6 NEW WANTS THE CAUSE OF PROGRESS. 
 
 between parties in New York, London, Paris, etc., who never saw 
 each other. Should either party violate such obligation, the 
 law — which expresses the moral character in the respective 
 countries — would enforce its fulfilment, and the civilized world 
 even sanctions warfare when nations violate their treaties with 
 each other. 
 
 The transfer of conduct from a basis of conscious utility to that 
 of moral principle is but another step in social evolution ; the 
 essential difference being direct and indirect experience. 
 When we act upon the abstract principle of right and wrong 
 we are simply basing our conduct upon generalizations drawn 
 from the repeated experiences of others. We accept it as a 
 dogmatic principle only because its expediency has been pre- 
 viously demonstrated. 
 
 Nor is this all. The influences which are thus elevating indi- 
 vidual egoism into moral principle are also simultaneously tending 
 to expand and intensify sympathetic, altruistic feeling. In pro- 
 portion as the influence of man's egoism becomes indirect, and 
 that of his altruism direct, he becomes more sensitive to the 
 feelings of others and less absorbed in his own ; so that, instead 
 of regarding the misery of others with indifference, as formerly, 
 a comparatively slight unhappiness becomes the source of great 
 pain to him, and often the incentive to his highest action. Hence 
 we see that, whereas man could once kill and feed upon his 
 fellows, to-day the advanced races regard injury to another as 
 equal to harm inflicted upon themselves. 
 
 Viewing the subject in all its phases, we see that in every 
 direction the increase of egoistic wants is the real source of social 
 progress. It develops the activity of the intellect ; this in turn 
 differentiates the social environment ; engrafts virtue into char- 
 acter ; transforms conscious egoism and unconscious altruism 
 into unconscious egoism and conscious altruism ; elevates utility 
 into morality, and makes moral principle, instead of individual 
 interest, the basis of social conduct. Thus, as man's intellect is 
 called into activity by the differentiation of his desires, so is his 
 moral character developed by the differentiation of his interests. 
 
CHAPTER IV. 
 
 THE VERIFICATION OF THE LAW OF SOCIAL 
 PROGRESS. 
 
 According to the theory of social progress presented in the 
 preceding chapters the development of man's social wants, and 
 the consequent increase in the general consumption of wealth, is 
 the necessary precursor of social, intellectual, and moral advance- 
 ment. If this doctrine is correct we may always expect to find 
 the highest state of civilization, and the most complete social, 
 political, and religious freedom, in those countries where the 
 material well-being of the masses is the most marked and con- 
 tinuous. And conversely, wherever the development of social 
 wants have been the most restricted, we may equally expect to 
 find the greatest intellectual and moral stagnation, and social, 
 political, and religious despotism. 
 
 The operation of this law is as universal as the human race. 
 History is replete with the evidence that social, political, and re- 
 ligious freedom is everywhere large or limited, the intellectual 
 and moral character high or low, in proportion as the general 
 consumption of wealth by the masses is great or small. The his- 
 tory of India and China, for instance, reveals to us peoples whose 
 simple habits of life induce very few wants, and those chiefly of a 
 physical character which are easily supplied. Their food consists 
 chiefly of rice, ragi, or millet, with a little seasoning. Their 
 houses are mainly fragile huts which may keep out the rays of 
 the sun, but seldom afford much protection against wind and 
 rain. The furniture and clothing of the common people are 
 equally simple and meagre, being confined to the limited uses 
 which a rice-diet and a ten-cent-a-day social life make necessary. 
 
 27 
 
28 INDIA, CHINA, AND EGYPT. 
 
 Although the political institutions of the two countries are in 
 many respects essentially different, the economic and social con- 
 ditions of the people are practically the same. What law and 
 caste has done towards stereotyping the industrial and social 
 degradation of the laboring classes in Hindostan, custom has just 
 as firmly established in China. The natural result of these con- 
 ditions is the arrest of material and social progress in those 
 countries. If we can accept the testimony of modern travellers;, 
 the people of India and China are in substantially the same state 
 of mental and moral degradation that they were in nearly three 
 thousand years ago. 1 
 
 In Egypt the industrial and social systems were very similar 
 to those in India and China, and their influence upon civilization 
 was substantially the same. Dates composed the staple food of 
 the common people. The poverty of the masses in ancient Egypt 
 may be inferred from the fact that the children of the lower 
 classes went entirely naked, and that to bring up a child to 
 maturity did not cost more than twenty drachmas, or thirteen 
 shillings of English money, 2 i.e., about three dollars and a quarter. 
 The social and political servitude of the lower classes is shown 
 by the fact that they were prohibited by law and custom from 
 owning land, participating in public affairs, or even choosing their 
 own occupation. 8 
 
 So far as data are obtainable, a similar set of facts present 
 
 1 ' ' The nations of Europe have very little idea of the actual condition of the 
 inhabitants of Hindostan. They are more wretchedly poor than we have any 
 notion of." — "Transactions of Asiatic Society," vol. i., p. 482. "From the 
 earliest period to which our knowledge of India extends, an immense majority 
 of the people, pinched by the most galling poverty, . . . crouching before 
 their superiors in abject submission, and only fit either to be made slaves them- 
 selves or to be led to battle to make slaves of others." — Buckle's '' History of 
 Civilization," vol. i., p. 53. "It is remarkable how little the people of Asiatic 
 countries have to do in the revolution of their governments. They are never 
 guided by any great and common impulse of feeling, and take no part in events 
 the most interesting and important to their country and their own posterity." 
 — " Journal of Asiatic Society," vol. i., p. 250. See also Alison's " History of 
 Europe," vol. x., pp. 419, 420. 
 
 ' Buckle's " History of Civilization," vol. i., p. 63. 
 
 1 " If any artisan meddled with political affairs, or engaged in any other em- 
 ployment than the one in which he had been brought up, a severe punishment 
 was inflicted upon him." — Wilkinson's " Ancient Egyptians," vol. ii., pp. 8, 9. 
 
GREECE AND ROME. 29 
 
 themselves in the much-lauded early civilization of South Ameri- 
 ca. The leading features of the industrial and social system in 
 ancient Mexico and Peru were similar to those of China, India, 
 and Egypt ; and consequently their influences upon human 
 progress were substantially the same. What rice was to the in- 
 habitants of India and China, and dates to those of Egypt, 
 maize and bananas were to the people of Mexico and Peru. 
 Here too, poverty, ignorance, and servitude, with all their 
 attendant evils, were the direful lot of the laboring classes. 1 
 
 The history of ancient Rome and Greece presents a similar 
 picture, although the setting is somewhat different. These two 
 countries differed from each other in some respects ; their cli- 
 mate, religion, political institutions and literature were unlike 
 those of India, China, Egypt, and early America in many im- 
 portant particulars ; but in one fundamental respect they were 
 all substantially the same — namely, the material and social con- 
 dition of the people. 
 
 The great mass of the people in Greece and Rome were miser- 
 ably poor and the very few were enormously rich. Despite the 
 progress of art, philosophy, and jurisprudence, the social con- 
 tempt in which the industrial classes were held by their superiors 
 was as intense as that exhibited by the ruling classes of Asia, 
 Africa, and America. 
 
 Slavery was so thoroughly rooted in the social system of 
 Greece that it was not only sustained by those who had a mer- 
 cenary interest in the traffic, but the philosophers — before whose 
 wisdom we of the nineteenth century are asked to bow — defended 
 it as being in accordance with natural law. Xenophon, a disciple 
 of Socrates, in expressing his contempt for the laboring classes, 
 declared : " The manual arts are infamous and unworthy of a 
 citizen." Even Plato introduced slaves into his ideal republic. 
 Nor did the scientific mind of Aristotle emancipate him from the 
 iniquitous idea. Speaking of laborers, he says : " These indi- 
 
 1 " They (the masses) had nothing that deserved to be called property. They 
 could follow no craft, could arrange no labor, no amusement, but such as was 
 specially provided by law. They could not change their residence or dress 
 without a license from the government. They could not even exercise the free- 
 dom which is conceded to the most abject in other countries — that of selecting 
 their own wives." — Frescott's "History of Peru," vol. i., p. 159. See also 
 Draper's " Intellectual Development of Europe," p. 461. 
 
30 EXTENT OF SLAVERY UNDER ROME. 
 
 viduals are destined by nature to slavery because there is nothing 
 better for them to obey. It is clear, then, that some men are free 
 by nature and others are slaves ; and in the case of the latter, the 
 lot of slavery is both advantageous and just." 
 
 The inability of the learned and high-minded philosophers of 
 Greece, who were too pure to participate in politics or trade, to 
 conceive of the possibility of a social state without slavery attests 
 conclusively how permanently and universally the social degrada- 
 tion of the common people must have been established. 
 
 Under Rome we find the same arrogant contempt for industry 
 among the rich, and the same general ignorance among the 
 masses. According to Gibbon, " slaves were so numerous in 
 Rome that the authorities dared not permit them to wear a pecul- 
 iar habit for fear that they might become dangerous by discover- 
 ing their own numbers and strength." Athenseus boldly asserts 
 that he knew very many Romans who possessed, not for use but 
 ostentation, ten and even twenty thousand slaves. 1 
 
 We are told that " in Italy itself the consumption of life was so 
 great that there was no possibility of the slaves by birth meeting 
 the requirement, and supply of others by war became necessary." a 
 
 It will thus be seen that the chief social characteristic of ancient 
 civilizations was the opulence, arrogance, and despotism of rulers, 
 and general poverty, ignorance, and servitude among the masses. 
 Consequently all the forces that naturally tend to promote civili- 
 zation were limited to a small exclusive class, while those influ- 
 ences which tend to retard progress were in constant and general 
 operation among the great mass of the people. Although wealth, 
 learning, and culture are the most powerful agents in promoting 
 human progress, it should always be remembered that the potency 
 of their influence depends entirely upon the extent and constancy 
 of their operation. It is not surprising therefore that the learning 
 and philosophy of Greece and Rome, like the wealth of Asia and 
 Africa, tended to increase the power of the rulers rather than to 
 develop the social character of the common people. 
 
 It is true that modern civilization owes more to the learning and 
 philosophy of Athens, and the jurisprudence of Rome, than it 
 
 1 Gibbon's " Decline and Fall of the Roman Empire," vol. i., p. 52 ; note, 59 ; 
 ibid., vol. i., p. 51. 
 
 5 Draper's " Intellectual Development of Europe," p. 184. 
 
EFFECT OF ANCIENT PHILOSOPHY. 3 1 
 
 does to the wealth and art of India and Egypt ; but this is not 
 due so much to the superior influence which they exercised in 
 their ozvn time as to the fact that Greek philosophy and Roman 
 law were committed to parchment, and thereby preserved until a 
 sufficiently large portion of the race reached the advancement 
 necessary to appropriate it. And long it had to wait for that period 
 to arrive ; it was seventeen centuries after the time of Socrates, 
 Plato, and Aristotle that Greek literature began to exercise any 
 influence upon human progress ; indeed, it was not until a thous- 
 and years after the government of Greece and Rome had passed 
 away, and the slavery they had bequeathed to the race over- 
 thrown, that — through the influence developed by the Free Cities 
 of Europe — the laboring classes for the first time became active 
 social factors, and a broader field prepared in which the seed 
 of Athenian philosophy could germinate. 1 
 
 Therefore, so far as advancing the civilization — improving the 
 social condition of the masses — of its own period is concerned, 
 the philosophy of Greece and Rome did no more than the pyra- 
 mids of Egypt, or the palaces of Peru. 
 
 It was because the refining elements of these civilizations were 
 not rooted in the industrial and social character of the common 
 people, but represented only the glitter of a small class sustained 
 by the power of the army, that their decay and fall was inevitable. 
 When circumstances arose which forced them to contend with 
 foreign enemies and civil strife, their seeming strength vanished 
 and their real weakness was revealed. The defeat of the army 
 was the fall of their power ; with the military support taken 
 from under the government nothing remained to prevent it from 
 
 1 Draper thinks the revival of Greek may be dated from the close of the four- 
 teenth century, at which time Chrysoloras taught it in Italy. Although this iso- 
 lated spark appeared in 1395, and some Greek manuscripts (including those of 
 Plato and Pindar) were brought into Italy a few years later, it cannot be said that 
 there was any perceptible restoration of, and much less any social influence from, 
 Greek literature until after the capture of Constantinople by the Turks in 1453. 
 This, it will be remembered, was fully a century and a half after the Free Cities 
 had obtained the material prosperity and political freedom which made them 
 leading factors in the social and industrial life of Europe ; more than a century 
 after the discovery of gunpowder ; seventy-two years after the insurrection of 
 Wat Tyler in England ; thirty-seven years after the revolt of the Hussites in 
 Bohemia ; and eight years after the discovery of the art of printing. 
 
32 WHY ROME FELL. 
 
 falling to the level of the real character of the people — which was 
 barbarism. 
 
 It was a mistake to assume, as Draper and others have done, 
 that the decay of these civilizations was the natural result of social 
 ripeness and old age. Such was far from being the case ; they all 
 died (socially speaking) in their very babyhood. Not one of 
 them arose above the plane of chattel slavery and hand labor ; 
 they did not even reach the point of having chimneys, or glass 
 windows, in the houses of their most favored classes, 1 — and cer- 
 tainly much intellectual and moral light cannot be expected to 
 enter the minds and characters of a people when sunlight never 
 enter their dwellings. 
 
 The commonly accepted notion that the overthrow of these 
 ancient governments was the destruction of superior civilizations 
 is erroneous. When Rome conquered Greece and subjugated all 
 Europe, as well as Egypt and Asia Minor, — or when the barbari- 
 ans sacked Rome, — they did not destroy high civilizations, but 
 rather reduced the political institutions of the time to the level of 
 the general industrial and social character they had created. Had 
 the material conditions and social character of the Roman people 
 in the fifth century been equal to that of the burgesses of the four- 
 teenth, neither the defeat of the army nor the fall of the empire 
 could have reduced them to barbarism ; but slaves — the chief 
 social product of Rome — were good material for barbarian rule. 
 Human progress was not arrested because Rome fell, but Rome 
 fell because human progress had been arrested. 
 
 1 Chimneys and glass windows did not come into use until the middle of the 
 fourteenth century. 
 
CHAPTER V. 
 
 THE RISE AND SOCIAL POWER OF THE FREE 
 CITIES. 
 
 If we pass from the ancient to the modern world we shall find 
 that, so far as the same causes have been in operation, the same 
 social effects have been produced ; namely, that intellectual and 
 moral development, and civil and religious liberty, have always 
 followed the line of the material prosperity of the masses, and 
 vice versa. 
 
 The first five centuries of the history of Europe after the fall 
 of the Western Empire compose the midnight darkness of social 
 chaos. Indeed, the only approach to orderly government within 
 that period was during the reign of Charlemagne. After his death 
 the empire soon resolved itself into the elements from which it 
 was constructed, and all law, authority, and regular government 
 again disappeared. 
 
 After protracted but futile struggles for political and territorial 
 supremacy, powerful chiefs began to settle upon their domains 
 with their retainers, and there assumed all the functions of 
 military chiefs, civil magistrates, and political sovereigns over 
 their vassals. Thus, before the close of the ninth century, the 
 feudal system — which during the tenth, eleventh, and twelfth 
 centuries governed all Europe — slowly emerged from barbarism. 
 
 Feudalism sustained the same relation to barbarism that bar- 
 barism did to Romanism. — not that it was superior to it, but that 
 it was the natural outcome of it. Both barbarism and feudalism 
 were simply the means of adapting the external machinery of 
 society to the internal character of the people. As the vast em- 
 pire of Rome became reduced to wandering tribes and petty 
 3 33 
 
34 FIRST STEP TOWARDS FREEDOM. 
 
 kingdoms because it had failed to develop the industrial and 
 social character of the masses, so, for the same reason, in the 
 tenth century authority was transferred from petty kings to feudal 
 lords; society was reduced to its lowest terms, and political rights 
 and social privileges were absorbed by industrial conditions, — 
 he who offered the means of a living commanding complete 
 political, military, and social allegiance. 
 
 Under this regime all who were not noble were servile ; the 
 extent of servitude was in accordance with the degree of poverty; 
 the very poor were slaves. " Artisans and free husbandmen/' says 
 Hallam, " were often compelled to exchange their liberty for bread. 
 In seasons also of famine, and they were not infrequent, many 
 freemen sold themselves into slavery . . . others became 
 slaves, as the more fortunate men became vassals, to a powerful 
 lord for the sake of his protection." ! 
 
 Guizot observed : " No sooner was society a little settled under 
 the feudal system than the proprietors of fiefs began to feel new 
 wants, and to acquire a certain degree of taste for improvement 
 and melioration ; this gave rise to some little commerce and 
 industry in *the towns of their domains; wealth and population 
 increased within them — slowly for certain, but still they in- 
 creased." 2 
 
 With the concentration of the serfs in the towns the seed of 
 social development was planted. The influence of the in- 
 dustrial, social, and religious intercourse thus created, though 
 meagre and crude, perceptibly affected the wants and character 
 of the laborers and taught them to produce, and also to consume, 
 wealth. 
 
 This first real step towards progress and freedom became too 
 pronounced to be mistaken by the middle of the eleventh cen- 
 tury, and finally grew too powerful to be arrested until it had 
 overthrown the feudal system and laid the foundation of a higher 
 civilization. As the towns increased more rapidly in population 
 and prosperity, they naturally developed a spirit of independence. 
 This tended to excite the jealousy of the barons, who regarded 
 the burghers as serfs having no rights that they were bound to 
 respect, and they therefore increased their exactions and en- 
 
 1 " Middle Ages,'" vol. i., pp. 121, 122. 
 
 * " History of Civilization," p. 157 ; also ibid., p. 101. 
 
LETTING THE TOWNS IN FEE-FARM. 35 
 
 deavored to rob and plunder them at every opportunity. 1 " The 
 exactions," says Guizot, " of the proprietors of fiefs upon the 
 burgesses were redoubled at the end of the tenth century. When- 
 ever the lord of the domain by which the city was girt felt a de- 
 sire to increase his wealth he gratified his avarice at the expense 
 of the citizens . . . merchants on returning from their trading 
 rounds could not with safety return to the city. Every avenue 
 was taken possession of by the lord of the domain and his 
 vassals." Man will seldom take much risk to obtain advantages 
 he has never possessed, but he will risk every thing, often against 
 great odds, to defend and sustain those he has already enjoyed. 
 So the burghers, having had a taste of wealth and social freedom, 
 slight indeed though it was, were ready to risk their all to retain 
 these benefits. 
 
 Despite the constant efforts of the lords to check the power and 
 progress of the burghers by greater exactions and open rob- 
 bery, we are told that : " The towns became continually richer 
 . . . the consciousness that they could not be individually 
 despoiled of their possessions, like the villains of the country 
 around, inspired an industry and perseverance which all the 
 rapacity of the Norman kings and barons was unable to 
 overcome." s 
 
 The opposition of the burghers to the harassing policy of the 
 barons at length became so strong that the barons were com- 
 pelled to abandon the effort to exact tribute from each individual 
 burgher at will, and agreed to accept a specific amount from the 
 whole town, to be paid as a yearly rent. To secure this rent the 
 baron surrendered every other claim which he might have, either 
 upon the town or its individual inhabitants. " The town was 
 then said to be affirmed, or let in fee-farm, to the burgesses and 
 their successors forever." 3 This rent, when once fixed, was per- 
 petual, and could not be increased by the lord, — however popu- 
 lous or rich the town might become, — nor could any new tax be 
 imposed upon it without the consent of the burghers. This was 
 really the first victory for liberty ever known by, and for, the 
 laboring classes. 
 
 1 " History of Civilization," p. 158 ; Hallam's " Middle Ages," vol. i., pp. 
 365, 366, and Wade's " History of the Working Classes," p. 9. 
 
 ' l Hallam's " Middle Ages," vol. ii., p. 78. 
 
 3 Hallam's " Middle Ages," vol. i., p. 78. 
 
36 REVOLT OF THE TOWNS. 
 
 But, instead of being the end, this was only the beginning of 
 the struggle, for what the lords could no longer take by tallage 
 they endeavored to obtain by force. 1 In order, therefore, to 
 maintain their existence and the little freedom they had ac.' 
 quired, the towns were forced into open hostility to the barons. 
 To sustain themselves in this struggle we are told that : " Every 
 citizen was bound by oath to stand by the common cause against 
 all aggressors, and this obligation was abundantly fulfilled. In 
 order to swell their numbers, it became the practice to admit all 
 who came to reside within their walls to the rights of burgher- 
 ship, even though they were villains, appurtenant to the soil of a 
 master, from whom they had escaped." 8 Thus the towns not 
 only protected the prosperity and promoted the progress of 
 those who lived within them, but they offered protection and 
 freedom to all who would flee from the clutches of the feudal 
 masters. Guizot assures us that : " It was not merely the lower 
 orders, such as serfs, villains, and so on, that sought this protec- 
 tion, but frequently men of considerable rank and wealth, who 
 might chance to be proscribed. . . . Refugees of this sort," 
 he adds, " had, in my opinion, a considerable influence upon the 
 progress of the cities ; they introduced into them, besides their 
 wealth, elements of a population superior to the great mass of 
 the inhabitants." * 
 
 By these means, together with the industrial and social in- 
 fluences before referred to, the towns continued to grow in 
 wealth, population, and power, and before the close of the 
 eleventh century they were in general rebellion against the 
 barons. 4 Although the revolt was local, and spontaneous in 
 its origin, it was universal and simultaneous in its movement. 
 The same general causes were everywhere in operation, and 
 consequently the same general effect was produced. 4 
 
 1 " Wealth of Nations," Book III., chap, iii., p„ 306. 
 ' Hallam's " Middle Ages," vol. i., p. 170. 
 a " History of Civilization," p. 157. 
 
 * Guizot's " History of Civilization," p. 161. 
 
 * " The situation of all the towns being nearly the same, they were all liable 
 to the same danger ; a prey to the same disaster. Having acquired similar 
 means of resistance and defence, they made use of those means at nearly the 
 same time." — Guizot's " History of Civilization," p. 161. 
 
ESTABLISHMENT OF FREE CITIES. 37 
 
 When the open rupture between the towns and their lords took 
 place, the king, though not necessarily an active partisan, was 
 always a deeply interested party. Adam Smith says : " The 
 burghers naturally hated and feared the lords ; the king hated 
 and feared them too ; but, though perhaps he might despise, he 
 had no reason to either hate or fear, the burghers. Mutual inter- 
 est, therefore, disposed them to support the king, and the king to 
 support them against the lords. They were the enemies of his 
 enemies, and it was his interest to render them as secure and in- 
 dependent of those enemies as he could " ' ; accordingly, in their 
 struggles with the barons, the towns frequently called upon the 
 king for aid and support in protecting the rights and privileges 
 which the lords had previously sworn to grant them. 
 
 This appeal was generally responded to, at least so far as the 
 king could know that his own power and interest would be pro- 
 moted thereby. By this means, in the eleventh century, the towns 
 began to obtain charters giving them special commercial privi- 
 leges, 2 and early in the twelfth century they obtained charters 
 which secured to them, besides commercial privileges, the right 
 of self-government. 3 By these charters the towns were practically 
 transformed into little republics. They were better able than 
 ever before to effectually offer an asylum to overpowered lords, 
 and freedom to the enslaved and degraded serfs who might take 
 refuge within their walls. These Free Cities, therefore, natu- 
 
 . x "Wealth of Nations," Book III., pp. 306, 307. 
 
 2 "From the time of William Rufus " (1087 to 1100), says Hallam, "there 
 was no reign in which charters were not granted to different towns, of exemp- 
 tions from tolls on rivers and at markets, those lighter manacles of feudal 
 tyranny ; or of commercial franchises ; or of immunity from the ordinary juris- 
 diction ; or, lastly, of internal self-regulation." — " Middle Ages," vol. ii., p. 78. 
 
 3 According to Hallam, the city of Leon received its municipal charter from 
 Alfonso V., of Spain, as early as 1020. The city of London, from Henry I., 
 in noi, and those of Noyon, St. Quenton, Laon, and Amiens, by Louis VI., of 
 France, about 11 10. "The privileges conferred by these charters," says this 
 writer, "were surprisingly extensive. . . . They (the burgesses) were 
 made capable of possessing common property, and authorized to use a common 
 seal as the symbol of their incorporation." — " Middle Ages," vol. i., pp. 166- 
 169. "It is certain," says the same writer (vol. i., p. 190), " that before the 
 death of Henry V., in 1125, almost all the cities of Lombardy, and many of 
 those of Tuscany, were accustomed to elect their own magistrates, and to act as 
 independent communities in waging war and in domestic government." 
 
38 SOCIAL POWER OF THE FREE CITIES. 
 
 rally attracted to themselves the most industrious and energetic 
 portion of the population, and consequently, during the twelfth 
 and thirteenth centuries, became the centres of wealth, population, 
 and progress. 
 
 In 1 164, the Lombard cities formed a league to defend their 
 rights and liberties against the attacks of Frederic Barbarossa, who 
 two years before, attacked and pillaged the city of Milan, the most 
 populous and powerful of their number. The war into which they 
 entered lasted thirteen years, and ended with the famous " Peace 
 of Constance " (1183), which, we are told, " established the Lom- 
 bard republics in real independence." 1 By 1188 the cities of 
 Spain acquired the right of representation in the national legisla- 
 ture. In 1 2 14 Magna Charta declared the old and new privileges 
 of English cities to be inviolable (this was reconfirmed thirty-two 
 times before the middle of the next century), and in 1265 the 
 burghers, or inhabitants of the free cities, obtained representation 
 in Parliament. 
 
 About the middle of the thirteenth century, the Free Cities of 
 Germany, in order to protect their rights and property against 
 the rapacity of the barons, formed the famous Hanseatic League 
 (which was a confederacy of eighty of the most powerful cities), 
 and sixty other cities banded themselves together as the League 
 of the Rhine. 2 
 
 It will thus be observed that, through their material or indus- 
 trial prosperity, social intercourse, and political activity, the Free 
 Cities gave birth to human freedom and became the nurseries, of 
 modern progress 3 ; and that in those countries where the Free 
 Cities never existed, such as China, Hindostan, and Egypt, civili- 
 zation has been most stationary. 
 
 1 Hallam's " Middle Ages," vol. i., p. 196. 
 
 9 Ibid., p. 367 ; cf. ibid., vol. ii., p. 271. 
 
 3 ' ' Order and good government, and along with them the liberty and security of 
 individuals, were, in this manner, established in cities, at a time when the occu- 
 piers of land in the country were exposed to every sort of violence." — Smith's 
 " Wealth of Nations," Book III., chapter iii., p. 308. 
 
CHAPTER VI. 
 
 THE FALL OF THE FREE CITIES AND ITS EFFECT 
 UPON SOCIAL PROGRESS. 
 
 It is not necessary to our present purpose to discuss the causes 
 which led to the fall of the Free Cities, but merely to indicate, by 
 a brief notice, the general relation which they sustain to social 
 progress. The important fact everywhere observable is, that 
 although the fall of the Free Cities in different countries was not 
 simultaneous, nor the causes identical, the bad effect upon the 
 material prosperity of the people and the progress of social, 
 political, and religious freedom was substantially the same. 
 
 In Spain charters were granted to the towns early in the 
 eleventh century (1020), 1 and before the close of the twelfth they 
 were admitted to representation in the Cortes. The peculiar 
 feature of. the history of Spain during the Middle Ages is the 
 fact that for nearly eight centuries she was engaged in religious 
 war. The early charters of Spain, unlike those of France, Eng- 
 land, and Germany, were granted more for the purpose of 
 inducing the burghers to defend the country against the Moors, 
 than to enable them to protect themselves against the exactions 
 of the barons. 2 This perpetual religious war served to keep the 
 importance of the clergy and the king constantly before the 
 
 1 " The earliest instance of the erection of a community is (in Spain) in 1020, 
 when Alfonso V., in the cortes at Leon, established the privileges of that city, 
 with a regular code of laws by which its magistrates should be governed." 
 — Hallam's " Middle Ages," vol. i., p. 303. 
 
 2 " Instead of purchasing their immunities, and almost their personal freedom, 
 at the hands of a master, the burgesses of Castilian towns were invested with 
 civil rights and extensive property on the more liberal condition of protecting 
 their country." — Hallam's " Middle Ages," vol. i., p. 303. 
 
 39 
 
40 THE SPANISH CITIES. 
 
 people, the former to teach the true faith, the latter to extirpate the 
 heretics. The Christians being more devoted to the killing of 
 heretics than to the production of wealth, manufacturing and 
 commercial industries were, for the most part, carried on by the 
 Mohammedans. 1 Therefore, when the Moors were driven out of 
 Spain, and their industrial centres deserted, the last prop to her 
 material prosperity was destroyed. Buckle pointedly observes 2 : 
 " There was no one to fill their place ; arts and manufactures 
 either degenerated or were entirely lost." 
 
 The city of Seville, which before the expulsion of the Moham- 
 medans contained sixteen thousand looms and gave employment 
 to thirty out of fifty persons, only employed three hundred looms 
 after that event. During the same period the fifty woollen- 
 factories of Toledo were reduced to thirteen, and her silk trade, 
 which had given employment to over thirty-eight thousand 
 persons, was entirely destroyed. 
 
 The poverty and wretchedness which followed this decay of 
 the Christian and the violent overthrow of the Moorish Cities of 
 Spain are almost indescribable, 3 and with this industrial degener- 
 acy the social progress of the burghers was soon arrested. 
 
 By the close of the fifteenth century their representation in the 
 Cortes, and with it their industrial and social freedom, was prac- 
 tically extinct. 4 From this time Spain rapidly declined, and soon 
 fell from the position of one of the strongest to that of one of 
 the weakest nations in Europe — a fall she has never since re- 
 covered. 
 
 In Italy the Free Cities fell from a different set of causes, but 
 the effect of their fall upon progress was essentially the same in 
 kind, if not in degree. As already stated, the Lombard Cities 
 began to acquire wealth and freedom in the eleventh century, 
 and before the close of the twelfth they became recognized, 
 independent republics. Upon the same principle that the in- 
 crease of wealth which precedes the development of wants leads 
 
 1 Buckle's " History of Civilization," vol. ii., p. 52. "Ibid. 
 
 3 Mahon's " Spain under Charles II.," pp. 138-140. 
 
 4 "At the cortes of Burgos, in 1315, we find one hundred and ninety-two 
 representatives from more than ninety towns. ... by the year 1480 only 
 seventeen cities retained the privilege of representation." — Hallam's " History 
 of the Middle Ages," vol. i., p. 314. 
 
THE ITALIAN CITIES. 41 
 
 to waste, the increase of freedom and power that precede the 
 development of social character necessary to their wise use, nat- 
 urally lead to maladministration, and tend to promote anarchy 
 rather than the advancement of a higher civilization. 
 
 Thus it was with the Free Cities of Italy. They acquired 
 political power too suddenly ; their form of government was 
 republican before their character had become democratic. In 
 short, their external power and prominence were more the result 
 of political despotism than social development. Accordingly 
 after their great victory over Barbarossa in 1183, they soon be- 
 came the victims of internal feuds. Having no foreign enemy tc 
 encounter, they turned their swords upon one another, which was 
 more fatal to their prosperity, power, and freedom than all the 
 attacks of a foreign foe. 1 Weakened by the factious war among 
 themselves, they soon became an easy prey to monarchy. By the 
 middle of the thirteenth century (1233) they had fallen into the 
 hands of a monkish usurper, Vicenza, and by the close of the 
 century they were forced, with little difficulty, to submit to the 
 yoke of a despotic monarchy. So completely did the loss of 
 their freedom follow that of their material prosperity that, " be- 
 fore the middle of the fourteenth century, at the latest, all those 
 cities which had spurned at the faintest mark of submission to 
 the emperors, lost even the recollections of self-goverment, and 
 were bequeathed, like undoubted patrimony, among the children 
 of their new lords." 
 
 Although brought about by very different causes, the fall of 
 the free cities in Italy, as in Spain, arrested the material prosperity 
 of that country, and consequently its social progress and political 
 and religious freedom were greatly retarded. 
 
 The history of the Free Cities of Germany was somewhat dif- 
 ferent from that of Spain and Italy. In Germany the rapacity of 
 the barons and petty princes partook more of the character of 
 common highwaymen than in any other country. So universally 
 was this the case among the rural nobles that it became customary 
 for them to build their castles upon inaccessible hills where they 
 could command the public highways. As an evidence of the 
 prevalence of this practice, Hallam relates the story, told by a 
 
 1 " For revenge, she threw away the pearl of great price, and sacrificed even 
 the recollections of liberty." — Hallam's " Middle Ages," vol. i., p. 198. 
 
42 THE GERMAN CITIES. 
 
 contemporary writer, of an archbishop who built a fortress of 
 this kind. No legal provision having been made for him, he was 
 asked by the governor "how he was to maintain himself," to 
 which he replied that "his castle was situated near the junction 
 of four roads." 
 
 As a means of protection against the " robber barons," the 
 cities allied themselves with the emperors, and the emperors, in 
 order to obtain assistance against the petty princes, willingly 
 patronized the cities. German cities were not entirely free from 
 the internal jealousies which were so fatal to those of Italy, but 
 the constant danger from the barons made some degree of united 
 action necessary to their existence. Thus the Hanseatic 
 Union and the League of the Rhine were formed ; the first 
 about 1250, and the latter in 1255. These two organizations 
 comprised, at the time, over a hundred and thirty cities leagued 
 together to defend themselves against the nobility, just as those 
 of Italy were leagued against Frederick I. By this means the 
 German cities escaped the fate of those in Lombardy ; but in 
 their very escape they became the victims of influences which 
 were scarcely less fatal in their results, though more gradual in 
 their operation. Through their almost constant alliance with 
 the emperor they naturally became more and more under his 
 influence and control ; and although they did not become imperial 
 strongholds, they ceased to be democratic nurseries. Guizot 
 has well observed : " They preserved their privileges, but they 
 remained confined to the inside of their walls. Within these, 
 democratic organization was shut up and arrested ; if we walk 
 abroad over the face of the country, we find no resemblance of 
 it." l Thus, while they retained their external form until after the 
 close of the sixteenth century, at the close of the fifteenth their 
 power as harbingers of industrial and political freedom was 
 practically destroyed. 
 
 If we turn to France, a similar picture presents itself ; although 
 the local causes were different, the general result was substantially 
 the same. France was the birthplace of feudalism, and it is 
 therefore not surprising that the feudal system should have taken 
 deeper root in that country than in any other. While it was a 
 fundamental principle of feudalism that the lord should be 
 
 1 " History of Civilization," p. 223. 
 
THE FRENCH CITIES. 43 
 
 supreme on his own domain, in no country was baronial sover- 
 eignty so absolute, in theory and practice, as in France. There 
 the lord possessed all the powers that were invested in the king. 
 He even had the right to declare war against the king himself. In 
 many countries this practice was more or less indulged in, but in 
 France it was laid down as one of the legal rights of the lord. By 
 this means the feudal nobility in France were equal in strength to 
 all other elements combined. Although the French kings, in 
 order to strengthen their own hands, granted very liberal charters, 
 they were mainly confined to the towns on the royal domains 
 and those of the weaker nobility in the south of France. Con- 
 sequently, when the struggle between the barons and the cities 
 came, the power of the former proved too much for the latter, 
 and the cities fell. 1 
 
 With the fall of the Free Cities the feudal system was re- 
 established, and many of its odious features continued down to 
 the French Revolution. 
 
 Passing from the Continent to England, we shall find that, while 
 the general appearance of the movement was very similar, the 
 essential features, and therefore their effect upon civilization, were 
 very different. The Free Cities in England, like those on the Conti- 
 nent, were the birthplaces of material prosperity and the nurseries 
 of civilization ; but in England no elements were strong enough 
 to suppress them. Neither the king nor the Church, as in Spain ; 
 nor internal strife and usurpation, as in Italy ; nor baronial 
 weakness and imperial strength, as in Germany ; nor the feeble- 
 ness of royalty and the power of Feudalism, as in France, were 
 sufficient to prevail against the cities of England. 
 
 From the fifth to the eleventh century there was very little dif- 
 ference in the social state of the various countries in Europe ; if 
 any thing, England was probably less advanced than some of the 
 rest. About the middle of the eleventh century, however, an 
 event occurred in England which produced an arbitrary and 
 radical change. When William, Duke of Normandy, decided to 
 present a forceful claim to the English throne, he promised to 
 
 1 " And so it was in France. The towns, with few exceptions, fell at the first 
 shock ; and the cities lost their municipal privileges, which, not being grafted 
 on the national character, it was found impossible to preserve." — Buckle's 
 " History of Civilization," vol. i., p. 449. 
 
44 THE ENGLISH CITIES. 
 
 freely distribute the wealth and land of England among his fol- 
 lowers in order to induce them to enter more heartily into the 
 struggle, and he was as good as his word. 
 
 He had no sooner obtained possession of the British Govern- 
 ment, such as. it was, than he proceeded to dispossess the Britons 
 of all political power and to confiscate their property, — both of 
 which he divided among his Norman followers. 1 In this redis- 
 tribution of wealth and power, William never lost sight of the 
 main object of the conquest, — his own power and aggrandize- 
 ment, — and hence, in making his grants, he was always careful to 
 exact the fullest ackowledgment of his own supreme authority. 
 
 The feudal system in England was thus arbitrarily recon- 
 structed, and, so far as the nobles were concerned, on a more 
 limited basis than that which obtained upon the Continent. For 
 instance, the most powerful of the English barons never acquired 
 such sovereign privileges as the right of coining money in their 
 own name ; the right to forbid the circulation of the royal money 
 upon their own domains ; exemption from all public tribute ex- 
 cept feudal aids ; the right of waging private wars, even against 
 the king, etc. 8 The power of the Norman barons in England 
 being thus limited, the contest for supremacy between feudalism 
 and monarchy was more evenly balanced. Under these condi- 
 tions the opportunity for the growth and safety of the towns was 
 naturally great. Consequently, we find that, while the English 
 towns did not rise to opulence as suddenly as the Italian cities, 
 they made gradual progress toward wealth, power, and freedom. 
 
 In order to weaken the barons, and in the hope of strengthen- 
 ing his own hand, the king granted charters to the towns, ex- 
 empting them from, and protecting them against, the exactions of 
 the barons. Another beneficial effect of "that vigorous pre- 
 rogative of the Norman monarchs which kept down the feudal 
 aristocracy" was, that, because of the inability of the barons to 
 
 1 " This exclusionof the English from political privileges," says Hallam,"was 
 accomplished with such a confiscation of property as never perhaps has 
 proceeded from any government not avowedly founding its title upon the sword. 
 In twenty years from the accession of William almost the whole soil of England 
 had been divided among foreigners." — " Middle Ages," vol. ii., p. 27. 
 
 * See Hallam's " Middle Ages," vol. i., p. 127 ; also Buckle's " History of 
 Civilization," vol. i., p. 445. 
 
THE MAGNA CHARTA. 45 
 
 cope single-handed against the king, it became necessary for 
 them to include the rights and privileges of the burghers (whom 
 they hated) with their own. 
 
 It was by this means that, under the leadership of Stephen 
 Langton and the Earl of Pembroke, the Magna Charta was 
 wrung from that rapacious and treacherous coward, King John, 
 in 1 2 15. This declared that : " The charter of the city of Lon- 
 don, and of all the towns and boroughs, is inviolable ; no freeman 
 shall be taken or imprisoned, or be deprived of his freehold liber- 
 ties ; or free customs ; or be outlawed ; or exiled ; or any other- 
 wise destroyed but by lawful judgment of his peers, or by the 
 law of the land." The great charter of rights extended as much 
 protection to the burghers against the violence and oppression of 
 the barons as it did to the barons against the oppressions of the 
 king, and in order to secure the privileges thus obtained subse- 
 quent kings were forced to solemnly ratify this great charter x 
 thirty-two different times. In the same way, fifty years later, the 
 burghers obtained the right of popular representation in Parlia- 
 ment. It was in the protracted struggle between the confederate 
 barons and Henry III. that, in order to secure the favor of the 
 burghers and thereby strengthen the hands of the barons against 
 the king, the Earl of Leicester, on the 12th of December, 1264, 
 issued writs to all the sheriffs, directing them to return to parlia- 
 ment " two citizens for every city and borough, in addition to 
 the knights of the county."* Nearly all the charters that were 
 granted to the towns after the reign of John gave them complete 
 municipal independence, including the right to make their own 
 laws, elect their own magistrates and judges, levy their own 
 taxes, etc. 
 
 With these powers the Free Towns could offer protection and 
 citizenship to all who would reside within their walls. Villeins 
 were declared free, and endowed with the free rights of citizen- 
 ship, who fled to the chartered towns and continued residents for 
 a year and a day. 3 This obviously tended to increase the power 
 
 1 See Buckle's " History of Civilization," vol. i., pp. 446, 447 ; also Hal- 
 lam's " History of the Middle Ages," vol. ii., pp. 73, 83. 
 ' Hallam's " Middle Ages," vol. ii., p. 73. 
 8 Ibid., p. 203. See also Wade's "History of England," p. 9. 
 
46 RISE OF THE WAGE SYSTEM. 
 
 of the towns and the number of freemen, and at the same time 
 to diminish the power of the Lords, as is abundantly shown by 
 the petitions sent to Parliament by the lords, praying : " that 
 the villeins might not put their children to school . . . for the 
 honor of all freemen in the kingdom " ; and complaining : "that 
 villeins fly to cities and boroughs, whence their masters cannot 
 recover them ; and, if they attempt it, are hindered by the peo- 
 ple ; and prayed that the lords might seize their villeins in such 
 places without regard to the franchises hereof." ' The result 
 was that the lords were compelled to be more generous in theii 
 treatment of villeins in order to prevent them from running away 
 to the towns,* and consequently, by the last quarter of the thir- 
 teenth century their condition had become greatly modified. 
 Instead of being inseparable parts of the lord's estate, the villeins 
 were now bound only to perform certain specified services, known 
 as " labor rents," for which they were allowed to possess the land 
 they lived upon, or work for wages the remainder of the 
 time as " free laborers for another lord." * By the close of the 
 reign of Edward II. (1327) labor rents had almost entirely dis- 
 appeared * ; and before the middle of the reign of Edward III. 
 the villeins, for the most part, had become wage-laborers, 6 and 
 feudalism, as an industrial system, was practically overthrown. 
 The effect of these influences upon the industrial condition of 
 the masses is further seen in the fact that, early in the fourteenth 
 century, not only artisans but farm laborers began to demand 
 higher wages. Rogers informs us that, at the close of the famine 
 in 1321, wages rose "from 23 to 30 per cent., fully 20 per cent. 
 of which became permanent," 6 and thirty years later (1350) they 
 rose again from 50 to 100 per cent. 7 This marked increase in 
 
 1 See Eden's "State of the Poor," vol. i., pp. 3, 4 ; also Hallam's " Middle 
 Ages," vol. ii., p. 207. 
 
 s " It was natural that the country people, or uplandish folk, as they were 
 called, should repine at the exclusion from that enjoyment of competence and 
 security for the fruits of their labor, which the inhabitants of the towns so fully 
 possessed." — Hallam's " Middle Ages," vol. ii., pp. 204, 205. 
 
 3 Hallam's " Middle Ages," vol. ii., p. 202. 
 
 4 Rogers' " Six Centuries of Work and Wages in England," p. 218. 
 ' Hallam's " Middle Ages," vol. ii., p. 204. 
 
 ' " Six Centuries of Work and Wages," pp. 218, 237. 
 1 1bid., p. 237. 
 
FALL OF FEUDALISM. 47 
 
 wages was not the result of temporary causes, such as famine, 
 black death, etc., but the natural effect of the period in which 
 English commerce and manufacture took their first great start. 1 
 It was in 1331 that Edward III., the "father of English com- 
 merce," induced Flemish manufacturers to settle in England, 
 promising them that " they should feed on fat beef and mutton 
 till nothing but fullness should stint their stomachs." 
 
 The increasing wealth and comfort of the laboring classes 
 during this period is further shown by the constant complaints of 
 contemporary writers about " the extravagance and vanity of 
 the common people," and the frequent petitions to Parliament 
 complaining that " the masters were obliged to give their servants 
 and laborers great wages to prevent their running away to towns 
 where they became artificers, clerks, etc., to the great detriment 
 of agriculture." Thus the natural prosperity which had its rise 
 in the towns during the twelfth and thirteenth centuries extended, 
 in the fourteenth, to the farm laborers in the rural country and 
 consummated the fall of feudalism. 
 
 Thus the towns in England gradually rose from industrial to 
 commercial, and from commercial to political, importance. As 
 their wealth did not precede their wants, each addition to their 
 privileges was an increase of their power, and their influence 
 upon freedom and progress extended beyond their own walls. 
 Consequently, although their struggles were severe, they survived 
 until they had overthrown feudalism, transferred the slavery of 
 villeinage into wage-labor, securely established popular repre- 
 sentation, and laid the foundation for the religious reformation 
 in the sixteenth, the political revolution in the seventeenth, and 
 the industrial revolution in the eighteenth and nineteenth cen- 
 turies. 
 
 It is a great mistake to conclude, as Fiske * and other eminent 
 writers appear to have done, that this is due to some inherent supe- 
 riority in the English race. A careful consideration of the funda- 
 mental causes which underlie and promote social development will 
 show that, while the political and religious institutions of a country 
 are determined by the character of its people, the character is main- 
 ly determined by the industrial and social environment. Therefore, 
 
 1 Cf. "Wealth and Progress," pp. 110-131. 
 * "American Political Ideas," chap. iii. 
 
48 HISE OF THE MIDDLE CLASS. 
 
 the cause of the superiority of the English over the Spanish, 
 Italian, and German institutions in the seventeenth, eighteenth, 
 and nineteenth centuries is not to be found in any inherent 
 quality in the English race, but in the difference of its industrial 
 and social conditions in the thirteenth, fourteenth, and fifteenth 
 centuries. Manufacture and trade became more profitable than 
 agriculture, and therefore naturally attracted to themselves the 
 more intelligent and ambitious. By this means, during the fifteenth 
 and sixteenth centuries there arose a middle or commercial class, 
 whose increase in wealth and influence was such that early in the 
 seventeenth century it began to rival the landed aristocracy. 1 
 Before the close of the seventeenth century the aggregate income 
 of the manufacturers and merchants was more than equal to that 
 of the nobility, and by the end of the eighteenth century the mid- 
 dle class had become the dominant power in society. 
 
 1 " In the course of the sixteenth century the commercial prosperity of Eng- 
 land had increased with amazing rapidity, while during the same time much 
 territorial wealth, much baronial property, had changed hands." — Guizot's 
 "History of Civilization," p. 271. 
 
CHAPTER VII. 
 
 THE PROGRESS OF POLITICAL AND RELIGIOUS 
 FREEDOM. 
 
 If we examine the progress of political and religious freedom 
 we shall find that it has always followed the line of the material 
 prosperity of the masses, rising where that rose, falling where it 
 fell, and becoming permanent only where industrial improvement 
 had been general and continuous. England was the only country 
 in which the Free Towns were not overpowered by either the 
 Church, the Monarchy, or the Barons, and consequently it was the 
 only country in which social and political progress was not 
 arrested. 
 
 The Cortes of Spain, the States-General of France, and the 
 Republics of Italy rose and passed away, scarcely leaving their 
 imprint upon the national character, while the English House of 
 Commons has ever stood out as a conspicuous feature of modern 
 civilization. " No great measure," says Guizot, 1 " which has 
 truly had any influence upon society in France, no important 
 reform either in the general legislation or administration, ever 
 emanated from the States-General. . . . The Cortes of Portu- 
 gal and Spain afford the same general result. . . . The Cortes, 
 like the States-General of France, has been an accident in his- 
 tory, and never a system — never a political organization or regu- 
 lar means of government. . . . The lot of England has been 
 different. . . . The Commons obtained in England a power 
 much superior to those on the continent, a power really capable 
 of influencing the government of the country. In the fourteenth 
 century, the character of the English parliament was already 
 
 1 " History of Civilization," pp. 225—7. 
 4 49 
 
50 WICLIFF, TYLER, AND HUSS. 
 
 formed. . . . The attempt to bring together the various ele- 
 ments of society, and to form them into one body politic, one true 
 state or commonwealth, did succeed in England while it failed in 
 every part of the Continent." 
 
 What was true of municipal privileges and political representa- 
 tion was equally true of religious liberty. In the fourteenth 
 century, when, on the Continent, the masses were losing their 
 political rights and society was gravitating towards civil and re- 
 ligious despotism, the people of England were steadily advancing 
 towards still more freedom. 
 
 The increasing prosperity of the towns from the reign of Henry 
 III. to the middle of the reign of Edward III. — during which 
 time villeinage had been transferred into wage-labor, and the last 
 thirty years (1321-1351) of which had witnessed a general and 
 permanent rise of wages — greatly developed the social and intel- 
 lectual character of the people, 1 and made the successful advent 
 of Wicliff and Wat Tyler possible. Whatever may have been 
 the influences that induced Wicliff to openly renounce the 
 authority of the pope, denounce the usurpations of the Roman 
 Church, stigmatize the friars as its political and financial emis- 
 saries, and insist upon the right of the laity to read and interpret 
 the Bible — which he subsequently translated into English, — the 
 effect of his teachings upon the community ultimately depended 
 upon the character of the people.' Had Wicliff lived before, 
 instead of after, the Free Cities, his own fate, as well as the 
 influence of his doctrine, would probably have been entirely 
 different. 
 
 This is well illustrated by the fate of the Hussites in Bohemia 
 some forty years later. When John Huss, through the treachery 
 
 1 " A silent alteration had been wrought in the condition and character of the 
 lower classes during the reign of Edward III. This was the effect of increased 
 knowledge and refinement, which had been making a considerable progress for 
 full half a century, though they did not readily permeate the cold region of 
 poverty and ignorance." — Hallam's " Middle Ages," vol. ii., p. 204. 
 
 4 As Buckle truly says : "Although the origin of a new opinion may be due to 
 a single man, the result which the new opinion produces will depend on the con- 
 dition of the people among whom it is propagated. If a religion or a philosophy 
 is too much in advance of a nation it can do no present service, but must bide 
 its time until the minds of men are ripe for its reception." — " History of Civili- 
 zation," vol. i., p. 186. 
 
FAILURE OF THE HUSSITES. 5 1 
 
 (or weakness) of Emperor Sigismund, was sent to the stake 
 (1416) for advocating the doctrines of Wicliff, his followers 
 flew to arms under the leadership of one John Zisca, who, though 
 totally blind, proved to be almost a second Hannibal. At the 
 death of Zisca, however, the Hussites fell to pieces ; in less than 
 twenty years after the death of Huss they were suppressed ; and 
 by the middle of the century the movement was practically 
 obliterated. 1 Thus the agitation of Huss in Bohemia only con- 
 tinued during the life of its originators, and died without leaving 
 any lasting impression on the character of the people, while that 
 of Wicliff permeated the whole community to such an extent 
 that, it was said, every third man was a Lollard. Wicliff's Bible 
 created such a desire for reading, especially among the middle 
 classes, that, by the middle of the fifteenth century, the art of 
 printing — which had been waiting a thousand years for a book- 
 reading civilization — became a success, and by its aid the 
 country became ripe for the great religious reformation early in 
 the sixteenth century. Nor can the difference in the fate of this 
 movement in England and Bohemia be attributed to any differ- 
 ence in the quality of the leaders or the tenets of the creeds. 
 Both Wicliff and Huss represented leading universities, and both 
 promulgated essentially the same doctrine. The only differences 
 that existed were in the condition and character of the people. 
 
 The same is true of the Wat Tyler insurrection in 138 1. Un- 
 questionably the " groat-tax " 2 was the immediate cause of the 
 discontent among the peasants, and the killing of the tax-collector 
 by Tyler, for the assault upon his daughter, was the special fact 
 which caused the uprising and put Wat Tyler at its head ; but 
 the reforms that were demanded, and the permanent effect of the 
 movement upon the community, depended upon the character of 
 those who took part in it and were influenced by it. Despite the 
 fact that Tyler was treacherously slain, the other leaders all sub- 
 
 1 " I cannot assign any beneficial results to the schism of the Hussites, at 
 least its immediate results, in the country where it appeared." — Hallam's 
 " Middle Ages," vol. ii., p. 324. 
 
 * A groat is fourpence (eight cents). The groat-tax was a tax of three groats 
 a year levied upon every person in the kingdom, male and female, over fourteen 
 years of age. It was the refusal of Tyler's daughter, under fourteen years of 
 age, that led to the assault, for which Wat Tyler struck the collector dead at a 
 blow. 
 
$2 THE JACQUERIE AND PEASANT WAR. 
 
 sequently hanged, and the declaration of the Lords and Commons 
 in Parliament that they would never concede to the demand — 
 "if it would save them from all perishing together in one day," — 
 the insurgents finally obtained all that they claimed. The poll- 
 tax was never collected, and, we are told, " the English laborer 
 for a century or more became virtually free and constantly 
 prosperous." 1 
 
 If we compare the Insurrection in England with the Jacquerie 
 in France, twenty- three years earlier (1358), or with the Peasant 
 War in Germany, one hundred and forty-four years later (1525), 
 the case is even more striking than that of Huss and Wicliff. In 
 each of these countries the revolt was a spontaneous uprising of 
 the people to demand a reform in their industrial and social con- 
 ditions. There was one important difference, however : the 
 Jacquerie and the Peasant War were preceded by a long period 
 of the direst poverty and galling degradation, while the rising in 
 England was preceded by more than a century of almost con- 
 tinuous prosperity and growing freedom. Nothing is so effective 
 in producing weak character as poverty ; and, for the same 
 reason that empty stomachs make, poor soldiers, empty characters 
 make poor reformers. 
 
 The Jacquerie and Peasant War were desperate outbursts 
 of long pent-up degradation and despair. The struggles of the 
 people were fierce, but their defeat was overwhelming, and they 
 were hurled back into poverty and subjected to a despotism as 
 oppressive as that against which they had rebelled. The English 
 uprising, on the contrary, being the natural outcome of previous 
 material progress, led on to still greater prosperity and a higher 
 civilization, which laid the foundation for the success of the great 
 event of the sixteenth century — the religious revolution known as 
 the Reformation. 
 
 The Reformation was really a social movement. It was the 
 first struggle of the middle class for freedom — of which the new 
 religious doctrines were more the consequence than the cause. 
 Wicliff's first protest was not against the unsoundness of the spir- 
 itual teachings of the Church, but against the social injustice of 
 its temporal exactions, which were declared by Parliament to 
 amount " to five times as much as the taxes levied by the king." 1 
 
 1 Rogers' " Six Centuries of Work and Wages in England," p. 271. 
 'Draper's " Intellectual Development of Europe," pp. 397-434. 
 
SOCIAL ASPECT OF THE REFORMATION. 53 
 
 When he denounced the friars as financial emissaries of the 
 pope, and advocated the heavy taxation of the monasteries, 
 telling the king that " to prohibit the transmission of English 
 money into Roman coffers was not only justifiable but a public 
 duty," he was simply holding up the hands of Edward and hk 
 Parliament against the outrageous demand of the pope for the 
 arrears of tribute — promised in a moment of humiliation by the 
 weak and cowardly King John. His subsequent revolt against 
 the theological dogma of the Church was the natural sequence of 
 this opposition to her temporal usurpations. 
 
 Again, in the sixteenth century, Luther did not raise his first 
 opposition against the doctrines of the Church, but against her 
 unscrupulous methods of extorting tribute from the people. His 
 first public movement (15 17) was the posting upon the doors of 
 the cathedral at Wittenberg of ninety-five objections to the prac- 
 tice of selling indulgences. It was not until he had been repri- 
 manded by the pope, and afterwards ordered to publicly retract 
 his utterances against the traffic, and finally condemned as a 
 heretic, that he challenged the religious doctrines of the Church. 
 Finding himself in a deadly conflict with the papal authority on 
 temporal matters, he became defiant on spiritual matters also, 
 and in 1520 publicly committed the books of the canon law and 
 the bull of excommunication to the flames. 
 
 In England the Reformation came into active existence in a 
 very similar" way. By the first quarter of the sixteenth century 
 the usurpation of temporal power and the extortion of money 
 from the people by the clergy had become a public scandal. In 
 1529 the House of Commons declared, in a formal petition to the 
 king, " that the house of convocation made laws without the 
 consent or knowledge of the people ; that such laws were never 
 published in the English language, and that, nevertheless, men 
 were daily punished under them without ever having had an 
 opportunity to eschew the penalties . . . that poor men were 
 harassed without cause in the spiritual courts for the mere pur- 
 pose of extortion, and exorbitant fees were exacted from them 
 without cause ; and that bishops illegally imprisoned, sometimes 
 for a year or more, persons in their jails without informing them 
 of the cause of their imprisonment or the name of their accuser." 
 In their defence against these charges the bishops declared : " that 
 canon law was superior to the laws of the realm ; that the punish- 
 
54 THE SPREAD OF PROTESTANTISM. 
 
 ment inflicted upon laymen had been for the health of their souls ; 
 and that, generally, saints may claim powers to which common 
 men are not entitled." 
 
 The determination of the Commons to curtail the temporal 
 power of the clergy at this period is shown by the number of 
 laws that were passed for that purpose, among which was the 
 " Clergy Discipline Act." Thus, when it became necessary for 
 Henry VIII. to depose the pope in order to obtain Anne Boleyn, 
 and subsequently to dispossess the clergy of their wealth in order 
 to retain his newly acquired authority over the Church, he was, 
 for social reasons, readily sustained by the Commons and the 
 middle class in his confiscation policy. 
 
 The Reformation was to the middle classes of the sixteenth 
 century what the movements of Wicliff and Wat Tyler were to 
 the peasantry of the fourteenth. It attained higher intellectual 
 and moral results because it was based upon higher material and 
 social conditions. Although Protestantism spread over nearly 
 all Europe, it failed to produce any permanent effect in those 
 countries where the Free Cities had been overthrown and the 
 material progress of the masses had been arrested. Thus, in 
 Spain and Italy, where the Free Cities had been most thoroughly 
 suppressed, the influence of the Reformation was the most 
 fleeting. In the former country it was entirely stamped out in 
 ten years, 1 and in the latter it was suppressed before it could 
 take root among the people. 3 Although its struggle for a foot- 
 hold was longer and fiercer in France, its extinction was hardly 
 less complete. In Germany, where the Free Cities continued to 
 a much later date, its influence, though more general and lasting, 
 did not become permanent. It was only in England and Switzer- 
 land, where the Free Cities were never entirely conquered, that 
 the Reformation became permanently established. 
 
 If we pass from the sixteenth to the seventeenth century we 
 shall find that the march of progress was in accordance with the 
 same general principles. It was the same character, produced 
 by the same general causes, that revolted against the usurpations 
 and oppressions of the Church in 1529, and finally took otf the 
 head of Charles I. in 1649. In short, for the same reason that 
 
 'Buckle's " History of Civilization," vol. ii., p. 19. 
 * Guizot's " History of Civilization," p. 260. 
 
POLITICAL REVOLUTIONS. 55 
 
 the Reformation in the sixteenth century succeeded in estab- 
 lishing the right of private judgment in England — while it failed 
 on the Continent — the political revolution in the seventeenth cen- 
 tury established popular constitutional government in the same 
 country — while it utterly failed in France. 1 To use the eloquent 
 language of Professor Fiske : " The close of the seventeenth cen- 
 tury, which marks the culmination of the Asiaticizing tendency in 
 Europe, saw despotism, both political and religious, firmly estab- 
 lished in France and Spain and Italy and in half of Germany ; 
 while the rest of Germany seemed to have exhausted itself in the 
 attempt to throw off the incubus. But in England this same 
 epoch saw freedom, both political and religious, established on so 
 firm a foundation as never again to be shaken, never again with 
 impunity to be threatened, so long as the language of Locke and 
 Milton and Sydney shall remain a living speech on the lips of 
 men." ' 
 
 It is equally obvious, from the industrial history of the period, 
 that when, from causes elsewhere explained, 3 the material 
 progress of the laboring classes was arrested in the middle of the 
 fifteenth century, their march towards freedom was also arrested. 
 It was only that small portion of laborers who passed into the 
 ranks of the middle or capitalist class in the fifteenth, who went 
 on to freedom in the sixteenth and seventeenth centuries. The 
 history of the Poor-laws, the Act of Settlement, and the Allowance 
 system, clearly show the condition of the masses had not been 
 improved from the middle of the fifteenth to that of the eighteenth 
 century, and also that their liberties were not enhanced by the 
 Reformation, the Commonwealth, or the Revolution of 1688. 4 It 
 
 1 The difference in the condition and character of the English and French 
 Revolutions is clearly presented by Buckle in " History of Civilization," vol. 
 i., chapter x. ; and even Guizot, the French historian, in discussing the Eng- 
 lish Revolution, exclaims : " How came it to pass that this struggle took place 
 in England sooner than anywhere else ? How happened it that the revolution 
 of a political character coincided here with those of a moral character sooner 
 than they did on the Continent ?" — " History of Civilization," p. 270. 
 
 5 "American Political Ideas," p. 119. 
 
 3 See " Wealth and Progress," pp. 132-144. 
 
 4 " The eager spirits who crowded the House of Commons, the mounted yeo- 
 men who rode with Hampden, the men who fought and won Marston Moor, and 
 Naseby, thought no more of the peasant and the workman, had no more care 
 
56 RISE OF THE FACTORY SYSTEM. 
 
 was the commercial prosperity of England, during the first half 
 of the eighteenth century, that made it possible to produce 
 wealth cheaper by machinery than by hand labor. This led to 
 the organization of the factory system, which, during the first 
 quarter of the present century, entirely changed the economic 
 condition of the English laborer, and has since revolutionized 
 the industrial system of all Christendom. The factory system 
 broke up the isolated and non-socializing system of domestic in- 
 dustry, and it brought the laborers into closer and more frequent 
 intercourse with one another, socially as well as industrially. 
 The influence of this upon the wants and habits and consequently 
 upon the material condition of the masses, is shown by the rise 
 of wages during the first twenty years of the present century. 
 During the next twenty years the improved condition of the 
 masses was still more marked, for during that time there was a 
 pronounced fall in prices as well as a distinct rise in money 
 wages. 1 The influence of this material prosperity upon the 
 political freedom of the laboring classes is manifest from the 
 liberal legislation that has followed from 1825 to the present 
 time. Previous to this time industrial legislation, from the 
 " Statute of Laborers " (1350), was directed to keeping down 
 wages and restricting the social opportunities of the masses. Now 
 for the first time in history the power of government was directly 
 exercised on the side of the laboring classes. In 18 19 the first 
 law was enacted restricting the hours that women and children 
 
 for bettering him, than the Irish patriots of 1782 cared for the kernes and 
 cottiers on whose labor they lived. . . . The great Revolution which established 
 the authority of Parliament, put an end to arbitrary power, and relieved the con- 
 sciences of those who could not accord themselves to the worship of the Eng- 
 lish Church, brought no liberty to the peasant and artisan. It stereotyped their 
 servitude. . . . Laborers had ceased to be factors in political action, and 
 were simply ignored for a century or more. . . . All this too was done when the 
 patriots and placemen chattered about liberty and arbitrary administration,, and 
 fine ladies and gentlemen talked about the rights of man." — Thorold Rogers' 
 " Six Centuries of Work and Wages," pp. 432-434. 
 
 1 According to Thorold Rogers, wages from 1800 to 1820 were 55.25 pence 
 per day, while from 1821 to 1840 they were 62.75, and during the former 
 period a given quantity of seven of the chief necessaries of life cost 232. 5 
 shillings, while in the latter they only cost 146.35 shillings. — "Six Centuries 
 of Work and Wages in England," p. 504. Cf. Tooke's " History of Prices," 
 vol. i., pp. 329, 330. 
 
SOCIAL REFORMS, 57 
 
 should be employed in factories. In 1824 the laws, which for 
 nearly five centuries had made it a penal offence for workingmen 
 to organize for the promotion of their own interest, were re- 
 pealed ; as was also the Quarter-Sessions Assessment Act. 1 In 
 1825, 183 1, 1833, 1844, 1847, 1874, and 1882, important laws were 
 enacted reducing the hours of labor, by instalments, from 
 fourteen to nine and a half hours per day ; also providing com- 
 pulsory education for all working children under fourteen years 
 of age ; superior sanitary regulations for all factories and work- 
 shops ; proper protection against dangerous machinery ; making 
 the employer responsible for injury to laborers, etc. Through 
 the constantly increasing influence of the growing intelligence 
 and social character of the laboring classes upon public opinion, 
 the right to vote was extended, in 1832, 1867, and 1884, from the 
 middle to the laboring classes ; the last instalment making the 
 agricultural laborer politically (at least on election day) the equal 
 of the Duke of Westminster. It was during this period also that 
 religious tests for holding government offices were abolished ; 
 that Catholics (1828) and Jews (1845) were admitted to repre- 
 sentation in Parliament and permitted to enter the universities ; 
 that tithes were commuted and church rates were abolished ; that 
 the great Chartist movement 2 was inaugurated ; that the con- 
 spiracy laws were repealed ; that stamps on newspapers were 
 abolished ; and a free press and free speech were established. 
 Thus, in the same way and for the same reason that the civil 
 and religious liberty acquired by the middle classes in the six- 
 
 1 See Rogers' " Work and Wages," p. 438. 
 
 * Macaulay clearly saw the historical error of ascribing our industrial and 
 social progress to our political institutions, and says : "I am perfectly aware of 
 the immense progress which your country has made and is making in population 
 and wealth. I know that the laborer with you has large wages, abundant food, 
 and the means of giving some education to his children. But I see no reason 
 for attributing these things to the policy of Jefferson. . . . You will, I am 
 sure, acknowledge that the progress which you are now making is only a con- 
 tinuation of the progress which you have been making ever since the middle of 
 the seventeenth century. It therefore seems to me quite clear that the facts 
 which you cite to prove the excellence of purely democratic institutions, ought 
 to be ascribed not to those institutions, but to causes which operated in America 
 long before your Declaration of Independence. " — Macaulay's letter on Randall's 
 " Life of Jefferson," Oct. 9, 1858. 
 
58 INDUSTRIAL CONDITIONS OF AMERICA. 
 
 teenth and seventeenth centuries was the fruition of the material 
 progress of the fourteenth and fifteenth centuries, the social, 
 religious, and political freedom obtained by the masses in the 
 nineteenth century is the result of the material prosperity which 
 made the use of steam, the spinning-jenny, the power-loom, and 
 the factory system possible. 
 
 If we pass from Europe to America we shall find that social 
 progress has taken place in the order and in accordance with the 
 same general principle as in England. The most superficial 
 acquaintance with the history of the United States is sufficient to 
 show that our republican institutions are the consequence, and 
 not the cause, of our material prosperity. The Republic was 
 born of the social and intellectual character growing out of a 
 long period of previous industrial prosperity, and this prosperity 
 was due to causes long ante-dating the slightest observable 
 democratic tendency in our political institutions. 
 
 The comparative prosperity which prevailed in the American 
 Colonies for three quarters of a century immediately preceding 
 the Revolution is shown by the fact that wages were most of the 
 time one third higher, and the price of provisions very much lower, 
 here than in England. In describing the industrial condition of 
 the American people during that period, Adam Smith says : 
 " Labor is there so well rewarded, that a numerous family of 
 children, instead of being a burden, is a source of opulence and 
 prosperity to the parents. The labor of each child, before it can 
 leave the house, is computed to be worth a hundred pounds clear 
 gain to them." In 1770 the wages of carpenters, masons, etc., 
 in London (which is always twenty-five to thirty per cent, higher 
 than in the country), were two shillings and six pence a day, 1 
 while at the same date in New York, ship carpenters received 
 " six shillings and six pence sterling, and journeymen tailors two 
 shillings and ten pence sterling " s ; and, adds the same writer, 
 " the price of provisions is everywhere in North America much 
 lower than in England." 
 
 This industrial prosperity made the development of the social 
 and intellectual character of the people inevitable. Consequently 
 
 1 These prices were paid at Greenwich Hospital from 1830 to 1770, and are 
 taken from the records of that institution. 
 
 s Smith's " Wealth of Nations," Book I., chapter viii. , p. 54. 
 
FRENCH AND AMERICAN REVOLUTIONS. 59 
 
 the necessary intelligence and force of character had been created 
 to successfully resist the permanent adoption of the Stamp Act 
 (1765), and it was repealed the next year. The opposition to 
 this measure did not arise from the poverty or hardship it entailed 
 upon the people, but from the injustice of the principle it involved. 
 The same year in which the Stamp Act was repealed in England 
 the " Declaratory Act " was adopted, insisting that the king and 
 Parliament " had the absolute right to make laws binding the 
 colonies and the American people in all things whatsoever." 
 The endeavor to enforce this principle rekindled the flame of 
 resistance in this country and gave rise to the effective cry that 
 "taxation without representation is robbery." This led (1767) 
 to the policy of excluding (boycotting) English goods, — which 
 resulted (1770) in the throwing of tea into Boston Harbor, — and 
 finally culminated (1776) in the Declaration of Independence, a 
 successful revolution, and the establishment of the Republic. 
 Thus, instead of the Revolution being a desperate struggle against 
 industrial degradation, it was a bold, high-minded assertion of 
 political principles, sustained by the superior character conse- 
 quent upon the previous industrial prosperity. This explains 
 the important difference between the character and result of the 
 French and American Revolutions. 
 
 For a century previous to their great Revolution the people of 
 France were in a state of almost indescribable poverty and social 
 degradation, and their struggle was for material existence only. 
 The natural consequence was that they were much more barbar- 
 ous in their methods and the effects were much less beneficial on 
 this account. The American Revolution resulted in establishing 
 the most liberal and democratic republic the world has ever seen, 
 while that of France did little more than exchange one despot 
 for another. Our Republic was not only born of industrial pros- 
 perity, but its success and permanence are due to the same cause. 
 The industrial prosperity of our people during the first seventeen 
 or twenty years of the Republic was phenomenal. By the end of 
 the first decade our exports had risen from nineteen to ninety- 
 four millions of dollars and the revenue had increased from five 
 to thirteen millions. Nor was this prosperity in any sense due 
 to our republican institutions ; it was the result of causes which 
 operated exclusively in Europe. During the first quarter of a 
 
66 GROWTH OF AMERICAN INDUSTRY. 
 
 century after the outbreak of the French Revolution (1789 to 
 1815) events in Europe almost uninterruptedly conspired to pro- 
 mote the industrial prosperity of the young Republic. 
 
 The French, English, Dutch, Spanish, and Portuguese merchant- 
 men were practically driven from the seas by the campaigns of 
 Napoleon. The United States was in an excellent condition to 
 supply vessels to take their places and her neutrality secured her 
 the opportunity. By this means the Republic obtained, for the 
 time being, a practical monopoly of the ocean freight of the world. 
 All that was necessary for the small capitalist of America to do, in 
 order to rapidly acquire wealth, was to obtain a cargo of Ameri- 
 can products at normal prices and sail to the West Indies, or to 
 Europe, under the American flag. For several years Europe was 
 supplied with American produce ; Russia, Sweden, Germany, and 
 even England often availed themselves of the service of the 
 American merchants for" exchange and freight. The effect upon 
 the trade and industry of the Republic may be seen from the fact 
 that, in 1789 the aggregate capacity of American shipping was 
 only 201, 562 tons, while in 1808 it had increased to 1,242,595 tons. 
 
 Another European influence which greatly contributed to the 
 growth of American industry was the discovery of the spinning- 
 jenny and the power-loom (1767-1785), and the inauguration of 
 the factory system in England, which created a great demand for 
 American cotton. 
 
 In 1 79 1, the entire cotton crop of America was only 2,000,000 
 pounds, and by the close of the century the annual product was 
 over 48,000,000 pounds. In 1795, the English consumption of 
 American cotton was 5,000,000 pounds ; in 1820 it was 90,000,000 
 pounds ; in 1840 it was 488,000,000 pounds ; and by i860 it was 
 over 1,100,000,000 pounds a year. This prosperity was the one 
 great fact which saved the Republic from going to pieces under 
 the terrible strain to which it was subjected by foreign wars and 
 internal dissensions during the first years of its history. 
 
 Therefore, instead of attributing our remarkable industrial 
 prosperity and superior civilization to our republican institutions, 
 as is the custom of our statesmen, journalists, and public teachers 
 generally, the truth is that our republican institutions are the 
 natural result of industrial prosperity and consequent superioi 
 conization. 
 
PART II. 
 THE PRINCIPLES OF ECONOMIC PRODUCTION. 
 
CHAPTER I. 
 WEALTH AND THE LAW OF ITS PRODUCTION. 
 Section I. — The Nature and Meaning of Wealth. 
 
 In considering the laws which govern the economic production 
 of wealth, it will be necessary to explain : (i) wealth, (2) produc- 
 tion, (3) the necessary factors in production, (4) the economic 
 importance of these factors, (5) the principle upon which they 
 become active in production. 
 
 Unfortunately the term wealth has no uniformly accepted 
 signification. There is no general agreement, even among the 
 best writers, as to what the word wealth means. John Stuart 
 Mill, after saying, " Every one has a notion sufficiently correct 
 for common purposes of what is meant by wealth," within his first 
 two chapters gives several definitions of wealth, all of which are 
 essentially -different. For example, he says ' : " Every thing 
 forms therefore a part of wealth which has a power of purchas- 
 ing " ; and adds 3 : "In the wealth of mankind nothing is included 
 which does not of itself answer some purpose of utility or 
 pleasure." But many things have " a power of purchasing" 
 which in themselves " answer no purpose of utility or pleasure." 
 A dollar bill, a bank check, a mortgage deed, a trade privilege, 
 etc., in themselves " answer " no " purpose of utility or pleasure," 
 but they constantly have a " power of purchasing." In fact, it is 
 only because they can be exchanged for things that will in them- 
 selves " answer some purpose of utility or pleasure " that any one 
 cares to possess them. Again he says 3 : "It is essential to the 
 \dea of wealth to be susceptible of accumulation." Services are 
 
 1 " Principles of Political Economy," vol. i., p. 24. 
 
 1 Ibid, pp. 24, 25. 3 Ibid., p. 75. 
 
 63 
 
64 CONFUSING DEFINITIONS. 
 
 obviously incapable of being accumulated. The products of 
 labor may be stored up, but not so of labor itself. To-day's 
 service, whether of the highest functionary or of the lowest 
 laborer, must be used to-day or it is lost forever ; hence, accord- 
 ing to this definition, labor cannot be wealth, — although it is 
 about the only "power of purchasing" the masses possess. 
 Again he says ' : " The skill and the energy and perseverance of 
 the artisans of a country are reckoned part of its wealth no less 
 than their tools and machinery." And on the next page he 
 throws this into confusion by saying 2 : " I shall therefore in this 
 treatise, when speaking of wealth, understand by it only what is 
 called material wealth." With such conflicting definitions as these 
 from Mill, it can hardly be a matter of surprise that confusion 
 should pervade the writings of less able thinkers and more 
 careless writers. 
 
 Walker says 3 : " Wealth comprises all articles of value and 
 nothing else." If this definition is correct, then that of Mar- 
 shall, 4 which includes " human faculties, habits — physical, mental, 
 and moral," as wealth, cannot be accepted, because the essential 
 condition of value is exchange, which involves transferableness. 
 Human faculties and habits are inseparable attributes of individ- 
 ual character, and are absolutely non-transferable, and conse- 
 quently cannot have value. We can influence others by our 
 faculties and habits, but we can no more transfer them to another 
 than we can give him the color of our hair. To treat human 
 faculties as wealth is to confound wealth with man. Moral and 
 mental qualities indicate rather what a man is than what he has. 
 To thus confound wealth with man tends to increase the confu- 
 sion, rather than to clarify the conception, of both wealth and its 
 relation to man. 
 
 Such is the confusion on this point that some writers have 
 questioned the wisdom of using the term wealth. Perry actually 
 proposes to expunge it from the economic vocabulary, 6 and 
 recommends as a substitute the word property ; but it is difficult 
 to see in what sense this would be an improvement. It is as 
 necessary to clearly define the meaning of the word property 
 
 ' " Principles of Political Economy," vol. i., p. 75. 
 
 ' Ibid., p. 76. 4 "Economics of Industry," p. 6. 
 
 * "Political Economy," p. 5. 5 "Political Economy," p. 9S. 
 
ATTRIBUTES OF WEALTH. 65 
 
 as it is the term wealth, and all the difficulties which beset the 
 use of the former term would be associated with the latter. 
 "That is property," says Perry, 1 "which can be bought and 
 sold." But would it not be just as easy, simple, and correct to 
 say — that is wealth which can be bought and sold ? Manifestly, 
 nothing would be gained to the science by merely substituting the 
 word property for wealth. 
 
 Popular phrase is always the most direct avenue to the public 
 mind, and hence should never be abandoned except a manifestly 
 greater directness of expression and clearness of thought can be 
 obtained by so doing. Cpmmon language has universally appro- 
 priated the term wealth to convey the idea of something which 
 gratifies human wants. Nor does there appear to be any 
 scientific necessity for employing a new word to express that 
 idea. All that is required for the purposes of correct reasoning 
 and clear statement is, that the term shall be so defined as to ex- 
 press all that is included in the idea, without embracing any thing 
 inconsistent with it. 
 
 If we examine the characteristic attributes of wealth, we shall 
 find that such a definition is not only possible, but entirely feasi- 
 ble. In the first place, wealth is essentially a social phenomenon ; 
 nothing can be wealth which is not subject to, and conditioned 
 by, social influences. In other words, wealth must be something 
 peculiar to man as a social being, as well as a mere animal organ- 
 ism. Therefore, whatever exists as the result of purely cosmic 
 influences, whether chemical, mineral, vegetable, or animal, can- 
 not be wealth until it comes within the pale of social influences. 
 Second, in order to constitute an object wealth, it must possess 
 the capacity of gratifying some human want or desire. In other 
 words, it must possess utility. Third, it must be socially appro- 
 priable ; that is to say, it must be capable of being adapted 
 to the exigencies of social life, and hence must be transferable, — 
 susceptible of exchange. Fourth, in order to possess these 
 qualities, it must have an objective existence ; that is to say, 
 it must be something external to man — a part of his environment. 
 
 Therefore, for an object to be wealth it must be at once social, 
 useful, transferable, and material. There are many things which 
 possess some of these qualities, but lack others, and hence can- 
 
 J " Political Economy," p. 99. 
 
66 HUMAN FACULTIES NOT WEALTH. 
 
 not be classed as wealth. Thus, for example, the sun, air, gravi- 
 tation, and other forces are useful and objective, but they are 
 neither social nor transferable ; that is to say, they are the 
 product of automatic cosmical, instead of social, forces, and 
 hence are equally in the possession of all without effort. Thus 
 they are not only independent of social influences, but they are 
 unappropriable, and consequently incapable of exchange. 
 
 Man's physical and mental faculties, and also his moral quali- 
 ties, are highly useful to himself and to society : they are subject 
 to, and regulated by, social influences, but they have no objective 
 existence, and hence cannot be transferable. They may be 
 higher and better than wealth, but they are not wealth, because 
 they lack one of the essential attributes of wealth. In short, they 
 are attributes of man's character and not the external objects with 
 which he gratifies his wants and desires. 
 
 While this view of wealth excludes the personal qualities which 
 orthodox economists have included — without being able to give 
 a sufficient reason for so doing — it includes other things which 
 they excluded. They have made it " essential to the idea of 
 wealth to be susceptible of accumulation." 1 Hence they have 
 concluded that all the efforts of teachers, ministers, lecturers, 
 singers, actors, showmen, etc., are non-productive s — because 
 what they produce cannot be accumulated ; that is, it cannot be 
 stored up and subsequently enjoyed or exchanged. This has 
 led to that erroneous doctrine of unproductive labor which per- 
 vades so much of English economic literature. It is not neces- 
 sary to constitute an object wealth that it shall be able to main- 
 tain all the attributes of wealth for an extended period. If an 
 object has all the qualities and fills all the functions of wealth at 
 any one time, it is wealth. An object is not precluded from being 
 wealth to-day, because it fails to fill that function to-morrow, or 
 next month, or next year. That is simply a question of degree 
 of durability, and not a question as to wealth per se'. 
 
 The product of the minister, the musician, the lecturer, the 
 actor, etc., in the form of a sermon, song, lecture, or drama, fills 
 
 1 Mill's " Principles of Political Economy," vol. i., chap. iii. 
 
 2 "Wealth of Nations," Book II., chap. iii. Mill's " Principles of Political 
 Economy," vol. i., pp. 77, 78. Marshall's "Economics of Industry," pp. 18, 
 19. 
 
DEFINITION OF WEALTH. 6f 
 
 all the functions of wealth. It is social, because it is entirely the 
 product of human influences. It is useful, because it gratifies 
 human wants and desires. It is transferable, because it is capable 
 of being distributed to an unlimited number of people. It is ob- 
 jective, because it exists entirely in the environment of those who 
 produce it and those who receive it. It is not capable of being 
 redistributed, because it loses all its wealth attributes within a few 
 seconds after its production. But, as before remarked, that is 
 simply a question of duration. The susceptibility to re-distribu- 
 tion is not a necessary quality of wealth, it is only a quality of 
 some kinds of wealth. Therefore we may say that the product 
 of this class is not only wealth, but much of it is vastly more so- 
 cializing and civilizing in its influences than many forms of 
 wealth which are susceptible of redistribution, long duration, and 
 extensive accumulation. 
 
 Wealth, then, must have an objective materiality and possess 
 potential transferable utility — the actualization of which is de- 
 pendent upon social or human forces ; or, to be more specific, 
 the term wealth includes every thing capable of serving human 
 wants and desires, the utility of which is the result of human 
 effort. 
 
 An able critic, to whom this chapter was submitted in manu- 
 script asks : " If a shower of manna fell from Heaven, or an 
 island of coral rose from the sea, or a spring of healing mineral 
 water started from the hill, or the sea washed up a mountain of 
 pearls, would they not be wealth ? " Certainly not, they would 
 possess some of the qualities of wealth, they would have objec- 
 tive materiality and they would be appropriable, but they would 
 possess only potential utility — to actualize which would require 
 the human effort necessary to put them into the possession 
 of those whose wants they would supply. Until utility is 
 actualized, it is as though it did not exist. The vast coal- 
 beds of China are not wealth to the Chinese, and the gold 
 in California and the iron in Pennsylvania was not wealth 
 to the roving Indians. Natural or cosmic forces alone can 
 never produce wealth. The most they ever do is to make the 
 production of wealth by man possible. Therefore, every thing 
 may be regarded as wealth, the utility of which is actualized by 
 human effort. 
 
68 PRODUCTION AND PRODUCERS. 
 
 SECTION II. — Production and Producers — Their Economic 
 
 Meaning. 
 
 The terms production and producers have been scarcely more 
 fortunate in their treatment at the hands of the economists than 
 has wealth. While nearly all writers use them, they seem to take 
 the liberty of expanding or contracting their signification at will. 
 The French physiocrats limited the term production to efforts 
 devoted to the cultivation of land — that is, extracting material 
 commodities from the earth. All efforts devoted to manufacture, 
 transportation, and commerce were regarded by them as unpro- 
 ductive labor. 
 
 Adam Smith vigorously attacked this idea as being too 
 narrow. 1 With great force and clearness he showed that efforts 
 devoted to manufacture, transportation, and all the various 
 phases of trade and commerce are as truly productive as are 
 those applied to agriculture ; but he insisted that armies, navies, 
 courts, and government officials, together with all intellectual and 
 literary efforts, were non-productive and a burden upon "the 
 produce of other men's labor.'" 
 
 Mill, who modernized Adam Smith, extends this definition 
 sufficiently to make it include government officials in the pro- 
 ductive class, on the ground that : " The labor of officers 
 of government in affording the protection which, in some 
 manner or other, is indispensable to the prosperity of industry, 
 must be classed as productive even of material wealth." 3 Be- 
 yond this, however, he adheres to the definition of Adam Smith, 
 and classes all efforts as unproductive that do not produce 
 wealth which can be literally accumulated and inventoried. 
 "All labor," he says, 4 "according to our present definition, must 
 be classed as unproductive which terminates in a permanent 
 benefit, however important, provided that an increase of material 
 products form no part of that benefit. . . . Unproductive 
 may be as useful as productive labor ; it may be more useful 
 even in point of permanent advantage. ... In any case 
 society or mankind grow no richer by it, but poorer." 
 
 To say the least, this definition of production is very con- 
 fusing. For while it recognizes the creation of utility as essential 
 
 1 " Wealth of Nations," Book IV., ch. ix. s Ibid. Book II., ch. iii, 
 
 3 Mill's " Principles of Political Economy," vol. i., p. 76. 
 
 4 Ibid., pp. 77, 78. 
 
NON-PRODUCTIVE LABOR THEORY. 69 
 
 to production, it declares a large class of efforts unproductive 
 which produce the highest kind of utility. The efforts of minis- 
 ters, lecturers, actors, musicians, and their class, not only create 
 utility, but the kind of utility they produce serves a very high 
 order of human desires ; indeed, they are the most effective of 
 all kinds of effort in producing the new wants which form the 
 very basis for the production of material things. If the efforts 
 of government officials are productive because they tend to 
 increase the security of property, and thereby indirectly aid 
 in the gratification of human wants, surely the efforts of the 
 intellectual classes, which directly serve a much higher class of 
 wants, are still more entitled to that designation. 
 
 Moreover, if the philosophers, scientists, and teachers were 
 mere economic parasites on society, and did not increase enjoya- 
 ble utility, the tendency of progress would be to eliminate them 
 from social life. The fact is exactly the reverse. The more 
 society becomes acquainted with the influences which promote 
 the gratification of its desires, the more this class is increased. 
 A definition according to which politicians, soldiers, policemen, 
 and jailers are productive helpers to society, and scientists, 
 philosophers, poets, teachers, ministers, actors, and musicians 
 are unproductive burdens, should carry with it its own con- 
 demnation. To assume that mere parasitic influences increase 
 as the knowledge of the means of gratifying human desires 
 becomes more perfect, is a violation of the fundamental idea 
 of production, and contrary to the whole principle of self-interest 
 underlying all economic movement. 
 
 There are others who, while extending the definition of wealth 
 to the products of those workers whose efforts do not increase 
 the actual quantity of things, limit the term production to those 
 efforts which are put forth for pay. Thus any effort is unpro- 
 ductive, however much utility it may produce, if the product is 
 not offered for sale. "A producer" says Perry, 1 "is any person 
 who gets any thing ready to sell and sells it." " One of my boys," 
 he adds, 2 "is now playing the piano in the parlor. It is effort 
 for him — irksome effort, but as he has no intention to ever sell 
 his skill on that instrument it cannot be called productive effort. 
 It is effort put forth for altogether other than commercial reasons. 
 
 1 " Political Economy," p. 166. * Ibid., p. 167. 
 
70 ALL USEFUL LABOR PRODUCTLVE. 
 
 The effort of his music-teacher, however, who comes here to give 
 him lessons, is productive effort, inasmuch as it is put forth solely 
 with reference to a sale." 
 
 According to this definition, whether a given class of effort is 
 productive or unproductive does not depend upon whether it 
 creates utility, but whether or not it is sold. Thus, if a person 
 raises his own provisions, or makes his own clothes, he is not a 
 producer ; and if an artist paints a picture, or a poet composes a 
 song, or a musician plays Beethoven's Ninth Symphony for his 
 own, or his friend's, instruction without pay, it would be unpro- 
 ductive. But if they charged for it, then it would be productive. 
 
 The estimation in which a doctrine should be held which 
 teaches that those who supply their own wants, or gratuitously 
 help to supply those of others, are non-producers, is obvious. 
 The idea so prevalent in the public mind, and especially among 
 the wage-workers, that middle-men are non-producers, and that 
 interest, profits, and rent are robbery, is a legitimate part of the 
 self-contradictory doctrine of non-productive useful effort. 
 
 If we accept the definition of wealth stated in the last section, 
 we shall see that all efforts are properly productive which directly 
 or indirectly tend to impart to matter any of the attributes, or 
 surround it with any of the conditions, which make it available 
 for human wants and desires. The desires which induce pay for 
 the services of the actor or musician, minister, lecturer, scientist 
 or statesman, are as purely economic as those which make it 
 profitable for the farmer to raise wheat and wool, or the miller 
 and manufacturer to prepare them for final use. It is fallacious 
 to the last degree to assume that, because the results of any 
 intellectual effort cannot be measured by inches or pounds, they 
 are unproductive. 
 
 Much of the plausibility of this popular error arises from 
 viewing the question in its most complex aspect, thus making. the 
 inter-relation of the various efforts more difficult to observe. If 
 we examine the process of production in its simplest stages, we 
 shall soon see that the doctrine of unproductive labor is an 
 attempt to deal with an economic myth. 
 
 For example, let us take the production of flour. In the 
 simplest stages of society we find that man plants and harvests 
 the wheat, grinds it into flour, and eats it all himself. When the 
 
DIFFERENTIATION OF PRODUCTIVE EFFORT. f\ 
 
 process is complete the wheat has filled the function for which it 
 was produced, it has gratified human want. In this case it was 
 produced and consumed by the same person. Clearly, there were 
 no parasites here ; all that was produced belonged to him who 
 produced it. Every thing that was necessary to obtain the bread 
 in this case was a part of its production. 
 
 Let us suppose that man begins to produce flour for his neigh- 
 bor, and the neighbor to produce shoes for him. By this slight 
 degree of specialization of effort, the process becomes a little 
 more involved. It is now necessary for him to take the flour to 
 his neighbor, and for his neighbor to bring the shoes to him. 
 This is clearly as much a part of the production as it was to take 
 it from his own field to his hut. But suppose that another man 
 will agree to devote his whole time to carrying the flour and allow 
 the first man to devote his time exclusively to raising and grind- 
 ing it ; the process will now become still more involved, while it 
 will only cover the same article as before. If the new man 
 receives a portion of the flour for his part of the process, will he 
 be a parasite upon the man who raises and grinds it, or upon the 
 distant consumer who receives it ? Certainly not ! The second 
 man simply does a part of the work that the first man has 
 proviously done, and by this division of labor they are able 
 to produce more. If we follow the process a little further, we 
 find the man who carries the flour devising means to transport it 
 in large quantities — instead of taking it in small quantities to suit 
 the individual consumer ; but in order to make the flour available 
 to individual consumers, he has to divide it into small quantities 
 to suit their convenience. At this juncture a fourth man enters, 
 and volunteers to receive it in bulk, and to deliver it to the con- 
 sumers in convenient quantities to suit their wants. Here the 
 process becomes still more complex, but nothing is added. The 
 fourth man requires a part of the flour for what he does, but this 
 is not an added burden to the man who grows the wheat, or to 
 those who use it, because the only reason he does what the other 
 man formerly did is because he can do it cheaper than the other 
 could. Indeed, the only reason any one is permitted to enter the 
 process at any stage is because it is seen that, by this means, 
 each can obtain more of the aggregate utility for less effort and 
 sacrifice. 
 
72 • CYCLE OF PRODUCTIVE EFFORT. 
 
 If we follow the process until a million men are added, the 
 same will be true in every stage. If, at any time, the added man 
 results in lessening the relative utility which accrues to any of the 
 existing producers, they will return to the previous method of 
 production and do without him. Thus the wholesaler, the drum- 
 mer, the retailer, the shipper, the banker, or broker, all fill a 
 useful function in the process of producing the flour. Until they 
 can do this no one will employ them ; and just as soon as they 
 cease to do it every one is interested in eliminating them. 
 
 Again, as the process increases in complexity, new elements 
 arise. As wealth is produced on a larger scale it is necessarily 
 held in large quantities at the factories, and at the various whole- 
 sale and retail depots on its way to the consumer. With this 
 increased accumulation of commodities the risks of loss, by fire 
 and other causes, necessarily increase. Hence, in order to 
 secure their safe delivery to the consumer (without which the 
 whole process would be void), it is necessary to have policemen 
 to guard them from thieves and incendiaries — another differentia- 
 tion, which involves legislators, courts of justice, lawyers, etc. 
 At last, in order to further protect the aggregate community 
 against dangers of molestation by foreign countries, and for the 
 protection of trade between countries (at least, until the moral 
 quality of the race is more highly developed), an army and navy 
 are necessary — the administration of which makes a general 
 government indispensable. 
 
 Thus we see that not only are ministers, singers, actors, etc., 
 productive factors in the community, but the policemen, lawyers, 
 doctors, judges, soldiers, sailors, and statesmen are also producers. 
 In other words, every thing that promotes the raising of wheat in 
 Dakota, or its safe delivery as flour into the pantry of the con- 
 sumer, or in any way aids in compassing the satisfaction of any 
 other human want — physical, mental, moral, political, esthetic, or 
 religious, — is properly production. 
 
 SECTION III.— The Necessary Factors in Production and 
 Their Relative Economic Efficiency. 
 
 The factors which participate in the production of wealth may 
 be briefly stated as Land, Labor, and Natural Forces. By the 
 first is meant the earth's surface ; the second, human energy ; 
 
FACTORS IN PRODUCTION. 73 
 
 and the third, cosmic forces — including all natural agencies 
 outside of man and land. Land may be regarded as representing 
 passive material, and the other two as the active forces which 
 operate upon it in producing wealth. 
 
 Without the presence of all these factors wealth cannot be 
 obtained. They are equally essential to the simplest and to the 
 most complex methods of production. Land being the passive 
 element, the only factors which actively participate in production 
 are the human and the natural forces. It may be remarked, how- 
 ever, that there are some natural forces — such as the light and 
 heat of the sun, gravitation, atmospheric air, etc. — that are 
 gratuitous, being ever present and ever active, even under 
 the simplest conditions of land-labor. But there are certain 
 other natural forces — such as steam, electricity, coal, wood, iron, 
 etc. — which, as factors in production, are not gratuitous. For 
 instance, steam can only be made to do service in production 
 when it is confined in a boiler and applied to an engine ; and this 
 makes the use of coal, iron, and other materials necessary. This, 
 in turn, cannot be accomplished without a considerable amount 
 of skill and energy having been previously devoted to the con- 
 struction of engine, boilers, etc. The wealth thus employed is 
 distinguished from that which is used for the direct gratification 
 of human wants, and is called capital. 
 
 This brings us to another economic term which has been sub- 
 jected to a great variety of definitions. Capital is generally used 
 to express the means employed in production, but because man's 
 faculties are constantly employed in the production of wealth, 
 some writers have included them in the term capital. Hence we 
 frequently hear such expressions as : " The laborer's skill is his 
 capital." ' It would be difficult to conceive of a more misleading 
 
 1 " Capital may be said to be any thing which a man can trade with or which 
 he can turn to the purposes of profit, or which helps him to gain an income — any 
 property or quality he possesses which enables him to increase his wealth. 
 Thus the tools of an artisan, together with his skill and industry, 
 form his capital ; the education and books and skill of a physician and lawyer 
 are their capital." — Macleod's" Elements of Political Economy," p. 70. " Per- 
 sonal wealth consists of those human energies, faculties, and habits, physical, 
 mental, and moral. . . . Almost all personal wealth is or may be per- 
 sonal capital." — Marshall's "Economics of Industry," pp. 6 and 20. See also 
 "Wealth of Nations," Book II., chap. i. 
 
74 NATURE OF CAPITAL. 
 
 expression. Instead of giving any definite meaning to the term 
 capital, it deprives it of all special significance and makes capital 
 and labor synonymous, hence rendering the discussion of their 
 relation logically impossible. 
 
 It is equally misleading to speak of capital as " stored up labor " 
 — a mode of speech commonly indulged in. Labor is human 
 energy, and, as we have elsewhere shown, 1 can never be stored up 
 in any thing but a human being, and only to a very limited extent 
 there. It is because the laborer cannot store his labor — because 
 he can never sell more than one day's service in a day ; and be- 
 cause, if he does not sell to-day's labor to-day, it is lost forever, 
 that enforced idleness has such terrors for him. Nor can he store 
 up his labor in external objects. When he devotes his energies 
 to producing an article he does not impart his labor to it, but he 
 expends his labor upon it, and as human force it is gone forever. 
 Wealth and capital in every form and under all conditions are 
 something outside of and subservient to man, but can never be a 
 part of him. 
 
 There are two states in which wealth may exist : that of being 
 produced, and that of being consumed. It can also fill two func- 
 tions : that of serving human wants, and that of aiding in produc- 
 tion. Hence wealth may be properly divided into two classes : 
 consumable wealth, and productive wealth. It is the latter kind 
 only which can properly be called capital. 
 
 It is held by some that, as land is a means of producing wealth, 
 it is capital. 2 There is a certain amount of plausibility in this t ; 
 but it should be remembered that land does not necessarily pos- 
 sess any of the qualities of either enjoyable or productive wealth. 
 It is only when labor, or capital and labor, are devoted to it that 
 it can either serve human wants or assist in producing consuma- 
 ble commodities. It is true that, when land has by this means 
 become wealth, it may also become the means of procuring more 
 wealth, and in that sense fill the function of capital'. 
 
 It may be asked, however, if all other wealth becomes capital 
 
 1 "Wealth and Progress," pp. 17, 18. 
 
 3 " By much the largest part of all salable land is nothing more nor less than 
 capital. Capital is some product reserved as a means of further production ; and 
 valuable land is always a product of labor and previous capital and is generally 
 reserved for use in future production and so is capital under the definition." — 
 Perry's " Political Economy," p. 283. 
 
USE OF THE TERM CAPITAL. 75 
 
 by virtue of aiding in production, why is not all productive land 
 capital for the same reason ? Strictly speaking, so far as land di- 
 rectly serves human wants, it is consumable wealth, and so far as 
 it aids in production, it is instrumental wealth, or capital. By 
 making this technical distinction and treating certain kinds of 
 land as capital we should probably add to the confusion, rather 
 than to the clearness, of economic discussion. 
 
 Therefore, — while admitting that it might be technically correct 
 to regard land, under certain conditions, as capital, and the re- 
 turns from it as profits, — for the sake of avoiding any unnecessary 
 confusion, I shall follow the example of Mill ' and use the term 
 capital as expressing all instrumental wealth, outside of land, the 
 returns from which are interest and profit ; and all wealth invested 
 in and inseparable from land will be regarded as land, and the 
 returns from it as rent. 
 
 There is an additional advantage in this use of the term capi- 
 tal in the fact that it is the only wealth, distinct from land, that 
 can be employed in harnessing the reluctant natural forces, such 
 as steam, electricity, etc., to the production of wealth. With 
 this use of the term capital, it will be strictly correct to treat the 
 use of reluctant natural forces in production as synonymous with 
 capital, because they never participate in production except by 
 the use of capital. And, as the substitution of natural for human 
 forces in the productive process is the essential wealth-cheapening 
 feature in economic progress, we shall continue to regard the fac- 
 tors in production as Land, Labor, and Natural Forces (capital). 
 
 Which of these three factors then is the most effective in pro- 
 ducing wealth ? — which of them is capable of contributing the 
 greatest amount of productive force at the least cost ? The hand 
 is the slowest, and, judged by its results, the most expensive 
 instrument that can be used in the production of wealth. Hence 
 we find that, other things being equal, machine-made products 
 are always cheaper than hand-made products, and the difference 
 in their cost is proportionate to the relative difference in which 
 human and natural forces (capital) participated in their pro- 
 duction. How, or upon what principle then, natural forces can 
 be made to save human labor in producing the world's wealth is 
 the question next to be considered. 
 
 1 " Principles of Political Economy," vol. i., p. 526. 
 
y6 NATURAL FORCES SA ^E HUMAN LABOR. 
 
 SECTION IV. — The Principles upon Which Natural Forces 
 Save Human Labor in Production. 
 
 We have seen that human effort is devoted to production upon 
 the principle of obtaining the maximum enjoyable result for the 
 minimum painful effort. Indeed upon no other principle can the 
 net amount of happiness — i. e., the proportion of pleasure to pain 
 in human experience, be permanently increased. While most 
 civilized people would prefer that the condition of the laborer 
 should be easy and pleasant, and his wages high, very few are 
 willing to give a fraction more for their commodities in order to 
 make such things possible. 
 
 That which undersells always supplants that which is under- 
 sold, and just as fast as any product can be undersold will the 
 methods used in its production be driven out of use. Conse- 
 quently the only basis upon which natural forces can supersede 
 human labor as factors in production is that they produce wealth 
 more cheaply. 1 In other words, the use of capital and improved- 
 methods in the production of wealth is ultimately determined by its 
 capacity to yield increasing returns. This brings us to the question 
 of what makes increasing returns possible. 
 
 The fact that wealth can be produced more cheaply by natural 
 forces than by hand labor is recognized by all classes of economic 
 writers. But why the use of natural forces in production is 
 feasible at one time and place and not at another — upon what 
 principle hand labor as a productive force was cheaper than 
 machinery in the ninth century, and machinery became cheaper 
 than hand labor in the nineteenth century, and why machinery 
 will yield increasing returns in America and Europe to-day, 
 
 1 By cheapness and clearness is not meant merely the amount of money that is 
 given for a commodity. An article may be and often is cheaper at one time and 
 place at twenty cents than at five cents at another. Shoes, for example, would 
 be very much dearer at fifty cents a pair in China than at a dollar a pair in Amer- 
 ica. For the simple reason that in order to obtain a pair of shoes at fifty cents 
 the laborer in China would have to give more than a whole week's labor, while 
 the laborer in America would purchase a pair at a dollar with less than one day's 
 work. That is to say, he could give twice as much money for the shoes and still 
 obtain them for less than one sixth of the labor the Chinaman could. Thus a 
 thing is really cheap or dear, not according as it will exchange for a large or small 
 quantity of money, but solely according to the ratio in which it will directly and 
 indirectly exchange for a given quantity of labor. 
 
MISTAKEN PRAISE OF PARSIMONY. J J 
 
 while it fails to do so in Asia and Africa, the current doctrines 
 of political economy fail to explain. Yet this is one of the most 
 important problems which it is the special function of economic 
 science to solve. To make natural forces cheaper than human 
 labor, as a means of production, is to make wealth cheaper than 
 poverty, and civilization cheaper than barbarism. Therefore, to 
 explain how increasing returns, and hence the successful use of 
 machinery, can be made possible, is primarily to solve the prob- 
 lem of economic production. Because reluctant natural forces 
 only aid in producing wealth when they are harnessed to the 
 process by capital, it is assumed that capital is the cause of the 
 successful use of improved methods of production. And because 
 capital is wealth which might have been used for personal gratifi- 
 cation, instead of being devoted to production, it is concluded 
 that it is the result of painful abstinence. 
 
 Adam Smith was never tired of singing the praises of parsi- 
 mony. Indeed, with him, to save wealth was one of the highest 
 virtues ; while to consume it, except in the meagerest manner, 
 was a social vice. He even went so far as to declare ' that 
 prosperous manufacturing villages had become " idle and poor 
 in consequence of a great lord's having taken up his residence in 
 their neighborhood," because of his extravagant consumption. 
 There is probably no one thing that the great Scotchman said 
 which has been more generally accepted than that parsimonious 
 abstinence increases prosperity, and liberal consumption leads to 
 idleness and poverty. 
 
 Mill emphasized and elaborated this idea even more than did 
 Dr. Smith. He regarded capital as the alpha and omega of in- 
 dustrial employment, and abstinence from consumption as the 
 source of capital, and hence the initial cause of prosperity.* This 
 notion is still held by the most modern writers in England and 
 this country. " Capital," says Prof. Walker, " arises solely out of 
 saving. It stands for self-denial and abstinence." It is not 
 difficult to see how this view, which makes capital the immediate, 
 
 1 See " Wealth of Nations," Book II., ch. iii. 
 
 8 ' ' While on the one hand industry is limited by capital " so " on the other hand 
 every increase of capital gives or is capable of giving additional employment to 
 industry, and this without assignable limit." — Mill's " Principles of Political 
 Economy," vol. i., p. 98. 
 
78 NECESSITY OF INCREASING RETURNS. 
 
 and sacrifice and self-denial the initial, cause of prosperity, has 
 given rise to the idea that industrial progress is mainly due to the 
 social martyrdom of the capitalist class, to whom the laborers are 
 under eternal obligation. 
 
 This is truly a most convenient and flattering estimate for the 
 successful classes, especially when they are called upon to face 
 the less fortunate masses in time of adversity. The natural out- 
 come of this is the general disposition to repress, rather than to 
 encourage, any movement towards multiplying the wants and de- 
 sires, — hence, increasing the consumption of wealth among the 
 mass of the people, and " living simply as our fathers did," is 
 commonly held up as the evidence of superior character. 
 
 A doctrine which makes parsimonious simplicity of life a social 
 virtue,' and regards capital as the cause of industrial progress, is 
 an economic inversion no less inimical to the development of the 
 true principles of social economics than is the socialistic doctrine 
 that regards the laborer as the sole producer of wealth and the 
 capitalist as an economic robber. 
 
 A very little examination of the subject will show that, while 
 the use of capital is indispensable to, it is not the cause of, the 
 employment of wealth-cheapening methods in production. On 
 the contrary, capital in its very nature can never be any thing 
 but an economic instrument, the successful use of which has 
 been made possible by previously existing conditions. It is one 
 of the characteristic features of economic production that the 
 superiority of the natural over human forces consists in their 
 capacity to produce a much larger quantity at the same cost, and 
 not in their capacity to produce a small quantity at a less cost. 
 Therefore, if only the traditional quantity of the produce can be 
 utilized (consumed), the new method cannot be successfully em- 
 ployed because it cannot produce that small quantity any cheaper 
 than it can be obtained by existing methods ; and hence fails to 
 yield increasing returns. The first condition, then, necessary to 
 the successful use of natural forces is a sufficiently enlarged 
 market to utilize the increased product resulting from the im- 
 proved methods. 
 
 No amount of increase in the use of capital, then, can cheapen 
 wealth and add to the well-being of the community unless it is 
 accompanied by a larger demand for commodities — an increased 
 
NOT THE RESULT OF ABSTINENCE. Jg 
 
 consumption of wealth by the people. Thus, instead of parsi- 
 mony, on the part of the great body of consumers, promoting the 
 use of capital in production and the growth of industrial pros- 
 perity in the community, it tends to prevent it. 
 
 Nor is the claim that capital is created by self-sacrifice any 
 more correct. It is true that capital consists of wealth which 
 might have been consumed by its owner for personal gratification. 
 Capital may be, and doubtless is sometimes, the result of painful 
 abstinence, but the painful abstinence is always exercised upon 
 the same principle, and from the same motive, that painful effort 
 is exerted — namely, that a still more painful desire may be grati- 
 fied ; in other words, that a greater amount of pleasurable grati- 
 fication may ultimately be derived from the investment of wealth 
 in productive enterprise than would be obtained from its imme- 
 diate consumption. It is therefore no more correct to say that 
 capital is the result of abstinence than it is to call labor philan- 
 thropy. Abstinence — which represents painful self-denial — is 
 undertaken for the identical reason that labor — painful effort — is 
 expended. The object of both is to obtain more in gratification 
 than they give in sacrifice. But even this only applies to capital 
 in its most primitive stages. It is more than probable that not 
 one per cent, of the world's present capital is the result of any 
 such personal abstinence. 
 
 While original investments are savings and perhaps the result of 
 some self-denial, they are always undertaken in the belief that subse- 
 quent capital will be the automatic product of the first, and will come 
 without any personal self-denial. It is not true, then, in any real 
 sense, to say that capital is created by self-sacrifice, as, even in 
 its abstinence stage, it is simply the result of enduring a small 
 amount of pain in order to obtain a large amount of pleasure, 
 which is the purest self-interest and has no element of real sacri- 
 fice in it. 
 
 Moreover, as the capital-creating abstinence is always based 
 upon the hope of future gains, it will only be undertaken in pro- 
 portion to the probability of its successful investment ; and its 
 successful investment in production depends upon the possibility 
 of its yielding increasing returns ; this in turn depends upon the 
 extent of the market, or the increased consuming capacity of the 
 community. Thus it is that neither the creation nor the success- 
 
80 CAPITAL THE EFFECT OF PROGRESS. 
 
 ful use of capital is promoted by parsimonious social simplicity, 
 but, on the contrary, they both primarily depend upon advancing 
 social complexity. Capital is the effect, rather than the cause, 
 of social progress, and instead of the masses being indebted to 
 the employing class for their prosperity, it is the social progress 
 of the community which has made the existence and success of 
 the capitalist possible. 
 
 It is a universal fact in history that where the social life is the 
 simplest, the wants the fewest, and the consumption of wealth per 
 capita the smallest, the use of capital in production is the least. 
 
 Thus the real reason why there are practically no capitalists 
 among the Esquimaux and Patagonians — and very few in India 
 and China — is because there is no economic use for them ; and 
 there is no use for them because, as a factor in production, 
 human labor is cheaper there than natural forces. The wants, 
 social habits, and demands of the masses, are too simple in those 
 countries to furnish a market for a sufficiently increased quantity 
 of wealth to make increasing returns possible, and the use of 
 capital profitable. 
 
 SECTION V. — Social Consumption the Basis of Economic 
 
 Production. 
 
 We are now in a position to affirm the seemingly paradoxical 
 propositions : that consumption is the immediate cause of, and 
 regulating influence in, production ; that, not only the quantity 
 and quality of wealth produced, but also the methods employed, 
 the cost of its production, and consequently its price to the con- 
 sumer, are finally determined by consumption ; and that wealth 
 becomes cheap as man becomes dear. 
 
 Nor is the reason difficult to understand, if we constantly view 
 man and his wants as the source and end of economic move- 
 ment. When we fully recognize that the progress of society 
 consists in the differentiation of man's social relations, and that 
 every differentiation in the social polity is simply an effort to 
 better adapt his social environment to the more complete gratifi- 
 cation of his wants, much of the difficulty surrounding the sub- 
 ject of economic production has been overcome. This being 
 true, it follows that the amount and direction of man's effort is 
 finally governed by his wants. Therefore the quantity and qual- 
 
CONSUMPTION THE CAUSE OF PRODUCTION. 8 1 
 
 ity of wealth permanently produced at any given time under 
 normal conditions will ultimately be determined by the effectual 
 desires and wants of the community. 
 
 As elsewhere explained, 1 the difference between effectual and 
 ineffectual desires is the difference in their power to induce 
 the necessary effort for their gratification. Thus, desires become 
 economically effectual just in proportion as they grow in inten- 
 sity and their non-gratification inflicts more pain than is involved 
 in the labor necessary to satisfy them. This explains why we 
 see in some individuals, classes, and countries, a willingness to 
 put forth great effort, and take great risk, in order to obtain 
 things which others, while they might gladly receive, would do 
 practically nothing to obtain. 
 
 How, it may be asked, is this relation between desire and effort, 
 consumption and production, to be ascertained ? How, for in- 
 stance, do the producers know when the desires — or wants — of 
 the consumers have reached the economic — or effectual — degree 
 of intensity ? The answer is : by the willingness of the consumer 
 to give the necessary effort, or its equivalent, to procure the satis- 
 faction of his wants. 
 
 For the same reason that economic wants, or demands, can 
 only be recognized by the willingness to exert the necessary 
 amount of effort for their gratification, to-morrow's effectual 
 demands can only be estimated by the knowledge of to-day's con- 
 sumption. If more of a given kind of wealth is wanted to-day 
 than was produced, and this want is accompanied by a willing- 
 ness to give the necessary effort, or its equivalent, to produce it, a 
 greater quantity of the commodity will be produced to-morrow. 
 And conversely, if more of a particular commodity is produced 
 to-day than is effectually demanded, it will not all be consumed ; 
 and in proportion as yesterday's production exceeds to-day's 
 consumption, will to-morrow's production be limited. Although 
 desire is the initial cause of production, its effective intensity 
 and extent are economically measured by and registered in actual 
 consumption. Consumption being the only economic measure 
 of want, it is the real basis and final regulator of production. 
 Simple as this truth is, it is far from being generally understood ; 
 indeed, the reverse view is commonly held. Because wealth 
 
 1 Part I., ch. iii., p. 23. 
 
82 PHYSICAL AND SOCIAL WANTS. 
 
 cannot be consumed until it is produced, it is contended that 
 consumption must be determined by production. It is of course 
 true that we cannot consume unless we produce, but it does not 
 follow, on that account, that production sustains the causal 
 relation to consumption. Although we must produce before we 
 consume, we do not consume because we produce ; but we 
 always produce because we consume, or that we may consume. 
 Chronologically, production precedes consumption, but eco- 
 nomically consumption precedes production and is the cause 
 of it. 
 
 If bows and arrows, tomahawks, spinning-wheels, or hand- 
 looms were extensively manufactured in this country to-day, that 
 would not cause them to come into general use again, nor would 
 it have the slightest influence in that direction. Whenever a 
 commodity is produced in advance of the effectual desire for it, 
 loss, and perhaps bankruptcy, is the result. Were this otherwise, 
 industrial depressions would be impossible, because an accumu- 
 lation of products, or what is called over-production, could not 
 occur. The mere fact of the goods being produced would, in 
 that case, be a sufficient cause to create an effectual demand for 
 them, and this, everybody knows, is not the case. 
 
 In order fully to understand the economic influence of con- 
 sumption upon production, it is necessary to consider the subject 
 in its qualitative as well as its quantitative aspect. The con- 
 sumption, or effectual demand, is determined, as we have seen, 
 by the established wants of the community. These wants are of 
 two kinds — physical and social. The former are mainly inherent, 
 and comprise those wants which relate to physical sustenance, 
 such as food, clothing, and shelter. Social wants are mainly 
 acquired, and comprise the tastes and desires that arise from the 
 quickening influences of social intercourse ; these are luxuries at 
 first, but by frequent repetition finally become necessities of 
 social life. These two classes of wants have distinctive charac- 
 teristics, are increased by different influences, and have an 
 entirely different effect upon production. 
 
 Physical wants alone, of which food comprises the major part, 
 cannot be increased in each individual to any considerable ex- 
 tent. The stomach of the savage will consume as much as that 
 of civilized man ; hence the effectual demand, through this class 
 
IMPORTANCE OF SOCIAL WANTS. 83 
 
 of wants, can only increase in about the same ratio as the popu- 
 lation. Moreover, these wants are mainly supplied by agri- 
 cultural products which involve isolating and non-socializing 
 occupations. 
 
 Now an increase of consumption arising from a mere increase 
 of population whose wants are only physical does not call for im- 
 proved methods of production. Each new man can produce 
 physical supplies enough for himself, and if improved methods 
 were introduced for such supplies, it would only throw a large 
 number of men out of work permanently, and thus by increasing 
 idleness — the worst of social evils — and contracting consumption 
 neutralize all the advantage of labor-saving contrivances. With 
 the successful use of improved methods of production there must 
 always go conditions which tend to create new employments, 
 supplying things which man's physical needs do not demand. 
 And in supplying these, men, discharged from old employments 
 by improved methods, find work useful to the community. Then 
 natural forces are profitably employed because there is a market 
 for the increase of products resulting from their use. In other 
 words natural forces cannot be profitably employed in production 
 except when the market for their products increases faster than 
 the population, i.e., increases per capita of the population. And 
 this can never occur to any appreciable extent by an increase of 
 physical wants. 
 
 Social wants are essentially different in all their characteristics. 
 They are the result of social, rather than cosmic, influences. 
 They can be increased indefinitely in each individual, and can 
 consequently be multiplied much faster than the population. 
 They also furnish the demand for distinctively manufactured 
 products, and so necessitate concentrated and socializing 
 occupations. 
 
 These features tend to promote the use of natural forces in 
 several ways. Every addition to the number of social wants in- 
 creases the quantity, and often the variety, of commodities each 
 individual consumes. This necessarily increases the demand for 
 products faster than the number of laborers, and with the growth 
 of this demand the difficulty of supplying it is increased in two 
 ways. (1) Just as the number of wants in each individual in- 
 creases, the possibility of supplying them by hand-labor dimin- 
 
84 DEMOCRACY OF NATURAL LAW. 
 
 ishes. (2) In proportion as the consumption of wealth by the 
 laborer increases, the cost of his living, and consequently that of 
 his labor, is correspondingly raised and the price of the product 
 advanced. Since an attempt to supply the increased social wants 
 by existing methods involves a corresponding increase of irksome 
 labor, it neutralizes the advantage derived from the satisfaction 
 of the new desires. Obviously, in this case, the new wants will 
 be abandoned unless they can be supplied cheaper, i.e., with less 
 labor, and this can only be accomplished by making natural 
 forces do a portion of the work. 
 
 When this point is reached all the conditions for utilizing im- 
 proved methods are present. The new wants not only enlarge 
 the established demand, but they create a market for a greater 
 variety of products, the manufacture of which creates employ- 
 ment for the laborers who have been discharged by the improved 
 methods. 
 
 Thus it is that, when wants multiply more rapidly than laborers 
 increase in number, labor-saving methods do not create enforced 
 idleness, as in the case of purely physical wants, because the same 
 influences which compel them to discharge laborers in one 
 industry create new employments for them in another. By this 
 means the cost of producing each article is diminished and the 
 price to the consumer is thereby lowered, so that, when the de- 
 mand for commodities is increased by the multiplication of social 
 wants, it not only makes the use of improved methods necessary, 
 but it also introduces new employment-creating conditions which 
 make them economically possible. Manifestly, therefore, natural 
 forces become cheaper than human labor, only when the demand 
 for commodities is enlarged by an increase in the social, rather 
 than in the physical, wants of the people. 
 
 It is not enough, however, that this increase of social wants 
 take place in a small class ; to be effective it must be general. 
 Nature is very democratic — she will not work cheaply for the few. 
 Steam and electricity can only be harnessed to production when 
 their services are required to satisfy the numerous social wants, 
 per capita, of large numbers of people ; consequently, the social 
 consumption of the most opulent aristocracy is as impotent to 
 furnish profitable employment for steam-driven machinery as is 
 the meagre fare of a servile peasantry. Nor is the reason for 
 
NEW WANTS MAKE NEW MARKETS. 8$ 
 
 this difficult to understand if we remember that capital can only 
 be economically employed when it is cheaper than labor as a 
 productive force. There are but two ways in which this can be 
 brought about — either by reducing the cost of employing capital 
 or by increasing the cost of employing labor. The cost of 
 using capital can only be diminished by increasing the market 
 for its products, in order that it may produce on a large scale. 
 The cost of using labor can only be increased by enlarging the 
 consumption and raising the wages of the laborer. Neither of 
 these conditions can be furnished by an increase in the consump- 
 tion of a small non-laboring class. An increase in the wants of 
 such a class, though relatively very great, could not furnish a 
 sufficiently extensive market to sustain the production of any 
 commodity by factory methods ; and it could exercise no in- 
 fluence in advancing wages, because the increased consumption 
 does not enter into the life, and therefore affect the price, of the 
 laborer. The chief economy in the use of capital being in the 
 extent of its ability to save labor, the lower the wages the smaller 
 the chances of its success — because the cheaper the man the less 
 there is to be gained by saving his labor ; — consequently the 
 necessarily limited market that the wants of a small class could 
 supply would not guarantee a sufficient prospect of increasing 
 returns, to warrant the investment of capital required for the 
 adoption of steam-driven machinery. 
 
 An increase in the social wants, and consequent consumption 
 of wealth by the laboring classes, would furnish both of the 
 essential conditions referred to. (1) Because they are so numer- 
 ous that a slight increase in their consumption, per capita, would 
 be an immense addition to the market, and at once warrant the 
 production of commodities on an increasingly large scale. (2) 
 Because the enlarged market, being due to the increased con- 
 sumption by the laborers, raises the price of their labor, and 
 consequently that of the commodities they produce — thereby 
 making the use of labor-saving methods indispensable in order 
 to keep these commodities salable. Every fall in prices from 
 such causes extends the market still further, by putting the 
 products within the reach of a larger class of consumers. There- 
 fore, the truly civilizing consumption is that which results from 
 the increased social wants of the masses ; for, by simultaneously 
 
86 HIGH WAGES MEAN LOW PRICES. 
 
 increasing wages and reducing prices, it both raises man to 
 the appropriation of wealth, and places wealth within the reach 
 of man. 
 
 A clear understanding of this principle will enable us to 
 explain why the upper classes in ancient civilizations, with all 
 their pomp, ostentation and almost profligate consumption of 
 wealth, could not employ machinery ; why men were cheaper 
 than machinery in the ninth century, as factors in production ; 
 and why machinery is so much cheaper than men in the nineteenth. 
 We find to-day, the world over, that the use of steam-driven 
 machinery is the most general, wealth is the most abundant, and 
 social development and political freedom the most advanced, 
 where the social wants of the masses are the most numerous and 
 the general rate of wages is the highest. 
 
 In the light of this law we are also able to comprehend why, in 
 the evolution of society, such great advances were made in phi- 
 losophy and the fine arts before any of the simpler, though 
 equally important, mechanical contrivances — i.e., the use of 
 steam, electricity, etc. — were discovered. We can understand, 
 for instance, why men could learn the courses of the stars and 
 the revolutions of the planets before they knew how to make 
 a good wagon-wheel ; why they could build a Chinese wall, or 
 an Egyptian pyramid, before they could make a common plough ; 
 why they could construct the Parthenon and the Colosseum 
 before they knew enough to build a saw-mill, use movable types, 
 or invent sewing-machines. 
 
 The fact that the ancients excelled in sculpture, painting, 
 music, etc., while we are devoted to producing common conven- 
 iences and the decencies of every-day life, is frequently alluded 
 to as evidence that ancient civilizations were superior to our own. 
 This is a great mistake, the character of a civilization is not in- 
 dicated by the individual accomplishment of a few, but by the 
 social condition of the great mass of the people. The error of 
 considering the earlier civilizations as superior to the present is 
 mainly due to the failure to recognize the difference in the 
 economic and social influences which determine the success of 
 various discoveries, inventions, or attainments. 
 
 These achievements may be divided into two classes. One in- 
 cludes all those which can be accomplished by hand labor, and 
 
TWO KINDS OF DISCOVERIES. Sy 
 
 whose utility does not consist in their capacity to cheapen wealth, 
 or their success depend upon the extent of appreciation among 
 the common people. The other embraces those acquisitions 
 whose utility consists in their ability to economize labor, and 
 whose success depends upon the extent to which their results are 
 consumed by the masses. For example, the discoveries of Euclid 
 and Archimedes in mathematics ; those of Hipparchus, Al Ba- 
 tain, Copernicus, Kepler, Galileo, and Newton in astronomy ; the 
 accomplishments of Phidias, Scopas, Niccolo, and Ghiberti in 
 sculpture ; those of Leonardo da Vinci, Michael Angelo, and 
 Raphael in painting ; and in poetry, oratory, and the drama, the 
 efforts of Homer, Cicero, and Shakespeare, were almost exclu- 
 sively the result of the individual genius producing them. The 
 success or failure of their undertakings did not depend, in any 
 appreciable degree, upon the material and social condition of the 
 common people ; all they required in that direction was the 
 patronage of a king, a pope, or a very limited aristocracy. 
 
 With the mechanical contrivances of the eighteenth and nine- 
 teenth centuries, which have revolutionized the social condition 
 of the civilized world, this has not been the case. The utility of 
 movable types, of the printing-press, the spinning-jenny and 
 the power-loom, the railroad, the telegraph, and the thousand 
 other modern labor-saving contrivances, has consisted in the 
 extent of their capacity to save human labor in its efforts to pro- 
 cure the necessities and conveniences of social life ; and the 
 success of these contrivances has entirely depended upon the 
 extent to which their results have been demanded by the masses. 
 If books had not been more generally read in the sixteenth, 
 seventeenth, and eighteenth centuries than in the sixth, seventh, 
 and eighth, Gutenberg's invention of the art of printing, in 1440, 
 would have been as useless as it was when discovered in China 
 two thousand years before. Upon the same principle that to set 
 up and print a single copy of the " Wealth of Nations " to-day 
 would cost $1,000 (while if fifty thousand were printed they 
 could be sold at $1.00 each), the small number of books that 
 were then demanded could be copied cheaper by hand than they 
 could have been printed ; but when the masses began to use 
 books, printing became cheaper than copying. 
 
 So long as the consumption of cotton and woollen cloth, silks, 
 
88 CAUSE OF SOCIAL DECAY. 
 
 laces, and carpets, and the multitude of various commodities 
 produced from wood, tin, iron, brass, silver, gold, etc., was con- 
 fined to the aristocracy, the small quantity required could be 
 produced by hand-labor cheaper than by steam-power ; but when 
 the millions began to use these things, the factory became cheaper 
 than hand labor. 
 
 If travel and transportation were limited to the upper classes, 
 the discoveries of Stephenson and Fulton would be as useless to 
 mankind as a machine to send water down hill. If none but 
 millionaires patronized the steam-cars in New York City, it would 
 cost more to ride on the elevated railroad than in a private car- 
 riage ; but now that five hundred thousand people use it daily, 
 every one can ride on it for a little over half a cent a mile. 
 
 This is why an emperor of China could build a thirteen-hun- 
 dred-mile wall, while he could not ride on a railroad. Rome 
 could build the aqueducts, but she could not carry a newspaper 
 three thousand miles for a cent. Euclid could develop the 
 science of geometry, and Michael Angelo could paint the " Last 
 Judgment," but they could not make steel pens or parlor matches. 
 Copernicus and Kepler could discover the course of the planets, 
 and Newton the law of gravitation, but they could not make a 
 type-writer, or publish a daily paper for one cent a copy. 
 
 Had the ruling classes used their power as much to develop the 
 social wants and character of the masses as they did to repress 
 them, so that the printing-press and factory would have preceded 
 the Pyramids and the Colosseum, those monuments of human 
 slavery could never have been erected ; and the increased social 
 susceptibility of the common people to the elevating influences of 
 art, poetry, learning, and philosophy, might, and probably would, 
 have saved those, so-called, civilizations from premature decay, 
 and enabled the human race to avoid that historic nightmare, the 
 " Dark Ages," by sustaining a continuous, progressive civilization. 
 
 The more thoroughly we investigate the history of the industrial 
 development of society, the more completely is the truth of the 
 conclusions arrived at in the preceding pages of this chapter 
 established. These may be briefly summarized as follows : 
 
 (i) That all wealth is produced for the gratification of human 
 wants. 
 
 (2) That the active factors in production are, human forces 
 
LAW OF PRODUCTION SUMMARIZED. 89 
 
 and natural forces ; the former being represented by labor, and 
 the latter by capital. 
 
 (3) That the cost of production, and consequently the price of 
 commodities, diminishes in proportion as natural forces prepon- 
 derate over human forces in the process of production. 
 
 (4) That labor-saving appliances can only be successfully 
 employed in production when they yield increasing returns to 
 the capital invested. 
 
 (5) That capital will only yield increasing returns when it can 
 be employed cheaper than labor. 
 
 (6) That labor-saving appliances can only become cheaper than 
 hand labor when they can produce in large quantities. 
 
 (7) That the possibility of producing on a large scale depends 
 entirely upon the market being extended more rapidly than labor- 
 ers increase in number — i.e., an increase in the consumption of 
 wealth, per capita, of the population. 
 
 (8) That such an extension of the market can only result from 
 an increase in the social wants of the masses, which under modern 
 conditions is synonymous with a rise in the general rate of wages. 
 
 It may therefore be laid down, as a universal principle in social 
 economics, that the labor-saving and wealth-cheapening capacity 
 of natural forces can only be utilized as the social consumption 
 of the laboring classes is increased. In other words, things can 
 be cheapened only as man becomes dear ; and to increase the in- 
 fluences which develop the social wants and raise the wages of the 
 laborer is to make wealth cheaper than poverty, and civilization 
 cheaper than barbarism. 
 
CHAPTER II. 
 ECONOMIC VALUE. 
 
 SECTION I. — Definition of Value. 
 
 It is doubtful if there is a term in the vocabulary of economics 
 about which there is such a lack of clear understanding as the 
 word value. In popular phrase it has often a very elastic signifi- 
 cation. It is sometimes used to indicate that which we give for 
 things ; and it is quite frequently employed without any relation 
 to exchange — as if it represented some inherent quality residing 
 in the thing itself without regard to its relation to other things. 
 For instance, we often hear such expressions as the value of pure 
 air ; the value of sunlight ; the value of genius, of virtue, of re- 
 ligion, of esthetics, of culture, etc. To give the word such a 
 broad meaning is to deprive it of all specific significance as a 
 scientific term. 
 
 Although the necessity of avoiding this loose metamorphical use 
 of the word has been generally recognized by leading economists, 
 they have continued to employ it with such a variety of import as 
 to leave its real meaning scarcely less obscure. 
 
 In almost every treatise on this subject we find such expres- 
 sions as : natural value ; market value ; use value ; exchange value, 
 etc. Very frequently the effect of this indefinite use of the word 
 is to confound value with wealth. Much of this confusion has its 
 rise in that often quoted statement of Adam Smith in which he 
 says : " The word value, it is to be observed, has two different 
 meanings, and sometimes expresses the utility of some particular 
 object, and sometimes the power of purchasing other goods which 
 the possession of that object conveys. The one may be called 
 value in use, and the other, value in exchange. The things which 
 
 90 
 
RELATION OF UTILITY TO VALUE. 9 1 
 
 have the greatest value in use frequently have little or no value in 
 exchange ; and, on the contrary, those which have the greatest 
 value in exchange have frequently little or no value in use." ! It 
 would be difficult to find a statement that is more misleading, or 
 one which has been more generally accepted than this. To use 
 the word value to " express the utility of a particular object " is 
 entirely incorrect. 
 
 Dr. Smith, or his disciples, would probably tell us that this is 
 value in use. Such an expression is a misnomer. A thing may 
 be important, or even indispensable in use — as in the case of the 
 air and the sun, — but it cannot possibly be valuable in use. What 
 is really referred to here is utility and not value. The difference 
 between utility and value is fundamental : the former is the qual- 
 ity of a thing ; while the latter is the relation, or proportion, 
 between things. Such a view confounds the ratio of exchange 
 with the cause of the exchange, and is fatal to any clear reason- 
 ing on the subject. 
 
 There is no scientific reason for using the word value to express 
 utility under any circumstances ; or for accompanying it with 
 qualifying expressions to indicate the kind of value. There are 
 no kinds of value. The term should never be used to express 
 qualities, but only the exchange relation of quantities. With this 
 definition both terms assume a distinctive meaning and one which 
 their use will always convey without qualification. Utility then, 
 in economic science, always means the quality of a thing which 
 makes it desirable, and for which something will be voluntarily 
 given in exchange ; and value simply expresses the ratio in which 
 the things are exchanged. 2 
 
 In order to avoid any misuse of the term value, as here denned, 
 it should ever be remembered that it is purely an economic phrase, 
 and relates exclusively to social phenomena. There can no more 
 
 1 " Wealth of Nations," Book I., ch. iv., p. 21. 
 
 2 Value in exchange expresses nothing but a ratio, and the term should not be used 
 in any other sense. To speak simply of the value of an ounce of gold is as absurd 
 as to speak of a ratio of the number seventeen. What is the ratio of the number 
 seventeen? The question admits of no answer, for there must be another num- 
 ber named in order to make a ratio ; and the ratio will differ according to the 
 number suggested. What is the value of iron compared with that of gold ? is an 
 intelligible question. The answer consists in stating the ratio of the quantities 
 exchanged." — Stanley Jevons' " Theory of Political Economy," p. 84. 
 
92 DEFINITION OF VALUE. 
 
 be value without society than there can be ratio with a single 
 thing ; the very idea implies a contradiction in terms. Value not 
 only expresses the ratio of exchange but the ratio of economic 
 exchange. An economic exchange must be mutually advanta- 
 geous ; hence it must be an equitable exchange in which each gives 
 an equivalent for what he gets. Exchanges in which one gains only 
 by another's loss are highly uneconomic, inequitable, and so- 
 cially injurious, and tend to extinguish themselves by the injury 
 which they inflict. Economic value is indicated only by exchange 
 relations which tend to perpetuate themselves by promoting gen- 
 eral industrial and social well-being. I shall define value, there- 
 fore, as the ratio in which different quantities of the various kinds 
 of wealth and service will exchange as economic equivalents. 
 
 In order that any object, or service, may have value according 
 to this definition, it must be capable of being exchanged, and of 
 satisfying the motives for exchange. To do this three conditions 
 are necessary, (i) It must have utility ; it must have the capacity 
 to serve some human purpose, or no one would care to possess it. 
 (2) Its utility must depend upon human effort ; if it were gratui- 
 tously supplied by nature, all could have it free, and however 
 useful or desirable an object may be no one will give any thing in 
 exchange for it if they can obtain it for nothing. (3) It must be 
 transferable ; no matter how useful an article may be, or how diffi- 
 cult to obtain, or how much labor may be devoted to its produc- 
 tion, unless it can be transferred it is incapable of being exchanged, 
 and no one will give any thing for that which they can never pos- 
 sess. When these conditions are all present at once, profitable 
 exchange, and therefore economic value, becomes possible. 
 
 SECTION II. — The Relation of Value and Price. 
 
 John Stuart Mill considers that a clear understanding of eco- 
 nomic principles requires that a discrimination be made between 
 value and price. The former he defines as the ratio in which 
 commodities will exchange for one another ; the latter, that in 
 which they will exchange for money. 1 In order to maintain this 
 distinction he adds to the already confusingly numerous kinds of 
 value, the phrase, " money-value," which has been accepted by all 
 
 1 " Principles of Political Economy," vol. i., p. 538. 
 
VALUE AND PRICE IDENTICAL. 93 
 
 leading writers since his time. 1 This expression, however, like 
 Adam Smith's " value-in-use," and Ricardo's " natural-value," 
 tends to befog rather than to clarify the subject. 
 
 A little consideration will show that there is no more scientific 
 necessity for saying money-value than there is for saying wheat- 
 value, potato-value, cloth-value, or mutton-value. If the word 
 price were used in these cases it would convey precisely the same 
 meaning. Price, like value, expresses the ratio of exchange and 
 nothing else. Whether the exchange is commodities for com- 
 modities, services for services, services for commodities, com. 
 modities for money, or money for labor, makes no real differ- 
 ence. The proportion in which either exchanges for the other 
 indicates the value of each ; and equally so is the price of a thing 
 indicated by that which is given for it. Indeed, we have the ex- 
 plicit authority of Mill himself for saying that " when goods are 
 exchanged for money they are the price of the money, just as 
 much as the money is the price of the goods." 2 
 
 Obviously, then, the distinction between value and price is as 
 unnecessary as the use of exchange-value and natural-value is mis- 
 leading. Even admitting that price expresses only the ratio in 
 which things or services exchange for money, since all exchanges 
 are now constructed in terms of money, price and value are eco- 
 nomically equivalent terms. 
 
 The distinction between price and wages, however, is somewhat 
 different. Popular phrase has always expressed the value of com- 
 modities and services in different terms ; value or price having 
 been used in the case of commodities and wages in the case 
 of labor. Although there may be no real technical necessity for 
 making this discrimination, its adoption does not lessen the clear- 
 ness of statement, and its abolition would tend to confuse, rather 
 than to clarify, the mind of the student. If it could be shown 
 that, in the strictest sense, price, value, and wages all have the 
 same meaning, it would certainly be a matter of doubtful ex- 
 pediency to attempt to employ them as interchangeable terms. 
 For while it might not be especially inconvenient to call wages 
 the value, or price, of labor, it would be decidedly novel, and not 
 
 1 " I have used the word price as signifying the money-value of goods." — 
 Walker's "Political Economy," p. 135. 
 
 ' " Principles of Political Economy," Vol. II., Book III., ch. viii., sec. 2. 
 
94 MISLEADING USE OF TERMS. 
 
 a little misleading, to speak of the wages of potatoes, pumpkins, 
 or pine-apples. 
 
 The unnecessary distinction between value and price has not 
 been limited to mere nomenclature, but it has been carried to the 
 actual sphere of economic movement. 
 
 The accepted expounders of political economy emphatically 
 deny the possibility of a general rise or fall of values, declaring 
 it to be " a contradiction in terms." Then, almost in the next 
 breath, they insist that a general rise or fall of prices can, and 
 frequently does, take place. 1 If every thing cannot rise or fall in 
 value simultaneously, how can the price of every thing do so ? 
 The usual reply, that price is simply the ratio in which things will 
 exchange for money, is wholly inadequate to explain this differ- 
 ence. For instance, if the proportion in which commodities will 
 exchange for money were increased, that would, of course, be a 
 fall in the price of the commodities ; but it would also be, as Mill 
 has clearly shown, 2 a rise in the price of money to exactly the 
 same extent. On the other hand, if the ratio in which money and 
 Other commodities would exchange for wheat were increased, that 
 would be a rise in the value of wheat and a fall in the value of 
 money and all other commodities. Manifestly, the rise of value 
 in the one case would be just as general as was the rise of price 
 in the other case. It is just as impossible to have a rise in price 
 without a relative fall in the price of some one or more of the 
 factors to the exchange, as it is to have a rise of value in one or 
 more commodities without a corresponding fall in some others. 
 There are absolutely no conditions, actual or conceivable, in which 
 a variation of prices is possible, which would not make a similar 
 variation of values equally so. The fact that the word price relates 
 to the ratio in which commodities exchange for money is of no 
 more importance, either in theory or practice, than if it referred 
 to the ratio in which money and other products exchanged for 
 
 1 ' ' Though there is no such thing as a general rise of values, there is such a 
 thing as a general rise of prices." — Mill's " Principles of Political Economy," 
 Vol. I., Book III., chap, iv., sec. 2, p. 565. "While a general rise or a general 
 fall of values is a contradiction in terms, a general rise or a general fall in prices 
 is a perfectly possible, as indeed it is a not uncommon event. " — Cairnes : ' ' Some 
 Leading Principles of Political Economy," p. 12. 
 
 *" Principles of Political Economy," Vol. II., Book III., chap, viii., sec. 2. 
 
ERROR OF ORTHODOX THEORY. 95 
 
 cotton, coal, or corn ; because the price or value of money is gov- 
 erned, as we shall hereafter see, by exactly the same influences as 
 is every thing else for which it will be received in exchange. 
 Evidently there is no good reason for creating a distinction 
 between value and price, and the accepted dogma that "though 
 there is no such thing as a general rise of values, there is such a 
 thing as a general rise of prices," is both confusing in theory and 
 fallacious in fact. 
 
 Section III. — Is a General Rise or Fall in the Value or 
 Price of Commodities Possible? 
 
 Two points in relation to value are now clear : (1) that it ex- 
 presses nothing but the ratio of exchange ; (2) that for all the 
 purposes of economic science, value and price are equivalent 
 terms, — hence any movement of one is equally possible to the 
 other. From this it follows that if " a general rise or fall in the 
 value of commodities is impossible," then there can never be a 
 general rise or fall of prices ; and conversely, if there can be a 
 general rise or fall in the price of commodities, there may be 
 a general rise or fall in their value. That there can be a general 
 rise or fall in the price of commodities our economists all admit ; 
 and that there has been a general fall in the value of commodities 
 is demonstrated by the most obvious facts in modern industrial 
 history. Since value and price are of synonymous import, and 
 a general movement in the value of commodities can and does 
 occur, an explanation of this phenomenon, consistent with the 
 idea that value simply expresses the ratio of exchange, may 
 properly be demanded. The difficulty hitherto experienced in 
 dealing with the question of value has arisen from the mistaken 
 point of view from which the subject has been considered. The 
 error lies in regarding value as a physical instead of a social 
 phenomenon ; and, consequently, in treating it as if it referred 
 only to the exchange relation of things to things, instead of the 
 relation of things to man. There are no economic exchanges in 
 which wealth constitutes all the elements ; for man — human ser- 
 vice — is always the principal factor. All exchanges are made by 
 man and for man — the object always being to gratify some desire 
 for which he must, directly or indirectly, render service. In the 
 last analysis exchange will always be found to consist in giving 
 
g6 MISTAKEN POINT OF VIEW. 
 
 service for gratification — i.e., labor for wealth, though nominally 
 different qualities of wealth are being exchanged. 
 
 When we say the price of a commodity has risen or fallen 
 because it will exchange for a larger or smaller amount of gold, 
 the statement would have no significance but for the fact that the 
 variation in the ratio in which the commodities exchange for gold 
 indirectly expresses that in which they will exchange for labor. 
 The rise in the value of commodities means that the articles 
 referred to have become dearer — more difficult for man to obtain 
 — or it means nothing. Wheat cannot be either dear or cheap to 
 potatoes or to gold, any more than shoes can be dear or cheap to 
 fishes. The value of wheat may be high as compared with that of 
 potatoes or gold, but it is not high to those articles. It is only 
 high to man. Nor is it high to him because it will exchange for 
 a larger quantity of things, but solely because it will exchange 
 for a larger quantity of his labor. Therefore, when we speak of 
 a rise or fall in the value of commodities we always mean, directly 
 or indirectly, an increase or diminution in the ratio in which 
 commodities will exchange for labor. 
 
 When we once clearly recognize that it is the exchange relation 
 of wealth to man that is to be considered, and not merely the 
 relation of things to each other, much of the difficulty connected 
 with this subject disappears. The hitherto inexplicable phenome- 
 non — of a general rise and fall in the value of commodities — now 
 becomes both possible and entirely rational. It will readily be 
 seen that while all commodities cannot simultaneously rise and 
 fall in their relation to each other, they can all do so in their 
 relation to labor. And since, ultimately, it is only to the extent 
 that the ratio varies in which commodities exchange for labor 
 that their value can rise or fall, it is just as possible for the value 
 of all articles to rise and fall together as it is for any portion of 
 them to do so. 
 
 There is another phase of this subject that has been a con- 
 stant source of perplexing controversy, but which, from this point 
 of view, becomes easy and simple of explanation. It has been 
 held by many able writers that, because value expresses simply a 
 relation, when two commodities vary in the ratio in which they 
 will exchange for each other we cannot strictly say that the one has 
 risen or that the other has fallen in value, but that both have 
 
ERROR OF MILL AND CAIRNES. 97 
 
 risen and fallen in relation to each other. If, for example, two 
 bushels of potatoes would exchange for one bushel of wheat last 
 year, and one bushel of wheat will exchange for three bushels 
 of potatoes this year, they hold that it is just as correct to say 
 that the value of the wheat has risen as it is to say the value of 
 the potatoes has fallen ; that it is simply a variation in their 
 exchange relations, — the fall in the one case implying a rise in 
 the other, and vice versa. This kind of reasoning is very perplex- 
 ing ; it logically forbids us to speak of the rise or fall in the value 
 of commodities by depriving the expression of all real significance 
 regarding the object to which it refers. But when we consider 
 the question from the point of view that value finally expresses 
 the exchange relation, not of things to things, but of things to 
 man, we have no difficulty in deciding whether the value of the 
 potatoes has fallen or that of the wheat has risen. Then the 
 statement that the value of a given commodity has increased or 
 decreased is strictly correct, and conveys a specific idea regarding 
 a particular object. It always indicates the variation in the 
 exchange relation of that commodity to labor. 
 
 It is therefore not correct to say, with Mill, Cairnes, and others, 
 that a fall in the value of potatoes as compared to that of wheat 
 necessarily implies a rise in the value of the wheat. On the con- 
 trary, there may be a simultaneous rise or fall in the value of all 
 commodities, or the value of the various commodities may rise or 
 fall in different degrees, or the value of some of them may rise 
 or fall, while that of the others remains entirely unchanged. 
 
 To illustrate this point more fully, let us suppose that a day's 
 labor will exchange for one bushel of wheat, or for two bushels 
 of potatoes. In this case the wheat will exchange for the pota- 
 toes in the ratio of one to two, while it will exchange for a day's 
 labor in the ratio of one to one. The wheat is now twice as dear, 
 per bushel, as the potatoes. Suppose that another year a day's 
 labor will exchange for three bushels of potatoes, but it continues 
 to exchange evenly for one bushel of wheat. Of course, under 
 such conditions, the wheat will exchange for potatoes in the ratio 
 of one to three, instead of one to two as before. Obviously the 
 value of the potatoes will fall one half, because one half more 
 of them can be obtained for a day's work. It cannot be said in 
 this latter case that the fall in the value of the potatoes implies 
 
98 RELA TION OF THINGS TO MAN. 
 
 a rise in that of the wheat, because a day's labor continues to 
 exchange for exactly the same amount of wheat as before. 
 Clearly, therefore, the value of the wheat remains unchanged 
 while that of the potatoes falls one third. Nor does the value of 
 the potatoes fall merely, as compared with, or in relation to, that 
 of the wheat, but they become one third cheaper absolutely 
 without any regard to the wheat whatever. 
 
 We may be reminded that the price of labor varies in different 
 countries, industries, and localities. But that fact in no way 
 alters the case ; whether the laborer gets fifty cents or five dol- 
 lars a day makes no real difference in the operation of the prin- 
 ciple. If one day's labor of the fifty-cent man will exchange for 
 ten pounds of flour, or two pounds of butter, then that of the 
 five-dollar man will command a hundred pounds of flour, or 
 twenty pounds of butter. Any variation in the ratio in which the 
 flour or butter will exchange for a day's service of either of these 
 laborers will obtain with all laborers, and hence will constitute a 
 change in the value of those commodities to that extent. But no 
 variation in the ratio in which flour or butter will exchange for 
 any or all other commodities — including silver or gold (which are 
 likewise commodities), will make the slightest change in their 
 value, unless it alters the proportion in which they will exchange 
 for labor. 
 
 Therefore it is incorrect to say " a fall in the value of one or 
 more commodities necessarily implies a rise in that of all other 
 commodities, and vice versa." On the contrary, there may, as we 
 have seen in the case of the potatoes and wheat, be a rise or fall 
 in the value of one or more articles in the market without any 
 change in that of the others. But while it is not true that a fall 
 in the value of one or more commodities necessarily implies a 
 rise of that in all others, it is true that a fall in the value of any 
 or all commodities implies a rise in the value of services, and vice 
 versa. The reason for this difference is easily understood. It is 
 simply because, ultimately, value, as applied to commodities, ex- 
 presses nothing but the ratio in which they will exchange for 
 labor, and no amount of increase in the intricate complexity of 
 the process of exchange can alter this fact in the slightest degree. 
 
 It will thus be seen that, when we change our point of view and 
 regard man and his desires as the centre of all economic move- 
 
THE NEW POINT OF VIEW. 99 
 
 ment, — treating value as a social phenomenon and using the term 
 exclusively to express the exchange relation of things to man, — 
 the whole subject appears in a new light. Then the perplexing 
 distinctions between the numerous kinds of value, and between 
 value and price, and the difference in the possibility of values 
 undergoing the same general rise or fall as prices, all become 
 unnecessary. 
 
 The term value being used solely to express the ratio of ex- 
 change, i.e., the proportion in which man will give service for 
 wealth or gratification, — it will always convey the same idea and 
 never be misunderstood. And if we regard the word utility as 
 expressing simply the want-gratifying qualities of any portion 
 of man's environment, its meaning is at once simple, definite, and 
 unmistakable. Thus understood, utility and value both become 
 distinctive, intelligible terms — the former expressing the quality 
 for which things are desired by man, and the latter the propor- 
 tion in which he will give his service in exchange for them. 
 With these definitions it is scientifically correct to say the value 
 or price of any or all commodities may rise or fall separately or 
 simultaneously. Indeed, were it otherwise, social progress would 
 be impossible, because it is only in proportion as wealth in gen- 
 eral becomes cheaper that human well-being can be increased. 
 
 In order to furnish a scientific basis for increasing the ratio in 
 which labor exchanges for wealth in accordance with the unccn* 
 scious operation of social law, it is necessary, first of all, to 
 understand the principle upon which different quantities of the 
 various kinds of wealth and service become economic equiva- 
 lents. This will explain the law of economic value and will next 
 occupy our attention. 
 
CHAPTER III. 
 
 DEMAND AND SUPPLY NOT THE LAW OF ECONOMIC 
 
 PRICES. 
 
 Section I. — The Doctrine Stated. 
 
 Mill says : " A writer does but half his duty by stating his own 
 doctrines if he does not also examine, and to the best of his 
 ability judge, those of other thinkers." While this is true of all 
 questions in economics, it is especially true of the doctrine of 
 prices. No treatment of that subject can be complete which does 
 not consider the claims of the theory of supply and demand — a 
 theory which is practically universal. Although the question of 
 prices has never been free from controversy since the time of 
 Adam Smith, scarcely a book on economics has been published 
 subsequent to " Wealth of Nations " in which the ratio between 
 supply and demand has not, expressly or tacitly, been accepted as 
 the law of prices. 1 
 
 This doctrine affirms : (i) That under free competition {i.e., 
 in the absence of arbitrary barriers) there cannot be two prices 
 for the same commodity in the same market. (2) That when the 
 supply and the demand are equal the price is the exact equiva- 
 lent of the cost of production. (3) That the price rises as the 
 demand exceeds the supply, and falls as the supply exceeds the 
 demand ; and, " the rise or fall continues until the demand and 
 the supply are again equal to one another." In order to sustain 
 
 'Perry's "Political Economy," p. 211. Mill's "Principles of Political 
 Economy," Vol. I., Book III., ch. ii., p. 252. Price's "Practical Political 
 Economy," p. 188. Jevons' " Theory of Political Economy," p. 6. (Preface). 
 MacLeod's "Elements of Politicrl Economy," p. ill. Cairnes' "Leading 
 Principles of Political Economy," p. 183. 
 
 IOO 
 
GREGOR Y KING 'S LA W. 101 
 
 this claim, two propositions must be established : (a) that the 
 value of all commodities and services always rises and falls as the 
 demand exceeds or falls short of the supply ; which movement 
 " continues until the demand and the supply are equal" ; (b) that 
 the variation in the price is produced by the alternation in the ratio 
 of the demand and supply. Unless these postulates can be sus- 
 tained, the doctrine of demand and supply must be rejected as 
 inadequate to furnish a scientific law of value. Although this 
 doctrine has always been held to apply to both commodities and 
 labor, in order to simplify the discussion we will consider it in 
 relation to these factors separately, taking commodities first. 
 
 In the seventeenth century, Gregory King observed that the 
 price of commodities varied with the demand and supply as 
 follows : 
 
 A decrease in the supply of : 
 
 1 tenth raises the price above the common rate 3 tenths. 
 
 2 tenths " " «• " " " " 8 tenths. 
 
 3 tenths '« " " " " " " 1 and 6 tenths. 
 
 4 tenths " " " " " " " 2 and 8 tenths. 
 
 5 tenths " " ■■ ■« " " " 4 and 5 tenths. 
 
 Despite the modifying effect of the " cost of production," in- 
 troduced by Smith and Ricardo, this scale of variation in prices, 
 which was based entirely upon agricultural products, has been 
 practically accepted as the law of all prices ever since. Even 
 Thorold Rogers repeats this formula in his latest work, with 
 emphatic indorsement as " one of the most important generaliza- 
 tions in statistics, and applicable to all values whatever." ' 
 
 The reason the early writers upon this subject confined their 
 studies chiefly to agricultural products is not difficult to under- 
 stand. During the time of Gregory King and even down to 
 the nineteenth century, agricultural products constituted the 
 chief articles of consumption for the great mass of the commu- 
 nity. During the present century, and especially the last fifty 
 years, this has been greatly changed. The proportion in which 
 manufactured, as compared with agricultural, products enter into 
 the daily consumption, is steadily increasing as civilization 
 
 1 " Eonomic Interpretation of History," p. 55 (1888). Jevons reaffirms it in 
 his "theory of Political Economy," pp. 168 -i'j\. 
 
102 AGRICULTURAL PRODUCTS. 
 
 advances. Consequently if the agricultural hypothesis furnishes 
 the true law of prices, it must be applicable to the prices of man- 
 ufactured as well as agricultural products. 
 
 Of course the true law of prices must explain the movement of 
 all prices, but no hypothesis can be assumed to do so merely 
 because it affords a seeming explanation of one class of prices. 
 The recognition of this fact is especially important in this 
 connection because the production of manufactured and agricul- 
 tural commodities is frequently affected by widely different 
 influences. In agriculture the quantity and quality of products 
 are often largely determined by purely cosmical forces — the 
 operation of which is entirely outside the domain of economic 
 law, — while, in manufacture, nearly all the influences affecting 
 production are economic and social. Consequently we may 
 naturally expect to find any theory constructed upon purely 
 agricultural data to be inadequate to explain the prices of manu- 
 factured products. 
 
 It is undoubtedly true that the price of wheat, potatoes, apples, 
 peaches, or any other farm or garden product tends to rise or 
 fall with the relative increase or diminution of the demand or the 
 supply. The fact that the price of wheat will rise with a failure 
 of the crop and fall with an abundant yield may be counted 
 upon as unmistakably as any other fact in nature. It is also 
 true that in all such cases the rise or fall in the price continues 
 until the demand and supply are approximately equal. Nor is 
 there any doubt that this rise or fall in the price of agricultural 
 products indicates a corresponding change in the ratio in which 
 they will exchange as economic equivalents. So far as agricul- 
 tural products are concerned, therefore, the facts seem to accord 
 with the theory. 1 
 
 Let us now see how the case stands with the price of manufac- 
 tured products. According to this hypothesis, whenever the 
 quantity of cotton cloth, shoes, or other manufactured commod- 
 ities is greater than the quantity effectually demanded, the price 
 
 1 This will be true, however, only so far as the variation in the demand and 
 supply is due to cosmical influences, such as favorable or unfavorable seasons. 
 But if the over-supply should be due to the cultivation of a larger number of 
 acres under traditional conditions this would not occur, and any fall in the 
 price would involve loss or bankruptcy to the farmer. 
 
MANUFACTURED PRODUCTS. IO3 
 
 of the article will fall, and the fall will continue until the demand 
 and the supply are equal. 1 If this theory were correct, there 
 could never be what is called, " an over-production," at least 
 until the quantity of cloth, shoes, etc., was so great that they 
 could not be consumed at any price. Because, it will be remem- 
 bered, if the supply more than equals the demand the price will 
 fall to " the point which equalizes the demand and the supply," s — 
 which must be the point at which all the product can be sold. 
 As a matter of fact, this is what almost never occurs under such 
 circumstances. There is probably no large manufacturing and 
 commercial centre in the world in which the supply of a large 
 number of commodities is not greatly in excess of the demand. 
 And yet the price does not continuously fall, but in a very large 
 majority of such cases remains practically steady for years together. 
 
 Industrial depressions are specifically cases of this kind. The 
 characteristic feature of an industrial depression is that manufac- 
 tured commodities are produced in greater quantities than they 
 can be sold. The expression " over-production" simply means 
 that the supply is in excess of the demand. Instead of the 
 movement of prices under these conditions being that which is 
 predicated by the demand-and-supply theory, it is entirely differ- 
 ent. There is a tendency to equalize the demand and supply, 
 but it is brought about by an entirely different process than the 
 fall in prices ; as laid down in the popular theory. 
 
 The first symptom of an over-production, or excess of supply, 
 is the difficulty in selling the entire product. This will generally 
 be followed by an increased competition among the manufac- 
 turers and merchants — especially those who have large margins 
 — and will tend to reduce the price toward the point at which 
 they can barely sell without loss — which point is nearly always 
 reached long before the demand and supply are equalized. 
 Here, however, an entirely different movement sets in and the 
 fall is transferred from the price to the quantity of the commod- 
 ity. Instead of the price continuing to decline until an equilib- 
 rium between demand and supply is reached, the fall in price is 
 arrested at the no-profit point, and the decline in the amount of 
 sales commences. As the sales fall off warehouses are filled, 
 
 1 "Principles of Political Economy," vol. i., pp. 551, 552. 
 ' 2 Ibid., p. 550. 
 
104 RICARDO SAW THE FALLACY. 
 
 profits shrink, and the incentives to produce are diminished ; 
 hence the supply is curtailed to prevent further loss. Thus, in- 
 stead of the demand and the supply being equalized by a contin- 
 uous fall in the price and larger sales, that result is reached by 
 lessening production — which involves the closing of factories, 
 enforced idleness of laborers, and sometimes the bankruptcy of 
 manufacturers and merchants. 1 It will be seen, therefore, that 
 the equilibrium between demand and supply is reached — if 
 reached at all — by reducing the supply to the dimensions of the 
 demand at paying prices, and not by lowering the prices to that of 
 demand and supply. Moreover, if the price of commodities 
 under these conditions continued to fall until the demand and 
 the supply were equalized, as in agriculture, it would not be, as 
 in that case, an exchange of economic equivalents, but it would 
 be a highly uneconomic exchange, involving continuous loss, and 
 probably ruin, to the producers. 
 
 Were the conditions reversed the same principle would govern 
 the movement of the phenomenon. If the demand for shoes 
 greatly exceeded the supply, the demand and supply would not 
 be equalized by the increased price, but by an increase in the 
 supply. It is exactly under such conditions that new factories, 
 with improved methods, come into existence. This gives more 
 employment to labor ; enlarges the market ; cheapens the cost of 
 production ; and tends to make profitable sales at lower prices 
 possible. Thus it is clear that the price does not necessarily fall 
 when the supply exceeds the demand, nor rise when the demand 
 exceeds the supply. This much of the fallacy of the demand- 
 and-supply theory was evidently clear to Ricardo, who probably 
 had more glimpses of fundamental truth in economics than any 
 other writer of this century. He says 2 '> " Diminish the cost of 
 production of hats, and their price will ultimately fall to their 
 new natural price, although the demand shall be doubled, 
 trebled, or quadrupled. Diminish the cost of subsistence of men, 
 by diminishing the natural price of the food and clothing by 
 which life is sustained, and wages will ultimately fall, notwith- 
 standing that the demand for laborers may very greatly increase." 
 
 ' This is equally true of agriculture where the increased supply or over-pro- 
 duction is due to increased investment instead of gratuitous natural forces. 
 8 " Principles of Political Economy and Taxation," ch. xxx., p. 232. 
 
THE THEORY DOES NOT FIT THE FACTS. 105 
 
 There is still another important fact that here presents itself 
 for the demand- and- supply theory to explain. If the value of 
 commodities is governed by the ratio between the demand and 
 the supply, why has the value of manufactured articles steadily 
 fallen during the present century, in some cases sixty and seventy 
 per cent., while the value of farm and garden products has gen- 
 erally risen, and in some cases very considerably. It cannot be 
 because the relative demand for agricultural products, as com- 
 pared with the supply, has been greater than that for manufac- 
 tured commodities, because, in that case, the profits of agriculture 
 would have been greater during the period than those of manu- 
 facture and trade, whereas the reverse is true. For the same 
 reason the fall in the price of manufactured articles cannot be 
 attributed to the excess of supply as compared with agriculture. 
 Now, if the normal price of commodities were governed by the 
 ratio between demand and supply, this phenomenon would be an 
 economic impossibility. Nor can it be objected that the fall in 
 the price of manufactured articles is like that in the auction sale, 
 — at the expense of the seller. The manufacturers of cotton 
 cloth, who to-day sell their product at four cents a yard, are 
 economically as well off as were those who received eighteen or 
 twenty cents a yard a hundred years ago. In other words, to 
 give twenty yards of cotton cloth for one dollar to-day is just as 
 equitable an exchange of economic equivalents as it was to obtain 
 a dollar for six yards in 1820. This is not the exception, but the 
 rule, and represents the normal economic movement in modern 
 society ; clearly therefore the theory of demand and supply is 
 wholly inadequate to explain the movement in the economic price 
 of commodities. 
 
 SECTION II. — Does the Price of Labor Obey the Law of 
 Demand and Supply f 
 
 In the case of labor the failure of this theory will be found to 
 be no less conspicuous. If the doctrine were true, that wages 
 always fall when the supply of labor is in excess of the demand, 
 enforced idleness or able-bodied pauperism would be impossible, 
 as we have elsewhere pointed out. 1 In that case, as soon as un- 
 1 " Wealth and Progress," Part II., ch. i., sec. i. 
 
106 WAGES FAIL TO OBEY THE LAW. 
 
 employed laborers appeared wages would begin to fall, and the 
 fall would continue until all the laborers were employed at some 
 price, that being the only point at which the demand and the 
 supply could be equalized. So far from this being the rule, there 
 is not a country in all the world in which it ever occurred. There 
 may have been times and places when laborers were all employed, 
 but this was never accomplished by the lowering of wages. 
 History does not afford a single instance of abolishing enforced 
 idleness, and reducing able-bodied pauperism, by that means. 
 Such a phenomenon is an economic impossibility. Every fall of 
 wages tends to lessen the general consumption of wealth, and 
 thereby diminish rather than increase the employment of labor. 
 As a matter of fact, wages do not fall ; any thing like a general 
 fall of real wages is practically an unknown phenomenon. 
 
 It is one of the distinguishing characteristics of the history of 
 industrial evolution that, since the dawn of the wage-system, 
 neither royal authority, civil law, religious dogma, or any other 
 industrial or social pressure, has been able to permanently force 
 the price of labor below the point that has once been generally 
 established in a community, although the supply has frequently 
 been greatly in excess of the demand. The statistics of able- 
 bodied pauperism, and the history of poor-law legislation, furnish 
 abundant evidence of the over-supply of labor during the last 
 three hundred years. The same fact is clearly shown in the 
 economic literature of the period, which abounds with the dis- 
 cussion of the pauper problem. It was the alarming extent to 
 which the supply of labor was continuously in excess of the de- 
 mand, which gave rise to the Malthusian doctrine of limiting the 
 population by curtailing births among the laboring class. This 
 doctrine has been generally accepted by economists during the 
 present century, both in Europe and this country, as the only 
 means of raising wages. Yet in the face of this continuous over- 
 supply of labor, wages have risen seven hundred per cent. It is 
 therefore clear that wages do not necessarily fall when the supply 
 of labor is in excess of the demand, but that they may, and often 
 do, rise in spite of that fact. It is very doubtful if it can be 
 shown that a single step in the rise of wages, from twelve cents 
 to two dollars a day, has taken place in accordance with the 
 doctrine of demand and supply, but almost invariably contrary 
 
THE BASES OF EQUIVALENCE. I07 
 
 to it. Obviously, therefore, the first postulate upon which the 
 demand-and-supply theory is based, namely, that the prices of 
 all commodities and labor rise and fall as the relative demand 
 exceeds or falls short of the supply, utterly fails. 
 
 SECTION III. — Economic Prices cannot Possibly be Determined 
 by the Mere Ratio between Demand and Supply. 
 
 We come now to the second postulate upon which this theory 
 rests, namely, that the variation in the price of commodities and 
 labor is caused by the alteration in the rate of demand and supply. 
 Although the variation in price may often be similar to that in 
 the demand and the supply, it can easily be shown that the mere 
 proportion between the quantity demanded and supplied cannot 
 possibly determine economic value. The very idea of value is 
 quid pro quo. The conception of economic exchange necessarily 
 implies that each obtains an equivalent for what he gives. 
 Therefore, in seeking the law of value, we are not seeking to ex- 
 plain that process of exchange by which, through ignorance, 
 fraud, and other devices, one can get the advantage of another ; 
 but we are seeking the law by which different quantities of various 
 kinds of wealth and service can be equitably exchanged as the 
 economic equivalents of each other, and according to which a 
 given amount of service can become the equivalent of an increas- 
 ingly large amount of wealth. 
 
 In what sense, then, are commodities the equivalents of each 
 other ? It cannot be their similarity in quantity, quality, or 
 form, because it is their very dissimilarity in these respects which 
 makes their exchange desirable and necessary. The only sense 
 in which different quantities of various kinds of commodities and 
 services can be the equivalents of each other is as economic 
 products — i.e., in the sense that they represent the same amount 
 of economic expenditure. An econonomic equivalent is that 
 which will afford as much gratification to the buyer as he could, 
 with due preparation, otherwise have obtained by the wealth and 
 service devoted to procuring that which he gave for it. Can this 
 be in any way affected by the mere presence or absence of 
 quantity ? Is there any thing in the fact that the demand is 
 greater or smaller, or equal to the supply, that can make differ- 
 
io8 Mcculloch" s testimony. 
 
 ent quantities of wealth and service, — the procuring of which 
 involves different amounts of expenditure, — the economic equiv- 
 alents of each other ? ' 
 
 If one gives a day's labor to procure a pair of shoes, and then 
 exchanges the shoes for twenty grains of gold, unless he can 
 obtain as much of other commodities, or service, for the gold as he 
 could for the labor that he put into the shoes, the gold is not the 
 economic equivalent of the shoes. Whether or not the gold will 
 reimburse him for making the shoes — i.e., will be an equivalent 
 for the shoes — cannot possibly be affected by the mere fact that 
 there are many or few grains of gold. The ability to exchange a 
 pair of shoes for twenty grains of gold, as an equivalent, can no 
 more be affected by an increase or a decrease in the number of 
 shoes or the quantity of gold than the weight of a pound of lead 
 can be affected by the presence of a larger or smaller number of 
 pounds of lead. There is absolutely nothing that can enable a 
 man to give his shoes for the gold, without losing, which does not 
 enable him to obtain the shoes for the same amount of wealth 
 and service. McCulloch pointedly remarks 2 : " No variation of 
 demand, if it be unaccompanied by a variation in the cost of 
 production, can have any lasting influence in price. If the cost 
 of production be diminished, price will be equally diminished, 
 though the demand should be increased to any conceivable ex- 
 tent. If the cost of production be increased, price will be equally 
 increased, though the demand should sink to the lowest possible, 
 limit." As the proportion between the demand and supply can- 
 not enable the producers of either gold or shoes to make their 
 articles one fraction cheaper, it cannot affect the ratio in which 
 these articles will exchange as economic equivalents, and conse- 
 quently cannot determine their economic value. 
 
 To recapitulate, then, four important facts are established, — 
 any one of which is sufficient to invalidate the claim of the theory 
 that the ratio between demand and supply is the law of economic 
 prices. They are : (i) That the value of commodities and labor 
 does not always rise and fall as the demand exceeds or falls short 
 of the supply, and so continue until the demand and the supply 
 are equalized. (2) That prices may and do rise when the supply 
 
 1 De Quincey's " Logic of Political Economy," p. 8. 
 
 1 " Principles of Political Economy," Part III., sec. iii., p. 137. 
 
CAIRNES' ERROR. IO9 
 
 is in excess of the demand, and fall when the demand is in excess 
 of the supply. (3) That prices may and do rise or fall without 
 any perceptible change in the ratio between the demand and the 
 supply. (4) That, from the nature of things, it is impossible for 
 the mere scarcity or abundance of quantity to alter the ratio in 
 which different quantities of wealth and service become economic 
 equivalents of each other. 
 
 SECTION IV. — The Economic Relation of Demand to Supply. 
 
 Sometimes the most effective way of showing what a thing 
 is not, is to explain what it is. The error of the doctrine that 
 economic prices are determined by the ratio between demand 
 and supply will become still more apparent if we examine the 
 economic relation which these phenomena sustain to each other. 
 We shall then see that this quantitative relation is more the con- 
 sequence than the cause of economic prices. 
 
 Attention has already been called to the fact that, while econo- 
 mists have defined value as the ratio in which quantities exchange, 
 they have treated the subject as relating exclusively to wealth. 
 The natural outcome of this position is that even such a careful 
 writer as Cairnes ' has insisted, that demand and supply are iden- 
 tical phenomena — " Simply different faces of the same fact." 
 The only effectual demand being actual supply, and vice versa. 
 Consequently, the only way to increase the demand for one class 
 of commodities is to enlarge the production of other commodities 
 to exchange for them, or, as Cairnes 2 expressly states : " Pur- 
 chasing power, in the last resort, owes its existence to the pro- 
 duction of a commodity and, the conditions of industry being 
 given, can only be increased by increasing the quantity of com- 
 modities offered for sale ; that is to say, demand can only be 
 increased by increasing supply." Accordingly, the panacea for 
 a glutted market — " over-production " — is more production, — a 
 delightful tonic for industrial depressions. 
 
 The inevitable effect of this view of the subject, which limits 
 economic phenomena to wealth and makes demand and supply 
 identical facts, — each equally dependent upon the other — is to 
 
 1 "Some Leading Principles of Political Economy," ch. ii. 
 5 Ibid., p. 31. 
 
IIO MISTAKEN IDEA OF DEMAND. 
 
 reduce economic movement to a vicious circle and make progress 
 impossible. The result of this class of reasoning was recently 
 illustrated in the attitude of a gentleman, who had devoted more 
 than a generation to the study of economics, and had digested 
 the literature of several languages upon the subject. He clearly 
 saw the social necessity of doing something to improve the labor- 
 er's condition ; but it was equally clear to him that this must be 
 done by scientific means. He said (and in a protracted cor- 
 respondence repeated the argument in several ways): " We are all 
 anxious that the laborer should receive more wealth. This he 
 can do in but one of three ways : by theft, charity, or economic 
 exchange. To increase his income through either of the first two 
 would be to injure instead of to help him, and he can only obtain 
 more wealth through exchange by having more to give for it, 
 which is exactly what he lacks. Therefore," exclaimed the gen- 
 tleman, " unless you can show how the laborer can be put into 
 possession of something to give in exchange for the wealth he 
 desires, there is no feasible way by which society can economi- 
 cally increase his income." Thus, by the logic of his position, 
 my friend was forced into the vicious circle where he finally was 
 compelled to exclaim : " There is no way by which society can 
 increase wages ; that question must be left to settle itself by 
 natural law." Consequently, like most of the leading economists 
 of the present century, he was compelled to assume the negative, 
 pessimistic position of laissez-faire, and, in spite of himself, 
 become an ardent free-trader, though very desirous of being a 
 social reformer. 
 
 The intellectual quagmire into which this argument leads is 
 due to the mistaken definition of demand. It is a radical error 
 to regard demand and supply as identical phenomena, and 
 assume " that demand can only be increased by increasing the 
 quantity of commodities offered for sale." As a matter of fact, 
 not one tenth of the world's demand consists in " commodities 
 offered for sale." The great market of the modern world is 
 made by the daily wants of the people who have practically no 
 commodities to offer for sale. All they have to offer for sale is 
 service, and it is with that they purchase. When we once recog- 
 nize the fact that all exchanges are ultimately the exchange of 
 wealth for service, and not wealth for wealth, this matter assumes 
 
DEMAND THE CAUSE OF SUPPLY. Ill 
 
 a new aspect and the pessimistic vicious circle disappears. In- 
 stead of saying that all demand for commodities is the supply of 
 commodities offered for sale, we shall then say : the demand for 
 commodities is the desire to consume them, coupled with the supply of 
 service fiecessary to produce their equivalent. 
 
 From this view there is no difficulty in seeing how the demand 
 may be increased, and, through it, the supply enlarged. It is 
 undoubtedly true that demand and supply are closely related 
 and interdependent, but they are not identical phenomena. The 
 distinction and economic relation of demand and supply will be 
 greatly simplified if we keep two obvious facts in mind, namely : 
 that no matter how complex the relations, or how involved the 
 phenomena, demand always means want — consumption, and supply 
 means service — production. 
 
 Although Bastiat's statement of "wants, effort, and satisfaction" 
 is correct, it should be remembered that the first two only are 
 active forces. The first represents the active feeling or motive ; 
 the second, the effort or action. The third is simply the result 
 of these ; it is the actualization of the first, of which the second 
 is the means. To-day's wants determine to-morrow's efforts, and 
 yesterday's actual consumption determines to-day's actual pro- 
 duction. Clearly, then, consumption is not only potentially prior 
 to, but it is actually the cause of production. Since consumption 
 constitutes the actual demand, and production the actual supply, 
 it follows that demand is the cause of supply. 
 
 There is no more obvious fact in economic experience than 
 that supply follows the line of, adapts itself to, and finally de- 
 pends upon, demand. This is why mankind always lives from 
 hand to mouth, as it were, and society can never be made to per- 
 manently produce more than will supply the normal current de- 
 mand in any state of civilization. Indeed, were it otherwise, 
 industrial depressions would increase instead of social welfare 
 being promoted. It is for this reason that nothing can per- 
 manently increase the quantity and reduce the cost of wealth 
 which does not multiply the wants, enlarge the consumption, and 
 therefore expand the social character of the people. 
 
 The way in which demand exercises its controlling influence 
 over supply is through the instrumentality of value or price. 
 Upon the same principle that man will not give something for 
 
112 HOW PRICE ARISES. 
 
 nothing, he will refuse to supply the wants or demands of others 
 except on the conditions that he obtains an equivalent in return. 
 It is only when the demand is strong enough to induce the giving 
 of full equivalents for the efforts of production, — i.e., a price 
 equal to the cost — that a continuous supply will be forthcoming. 
 Supply, then, not only depends upon demand, but it depends upon 
 demand at a certain price. Demand really creates the price, and 
 the price induces the supply. 
 
 In order to more clearly see the economic relation of these 
 phenomena, let us suppose the existence of a community where 
 the division of labor and exchange have not yet made their ap- 
 pearance ; where there is neither buying, selling, nor barter. 
 Here demand and supply, exchange and value, are unknown ; 
 every one supplies his own needs by his own personal efforts. 
 Let us further suppose that some one person in this community, 
 more ingenious than the rest, contrives to make a bow and arrow, 
 by the aid of which he is soon able to procure more game in one 
 day than he previously could in three or four. No sooner has 
 the advantage of this new weapon become known than others 
 want it. How to obtain bows and arrows is now the question, 
 and the price-creating forces at once begin to operate. Since 
 the advantage of the new instrument in getting a living is so 
 great, all who are unable to make it for themselves are willing to 
 give something to obtain one from others. Here the want begins 
 to assume the form of an economic demand, and price emerges. 
 How much will he give ? A deer is offered for the bow and 
 arrow. Whether the offer is accepted or not, the bow and arrow 
 now have a price. It is one deer, but this is not enough. The 
 maker of the bow and arrow can obtain more game by hunting 
 with his new weapon than by staying at home and selling it for 
 one deer. Hence he declines to make them and there is no 
 supply. Two deer are offered, but he declines for the same 
 reason, and still there is no supply, — although the price has 
 doubled through the strength of the demand. Two deer and a 
 beaver are offered ; here the bow- and- arrow-maker yields, and 
 the supply commences. At this price those who have the apti- 
 tude for making bows and arrows are willing to stay at home 
 and make them, because they can obtain as much, or more, game 
 in exchange for their weapons than by hunting for themselves. 
 
WHEN SUPPLY BEGINS. H3 
 
 It will thus be seen that bows and arrows not only had a price 
 long before there was any supply, but it was only when the price 
 rose to the economic, or remunerative, point that the supply 
 commenced and the ratio between demand and supply had any 
 existence. Manifestly, the first fact in the movement of these 
 phenomena was the demand for the game. When the bow and 
 arrow was known to be capable of aiding in the gratification of 
 this demand the desire for venison was extended to the bow and 
 arrow also, and the amount that was offered for it was deter- 
 mined entirely by the strength of the desire ; and this price, 
 — when it became large enough to make it more profitable to 
 manufacture bows and arrows than to hunt for a living, — was 
 the sole cause of the weapons being supplied. It is therefore 
 obvious that the price of the bows and arrows was not created 
 by the ratio between the demand and the supply. 
 
 This principle obtains with the same force in the most com- 
 plex business transactions of modern society as in the most 
 primitive stages, although its origin and operations are not so 
 easily observed. It is true that an article sometimes is produced 
 before there is any demand for it, i.e., before its utility is gen- 
 erally known — but this does not alter the case. When a com- 
 modity is supplied in advance of the demand for it, the supply 
 is impelled by the same cause as when it is produced in response 
 to a known demand, the only difference being in the certainty of 
 the result. In the former case the supply of the article is based 
 upon confidence in its capacity to serve some purpose to the 
 community sufficiently well to induce willingness to give a 
 remunerating price for it. If the utility of the article and the 
 wants of the people have been correctly estimated, a remunerative 
 price-making demand for it will ensue as soon as its merits are 
 known. But, on the other hand, if the relative degree of these 
 influences has been miscalculated, no effectual demand for it will 
 arise, in which case the production will prove to be an entire 
 mistake, resulting in loss to those who undertake it. This has 
 been painfully illustrated in thousands of instances, — as the 
 almost interminable list of unsuccessful patents clearly shows. 
 Hence, whether the demand and supply commence to operate 
 in their natural order, from the known utility of the article, — 
 as in the case of the bow and arrow, — or in anticipation of it, — 
 
114 ORDER OF PRICE PHENOMENA. 
 
 as in the case of the patents, — makes no real difference. In 
 both cases the result is governed by the same law. 
 
 Evidently, the more closely we examine the economic relation 
 of demand and supply, the clearer it becomes that demand is 
 the active force, to which supply is but the ultimate response. 
 And that, to the extent supply exists without demand, is it 
 devoid of social utility and economic force. In other words, 
 products become waste or wealth in proportion as they pre- 
 cede, or are preceded by, wants. Therefore, instead of economic 
 prices being dependent upon the ratio between the demand and 
 the supply, they have no necessary relation to it. The order of 
 the economic relation of these phenomena is that supply imme- 
 diately depends upon the price, and the price is created by the demand, 
 and the demand depends entirely upon the habitual wants or social 
 life and character of the people. 
 
CHAPTER IV. 
 THE LAW OF ECONOMIC PRICES. 
 
 SECTION I. — The Scope and Importance of the Subject. 
 
 The law of prices may be said to occupy the keystone position 
 in the arch of economic science. It involves the principle upon 
 which the equity of all human relations finally rests. All the 
 advantages of social intercourse, however simple or complex, 
 ultimately depend upon the exchange of equivalents. This is as 
 true in the realm of the affections, ideas, ethics, and politics, as 
 it is in economics. If all could secure the equivalent for what 
 they give, they would receive an absolutely equitable reward for 
 what they do, and injustice would be impossible. All industrial 
 political, moral, or religious endeavor to improve society being 
 efforts to promote justice, it must rest finally upon the principle 
 involved in the law of economic prices, namely, quid pro quo. 
 Nothing is truly economic which is not entirely equitable, and 
 equity is the highest form of ethics. 
 
 The phenomena that are subject to the law of prices may be 
 grouped under two general heads, as wealth and service. 
 There can be no economic change in society except through the 
 alteration of the ratio in which these exchange for each other. 
 The prices of wealth and service move inversely to each other, 
 promoting social welfare only as the ratio in which wealth will 
 exchange for service increases. Since all economic exchanges 
 are of the same general character and belong to the same class of 
 phenomena, they must be subject to the same general law. Conse- 
 quently, to explain the law of prices is to furnish a clue to the 
 law of wages, rent, interest, and profit, and really to lay the founda- 
 tion for a scientific solution of the whole problem of Economic 
 Distribution. 
 
 "5 
 
1 1 6 ECONOMIC LA W. 
 
 At the outset we must remember that we are not seeking the 
 explanation of some special cases of exchange, but we are seek- 
 ing the law to which all exchange may be referred, and through 
 which all prices may be adequately accounted for. 
 
 The true theory of economic prices must be capable of explain- 
 ing why the price of agricultural products tends to conform to 
 the ratio of demand and supply, while that of manufactured 
 products does not ; and why the price of labor rises when the 
 supply is in excess of the demand ; why the price of certain 
 agricultural and dairy products constantly tends to rise, while 
 that of manufactured products tends to fall ; and why this dis- 
 parity in the permanent tendency of prices in these classes of 
 commodities is the greatest in the most highly civilized countries. 
 In short, it must be capable of explaining the variation in the 
 economic prices of all kinds of commodities and service under 
 all conditions. 
 
 SECTION II. — The Meaning of Economic Law. 
 
 It is important, in this connection, clearly to define in what 
 sense the word law is to be understood in Economic Science. 
 We frequently hear the expressions natural law and artificial law 
 — as if the phenomena created by art were unnatural, — the impli- 
 cation being that nothing is natural except what results from the 
 unaided forces of nature. This erroneous notion is the basis of 
 much of the unscientific conduct of the laissez-faire doctrinaires. 
 Upon the assumption that natural law means the uncontrolled 
 operation of cosmic forces, they conclude that " natural law " 
 can only prevail in commerce and industry under a laissez-faire 
 regime. It is difficult to conceive a notion more unscientific. All 
 laws are natural. Unnatural law in the scientific sense is a 
 contradiction in terms. 
 
 Law in science simply means the necessary order in which 
 phenomena succeed each other as cause and effect. A law is not 
 more or less natural because its operation results from cosmic or 
 from human influences, nor because its effects are good or bad. 
 Almost every thing that will preserve life under certain con- 
 ditions, will just as surely destroy it under others, and the law is 
 equally natural in both cases. In seeking a scientific law, there- 
 
CHARACTER OF ECONOMIC SCIENCE. II? 
 
 fore, it is not a question of distinguishing the natural law from 
 the artificial law, but solely one of ascertaining the necessary 
 order in which phenomena lead to given results, and the con- 
 ditions which favor or retard that order of movement. Under- 
 standing this, we shall be in a position to act scientifically 
 regarding the influences that aid the recurrence of desirable, and 
 prevent that of undesirable, phenomena. 
 
 Since the advancement of social welfare primarily depends 
 upon cheapening wealth, it is one of the chief functions of 
 economic science to explain how a smaller amount of labor can 
 become the equivalent of a larger amount of wealth. In study- 
 ing the law of prices, therefore, our chief concern is to ascertain 
 the order of economic phenomena which makes given quantities 
 of wealth and service the economic equivalents of each other. 
 When this law is clearly established we shall have a scientific basis 
 for industrial development, and instead of having to take refuge 
 behind the doctrine of laissez-faire to protect us from the irra- 
 tional hit-or-miss policy which has characterized so much of 
 modern statesmanship, we shall be able to increase the influences 
 which promote, and diminish those which retard, industrial and 
 social progress, with the same scientific accuracy that we can now 
 travel by steam and communicate by electricity. 
 
 This does not mean that economic science is of the same exact 
 character as mathematics or chemistry. The phenomena with 
 which it deals do not admit of the same exact statement, for two 
 reasons : first, because the change that is constantly taking place 
 in social phenomena is so universal and persistent that in no two 
 succeeding instances are the phenomena exactly the same ; and 
 second, because much of the change in this class of phenomena 
 is due to human desire and human will, neither of which admits of 
 exact quantitative statement. Although economic phenomena 
 are not susceptible of being reduced to exact mathematical state- 
 ment, they are susceptible of positive explanation. Economic 
 science deals with the social relations of the human race, and the 
 law of their continuous development. Since social progress is an 
 almost imperceptible evolution, it is more necessary that knowl- 
 edge regarding the tendency of phenomena should be exact than 
 that the precise quantitative relations should be known at any 
 given time. 
 
Il8 THE LAW OF TENDENCIES. 
 
 In economics, then, the term law must be understood as 
 expressing the order in which phenomena necessarily tend to 
 move in any given direction. Hence, in studying the law of 
 economic prices, we must endeavor to ascertain, first of all, the 
 necessary tendency of economic prices, and how that tendency is 
 determined. When the primary law of economic tendency is 
 clearly established, the action of the secondary influences, which 
 tend to modify its operation, can be ascertained with comparative 
 ease and accuracy. We shall then be in a position to distinguish 
 the economic tendency from its uneconomic perturbations. The 
 law of the first will of necessity furnish the key to the second, 
 because to know the one is, by implication, to know the other. 
 
 Section III. — The Primary Law of Prices. 
 
 It is a characteristic of all phenomena with which science has 
 yet been able to deal, that their actual movement is governed by 
 a composite law, resulting from a variety of forces which act and 
 react upon and modify each other. This is especially true of 
 economic and social phenomena. These forces may be divided 
 into two classes : as primary and secondary forces. The former 
 determines the constant tendency of the main current ; the latter 
 affects the rate of movement, and hences modifies the quantita- 
 tive result at any given time. Thus, for example, in gravitation 
 the primary forces attract bodies towards each other directly in 
 proportion to the quantity of matter which they contain ; but this 
 movement is modified by the secondary forces, which diminish 
 the power of attraction as the distance increases. Consequently, 
 until the relative influence of these two classes of forces was 
 accurately ascertained, the actual movement and relative position 
 of bodies under given conditions could not be correctly predi- 
 cated. Hence, in stating the actual law of gravitation, we express 
 the action of both these forces and say : " All bodies are attracted 
 to each other directly in proportion to their size and inversely to 
 the square of their distance." So it is in the sphere of economic 
 prices. While the order and direction of economic movement is 
 determined by the direct action of the primary forces, the degree 
 is modified by the secondary forces, and the result at any given 
 time cannot be correctly predicated unless the relative power of 
 
ECONOMIC MOVEMENT OF PRICE. 1 19 
 
 the secondary to the primary forces is accurately known. There- 
 fore, correctly to understand the scientific law of economic prices, 
 we must first ascertain the primary law of price-determining phe- 
 nomena, and then consider the modifying influence of secondary 
 forces and the degree to which they operate in determining the 
 actual ratio of exchange. 
 
 In order clearly to observe the action of the primary forces 
 upon the tendency of prices we must eliminate all secondary in- 
 fluences from the problem. To do this we must assume that all 
 who participate in a transaction are adequately informed as to the 
 quantity, quality, and other conditions affecting the commodity 
 for which they are negotiating ; and also that they are entirely 
 free to act according to their best interest and judgment. More- 
 over, to be sure that the movement is entirely economic, we must 
 assume commodities whose production is wholly determined by 
 economic forces, such, for instance, as manufactured products, 
 leaving agricultural products, whose quantity and quality are 
 largely influenced by gratuitous forces, to be considered later. 
 How, then, upon the principle of self-interest and economic 
 equity, is the price of a commodity determined ? 
 
 Since the action of both producer and consumer is governed by 
 the motive to obtain the greatest result for the least effort, it is 
 quite clear that no exchange will take place unless each can 
 obtain more gratification from what he receives than he could 
 have procured from what he gives. Let us examine the economic 
 movement under the simplest known conditions — namely, where 
 man produces for his own personal consumption. The economic 
 movement is as complete here as in transactions where thousands 
 of miles and millions of people intervene between the producer 
 and the consumer, the only difference being in its relative sim- 
 plicity or complexity. If our isolated producer wants cotton 
 cloth, the first question that arises is how to get it. That being 
 settled, the next point in the problem is, will the gratification de- 
 rived from the product be sufficient to compensate for the effort 
 necessary to obtain it ? If it will, the cloth will be made ; if not, 
 the enterprise will be abandoned. 
 
 In modern society where, through the division and specializa- 
 tion of labor, all produce for others and receive what they actually 
 consume through exchange, the principle is the same, though the 
 
120 BASIS OF ECONOMIC EQUALITY. 
 
 process is more complex. When making cotton cloth for a stran- 
 ger, it is essentially the same question which arises as when mak- 
 ing it for one's self, namely : can the producer, in exchange for 
 the cloth, obtain as much utility as it cost in painful effort, or as 
 he could otherwise have obtained by the expenditure of the 
 same amount of energy ? If not, the cloth will not be made. Ob- 
 viously, therefore, the first condition necessary to secure the pro- 
 duction of cotton cloth is that the consumer shall be willing to give 
 an economic equivalent for it. Economic equivalents, as already 
 explained, are not necessarily equivalents of utility. The utility 
 of an article may differ with different persons according to tem- 
 perament, taste, intensity of desire, and other conditions peculiar 
 to the individual, but that does not affect it as an economic qual- 
 ity. The fact that an eastern manufacturer can obtain twice as 
 much gratification from a bushel of wheat as from ten yards of 
 cotton cloth, while a western farmer could only get one tenth 
 more gratification from the cloth than from the wheat, does not 
 prevent the wheat and the cloth from being economic equiva- 
 lents. Of course the farmer will not give the wheat for the cloth 
 unless it has more utility for him than has the wheat, but the fact 
 that it would possess twenty times as much utility for the manu- 
 facturer would not affect the economic relation of the producers. 
 The economic equality of commodities does not depend upon 
 the equality of the utility, but upon the equality in the amount 
 of reluctant productive energy expended in procuring them — in 
 other words, the necessary cost of production. Clearly, then, the 
 minimum price at which the cloth can be obtained is determined 
 by the producer, and it is fixed at a point equal to the cost of its 
 production. For the same reason that the minimum price is 
 determined by the producer, the maximum price will be deter- 
 mined by the consumer. What, then, under these conditions, 
 will the maximum price be ? Since the producer will not permit 
 the consumer to obtain the cloth for less than it cost, will the 
 consumer permit the producer to obtain more for it than it cost ? 
 It must be remembered that the motives which influence the 
 producer to refuse to supply the cloth for less than it cost oper- 
 ate with equal force to make the consumer decline to give more 
 than it cost. Unless there is some ethical or economic reason 
 why the consumer should give more for the cloth than the equiva- 
 
COST THE BASIS OF PRICE. 121 
 
 lent of its cost, he certainly will not do so. There is manifestly 
 no good reason for compelling the consumer to give more for an 
 article than its equivalent, since to do so would be to receive less 
 — an obvious violation of the principles of equity. The ethics of 
 economic exchange are : quid pro quo, — price, the exact equiva- 
 lent of the cost. 
 
 Nor is there any economic reason why this should be other- 
 wise. If the consumer demands the cloth for less than it cost — 
 i.e., for a smaller amount of wheat, shoes, or other products, 
 than its economic equivalent, the manufacturer has an effective 
 remedy at hand, namely : to refuse to make the cloth and devote 
 his energies to producing the wheat or shoes for himself. On the 
 other hand, the consumer of cotton cloth, who is a producer of 
 other things, has an equally effective means of protecting himself 
 against the encroachments of the producer. If the manufacturer 
 demands more wheat or shoes for his cloth than its economic 
 equivalent, the consumer of cloth can, and unquestionably will, 
 refuse to furnish wheat or shoes and devote his energies to 
 making cloth. And all the power which the producer pos- 
 sesses for preventing the price of cloth from falling below the 
 cost of its production, the consumer has in an equal degree to 
 prevent it from rising above the cost of production. Therefore, 
 upon the principle that two equal opposing forces neutralize 
 each other, the consumer cannot force the price below, and the 
 producer cannot force it above, the cost ; consequently this is the 
 only point at which the exchange can take place. In a word, it 
 is the only point at which all exchanges become economic and 
 mutually advantageous, and at which everybody obtains an 
 increase of utility by giving an economic equivalent. 
 
 Moreover, if there were any economic force by which the pro- 
 ducer could exact more than he gives, it would be neutralized by 
 the consumer in his capacity as a producer, and again reduce the 
 relation of the producer and the consumer to a purely economic 
 cost basis. It will thus be seen that, in the absence of secondary 
 and modifying influences (hereafter to be considered), the primary 
 law of economic prices is, that commodities exchange in the ratio 
 of the cost of their production. 
 
 It may be well to pause here a moment to explain precisely 
 what is meant by the expression, "cost of production." The 
 
122 COST OF PRODUCTION DEFINED. 
 
 cost of a commodity is simply what its owner gave for it, or must 
 give to replace it. The aggregate cost of producing cotton cloth 
 may be divided into three items : cost of service, cost of raw ma- 
 terial, and cost of tools. Under existing methods all whose 
 services are found necessary to the manufacture of cotton cloth 
 are included in the cost of service, or labor. All classes of labor 
 must, for the reasons already stated, receive as much from the 
 enterprise as they put into it, or they will devote their energies in 
 some other direction. What the laborers put in is their whole 
 working force ; the cost of their working force to them is their 
 living — whatever that may be, — and that they must have in order 
 to be able to continue to supply their productive energy. This 
 cost of service will vary according to what enters into the living. 
 In one case it may be a dollar a day ; in another, ten or twenty 
 dollars a day. What determines that difference will be con- 
 sidered under the head of wages. It is sufficient for our present 
 purpose that each class of service must receive from the product 
 the equivalent of its cost ; none can obtain more, because none 
 will accept less. 
 
 The same is true of raw material. If we follow the history of 
 its cost we shall find that it is again resolved into the same three 
 classes of cost, and, in the last analysis, they will all prove to be 
 the cost of labor. We will assume that all previous demands in 
 producing the raw material have been settled, and therefore its 
 cost is represented in what the manufacturer has to give for it. 
 For the same reason that the laborer must receive the equivalent 
 of the cost of his labor, the manufacturer must obtain from the 
 product the equivalent of the cost of the raw material. And he 
 cannot obtain more than the cost, because to do so would be to 
 take something for nothing, and to this nobody will consent. 
 The same is true of tools and implements. The wear and tear 
 of tools and machinery must be replaced from what is received 
 for the product, or they would soon disappear. Less than the 
 equivalent of this the owner will not accept, and more the con- 
 sumer will not give. Now, what is true of service, raw material, 
 and tools separately is equally true of them collectively. For the 
 same reason that each of these must receive the equivalent of 
 what is expended, the producer or owner of the finished product 
 will not accept less, and cannot obtain more than the equivalent 
 
THE PRICE-FIXING INCREMENT. 1 23 
 
 of its aggregate cost. In other words, the cost of manufacturing 
 cotton cloth is increased by exactly the amount that each of these 
 three factors impart to it, and the ratio in which it will exchange 
 for other commodities and service — i. e., its value — must, and will 
 be, exactly equal to what will replace them or their equivalents. 
 The question of profits is naturally suggested here, but in order 
 to keep the primary movement of price-regulating phenomena 
 unobscured, the consideration of that subject will be deferred to 
 a subsequent chapter. 1 At the price-determining point of the 
 economic relations which we are now considering there is no 
 profit and can be none. It may be remarked in passing, however, 
 that it is a great mistake to confound the manufacturer's or 
 entrepreneur's income with profits. Profit, as we shall hereafter 
 see, is the net surplus which is left after all the factors have re- 
 ceived a full economic equivalent for their contribution to the 
 product. Unless such an economic margin can be found, the 
 socialist's claim that profit is robbery must be correct. That 
 such a surplus is possible and does exist we shall subsequently 
 see ; and exactly how it takes place, on the basis of the economic 
 equivalents and absolute equity, the law we are considering will 
 adequately explain, if our hypothesis is correct. For the present 
 we are concerned only with the purely price-making point of 
 economic conditions. 
 
 Since no factor will contribute something for nothing, the 
 manufacturer must, and will, receive an equivalent for his contri- 
 bution to the product. His reward takes the form of a salary 
 for superintendence, — which is a necessary part of the cost, 
 just as much as that of the clerk, or the wages of the spinner and 
 weaver. 
 
 But what, it may be asked, under these conditions is the return 
 for the use of pure capital. Capital receives exactly the same 
 kind of reward as every other factor, namely, the equivalent of 
 its cost. It gets back all that it gives, or an equivalent for it. If 
 any of the factors are governed by law, they must all be subject 
 to the same law. If one can obtain more than it gives, they all 
 can. This principle becomes quite clear if we once recognize 
 the fact that gratuitous forces of nature charge nothing for their 
 contribution of productive energy. For the same reason that air 
 1 Part III., chapter iv. 
 
124 EQUITY OF ECONOMIC LAW. 
 
 and sunlight have no price because they cost nothing, do pro- 
 ducts which possess utility have a price only because they cost 
 something, and the price is commensurate to the cost. Every 
 improved machine which diminishes the cost of production, to 
 that extent approximates gratuitous natural forces, and nothing 
 can be demanded for that part of the product. 
 
 If the improvements should reduce the cost of making cotton 
 cloth by a cent a yard (since 1820 it has reduced the cost more 
 than ten cents a yard) such reduction would be exactly as if one 
 quarter of the cloth had been supplied gratuitously by nature. 
 Capital, whose sole function is to aid and save labor, really sus- 
 tains the same economic relation to production that natural 
 forces do. Indeed, it only succeeds in economizing labor when 
 it substitutes the use of natural forces for human energy. All 
 the wealth that is thus produced is free, and no price can be 
 charged for it. The difference in the cost resulting from the 
 improvement, through the automatic operation of economic law 
 passes to the consumer by a reduction of the price. This is why 
 improved methods of production cheapen wealth. 
 
 Under conditions of uniform cost of production, therefore, 
 with free economic movement and adequate knowledge of the 
 phenomena, the price and cost of a commodity would be identi- 
 cal. In other words, the primary law of prices, in the absence 
 of secondary modifying influences, is, that commodities and ser- 
 vices exchange in the quantitative ratio of exact economic 
 equivalents ; and, consequently, unimpeded economic law estab- 
 lishes exact industrial equity, or absolute justice. 
 
 It will be observed that thus far we have considered the move- 
 ment of prices only under purely hypothetical conditions, namely, 
 where the product is made at a uniform cost. As a matter of 
 fact, there is probably no commodity, in the production of which 
 capital is employed, which is not produced at a great variety of 
 costs ; hence no hypothesis can adequately explain the law of 
 prices which is not applicable to conditions of varying costs of 
 production. We will therefore consider the subject in its most 
 complex aspect, where the cost of making the same article varies. 
 In order to do this, we will suppose that there are six (there may 
 be six hundred) manufacturers, or groups of manufacturers, who 
 produce the same grade of cotton cloth and sell it in the same 
 
HIGHEST COST EQUALS LOWEST PRICE. 125 
 
 market. And let us further suppose (what actually exists on 
 every hand) that, from various causes, such as different degrees 
 of skill, quantity of capital, quality of machinery, size of plant, 
 location, etc., the actual cost of making the cloth and delivering 
 it to the market is slightly different in each case. For example, 
 suppose that A, who for some reason produces under the great- 
 est disadvantage, can barely make print cloth of 64 x 64 quality 
 at 4 cents a yard ; that B, through some economic advantage 
 derived from larger capital, better location, superior manage- 
 ment, etc., can produce the same cloth at 3$ a yard ; C, at 3! ; 
 D, at 3! ; E, at $\ ; and F, at 3 cents a yard. 
 
 Now, according to the law just stated, what will be the price 
 of the cloth under these conditions ? In the case where the cost 
 of production was uniform we saw that the price was equal to the 
 cost, but here we have six lots of the same commodity each 
 produced at a different cost. For reasons already stated, the self- 
 interest of both consumers and producers would make it impos- 
 sible for the cloth to be sold at six different prices in the same 
 market. The lowest price at which any producer will sell will be 
 the highest at which consumers will buy ; and conversely, the 
 highest price the consumers will give will be the lowest any pro- 
 ducer will take. If the minimum price is fixed by the producer 
 at cost, and the producer's minimum is the consumer's maximum, 
 the price must still be fixed at the cost ; and if, as is generally 
 admitted, there cannot be two prices in the same market, then 
 the price of the whole must necessarily be determined by the 
 cost of some one of the six classes of producers. Which of them 
 occupies that price-making position ? 
 
 While the producer will not sell below cost, he will sell at any 
 price from that point upwards, and he will only consent to sell at 
 cost when the consumer refuses to buy at a price above it. 
 Through the efforts of consumers to buy at the minimum, and 
 their refusal to buy above the cost, the price will be forced down 
 until it reaches the cost. Since the cost of A's cloth is the high- 
 est it will, of course, be the first to be reached. Therefore the 
 downward movement of the price must necessarily be arrested at 
 the cost of A's cloth, if his product is to be sold. Since to make 
 his portion of the product costs 4 cents a yard, so far as he is 
 concerned, that is the equivalent of the cloth, and must be the 
 
126 
 
 ORIGIN OF PROFITS. 
 
 minimum price. On the other hand, the consumer will not give 
 more than 4 cents a yard, for the obvious reason that B, who can 
 make it for 3% cents a yard, though anxious to get more, would 
 willingly take 4 cents and make \ of a cent profit, rather than 
 not sell. So long as the consumer can obtain it from B for 4 
 cents a yard, he certainly will not give more than that for it to A. 
 Therefore, 4 cents a yard is both the lowest A can afford to take, 
 and the highest he can possibly get for his cloth. 
 
 It will be observed that A is here in exactly the same position 
 that the producer was in the former case, where all the product 
 was made at a uniform cost, namely : that he can neither accept 
 less nor obtain more than the equivalent of the cost. Manifestly 
 what A must have for his cloth all the others can have for theirs, 
 and 4 cents a yard will be the selling price of the whole product 
 in that market. Under these conditions, then, A will sell exactly 
 at cost. He will give and receive exactly quid pro quo and have 
 no surplus or profit whatever. All the other five being able to 
 sell their product at the same price as A, while producing it at 
 less cost, can give the same equivalent for what they get and 
 still have a surplus equal to the amount by which their cost of 
 production is less than his. Here profit emerges, and the relative 
 position of the various groups of producers will be as follows : 
 
 Manufacturers. 
 
 Cost per yard. 
 
 Price per yard. 
 
 Surplus profit 
 per yard. 
 
 Total profit 
 per 1,000 yards. 
 
 A 
 
 4 cts. 
 
 4 cts. 
 
 — cts. 
 
 — 
 
 B 
 
 3f 
 
 4 
 
 1 
 
 $2.00 
 
 C 
 
 31 
 
 4 
 
 a 
 z 
 
 4.00 
 
 D 
 
 3f 
 
 4 
 
 3 
 
 6.00 
 
 E 
 
 3* 
 
 4 
 
 I 
 
 8.00 
 
 F 
 
 3 
 
 4 
 
 I 
 
 10.00 
 
 It will be observed that two movements are here indicated : 
 one of price, the other of cost. Under conditions where different 
 portions of the general supply are produced at a different cost per 
 unit (as in all civilized communities), one of two things must 
 occur : either the selling price must vary with the variation of 
 cost, or a surplus equal to the difference must arise. Since the 
 self-interest of both consumers and producers operates to make 
 
EQUITABLE BASIS OF PROFITS. 1 2? 
 
 prices tend to a uniformity in the same market, a surplus equal 
 to the difference in the cost is inevitable. Nor is there any 
 violation of ethics in either case. The uniformity of prices is 
 strictly equitable, because each producer gives to the consumer 
 the full equivalent of what he receives. The only reason that the 
 producer of other commodities will give 4 cents, or its equiva- 
 lent, to A for his cloth is, because they could not produce it for 
 less if they devoted their energies and capital to the business. 
 Therefore a yard of cloth to them is the exact equivalent of 4 
 cents. If, then, a yard of A's cloth is an equivalent for 4 cents, 
 that of B, and all the others, must be equally so, because it is 
 just like it. 
 
 Manifestly B, C, D, E, and F give just as complete an equiva- 
 lent for what they get as does A. Hence the surplus is not 
 obtained at the expense of equity. They pay the same wages 
 and fulfil all the other economic requirements just as completely 
 as does A, or as do the shoemakers or farmers with whom they 
 trade. Their profits are due entirely to influences peculiar 
 to them, and come from nature through them, and not from the 
 consumer or laborer through injustice. Just as soon as the 
 peculiar skill, or other means, by which B makes nature give him 
 \ of a cent a yard surplus, becomes accessible to the shoe- 
 maker or farmer, so that by the application of the same amount 
 of capital and labor they can produce the cloth at 3^, it will 
 cease to be an equivalent to them for 4 cents. They will then 
 refuse to give 4 cents for it, — for the same reason that they pre- 
 viously refused to give 4-5-. When that point is reached, rather 
 than give 4 cents to A, they will withdraw their capital from 
 shoemaking or farming and make cotton cloth, and A will have 
 to leave the business unless he can adopt the superior methods 
 employed by B, because he will have ceased to give an equivalent 
 for 4 cents. The price of the cloth will then be 3^ cents a 
 yard, consequently B will have no profit, and the profit of all the 
 others will be reduced by \ of a cent a yard. That is exactly 
 the way the price of cotton cloth has been reduced from 30 to 4 
 cents during the present century. 
 
 What is true of cotton cloth and other manufactured articles, 
 the production of which is entirely subject to economic and social 
 forces, i.e. y the conscious effort of man — is equally true of agri- 
 
128 PRIMARY LAW OF PRICE STATED. 
 
 cultural products — whose production is largely influenced by un- 
 conscious cosmic forces. The reason the economic price of 
 manufactured products does not necessarily follow supply and 
 demand is because, in their case, an increase or diminution of 
 the quantity does not necessarily affect the cost of production, or, 
 if at all, but slightly. Conversely, the economic price of agri- 
 cultural products does follow demand and supply because, in 
 their case, an increase or diminution of the quantity — being 
 chiefly due to the condition of the seasons — implies a similar 
 change in the cost per unit. 
 
 We are now in a position to affirm four important postulates 
 from which the primary law of prices can be definitely stated. 
 (i) That under conditions of economic freedom, the general 
 price for any given article in the same market tends to uniform- 
 ity. (2) That, when the general supply of a commodity in any 
 market is produced at a uniform expense per unit, the selling 
 price will be the exact equivalent of the cost, and no surplus will 
 exist. (3) That, wherever the aggregate supply of a given com- 
 modity is produced at different rates of cost per unit, the price 
 will tend to a uniformity on the basis of the cost of those units 
 which are produced at the greatest expense. (4) That a surplus, 
 or profit, arises inversely to the cost of producing the different 
 parts of the necessary supply, increasing as the cost diminishes 
 below that of the most expensive, or price-making, portion. 
 
 SECTION IV. — Influences which Modify the Operation of tht 
 Primary Law of Prices. 
 
 In the preceding section we considered the movement of prices 
 under purely economic conditions, namely : where cosmic 
 forces did not influence production, except as consciously 
 manipulated by man, and where both buyer and seller had the 
 right and power to act in accordance with their own interests and 
 best judgment, with adequate knowledge of the conditions affect- 
 ing the commodity. We have seen that, under these conditions, 
 there can be but one price for the same article in the same mar- 
 ket, — which price will be the exact equivalent of the cost of 
 producing the most expensive portion of the necessary supply in 
 that market. 
 
PRICE VARIATIONS. 1 29 
 
 In actual experience, however, we find that these conditions 
 do not literally fit the facts. We know that there frequently is. 
 more than one price for the same article in the same market, and 
 also that commodities are sometimes sold below the cost of pro- 
 ducing the dearest portion, and also below that of any portion ot 
 the supply. Consequently, if the primary law formulated in the 
 previous section is correct, we must be able to explain in accord- 
 ance therewith why and how this variation takes place, and 
 whether it is an uneconomic perturbation which should be elimi- 
 nated, or an economic variation which should be accepted and 
 counted upon. Whenever there are two prices for the same 
 article in the same market, it is manifest that either some consum- 
 ers are giving more, or some producers are selling at less, than 
 the cost. The exchange, under these conditions, is against the 
 interest of one or the other of the contracting parties. Another 
 fact, which is equally self-evident, is that neither the producer 
 nor the consumer will do that which is inimical to his interest if 
 he knows it and is free to prevent it. Therefore, whenever there 
 is more than one price for the same article in the same market, it 
 must be because the party giving more or taking less than the 
 cost is either ignorant of the facts or is not free to act in accord- 
 ance with his knowledge and interest. For example, to recur to 
 our previous illustration, suppose the supply of cotton cloth, the 
 dearest portion of which cost 4 cents a yard, is sold by one 
 producer at 4 cents a yard, and by another at 5 cents. It is 
 very clear that the purchaser who gives 5 cents a yard would 
 not do so if he knew that he could just as easily obtain it for 
 4 cents. Therefore when he gives 5 cents it must of necessity 
 be either because he does not know that it can be obtained 
 for 4 cents, or that he is induced to believe that it is of a 
 better quality than that which is sold at 4 cents, or else because 
 his right to purchase from the 4-cent dealer is restricted. On 
 the other hand, if the prices vary in the same market through 
 the producer selling at less than cost, as is not infrequently the 
 case, that too must be the result of similar causes. To sell foi 
 less than cost is to lose ; and to continuously do that willingly is 
 to voluntarily become bankrupt, — a course too absurd for sane 
 people to pursue. Whenever a dealer sells at a loss^ it must be 
 because ; (1) that he either does not know at the time what his 
 9 
 
I30 PRICES TEND TO UNIFORMITY. 
 
 goods cost him, or what it would cost him to replace them ; (2) 
 that he did not know when he purchased them at what price he 
 would have to sell them ; (3) that he miscalculated his own 
 necessary cost in handling them ; (4) that he offers them for 
 less than cost in order to attract customers to his place of busi- 
 ness in the hope of selling them other commodities at an over- 
 charge equal to or greater than his undercharge ; (5) that he is 
 compelled to sell at a loss in order to meet urgent demands of 
 previous indebtedness ; (6) that he is uneconomically handi- 
 capped by arbitrary authority. 
 
 It will readily be seen that, in the absence of all these condi- 
 tions, the consumer would not give more nor the producer take 
 less than the cost, and the price would be governed by the pri- 
 mary law formulated in the last section. It will also be observed 
 that the changes of price from these causes are not economic 
 variations, but that they are all uneconomic perturbations. That 
 is to say, they are fluctuations from the economic price, and are 
 always exchanges in which one gets more, or the other less, 
 than an equivalent. That these perturbations are due to the 
 causes here indicated is clearly shown by the fact that they are 
 greater in the retail than in the wholesale market, and greatest of 
 all in those sections of the retail market where poverty and 
 ignorance are most prevalent. The obvious reason for this is 
 that in such localities the average consumer is more ignorant, and 
 therefore more easily imposed upon, both as to the price and the 
 quality of the commodities. He is also often under pecuniary 
 obligations to the merchant, and therefore less free to trade else- 
 where. It will also be found that in these sections of the com- 
 munity the greatest amount of misrepresentation as to the quality 
 of goods prevails. Among retailers who sell to the more intelli- 
 gent and characterful customers this variation diminishes, and 
 the same articles are sold at a more uniform price. This is 
 inevitable for two reasons. First, because the fraudulent element 
 is largely eliminated through the impossibility of imposing upon 
 the consumers as to the quality ; and second, because the pre- 
 vailing prices at the various stores are more generally known to 
 the consumer. If we go to the wholesale markets, where the 
 prices, quality, and cost are still more correctly known by the 
 purchaser, we find almost no variation in the price for the same 
 
ACTUAL LAW OF PRICES. I3I 
 
 article in the same market at the same time, the only difference 
 being in the discount to purchasers of larger quantities, which is 
 a purely economic transaction, it being possible to handle large 
 quantities at a lower cost per unit than small quantities. It will 
 thus be seen that, just in proportion as the causes of these un- 
 economic perturbations are eliminated, the price tends to conform 
 to the primary law. 
 
 Since all these perturbations from the economic price involve 
 loss to the producer or the consumer, according as it is above or 
 below the cost, it follows that all the motives for human action 
 will tend to influence both the consumer and the producer to 
 avoid disadvantageous exchanges just as fast as they become in- 
 formed of the fact. As soon as the consumer discovers that he 
 is buying roasted peas for coffee, cotton for wool, or paper for 
 leather, he will endeavor to trade where this fraud is not practised 
 upon him. Accordingly, we find to-day that, in the best houses 
 on Broadway, the reputation for integrity is an important feature 
 of business success, while on Canal Street and the extreme east 
 side, ethics in business is of no commercial importance. On the 
 other hand, as soon as the producer discovers that he is selling at 
 a loss — whether through a miscalculation of the market, a wrong 
 estimate of his own expenses, a misrepresentation of the quality 
 of the goods, or other cause, — he will retrace his steps and en- 
 deavor to correct the error for the future ; and every correction 
 of the error arising from any of these causes tends to bring him 
 back to the position which he thought he occupied, namely : 
 purchasing the genuine article at the minimum price. It is thus 
 evident that the same influences which, under conditions of 
 economic freedom, make prices equal the cost of production, will, 
 under conditions of uneconomic perturbations, constantly force 
 prices to tend towards that point. 
 
 Therefore, the actual law of prices — the law to which the 
 price of commodities and service constantly tends to conform 
 — may be stated thus : the price of commodities a?id service tends 
 to adjust itself to the cost of producing the most expensive portion 
 of the necessary supply in any given market, this tendency in- 
 creasing in uniformity and persistence directly as the knowledge of 
 economic phenomena and the freedom of the economic action are 
 increased. 
 
I32 RISE AND FALL OF PRICES. 
 
 SECTION V. — Verification of the Economic Law of Prices. 
 
 If this hypothesis is correct it will enable us to explain the 
 price-movement of all classes of commodities and service with 
 equal correctness. Will it stand the test ? 
 
 For the purposes of verification price phenomena may be con- 
 veniently grouped as follows ; (i) manufactured articles whose 
 production is entirely subject to economic influences : (2) agri- 
 cultural produce, which includes all classes of farm and garden 
 products, fruits, etc., whose quantity and quality are largely effected 
 by non-economic influences — /. <?., uncontrollable cosmic forces : 
 (3) labor, or human service, which is chiefly affected by social 
 influences. 
 
 1. First, then, will this hypothesis account for the price-move- 
 ment of manufactured commodities? The history of the price 
 of manufactured products in the wholesale market shows two 
 characteristic facts. One is the constant tendency of prices to 
 permanently fall with no disadvantage to the producer, and with- 
 out any perceptible variation in the ratio of demand and supply. 
 The other is a tendency to periodic " over-production," which, - 
 instead of permanently lowering prices proportionately to the 
 relative over-supply, results in the closing of factories and of 
 workshops, discharging labor, loss, bankruptcy, and other un- 
 economic conditions. Both of these facts are adequately accounted 
 for by our hypothesis. 
 
 The reason that the price of manufactured products tends to 
 permanently fall — with mutual advantage — is that the cost of 
 producing the most expensive portion of the supply is gradually 
 diminished through the concentration of capital and the use of 
 improved methods of production, giving a larger aggregate product 
 per unit of productive force. This theory affords an equally clear 
 explanation of why loss and bankruptcy follow so-called over- 
 production. It is because the increased supply involves a 
 corresponding increase in the cost of productive force that no 
 reduction in the price can be made without loss. Consequently 
 one of two losing alternatives is inevitable, namely : either to sell 
 at less than cost, or to suspend business. When, after disposing 
 of the surplus through one or the other of these losing avenues, 
 the normal process of production is again resumed, it must be at 
 
AGRICULTURAL PRICES. 1 33 
 
 the prices which previously prevailed ; that is to say, the price of 
 commodities must sustain the same ratio to that of labor as 
 before, for the reason that no diminution in the cost, per 
 unit of productive force, has taken place. Thus prices under 
 both conditions obey the same law, namely : of constantly tending 
 towards the cost of producing the most expensive portion of the supply. 
 Any variation of prices contrary to this law involves economic 
 loss and social disadvantage. 
 
 2. The price-movement of agricultural products is quite differ- 
 ent from that of manufactured articles, but, if examined in the 
 light of this hypothesis, it will be found to follow exactly the 
 same law. In manufactured commodities we have seen that the 
 general tendency has been towards lower prices without loss ; 
 and that periodic increase of production (over-production) fails 
 to lower prices, except by loss and bankruptcy. In agriculture, 
 these two facts are reversed. The general tendency of agri- 
 cultural prices is to rise without increasing the profits, and the 
 periodic increase of production (exceptionally large crops) lowers 
 prices without loss. In other words, the general tendency of 
 agricultural prices is to rise without any perceptible variation in 
 the ratio of demand and supply, but in the yearly product prices 
 rise and fall with the demand and supply ; nor is the reason for 
 this hitherto unexplained phenomenon difficult to understand. 
 
 The price of agricultural produce — especially meat, butter, 
 poultry, and garden products — tends to rise for the reason that 
 the cost of their production tends to increase. This is due to the 
 obvious fact that the use of labor-saving methods has not reduced 
 the cost of productive energy per unit as much as the general rise 
 of wages has increased it, and consequently the net cost of pro- 
 ducing the most expensive portion of the supply in agriculture 
 has, in many instances, increased during the present century. 
 Nor is the fact that agricultural prices tend, from year to year, to 
 rise and fall with the variation in the demand and supply, less 
 easy to explain. The reason for this is that the sudden increase 
 in the supply is not accompanied, as in the case of manufactured 
 products, with a corresponding increase in the cost. Hence, every 
 unit of product added to the crop diminishes the cost of every 
 other unit. For example, if the normal wheat crop in r889 were 
 20 bushels per acre, and, through the influence of a favorable 
 
134 PRICES IN DIFFERENT COUNTRIES. 
 
 season, the crop in 1890 should be 30 bushels per acre, each 
 bushel in 1890 — with the exception of the items of harvesting, 
 threshing, and transportation — would cost about one third less 
 than in 1889. Therefore the price per bushel of that crop might 
 fall about 25 per cent, without any injury to the farmer, because, 
 with the exception of the items referred to, the 30 bushels in 1890 
 did not cost any more than did the 20 bushels the previous year. 
 The increased supply being chiefly gratuitous, it reduced the cost 
 per bushel of the whole crop to that extent. This explains the 
 fact, so common in the history of agriculture, that farmers often 
 get as much for a small crop as for a large one. 
 
 The increased or diminished quantity only affects the price 
 through operating upon the cost. And the only reason why the 
 price of shoes does not fall with the increased supply — without 
 loss to the producer — and the price of wheat does, is because the 
 increase in the supply of shoes does not diminish the cost of pro- 
 ducing the shoes, while with every increase in the supply of the 
 wheat the cost of its production is proportionately reduced. 
 Therefore, while the price of agricultural products follows the 
 variations of supply and demand, it is really governed by the 
 same economic force as that of manufactured products, namely : 
 the cost of producing the most expensive portion of the supply. 
 
 Moreover, this hypothesis not only accounts for the disparity 
 between the general movement of the prices of agricultural and 
 manufactured products in civilized countries, but it also affords 
 a rational explanation of why they practically move together in 
 uncivilized countries. When we recognize the fact that the price 
 of agricultural produce in civilized countries tends to rise, be- 
 cause the general rise of wages has increased the cost of produc- 
 tion more than the use of labor-saving methods has reduced it; 
 and that the price of manufactured products tends to fall, because 
 the use of labor-saving methods in their production has reduced 
 the cost more than the general rise of wages has increased it, we 
 have no difficulty in understanding why this disparity of move- 
 ment does not exist in less civilized countries, where machinery 
 is but slightly employed in either manufacture or agriculture. 
 
 3. In the light of this theory the infinite variation in the price 
 of labor, which has hitherto been an economic enigma, at once 
 assumes a rational aspect and obeys the orderly operation of 
 
THE PRICE OF LABOR. 1 35 
 
 economic law. The price of labor, like that of every thing else, 
 constantly tends to follow the line of the cost of producing the 
 most expensive portion of any given commodity in the same mar- 
 ket. The price of the Asiatic is lower than that of the European, 
 and the price of the European is lower than that of the American, 
 because his cost is less. The price of the farm-laborer is lower 
 than that of the mechanic, and the price of the mechanic is lower 
 in the country than in the city ; the price of the mechanic in the 
 city is lower than that of the professional classes, and the price 
 of the labor of women is lower than that of men in the same 
 grade, for the simple reason that the cost of living, and conse- 
 quently the cost of their labor, is less. 
 
 What we have seen to be true in the case of manufactured 
 products is also true of labor. The mere increase in the quan- 
 tity, if of the same social quality, cannot permanently reduce the 
 price, and vice versa. It may create enforced idleness which, as 
 in the case of over-production, will inflici. serious loss, but these 
 who are employed must still receive the equivalent of their cost. 
 If, however, the increased supply of labor is due to the intro- 
 duction of a lower social quality — i.e., less expensive grade of 
 laborers, — this will tend to reduce the price. But the fall of the 
 price in this case, as in that of agriculture, is due to the fact that 
 the increased quantity was accompanied by reduced cost. It is 
 the failure to recognize this distinction in the movement of price- 
 making phenomena that has given such a general acceptance to 
 the doctrine of demand and supply. The presence of the quan- 
 tity is more easily observed than is the influence of the social 
 quality, or cost. Hence the former has been assumed to be the 
 determining cause, when it was only the accompanying incident, 
 and the real cause has been generally overlooked. In order to 
 illustrate this movement in the case of wages, let us suppose that 
 there were 10,000 men employed in a given industry — the mini- 
 mum cost of the most expensive 1,000 of them being $2.00 a day 
 — if the laborers in that industry were increased to 15,000, and 
 the least expensive of the new-comers required $2.00 a day, and 
 the remainder of them required more, this increase of laborers 
 seeking employment would not reduce wages. The result would 
 be that the new-comers would fail to obtain employment. If, on 
 the other hand, the 5,000 new-comers were from a lower civiliza- 
 
I36 QUALITY NOT QUANTITY OF LABOR. 
 
 tion, and their cost of living were only $1.00 or $1.50 a day, their 
 influx would cause a reduction in the rate of wages. This 
 would not be brought about by reducing the pay of the most ex- 
 pensive that had been previously employed, but by substituting 
 the new-comers for the old, in which case the dear men would be 
 supplanted by the cheap men. The $2.oo-a-day men would not 
 be working for $1.00, but they would be discharged and the 
 $i.oo-a-day men would take their places. Thus, while the rate 
 of wages would have fallen, it would not have fallen for the same 
 laborers, but it would have fallen to the level of the new laborers 
 because their cost was lower. This is what investigation has 
 shown to be the case in hundreds of instances where non-union 
 men have taken the places of strikers at a lower rate of wages. 
 The non-union men do not take lower, but in such cases often 
 receive higher, wages than they have previously obtained, which 
 increase is made possible for them by the union men, and the 
 union men who struck for the rise, and were superseded by the 
 non-union men, seldom go to work elsewhere at lower wages, 
 but, as a rule, find employment at their trade or in some other 
 occupation at rates approximating those which they struck to 
 secure. 1 
 
 If the market for labor were increased with the advent of the 
 new laborers so that the whole 15,000 could be employed, then 
 no reduction of wages would take place ; because, in that case, 
 the original $2.oo-a-day laborers being necessary, they still would 
 form the most expensive portion of the supply, and their cost 
 would consequently determine the rate of wages, and $2.00 a day 
 would continue to be paid. It will be seen that, while the fall in 
 the wages accompanies and seems to be fixed by the increased 
 supply, it is really governed by the cost of the most expensive 
 portion of the necessary supply. The fact that the $2.oo-a-day 
 laborers were no longer needed destroyed their price-regulating 
 influence. 
 
 Suppose, for example, that 10,000 $3.oo-a-day American me- 
 chanics should emigrate to a given locality in China where 10,000 
 laborers were working, at the same trade, at from 10 to 20 cents 
 
 1 The exception to this is where the strike has been inaugurated through the 
 undue influence of a few individuals, and in advance of the demand of the most 
 advanced 20 per cent, of the class or trade. 
 
WAGE VARIATION. 1 37 
 
 a day ; it is very clear that the competition of the $3.oo-a-day 
 Americans against the 10- or 20-cent-a-day Chinamen could not 
 reduce their wages, — although the supply was increased over the 
 demand by 100 per cent. The result in such a case would be 
 exactly the reverse of the one just referred to, namely : that the 
 new-comers, instead of supplanting the old, and thereby estab- 
 lishing a lower rate of wages, if employed at all, would necessarily 
 establish a much higher rate of wages, because their cost would 
 be higher. Other things remaining the same, the fact would be 
 that the new-comers would not be employed, — because their cost 
 would be so much greater than the old laborers, and therefore the 
 rate of wages would remain unchanged, and the new-comers would 
 remain unemployed ; whereas, in the other case, the old workers 
 became the unemployed, because the new-comers were less ex- 
 pensive. It is clear then that the increased supply affects wages 
 only when the new-comers introduce a variation in the cost. If 
 they are cheaper a lower price will be established, because the 
 cost-level is lower ; if they are dearer the price will be raised (if 
 they are employed), because the cost-level will be higher. But 
 the latter case seldom occurs, because the dearer man will seldom 
 be employed in preference to the cheaper. This is why all emi- 
 gration is from countries with a lower wage-level towards those 
 with a higher wage-level ; why there is no emigration of European 
 laborers to Asia, nor of American laborers to Europe. Here, then, 
 we have a universal, scientific law of prices which explains both 
 the permanent economic tendency and the uneconomic perturba- 
 tions of all classes of price-receiving phenomena. 
 
CHAPTER V. 
 
 THE LAW OF THE COST OF PRODUCTION. 
 
 SECTION I. — Popular Errors Regarding the Cost of Production. 
 
 Having seen that the cost of production is the controlling 
 factor in the law of prices, we are now led to the consideration of 
 what determines the cost of production. The popular theory 
 upon this subject, though suggested by Adam Smith, was formu- 
 lated and most ably stated by Ricardo — who insists that the 
 " natural price of commodities," and the cost of their production, 
 are determined by the quantity of labor involved. 
 
 Assuming the existence of primitive hunters and fishermen, 
 Ricardo says : " The comparative value of the fish and the game 
 would be entirely regulated by the quantity of labor realized in 
 each ; whatever might be the quantity of production, or however 
 high or low general wages or profits might be." 1 What is true 
 under these simple conditions, he asserts, will always be equally 
 true in the most complex society. 
 
 It may be readily admitted that the same principle which gov- 
 erned the cost of production in the earliest state of society would 
 obtain under the most complex conditions, but before we can 
 consent to interpret the complex phenomena of modern society 
 by a hypothesis based upon the simple conditions of the most 
 primitive social state, we must at least be sure that it affords the 
 true explanation of the phenomena from which it was constructed. 
 It frequently happens in the more simple stages of phenomena 
 that two facts occur simultaneously, either of which appears to be 
 the cause of the succeeding phenomena ; and, from direct sense 
 
 1 " Political Economy and Taxation," p. 18. 
 138 
 
SIMPLE PHENOMENA MISLEADING. 1 39 
 
 impression, that which is most easily observed is most likely to 
 be regarded as the cause. When the phenomena become more 
 complex, however, and the variations more numerous and subtle, 
 the effects of the two facts are separated, and it becomes of vital 
 importance to learn which of the two enters the hypothesis. 
 
 For example, when only the simpler astronomical phenomena 
 were known, the geocentric hypothesis was sufficient to account 
 for them ; but as the observations increased, and more complex 
 phenomena appeared, the theory that the earth was the centre of 
 the solar system became wholly inadequate, and the heliocentric 
 hypothesis was necessary. So, too, when only the simpler geologi- 
 cal phenomena were observed, the theory of a special creation 
 appeared all-sufficient, but as the knowledge of geological phe- 
 nomena increased, this theory became inadequate to explain the 
 age of the earth, and had to be abandoned. The same plausible 
 error is also apparent in the law of supply and demand. At first 
 glance,' the statement that the quantity of labor devoted to pro- 
 curing the game and the fish determines their cost seems quite 
 plausible, but if we examine the case of the primitive man a little 
 closer we shall find that an oversight similar to those just men- 
 tioned has been committed. We will assume, as Ricardo evidently 
 does, that the habits and customs of the hunter and the fisherman 
 are identical. If so, and the hunter can average one deer a day, 
 and the fisherman can catch two salmon a day, the quantity of 
 labor devoted to procuring one deer and that devoted to procur- 
 ing two salmon would be exactly alike. It would then be per- 
 fectly correct to say that the cost of two salmon would be exactly 
 equal to that of one deer. In other words, the cost of producing 
 either salmon or deer would always be identical with the quantity 
 of labor devoted to procuring either of them. It will be observed, 
 however, that it would be equally correct to say that the cost of 
 producing either the deer or the salmon was always identical with 
 the cost of the labor devoted to procuring them, because, under 
 these conditions, the cost of a given quantity of labor is exactly 
 the same in either case. Therefore, the variation of the quantity 
 of labor is a variation of the cost of labor. Hence, so far as ex- 
 plaining this simple class of phenomena is concerned, it would 
 make no difference whether we assume that the cost of the deer 
 or the beaver is determined by the quantity or by the cost of the 
 
140 RICARDO'S ILLUSTRATION. 
 
 labor which is devoted to their production, because in this case 
 the two facts are identical. 
 
 If we push the inquiry a little further, and ask why the quan- 
 tity of labor devoted to procuring deer or salmon determines the 
 cost, the true answer is because a given quantity of effort involves 
 a given amount of cost to the laborer ; hence, the more labor he 
 puts into a thing the greater is its cost. And if we ask why the 
 cost of labor should affect the cost of the product, the obvious 
 answer is because the laborer must obtain as much for his labor 
 as it cost him, or he could not continue to furnish it. 
 
 It thus appears that the mere quantity of labor devoted to 
 catching the deer or salmon affects their cost only as it represents 
 the cost of the effort to the laborers, and hence the amount which 
 they must obtain for it. In other words, the same quantity of 
 labor involves the same cost to the hunter and the fisherman only 
 because the cost of a unit of labor is the same to each man. 
 Therefore, while it is true in this case that the cost of producing 
 the deer or the salmon varies exactly with the change in the quan- 
 tity of labor devoted to obtaining them ; in the other cases the 
 cost of the product varies with the quantity of labor, because every 
 variation in the quantity carries with it a variation in the cost of 
 that labor. To show this more clearly, let us take the same two 
 men and suppose that the cost of living of the hunter is double 
 that of the fisherman ; that he either consumes more expensive 
 things, or that a greater number of things enter into his life. In 
 this case, if he can only kill a deer a day, and the fisherman can 
 catch two salmon a day, one deer will cost twice as much as two 
 salmon, although no more labor is devoted to catching it. The 
 reason that the deer costs more is because the labor devoted to 
 catching it is more expensive. Since the labor of the hunter 
 costs twice the labor of the fisherman, an hour's labor devoted to 
 hunting costs twice as much as an hour's labor devoted to fish- 
 ing ; consequently the cost of the product of the hunter will be 
 double that of the fisherman. Thus we see that in the last analy- 
 sis — even in the case of the primitive man — it is not merely the 
 quantity, but the cost, of the labor that really determines the cost 
 of the product. Therefore, the statement, that the same amount 
 of labor always involves the same cost in production, is only true 
 when it is accompanied by the other fact, namely, that the labor 
 in both cases costs the same. 
 
COST AND QUANTITY CONFOUNDED. I41 
 
 If we follow Ricardo from his primitive hunter and fisherman 
 to his modern " stocking maker " we shall see how completely the 
 error resulting from the failure to recognize this distinction per- 
 meates his whole doctrine and vitiates his conclusions regarding 
 the cost of production. He says : " If we look to a state of 
 society in which greater improvements have been made, and in 
 which the arts and commerce flourish, we shall still find that 
 commodities vary in value conformably with this principle. . . . 
 To convince ourselves that this is the real foundation of exchange- 
 able value, let us suppose any improvement to be made in the 
 means of abridging labor in any one of the various processes 
 through which the raw cotton must pass, before the manufactured 
 stockings come to the market, to be exchanged for other things, 
 and observe the effect which will follow. If fewer men were re- 
 quired to cultivate the raw cotton, or if fewer sailors were em- 
 ployed in navigating, or shipwrights in constructing, the ship in 
 which it was conveyed to us ; if fewer hands were employed in 
 raising the buildings and machinery, or if these, when raised, 
 were rendered more efficient, the stockings would inevitably fall 
 in value, and consequently command less of other things. They 
 would fall because a less quantity of labor was necessary to their 
 production. . . . No alteration in the wages of labor produces 
 any alteration in the relative value of these commodities." 1 It 
 will be observed that Ricardo's conclusions in regard to the stock- 
 ings are true only on the condition that something else is true — 
 namely, that the price of labor has remained the same. Although 
 reducing the quantity of labor in the manufacture of stockings 
 may, it does not follow that it necessarily will, produce the effect 
 here stated. 
 
 As, for example, suppose that, through the use of improved 
 machinery, the stockings could be made with one tenth fewer men, 
 and, at the same time, that the price of the laborers still employed 
 in making them were increased ten per cent, the cost of pro- 
 ducing the stockings would remain absolutely unchanged, al- 
 though ten per cent, less labor was devoted to their production. 
 And, consequently, if the price of labor were advanced ten per 
 cent., and the quantity of labor required to make the stockings 
 remained the same (a fact of common occurrence), the cost of 
 
 1 " Principles of Political Economy and Taxation," pp. 17-19. — McCulloch's 
 edition, 1881. 
 
142 BR ASSET'S EXPERIENCE. 
 
 producing the stockings would then rise ten per cent, without any 
 change whatever in the quantity of labor required to produce 
 them. It is thus very clear that the cost of producing the stock- 
 ings may change without any alteration in the quantity of labor 
 expended upon them, or the quantity of labor may change with- 
 out any variation in the cost of making the stockings. Whether 
 or not a change in the quantity of labor required to make the 
 stockings will change the cost of their production, depends en- 
 tirely upon whether it makes any change in the total amount paid 
 for the labor employed in producing them. 
 
 The experience of Mr. Thomas Brassey, who probably em- 
 ployed a greater number of laborers in more countries than any 
 other man in the world, fully establishes this position. Some of 
 Mr. Brassey's experiences while employing labor in the construc- 
 tion of railroads in England, France, Spain, Italy, Saxony, Aus- 
 tria, Hungary, Belgium, Moldavia, Austria, Canada, the Argentine 
 Republic, Syria, Persia, and India, when, according to Sir Arthur 
 Helps, he sometimes had over eighty thousand persons in his em- 
 ploy at one time, are given by his son in his book called " Work 
 and Wages." 
 
 In the construction of the Grand Trunk Railroad, so far as 
 French Canadians were employed, he shows that about two fifths 
 more labor was required to do the same work than in England. 1 
 Still the total cost was about the same. In the construction of 
 the Paris and Rouen railroad in France a similar result is shown. 
 Five days of a Frenchman's labor was only equal to three of an 
 Englishman's ; still a mile of road built by the French laborers 
 cost no more than the road built by the English laborers, simply 
 because two fifths less wages were paid to the French than to the 
 English laborers. 3 So, in the quarry at Bonnieres, four French- 
 men, or three Irishmen, were found to be equal to two Eng- 
 lishmen.' 
 
 In contrasting the quantity of work and wages in England and 
 Ireland, Mr. Brassey shows that, although about twice as many 
 laborers were required in Ireland as in England to build a mile 
 of railroad, " sub-contracts in the Irish railroad were let at the 
 prices which had been previously paid in Staffordshire." 4 And 
 
 1 " Work and Wages," pp. 86, 87. 3 Ibid., p. 82. 
 
 1 Ibid. , pp. 79-82. 4 Ibid. , p. 69. 
 
HIGH-PRICED LABOR THE CHEAPEST. 143 
 
 in India, where the " sweat and sacrifice " of twelve or more 
 native laborers was bestowed on making as much road as would 
 be accomplished by one Englishman, Mr. Brassey declares that, 
 "mile for mile, the cost of railway work is about the same as in 
 England." 1 The same is true of other industries. The toil of 
 fifty-two laborers is required in smelting the same amount of pig- 
 iron in France as is done by twenty-five laborers on the Tees 3 ; 
 and the cost of producing the iron in the two countries is about 
 the same. Statistics show that the same variation in the quan- 
 tity of labor required to produce the same commodities in dif- 
 ferent countries prevails in different branches in the same 
 countries, and consequently that it is invariably the total amount 
 paid, and not the quantity of labor employed, which determines the 
 cost of production. 
 
 SECTION II. — High-Priced Labor Makes Low Cost of Pro- 
 duction and Cheap Products. 
 
 After what has been said, to affirm that a rise in the wages of 
 labor will lessen the cost of production and diminish prices, may 
 have a paradoxical seeming. If the value of commodities is de- 
 termined by the cost of production, and the cost of production is 
 determined by the price — and not by the quantity, — of labor it 
 would, at first, seem to follow, that a rise of wages involves an in- 
 crease of cost and a consequent rise in the price of products. 
 But this is one of the many instances in economics where things 
 are not as they appear from direct observation. Ricardo could 
 see that, other things being the same, any variation in the quan- 
 tity of labor expended causes a corresponding variation in the 
 cost of production ; but he could not see that any change in the 
 price of labor has the same effect. To him, the only result of a 
 rise in wages is a fall in profits. Indeed, he explicitly declares : 
 " No alteration in the wages of labor could produce any altera- 
 tion in the relative value of these commodities " 3 ; but he adds : 
 " Not so with the other great cause of the variation in the value 
 of commodities, namely : the increase or diminution of the quan- 
 
 1 " Work and Wages," pp. 79-82. 
 
 s F. A. Walker, " Wages Question," p. 44. See also Brassey's "Work and 
 Wages," p. 165, 2d edition. 
 
 3 " Principles of Political Economy and Taxation," p. 19. 
 
144 RELATION OF WAGES TO MACHINERY. 
 
 tity of labor necessary to produce them. . . . Every improve- 
 ment in machinery, in tools, in buildings, in raising the raw 
 material, saves labor and enables us to produce the commodity 
 to which the improvement is applied with more facility, and 
 consequently its value alters." ] 
 
 In saying that improved machinery is the potent means of 
 reducing the cost of production, Ricardo recognized a funda- 
 mental truth, but by failing to see the connection between 
 machinery and wages, he entirely overlooked the influences 
 which promote the use of the labor-saving methods. If he had 
 seen the logical necessity of explaining the causes that promote 
 the use of machinery as clearly as he did see the fact that 
 machinery reduces the cost of production, his investigations 
 would have forced him into recognizing the absurdity of his 
 cheap-labor doctrine. All writers on economics have shown a 
 due appreciation of the fact that the extensive use of capital and 
 improved methods is indispensable to the large and cheap pro- 
 duction of wealth. Nor have they had any difficulty in seeing 
 that, by the increased concentration of capital, the cost of pro- 
 duction and the price of commodities have been lowered ; but 
 they have made practically no effort to explain how the success- 
 ful use of capital and machinery becomes possible. Adam Smith 
 did go far enough to see that the division of labor and the use of 
 capital was " limited by the extent of the market," but it did not 
 occur to him to consider the economic relation that wages sustain 
 to the extent of the market, and that relation has been largely 
 overlooked since his time. 
 
 American writers have recently attempted to approach this 
 subject on independent lines. The most creditable efforts in 
 this direction are those of Stuart Wood and John B. Clark. 2 
 Both of these writers fully recognize auxiliary capital as the 
 means of lessening the cost of production and of cheapening 
 commodities. Indeed, they go one step further and recognize 
 the fact that capital, or machinery, can only be employed in pro- 
 duction when it is cheaper as a productive force than labor. 
 " Machinery is preferred," says Stuart Wood,' " simply because 
 
 1 Principles of Political Economy and Taxation, p. 24. 
 
 2 " Publications of American Economic Association," vol. iv., No. I. 
 ' Quarterly Journal of Economics, pp. 67, 68. 
 
STUART WOOD'S THEORY. 145 
 
 the cost of production is lessened by its use. Also, in many pro- 
 cesses now executed by hand, machinery would be equally effi- 
 cient, but it is not used because it would involve a greater cost 
 of production, . . . but there are other cases in which the 
 cost is equal, or very nearly equal, whether labor is employed, or 
 auxiliary capital. In such cases, the slightest change in the price 
 of labor immediately affects the demand for it . Where 
 
 the cost is just equal, labor and capital will be used indifferently. 
 On either side of this point that one of the two will be employed 
 which is relatively the cheapest." 
 
 Stuart Wood manifestly sees that something in addition to the 
 mere existence of capital is necessary to make its economic use 
 possible. It is also clear to him that nothing can do this which does 
 not make capital cheaper than labor, as a means of production. 
 The important question that arises here is the same as that which 
 confronted Ricardo, namely : how, or under what conditions, 
 will the use of capital become cheaper than labor ? To this 
 question Wood, like Ricardo, is silent. The nearest that he 
 comes to dealing with it is to suggest that the one will be em- 
 ployed which will accept the least return for its effort. 
 
 According to this theory, capital can only be employed by dis- 
 charging labor. If this doctrine is correct, the anti-power-loom 
 rioters in England were right, and the ignorant laborers — who to- 
 day oppose the introduction of improved machinery — are acting 
 upon sound economic principles. In short, the factory methods of 
 production would simply mean the degradation of labor, and the 
 charge so commonly made by the socialists, that capitalists are 
 the natural enemy of the laborer, would be fully sustained, be- 
 cause the effect of capital would constantly be to compel the 
 laborer to choose between low wages and enforced idleness. 
 
 Again, if capital could only be employed by discharging labor 
 it would destroy its own success. By discharging the laborer it 
 would destroy his power to consume, and thereby reduce the 
 markets for its own products. The enforced idleness thus cre- 
 ated reduces the market in exactly the same proportion that the 
 use of capital saves labor, and consequently all that is gained by 
 the cheap product is lost by the increased idleness. 
 
 This theory is clearly contrary to experience. It is one of the 
 most obvious facts in the history of machine-made products 
 
I46 FUNCTION OF CAPITAL. 
 
 that the use of capital and machinery in production does not 
 permanently increase enforced idleness among the laborers. 
 There are three important facts always connected with the use 
 of machinery. (1) It can only be employed when it can do the 
 work cheaper than labor. (2) It can only do the work cheaper 
 than labor when it produces the same amount with less labor. 
 (3) It can only successfully save labor when it is accompanied by 
 new employment creating conditions. Displaced labor can only 
 be saved when it is re-employed. How to create new employ- 
 ments to absorb the discharged laborers must be explained before 
 the question — how capital can become a cheaper productive force 
 than labor — can be answered. 
 
 The great fact underlying all successful production is con- 
 sumption. The first condition to the success of any method in 
 production is a market for the products ; therefore nothing can 
 make the use of capital successful which does not supply a mar- 
 ket for the products. The mistake of Wood's theory is that it 
 fails to reckon with this fact. It assumes that which Clark more 
 explicitly states, 1 namely : " As capital outgrows labor in quan- 
 tity ... it pushes outward the independent margin of its own 
 field." This is an entire mistake. Capital can only become an 
 active, productive force under certain social and economic con- 
 ditions, and it is wholly powerless to create these conditions for 
 itself. Capital is a tool, or instrument, and its function is to 
 supply markets, but not to make them, — a fact that these econo- 
 mists have overlooked. If their doctrine were correct, every 
 increased supply of a commodity at a reduced price would 
 be certain to find a market ; and yet the patent-offices of the 
 world supply evidence to the contrary. Thousands upon thou- 
 sands of examples of improved contrivances, that can produce 
 commodities at less than current price, cannot be used because 
 their products cannot be sold. 
 
 It is true, within certain limits, that to reduce the price of a 
 commodity will increase the sales, because that will put it within 
 the reach of those who previously desired it, but whose desire 
 was not sufficiently strong to induce them to give the larger price. 
 It is only because the desire already exists, however, that the 
 product can be sold, even at the reduced price. 8 The most that 
 
 1 Publications of Economic Association, vol. iv., No. I, p. 57. 
 
 * This much was clear even to Ricardo, for he says : "If the natural price of 
 
IMPORTANCE OF THE MARKET. 1 47 
 
 can ever occur in this line is that the price can descend to meet 
 the weakest effectual demand. 
 
 It is entirely outside the province and power of capital to 
 create the conditions for its own successful employment. Were 
 this otherwise, capital would never be idle, and failure, bank- 
 ruptcy, and industrial depressions could never occur, because it 
 could always make investments profitable by creating markets for 
 its own products ; whereas we know that hundreds of millions of 
 dollars are constantly waiting for an opportunity to be profitably 
 employed, and failure, bankruptcy, and industrial depressions are 
 among the most painful industrial experiences. 
 
 Since capital can only be profitably employed when it can work 
 cheaper than labor, and since neither the formation of new indus- 
 tries nor the extension of old ones is possible without an increase 
 in the consumption, it follows that the employment of capital in 
 production finally depends upon the extension of the market for 
 commodities. No theory, therefore, can explain the employment 
 of capital which does not explain the creation of new or larger 
 markets. This neither Ricardo, Wood, nor Clark has done, and 
 consequently they have failed to explain how capital can become 
 cheaper than labor, and machinery be economically substituted 
 for muscle. 
 
 It should be remembered that it is a characteristic feature of 
 the use of machinery that its superiority over labor does not 
 consist in its capacity to produce a small amount of wealth at a 
 less cost than labor, but chiefly in its power to produce a much 
 larger quantity at a relatively less cost, i.e. a smaller cost per 
 unit of product. And, as the cost of the whole product must be 
 defrayed by the income from that portion which is sold, the eco- 
 nomic success of the machine depends upon the possibility of 
 selling all the increased quantity which it produces. 
 
 There is no fact in modern history more easily demonstrated 
 than that the products of steam-driven machinery are mainly 
 consumed by the common people — the masses. While the mid- 
 labor should fall 50 per cent, from some great discovery in the science of agri- 
 culture, the demand would not greatly increase, for no man would desire more 
 than would satisfy his wants ; and as the demand would not increase, neither 
 would the supply, for a commodity is not supplied merely because it can be 
 produced, but because there is "a demand for it." — "Principles of Political 
 Economy and Taxation," chapter xxx., p. 234, McCulloch's edition, 1881. 
 
148 WAGES MEASURE CONSUMPTION. 
 
 die and, to some extent, the upper classes consume machine-made 
 products, their consumption constitutes such a small proportion 
 of the market that probably no modern factory or railroad could 
 be sustained by their demand, at present prices. It is therefore 
 the consumption of the laboring classes which determines the 
 success or failure of factory methods of production. This ex- 
 plains why the railroads and the factory system cannot be 
 employed in Asia, Africa, and the more backward countries in 
 continental Europe, where the wages are low and the masses 
 consume but slightly of manufactured products. 
 
 Therefore, as wages must measure the extent of consumption 
 by the masses, we are inevitably driven to the conclusion that in- 
 stead of the advance of wages being dependent upon the more 
 extensive use of capital and machinery, — as Wood and Clark 1 
 and the wage-fund economists would have us believe, the fact is 
 exactly the reverse, and the successful use of capital depends 
 upon the general and permanent rise of wages. Clearly, then, it 
 is to the influences that promote the rise of wages that we must 
 look for the extension of the use of capital, and the consequent 
 lessening of the cost of production and lowering of prices. Al- 
 though the consideration of the law of wages, and the influences 
 that promote their increase, will be deferred to a subsequent 
 chapter, it is not difficult to see at present how, through the nor- 
 mal operation of economic law, a rise of wages necessarily tends 
 to promote the use of capital and machinery. 
 
 Wages, being the price of labor, are chiefly influenced by the 
 social forces that determine the life and character of the laborer. 
 Although their upward movement is always subtle and composite, 
 moving in almost insensible gradations, it is none the less positive 
 and aggressive. The first economic effect of the laborer's demand 
 for high wages is an increase of pressure upon the employer's 
 profit, who will endeavor to avoid it by passing it on to the con- 
 sumer in the form of higher prices. The consumer, acting upon 
 the same principle, endeavors to resist the higher prices by refus- 
 
 1 " By this twofold action only can wages rise with greater rapidity. But that 
 movement of the margins is possible only by means of a considerable excess 
 in the supply of capital unbalanced by labor." — " Possibility of a Scientific Law 
 of Wages," in Publications of American Economic Association, vol. iv., No. 1, 
 p. 59- 
 
THE LA W OF PRICES. I49 
 
 ing to purchase, or by buying a smaller quantity of the products, 
 thus forcing the manufacturer to lose by smaller sales what he 
 gains by increased prices. On the other hand, if the employer 
 attempts to resist the upward tendency of wages, he is met by the 
 stoppage of his works, and this involves an economic loss which 
 will only be encountered as a last resort. Ultimately, therefore, 
 the employer is compelled to choose between the use of the im- 
 proved methods by which his commodities can be made cheaper, 
 or the loss of his profits, and perhaps of his capital. Thus, while 
 unconsciously avoiding the dangers that beset him, he becomes 
 able to produce a larger amount at the same cost, and by this 
 means he can comply with the demand of his laborers for higher 
 wages without diminishing his profits — and often reduce the price 
 of the commodity as well. A reduction in the price puts com- 
 modities within the reach of another large class who were pre- 
 viously unable to consume them, and the market is thereby 
 extended, thus enlarging the income without raising the rate of 
 profit ; all of which tends to further increase the demand for 
 labor, and to improve the general well-being of the community. 
 
 We are now in a position to present a complete formula of the 
 law of prices, thus : (1) The price of commodities constantly 
 tends towards the cost of producing the most expensive portion 
 of the necessary supply in any given market — the movement tow- 
 ard that equilibrium increasing directly as economic knowledge 
 and freedom are extended, and inversely as they are restricted. 
 (2) The cost of production is ultimately determined by the price 
 of labor and moves inversely with wages. (3) Prices are finally 
 governed by wages — rising as wages fall, and falling as wages 
 rise. 
 
 If we regard the fact that high wages make low prices as a 
 principle in economic law, it will become clear that a low paid 
 man is the dearest thing on earth ; and that, through the democ- 
 racy of natural law, the wealth and civilization now enjoyed by 
 the most advanced people can be made cheaper for all, than 
 the poverty and barbarism which now prevail among the great 
 mass of mankind. 
 
CHAPTER VI. 
 MONEY AND ITS ECONOMIC FUNCTION. 
 
 Section I. — What is Money ? 
 
 Money is generally denned as the medium of exchange. The 
 chief objection to this definition is its indefiniteness. In order 
 to receive any clear idea from the expression, " medium of ex- 
 change," it is necessary to know in what way money facilitates 
 exchange. Is it wealth, or is it only a representative of wealth ? 
 If a representative of wealth, how does it represent it, — as prop- 
 erty, or as credit ? 
 
 Francis A. Walker has endeavored to solve this difficulty by 
 defining money ' as " that which passes freely from hand to 
 hand throughout the community in final discharge of debts and 
 full payment for commodities." This has been accepted by 
 Sidgwick and others as the best and most complete definition of 
 money yet given, and as such it is used in the last edition of the 
 " Encyclopedia Britannica." ' 
 
 If this definition be correct, money must be wealth. A debt, 
 being simply wealth due from another, can only be finally dis- 
 charged by the payment of the wealth due, or its equivalent in 
 some other form of wealth. Obviously, nothing but wealth can 
 economically cancel an obligation to deliver wealth. If money 
 is wealth, then every increase of money must be just so much 
 actual addition to the aggregate wealth of the community, — a 
 notion which is too absurd to need refuting. Yet it is exactly 
 because, in one way or another, money has been regarded as 
 wealth, or capital, that so many schemes have been invented for 
 enriching society by increasing the value of money. 
 
 1 " Money, Trade, and Industry," p. iv. 
 ' Vol. xiv., p. 720. 
 
 150 
 
MONEY NOT WEALTH. 151 
 
 In considering the question whether or not money is wealth, 
 we must be careful not to confound the idea of money with the 
 material of which it is made. If money is wealth, it must neces- 
 sarily contain the equivalent in wealth of that for which it will 
 exchange. This we know is frequently not the case. When 
 sheep, or cattle, or corn were used as money, or when money is 
 made of gold or silver of full weight and standard fineness, this 
 may be true, but when it is made from almost any other sub- 
 stance this is not true. When a gold dollar of full weight and 
 fineness is exchanged for a given amount of cloth, furniture, or 
 other commodities, property in the dollar is the economic equiv- 
 alent of the commodity. But when a hundred bronze pennies 
 are exchanged for the same amount of commodities, an equivalent 
 in property is not given because the value of the wealth in the 
 pennies is not as great as that in the commodities. And when a 
 dollar bank-note is given for a gold dollar or its equivalent in 
 any other commodity, the receiver of the note does not get the 
 equivalent in wealth of one per cent, of what he gave. But, as 
 money, he received as much in the paper bank-note, or in the 
 bronze pennies, as in the gold or silver dollar. Indeed, if the 
 pennies, or bank-notes, were regarded simply as wealth, they 
 never would be accepted in exchange for the commodities, or for 
 the gold. It is only as money that they are ever so accepted. 
 The reason for this is that, as money, the notes and pennies were 
 the equivalent of the gold, silver, or commodities, but, as wealth, 
 they were not. Obviously, therefore, money and wealth are not 
 identical. Wealth may be made into money, but money per se is 
 not wealth. 
 
 If we examine a few transactions in which money is employed, 
 the difference between, wealth and money, and the functions that 
 they fill, will be more easily discerned. For example, take a 
 transaction between the producers of apples and shoes. The 
 shoemaker desires a barrel of apples and the farmer desires a 
 pair of shoes. When the farmer delivers the apples to the shoe- 
 maker the latter is in the farmer's debt, say $2.00. When the 
 shoemaker delivers the shoes, the debt is finally cancelled. But 
 suppose the shoemaker wants two barrels of apples, and the 
 farmer wants only one pair of shoes ; when the apples and the 
 shoes are both delivered, a balance, equivalent to one barrel of 
 
152 MONEY EVIDENCE OF CREDIT. 
 
 apples, will remain to the credit of the farmer. The shoemaker 
 offers him a second pair of shoes, but these he declines, having 
 no use for them, or having a stronger desire for something else. 
 Since the shoemaker wants the apples and has no other com- 
 modity to offer in exchange that is acceptable to the farmer, in 
 order to balance the transaction, he gives him $2.00 in money. 
 For our purpose it does not matter what the money is made of, 
 so long as the farmer will accept it. This transaction represents 
 myriads that take place every day. Here the farmer delivered 
 two barrels of apples, for one of which he received an equivalent 
 in a pair of shoes, for the other he received $2.00 in money. 
 Now what position did the money occupy in this transaction ? 
 Did it figure as wealth ? Was it accepted by the farmer as an 
 equivalent for the second barrel of apples in the same sense that 
 the shoes were accepted for the first ? Nothing of the kind. 
 There is no way in which the farmer can consume the $2.00 in 
 the gratification of any of his wants or desires, physical or social. 
 It is absolutely of no use to him except as he can exchange it for 
 wealth or service. It was only on the assumption that others 
 would receive it from him in exchange for an amount of wealth 
 equivalent to what he gave the shoemaker for it, that he ever 
 consented to take it at all. 
 
 It is very clear then that the farmer received the money in lieu 
 of wealth. In the case of the first barrel of apples, where an ex- 
 change of wealth actually took place, no money was required. 
 It was only when the shoemaker did not give wealth for the 
 apples that he had to give money. In short, the money was 
 simply a substitute for wealth ; an evidence that an equivalent 
 had not been delivered. Therefore, instead of the $2.00 having 
 been the final settlement of the debt to the farmer, it was exactly 
 the reverse. It was simply the evidence that the debt had not 
 been finally settled. 
 
 The same is true of labor. When the laborer works a day 
 and receives $2.00 for it, he has not received the equivalent of 
 his service in wealth ; but only that by which he can obtain 
 wealth, — the evidence that he has rendered the services for 
 which he has not yet received an equivalent. 
 
 It may be said that if the money given to the farmer for his 
 apples, or to the laborer for his day's service had been gold, the 
 
DEFINITION OF MONEY. 1 53 
 
 debt would have been finally cancelled. That would be correct, 
 but the debt in that case would not be cancelled by the money, 
 but by the gold of which the money was made — which is quite 
 different. Gold is property, or wealth, just as much as shoes, 
 wheat, or any other product, and therefore it cancels debt. A 
 given quantity of silver, iron, tin, copper, leather, or any other 
 product of the same value, would equally cancel debt. The 
 only difference between receiving gold, and other property for 
 which one has no immediate use, is in its convenience for being 
 handled, the general knowledge of its value, and the uniform 
 willingness of others to accept it. An ounce of gold in bullion 
 will cancel a debt just as effectively as an ounce of gold in coin. 
 But when gold is used for money, so far as the money function 
 is concerned, it is accepted solely with the view to being subse- 
 quently exchanged for other commodities. It is only because it 
 will be so accepted that people will give their commodities for it. 
 Were this otherwise, the farmer would have taken another pair of 
 shoes in preference to two gold dollars for his second barrel of 
 apples, for, while he did not need the shoes, he could probably 
 have utilized them sooner than he could the gold in any other 
 way than exchanging it for other things. 
 
 So long as wealth can be directly exchanged in convenient 
 quantities, no medium is required. It is only when we desire a 
 commodity and have not an acceptable article in convenient 
 quantities to give in exchange for it, that money is of any ser- 
 vice. Thus, by introducing the element of credit — of which 
 money became the circulating evidence — the farmer and the 
 shoemaker were greatly assisted in obtaining what they most 
 desired. In other words, it made an indirect complex process of 
 exchange possible by substituting an accepted token of obligation 
 for present payment of debt. 
 
 Money, then, may really be defined as : a title to wealth not 
 delivered ; as the medium through which the most indirect and 
 economic exchanges are facilitated by giving currency to credit 
 and substituting obligation for present payment in economic 
 transactions. 
 
 SECTION II. — The Economic Functions of Money. 
 In order to constitute an efficient instrument for facilitating 
 economic exchange, through a series of incomplete transactions 
 
154 THE FUNCTION OF MONEY. 
 
 giving currency to credit, money must be capable of filling at 
 least two functions. It must supply : (i) A standard or de- 
 nominator of value ; (2) A convenient medium for circulating 
 obligations which will be uniformly accepted. 
 
 Since value is the ratio in which specific quantities of wealth 
 and service will exchange for each other as economic equiva- 
 lents ; for money to be a measure of value, it must have relation 
 to a specific quantity of a special kind of some particular com- 
 modity. Upon the same principle that things which are equal to 
 the same thing are equal to each other, the value of any given 
 commodity will constitute the measure of value for all commodi- 
 ties. Whatever therefore will correctly indicate the value of a 
 definite quantity of a given commodity of specific quality, and 
 will be uniformly accepted at par in exchange for commodities 
 and service, will fulfil all the functions of money. 
 
 Money, per se, is not a physical quantity, but only a mental 
 measure of the exchange relation of quantities. Its economic 
 function is to furnish a standard by which the value of different 
 quantities of wealth and service can be measured and compared ; 
 thus facilitating exchange and the mobility of wealth, by enabling 
 credit to be substituted for barter without violating equity in the 
 final fulfilment of obligation. 
 
 Nor has the community any interest in money being cheap as 
 is commonly assumed. The principal object in all economic 
 transactions is to obtain wealth, and the process whether simple 
 or complex, always involves the giving of service. Service being 
 the human, and wealth the nature, side of all economic movement, 
 it follows that the community is wholly interested in the value of 
 wealth falling and that of service rising ; and were money wealth, 
 the public would be equally interested in having its value dimin- 
 ished, but it is not. No class in the community, except mere 
 money speculators, can have any interest in promoting either a 
 rise or fall in the value of money. 
 
 Since wealth is cheap or dear only as it will exchange for 
 a large or small quantity of service, nothing can cheapen wealth 
 which does not reduce its value as compared with that of labor. 
 Now this is precisely what a change in the value of money cannot 
 accomplish. Money being merely the general denominator of 
 value, to which the value of all other things is referred, any 
 
EVILS OF FLUCTUATION. 1 55 
 
 change in its value would affect every thing else equally. To 
 assume that the relative value of one article could be altered by 
 a change which equally affects all, is to assume that things which 
 are equal to the same thing are not equal to each other. For 
 example, if there should be a fall of ten per cent, in the value of 
 money, the effect would be a rise in the value of commodities 
 and all who own commodities would receive ten per cent, more 
 money for the same quantity, but this would be equally true 
 of labor. For the same reason that ten per cent, more money 
 would be received for a bushel of wheat, or a suit of clothes, ten 
 per cent, more money would have to be given for a day's work. 
 The necessary consequence of such a change would be that, 
 while the employer received more for his goods, he would have to 
 give more for his labor and raw material ; and conversely, all the 
 laborer received as increased wages he would have to pay in 
 higher prices, and the amount of wealth obtained for a day's 
 service would remain absolutely unchanged. The relative value 
 of wealth and service thus remaining the same, the only result of 
 the change would be that more money would be used in each 
 transaction, — for which nobody would be the gainer. 
 
 If, however, this change should occur suddenly, it would cause 
 a temporary disturbance in economic relations. All who had 
 contracted debts would gain ten per cent., because money would 
 be worth ten per cent, less than when their obligations were con- 
 tracted. But this gain by the debtor class means just ten per 
 cent, loss by the creditor class ; and this would only apply to 
 previously existing contracts ; all future transactions would be 
 entirely unaffected by the change, because the new obligations 
 would be assumed on the basis of the new value. Thus, what- 
 ever gain would result from such a change in the value of money 
 would be of the most uneconomic character : like robbery, it 
 would simply enable one to gain by the loss of another. More- 
 over, such uneconomic changes in the value of money involve 
 serious disturbances in business relations, and consequently 
 an economic loss to the whole community. 
 
 It thus appears that society has nothing to gain, but much to 
 lose, by fluctuations in the value of money. 
 
 Clearly, then, while it is of vital interest to the industrial and 
 social welfare of the community that the value of wealth should 
 
156 THE VALUE OF MONEY. 
 
 fall, and the value of service should rise as rapidly as possible, it 
 is scarcely less important that the value of money should change 
 as little as possible. The efficiency of money in economics, like 
 that of weights and measures in business, depends upon the sta- 
 bility of its character and the convenience of its form. Therefore 
 the important question to settle is not how to make money cheap 
 or abundant, but, how to minimize the variations in its value and 
 maximize its circulating convenience. 
 
 Section III. — The Value of Money. 
 
 In considering the value of money two things should ever be 
 borne in mind, namely, that value is simply the ratio of exchange, 
 and that money is the accepted standard for measuring this ratio. 
 No matter, therefore, of what money is made, or even if it were 
 never reduced to material form, but simply consisted of verbal 
 expression passed from person to person, it must necessarily 
 relate to some definite quantity of one or more of the commodi- 
 ties subject to exchange. Otherwise the expression, penny, shil- 
 ling, pound, cent, dollar, etc., would convey no definite idea to 
 either buyer or seller. 
 
 Two questions here arise : (1) Is it essential that money be 
 made of the commodity it represents ? (2) Would a multiple 
 unit form a more invariable basis for the value of money than a 
 unit of a single commodity whose value is least variable ? 
 
 (1) Whether or not money shall be made of the commodity it 
 represents and contain property to the full amount of its face 
 value depends upon the state of civilization. In a state of society 
 where commercial and social integrity are so high that a promise 
 will never be violated, money can be purely representative ; it 
 only needs to have sufficient material in it to convey the evidence 
 of an expressed promise, but in a state of society where the moral 
 character is not sufficiently developed to make the written word 
 the highest bond, it becomes necessary to have the promise 
 secured by property in the money. In other words, just in pro- 
 portion as the security of the fulfilment of obligation is lacking 
 in the moral character of the community, it has to be furnished 
 in the material, or property-character, of its money. And con- 
 versely, as the moral character of the community rises, the 
 property-character of the money departs. Accordingly in the 
 
ESSENTIAL ATTRIBUTES OF MONEY. 1 57 
 
 lowest stages of civilization we find money entirely composed of 
 property, and, as civilization advances, of token-money and 
 purely representative-money (written or printed obligation). 
 Furthermore, so long as property-money is needed in the trans- 
 actions of any portion of the community, it must be the basis of 
 the transactions of all, because, unless the money used by the 
 highest is such as to command the confidence of the lowest, 
 commercial intercourse would be impossible. Since no country 
 has yet risen above the necessity of using property money in 
 some portion of its exchanges, and many countries still need it 
 for the greater part of their transactions, some portion of the 
 money of every country must continue to be made of the com- 
 modity which it represents. And conversely, the commodity of 
 which the property-money is made must be that upon which all 
 the pure, or representative, money is based — that is to say, the 
 value of a given unit of that product must be the standard by 
 which the value of all other commodities is measured when re- 
 ferred to in terms of money. 
 
 Therefore, in selecting the commodity, or commodities, which 
 would best serve as property- or barter-money, several questions 
 should be considered in addition to the stability of its value. (1) 
 It must possess utility — that is, it must be a commodity in itself, 
 generally desirable for the purposes of consumption, entirely 
 apart from its use as money. (2) In order to be a generally 
 acceptable instrument of exchange it must be easily transferred, 
 in which case it must possess the maximum value in the mini- 
 mum quantity. (3) It must be a commodity whose form and 
 qualities have the maximum durability, so that its value will 
 not deteriorate. (4) It should be of uniform quality, so that 
 every unit of it will be equal to every other unit. (5) It should 
 be a commodity whose value is subject to the minimum vari- 
 ation. 
 
 While almost any commodity would serve as a unit of measure- 
 ment and a basis of value which pure money could represent, 
 very few commodities possess the above qualities in the degree 
 necessary to constitute them a good circulating medium as prop- 
 erty-money. Almost every commodity has been employed for 
 this purpose, in some stage of civilization, but experience has 
 shown that if barter- or property-money must be employed, the 
 
158 THE DOUBLE STANDARD. 
 
 precious metals, particularly gold and silver, are best suited to fill 
 that function. 
 
 It is commonly held that, in addition to its other advantageous 
 qualities, the value of gold is less liable to variation than that of 
 any other commodity. Whether this claim can be fully sustained 
 or not, it is well known that the value of gold is subject to con- 
 siderable fluctuation. Even if the value of gold were less firm 
 than that of some other commodities, its superiority for the pur- 
 poses of money in so many other respects would still make it 
 preferable to any other commodity. The question arises, there- 
 fore, would not the aggregate value of a large number of units of 
 products form a more invariable standard of value than the unit 
 of a single commodity like gold ? 
 
 (2) It has been frequently contended by able writers that the 
 double standard of silver and gold tends to form a less variable 
 value than could be obtained by the use of either one alone. It 
 is claimed that the two exercise what Wolowski calls compen- 
 satory action. This is brought about, they say, by the fact that 
 if either silver or gold falls in value there at once arises a ten- 
 dency to transport the cheaper metal to the point where it is 
 most needed, and vice versa, thus tending to establish an approxi- 
 mate equilibrium between the two metals, and a less net variation 
 in the value of both. There may be some strength to this claim, 
 but it has not yet been established by any extensive experience. 
 
 It has been suggested by some writers that a more invariable 
 standard of value could be obtained by taking a given quantity 
 of a large number of staple commodities, and making their aggre- 
 gate value the standard upon which the unit of money should be 
 based. This idea was first presented in England by Joseph 
 Lowe, in a work, " The Present State of England in Regard to 
 Agriculture, Trade, and Finance " (1822) ; and again in 1833 by 
 Mr. G. Poulett Scrope, and in 1875 by Stanley Jevons, in his 
 work on " Money and the Mechanism of Exchange." The idea in 
 this proposition is that while the value of each of a hundred dif- 
 ferent articles might vary more than gold, their variation would 
 frequently be in different directions and offset each other ; and, 
 in the general movement of the value of the whole body, much of 
 the fluctuation of any particular article would be eliminated. 
 
 This is seen in the movement of prices during the present 
 
THE TABULAR STANDARD. 1 59 
 
 century. While some commodities have fallen 60 and 70 per 
 cent, in value, and others have increased considerably, the mean 
 level of prices, compared with gold, has only fallen about 14 
 per cent., so that the general price-level has probably varied less 
 than that of any one commodity. If one commodity is used as 
 the unit of value, and in the production of that article improved 
 machinery should be introduced to any considerable extent, its 
 value would be greatly reduced, as that of all machine-made 
 products has been. On the other hand, if it is an article in 
 whose production hand-labor is chiefly employed, then its value 
 will rise just as fast as wages increase and civilization advances, 
 as in the case of farm and garden products. But if the price- 
 level of a hundred or more principal commodities, including both 
 manufactured and agricultural products, and the aggregate value 
 of a definite quantity of each were taken as the standard unit of 
 value, it is quite certain that their value would be far more steady 
 than if based upon any particular one. The movement of the 
 variation in value would not only be more permanent and grad- 
 ual, thereby avoiding sudden perturbations, but the change in 
 value would represent the influence of civilization upon the cost 
 of producing wealth in general, and not that of some abnormal 
 force, like speculation, upon any particular article which may 
 produce a temporary change in value out of all proportion to 
 the general movement. Even this method would not dispose of 
 the use of the precious metals as money so long as property-money 
 is necessary, but it would obviate much of the business disturb- 
 ance and loss to the debtor and creditor class consequent upon a 
 sudden change in the value of gold or silver, because, while gold 
 might remain the nominal denominator of value, its value would be 
 measured by the aggregate value, at any given time, of the hun- 
 dred or more articles of which the. multiple standard is composed. 
 For example, if the stipulated quantity of the hundred articles 
 composing the tabular standard of value will exchange for $1,000 
 in gold on the first of January, 1890, and on the first of January, 
 1891, they will only command $900 in gold, it would be evident 
 that the gold had risen in value 10 per cent., as compared with 
 the articles in the tabular standard. Therefore, all obligations, 
 whether in the form of mortgages, borrowed money, or general 
 purchases contracted on the first of January, 1890, could be can- 
 
l6o REQUISITES OF TABULAR STANDARD. 
 
 celled on the first of January, 1891, with 10 per cent, less gold 
 than at the time of the agreement. But, by receiving 10 per cent, 
 less gold, the creditor would receive the equivalent of exactly the 
 same amount of the various commodities as if they had been paid 
 in gold when the contract was made. By this means the debtor 
 would avoid the loss consequent upon the rise in the value of gold 
 during the year. Thus whether a debt was paid by the same 
 amount of gold or not, it would always be cancelled by an amount 
 of gold equivalent in value to the same quantity of general com- 
 modities that the debt originally represented. Therefore, whatever 
 effect the variation in the value of gold had upon the quantity of 
 money received, it would have practically none upon the quan- 
 tity of wealth received. By thus making the value of money 
 depend upon that of the general body of staple commodities, 
 it would, at least, remove it further from the influence of mere 
 capricious speculation and confine its fluctuations to the normal 
 movement in the general value of wealth. 
 
 The principle involved in a tabular standard is unquestionably 
 sound. That it would tend to minimize the fluctuations in the 
 value of money is as certain as that the movement of large bodies 
 is more steady than that of small ones. It is simply the applica- 
 tion of the law of averages to the unit of value, which has been so 
 completely demonstrated in the sphere of insurance. Like all 
 instruments of increased complexity, however, it presents some 
 difficulties in application, on its first introduction. In the first 
 place, it would necessitate the extensive collection of exact data 
 regarding the prices of commodities, particularly those included 
 in the tabular standard. It would require a well-defined system 
 of computing the purchasing capacity of gold as compared with a 
 given unit of these commodities ; and it would also be necessary 
 that the results, thus scientifically established, should be authori- 
 tatively published every week, or oftener. Perhaps the most diffi- 
 cult feature connected with the scientific application of this prin- 
 ciple to the value of money, is the method by which the actual 
 price-level of a given unit of these commodities shall be arrived 
 at. This subject has already occupied the attention of statistician? 
 for a considerable time, entirely independent of the idea of it? 
 use in the construction of a tabular standard for the value 0/ 
 money. Soetbeer, Jevons, Laspeyre, Newmarch, and Mulhalf 
 
SCIENTIFIC PRICE-LEVEL. l6l 
 
 have all endeavored, with varying success, to construct a scien- 
 tific system for ascertaining the general price-level of all com- 
 modities. All but Mulhall have adopted the index-number 
 method ; he has adopted the " volume-of-trade " method, which, 
 though more laborious, is doubtless the more accurate system. 
 That a scientific method will be established for ascertaining the 
 exact price-level of any given number of commodities can hardly 
 be doubted ; and that it should be established is of the utmost 
 importance to economic science. Indeed, what the science most 
 lacks to-day is exact knowledge of economic data. Therefore 
 the idea of the tabular-standard theory should not be rejected 
 merely because of the difficulties of its practical application. On 
 the contrary, if it is sound in principle, it should serve as an ad- 
 ditional incentive for establishing a scientific system of ascertain- 
 ing the actual general price-level of commodities, without which 
 the knowledge of economic data will become less exact as indus- 
 trial phenomena increases in volume and complexity. 
 
 It will be observed, however, that the only object in adopting a 
 single, double, or tabular, monetary standard, is simply to obtain 
 the most invariable basis for the value of money. Consequently 
 the only question of economic importance connected with the 
 whole subject of money. is, how to maximize the convenience of 
 its form, and minimize the variation in its value. 
 
 SECTION IV. — The Depreciation of Money. 
 
 The depreciation of money and a fall in its value are distinct 
 phenomena, and produced by very different causes, although they 
 have the same effect upon its purchasing capacity. The differ- 
 ence may be stated thus : A fall in the value of money means 
 that the value of a particular class of property — gold, silver, or 
 the like, — upon which it is based, has undergone a change. The 
 depreciation of money means that it does not represent the 
 amount of property which it professes to. The former is an 
 economic variation ; the latter an uneconomic diminution. For 
 instance, if gold and silver are both used equally as money, and 
 their value as bullion is as i to 15, they will circulate as money in 
 just that ratio, and every gold coin, of whatever denomination, 
 will be equal in value to a silver coin of fifteen times its own 
 weight. 
 
1 62 DEPRECIATION OF MONEY. 
 
 If, however, by lessening the cost of production, the value of 
 silver bullion should fall, so that seventeen grains were only equal 
 to one of gold, then the relative purchasing capacity of the two 
 coins would be as 17 to 1. This would constitute a fall of T 8 T in 
 the value of the silver money. But, on the other hand, if the 
 quantity of pure silver in the coin were diminished T \, the pur- 
 chasing capacity of the money would fall to the ratio of 17 to 1 
 as compared with gold, exactly as before, but this would be a 
 depreciation of the silver money. Although the alteration in the 
 purchasing capacity of the silver money would be the same in 
 both cases, the cause and effect of that alteration would be very 
 different. In the former case the silver dollar, though diminished 
 in purchasing power as compared with gold and all other com- 
 modities, would still exchange for the same amount of the prop- 
 erty it claimed to represent (silver bullion), showing that its 
 reduced purchasing power was due to the fall in the economic 
 value of silver, as property. But, in the latter case, the 17 
 grains of silver coin would not only have fallen in value as com- 
 pared with gold and all other commodities, but also as compared 
 with silver bullion, showing that the change is not due to an 
 alteration in the economic value of any commodity whatever, but 
 solely to the fact that it pretends to contain more property than 
 it really does. 
 
 Nor is there any difficulty in determining which of these two 
 movements has occurred when a fluctuation in the purchasing 
 power of money takes place. If it is a change in the economic 
 value of money, then the money will continue to exchange at 
 par with the specific quantity of the particular commodity which 
 it represents. If it is made of gold or silver, the mint price will 
 be approximately the same as the bullion price ; and if it is 
 paper currency, whether private or governmental, it will exchange 
 for the amount of coin or bullion, or whatever specific property 
 its represents, at its face value. The rise of the bullion price 
 above the mint price, or of the property price above the paper 
 price, is infallible evidence of the depreciation of the money ; 
 and the extent of that difference correctly indicates the degree in 
 which the depreciation has taken place. 
 
 It should be observed that the depreciation of metallic money 
 is produced by a different cause from that of paper money. The 
 
INADEQUACY OF BARTER-MONEY. 163 
 
 reason for this is, that the former is barter-, or property-money, 
 while the latter is credit-, or representative-money. Metallic cur- 
 rency is wealth, and paper currency is the promise to deliver 
 wealth ; consequently the appreciation of the former depends 
 upon the amount of property it contains, and the appreciation of 
 the latter upon the amount of confidence it can command. 
 There can never be a depreciation of metallic money unless there 
 is an actual diminution in the quantity of property put into it ; it 
 may fall in value, but it can never be depreciated so long as there 
 is the quantity of material in it which it professes to contain — 
 i.e., if it is not fraudulently manufactured. There is therefore 
 no more difficulty in preventing, than there is excuse for pro- 
 moting, the depreciation of metallic or property-money. 
 
 If coin were the only money used, the question of depreciation 
 might be dismissed as being too simple to need discussion ; but 
 this is far from being the case. Experience has shown that, 
 under the complex conditions of modern industry, a purely 
 metallic, or property-currency, is wholly inadequate to meet the 
 needs of the community. There are two reasons for this : (1) 
 There is probably not enough gold and silver coin in the whole 
 world to do the business of one or two of the most advanced 
 countries. (2) If there were, its cumbersome inconvenience 
 would render its use impossible in the greater portion of modern, 
 commercial transactions. 
 
 To be forced to actually transfer " thirty-six cart loads of 
 silver," or its equivalent in gold, in order to transact a business 
 of ,£400,000 — as in the case of the amount paid for the delivery 
 of Charles I. to the parliamentary party — would annihilate the 
 major part of the commerce of Christendom. The utter in- 
 adequacy of metallic, or property-money, for the requirements of 
 modern industry, is demonstrated by the fact that only about 
 .81 of one per cent, of the business in this country is now done 
 with coin, — 99.19 of the payments being made in paper money, 
 — 95.13 per cent, of which is in personal checks, drafts, etc. 
 
 Many writers on this subject appear to regard coin as the only 
 form of real money. Hence, when distinguishing between metallic 
 and paper money they generally speak of the former as money 
 and the latter as currency. Even Jevons and MacLeod do not 
 entirely escape this notion. In discussing this point the latter 
 
164 BASIS OF PAPER CURRENCY. 
 
 says : " It would therefore be currency, but it would not be money, 
 because it has no intrinsic value," ' — the evident idea being that 
 currency is only money in proportion as it contains wealth. 
 
 The simple fact is that all money is currency. Its currency or 
 circulation may, under some conditions, depend upon the material 
 of which it is made, but it is money by virtue of its being cur- 
 rency and not because of the property which it contains. The 
 difference between a metallic and a paper currency is that the 
 former is both property and money, and the latter is simply 
 money. Ricardo has well said : " A currency is in its most per- 
 fect state when it consists wholly of paper." * Indeed, the more 
 perfect a currency is as property, the less perfect it is as money. 
 Coin of full weight and fineness, instead of being the only real 
 money, is the only kind of currency which does not fill all the 
 functions of money, — because it is not an instrument of credit 
 and does not give currency to transferable obligation, which is 
 the most important of all features of money. To the extent that 
 money does not transfer credit, it fails to promote indirect ex- 
 changes, and reduces all transaction to literal barter. Paper 
 money, being simply the evidence of credit and not property 
 per se, instead of finally cancelling debts, as coin does, only 
 transfers obligation. Its acceptance and circulation therefore 
 depend upon the degree of confidence it inspires in the actual 
 fulfilment of the obligation it represents. Whatever impairs the 
 confidence and destroys the credit, necessarily depreciates the 
 money representing it. Clearly then the only way to prevent the 
 depreciation of paper money is to sustain the confidence in the 
 promise it conveys. Nothing can sustain the confidence in a 
 promise but fulfilling the obligation whenever it is required. To 
 the extent that this is inconveniently deferred is the confidence 
 in the promise impaired. 
 
 In order that confidence in this promise may be complete and 
 unshaken, it is necessary that those who accept the money know 
 that a specific amount of wealth will be delivered on demand, and 
 also exactly of what this wealth shall consist. Otherwise, the 
 debtor would frequently offer what the creditor did not want, and 
 the creditor demand what the debtor could not deliver, and the 
 
 1 " Elements of Political Economy," p. 35. 
 
 5 " Principles of Political Economy and Taxation," p. 218. 
 
NECESSITY OF GOLD AND SILVER. 1 65 
 
 confidence would constantly fluctuate according to the desira- 
 bility of the things offered and received. 
 
 What shall this wealth be, is the next question. Whatever may 
 be the commodity selected for this purpose, it must be that which 
 already circulates as property-money among that portion of the 
 community which will not accept paper or credit-money. The 
 reason for this is very simple. Whoever accepts money in a 
 transaction does so because the commodities at the disposal of the 
 debtor are such as he does not desire. So long as the money 
 will be accepted by those who possess the commodities, it is un- 
 important what commodity it represents ; but when the pur- 
 chaser desires an article which those who have confidence in his 
 money do not possess, and those who do possess it will not 
 accept his money, it is necessary that he should be able to 
 demand from those who issue the promise a specific kind of 
 property, which those who declined to receive his credit-money 
 will accept. Otherwise his commercial dealings will be restricted 
 to the limited area in which his money freely circulates. This 
 would necessarily impair his confidence in it as an instrument of 
 exchange. So long, therefore, as we have commercial intercourse 
 with any people who continue to insist upon property-money, 
 all paper, or credit-money, must be a promise to deliver upon 
 demand a specific quantity of the commodity of which their prop- 
 erty-money is made — be that whatever it may. In no other way 
 can the depreciation of paper money be prevented. 
 
 Wherever property-money prevails to-day — and it is used more 
 or less in all commercial countries, — it is made of gold or silver. 
 Hence these are the commodities upon which all credit, or paper- 
 money, must be based. There are those who think that any other 
 commodity would answer the purpose just as well, — and some, 
 indeed, who even insist that the aggregate property of the com- 
 munity would be still better. Those who urge these views, how- 
 ever, overlook the fact that but a very small portion of the race 
 have entirely dispensed with the use of property-money ; and un- 
 less credit-money is redeemable in some specific commodity which 
 is uniformly acceptable to those who insist upon property-money, 
 commercial intercourse, with by far the greater portion of the 
 human race, would be practically cut off. This would not only in- 
 volve the destruction of commerce, but the arrest of civilization. 
 
l66 METALLIC MONEY NECESSSARY. 
 
 It should always be remembered that the fundamental princi- 
 ple underlying economic and social law is, that all institutions 
 are based upon and adapted to the character of the people, be- 
 coming less arbitrary and restrictive as the characters of the social 
 units rise in moral strength and social integrity, and also that the 
 barbaric element in institutions and laws is always retained for 
 the least advanced. Thus, all criminal and restrictive laws are 
 not made to govern the most orderly but the most unruly element 
 in the community. This is why the most moral and advanced 
 portion of a community has to be subject to the despotism neces- 
 sary to control the most disorderly classes. The same principle 
 operates with equal force in the sphere of money. Property- 
 money represents the barbaric element in commercial intercourse, 
 only the most advanced being capable of using pure credit-money, 
 and since property-money is only used by the higher classes be- 
 cause it is essential to their dealing with the lower, the commodity 
 which is the most acceptable to those who insist upon barter- 
 money must be used by those who employ credit-money. 
 
 It is undoubtedly true that any other commodity would serve 
 as a basis for credit-money just as well as gold or silver, provided 
 it would be as readily accepted among those who insist upon 
 property-money. The only reason these metals are necessary is 
 that they are the only commodities that will currently pass in 
 payment for debt where credit-money is rejected ; and this fact 
 makes them indispensable, because, for the very reason that a 
 redemption of the promise conveyed by credit-money is neces- 
 sary to give it confidence, its redemption in any other com- 
 modity would be useless. All money, of whatever it is made, is 
 received in trade only on the assumption that other people will 
 take it on the same conditions. Since nothing can fill the func- 
 tions of money which will not be accepted as currency, and since 
 nothing can sustain a paper money from depreciation except the 
 assurance that it will be redeemed in a commodity acceptable as 
 currency to those who insist upon property-money, and since 
 gold and silver are the only commodities that will be so received, 
 it is clear that these metals must necessarily constitute the basis 
 of all paper money. 
 
 SECTION V.— Who Should Furnish the Money ? 
 The only interest the community has in the supply of money is 
 that it should be furnished by those who can most completely 
 
INADEQUACY OF STATE ACTION. 1 67 
 
 adjust it to the necessities of the people. Can this duty be per- 
 formed better by the government than by private enterprise ? As 
 explained in another chapter, 1 it is a principle in society that the 
 efficiency of governmental action diminishes as the enterprise 
 becomes involved and complex, requiring quick decisions, expert 
 judgment, and frequent changes. Consequently, with the devel- 
 opment of society, all forms of industrial and commercial enter- 
 prises have gradually passed into the sphere of individual control 
 and responsibility. The same is true of money. In the earlier 
 stages of society the government supplied all the money. But 
 with the development of industry and commerce, the financial 
 requirements became too intricate for the government to ade- 
 quately supply, and public or legal tender-money had to be 
 supplemented by private money. This has increased with the 
 advance of society until only about one per cent, of the debts in 
 this country are now paid with property-money, and less than five 
 per cent, are paid with legal tender-money, about ninety-five per 
 cent, of the business being transacted with private money — notes, 
 checks, drafts, etc. 
 
 Since personal-money has no legal backing except to the extent 
 of the property of those who make it, its utility rests mainly upon 
 the confidence that it can be exchanged for any form of property 
 desirable or be converted into property-money at the pleasure of 
 the holder. Therefore, so long as any property-money is neces- 
 sary in the domestic or foreign transactions of a nation, the 
 stability of the whole currency rests largely upon its supply, 
 however small the amount may be. If the supply of this rela- 
 tively small quantity of property-money were as completely 
 adapted to the needs of the community as the amount of per- 
 sonal-money is to-day, financial panics would be of very rare 
 occurrence ; indeed with proper financial statistics they might be 
 practically avoided. 
 
 To supply this small but indispensable increment of property- 
 money to suit the varying requirements of modern society, is a 
 duty the government is manifestly incapable of performing. 
 The reason for this is easy to understand. Being a representa- 
 tive institution, the government must act either upon a general 
 rule or according to specific legislation. And the more demo- 
 cratic the government, the more its action is limited by the 
 1 Part IV. , chapter ii. 
 
1 68 HERBERT SPENCER' 's VIEW. 
 
 popular will as expressed in legislation. Consequently it cannot 
 vary its action with sufficient promptness and wisdom to meet the 
 requirements of special emergencies. When circumstances arise 
 making an increase of money necessary, there is no means of 
 supplying the demand until Congress can be called together to 
 legislate upon it. Before this can be accomplished a stringency 
 or even a panic may arise disturbing the industrial relations of 
 the whole country — a fact of frequent occurrence. Moreover, 
 when Congress is called upon to readjust the currency to the 
 commercial needs of the community, the question is liable to be 
 decided by political rather than economic considerations.' On 
 the other hand, if the amount of money thus authorized is larger 
 than is needed, it is uselessly stacked away in the government 
 vaults and is a mere waste of public revenue. Financial disturb- 
 ances from these causes would be far more frequent than they 
 are, but for the large proportion of the money that is furnished 
 by individuals. 
 
 Manifestly the remedy for the evils inevitably connected with 
 such an inadequate system must be sought in some method of 
 transferring the money-supplying function from the State to 
 private enterprise. Nor is there any thing revolutionary in this 
 proposition. It is simply obeying the law of evolution and trans- 
 ferring the duty of making the remaining five per cent, of the 
 money to those who, by virtue of superior fitness, already furnish 
 about ninety-five per cent, of it. 
 
 It must not be assumed, however, that in taking this position I 
 accept the reasoning of Herbert Spencer in his claim for a 
 " complete free trade in currency." 2 He assumes that under free 
 competition good money will always drive bad money out of use, 
 for the same reason that, cceteris paribus, a superior article will 
 always be preferred to an inferior one. The objection to this 
 assumption is that it does not agree with the facts. The experi- 
 ence of centuries shows that, instead of superior money driving 
 
 1 Witness the recent action of Congress on the silver question. The repre- 
 sentatives from the silver-mining States demanded the free coinage of silver, and 
 for fear of losing the political support of those States a silver bill was passed, 
 which on economic grounds would not have received the support of either 
 party. 
 
 ' " Social Statics," chap. xxix. 
 
THE GRESHAM LA W. 169 
 
 inferior money from circulation, it is always inferior money that 
 drives out the superior. 1 The reason for this is very simple. 
 
 Suppose for illustration that the money is made of gold, and 
 that there are in circulation three kinds of dollars containing 
 24, 22, and 20 grains of gold respectively. Since the 20-grain 
 dollar will do the same service as the 24-grain dollar, every one 
 would gain sixteen per cent, by melting down the 24-grain dol- 
 lar, it being worth one sixth more as property than as money. 
 So long as a profit can be made by converting the superior 
 money into property, nothing but the most absolute despotism 
 can keep it in circulation as money. Thus free competition in 
 money (if more than one kind is used) would produce the 
 opposite effect from what Mr. Spencer's laissez-faire hypothesis 
 pre-supposes. Moreover, if competition would do all that Mr. 
 Spencer assumes, it would still be uneconomic and hence unde- 
 sirable for two reasons : (1) Because competition necessitates a 
 plurality of competitors which implies two or more kinds of 
 money in circulation at the same time. (2) Because competi- 
 tion between two or more kinds of money necessarily disturbs 
 the confidence in some portion of the currency, and this is pre- 
 cisely what a sound monetary system should not do. As pointed 
 out in the last section, the community has nothing to gain but 
 much to lose by fluctuations in the value of money. 
 
 There are three important things to be accomplished by a cor- 
 rect monetary system : (1) to secure the greatest stability and 
 uniformity of value to the money ; (2) to supply it in the most 
 convenient form ; (3) to adjust the quantity to the needs of the 
 community. Before we are justified in putting the entire control 
 of the legal-tender money in the hands of private enterprise we 
 must be reasonably certain that all the above objects can be 
 accomplished better by the individual than by the State. 
 
 (1) Since the value of money is governed by the value of the 
 commodity of which it is made, and that in turn depends upon 
 the cost of production, it is clear that the individual has no more 
 
 1 The principle that bad money drives good money out of circulation and that 
 good money never drives out bad, was discovered in the sixteenth century by Sir 
 Thomas Gresham, and is known as the " Gresham Law." This theorem has 
 been so completely verified by experience that it is now accepted by economists 
 and financiers as scientifically established. 
 
I^O HOW TO ADJUST THE QUANTITY. 
 
 power to increase its stability than has the government. Nor 
 could its uniformity either of value or style be increased if made 
 by private concerns. On the contrary, the maximum uniformity 
 can best be obtained by having all the money made under one 
 management. 
 
 (2) Neither is there any reason for assuming that a more 
 convenient form of money could be furnished by private enter- 
 prise than by the government. The government will make the 
 money of whatever material and issue it in such form as the 
 people desire ; and the reasons for a change in these respects occur 
 so seldom, and develop so gradually, that no inconvenience can 
 result from having these points determined by law. Since private 
 enterprise could do nothing to increase stability of value in 
 money or its uniformity and convenience, there is obviously no 
 reason for taking from the government the duty of determining 
 the material of which it should be made and the form in which it 
 should be issued. 
 
 (3) To adjust the quantity of money to the needs of the com- 
 munity is a much more difficult task. The quantity of legal- 
 tender money required in a highly complex industrial community 
 is liable to great and sudden variation. A change in the ratio of 
 exports to imports, an increase or decrease in the opening up of 
 new territory, or a change in other industrial relations with peo- 
 ple who insist upon barter-money, all affect the quantity of legal- 
 tender money required. For the reasons already explained, the 
 government cannot act with sufficient alertness to adapt the cur- 
 rency to these ever increasing variations. The quick decision, 
 expert judgment, and rapid changes required are precisely 
 what individual enterprise can supply. The question is how to 
 transfer to private enterprise and retain in the hands of the gov- 
 ernment that portion of the duty of supplying money which each 
 can perform better than the other. 
 
 This is not so difficult a task as may at first appear. All that 
 is necessary is to have the money furnished by private enterprise 
 in the same way that food, clothing, and other commodities now 
 are, with the exception that the form and quality of the money 
 be determined by law. This would involve government control 
 or supervision of the mint and the printing of coin certificates 
 as at present, the business and risk of buying bullion, the cost of 
 
ADVANTAGES OF PRIVATE ENTERPRISE. 171 
 
 minting and distribution being left to private enterprise. Thus 
 the business part of the monetary system would pass over to the 
 individual, and the duty of protecting the public interest still be 
 reserved to the government. Under such conditions the mone- 
 tary system would be greatly simplified and far more adjustable 
 to the needs of the people. The money would then be furnished 
 purely as a matter of business, and the banker would sustain the 
 same economic relation to the community as any other merchant. 
 And his success, likewise, would depend entirely upon the 
 efficiency with which he supplied the wants of the people. 
 
 Should there be an increased demand for money, it would not 
 be necessary to petition Congress to pass a law on the subject as 
 at present. It would only be necessary for the banker to pur- 
 chase more bullion and have it coined or the certificates printed, 
 just as the shoe merchant would increase his stock of shoes if the 
 demand should rise. To get this bullion would be easy, as soon 
 as the terms of commerce in bullion were established between 
 bullion producers and bankers. The bankers would then be in 
 the habit of ordering bullion from the miners on their established 
 credit, just as a man orders clothes from his tailor. Money being 
 especially needed, he would telegraph an order to send, say one 
 thousand pounds of bullion. This would come on usual terms, 
 say sixty days, and could be coined at once and put into circula- 
 tion, thereby promptly supplying the demand for money. In other 
 words, sound credit would be turned into real money to suit the 
 emergency and the evils of a financial panic avoided. The self- 
 interest of the banker would inspire prompt action in this re- 
 gard, since those who could supply their customers in times 
 of emergency would be sure to obtain the greatest amount of 
 normal business. No business man would care to deal with the 
 banker who was liable to fail him at the time of greatest need. 
 More money than is needed would not be made, because nobody 
 would have any interest in making it any more than a hatter has 
 in making hats for which there is no market. 
 
 One important advantage of this over the present system is, 
 that when more money is needed in business, it can be directly 
 placed in the hands of those requiring it. If the government 
 makes an increased amount of money, it can be put into circula- 
 tion only through its expenditures in salaries, pensions, and the 
 
172 REMOVE MONEY FROM POLITICS. 
 
 purchase of bullion and bonds. Hence the banks and the mer- 
 chants can only obtain the money through the indirect route of 
 business circulation. Whereas, if the money was made for the 
 banks instead of the government, it could pass directly from the 
 mint or printing-press to the bank, and thence to the manufac- 
 turer or merchant who most needed it. Under this system the 
 supply of money would be governed by economic law instead of 
 political influence. 
 
 The transfer of the money question from the domain of politics 
 to that of economics would be beneficial in many ways. In the 
 first place, it would remove the banker's excuse for exacting ex- 
 orbitant interest, on the plea that the government is responsible 
 for a scarcity of money. The banker being responsible for the 
 supply, would lose his business by failing to keep up his stock 
 just as would any other merchant. In the next place, this change 
 would take the gold and silver industries out of politics. Instead 
 of lobbying in Congress to increase the market and fix the price 
 of their product, the gold and silver men would have to go into 
 the open market on the same terms as other producers. Thus 
 the success of legitimate public business would not depend upon 
 trading for the political influence of the producers of the precious 
 metals as at present. 1 To adopt the proposition here suggested 
 would be to transfer to the individual that portion of the money- 
 supplying function which he can perform better than the govern- 
 ment, and would retain in the hands of the government that 
 portion of the duty which it can perform better than the indi- 
 vidual. We would then have in our monetary system all the 
 advantage of competition, together with the energy and business 
 skill of private enterprise — without the risk of adulteration and 
 other " tricks of trade." We should also have all the protective 
 power of the state, without the monopoly and bungling incompe- 
 tency inseparable from the public administration of business 
 affairs. 
 
 1 The recent silver bill was passed chiefly through the fear of losing the polit- 
 ical support of the silver-producing States. 
 
PART III. 
 THE PRINCIPLES OF ECONOMIC DISTRIBUTION. 
 
CHAPTER I. 
 
 THE DISTRIBUTION OF WEALTH. 
 
 SECTION I. — Distribution Inseparable from Production. 
 
 Distribution is frequently regarded as if it were separate from 
 production. In the opening paragraph of his recent work, 
 " The Wages Question," Francis A. Walker makes a formal 
 division of political economy into the following four distinct 
 departments : " The production, the distribution, the exchange, 
 and the consumption of wealth." This naturally encourages the 
 popular idea that distribution can be dealt with independently of 
 production. 
 
 Although the socializing influence of wealth penetrates all 
 phases of society, there are but two economically distinct states 
 in which wealth ever exists — namely, that of production and that 
 of consumption. Production properly includes every thing that 
 directly or indirectly increases the utility of consumable wealth. 
 
 The fact that the manufacturer divides his products between a 
 number of wholesale merchants, and these in turn further divide 
 them among retail dealers, does not constitute distribution in any 
 economic sense. Such division of products into small quantities 
 facilitates their delivery to the consumer, and is production. It 
 is as incorrect to call a dry-goods dealer, or merchant-tailor, 
 a distributer of clothing, as it would be to call the planter of 
 wheat a distributer of food. As already explained, 1 every thing 
 which aids in compassing the satisfaction of any human want is 
 properly production. 
 
 Consumption is every thing which gratifies human wants and 
 desires, whether put to immediate use or reserved solely for that 
 1 Part II., chap, i., p. 72. 
 
 175 
 
I76 PRODUCTION INVOLVES DISTRIBUTION. 
 
 purpose by the owners. In economic science therefore, con- 
 sumption only applies to the ultimate use of the finished product, 
 and never to the use of raw material or tools. We frequently hear 
 such expressions as the consumption of pig-iron in the manufac- 
 ture of rails, and the consumption of wool in the manufacture of 
 cloth. The wool used in the manufacture of cloth is not con- 
 sumed ; it has simply changed its form in order to assume a 
 higher degree of utility. It ceases to exist as fleece only to 
 become broadcloth. 
 
 The wool does not enter a state of consumption until it is in 
 the possession of the wearer of the cloth ; all its previous uses 
 have served no economic or social purpose except as they have 
 been a means to that end. 
 
 There is production, distribution, and consumption of wealth ; 
 there are producers and consumers ; but there are no economic 
 distributers of wealth. There is no class of persons in the com- 
 munity whose distinctive function is to distribute wealth except 
 the keepers of charitable institutions and jails. Distribution 
 is that automatic phase of economic movement by which wealth 
 passes from the sphere of production to that of consumption ; 
 that is to say, from those who use it as a means to those who use it 
 as an end. The means through which this takes place are wages, 
 rent, interest, and profit. The consumable wealth which finds its 
 way to the various classes in the community through these chan- 
 nels, does so, not as the result of any effort to distribute wealth, 
 but solely as a necessary and inseparable part of the process of 
 production. Wages in the hands of the laborer are distributed 
 wealth, but in the hands of the employer they are capital devoted 
 to production. What the employer pays out in wages is invested 
 in production, exactly the same as is that which he expends for 
 tools and raw material, but when it reaches the laborer it is trans- 
 ferred from the sphere of production to that of consumption. 
 
 Economic distribution is neither more nor less than invest- 
 ment in production. Production and distribution are inseparable 
 phenomena ; the one involves the other, and neither can take 
 place without the other ; therefore to talk of production without 
 distribution, or of increasing distribution except by promoting 
 production, is to ignore economic law ; and any attempt to per- 
 manently improve the social condition of any class in the com- 
 munity by such means is chimerical. 
 
USE OF PRODUCTIVE WEALTH. 1 77 
 
 The only interest the community can have in either class 
 of wealth is that it shall fill its function most effectively, and 
 thereby make the greatest possible contribution to social welfare. 
 Since it is only in the sphere of consumption that wealth minis- 
 ters to human well-being, consumable wealth can only success- 
 fully fill its function by being in the possession of the individual 
 consumer, as it cannot yield the maximum social benefit for one 
 person while under the control of another. 
 
 On the contrary, productive wealth can and frequently does 
 render its maximum service to one class while in the possession 
 of another. The only concern the community can possibly have 
 in the distribution or ownership of productive wealth is that 
 it shall be most effectually employed in making consumable 
 wealth cheap and abundant. Therefore the idea, so persistently 
 propagated by Karl Marx and sacredly cherished by socialists 
 everywhere, that it is necessary for the laboring classes to own 
 the instruments of production in order to secure the social ad- 
 vantage of the product, is an unmixed delusion. Whether or not 
 productive wealth should be concentrated in a few hands, or 
 evenly distributed throughout the community, or owned by the 
 government, is absolutely of no importance to the general welfare 
 except as it may affect the efficiency of its use as a productive 
 factor. 
 
 Productive wealth, whether in the form of land, machinery, 
 buildings, raw material, or unfinished products, is of no advan- 
 tage to its owner except as it passes into consumable wealth, 
 and the possession of consumable wealth does not in any sense 
 depend upon the ownership of productive wealth. 
 
 More than eighty per cent, of the consumable wealth daily 
 produced in this country is consumed by those who possess 
 no productive wealth. Since production is impossible without 
 consumption, and productive wealth can only confer benefit 
 upon its owner as it increases consumable wealth, it follows that 
 the concentration and increased efficiency of productive wealth 
 tends to promote the general distribution of consumable wealth. 1 
 
 There is no fact in the history of civilization which is more 
 conclusively established than that every departure from hand- 
 labor to factory methods of production, and therefore from dear 
 
 1 Cf. " Wealth and Progress," pp. 7-9. 
 12 
 
178 USE OF CONSUMABLE WEALTH. 
 
 to cheap consumable wealth, has been accomplished by the con- 
 centration of productive wealth. Nor could this be otherwise, 
 because all the motives that make the concentration of productive 
 wealth desirable tend to make the distribution of consumable 
 wealth indispensable. 1 
 
 It will thus be seen that, in considering the subject of economic 
 distribution, we are concerned only with the movement of con- 
 sumable wealth, in regard to which four facts should be recog- 
 nized. (1) That wealth never contributes to social welfare 
 except when in the sphere of consumption. (2) That no move- 
 ment of wealth is distribution which does not transfer it from 
 the producer to the consumer. (3) That this distributive move- 
 ment is not separate from production, but is an inseparable part 
 of it. (4) That the forms in which wealth passes to the community 
 are wages, rent, interest, and profit. 
 
 SECTION II. — The Order of Economic Distribution. 
 
 The order of economic distribution generally held by English 
 economists is rent, wages, and profit, thus making the amount the 
 laborer receives depend upon what is left after rent is paid. Con- 
 sistently with this classification, Henry George declares that rent 
 is the great social " robber," and demands, as the remedy for 
 social ills, the confiscation of rent by the abolition of private 
 ownership in land. Had he not placed rent first in the order of 
 distribution, his reckless misstatement of facts regarding wages * 
 would have availed him little ; but having made rent the first 
 claimant he found little difficulty in declaring that the remaining 
 shares would be lessened by that amount, and consequently that 
 the wealth of the landowner caused the poverty of the laborer. 3 
 
 During the last twenty years a departure has been made from 
 the orthodox position. Jevons, the most prominent representa- 
 tive of the " new school " in England, says : " The view which I 
 accept concerning the rate of wages is not more difficult to com- 
 prehend than the current one. It is that the wages of a working 
 man are ultimately coincident with what he produces, after the de- 
 
 1 Cf. article in Political Science Quarterly, vol. iii., pp. 405, 406. 
 
 * "Wealth and Progress," Part II., chapter i., section iii. 
 
 * "Progress and Poverty," pp. 162, 163. 
 
WALKER'S INCONSISTENCY. 1 79 
 
 duction of rent, taxes, and the interest of capital." 1 Francis A. 
 Walker, with an astonishing amount of inconsistency, adopts the 
 same classification. After several times alternately affirming op- 
 posite positions, he says : " I hold, with Professor Stanley Jevons, 
 that wages equal the whole product minus rent, interest, and 
 profits." J It will be seen that this classification not only places 
 rent before wages, as George does, but it places interest and 
 profits there also, making wages the contingent amount after all 
 else s paid, and thus completely verifying the socialists' charge 
 that under the capitalistic system of production, wages are 
 merely the leavings after rent, interest, and profit are paid. 
 These statements of George, Jevons, and Walker involve two 
 errors : one regarding the nature of economic distribution, the 
 other the order in which the distribution takes place. 
 
 (1) They all discuss the question of distribution as if it were 
 the disbursement of a fixed amount of existing wealth ; hence 
 they constantly speak of the " division of the product between 
 landlords, capitalists, and laborers " as the " shares of the differ- 
 ent claimants," etc. The idea of dividing a fixed quantity of 
 wealth involves the asisumption that if the amount obtained by 
 any one class increases, that of the other classes must necessarily 
 diminish in the same ratio. This popular error pervades the 
 writings of all the schools. Among the English writers it is ex- 
 pressed in that familiar statement of Ricardo and Mill, that 
 " profits depend upon wages, rising as wages fall and falling as 
 wages rise." * It is no less frankly expressed by Perry in his 
 u Rule of Three " discussion of wages," 4 and by Henry George 
 
 1 " Theory of Political Economy," p. 292. 
 
 5 " Political Economy," p. 284, 1st edition. Compare, ibid., pp. 197, 198 
 with 203, 1st edition ; also 254 with 264 1st edition. See also, 262, 263, 1st 
 edition. 
 
 3 Ricardo's Works, pp. 63, 74, 75, 93. Mill's " Principles of Political Econ- 
 omy," vol. i., p. 512. 
 
 4 " There is no use arguing against any one of the four fundamental rules of 
 arithmetic. The question of wages is a question of division. It is complained 
 that the quotient is too small. Well, then, how many ways are there to make a 
 quotient larger? Two ways. Enlarge your dividend, the divisor remaining 
 the same, and the quotient will be larger ; lessen your divisor, the dividend re- 
 maining the same, and the quotient will be larger." — " Political Economy," 
 p. 123, 1st edition. 
 
l8o FALLACY OF THE RESIDUAL THEORY. 
 
 in his " Tom, Dick, and Harry " partnership illustration. ' Were 
 this view correct, the employing and laboring classes would in- 
 deed be the natural enemies of each other, and revolution would 
 be the only means of assuring progress, as many ill-informed en- 
 thusiasts would have us believe. 
 
 The whole idea of regarding distribution as mere division is 
 erroneous. Economic distribution through wages, rent, and in- 
 terest is not the division of wealth that exists, but an investment 
 to bring wealth into existence ; hence wages are not related to pro- 
 duction as the residual share of a division, but solely as an antecedent 
 cost of production j and since that which each productive factor 
 receives is determined by its own cost, the amount it obtains can 
 in no way increase or diminish that which any other factor shall 
 receive. 
 
 (2) The position of these writers in discussing the order of 
 distribution is no less unsatisfactory. Mr. Walker appears to 
 think that in being " the residual claimant of the product of 
 industry," the laborer has a superior command over the increased 
 quantity of wealth which he produces, and says : " In this view 
 the laboring class receive all they help to produce " 2 ; and adds : 
 " So far as by their energy in work, their economy in the use of 
 materials, or their care in dealing with the finished product, the 
 value of that product is increased, that increase goes to them by 
 purely natural laws, provided only competition be full and free." 3 
 
 By what natural law this increased product " inures directly and 
 immediately to their (the laborers') benefit," he does not explain. 
 In his " web-of-cloth " illustration, Walker assures us that the la- 
 borer is never paid before the manufacturer. 4 And, in his chap- 
 ter on profits, he says : " The fact that these wages are so high is 
 
 1 ' ' To fix Tom's share at 40 per cent. , is to leave but 60 per cent, to be di- 
 vided between Dick and Harry. To fix Dick's share at 40 per cent, and Harry's 
 share at 35 per cent, is to fix Tom's share at 25 per cent." — " Progress and 
 Poverty," p. 118. 
 
 ' " Political Economy," p. 263, 1st edition. 
 
 s Ibid., p. 266. 
 
 4 " There remain but two parties as claimants ... on the one side stands 
 a crowd composed of persons engaged in the mill ... on the other side stands 
 the manufacturer. All that these do not take will be his j and as piece after piece 
 is rapidly cut off, he seems to fear that not enough will remain for him. . . . 
 At last the manufacturer is left with his share." — " Political Economy," p. 188. 
 
walker's radical error. 181 
 
 the reason why the employers are unable (other things being the 
 same) to realize any profits for themselves." ' If it is true that 
 " wages are an essential part of the cost to the employer " and 
 must be paid before he can have any profit, they cannot possibly 
 be a contingent surplus after profit is made. Either Walker is 
 wrong in his " web-of-cloth " and entrepreneur discussion, or his 
 doctrine that wages are the " residual claimant " is wholly falla- 
 cious. That factor which receives the contingent surplus must of 
 necessity also bear the contingent losses ; and this, it is needless 
 to say, the wage-receiver never does. 
 
 If Walker can point to any " natural law " by which the in- 
 creased production " inures directly and immediately " to the la- 
 borer as wages, he will have discovered an economic force the 
 existence of which was never before heard of. The fact is that no 
 such thing ever occurs, nor can it possibly do so under the wages 
 and entrepreneur regime. That an absurdity so obvious to Walker 
 when discussing the theory of the " entrepreneur's profits," should, 
 within a dozen pages, be dogmatically affirmed as natural law, is 
 not a little astonishing. Fortunately for the stability of social in- 
 stitutions it can easily be shown that the George, Jevons, and 
 Walker classification is radically erroneous. All economic and 
 social forces conspire to make wages the first and profit the last, 
 in the order of distribution. 
 
 The economic order in which wealth is distributed — as wages, 
 rent, interest, and profit — must necessarily follow that in which 
 the classes to whom they are paid came into existence. That this 
 was the laborer, the landowner, the capitalist, and the entrepreneur 
 is an historic fact too obvious to need discussing. 
 
 The economic reason for this is not difficult to understand. 
 There are two facts co-extensive with the human race : (i) that 
 no class will permanently aid in production unless it receives the 
 equivalent of the cost of its contribution. (2) That the commu- 
 nity will not continuously pay for a contribution to production 
 which does not yield them as much as it costs. Every change of 
 method or policy, whether economic, ethical, or political, has sim- 
 ply been an effort to improve existing conditions. Established 
 methods and institutions never were, never will be, and never 
 should be abandoned for any other reason. Indeed, were this 
 1 " Political Economy," p. 241. 
 
1 82 HISTORIC ORDER OF DISTRIBUTION. 
 
 otherwise, there would be no certainty in progress and no safety 
 to civilization. 
 
 Obviously, then, the only condition upon which primitive man 
 would devote his efforts to production is that it would afford him 
 a living. It is equally clear that he would not give a portion of 
 the product for the use of any new factor unless he could obtain 
 a still better living by so doing. For the same reason that no- 
 rent land will only be cultivated when it will yield more than can 
 be obtained from the chase, rent will be paid for land only when 
 it will yield as much, or more, plus the rent, than could be ob- 
 tained from no-rent land. In other words, nothing can make rent 
 possible that does not make land yield more than the labor-cost 
 of its use. 
 
 As society advances, with the division of labor and the pro- 
 duction of manufactured commodities, capital, the third factor, 
 begins to be employed in production. The capitalist, like the 
 landowner, wants pay for his contribution— tools, machinery, 
 buildings, etc. There is no economic force by which he can ob- 
 tain any thing by excluding either of the other two factors, namely, 
 wages and rent. If he prevents the laborer from receiving a liv- 
 ing, his tools and capital cannot be employed. If he demands all 
 that remains after paying the laborer, the landowner will refuse 
 him the use of the land ; and this also would prevent his capital 
 from being used. Clearly, the capitalist cannot prevent the other 
 factors from being employed in production ; but either of the 
 others can ; and unless he pays their cost they will surely prevent 
 him. He is the last comer, and the only way he can be employed 
 and receive any thing for his service is, to so increase the aggre- 
 gate product that a surplus will remain after paying the other two. 
 It is only on condition that the capitalist contributes more to the 
 product than he takes from it that he can become a permanent 
 factor in production, and this is precisely what he has always 
 done. 
 
 Finally, in the most complex state of society the fourth factor — 
 the entrepreneur class — appears. Under this regime, the division 
 of labor and the complexity of productive methods are such that 
 the laborer, and, to a large extent, the capitalist, has no ownership 
 in the product, but the whole enterprise is conducted by the en- 
 trepreneur. He hires all the factors, and takes all the risks and all 
 
ECONOMIC ORDER OF DISTRIBUTION. 1 83 
 
 the results. Instead of the laborer obtaining the product and 
 paying the landowner, the entrepreneur pays the laborer his 
 wages, the landowner his rent, and the capitalist his interest. 
 Then the whole product is his. If he sells it for more than the 
 aggregate cost of these three factors and his own living (which is 
 his wages), the remainder is his as profit. If he sells it for less 
 than cost the loss is his. Wages, rent, and interest are all indis- 
 pensable to the entrepreneur regime of production. None of 
 these can be eliminated without destroying the entrepreneur, but 
 he can be eliminated and the others remain intact. And so on 
 all the way down. The subsequent factors can never produce 
 without the preceding ones, but by returning to simpler methods 
 the preceding ones can always produce without the subsequent 
 ones. 
 
 It is thus evident that, in the progress of society, the factors 
 have entered production in the order stated, and therefore eco- 
 nomic distribution must necessarily be first wages, then rent, 
 interest, and profit. In this order they will be considered in the 
 succeeding chapters. 
 
 In the natural order of distribution, the laborer being necessa- 
 rily the first to be supplied, the most Utopian scheme ever contem- 
 plated could not put him nearer the product than natural law 
 has placed him. In studying how to improve his economic con- 
 dition the question is not how to change his position in the order 
 of distribution, but how to increase the amount which he receives. 
 This involves a consideration of the law of wages and will next 
 occupy our attention. 
 
CHAPTER II. 
 SOME RECENT THEORIES OF WAGES CONSIDERED. 
 
 SECTION I. — Dr. Stuart Wood's Theory. 
 
 In a previous work 1 the merits of the three most prominent 
 theories of wages then current were considered, namely, the 
 Wages-fund theory, and the theories of Francis A. Walker and 
 Henry George. Since that time another theory has been presented 
 by Dr. Stuart Wood. 2 This theory being presented by a scholar 
 and a close student of economic science, and propagated through 
 the journal of Harvard University, is entitled to consideration. 
 
 He begins by affirming that : " The market price of labor is 
 that price which prevails at any given time in virtue of the 
 existing supply and demand. . . . But price can only be in 
 equilibrium on the condition that supply and demand are equal." 3 
 Then he proceeds to argue that both commodities and labor are 
 used inversely to their price ; increasing as the price falls and 
 decreasing as it rises, until the equilibrium between demand and 
 supply is reached. He formally presents the law of wages as 
 follows : 
 
 " We may state this law of wages in the following terms : The 
 price of a given amount of labor is the same as the. price paid for the 
 use of such amount of capital as would replace that labor in those 
 employments where labor and capital are interchangeable and where 
 either can be used to equal advantage." 4 
 
 1 " Wealth and Progress," 1887. 
 
 5 Quarterly Journal of Econoi?iics for October, 1888 and July, 1889 ; also 
 " Publications American Economic Association," vol. iv., No. 1. 
 
 3 " Publications American Economic Association," vol. iv., No. 1, p. 7 ; also 
 Quarterly Journal of Economics, vol. iii., No. 1, p. 61. 
 
 4 Ibid., p. 15 ; cf. Journal of Economics, vol. iii., No. 1, pp. 68, 71. 
 
 184 
 
THEORY OF FINAL UTILITY. 1 85 
 
 After nine pages of elaboration he repeats the above formula 
 and says : " The same prices, which are paid for such amounts of 
 labor and capital as are interchangeable in those occupations 
 where they are indifferently employed, are also paid for equal 
 amounts of labor and capital in whatever other employment they 
 may be engaged in." 1 
 
 It will be seen from the above that this doctrine affirms : (1) 
 That wages are governed by supply and demand rising or falling 
 until the " supply and demand are equal." (2) That the general 
 rate of wages thus determined is fixed by the final (minimum) 
 utility of that portion of the supply of laborers " which come into 
 use last." 2 (3) That at the wage-determining point, the price of 
 labor and the price of capital are identical — i.e., the amount paid 
 in wages and that paid in interest for the same amount of produc- 
 tive energy are exactly equal to each other. (4) That the same 
 rate of wages and interest that prevails at that point are paid in 
 all other employments where capital and labor are jointly used. 
 
 The first proposition is simply a reaffirmation of the wages- 
 fund theory. The fallacy of that doctrine has already been so 
 completely shown, that comment here is entirely unnecessary. 3 
 
 The second point in this theory is that the rate of wages which 
 supply and demand determines, is fixed at the point of the final 
 utility of those laborers who are employed last. " The price of 
 labor," says Mr. Wood, " is regulated as are the prices of all 
 commodities by its final utility ; by the utility, that is, of that 
 portion which comes into use last." Here again he affirms a 
 proposition without attempting to prove it. Why we should 
 believe that the prices of all commodities are regulated by their 
 final utility, he does not attempt to show. 
 
 By final utility is meant, that portion of the general supply of 
 a commodity which possesses the minimum utility for the pur- 
 chaser. For example, suppose in a given community a thousand 
 pairs of shoes a week could be consumed, there would doubtless 
 be a few who would give $10 a pair rather than go barefooted, 
 but there is a certain portion who would go without shoes rather 
 than give more than $2 a pair. The point at which they would 
 
 1 "Publications American Economic Association," vol. iv., No. 1, p. 29. 
 
 * Hid., p. 9. 
 
 3 "Wealth and Progress," pp. 35-52. See also present work, pp. 105-107. 
 
1 86 WAGES NOT FIXED BY FINAL UTILITY. 
 
 go without shoes rather than pay a higher price, is called the final 
 utility of the shoes. The price at which those can obtain the 
 shoes, for whom they possess the least utility, will of course be 
 that at which all can buy them. The uniform price will thus 
 always represent the point of final utility, but it does not follow 
 from this that the price is " regulated by the final utility." All 
 that this proves is that the price-determining point and that of 
 final utility are identical. 
 
 A very little examination will show that instead of the final 
 utility determining the price, it is more frequently the price that 
 determines the point of final utility. If, for instance, the cost of 
 producing the shoes should be increased so that they could not 
 be made for less than $3 a pair, all those who would buy at $2 
 but would not give $3, would have to go without shoes. The 
 point of final utility would thus be changed from $2 to $3 a pair, 
 and the shoes would only be sold to those who would rather give 
 $3 than go without. On the other hand, if by any improved 
 methods of production the shoes could be made for $1 a pair, all 
 those who would not give $2, but would give $1 a pair, could 
 have shoes, then the point of final utility would at once move 
 from $2 to $1 a pair. It is obvious that in this case the price 
 would not be fixed by the final utility, but the final utility would 
 be fixed by the price, and this is precisely what occurs in every-day 
 experience. Clearly then, while the final utility will always be at 
 the same point as the price, it is an error to say that the final 
 utility determines the price. This is another of the numerous in- 
 stances of trying to elevate a mere truism into a general law. 
 Like the wage-fund theory, the final-utility doctrine at most only 
 states a quantitative fact — not a dynamic principle. 
 
 Nor does Mr. Wood make any effort to explain why the point 
 of final utility is necessarily fixed by the " portion which comes 
 into use last." It is a well-known fact that, in the evolution of 
 industry, the accessions to every working group are always on 
 the outer edge of the industrial field. The movement of labor, 
 whether slow or rapid, is constantly from barbarism to civiliza- 
 tion, from pastoral to agricultural life, from agriculture to manu- 
 facture, and from inferior to superior manufacturing countries 
 and localities. Thus we see in England the accessions to the 
 manufacturing districts generally consist of the cheaper laborers 
 
WAGES DO NOT TEND TO UNIFORMITY. 1 87 
 
 from the agricultural districts, and in America the accession is 
 from the cheaper labor of other countries. In fact the mobility 
 of labor is universally towards more remunerative fields of em- 
 ployment, and therefore the last increment is always the cheapest 
 — i.e., the poorest. 
 
 Thus if prices were determined by final utility, and the point of 
 final utility were fixed by the " portion which comes into use last," 
 then wages would necessarily be determined by the poorest labor- 
 ers. Moreover, since, according to Mr. Wood's theory, the same 
 price which is paid for a given amount of labor at the price-fixing 
 point, will determine the price that is paid for a similar amount 
 of labor in any other employment, it follows not only that the 
 rate of wages in any industry is governed by the cheapest labor- 
 ers in that industry, but that the general rate of wages in all in- 
 dustries is determined by the poorest laborers in the least remun- 
 erative industry. Now this is precisely Henry George's doctrine 
 of the " Margin of Cultivation " which we have already shown to 
 be contrary to the commonest facts of experience. 1 
 
 If there were any truth in this proposition, wages in all indus- 
 tries would be either uniform or constantly tending towards uni- 
 formity on the level of the poorest. The wages of the carpenters, 
 plumbers, painters, bricklayers, printers, and highest-paid me- 
 chanics of New York City would constantly be tending towards 
 the level of the lowest continental and Asiatic immigrant and the 
 poorest agricultural laborer, which is too obviously absurd to need 
 discussing. Instead of wages tending towards a general uniform- 
 ity at the lowest point, they are constantly tending towards a greater 
 diversity as the differentiation of productive groups or industries 
 advances. And, as we shall see in the next chapter, whatever ten- 
 dency there is towards uniformity, it is towards uniformity with the 
 dearest and not with the cheapest labor in each industrial group. 
 
 The third postulate in this theory is, that at the price-fixing 
 point the amount paid in wages and that paid in interest are ex- 
 actly equal to each other, and that the same prices are paid for the 
 same amounts of either labor or capital in all other employments. 2 
 In other words, that the amount of capital which will produce as 
 
 1 "Wealth and Progress," Part II., chap, i,, sec. iii. 
 
 8 " The same price, whether it is called wages or interest, is paid for that 
 amount of labor and for that amount of capital which can supplant each other 
 
1 88 UNIMPORTANT IF TRUE. 
 
 much as a given amount of labor, will everywhere receive the 
 same in interest as the labor does in wages. 
 
 Mr. Wood evidently regards this point as the most important 
 in his whole argument, repeating it several times in italics, as a 
 formula of the new law of wages. 1 This is essentially the position 
 taken by Marx. 2 The only difference is that Marx claims that 
 all the product rightfully belongs to the laborer and treats that 
 which goes to the capitalist as unjust " exploitation," ' while Mr. 
 Wood regards the equal division of the product between the 
 laborer and the capitalist as the result of natural law. 
 
 Now assuming this postulate to be entirely correct, what does 
 it establish ? what explanation does it afford of the law of wages ? 
 If all it affirms is true, it only shows that wages equal interest. 
 Wages may equal interest and still be very high or very low. It 
 affords no explanation of why wages are 10 cents a day in China, 
 40 cents in Russia, 60 cents in Germany, $1.25 in England, or 
 $2 in America, to say they equal the amount paid in interest. 
 Nor is it any advantage to the laborer who is receiving low wages 
 to tell him that the income of his employer is at zero. The 
 laborer's social welfare depends upon his actual, not his relative, 
 income. It is the absolute amount of opportunity, comfort, and 
 luxury he enjoys which determines the extent of his social well- 
 being, and not whether or not the employer has more or less 
 of these things. 
 
 Nor does this theory appear to any better advantage when 
 tested by the facts. It should be remembered that by the ex- 
 pression, "price of using capital," Dr. Wood means the net gain 
 to the capitalist from its use, and not the cost of keeping the 
 capital (machinery, etc.) intact, as his language would sometimes 
 
 and render the same services in those industries where their relative superiorities 
 merge, or which can in different industries render services equally esteemed by 
 effective desire. And the same prices as are paid in these cases for labor and for 
 the use of capital are also paid for them in all their other employments." — Quar- 
 terly Journal of Economics, vol. iii., No. I, p. 86. 
 
 1 Quarterly Journal of Economics, vol. iii., No. I, pp. 68, 71, 72, 84, 86 ; 
 ibid., No. 4, p. 478 ; also " Publications American Economic Association," vol. 
 iv., No. 1, pp. 15, 19. 
 
 2 "Capital," chap vii., sec. ii., pp. 166-176. 
 
 s Karl Marx's Doctrine of Exploitation and Surplus Value is considered in 
 chapter iv. of this Part. 
 
THE THEORY CONTRARY TO FACTS. 1 89 
 
 seem to imply. 1 The statement, that " the price of a given amount 
 of labor is equal to the price which is paid for the use of such 
 amounts of auxiliary capital as can replace it in those occupa- 
 tions where the two things may be indifferently employed with 
 equal pecuniary advantage," 2 and that " the same prices as are 
 paid in these cases for labor and for the use of capital are also 
 paid for them in all their other employments," 3 affirms: (1) 
 that all capital receives interest, the rate of which is the same in 
 all employments ; (2) that " the rate of wages or the price of 
 using labor " is determined by " the rate of interest or the price 
 of using capital." 
 
 The first of these affirmations is so manifestly at variance with 
 all industrial experience that it almost seems trifling to discuss it. 
 Instead of interest or profits being uniform — i.e., the same " in 
 all other employments," the reverse is everywhere the case. In 
 all fairly well established industries where any appreciable amount 
 of capital is employed, interest or profit varies from zero up. In 
 farming and every branch of manufacture there are to be found 
 some who are barely holding their own and keeping their capital 
 intact. There are many who for years together receive no interest 
 for the use of their capital, and frequently some who continue to 
 employ it at a net loss, while others in the same business and 
 often in the some locality receive five, ten, and sometimes twenty 
 per cent, profit. It is exactly at this no-interest point that the price 
 of the product is determined 4 ; and every time this price-fixing 
 point is lowered by the use of improved methods of production, 
 these no-interest producers are compelled to produce at a loss or 
 leave the business. This is the only means by which the price 
 of commodities is permanently reduced. It is in this process of 
 pushing the price below the plane of the no-interest producer that 
 
 1 This point he makes clear by saying : ' ' But the charges for insurance and 
 for renewals, or wear and tear, are not strictly charges for the use of capital, but 
 simply a provision to preserve its amount unimpaired. . . . Disregarding, 
 therefore, all items of cost of employing auxiliary capital except interest, the 
 law of wages assumes this form : The interest on capital and the price of labor, 
 in all employments , are fixed by the rates paid for their use in those of their actual 
 employments in which they are used indifferently ," etc. — Quarterly Journal of 
 Economics, vol. iii., No. 1, pp. 71, 72. 
 
 2 Quarterly Journal of Economics, vol. iii., No. 1, p. 68. 
 
 1 Ibid., p. 86. * Part II., chapter iv., section iii. 
 
190 WAGES UNLIKE INTEREST. 
 
 small concerns are constantly being " crowded out of business by 
 large ones 1 ; and this tendency increases as the use of capital 
 and specialization of industry develops and civilization advances. 
 Since, in all well established industries subject to free competi- 
 tion, there is capital employed which receives a liberal return as 
 interest or profits, and in the same industries capital is employed 
 for the use of which no interest whatever is paid, it is manifestly 
 incorrect to say : " The same prices . . . are also paid for equal 
 amounts of labor and capital in whatever other employments they 
 may be engaged in." 
 
 Nor is the second affirmation any more consistent with the 
 facts. If it were true that the rate of wages is determined by, or 
 only equal to, the rate of interest, the rate of wages could never 
 exceed the amount paid for the use of the capital representing an 
 equal amount of productive force. According to this hypothesis, 
 wherever the capital is employed without interest the laborer must 
 also work without wages. It is unnecessary to say that such a 
 state of things is nowhere to be found in the industrial world, not 
 even under slavery. In every industry we can find capital em- 
 ployed, without interest, but in no industry can we find labor 
 working without wages. 
 
 Since capital is frequently used without interest, and labor 
 never used without wages, it is manifestly incorrect to say the 
 rate of wages is determined by or equal to the rate of interest ; 
 and since both the rate of wages and interest vary in different 
 industries, and vary in different localities in the same industry, it 
 cannot possibly be true that " the same prices as are paid in these 
 cases for labor and for the use of capital are also paid for them in 
 all their other employments." 
 
 The only really important point in Mr. Wood's argument is the 
 recognition of the fact that capital can only be successfully em- 
 ployed when it is cheaper than labor as a means of production, a 
 fact hitherto generally overlooked. 
 
 Since social progress chiefly depends upon increasing the 
 quantity and reducing the cost of wealth, and this in turn depends 
 upon the use of capital in production, a correct understanding of 
 the law governing the economic use of capital is of the utmost 
 
 1 Cf. chapter iv. ; also author's article, Political Science Quarterly, vol. iii.„ 
 No. 3, pp. 385-408. 
 
CONFOUNDING WAGES WITH PROFITS. 19I 
 
 importance to economic science. As already explained, 1 that 
 which undersells always succeeds, and that which succeeds establishes 
 the methods by which its success is accomplished j consequently, the 
 principle upon which capital can be successfully employed in 
 production is its relative cheapness as a productive factor. 
 
 The fact that " as between two methods of obtaining the same 
 result, cheapness is the sole guide," is clear to Mr. Wood, but its 
 economic significance he has evidently failed to recognize. Like 
 the orthodox economists, he sees that the use of capital is the 
 only means of permanently cheapening wealth. And he further 
 sees what they did not, namely : that capital can only be em- 
 ployed when it furnishes productive force cheaper than labor ; 
 but the principle upon which capital becomes cheaper than labor 
 he appears to be no nearer understanding than was Adam Smith, 
 Gregory King, or Thomas Munn. The chief difficulty with Dr. 
 Wood is that he fails to distinguish between the economic 
 character of labor and capital and consequently confounds the 
 price of labor with interest or profit which are fundamentally 
 different. 
 
 The price of labor, like that of all necessary factors in production, 
 is determined by its own cost and not by interest, nor any thing 
 relating to capital. The use of capital depends upon the cost of 
 labor in two ways — its cost as a factor in production, and its 
 expensiveness as an element in consumption. While capital can 
 never be employed unless it can work cheaper than labor, it can 
 only do so when it is accompanied by new employment creat- 
 ing conditions which nothing but an enlarged general consumption 
 and higher wages can supply. Moreover, a general rate of wages 
 and profits in all industries, such as Wood struggles to explain, 
 is nowhere to be found. The rate of wages tends to uniformity 
 only within specific industrial groups. In such countries as India 
 and China and to some extent in Russia and Austria, among 
 purely agricultural producers, there is the nearest approximation 
 to a general rate of wages, because there industrial differentiation 
 is at the minimum. But in proportion as the division of labor 
 and the complexity of industrial and social relations increase, a 
 general rate of wages becomes impossible, because distinctive 
 industrial groups bring different rates of wages into existence. 
 1 Part II., chapter i. 
 
I92 NO UNIFORMITY OF PROFITS. 
 
 For example, the wages of spinners, weavers, carpenters, masons, 
 tailors, etc., will tend to a uniform rate for each industry in the 
 same market or locality, but that uniformity does not extend 
 throughout the country. Accordingly, we find that the wages for 
 the same occupation in New York City are very much higher than 
 in rural districts and country villages, for the obvious reason that 
 the cost of supplying the labor-power is greater in the former 
 than in the latter places. 
 
 Therefore while wages and prices always tend to a uniformity, 
 it is a uniformity for the same quality in the same market. But 
 even this is in no sense true of profits ; on the contrary, all the 
 force of self-interest and economic law tend to make profits move 
 in the opposite direction. The reason for this is very simple. 
 Profits being the net surplus after all costs are paid, it is because 
 prices tend to a uniformity that a variation in the cost makes 
 profits possible, and therefore the greater the variation in the cost 
 of production per unit of product, the greater the variation in the 
 profits. And conversely the more uniform the cost of production 
 per unit, the more uniform and the smaller the maximum amount 
 of profit. Instead of profits tending towards a uniformity, they 
 tend towards diversity, varying from zero up, in proportion as 
 the complexity in productive methods and variety in the cost per 
 unit increases. 
 
 SECTION II. — Professor Clark's Theory. 
 
 In a recent monograph J Professor Clark presents a theory of 
 wages which, if not new, has some new features in it. The fun- 
 damental point in this theory is, that the price of all factors in 
 production is determined by what the last and no-rent increment 
 can produce, which when applied to labor is, that the general 
 rate of wages is determined by what the laborer could produce 
 " empty-handed " or with such land and tools as can be had for 
 nothing. 
 
 As a theory of wages this is essentially the doctrine of Henry 
 
 1 A paper on the " Possibility of a Scientific Law of Wages," read before the 
 Third Annual Meeting of the American Economic Association, in Philadelphia, 
 December 27, 1888. " Publications American Economic Association," vol. iv., 
 No. 1. 
 
CLARK'S THEORY STATED. 1 93 
 
 George, which we have shown to be contrary to all experience. 1 
 Mr. Clark, however, seems to think the fallacies which we exposed 
 in the theory of Mr. George are not due to the principle of the 
 doctrine, but result from a too restricted application of it. 
 
 Instead of limiting the theory to no-rent land, as George does, 
 he extends it to no-rent instruments in all departments of the 
 social working- fi eld.' This theory affirms : (1) that there is a 
 no-rent point at which every productive factor is employed ; (2) 
 that this marginal or no-rent place is where the price of using all 
 productive instruments is determined ; (3) that this price-fixing 
 portion of the supply is always the last increment that is brought 
 into use — hence, "the men who fix the standard of wages are in 
 the rear rank, not in the front " ; (4) that the wages of the last 
 or price-fixing increment depend upon the proportion between 
 the number of laborers and the amount of capital employed ; and 
 consequently, that wages can only be advanced in proportion as 
 capital increases faster than labor. 
 
 1. Is it correct to say that there is a no-rent point in the use 
 of all productive factors ? Something depends here upon what 
 is meant by the phrase " no-rent." If by rent he means the cost 
 of maintaining the instrument unimpaired, then the statement is 
 manifestly incorrect. In this sense a permanent no-rent use of 
 any productive factor is impossible, since its wear and tear would 
 soon cause its total destruction. If, however, by rent he means 
 that which the owner obtains in addition to maintaining its pro- 
 ductive efficiency unimpaired, the statement is unexceptionable. 
 Regarding rent in the sense of net surplus, there is unquestion- 
 ably a no-rent point at which every productive factor, including 
 labor, is employed. 3 
 
 2. Whether or not it is correct to say that the price of using 
 the productive instruments is determined at the no-rent (no-sur- 
 plus) point, depends upon the sense in which the word " price " 
 is used. If by the price of using productive instruments is meant 
 the expense of maintaining their productive efficiency, which 
 
 1 " Wealth and Progress," Part II., chap, i., sec. iii. 
 
 J " The true margin of cultivation — more accurately that of utilization — is 
 not wholly nor chiefly an agricultural thing ; it extends throughout the indus- 
 trial system. . . . There is a margin of utilization in cotton spinning, in 
 iron-smelting, in shop-keeping." — Pp. 44, 45. 
 
 * Part III., chapter iii. 
 
194 HE COMMITS THE SAME ERROR AS MARX. 
 
 constitutes a necessary part of the cost of production, and is paid 
 by the consumer in the price of the product, there can be no 
 exception to the statement. But if by the price of using produc- 
 tive instruments is meant the rent of land, and the profit or 
 interest of capital, or the savings of labor, in short, surplus 
 incomes none of which enters the cost of production, then the 
 statement would be manifestly incorrect. Instead of these being 
 determined at the price of no-rent use, they are always deter- 
 mined by variations from it. 1 It would indeed be a contradiction 
 in terms to say surplus incomes are determined by no-surplus 
 uses. 
 
 3. The third proposition will be found to be much less satis- 
 factory. In affirming that the last increment added to the supply 
 is the price-determining increment, Prof. Clark has made a ques- 
 tionable application of his argument. He here confounds the 
 last with the dearest increment as if they were quite equivalent 
 expressions. In doing this he has committed precisely the same 
 mistake that Marx made in following Ricardo and confounding 
 the quantity with the cost of labor as the determining factor in 
 value. When Ricardo said " the value of commodities is deter- 
 mined by the quantity of labor devoted to their production," he 
 really meant the cost of that labor. But he erroneously assumed 
 that a given quantity of labor always represents the same cost 2 ; 
 hence, the cost and quantity at any given time are equivalent 
 expressions. Marx literally accepted Ricardo's expression, " the 
 quantity of labor " without regard to its cost, the logical applica- 
 tion of which led directly to the colossal error of declaring that 
 profits are exploitation of labor, an error which the adoption of 
 the other form of expression, " cost of labor," would have entirely 
 obviated. 3 
 
 The position of Prof. Clark is another instance of the same 
 kind. Ricardo's theory of rent, which is the evident basis of his 
 doctrine, affirms that the last increment of land brought into cul- 
 tivation is always the no-rent and hence the price-determining 
 portion. The idea he endeavors to apply to the whole sphere of 
 
 1 See Part III., chap. iv. 
 
 2 See " Political Economy and Taxation," ch. i., sec. ii. and iii. 
 
 s See article on " Economic Basis of Socialism," Political Science Quarterly 
 for December, 1880. 
 
THE LAST-INCREMENT FALLACY. 195 
 
 price phenomena. He assumes that the price of all productive 
 instruments is determined by the no-rent increment, and that this 
 is always the increment which is brought into use last. It is here 
 that the element of error enters the doctrine and invalidates it as 
 a scientific theory of prices, either of labor or of commodities. 
 In making the last increment of land the rent-fixing increment, 
 Ricardo confounded the last with the dearest increment, exactly 
 as in the previous case he confounded the quantity with the cost 
 of labor. The real reason Ricardo held that the rent of all land 
 was fixed by the last increment brought under cultivation was, 
 because he erroneously assumed that the last increment was 
 always the poorest and therefore the dearest. Here as in the 
 former case he assumed that the two were equivalent expressions 
 but always spoke of the " last." Prof. Clark like Marx accepts 
 the literal form rather than the interior meaning of Ricardo's 
 expressions and with similarly fatal consequences. 
 
 It can easily be shown that this " last-increment " theory is 
 inconsistent with the facts, alike in regard to land, capital, and 
 labor. It is well known that Ricardo's assumed order of cultiva- 
 tion is entirely unhistoric. Instead of the best land always being 
 used first and the poorest last, the reverse order more frequently 
 occurs. For instance, when the land brought into cultivation last 
 will yield more for the same investment than that already culti- 
 vated, as is often the case, the price of the product will not fall to 
 the cost of production on this last land, because in that case all 
 the previously cultivated land would be thrown out of use by 
 making the price so low as to render its cultivation impossible. 
 If the product of all the land under cultivation is needed, the 
 price must be high enough at least to enable the poorest portion 
 to be cultivated without paying rent. Thus while the poorest 
 portion will be the price-fixing and no-rent increment, it will not 
 be the last, but the last increment, being the best or better than the 
 poorest, will be a rent-paying and not the price-fixing increment. 
 
 Having confused the last with the dearest increment, Prof. 
 Clark's argument from this point on, like that of Marx, leads 
 directly to error in proportion to the consistency with which it is 
 pursued. 
 
 He says " it is a familiar commercial principle that the last 
 increment of the supply of any commodity fixes the general price 
 
196 A NEW ELEMENT OF CONFUSION. 
 
 of that article." Instead of that principle being familiar in 
 commerce and manufacture, it is even less true there than in the 
 case of land. There is no fact better established in the history 
 of manufacture than that it is the oldest, poorest, and hence the 
 dearest machinery and methods which yield no profits. It is the 
 water-wheel factory, the small mules and slow looms that occupy 
 the no-profit or minimum profit position. The new factories 
 with the most modern improvements are those which yield the 
 greatest profits, because they can sell at the same price while 
 producing at a less cost than their price-fixing competitor. 
 In manufacture and commerce, therefore, instead of being the 
 last it is usually the first or oldest instruments in use which 
 fix the price ; but whether the oldest or newest, it is always 
 the dearest. 
 
 According to the last-increment theory, wages will always be 
 determined by " the last laborers added to the social working 
 force." ' If we observe the history of the mobility of the laborer 
 whether it be from industry to industry, from locality to locality, 
 or from nation to nation, we shall find, except in a few rare 
 instances, that those who enter any given working field last are 
 the most inexperienced, incompetent, and poor. It is the effort 
 to improve their condition that induces people to change their 
 country, locality, or occupation. That is why emigration is always 
 from lower to higher wage-paying countries, why mechanics 
 seldom become farmers, but agricultural laborers are constantly 
 entering the factory and farmers' sons deserting the farms for the 
 cities. The laborer who leaves his country or industry may be 
 and probably often is one of the dearest of the class he leaves, but 
 he is usually among the cheapest in the class he enters. If the 
 poorest laborer fixed the wages when a new man entered any 
 class, the wages of all in that class would fall to his level. 
 
 The statement that the standard of wages is fixed by " the actual 
 product created by . . . the men who run no-rent machinery " 3 
 introduces a new element of confusion. The men who run the 
 no-rent machinery are not necessarily the last comers in that in- 
 dustry. This is really confounding the price of the laborer with 
 that of the product. Other things being the same, the use of the 
 poorest instruments will determine the no-profit and price-fixing 
 
 1 " Possibility of a Scientific Law of Wages," p. 49. 2 Ibid., p. 49. 
 
CONFOUNDING WAGES WITH RENT. 19/ 
 
 point of commodities, because in that case the quality of the in- 
 struments affects the cost of production. But this is not true of 
 labor ; since the instruments are not used in producing labor- 
 power, its cost, and hence its price, cannot be affected by their 
 quality. As productive instruments are only used in creating 
 commodities, it is the price of commodities alone that can be 
 affected by the quality of such instruments. The price of the 
 instruments may have been affected by that of the previous labor 
 which was employed in their production, but when used as in- 
 struments in production in conjunction with labor they are both 
 simply items in the cost of producing a future product, whose 
 price is fixed by them and not theirs by it. For the same reason 
 that the price of raw material is not determined by the finished 
 product into which it enters, but by the price of what enters into 
 it, the price of labor power does not depend upon the price of 
 what it produces, but upon the price of what it consumes — i.e., 
 the cost of its own production. Upon no other principle would 
 the product made by the poorest tools be the dearest, and hence 
 the no-profit portion. 
 
 Therefore, instead of the price of labor being determined by 
 the quality of the instrument it uses, it is the price of the result- 
 ant product only that is so affected. The fact that the entrepre- 
 neur who uses the poorest tools has to pay wages as high as 
 those who use the best, prevents him from having any profit. As 
 a matter of fact the laborer's wages do not grade up and down 
 according to the superiority and inferiority of the instruments he 
 uses. It is only profits which thus vary, and the reason they do 
 so is because wages do not. 
 
 Another source of confusion is the mistake of regarding wages 
 as sustaining the same relation to labor that rent does to land 
 and that profit does to capital. This it will be remembered was 
 one of the chief errors in Dr. Wood's argument, and Prof. Clark 
 seems not entirely to have escaped it. Although for a time he 
 seems to treat wages as identical with prices, in his grand formula 
 he treats wages as governed by the same law as profits and rent, 1 
 
 1 " The earnings of capital (profits and rent) are subject to identically the 
 same law as those of labor ; they are fixed by the product of the last increment 
 that is brought into the field." — " Possibility of a Scientific Law of Wages," 
 P- 53- 
 
I98 PRICE AND SURPLUSAGE, 
 
 which is entirely erroneous. In the use of both capital and land, 
 that which is necessary to replace the wear and tear is not profit 
 or rent but necessary cost. It does not go to the owner of the 
 land or capital, but is all consumed in maintaining its productive 
 efficiency. Wherever land or capital is employed, and the prod- 
 uct is only equal to this necessary cost, there will be no profits 
 or rent. In the case of labor all this is different. All the laborer 
 receives is wages, whether it is cost or surplus. Whether the 
 laborer receives what will barely maintain his economic efficiency 
 or a third more than that amount it is all wages because it is all 
 in the price of his labor. 
 
 In every class of labor under wage conditions there are some 
 laborers who work at the bare cost point, and others who have a 
 surplus. There is also land that is used at cost point and yields 
 no rent or surplus, and land that yields a rent. 1 So too of capi- 
 tal ; there is some that is used without profit and some that 
 yields a profit. Now those laborers who have no surplus above 
 their cost of living receive wages, and as high wages too as those 
 of their class who have a surplus. But the owners of land and 
 capital which only yields the ' cost of their use do not receive a 
 surplus as rent or profit. To say profit and rent are governed 
 by the same law as labor is to confound the law of prices with 
 the law of surplus. Wages are the price of labor and are gov- 
 erned by the same law as the price of land, gold, or shoes. 
 Profit and rent, like the laborer's savings, are all surpluses and 
 are governed by the law of surplus. The correct statement 
 therefore is this : the surplus or savings from wages, rent of land, 
 and profit of capital, are all governed by the same law — the law 
 of economic surplusage ; and the wages of labor, the price of 
 land, and of commodities are governed by the same law, namely, 
 the law of economic prices. 
 
 4. The fourth proposition is the natural outcome of the third. 
 
 1 In using the expression " no-rent," the existence of no-rent land and no- 
 profit instruments, is assumed. If however a state of society should be reached 
 where no-rent land does not exist, that would not in the least militate against 
 the law. It would then be the mittimum-rent land or tools that occupy the 
 price-fixing position. Indeed the prefix " no " should always be taken to mean 
 " minimum." Then where no-rent land or capital exists the statement is cor- 
 rect, and where they do not exist it is the minimum-rent land or capital that is 
 referred to. 
 
DEFECTS OF CLARK'S THEORY. 1 99 
 
 The doctrine which makes the laborer's income depend upon the 
 quality of his tools naturally leads to the conclusion that wages 
 depend upon capital. Hence it is not surprising that Mr. Clark 
 falls back into the fold of pure wage-fundism which makes the 
 progress of the laborer subsequent to and dependent upon that 
 of the capitalist. He says : " The sole hope of this multitude 
 (the working class) lies in an advance of the margin of the field 
 of capital, and in the retirement of the margin of the field of 
 labor. By this twofold action only can wages rise with great 
 rapidity, but the movement of its margins is possible only by 
 means of a considerable excess of the supply of capital unbal- 
 anced by labor." ' This contains the essence of about all the 
 heresy of orthodox economics. It makes man depend upon 
 wealth instead of making wealth depend upon man. 
 
 Whatever the merits of this theory may be, it has three serious 
 defects : (1) in assuming that prices are determined by the last 
 instead of by the dearest increment of the supply ; (2) in treat- 
 ing wages as a share of the division of the product instead of a 
 necessary item in the cost of its production ; (3) in putting wages 
 in the same economic category with rent and profit instead of in 
 the category of prices. The natural result is to confound wages 
 with profits, misplace the price-determining factor, and finally 
 invert the economic relation of capital and labor. 
 
 1 " Possibility of a Scientific Law of Wages," p. 59. 
 
CHAPTER III. 
 THE LAW OF WAGES. 
 
 SECTION I. — The Test of a Scientific Law of Wages. 
 
 A scientific law of wages must afford a rational explanation 
 of all normal wage phenomena. It muse explain what wages 
 are, why they are paid, and how their amount is determined. It 
 must explain why the rate of wages varies in the same industries 
 in different countries and localities, and why it differs in different 
 industries in the same localities ; why the wages in agriculture 
 are always lower than those of manufacturing industries in the 
 same country ; why in the same industries and localities the 
 wages of women are lower than those of men ; and why in all 
 industries a portion of the laborers can save money while others 
 of their class can scarcely make both ends meet. In proportion 
 as any theory fails to account for these constantly recurring 
 facts, it must be deemed insufficient to explain the economic law 
 of wages. 
 
 In considering the theories of others I have applied this test, 
 and to the extent that they fail to fulfil its requirements, I have 
 not hesitated to pronounce them incomplete or unsound. 1 All 
 that I ask is that the theory presented in this chapter shall be 
 judged by the same standard ; and if it fails to fulfil the require- 
 ments exacted from others, it must share the same fate, and vice 
 versa. In order to avoid confusion it is important at the outset 
 that we definitely understand what the term wages is intended to 
 mean. 
 
 1 The criticism of the wages-fund theory, Professor Walker's theory, and 
 Henry George's theory will be found in "Wealth and Progress," Part II., 
 chap. i. ; and that of Dr. Wood and Professor Clark in the preceding chapter. 
 
CHARACTER OF THE WAGES-SYSTEM. 201 
 
 Section II. — Definition of Wages. 
 
 In the first place, the phrase wages has no economic meaning 
 except under wage conditions ; that is to say, under conditions 
 where the laborer's income consists of a specific amount paid by 
 another for his service as such. Strictly speaking, wages are 
 economically the price of labor. For instance, if a man works for 
 himself, and either sells or consumes the product of his labor, 
 what he receives will not be wages ; it will be the result of his 
 labor, but that will consist of the product he created, whether 
 little or much, good or bad, or indifferent, but it will not be the 
 price of his labor. Nothing can properly be regarded as having 
 a price which is not subject to the conditions of exchange — i.e., 
 is not bought and sold. When a man owns and sells the products 
 of his labor, the product has a price but his labor has not, because 
 as labor it has not entered the sphere of exchange, and hence is 
 not subject to the law of prices. 
 
 So too in slavery, where the laborer owns neither his labor nor 
 his product. Here the product is bought and sold, and hence 
 has a price, but the labor-power as such is not exchanged ; it is 
 the laborer himself that is bought and sold. We do not buy the 
 labor of the horse or the engine. It is true that the motive for 
 buying the horse or engine is to obtain their productive power, 
 but in order to obtain that power we have to buy that in which 
 it is produced. Under slavery the laborer is economically iden- 
 tical with the horse or the engine. It is he and not his labor- 
 power that is bought and sold. The difference in the two 
 systems, then, may be stated thus : under slavery the laborer is a 
 commodity ; under the wages-system it is only his labor-power or 
 service that is a commodity. With this change came a marked 
 social distinction ; under wage conditions, the capitalist, instead 
 of buying and selling laborers as under slavery, buys service and 
 sells products, and the laborer sells service and buys products. 
 Thus the laborer ceases to be a commodity and becomes a distinct 
 social unit who buys and sells, and economic price is transferred 
 from his personality to his labor-power. It is only under condi- 
 tions where the laborer is personally, socially, and politically free 
 and sells his service as such, that wages can properly be said to 
 exist. The price at which service under such conditions is sold 
 by the laborer is wages. 
 
202 REAL AND NOMINAL WAGES. 
 
 It is therefore not the amount received, but the way in which 
 it is received that constitutes it wages. Whether the amount be 
 a hundred dollars a year or a hundred dollars a week makes no 
 economic difference. There is nothing in the nature of wages as 
 such to prevent them from being increased to any amount. The 
 essential characteristic of wages is that they constitute a definite 
 as distinguished from a contingent income. It will be observed 
 that this definition of wages includes the incomes of all, without 
 regard to sex or social status, who sell their service for a stipu- 
 lated amount. The term wages, then, as it will be used through- 
 out this book, means neither more nor less than the price of labor. 
 
 In the text-books there is usually considerable discussion about 
 nominal and real wages. This, however, need detain us but 
 a moment. Nominal wages simply mean the price that is paid 
 for a given amount of service expressed in the currency or money 
 of the community. Real wages mean the actual amount of 
 wealth or social well-being obtainable for a day's labor. Nominal 
 wages are of no special account except as a mode of expressing 
 real wages. 1 In considering the law of wages, therefore, the 
 question is not how is the laborer's income determined when he 
 works for himself, nor how it is determined when he is personally 
 the property of another, but how his income is determined when 
 he voluntarily sells his service as service. What the employer 
 pays to the laborer is not in any sense a division of the product, 
 but it is wholly an expenditure in purchasing the means of pro- 
 duction. Thus labor (not the laborer) is in exactly the same 
 economic category as raw material, machinery, or any other pro- 
 ductive factor. For instance, when the manufacturer has pro- 
 duced a thousand yards of cotton cloth he does not divide it 
 with his laborers either practically or theoretically ; on the con- 
 trary, all the wages for producing that cloth, including those 
 involved in producing the raw material and machinery, have 
 already been paid. They constitute a part of the cost, and hence 
 the value of the cloth. Whether or not the manufacturer will 
 gain or lose by the transaction is a subsequent matter, and 
 entirely depends upon whether he can produce the cloth at as 
 small a cost as his most incompetent competitor. 
 
 The economic claim of the laborer therefore is to a definite 
 price for his labor, and not to a proportional share of the prod- 
 1 " Wealth and Progress," pp. 75, 76, 96, 97, 98. 
 
WAGES THE PRICE OF LABOR. 203 
 
 uct. This really constitutes the economic difference between 
 wages and rent, interest and profit, and is the distinction already 
 pointed out between price and surplus. If the laborer were a 
 claimant to a given proportional share of the product, the size 
 of his income would depend upon the quantity produced, and 
 would thus become a contingent instead of a stipulated amount. 
 In short he would be working in partnership and not working for 
 wages. As before stated, the essential characteristic of the 
 wages system is that the laborer is not a commercial partner ; he 
 has no ownership in the finished product. His economic posi- 
 tion is to sell labor and buy products, and that of the entrepreneur 
 is to buy labor and sell products. Obviously then the laborer sells 
 his productive power to the employer at a stipulated price ; he 
 has no more claim to a proportional share of the product than 
 have those who sell raw material or machinery. The law of wages, 
 then, is the law of the economic price of labor. 
 
 Therefore, in considering the law of wages the question is not 
 what proportion of the product belongs to the laborer, but how 
 the price of his labor is economically determined. When we 
 have discovered the law by which the price of labor is governed, 
 we shall be in a position to consider how that price (wages) can 
 be increased. 
 
 Section III. — The Law of Wages. 
 
 One of the essential conditions of a scientific law of prices is 
 that it must be applicable to all price phenomena. Wages being 
 simply the price of labor, must be governed by the same law 
 as the price of commodities. Consequently if the formula of the 
 law of prices presented in a previous chapter ' is correct, we have 
 only to apply that theory to labor in order to find the economic 
 law of wages. If it does not explain the movement of wages as 
 completely as it accounts for the price of commodities, we may 
 safely conclude that it fails to fulfil the requirements of a scientific 
 law. 
 
 This law it will be remembered is : That econotnic prices con- 
 stantly tend toward the cost of furnishing the most expensive portion 
 of the necessary supply in a?iy given market j and that this tendency 
 increases directly as the impediments to free economic move?nent are 
 diminished. 
 
 1 Part II., chap. iv. 
 
204 
 
 ECONOMIC LAW OF WAGES. 
 
 Applied to labor then, this law is : That wages tend to move 
 towards the cost of furnishing the most expensive portion of the neces- 
 sary supply of labor-power in any given market ; and that this ten- 
 dency increases directly as the individual freedom and mobility of the 
 laborer advances. 
 
 By the cost of a thing is meant not what it may have cost 
 somebody else or would cost under any other conditions, but 
 what its owner actually gave for it or would have to pay to re- 
 place it. The cost of labor-power then, is what it cost the laborer 
 to furnish it. Obviously the cost of labor-power to the laborer is 
 the cost of his maintenance or living. The cost of the laborer's 
 living, however, is not limited to the simple maintenance of the 
 individual laborer, but it includes all that enters into the neces- 
 sary expenses of his social life. Since the maintenance of the 
 family of the married man is as much a part of his necessary cost 
 of living as his individual food and shelter, it is an indispensable 
 item in the cost of supplying his labor power. Therefore the fam- 
 ily and not the individual is the economic unit in the labor market. 
 
 The law of wages then, may be more correctly stated thus : 
 The rate of wages in any country, class, or industry constantly tends 
 towards the cost of living of the most expensive families 1 who furnish 
 a necessary part of the supply of labor in that country, class, or in- 
 dustry, as shown in the following diagram : 
 
 o c 
 5 c. 
 
 IO c. 
 15 c. 
 20 c. 
 25 c. 
 
 $2 
 $2 
 $2 
 $2 
 
 $2 
 $2 
 
 Maximum cost 
 
 Minimum cost 
 
 $2 
 
 • • • gl.95 
 . . fl.gol 
 
 • $!- 8 5 I Source 
 
 M.80 r~ of 
 
 P r> 75 Savings. 
 
 Savings. 
 
 Wages. 
 
 Actual Cost. 
 
 Cost Reduced 
 
 by 
 Cheap Living. 
 
 The reason wages in any class or industry are thus adjusted to 
 the standard of living of the most expensive families is exactly 
 the same as that which we saw caused the price of commodities 
 
 1 By the most expensive families is not meant the most expensive single 
 family, but the most expensive ten or twenty per cent, of the class whose labor 
 is required. 
 
COST OF LIVING THE BASIS OF WAGES. 205 
 
 to be adjusted to the cost of producing the most expensive por- 
 tion of the supply. We saw that the price of commodities tends 
 to a uniformity, because the lowest price at which one producer 
 would sell was the highest at which the consumer would buy. 
 This uniformity, through the pressure of the consumer to buy at 
 the minimum, tends to be adjusted at the lowest point the pro- 
 ducer can afford to sell, which is at cost. And since the price 
 tends to uniformity at cost, wherever the cost varies, the uni- 
 formity necessarily takes place at the cost of the dearest incre- 
 ment. 
 
 This is equally true of labor, and for precisely the same rea- 
 son. Upon the same principle that the producer cannot or 
 will not consent to continuously sell a commodity for less than 
 it cost him to produce it, or than it will cost him to replace it, 
 the laborer cannot or will not long consent to sell his service for 
 less than it costs him (and his family) to live. He will, as ex- 
 perience shows, often work for less than would supply him with 
 exceptional comforts and luxuries, but he will not continuously 
 work for less than will furnish him with those things which by 
 constant repetition and the force of habit have become necessi- 
 ties. Rather than forego these he will refuse to work, and will 
 inaugurate strikes, riots, and other means of endangering the 
 peace and prosperity of the community. 
 
 If two dollars per day is the minimum amount upon which a cer- 
 tain portion of a given class of laborers can or will consent peace- 
 fully to live, then that amount must be paid them in order to ob- 
 tain their labor. What the most expensive portion of a given class 
 must receive, the others may and will receive. We know that the 
 general rate of wages in the same industry and locality is nearly 
 uniform. We know, for instance that weavers, spinners, shoe- 
 makers, carpenters, bricklayers, etc., working in the same shop 
 or factory or on the same job, get the same rate of pay for work 
 at their respective trades whether they are single or married, have 
 large or small families, or live more or less expensively than their 
 fellow-laborers. We also know, for reasons already given, that 
 the most expensive among them must obtain for his service what 
 will supply his family with what they regard as necessities. What 
 will be sufficient to supply the urgent necessities of the most ex- 
 pensive portion of any class of laborers, to induce them to con- 
 tinue to work, will furnish all those whose cost of living is less, 
 
206 
 
 RELATION OF CAPITAL AND LABOR. 
 
 with a margin proportionate to the difference which may be saved 
 or spent in what to them are luxuries. 
 
 Thus through the law of price uniformity, by which the cost of 
 producing the most expensive portion determines the general 
 price of the commodity in that market, the minimum amount 
 upon which the most expensive laborers in any class or industry 
 will consent to live and continue at work, determines the rate of 
 wages in that class. 
 
 There is one important distinction, however, between these two 
 classes of price phenomena which should not be overlooked. Al- 
 though all prices are governed by the same general law, the price 
 of commodities and of labor move in opposite directions. While 
 the dearest capitalist and the dearest laborer both fix the prices 
 for their class, they occupy relatively opposite positions. The 
 manufacturers who furnish the most expensive portion of the sup- 
 ply of commodities are the poorest and lowest in their class, while 
 the laborers who furnish the most expensive portion of labor- 
 power are the best and highest in their class, as shown in the ac- 
 companying diagram : 
 
 Profit. 
 
 ic. 
 s c - 
 
 8 - 
 * C - 
 
 2 r- 
 S C - 
 
 ■g c. 
 
 O C. 
 
 Price. 
 
 4c 
 4 c. 
 4c 
 4 c. 
 4c 
 4 c. 
 
 Actual Cost. 
 
 Cost Saved 
 by Capital. 
 
 Minimum cost ... 3c. Source 
 
 • 3|c. I of 
 
 3§c. Profits. 
 
 3fc I 
 
 3#c. I 
 
 Maximum cost 4c. 
 
 o c. 
 
 5c 
 
 10 c. 
 
 15 c. 
 
 20 c. 
 25 c. 
 
 $2 
 
 $2 
 $2 
 $2 
 $2 
 $2 
 
 Maximum cost $2 
 
 $i.95_| 
 
 $i-9Q J 
 
 - $!- 8 5 I Source 
 
 ti.8oj~ of 
 
 Minimum cost . . $1.75 Savings. 
 
 Savings. 
 
 Wages. 
 
 Actual Cost. 
 
 Cost Reduced 
 
 by 
 Cheap Living. 
 
DEARER LABORERS HELP THE CHEAPER. 207 
 
 Here it will be observed the movements are all exactly the 
 same as in the case of commodities (diagram No. 1), but the 
 relative positions of all are reversed. Laborer A, like capitalist 
 A, is the dearest. His labor-power cost him $2 a day, and he 
 sells it for $2 a day, and has no surplus ; but instead of being at 
 the bottom of his class, he is at the top. The wages of laborer 
 
 A, like the price of manufacturer A, are the same as, and fix, 
 those of all the others. Just as the cost of living of the laborers A, 
 
 B, C, D, E, and F recedes from the cost line of A on the right, 
 does their net-surplus (or the possibility of it) increase in the 
 savings column on the left. That is to say, in proportion as any 
 of the other laborers live upon less than A they are enabled to 
 sell their labor for more than it actually cost them. And the dif- 
 ference, which in the case of the entrepreneur was profit, consti- 
 tutes a net-surplus for the laborer either to be saved, expended 
 upon luxuries, or for any purpose whatsoever. Thus the lowest 
 laborers are enabled to obtain wages higher than the cost of their 
 own labor, because the dearest laborers are compelled to demand 
 a higher price for their labor-power in order to obtain the equiva- 
 lent of its cost. 
 
 The relative positions of the laborer and capitalist being the 
 inverse of each other, it will be seen that it is the most advanced 
 laborer and the poorest capitalist who have no surplus. The rea- 
 son for this is that in the progress of society the movement of 
 the price of commodities is downwards, while that in the price of 
 labor is upwards. That is to say, the dearest laborer occupies the 
 top and progressive position, while the dearest capitalist occupies 
 the bottom and receding position. The surplus of the less 
 expensive laborers is the advantage they receive from the struggles 
 of their most expensive brethren. We have thus a law of wages 
 which is not limited to any special industry, country, or period, 
 but whose application is as universal as the existence of wage 
 conditions. 1 
 
 If wages are governed by the cost or standard of living, it will 
 of course follow that wages will always be the highest where the 
 socially established standard of living among the laborers is the 
 most complex and expensive ; and, conversely, they will be the 
 
 1 See chapter on the Universality of the Law of Wages. " Wealth and 
 Progress," p. 162. 
 
208 WAGES IN DIFFERENT COUNTRIES. 
 
 lowest where the standard of living is the most simple and in- 
 expensive, — and this is precisely what we find the world over. 1 
 We no sooner recognize this than the reason why the wages of 
 the Asiatic are lower than those of the European becomes obvi- 
 ous. The same difference, and for the same reason, exists 
 between wages paid in similar industries in Continental countries 
 and in England, and between those in England and America. 
 The testimony of history is, that in all countries wages in the 
 same industries have always been higher in large cities than in 
 small ones, and so has the cost of living, which generally implies 
 greater social advancement and general intelligence. 
 
 This view is further emphasized by the fact that the industrial 
 centres of the world have, from the dawn of human history, been 
 the birthplaces of freedom and the nurseries of civilization. 2 
 Upon this principle we have no difficulty in understanding why 
 the wages of agricultural laborers are always lower than those of 
 mechanics, and why, as is universally the case, agricultural wages 
 are higher in the vicinity of large cities and towns than in out- 
 lying districts. 3 It is because the wants of the agricultural class 
 are fewer, their social life simpler, and their standard of living 
 lower. As a necessary part of this same fact, we find that agri- 
 cultural laborers are always in the rear ranks of social advance- 
 ment, and are the last to acquire industrial and political rights. 
 
 The difference between the wages of women and those of men 
 in the same industry is due to the same cause ; it is an entire 
 mistake to assume, as some do, that the lower wages received by 
 women are due to their inferior ability. If wages were determined 
 by the skill and competency of the laborer, then the carpenter, 
 mason, painter, or compositor in the country town with equal 
 skill would get the same wages as those in the large cities. And 
 laborers of equal skill in different industries in Pekin, Tokio, St. 
 Petersburg, and Constantinople would obtain the same wages as 
 those in New York City, whereas we know that the common 
 laborer of New York obtains higher wages than the most skilled 
 mechanics in most of the former places. 
 
 Nor are the lower wages of women caused by difference in sex, 
 
 1 " Wealth and Progress," Part II., chapters iii. and vii. 
 
 a Part I., chapter v. Also, "Wealth and Progress," pp. 116-119. 
 
 8 "Wealth and Progress," pp. 163-166. 
 
SA VINGS-BANK DEPOSITS. 209 
 
 since in that case the wages of men everywhere would be higher 
 than those of women anywhere, which is by no means the case. 
 The wages of women in America are as high as those of 
 men in the same industry in any other country, and, with the 
 exception of England, and perhaps Paris, are actually higher. 
 Obviously, then, the wages of women, like those of men, do not 
 conform to the fact of personal skill nor to that of sex, but they 
 do everywhere conform to cost of living. As elsewhere shown, 1 
 the average woman's cost of living is very much smaller than 
 that of the average man, and her wages are correspondingly 
 lower. The wages of women are lower than those of men for the 
 same reason that the wages of agricultural laborers are lower than 
 those of mechanics in the large cities, and wages for the same kinds 
 of labor in Moscow or Constantinople are lower than in Paris, 
 London, or New York. In short, the wages of women are gov- 
 erned by the same law as those of men, namely, the cost of 
 living, and the only reason the wages of women are lower than 
 those of men is because women cost less. 
 
 Another fact, of which no theory of wages hitherto presented 
 affords any satisfactory explanation, is the savings-bank deposits 
 of wage-earners. Since these deposits — to the extent that they are 
 saved from wages — represent a net-surplus above the necessary 
 cost of living, they are usually taken as conclusive evidence of 
 high wages. They are frequently treated as a kind of wage 
 thermometer, the rate of wages or social condition of the laborers 
 being regarded high or low as savings-bank deposits are large or 
 small. The correctness of this conclusion is commonly accepted 
 as self-evident, and it is frequently cited as a conclusive proof 
 of the wisdom of an existing or proposed industrial or political 
 policy. 
 
 The last presidential election in this country (1888) may be 
 cited as an example of this. In order to show the striking contrast 
 between the wages and social conditions of the laborers in this 
 country and England, one of our most popular statesmen cited 
 the fact that the savings-bank deposits in Massachusetts, with 
 2,000,000 population, are nearly two thirds as much as those of 
 
 1 For the further discussion of this point and the facts relating to the wages 
 and the cost of living of women, the reader is referred to " Wealth and Prog- 
 ress," pp. 172-178. 
 14 
 
2IO SAVINGS NO CRITERION OF WAGES. 
 
 Great Britain with a population of 38,000,000, or over eleven 
 times as much per capita of the population. This statement was 
 accepted as showing the difference in the wages and material 
 prosperity of the laborers in the two countries. A more mis- 
 leading statement it would be difficult to imagine, as a little exam- 
 ination of the subject will conclusively show. 
 
 Although the economic and social conditions of the American 
 laborer are decidedly superior to those of his English brother, 
 this fact cannot be established by savings-bank statistics. Nor 
 is the difference between the wages in the two countries any- 
 where near so great as the difference in the amount of savings- 
 bank deposits would indicate. If we compare the savings- 
 bank deposits of the different States in this country the utter 
 worthlessness of such data, for showing the difference in the rate 
 of wages, will at once be apparent. 
 
 According to the official savings-bank statistics in 1887, the 
 deposits per capita of the population were : in Rhode Island, 
 $169.41 ; in Massachusetts, $147.30 ; in Connecticut, $147.18 ; 
 in New Hampshire, $125.52 ; in New York, $89.05 ; while in 
 Pennsylvania they were only $10.81 per capita. In Ohio they 
 were $4.32, in Minnesota $2.17, and in Wisconsin only .02 cents, 
 and in a large number of the Western States there are no 
 savings-banks at all. Now, if there is any virtue in savings- 
 bank statistics as indicating the rate of wages and the industrial 
 condition of the community, the laborers in New York State are 
 only a little over half as well off as those in Rhode Island, and 
 less than two thirds as well off as those in Massachusetts, Con- 
 necticut, or New Hampshire, while in Pennsylvania the condition 
 of the laborer would only be about one sixteenth as good as it is 
 in Rhode Island. 
 
 According to this notion the laborers of Italy are as well off as 
 those in Pennsylvania, and vastly better than those of Ohio, Il- 
 linois, Minnesota, Wisconsin, or any of the Middle and Western 
 States, except California. A theory by which $4.32 per capita in 
 Ohio, $2.17 in Minnesota, .02 cents in Wisconsin, and other 
 Western States, as compared with $169.41 per capita in Rhode 
 Island, are taken to represent the wages and social condition of 
 the laboring classes in those States, bears upon its face the evi- 
 dence of its own absurdity. Why the laborers of Rhode Island, 
 
THE SOURCE OF SAVINGS. 211 
 
 Massachusetts, Connecticut, and New Hampshire should be able 
 to save a third more per capita than those in New York, 1 fourteen 
 times as much as those of Pennsylvania, thirty-four times as 
 much as those of Ohio, sixty-eight times as much as those in 
 Minnesota, and several hundred times as much as those in 
 Wisconsin and other States, is a complete enigma from the 
 standpoint of any of the popular theories of wages, yet they 
 are phenomena which a scientific law of wages is bound to 
 explain. 
 
 In the light of the theory here presented, however, these facts 
 assume an entirely normal role and become perfectly explainable. 
 In the first place, the laborers' savings-bank deposits, like the 
 accumulations of any other class, are entirely of the nature of a 
 surplus, 2 and therefore, like rents and profits, are governed by the 
 law of surplusage. It will be observed that the surplus, which 
 alone makes savings-bank deposits possible, is simply the differ- 
 ence between the cost of living of the most expensive families of 
 any given class or industry and those who, for whatever reason, 
 live upon less. Thus wages may be very high, and still the pos- 
 sible surplus be very small, and vice versa. 
 
 For example, if wages in a given class or industry were $3.00 
 a day, and the established standard of living in that class was 
 substantially uniform, the possibility of saving would be very 
 slight, because the cost of living of each family would be practi- 
 cally equal to, and hence consume, the entire wages. Under 
 those conditions savings would be impossible, except to unmar- 
 ried persons or those whose families were smaller than the largest, 
 which at best would afford but a small amount of surplus for the 
 class in general. Moreover, the possibility of savings from that 
 cause would exist in any class, whatever the rate of wages. On 
 the other hand, suppose that in a given industry the general rate 
 of wages fixed by the dearest laborers is $1.50 a day, but instead 
 of the standard of living being uniform throughout the class, it 
 greatly varies through the difference in the social habits, as is 
 actually the case in this country where American, English, Irish, 
 French-Canadian, and Continental laborers are all employed in 
 
 1 Savings-bank deposits in Italy amount to $9.00 per capita of the popula- 
 tion. Cf. Political Science Quarterly, vol. iv., pp. 483, 493. 
 
 2 See diagram No. 2., p. 206. 
 
212 AGRICULTURE UNFAVORABLE TO SAVINGS. 
 
 the same industry. Many of these foreign laborers, through their 
 simpler habits of life, will be able to live on one half or two thirds 
 as much as the American or English laborer, and hence will be 
 able to save the difference. With this variation in the cost of 
 living to different persons at the same rate of wages, a much 
 larger proportion of savings per capita will be possible than in the 
 former case, where wages were one hundred per cent, higher. 
 
 That is precisely what exists in this country, and particularly in 
 the New England States and manufacturing centres. From this 
 point of view there is no difficulty in understanding why savings- 
 bank deposits per capita are much smaller in the Western than 
 in the Eastern States. In the Western States agriculture is the 
 chief occupation. It is well known that agricultural life is more 
 nearly uniform than that of any other occupation. Being iso- 
 lating in its influence, it affords the minimum incentive for new 
 wants and a variety of social demands. Consequently, whatever 
 rate of wages prevails, savings will necessarily be very slight in 
 agricultural communities, while they might be relatively large in 
 manufacturing centres, even with the same rate of wages. Indeed 
 the savings-bank deposits in Italy are derived from wages much 
 smaller than those in our Western States, where no savings-banks 
 exist. 
 
 The same is true of the different States in this country. Wis- 
 consin, where the savings are but two cents per capita, is more 
 exclusively agricultural than Minnesota, where they are $2 ; and 
 Ohio is more agricultural than Pennsylvania, 1 and Pennsylvania 
 than New York. In New England however the reverse is true. 
 In Rhode Island, Massachusetts, and Connecticut there is the 
 minimum amount of agriculture and the maximum amount of 
 manufacture. Consequently they have a greater concentration 
 of population and variety of social life among their wage classes. 
 In addition to this, they have the greatest number of different 
 nationalities engaged in the same occupation, thus greatly in- 
 creasing the differences in the standard of living while the same 
 wage level prevails. 
 
 If we turn to England we find a very different state of affairs. 
 
 1 For social purposes, mining and raw-material-producing industries may be 
 regarded as agriculture, because they are similarly isolating and non-socializing 
 occupations. 
 
WHY FOREIGN LABORERS CAN SAVE. 21 3 
 
 There the population is highly homogeneous ; hence, in each 
 class there is a greater uniformity of social habits and cost of 
 living, and therefore less surplus from the same aggregate income 
 — that is to say, there are none of those arbitrary differences in 
 the style of living in the same class occasioned by an influx of for- 
 eigners as in this country. The differences in the standard of 
 living there, in the main, are only such as arise from the differ- 
 ence in the size of families and the passing from one social grade 
 to another. From the causes already explained, 1 whenever 
 laborers migrate from one industry or social grade to another, 
 while they frequently represent the top or most expensive portion 
 of the class they leave, they usually represent the bottom, or least 
 expensive, of that into which they enter. Just as fast as they are 
 transferred from a position where they are the dearest to one 
 where they are the cheapest, they are changed from a wage-fixing 
 to a surplus-receiving position. The savings-bank deposits will 
 naturally therefore, be much smaller per capita in a homogeneous 
 country like England than in a heterogeneous country like Amer- 
 ica, even though the wages were the same in both countries. 
 Savings are not due to the amount of the wages, but to dif- 
 ferences in the cost of living in the class where the same rate of 
 wages prevails. 
 
 This explains why such a large proportion of the laborers in 
 this country who have bank accounts which is so commonly re- 
 garded as conclusive evidence of superior character, are foreigners. 
 If the possession of a bank account, or the ownership of what is 
 so patronizingly styled " a little home " — often a mere shanty, — 
 is evidence of superior character, why did they not have them 
 in their own country, where that " superior character " was de- 
 veloped ? It may be replied that it is because wages there were 
 too low to leave a margin above what would give them a bare 
 living. Precisely so ; but why was there no margin in their own 
 country ? Why is there no margin for the best class of Chinamen 
 in China, of Germans in Germany, Englishmen in England, and 
 Americans in America, while there is a margin in almost any 
 country in Continental Europe for the Asiatic, in England for the 
 Continental laborer, and in the United States for the laborers of 
 every other country in the world ? The answer is obvious. There 
 
 1 Section ii., preceding chapter. 
 
214 WHY HIGHEST PAID LABORERS STRIKE. 
 
 is no margin from which the best class of laborers can save in 
 their own country, simply because there the general rate of wages 
 is determined by their own standard of living. They can get 
 wages which will leave them a margin over the cost of living, only 
 by going where the price of labor is determined by a social char- 
 acter and standard of living higher than their own, or, if in their 
 own country, by adopting a standard of living lower than the 
 highest of the class to which they socially belong. 
 
 The fact that the lower thus always obtain the advantage 
 acquired by the higher is the economic incentive for all indus- 
 trial mobility. It is only because the laborer can obtain the 
 higher wages previously established in the new country or indus- 
 try, that he will ever undertake to face the disadvantages of 
 emigrating to a foreign land or endure the inconvenience of 
 entering into a new occupation. This law also explains why, 
 throughout the history of industrial progress, the most intelligent 
 and socially advanced laborers always constitute the discon- 
 tented element in their class, and are usually the leaders in labor 
 organizations, strikes, and other forms of industrial agitation. It 
 is because being the most expensive of their class they have no 
 margins and therefore experience the greatest pressure from the 
 non-satisfaction of new wants and desires. 
 
 The effect of the earnings of women and children upon the 
 wages of men is another fact which the prevailing theories of 
 wages have entirely failed to explain. Extensive investigations 
 have shown that in those industries where women and children 
 contribute to the families' maintenance, the wages of the men 
 tend to fall directly as the amount contributed by the women and 
 children increases. 1 If it is simply a question of supply and 
 demand, as is generally assumed, the competition of women and 
 children for employment would tend to reduce the wages of all 
 laborers ; because as laborers increase in one industry they would 
 migrate to others, and thus the effect would be the general reduc- 
 tion of the rate of wages. Such, however, is not the case. The 
 effect is mainly upon the wages of the man in the class where the 
 women who work are a part of the same household. Thus we 
 find that in the same social grade and locality, in the trades 
 where the man supports the whole family, his wages are fully as 
 
 1 For the facts upon this point see " Wealth and Progress," pp. 167 and 172. 
 
FATHER'S WAGES AND FAMILY'S INCREASE. 215 
 
 high as those of the whole family where the wife and one or two 
 children contribute to the family's support. 
 
 A table will elsewhere be found * constructed from the indi- 
 vidual statements of wages and cost of living of three hundred 
 and ninety-seven families employed in ten different industries in 
 Massachusetts. These facts show that the total yearly income of 
 the family in the highest class was $821.40, and cost of living 
 $772.21, and in the lowest the total income was $682.05 and cost 
 of living was $650.81. In the highest class where the women 
 and children who work were only as one fourth of one to a 
 family, the wages of the man were $752.36. In the lowest class 
 where the women and children who work were as one and one 
 third to a family, the man's wages were only $424.12. In other 
 words, in those industries where the women and children con- 
 tribute only $69 a year, the wages of the man were only $19 less 
 than the total cost of the family's living, whereas in the indus- 
 tries where the earnings of the women and children were $257 a 
 year, the wages of the man were $226 less than the total cost of 
 the family's living. It will thus be seen that while the difference 
 between the total income of the family in the highest and lowest 
 class was almost exactly the same as that in the total cost of the 
 family's living, the difference in the highest and lowest yearly 
 wages of the man was greater than that in the cost of living by 
 almost exactly the amount of the difference in the earnings of the 
 women and children. That is to say, while the total income of 
 the family varied with the total cost of the family's living, the 
 ratio of the man's wages to the cost of the family's living dimin- 
 ished directly as the total earnings of the women and children 
 increased. 2 Thus whether the income of the family is all de- 
 rived from one source or from several sources, its total amount 
 tends to equal the total cost of the family's living. 
 
 Therefore, from whatever standpoint we study the move- 
 ment of wage phenomena, we find that the general rate of wages 
 in any country, class or industry, constantly tends to equal the 
 
 1 " Wealth and Progress," 171. 
 
 * " Thus, it is seen that in neither of the cases where the head of the family 
 is assisted by his wife or children, does he earn as much as other laborers. 
 Also, that in the case where he is assisted by both wife and children, he earns 
 the least." — Report of the Bureau of the Statistics of Labor, Massachusetts, 
 1876, p. 71. 
 
2l6 COST OF LIVING HOW AFFECTED. 
 
 cost of living of the most expensive families furnishing the 
 necessary supply of labor. 
 
 The cost of living may be affected in two ways, either by a 
 change in the price of the commodities which the laborer con- 
 sumes or by a change in the quantities of those commodities 
 which enter into his habitual consumption. An increase in the price 
 of commodities would be a rise in the money cost of living, but 
 not a rise in the standard of living ; hence, while it would increase 
 the money wages, it would not increase the amount of wealth the 
 laborer receives for a day's labor. It would therefore be a rise 
 in nominal wages, but not a rise of real wages. 1 An increase in 
 the cost of living, arising from an increase in the commodities 
 habitually consumed by the laborer, would constitute a rise in the 
 standard of living. It would increase the actual amount of wealth 
 daily received by the laborer, and hence would be a rise of real 
 wages. Thus a rise in the cost of living and nominal wages is of 
 no social advantage to the laborer except when accompanied by 
 a rise in the standard of living and of real wages. 2 
 
 It is therefore a rise in the actual social standard and not in 
 the nominal money cost of living, which is of importance in con- 
 sidering the question of wages. Indeed it is in the minimizing of 
 the money cost and the maximizing of the social standard of 
 living that industrial and social progress really consists. In 
 other words, the condition of the laborer improves only as the 
 price of commodities falls and the price of labor rises. The 
 standard of living in any class or country depends upon the 
 social character of the people. Social character is chiefly deter- 
 mined by the number and variety of established social wants, 
 and the consequent simplicity or complexity of social relations. 3 
 It may therefore be said that wages finally depend upon the 
 social character of the laboring classes, the restriction or devel- 
 opment of which is mainly determined by the extent and perma- 
 nence of their social opportunities. When we learn to regard 
 
 1 "Wealth and Progress," pp. 96-98. 
 
 'This law is just as true in "piece-work" as it is in "day-work." See 
 chapter on " Piece-Work," " Wealth and Progress," p. 179. 
 
 3 For an extended discussion of the relation of social wants and character to 
 the standard of living, see "Wealth and Progress," Part II., chap, ix., pp. 
 187-203. 
 
REMEDY FOR LOW WAGES. 21 7 
 
 wages simply as the price of labor which is governed by the 
 laborer's standard of living, we shall see that the laborer is not poor 
 because the capitalist is rich, but that wages are low because 
 the laborer is socially cheap. The true remedy for low wages 
 therefore is not to be sought in profit-sharing, nationalization of 
 land and productive instruments, or in any other schemes for 
 restricting the economic opportunities of the capitalist, but solely in 
 conditions for extending the social opportunities of the laborer. 
 
CHAPTER IV. 
 RENT, ITS LAW AND CAUSE. 
 
 SECTION I . — The Definition of Rent. 
 
 The definition of rent generally accepted by economists is that 
 given by Ricardo, 1 namely, " that rent is that portion of the prod- 
 uce of the earth which is paid to the landlord for the use of the 
 original and indestructible powers of the soil." 2 
 
 It is manifest that if rent is limited to what is paid for " the 
 powers of the soil," or the fertility of the land, then what is paid 
 for land used for building, manufacturing, and commercial pur- 
 poses is not rent at all, since the price paid for such land is 
 entirely independent of the quality of its soil. Moreover, the 
 rent paid for some of the most sterile land for building purposes 
 is greater than that paid for the most fertile land in the world. 
 A definition of rent that does not apply to land which pays the 
 highest rent of all, and which is increasing as civilization 
 advances, must surely be regarded as defective. Nor is this 
 definition materially improved by Mr. Walker's qualification that 
 the expression " original and indestructible powers of the soil " 
 includes "not only arable land, but pasture and timber land, 
 mineral deposits, water privileges, and building sites." 3 While 
 in this case it includes all that is paid for the " original and 
 indestructible powers " of any kind of land, it fails as a defini- 
 tion of rent, because as we shall see rent is never paid for " the 
 original and indestructible powers " of any land. 
 
 It is true that some agricultural land has a high degree of 
 original fertility, but there is no land whose fertility is inde- 
 
 1 " Political Economy and Taxation," pp. 34-36. 
 
 2 Walker's "Political Economy," p. 193. Also, McCulloch's "Political 
 Economy," p. 142. 
 
 3 " Political Economy," p. 193. 
 
 218 
 
RENT IS ECONOMIC SURPLUS. 2 1 9 
 
 structible. Every intelligent farmer knows that continuous 
 cultivation without fertilization will impoverish or destroy the 
 fertility of the most productive land ever known. The fertility 
 of land is not only always destructible, as in the case of mines, 
 but it is frequently not original ; indeed much of the most 
 productive agricultural land in the world to-day owes its fertility 
 not to its " original powers," but almost entirely to improvements 
 created by the application of labor and capital. And the greater 
 part of the land whose fertility is thus created commands a higher 
 rent than much of that which possesses the greatest amount of 
 " original fertility." 1 
 
 In the case of land for building purposes alone, the so-called 
 "powers of the soil," or qualities of the land for which rent is 
 paid, are neither original nor indestructible. Indeed it does 
 not depend upon any quality whatever peculiar to land. On 
 the contrary, rent is entirely due to the presence of a highly 
 civilized industrial community. If New York City were removed 
 a hundred miles from Manhattan Island, the rent of the greater 
 part of the land, some of which is the highest paid for any land 
 in the world, would entirely disappear. Clearly therefore, if 
 rent is limited to that " which is paid to the landlord for the use 
 of the original and indestructible powers of the soil," almost 
 none of the income from land is rent, since a very small portion 
 of such income is paid for its " original " and none at all for its 
 "indestructible powers." 
 
 The chief difficulty with this definition is that it fails to dis- 
 tinguish between price and surplus. Rent is not the price 
 of land ; it is only the economic surplus arising from its use. In 
 order to avoid confusion I define rent as the net surplus resulting 
 from the productive use of land under all economic conditions for 
 any purpose whatsoever. To explain how this surplus arises is to 
 furnish the law of rent. 
 
 SECTION II. — The Law of Rent. 
 
 Rent being an economic surplus, in seeking the law of rent we 
 are simply seeking the law of surplus in relation to the produc- 
 
 1 Witness the high rents paid for the land used for market-gardening and the 
 highly cultivated farms in such countries as Belgium and England, whose fer- 
 tility is largely artificial, and the low rent paid for the most fertile land in our 
 Western States, whose productiveness is largely original. 
 
220 ECONOMIC PRODUCTION OF LAND. 
 
 tive use of land. And as surplus is included in and received 
 with the price, it being the difference between price and cost, it 
 follows that the law of surplus is a necessary corollary of the law 
 of price. In order, therefore, to ascertain the law of rent, we 
 have only to apply to land the general law of prices presented in 
 a previous chapter * — namely, that in a given market prices tend 
 towards uniformity on the basis of the cost of producing the 
 most expensive portion. It is objected by some that since land 
 is the " free bounty of nature " it can have no cost of production. 
 This is a mistake. It should be remembered that economic pro- 
 duction does not mean physical creation but only economic and 
 social adaptation. This may involve a great deal of physical 
 modification both in form and location, or it may involve little 
 or none of either. 
 
 The production of broadcloth or a gold watch involves a great 
 deal of physical change in the wool and in the gold, steel, and 
 other metals of which the cloth and watch are made, whereas the 
 production of nuts and bananas involves very little. The more 
 nearly complete is an object furnished by nature the less will be 
 the cost involved in appropriating it to human uses, and vice 
 versa. The cost of producing a power-loom includes all the 
 expenditure necessary to complete it as an instrument for weav- 
 ing. This of course does not mean the creation of the iron or 
 wood of which the loom is made, but only their adaptation to 
 productive purposes. It is in this sense that we speak of the 
 cost of producing land, the term production having not a 
 physical but only an economic signification. For economic 
 purposes therefore, the cost of producing land, like that of any 
 other productive instrument, includes all the expenditure neces- 
 sary to utilize it as a means of production. 
 
 The law of price in relation to land, therefore, may be stated 
 thus : That under conditions of economic freedom, the price of 
 land in any given community tends to equal the cost of its produc- 
 tion — i.e., the cost of actualizing its economic and social utility. 
 Hence when the cost per unit of using all the land is the same, 
 the price and the cost of production (economic use) will be identi- 
 cal, and no surplus or rent will remain. And whenever the cost 
 per unit of using different portions of land varies, the price per 
 
 1 Part II., chapter iii. 
 
THE LAW OF RENT. 221 
 
 unit will tend to a uniformity on the basis of the cost of actual- 
 izing the utility of the most expensive portion of the land used 
 for that purpose in that community. Thus while the price per 
 unit of the whole land in that community tends to a uniformity, 
 that of the portion whose utility costs the most to actualize it 
 will consist entirely of cost, and that of the others will consist of 
 cost and rent (surplus), the rent increasing as the cost of utiliza- 
 tion diminishes below that of the most expensive portion used. 
 
 Having found the law of prices in relation to land, we have as 
 a necessary corollary the law of surplus — i.e., the law of rent. It 
 may be stated as follows : Tnat under conditions of economic 
 freedom, the rent of land used for any purpose tends to equal the 
 difference between its productive utility and that of the poorest 
 land used for the same purpose in that community, or which con- 
 tributes to the necessary supply of the same market. 
 
 It will be observed that the conclusion here reached is sub- 
 stantially the same as that of Ricardo, stripped of many mislead- 
 ing assumptions by which the Ricardian theory has ever been 
 accompanied. 
 
 In the first place, by treating rent as the net surplus resulting 
 from the productive use of land, we entirely avoid the error in- 
 volved in the Ricardian definition of rent as the price paid for 
 "the original and indestructible powers of the soil." And by re- 
 garding land simply as a productive instrument, thereby putting 
 it in the same economic category with other forms of capital, we 
 remove all grounds for the perplexing controversy as to whether 
 the income from improvements in land is properly rent or profits. 
 Since rent and profits are both economic surpluses, whether or 
 not they are designated by the same term is a matter of entire 
 indifference. We also avoid the confusing consequences of that 
 erroneous assumption of Ricardo, that land is always utilized in 
 the order of its fertility, the best being taken first and the 
 poorest last, an assumption which Carey devoted tedious space 
 to exposing, and which Walker and other Ricardians are still 
 laboring to defend. 
 
 From the point of view here presented, it is absolutely of no 
 importance whether the land is cultivated in the order claimed 
 by Ricardo or that claimed by Carey, the law will operate the 
 same in either case. If the inferior land were used before the 
 
222 RENT GOVERNED BY LAW OF SURPLUS. 
 
 superior, as is frequently the case, the only difference would be 
 this : instead of the land employed last being used at cost, and 
 that employed first yielding rent, as Ricardo assumed, the order 
 would be reversed and the land employed first would be used at 
 cost, and that employed last would yield a rent. Neither the 
 amount of land used nor the amount of rent paid would be 
 affected by that change. The difference in the productive utility 
 of the land will be rent just the same, whether the inferior or su- 
 perior is brought first into use. It is not the historical order of 
 their use, but the difference in the degree of their productive 
 utility, that determines the amount of the rent. The difference 
 in the fertility of two pieces of land yielding twenty and twenty- 
 five bushels of wheat respectively will obviously be just as great 
 whichever is brought into use first. 
 
 If the subject had been treated from the point of view here 
 presented, these errors would have been avoided. It would then 
 have been obvious that the order of use of superior and inferior 
 land has no necessary relation whatever to the price-fixing or sur- 
 plus-producing influence of either labor, land, or machinery. For 
 in all cases and under all conditions where economic freedom 
 prevails, the price is determined by the cost of using the least 
 effective, and therefore the most expensive increment, and 
 whether that be first or last makes absolutely no difference. By 
 this treatment of the subject, we not only avoid the error and re- 
 tain what is true in the popular theory, but we have a consistent 
 classification of economic phenomena, by which the price of land, 
 commodities and labor is governed by the law of price, and on 
 the other hand, the rent of land, the profit of capital, and the sav- 
 ings of labor are governed by the law of surplus. 
 
 Section. III. — The Cause of Rent. 
 
 No theory can be regarded as furnishing an adequate explana- 
 tion of rent phenomena which does not explain the cause of rent. 
 When we know how rent comes into existence, and by what 
 social force it becomes economically possible, we shall be able to 
 determine whether it arises from an economic necessity and is a 
 social advantage, or whether it is due to economic despotism and 
 is a social burden, — as is commonly believed. Upon this point 
 the popular doctrine is perhaps least of all satisfactory. Francis 
 
WALKER'S EXPLANATION OF RENT. 223 
 
 Walker, who has probably taken more pains than any other 
 writer to make good the deficiencies in the Ricardian theory of 
 rent, endeavors to show that the difference in the productiveness 
 of land is not only the measure and regulator of rent, but that it is 
 also the cause or source of rent. He has endeavored to illus- 
 trate exactly how, under the influence of self-interest, rent arises. 1 
 Like Ricardo, he begins by assuming the existence of a new 
 country with four grades of land, which will yield, with the same 
 expenditure of labor and capital, .24, 22, 20, and 18 bushels of 
 wheat per acre respectively. He also, like Ricardo, assumes that 
 the best land, or 24-bushel tract, will be cultivated first, and the 
 others in the order of their fertility, and says : " Cultivation then 
 descending to the 22-bushel tract, rent emerges. Under what im- 
 pulse ? Why, by the simple operation of the principle of self- 
 interest ; inasmuch as some of the would-be cultivators must go 
 upon the 22-bushel tract, every person now in the occupation of 
 a lot on the 24-bushel tract may just as well — may he not ? — pay 
 something for the privilege of remaining where he is, as take up 
 a lot of the new land for nothing ? If not, why not ? How much 
 shall he pay ? Why, clearly, 2 bushels per acre, the difference 
 between the yield of the two tracts under the same application of 
 labor and capital." 2 This continues until the whole four tracts are 
 brought under cultivation, rent rising 2 bushels per acre on 
 each tract under cultivation, when the next is brought into use, 
 and the rent on the different tracts is 2, 4, and 6 bushels per 
 acre respectively. Then further " to illustrate the operation of 
 this cause " he assumes the existence of a distant tract of land 
 that will yield with the same labor and capital 30 bushels per 
 acre. But through its greater distance from the market 12 
 bushels are consumed in transportation, reducing the amount de- 
 livered to the market to 18 bushels, or the same as the product 
 of the poorest home tract. He then, by a series of improvements 
 in the methods of transportation, reduces the cost of bringing 
 the crop of the distant tract to market from 12 to 9 bushels per 
 acre, and says : " The net produce of the distant tract (30 — 9) has 
 now risen to 21 bushels. The 20-bushel tract must be abandoned. 
 . . . The highest grade of land now yields a rent of but 3 
 bushels an acre (24 — 21), the second of but 1 bushel. The aggre- 
 1 " Land and its Rent," pp. 10, 57* ' Ibid., p. 18. 
 
224 FERTILITY NOT CAUSE OF RENT. 
 
 gate amount received by the owners of land in rents sinks from 
 9 to 4." ' 
 
 It will be observed that at the commencement of Mr. Walker's 
 community we found the best land producing 24 bushels per acre 
 and paying no rent ; then the same land, without any increase 
 in its productiveness, pays a rent first of 2 bushels, then of 4 
 bushels, and finally of 6 bushels an acre. And then after the 
 discovery of the 30-bushel tract, without any diminution in its 
 productiveness, the rent of the same tract falls from 6 to 3 
 bushels per acre. That of the 22-bushel tract falls to 1 bushel 
 and that of the 20-bushel tract disappears altogether. 
 
 The question here is " under what impulse " does the rent of 
 this land rise and fall without any change in its productiveness ? 
 What new force came into operation to make the tract of land, 
 which formerly could be had for nothing, yield a rent of 6 
 bushels and subsequently fall to 3 bushels per acre ? "Why," 
 replies Mr. Walker, " by the simple operation of the principle of 
 self-interest." By what course of reasoning can it be shown that 
 the principle of self-interest in the land owner will always prevail 
 against the self-interest of the tenant ? 
 
 Again, if rent is caused by the fertility of the land or the self- 
 interest of the land owner, or both, why did it not emerge when 
 cultivation first began on the 24-bushel tract ? This was impos- 
 sible, Mr. Walker would reply, because it was not until " cultiva- 
 tion descended to the 22-bushel tract " that "rent emerges." If 
 rent was impossible on the 24-bushel tract until the 22-bushel 
 tract was cultivated, whatever power forced the 22-bushel tract 
 into use, or made its cultivation possible, is manifestly the real 
 cause of rent on the 24-bushel tract. This could not possibly be 
 the fertility of the land or the principle of self-interest in the 
 landowner, as these were just the same before as after rent was 
 paid. 
 
 Nor does Mr. Walker's distant-tract illustration throw any real 
 light upon this question. It is true that rent on the home tracts 
 falls when the distant tract is cultivated, but from what cause ? 
 Mr. Walker replies, because " the net produce of the distant tract 
 has now risen to 21 bushels." Nothing of the kind. So far as 
 Mr. Walker, has shown, no change whatever has taken place in the 
 
 1 " Land and its Rent," p. 25. 
 
ORIGIN OF RENT SOCIAL. 225 
 
 productiveness of the land. When we first saw the distant tract 
 it produced 30 bushels per acre ; it does the same now. The 
 only change that has occurred is a reduction of 3 bushels per 
 acre in the cost of transporting the crop. Manifestly that is not 
 due to any quality or condition of the land nor to the degree of 
 self-interest in the landowner. These are entirely unchanged. 
 It may with truth be said that cheapening transportation reduces 
 the cost of producing the wheat, but it in no way changes the in- 
 fluences of this land upon the cost of the wheat. The cost of the 
 wheat has been reduced by the use of capital, but it is by a class 
 of capital quite distinct from land. 
 
 Mr. Walker has shown that rent began on the 24-bushel tract 
 when " cultivation descended to the 22-bushel tract," and also 
 that rent on all the home tracts fell when the cost of transporting 
 the crop of the distant tract was reduced. But this does not explain 
 the cause which brought all this about. To say that rent rises 
 when inferior lands are cultivated and falls when transportation 
 is cheapened, is only like saying the train moves when the engine 
 starts. But what starts the engine remains to be ascertained 
 before the cause of this movement is explained. In stopping 
 at this point Mr. Walker repeats one of the chief mistakes of 
 orthodox economists — namely, the failure to connect economic 
 phenomena with the social influences from which they arise. 1 
 
 What is the cause of rent is therefore still the question. Nor 
 will the answer be very difficult to find if we pursue the inquiry 
 along the lines already travelled and bear in mind the conclusions 
 reached in the preceding section ; namely, that land like all other 
 forms of capital is simply a productive instrument, and that rent 
 is a net surplus resulting from its economic use. Since an 
 economic surplus is the difference between the price of products 
 and the cost of their production, rent can only be obtained from 
 the price of the commodities in the production of which it is used 
 as an instrument. Clearly therefore, it is to the influences which 
 govern the price of the products that we must look for the cause 
 of rent. Let us return to Mr. Walker's community and see if we 
 can ascertain the cause that made the existence of rent possible, 
 which he failed to explain. 
 
 1 This limitation in regard to the use of improved machinery has already been 
 pointed out. See pp. 143-149. 
 15 
 
226 RELATION BETWEEN PRICES AND RENT. 
 
 In the first place why did not the 24-bushel tract pay a rent 
 when first cultivated ? It was not because of its inferiority, since 
 it was the best land in the community ; nor was it from any lack 
 of self-interest in the landowner, for there never was a time when 
 he would not exact rent if he could. The reason no rent could 
 be obtained for it was that, there being only one grade of land in 
 use, the cost of production, so far as it affected land, was uni- 
 form. Hence according to the law of price already stated, the 
 value of every part of the product was only equal to the cost of 
 its production. Since the price of the wheat equalled the cost of 
 production on the 24-bushel tract, in order to cultivate the 22- 
 bushel tract without loss one of two things must necessarily 
 occur — either the price of the product must rise, or the cost of 
 production must be reduced. 
 
 We will consider first, how a rise in the price of the produce 
 would affect the situation, since the expounders of the popular 
 doctrine always assume that this takes place. It is insisted upon 
 by these writers that rent does not increase the price of commod- 
 ities to the consumer, because the rent is the effect of the price 
 and not the price the effect of the rent. 1 But if it is true that 
 rent can only be paid or, if already paid, can only be increased 
 by a rise in the price of the produce, and that the rise in price is 
 
 1 " It is because its (the produce) price is high or low, a great deal more, or 
 very little more, or no more than what is sufficient to pay these wages and 
 profits, that it affords a high rent, a low rent, or no rent at all." Adam Smith, 
 " Wealth of Nations," book i., chapter i., p. 115. " Corn is not high because 
 a rent is paid, but a rent is paid because corn is high." Ricardo, "Political 
 Economy and Taxation," p. 39. See also ibid., pp. 40, 61, 62. " The in- 
 habitants must consent to pay such an additional price for raw produce as will 
 enable the second quality of land to be cultivated. No advance short of this 
 will procure them another bushel of corn. ... If they choose to pay a price 
 sufficient to cover the expense of cultivating the land of the second quality they 
 will obtain additional supplies, if they do not, they must want them." McCul- 
 loch, "Principles Political Economy," p. 142. "Rent is the effect of high 
 price. . . . It is not from the produce, but from the price at which the prod- 
 uce is sold, that rent is derived." Buchannan, note, p. 40, Ricardo's works. 
 " It is not the diversity of soils nor the law of diminishing returns, that causes 
 rents, since these continue as before when rent ceases to be paid, but it is the 
 price of produce under demand and supply that causes rent." Perry, " Political 
 Economy," p. 292. " The rent of land is determined by the value of its prod- 
 uce." Wade, " Political Economy," p. 101. 
 
ECONOMIC BASIS OF RENT. 22J 
 
 paid to the landowner in rent, it is little more than a quibble 
 to say that the payment of rent does not increase the price of 
 commodities. Whether rent is the cause or effect of rise in 
 price, is of very little importance to the community if every rise 
 in rent is accompanied by a rise in the price. If for example, it 
 cost a dollar a bushel to raise wheat on the 24-bushel tract, 
 it would, under the same conditions, cost a dollar and ten cents 
 a bushel to produce it on the 22-bushel tract. If the wheat could 
 all be sold at that price, it would of course yield a surplus of ten 
 cents a bushel, or two bushels an acre on the 24 bushel tract. 
 Were this the only effect it would be a simple matter, but there 
 are other influences to be reckoned with. A rise in prices would 
 be a practical fall in wages ; hence every extension of cultivation 
 to poorer soils which increased the rent of the landowner would 
 increase the poverty of the laborer. Were such the case, the con- 
 dition of the masses would indeed be hopeless. Henry George's 
 pessimistic declaration that " rent swallows up the whole gain 
 and pauperism accompanies progress " would be literally true. 
 Fortunately for civilization however, the testimony of history is 
 all against such a notion. Rents have never increased so much 
 as during the present century, and the general fall in prices was 
 never so great as during the same period. 
 
 Nor is it possible that it should be otherwise, except in a state 
 of political despotism or industrial piracy. Under conditions 
 of economic freedom, it is as impossible for rent to rise through 
 increasing prices and reducing real wages, as it is for civilization 
 to advance by increasing poverty. Economic law presents an ab- 
 solute barrier to any such parasitic movement by which a surplus- 
 receiving class can be permanently enriched by the impoverish- 
 ment of the community. For the same reason that the landowner 
 cannot obtain rent except when the land yields a margin above 
 the cost of production, the cultivator cannot sell his produce at 
 a price higher than the consumers can afford to pay. Clearly 
 therefore, the product cannot be sold at a higher price unless the 
 purchasing power of the masses is commensurately increased. A 
 general increase of prices without a rise of wages would not only 
 defeat itself by destroying the market for the products, but it 
 would necessarily lower the standard of living and actually put 
 back civilization. If a rise of prices is accompanied by a com- 
 
228 EFFECT OF POPULATION ON PRICES. 
 
 mensurate rise of wages, as it admittedly must be, 1 it would in- 
 crease the cost of cultivating the land as much as it increased the 
 price of the crop, making the cultivation of the 2 2 -bushel tract as 
 impracticable as ever. 
 
 Nor would a mere increase of population change the result. 
 If population should increase and the consumption or effectual 
 demand per capita of the community (real wages) remain sta- 
 tionary, prices could not advance except with the same conse- 
 quences as before. The mere fact presented by Mr. Walker, that 
 the 24-bushel tract is " inadequate to the needs of subsistence," 
 is not sufficient to insure the cultivation of the inferior tract. 
 The community may lack subsistence, people may die of starva- 
 tion, as they often have ; but nobody will cultivate the 22-bushel 
 tract unless its products can be sold at a price at least equal to 
 the cost. 
 
 It may be said that if the population increases, the aggregate 
 income and purchasing power of the community would be in- 
 creased, though wages were stationary. This is true, but since in 
 that case the number among whom the purchasing power is 
 divided would be increased in the same ratio, no one would be 
 richer than before, and consequently, the purchasing power of 
 the individual members of the community would not be increased. 
 A mere increase of the population, other things remaining the 
 same, would enable a larger amount to be consumed at the same 
 price, but it would not increase the capacity of anybody to pay a 
 higher price. 
 
 If an article of food, clothing, or the like, cannot be produced 
 for less than 25 cents, and at the prevailing rate of wages the 
 laborer can only pay 20 cents, it is clearly out of his power to 
 
 1 " As the wages of labor are everywhere regulated partly by the demand for 
 it, and partly by the average price of the necessary articles of subsistence, what- 
 ever raises this average price must necessarily raise those wages." Adam Smith, 
 "Wealth of Nations," book v., chapter ii., p. 691. Ibid., p. 693. " With a rise 
 in the price of food and necessaries the natural price of labor will rise." Ricar- 
 do, " Political Economy and Taxation," p. 50. " There can be no permanent 
 fall of wages, but in consequence of a fall (in the price) of the necessaries on 
 which wages are expended." Ibid., p. 75. " If they (the laborers) had to pay 
 Ss. per quarter in addition for wheat . . . wages would inevitably and 
 necessarily rise." Ibid., p. 93. Cf. Mill's " Political Economy," vol. ii., pp. 
 423, 424, 425. 
 
EFFECT OF IMPROVED METHODS. 229 
 
 consume it. Nor would any conceivable addition to the number 
 of 20-cent purchasers add one whit to their capacity for pur- 
 chasing 25-cent articles. The consumption and production 
 of 25-cent articles can never be promoted by increasing the 
 number of 20-cent consumers. Nothing can make the produc- 
 tion of 25-cent articles possible but the creation of 25-cent 
 purchasers. Manifestly, therefore, other things remaining the 
 same, it is impossible in any general sense to extend cultiva- 
 tion to inferior land by merely increasing the price of com- 
 modities. 
 
 Since the use of the 2 2 -bushel tract cannot be made feasible 
 by advancing prices, the only means by which it can be made 
 feasible is by reducing the cost of production. There are 
 only two ways by which the cost of production can be lessened, 
 either by a reduction of wages or the use of improved methods. 1 
 The former is impossible for the same reason that prices could 
 not be advanced. The latter, therefore, is the only alternative 
 consistent with a progressive state of society. What form im- 
 proved methods will take depends upon the state of civilization. 
 In a very early stage of society it might consist of substituting 
 a spade for a crooked stick, or at a later period a plough for a 
 spade, or mowing and threshing machines for the scythe and 
 flail. At whatever period it occurs or whatever form it takes, 
 since it cannot cheapen, it must save labor. This does not mean 
 that it must merely discharge labor for, as already explained, 
 labor is only economically saved when it is re-employed. Thus 
 in the case of land, as in every other phase of economic move- 
 ment, the successful use of improved methods of production 
 must necessarily be accompanied by new employment-creating 
 conditions. Nothing can create new employments except new 
 demands, or an increase in the consumption of wealth per capita 
 of the population, which of course means an increase in real 
 wages. When by this means inferior land can be cultivated 
 
 1 Improved methods include every thing that makes the same land yield more 
 or yield the same amount at a less cost. This may result from superior skill, 
 better division of labor, more capital in the form of fertilization, better drainage, 
 the substitution of animals for men, or steam for animals, improved implements 
 for either, or any other labor-saving or cost-reducing appliances. 
 
230 RENT FOLLOWS MOVEMENT OF WAGES. 
 
 without loss, the superior land can be cultivated at a profit ; that 
 is to say, when the price of 22 bushels of wheat will defray 
 the cost of cultivating an acre of the 22-bushel tract, the 
 24-bushel tract will yield a surplus or rent equal to ten cents 
 a bushel or two bushels per acre, without either increasing 
 the price of the product or reducing wages. In the last analysis 
 therefore, the determining cause of the use of inferior land and 
 the payment of rent on the superior land is the increased con- 
 sumption of wealth by the masses. 
 
 If we examine the cultivation of Mr. Walker's 30-bushel tract 
 we shall find that its use finally depends upon the same cause. 
 He explains how what he calls its " net productiveness " rose 
 from 18 to 22 bushels per acre, by improved methods of trans- 
 portation. The moment we ask what made improved methods 
 of transportation possible, the answer is simple and obvious. The 
 railroads and steamships which enabled the lands of Dakota to 
 contribute to the wheat supply of Liverpool and London were 
 clearly due to the increased consumption of wealth per capita of 
 the population, which made the construction and use of railroads 
 economically feasible. Nor could this result from a mere in- 
 creased consumption of wheat, but it required a vast increase in 
 the demand for numerous manufactured articles whose produc- 
 tion and consumption involved a large amount of travel and 
 transportation. An increased demand for commodities and a 
 higher social standard of living, which makes steamships and 
 railroads possible, are simply the economic embodiments of 
 higher wages. Thus whether land is cultivated in the order of 
 the best first, and the poorest last, as represented by Mr. Walker's 
 four tracts, or the reverse, as claimed by Carey, the result is the 
 same, namely, that rent or a surplus from the use of land, like 
 that of all other productive instruments, finally depends upon the 
 increasing consumption of wealth per capita of the community. 
 In other words, the cause from which economic rent arises is the 
 advancing standard of living and the rise of real wages among 
 the masses. 
 
 Section IV. — Is Rent a Social Tax ? 
 
 Were it not commonly believed that rent is an unjust burden 
 upon the community, the abolition of which warrants the subver- 
 
TRUE NATURE OF RENT. 23 1 
 
 sion of existing institutions, the consideration of this question 
 might properly seem superfluous. The claim that rent is a tax 
 by which the land-owning class are enabled to live at the expense 
 of the industrious community, legitimately arises from the Ricar- 
 dian postulate that " rent is that portion of the produce of the 
 earth which is paid to the landowner for the use of the original 
 and indestructible powers of the soil." No more fallacious notion 
 was ever taught than that rent, or any other economic surplus, is 
 a price paid for the free contribution of nature. There is no 
 economic law by which a charge can ever be exacted for the use 
 of gratuitous natural forces. 1 This view is further supported by 
 the no less popular doctrine that, in the economic order of dis- 
 tribution, rent is paid before wages, and that consequently the 
 laborer can only receive as his share of the product what is left 
 after rent and profits are taken out. 2 
 
 The utter untenableness of both these positions having been 
 already pointed out, the answer to the question " is rent a social 
 tax ? " need not detain us long. 
 
 Like all other forms of surplus, rent arises from the sure 
 operation of the law of economic prices ; being simply the 
 difference between the maximum and the minimum cost of pro- 
 duction per unit of product. 
 
 If this difference in the cost is due to the difference in the 
 methods, such as a better division of labor, higher skill, more 
 capital, better machinery, etc., the surplus created will go to the 
 entrepreneur and in common phrase will be called profits. And 
 if the difference in the cost of production is due to the different 
 degrees of productive utility of the land, the surplus created will 
 go to the landowner as rent. If the poorest instruments and the 
 poorest lands are used together no surplus can arise for either the 
 landowner or entrepreneur. But if superior instruments are used 
 with inferior land, the entrepreneur may have a surplus without 
 the landowner having rent, and conversely, if the superior land is 
 operated with inferior instruments, the landowner may obtain a 
 rent, while the entrepreneur can have no profit. Thus there can 
 
 1 Part II., chap, iv., pp. 21, 22. 
 
 a Jevons' "Theory of Political Economy," p. 292. Walker's "Political 
 Economy, "pp. 248, 249. Sidgwick's "Principles of Political Economy," p. 
 322. Henry George's " Progress and Poverty," pp. 162, 163. 
 
232 MACHINERY AND LAND. 
 
 neither be rents nor profits unless the joint use of the land and 
 implements produce at less than maximum cost, and the surplus 
 if any, will be divided between the owners of these two classes of 
 productive instruments or all accrue to either one, just in pro- 
 portion as it is due to the superiority of the land or of the 
 instruments. 
 
 There is this difference, however, between land and other pro- 
 ductive instruments : the different qualities of machinery always 
 come into use in the order of the poorest first and the best last, 
 whereas in the case of land, sometimes the best comes into use 
 first. The reason for this is that, machinery being a human in- 
 vention, each new device is the result of an effort to improve 
 upon the last ; its superiority over existing methods being the 
 only reason for using it, and the only motive for making it. On 
 the other hand, land being a natural product whose quantity and 
 locality are unchangeable, the use of the poorer or less productive 
 land can only be made feasible by the employment of superior 
 appliances. Thus, while it is always the best land and the best 
 machinery which yields a surplus, in the case of land when the 
 best is used first (as in the Ricardo-Walker assumption) it does not 
 yield a surplus until the second grade comes into use, whereas in 
 the case of machinery the surplus always commences on the best 
 which is last when its own use becomes possible. But whether 
 the use of land descends from the superior to the inferior through 
 the use of capital in better drainage, improved tools, machinery, 
 etc., or whether it ascends from the inferior to the superior 
 through improved methods of transportation (as in the case of 
 Walker's distant tract), makes no difference either in the amount 
 of rent paid or the effect of rent upon wages and the welfare of 
 the community. 
 
 In whatever order improvements are applied to the use of land 
 and a surplus is created, the rent will always depend upon the 
 difference between the cost per unit of the product due to using 
 the best land and that of using the poorest land employed for 
 that purpose within the same competing group or community. 
 Since rent can only be obtained from a surplus that remains after 
 all costs of production are paid, and since wages are governed by 
 social causes independent of the quality of land or machinery, 
 and prices are determined by the cost of producing the most ex- 
 
RELATION OF RENT TO WAGES. 
 
 233 
 
 Rent 
 
 per 
 
 Acre. 
 
 Surplus 
 
 PER 
 
 Bushel. 
 
 Price 
 
 per 
 
 Bushel. 
 
 Wages 
 per 
 Day. 
 
 Cost per Bushel. 
 
 Bushels 
 per Acre. 
 
 $6.00 
 $4.00 
 $2.00 
 $0.00 
 
 25 c. 
 18 c. 
 10 c. 
 00 c. 
 
 $1.00 
 $1.00 
 $1.00 
 $1.00 
 
 $1.50 
 $1.50 
 $1.50 
 $1.50 
 
 Minimum cost, 75 c. 
 82 
 
 24 
 c. 22 
 
 . go c. 20 
 
 Maximum cost 
 
 $i.oo|i8 
 
 pensive portion of the supply which always includes wages, it 
 follows that rent can only be obtained when a surplus remains 
 after wages and prices have been determined. The economic re- 
 lation of rent to wages and prices is illustrated in the following 
 diagram, which represents Mr. Walker's four tracts producing 24, 
 22, 20, and 18 bushels per acre respectively, the assumption being 
 that with wages at $1.50 per day the cost of production on the 18- 
 bushel tract is a dollar a bushel. 
 
 No. 3. 
 
 From the above, four things will be seen : (1) That A, who 
 uses the poorest land and pays no rent, sells at cost and has no 
 surplus. (2) That, the price of wheat being the same with all, B, 
 C, and D, whose land yields 2, 4, and 6 bushels per acre respec- 
 tively more than that of A, have a surplus of $2, $4, and $6 per 
 acre. (3) That the surplus in the rent column on the left only 
 begins and increases as the cost line per bushel on the right re- 
 cedes from (falls below) that of A. (4) That the increase 
 of the amount in the rent column in no way affects the price or 
 wages column ; D, whose rent is the highest, sells at the same 
 price and pays the same wages ' as A, who pays no rent at all. 3 
 Since the consumer's price and the laborer's wages are both de- 
 termined at the point where no rent is paid, it is manifest that 
 
 1 As a matter of fact the large concerns in both manufacture and farming 
 represented by D, where the largest capital and best methods are used, are con- 
 stantly tending to pay higher wages and sell at lower prices than small farmers 
 or manufacturers represented by A. 
 
 2 If we assumed the four tracts of land to be of uniform quality and suppose 
 the difference in the product to arise from superior skill, larger capital, better 
 implements, etc., the result would be exactly the same, only the surplus column 
 instead of representing rent would represent profits as shown in diagram 
 No. 1, p. 204. 
 
234 HIGH WAGES CAUSE HIGH RENT. 
 
 the surplus paid to the landlord is in no sense a burden upon 
 either the consumer or the laborer ; that is to say, prices are not 
 higher nor wages lower because rent is paid. Indeed, if rent were 
 obtained at the expense of the consumer or the laborer, we should 
 find that prices rise and wages fall as rents increase, whereas the 
 reverse is universally true. 
 
 The highest rents are paid in the most civilized countries, and 
 in such countries rent is higher in the city than in the small town 
 or rural district. And it is precisely in these countries and cities 
 where rents are the largest, that wages are the highest, and gen- 
 eral prices are the lowest. 1 Consequently we find the migratory 
 movement of the laborers (which is always towards higher wages 
 and better living) is constantly from low-rent countries to high- 
 rent countries, from the rural districts where the rent is low to 
 the cities where rent is high. This also explains why commodi- 
 ties can often be obtained more cheaply in large cities than in 
 small towns, as shown by the fact that thousands of people travel 
 from fifty to a hundred miles to a city to make their purchases. 
 This does not mean that things are cheaper or wages higher 
 because a rent is paid, but that things are cheaper and rents are 
 larger because wages are higher there than elsewhere. 
 
 Nor is there any means, except charity or theft, by which the 
 amount in the rent column can possibly be made to find its way 
 to the laborer or consumer. The only economic way it can be 
 given to the consumer is to compel B, C, and D to reduce the 
 price of their product the full amount of their surplus — 10, 18, 
 and 25 cents per bushel respectively. Should D sell his wheat at 
 75 cents a bushel, nobody would continue to buy from C, B, and 
 A, unless they sold theirs at the same price, which they could not 
 do, since it cost them more than that amount. If the product of 
 C is needed, 82 cents a bushel is the lowest price at which it can 
 be supplied ; and if that of B is required, the price cannot fall 
 below 90 cents a bushel ; and so long as that of A is needed, the 
 price must be a dollar a bushel, because less than that will not 
 repay the cost of producing it. No matter how the price is fixed 
 or who fixes it, it cannot possibly be less than equal to the cost 
 of producing the most expensive portion. 
 
 1 That is to say, the price of a day's labor will purchase the largest amount of 
 wealth. 
 
EFFECT OF ABOLISHING RENT. 235 
 
 If the surplus is to be given to the laborer in any other way 
 than by reducing the price, it must go in the form of in- 
 creased wages. In order to do this wages must rise directly as 
 the surplus increases. The same difficulty arises here as in the 
 case of prices ; indeed, wages are simply the price of labor. If 
 D pays higher wages, then the laborers of C, B, and A will refuse 
 to work unless they can have the same. If A is compelled to 
 raise wages equal to 25 cents a bushel, the cost and hence the 
 minimum price of his product will necessarily rise to $1.25 a 
 bushel, which will then be the price of the whole product. Thus, 
 all that D, C, and B are by this means forced to give to the 
 laborer in higher wages, A is forced to demand back again from 
 the consumer in higher prices, and the difference or surplus will 
 be exactly as before, the only change being that both wages and 
 prices have risen 25 cents. In short, there are no economic 
 means by which A can obtain an equivalent of the cost of his 
 product which will not give B, C, and D a surplus ; and" con- 
 versely, there are no means by which D can sell at cost which 
 will not bankrupt C, B, and A. 
 
 There are two conditions which, under economic freedom, all 
 competing producers must fulfil or leave the business : other 
 things being the same, they must pay the same wages and sell 
 their products at the same price as their competitors in the same 
 market. For the same reason that D's price cannot be reduced 
 without lowering that of C, B, and A, the wages paid by A cannot 
 be reduced without lowering those paid by all the others, since 
 whatever will enable A to either raise the price or reduce wages 
 will enable B, C, and D to do the same. Manifestly therefore, 
 if the landowner were prohibited from taking the surplus of B, 
 C, and D in the form of rent, it would simply remain in the hands 
 of the farmer or entrepreneur as profits. Since the surplus is not 
 increased by virtue of its being divided between the landowner 
 and entrepreneur, it could not be diminished by giving it all to 
 either one of them. In other words, as the surplus arising from 
 the difference in the cost of producing with the poorest and the 
 best land would be the same whether rent is paid or not, the 
 abolition of rent would simply be an increase of profits. Rent, 
 in short, is entirely a question between the landowner and the 
 entrepreneur and does not enter into the problem either of prices 
 
236 RENT QUESTION SUMMARIZED. 
 
 or of wages. It being impossible for the surplus of B, C, and D 
 to go to the consumer either in higher wages or lower prices, 
 whether it shall all remain in the hands of the entrepreneur or be 
 shared between him and the landowner is of no economic or 
 social importance to the laborer or to the community. 
 
 The social welfare of the people can advance only as prices 
 fall and wages rise, results which cannot be promoted by any 
 manipulation of rent. It is by lessening the cost of production 
 and not by appropriating the surplus that prices must be reduced. 
 The cost of production can be lessened only by using improved 
 methods. The successful use of improved methods depends 
 upon increasing consumption and higher wages. Therefore the 
 improvement of the social condition of the masses and the general 
 advancement of society must be sought in the influences which 
 promote the advance of real wages and not in any schemes for 
 abolishing rents. 
 
 The question of economic rent then, may be summarized thus : 
 (1) That rent is a net surplus arising from the use of land as an 
 economic instrument ; (2) That rent tends to equal the differ- 
 ence in the productive utility of the different portions of land 
 used for the same purpose in the same community or competing 
 group ; (3) That the economic use of inferior land simulta- 
 neously with superior, and hence the payment of rent, finally de- 
 pends upon the employment of improved methods of production 
 (use of capital) ; (4) That the successful use of improved meth- 
 ods depends upon the increased consumption of wealth per capita 
 of the community or a higher social standard of living among 
 the masses and, that rent is not the cause of low wages, but 
 the economic consequence of high wages ; (5) That since rent is 
 an economic surplus the existence and increase of which depends 
 upon the social progress and increasing wages of the laboring 
 classes, it is in the broadest sense the interest of the landowning 
 class to promote in every way possible the economic and social 
 advancement of the laboring classes. 
 
CHAPTER V. 
 
 THE LAW OF INTEREST. 
 
 SECTION I. — Popular Theories of Interest. 
 
 Interest is economically analogous to rent ; it sustains pre- 
 cisely the same relation to capital that rent does to land. In con- 
 sidering the question of interest, therefore, we have to deal with 
 essentially the same economic problem we considered in the last 
 chapter. All the popular objections urged against the payment 
 of rent as a burden to the community, an exaction from the laborer, 
 etc., are presented with equal force against the payment of inter- 
 est. And conversely, the same reasons that justify the payment 
 of rent apply equally to that of interest. Scientifically therefore, 
 all that is necessary in dealing with the question of interest is to 
 apply to capital the law already stated in regard to land. 
 
 Unfortunately however, in this instance, as in almost every 
 other question in economics, a simple direct statement of the sub- 
 ject is practically impossible without first clearing away some of 
 the confusion in which it has been involved. The utter lack of 
 logical consistency which characterizes the body of economic 
 doctrines authoritatively taught is such that there is practically 
 no mutual relation between the different departments of the sub- 
 ject. There being no recognized common centre of movement, 
 no order of relation and mutual dependence of phenomena, and 
 hence no accepted general law which they shall obey, each phase 
 of the subject is discussed for the most part as if it had no neces- 
 sary relation to the whole but were governed by laws peculiar to 
 itself. Thus we find Ricardo and other English economists 
 teaching that profits are governed by a law entirely different 
 from that which regulates rent. And now more than half a 
 century later we have Mr. Walker declaring the same thing with 
 regard to interest. 
 
 237 
 
238 WALKER'S VIEW OF INTEREST. 
 
 This is the more astonishing in Mr. Walker's case, because he 
 makes special claim to having presented a logical order of distri- 
 bution. 1 When dealing with the question of rent, which he puts 
 first, he never tires of proclaiming the doctrine that rent does 
 not affect the price of the product, since that is determined by 
 the use of no-rent land ; yet he fails to recognize this principle 
 in the case of interest, and emphatically declares that " there is 
 not any no-interest capital," and says : 
 
 "We have seen that the whole theory of rent rests on the 
 assumption that there is a body of no-rent lands. ... In 
 the theory of capital there is nothing to correspond to this. 
 The economist does not find any no-interest capital. In theory, 
 all capital bears an interest, and all portions of capital bear 
 equal interest. . . . But what has been stated shows 
 how fundamentally the theory of interest differs from that of 
 rent." 2 
 
 Why should we assume that " there is a body of no-rent lands " 
 and that " there is not any no-rent capital " ? Upon what 
 ground should we assume that " all portions of capital bear equal 
 interest " ? Surely we have a right to demand some explanation, 
 some pertinent facts in experience, or a well-established principle 
 before we can be expected to accept such sweeping affirm- 
 ations. If, as Mr. Walker says, " interest forms a part of 
 the price of all products," 3 then all interest is a tax upon the 
 consumer, and the wealth of the rich, so far as interest is con- 
 cerned, is obtained at the expense of the poor. It will not be 
 difficult to show that Mr. Walker's position on interest, which is 
 essentially the same as that of Marx on profits, and George on 
 rent, rests like theirs on pure assumption unsupported by estab- 
 lished facts or verified principle. When discussing profits he in- 
 sists that there is no-profit capital and says : 
 
 " The employers of the lowest grade — the no-profit employers, 
 as we have called them — must pay wages sufficient to hire labor- 
 ers to work under their direction. These wages constitute an es- 
 sential part of the cost to the employer of the production of the 
 goods. The fact that these wages are so high is the reason why 
 
 1 " Political Economy," pp. 193, 248. 
 2 Ibid., pp. 222, 223. 
 3 Ibid., pp. 235, 236. 
 
SIMILARITY OF INTEREST AND PROFIT. 239 
 
 these employers are unable (their skill, etc. being the same) to 
 realize any profit for themselves." ' 
 
 If we ask Mr. Walker why there are " no-profit employers," 
 which of course means no-profit capital, he will reply, as he has 
 at length, that it is because, under free and active competition, 
 prices tend to equal the cost of production under the greatest 
 disadvantage. 2 If there is any economic power by which prices 
 can be forced down to the no-profit point and to the no-rent 
 point, why can they not, by the same power, be forced down to 
 the no-interest point ? If the owner of the poorest tools in use 
 is powerless to demand a price sufficiently high to yield a profit 
 upon the capital invested in those tools, by what force in 
 economics can he demand a price high enough to yield interest 
 for that capital ? Obviously the same power that will enable 
 him to insist upon the one will enable him to obtain the 
 other. 
 
 When considering the law of prices, 3 we saw that, at the price- 
 determining point (producing at the greatest disadvantage), each 
 factor in production obtained only the exact equivalent of the 
 cost of its contribution to the product ; that is to say, that no 
 factor in production can add more value to the product than it 
 loses in the process. Consequently the price of the product 
 cannot be greater than the equivalent of the aggregate cost of the 
 factors jointly employed in its production. Clearly if there is 
 any power by which more can be demanded from the product for 
 capital than the equivalent of what it gives (the cost of maintain- 
 ing its productive efficiency), the same power will enable the 
 consumer and the laborer to do likewise. It is only upon the 
 principle that capital employed under the greatest disadvantage 
 will barely yield the cost of maintaining its productive efficiency, 
 that no-rent land and no-profit employers are possible. It is 
 solely because their product sells at cost that they occupy the 
 datum-line or price-fixing position. Manifestly any social con- 
 ditions or economic law which will make no-rent land and no- 
 profit factories possible, will also make no-interest capital 
 possible. 
 
 1 " Political Economy," pp. 240, 241. 
 
 a Ibid., pp. 236-242. 
 
 3 Chapter iv. , pp. 20-22. 
 
240 NO-INTEREST CAPITAL. 
 
 Moreover, facts everywhere sustain this theorem. There is 
 probably no well-established industry, either in agriculture, man- 
 ufacture, or commerce, in which there is not permanently a cer- 
 tain amount of no-interest capital employed. There are hun- 
 dreds and perhaps thousands of small farmers, merchants, and 
 manufacturers in this and every other commercially advanced 
 country, who remain in business for years and barely obtain a 
 living and keep their capital intact. Nor do I refer to those re- 
 sults of bad judgment and inexperience which Mr. Walker calls 
 "accidents," ' but only to capital which is so employed as the 
 necessary result of economic law. 
 
 Mr. Walker may reply that no one will accumulate wealth and 
 invest it in production unless he can obtain a reward at least to 
 the extent of interest. Even if this were literally correct and 
 without an exception, it would not prevent the use of no-interest 
 capital. Indeed if capital were never invested for less than the 
 maximum profit the use of the no-interest capital would be not 
 only possible but inevitable. Through the concentration of cap- 
 ital and the use of improved methods, maximum-profit yielding 
 capital is constantly being reduced to the no-interest point. 
 
 Suppose for example, that in the manufacture of cotton cloth 
 half a million dollars are invested in the plant which at the time 
 is of the most modern type, and that the capital not only yields 
 interest but a profit. In the course of a few years a great im- 
 provement in machinery is discovered by the use of which the 
 cost of cotton cloth is greatly reduced. Through the fall in price 
 resulting from the use of this new machinery, the profits of those 
 who still produce by the previous methods are entirely destroyed. 
 The capital which at first yielded a high profit ceases to yield 
 any thing above the bare cost of production — wages, raw material, 
 and actual wear and tear. Consequently, if this capital continues 
 to be employed it must be used without profit or interest. 
 Moreover, when through still further improvements the price falls 
 too low for this now inferior machinery to be used without loss, 
 the capital invested in the tools of the next grade above will fall 
 to the no-interest point, and so on. Thus, while it may be true 
 that no capital is originally invested without interest or even high 
 
 1 " Political Economy," p. 235. 
 
MOVEMENT OF CAPITAL. 24 1 
 
 profit, it constantly tends towards the no-interest point through 
 the use of improved methods. This does not mean, however, 
 that the same capital, or the capital of the same persons, continues 
 to be employed at the no-interest point ; on the contrary, such 
 capital is constantly struggling to move from no-interest to high- 
 profit uses. This however, is often difficult to do without loss. 
 If the capital is invested in machinery which is reduced to the 
 no-interest point by the competition of larger concerns using su- 
 perior methods, then it can only be transferred to high-profit uses 
 by being invested in the superior methods and producing on 
 a larger scale, and this usually involves a larger amount of capi- 
 tal, the lack of which often makes such transfer impossible. Cap- 
 ital is often thus retained in the same business for a considerable 
 time after it ceases to yield interest, partly in the hope of doing 
 better and partly from fear of a loss of the principal in any sud- 
 den transfer to new fields. From these and many other causes 
 which are constantly in operation, especially among small pro- 
 ducers, capital is often continued in a business, not merely until 
 it reaches the no-interest point, but in many cases until it is 
 forced by competition to the losing point. Thus, while capital is 
 constantly struggling to move from no-interest to high-profit uses, 
 that portion of it which is used under the poorest conditions is 
 always no-interest capital. 
 
 If prices could never fall below the interest-paying point for 
 the capital invested in the poorest tools, then the use of improved 
 machinery would not cheapen commodities, but would simply 
 increase profits. Nothing but working at a loss or the failure to 
 obtain interest will enforce the disuse of the most inferior instru- 
 ments, and permit prices to fall to the cost of producing with 
 superior methods, and thus compel the advantages of improved 
 machinery and concentrated capital to pass to the community in 
 lower prices instead of remaining in the hands of capitalists as 
 higher profits. 
 
 This is what is constantly taking place in every progressive 
 community. There is scarcely a machine-using industry in which 
 capital has not been reduced from the high-profit to the no- 
 interest point several times over during the present century. 
 Take, for example, the cotton industry. In the first quarter of 
 
 this century, capital invested in machinery that could produce 
 16 
 
242 MOVEMENT OF INTEREST. 
 
 calico at 30 cents a yard would yield a high profit. And before 
 1830 the capital invested in the same machinery could not yield 
 interest, nor even be used without loss, the price of calico having 
 fallen to 17 cents a yard. And the high-profit capital of 1830 
 reached the no-interest or losing point by 1843, when the price 
 had fallen to 12 cents a yard. And the high-profit capital of 1843 
 again reached the no-interest point by 1850, when the price had 
 fallen to 9^ cents a yard ; and so on, until to-day the capital can- 
 not receive interest which is unable to produce the same com- 
 modity at less than 5 cents a yard. Thus the whole circle from 
 high-profit to no-interest has been traversed several times over 
 during the present century. In fact, every dollar's worth of 
 capital invested in the print-cloth business since the invention 
 of the power-loom, that could not produce print-cloth at 4 
 cents a yard, has been reduced to the no-interest point. 1 Since 
 Mr. Walker admits that this takes place in the sphere of both 
 profits and rents, why he should fail to see that through the 
 same law it must also take place in the sphere of interest, is not 
 a little surprising. He appears to have fallen into the same error 
 that the English economists committed in regard to rent and 
 profits. They saw that rent is paid from a surplus above the 
 cost, and hence is not an addition to the price of the product ; 
 while they regard profits as the reward for the abstinence of the 
 capitalist, and hence a necessary addition to the price.' Mr. Walker 
 saw their error in not regarding profits as a surplus similar to 
 rent, yet he has repeated the same oversight regarding interest. 
 Indeed, he has taken their formula for profits and used it as a 
 definition of interest, and says : " Capital, as we have seen, is the 
 result of saving. Interest, then, is the reward for abstinence." 3 
 
 1 In the iron industries there are many large properties that are barely up to 
 the level of no-interest use without loss to-day which a few years ago yielded 
 high profits. The introduction of successful inventions has in many instances 
 reduced millions of dollars' worth of machinery not merely to the no-interest 
 point, but forced it out of use altogether. 
 
 5 "Wealth of Nations," book i., chapter vi., p. 39; chapter vii., p. 42; 
 book v., chapter ii., p. 691. Ricardo's " Works," pp. 39, 68. McCulloch's 
 "Principles of Political Economy," p. 42. Mill's " Principles of Political 
 Economy," vol. i., pp. 569-72. 
 
 3 " Political Economy," p. 224 ; also p. 66 ; cf. Mill's " Principles of Political 
 Economy," vol. i., p. 495. 
 
CAPITAL NOT DUE TO ABSTINENCE. 243 
 
 This definition is as unfortunate for interest as it was for profit, 
 and for the same reason. If all capital is the result of abstinence, 
 and all abstinence is necessarily rewarded by interest, then not 
 only would all capital receive interest, but the interest would be 
 in proportion to the degree of sacrifice or abstinence involved in 
 its accumulation. The difficulty with this view is that it is incon- 
 sistent with the facts. In the first place, there is no inductive 
 warrant for the broad assumption that all capital is the result of 
 abstinence. As we have already shown, much the larger portion 
 of capital in use to-day has been accumulated without any 
 conscious abstinence whatever. It is undoubtedly true that in all 
 countries accumulations at first represent abstemiousness and 
 sometimes painful sacrifice. The amount thus accumulated, 
 however, represents a small fraction of the productive capital of 
 to-day. Take, for example, the Rothschilds, Goulds, Vander- 
 bilts, Sages,, and Astors. While it may be true that the first few 
 thousands of their accumulations represent abstinence, it is doubt- 
 ful if one per cent, of the capital accumulated after the first half 
 million represents abstinence in the remotest sense. From what 
 do these gentlemen abstain ? what gratification that wealth can 
 give do they forego ? It is because the greater part of their 
 capital is not due to abstinence, but to the surplus earnings of 
 the capital already in use, that it increases much faster after 
 they cease to practise abstinence than it ever could before. 
 
 If interest were only the reward for abstinence, then all the 
 capital which is accumulated without abstinence would receive 
 no interest ; whereas that is just the capital which most uniformly 
 receives the highest interest, while the capital of the small farmers, 
 manufacturers, and merchants, which is the result of the most 
 painful abstinence, is that which is most generally used without 
 interest. In fact, the whole idea of a reward for abstinence is 
 fallacious. Nature does not reward abstinence ; she only rewards 
 effort. Capital does not receive a reward because it represents 
 parsimony, but solely because it aids in production ; and its 
 reward depends entirely upon the degree of its exceptional pro- 
 ductive efficiency. And from the causes above enumerated it 
 tends towards the no-interest point directly as improved methods 
 are introduced, without regard to whether it was painfully or 
 unconsciously accumulated. 
 
244 RENT, INTEREST, AND PROFIT. 
 
 SECTION II. — The True Theory of Interest. 
 
 If we bear in mind the conclusions already reached regarding 
 prices, and the nature and function of capital, there need be no 
 difficulty in understanding the question of interest. That inter- 
 est and rent are of the same economic species is apparent from 
 their every characteristic. They are both paid in the same way, 
 and for the same reason — namely, to obtain the use of capital 
 belonging to another. Had land and other forms of capital 
 always been used by those who owned them, no distinction 
 between rent, interest, and profits would ever have been made. 
 It was not until the different productive factors began to be used 
 by those who did not own them that any such distinction became 
 necessary. Manifestly, when the producer owned all the land and 
 other instruments he used, all the surplus product resulting from 
 their use was his, and it might be designated either as rent, inter- 
 est, or profits ; but there could be no reason for calling differ- 
 ent portions of it by different names. But when the productive 
 instruments began to be owned in varying degrees by different 
 persons, that portion of the surplus product resulting from the 
 use of each instrument naturally belonged to the owner of that 
 instrument. In order to distinguish between that portion which 
 goes to the owners of the different instruments, it was necessary 
 to designate them by different terms. Instead, therefore, of rent, 
 interest, and profit being economically different from each other 
 and governed by different laws, it will be seen that they are 
 simply different portions of the same aggregate surplus and are 
 governed by the same general principle. 
 
 Let it be assumed for illustration that A, B, and C represent 
 three classes of producers contributing to the supply of the same 
 market, A owning all the land and other instruments he uses, B 
 owning his implements but hiring his land, and C hiring both 
 land and instruments. And for the sake of simplicity let it be 
 further assumed that, through the superior quality of their land 
 and tools, they produce 15 per cent, more than their most inferior 
 competitor (he using the most inferior methods), and conse- 
 quently have a surplus of 15 per cent. Under these conditions 
 it is quite clear that A, owning all the means of production, will 
 have the whole surplus ; he will obtain 15 per cent, more for his 
 
THE LAW ILLUSTRATED. 24$ 
 
 product than it cost him in wages, raw material, and wear and 
 tear of implements. B, not owning the land, has to give 5 per 
 cent, of his product to the landowner as rent. Consequently his 
 production being the same, his surplus will equal that of A, minus 
 the amount paid for rent (15 — 5 per cent.). The case of C is 
 like that of B, only more so. Owning neither the land nor the 
 instruments, he has to hire both ; hence, for the same reason that 
 he must pay 5 per cent, of his product to the landowner for the 
 use of the land, he must pay 5 per cent, of it to the capitalist for 
 the use of the capital in tools and stock ; while the selling price 
 and all other costs being the same, his surplus will equal that of 
 B, minus the rent, and that of A, minus rent and interest 
 (15 — 10 per cent.). They all produce at 15 per cent, more 
 with the same investment than those who use the poorest tools, 
 and hence create a surplus of 15 per cent. But A, who owns all 
 the means of production, receives all the surplus ; while B, who 
 does not own the land, has to give one third of the surplus to the 
 landowner ; and C, who owns neither land nor capital, has to 
 give one third to the landowner and one third to the capitalist, 
 leaving only one third for himself. 
 
 Clearly therefore, rent, interest, and profits all come from the 
 same source — the economic surplus, — the only difference being 
 that rent and interest are stipulated portions of the general sur- 
 plus, while profit is the contingent remainder. In the case of A 
 the whole surplus is contingent profit. In the case of B rent is 
 stipulated and the surplus, minus rent, is contingent profit. And 
 in the case of C, both rent and interest being stipulated, only the 
 contingent remainder after these are paid is profit. There is 
 manifestly no economic force by which C can add his interest to 
 the price of the product or abstract it from the wages of the 
 laborer, which will not enable B to do the same with rent. For 
 the same reason that prices tend to equal the cost of producing 
 with the poorest land in use without the payment of rent, they 
 will equal the cost of producing with the poorest tools in use 
 without the payment of interest. 
 
 If the poorest land and the poorest tools and most inferior 
 management were all used together, we should find the no-rent 
 landowner, no-interest capitalist, and no-profit entrepreneur all 
 represented in the same farm, factory, or other enterprise. It is 
 
246 PROFIT A CONTINGENT REMAINDER. 
 
 because the best instruments and skill are sometimes applied to 
 the poorest land, and the best land is sometimes used with the 
 poorest skill and management, that we often find those who pay 
 high rents failing to obtain interest or profits, while those paying 
 less rents can pay interest and make profit. In other words the 
 surplus, being the result of the superiority of the land, instru- 
 ments, or skill over the poorest in use, is (through the natural 
 equity of economic law) distributed among the owners of those 
 factors which produce it. If it is all due to the land, it all goes 
 to rent ; if it is all due to the instruments, it all goes to interest ; 
 if it is all due to management of the entrepreneur, it all goes to 
 profits ; if it is equally due to them all, it will be evenly divided 
 in rent, interest and profits. Thus whichever way we consider 
 the subject, interest is economically identical with rent, it being to 
 capital precisely what rent is to land. In other words, rent and 
 interest are simply differentiated portions of profit — stipulated 
 disbursements of the aggregate economic surplus, — while the en- 
 trepreneur's profit is the undivided contingent remainder. 1 
 
 It may be said that the rent of B and the rent and interest of C 
 are indispensable items in the cost of production. This is correct, 
 but they are not indispensable items in the cost of A, with whom 
 B and C have to compete. Since B and C can make no charge to 
 the community for any cost which A is willing to do without, the 
 only economic means by which B and C can be reimbursed for 
 their rent and interest is by enlarging their surplus through in- 
 creased production. Indeed that is the only reason rent or interest 
 is ever paid. No one will pay rent for the productive use of land 
 unless he can obtain an advantage by so doing. The only reason 
 a person will pay a dollar a foot for land in one place when he can 
 get it for a dollar an acre in another is, that by paying the higher 
 rent he saves a greater expense in some other way. For exam- 
 ple, there is plenty of land admirably suited for market garden- 
 
 1 The producer who uses his own capital never receives interest ; if he has any 
 surplus over the necessary cost of production, which includes the remuneration 
 for his own services — it is profit. Because the interest paid for the use of capi- 
 tal is a definite percentage, it has become more or less habitual in business 
 circles to speak of profits as interest up to a certain amount. Hence, we some- 
 times hear it said that a concern has not made the interest on its capital. All 
 this expression means is that the profit or surplus has not been equal to what 
 they would have had to pay as interest if they had borrowed the capital. 
 
INTEREST NOT A PART OF COST. 247 
 
 ing which can be had for nearly nothing. But it is so far from 
 the city market that the cost in transportation and waste in prod- 
 uct would be much greater than the high rent paid for land by the 
 market gardener in the suburbs of the large city. Instead of the 
 high rent increasing the cost, it simply obviates the necessity of 
 the still greater cost that would be involved in using land that 
 could be obtained without rent or at a lower rent. 
 
 The same is true of interest. The only motive for borrowing 
 capital is to increase the contingent surplus by more than the 
 amount to be paid as interest. Whether or not this will be 
 achieved will largely depend upon the correctness with which the 
 possible surplus is calculated. If the surplus is overestimated, 
 rent and interest may absorb it all, or they may even be greater 
 than the total surplus, in which case the entrepreneur will suffer a 
 net loss. This is what occurs when the profits of small farmers 
 are all absorbed by the interest on their mortgages, and those 
 of small manufacturers and merchants by the interest on their 
 borrowed capital, of which we hear so much. 1 The only means, 
 therefore, by which rent, interest, and profits can be obtained is 
 the creation of a surplus by producing at less than the maximum 
 cost. The non-landowning capitalist can only have a profit by 
 creating a surplus more than equal to the rent. The entrepreneur 
 can only have a profit by creating a surplus more than equal to 
 both rent and interest. Interest then is not the necessary reward 
 for abstinence, nor is it a part of the price-fixing cost of produc- 
 tion, but it is simply that portion of the economic surplus which 
 is paid for the use of capital (tools) owned by another ; and since 
 it can neither be added to the price of commodities nor sub- 
 tracted from the wages of labor, it cannot be a tax upon the com- 
 munity. 
 
 Interest is not only not injurious to the community, it is a 
 positive advantage. It is one of the most effective means of 
 concentrating capital and bringing improved methods of produc- 
 tion into successful operation. There are thousands of millions 
 of dollars invested in railroads, steamships, and other modern 
 enterprises, which could not have been utilized for such purposes 
 
 1 Over sixty per cent, of the capital invested in railroads in this country in 
 1888 failed to yield a profit, because the surplus was all absorbed in paying the 
 interest on the bonds. 
 
248 ECONOMIC CHARACTER OF INTEREST. 
 
 without the payment of interest. It is doubtful if there is a rail- 
 road in existence that could have been built with the capital 
 owned by its actual projectors. The payment of interest was the 
 only means of obtaining the capital from those who had neither 
 the wisdom, energy, nor capacity to put it to such use. Indeed 
 such enterprises as the Suez Canal, the great railroad and steam- 
 ship lines, Atlantic cables, petroleum pipe-lines, and the modern 
 telegraph, would have been utterly impossible but for the con- 
 centration of capital which the payment of interest made possi- 
 ble. Interest, instead of being a burden to the community, is 
 thus one of the great wealth-cheapening agencies of civilization. 
 
CHAPTER VI. 
 
 THE LAW OF PROFIT. 
 
 Section I. — Orthodox Economics Responsible for Socialistic 
 
 Theories. 
 
 Since the time of Adam Smith and Ricardo economists have 
 generally taught : (i) that profit is a necessary part of the price 
 of the commodity to the consumer ; (2) that profit can rise only 
 as wages fall. In supporting the first proposition Mill devotes 
 several pages to showing that, in proportion as the capital ex- 
 pended in production is invested in machinery, buildings, etc., 
 profit becomes an increasing item in the cost of production, and 
 consequently an increasing addition to the price of the com- 
 modity. 1 
 
 According to this view, when any commodity goes through a 
 considerable number of hands during the process of manufacture, 
 the price paid by the consumer largely consists of profits. For 
 example, if iron goes through ten different stages before it is con- 
 verted into steel, and the rate of profit is five per cent., about two 
 
 1 " The flax-spinner, part of whose expenses consists of the purchase of flax 
 and of machinery, has had to pay, in their price, not only the wages of the labor 
 by which the flax was grown and the machinery made, but the profits of the 
 grower, the flax-dresser, the miner, the iron-founder, and the machine-maker. 
 All these profits, together with those of the spinner himself, were again advanced 
 by the weaver in the price of his material, linen yarn ; and along with them the 
 profits of a fresh set of machine-makers, and of the miners and iron-workers who 
 supplied them with their metallic material. All these advances form part of the 
 cost of production of linen. Profits, therefore, as well as wages, enter into the 
 cost of production, which determines the value of the produce." — " Principles of 
 Political Economy," vol. I., p. 568. Cf. " Wealth of Nations," book v., ch. ii.i 
 pp. 691, 692. 
 
 249 
 
250 ENGLISH POSTULATES. 
 
 thirds of the price of the finished product would consist of 
 profits. It will be seen that this theory supports the popular no- 
 tion that all so-called middle-men are parasites upon the product 
 of the community. If this were true, heroic measures for their 
 elimination would certainly be in order. 
 
 The second postulate — that profit can rise only as wages fall ' 
 — implies that the wealth of the capitalist simply represents the 
 poverty of the laborers. The employing classes are thus taught 
 that their interest invariably lies in keeping wages low, and the 
 laboring classes are just as effectually taught that the only way to 
 increase wages is to reduce profit. The natural effect of this 
 doctrine is seen in the antagonistic attitude which these two 
 classes assume towards each other. 
 
 As a legitimate outcome of the English doctrine — that profits 
 can only increase as wages diminish, — we have the theory, first of 
 Rodbertus, that the laborer receives " a smaller fraction of the 
 product in proportion as his productiveness increases," and hence 
 becomes more dependent as society advances 2 ; and next, the 
 
 1 " There can be no rise in the value of labor without a fall of profits." — Ri- 
 cardo's " Works," p. 23. " Can any point be more clearly established than that 
 profits must fall, with a rise of wages?" — Ibid., p. 63, "It has been my 
 endeavor to show throughout this work, that the rate of profits can never be in- 
 creased but by a fall in wages." — Ibid., pp. 74, 75. "Whatever raises the 
 wages of labor lowers the profits of stock." — Ibid., p. 122. See also ibid., pp. 
 60, 65, 93, 136. " The whole produce of industry under deduction of rent is di- 
 vided between laborers and capitalists The proportion falling to the 
 
 capitalist is increased when that falling to the laborers is diminished, and dimin- 
 ished when it is increased Mr. Ricardo has endeavored to show .... 
 
 that a rise of profits can never be brought about, except by a fall of proportional 
 wages, nor a fall of profits, except by a corresponding rise of proportional wages." 
 — McCulloch's "Principles of Political Economy," pp. 192, 193. "We thus 
 arrive at the conclusion of Ricardo and others, that the rate of profits depends upon 
 wages ; rising as wages fall and falling as wages rise." — Mill's " Principles of Po- 
 litical Economy," vol. i., p. 512. " Wages eqtial\k& product of industry minus 
 the three parts (rent, interest, and profits) already determined in their nature and 
 amount." — Walker's " Political Economy," p. 248. "What remains after sub- 
 tracting the aggregate price paid for the use of capital .... is obviously the 
 share of labor." — Sidgwick : " Principles of Political Economy," p. 322. 
 
 2 " Rent and wages are thus shares into which the product is divided so far as 
 it is income. Whence it follows that the larger one share is the smaller must 
 be the other. If the rent takes a larger share of the product, a smaller share 
 must remain for wages. As one share varies in size so must the other in inverse 
 
RODBERTUS AND MARX. 25 1 
 
 doctrine of Karl Marx, that all forms of rent, interest, and profit 
 are robbery. 1 These two formulae have become the accepted basis 
 of the whole socialistic movement, so rapidly increasing in all civil- 
 ized countries. By a critical examination of the process of eco- 
 nomic production, Marx endeavors to scientifically demonstrate 
 how, in the nature of the capitalist system, unpaid wages consti- 
 tute the source of all rent, interest, and profit. It must be admitted 
 that if this proposition can be scientifically sustained, the theory 
 of socialism — which demands the public ownership of all the 
 means of production — cannot be successfully disputed. And on 
 the contrary, if this proposition can be shown to be erroneous, 
 the whole economic fabric of socialism falls. It is of the utmost 
 importance, therefore, in discussing the question of profit, that 
 the claim of this theory should be fully considered. 
 
 Section II. — Marx's Theory of Exploitation. 
 
 After an elaborate explanation of his theory of value which is 
 substantially that of Ricardo ; namely, that commodities and la- 
 bor exchange on the basis of the quantity of labor expended in 
 their production, 2 Marx illustrates the process of exploiting the 
 
 ratio The share of the working class, that is of the great majority of 
 
 society, does not remain a fixed unchangeable fraction of the product in pre- 
 cisely the same proportion as the productiveness increases." .... (Therefore, 
 " There must be produced that fatal contradiction in society, that the more equal 
 and the more free all its members become before the law and politically, the 
 more unequal and dependent are the majority of the working classes economi- 
 cally The conclusion follows that the existing form of division of the 
 
 national product cannot continue." — Views of Rodbertus translated from the 
 work of Dr. Rudolf Myer ; Appendix to Hyndman's " Historical Basis of 
 Socialism." 
 
 1 " The capitalist mode of production and accumulation, and therefore capi- 
 talist private property, have for their fundamental condition the annihilation of 
 self-earned private property ; in other words, the expropriation of the laborer." 
 — "Capital," p. 800. 
 
 2 " Commodities, therefore, in which equal quantities of labor are embodied, 
 
 or which can be produced in the same time, have the same value As 
 
 values, all commodities are only definite masses of congealed labor time." 
 — " Capital," p. 6. " So far as it (labor-power) has value, it represents no more 
 than a definite quantity of the average labor of society incorporated in it. . . . 
 Given the individual the production of labor-power consists in his reproduction 
 of himself or his maintenance." — Ibid., p. 149. 
 
252 MARX'S THEORY STATED. 
 
 laborer by the manufacture of cotton yarn, which he states with 
 great precision, and says : 
 
 " We assumed on the occasion of its sale that the value of a 
 day's labor power is three shillings, and that six hours' labor are 
 
 incorporated in that sum The same quantity of labor is 
 
 also embodied in a piece of gold of the value of three shillings. 
 Consequently by the mere labor of spinning, a value of three 
 shillings is added to the cotton. Let us now consider the total 
 value of the product, the ten pounds of yarn. Two and a half 
 days' labor have been embodied in it, of which two days were 
 contained in the cotton and in the substance of the spindle worn 
 away, and half a day was absorbed during the process of spin- 
 ning. This two and a half days' labor is also represented by a 
 piece of gold of the value of fifteen shillings. Hence, fifteen shil- 
 lings is an adequate price for the ten pounds of yarn, or the price 
 of one pound is eighteen pence. Our capitalist stares in astonish- 
 ment. The value of the product is exactly equal to the value of 
 the capital advanced. The value so advanced has not expanded, 
 no surplus value has been created, and, consequently, money has 
 not been converted into capital." 1 
 
 The capitalist is then described as being in any thing but a 
 tranquil state of mind at the result ; and after giving some weak 
 but truly othodox reasons why he should have had a profit, he is 
 represented as leaving "all such like subterfuges and juggling 
 tricks to the professors of political economy who are paid for it," 
 and as turning his attention to concocting a new scheme for the 
 creation of surplus value — in which he succeeds. The capitalist 
 then analyzes the factors in production and finds that no surplus 
 can be squeezed out of the raw material or the machinery ; hence 
 it must be exploited from the labor-power. This he decides can 
 be done by making the laborer work twice as many hours for the 
 same wages. He then resumes business on his twelve-hour plan 
 with complete success, the process of which Marx states thus : 
 
 " The laborer therefore finds in the workshop the means of 
 production necessary for working not only during six but during 
 twelve hours. Just as during the six hours' process our ten pounds 
 of cotton absorbed six hours' labor and became ten pounds of 
 yarn, so now twenty pounds of cotton will absorb twelve hours' 
 1,1 Capital," p. 171. 
 
MISLEADING ILLUSTRATIONS. 2$$ 
 
 labor and be changed into twenty pounds of yarn. Let us now 
 examine the product of this prolonged process. There is now 
 materialized in this twenty pounds of yarn the labor of five days, 
 of which four days are due to the cotton and the lost steel of the 
 spindle, the remaining day having been absorbed by the cotton 
 during the spinning process. Expressed in gold the labor of five 
 days is thirty shillings. This is therefore the price of the twenty 
 pounds of yarn, giving as before eighteen pence as the price of a 
 pound. But the sum of the values of the commodities that 
 entered into the process amounts to twenty-seven shillings. 
 The value of the yarn is thirty shillings. Therefore the value of 
 the product is one ninth greater than the value advanced for its 
 production ; twenty-seven shillings have been transformed into 
 thirty shillings ; a surplus-value of three shillings has been 
 created. The trick has at last succeeded ; money has been con- 
 verted into capital." * 
 
 Thus, according to Marx, in the spinning process six shillings 
 of value have been added to the twenty pounds of yarn by the use 
 of labor, for which the laborer has received only three shillings, 
 and the laborer has been exploited of half he produced. Through- 
 out the whole discussion in the remaining 625 pages of his book, 
 Marx never tires of reminding the reader of this fact. 2 It must 
 be admitted that " the trick has at last succeeded," and it almost 
 looks as if the capitalist had performed it ; but let us examine the 
 process a little closer. 
 
 In the first instance the case stood : 15s. value of yarn = 10s. 
 raw cotton + 2s. machinery + 3s. labor power. If we ask why 
 the value of the yarn was just 15 shillings, Marx promptly ex- 
 plains that it is because only " fifteen shillings were spent in the 
 open market upon the constituent elements of the product, or 
 what amounts to the same thing, upon the factors of the labor 
 process." 3 
 
 Let us examine the twenty pounds of yarn produced under the 
 "prolonged process " in the light of the law Marx has applied to 
 the production of the ten pounds. Here the different items of 
 cost were as follows : 
 
 1 " Capital," pp. 175, 176. 
 
 ''■Ibid., pp. 176, 198, 200, 201, 203, 211, 2ig, 220, 222, 289, 533, 541, 542, 
 543, 544, 550, 592. z Ibid., p. 171. 
 
254 SURPLUS VALUE FALLACY. 
 
 Raw material 20s. 
 
 Wear and tear of machinery, .... 4s. 
 Twelve hours' labor power, 3s. 
 
 Total cost 27s. 
 
 Thus, according to the above law, the total value of the product 
 is twenty-seven shillings. " Oh no," exclaims Marx, that would 
 give no surplus value. He admits that the cost of the yarn in 
 this case is only twenty-seven shillings, but he insists that its value 
 is thirty shillings. 1 According to Marx then, his economic law 
 of value works thus : 10s. -f- 2 s. + 3s. cost = 15s. value ; while 
 20s. + 4s. -}- 3s. cost = 30s. value. That is to say, 15s. equals 
 15s., but 27s. equals 30s. Now by what application of his own 
 law of value, according to which fifteen shillings' cost can only 
 produce fifteen shillings' value, can he make twenty-seven shil- 
 lings' cost produce thirty shillings' value ? Clearly if the twenty 
 pounds of yarn, the production of which only cost twenty-seven 
 shillings, can have a value of thirty shillings, then by the same 
 law the ten pounds of yarn whose production cost fifteen shillings 
 can be sixteen shillings and six pence. To assume that, while a 
 cost of fifteen shillings cannot yield a value of more than fifteen 
 shillings, a cost of twenty-seven shillings can yield a value of 
 thirty shillings, is to violate alike the laws of logic and the rules 
 of arithmetic. Manifestly, surplus value was no more created in 
 the production of the twenty pounds of yarn than in that of the 
 ten pounds. The three shillings here paraded as surplus value is 
 a pure invention of Marx. True, " the trick has at last succeed- 
 ed " ; but it was performed by Marx and not by the capitalist. 
 It is obviously a trick of metaphysics and not of economics. The 
 only exploitation here revealed is the exploitation of socialistic 
 credulity, and not of economic labor power. A theory according 
 to which 15s. value = 15s. cost, while 30s. value = 27s. cost, 
 needs only to be stripped of its metaphysical garment in order to 
 be rejected. 
 
 The fallacy here so boldly flaunted — and made to do service as 
 the scientific basis for a radical reconstruction of society — can be 
 
 1 " The sum of the values of the commodities that entered into the process 
 amounts to twenty-seven shillings. The value of the yarn is thirty shillings. 
 „ . . A surplus value of three shillings has been created." — "Capital," pp. 
 175, 176. 
 
RELATION OF LABOR TO VALUE. 255 
 
 exposed in many ways. It is true that in Marx's second case the 
 laborer is made to produce twenty pounds of yarn for the same 
 wages which he previously received for producing ten pounds. 
 But this change of labor cost, according to Marx's own theory, 
 would not create a surplus value of three shillings for the capital- 
 ist ; on the contrary, it would reduce the price of the product 
 three shillings to the consumer. It is a well-established law in 
 economics that the value of commodities tends to diminish as the 
 ratio of product to cost of labor increases. That Marx recognizes 
 this principle, when discussing other phases of the subject, is 
 clear from the following statement : 
 
 " Let us assume that some invention enables the spinner to 
 spin as much cotton in six hours as he was able to spin before in 
 thirty-six hours. His labor is now six times as effective as it was 
 for the purposes of useful production. The product of six hours' 
 work has increased sixfold, from six pounds to thirty-six pounds. 
 But now the thirty-six pounds of cotton absorb only the same 
 amount of labor as formerly did the six pounds. One-sixth as 
 much new labor is absorbed by each pound of cotton, and con- 
 quently, the value added by the labor to each pound is only one- 
 sixth of what it formerly was." l 
 
 This is exactly what occurred in the hypothetical case just 
 considered. When the laborer, in Marx's second case, produced 
 twice as much yarn for three shillings as he produced in the first, 
 he only added half as much value to each pound of yarn he pro- 
 duced. Hence, for the same reason that he added three shillings 
 to the value of the ten pounds of yarn, he only adds three shil- 
 lings to the value of the twenty pounds ; and, consequently, its 
 value can only be twenty-seven shillings, and no surplus value is 
 created. 
 
 Suppose for illustration, that, instead of doubling the length of 
 the laborer's working day, the price of raw cotton should fall fif- 
 teen per cent. The cost of the different factors in the produc- 
 tion of twenty pounds of yarn would then be as follows : 
 
 Raw material 17s. 
 
 Cost of wear and tear of machinery, . . 4s. 
 Twelve hours' labor, 6s. 
 
 Total cost, ...... 27s. 
 
 1 "Capital," p. 183. See also pp. 151, 171, 172, 175, 176, 194, 195, 196. 
 
256 MARX'S THEORY BREAKS DOWN. 
 
 The laborer in this instance receives twice as much as when 
 working for Marx, but the result is exactly as before, the only dif- 
 ference being that the three shillings is saved on the cost of raw 
 material, instead of the cost of labor power. Would Marx claim 
 that the value of the yarn is now thirty shillings ? Certainly not. 
 On the contrary, he would insist that it could not possibly be 
 more than twenty-seven shillings since, as he repeatedly declares, 
 auxiliary capital and raw material can only add to the value of 
 the product the value which they lose in the process — /. e. the cost 
 of replacing them, 1 — and every fall in the cost of raw material 
 shows itself in a fall in the price of the product. Indeed, were 
 this otherwise, cheap raw material and improved machinery would 
 have no influence in reducing the price of commodities. If then, 
 the twenty-seven shillings' cost in this instance could only yield 
 twenty-seven shillings' value, by what rule of logic or experience 
 can it be assumed that, by transferring three shillings of the cost 
 from the labor power to the raw material, the twenty-seven 
 shillings' cost would yield thirty shillings' value ? As a matter of 
 economic law, it can make absolutely no difference to the value 
 of the product whether the twenty-seven shillings' cost is all in 
 one item, or is spread over a hundred items ; if it will yield a value 
 of thirty shillings when it is all spent in labor power, it will do 
 the same when it is all spent in raw material and machinery, and 
 nothing is paid for labor. Clearly therefore, the attempt of 
 Marx to show that fifteen shillings' cost can yield only fifteen 
 shillings' value, and that by a mere change in the distribution of 
 the items of expenditure, a cost of twenty-seven shillings will 
 yield a value of thirty shillings, is a complete failure, and conse- 
 quently his theory of surplus value, and that of the " exploitation 
 of the laborer," entirely breaks down. 
 
 Section III. — The Cause of Marx's Error. 
 
 The cardinal mistake in the argument of Marx arises from a 
 too literal acceptance of the Ricardian theory that the value of 
 
 1 " The value of a commodity therefore varies directly as the quantity and in- 
 versely as the productiveness of the labor incorporated in it." — " Capital," p. 7. 
 " It (machinery) never adds more value than it loses on an average by wear and 
 tear." — Ibid., p. 383. " The less labor it (machinery) contains the less value it 
 imparts to the product. The less value it gives up so much the more productive 
 it is, and so much the more its services approximate to those of natural forces." 
 — Ibid., p. 386. 
 
CAUSE OF MARX'S ERROR. 257 
 
 commodities is determined by the quantity of labor expended in 
 their production. If he had been more of an economist and less 
 of a revolutionist, he might have seen that this is one of the many 
 instances where Ricardo came very near the truth but just missed 
 it. The error of this postulate, as already pointed out, 1 consists 
 in making the value of the product depend upon the quantity 
 instead of the cost of the labor power expended in its production. 
 
 In considering the relation of the cost of labor to the value of 
 the product, it should always be remembered that it is the total 
 cost of the aggregate labor consumed in a given unit of product 
 which affects its value, and not necessarily the cost per unit of 
 labor. If the cost of labor per unit of time is diminished, the quantity 
 of labor consumed in a unit of product may be increased without in- 
 creasing its value. And conversely, if the cost of a unit of labor 
 is increased, the quantity of labor consumed in a unit of product may 
 be diminished without reducing its value. 
 
 Thus it is that the value of a commodity varies with a variation 
 in the quantity of labor devoted to its production only when the 
 cost of the labor per unit of time remains the same. If Marx, 
 instead of unqualifiedly accepting Ricardo's crude formula, had 
 recognized this fact, he would have seen that when the laborer's 
 working day was doubled without any change in his daily wages, 
 although the quantity of labor expended was double, the total 
 cost of labor power was the same ; hence, as double the amount 
 was produced, the cost of labor power per unit of product was 
 reduced one-half. It would then have been clear to him that the 
 value of the twenty pounds of yarn could have been increased 
 only three shillings by the twelve hours' labor, because three 
 shillings was all that the twelve hours' labor cost. The product 
 of the three shillings' worth of labor being twenty instead of ten 
 pounds of yarn, the labor cost of each pound was of course fifty 
 per cent, less, and therefore the value of the twenty pounds of 
 yarn was only twenty-seven shillings instead of thirty shillings, 
 as Marx assumed. 
 
 The first condition of scientific law is that it must explain 
 existing and constantly recurring phenomena. This is precisely 
 what Marx and the English economists have not attempted to 
 make their theory of profit do. They have assumed that from 
 the general principle of self-interest in human nature no one will 
 
 1 Part II., chapter v., section ii. 
 
258 MISTAKEN ASSUMPTIONS. 
 
 use capital in production except he can obtain a profit. From 
 this they concluded that all capitalists must of necessity obtain 
 profit, and that the rate of profit tends to approximate uniformity 
 in all industries. Since all capitalists are assumed to be governed 
 by the same principle of self-interest, each one is regarded simply 
 as a duplicate of the rest, instead of being treated as one of the 
 ever varying units of a highly complex aggregate. Consequently, 
 in treating the question of profit, while assuming free compe- 
 tition, Marx deals only with a single producer, or if with more 
 than one, he assumes that they all produce at the same cost per 
 unit and have substantially the same rate of profit. 
 
 This is precisely what does not occur. Neither uniform cost 
 of production nor a uniform rate of profit exists in any civilized 
 country, nor have they ever existed under the capitalistic system 
 of production. On the contrary, the characteristic feature of 
 that productive system is free competition among numerous pro- 
 ducers, who produce at an ever increasing variety of costs per 
 unit of product and an equally varying rate of profit. It is pre- 
 cisely because profits are not uniform, but that in the same 
 industry some can secure large profits while others can obtain 
 none, that the profit system is so fiercely assailed as unjust. The 
 chief charge against trusts and syndicates is that they undersell 
 the smaller producers, and through obtaining a monopoly secure 
 to themselves large profits. It is not surprising that Marx, like 
 the English economists, should fail to find equitable profit when 
 he ignored the only conditions under which profit always exists. 
 
 SECTION IV. — How Economic Profit is Equitably Evolved. 
 
 If profit is necessarily inequitable, it is uneconomic ; if it can- 
 not be obtained without injustice, it should be prohibited. Profit 
 has already been defined as the undivided surplus remaining 
 after all costs are paid. It has also been explained that the law 
 of surplus is a necessary corollary of the law of price, which also 
 has been presented in a previous chapter. 1 
 
 The movement of both price and surplus, according to this 
 law, was shown in diagram 2 (p. 206), which for convenience is 
 here reproduced and may be assumed to represent six manu- 
 facturers of cotton cloth of the same quality. 
 1 Part III., chapter iv. 
 
EVOLUTION OF PROFIT. 
 
 259 
 
 NO. 4. 
 
 Profit. 
 
 Prick. 
 
 Actual Cost. 
 
 Cost Saved 
 by Capital. 
 
 I c. 
 
 f c 
 
 it 
 
 o c. 
 
 4 c. 
 
 4 c. 
 
 4 c. 
 
 4 c. 
 
 4 c. 
 
 4 c. 
 
 Minimum cost 
 
 3 c. 
 
 3ic. 
 
 Source 
 of 
 
 ■a 2 c I Profits. 
 
 3f c 
 
 3fc. 
 
 Maximum cost 
 
 4 c. 
 
 It will be seen that A, who represents maximum cost, produces 
 his cloth at four cents a yard and sells it at four cents. He occu- 
 pies the same position that Marx's capitalist did — he sells at cost 
 and has no profit. If the case of A was considered alone, or if 
 he was an exact duplicate of all other manufacturers, then the 
 result would be exactly what Marx found, and there could be no 
 profit without either raising the price to the consumer or reducing 
 wages. But it is precisely because A is not a duplicate of the 
 others that to consider him alone leads to an erroneous con- 
 clusion. It is only because the others produce under conditions 
 different from A, while being able to sell at the same price, that 
 they obtain any profit, which is what everywhere takes place. 
 
 It will be observed that the only point of uniformity among the 
 six manufacturers is the selling price. They all obtain the same 
 price for their cloth, but each one has a different amount of 
 profit, because he produces at a different rate of cost. Just to 
 the extent that the amount in each case on the cost side is 
 diminished, does that on the surplus or profit side increase — 
 that is to say, directly as the cost line of B, C, D, E, and F 
 recedes from that of A on the right does the amount increase in 
 the profit column on the left. It will also be observed that the 
 increase in the profit column in no way affects the price column. 
 
 Thus it appears, when we study production as it actually occurs, 
 that profits can arise without injustice. In the case of the six 
 competing manufacturers, who correctly represent modern in- 
 dustry under free competition, all the conditions of economics 
 and ethics are fulfilled ; equivalent is given for equivalent, price 
 equals cost, and profit is produced. If it is asked why B, C, D, 
 
26o EQUITY OF ECONOMIC PROFIT. 
 
 E, and F should receive the same price for their cloth as A, when 
 they can make it at a less cost, the answer is that they furnish the 
 same equivalent for what they receive that he furnishes. To give 
 A more than four cents a yard would be both inequitable and 
 uneconomic ; inequitable because it would be giving more than 
 an equivalent for the cloth ; uneconomic because it would be 
 adding a burden to the consumer in order to give a premium to 
 the most incompetent producer, thereby destroying the incentive 
 for developing improved methods of production. All that the 
 consumer can in equity demand or by economic law exact from 
 the producer is that he shall obtain the full equivalent of his four 
 cents. This he obtains from B and from all the others as com- 
 pletely as from A. The only difference between the producers is 
 that, from causes peculiar to themselves, some of them make na- 
 ture do more than others. Nature does one fourth more for F 
 than for A, but they all do precisely the same for the consumer ; 
 they all give him a yard of exactly the same quality of cloth for 
 four cents. The consumer has no claims upon B which A is not 
 equally bound to satisfy. And if B should consent to sell at 
 three and four fifths cents a yard, nobody would continue to buy 
 from A at four cents. There is no principle in equity which de- 
 mands that B or C or D or E or F shall give more cloth for four 
 cents than A gives ; nor is there any law in economics by which 
 they can be made to do so. 
 
 Moreover, profit thus evolved is not merely economic and 
 equitable, but it is actually beneficial to the community. So far 
 from being obtained by exploiting the laborer, it is the premium 
 offered by economic law for the invention of superior methods of 
 production, by the use of which the community, including the 
 laborer, obtains a larger amount of wealth for the same service. 
 It is the community that ultimately reaps the greatest advantage, 
 for the great profits of F constitute an incentive to increase pro- 
 duction, and the only way F can insure the sale of his larger 
 product is by reducing the price so as to undersell his com- 
 petitors. Just as frequently as this occurs, the profit of the last 
 profit-man is handed over to the community in lower prices. 
 This is what is constantly taking place as fast as the concentra- 
 tion of capital is increased and improved methods of production 
 are employed. 
 
SURPLUS WAGES. 26 1 
 
 It is clear, therefore, that the profits of B, C, D, E, and F are 
 not obtained at the expense of equity. They pay the same wages 
 and fulfil all the other economic requirements just as completely 
 as does A, or as do the shoemaker and the farmer, with whom they 
 exchange their product. Just as fast as the dearest man is under- 
 sold these profits are passed to the public ; and the only means 
 by which the consequent diminution of profits can be checked is 
 by capital making another draught upon nature. Thus capital, 
 through the incentive of profit, becomes the constant means of 
 exploiting nature for the benefit of society — instead ot exploiting 
 the laborer and consumer for the benefit of the capitalist, as Marx 
 and his disciples so persistently claim. 
 
 If we pass to the sphere of labor we find that the Ricardian- 
 Marx theory is as inadequate to explain the facts there as it is in 
 the case of commodities. Marx admits that the value of labor 
 power is determined by the cost of its production, just as is the 
 value of commodities. According to this hypothesis, the value 
 of every pound of yarn must be equal to the sum of values that 
 enter into its production, the value of every day's labor must be 
 equal to the sum of values that enters into its production — i.e., 
 the wages of every laborer must be equal to the cost ot his own 
 living. Now we know that in every industry the wages of the 
 same class of laborers tend to a uniformity, while the cost of 
 living of the individual laborers varies greatly. For example, we 
 know that in New York City painters, carpenters, bricklayers, 
 cigarmakers, tailors, etc., who work on the same grade of work 
 or in the same shop get the same wages, but individually the cost 
 of their living varies in some cases several dollars a week. On 
 the Marxian hypothesis, that the capitalist who sells his yarn for 
 more than it costs him exploits some of the factors of production, 
 the laborer who obtains more for his labor than it cost him must 
 also have exploited some other factor. Marx would object to 
 charging the laborer with robbery ; his purpose is to prove the 
 other man the thief. Yet, if it is a law in economics that the 
 possession of a surplus proves exploitation, then a surplus in the 
 hands of the laborer who has sold his labor power for more than 
 it cost him is as conclusive evidence of exploitation as is a sur- 
 plus in the hands of the capitalist who has sold his commodity 
 for more than it cost him. Scientific law does not discriminate 
 
262 PRODUCT PROFIT AJVD WAGES. 
 
 between individuals ; there is no operation of natural law under 
 which the laborer is an honest man and the capitalist a thief, 
 when both are doing the same thing. A theory which thus puts 
 vice at a premium and virtue at a discount by showing that 
 none but thieves succeed and that the only reward for honesty is 
 failure and poverty, should only need stating to be rejected. 
 
 Section V. — The Ratio of Profit to Product and to Wages. 
 
 One of the most prevalent assumptions regarding profit is, that 
 it takes an inordinately large proportion of the product. The 
 point upon which Marx lays exceptional stress is that profit prac- 
 tically equals wages. Although few careful writers would now 
 venture to contend that wages are actually diminishing, the idea 
 of Rodbertus, that the laborer's share of the product diminishes 
 as his productiveness increases, is very commonly accepted. 
 How much of the product goes to profit and the ratio of profit to 
 wages are mainly questions of fact ; it is therefore to facts 
 that we must turn for any satisfactory explanation of the sub- 
 ject. 
 
 If the law of prices and wages presented in these pages is 
 sound, and its corollary of the law of surplus (rent, interest, and 
 profit) is correct, we may expect, under modern productive con- 
 ditions, to find three important facts : (1) that real wages {wealth 
 obtainable for a day's service) tend to increase both actually and rela- 
 tively to the quantity of consumable wealth produced j (2) that, while 
 the surplus or profit increases i?i its actual amount, it diminishes 
 relatively to the aggregate net product ; that is to say, profit absorbs 
 a diminishing proportion of the consumable wealth produced j (3) 
 that the ratio of wages to profits tends to increase, and that both the 
 actual amount of consumable wealth and the relative proportion of 
 the net product which goes to labor are greater than the amount which 
 goes to capital, and that this tendency increases as the concentration of 
 capital and the use of improved methods advance. 
 
 1. Is the proposition that real wages tend to increase both 
 actually and relatively to the quantity of consumable wealth pro- 
 duced, sustained by the facts ? Fortunately, the industrial history 
 of the present century affords ample data for a conclusive answer 
 to this question. Let us take the cotton industry, which by this 
 
THE COTTON INDUSTRY. 263 
 
 time the reader has become quite familiar with. Moreover, this 
 industry affords an excellent illustration of the principles under 
 consideration, because it is a very extensive industry. It is also 
 completely representative of the factory system, and as such has 
 been in existence longer than almost any other industry. At the 
 commencement of the present century the weaver could only buy 
 ten yards of cloth with a week's wages. To-day (1890) he can 
 obtain a hundred and fifty yards of his own product for a week's 
 wages, while working about thirty hours less per week. That is 
 to say, through a rise in his wages and a fall in the price of the 
 product, he is able to obtain fifteen times as much of his own 
 product for a day's work in 1890 as he could obtain in 1800. 
 The factory period in this country really dates from about 1830. 
 From that time to 1880 the investment of capital, the number of 
 establishments, the amount and price of product, and the wages 
 paid in that industry were as follows : 
 
 1830. 1880. 
 
 Number of establishments 801 756 
 
 Aggregate capital invested $40,612,984 $208,280,346 
 
 Number of lbs. cloth produced 59,514,926 607,264,241 
 
 " persons employed 62,208 172,544 
 
 " spindles " 1,246,703 10,653,435 
 
 Amount of capital to establish $50,702 $275,503 
 
 Ratio of lbs. produced to capital 1.4 to $1.00 2.4 to $1.00 
 
 " capital to persons employed $652.85 to 1 $1,207.17 to 1 
 
 M spindles to persons " 22 to I 62 to I 
 
 " capital to spindles " $32.58 to 1 $19.55 to 1 
 
 " lbs. produced to persons employed 950.7 to 1 3,519-5 to 1 
 
 " " spindles 47.6 to 1 . 57.O to 1 
 
 Annual consumption of lbs. of cotton cloth per capita. . .5.90 13.81 
 
 Price of cotton cloth per yard 17 cents 7 cents 
 
 Operative's wages per week $2.55 $5.40 
 
 It will be seen that in the 756 large establishments in 1880 in 
 which the aggregate capital invested was five times as great as 
 that in the 801 small establishments in 1830, the capital invested 
 per spindle was one third less, the number of spindles operated 
 by each laborer nearly three times as large, the product per 
 spindle one fourth greater, the product per dollar invested twice 
 as large, the price of the cotton cloth nearly sixty per cent, less, 
 the consumption per capita of the population over one hundred 
 per cent, greater, and wages more than double. 
 
264 PURCHASING POWER OF WAGES. 
 
 If we take the New England States, which comprise the leading 
 cotton-manufacturing district in the country, and also that where 
 the greatest concentration of capital and machinery in this 
 industry has taken place, the results in this direction are still 
 more striking. According to the statistics on wages and prices 
 from 1752, gathered by the Massachusetts Labor Bureau, 1 in 
 1 83 1 the ratio of spindles to operatives was 24yfo- to 1. In 1880 
 they were 7it|-o to l - And the ratio of pounds of product to 
 operatives employed in 1831 was 1,484 to 1, and in 1880 it 
 was 3,633 to 1. That is to say, during fifty years the ratio of 
 spindles to operatives increased 184 per cent., and the ratio of 
 product to operatives 145 per cent. During the same period 
 the aggregate wages of men, women, and children rose 115 per 
 cent., and the hours of labor were reduced 12 percent., while 
 the price of calico print fell from 17 to 7 s cents a yard. Thus, 
 while the wages in this industry rose 115 per cent., the purchasing 
 power of. those wages in the finished product increased 241 
 per cent. ; that is to say, through a rise of wages and fall in 
 prices accompanying the concentration of capital and use of 
 improved methods, the laborer was enabled to obtain over five 
 times'as much of his own product for a day's labor in 1880 as he 
 did in 1830 — the increase is still greater now (1890). 
 
 If we consider the matter from the standpoint of value 
 instead of quantity of product, a similar result is apparent. 
 In 1850 3 the value of the product per operative in New Eng- 
 land was $707 ; in 1880 it was $1,139 per operative, an increase 
 of 6i t 2 /q- per cent. The wages in this industry for 1850 for New 
 England are not obtainable, but if we assume that the proportion 
 of the 115 per cent, increase from 1830 to 1880 was as great after 
 as before 1850, a perfectly safe assumption, the rise in wages 
 from 1850 to 1880 would be 69 per cent. Measured in money, 
 therefore, the value of labor (wages) of cotton operatives rose 8 
 per cent, more than the value of their product. If we extend this 
 generalization to the whole United States the result is very 
 similar. The value of product per operative in the cotton 
 industry in 1850 was $709, and in 1880 it was $1,112, being an 
 
 1 Report for 1885, pp. 185-189. 
 
 * Ibid., p. 455. 
 
 3 1 have taken 1850 because the value for 1830 is not obtainable. 
 
MR. GIFFEN ON WAGES AND PRODUCT. 265 
 
 increase of 56^-fe 1 per cent., or 12 per cent, less than the rise of 
 wages. Therefore, whether we view the question from the 
 standpoint of quantity of wealth, purchasing power of wages, or 
 the ratio of wages to product, it is equally clear that wages have 
 increased both actually and relatively to the quantity of con- 
 sumable wealth produced, as capital has been concentrated and 
 as improved methods of production have been employed. 
 
 Notwithstanding this rise of wages and fall of prices, it is 
 insisted that the laborer is despoiled of a large part of the wealth 
 he produces. As evidence of this we are pointed to the fact that 
 in many industries the product per laborer has increased more 
 than a thousand per cent, during the last fifty years, while their 
 wages have not much more than doubled. This claim has been 
 virtually conceded by Mr. Giffen, President of the British Statis- 
 tical Society. He says : " On this head it may be admitted, to 
 begin with, that there is apparent foundation for some of the 
 complaints. Workmen in particular employments do not get a 
 reward at all in proportion to the increase of production in those 
 employments. The illustration of a cotton-mill is familiar. A 
 single attendant on a number of machines will 'produce' as 
 much in an hour as formerly in a year or two, but his wages are 
 only double — or perhaps not quite double — what they were when 
 the production was so much less. 2 . . . But the increased severity 
 of toil, without proportionate remuneration, might be admitted 
 in those special employments without altering the fact that 
 remuneration has increased generally. What seems to have 
 happened in these cases is that the development of society 
 imposes a heavy burden on a special class." 3 While he tries to 
 break the force of this complaint by showing that remuneration 
 has increased generally, he practically admits the injustice, and 
 treats it as an inherent element in the present industrial constitu- 
 tion of society. This is all that socialistic reconstructionists 
 claim ; it is because they believe that equity is impossible under 
 the present industrial system that they demand its abolition. 
 Nor can their claim be reasonably resisted unless these phe- 
 nomena can be explained without assuming either that society 
 
 1 See U. S. Census (1880), volume on Manufactures, pp. 541-547. 
 
 2 " Gross and Net Gain of Rising Wages," Contemporary Review, December, 
 1889, p. 835. 3 Ibid., p. 838. 
 
266 MR. GIFFEN'S ERROR. 
 
 has developed in the wrong direction or that natural law is 
 inherently unjust. 
 
 Here is another instance of the error of treating wages as a 
 share in the division of the product, instead of an item in the cost 
 of production. If this view were correct, and wages in each 
 industry should rise directly as the product per laborer increases, 
 as Mr. Giffen's argument implies, the result, instead of being more 
 equitable, would be unjust to the laborers and more inimical to 
 society. It would be unjust to the laborers because it would 
 give all the increased product resulting from improved machinery 
 to the particular laborers who happen to use the improved 
 implements, thus depriving the laborers in non-machine-using 
 industries of any advantage arising from superior methods of 
 production. Upon what principle of equity should a weaver 
 or shoemaker who happens, without any virtue on his part, to use 
 improved instruments, receive fifty or a hundred times as much 
 wages as the bricklayer, painter, compositor, and other hand- 
 workers whose industries do not admit of the use of steam-driven 
 machinery ? Manifestly any industrial system which would in- 
 crease the wages of the factory-worker fifty or a hundred-fold, 
 while it would only advance those of hand-workers ten or twenty 
 per cent., simply because, in the nature of the occupations, the 
 former could and the latter could not use labor-saving machinery, 
 would be the very embodiment of injustice. 
 
 It would be inimical to society, because it would make any 
 general reduction in the price of commodities impossible, as the 
 increased wealth would all go to the particular laborer who used 
 improved machinery, thus depriving the community in general of 
 any participation in the advantages of industrial development. 
 It is hardly necessary to say that the use of steam-driven 
 machinery is no more due to the particular operatives who use it 
 than it is to the millions of compositors, bricklayers, farmers, and 
 other laborers who do not use them. In the first place, it is the 
 consumption not of the machine workers merely, but of the whole 
 community that supplies the market which makes the use of the 
 factory methods possible. And in the second place, it is the 
 inventive genius developed by an advancing civilization, to- 
 gether with the capital invested in the production of machinery 
 to supply the need thus created, that furnishes the increased 
 
DISTRIBUTION OF BENEFITS. 267 
 
 product. Clearly therefore, if only the wages of those laborers 
 were increased who used the improved instruments the market 
 for the machine-made products would be too small to enable 
 factory methods to be profitably employed. Thus a system which 
 would give all the increased product resulting from improved 
 instruments to the particular laborers who use those instruments 
 would not only be highly unjust, but would defeat itself and 
 arrest the industrial progress of society. 
 
 If we examine the case of machine-using and non-machine 
 using laborers in the light of the law of wages and prices 
 heretofore presented, it will be apparent that the mere fact that 
 the laborer produces more, has practically nothing to do with 
 what he shall receive, because it has nothing to do with the cost 
 of his living. The amount he produces by a day's work depends 
 far more upon the kind of tools he uses than upon his personal 
 quality. A twelve-year-old child in a New England factory can 
 spin more yarn than a hundred of the most expert spinners that 
 ever lived could produce with a spinning wheel. It is the price 
 of the product, and not the price of the labor, that is determined 
 by the quantity the laborer produces in a day. The cost of his 
 living being the same if he produces twice as much, the cost of 
 production and hence the price will be proportionately reduced. 
 Thus any improvement of productive instruments which enables 
 the laborer to produce more, his cost of living being the same, 
 will show itself not in a rise of his wages, but in a fall of the 
 price of the commodities he produces. 
 
 On the other hand, the price of hand-made commodities rises 
 in proportion as the laborers' wages increase. It thus appears 
 that wages are determined by conditions which affect the charac- 
 ter and cost of the laborer, and not by those which influence the 
 quantity and cost of the product. When the standard and cost 
 of living of the compositor, bricklayer, painter, etc., increase, the 
 community has to pay more for the products of their labor, 
 because there is not much improvement in the tools they use ; 
 whereas the product of the factory worker is so much increased 
 that, although his wages rise as much as those of other laborers, 
 the cost of production is greatly diminished. That is why the 
 price of all hand-made products tends to rise while that of 
 machine or factory-made products constantly tends to fall. It is 
 
268 EQUITY OF ECONOMIC LA W. 
 
 because the wages of the hand-workers have increased in a 
 greater proportion than their product that those of machine 
 workers have increased less proportionately to their product. 
 By this means the disadvantage of inferior and the advantage of 
 superior instruments is distributed uniformly to each person in 
 the community to the extent that he is a consumer. Thus the 
 two prime movements of industrial progress, the rise of wages and 
 the fall of prices, benefit laborers in all occupations and condi- 
 tions directly as their wealth-consuming capacity increases and 
 social character rises. 
 
 It will be observed that, from this point of view, the case of the 
 workman to whom Mr. Giffen referred as not getting " a reward 
 at all in proportion to the increase of production," appears 
 entirely different. What to him appeared to be a necessary in- 
 justice is in reality the evidence of the supreme equity of 
 economic law. The increased product being mainly due to the 
 use of capital and improved tools, which has been made possible 
 through the use of increased consumption and higher social life 
 of the general community, it is to the community in general, and 
 not to particular laborers who happen to use those tools, that the 
 increased product in equity should go, and by economic law does 
 go. The important fact that cannot be too much emphasized 
 here is, that wages are paid for the economic cost, and hence for 
 the social quality of the laborer. It is therefore what the laborer 
 is rather than what he does that determines his wages, and this is 
 true without regard to the nature of his occupation or the quality 
 of his tools. 
 
 2. This brings us to the second proposition, that profits tend 
 to absorb a diminishing proportion of the consumable wealth 
 produced. In view of what has already been said, a discussion 
 of this proposition might be properly deemed unnecessary. And 
 were it not that one of our most trusted statistical authorities has 
 apparently affirmed the opposite, I should so regard it. In the 
 report of the Massachusetts Bureau of Statistics of Labor for 
 1885 the data for nine industries are given, which show that the 
 percentage of the net product paid as wages fell from 59y 5 o- per 
 cent, in 1850 to 48^-0 per cent, in 1S80, and, after commenting 
 upon the peculiarities of each industry, the report (p. 191) says : 
 
 " An examination of these two tables would, we think, lead to 
 
RATIO OF PROFIT TO PRODUCT. 269 
 
 the conclusion that, although in every case money wages have 
 considerably increased, yet in certain industries in which the 
 principles of the factory system {i.e., the subdivision of labor, co- 
 ordination of processes, and the application of a series of mutually 
 dependent and practically automatic machines) have been most 
 effective, such, for instance, as in the cotton and woollen indus- 
 tries, the relative share of net product gained by the workmen 
 tends to decrease. That is to say, in these industries perfection 
 of machines and processes constantly tend to create a larger 
 product with less capital, and the ratio of increase in productive 
 capacity tends to outrun the ratio of increase in wages, so that 
 of this larger product labor obtains a less relative share." 
 
 They then take from the United States Census the same data 
 for all industries in the country, and find that 5 1 per cent, of this 
 net product was paid in wages in 1850 and only 48 T t o per cent, in 
 1880, and say : " It appears that when the field is broadened so 
 as to include the entire manufacturing industries of the country, 
 labor's share of the net product has declined from 51 per cent, 
 to 48 T V per cent." 
 
 In view of such emphatic statements apparently sustained by 
 facts from such a reliable source, it can hardly be a matter of sur- 
 prise that it is generally believed that wages obtain a constantly 
 diminishing and profit gains an increasing proportion of the 
 wealth produced. It is important, therefore, even at the risk of 
 being a little tedious, to examine the process by which this con- 
 clusion is reached. Nor will this be very difficult, since both the 
 data and the method of treatment are amply stated. The method 
 of procedure is to divide the product into gross and net value, 
 the former being the value of the aggregate product, and the 
 latter that of the product less the cost of the raw material. This 
 is regarded as representing the net value created by the joint 
 operation of the labor and capital employed in the enterprise. 1 
 If a diminishing proportion of this net product is paid as wages, 
 it is concluded that an increasing proportion of it must go to 
 
 1 "Net product, or value of product remaining after deducting value of raw 
 materials of manufacture, represents the direct result of the productive forces 
 in the given industry ; or, in other words, it represents the value created over 
 and above the value of raw materials by the effective operation of labor and 
 capital united." — Report of Bureau of Statistics of Labor, p. 190. 
 
270 DEFECTIVE METHODS. 
 
 profits. 1 This method of treating the subject is defective in two 
 respects : (1) in regarding the ratio of the total wages to the 
 net product (product less raw material) as indicating the economic 
 condition of the laborer ; (2) in assuming that a diminution in 
 the ratio of the total wages to this net product necessarily implies 
 a proportional increase of profit. 
 
 (1) That it is a mistake to treat the ratio of the aggregate 
 wages to the value of product as indicating the economic condi- 
 tion of the laborer, is shown by the fact that this ratio may 
 increase and the laborer grow poorer, and it may diminish while 
 the laborer's condition improves. Take, for example, the hand- 
 loom weaver and the factory laborer. After deducting the raw 
 material, nearly all the value of the product of the hand-loom 
 weaver went to wages ; while, according to the bureau's figures, 
 only about 48 per cent, of the product now goes to wages, yet no 
 one would pretend that the hand-loom weavers were in a better 
 economic condition than are the factory operatives to-day. 
 Whether the amount paid for labor is one million or one thou- 
 sand millions of dollars in no way affects the laborer's condition, 
 except as it gives a larger amount to each laborer. The same is 
 true of the proportion. Whether the 80 or 90 per cent, of the 
 product received by the hand-weaver gave him more actually or 
 relatively to the product than 50 per cent, will to-day, depends 
 entirely upon whether it is paid to a relatively larger or smaller 
 number of laborers. If the aggregate amount paid in wages 
 relatively to the product were doubled, and either the number of 
 laborers to whom it was paid or the time expended in producing 
 it with the same laborers was more than doubled, instead of indi- 
 cating an improvement in the laborer's condition, it would show 
 a deterioration. 
 
 Suppose for example, that under hand labor, 80 cents out of 
 each dollar's worth of product go to labor, and are paid to 20 
 laborers, the ratio of wages per laborer to the value of the 
 product will be as 4 cents to the dollar ; whereas, if, under the 
 factory system, only 50 cents out of every dollar's worth of 
 product goes to labor, if it is all paid to five laborers, the ratio 
 of wages per laborer to the value of the product would be as 10 
 cents to the dollar. Thus every laborer would receive relatively 
 
 1 Ibid. , p. 90. 
 
MISLEADING DEDUCTIONS. 2"J\ 
 
 to the product created two and a half times as much with the 50 
 per cent, under factory production as with the 80 per cent, under 
 hand labor. Now this is precisely what has occurred in the 
 development of factory methods of production. Clearly there- 
 fore, it is not the proportion between the aggregate wages and 
 the product, but the proportion between the amount paid to each 
 laborer and the product that indicates his economic condition. 
 In other words, it is the rate and not the aggregate amount of 
 wages that is the true basis of comparison, because it is the rate 
 of wages only that affects the laborer's economic status, either 
 actually or relatively. 
 
 (2) The assumption that a diminution in the ratio of aggre- 
 gate wages to the so-called net product necessarily implies a pro- 
 portional increase of profits is also a mistake. The fact that 51 
 per cent, of the net product was paid in wages in 1850 and only 
 48^0 was so paid in 18S0, does not prove that the percentage of 
 the product going to profit has increased ; on the contrary, this 
 might occur and profit be greatly reduced or annihilated alto- 
 gether. All this fact reveals is that in 1880 the total amount 
 paid in wages represented 2 T 9 -g- per cent, less of the value of the 
 product, after deducting value of raw material, than it did in 
 1850 ; but this does not show that more of the remaining 51^5- 
 per cent, of the product went to profit. Until that remaining 
 portion is accounted for, there can be no more warrant for saying 
 that it went to profit than that it went to the moon. The only 
 condition under which the amount of one item can be properly 
 inferred from that of another is when the two represent the whole, 
 or when the amount they do not represent is a known fixed 
 quantity. Since all the product, less raw material, is not divided 
 between wages and profit, the inference that the ratio of profit to 
 net product increases because that of wages is diminished can 
 only be valid when all the other items are definitely ascertained. 
 That this has not been done in the present instance is shown by 
 the following statement : " The value of net product forms, as 
 we have said, a fund divisible into interest on capital, interest on 
 loans, insurance, freights, rents, commissions, wages, and profits. 
 Now if the relative share paid in labor in the form of wages is 
 decreased, it is, of course, obvious that the share remaining for 
 the other purposes mentioned is increased. If capital is also 
 
2/2 OMITTED DATA. 
 
 relatively decreased, then it is fair to suppose that the share 
 chargeable to interest is also diminished. It is well known that 
 the relative cost of freights and insurance has decreased." 1 
 
 It will be observed that the above not only fails to definitely 
 explain the relative amount of the other items in the cost of pro- 
 duction and thereby obtain the proportion going to profit, but it 
 omits some items altogether. In the first place, it only accounts 
 for a portion of the amount which is paid for service, no account 
 being taken of salaries of managers and other overseers, and 
 agents, which are a part of the payment to labor, and are included 
 in the cost of production as much as the day-wages of the laborers 
 in the shop. In the next place it omits entirely the depreciation 
 of capital, which is also a necessary item in the cost of produc- 
 tion. The items thus unaccounted for necessarily go to swell the 
 undivided surplus which is put down as profit. By this means it 
 may be made to appear that a large profit exists, when in truth 
 there has been a dead loss, and when a profit does actually exist 
 this method of investigation will invariably make it appear very 
 much larger, sometimes more than double what it really is. 2 Both 
 these items of cost affect the result in two ways. In the first 
 place, other things being the same, they both reduce the undivided 
 surplus going to profit to the full extent of their amount. In the 
 next place, they both absorb an increasing proportion of the 
 net product in proportion as factory methods of production are 
 increased. 
 
 It is impossible to state the exact proportion of the net product 
 paid in salaries in the different periods, because that item has 
 been entirely omitted by all industrial statistics until the Massa- 
 chusetts Census for 1885. According to this report, the total 
 amount paid in salaries in that State in 1885 was $10,846,367, 
 which was equal to 3yVo P er cent, of the value of the net product. 
 In order correctly to understand this data, however, it must be 
 observed that this amount was all paid by less than 10 per cent, of 
 the establishments. That is to say, out of the 23,431 manufac- 
 turing establishments only 2,144 paid salaries, and of these 949 
 were corporations. The 949 corporations own an aggregate capi- 
 tal of $300,649,758, or an average of $316,806 each, while the 
 
 1 Report of the Bureau of Statistics of Labor, Mass. (1885), pp. 190, 191. 
 * A case of this kind appears in the 20th vol. of the Census, 1880, pp. ill, 112. 
 
EVOLUTION OF SALARIES. 2J$ 
 
 22,482 private concerns have an aggregate capital of only $199,- 
 944,619, or an average of $8,893. In other words, the 949 cor- 
 porations, which only represent 4y4o" P er cent, of the establish- 
 ments, own 60^7 per cent, of the capital, use 2>6-^\ per cent, of 
 raw material, produce 35yVo" P er cent, of the finished product, 
 employ 4o T \ 4 7 per cent, of the laborers, and pay s^too P er cent, 
 of the total wages. Thus it is quite clear that the salaries are 
 nearly all paid by the large concerns, over 90 per cent, of the 
 smaller ones not paying any salaries at all. 
 
 In 1850 the average amount of capital invested per manufac- 
 turing establishment for the whole country was $4,334, or only 
 about half the amount that is invested in the average establish- 
 ments in Massachusetts to-day which pay no salaries. In 1880 
 the capital invested in the average establishment was $10,991. 
 Thus, while it is impossible from these data to ascertain the exact 
 ratio of increase, it is obvious that the amount paid in salaries 
 becomes an increasing proportion as the concentration of capital 
 into large establishments increases. Since the 3jW P er cent, of 
 the net product paid in salaries in Massachusetts (which may be 
 taken as representative of the whole country, though it is prob- 
 ably a fraction higher) is practically all paid by concerns having 
 a capital of $250,000 or upwards, it is quite safe to assume that 
 not more than one fourth as much was paid in 1850, when the 
 average amount of capital per establishment was only $4,334. To 
 estimate this item as representing one per cent, of the net product 
 in 1850, will therefore be quite liberal. Of the remaining 2 T 8 o° T 
 per cent, which this item has increased since 1850, i£ per cent, 
 may safely be assigned to the period from 1850 to 1880, which 
 alone accounts for more than one half of the apparent relative 
 decrease in wages. 
 
 The other omitted item, the depreciation of capital, affects the 
 result in a still greater degree. This also has hitherto been 
 entirely overlooked in all our industrial statistics, but taking 
 twenty corporations together in four different industries for eight 
 years successively, I find the general depreciation of plant, 
 machinery, buildings, etc., together with transient repairs, equals 
 about six per cent, on the capital invested. Nor does this repre- 
 sent all the depreciation of capital. Every improvement in 
 
 machinery which makes a considerable saving in the cost of 
 18 
 
274 DEPRECIATION OF CAPITAL. 
 
 production, and reduces the selling price of the commodity, 
 throws out of use a large amount of machinery that was previ- 
 ously producing under conditions which barely repaid the cost. 
 It is a common thing for millions of dollars' worth of capital to 
 be almost annihilated at a single stroke in this way. In the iron 
 industry it is a frequent experience that the machinery of whole 
 factories, which, so far as its normal productive capacity is con- 
 cerned, is in excellent condition, is reduced to the value of old 
 iron by the introduction of superior machinery in a competing 
 factory. The percentage of depreciation from this cause increases 
 just in proportion as new methods of production are introduced. 
 While there are no accurate statistics of this kind of depreciation, 
 it may safely be assumed to equal one sixth of the normal 
 depreciation, making the depreciation of capital from all sources 
 fully 7 per cent. Since the ratio of capital invested to the value 
 of the net product in 1850 was as $1.15 to $1, the depreciation 
 of capital would represent 8 per cent, of the net product. In 
 1S80 the ratio of capital invested to the value of the net product 
 had reached $1.41 to $1. Consequently, the depreciation repre- 
 sented 9y 8 o°Tr per cent, of the net product, an increase of iyW per 
 cent. Thus, on a very moderate estimate, the relative increase 
 of the two items omitted in the Census returns more than offsets 
 the seeming proportional decrease in wages. Consequently, 
 assuming other items of cost to have remained the same, instead 
 of wages having decreased 2 T 9 / ¥ P er cent, relatively to the net 
 product from 1850 to 1880, they have actually increased T 4 ff °ir of 
 1 per cent. 
 
 If we take the data down to 1885, which the ample statistics 
 for Massachusetts now enable us to do, the evidence that an 
 increasing percentage of the net product goes for service becomes 
 more conclusive. According to these, in 23,431 establish- 
 ments, with a capital of $500,594,377, producing $574,634,269 
 worth of product, the amount paid in wages equalled about 
 5i T Vtf P er cent, of the value of the product, less the value of raw 
 material. The ratio of capital invested per dollar of net product 
 was $1.75 to $1. The depreciation of capital represented i2 t 2 o°tf 
 per cent, and salaries 3yVu" P er cent. Taking the period 
 from 1850 to 1885, and putting salaries with wages — where they 
 properly belong, for they are the payment for service precisely 
 
RELATIVE DECREASE OF PROFIT. 
 
 275 
 
 the same as wages, the only difference being that one is 
 estimated by the year and the other by the day or week, — the case 
 stands as follows : 
 
 
 Per cent, of net product paid 
 for service. 
 
 Ratio of capital to 
 $1 net product. 
 
 Per cent of 
 
 
 Wages. 
 
 Salaries. 
 
 Total. 
 
 depreciation. 
 
 1850 
 
 51. 
 
 48.1 
 
 5i-7 
 
 I. 
 
 2-5 
 3-8 
 
 52. 
 50.6 
 
 55-5 
 
 $1.15 to$I 
 $1.41 to$I 
 §1.75 to $1 
 
 8. 
 
 1880 
 
 9.8 
 12.2 
 
 1885 
 
 
 
 
 Since the whole amount taken in depreciation is consumed in 
 maintaining the working efficiency of the plant, it not only does 
 not go to the capitalist, but it reduces the amount of net product 
 divisible among all classes. Thus it will be seen that, in 1850, 
 after deducting the proportion paid in wages and salaries, 40 per 
 cent, remained for all the other costs and profit. After making 
 similar deductions in 1880, only 39x7 per cent, remained for the 
 other items of cost and profit, and in 1885 only t> 2 tq P er cent, 
 remained for profits and other costs. It is obvious, therefore, 
 that if the proportion of the net product paid in rent, taxes, 
 insurance, commissions, freights, etc., remained the same, the 
 proportion going to profits must necessarily have decreased, 
 though its aggregate amount may have increased. 
 
 A close examination of the facts would undoubtedly show, as 
 the bureau suggests, that the relative costs of freights and per- 
 haps insurance have slightly diminished. It must be remembered, 
 however, that all freight charges are made on the basis of quan- 
 tity, as so much per ton. If estimated on the value of the product 
 the result would be very different. For example, the product 
 per operative in the cotton industry measured in pounds increased 
 145 per cent, from 1830 to 1880, but measured in value it only 
 increased a little over 60 per cent. Thus a reduction of 50 per 
 cent, in the cost of transportation per quantity would not show 
 any reduction per dollar of value. Assuming that profits in 1850 
 were equal to 10 per cent, of the net product, and that the 
 proportion of the net product paid for transportation has 
 since decreased 2 per cent., and that paid in taxes, rents, commis- 
 sions, etc., has remained the same — though Carroll D. Wright 
 thinks they have actually increased, — the aliquot parts of the 
 
276 
 
 RELATIVE INCREASE OF WAGES. 
 
 net product going to service and profit in 1850 and 1885 would 
 be as follows : 
 
 
 Service. 
 
 Other costs. 
 
 Depreciation. 
 
 8. 
 12.2 
 
 Profit. 
 
 Total. 
 
 1850 
 
 52. 
 55-5 
 
 30 
 
 28 
 
 10. 
 
 4-3 
 
 
 1885.. 
 
 100 
 
 It thus appears that, although the proportion of the net product 
 paid for service has only increased about 4 per cent, and that 
 paid in wages less than 1 per cent., the proportion going to profit 
 has diminished 5 T V P er cent. It should also be observed in this 
 connection that the value of raw material, which represents 57 
 per cent, of the total value of the product, and also that nearly 
 all the other costs, representing 28 per cent, of the net product, 
 are very largely made up of wages. Indeed, if we take the 
 finished product and trace the various items of its costs back to 
 the crude raw material, we shall find that its value is nearly all 
 finally resolved into the amount paid for service. The reason 
 the proportion paid for labor in the last stages of manufacture 
 appears to represent so small a percentage of the total value is 
 (1) because, in the prior stages of its development, so much of 
 the value has been previously paid for in wages ; (2) because, in 
 the last stages, the greatest amount of capital per dollar of prod- 
 uct is employed, and consequently a greater proportion of the 
 product created in that stage goes to depreciation of plant, all of 
 which must of necessity be eliminated before any scientific com- 
 parison of the proportional shares going to wages and profit in 
 any given industry can be made. 
 
 Clearly therefore, in order to ascertain whether or not the 
 laborer is obtaining an increasing or a diminishing proportion of 
 the consumable wealth produced, we must compare the value of 
 what goes to labor, not in the aggregate but per laborer, with the 
 value of the product after deducting the cost of raw material, 
 depreciation of plant, and all other fixed costs incident to the 
 increased production. From this method of examining the case 
 it will appear that, in each given stage of the productive process, 
 as the concentration of capital and the use of improved methods 
 of production are employed, the laborer receives a constantly 
 increasing proportion of an increasing product. 
 
 3. We now come to the question of the actual ratio of wages to 
 
DIFFICULTY OF OBTAINING DATA. 2J "f 
 
 profits in modern industry. It is assumed by socialistic writers, 
 as already shown in the case of Marx, that under the present in- 
 dustrial system profits are not only increasing actually and rela- 
 tively to the product, but that they approximately equal wages. 1 
 Since this is wholly a question of fact and is one of the chief 
 reasons urged for revolutionizing the existing industrial system, 
 it may be well to compare this claim with the facts in the case. 
 The question of profits and wages is one which cannot always be 
 settled by public statistics because they are seldom taken in such 
 a way as to furnish the correct data upon both these points. As 
 already intimated the service item is nearly always incomplete 
 and profits are seldom given. The Massachusetts Labor Bureau, 
 which has ever been the best source of reliable industrial data in 
 this country, made an extensive investigation of the subject of 
 profits and earnings for 1875 s and 1880, the result of which was 
 published in their report for 1883. The results of this investiga- 
 tion, which covered 14,352 establishments in 80 industries, show 
 that the ratio of wages 8 to profits in 1875 was as 2/^ to 1, and as 
 3toV to r i n 1880. 
 
 In 1889 I made extensive investigations on the same points, but 
 instead of taking a large number of industries for a given year I 
 took a limited number of large industries for a number of years 
 together. It will readily be seen that the normal ratio of wages 
 to profits will be much more accurately indicated by taking a few 
 
 1 " There is left the sum of £3 *°j. °<£. which is the variable capital advanced ; 
 and we see that a new value of ^3 10s. od + £3 iu. od. has been produced in 
 its place. Therefore — • * "^' ° ' » giving a rate of surplus value of more than one 
 hundred per cent. The laborer employs more than one half of his working day 
 in producing the surplus value." — Marx, " Capital," p. 203. " Now, gentle- 
 men, if you compare the working time you pay for, you will find that they are 
 to one another, as half a day is to half a day ; this gives a rate of one hundred 
 per cent., and a very pretty percentage it is." — Ibid., p. 211. " But the fact is 
 — and on that we lay stress — that the workers receive only about half of what 
 they produce. " — Gronlund, " Modern Socialism," p. 23. 
 
 2 These are exclusive of Boston. I have omitted Boston because for some 
 unexplained reason the net product in Boston fell about 75 per cent. Such a 
 change must be the result of some abnormal occurrence perhaps in a few indus- 
 tries. Although it would greatly reduce the ratio «of profits to wages in 1880, 
 rather than use doubtful results, I prefer to exclude the whole of Boston data. 
 
 3 Exclusive of salaries. 
 
278 
 
 RATIO OF PROFITS TO WAGES. 
 
 representative concerns for a considerable number of years to- 
 gether, than by a very much larger number of concerns for a sin- 
 gle year. For instance, the complete facts for ten large corpora- 
 tions for ten years together will much more accurately show the 
 normal ratio of wages to profits in that industry than would the 
 facts, equally complete, for all the concerns in the country for any 
 given date. This investigation shows that the ratio of wages to 
 profits in thirteen leading industries for a number of years to- 
 gether, 1 to be as 4.20 to 1. Taking the basis adopted by the 
 Massachusetts Bureau for 1880, the relative movement of profit 
 and wages from 1850 to 1885 has been as follows : 
 
 ALL MANUFACTURING INDUSTRIES FOR THE UNITED STATES. 
 
 
 Percent- 
 
 
 
 
 
 
 age of raw 
 material 
 
 Percent- 
 
 Percent- 
 
 
 
 
 and fixed 
 
 age of 
 
 age of 
 
 Average* 
 
 Ratio of 
 
 Value of aggregate product. 
 
 costs in 
 
 wages in 
 
 profits in 
 
 yearly 
 
 wages to 
 
 
 total 
 
 total 
 
 total 
 
 wages. 
 
 profits. 
 
 
 product. 
 
 product. 
 
 product. 
 
 
 
 1850 — $1,019,106,616 . . 
 
 67.61 
 
 23.23 
 
 9.16 
 
 $247-37 
 
 2.53 s to I 
 
 i860— 1,885,861,676 . . 
 
 67.92 
 
 20.09 
 
 II.99 
 
 288.94 
 
 I.67 to I 
 
 1870— 4,232,325,442 . . 
 
 71.79 
 
 18.34 
 
 9.87 
 
 376-59 
 
 I.85 to 1 
 
 1880— 5,369,579,191 ■ • 
 
 76.37 
 
 17.67 
 
 5.96 
 
 346.91 
 
 2.96 to I 
 
 ALL MANUFACTURE 
 
 D INDUSTRIES FOR MASSACHUSETTS. 4 
 
 1875—1456,400,458 . . . 
 
 62.57 
 
 27.06 
 
 IO.37 
 
 $445.00 
 
 2.6o 5 to 1 
 
 1880 — 631,135,284. . . 
 
 72.79 
 
 21-75 
 
 5.46 
 
 364.00 
 
 3.98 to 1 
 
 1885 — 674,634,269 . . . 
 
 70.88 
 
 23-45 
 
 . 5.67 
 
 388.62 
 
 4.13 to I 
 
 1888— 
 
 
 
 
 402.45 
 
 THIRTEEN LEADING IND 
 
 USTRIES FOR 8 Y 
 
 EARS TOGETHER TO 1889. 
 
 1889 — $112,393,804.98 
 
 67.98 | 25.93 
 
 6.09 4.20 to 1 
 
 1 Ten of these were for eight years in succession, two for ten years, and one 
 only for four years. 
 
 2 It should be remembered that these figures do not represent the wages 
 of men, but the average wages of men, women, and children all taken together. 
 Since in manufacturing industries there is generally one worker besides the head 
 of the family, and sometimes more, these wages only represent about half the in- 
 come of the average family in these industries. 
 
 s This column is exclusive of salaries. 
 
 4 Exclusive of Boston. I have omitted Boston because for some unexplained 
 reason profits fell from an aggregate of $27,640,680 in 1875 to $7,162,768 in 
 1880. Such a change must be the result of some abnormal occurrence perhaps 
 in a few industries. Although it would greatly reduce the ratio of profits to 
 wages in 1880, rather than risk doubtful results I prefer to exclude the whole of 
 Boston data for 1885. 6 This includes salaries. 
 
ACTUAL RISE OF WAGES. 279 
 
 It will be seen from these facts, which represent the greatest 
 body of statistical data ever collected upon the subject, 1 that the 
 industrial tendency during the last thirty years has been steadily 
 towards a greater concentration of capital and economy in pro- 
 ductive power, resulting in an actual increase in wages both rela- 
 tively to the product and per laborer employed, and also a relative 
 proportional decrease of profit as compared with wages. 
 
 1 The figures for the United States are taken from the Census of 1880 and 
 those for Massachusetts are taken from the industrial census of that State, rep- 
 resenting for 1880 14,352 establishments in 80 industries with an aggregate capi- 
 tal of $271,056,051 ; for 1885, 23,431 establishments in 83 industries, with an 
 aggregate capital of $500,594,377. 
 
PART IV. 
 
 THE PRINCIPLES OF PRACTICAL STATESMAN- 
 SHIP: OR, APPLIED SOCIAL ECONOMICS. 
 
CHAPTER I. 
 
 LAISSEZ FAIRE AS A GUIDING PRINCIPLE IN 
 PUBLIC POLICY. 
 
 SECTION I. — A Protest Against Paternalism. 
 
 Although laissez faire has never been the accepted rule of 
 public policy in any country, the fact that for more than a 
 century it has been taught by leading economists as the guiding 
 principle of industrial statesmanship entitles it to prominent con- 
 sideration. It should be remembered in the first place that the 
 idea of laissez faire as applied to industrial statesmanship does 
 not represent an inductively established principle in society ; 
 that is to say, it is not a logical conclusion drawn from an ex- 
 tensive study of industrial phenomena. On the contrary it came 
 into existence as a watchword to express a protest against the 
 high-handed paternalism of the feudal and mercantile systems ; 
 and by the force of habitual repetition, sustained by a pardon- 
 able bias against a land-owning class, it was subsequently elevated 
 to the position of an economic principle. 
 
 During the Middle Ages government was not only essentially 
 paternal, but it was exclusively in the hands of the land-owning 
 class. The interest class being chiefly local, industrial policy 
 was naturally restrictive in character. Accordingly, in the 
 earliest stages of manufacture and the growth of the free towns, 
 industry was hemmed in by innumerable arbitrary regulations. 
 Scarcely any occupation could be engaged in without paying 
 tallage or tribute to the baron. And with the growth of the Free 
 Cities and the decline of baronial power this privilege of exacting 
 tribute for the right to engage in an industry was assumed by the 
 guilds, and finally took the form of charters, by which the gov- 
 
 283 
 
284 ORIGIN OF LAISSEZ FA IRE. 
 
 ernment became the exactor of booty. In proportion as manu- 
 facture and commerce increased, the evil effects of this policy 
 became more and more inimical to public welfare, and made a 
 new industrial policy necessary. Nor is it surprising that the 
 new policy should be the very opposite of the old one. The 
 remedy for the evil effects of too much government interference 
 was naturally sought in a policy of no government interference. 
 
 By the last half of the seventeenth century this anti-paternal 
 feeling had become very strong, and was finally voiced by a 
 prominent French merchant, who, when asked by Colbert, 
 "What can we do to aid you?" promptly answered, " Laissez 
 /aire " — Let us alone. This expression so completely represented 
 the feelings of the mercantile class that it became the watchword 
 for a new policy, and by the middle of the next century was made 
 the basis of an economic theory by Quesnay and the Physiocrats, 
 whose policy was concisely expressed as " Laissez faire et laissez 
 passer " — Let us alone and keep the ways free. In the last 
 quarter of the eighteenth century this doctrine was revised and 
 recast in England by Adam Smith. In many important respects 
 the great Scotchman improved upon the doctrines of the French 
 Physiocrats, especially in bringing out the economic importance 
 of manufacture and commerce. But in view of the fact that the 
 public policy of England was still largely determined by the 
 landed aristocracy, who were traditionally hostile to the interests 
 of the manufacturing and trading classes, Adam Smith naturally 
 adhered to the doctrine of no government interference. Since his 
 time the idea of laissez faire has been generally presented as 
 representing a fundamental principle upon which the industrial 
 policy of all nations should be based, any departure from this 
 rule being justified only in special emergencies. 
 
 In the next place it should be observed that the doctrine of 
 laissez faire has not been verified by subsequent experience ; 
 consequently, instead of being more implicitly accepted, its 
 economic validity is denied just in proportion as the scientific 
 treatment of the subject increases. As an axiom in public policy 
 laissez faire is rejected by the inductive economists of the present 
 generation with almost as much uniformity as it was accepted by 
 the deductive economists of the previous half century. There- 
 fore, the claim that the theory of laissez faire represents a 
 
CHARACTER OF LAISSEZ FAIRE. 285 
 
 universal principle in nature and society, and is entitled to the 
 same unquestioning acceptance in economics that is accorded 
 to the principle of gravitation in physics, is wholly unwarranted. 
 
 SECTION II. — Laissez Faire Essentially Unscientific. 
 
 Considered as a fundamental principle in statesmanship, 
 laissez faire is essentially unscientific. It is necessarily negative, 
 while statesmanship is positive. All government, order, and 
 progress imply affirmative action, and therefore are the op- 
 posite of laissez faire. Science is essentially aggressive ; it 
 implies the active policy of investigating, knowing, and control- 
 ling things. Every improvement in the arts and sciences, every 
 labor-saving appliance, is the result of man's interference with 
 nature, of subjecting natural forces to human purposes. By 
 studying the laws of chemistry, electricity, and mechanics, we 
 know that under certain conditions heat, light, and force are 
 developed. And instead of adopting the rule of laissez faire, and 
 waiting till nature produces the desired result, we have learned 
 to bring the particular forces together in just such relations as 
 will produce that result much quicker. Consequently, we make 
 steam produce our wealth, electricity do our errands, and natural 
 forces serve us in every phase of life. 
 
 The same is true in the animal and vegetable world. Our 
 choicest flowers and vegetables are not the result of unaided 
 natural selection, but of artificial cultivation ; that is to say, of 
 the scientific application of the law of development. We have 
 studied the conditions under which certain kinds of fruit, flowers, 
 and vegetables develop their best specimens, and where nature 
 fails to supply these conditions they are substituted by man. Our 
 fast horses and finest breeds of cattle and sheep have all been 
 produced in the same way. What is true in chemistry, mechanics, 
 botany, and biology is equally true in sociology. 
 
 Since affirmative statesmanship is necessary to government, 
 and government is necessary to civilization, it is a contradiction 
 in terms to speak of laissez faire as the basis of statesmanship. 
 The science of government is not the knowledge of what not to 
 do, but it is the knowledge of what to do and how and when to 
 do it. To know what to do implies the knowledge of what not to 
 do, but to know what not to do does not imply the knowledge of 
 
286 ERRONEOUS POSTULATES. 
 
 what to do. So long as government exists it must have a function 
 — a sphere of action. Scientific statesmanship implies a knowl- 
 edge of the principle by which that action should be directed. 
 Because the history of state interference with industry is the 
 history of mistakes, it is commonly assumed that the only way to 
 avoid mistakes of the past is to do nothing in the present. It 
 would be just as correct to say that because all mistakes are the 
 result of affirmative action, inaction is the only means of avoiding 
 error, the logic of which would involve the destruction of the 
 human race. We cannot choose between doing and not doing, 
 but only between doing wisely and unwisely. The doctrine of 
 laissez faire, therefore, has no place in the science of statesman- 
 ship or the art of government. 
 
 This theory derives its chief plausibility from a seeming uni- 
 versality in its postulates, which are : (i) That self-interest is a 
 universal principle in human nature. (2) That each individual 
 knows his own interest best, and in the absence of arbitrary re- 
 strictions is sure to follow it. (3) That free competition always 
 develops the highest possibilities by enabling each to do that for 
 which he is best fitted, and thereby most surely advances the 
 welfare of all. 
 
 The proposition that self-interest is a universal principle in 
 human nature is undoubtedly correct ; but there is nothing in 
 experience or logic to warrant the assumption that the other 
 two follow from it. That whatever is for the best interest of 
 each promotes the welfare of all is indisputable, but that each 
 individual always knows what is best for his own interest, and in 
 the absence of arbitrary restrictions is sure to follow it, is by no 
 means certain. 
 
 Before each can know how to promote his own best interest he 
 must know what his best interest is, which is precisely what the 
 great bulk of the human race do not know. This knowledge can 
 only be acquired by a more or less intelligent generalization from 
 experience. Whatever tends to improve man's condition materially, 
 socially, and morally, and increase the advantages of social life, 
 promotes his best interests. To assume that every one knows 
 what is best for himself is as unphilosophic as to assume that the 
 child knows best what will promote its own welfare. Although 
 many parents are ignorant, and often injure when they think to 
 
IGNORANCE OF SELF INTEREST. 287 
 
 help the child, the fact remains that the successful rearing 
 of children chiefly depends upon the number of instances in 
 which the wisdom of the parent, developed by experience, pre- 
 vails over the ignorance of the child. Indeed the race would die 
 out if the experience of parents were not transformed into author- 
 ity over the child. 
 
 What is true of the child in this respect is still true to a very 
 great extent, of a vast majority of the human race. Take for 
 instance the people of Central Africa. The principle of self-in- 
 terest is as universal there as in any part of the world. But no 
 one would seriously claim that the average individual in that dark 
 continent knows what is best for his own interest. On the con- 
 trary, the most advanced scientists, philanthropists, philosophers, 
 and statesmen agree that the best interests of the inhabitants of 
 Africa can only be promoted by the interference of more ad- 
 vanced and civilized nations. This same lack of knowledge of 
 what is best for one's own interest, which is simply ignorance of the 
 laws of social development, is still painfully apparent, not merely 
 in every country, but, more or less in every class in the most ad- 
 vanced countries. Those familiar with the laws of sanitation 
 and hygiene know that cleanliness, fresh air, good drainage, and 
 wholesome food are of vital importance to physical health, and 
 therefore are of the highest interest to the laborer. But the ex- 
 perience of health authorities shows that only with the utmost diffi- 
 culty can the laboring classes, and particularly the poorer and 
 more ignorant portion, be induced to pay any attention to these 
 conditions. 
 
 So too the employing classes, while more enlightened upon 
 questions of science, literature, and art, exhibit scarcely less 
 ignorance in regard to their economic interests. Take, for in- 
 stance, their attitude towards the social condition of the laborer. 
 They have assumed and have acted almost uniformly upon the 
 assumption that high wages are inimical to their own interests, 
 and consequently that to resist the rise of wages and social im- 
 provement of the laboring classes is to promote their own pros- 
 perity ; whereas, had they known their true economic relation to 
 the laborer, they would have seen that every limitation of his 
 social and material progress reacts injuriously upon the per- 
 manence and extent of their own prosperity. The reason for 
 
288 FALSE NOTIONS OF COMPETITION. 
 
 their mistaken attitude is precisely the same as that which gov- 
 erns the laborer when he endeavors to improve his condition by 
 using dynamite, and when he resists the introduction of improved 
 machinery, or evades the instructions of the Board of Health, 
 — namely, ignorance of what is for his own best interest. It is 
 therefore fallacious to assume that every individual knows his 
 own interest best, and in the absence of arbitrary restrictions is 
 sure to follow it. 
 
 The idea that free competition always develops the highest 
 possibilities by enabling each to do that for which he is best 
 fitted, is equally misleading. The popular idea of free compe- 
 tition is that it means an unconditional struggle for existence 
 among individual units, and that is the sense in which the term 
 is usually employed by economists. This view is commonly re- 
 garded as the application of the doctrine of natural selection to 
 society ; and hence the policy of laissez faire is claimed to be 
 based upon the doctrine of evolution. This is a mistaken con- 
 ception both of the doctrine of evolution and of the nature and 
 function of competition, as will appear from the following con- 
 siderations. 
 
 The doctrine of evolution is simply a theory of growth as 
 distinguished from that of special providence. It teaches that 
 whatever may have been the origin of things, progress towards 
 higher forms of existence in all classes of phenomena takes place 
 in accordance with a law of cause and effect, and that higher and 
 more complex types of formation and the existence of new func- 
 tions, appear only under conditions favorable to their develop- 
 ment. In other words, opportunity for actualizing the potential 
 qualities of higher types is indispensable to progress. There is 
 nothing in this doctrine to warrant the assumption that such op- 
 portunity can always, or even generally be best secured by the 
 new type for itself, through a mere unrestrained struggle for ex- 
 istence. On the contrary, the whole implication is that existing 
 types must prepare the way and therefore create a favorable 
 opportunity for the birth and growth of the higher type. Much 
 of the error in this connection is due to a mistaken use of the 
 phrases " nature " and " natural law." We commonly employ the 
 term nature as if it represented only unconscious cosmic forces 
 as distinguished from conscious human forces. And thus we 
 
USE OF THE TERM NA TURAL LA W. 289 
 
 speak of the products of cosmic forces as natural and the prod- 
 ucts of human device as artificial, just as if human arrangements 
 were necessarily unnatural. 
 
 The term "natural " applies no more to cosmic than to human 
 forces. The consciousness and intelligence of man are as natural 
 as the unconsciousness of gravitation or of inorganic substances. 
 The term " natural " simply means that which is necessary to or 
 inherent in the constitution of things. It is natural that man 
 should have blood, nerves, and brain, because without these he 
 would not be man, but it is equally natural that stones should not 
 have them, because in that case they would not be stones. So 
 with natural law ; a law is not natural or unnatural because it 
 relates to conscious or unconscious objects, but solely because 
 it relates to the nature and inherent constitution of things. It 
 is just as much in accordance with natural law that under certain 
 conditions electricity destroys our house, as it is that under 
 other conditions it should light our streets. Natural law is simply 
 the order in which phenomena necessarily occur under given 
 conditions. Man cannot impose artificial laws ; he can only 
 artificially change the relations of objects so that through the 
 operation of cause and effect desired phenomena may occur 
 sooner, more frequently and more continuously than they other- 
 wise would. It is in this way, and in this way only, that man is 
 ever able to aid progress. 
 
 Therefore, in considering whether laissez faire or human inter- 
 vention is to be preferred, the question is not whether one is 
 more natural than the other, because in any case the result 
 will be natural, but it is whether the desired end can be more 
 surely obtained by intervention than by the unaided operation of 
 unconscious forces. And this will depend entirely upon whether 
 those who manipulate the conditions understand the laws of the 
 phenomena with which they are endeavoring to deal, and there- 
 fore can correctly predicate the result. Ignorant or unscientific 
 interference may be worse than laissez faire. But this by nc 
 means implies that laissez faire is superior to scientific regulation. 
 
 Another expression which is misleadingly employed is " natural 
 
 selection." Here again the term natural is used as if all selection 
 
 were unnatural that is not blind and unconscious. There are no 
 
 natural and unnatural selections ; there are wise and unwise 
 
 19 
 
29O NATURAL AND HUMAN SELECTION. 
 
 selections, and there are conscious and unconscious selections. 
 It is as natural that ignorance will make poor selections as that 
 intelligence will make good ones. Because progress in the physi- 
 cal world has taken place mainly by unconscious selection, it is 
 assumed that progress in society will necessarily be more rapid 
 and continuous under a regime of laissez faire. 
 
 If it were true that in physical phenomena an unconditioned 
 struggle of units always produces the highest types and the 
 greatest progress, it would not follow that the same should be true 
 in society. But it is by no means clear that this is true even in 
 the physical world. It is of course true that in the development 
 of the earth and other physical formations where surviving 
 forms were determined by the action and reaction of unconscious 
 physical forces, those forms only were able to survive which 
 could withstand the struggle. But it is scarcely less certain that 
 many higher forms may have been destroyed during early stages 
 of their development, which, had they been able to reach maturity, 
 would have been better able to withstand opposing forces than 
 those which did survive. 
 
 It is highly probable that by this means millions of potentially 
 higher forms were destroyed in their infancy by mature and lower 
 types of formation. Thus under a regime of pure laissez faire — 
 the action and reaction of blind physical forces — progress may 
 have been greatly retarded, while inferior types for ages perpetu- 
 ated their existence by preventing the development of superior 
 types. Indeed, this is what we see taking place in every domain 
 where laissez faire prevails, and development is' left to an un- 
 conditioned struggle for existence among individual units. 
 
 In the sphere of vegetation for instance, it is now a matter of 
 scientific knowledge that the choicest trees and most highly de- 
 veloped plants of any species may be stunted and even destroyed 
 by the presence of weeds and brush that had prior existence. This 
 is a fact that every scientific farmer and horticulturist under- 
 stands. As an illustration of the law of natural selection and the 
 survival of the fittest, we are pointed to wild animals, say a drove 
 of wild horses. It is assumed that those which survive are 
 always best and that those which were killed off were inferior, 
 from the mere fact that the former lived and the latter died. 
 This conclusion, however, does not necessarily follow from these 
 
SURVIVAL OF THE UNFIT. 29 1 
 
 facts. Suppose, for example, a foal, which possessed all the pos- 
 sibilities of being a faster or tougher horse than any in the herd, 
 was kicked in the ribs by one of the inferior though mature 
 horses and fatally injured. It is quite clear that in that case the 
 inferior type would prevent the development of the superior. 
 And this is what is constantly taking place wherever an unre- 
 strained struggle for existence prevails, as all experienced horse- 
 breeders know. By the study of appropriate mating and the 
 protection of the superior young against the violence of the 
 inferior old, speed, strength, and other desired qualities of the 
 horse have been developed to a degree never before known. 
 Thus under scientific selection, the higher possibilities of the 
 horse have been developed incomparably faster than they ever 
 were under natural selection. This is true in every sphere of 
 phenomena to which human knowledge can be applied. In fact, 
 progress everywhere increases directly, as scientific selection can 
 supersede natural selection — in proportion as knowledge of rela- 
 tions can be substituted for blind experimentation. Were this 
 otherwise, science and civilization would be no better than igno- 
 rance and barbarism. Clearly therefore laissez /aire is not the 
 surest way to promote the survival of the fittest even in the 
 physical world. 
 
 In society this is still more uniformly true by virtue of a differ- 
 ent character in the phenomena. One of the most marked dis- 
 tinctions between physical and social phenomena is the manner 
 in which existing units influence the environment of future units. 
 In the lower forms of life the opposition of the inferior mature to 
 the superior immature (the established old to the unestablished 
 new) is limited to a direct struggle between contending units. 
 Consequently, the potentially superior has always a limited chance 
 (say one in a million) of surviving, if only by evading the deadly 
 opposition of an established type. In society this is different, and 
 the chance of the new to escape the repressive power of the old 
 is more difficult. Man, having acquired the power of consciously 
 adapting means to an end, can not only resist the undeveloped 
 new with the advantage of prior possession and mature develop- 
 ment, but he also has the power of manipulating the environment 
 of the subsequent generation so as to make the development of 
 the superior impossible. 
 
292 GOVERNMENT INEVITABLE. 
 
 One of the prime conditions of human society is consciously 
 regulated order, and this implies government. Government neces- 
 sarily dominates the social environment of the individual. 
 Through social and political institutions, therefore, the opportu- 
 nities for enabling the fittest to survive will necessarily be aided 
 or repressed according to the notions entertained by those who 
 determine the policy of government. By this means, through 
 mere accident of priority, the inferior man can so regulate the 
 conditions of existence for subsequent generations that the de- 
 velopment of the potentially superior shall be impossible, and 
 thus secure the survival of the unfittest instead of the fittest. 
 
 The history of society is replete with evidences of this fact. 
 Indeed every arrest of social progress is due to the fact that the 
 inferior who obtained possession of authority have so dominated 
 the environment as to cut off opportunity for the development of 
 others, who with favorable opportunities would have been supe- 
 rior to themselves. Under such conditions not only does the 
 unfit survive, but its influence tends to perpetuate the reign of the 
 less fit in two ways. 1. By stifling the germs of superiority in 
 humble classes, and thus cutting off the possibility of its develop- 
 ment and actualization. 2. By stereotyping the character of the 
 successful in giving it a monopoly of power and position. This 
 is what took place in ancient Egypt, Greece, and Rome, and in 
 mediaeval Europe, where both religious and civil authority was 
 exercised to cut off all opportunity for the development of char- 
 acter in those classes of the community not recognized as noble 
 or royal. The masses, who have ever constituted the laboring 
 classes, have been regarded as an inferior portion of society. 
 Their social inferiority has not only been made a reason for 
 their exclusion from social power and authority, but by destroy- 
 ing the opportunity for actualizing their best possibilities it has 
 been made the means of preventing their development and thus 
 keeping them inferior. Laissez faire, therefore, is literally im- 
 possible in society. There can be no choice between natural 
 selection and human selection, but only a choice between scien- 
 tific human selection and ignorant human selection ; not between 
 government and no government, but only between wise or un- 
 wise government interference. 
 
 The chief fallacy underlying the doctrine of laissez faire is a 
 
ECONOMIC COMPETITION. 293 
 
 mistaken notion regarding the nature of competition. Because 
 competition is rivalry between contending units it is assumed 
 that all rivalry is competition, and hence that free competition 
 is simply an unrestrained struggle for existence. As we have 
 already seen, unrestrained struggle may and often does mean 
 repression and despotism instead of development and freedom. 
 It is entirely true that competition is indispensable to develop- 
 ment, but in order to have competition that develops instead of a 
 struggle that destroys, rivalry must take place under conditions 
 which make the object sought reasonably possible to either con- 
 testant. There can be no advantageous competition where the 
 prize is impossible to one and certain to the other. Such an 
 unequal struggle instead of developing the highest possibilities 
 of both competitors, inspires neither contestant to do his best. 
 To have effective competition the contest must be of such a 
 character as to compel the winner and inspire the loser to the 
 maximum degree of effort. This can only occur when the contest 
 takes place between approximately equal competing units. Com- 
 petition between unequals necessarily tends to crush rather than 
 develop the weaker, although he possesses all the potential possi- 
 bilities of superiority. 
 
 Take, for instance the child of the poor laborer and that of the 
 wealthy merchant. The former is sent to the factory or mine 
 without any education or opportunity for social development ; it 
 is reared in an atmosphere of ignorance, brutality and vice, while 
 the latter receives all the education and incentives for culture 
 that wealth and leisure can supply. When these two children 
 grow up, can there be any inspiring competition between them as 
 citizens for social position, public confidence, or even in the 
 sphere of business, where education and mental training are 
 necessary, indeed anywhere outside the sphere of manual labor ? 
 The difference between them in this respect, which nothing but 
 a difference in their opportunities creates, instead of inspiring 
 both to do their best, will naturally create a feeling of shrinking 
 inferiority in the one and an undue feeling of superiority in the 
 other. These two opposite feelings necessarily tend to give the 
 power of authority to the latter and the submissive position to 
 the former. 
 
 Clearly therefore instead of laissez /aire necessarily securing 
 
294 NECESSITY OF OPPORTUNITY. 
 
 free competition and " the survival of the most fit," it is the 
 policy which in society is most likely to prevent free competition 
 and to promote the survival of the less fit. It is an indispensable 
 condition to free competition and the maximum development of 
 the competitors, that the contest should be between approxi- 
 mately equal competing units. To secure approximate equality 
 among competitors and hence the success of the superior, we 
 must secure to each the opportunity for developing his best 
 possibilities. In other words, to obtain the inspiring influence of 
 free competition and to develop instead of crushing the potential 
 capacity of the individual we must substitute scientific states- 
 manship for ignorant authority. The question of statesmanship 
 then is not whether or not the state shall interfere in the affairs 
 of society, — this it is sure to do so long as society exists, — but 
 upon what principle it shall act in order to promote maximum 
 prosperity and freedom in the community. This involves a con- 
 sideration of the economic and social functions of government, 
 which will be the subject of the next chapter. 
 
CHAPTER II. 
 
 THE STATE ; OR, THE NATURE AND FUNCTION OF 
 GOVERNMENT. 
 
 Section I. — What is the State? 
 
 It is very common to use the term state as if it were synony- 
 mous with society. That such a use of the term is too indefinite 
 for scientific purposes becomes apparent the moment we attempt 
 to consider the functions of the state. It is essential to the idea 
 of society that there be more or less social intercourse and inter- 
 dependence among the individual units having some recognized 
 common centre of interest and action. This is not true of all 
 mankind. The human race is divided into groups or nations 
 composed of individuals who have more or less social and indus- 
 trial affinity. There is a great diversity of feeling, interest, and 
 action within these groups, but each group has a common inter- 
 est and will take common action as distinguished from any other 
 group or nation. The maintenance of this common interest we 
 call patriotism. Society therefore may be defined as an aggre- 
 gate of individuals in any group, nation, or tribe. We cannot 
 speak of the functions of this aggregate, because in its entirety 
 society never acts. Even under pure communism, where the 
 greatest uniformity of the units prevails, children, minors, and 
 usually though not necessarily, women are excluded from active 
 participation. Thus society as an aggregate never acts except 
 through a more or less extended representation by which a 
 portion acts for the whole. This representative portion, large or 
 small, constitutes the state as distinguished from society ; it is the 
 largest acting aggregate, and the individual is the smallest acting 
 unit. 
 
 295 
 
296 NO ABSOLUTE RIGHTS. 
 
 The state then may be denned as the conscious authoritative 
 expression of society. Since the aggregate is greater than, and 
 includes the individual, the authority of the state necessarily in- 
 cludes and is superior to that of the individual. The state then 
 not only represents the authoritative action of the aggregate 
 (society) as distinguished from that of the individual, but its 
 authority is necessarily absolute over both the individual unit 
 and social aggregate. 
 
 We often hear such expressions as " absolute rights," " inalien- 
 able rights," etc. Strictly speaking, there are no such rights in 
 society ; not only the right to " liberty and the pursuit of happi- 
 ness," but even the right to life in society is necessarily subject 
 to the will of the aggregate, as authoritatively expressed in the 
 state or government. This is indispensable to the existence of 
 society. Society being an association of individuals whose im- 
 mediate interests are not always identical and whose conceptions 
 of the equity of their relations are frequently very different, the 
 existence of a power superior to both, whose authority shall be 
 absolute, is indispensable to social order. All rights of the indi- 
 vidual in society therefore, must in the very nature of the case, 
 be conditional. Absolute individual rights are a social impossi- 
 bility. 
 
 It is equally indispensable that these conditions should be de- 
 termined and enforced by the collective authority, the state, 
 since nothing short of that would command the confidence, sup- 
 port, and obedience of the individual units. While the authority 
 of the state is always absolute over both individual units 
 and the social aggregate, it always represents a consensus of 
 both. Although the state is always representative, it does not 
 always represent in the same manner, nor derive its authority in 
 the same way. In some stages of society collective authority 
 is all invested in one person, as in the chief of primitive tribes, 
 and forms an absolute despotism. This is sometimes due to 
 superior physical force, and sometimes to a fiction of divine ap- 
 pointment. In other stages of society authority is invested in 
 a number of individuals by hereditary descent, forming an aris- 
 tocracy or constitutional monarchy, and in others it is vested 
 in a still larger number, chosen by popular vote, forming a 
 democratic republic. But in every case the state represents the 
 
ALL GOVERNMENT REPRESENTATIVE. 297 
 
 authority of the aggregate. The Czar's proclamation is not the 
 act of a mere individual, but the recognized authoritative expres- 
 sion of Russia. The Pope's edict is not the voice of an individual 
 Italian, but that of the Church. 
 
 It may be said that one-man-power, as represented by a shah, 
 a sultan, a czar, or a pope, is not representative but despotic. 
 It is indeed despotic, but it is also representative. Representa- 
 tion is to speak and act for others authoritatively. In this sense, 
 despotism is no less representative than is democracy, but its au- 
 thority to act for others is acquired in a different way. The 
 essence of all collective or state authority is that the government 
 derives its "powers from the consent of the governed." The ab- 
 solute authority of the despots who rule Persia, Russia, and 
 Turkey rests upon the consent of the governed as completely as 
 does that of the President or Congress in democratic America. If 
 the Czar of Russia had not the consent and confidence of the 
 Russians, his proclamations would have no more authority in 
 Russia than would those of any other individual. It is because 
 they recognize his fitness to rule (to act for them) that they obey 
 and support him. Their confidence may be misplaced, or may be 
 due to a superstitious belief in his divine appointment as the 
 head of the church and ruler of the nation ; but whatever the 
 reasons, their confidence and consent are none the less complete, 
 as is shown by the fact that they will not only work for him and 
 worship him, but will by the millions fight and die for him. The 
 only difference between despotic and democratic representation 
 is that through poverty, ignorance, and superstition, the consent 
 of the governed under despotism is given by silent acceptance of 
 their rulers as inherently fitted and divinely appointed to govern, 
 while under democracy this consent can only be obtained through 
 the volitional action of the individuals. Thus the essential dis- 
 tinction between despotism and democracy is not that the latter 
 is more representative than the former, but that it is more 
 elective. Poverty, ignorance, and superstition make political and 
 social incapacity inevitable, which in turn make elective represen- 
 tation impossible. 
 
 Just in proportion as the individual units of a community be- 
 come more intelligent and positive in character, does their con- 
 sent to the authority of the state become less dependent upon 
 
2gS ELECTIVE REPRESENTATION. 
 
 traditional usage and supernatural injunction, and more de- 
 pendent upon individual judgment. Hence it changes from 
 silent acquiescence to conscious choice, and then the repre- 
 sentative function of the state becomes less hereditary and more 
 elective in character. In such countries as Persia, Turkey, and 
 Russia the consent of the governed to the authority of gov- 
 ernment consists entirely in silent acquiescence, while in such 
 countries as Austria, Italy, and Germany, where material condi- 
 tions and the intelligence of the people are more advanced, there 
 is a limited amount of elective representation. In England the 
 elective principle is still more general, and in America it is most 
 general of all, being directly or indirectly applied to every branch 
 of government. But there is no country in which the repre- 
 sentation is all elective. Even in democratic America women are 
 still excluded from elective representation. The state, or col- 
 lective governing authority, sustains exactly the same representa- 
 tive relation to women in the United States as does that of the 
 Czar of Russia or the Shah of Persia to the whole people of those 
 countries. Hence the state, whether despotic or democratic, is 
 always the authoritative expression of the aggregate. 
 
 This is only another form of stating the principle so frequently 
 emphasized in these pages — namely, that all social institutions 
 rest upon the habits and social character of the people. Society, 
 therefore, differs from the individual, in that it represents a 
 literal aggregate of which individuals are the units. The 
 state differs from society and from the individual, in that it is 
 the representative collective action of both, and its authority is 
 absolute over both. In short, the state expresses authoritative 
 social policy. 
 
 Section II. — The Relation of the State to the Individual in 
 Progressive Society. 
 
 In order to ascertain the true relation of the state to the indi- 
 vidual, it is necessary, first of all, to examine the structural con- 
 stitution of society. This brings us directly to the question, is 
 society a higher organism, for whose preservation and develop- 
 ment the individual units are the tributary means, or is it an asso- 
 ciation created by and utilized for the preservation and develop- 
 ment of the individual units composing it ? Upon the answer to 
 
GREEK IDEA OF SOCIETY. 299 
 
 this question depends the character of statesmanship and the 
 governing principle by which public policy should be shaped and 
 directed. If society is an organic entity, to whose development 
 the individual is subordinate and simply tributary, then the true 
 public policy would be to increase the functions of the state and 
 limit the sphere of individual action and authority. And con- 
 versely, if the development of the individual is the end to pro- 
 mote which society is only a means, the true public policy 
 would be to so mould and direct public institutions as to increase 
 the functions, responsibility, and authoritative sphere of the indi- 
 vidual, and to diminish those of the state. It will be observed 
 that these two conceptions of the relation of the state to the indi- 
 vidual logically lead to opposite theories of statesmanship, the 
 one towards socialism and the other towards individualism. 
 
 It is a peculiar feature of sociological literature that both 
 socialist and individualist writers assume that society is an organic 
 entity, and that it sustains the same relation to individuals 
 that the individual organism does to the parts of which it is com- 
 posed. This was the controlling idea of the Greeks and Romans, 
 who regarded the state as every thing and the individual as noth- 
 ing, except as he served the state. In his ideal republic, Plato 
 makes the state stand for a great personality, in whom the differ- 
 ent social classes are simply the functions. The ruling class, the 
 military class, and the industrial class are presented as corre- 
 sponding to the faculties of reason, will, and passion or force in 
 the human organism. Upon this point at least, it may be truly 
 said that all that has been written during the last two thousand 
 years has been simply Platonizing. Hobbes endeavored to es- 
 tablish literally by minute detail what Plato only introduced in 
 general outline, by making society a colossal artificial man. He 
 not only made certain classes of the community correspond to 
 the reason, will, and passion of the human organism, but he went 
 so far as to divide society into limbs, joints, nerves, memory, con- 
 science, and even ascribed to it a soul. 1 
 
 This idea, with some qualifications eliminating the minutiae of 
 detail introduced by Hobbes, is reaffirmed and extensively elabo- 
 rated on the basis of modern science, by Herbert Spencer. 
 
 1 See preface to his ' ' Leviathan ; or, The Matter, Form, and Power of a Com> 
 monwealth, Ecclesiastical and Civil." 
 
300 SOCIAL ORGANISM THEORY. 
 
 Therefore Rodbertus had the full warrant of the continuous 
 teachings of philosophy from Plato to Spencer for his basic- 
 socialistic postulate that " the community is the end in itself. In- 
 dividuals are only the means for the promotion of social well- 
 being ; they are in no sense ends in themselves." * From this 
 point of view he logically held that public policy should constantly 
 be directed towards putting the ownership of property, especially 
 the means of production into the hands of government. This 
 idea has been more thoroughly developed by Karl Marx, 
 who endeavors to show that from the nature of economic 
 phenomena the ownership of the means of production can only 
 reside in the community, which theory is made the basis for 
 public policy by all shades of socialists. That socialists should 
 readily accept the traditional theory is not surprising, because it 
 sustains their a priori assumption that the state should do every 
 thing. But with Mr. Spencer the case is quite different, as he is 
 the most extreme representative of the individualist school. 
 He regards socialism as slavery, 2 and state ownership and con- 
 trol of industrial enterprises as inimical to progress. Now 
 the supremacy of industrial individualism is "incompatible with 
 the existence of a social organism. The question, however, is not 
 whether Mr. Spencer's position on the organic structure of society 
 is consistent with his theory of individualism, but whether it is 
 scientifically and philosophically sound. This is the more im- 
 portant, because Mr. Spencer stands pre-eminently for the scien- 
 tific method of investigation. Indeed, his conclusions upon this 
 point are regarded as the sociological embodiment of the doctrine 
 of evolution, and may be taken as representing those of evolu- 
 tionists generally upon this subject. The fact that Mr. Spencer 
 occupies this leading position in the world of scientific sociology 
 makes a careful consideration of his position on this subject of 
 the utmost importance. In setting forth his reason for conclud- 
 ing that society is an organism, he says : 
 
 " So completely, however, is a society organized upon the same 
 system as an individual being, that we may almost say there is 
 something more than analogy between them. ... A still more 
 remarkable fulfilment of this analogy is to be found in the fact, 
 
 1 Political Science Quarterly, September, 1889, p. 546. 
 
 2 " The Coming Slavery," Popular Science Monthly, April, 1884. 
 
SPENCER'S THEORY OE SOCIETY. 3OI 
 
 that the different kinds of organization which society takes on, in 
 progressing from its lowest to its highest phase of development, 
 are essentially similar to the different kinds of animal organi- 
 zation." 
 
 After a detailed illustration of the similarity between society 
 and an individual organism, he says : 
 
 " Thus do we find, not only that the analogy between a society 
 and a living creature is borne out to a degree quite unsuspected by 
 those who commonly draw it, but also that the same definition of 
 life applies to both. Thus the union of many men into one com- 
 munity — this increasing mutual dependence of units which were 
 originally independent — this gradual segregation of citizens into 
 separate bodies, with reciprocally subservient functions — this for- 
 mation of a whole consisting of numerous essential parts — this 
 growth of an organism, of which one portion cannot be injured 
 without the rest feeling it — may all be generalized under the law 
 of individuation. The development of society, as well as the de- 
 velopment of man, and the development of life generally, may be 
 described as a tendency to individuate — to become a thing. And 
 rightly interpreted, the manifold forms of progress going on around 
 us are uniformly significant of this tendency." ' 
 
 In a later work, 2 Mr. Spencer discusses the social organism at 
 still greater length and defends his conception from the inconsis- 
 tencies of the Greeks and also against those of Hobbes. After 
 criticising these writers, he says : 
 
 " Notwithstanding errors, however, these speculations have 
 considerable significance. That such analogies, crudely as they 
 are thought out, should have been alleged by Plato and Hobbes 
 and many others, is a reason for suspecting that some analogy 
 exists. The untenableness of the particular comparisons above 
 instanced is no ground for denying an essential parallelism ; for 
 early ideas are usually but vague adumbrations of the truth. 
 Lacking the great generalizations of biology, it was, as we have 
 said, impossible to trace out the real relations of social organiza- 
 tions to organizations of another order." 3 
 
 He then discusses the points of general analogy between 
 society and living organisms, which he sums up by saying : 
 
 1 " Social Statics," pp. 490, 493, 497. See also " First Principles," pp. 4085 
 413, 433-437. 
 
 2 "Illustrations of Universal Progress," chap. x. 
 
 3 Ibid., p. 391. 
 
302 SOCIETY AND LIVING BODIES. 
 
 " Thus we find but little to conflict with the all-important 
 analogies. . . . The principles of organization are the same ; 
 and the differences are simply differences of application. Here 
 ending this general survey of the facts which justify the com- 
 parison of a society to a living body ; let us look at them in 
 detail." ' 
 
 After devoting thirty pages to the discussion of details sustain- 
 ing this analogy he concludes by saying : 
 
 " Such, then, is a general outline of the evidence which justifies, 
 in detail, the comparison of societies to living organisms. That 
 they gradually increase in mass ; that they become little by little 
 more complex ; that at the same time their parts grow more 
 mutually dependent ; and that they continue to live and grow as 
 wholes, while successive generations of their units appear ar>d 
 disappear, are broad peculiarities which bodies politic display, 
 in common with all living bodies, and in which they and living 
 bodies differ from every thing else." 2 
 
 It will be seen from the foregoing that although Mr. Spencer 
 objects to Hobbes' presentation of the analogy between the social 
 and the human organization, he quite as emphatically holds to 
 the conclusion that society is an organism, whose organic struc- 
 ture is fundamentally the same as that of animal organisms. If 
 this be correct, it of course follows that the relation of the units 
 to the aggregate is the same and that the order of progress in 
 society is the same as in the animal organism. In short, that a 
 biological hypothesis adequately explains sociological phe- 
 nomena. 
 
 The fact that a theory correctly accounts for one class of phe- 
 nomena does not warrant its application to another, unless it can 
 be shown to adequately explain the new phenomena independently 
 of its use in any other field of investigation. If we examine 
 social phenomena independently of biological hypothesis, we 
 shall find : (i) That although there is a general resemblance be- 
 tween society and the animal organism, the difference between 
 
 1 " Illustrations of Universal Progress," pp. 397, 39S. 
 
 2 Ibid., p. 428. That this represents Mr. Spencer's views upon the subject is 
 shown by the fact that it is repeated in his latest utterances. See " Sociology." 
 Also correspondence with Huxley in the Times, September, 1889, republished in 
 the Popular Science Monthly, February, 1 890. 
 
SPENCER'S POSTULATES. 303 
 
 them is sufficiently radical and fundamental to destroy the basis 
 for the conclusion that society is an organism. (2) That such an 
 assumption is not necessary in order to apply the theory of evo- 
 lution to social phenomena. 
 
 It is unquestionably true that there are many points of re- 
 semblance between society and individual organisms, and so there 
 are between individual organisms and inorganic bodies. The 
 question, therefore, is not whether there are any points of agree- 
 ment between society and an organism, but whether the points of 
 agreement are sufficiently numerous and fundamental to make 
 them constitutionally identical. Mr. Spencer presents four char- 
 acteristics in which society resembles an individual, which he re- 
 gards as sufficiently fundamental to warrant the classification of 
 society as an organism ; they are : 
 
 " 1. That commencing as small aggregations, they insensibly 
 augment in mass : some of them eventually reaching ten thousand 
 times what they originally were. 
 
 " 2. That while at first so simple in structure as to be con- 
 sidered structureless, they assume, in the course of their growth, 
 a continually-increasing complexity of structure. 
 
 " 3. That though in their early, undeveloped states, there exists 
 in them scarcely any mutual dependence of parts, their parts 
 gradually acquire a mutual dependence, which becomes at last so 
 great that the activity and life of each part is made possible only 
 by the activity and life of the rest. 
 
 " 4. That the life and development of a society is independent 
 of, and far more prolonged than, the life and development of any 
 of its component units, who are severally born, grow, work, re- 
 produce, and die, while the body politic composed of them sur- 
 vives generation after generation, increasing in mass, completeness 
 of structure, and functional activity." 1 
 
 There can be little doubt that in these four characteristics 
 society resembles the animal organism ; nor can there be any 
 doubt that the first two apply with equal foxce to inorganic de- 
 velopment. These are as true of the development of inorganic 
 substances as they are of the growth of plants, animals, or society. 
 If, therefore, we are to assume that society is an organism because 
 in these general and important respects it resembles an individual, 
 then may we not say that vegetable and animal bodies are in- 
 
 1 " Illustrations of Universal Progress," pp. 391, 392. 
 
304 SPENCER'S ERR OP. 
 
 organic, because, in these fundamental characteristics they re- 
 semble inorganic bodies ; and vice versa. If we should attempt 
 to draw any such conclusion, Mr. Spencer would soon correct us 
 by pointing out that the lower we go in the scale of development 
 the greater is the simplicity and similarity of form. And thus, 
 while in the first two characteristics animal organisms are similar 
 to those of inorganic bodies, in the last two they greatly differ ; 
 for, though mineral substances like organisms, increase in mass 
 and complexity of structure, they do not develop the functional 
 dependence of parts exhibited in the individual organism. 1 
 
 If the fact that the individual organism has functional activi- 
 ties different from those of inorganic bodies, establishes the 
 distinction between their classification as organic and inorganic, 
 it follows that a similar difference between the constitution of 
 society and that of an individual organism equally warrants a dis- 
 tinction in their classification. If we examine the constitution of 
 society and the individual organism, we find the following radical 
 distinctions which are quite as great as those between organic 
 and inorganic bodies as pointed out by Mr. Spencer. 
 
 I. In an individual organism progress consists in the differ- 
 entiation and specialization of functions in which the aggregate 
 tends to gain a more complete control over the action of the parts, 
 such as eyes, ears, teeth, tongues, feet, hands, etc., whereas in 
 society progress consists in a differentiation of functions and 
 definiteness of polity in which the parts constantly tend to acquire 
 an increasing control over the action of the aggregate. 
 
 II. In an individual organism the end of the parts is to serve 
 and sustain the aggregate or organism, and when they fail to 
 serve that end they become atrophied and disappear, whereas in 
 society the end of the aggregate is to serve and sustain the 
 individual units. 
 
 III. In an organism, where consciousness and intelligence exist, 
 they reside in the aggregate and never in the parts ; whereas in 
 society consciousness and intelligence reside always in the parts 
 and never in the aggregate. Indeed, the social aggregate has 
 none of the attributes of a conscious entity. 
 
 1 ' ' Even such inorganic bodies as crystals, which arise by growth, show no such 
 definite relation between growth and existence as organisms." — " Illustrations of 
 Universal Progress," p. 392. 
 
SOCIETY NOT AN ORGANISM. 305 
 
 IV. In an organism the existence of the parts is subsequent to, 
 dependent upon, and developed through the unconscious action of 
 the aggregate ; whereas in society the aggregate and its polity or 
 representative action, is subsequent to, dependent upon, and de- 
 veloped through the conscious action of the parts. 
 
 V. In an organism the influences which promote differentiation 
 of function must operate upon the aggregate or organism, and 
 through it affect the parts ; whereas in society the influences 
 which promote differentiation must operate upon the paits or in- 
 dividual units, and through them affect the constitution of the 
 aggregate and its active polity. 
 
 VI. In society conscious wants, intelligence, and will, are the 
 characteristic attributes of the units through which all the in- 
 fluences affecting the differentiation of the social aggregate 
 must finally act ; whereas in the individual organism the units 
 have no such characteristics ; where these characteristics exist at 
 all they are the attributes of the aggregate and not of the units, 
 and in the lower forms of animal and all vegetable organisms 
 they do not exist at all. 
 
 It will thus be seen that, despite the general resemblance be- 
 tween society and an individual organism, the difference in the 
 functional relation of the parts to the aggregate, and the order of 
 their development, is quite as marked and more fundamental 
 than that between organic and inorganic bodies. The differ- 
 ence between the organic and the inorganic consists mainly in 
 the fact that the complexity of structure and interdependence of 
 the parts are greater in the former than in the latter ; whereas 
 the difference between society and an organism consists in the 
 fact that the units sustain an opposite relation to the aggregate, 
 and that progressive differentiation is in an opposite direction : 
 in society the tendency being to increase the conscious control 
 of the parts over the aggregate, and in an organism to increase 
 that of the aggregate over the parts. So far from being an 
 organic entity, society is only the systematized environment of 
 associated individuals by whom and for whom it is created, and 
 upon whose state of industrial, social, and intellectual develop- 
 ment its existence, form, and character depend. 
 
 Nor is this view inconsistent with the doctrine of evolution. 
 
 This theory does not involve the assumption that society is an 
 20 
 
306 SOCIAL PROGRESS UNLIKE PHYSICAL. 
 
 organism. Evolution simply implies a progressive movement 
 from a less to a more definite, coherent, orderly state of existence. 
 But it does not follow that the more complex form must neces- 
 sarily be organic ; since in that case inorganic development would 
 not be evolution. Although evolution implies a greater definite- 
 ness of functional relation, it does not necessarily mean the 
 individualization of the aggregate. It is not strictly correct 
 therefore, to say " the development of society as well as the de- 
 velopment of men and the development of life generally may be 
 described as a tendency to individuate — to become a thing." So- 
 ciety does not tend to become a thing, in the sense of an organic 
 entity. Progress in society is not a tendency to individualize the 
 social aggregate, but rather to de-individualize it, making its 
 action more and more the consciously delegated expression of 
 the individual. Indeed, the only individuality which social prog- 
 ress develops is in the units ; institutions are specialized, but 
 man only is individualized as an organic entity. If we regard 
 society as an association of individuals for their common protec- 
 tion and further development, the theory of evolution becomes 
 rationally applicable to social as well as organic and inorganic 
 phenomena. From this point of view the assumption that society 
 is an organism is unnecessary, and the anomaly of creating a 
 colossal social man with increasing despotic power over the 
 individual disappears. Social progress then is seen to be an 
 orderly movement towards .greater individual perfection, and per- 
 sonal freedom for man, which accords with universal history. 
 
 So far as human knowledge goes, the highest individual or- 
 ganism yet developed is man. In every stage of physical 
 development, from the most incoherent homogeneous form 
 known or inferred, the movement has been towards higher and 
 more complex types of formation, each of which tended to make 
 the existence of the next possible. And the crowning product 
 of the whole series of inorganic and organic evolution is man. 
 With the appearance of man began another phase of develop- 
 ment which was neither inorganic nor organic, but social. 
 Progress in this sphere does not consist in the unconscious 
 differentiation of an inorganic mass, nor in that of a living 
 organism, but in a systematization of the environment and 
 specialization of the efforts of individuals, which results in a 
 
SPENCER UNWITTINGLY SOCIALISTIC. 307 
 
 further development of the individuality of the units. It thus 
 appears that man occupies the objective or crowning position 
 in both physical and social evolution ; with this difference 
 however : in the physical world he presents the highest 
 type of an organic aggregate, and in society he occupies the 
 position of a unit. Thus although evolution is fundamentally 
 the same in society as in the physical world, in that it is a move- 
 ment from the simple to the complex, the order of development 
 is reversed ; in the physical world, it is a subordination of 
 the parts to the perfection of the aggregate, and in society it 
 is a subordination of the aggregate to the perfection of the 
 units. In order therefore, to complete Mr. Spencer's statement, 
 that " the development of society as well as the development of 
 man and the development of life generally, may be described as a 
 tendency to individuate — to become a thing," we must add, 
 that this individuating tendency ends in the greater individual- 
 ization, not of society, but of man — physically as an organism, 
 and socially as a sovereign personality. 
 
 It is evident, therefore, that the Greek and Roman conception 
 that the state is every thing, the individual nothing ; and the 
 socialistic position logically deduced therefrom, that u the com- 
 munity is the end in itself, individuals being only the means for 
 the promotion of social well-being, and in no sense ends in them- 
 selves" ; and Mr. Spencer's assumption that "society is an organ- 
 ism," are essentially erroneous. In this, as in all other cases of 
 reasoning from mistaken hypotheses, the error only becomes 
 important when the theory is made the basis of action. Like 
 many of the immature postulates of the English economists, 
 already referred to, Mr. Spencer's theory of a social organism 
 unwittingly lays the logical basis for state socialism, a theory 
 which he himself regards as the greatest of modern fallacies. 
 
 The difference between Rodbertus and Mr. Spencer is precisely 
 the same as the difference between Marx and Ricardo. 1 Marx 
 arrived at the conclusion that profits are robbery by the logical 
 application of the Ricardian postulate that the quantity instead 
 of the cost of labor determines value. And Ricardo avoided the 
 fallacy of Karl Marx only by failing to consistently apply his 
 own postulate. So the theory of state socialism developed by 
 
 1 Part III., chap. vi. 
 
308 PROFESSOR CLARK'S view. 
 
 Rodbertus is logically sustained by the Spencerian postulate that 
 society is an organism, and Spencer avoids the fallacy of social- 
 ism only by disregarding his own hypothesis. 
 
 We are therefore warranted in concluding that society is not a 
 colossal " artificial man," as affirmed by Hobbes, nor an " organ- 
 ism " as affirmed by Spencer, nor an " end in itself," as affirmed by 
 Rodbertus ; but on the contrary, that it is an association of indi- 
 viduals as a means for the promotion of individual well-being. 
 Indeed the history of government is the history of making 
 and unmaking social institutions in order to render them more 
 subservient to the needs of the social life of the individual. 
 
 Nor is this view confined to Spencer and the socialists, but it 
 is beginning to be accepted by liberal economists. Thus in his 
 chapter on " The Basis of Economic Law " Professor Clark says : 
 
 " The analogy between society and the human body was familiar 
 to the ancients. It is a discovery of recent times that a society 
 is not merely like an organism ; it is one in literal fact. . . . 
 Political economy treats not merely of the wealth of individuals 
 who sustain complicated relations with each other, but of the 
 wealth of society as an organic unit." l 
 
 In a subsequent chapter (" Theory of Value ") he makes this 
 social organism into an active contracting personality who buys 
 every thing from the individual and sells every thing to him, and 
 says : 
 
 " Exchanges are always made between an individual and society 
 as a whole. In every legitimate bargain the social organism is a 
 party. Under a regime of free competition, whoever sells the 
 thing he has produced, sells it to society. His sign advertises the 
 world to come and buy, and it is the world not the chance 
 customer that is the real purchaser. Yet it is equally true that 
 whoever buys the thing he needs, buys it of society. ... In the 
 process the social organism is true to its nature as a single being 
 great and complex, indeed, but united and intelligent. It looks 
 at an article as a man would do, and mentally measures the 
 modification in its own condition which the acquisition of it 
 would occasion, or which the loss of it would occasion, if once 
 possessed." 2 
 
 It will thus be seen that according to Professor Clark society 
 is not merely an organic entity, but it is a single intelligent be- 
 
 1 " Philosophy of Wealth," pp. 38, 39. 
 
 2 Ibid., pp. 85, 86. 
 
CONFOUNDING METAPHOR WITH FACT. 309 
 
 ing. If the analysis of the economic relation of individuals to 
 society presented by Professor Clark is correct, then economic 
 collectivism is scientifically sound and should be accepted as 
 the basis of industrial statesmanship. But is the analysis correct ? 
 
 Is it true that " exchanges are always made between individuals 
 and society as a whole " ? Do such economic relations actually 
 exist ? Where, how, and under what conditions does society "as 
 a whole " buy wheat, potatoes, shoes, clothes, furniture, etc., from 
 individuals ? When farmers and manufacturers take their 
 products to the market they do not sell them to society, but 
 to individuals, who invariably purchase them either for their 
 own consumption or to resell them to other individuals. Nor 
 does society, as an organism of which individuals " are but atoms," 
 consume any of these products. They are consumed by indi- 
 viduals, and by individuals only. Neither is the statement that 
 "his sign advertises the world to come and buy, and it is the 
 world and not the chance customer that is the real purchaser," 
 any nearer correct, if the term world is used in any other sense 
 than the individuals in the world. 
 
 The social market simply expresses the aggregate consumption 
 of individuals constituting any social group. Neither is there 
 any truth, except as a metaphor, in the statement that " the social 
 organism is true to its nature as a single being, great and complex, 
 indeed, but united and intelligent. It looks at an article as a 
 man would do, and mentally measures the modification in its own 
 condition." Society, as an entity, does nothing of the kind. All 
 the " mental measurement," all the " intelligence," all the con- 
 scious action, is performed by individuals. A hundred indi- 
 viduals equally intelligent do not constitute a single intelligence 
 a hundred times as great as one. An intellectual giant cannot 
 be made by simply adding mental Liliputians. Intelligence 
 can only be increased by developing it in the individual organism. 
 
 Notwithstanding the immense advantage of society over isola- 
 tion — and it constitutes all the difference between savagery and 
 civilization, — there are no facts to warrant the assumption that 
 society is a new acting entity, much less an individual organ- 
 ism. On the contrary, the advantage of society is entirely to 
 individuals through their association with each other. In short, 
 society is an association of individuals for the better promotion 
 
3IO THE FUNCTION OF GOVERNMENT. 
 
 of their own well-being, and therefore, in studying the law of 
 economic movement we must have for our basis the individual ; 
 in no other way can social progress be promoted. 
 
 Section III. — The Function of Government ; or, The Control- 
 ling Principle in Statesmanship. 
 
 Having seen what the state is and the relation it sustains to the 
 individual, we are now in a position to consider its function as a 
 factor in civilization. Nor will this be a difficult task, if we bear 
 in mind the points already established, namely : that the state is 
 but the representative expression of associated individuals, and 
 that progress in society is a tendency towards the greater indi- 
 vidualization of man, both a physical organism and as a sovereign 
 social personality. As already pointed out, social progress has two 
 fundamental characteristics ; one is economic, the other social. 
 The former is a tendency towards more wealth for the individual ; 
 the latter is towards more freedom for the individual. How to 
 promote the increase of wealth and freedom for the individual 
 therefore, is the problem of statesmanship and the end to which 
 collective authority, or state action, should ever be directed. 
 
 In considering this question it should be remembered that 
 neither wealth nor freedom can be authoritatively given to the 
 individual ; they must be taken by him. The only way in which 
 the state can give wealth to the individual is by charity. Wealth 
 so acquired, instead of promoting freedom, is one of the most 
 powerful means of preventing it. Charity in any form tends to 
 create obligation, stereotypes dependence, and thereby destroys 
 individuality, and makes freedom impossible. The history of 
 freedom is a history of the increase of the sovereignty of the 
 individual over his own actions and the diminution of that of the 
 state. It is sometimes said " that government is best which 
 governs least." It would be more correct, however, to say that 
 people is best governed which needs the least government. We 
 should be careful, however, not to confound freedom with inde- 
 pendence. The savage is independent of social restrictions, but 
 he has very little freedom. He is in constant danger of his life 
 from the defencelessness of his position. He has no friends 
 because he befriends nobody ; he can obtain no assistance or 
 protection because he assists and protects nobody. Indeed it is 
 
VIRTUE OF INTERDEPENDENCE. 311 
 
 because he is the least dependent upon his fellows that he is the 
 most helpless and has the least freedom of any man in the world. 
 
 Mutual dependence is the greatest promoter of freedom. When- 
 ever the freedom of each depends upon the freedom of all, no one 
 has any interest in preventing it, but every one has an interest in 
 extending it. Mutual dependence cancels obligation and extends 
 freedom, while dependence creates obligation and restricts 
 freedom. It is only when everybody's safety depends upon pro- 
 tecting the safety of his neighbor that freedom extends along the 
 whole line of human relations. With the dependence upon 
 authority the case is entirely different. There the obligation is all 
 on one side. It is the relation of creditor and debtor, of the 
 giver and receiver, of the master and ward, and not that of 
 mutual helpers and the receivers of equivalents. Dependence 
 upon authority is scarcely less inimical to freedom than non- 
 dependence upon society. The one involves savagery and the 
 other despotism. It is only the mutual assistance born of indi- 
 vidual interdependence that can make the highest social life and 
 the maximum individual freedom possible. In other words, the 
 highest individualism promotes the most complete co-opera- 
 tion of effort, unity of interest, equity of relations, freedom of 
 action, and complexity of social life. Evidently then, it is the 
 duty of the state to promote in every way possible the develop- 
 ment of the individuality of its citizens, increase their mutual de- 
 pendence upon each other and to decrease their dependence upon 
 the government. Upon what lines should the public policy be 
 directed to accomplish this result ? Paternalism fails to promote 
 this end, because it tends to lessen instead of increase the activi- 
 ties and responsibilities of the individual. Nothing develops 
 power but activity, and nothing creates activity but the necessity 
 for it. We never put forth effort to do for ourselves that which 
 others will do for us. Since inaction is fatal to progress, the in- 
 crease of paternalism is necessarily a great barrier to individual 
 development. Nor is it less erroneous to assume that the sover- 
 eignty of the individual can best be promoted by merely restrict- 
 ing the sphere of governmental activities. It would be as correct 
 to say that the withdrawal of parental care and education from 
 children is the best means for developing the highest manhood. 
 
 The way to increase the sovereignty of the individual is not to 
 
312 BASIS OF PUBLIC POLICY. 
 
 arbitrarily lessen the functions of the state, but to make its 
 activities less necessary. The necessity of state action can be 
 minimized only by maximizing the capacity of the individual. To 
 break the egg from without is almost certain to injure if not kill 
 the chick, but when it is broken from within by the increasing 
 power of the chick itself, it only breaks when the chick is strong 
 enough to do without it. So in society ; the authority of the state 
 over the individual should not disappear by weakening the forces 
 without, but by increasing those within him. In short, the indi- 
 vidual is the initial point of social movement. 
 
 The more intelligent and highly developed the character of the 
 individual, the more capable he is of doing for himself and more 
 reluctant to have others do for him. Hence, throughout the his- 
 tory of society we see that the greater the ignorance and poverty 
 the more marked is the lack of individuality in the social units ; 
 and the weaker the character of the individual, the more despotic 
 is that of the government. A most significant fact in this move- 
 ment is, that this transfer of authority from the state to the indi- 
 vidual has always been exacted by the individual and reluctantly 
 yielded by the state. 1 Indeed it is a fundamental principle in 
 both nature and society that man can only continuously have 
 that which he can demand and maintain by force of character. 
 Therefore the increase of wealth and the freedom of the indi- 
 vidual must come through influences which tend to develop his 
 character, thereby making paternalism less necessary and des- 
 potism less possible. 
 
 It may therefore be laid down as a fundamental postulate in 
 scientific statesmanship, that the controlling principle in public pol- 
 icy should ever be to minimize the necessary sphere of governmental 
 action and authority, and to maximize the possible sphere of individual 
 action and responsibility. In other words, the function of govern- 
 ment in all phases of industrial, social, and political life is to 
 promote the development of the highest possibilities of the 
 individual. 
 
 1 Witness the protracted agitation that is always necessary to extend the rights 
 of the individual in any direction, the right of individual judgment in religion, 
 the right to vote, the right for women to own property, the right to hold public 
 office without regard to religious views, the right to democratic government, the 
 right for women to vote, even in a Republic, etc. , etc. 
 
DISADVANTAGE OF STATE ACTION. 313 
 
 In order to understand the lines of action which the application 
 of this principle involves, it is necessary to consider : (1) Why, 
 on general principle, individual effort and responsibility are pref- 
 erable to state action and authority ; (2) What class of things 
 can be administered better by the state than by the individual ; 
 (3) What line of public policy should be pursued in order to 
 maximize the sphere of individual action and responsibility and 
 thereby minimize the necessity for governmental authority. 
 
 1. On general principle, individual action and responsibility are 
 preferable to state action or collective authority, because they 
 possess the maximum possibility of directness, efficiency, econ- 
 omy, and equity. State action, being representative whether 
 elective or not, is necessarily indirect and arbitrary. Arbitrary 
 action always involves the maximum amount of inequity and 
 mistakes, because it is necessarily governed by stipulated rules, 
 and therefore cannot be modified to suit the great variety of 
 individual cases. The universal experience of mankind confirms 
 the assumption that whenever individuals can settle their affairs 
 between themselves, the adjustment is most likely to be equitable 
 and mutually satisfactory, and hence the decision of a third 
 party should always be a matter of last resort. 
 
 This does not mean that all courts and other forms of governmen- 
 tal action, or even war, are unmixed evils ; it only means that they 
 are necessarily clumsy, because arbitrary means of accomplishing 
 the desired end. Indispensable as war may have been, and im- 
 portant as armies, navies, and policemen still are, it is universally 
 admitted that the less the necessity for using them the better. It 
 is because of the injustice which always accompanies battle-field 
 decisions that war diminishes as individuality in the average 
 citizen increases and civilization advances. The same arbitrary 
 element runs through all collective action, though it is some- 
 times indicated in less violent and repulsive forms. 
 
 Take, for instance, taxation. How to equitably adjust taxation 
 has been a perplexing problem since human society began. It 
 is because taxes are levied by representative authority, according 
 to some arbitrary rule which is utterly incapable of being adapted 
 to a very great variety of conditions, that injustice is constantly 
 being done to numerous individuals and frequently to whole 
 classes. The same principle shows itself in our best courts 
 
314 THE DIVIDING LINE IMPORTANT. 
 
 of justice, notwithstanding the jury system and the immense 
 learning of advocates and judges. When a case is given to a 
 jury the legal limits to their decision are fixed by the judge in 
 his charge. They may think the defendant morally innocent or 
 actually justified in his act, but by virtue of a legal technicality 
 they are forced to vote him guilty and subject him to a punish- 
 ment which both individually and collectively they would regard 
 as unjust. And so on through the whole history of legal de- 
 cisions. It is because of this preponderating probability of legal 
 inequity that in civil cases wherever disputants can adjust the 
 difference themselves they are generally encouraged to do so by 
 the court. State action being necessarily arbitrary, and hence 
 seldom capable of the highest efficiency, economy, and equity, it 
 is important to consider what class of things, if any, can natu- 
 rally be administered by the state better than by individuals, and 
 vice versa. 
 
 2. Since association is better than isolation, and since govern- 
 ment is necessary to society, it follows that while there are many 
 things which the individual can do better than the state, there 
 are some things which the state can do better than the indi- 
 vidual. How shall we determine between the sphere of state 
 and individual action ? If we take an extreme case from 
 either class, there is no difficulty in deciding to which sphere it 
 naturally belongs. For instance, if it is a question of determining 
 one's own religious opinions, we have now no difficulty in deciding 
 that it belongs entirely to the individual. And on the other hand 
 if it is a question of public defence, such as requires an army and 
 navy, we have no difficulty in deciding it to be clearly one of 
 the functions of the state. But when we come to the outer edges 
 of these spheres of action where they merge together, the line of 
 demarcation is not so easily observed. Here a new difficulty 
 arises, because this is not only the point where a wise decision is 
 most important, but also where the material for making a wise 
 decision is most difficult to obtain. Although there is no differ- 
 ence of opinion to-day as to whether or not the individual should 
 choose his own religion or the government should control the 
 army, there is an immense difference of opinion as to whether 
 telegraphs, banks, mines, and railroads should be conducted 
 by private enterprise or under state control. The difference be- 
 
SPHERE OF INDIVIDUAL ACTION. 315 
 
 tween the administration of the post-office and that of the tele- 
 graph is so slight that public management of the former is made 
 the basis for demanding state control of the latter. And if we 
 have nothing upon which to base our decision but the facts in 
 the two particular cases, it will be very difficult to decide. And 
 if government control is extended to the telegraph, the question 
 between that and the railroad becomes equally difficult to deter- 
 mine. The steps from the railroad to the mine, from the mine 
 to the farm, from the farm to the factory, are all equally short 
 and, of themselves, difficult to determine. It is necessary there- 
 fore, to have some broader generalization upon which to base our 
 decision than the data which each individual case furnishes. This 
 can only be found by viewing each individual case in the light of 
 the general class to which it belongs. Since in the progress of 
 society there is a constant tendency to transfer functions from 
 one sphere to another, it is in the distinctive characteristics, of 
 these functions that we must seek the principle governing the 
 line of demarcation between the proper sphere of state and indi- 
 vidual authority, and thus be able to establish a scientific basis 
 for determining whether or not in any given instance the sphere 
 of state action should be extended or restricted. 
 
 If we study the evolution of society from its homogeneous 
 form, in which every thing was done by authority, to its present 
 highly complex state, where most things are done by individual 
 enterprise, we can readily see the leading characteristics of those 
 functions which tend to pass from the state to the individual and 
 those which tend to become recognized as distinctively the func- 
 tion of government. Among the things which have indisputably 
 passed to the sphere of individual authority are the right to per- 
 sonal freedom, the selection of one's partner in life, and the 
 charge of one's own children, the right of free speech, and of 
 making industrial contracts. 
 
 The reason why these are relegated to the individual is that in 
 all such cases there are many subtleties in which the individual 
 is more directly interested, and about which he is more com- 
 petent to decide than any third party can possibly be ; and these 
 subtleties increase with the advancing complexity of social rela- 
 tions. Moreover in many of these intricate personal relations 
 the decision must be made at once in order to be effective, 
 
316 SPHERE OF STATE ACTION. 
 
 and therefore can be made only by the individual himself. 
 The arbitrary, red-tape character of government action neces- 
 sarily precludes complete knowledge of detail and the prompt 
 action necessary in such cases. Although no individual is yet 
 perfect in this regard, he has infinitely greater possibilities of be- 
 coming so than any form of representative authority can pos- 
 sibly have. 
 
 This is equally true of economic relations. In the early stages 
 of society, when industry was very simple, being practically 
 limited to agriculture, with crude hand-methods of production, it 
 could be conducted by collective authority. But as wants were 
 multiplied and occupations differentiated, economic relations 
 grew more involved, and a more special knowledge became 
 necessary, which made arbitrary administration very much less 
 efficient. Consequently the ownership of property and the 
 administration of productive enterprise gradually pass from 
 public to private ownership and control, or from the sphere of 
 state to that of individual authority, in proportion as the division 
 of labor, the concentration of productive effort, and the social 
 freedom of the individual increased. 
 
 On the other hand, although governments have radically 
 changed their character, certain functions have been relegated 
 to them by common consent. Among these are protection 
 against a common enemy, the maintenance of public order, the 
 protection of individual rights, the enforcement of contracts, the 
 administration of justice, the maintenance of public roads, canals, 
 bridges, parks, museums, libraries and the enforcement of sanitary 
 regulations. Nor is the reason for this difficult to understand. 
 The administration of the army, navy, police, and the like, is pre- 
 eminently the function of the state, because in such things effec- 
 tiveness lies in the maximum aggregation of physical force, and 
 this can be best obtained by all acting as one man under a single 
 leader. Indeed the most perfect military force involves the 
 maximum despotism and the minimum individuality, and hence 
 can always be exercised most efficiently by arbitrary authority. 
 The maintenance of public order, the enforcement of contracts, 
 and the administration of law are also functions which can be 
 best performed by the collectivity, for the reason that it acts 
 uniformly for all, and its decisions are backed by the power of 
 
PUBLIC AND PRIVATE FUNCTIONS DEFINEP. 1> l 7 
 
 all. Nor does the development of individual character tend to 
 transfer the functions of the soldier, the policeman, the judge, 
 and the jailor from the authority of the state to that of the 
 individual. On the contrary, while it tends to make these 
 functions unnecessary, so long as they are needed they can be 
 better performed by the state than by the individual. 
 
 The same is true of public highways, such as roads, canals, 
 bridges, sanitary regulations, etc. They are common conven- 
 iences which everybody needs, and their management is of the 
 simplest character. To keep such public conveniences in repair 
 calls for no special skill, and changes in method are so slow and 
 infrequent that no inconvenience is experienced by having them 
 under control of routine authority. Although unlike military 
 and police functions, these do not diminish but steadily increase 
 with the advance of civilization, there is no tendency to put 
 them under individual control. The reason for this is that while 
 these can be managed as well by the state as by the individual, 
 the former has the additional advantage of giving greater freedom 
 to travel by obviating the inconvenience of direct payment in the 
 form of tolls, etc. And since these functions relate only to 
 securing the maximum safety and convenience to individual 
 enterprise and mobility, there is no incentive for individuals to 
 undertake them because they have no interest in doing so. 
 
 It may therefore be laid down as a general principle, that in 
 proportion as social functions are complex, variable, and personal 
 in their nature and interest, requiring instant decisions and 
 expert skill, individual management is superior to state author- 
 ity, and conversely, only in proportion as functions are simple, 
 permanent, and arbitrary in their character, and impersonal in 
 their nature and interest, can they be efficiently performed by 
 the state. In other words, the functions of the state are 
 essentially protective, judiciary, educational, and impersonal in their 
 nature ; hence, all economic and social functions which are 
 essentially personal, productive, commercial, or experimental in their 
 nature properly belong to the sphere of individual action and 
 responsibility. 
 
 3. This brings us to the consideration of the third proposition, 
 namely, what line of public policy should be pursued in order to 
 maximize the sphere of individual action and responsibility, and 
 
318 PROTECTION AND PATERNALISM. 
 
 thereby minimize the necessity for governmental authority. The 
 doctrine that the state should do for the individual only such 
 things as he cannot do as well for himself, of course implies that 
 it should continue to do all those things which it can, under exist- 
 ing conditions, do better than he. Hence, it does not follow that 
 because the natural functions of the state are protective, judiciary, 
 educational, and impersonal, that it should never perform any 
 others. On the contrary, the state must continue to do whatever 
 the individual is incapable of doing as well. The state should re- 
 linquish no function until it can be performed as well or better by the 
 individual ; otherwise many social duties would be abandoned alto- 
 gether and progress greatly retarded. Paternalism in government is a 
 necessary substitute for individual capacity, and consequently increases 
 as we descend and diminishes as we ascend the scale of civiliza- 
 tion. 
 
 Therefore, whenever it is necessary for the state to perform 
 paternal functions — doing for the individual, — it should always 
 be regarded as a temporary duty, to be transferred to the indi- 
 vidual as rapidly as he acquires the capacity to perform it. In 
 the last analysis then, while it is the duty of the government to 
 do those things for the individual which he cannot do as well 
 for himself, the governing principle in public policy should 
 ever be to protect and enlarge those OPPORTUNITIES, and 
 to promote those influences which tend to develop the highest possibili- 
 ties of the individual to do for himself. 
 
 There is one other point worthy of note before passing to the 
 application of this principle to the various phases of industrial 
 and social life — namely, the importance of distinguishing between 
 paternal and protective functions. This distinction is indeed in- 
 dispensable to scientific statesmanship. To confound the pater- 
 nal with the protective principle in government is to destroy all 
 philosophic basis for a public policy, yet this is commonly done 
 by many of the ablest writers. For instance, such writers as 
 Senior, Spencer, and the leading English economists oppose 
 state regulation of the hours of labor, the sanitary conditions of 
 workshops, employment of women and children in mines and 
 factories, compulsory education of factory children, and free 
 public schools, as being paternal legislation. They thus fail to 
 recognize any difference between the policy of furnishing the 
 
DISREPUTE OF ENGLISH ECONOMICS. 319 
 
 child with wholesome sanitary surroundings and an education, 
 and that of furnishing him with food, clothes, and shelter. 1 
 
 It is really this unphilosophic opposition to reform which has 
 brought the doctrines of the English school into such disrepute 
 among the more liberal and sympathetic portion of the commu- 
 nity, and which in its reaction has given much plausibility to 
 socialism. Indeed it has made individualism the synonym for 
 anti-reform and its antithesis — socialism — the means of reform. 
 
 Orthodox economists reason that because paternalism is in- 
 jurious, protection should be abandoned; while, on the other hand, 
 socialists conclude that because protection has been advanta- 
 geous individualism should be abandoned and paternalism 
 adopted. By overlooking the distinction between protection 
 and paternalism, we are logically driven to one of two unscien- 
 tific theories of statesmanship — laissez faire or socialism. 
 
 The distinction between paternalism and protection is that a 
 paternal policy implies doing the maximum for the individual, 
 while a protective policy implies providing the individual with the 
 maximum opportunity to do for himself. If this difference were 
 clearly recognized the obvious error in the anti-reform atti- 
 tude of let-aloneism and the stultifying influence of paternalism 
 would be obviated. The duty of the state as essentially pro- 
 tective and educational in the widest sense of the term would 
 be easily understood. With this as the basis of public policy, the 
 state can always be scientifically used as a means of promoting 
 progress without hindering the- growth of individual freedom. 
 
 1 This mistake is strikingly illustrated by Buckle in his able arraignment of 
 what he calls the protective spirit in France as contrasted with the non-protective 
 spirit in England. The truth is, however, that what Buckle was denouncing in 
 France as protection, was paternalism. It was a reign of bureaucracy in which 
 the state endeavored to do the maximum for the individual instead of enabling 
 the individual to do the maximum for himself. The contrast was not between 
 protection in France and laissez faire 'in England, but a contrast between pater- 
 nalism in France and protection in England. See " History of Civilization," 
 vol. i., chapters ix. and x. See also Spencer's " Coming Slavery," Popular 
 Science Monthly, April, 1884. 
 
CHAPTER III. 
 
 THE PRINCIPLE OF INTERNATIONAL TRADE. 
 
 Section I. — Increasing Social Opportunity Necessitates 
 National Development. 
 
 In the preceding discussion four facts have been established : 
 (i) That social progress is development of the character and 
 sovereignty of the individual, to which end government is but a 
 means. (2) That the let-alone doctrine is theoretically unscien- 
 tific and practically impossible in society ; a negative government 
 being a contradiction in terms. (3) That since paternalism 
 limits the need of the individual to do for himself, it hinders 
 rather than helps the development of individuality. (4) That 
 freedom can only be increased by the growth of individual 
 capacity, which in turn depends upon the opportunities for de- 
 veloping individual character. 
 
 In order to apply these principles to the various phases of 
 social and industrial life it is necessary at the outset to under- 
 stand what constitutes opportunity. In the first place it should 
 be remembered that we are dealing with man as a social being ; 
 hence it is only with the development of his character as a social 
 individuality that we are concerned. Indeed this constitutes all 
 the difference between savagery and civilization. Opportunity 
 then, is necessarily social, and must be sought in man's social 
 environment — in his intercourse with his fellow-men. And since 
 progress in society as elsewhere, is the movement from a rela- 
 tively simple to a relatively complex state of existence, the social 
 environment necessary to constitute opportunity must be con- 
 stantly increasing in complexity. Social opportunity, therefore, 
 
 320 
 
WHAT OPPORTUNITY IMPLIES. 32 1 
 
 may be stated as necessary contact with an increasing variety of 
 social influences. 1 
 
 Society" then, is a necessary prerequisite to individual advance- 
 ment. Society does not mean merely an aggregation of human 
 beings, but such an association of individuals as shall make fre- 
 quent intercourse and mutual dependence between them certain. 
 This implies the segregation of the human race into groups or 
 nations in which the individuals have some industrial, social, and 
 political affinity, without which the contact necessary to individual 
 growth is impossible. Consequently the doctrine of increasing 
 opportunity for individual development includes not only the re- 
 lation of individuals to each other within a social group or nation, 
 but also the development of the nation as a political entity. 
 Although patriotism and the desire for national autonomy is a 
 prominent feature in the statesmanship of every country, there is 
 no recognized principle by which its policy should be governed. 
 What relation the industrial development of the nation sustains 
 to the civilization and freedom of the people ; why, and under 
 what conditions national and industrial autonomy is necessary to 
 industrial development, and what relation industrial and indi- 
 vidual development sustain to each other, are questions to which 
 neither economic nor political science has hitherto furnished any 
 adequate answer. When we recognize the fact however, that a 
 nation is but the social setting of the individual and that gov- 
 ernment is but a means by which the resources of the nation are 
 utilized for promoting the welfare of the individual, the im- 
 portance of considering the development of the nation as a 
 necessary means for promoting the progress of society at once 
 becomes apparent. 
 
 Section II. — National Development Necessitates the Growth 
 of Manufacturing Industries. 
 
 In considering this question it is important at the outset clearly 
 to understand what we mean by the expression, national develop- 
 ment. It is commonly assumed that the development of the 
 material resources of a country, as agriculture, mining, or manu- 
 facture, is necessarily the development of the nation. This view 
 confounds the physical qualities of soil and climate with the 
 
 1 "Wealth and Progress," pp. 231, 232. 
 21 
 
322 THE NA TION IS SOCIAL. 
 
 social qualities of the people which are essentially different. 
 Such reasoning logically makes the industrial pursuits, and hence 
 the social life, of the people depend upon the physical character- 
 istics of the country. Thus instead of subordinating nature to 
 man it subordinates man to nature, which is the reverse of all 
 progressive tendencies in social evolution. When we separate 
 physical from social phenomena and recognize the nation as the 
 people this difficulty is obviated ; it then becomes evident that 
 the social development of man is an end to which the physical 
 development of nature is but the means. 
 
 In considering the development of a nation therefore, the 
 prime question is not development of the natural resources of 
 the country, but development of the character of its people. 
 The mere fact that the soil of a country is prolific is not a suffi- 
 cient reason why all the people should become agriculturists. 
 The cultivation of the soil or of any material resource of a 
 country should be made subordinate to the cultivation of man. 
 In other words, the development of a nation consists in the 
 development of its civilizing and individualizing influences. To 
 the extent that the people of a nation are isolated in their occu- 
 pations and daily life, will their social progress be slow ; and the 
 less frequent intercourse between individuals the less social- 
 izing will its influences be. In order then, to increase the 
 socializing influences of a nation, it is necessary first of all to 
 promote the concentration of its population. Nor can this be 
 accomplished by mere arbitrary authority. People will not con- 
 centrate either in their social life or industrial pursuits merely 
 because they are advised or ordered to do so. The concentration 
 of population means greater complexity of social life, which is 
 what man is apt to avoid except under the pressure of some 
 desire or necessity. 
 
 It is proverbial that the savage shrinks from the customs of 
 civilization, and the rural peasant from contact with city life. 
 Indeed, people whose social life is simple, always endeavor to 
 avoid close intercourse with those in highly developed society, 
 because it means new and at first, embarrassing experiences. 
 Nothing will induce people to encounter the difficulties of a new 
 environment but the strong desire for some object not otherwise 
 obtainable. So long as people can gratify their desires without 
 
IMPORTANCE OF CITIES. 323 
 
 facing the difficulties of new and more complex social relations, 
 they will continue to do so. Nothing will permanently centralize 
 a people which does not make concentration indispensable to 
 getting a living. Thus social concentration depends upon indus- 
 trial concentration. The possibility of concentrating employ- 
 ments depends upon the nature of the industry. Agricultural 
 occupations cannot possibly be centralized ; they are isolating 
 in their very nature, and hence are essentially non-socializing 
 in their influence. The only industries which tend to centralize 
 and socialize people are manufacturing. Social isolation is as 
 impossible with manufacture as is social concentration with 
 agriculture. The development of manufacturing industries then, 
 is an indispensable condition to national development and social 
 progress. 
 
 The development of manufacturing industries is important in 
 many respects. In the first place because it involves socializing 
 occupations. Factory methods of production bring people into 
 close social contact in the ordinary pursuits of industrial life. 
 Whatever compels people to work together, makes their living 
 in close proximity indispensable ; the modern city and all that it 
 implies is chiefly the product of these two facts. From time 
 immemorial the growth of manufacture and trade has been the 
 means of developing towns and cities, 1 and these industrial 
 centres have in turn ever been the nurseries of civilization. It is 
 always in the cities that the most complex social environment arises, 
 and it is always there that the greatest refinement and highest 
 individuality exists, and hence it is there that the successful 
 struggles for social, religious, and political freedom have always 
 taken place. 
 
 The difference therefore, between agricultural and manufac- 
 turing employments is very marked. Agriculture is essentially 
 isolating and non-socializing as an occupation, and its products 
 relate almost exclusively to physical wants. Hence it does 
 practically nothing either to create or supply the social wants 
 and life of man. Manufacture, on the contrary, relates almost 
 exclusively to the civilizing and refining side of man's character. 
 The supply of clothing, furniture, the development of archi- 
 tecture, music, literature, art, and every thing above the mere 
 1 Witness the free cities of the Middle Ages. 
 
324 ECONOMIC OPPORTUNITY. 
 
 physical needs of the savage, is directly or indirectly the result 
 of manufacture and its socializing influence. These things are 
 not only necessitated by man's higher social wants, but are 
 largely consumed as the result of his social relations. Since 
 manufacturing industries tend both to create a socializing en- 
 vironment and to supply the social wants resulting therefrom, 
 they are doubly indispensable to national development. 
 
 SECTION III. — Necessary Conditions to the Development of 
 Manufacture. 
 
 In discussing the economic and social wisdom of any public 
 policy, the two important questions to consider are : (i) What is 
 the end we desire to promote ? (2) What means will most surely 
 promote that end ? 
 
 1. It may be safely assumed that the desired end, to the promo- 
 tion of which statesmanship should be devoted and public policy 
 directed, is the material and social progress of the people. We 
 have already seen that this involves the development of the nation 
 as a political entity, and also that national development necessi- 
 tates social concentration and industrial diversification, which in 
 turn depend upon the growth of manufacturing industries. The 
 immediate question, therefore, for the practical statesman to 
 consider is, what will best promote the development of manufac- 
 turing industries. Whatever will promote this end will justify 
 the means necessary to its adoption. The question to ask is not 
 what will it cost ? but will it do it? 
 
 2. It is a universal law in nature and society that growth 
 depends upon opportunity. As already explained, opportunity 
 is not to be interpreted as mere, passive possibility, but as actual 
 inducement. In nature opportunity for growth means the exist- 
 ence of conditions and influences which make it easier to grow 
 than not to grow. In society, it is contact with positive social 
 influences which make refinement, knowledge, and general culture 
 easier and more advantageous than ignorance and crudeness ; 
 and in economics it is the existence of conditions which make it 
 more profitable to do than not to do. Opportunity for the 
 development of manufacturing industries therefore, means the 
 existence of conditions which make manufacture not only physi- 
 cally possible but economically profitable. 
 
NEED OF A HOME MARKET. 325 
 
 Obviously the first condition necessary to the growth of any 
 industry is a market for its products. Now an economic market 
 evidently cannot be made by mere fiat of government because it 
 depends on the habits and social life of a people. But it can be 
 preserved by protecting home industry in manufacturers to a cer- 
 tain extent. How far? Why just so far as is necessary to prevent 
 home products from being undersold by the products of lower 
 paid laborers in other countries. This then is the sober rule and 
 principle of protection as ministering to human welfare. The 
 industries of a country should be protected to the full amount of the 
 difference between the wage-level of that nation and the nations beloxv 
 it in average civilization using similar methods and no further, since 
 thus the maintenance of its place in civilization is secured. A restric- 
 tive policy can be justified only on the ground that it will promote 
 greater social advancement than would otherwise occur. Nothing 
 can justify the restriction of freedom except a demonstration that 
 it will ultimately promote more freedom. Will the protection of 
 the home market increase the opportunities for developing social- 
 izing industries ? This is the immediate question to consider 
 and it involves a number of most important questions, which will 
 be taken up in their order as follows: (1) The economic and 
 social superiority of the home market over the foreign ; (2) the 
 economic basis of international competition ; (3) the relation of 
 cost of production to international value ; (4) the effect of a 
 tariff upon the price of home products ; (5) the relation of tariffs 
 to wages in non-protected industries ; (6) the influence of pro- 
 tection in the most advanced countries upon the progress of less 
 civilized countries. 
 
 Section IV. — The Economic and Social Superiority of a 
 Home Market over a Foreign. 
 
 There are three important reasons why home markets are supe- 
 rior to foreign markets, and why domestic trade and manufacture 
 should always be encouraged in preference to foreign: (1) Because 
 foreign trade is essentially wasteful ; (2) because foreign mar- 
 kets tend to enable employers to permanently profit by low 
 wages ; (3) because home markets most surely promote the 
 diversification of industry and social progress. 
 
326 FOREIGN TRADE WASTEFUL. 
 
 1. Foreign trade is essentially wasteful because it necessarily 
 tends to maximize instead of minimizing the distance between the 
 raw material and the factory, and between the factory and the 
 market. For instance, before the development of cotton manu- 
 facture in this country, our cotton cloth was made in England. 
 The raw cotton was produced in South Carolina, sent to England 
 to be manufactured, then brought back to America. The con- 
 sumer of cotton cloth in this country had to pay the cost of 
 transporting it twice across the Atlantic, which was so much waste 
 made necessary by uneconomic conditions. To carry a product 
 six thousand miles in order to deliver it to consumers a hundred 
 miles away is to perpetuate the most costly way of doing. 
 
 Nothing can justify such waste except absolute inability to 
 avoid it. The mere fact that England could, under existing con- 
 ditions, do the manufacturing at so much less cost than we, as to 
 be able to pay the transportation both ways, was no economic 
 justification for our continuing to buy cotton cloth of her, instead 
 of developing the methods for making it ourselves. Indeed such 
 a policy would have been as obviously uneconomic as to have per- 
 sisted in using the hand-loom and stage-coach in preference to 
 the factory and railroad. The question in that case was not, can 
 England, under existing conditions, supply our cotton cloth 
 cheaper than we can make it ? but can we, by any change of 
 conditions, develop the means of making it as cheaply for our- 
 selves as she can make it for us, and thus eliminate for all time 
 the unnecessary cost of double transportation ? This question 
 was answered in the affirmative, and to-day cotton cloth can be 
 made as cheaply here as in England, and more cheaply than in 
 any other country, notwithstanding our wages are so much higher. 
 Consequently that economic waste is saved not only to us, but to 
 all future generations, to say nothing of the social advantage of 
 developing the industry in our own country. 
 
 It may be laid down as a fundamental principle in economic 
 production that all commodities should be manufactured as 
 near as possible to the raw material, or the market for finished 
 products. If a nation possesses the raw material for a given 
 article, it should always develop the facilities for manufacturing 
 the finished product for its own consumption ; and any public 
 policy which does not tend to promote this end is inimical to 
 
FOREIGN MARKETS AND HOME WAGES. 327 
 
 national development. Therefore, instead of constantly en- 
 couraging foreign trade, it should ever be a cardinal principle in 
 statesmanship to develop domestic trade and home manufacture. 
 
 2. Another disadvantage of foreign as compared with home 
 markets is, that they divorce the economic interest of the em- 
 ployer and the employed. To the extent that the producers in 
 any community rely upon a foreign market for their wares, the 
 employers cease to have any economic interest in the welfare of 
 their own laborers. Whenever the employer is independent of 
 the laborers of his own country as consumers, he has an apparent 
 interest in keeping down wages, because, under those circum- 
 stances, every reduction of wages is an increase of profits. Sup- 
 pose, for instance, an American shoe manufacturer sells all his 
 product in Europe at a dollar a pair ; it is quite obvious that if 
 he can obtain his labor at 10 per cent, less, it would be so much 
 addition to his net profit, because the reduction of wages would 
 in no way affect the consumption of his shoes, they being sold in 
 another country where wages remain the same. 
 
 Under a home-market regime the case is very different, be- 
 cause in domestic trade there are no influences that militate 
 against the material welfare of the laborers which do not react 
 upon that of the employing class. The obvious reason for this 
 is that no market for factory-made products can be permanently 
 sustained without consumption by the laboring classes. Conse- 
 quently when the employing class in any country have to rely on 
 a home market for the sale of their products, their own prosperity 
 depends directly upon the consuming capacity, and hence the 
 wages, of the laboring classes in their own country. Under such 
 conditions, whatever reduces wages and impairs the purchas- 
 ing power of the laborer diminishes the market and undermines 
 the prosperity of the employer. Thus, under a home-market 
 regime, the employer's success is dependent upon and commen- 
 surate with the prosperity of the laboring classes, because their 
 consumption determines the market basis for his production. 
 But the days of foreign markets, as the chief support of highly 
 developed manufacturing industries in any country, are doomed. 
 Frequency of travel and familiar intercourse between the most 
 civilized nations tend to make exclusive knowledge of productive 
 methods practically impossible. Hence, as fast as nations be- 
 
328 A NATION IS RICH BY WHAT IT USES. 
 
 come consumers of manufactured products, they begin to make 
 them for themselves, and to use the improved methods developed 
 by their most advanced neighbors. Thus the tendency of civili- 
 zation is to make the industries of all countries depend more and 
 more upon home consumption. The economics of the future 
 must be the economics of large production, home-market, and 
 high wages, which are the only industrial conditions compatible 
 with social freedom and political democracy. 
 
 3. The third and by no means the least important reason why 
 home markets are preferable to foreign markets is, that they more 
 surely promote the diversification of production and the sociali- 
 zation of employments. One of the popular notions regarding 
 foreign trade is that the prosperity of a nation is indicated by the 
 amount of its exports, that it is rich by what it sells. This is a 
 great mistake. Nothing indicates the prosperity and well-being 
 of a people but what they consume. A nation may produce ex- 
 tensively and export largely and the mass of its people remain 
 very poor. To the extent that more manufactured products are 
 exported from any country than imported to it, are its products 
 not consumed by those who produce them. The prosperity of a 
 nation therefore, cannot be measured by the wealth it exports to 
 other countries, nor by the wealth it receives through the profits 
 of foreign trade, but only by the wealth its own people consume, 
 since that is all which really enters into their social life. Thus the 
 extent of domestic consumption — the home market — is the real 
 measure of the social status. 
 
 Moreover, a home market supplies a double social current, 
 whereas a foreign market for the same products only supplies a 
 single current. In addition to the socializing effect of manufac- 
 ture upon industry, the home use of manufactured articles tends 
 to increase and diversify the market for such products by the 
 social conditions necessarily connected with their consumption. 
 
 For instance, the consumption of carpets, pictures, music, 
 millinery, etc., imply more or less refined social relations, which 
 stimulate not only the desire for more of the same kind of things, 
 but also create tastes and desires for fresh varieties of products. 
 Thus, while manufacturing industries always socialize, their so- 
 cializing influence is necessarily the greatest where they produce 
 for a home market. This must not be interpreted to mean that 
 
TEST OF ECONOMIC CHEAPNESS. 329 
 
 foreign markets are a disadvantage under all conditions, but only 
 that wherever the development of a home market is possible it is 
 always preferable to a foreign market. In other words, foreign 
 trade is ultimately an economic disadvantage to a nation unless 
 it can take place without substituting simpler for relatively com- 
 plex industries or lowering wages, and should be encouraged 
 under no other conditions. 
 
 SECTION V. — The Economic Basis of International Compe- 
 tition. 
 
 Competition is regarded as essential to industry, because it pro- 
 motes economy in the production of wealth both by developing the 
 highest capacity in the producers and by reducing prices, thus 
 giving the community the advantage of the highest skill and the 
 best productive methods. This unexceptionable proposition 
 has the advantage of being one of the most uniformly accepted 
 postulates in economic science. Here then we have a point of 
 common agreement, namely, that no competition can promote 
 industrial well-being which does not tend to make wealth cheap. 
 (Neither a free trade nor a protective policy therefore can be 
 economically justified, except as it squares with this proposi- 
 tion.) 
 
 In order to apply this test to public policy, however, it is 
 necessary to understand clearly what constitutes cheap wealth, 
 and how to determine accurately when commodities are cheap 
 or dear. Commodities are said to be dearer as their value 
 rises, and cheaper as their value falls ; but the terms dearer and 
 cheaper have no meaning except as they indicate that the articles 
 referred to have become more or less difficult for man to obtain. 
 Wheat cannot be either cheap or dear to potatoes or gold, any 
 more than Easter bonnets can be cheap or dear to fishes. The 
 value of wheat may be high or low as compared with that of 
 potatoes or gold, but value cannot be high or low to those 
 articles ; it can be high or low only to man. Nor is the value of 
 an article high or low to man because it will exchange for a larger 
 or smaller quantity of gold or other commodities, but solely be- 
 cause it will exchange for a larger or smaller quantity of his 
 labor. In short, the terms value, price, exchange, dearness, and 
 
330 CHINESE AND AMERICAN PRICES. 
 
 cheapness have absolutely no meaning, and convey no idea 
 except in relation to man. 
 
 From this point of view the importance of economic movement 
 does not turn upon the relation of one kind of wealth to another, 
 but depends upon the relation of all kinds of wealth to man. 
 Wealth is not necessarily cheap or dear according as it will ex- 
 change for a large or small amount of gold, but only as it will 
 exchange for a large or small amount of labor. That is to say, 
 no matter what the ratio of exchange between different com- 
 modities or between all commodities and gold may be, they are 
 cheap or dear only in proportion as a large or small amount can 
 be obtained for a day's service. 
 
 It may be said that the ratio in which commodities exchange 
 for gold always indicates the ratio in which they will exchange 
 for labor ; that is to say, the gold-price always indicates the 
 labor-price. This may be true to a limited extent within any 
 given country, but it is almost never true as between different 
 countries. Take, for example, this country and China ; suppose 
 shoes of a given quality were two dollars a pair in this country 
 and they were only fifty cents a pair in China, manifestly the 
 amount of gold necessary to obtain a pair of shoes in America 
 would purchase four pairs in China. Thus according to the 
 gold standard of measurement shoes in America would be three 
 hundred per cent, dearer than those in China, which is precisely 
 what the current doctrine teaches us to believe. Consequently it 
 is laid down as a self-evident proposition, that any discrimina- 
 tion which would prevent the shoes of China from entering the 
 market of America at less than two dollars a pair would make 
 the shoes of the American consumer dearer by three hundred 
 per cent.; therefore, the true economic policy is to have free 
 trade between America and China, and thus enable the American 
 citizen to have cheap shoes. 
 
 If we examine such a transaction from the standpoint of man 
 instead of gold, the utter fallacy of such a position will at once 
 be apparent. To be sure the shoes in America cost two dollars 
 a pair, but as the American mechanic receives two dollars a day 
 he can obtain a pair of shoes for a day's labor, while in China, 
 although the shoes cost but fifty cents a pair, the laborer receiv- 
 ing less than ten cents a day must work fully five days to obtain 
 
CHEAP LABOR-PRICES ARE HIGH. 33 1 
 
 a pair of shoes. Thus while measured in gold, the shoes in 
 America cost four times as much as those in China ; measured in 
 labor, the Chinese shoes are four hundred per cent dearer than 
 the American. Manifestly the two-dollar American shoes are 
 cheaper for Americans than the fifty-cent Chinese shoes are for 
 Chinamen. Professors Sumner and Perry would probably reply 
 yes, but Chinese shoes would be cheaper for Americans than 
 American shoes are, because we could get four pairs of Chinese 
 shoes for the amount of service we now give for one pair. It is, 
 they would add, just because the Chinese can make shoes for 
 Americans cheaper than Americans can make them for them- 
 selves, that we want free trade in order that we may obtain our 
 shoes from those who can make them cheapest. Why should we 
 give the shoemakers of Lynn or Marblehead two dollars for what 
 we can buy from those of Pekin or Hong Kong for one dollar ? 
 
 This argument has a very satisfactory seeming, but it has the 
 disadvantage of failing to reckon with the facts. Like the 
 Ricardian theory that " profits can only rise as wages fall," it 
 would be true provided the assumption upon which it is based 
 were correct — namely, that every thing else remains the same. 
 Of course the American consumer would receive a net gain by 
 purchasing his shoes from China at fifty cents a pair, instead of 
 paying two dollars in America, if wages and other conditions 
 remained the same, which would be an impossibility. It would 
 be just as rational to say that ' other things remaining the same,' 
 a brick will not sink to the bottom of a bucket of water. It is 
 precisely because no two particles of the water remain the same 
 that the brick sinks ; the disturbance caused by introducing the 
 brick makes a readjustment of every drop of water necessary. 
 
 The same is true in the case before us. The introduction of 
 Chinese shoes into the American market would not merely give 
 the two-dollar American laborer one dollar shoes, but to the 
 extent that it operated, would make it a general industrial dis- 
 turbance and therefore cause a readjustment of economic rela- 
 tions. As already stated, whatever undersells succeeds, and 
 whatever succeeds becomes permanent, and whatever becomes 
 permanent establishes the methods by which its success is 
 accomplished. Therefore if the shoemakers of China could 
 undersell the shoemakers of America in the American market, 
 
332 READJUSTMENT ON A LOWER PLANE. 
 
 they would necessarily succeed in obtaining the custom of Amer- 
 ican consumers. If this caused no other change than to reduce 
 the price of shoes in this country, the case would be very simple, 
 and the logic of the laissez-faire economist would be conclusive ; 
 but this is not the case. On the contrary, it would make an 
 entire rearrangement of industrial conditions necessary, at least 
 so far as the 200,000 of American shoemakers are concerned. 
 
 As soon as American consumers begin to buy shoes from 
 China several forces will begin to operate, which will tend to 
 revolutionize and ultimately readjust economic relations. The 
 American manufacturer will endeavor to compete with the China- 
 man in the American market, to do which he will be compelled 
 to reduce the cost of producing shoes here at least to the level of 
 the cost of production in China, together with the cost of trans- 
 portation. This could only be accomplished in one of two ways, 
 either by using superior labor-saving machinery or by reducing 
 wages equal to the difference. The improved machinery could 
 not be adopted for any such reason, because nothing has oc- 
 curred to increase the market sufficiently to make its profitable 
 employment possible. 
 
 A slight increase in the consumption of shoes might result 
 from lowering the price, but that would soon be more than offset 
 by the reduced consumption among the discharged laborers. 
 Hence it is manifest that such a change could do practically noth- 
 ing to create the better machinery necessary to make a differ- 
 ence in the cost of production. The only other alternative would 
 be to reduce the wages of shoemakers here to substantially the 
 same level as those in China. And this would not be limited to 
 the men who simply manufacture the shoes, it must also apply to 
 all those who produce the raw materials and tools used in making 
 shoes. When this reduction occurs, all the cheapness of the 
 imported shoes disappears, because the capacity of American la- 
 borers to purchase shoes is reduced exactly as much as the price 
 of the shoes has fallen. If wages are not reduced, then the China- 
 man would produce the shoes and the American shoemaker would 
 be forced into idleness, unless he emigrates to China, in which case 
 he would have to work on the same terms as the Chinaman. 
 
 Nor is there any warrant for assuming that the discharged 
 laborer will find another occupation. Nothing will create em- 
 
LOW WAGES NEVER CHEAPEN WEALTH. 333 
 
 ployments except a market for products. Since nothing has 
 occurred in this instance to create either a demand for new 
 commodities or increase the consumption of existing ones, we 
 have no more right to assume that the discharged laborers could 
 find new occupations than we have to assume that they could 
 live in luxury without employment. Thus in the last analysis 
 the shoes would either have to be made in China or in America 
 by Chinese methods ; and in either case, American wages would 
 be adjusted to Chinese prices. Consequently, instead of the low- 
 priced products from China giving us cheap wealth in America, it 
 would serve only to give us cheap labor and a lower civilization. 
 
 It may be regarded as an economic axiom that nothing can perma- 
 nently cheapen wealth which does not reduce the price of commodities 
 relatively to wages, and this can never be accomplished by substituting 
 cheaper for dearer labor, either at home or abroad. 
 
 Nor is this all. Not only is it true that the low-priced shoes 
 of China would not be permanently cheaper to anybody than 
 the high-priced shoes of America, but to permit the products of 
 the low-paid laborers of Asia to undersell those of the high-paid 
 laborers of America, would be to prevent the growth of the only 
 influences which can make wealth permanently cheaper in the 
 future. Just in proportion as the high-paid labor of one country 
 is superseded by the low-paid labor of another, is the simpler so- 
 cial life and small consumption of the former substituted for the 
 more complex social life and larger consumption of the latter. 
 This check in the demand for an increasing variety of products 
 necessarily prevents the diversification of industry and the de- 
 velopment of manufacture, and consequently lessens the incentive 
 for the concentration of capital, the use of steam-driven machinery, 
 and all wealth-cheapening methods of production ; and thus not 
 only fails to furnish cheap wealth for the present, but prevents 
 the possibility of cheaper wealth in the future. It is manifest, 
 therefore, that from a philosophic view of the case any public 
 policy which aids or permits the products of the low-paid labor 
 of one country to undersell the products of the high-paid labor 
 of another, tends to arrest human progress by stereotyping lower 
 civilization and preventing the growth of a higher. 
 
 Whenever a struggle for industrial supremacy takes place 
 between producers in countries of differing degrees of civiliza- 
 
334 UNECONOMIC COMPETITION. 
 
 tion, 1 one of two things must necessarily occur : either the higher 
 must descend to the plane of the lower, or the lower must ascend 
 to the plane of the higher. If the higher-paid producer descends 
 to the plane of the lower, it will not be economic competition, 
 because in that case the low-wage products will be sure to undersell 
 the high-wage products, and thus enable the inferior to succeed 
 against the superior. In such a struggle there is nothing to de- 
 velop the best in the higher, but every thing to repress it. The 
 cheap-labor competitor does not succeed through his economic 
 superiority, but solely because of his social inferiority. Such a 
 contest, therefore, is contrary to all conditions of economic com- 
 petition. 2 Instead of being a contest between approximately 
 equal competing units which tends to develop the best in both, it 
 is an unequal struggle in which the inferior is sure to prevail 
 against the superior. 
 
 When competition takes place on the plane of the higher 
 wage-level, the result is very different. In such a contest, who- 
 ever succeeds is compelled to do so by employing superior ma- 
 chinery, and that reduces the cost of wealth by saving instead of 
 cheapening human labor. Every effort of the lower to succeed 
 against the higher by such means necessarily tends to develop 
 better methods of production, cheapen wealth and promote 
 social progress in the less advanced country, even if it fails to 
 undersell competitors in a foreign market. On the other hand, 
 in every such struggle the high-wage producer is compelled 
 to make efforts to still further develop the wealth-cheapening 
 methods in the most advanced countries. Therefore the con- 
 test on the higher plane is supremely economic, because it 
 stimulates the best in both competitors, guarantees that only 
 the superior shall succeed, and in so doing helps rather than 
 injures the inferior. 
 
 This is precisely what takes place in every other sphere of de- 
 velopment. Evolution is a constant differentiation and higher 
 integration with an ever increasing complexity of relations. So- 
 cial progress constantly tends toward a greater variety of relations, 
 
 1 The most infallible test of a relatively high or low state of civilization in any 
 country is the material or social conditions of the masses, which is always indi- 
 cated by the rate of real wages. 
 
 5 See definition of economic competition, p. 293, 
 
BASIS OF ECONOMIC COMPETITION. 335 
 
 specialization of functions, and integration into larger but more 
 diversified aggregates ; witness the tendency towards larger and 
 larger cities and nations, through which greater freedom and 
 more complex and socializing intercourse is steadily devel- 
 oped. In all this progressive tendency each integration takes 
 place by the lower rising to the plane of the higher, and never by 
 the higher descending to that of the lower. And this progress 
 can only take place by the lower becoming approximately equal 
 to the higher. For instance, if one wants to move in a social 
 class more cultured than the one to which he belongs, he can do 
 so only by becoming more cultured himself. The more refined 
 will neither take on coarser manners nor tolerate the n in another 
 for the sake of his society. Indeed, were it otherwise, progress 
 would be impossible ; because if the higher would descend to the 
 lower,. there would be no incentive for the lower to rise. 
 
 Since nothing can cheapen wealth which does not reduce the 
 cost of production without diminishing real wages, and since no 
 industrial contest can be economically competitive which does 
 not take place between approximately equal competing units, and 
 since there can be no approximate economic equality between 
 contestants except on the plane of the higher, it follows that 
 the true economic basis for international competition is the wage-level 
 of the dearer-labor country. In order therefore to apply the doc- 
 trine of opportunity laid down in the previous chapter, and to 
 establish international trade upon a strictly economic basis, it is 
 necessary for the higher-wage country to discriminate against the 
 products of the lower-wage producer to the full extent that the 
 lower wages affect the cost of production, as this determines the 
 competitive status of the commodity. Thus we have a truly 
 economic basis for a tariff policy that shall be protective without 
 being paternal. A tariff policy based upon this principle would 
 protect the superior against injury from the inferior, without 
 affording the slightest monopolistic impediment to economic 
 rivalry. Instead of restricting wholesome competition, this would 
 simply protect the competitive opportunity for the " fittest to 
 survive," the test of fitness always being the ability to furnish low- 
 priced wealth without employing low-priced labor. Under such 
 conditions the products of foreign countries could never under- 
 sell those of home industry, except when the lower price of the 
 
336 SUPERFICIAL REASONING. 
 
 foreign product is due to the use of superior \2H00x-saving and not 
 to labor-cheapening methods. Consequently whoever undersells 
 confers a permanent advantage on the whole community. 
 
 SECTION VI. — Some Popular Fallacies Considered. 
 
 It is a standing charge against the protective doctrine that it 
 has no definable scientific basis, that it is grounded upon no 
 general principle in nature, society, or economics. Nor is this 
 charge wholly unwarranted when judged by the accepted reason- 
 ing on the subject. It is a peculiar feature of the history of 
 tariff legislation that it has been generally advocated for local or 
 special reasons, and almost never based upon any economic 
 principle susceptible of general application. In this country, 
 where the protective idea has reached its highest development, 
 the tariff advocate rests his claim almost entirely upon the fact 
 that we have made marked industrial progress under a protective 
 regime. He compares the wages and social condition of the 
 laborers in high-tariff America with those of the laborers in free- 
 trade England, and confidently exclaims : " Behold the superiority 
 of a high-tariff policy ! " And, with equal assurance, he ascribes 
 the poverty and social degradation of Ireland and India to the 
 fact that British rule has prevented them from having a protective 
 tariff. On the other hand, while the free-trader objects to this 
 kind of reasoning by the protectionist as confounding coincidence 
 with cause, he employs it with equal assurance in presenting his 
 own case. Studiously confining his observation to European 
 conditions, he compares the wages and social condition of labor- 
 ers in England under free trade with those in continental countries 
 under protection, but not with those in America, and triumphantly 
 exclaims : " Behold the superiority of free trade ! " 
 
 By this mode of reasoning the English free-trader is as unable 
 to explain why wages are higher in America under protection 
 than in England under free trade, as is the American protectionist 
 to explain why they are higher in England with free trade than 
 in continental and Asiatic countries under protection. If the 
 mere fact that prosperity accompanied free trade in England 
 justifies the reasoning of the free-trader, then the fact that pros- 
 perity accompanies a high tariff in America equally justifies the 
 reasoning of the protectionist. And when the free-trader declares,. 
 
LAW OF ECONOMIC PROTECTION. 337 
 
 as he does, that America is not prosperous by virtue of the tariff, 
 but in spite of it, the protectionist can with equal force reply that 
 England is not prosperous by virtue of her free trade, but in spite 
 of it. This line of reasoning furnishes no scientific means of 
 testing the merits of either doctrine ; it shows that progress is 
 possible under both policies, but it affords no logical basis for 
 the application of either. What these facts show is, that neither 
 free trade in England nor protection in America prevented the 
 growth of industrial prosperity in those countries, but they do 
 nothing to prove that this progress was promoted by either policy. 
 
 Free trade being simply the absence of protection, it follows 
 that to discover the law of economic protection is to discover 
 that of free-trade also, and since neither free trade nor protec- 
 tion will produce the best economic effects under all conditions, 
 it is only by the knowledge of such a law that any philosophic 
 application of either policy is possible. If the conclusions 
 reached in the preceding sections are correct, however, this law 
 is already established, and we have a universal principle upon 
 which a protective and consequently a free trade policy can be 
 scientifically adopted. Briefly stated this law is : (i) that compe- 
 tition can be economic only when it takes place between approximately 
 equal competitors ; (2) that when there is any marked difference in 
 the wage-level of the international competitors, such approximate 
 competitive equality is possible only when the competition is based upon 
 the higher wage-level of the higher ; (3) that no lowering of prices 
 can cheapen wealth which does not result frotn diminishing the cost of 
 production without lowering wages. 
 
 Bearing these propositions in mind, we shall have no difficulty 
 in seeing why a protective policy might promote industrial pros- 
 perity and social progress in America, and have the reverse effect 
 in Austria, India, and Ireland. Nor will it be difficult to under- 
 stand why America has more to fear from free trade with highly 
 civilized England than with the less civilized nations of Asia and 
 South America. And it will be equally clear why a tariff policy 
 will not produce the same effect with a high-wage level in a small 
 colony like Victoria with a million inhabitants, as in a large 
 country like the United States, with sixty-five million of people. 1 
 
 1 See articles in The Nineteenth Century for September, 1888, and Quarterly 
 Journal of Economics, October, 1888. 
 22 
 
338 INFANT-INDUSTRY THEORY. 
 
 One of the arguments much relied upon by protectionists is 
 that known as the " infant-industry argument." The burden of 
 this argument is that industries should be protected in their early 
 stages to prevent them from being killed by competition before 
 they are fully established, the implication being that when they 
 become well established they will be able to hold their own 
 against the world. For a time this idea was reluctantly accepted 
 by anti-tariff people, but now that after having had protection for 
 half a century and on the plea of " infant industries," a tariff is 
 still demanded, the free-traders naturally ask " when do industries 
 reach maturity?" They regard such reasoning as far more in- 
 fantile than the industry, and insist that if there is any virtue in 
 the protective principle, it should be applied in behalf of the 
 weak against the strong and not in behalf of the strong against 
 the weak. Consequently, if protection can be justified at all, it 
 is such countries as Russia, Turkey, Italy, Spain and the in- 
 dustrially weak countries of South America that need protection 
 against the United States, and not the United States against 
 them. 
 
 If the principle here laid down had been recognized, the 
 obvious fallacy in both these positions would have been appa- 
 rent ; and the talk about " infant industries " would never have 
 been indulged in by the protectionist, and the free-trader's re- 
 joinder about protecting the lower against the higher would have 
 been too absurd for utterance. It would then have been seen 
 that the products of America do not need protection against 
 those of England because the industries are younger, but be- 
 cause they are made under a higher civilization — a civilization 
 in which the human element in production is more expensive. 
 Hence, to permit the products of America to be undersold by 
 those of another country, the lower cost of which results entirely 
 from the use of lower-paid labor, would neither give cheaper 
 wealth nor better social conditions. It would also have been 
 clear that this fact in no wise changes with age, unless either the 
 wage-level of the lower-wage country rises, or the use of labor- 
 saving appliances in the higher-wage country more than overcomes 
 the difference. Unless one of these things occurs protection will 
 be as necessary at the end of a thousand years as it was the first 
 six months, although both countries may have greatly advanced. 
 
THE HIGHER REQUIRES PROTECTION. 339 
 
 Indeed, the greater the advancement in both countries the 
 greater will be the probability of their employing similar ma- 
 chinery, thus making the necessity of protection depend entirely 
 upon the difference in their respective wage-levels, as is the case 
 with America and England to-day. Therefore, when the tariff 
 advocate asks for protection simply because the industry is 
 young, and the free-trader opposes it on the assumption that the 
 producers in a superior civilization ought to be able to eco- 
 nomically compete with those in an inferior civilization, they 
 both mistake the true economic gist of the problem. Social 
 superiority, instead of making protection unnecessary, is the very 
 thing which makes it necessary, provided it is socially important 
 to retain or further develop the industry. 
 
 Nor is this peculiar to industry ; it is a general principle 
 throughout society. In every phase of human relations, it is the 
 higher that needs protection against the lower, and this because 
 the latter will resort to methcfds of aggression and defence which 
 the former cannot, for social or ethical reasons, afford to em- 
 ploy. Take, for example, the criminal laws. They are enacted 
 to restrain the morally lower from injuring the higher ; it is to 
 prevent the dishonest from plundering the honest, the ma- 
 licious from assaulting the well-intentioned, that police courts and 
 jails are instituted and armies maintained. Indeed, there is not 
 a restrictive institution maintained in society which was not 
 called into existence to protect the higher from the injurious 
 effects of the lower. 
 
 It may be asked, if this theory is correct, why does not the 
 American producer need a much higher tariff against the prod- 
 ucts of China, Russia, or South America than he does against 
 those of England, since her wage-level much more nearly ap- 
 proximates to his own ? The reason for this is very simple. It 
 is because the social chasm between America and those coun- 
 tries is so great, that the use of labor-saving appliances here 
 more than makes up for the difference in the cost of labor in the 
 respective countries. In China, for instance, where almost every 
 thing is made by hand labor, the product per capita is so small, 
 compared with what can be turned off by steam-driven machin- 
 ery here, that it costs more to produce an article there with labor 
 at 6 cents a day than it does here with labor at two dollars a day. 
 
340 INDIA, IRELAND, AND RUSSIA. 
 
 But if the labor-saving machinery of America were introduced 
 into China, and operated by their six-cent-a-day laborers, then an 
 immensely high tariff would be necessary in order to protect the 
 high wage-level of America, because, in that case, while all other 
 items of cost would be the same, the human element in the pro- 
 ductive process would be many hundred per cent, dearer here 
 than there. This is why England is a more dangerous com- 
 petitor to us than China. True, the wage-levels of America and 
 England are more nearly alike than are those of America and 
 China, but the machinery of America and England is still more 
 so. Indeed, it is because the machinery used in America and 
 England is practically the same, that all the difference in their 
 respective wage-levels is directly expressed in the relative com- 
 petitive power of the two countries. What is true of England is 
 equally true of France, Germany, and every other country, to the 
 extent that they use similar machinery but cheaper labor than 
 we do ; yet they may have very much cheaper labor, and still be 
 practically harmless as economic competitors, so long as they 
 use poorer machinery or hand methods. 
 
 Another error into which tariff advocates commonly fall, is in 
 thinking that India, Ireland, or Russia would greatly improve 
 their condition if they imposed a tariff against British products. 
 Indeed, there are not a few Englishmen to-day who entertain a 
 similar notion, and insist that England would be greatly benefited 
 by adopting a tariff policy towards America. This is a mistake, 
 for America's wage-level being higher than England's, we could 
 not undersell her except by the use of superior methods, which 
 either English producers would be forced to adopt or let Ameri- 
 can producers do the work, and in either case English laborers 
 would have a net gain. If the better methods were adopted in 
 England, she would have cheaper products without lower wages, 
 which would be equal to a rise of wages. If America made the 
 products, the English laborer could emigrate to America and 
 obtain American wages. 
 
 The same is true with regard to England and continental 
 countries. Competition between England and Russia would not 
 injure Russia, because there are no economic methods employed 
 in England which are not superior to those employed in Russia. 
 Whenever Russia is undersold by England, her products will 
 
ENGLAND AND THE CONTINENT. 34I 
 
 have to be made by English methods either in England or in 
 Russia, and in either case the Russian people will be benefited. 
 The only reason England is not injured to-day by competition 
 with the countries in Continental Europe is precisely the same 
 as that which prevents China from seriously injuring America, 
 namely : that while her wage-level is higher, her machinery is so 
 much superior to theirs, that it more than makes up the differ- 
 ence in the cost of production. 1 England has less to fear, how- 
 ever, from continental competition than we have, because their 
 wage-level is nearer to hers than it is to ours, and to the extent 
 .that American and English machinery is adopted in continental 
 countries faster than their wage-level approximates that of Eng- 
 land, will their relative competitive power gain upon hers. In 
 fact, unless the wage-level in continental countries rises very 
 rapidly, it can only be a matter of time when they will occupy 
 the same competitive position to England that she now sustains 
 to America, in which case she will be compelled either to adopt 
 a protective policy or surrender much of her manufacture to con- 
 tinental producers. 
 
 It will thus be seen that the seemingly inexplicable phenomena 
 over which free-traders and protectionists have vainly contended, 
 become perfectly explainable on the principle that international 
 competition can only be beneficial when the competitors are ap- 
 proximately equal upon the plane of the higher. Therefore a 
 protective policy is beneficial to a nation, only as affecting its 
 relations with less civilized countries. While America may need 
 protection against the machine-made products of all other coun- 
 tries, there is no country that can be permanently benefited by 
 discriminating against the products of America. So too with 
 England ; she may ultimately require a tariff against the machine- 
 made products of all other countries but America, and so on. In 
 a word, a tariff can only be of any permanent economic advan- 
 
 1 According to Mulhall, 80 % of the productive energy in Great Britain is fur- 
 nished by steam, while in continental countries steam only represents an aver- 
 age of 36 %. Consequently, the total cost of productive power per thousand 
 foot-tons is 17 cents in Great Britain as compared with 27 cents on the con- 
 tinent. " This advantage enables us (England) as far as labor is concerned to 
 undersell continental countries by 12 <£, although our workmen's wages are 
 almost double." — " History of Prices/' pp. 54 and 57. 
 
342 SUPERFICIAL OBJECTIONS. 
 
 tage, to the extent that it protects the opportunity for industrial 
 development afforded by a higher wage-level from the uneco- 
 nomic influence of a lower wage-level and inferior civilization. 
 
 Section VII. — The Effect of a Tariff upon the Price of 
 Home Products. 
 
 There is no objection urged against a tariff policy so much 
 emphasized and so frequently repeated as the charge that a tariff 
 is necessarily a tax — an oppressive burden upon the consumer. 
 The free-trade advocates, especially in this country, deny that it 
 is possible to improve the industrial condition of a community 
 by any system of tariff legislation. They insist that at best 
 it can only enable one class to gain at the expense of another. 1 
 Perry regards a protective tariff as an unmitigated curse, and 
 says : " Political economy, denouncing it as the enemy of man- 
 kind, hopes soon to throw upon its loathsome carcass the last 
 shovelful of cleansing earth." 2 
 
 It will not, however, be difficult to show that despite the learn- 
 ing and dogmatism on its side, this mode of treating the subject 
 is exceedingly superficial. The assertion that a tariff is a tax 
 bears the stamp of the declaimer rather than the economist ; 
 while seeming to say much, it actually says nothing. A tax is 
 simply a contribution to the public treasury, and is one of the 
 innumerable expenditures that social life makes necessary. The 
 payment of two dollars for a hat or a pair of shoes is just as 
 much a burden upon the resources of the citizen as is a tax of 
 two dollars for the government. 
 
 Taxes, like all other kinds of expenditures, should be treated as 
 an investment, the wisdom or unwisdom of which depends not 
 upon its amount, but entirely upon whether it yields more in 
 ultimate advantage than it costs in immediate disadvantage. 
 This fact can be more easily determined in some cases than in 
 
 1 " We deny that they can gain any thing from us, oti account of the law, but 
 what we lose ; we deny that the total gains to one part of society by this 
 process can ever exceed the total losses of another part — i.e., that the process 
 can increase the wealth of the community ; we deny, finally, that our share of 
 these hypothetical gains can ever be redistributed to us so as to bring back our 
 first loss." — Sumner's " Protection in the United States," pp. n and 12. 
 
 2 " Political Economy," p. 477. 
 
TAXES ARE INVESTMENTS. 343 
 
 others. For example, when one buys a steak, by the next meal 
 time he can determine whether or not he received an equivalent 
 for what he gave ; whether the satisfaction was equal to the cost. 
 If he purchases a suit of clothes, however, the result cannot be 
 so quickly determined. It will take several months to ascertain 
 whether or not an equivalent was given and received. And if he 
 invests in a farm or a factory, a still longer time is required to 
 decide the wisdom or unwisdom of the purchase. The indirect 
 and impersonal nature of governmental expenditures makes a 
 still longer time necessary to determine the exact results. 
 
 In order to determine whether or not a tax is a good invest- 
 ment, we have to deal with general tendencies or with ultimate 
 rather than immediate effects. For instance, if the wisdom of 
 the expenditure involved in maintaining an army, navy, police 
 force, were determined by the immediate effects at any given 
 time, it would be regarded as waste. Nevertheless the ex- 
 penditure necessary to enforce law and order is regarded as 
 a good investment even by free-traders. It procures as good 
 economic results as the expenditure for food, clothes, or shelter, 
 since it is essential to their enjoyment. 
 
 The same is true of education, but the effects here are still 
 further removed from direct observation, and consequently 
 must be judged on a still broader general basis. There are in 
 some countries, and indeed in some parts of this country, those 
 who regard a tax for the public schools as an oppressive burden, 
 an unjust exaction. But upon a broader view of the subject it 
 appears that their general social safety, freedom, and well-being 
 largely depend upon the intelligence of the great mass of the 
 community in which they live, and this to a great extent depends 
 upon opportunities for popular education. Experience has con- 
 clusively shown expenditure in public schools to be a good invest- 
 ment ; it comes back in better citizens and a higher civilization, 
 which in turn supplies all the influences and conditions that make 
 cheaper wealth and larger freedom possible. 
 
 In the same way must we estimate the wisdom or unwisdom of 
 a protective tariff. In considering the effect of a tariff policy 
 upon the price of home products, we must not consider alone the 
 direct and immediate effect upon prices, but also the indirect and 
 ultimate effect. It has already been pointed out that the test of 
 
344 
 
 TARIFFS AND PROFITS. 
 
 cheapness is the ratio in which labor will exchange for wealth, 
 things being cheap or dear according as a large or small quantity 
 can be obtained for a day's labor. If home products can be 
 undersold by foreign, solely because labor is cheaper abroad than 
 here, the only result would be a readjustment of prices on the 
 lower wage-level, with no advantage to anybody. Let us assume 
 that a 20 per cent, tariff is necessary to prevent the home products 
 from being thus undersold, that 20 per cent, would not in any 
 sense be a tax upon the American consumer, because if that tariff 
 were not applied, the wage-level would be commensurately low- 
 ered and a day's labor would purchase no more wealth than 
 before. To say that under such conditions the home producer 
 is enabled to add as profit on his whole product an amount equal 
 to the tariff upon the foreign product, is to exhibit a striking 
 unacquaintance with economic phenomena. 1 All that a tariff 
 can do in such instances is to prevent a readjustment of prices 
 on a lower wage-level. Prices however, would be governed by 
 cost of production, according to the law before stated, just as if 
 there were no tariff. The competition between home producers, 
 together with the effort of the consumers to purchase at the 
 minimum, will force prices down to the cost of producing the 
 most expensive portion of the necessary supply. All who can 
 produce at less than that, will obtain the difference as profit. 
 Unless the cost of producing that dearest portion can be lessened 
 by some other means than by lowering wages, it is utterly impos- 
 sible to make any improvement by reducing price. 
 
 This much however, only applies to the direct and immediate 
 effect, and is usually the only aspect which the advocate of 
 laissez /aire stops to consider. The permanent economic influ- 
 ence of a protective tariff upon the price of home products, 
 however, is the indirect and ultimate effect rather than the im- 
 mediate and direct. In preventing the products of dear labor 
 from being undersold by those of cheap labor, the tariff protects 
 the home market for the home producer. The economic effect 
 of this, as already shown, is to promote the growth of manufac- 
 turing industries, and to concentrate population, which in turn 
 creates a social environment that develops new tastes and habits, 
 and these elevate the standard of living among the masses, and 
 1 Cf. President Cleveland's message December 6, 1887. 
 
THE PRICE OF COTTON CLOTH. 345 
 
 consequently enlarge the demand for an increasing quantity and 
 variety of products. 
 
 The necessary tendency of this is to develop a higher grade 
 of social character and general intelligence, more inventive genius 
 and improved methods of production, by which the cost and 
 therefore the price of commodities is ultimately lowered without 
 reducing wages. From the foregoing it will be seen that a tariff 
 or any thing else which prevents a readjustment of prices on a 
 lower wage-level affords protection to the opportunity for devel- 
 oping better productive possibilities through the use of labor- 
 saving and wealth-cheapening methods. The effect of a tariff 
 upon the price of home products, therefore, when applied accord- 
 ing to the principles here laid down, is, first, to prevent a wasteful 
 readjustment of economic relations on a lower wage-plane ; 
 second, to protect opportunities for increasing productive pos- 
 sibilities and thereby make a readjustment of economic relations 
 on a higher wage-plane necessary. 
 
 If space permitted it could easily be shown that, despite the 
 frequent unseemly higgling and hauling to help local producers 
 by absurd tariff schedules, this has been the general effect of the 
 protective policy of this country. Take, for example, the cotton 
 industry, to which reference has already been made. For reasons 
 not necessary to explain here, the factory system had its rise in 
 England, and by the close of the first quarter of the present cen- 
 tury the use of steam-driven machinery, especially in the manu- 
 facture of cotton cloth, had become well established. At that 
 time the cotton industry in this country was in its infancy, being 
 mostly carried on in small factories run by water-power. The 
 difference in the development of this industry in the two countries 
 is clearly shown by the number of factories, amount of capital, 
 etc., which, in 1830, was as follows : 
 
 Number of establishments 
 
 Capital invested per establishment . 
 
 Number of spindles per establishment 
 
 Number of looms per establishment 
 
 Number of operatives per establishment 
 
 Weekly wages x . 
 
 Price per yard .... 
 
 England. 
 
 America. 
 
 1,151 
 
 801 
 
 $147,680 
 
 $50,702 
 
 8,108 
 
 i,556 
 
 87 
 
 4i 
 
 205 
 
 77 
 
 $2.51 
 
 $3-46 
 
 i5i 
 
 17 
 
 1 These figures represent for England (1833) the average weekly wages of 
 67,819 cotton operatives. And for America they represent the average wages 
 of 31,471 cotton operatives in New England (1830). 
 
346 PROTECTION GAVE OPPORTUNITY. 
 
 It will be seen from the above that the English manufacturer 
 had a double advantage over the American. In addition to 
 having nearly half a century's start in the development of factory 
 methods, by which he had acquired a much greater concentration 
 of capital and more efficient use of machinery, he had an advan- 
 tage of nearly 40 per cent, in the cost of his labor. No argument 
 is necessary to show that under such conditions it was impossible 
 to prevent our cotton cloth from being undersold by the English 
 without reducing American wages fully one third. Nor would 
 this reduction in wages have been limited to the factory opera- 
 tives ; for even if the American manufacturer had imported 
 English machinery free of duty, the higher wages of the brick- 
 layers, masons, carpenters, painters, etc., would have made his 
 building and general plant cost more than the English. It would 
 have been necessary, therefore, to have reduced wages in all these 
 industries to practically the same level as those in England, in 
 order to be able to compete with the English manufacturer in our 
 home market. To obviate this difficulty and make it possible for 
 the American manufacturer to produce for the American market, 
 a tariff was levied upon English cotton cloth. This, however, did 
 not increase the price of the American product, as is commonly 
 assumed, but it increased the price of the English product, there- 
 by preventing the price of American cloth from falling to the 
 English level, and making it unnecessary to reduce wages here in 
 the cotton and several other industries. By thus putting the 
 American producer on an approximate competitive equality with 
 the English in the American market, an economic basis was 
 furnished for the development of cotton manufacture in this 
 country. 
 
 Nor did this tariff create a monopoly, by which the price of 
 cotton cloth could be abnormally increased and fabulous profits 
 obtained by the American producer. On the contrary, it pre- 
 vented the English producer from monopolizing the American 
 market through the use of cheaper labor. So long as the English 
 producer, by paying lower wages, could undersell the American, 
 there was no inducement for the American to take the risk of 
 investing capital in improved machinery. But when this uneco- 
 nomic advantage was removed and the competitors in the Ameri- 
 can market were put upon substantially the same wage-level, a 
 
IMPROVED METHODS. 347 
 
 strong incentive for developing superior methods was created, 
 since their use became the only means of success. 
 
 With the rapid increase of population which our high wage-level 
 stimulated the home market steadily increased, making a larger 
 production necessary. This naturally led to a greater concentra- 
 tion of capital, the use of larger factories and better machinery, 
 and the result is that cotton cloth, which could not be produced 
 for less than seventeen cents a yard in 1830, can now be furnished 
 at a profit for five cents a yard, while the laborer receives double 
 the wages he did then.' The development of wealth-cheapening 
 methods in the cotton industry, which the protection of the home 
 market has made possible, will be seen by the following facts for 
 England and America in 1830 and 1880 : 
 
 
 England. 
 
 America. 
 
 
 1830. 1880. 
 
 1830. 
 
 1880. 
 
 No. of establishments 
 
 1,151 2,671 
 
 801 
 
 726 
 
 Capital per estab. 
 
 $147,680 $140,292 
 
 $50,702 
 
 $275,503 
 
 Spindles per estab. 
 
 8,108 14,798 
 
 1,556 
 
 14,089 
 
 Looms per estab. 
 
 87 192 
 
 4i 
 
 298 
 
 Laborers per estab. . 
 
 205 180 
 
 77 
 
 228 
 
 Wages 
 
 $2.51 $4.66 
 
 $3.46 
 
 $6.45 2 
 
 Price of cloth per yard, 
 
 I5i 6f 
 
 17 
 
 7 
 
 It will be observed from the above that in 1830 the concentra- 
 tion of capital in the cotton industry was very much greater in 
 England than in America, the ratio of capital to establishments 
 being nearly three times as large, that of spindles more than five 
 times, that of looms twice as great, and that of operatives nearly 
 three times as great as in this country, while wages were ^8 per 
 cent, lower. But in 1880 their relative position is reversed. 
 While in England the total capital invested had a little more than 
 doubled, in America it had increased more than 400 per cent. In 
 England, with the increased capital, the number of establishments 
 had been commensurately increased, while in America the number 
 
 1 See Part III., chap. iv. , sec. v. 
 
 2 The wages in this table represent Massachusetts and England for 1883. 
 The average weekly wages for the whole period from 1872 to 1883 inclusive, in 
 the cotton industry, were : in England, $4.60 ; in Massachusetts, $7.68 — being 
 66.96. per cent, higher in Massachusetts than England. See " Massachusetts 
 Labor Bureau Report for 1884," p. 419. 
 
348 EFFECT UPON OTHER INDUSTRIES. 
 
 of establishments was actually reduced. Hence, in 1880 the 
 amount of capital per establishment in England was $7,000 less 
 than in 1830, while in America it was five times as large. The 
 ratio of spindles to establishments only increased in England 
 about 82 per cent., while in America they increased 800 per cent. 
 The number of looms per establishment in 1880 had a little more 
 than doubled in England, while in America they increased six- 
 fold. During this period the number of operatives per establish- 
 ment in England diminished from 205 to 180, while in America 
 they increased from 77 to 228 ; and while wages in England rose 
 $2.15 a week, in America they rose $2.99 a week. All this clearly 
 demonstrates that the concentration of capital and the use of 
 labor-saving appliances in this industry made greater progress in 
 America than in England after the home market regime was in- 
 augurated. This is further shown by the fact that the price of 
 the product has been reduced more here, even with a greater rise 
 in the wages, than in England. Consequently, so far as the 
 manufacturing process is concerned, cotton cloth can be made 
 cheaper in America to-day than in England, notwithstanding 
 that wages in the same industry are 38 per cent, higher here than 
 there. 
 
 Nor was the beneficial effect of protecting the home market 
 in this instance limited to the cotton industry. The concentration 
 of capital and development of large factories in the cotton industry 
 naturally created a demand for machinery, which gave rise to 
 various branches of home manufacture in the iron industry and 
 the numerous industries involved in the building trades. With 
 this growth of manufacture and diversification of employment, 
 industrial centres became large cities, which furnished a steadily 
 increasing market for the products of our food and raw material 
 producing population. This in turn necessitated railroads, which 
 still further lessened the cost of production, diversified industry, 
 cheapened travel, and thereby enabled the daily paper to penetrate 
 the rural districts, and the country population to come into more 
 frequent contact with city life ; and in other manifold ways de- 
 veloped the socializing influences of the nation, thus reacting upon 
 the social life, standard of living, and wages of the laboring class. 
 
 Without attempting to follow the various phases of industrial 
 development directly or indirectly resulting from the protection 
 
WAGES IN NON-PROTECTED INDUSTRIES. 349 
 
 of the home market, it is perfectly safe to say that, with the ad- 
 vantage that England had in factory development, it would have 
 been impossible to develop cotton and many other kindred 
 manufacturing industries without the imposition of a tariff, or 
 some other restrictive policy, unless we had lowered our wages 
 to the English level. To have done that would have destroyed 
 the incentive for emigration and thereby arrested the rapid in- 
 crease of our population, which in turn would have commensu- 
 rately checked the growth of our home markets, and thus 
 necessarily have greatly hindered the development of many 
 manufacturing industries. And if, without a tariff we had main- 
 tained our higher wage-level, not only our cotton cloth, but 
 nearly all our manufactured products, would have been made in 
 England, and we should have remained practically an agricultural 
 people, and hence, in all probability, would now be a third- or 
 fourth-rate nation, with a scattered population of perhaps from 
 twenty to thirty millions, having smaller wages, less general in- 
 telligence, and therefore a lower civilization than England. 
 
 SECTION VIII. — The Relation of Protection to Wages in Non- 
 Protected Industries. 
 
 One of the most plausible objections urged against tariff legis- 
 lation is that it affords no benefit to those engaged in non-pro- 
 tected industries. It is insisted that in order to justify a tariff 
 policy, its advocates are bound to show that it is as advantageous 
 to those engaged in non-protected as in protected industries. 
 Nor is this an unreasonable demand ; there can surely be no 
 justification for any public policy which benefits one portion of 
 the community only at the expense of another. That the theory 
 of protection as hitherto presented has failed to fulfil this require- 
 ment can hardly be questioned by its most enthusiastic disciples. 
 The protectionists unquestionably believe that the whole com- 
 munity is benefited by a tariff policy, but they have hitherto failed 
 to explain how a tariff on the various articles of food, clothing, 
 furniture, and the like, benefits the carpenter, painter, plumber, 
 bricklayer, mason, engineer, compositor, and other domestic 
 artisans. This is chiefly due to the fact that they have accepted 
 the economic postulates of the laissez-faire economists, especially 
 
350 GLADSTONE AND BLAINE. 
 
 regarding wages, prices, and profits, thus rendering a philosophic 
 conception of the protective principle logically impossible. We 
 have a striking illustration of this in Mr. Blaine's argument upon 
 that point in his recent controversy with Mr. Gladstone. He 
 said : 
 
 " He [Mr. Gladstone] sees that the laborers in what he calls 
 the ' protected industries ' secure high pay, especially as com- 
 pared with the European school of wages. He perhaps does not 
 see that the effect is to raise the wages of all persons in the United 
 States engaged in what Mr. Gladstone calls the ' unprotected in- 
 dustries.' Printers, bricklayers, carpenters, and all others of that 
 class are paid as high wages as those of any other trade or call- 
 ing, but if the wages of all those in the protected classes were 
 suddenly struck down to the English standard, the others must 
 follow. A million men cannot be kepi at work for half the pay 
 that another million men are receiving in the same country. 
 Both classes must go up or must go down together." ' 
 
 This statement, which represents the gist of the modern pro- 
 tectionist position regarding the economic relation of protection 
 to wages, implies two assumptions, neither of which is correct : 
 (i) that wages are directly increased by the tariff in protected 
 industries ; (2) that through competition the rise of wages in 
 protected industries brings the wages in non-protected industries 
 up to the same level. 
 
 1. The idea that wages are high in protected industries be- 
 cause the tariff enables the manufacturer to obtain large profits, 
 and hence to pay higher wages, is one of the most popular falla- 
 cies connected with the whole tariff discussion. Even if tariffs 
 increased profits, that would not necessarily increase wages. 
 Employers do not raise wages merely because profits are large. 
 The increase of wages, except in rare cases, does not come 
 through the generosity of the employer, but through the pressing 
 demands of the laborer. Every laborer knows and every states- 
 man ought to know that protected employers are as ready to 
 reduce wages, as reluctant to increase them, and have as many 
 strikes, as do unprotected employers. But the assumption that 
 profits are larger in protected than in unprotected industries has 
 no foundation in fact. Even if a tariff did at first produce this 
 
 1 North American Review, January, 1890, pp. 47, 48. 
 
BLAINE'S MISTAKE. 35 I 
 
 effect, it would soon be destroyed by competition, as capital would 
 leave unprotected to engage in protected industries, where larger 
 profits would be obtained. 
 
 Had the economic law of profits been understood, no such 
 assumption would have been made. It would then have been 
 seen that if there is any competition between producers in the 
 same market, the price of the commodity would tend to equal 
 the cost of producing the most expensive portion of the general supply. 
 If the cost of producing the dearest portion is lessened by free 
 trade, the price will fall ; if it is increased by protection, the price 
 will rise. But this change will affect the consumer's price, not 
 the employer's profit. The profit in either case will represent 
 the difference in the cost of production, increasing as the cost 
 diminishes below that of the dearest competitor, a difference 
 which neither free trade nor protection can affect. 
 
 2. Mr. Blaine s s statement, that " a million men cannot be kept 
 at work for half the pay that another million men are receiving 
 in the same country," is also very unfortunate, as that is just what 
 is actually taking place all the time. Coal miners, agricultural 
 laborers, and many others are working every day in this country, 
 in many instances for less than half the pay that many classes of 
 workmen in the cities are receiving. And what makes this posi- 
 tion still more unfortunate is the fact that the printers, engineers, 
 bricklayers, carpenters, and others, whose wages are the highest, 
 are employed in non-protected industries ; hence this cannot be 
 the result of competition with the lower wages in protected in- 
 dustries. Neither is this difference in wages in the same country 
 peculiar to nationality or to political institutions ; it is as great 
 in America with protection and democracy as in England with 
 free trade and monarchy, or as in Germany with protection and 
 despotism. Instead of wages tending to uniformity in all indus- 
 tries in the same country, they tend to a greater diversity as 
 industrial differentiation advances. The only sense in which 
 wages tend to uniformity is in the same industry contributing to 
 the same market. 1 
 
 Nor is Mr. Blaine's statement, that " both classes must go up 
 or must go down together," any nearer correct. Experience 
 shows that they do not necessarily do any thing of the kind. For 
 1 See chapter on Wages. 
 
352 CAUSE OF BLAINE'S ERROR. 
 
 instance, in 1725 the wages of agricultural laborers in England 
 were 5s. 4^. ($1.28) per week ; those of carpenters, masons, brick- 
 layers, and other domestic artificers were 6s. ($1.44) a week. In 
 1800 the wages of agricultural laborers were in. $d. ($2.74) ; 
 those of domestic artificers 18.?. ($4.38). In 1840 wages of agri- 
 cultural laborers were \xs. ($2.64) ; of artificers 33J. 1 ($7.92). 
 In 1877 wages in the London building trades were 42^. gd. 2 
 ($10.26) a week, while in agriculture wages were about 13J. 
 ($3.12) a week, being only 14s. ($3.36) in 1884. 3 In a word, 
 during the present century the wages of mechanics and artisans 
 have increased more than twice as much as those of agricultural 
 and other rural laborers. The truth is, a protective tariff does 
 not affect wages in any such manner as indicated by Mr. Blaine. 4 
 The laborer knows from experience that an increase in the 
 tariffs on the particular commodity he produces does not 
 yield any commensurate increase in his wages. And to persist 
 in telling him that it does, can only result in destroying his 
 confidence in the economic advantage of a protective policy. 
 If working men are expected to take an intelligent interest in 
 protection, a more rational explanation of its advantages must 
 be presented. 
 
 1 Wade's " History of the Working Classes," p. 166. 
 
 2 Rogers' " Six Centuries of Work and Wages," p. 539. 
 
 3 Mulhall's " History of Prices," p. 125. 
 
 4 This argument clearly shows that the American protectionist has not yet 
 outgrown the English demand-and-supply (wage-fund) fallacy, which is further 
 shown by the fact that Mr. Blaine actually ascribes the rise of wages in England 
 to the increased demand for labor here. — North American Review, January, 
 1890, p. 48. If this were true why did not wages rise still more in Ireland, 
 Germany, Italy, Bohemia, etc., from which countries the emigration has been 
 much greater than from England, and why have wages risen as much in France, 
 with almost no emigration, as in continental countries, where emigration has 
 been the greatest ? The truth is that voluntary emigration tends to check rather 
 than promote the rise of wages, because it draws off the best laborers upon whom 
 a rise in the wage-level depends. It is only when the lowest laborers are ex- 
 ported that home wages are improved by the change. That is why the condition 
 of the laborers in any country can best be improved at home. Hence the true 
 economic policy is to develop the home market and diversify domestic industry 
 instead of relying upon emigration as the means of relieving industrial distress. 
 The true way to help the people of Russia, India, and China is to take our 
 civilization to them and not to bring them to our civilization, and this can best 
 be done by developing our own possibilities. — See section ix., p. 98. 
 
HOW TARIFFS AFFECT WAGES. 353 
 
 Considered from the point of view here taken, however, these 
 seemingly conflicting facts are easily explained. When we under- 
 stand that the price of labor, like that of commodities, is governed 
 by the cost of furnishing the dearest portion of the necessary 
 supply, and that this cost is determined by the laborer's standard 
 of living, which in turn depends upon his character and social 
 environment, the whole subject assumes a new aspect. It then 
 becomes apparent that no influences can permanently affect 
 wages which do not operate upon the laborer's social life and 
 standard of living. The only way a tariff can do that is by 
 promoting the concentration and diversification of industry, 
 thereby creating more complex social relations that, stimulate 
 the growth of new desires and habits and a higher plane of 
 living. Manifestly these influences operate just as much upon 
 the laborers in non-protected as in protected industries. The 
 non-protected printer, carpenter, and painter obtain just as much 
 advantage from the social influences of a manufacturing city as 
 do their protected neighbors, the hatter and cigar-maker. The 
 wages of city mechanics are higher than those of rural laborers 
 because their standard of living is higher, which is owing to the 
 more complex social conditions under which they live. It is 
 only to the extent that a tariff promotes the development of these 
 social conditions by protecting the home market that it in- 
 fluences wages in any industry. Upon the principle therefore 
 that protection is economically beneficial only as it tends to 
 develop the socializing influences of the nation, it is clear that its 
 effect upon wages is not limited to protected industries, but that 
 it effects equally the wages of all laborers to the extent that it 
 directly or indirectly affects their social environment. 
 
 If it were true, as is usually assumed, that a tariff benefits the 
 laborer through increasing the employer's profits and thus en- 
 abling him to pay higher wages, it would be true as is often urged 
 that the non-protected mechanic has no interest in a protective 
 policy. And so long as that view is taught by leading protec- 
 tionists, we may expect to see the intelligent laborers in domestic 
 industries, especially in our large cities, become free-traders. 
 But from the point of view here presented their interest in a 
 protective policy is quite as great and often greater than that 
 of those employed in the most highly protected industries. With- 
 2 3 
 
354 SOCIAL FORCES ONLY RAISE WAGES. 
 
 out the development of cities and manufacturing centres, as 
 already shown, railroads, telegraphs and other industries, to say 
 the least, would have been in a much less advanced state. 1 In 
 which case the industrial and social environment of the great mass 
 of mechanics would have been more homogeneous, hence a more 
 simple social life and lower wages would have been inevitable, as 
 is the case in small towns, rural districts, and non-manufacturing 
 communities throughout the world. To the extent that a tariff 
 policy has developed manufacture and the growth of cities, it has 
 improved the social life and wages of laborers in #// industries 
 in those industrial centres, protected and non-protected. And 
 to the extent that it has developed railroads and telegraphs, it 
 has shortened the distance between farm and factory, and thereby 
 increased the opportunities that force rural laborers into more 
 frequent contact with the social influences of city life, — thus in 
 its reflex action elevating the social life and wages of rural 
 laborers. This explains why the wages even of agricultural and 
 other laborers in isolating occupations are always higher in the 
 immediate vicinity of cities and manufacturing towns. 2 
 
 This view of the subject also enables us to understand why a 
 tariff will not produce the same effect in a small community like 
 an Australian colony, that it will in a large country like the 
 United States, even though the wage-level is as high there as it is 
 here. It is because the population there is too small to furnish a 
 sufficiently large market to sustain the use of the most highly de- 
 veloped factory methods, without which the socializing environ- 
 ment necessary to raise the standard of living and the rate of 
 wages cannot be developed. 
 
 There is one other fact that should be noticed before leaving 
 this point. We are told that despite the improvements in ma- 
 chinery and the general advancement, the condition of the factory 
 
 1 Witness India, Russia, and Turkey as compared with this country in these 
 respects. There are six times as many miles of railroad in New York State as 
 in all Turkey, and more miles of railroads in the United States than in all the 
 rest of the world. 
 
 2 This fact has been universally observed though very little understood. See 
 "Wealth and Progress," pp. 160-163 J Rogers' "Six Centuries of Work and 
 Wages," pp. 171, 172, 180, 327, 535, 536. Also " Wealth of Nations," Book 
 I., ch. viii. For similar facts in India see Buchanan's " Journey through the 
 Countries of Mysore, Canara, and Malabar," vol. i., pp. 124, 125. 
 
MINERS AND FACTORY OPERATIVES. 355 
 
 operatives of New England and the miners of Pennsylvania is no 
 better, but in many cases is worse, than it was forty years ago, 
 although the products of these industries are highly protected. 
 There is some truth in this statement, and a great deal of error. 
 In the first place, it is not correct in any general sense to say that 
 the condition of the miners and factory operatives has not im- 
 proved. It is true, however, that the condition of the laborers 
 employed in those industries to-day, as compared with those 
 of forty years ago, has not improved commensurately with the 
 progress of the community. This fact is usually taken as con- 
 clusive evidence that, through some unjust manipulation of in- 
 dustrial forces, the laborers in these industries have been excluded 
 from the beneficial effects of the increasing wealth and social 
 advancement. 
 
 A little closer examination of the facts, however, will show 
 that this conclusion is erroneous. Suppose, for example, that in 
 a given business the laborers were intelligent Americans in 1850, 
 but for some reason they all left it and their places were filled by 
 Italians or Chinamen, would it be any test of the industrial and 
 social progress of the laborers in the community to compare the 
 wages, character, and intelligence of these Chinamen and Italians 
 in 1890 with those of the Americans who were employed in that 
 industry in 1850 ? Such a comparison would be rejected by any 
 fair-minded investigator as unworthy of a moment's consideration. 
 He would very properly insist that, in order to ascertain the 
 improvement in the laborer's condition from 1850 to 1880, we 
 must compare the condition of the same laborers. The wages 
 and social condition of the Chinamen and Italians might have 
 improved a hundred per cent., and still be no better in 1890 than 
 were those of the American laborers in 1850. The only way to 
 ascertain whether or not, or to what extent, the laborer's con- 
 dition has improved, is to compare the condition of the American 
 laborers in 1890 with their condition in 1850, and also the con- 
 dition of the Chinese and Italian laborers in 1890, not with that of 
 the Americans, but with their own condition in 1850. 
 
 Now this is precisely what has taken place in New England 
 factory life. The operatives of forty years ago were mainly 
 composed of native Americans, mostly children of the New 
 England farmers. During this period the industrial history of 
 
356 EVOLUTION OF INDUSTRIES. 
 
 America has been unlike that of any other country in the world. 
 Owing to our higher wage-level and the protection of our home 
 market, manufacture and a variety of occupations increased much 
 faster than did our native population. The consequence was a 
 continuous stream of emigration to this country. The introduc- 
 tion of every new industry of a higher order naturally drew to it 
 the more intelligent and characterful portion of the laborers from 
 the grade below, their places being filled by the less competent. 
 By this means there was an almost constant movement of laborers 
 from the more simple to the more complex and artistic industries, 
 and the less advanced laborers from other countries taking the 
 simpler occupations. In the cotton industry, for example, as 
 Americans moved up into the position of overseers, managers, or 
 merchants, their places were taken first by English, next by Irish, 
 and last by French Canadian operatives, so that to-day an Ameri- 
 can is scarcely to be found in the cotton factories of New England, 
 except in the superior positions, many of the various grades 
 of overseers, machinists, etc., being English or English-Irish. 
 Therefore, if we compare the wages and social conditions of the 
 spinner and weaver in New England cotton factories to-day with 
 those of 1840, we are not dealing with the same class of people 
 at all, nor even with the effects of the same civilization. The 
 French or Irish operative may not be very much better off to-day 
 than was the American who occupied the same position forty years 
 ago, and yet his condition may have been improved several hun- 
 dred per qent. The same is true of the miners of Pennsylvania, 
 who to-day are largely composed of the poorest laborers from 
 Continental Europe. 
 
 In order, therefore, to ascertain the progress that has taken 
 place in the industrial and social condition of these classes of 
 operatives, we must not compare their present condition with that 
 of the American forty years ago, but with their own condition at 
 that time. If we compare the condition of small merchants in 
 New England to-day with that of factory operatives of 1850, or 
 compare the condition of the English, Irish, and French Cana- 
 dian operatives in New England and the miners of Pennsylvania 
 to-day with what it was in England, Ireland, Canada, Scandi- 
 navia, Bohemia, or Russia thirty or forty years ago, the improve- 
 ment will appear as marked as in that of any other class in the 
 
EFFECT UPON OTHER COUNTRIES. 357 
 
 community. To overlook this is entirely to misapprehend the 
 phenomena under consideration. These facts are not referred 
 to here to give a rose-colored tint to the condition of these 
 laborers ; on the contrary, I regard their condition, in many 
 instances, as not only a disgrace but as a serious danger to our 
 civilization. 1 They are referred to, only to emphasize the mistake 
 of ignoring them in considering the effect of modern industrial 
 influences upon the social condition of the laborers ; because it is 
 only by recognizing all the facts in the case, that we can form any 
 true estimate of the beneficial or other effects of any industrial 
 policy. Hence it may properly be said that to the extent that 
 protection has promoted the growth of manufacturing industries 
 it has directly and indirectly improved the social condition and 
 raised the wages of all classes of laborers in this country com- 
 mensurately with the advance of the community. 
 
 Section IX. — The Influence of Protection in the Most Ad- 
 vanced Countries upon the Progress of the Less Advanced. 
 
 Perhaps the most specious argument employed in favor of a 
 free-trade policy is that it is cosmopolitan in its character, that 
 it rises above local, sectional, or even national considerations, 
 treating all mankind as brethren, while protection is pre-emi- 
 nently a local policy that endeavors to discriminate against the 
 people of all other countries in favor of its own. It may be ad- 
 mitted that any policy which promotes the welfare of one country 
 at the expense of another is essentially unphilosophic, and that 
 the best policy for any country is the one whose beneficial effects 
 are most universal. The economic character of a public policy, 
 however, should never be judged by its immediate or temporary 
 effect, but always by its permanent and ultimate influences. 
 Measured by this standard, it is not difficult to show that the 
 protective principle as here laid down is pre-eminently cos- 
 mopolitan in its character. 
 
 It may be regarded as a self-evident proposition that he who 
 would help others must first develop the best in himself, since not 
 to develop his own capacities is to limit his usefulness. The most 
 altruistic effects are usually produced by efforts to broaden and 
 
 1 See " Wealth and Progress," pp. 365-373. 
 
358 SELF-IMPROVEMENT THE FIRST STEP. 
 
 elevate our own social life, because every addition to our own 
 life embraces more of the efforts, interests, and well-being of 
 others. In proportion as the interests of others becomes iden- 
 tified with our own, will our efforts be directed to promoting 
 their welfare as much as our own. In other words, in proportion 
 as we become socially interdependent do our efforts become 
 altruistic and cosmopolitan. Indeed, it is only by increasing 
 man's interdependence upon his fellow-man that the solidarity 
 of the human race will ever be realized, and the altruism which 
 shall make every man's happiness include that of all mankind 
 become an established fact. 
 
 This is as true of nations as of individuals. The nation which 
 would contribute most to the advancement of human progress 
 must develop its own civilization. We might as well expect the 
 weak to carry the strong, as barbarism to aid civilization. That 
 nation which most completely develops its own industrial and 
 social possibilities, creates the most improved methods of pro- 
 duction. In this way it is not only able to obtain its own 
 wealth cheap, but ultimately to produce many commodities at less 
 cost than can be produced by the cheap labor of less civilized 
 countries. Upon the principle that whatever undersells succeeds, 
 the less civilized countries are compelled to adopt the superior 
 methods. Thus the benefits of inventions which result from the 
 development of a higher civilization are automatically transferred 
 to the lower, and the socializing influences of improved methods 
 of production become cosmopolitan. 
 
 This is clearly demonstrated by the adoption of various kinds 
 of American machinery abroad, without the use of which many 
 European products would have been undersold by ours. Nor are 
 the benefits which more highly civilized countries confer upon 
 the lower, limited to what is forced upon them by competition in 
 commodities which they both produce. A still greater benefit 
 arises from the introduction of new commodities, which more 
 diversified tastes and more complex social life of the more 
 highly civilized country bring into existence. As a demand for 
 new commodities increases, labor-saving" appliances are invented 
 to reduce the cost of their production, until they can be sold in 
 foreign countries at merely a nominal price. In this case the 
 products of a higher civilization are not competing with those 
 
ECONOMIC SELECTION OF INDUSTRIES. 359 
 
 of a lower, but new products are being introduced into less 
 civilized countries ; this stimulates a taste for articles they have 
 not hitherto used, thereby introducing new elements into their 
 social life. Just as fast as a demand for such new commodities 
 is created, the social life is diversified, the standard of living 
 is raised, wages are increased, and a market basis for new 
 industries is established. This is what the diversified tastes 
 and inventive genius of America have been doing in Europe 
 and South America to an increasing extent during the last 
 twenty years. 
 
 Another advantage of a protective policy is that it tends to 
 make the economic selection of industries possible, thereby 
 promoting the only conditions upon which free trade between 
 nations can ever take place without injury to the higher-wage 
 country. 
 
 The postulate, so frequently emphasized by the advocates of 
 laissez faire, that nations, like individuals, should be enabled to 
 adopt those industries for which they are best fitted, is unexcep- 
 tionable. But in order to obtain this result, it is necessary to 
 secure opportunities for developing the economic possibilities 
 of the people. It should ever be remembered that the most effec- 
 tive economic force in society is human invention and not 
 natural resources, as is commonly assumed. For reasons already 
 explained, labor-saving inventions can be developed only under 
 the influence of socializing and diversified industries. These 
 conditions, without which a truly economic selection of industries 
 is impossible, are what protection furnishes. 
 
 Although it may be possible for these conditions to exist with- 
 out protection, history does not furnish an instance where such a 
 thing has occurred. The way in which protection promotes 
 this is easy to understand. In the first place, by raising the 
 basis of international competition to the plane of the higher wage- 
 level, it prevents the lower-paid labor of one country from being 
 made the means of checking the growth of manufacturing in- 
 dustries in another. This secures a home market for domestic 
 products and furnishes an economic basis for a diversification 
 of socializing industries in the higher wage-country. The greatest 
 incentive is thus furnished for developing the most economic 
 methods of production. With concentrated capital, the use of 
 
360 PROTECTION PROMOTES FREE TRADE. 
 
 highly perfected machinery, and the development of specialized 
 industries, a truly economic selection of industries becomes pos- 
 sible. The conditions will then exist for determining what things 
 a nation can most economically produce, by reason of its pe- 
 culiar character, natural resources, and civilization. 
 
 When this point is reached, protection will be economically 
 necessary only to the extent of preventing the substitution of 
 simple for complex industries. It will then be to the advantage 
 not only of that nation, but of the world, that it should devote 
 its productive energies to those industries for which it has devel- 
 oped the best capacity, and to relinquish all others to countries 
 for which they are better adapted. Just in proportion as this 
 takes place, protection becomes unnecessary — provided, however, 
 that this change does not involve the substitution of simple for com- 
 plex industries. For example, if America becomes highly profi- 
 cient in the manufacture of jewelry and relatively deficient in 
 the manufacture of silk, capital will naturally go to the former 
 and away from the latter industry. Foreign silk might then be 
 admitted free of duty without injury to the American laborer. 
 It will thus be seen that protection (as here considered) not only 
 prevents a less civilized country from checking the progress of a 
 higher, but by promoting the substitution of economic for natural 
 (blind) selection of industries, it tends ultimately to make a mu- 
 tually advantageous free trade possible. 
 
 Thus a protective policy is not necessarily narrow and ex- 
 clusive, but, when philosophically applied, is a most truly 
 cosmopolitan doctrine of industrial relations, because it tends 
 first, to develop home industry and civilization without injuring 
 others, and second, to automatically extend these beneficial 
 results to all mankind. 
 
 Here, then, we have a truly philosophic and strictly economic 
 basis for applying the protective principle both to foreign and 
 domestic industrial relations. It consists in securing the present 
 and promoting the future opportunities (incentive-creating con- 
 ditions) for developing the highest industrial and social possibili- 
 ties of a people, and may be briefly summarized thus : 
 Foreign — Applied to the industrial intercourse of nations, a 
 true protective policy is to prevent the products of the more 
 advanced countries from being undersold by the products 
 
PROTECTIVE PRINCIPLE APPLIED. 36 1 
 
 of less civilized countries, through the use of lower paid 
 labor ; thereby securing opportunities for developing the 
 best methods of production afforded by the larger consump- 
 tion and higher social life of the more advanced country. 
 
 Domestic — Applied to the relations of individuals and classes 
 within the nation, this policy is one to guarantee the safety 
 of persons and property with the maximum amount of indi- 
 vidual freedom, and to secure the education, leisure, and 
 other like conditions, which tend to develop the best physical, 
 intellectual, and moral qualities of the individual citizen. 
 The scientific application of this principle to the various phases 
 
 of industrial, social, and political life is the true function of 
 
 statesmanship. 
 
CHAPTER IV. 
 THE PRINCIPLES OF ECONOMIC TAXATION. 
 
 SECTION I. — The Ecoiiomic Basis of Eqtiitable Taxation. 
 
 In the preceding chapter, taxation was discussed solely as an 
 instrument of industrial protection and national development. 
 It is now proposed to consider taxation as a means of obtaining 
 public revenue. In order to determine how to obtain the neces- 
 sary revenue with the least expense and the greatest equity to all 
 classes, it is necessary briefly to consider : (i) the principle which 
 should determine the individual's contribution to the state ; (2) 
 the source from which the contribution should be drawn. 
 
 (1) The principle which should govern individual service to 
 the state is a much debated one. It has been contended by 
 some that a tax should be proportionate to the degree of pro- 
 tection furnished by the state. According to this view, if one 
 class of property is exposed to more danger than another, its 
 owners should pay a proportionately higher tax. The objection 
 to this is that it would place the greatest burden upon those least 
 able to bear it. Assuming taxes to stay where they are put, 
 under this system the owners of coal mines, stone quarries, 
 and land would be almost exempt from taxation, while those 
 engaged in manufacture and commerce would have to pay very 
 high taxes. Moreover, the very poor and helpless, who most 
 frequently need the aid of the state in many forms and are least 
 able to contribute, would be the most heavily taxed. Since the 
 function of government is to protect and promote opportunities 
 for increasing the well-being of the individual, the most equitable 
 basis on which the individual can be called upon to serve the 
 state, is evidently his ability to contribute without injury to him- 
 
 362 
 
PROPERTY TAX. 363 
 
 self. This idea is more or less generally recognized, as is shown 
 in the frequent demand to have a heavier tax imposed upon com- 
 modities consumed by the rich than upon those consumed by the 
 poor. And the frequent demand for taxing incomes above a 
 certain amount, the exemption of wages and small homesteads, — 
 all of which are efforts to make the rich contribute more to the 
 public revenue than the poor, upon the principle that they are 
 more able to contribute. 
 
 (2) From what source should this tribute to the state be drawn, 
 or what is the best measure of an individual's capacity to pay 
 without injury to his own well-being ? It is commonly assumed 
 that the ability of a citizen to pay a tax is proportionate to the 
 property he owns ; this, however, is far from being correct. For 
 instance, one may legally own a large amount of property which 
 is so highly mortgaged as to make his ownership merely nominal. 
 To tax such a man in proportion to his property would impover- 
 ish him, while the effect of a similar tax upon his neighbor whose 
 property is free from mortgage would be relatively slight. One 
 manufacturer with a large plant may, through a mere change of 
 fashion or other social cause, be working at a loss, while another, 
 with a similar plant, but who is unaffected by the fashion, may be 
 making large profits. 
 
 Clearly, to tax the property of these two at the same rate would 
 be to deprive the former of his means of getting a living, while 
 from the latter it would take but a fraction of his surplus, and hence 
 would in no way impair his present industrial or social status. 
 Manifestly then a uniform tax upon product or property would 
 not fall with equal weight upon all. In other words, the owner- 
 ship of property does not constitute a correct measure of the in- 
 dividual's ability to contribute to the public revenue. There is 
 but one source from which wealth can be taken with the certainty 
 that it will not inflict a burden, and that is, surplus income, which 
 embraces all the forms of rent, interest, and profit. 
 
 The reason this form of income can be taxed with the least 
 burden to its owner is that it does not enter into the necessary 
 cost of his living. The cost of the social well-being of all who 
 participate in production being a part of the necessary cost of 
 production is represented by wages and salaries, the surplus is 
 what remains after these costs are defrayed. Consequently, al- 
 
364 MOBILITY OF TAXES. 
 
 though to pay a tax from one's surplus is to lessen one's wealth, 
 it does not intrench upon the normal means of social well-being, 
 and therefore inflicts the minimum amount of economic and 
 social inconvenience. Clearly then, the extent of the surplus in- 
 come is the measure of an individual's ability to contribute to 
 the public revenue without injury to his own well-being. How 
 then can taxes be levied so as to be drawn from the economic 
 surplus of the community without disturbing industrial relations ? 
 This would be a very simple problem if the taxes would stay 
 where they are put and were paid by those upon whom they 
 are levied. But this is just what does not occur. In order 
 therefore, to answer this question, it is necessary to consider the 
 economic mobility of taxes. 
 
 Section II. — The Mobility of Taxes and their Relation to 
 
 Wages. 
 
 To ascertain how taxes travel from one to another class in the 
 community, and to find by whom they are ultimately paid, we 
 have only to follow a tax from where it is levied to the place 
 where it cannot be further shifted. For illustration, let us sup- 
 pose that a tax is laid upon land ; the land being the source of all 
 raw material, such a tax would affect all commodities in the first 
 stage of their production. Upon the principle that a commodity 
 cannot be continuously furnished for less than it costs, the tax 
 will be added to the price of the product in the same way as 
 wages and other items, and must be paid by the purchaser. If 
 the article is wheat, the tax is thus transferred from the far- 
 mer to the miller. The tax being an inevitable item in the cost 
 of the flour to the miller it is transferred by him to the wholesale 
 merchant, and by him to the retail grocer, who in turn passes it 
 on to the consumer. Manifestly unless the consumer can transfer 
 the tax to some one else, he must pay it, because it is included in 
 the price of his commodity in addition to all necessary costs. 
 
 This brings us to the most critical point of the subject. All 
 writers of any standing recognize the mobility of the tax from the 
 raw material to the consumer of the finished product. But it is 
 generally assumed that the tax cannot be made to travel any 
 further than the commodity in whose cost it is an item, and con- 
 sequently whoever consumes the article ultimately pays the tax. 
 
RELATION OF TAXES TO WAGES. 365 
 
 If we examine the matter more closely, however, we shall see that 
 this conclusion is only partially correct. Whether or not those 
 who consume the wheat pay the tax, will depend upon whether its 
 consumption forms an item in any further series of production. 
 Suppose, for instance, the wheat is consumed by horses that are 
 employed in a brick-yard. The wheat in that case at once be- 
 comes an item in the cost of using the horse, which in turn is an 
 item in the cost of the brick. This point is very important 
 here, because it has a direct bearing upon whether or not the 
 laborer ultimately pays the tax included in the price of the com- 
 modities he consumes. 
 
 The laborer, it should be remembered, exercises two functions. 
 One is social, and the other economic. As a social factor he is 
 a consumer, and constitutes an important item both in civilization 
 and in the market. As an economic factor, however, he is 
 simply a productive force. In this capacity he affects the price 
 of the product in precisely the same way as does any other force 
 so employed, whether it be through the instrumentality of ani- 
 mals or machinery. Economically they all affect the cost and 
 price of the product in the same way, namely, through the cost 
 of procuring them. The cost of any productive instrument is 
 what is consumed in maintaining its productive efficiency, and 
 that cost must be replenished from the price of the product. 
 Now, the cost of maintaining the productive efficiency of the 
 laborer is his living. Whatever is necessary to that is a part of 
 the price of his labor — wages, — and therefore becomes a neces- 
 sary item in the cost of whatever he produces. Clearly, there- 
 fore, the more his living costs, the more expensive will be his 
 labor. If his cost of living could be reduced, either by inducing 
 him to consume fewer commodities or by lessening the cost of 
 those he does consume, his wages could easily be lowered. The 
 price of labor in Asia and continental Europe is less than in 
 America because labor there costs less. 1 
 
 For the same reason that the price of labor would fall if the 
 cost of the laborer's living could be reduced, it must and will 
 rise if the cost of that living is increased. Nor does it matter 
 whether the increased cost is due to an increase in the amount of 
 
 '"Wealth and Progress," Part II., chap, vii., sec. i., pp. 162-167; »l so 
 Brassey's " Work and Wages," pp. 88, 89, 94-96. 
 
366 THE LABORER SHIFTS THE TAX. 
 
 wealth he consumes or to a rise in the price of that wealth. Thus, 
 during the American war, when the price of commodities was 
 greatly increased through the inflation of the currency, wages soon 
 moved in the same direction and fell again when the prices were 
 lowered — as, indeed, they have throughout all history. 1 Clearly, 
 therefore, if the price of a laborer's flour, sugar, coffee, clothing, 
 and the like is increased by a tax, the result will be economically 
 the same as if the higher price were due to the payment of higher 
 wages to agricultural laborers, a rise in the rate of transportation, 
 a failure of crops, or any other cause ; and if it becomes perma- 
 nent it will result in his demanding and obtaining higher nominal 
 wages. The laborer would not gain any thing in well-being by 
 such a rise of wages, but it would be necessary in order to furnish 
 him the amount of well-being to which he had become habitually 
 accustomed, and without which he would refuse to work. In this 
 way, therefore, the tax is transferred from the laborer to the em- 
 ployer. 2 What is true of the laborer is equally true of all who 
 receive stipulated incomes. 
 
 To whom, then, it may be asked, does the employer transfer 
 the tax ? Here the answer is as before — to whomsoever he can. 
 And if he cannot transfer it to anybody, he must pay it himself. 
 He will of course utilize all the economic forces at his command 
 to pass the tax to somebody else. He may first try to make the 
 
 '"Wealth and Progress," pp. 148-156; also McCulloch's "Principles of 
 Political Economy," p. 181. 
 
 2 This fact was recognized by the early English writers, although, like many 
 others of their best suggestions, it has been subsequently treated rather as an 
 incidental than a primary fact. Adam Smith says : ' ' Such a tax must there- 
 fore occasion a rise in the wages of labor proportionable to this rise of price. It 
 is thus that a tax upon the necessaries of life operates in exactly the same man- 
 ner as a direct tax upon the wages of labor. The laborer, though he may pay 
 it out of his hand, cannot, for any considerable time at least, be properly said to 
 even advance it. It must always, in the long run, be advanced to him by his 
 immediate employer in the advanced rate of wages." — " Wealth of Nations," 
 Book V., chap, ii., article iv., pp. 691 and 692 ; see also pp. 686, 693, 694, and 
 704. Ricardo says : ' ' There can be no permanent fall of wages, but in con- 
 sequence of a fall of the necessaries on which wages are expended." — " Political 
 Economy and Taxation," p. 75. " A tax, however, on raw produce and on the 
 necessaries of the laborer, would have another effect — it would raise wages." — 
 Ibid., p. 93. " The effect of a tax on wages would be to raise wages by a sum 
 at least equal to the tax, and would be finally, if not immediately, paid by the 
 employer of labor." — Ibid., p. 133 ; see also pp. 129, 136, and 141. 
 
TAXES DRAWN FROM THE SURPLUS. 367 
 
 laborer pay it by refusing to increase wages, but here he will be 
 met by the laborer's refusal to work, and, should he try to put it 
 on the consumer in higher prices, he will only be repeating the 
 circle, because the increase in the price will act as before upon 
 wages, and he will have to pay out to the laborer what he has 
 thus exacted from the consumer. In the last analysis, therefore, 
 the only source from which the employer can pay the tax is his 
 surplus or profit. 1 That being, as we saw in the last section, the 
 true measure of the individual's ability to contribute to the public 
 revenue without curtailing his own well-being, it is the most 
 equitable basis of taxation. This brings us to the question how 
 the employer replenishes his surplus from which taxes are finally 
 drawn. 
 
 Section III. — The Ultimate Effect of Taxation upon Profits 
 and the General Wealth of the Community. 
 
 If the conclusion reached in the last section is correct, and 
 taxes finally come out of the surplus product, then it follows that 
 either profits diminish as taxes increase, or that the employer has 
 some means of replenishing his surplus. We know from ex- 
 perience that the aggregate amount of wealth taken in taxes tends 
 to increase as society advances, and it is equally certain that the 
 aggregate profits do not diminish. On the contrary, while there 
 is a tendency to minimize the rate of profit per unit of product, 
 the aggregate amount of surplus product in various forms un- 
 questionably tends to increase. Clearly, then, there must be 
 some means by which the employer can replenish his surplus 
 when thus drained by taxation. How does he do it ? 
 
 We have already seen that he cannot take it from the consumer 
 
 1 Accordingly, any extra pressure of taxation is always first felt by the business 
 portion of the community in the diminution of profits. Hence we always 
 find the commercial class the first to protest against excessive taxation. For 
 this reason no representative government, and few despotic ones, could suddenly 
 increase the taxation of the country by an amount equal to the aggregate profits 
 of the community, because such an act would practically be a seizure of the total 
 surplus revenue, which would, in all probability, cause a revolution that would 
 destroy the government. That is why, whenever an exceptionally large amount 
 is to be suddenly raised by taxes, it invariably takes the form of a loan for a long 
 period, thus extending the ultimate payment of a portion of the tax to future 
 generations. 
 
368 HOW THE SURPLUS IS REPLENISHED. 
 
 by raising prices, nor from the laborer by reducing wages. That 
 he does not take it from either of these sources is further shown 
 by the fact that contemporaneously with the increase of taxation, 
 real wages have risen and the price of commodities has fallen. 
 Manifestly then, the only way the producer's surplus can be 
 replenished is by a new draft upon nature through increased 
 production. Nor will it be difficult to see how this takes place, 
 if we bear in mind the law of prices and surplus, previously 
 presented. 
 
 Under this law, whenever productive methods are employed 
 by which nature yields a greater amount of wealth for the same 
 effort, all other demands upon the product being fixed amounts, 
 the whole gain naturally flows to the contingent surplus of those 
 who use the new methods. Consequently, all increase in the 
 wealth of any stipulated income class in the community, whether 
 it be through lowering prices or increasing wages, must be drawn 
 from the contingent surplus of the producers. For instance 
 when, by the adoption of more productive instruments, the sur- 
 plus of the most successful producers increases, there arises a 
 greater inducement to invest more capital in the enterprise, and 
 thus increase production. In order to insure the sale of this 
 increased production, it is offered at a lower price. If this 
 reduction be ten per cent., the uniform price of the total product 
 in that market will fall ten per cent. Manifestly this fall comes 
 directly out of the profits of the producers, and all who were 
 previously making less than ten per cent, profit will now have to 
 leave the business or adopt the methods by which the reduction 
 was brought about. Thus the additional wealth resulting from 
 the increased productive efficiency first flows to the economic 
 surplus of those producing the improvement, and then by com- 
 petition, is transferred from the producers' surplus to the com- 
 munity in lower prices. 
 
 An increase of wages takes place upon the same general 
 principles, and with substantially the same result, but it comes 
 in a somewhat different way. A reduction in prices is a distri- 
 bution of the surplus through the aggressive action of employers. 
 An increase of wages is a distribution of the surplus by the 
 aggressive action of laborers. As already explained, the enforced 
 transfer from profits to wages compels the producer either to 
 
TAXES INCREASE PRODUCTION. 369 
 
 work without profit, or perhaps at a loss, or to adopt some 
 labor-saving means by which more can be produced at the same 
 cost. Thus the laborer's encroachment upon the capitalist's 
 surplus forces him, under penalty of poverty, to make nature 
 yield more wealth for the same effort, thus replenishing what 
 the laborer has taken from him, and making the community 
 absolutely richer by the amount to which wages have been 
 increased. 1 
 
 What is true of wages is true of any other form of increased 
 consumption which adds to the cost of production. Taxation is 
 precisely of this character. If 10 per cent, is added to the price 
 of wheat or cotton by a tax, the mobility and ultimate economic 
 effect upon profits and production will be identically the same as 
 if 10 per cent, had been added to the cost by an increase of 
 wages. The same economic power which would enable the 
 farmer to add to the price of wheat an increase in the farm 
 laborers' wages, and the miller, wholesale and retail merchant, 
 each in turn to add it to the price of flour, and the mechanic, 
 who consumes the flour, to add it to his wages, and thus ultimately 
 take it from the employers' profits, will enable them to do pre- 
 cisely the same by a tax which increases the cost of production 
 in the same way, no matter at what stage of the process it is 
 levied. Taxation, like wages, is simply a form of consumption, 
 and hence exercises the same influence upon profits and the 
 general wealth of the community as any other form of consump- 
 tion — namely, to increase the aggregate production, which added 
 increment goes to replenish the source from which the tax was 
 last taken — the employer's profit. 
 
 It will thus be seen that the entrepreneur does not pay the 
 
 tax, in the sense of being permanently the poorer by it, any more 
 
 than does the farmer, miller, merchant, or laborer. They each 
 
 shift it on to the next purchaser of the product into whose cost 
 
 it has entered. In the laborer's case, having become a part of 
 
 the cost of his labor, it is charged to the employer in the same 
 
 way. The employer, being unable to charge it upon any class 
 
 of his fellow-men, is forced, by the impulse of self-interest, to 
 
 exact it from nature, which he finally does in the form of a larger 
 
 product. Therefore Professor Sumner's statement that "every 
 
 1 Part II., chap, v., sec. iii. Also "Wealth and Progress," pp. 31, 32. 
 24 
 
370 IMPORTANCE OF TAXATION EXAGGERATED. 
 
 tax is an evil " is essentially false. A tax is not necessarily an 
 evil any more than wages or any other form of consumption. 1 
 
 It will thus be seen that taxation properly occupies no such 
 important position in economics as is usually ascribed to it. If 
 the total consumption upon which the $300,000,000 of taxes in 
 this country is expended were abolished to-morrow, instead of 
 adding to our wealth, it would create an industrial depression in 
 this and probably in several other countries, until, by enforced 
 idleness and bankruptcy, production could be readjusted on the 
 narrower basis to conform to the diminished consumption or 
 demand. Were this relation of consumption to production prop- 
 erly understood, taxation would cease to be the hobgoblin of 
 public affairs. The important question regarding taxation is not 
 as to who shall pay the taxes, nor how much they shall be, but as 
 to how they shall be expended. If a large amount of wealth 
 is exacted from the community in taxes, and is squandered, then 
 there would be no justification for a readjustment of economic 
 relations which its production involves. If the tax revenue is 
 used to repress any phase of social progress, as would be in 
 maintaining a standing army, it is then a positive injury. Only 
 when the wealth created by tax is used to further the social 
 development of the people has it any economic or ethical justifi- 
 cation. Upon what principle, then, should the public revenue 
 be expended in order to justify its collection ? 
 
 SECTION IV. — The Legitimate Sphere of Public Expenditures. 
 
 Since the public revenue is but the means by which government 
 fulfils its functions, its expenditure is necessarily limited to the 
 sphere of governmental action. We have already seen that the 
 functions of government are essentially protective, judiciary, educa- 
 tional, and impersonal in their character. Clearly therefore, the 
 sphere of public expenditures is properly limited to the promotion 
 of those objects which may be conveniently grouped into two 
 classes as the Static and the Dynamic functions of government. 
 
 1 Whether or not a rise of wages or an increase of taxation will be beneficial 
 will depend largely upon how it is expended, and this, in turn, will depend 
 upon the influences by which it was brought about, but, in any event, it will 
 cause an increase in production. 
 
TWO FUNCTIONS OF GOVERNMENT. 37 1 
 
 The static functions embrace all that is necessary to secure the 
 community against a common enemy and to enforce the recog- 
 nized system of social order as expressed in established institu- 
 tions. This may require a large army, an extensive police force, 
 and a numerous staff of judiciary and executive officers. The 
 means necessary to sustain these instruments of public order 
 should be supplied from the public revenue, for the obvious 
 reason that it is the function above all others which can be best 
 performed by the government, and without which it would be 
 impossible for the individual to perform with safety and freedom 
 any of the industrial and social duties of a civilized citizen. All 
 expenditure for this purpose represents the price that civilization 
 has to pay for guarding itself against the effects of barbarism, and 
 should be reduced as rapidly as possible. 
 
 To accomplish this reduction involves the exercise of the 
 dynamic functions of government. These relate to increasing 
 the opportunity for developing all phases of individual capacity 
 and freedom. Opportunity, as the term is here employed, is 
 distinctively educational in the broadest sense of the word. Every 
 thing is educational that brings man into more frequent contact 
 with an increasing variety of social influences which tend to stimu- 
 late his wants and desires, sharpen his intelligence, and actualize 
 the latent possibilities of his character. This embraces not only 
 the elementary education furnished by the common school, which 
 is of prime importance to citizenship, but it also includes the 
 furnishing of clean, wholesome streets, good drainage, ventilation, 
 and other sanitary requisites to wholesome domestic life, an abun- 
 dance of public parks, gardens, museums, free lectures, reading- 
 rooms, circulating libraries, and, above all, the leisure necessary 
 to enable the masses to avail themselves of these and kindred 
 educating and elevating influences. To the extent that these 
 opportunities are increased will the intelligence and character of 
 the citizen be elevated and the functions of the soldier, policeman, 
 judge, and jailer become unnecessary. Consequently, to the 
 extent that the public revenue is expended in performing the 
 dynamic functions of the state will the amount required to 
 perform the static functions diminish. This is the more import- 
 ant because every dollar that is consumed by the government in 
 exercising its static functions involves so much production 
 
372 PUBLIC IMPROVEMENTS. 
 
 without any real increase in well-being, — it being all consumed in 
 guarding what already exists. On the other hand, every dollar 
 expended by the state in performing its dynamic functions 
 involves an increase of production, all of which is a net gain in 
 social well-being. 
 
 Therefore, instead of treating all taxes as an evil to be dimin- 
 ished, it is only the amount of the public revenue consumed by the 
 government in performing its executive and police duties that 
 can properly be so regarded. All that is consumed in extending 
 the socializing opportunities of the people is a positive benefit 
 and should be increased, especially as the increase of the latter is 
 the surest way of diminishing the former. To oppose an increase 
 of taxation for public improvements, in the name of economy, is 
 a fallacy which cannot be too frequently exposed. It is just as 
 important to have clean streets as to have clean houses, and the 
 wealth consumed in the one contributes to civilization as much 
 as that consumed in the other. The only question to be con- 
 sidered regarding such expenditures, is whether or not they can 
 be more efficiently conducted by the government than by private 
 individuals. 1 But that the wealth so consumed should be 
 increased is sustained by all the interests of civilization, and 
 those who oppose it are unconsciously or otherwise obstructing 
 the movement of social progress as surely as those who oppose 
 popular education and favor long hours of labor and low wages. 
 
 SECTION V. — How can Taxes be Most Equitably Levied, 
 Conveniently Paid, and Economically Collected? 
 
 This proposition involves two questions : (i) How taxes should 
 be levied. (2) What they should be levied upon. 
 
 t. There are two general methods by which the public revenue 
 can be obtained — direct and indirect taxation. It is a peculiar 
 feature in the history of taxation that those who are charged with 
 the responsibility of raising the revenue and with the administra- 
 tion of government, usually prefer to obtain the revenue through 
 indirect taxation. On the other hand, revenue reformers and 
 social reformers generally advocate direct taxation. 
 
 Direct taxation is urged in preference to indirect, chiefly on the 
 1 See Part IV. , chapter ii. , section iii . 
 
DIRECT TAXATION. 373 
 
 ground that a tax is an evil which should always be minimized, 
 and that if taxes were collected directly from the individual 
 he would then realize how much he paid, and would therefore be 
 more strenuous in his demands for a retrenchment of the public 
 revenue. They insist that indirect taxation is simply a cunning 
 device for making the citizen contribute to the public revenue 
 under the guise of purchasing the necessaries of life, thus obtain- 
 ing wealth from the individual which he would otherwise refuse 
 to contribute. This position is based upon two assumptions : 
 (i) that taxes are necessarily an evil to be minimized ; (2) that 
 direct taxation affords each individual an opportunity of correctly 
 estimating the amount he contributes to the public revenue. 
 
 In the first place it is an entire mistake to regard taxes as neces- 
 sarily an evil. We have already seen that they simply represent 
 the consumption of wealth in a public form, and have the same 
 economic effect upon production, industry, and commerce gener- 
 ally, as does private consumption. And whether or not private 
 or public consumption will be permanently beneficial to the com- 
 munity depends upon how such consumption takes place. To the 
 degree that wealth is consumed in extending public improvements 
 and enlarging the social opportunities of the people, it is both 
 economically and socially a positive advantage. The assumption 
 therefore that taxes are at best a necessary evil is not only 
 erroneous in fact, but it is extremely mischievous in its effect, 
 as it inspires opposition to expenditures for public improve- 
 ments. 
 
 Nor is the idea that direct taxation enables each individual 
 accurately to determine the amount he contributes to the public 
 revenue any nearer correct. This is another of the numerous 
 errors arising from a misconception of the law of wages. From 
 what has already been said it will not be difficult to see that a 
 direct tax upon the individual is just as mobile as an indirect tax 
 levied upon the commodities he consumes. If a merchant can 
 transfer a tax upon flour to the consumer, because it adds to its 
 cost to him, he can also transfer to the consumer a tax upon his 
 house or his horse for the same reason. 
 
 The same is true of the laborer. A direct tax upon his house 
 or his wages or any thing in his possession, is simply so much 
 addition to the cost of his living, and can be transferred through 
 
374 EVILS OF DIRECT TAXATION. 
 
 higher wages to the employer in precisely the same way as is his 
 house rent, and the cost of his food, clothes, and other necessaries 
 of life. 1 In many parts of England the different classes of local 
 expenditure such as the " poor's rate," the " cemetery rate," the 
 " highway rate," the " water rate," the " local-board rate," etc., are 
 collected directly from each householder by the tax-gatherer 
 in separate items, and often by different persons. These rates 
 however, enter into the cost of the laborer's living, and have to be 
 covered by his wages just as much as the amount of his grocery 
 bill or his house rent, and are everywhere so recognized. 2 Where 
 the rates and rents are high, as in London and other large centres, 
 the wages in all industries are correspondingly higher than in 
 localities where these items are low, which is one of the reasons 
 why wages are always higher in large cities than in small towns 
 and rural districts. 3 The economic mobility of a tax is in no- 
 wise affected by the fact that it is directly or indirectly collected. 
 Whether the taxes are gathered directly from the laborer in a 
 specific sum, or indirectly through the enhanced price of com- 
 modities, makes no real difference. In either case it enters into 
 the cost of his living and the price of his service, and hence is 
 ultimately transferred to the employer. Instead, therefore, of 
 direct taxation enabling the laborer accurately to determine the 
 amount he pays to the government, it has the opposite effect, and 
 he is deluded into the belief that he is heavily burdened by pub- 
 lic expenditures, whereas he actually contributes nothing except 
 temporarily during periods of readjustment. 
 
 Moreover, the effect of direct taxation is pernicious in many 
 ways. In the first place it creates a strong incentive for evading 
 taxes, which is a standing inducement to dishonesty. So long as 
 men believe that they are permanently impoverished by what 
 they pay into the public treasury, they will endeavor to devise 
 
 1 " Wealth of Nations." 
 
 2 So manifest is this that where whole classes of laborers have to ride to and 
 from their work, as in London and other large cities, the price of their fare is 
 recognized as a proper cause for demanding higher wages, and in other districts 
 where the employer furnishes the laborer's house rent-free, or the privilege of 
 keeping a cow, etc., it is equally regarded as a legitimate reason for paying 
 lower wages, and in such cases wages always are lower. 
 
 3 " Wealth and Progress," Part II., chap. vii. 
 
PROPERTY AND INCOME TAX. 375 
 
 means to elude the tax-gatherer ; the " tax-dodger " is a well- 
 known character. 1 In the next place direct taxation creates a 
 strong feeling of dissatisfaction among the different classes in 
 the community as to the justice or injustice of taxing or not 
 taxing different classes of property. Hence the interminable 
 controversy as to whether or not workingmen's homes should be 
 exempt from taxation. It is held to be unjust to tax the work- 
 ingman's home because that would be putting the burden upon 
 those who are least able to bear it. But if they are to be exempt, 
 at what point should the exemption be fixed ? To exempt home- 
 steads at a given valuation would tend to encourage the building 
 of houses within that valuation limit ; and that would be a decided 
 injury, because it would act as a check upon the building of 
 superior houses, and hence tend to stereotype inferior domestic 
 conditions. 
 
 Again, whether or not all personal property should be taxed, 
 and if not what kind should be exempt, is another point of con- 
 tention. Some insist that productive property should not be 
 taxed, because such taxation discourages industry, while others 
 contend that to tax non-productive property is unjust, since it 
 yields no income. And certain it is that every attempt to tax 
 personal property encourages systematic misrepresentation and 
 other fraudulent practices too numerous to recite. 2 
 
 The same is true of income tax. This tax is assessed on the 
 assumption that it draws the revenue from surplus incomes which 
 would otherwise escape taxation. But when it is understood that 
 in the normal course of economic movement all taxes are finally 
 drawn from the surplus product, the force of such reasoning 
 entirely disappears. So far from direct taxation being the model 
 method of raising public revenue, therefore, it is essentially un- 
 economic and demoralizing. It involves the maximum incon- 
 
 1 In Boston for instance it has become an established practice among a large 
 number of rich men to temporarily reside in Nahant, a small town a few miles 
 from the city, where the local taxes are very light. By living there on the first 
 of May, when assessments are made, they are taxed for Nahant instead of 
 Boston. While they actually live in Boston, and obtain all the advantages of 
 the large public expenditures there, they are only taxed according to the trifling 
 expenditure in Nahant. 
 
 2 See Prof. E. R. A. Seligman on "The General Property Tax," Political 
 Science Quarterly, March, 1890. 
 
376 INDIRECT TAXATION. 
 
 venience, puts a premium on dishonesty, and tends to make the 
 average citizen a persistent enemy of public improvements, 
 without affording any compensating advantages. In short, direct 
 taxation is defensible only in cases of exceptional emergency 
 such as wars, 1 and even then but for the briefest period pos- 
 sible. 
 
 Since the public revenue must be directly or indirectly col- 
 lected, it follows that all the reasons for objecting to direct 
 taxation obtain in favor of the indirect. While it is highly 
 important that the individual should always be fully informed 
 regarding real burdens, it is quite as important that he be not 
 deluded into assuming imaginary ones. Since the public con- 
 sumption represented by taxation is not a permanent burden 
 upon any class in the community, the public welfare demands 
 that taxes should be so levied as not to have that appearance. 
 Consequently, instead of making taxes as direct as possible, 
 thereby giving them the most burdensome seeming, they should 
 be levied with the greatest indirectness, so as to be as impercepti- 
 ble as possible. To the extent that the individual ceases to be 
 conscious of his contribution, and its exact amount becomes 
 difficult to determine, will the incentive for the various forms of 
 dishonesty and corruption for evading taxation disappear. And 
 when an important public improvement is proposed which in- 
 volves a large expenditure, the decision of the average citizen 
 regarding it will be less likely to be neutralized by the feelings of 
 his own inability to contribute his share. By removing this con- 
 scious personal element, the question of taxation will be considered 
 solely with regard to its effects upon the community, thus removing 
 one of the greatest obstacles to public improvements. With this 
 view of taxation, all public expenditures of a protective, educa- 
 tional, opportunity-creating character (judiciously applied) would 
 be regarded as an actual addition to the wealth of the community, 
 
 1 The only reason for adopting direct taxation in case of war is that the surplus 
 income is reached quicker by that means, but it is far more inconvenient and 
 arbitrary ; and even in such cases it is more economic to borrow the necessary 
 amount and let it be finally repaid out of the revenue indirectly collected. 
 When it is thus furnished through the normal operation of economic law, ii 
 tends gradually to replenish the surplus from which it is drawn by increased 
 production, and thus minimize, if not indeed obviate, the burden upon the com 
 munity. 
 
ADVANTAGES OF LAND TAX. 377 
 
 to be increased, instead of as at present being treated as a burden 
 to be avoided at every turn. 
 
 2. Upon what class of property should taxes be levied is the 
 question that remains to be considered. The important point to 
 be considered in determining the class of property upon which 
 taxes should be levied is how to obtain the greatest indirection 
 of movement with the least cost of collection. 
 
 Manifestly a tax will have the greatest indirection of movement, 
 and hence be most completely subject to economic law which 
 passes through the largest number of hands and enters into the 
 greatest variety of productive processes. To give a tax the 
 greatest indirection, therefore, it must be levied at the point 
 farthest removed from those by whom it will be finally paid. 
 Since all taxes are finally drawn from the surplus product, they 
 would necessarily be most direct when levied upon profits or 
 other surplus, and conversely most indirect when levied upon 
 the source of raw material. Upon the same principle that a tax 
 upon surplus incomes cannot be shifted to any other class in the 
 community, because it does not enter into the cost of production, 
 a tax on raw material can be shifted in a multitude of ways before 
 reaching any class of consumers, because it all enters into the 
 cost of production, and becomes an indistinguishable part of the 
 price of commodities. Clearly then, the greatest indirection 
 would be secured by imposing a tax on real estate, especially 
 on land. A tax upon land would of course be an addition to the 
 cost of producing every species of wealth in the community. 
 
 It is equally clear that a tax upon real estate would be the 
 most easy and inexpensive to collect. In the first place, it is 
 the form of property that is most accessible, it cannot be con- 
 cealed from the eye of the assessor ; hence it affords the least 
 temptation for tax-dodging, or other dishonorable means of 
 evasion. It is also the class of property whose value is most 
 easily ascertained, because it is most frequently and permanently 
 in the open market for sale or rent, either fact furnishing the basis 
 for ascertaining its current value at any given time. This form 
 of property has the further advantage of being immovable. The 
 owner may leave the city, State, or country, but the real estate 
 remains as accessible as ever. Another advantage in this form 
 of taxation is that it avoids all the objectionable inquisitorial 
 
378 EQUITABLE NATURE OF LAND TAX. 
 
 features involved in all direct, personal, and property taxes. 
 There is no other form of property in society upon which taxes 
 can be so easily and accurately assessed, so cheaply collected, and 
 with as little intrusion upon the freedom of the citizen. 
 
 Nor can there be any complaint that such a tax would press 
 unduly upon the landowner, because, so far as the income from 
 the land represents the cost of service rendered in using it for 
 productive purposes, the tax will all come back in the price 
 of the product ; and only that portion of the tax which falls 
 upon the surplus as rent, interest, and profit will be untransfera- 
 ble and finally paid by the landowner, the equity of which no 
 one can question. Nor can any legitimate complaint be made by 
 those who advance the tax at any of the subsequent stages. In 
 every case, so far as it affects the cost of economic production 
 either in the form of the cost of raw material, tools, labor, or any 
 thing whatsoever, it can be added to the price. Neither could 
 there properly be any complaint about the personal wealth of the 
 rich escaping taxation, because the tax having been laid at the 
 source of economic movement, its full amount is included in the 
 price of every thing they buy. Hence their only means of suc- 
 cessfully avoiding taxation would be to forego consumption, 
 which is to relinquish wealth and civilization. If taxes were 
 thus levied, the rich jewelry, wardrobes, furnishings, and equi- 
 pages of the wealthy would all carry their quota of taxation, and 
 so far as they represented the stock of the manufacturer or 
 merchant, or were included in the necessary cost of living of any 
 who render productive service, the tax included in their price 
 would be transferable as in all other cases ; that portion of these 
 forms of wealth only which was supplied from surplus income 
 would have finally to bear the tax. There certainly could be no 
 justice in making an article, which has already borne its full 
 quota of taxation in its economic journey to the consumer, yield 
 a fresh tax each year after it leaves the sphere of economic move- 
 ment. Such a tax must necessarily act as a direct check upon all 
 new forms of consumption, especially among the wage- and salary- 
 receiving class, and thus be positively inimical to the development 
 of a high standard of living and social progress. 
 
 It will perhaps be objected that if taxes were all levied on real 
 estate, and acted as an increase in the cost of raw material, the 
 
OBJECTIONS ANSWERED. 379 
 
 tax would fall the heaviest on those articles containing the largest 
 amount of raw material. And since food and the coarser manu- 
 factured products consumed by the masses contain a much larger 
 proportion of raw material than the finer products of manufacture 
 and art consumed by the wealthy, the tax would fall much more 
 heavily upon the poor than upon the rich. This is an objection 
 which can be easily answered, if we bear in mind the law govern- 
 ing the mobility of taxes. It is true that in high-priced jewelry, 
 pictures, books, and indeed the finer products of manufacture 
 and art, the raw material forms the most insignificant portion of 
 the cost. And if the tax represented in the price of such articles 
 was limited to what is conveyed by the cost of raw material, it 
 would indeed be very slight. The fact is, however, that the tax 
 in such products enters mainly through the labor. Although the 
 tax-bearing raw material in these products is very slight, that 
 represented in the laborer's wages, which includes all that enters 
 into his living, is very great, and as the high price of such prod- 
 ucts is largely made up of the cost of labor, they bear the tax 
 levied upon all the raw material consumed by the laborer. The 
 tax, therefore, in the finer products of manufacture and art will 
 not be proportionate to the raw material they actually contain, 
 but to all the raw material that has been consumed by every thing 
 used in producing them. In other words, their contribution to 
 the public revenue will be proportionate to their value as finished 
 products, and therefore they represent the greatest instead of the 
 least tax-transmitting power. 
 
 Another objection that will probably be urged against this 
 position is, that a tax on raw material has the effect of adding to 
 the price of the product not only the tax but also the profit upon 
 the tax to those who advance it. This view has long been held 
 by leading English economists. 1 According to this view, every 
 time a tax is transferred it carries with it an added increment of 
 
 1 Adam Smith says : "A tax upon those articles necessarily raises their price 
 somewhat higher than the amount of the tax, because the dealer who advances 
 the tax must generally get it back with the profit. . . . His employer, if 
 he is a manufacturer, will charge upon the price of his goods this rise of wages 
 with a profit, so that the final payment of the tax, together with his overcharge, 
 will fall upon the consumer." — "Wealth of Nations," Book V., chap, ii., 
 article iv., pp. 691, 692. 
 
380 MILL'S ERROR. 
 
 profit. Consequently, if it is transferred enough times, the amount 
 of profit which is added to the consumer's price of the finished 
 product by the tax will be greater than the tax itself. This doc- 
 trine is a logical part of the orthodox theory of profits, according 
 to which the normal profits of the capitalists form a necessary 
 part of the cost of production, and hence of the price of commo- 
 dities. In stating this theory, Mill says : " And profit, we have 
 also seen, is not exclusively the surplus remaining to the capitalist 
 after he has been compensated for his outlay, but forms, in most 
 cases, no unimportant part of the outlay itself." And after enu- 
 merating a long series of processes, in which the profits of each 
 are compounded in the next, he adds : " All these advances 
 form a part of the cost of production of linen. Profits, therefore, 
 as well as wages, enter into the cost of production which deter- 
 mines the value of the produce." ' Were this doctrine correct, 
 it would certainly form an unanswerable objection to all indirect 
 taxation, and indeed to indirect production also. Since every 
 specialization and division of labor adds to the series of distinct 
 profit-yielding processes, industrial improvements would serve to 
 increase the power of the capitalist to add compound profit to the 
 consumer's price of commodities. 
 
 Fortunately for civilization, however, economic law permits no 
 such compound profit-making process. We have already seen 
 that the price of the product in a given market tends to a 
 uniformity on the basis of the cost of furnishing the dearest 
 portion. 2 Consequently the profits of each producer can only be 
 equal to the difference between his cost of production and that 
 of those furnishing the dearest increment of the general supply, 
 this increment being sold without profit. It is impossible there- 
 fore in any market, or at any stage of the productive process, to 
 add the producer's profit to the consumer's price, since competi- 
 tion compels all who contribute to the same market to sell at the 
 same price, which price is fixed by the cost of the no-profit produc- 
 ers. Consequently, if there is any profit, it must be obtained from 
 nature through greater economy in production. It will thus be 
 seen that the claim that taxes upon land or raw material must be 
 repaid with a profit to those who pay them, is a pure phantom 
 
 1 "Principles of Political Economy," vol. i., p. 568. 
 
 2 Part II., chap, iv., pp. 125-128. Cf. pp. 205, 206. 
 
POPULAR DELUSION. 38 1 
 
 which entirely vanishes in the light of the true law of economic 
 prices, and with it disappear all the objections to indirect taxa- 
 tion, based upon adding compound profit to consumers' prices. 
 
 It will be seen that the question of taxation is much less funda- 
 mental than it is usually made to appear. Like the question of 
 money, it is frequently employed to influence public opinion on 
 a multitude of questions on which it has practically no bearing. 
 Taxation is simply the consumption of wealth in a public form, 
 and has no more economic effect than the same amount of wealth 
 privately consumed. The only interest therefore the community 
 has in the question is that the taxes shall be economically col- 
 lected and wisely expended. If this fact is once clearly under- 
 stood, the misconceptions in which the subject has been involved 
 will disappear. Then the popular delusion that all taxes are 
 finally paid by the laborer would lose its political utility, and the 
 equally erroneous notion of Henry George, that to levy all taxes 
 on land-values would abolish poverty and establish universal 
 freedom, would at once be recognized as a mere social mirage. 
 The only advantage in levying taxes upon land and real estate in 
 preference to incomes and personal property is that the revenue 
 can be collected from the former with greater ease, certainty, 
 and convenience. 
 
CHAPTER V. 
 
 BUSINESS DEPRESSIONS. 
 
 Section I. — Economic Characteristics of Business 
 Depressions. 
 
 There are few questions upon which a greater variety of 
 opinion exists than business depressions. They are ascribed to 
 a different cause in every country, and often to as many different 
 causes in the same country as there are phases of social reform, 
 political parties, sectional or industrial interests. 1 Before any 
 intelligent understanding of the cause of these social calamities 
 can be obtained, it will be necessary to consider their economic 
 peculiarities, and the industrial or other conditions under which 
 they occur. 
 
 The first general characteristic of business depressions is that 
 they are periods of exceptional industrial adversity. But there 
 are two kinds of industrial adversity, whose characteristics and 
 causes are widely different ; these are famines and business de- 
 pressions. A famine is an actual scarcity of consumable wealth ; 
 a business depression, on the contrary, is a relative plethora of 
 consumable wealth. The first symptom of a famine is the failure 
 to produce a sufficient amount of wealth to meet the existing de- 
 
 1 The business depressions of 1873-1878 were attributed to over two hundred 
 different causes by the various economists, capitalists, philosophers, and re- 
 formers, who testified before the Congressional Committee to investigate the 
 subject. See reports of the Wright and Hewitt Congressional Committees on 
 " Industrial Depressions," also the report of the United States Senate Com- 
 mittee on " Education and Labor," 1885, and the report of the Commissioner 
 of Labor on " Industrial Depressions," 1886. Also report of Royal Commis- 
 sion (England, 1885) on the " Cause of Industrial Depressions." 
 
 382 
 
DEPRESSIONS, FA MINES, AND PANICS. 383 
 
 mands of the community ; while the first indication of a business 
 depression is the failure to find sufficient customers to carry off 
 the existing supply of commodities. The economic distinction, 
 therefore, between a famine and a business depression is that the 
 former springs from a scarcity of commodities and the latter from 
 a scarcity of consumers. 
 
 Nor do famines and business depressions both occur in the 
 same countries. India, Egypt, and other less civilized countries, 
 have frequently suffered severely from famine and consequent pes- 
 tilence, as did also Europe during the Middle Ages, — thousands, 
 and sometimes millions, died of hunger and disease, 1 — but they 
 have no business depressions. America and the leading countries 
 in Europe no longer have famines, but they have business depres- 
 sions. Famines and business depressions are not only economi- 
 cally distinct, and occur in different countries, but the very 
 conditions which promote the one tend to prevent the other. 
 The very specialization of industry and development of science 
 that have steadily diminished the possibility of famines, have 
 brought into existence involved commercial relations and the 
 factory system which make business depressions possible. Nor 
 must business depressions be confounded with financial panics ; 
 these are disturbances of another kind. A money panic may 
 arise in the midst of business prosperity as at present (1890). 
 Although, like any other social disturbance, a financial panic has 
 a harmful effect upon the industrial community, it being purely a 
 fiscal disturbance the evil effect is largely restricted to the specu- 
 lative class. A money panic may be the final straw which reveals 
 a business depression, but if the consumption of commodities is 
 practically equal to the production it cannot produce one. Busi- 
 ness depressions, therefore, may be characterized as periods of 
 industrial adversity peculiar to machine-using countries, and 
 arise from a failure to sell and never from an inability to produce 
 consumable wealth. 
 
 Another characteristic of business depressions is that they are 
 not local or even national in their movement, but that they occur 
 with striking uniformity in all countries in which they occur at 
 all. This will be seen by the following table, which shows the 
 
 1 Mr. Cornelius Walford, F.I. A., F.S.S., in a paper published in the Sta- 
 tistical Journal, vol. xli., gives the history of 350 famines. 
 
3^4 
 
 HISTORY OF DEPRESSIONS. 
 
 recurrence of business depressions in England, France, United 
 States, Germany, and Belgium during this century. 1 
 
 Germany. Belgium. 
 
 England. 
 
 France. 
 
 United States 
 
 1803 
 
 1804 
 
 .... 
 
 1810 
 
 1810 
 
 .... 
 
 1815 
 
 1813 
 
 1814 
 
 1818 
 
 1818 
 
 1818 
 
 1826 
 
 1826 
 
 1826 
 
 1830 
 
 1830 
 
 .... 
 
 1837 
 
 1837 
 
 1837 
 
 1847 
 
 1847 
 
 1847 
 
 1857 
 
 1856 
 
 1857 
 
 1866 
 
 1866 
 
 1867 
 
 1873 
 
 1873 
 
 1873 
 
 1883 
 
 1882 
 
 1882 
 
 1885 
 
 1885 
 
 1885 
 
 1837 
 
 1837 
 
 1847 
 
 1848 
 
 1855 
 
 1855 
 
 
 1864 
 
 1873 
 
 1873 
 
 1882 
 
 1882 
 
 By this table three facts are clearly indicated : (1) That busi- 
 ness depressions are limited to machine-using countries beginning 
 in England with the rise of the factory system. (2) That they 
 have steadily extended to other countries as fast as factory 
 methods of production have been adopted ; that is to say, as 
 fast as they became manufacturing and commercial countries. 
 (3) That business depressions have been practically uniform 
 and international in their movement, and that all countries with- 
 out regard to form of government, political institutions, physical 
 or climatic peculiarities, when once afflicted are visited with 
 every recurrence and almost simultaneously. With these facts 
 before us regarding the nature and history of business depres- 
 sions, we are in a position to intelligently consider the causes 
 from which they arise. 
 
 Section II. — Cause of Business Depressions. 
 
 In order to warrant the conclusion that any circumstance is 
 the cause of succeeding phenomena, it is at least necessary: (1) 
 that it should be adequate to produce the effect ; (2) that it 
 sustain some necessary relation to it. In seeking the cause of 
 business depressions therefore, we must first eliminate from the 
 problem all influences which are clearly insufficient to produce 
 them. Among the hundred or more specific causes assigned for 
 
 1 First Annual Report of U. S. Commissioner of Labor, p. 290. 
 
CAUSES ASSIGNED. 385 
 
 the business depression of 1873 in this country were excessive 
 speculation in railroads and real estate, inflation of the currency, 
 high protective tariff, and the unnatural stimulus given to industry 
 by the war. 1 But when we observe that none of these things 
 occurred in England, and that still the industrial depression was 
 as severe there as here, it becomes clear that these causes were 
 insufficient to explain the facts. So too in the case of France. The 
 fact that at the close of the war in 1872 France was compelled to 
 pay an indemnity to Germany of five millards of francs in gold, 
 appears at first sight to furnish a sufficient reason why she should 
 have experienced a state of severe business depression and 
 poverty in 1873. But when we observe that the depression was 
 just as severe and protracted in Germany, where this colossal 
 indemnity was received, as in France, from whom it was exacted, 
 the virtue of this explanation disappears. Its inadequacy be- 
 comes still more apparent when we remember that although 
 none of these circumstances existed in England, Belgium, and 
 America, they all had business depressions equally severe and 
 protracted. The same is true of causes assigned for the 
 depressions of 1882 and 1885. 2 Without entering further into 
 details regarding this class of causes then, we are abundantly 
 warranted in rejecting them as wholly inadequate to account for 
 the phenomena. 
 
 To what cause then can business depressions be attributed ? 
 A business depression can never occur unless the equilibrium 
 between consumption and production is disturbed in such a 
 manner as to result in a diminution of consumption as compared 
 with production. The first symptom of an approaching business 
 depression is the inability of producers to find customers for their 
 whole product at remunerative prices. Manufacturers will con- 
 
 1 " There had been a period of excessive speculation, especially in railroads 
 and real estate, large failures following that of Jay Cooke, inflation of the cur- 
 rency, high protective tariff, large immigration, and the unnatural stimulus 
 given to industry by the war, brought the monetary affairs of the country to a 
 crisis, resulting in general distrust, fall of prices, apprehension, and all the train 
 of evils which follow such crises." — " First Annual Report of the Commissioner 
 of Labor," 1886, p. 60. 
 
 2 For the cause of the depression in 1882 see " First Annual Report of the 
 Commissioner of Labor," p. 76, and for a summary of the causes and remedies 
 recommended, see ibid., pp. 291-293. 
 
 25 
 
386 THE REAL CAUSE. 
 
 tinue to produce wealth and will prosper so long as they can fihd 
 a remunerative market for their wares, even though wars rage or 
 governments are overthrown. Production being but the economic 
 response to consumption, it is to the influences which effect con- 
 sumption that we must look both for the cause and cure of business 
 depressions. Nor is this all. Since business depressions are 
 peculiar to factory conditions, and the market for factory-made 
 products depends chiefly upon the consumption of the laboring 
 classes, it follows that it is the failure of the laborers' consump- 
 tion to keep pace with the capitalists' production — the failure of 
 the home to grow as fast as the factory — that really produces 
 business depressions. Here then we have a cause that is both 
 adequate to produce the effect and necessary to it. So long as 
 the consumption of the masses — i.e., the wage- and salary- 
 receiving class — increases commensurately with the productive 
 capacity of the community, nothing can create a business depres- 
 sion ; and whenever this does not occur nothing can prevent one. 
 
 Why does the laborers' consumption periodically fall behind 
 the capitalists' production ? Is it a necessary part of the present 
 productive system, or is it merely incidental to it ? The essential 
 features of capitalistic production are specialization of labor, 
 concentration of capital, and the use of factory methods. As 
 already pointed out, these are essentially socializing in their in- 
 fluence ; hence, instead of being inimical to the growth of the 
 laborers' consumption, they are characteristically favorable to it. 
 This is also shown by the fact that all phases of social progress 
 have advanced more in a single century under the factory or 
 capitalistic regime than in any previous period of the world's 
 history. And it may be added that this progress has been 
 greatest in those countries where the factory system has most 
 completely prevailed. Witness this country and England, as com- 
 pared with the countries of Asia and Africa. 
 
 There is another feature of this industrial regime, however, 
 which should not be overlooked. In proportion as the factory 
 system improves economically, it tends to make the laborer more 
 and more a specialist of some particular part of the finished 
 product. Thus, the manufacture of a shoe is now divided into 
 nearly seventy specified occupations, and cotton manufacture into 
 eighty-six. In proportion as the laborers' employment is thus 
 
PHASES OF FACTORY SYSTEM. 387 
 
 specified, the speed and quantity of machinery is increased, and 
 the strain upon his physical and nervous energy intensified. 
 With this concentrating and specializing tendency the piece- 
 work system has been generally established, which places the 
 laborers in severe competition with each other, and often results 
 in overdoing. 1 Again, the use of improved machinery and the 
 specialization of labor tend to diminish the necessity of a high 
 degree of skill in the laborer. This leads to the employment of 
 a large number of women and children in all branches of manu- 
 facturing industries ; and, like the men, they too are forced to be 
 automatic factors, their portion of the work being an indispensable 
 part of the whole productive process. They have to labor the 
 same number of hours, under the same constantly increasing 
 strain and pressure, and under the same sanitary conditions as 
 the men. The obvious effect of all this is to deaden the springs 
 of ambition and check the growth of new desires and superior 
 tastes and habits of life. The laborer whose energies are ex- 
 hausted in the workshop is naturally impervious to more ele- 
 vating and refining influences. His leisure moments find him 
 physically tired, mentally dull, and hence morally and socially 
 indifferent. The inevitable tendency of this is to cause him to 
 gravitate towards the saloon rather than the reading-room, 
 lecture-hall, or theatre for his instruction and entertainment. 
 Persons who are subjected to such continued toil from child- 
 hood up, in the foul air of mines and the sweltering heat and 
 stifling atmosphere of mills and factories, cannot be expected to 
 develop the ambition and force of character necessary to inspire 
 and elevate their domestic and social life. The effect of such 
 conditions upon women and children is even more damaging 
 than upon men. The employment of women, especially wives 
 and mothers, in the factory tends to sap the very source whence 
 the springs of social character arise. Just in proportion as 
 woman is transferred from the home to the workshop is her in- 
 
 1 So general is this that in nearly all factory employments it is necessary to 
 have a large number, often 5 or 10 per cent., of spare hands, or substitutes, who 
 take the place of those who are compelled to be absent a day or two at a time 
 through sickness, or for a rest to prevent sickness, etc. It is not an uncommon 
 thing for this, in a large proportion of cases, to average as much as one day in 
 a week. 
 
388 ARREST OF CONSUMPTION. 
 
 spiring, socializing, and humanizing influence in the domestic 
 circle destroyed — a condition that will inevitably result in stereo- 
 typing the social life of the masses, and in checking the increase 
 of their wealth-consuming capacity. 
 
 This relative diminution of consumption soon begins to show 
 itself in the accumulation of the merchants' stock, which reacts 
 upon the manufacturer, first in diminished orders for his product, 
 then in a severe competition among producers for the contracted 
 market, in which the smaller concerns are compelled to close, 
 finally creating among the laborers enforced idleness, the most 
 powerful factor of all in promoting business depressions. When 
 the laborer ceases to have employment he practically ceases to 
 be a consumer ; for although in modern society he is not per- 
 mitted to starve, he has necessarily to be supported by others, 
 either in the form of indebtedness or charity. There is no one 
 cause by which the aggregate consumption of the community is 
 so rapidly diminished as by enforced idleness. Like a contagious 
 disease, it rapidly increases its own power for evil. The actual 
 restriction of the market resulting from enforced idleness still 
 further limits the sale of commodities, rendering production un- 
 profitable ; this again results in suspending production and in 
 further discharges, inevitably culminating in a business depres- 
 sion in which, through bankruptcy, the large capitalists absorb 
 the smaller ones, and are thus enabled to wait till the lagging 
 consumption again overtakes production. Every such ruinous 
 adjustment is a temporary arrest of progress, and the more fre- 
 quently it occurs the more permanent becomes its evil influence 
 upon society. 
 
 Still another source of idleness is the use of improved ma- 
 chinery. Indeed changes in machinery are only improvements 
 in proportion as they are labor-saving — i.e., labor-discharging. 
 Hence machinery that will discharge the most laborers is always 
 adopted. This takes place most frequently when trade is most 
 prosperous, and in countries where machine-using methods are 
 most general. Nor is it possible, or even desirable, that this 
 should be otherwise, since it is only through the use of improved 
 methods of production that the drudgery of human labor can be 
 reduced, the luxuries of life increased, and social well-being en- 
 hanced. Manifestly unless new employments are created as fast 
 
MISTAKEN POLICY OF EMPLOYERS. 389 
 
 as laborers are discharged, enforced idleness and the recurrence 
 of business depressions are inevitable. 
 
 It thus appears that while the factory system necessarily creates 
 socializing conditions, it has been accompanied by influences 
 which tend greatly to neutralize their beneficial effect ; but it 
 it is not difficult to see that these neutralizing influences are in 
 no sense a necessary part of the industrial system. While the 
 various forms of industrial specialization tend to increase the 
 draft upon the laborers' energies, it is not at all necessary that 
 this should be inimical to his social advancement. There is 
 nothing in the nature of factory methods which makes it neces- 
 sary that their use should be physically and socially deteriorating. 
 Bad ventilation and other unsanitary conditions, dangerous 
 machinery, overdriving, the employment of young children, and 
 long hours of labor are not essential to the factory system, any 
 more than slave labor and the cat-o'-nine tails were an essential 
 part of cotton-growing. 
 
 With increase of productive power and its accompanying 
 pressure upon the laborers' resources should have come a com- 
 mensurate increase in his leisure and opportunities for social 
 improvement. The reason this has been neglected is entirely 
 due to the mistaken social policy pursued by the employing 
 class. For the same reason that the Southern slave-holder 
 believed that slave labor was necessary to the cheap production 
 of cotton and, consequently, to the prosperity of the planters, 
 the modern employer has acted upon the erroneous assumption 
 that cheap labor is necessary to his business prosperity. Accord- 
 ingly he has resisted instead of promoting every effort to ameli- 
 orate the condition of the laboring classes, from the same motive 
 that the Southern planter opposed the abolition of slavery. All 
 other efforts to increase the social opportunities of the laborer 
 have been resisted by the employing class as mischievous agita- 
 tions, until they were made imperative by statute law or social 
 custom. Indeed their whole attitude toward the labor movement 
 in general has been one of persistent hostility. The experience 
 of the last fifty years, however, has shown that in almost every 
 instance they were entirely mistaken. It is now admitted that 
 free labor is more productive and economic than slave labor ever 
 was. And instead of the prosperity of the manufacturing class 
 
390 ECONOMISTS AT FAULT. 
 
 having been lessened by the various restrictions imposed upon 
 their inhumane and uneconomic policy, it has steadily increased. 
 The employer of to-day, with wages twice as high, hours of labor 
 one fourth less, and the sanitary and social conditions of the 
 laborer a hundred per cent, better, is more prosperous than were 
 his predecessors fifty years ago. 
 
 Nor is this socially repressive policy due to any peculiar per- 
 versity of the employing class. They are not less humane and 
 philanthropic than any other portion of the community, as their 
 liberal contributions to charitable, educational, and other public 
 institutions conclusively show. Their antagonistic attitude arises 
 from a misconception of their economic relation to the laboring 
 class ; and for this, the economic teaching of the period is 
 responsible. The failure of the economist to recognize the revo- 
 lution in the economic relation of the laborer to the capitalist 
 which took place with the inauguration of the factory system, 
 naturally led to the mistake of ignoring the economic importance 
 of the laborers' consumption as the market basis for factory-made 
 products. With this ante-factory-period view of the laborers' 
 economic position, it naturally appeared to the employer that the 
 true economic policy was to obtain his labor as cheaply as possi- 
 ble. Oblivious of the fact that the success of his factory as a mere 
 money-making institution depends upon the character and wealth- 
 consuming capacity of the masses, he has systematically regarded 
 the laborers as merely so much productive force to be used to the 
 limit of their endurance. 
 
 Under the influence of such doctrines, it is not surprising that 
 the employing class should use every effort, industrial and politi- 
 cal, to resist all endeavors to increase the social opportunities or 
 raise the wages of the laborer. 1 Thus, through the influence of 
 a mistaken industrial policy, the capitalist in the vain endeavor 
 to increase his power to produce, by limiting the power of the 
 laborer to consume, defeats the very object he most desires to 
 accomplish, and instead of promoting his own permanent pros- 
 perity, he is continually planting the seed of business depression, 
 enforced idleness, and bankruptcy. Thus business depressions, 
 instead of being a necessary part of the factory system, are really 
 the penalty which the employing class and the community have 
 1 See " Wealth and Progress," Part III., chapters vi. and vii. 
 
FACTS TO BE RECOGNIZED. 39 1 
 
 to pay for ignoring the economic and social advancement of the 
 laboring classes as the real basis of industrial prosperity. 
 
 SECTION III. — The Prevention of Business Depressions. 
 
 It will be observed that business depressions are wholly a prob- 
 iem of the market ; and also that the market, while furnishing 
 the economic basis for production, is a social phenomenon, having 
 its rise in the social life of the people. Whether scientific pro- 
 duction shall continually cheapen wealth and increase social 
 well-being, or whether it shall create enforced idleness and busi- 
 ness depressions, depends upon whether new employments are 
 created as fast as labor-saving appliances are adopted. Produc- 
 tion being the response to consumption, new employments can be 
 created only as fast as new demands for commodities arise 
 among the masses. This involves an important change in the 
 general point of view from which the economic position of the 
 laborer is regarded. In the first place it must be distinctly recog- 
 nized as an irrevocable historic fact, that with the inauguration of 
 the factory system the economic relation of the laborer to the capital- 
 ist was radically changed, and that under modern industrial conditions 
 the market for the capitalists' production finally depends upon the 
 extent of the laborers' consumption j hence business prosperity can be 
 continuous only in proportion as real wages rise. And it must be 
 no less distinctly recognized as a fundamental principle in eco- 
 nomics that the cost of production is the controlling element in price 
 movement, and consequently that the determining element in the price 
 of labor (wages) is the cost of the laborers' living as determined by 
 the standard of his social life. 
 
 It should be remembered, however, that capitalists are not 
 philosophers, nor have we any right to expect them to be. They 
 are captains of industry, and as such are too busy with the ad- 
 ministration of affairs to solve economic problems. Their func- 
 tion is to apply rather than to develop economic principles. The 
 same is substantially true of the journalist. Although his posi- 
 tion is that of an educator of public opinion, he is more like a 
 manufacturer than a scientist. He is occupied rather with the 
 popular presentation of accepted economic doctrines than with 
 testing their validity. Like the capitalists, the ablest editors and 
 
392 NATURAL REMEDY. 
 
 essayists rely mainly upon economists for their economic princi- 
 ples. It is to the economists, therefore, that we have a right to 
 look for the recognition and active propagation of the economic 
 truths underlying this important problem. 
 
 When the foregoing propositions are emphatically taught in 
 colleges and acted upon by capitalists, the first great step 
 towards a solution, not only of industrial depressions but of the 
 social problem will have been taken ; and the chief cause of an- 
 tagonism between the laboring and the employing class will have 
 been removed. So long as the laborer and capitalist believe their 
 interests are economically antagonistic, unity of action to redress 
 social evils is almost impossible. If, however, the employing class 
 can be once made to realize (i) that there is no economic antag- 
 onism between the laborers' interests and their own, and (2) that 
 the initial point of industrial prosperity is not in production but 
 in consumption — not in the factory but in the home — not in profits 
 but in wages, — there will for the first time be a common agreement 
 as to the point towards which all efforts for industrial improve- 
 ments must be directed, namely, the elevation of the laborer's stand- 
 ard of living. This fact established, the only question would be 
 as to the best means of promoting that end, since whatever would 
 do that would promote the welfare of the whole community. 
 
 It is not to be inferred from the above that an increase in the 
 laborers' consumption (real wages) is a simple matter that can be 
 arbitrarily accomplished by an official proclamation or a legisla- 
 tive enactment. On the contrary, the laborer's standard of liv- 
 ing, being determined by his social habits, is a matter of relatively 
 slow development. 
 
 Although there is no immediate panacea for business depres- 
 sions any more than for poverty, despotism, or other evils arising 
 from the lack of social character among the masses, there are three 
 ways in which their severity may be diminished and their ulti- 
 mate elimination promoted : (1) negatively by lessening the ob- 
 structions to the social progress of the masses ; (2) positively by 
 constantly increasing the social opportunities of the masses ; (3) 
 by establishing an international business barometer by which ap- 
 proaching business depressions will be indicated sufficiently in 
 advance to enable their severest phases to be avoided. 
 
 1. The greatest obstruction to the social progress of the masses, 
 26 
 
DUTY OF EMPLOYING CLASS. 393 
 
 as already pointed out, is the opposition of the employing class 
 and their literary and legislative allies. With the acceptance of 
 the doctrine here indicated, there would naturally be a marked 
 change in the attitude of the press and statesmen toward the social 
 question, by which much of their opposition would be removed. 
 In the first place, such men as Edward Atkinson, David A. Wells, 
 and the leading commercial and political journals would no longer 
 appear as the opponents of every proposition, legislative or other, 
 for improving the laborers' social condition. Indeed much of 
 their present attitude toward the social question would then be 
 properly regarded as opposition to the public weal. The accept- 
 ance of this view would also further the same end by preventing 
 a vast amount of misdirected effort at social reform, the futility 
 of which often serves to strengthen the hands of the opposition. 
 If it were clearly understood that nothing can promote business 
 prosperity which does not directly or indirectly tend to elevate 
 the laborers' social life, and make a larger consumption of wealth 
 necessary, then the various social chimeras — such as land nation- 
 alization, socialism, and the like — would be discredited in advance 
 as having no real bearing upon the question. 
 
 2. The disparity between the increase in the laborers' consump- 
 tion as compared with that of the capitalists' production would 
 be still more diminished, if the energy which has been constantly 
 devoted to limiting the laborers' social opportunities were ap- 
 plied to increasing them. Then every proposition for improving 
 the condition of the masses would be approached with the desire 
 of adopting whatever feasible element of good it contained, instead 
 of a determination to magnify all its disadvantages for the 
 purpose of defeating it. 
 
 In order that the policy of increasing instead of restricting the 
 laborers' consumption may be scientifically applied to the pre- 
 vention of business depressions, it is necessary to have some 
 means of knowing in advance the first indications of a business 
 depression. It will be readily seen that if it could be correctly 
 known that a movement towards business depression had set in, 
 which if not arrested would inevitably bring a period of social 
 disaster, all the wisdom of economists, statesmen, and capitalists 
 would be applied to preventing its occurrence, and this could be 
 done in two ways. 
 
394 AN INDUSTRIAL BAROMETER. 
 
 In the first place, if correct economic doctrine prevailed, efforts 
 would at once be redoubled in all manufacturing countries to use 
 every known legislative, personal, social, and industrial means of 
 augmenting consumption among the masses. This would involve 
 efforts to raise the laborer's standard of living, which of course 
 means an improvement in his social condition. If such efforts 
 were made in all machine-using countries as soon as the symp- 
 toms of an approaching depression appeared, it could always be 
 weakened and in many cases obviated. 
 
 In the second place, if the consumption of the masses in the 
 various countries could not be increased sufficiently to offset 
 a threatened diminution in the market, the depression could be 
 largely mitigated by a movement of capital. As soon as it was 
 definitely known that the relative diminution of the market had 
 set in, while established industries could not, without injury, cur- 
 tail their production, the investment of new capital could and 
 would be curtailed. By curtailing investments sufficiently in 
 advance much new capital would be saved, and the shock to 
 established industries would be greatly reduced. 
 
 Moreover, as business depressions generally arise from a dis- 
 parity between consumption and production in certain lines of 
 commodities, a proper knowledge of business phenomena would 
 indicate in precisely what line of industry the disturbance existed, 
 and thus enable a more economic direction to be given to new 
 investments. By this means much of the capital that in such 
 periods is wasted in America, England, France, and Germany 
 might, and often would, be made to render a service to civiliza- 
 tion by developing the social resources of South America, India, 
 China, and other non-manufacturing countries. Is it possible 
 then to establish such an industrial barometer ; is there any 
 means by which the early symptoms of a business depression 
 can be surely indicated ? I think there is. 
 
 Although the first symptom of a business depression is the 
 failure of the producer to find a profitable market for his whole 
 product, this may occur from causes which do not necessarily 
 indicate a depression in business. A change of fashion for 
 example, or the substitution of a superior for an inferior product 
 through the use of better methods, may produce that effect in a 
 specific industry. In that case however, the dulness in the old 
 
STATISTICS OF IDLENESS. 395 
 
 industry would be practically offset by the briskness in the new. 
 Such a disturbance therefore will only be a temporary perturba- 
 tion incident to the movement of capital and labor from one 
 industry to another, and might indeed be a sign of business pros- 
 perity rather than adversity. But there is one fact in the indus- 
 trial world which infallibly indicates an approaching business 
 depression, namely, enforced idleness. There are many ways in 
 which enforced idleness may be produced in machine-using 
 countries, e.g., by the immigration of laborers from non-machine- 
 using countries, by discharges through the use of labor-saving 
 machinery, or by the suspension of industry consequent upon a 
 declining market. But from whatever cause or number of causes 
 enforced idleness arises, unless it is arrested, an industrial 
 depression is inevitable. 
 
 It is equally certain that nothing can produce a business de- 
 pression of serious proportions which does not create enforced 
 idleness ; indeed, so long as the laborers are all employed a busi- 
 ness depression is practically impossible. Therefore, while 
 enforced idleness may not be the initial cause of business 
 depressions, it is one of the earliest and most infallible indica- 
 tions of it. Since a knowledge of the phenomena is a necessary 
 prerequisite to scientific action, the first practical step toward 
 prevention of business depressions, is the collection of statistics 
 of enforced idleness. Nor would this be a difficult task, since 
 the machinery for collecting industrial data is now fairly well 
 established in most civilized countries. Statistics of enforced 
 idleness not being of an inquisitorial nature, there could be 
 no valid objection to their collection, especially as no class in 
 the community would have any motive for withholding the 
 information. In order that these statistics may have the utmost 
 utility, the investigation should be authoritative, universal, and 
 frequent. 
 
 To make the investigation authoritative, it should be under- 
 taken by the state. Moreover, it is a work which peculiarly be- 
 longs to the government, because it is of universal importance, 
 and can be performed more extensively, efficiently, and eco- 
 nomically by the state than by the individual, especially in the 
 less civilized countries. To give reliability to the data, the in- 
 vestigation should be as extensive as the factory system, includ- 
 
396 NECESSITY OF FREQUENT DATA. 
 
 ing at least America, England, France, Germany, Belgium, 
 Switzerland, Austria, Italy, and Spain. 
 
 These statistics should also be collected as frequently as pos- 
 sible, not less than once a year, and half-yearly or quarterly 
 would be even better. Frequency of collection is one of the most 
 essential requisites of idleness statistics, because it is only by 
 a frequent collection of facts that the symptoms of an on-coming 
 industrial depression can be observed in its early stages and 
 hence the most efficient means of prevention adopted. 
 
 Such a body of data would furnish an inductive basis for the 
 scientific application of economic principles to market phe- 
 nomena, besides being invaluable in the treatment of all other 
 phases of the social question. While it is not pretended that 
 business depressions can be summarily abolished, it is indisputable 
 that with full, frequent, and reliable statistics of enforced idleness 
 in all machine-using countries, together with sound views regard- 
 ing the economic relation of the laborers' consumption to the 
 market, a great step would be taken towards their diminution and 
 ultimate elimination. 
 
CHAPTER VI. 
 COMBINATION OF CAPITAL. 
 
 It is a peculiar feature of the industrial history of society that 
 every movement towards concentration or more complex associa- 
 tion of industrial forces has always been viewed with alarm, and 
 has had to encounter serious opposition from the community. 
 The landed aristocracy saw with dismay the rise and growth of 
 the mercantile class from the fifteenth to the eighteenth century, 
 and accordingly used all their social and political power to harass 
 and hinder the development of what to them contained naught but 
 evil for society. 
 
 With the introduction of the spinning-jenny in the eighteenth 
 century, this social alarm was taken up by the hand spinners. 
 Their horror and indignation at the idea of a machine spinning 
 eight threads where they could only spin one were such that they 
 ransacked the home of Hargreaves, broke his machines, and drove 
 him from his native county for inventing it. A similar alarm was 
 raised in the first quarter of the present century by the hand- 
 loom weavers against the introduction of the power-loom, and 
 they went from town to town destroying the steam-driven ma- 
 chines. The small factory owners, who had encountered the 
 violence of the hand laborers, subsequently raised a similar 
 alarm against the corporation, and now small corporations, 
 individual factory-owners, laborers, and non-commercial classes 
 all join in raising a similar alarm-cry against trusts, syndicates, 
 and other corporate combinations. 
 
 Perhaps the most remarkable feature in the attitude of the 
 public towards industrial combination is their disregard for the 
 lessons of history. The fact that in almost every instance the 
 opposition to new forms of industrial organization has been a 
 
 397 
 
398 IMPORTANCE OF CORRECT VIEWS. 
 
 mistaken resistance to what finally proved to be a permanent 
 benefit, seems to have almost no modifying influence upon their 
 belligerent attitude. The opposition to trusts to-day is scarcely 
 less intense than was that against the machines of Hargreaves 
 and Arkwright a century ago. 1 
 
 A very little reflection will show that this opposition to capi- 
 talistic concentration is as uneconomic and impolitic as is the 
 crusade of capitalists against the combination of labor, and for 
 substantially the same reason. The fallacy underlying both these 
 positions is the assumption that an improvement in the con- 
 dition of either is obtained at the expense of the other. The 
 capitalist is opposed to labor-unions because he believes that a 
 rise of wages involves a fall of profits ; and the public oppose 
 the combination of capital because they believe that the large 
 profits of a successful corporation are necessarily obtained at the 
 expense of the laborer and the consumer. 
 
 In the light of the economic law of prices, surplus, and wages, 
 as heretofore presented, the fallacy of such an attitude becomes 
 apparent. When we once realize that profit is not added to the 
 consumers' price, but that it represents a surplus produced by 
 the use of superior instruments and natural forces, it is clear that 
 the wealth of the capitalist is not drawn from the incomes of the 
 other classes in the community, but from nature. 2 And so with 
 the capitalist ; when he understands that a rise in wages is not a 
 permanent tax upon him, but is ultimately replenished through an 
 increased product — hence, like his own profit, is not drawn from 
 his fellow-man, but from nature, — the ground of his opposition 
 to labor combinations will disappear. Since neither the employ- 
 ing nor laboring class can permanently improve its condition by 
 impairing that of the other, but only by increasing the product 
 of nature^ it will be obvious that neither one has any thing to gain 
 by suppressing the combination of the other ; but, on the con- 
 trary, if combination will increase their economic power, every- 
 body has an interest in extending and strengthening such 
 combination. 
 
 1 In 1888 a bill was introduced into Congress proposing to levy a tax of 40 
 per cent, on the products of trusts. In 1889 two other bills were introduced 
 into the United States Senate, practically making trusts criminal conspiracies. 
 
 'Chapter on " Prices." 
 
TWO KINDS OF WEALTH. 399 
 
 Without stopping to consider whether or not the trust form of 
 combination is superior to any other, it may be laid down as a 
 fundamental principle demonstrated by the history of industrial 
 evolution, that the combination of capital is indispensable to 
 economic progress. This consists in cheapening wealth as com- 
 pared with labor. Capital and labor being the only two factors 
 which enter into the cost of production, it follows that wealth 
 can be cheapened only by increasing the productive capacity of 
 capital. It is a fact too obvious and universal to need discussing, 
 that an increase in the productive efficiency of capital is obtained 
 by means of greater specialization and concentration, which in- 
 creases as civilization advances. Of this, every successful factory, 
 railroad, and steamship enterprise is a demonstration. 
 
 This much will be conceded by the most ill-informed anti- 
 combinationist. But the objection commonly urged is that the 
 gain resulting from this economy in production mainly accrues 
 to a small class. It is insisted that this tends to create a double 
 evil, by at once promoting industrial monopoly and political des- 
 potism. They assure us that wherever wealth is accumulated in 
 the hands of a few, the poverty of the people, political corruption, 
 and private immorality increase, and that intellectual, political, 
 and national decay inevitably set in. 1 Although few arguments 
 have more effect upon the public mind than this, there are none 
 that reveal a greater lack of economic insight. It proceeds upon 
 the assumption (1) that all accumulation of wealth in the hands 
 of a limited class is injurious to the welfare of the community, 
 and (2) that the concentration of capital necessarily destroys 
 competition. 
 
 1. If we bear in mind the economic distinction between con- 
 sumable and productive wealth or capital already referred to, we 
 shall have little difficulty in seeing the error of this proposition. 
 Whether or not the accumulation of wealth in a few hands will 
 be beneficial or injurious to society, will entirely depend upon 
 whether it is consumable wealth or capital that is accumulated. 
 
 No one acquainted with the subject will for a moment contend 
 that concentration of consumable wealth in the hands of a small 
 class is advantageous to the community. Since this class of 
 
 'See author's article on "Trusts," Political Science Quarterly, vol. iii., pp. 
 403-406. 
 
400 CAPITAL ONLY IS ACCUMULATED. 
 
 wealth only ministers to human welfare when in the possession 
 of the consumer, it follows that it can only yield the largest 
 benefit to the community when it is most extensively distributed 
 among the people. With productive wealth or capital, however, 
 the case is exactly the reverse ; its functions being solely that of 
 a productive instrument, it can minister to human welfare only 
 by producing consumable wealth. Clearly therefore, whether or 
 not capital is any advantage to its owner or to the public, depends 
 entirely upon whether it is advantageously used in creating en- 
 joyable commodities. Since capital will only furnish consumable 
 wealth to its owner in proportion as he can sell his products, its 
 possession can only be advantageous to the capitalist when the 
 consumable wealth it produces is generally and liberally consumed 
 by the community. 
 
 It may be observed in passing that there is no tendency in 
 modern society to accumulate consumable wealth. On the con- 
 trary, the very prosperity of the community depends upon the 
 constantly increasing consumption of consumable wealth. When 
 we speak of the accumulation of millions in the hands of a single 
 individual or family to-day, it should be remembered that cap- 
 ital and not consumable wealth is referred to. With the excep- 
 tion of a small amount personally consumed and dispersed in 
 charities, the large fortunes of the Vanderbilts, Goulds, Astors, 
 Rothschilds, and other millionaires are productively employed. 
 Indeed, it would be regarded as the insanity of financiering to 
 accumulate consumable wealth, because the only result of such 
 accumulation would be deterioration and loss. As shown in the 
 preceding chapter, any tendency to prevent consumption from 
 keeping pace with production, which is simply accumulating con- 
 sumable wealth, surely leads to business depressions, and entails 
 inevitably bankruptcy, and often ruin upon the owners of capital. 
 Since capital can be of no advantage to its owner except when it 
 is profitably employed in producing consumable wealth, and as 
 it can be profitably employed only when its product is consumed 
 substantially as fast as it is produced, it follows, as an economic 
 necessity, that consumable wealth is most widely distributed 
 where productive wealth or capital is most concentrated. Thus 
 we again arrive at the oft-repeated proposition that the prosperity 
 of the capitalist finally depends upon the consumption of wealth 
 by the masses. 
 
CONCENTRATION AND COMPETITION. 40I 
 
 2. The second objection is that combination of capital tends 
 to destroy competition. If this assumption be correct, the power 
 of competition will necessarily diminish as the combination of 
 capital increases. Whether or not this has taken place can be 
 determined only by the facts. In order to determine whether or 
 not effective competition increases or diminishes with combina- 
 tion of capital, we have only to ascertain whether or not prices 
 tend to press closer to the line of the cost of producing the most 
 expensive portion of the general supply. Tried by this test, the 
 assertion that the combination of capital necessarily tends to 
 destroy competition will be found to be entirely erroneous. 
 
 There never was a time when economic combination was so 
 great as it is to-day, nor was there ever a time when competition 
 was so fierce and unsparing — that is to say, when the margin 
 between the cost of producing the dearest portion and the selling 
 price was so small in such a large proportion of industries. In- 
 deed, it is one of the chief indictments against the capitalistic 
 system of production that it is a "competitive system." If we 
 follow the combination of capital from the hand-loom weaver 
 and the spinner of a single thread to the trust and syndicate, we 
 shall find that the margin of profit per unit of product has steadily 
 diminished — a fact which every business man knows. The 
 reason for this is obvious. For instance, when the hand-loom 
 weaver could only turn off forty yards of cotton cloth a week, a 
 margin of a cent a yard would yield but an insignificant amount 
 of profit. The profit on the product of fifty weavers would only 
 be $25 a week, whereas the same margin on the product of fifty 
 weavers to-day would yield a profit of $1,080 a week. 
 
 Much of the error in this connection is due to judging compe- 
 tition from the standpoint of the deposed or receding competitor. 
 Thus, when the products of a small factory undersold those of a 
 hand-loom, judged from the standpoint of the hand-loom weaver, 
 competition was destroyed and monopoly established. Such 
 however was not the case, as everybody now knows. What 
 really took place was a readjustment of economic factors, made 
 necessary by the introduction of superior methods, which resulted 
 in transferring competition to a new plane, where its effectiveness 
 was greatly increased. The same was true when the small factory 
 was superseded by the corporation, and is true now when the 
 corporation is superseded by the trust and syndicate. 
 
402 THE CRITERION OF COMPETITION. 
 
 It should be remembered that the influence of competition 
 does not depend so much upon the number of competitors as 
 upon the effectiveness of competition. Competitors may be very 
 numerous and still competition be ineffective, as in the case of 
 the hand-loom weavers. And conversely, competitors may be 
 few in number and still be very effective, as is the case of large 
 concerns to-day. One Macy furnishes more effective competi- 
 tion than a hundred small merchants with a few hundred dollars 
 capital each. This does not mean that reducing the number of 
 competitors will necessarily increase effective competition, but it 
 demonstrates the fact that high competition is possible with a 
 small number of competitors. Indeed, it is the severity of com- 
 petition thus developed that has brought the trust and other 
 forms of industrial confederation into existence. 
 
 That effective competition has thus increased with the increas- 
 ing combination of capital, no one acquainted with the subject 
 will dispute, but the alarm raised is ostensibly for the future. It 
 is upon what trusts may do, and not upon what they have done, 
 that the present opposition is based. It is said that the object of 
 the trust is to monopolize the market. Even so ; there is nothing 
 new in that. That has been one of the objects of every other in- 
 dustrial improvement. What motive could there be for intro- 
 ducing better methods and investing large capital, unless it would 
 give the owner more advantage over existing competitors. To 
 condemn an industrial institution because the object of its pro- 
 moters is to undersell and supersede traditional producers and 
 methods is economic insanity. It is not the motive of the capi- 
 talist but the economic effect of his action that must be deter- 
 mined in judging the social utility of industrial methods and 
 institutions. Whether the capitalist acts as an individual pro- 
 ducer, small factory owner, corporation, or trust ; whether he 
 produces cotton cloth, shoes, or petroleum, conducts a railroad or 
 publishes a newspaper, his motive is substantially the same ; 
 namely, to obtain more wealth — " to make money." Will it pay? 
 is the question upon which the doing or not doing in every 
 sphere of industrial activity is determined. 
 
 The tone and politics of the newspapers are determined by 
 that fact about as completely as is the form and quality of hats 
 and shoes. Newspaper corporations have not invested hundreds 
 
ECONOMIC INCENTIVE. 403 
 
 of thousands and even millions of dollars in buildings, large and 
 fast presses, automatic folders, foreign correspondence, special 
 telegrams, high salaried editors and reporters, special trains for 
 deliveries, etc., merely for the sake of furnishing the public with 
 ample, early, and reliable news. This has all been developed by 
 the effort of each to outdo his neighbor in the contest for obtain- 
 ing public patronage — the market. It was only because this 
 could not be done without furnishing a larger or a better paper 
 at the same price — which nothing but a greater combination of 
 capital and superior methods made possible — that the immense 
 improvements in the daily paper have been produced. The same 
 motive which has induced newspaper corporations to furnish 
 a daily history of the human race for two cents, has given us our 
 railroads, telegraphs, steamships, and other time-and-space- 
 reducing and wealth-cheapening institutions, of which trusts are 
 the most recent form. And the reasons for suppressing one will 
 apply with equal force to suppressing the others. 
 
 The opposition to the larger combinations of to-day will be 
 found to have its root in the error which has characterized all 
 previous opposition to productive integrations. The averagely 
 intelligent antagonist to trusts will readily admit that all the evil 
 predictions regarding the earlier stages of capitalistic combina- 
 tion were mistaken. He will also admit that the mistake consisted 
 in the failure to recognize the increasing competitive power 
 which the larger factory and corporation possessed, especially 
 when accompanied by the daily press, the telegraph, and the rail- 
 roads. The more intelligent now see that a multiplicity of com- 
 petitors is not necessary to effective competition, having learned 
 by experience that this may result in a great waste of economic 
 power instead of a cheapening of commodities, and that compe- 
 tition is quite as effective, and far more economic, with a limited 
 number of competitors. While they recognize the folly of 
 assuming that any diminution in the number of competitors must 
 weaken competition, they tenaciously insist that to permit the com- 
 bination of capital to increase until the actual competitors are re- 
 duced to zero, must destroy competition. In other words, they 
 insist that competition is impossible unless the competitors are 
 actually present in the market. 
 
 The error in this view arises from overlooking the influence of 
 
404 POTENTIAL COMPETITION. 
 
 potential competition. If we examine the subject from the 
 standpoint of modern phenomena, we shall find that there is 
 potential competition as well as actual, and that the economic 
 effect of potential competition increases as its phenomena grow in 
 complexity. The competitive power of capital will be found to 
 ultimately depend not merely upon its actual presence, but upon 
 its known availability at any given time and place. Consequently, 
 the more intelligent and economically powerful competitors are, 
 the more effectual will be their potential or possible competition, 
 and vice versa. For example in the ante-factory period, with 
 neither railroads nor telegraphs, the only capital known to be 
 available was that visibly present ; hence, none other exercised 
 any competitive influence in the market. 
 
 With the development of modern industry all this has changed. 
 Electricity and steam have so diminished time and space, and 
 concentration of capital has so increased the economic power of 
 the producer, that now both capital and products thousands of 
 miles away are economically available, and therefore exercise a 
 positive competitive influence upon the market. Accordingly the 
 wheat in India, Russia and Dakota, now exercises practically the 
 same competitive influence in Liverpool as does that which is 
 stored there, and solely because it is known to be actually avail- 
 able for the Liverpool market if the price rises high enough to 
 warrant its movement thither. Thus through improved means of 
 communication and transportation, products in the most remote 
 parts of the earth exercise a competitive influence upon a market 
 they may never actually enter, simply because it is known that they 
 can be there if needed. 
 
 What is true of commodities is even more true of fixed capital, 
 and as will readily be seen, potential competition or the power of 
 the possible competitor increases as the combination of capital 
 enlarges. Capital is proverbially one of the most sensitive things 
 in the world. Although it will take great risks for large profits it 
 will timidly recede at the sight of loss. There are many reasons 
 why large combinations are more amenable to the influence of 
 potential competition than small ones. Although more powerful, 
 they yet have more at stake. The very fact that capital is cow- 
 ardly makes it careful, and, since fear of loss next to hope of gain 
 is the most powerful motive which governs its movement, the first 
 
INABILITY OF LARGE CAPITAL. 405 
 
 condition to be secured is safety against loss. The greater the 
 concentration of capital, the more serious and difficult this be- 
 comes. 
 
 It is a principle in economic progress that as the mobility of 
 consumable wealth increases that of productive wealth diminishes, 
 because the very means which promote the easy transfer of prod- 
 ucts involve a greater fixity of capital. In proportion as capi- 
 tal loses its mobility, the necessity of maximizing its economic 
 utility in its existing form increases ; and when the concentration 
 is very great, that becomes the only means of preserving it from 
 deterioration. Take, for example, the Vanderbilt railroad system 
 with its investment of $170,000,000 and 60,000 employes; this 
 is excellent property so long as it can be economically employed 
 for its present purpose. If, however, it should be superseded by 
 a superior system of transportation, the greater part of that prop- 
 erty would be worthless, the capital invested being absolutely 
 non-transferable. Such parts of the equipment as the rails, road- 
 bed, engines, cars, and stations (representing nearly $150,000,000) 
 which now have a full value as finished products, would in that 
 case practically be reduced to the value of old iron. Three 
 fourths of their value would vanish as completely as if the prop- 
 erty were reduced to ashes. 
 
 If we bear in mind the fact that capital is simply an economic 
 instrument whose decay can only be prevented by maintaining its 
 productive utility, it will be manifest that in proportion as its con- 
 centration increases, the very life of capital depends more and 
 more upon its wealth-cheapening efficiency. It will probably be 
 replied that this may all be true so long as any actual competi- 
 tors remain, but when the combination of capital has reached a 
 point where the production of a given commodity is practically 
 in the hands of a single concern this restraint will disappear, and 
 prices can be indefinitely increased to suit a monopoly. Here is 
 where the error of ignoring the influence of potential competition 
 again shows itself. The very fact that capital cannot take wings 
 and fly away, but is compelled to work where it is or perish, gives 
 potential competition its greatest influence ; that is to say, gives 
 the non-employed or less remuneratively employed capital its 
 maximum price-reducing influence. It should never be forgot- 
 ten that in a progressive society, where alone the greatest combi- 
 
406 EFFECT OF NO-PROFIT CAPITAL. 
 
 nation of capital is possible, two things are more or less con- 
 stantly occurring : (i) the accumulation of wealth available for 
 productive purposes, which increases as the margin of profit 
 rises ; (2) the reduction of capital to no-profit uses, which in- 
 creases as superior productive methods and management are 
 adopted. From these two causes, which are as universal and 
 constant as social progress, capital seeking remunerative employ- 
 ment is constantly increasing. 
 
 Hence this idle or unremunerative capital has the same eco- 
 nomic effect upon productive capital that the wheat in India or 
 Russia has upon that in Liverpool ; it is waiting for an opportu- 
 nity. In the absence of legal restrictions, nothing will prevent 
 this anxiously waiting capital from actually entering the field 
 except keeping the margin of profit too small to warrant the risk. 
 This of course involves the lowering of prices commensurately 
 with the diminished cost of production, which is all the fiercest 
 actual competition can do. It may be said that if new capital 
 enters the field a monopoly will buy it up. But that takes more 
 capital ; a million dollars invested in buying up a competitor is 
 so much added to the cost of production, and directly dimin- 
 ishes profit. Clearly the million thus invested might just as well 
 be surrendered to the community in lower prices. That this 
 would be a safer and more economic method is manifest : (1) 
 because lowering the price tends to increase the consumption of 
 the commodity, extend the market, and make a still smaller 
 margin of profit yield a greater aggregate return ; (2) because a 
 new competitor is an unknown quantity, and may prove too strong 
 to be bought up, in which case existing producers may be driven 
 from the field, or have their profits reduced to zero. Since the 
 least danger to existing corporations lies in keeping out rather than 
 buying out new competitors, and since reducing prices alone can 
 do this, it follows that the larger a corporation the greater is its 
 interest in keeping prices low enough not to induce the organiza- 
 tion of counter-enterprises to jeopardize its existence. It is thus 
 evident that with economic freedom, the potential competition of 
 available capital is essentially the same as if a new competitor 
 were actually on hand. The fact that he may come any day has 
 practically the same competitive influence as if he had come, 
 because to keep him out requires the same kind of price-reducing 
 
LIMIT OF CONCENTRATION. 407 
 
 effort that would be necessary to drive him out. Since the former 
 always involves less risk and generally less cost than the latter, it 
 is most likely to be adopted, in proportion as an intelligent under- 
 standing of economic movement prevails. 
 
 It is a great mistake to suppose that the investment of large 
 capitals is specially desirable to the capitalist. On the contrary 
 he avoids this as much as possible, always preferring to get along 
 with the minimum rather than to use the maximum capital to 
 accomplish any given result. Indeed to accomplish the greatest 
 result with the least investment is the very art of economic pro- 
 duction. Moreover, with every increase in the size of invest- 
 ments capital becomes more fixed, involved, and unwieldy, redu- 
 cing margins and making it possible for great losses to result 
 from very slight mistakes ; consequently greater expertness of 
 management becomes necessary in every department of a colos- 
 sal enterprise. Larger investments increase the risk of the capi- 
 talist and further outlay will be adopted only under the spur of 
 some economic inducement — such as avoiding a loss, replenish- 
 ing a diminished profit, or perhaps obtaining a still larger profit. 
 
 The economic movement of capital being governed by the law 
 of increasing returns, it follows that capital will not (except by 
 mistake) go into new industries unless it can obtain a greater 
 return per unit than it is already receiving. So, too, of concen- 
 tration or combination ; capital will continue to concentrate only 
 so long as it can obtain an increasing return per unit by so doing. 
 When that ceases to be possible the motive for combination dis- 
 appears ; and when the point of diminishing returns is reached 
 self-interest is positively against further combination. That there 
 is a point in any given state of society at which further concentra- 
 tion of capital will fail to yield increasing returns, and at which 
 diminishing returns set in, cannot be doubted. Whether or not 
 this point will be reached before the actual competing producers 
 in the same market disappear cannot now be determined. Nor is 
 this of any real importance since concentration will continue only 
 so long as it will give increasing returns to the capitalist and 
 cheaper products to the consumer. There is therefore no eco- 
 nomic reason why the state should do any thing to limit the con- 
 centration of capital, since that will be arrested by the capitalist 
 when it ceases to economize production and cheapen the wealth 
 
4o8 
 
 EFFECT OF CONCENTRATED CAPITAL. 
 
 of the community. In other words, in the absence of legal re- 
 strictions economic law is more effectual in determining the equi- 
 table movement of capital than statute law can possibly be. 
 
 That this has been the general effect of the concentration of 
 capital during the present century is abundantly proven by the 
 fall of prices and rise of wages as shown by the increased pur- 
 chasing power of a day's labor during that period. The follow- 
 ing table shows the average weekly wages and their relative 
 purchasing power in 200 staple articles for i860 and 1885 : ' 
 
 Industries. 
 
 Arms and ammunition. 
 
 Artisans' tools 
 
 Boots and shoes 
 
 Carriages and wagons . . 
 
 Clothing 
 
 Cotton goods 
 
 Flax, hemp, and jute. . 
 
 Leather 
 
 Liquors 
 
 Machinery 
 
 Metallic goods 
 
 Musical instruments. . . 
 
 Paper goods 
 
 Print and dye-goods . . . 
 Silk and silk goods 
 
 Stone 
 
 Woollen goods 
 
 Worsted goods 
 
 Carpetings 
 
 Building trades 
 
 3 a 
 
 12 
 10 
 17 
 7 
 11 
 86 
 
 15 
 
 8 
 8 
 
 19 
 
 10 
 
 8 
 
 18 
 26 
 9 
 7 
 58 
 22 
 
 25 
 10 
 
 Average (Total 386) 
 
 i860. 
 
 <u bo 
 
 £14.15 
 
 8-45 
 
 II.42 
 
 IO.47 
 
 8.26 
 
 6.5O 
 
 4-63 
 
 IO.OI 
 
 IO.73 
 
 7.9O 
 
 9.07 
 
 IO.94 
 
 8.63 
 
 9.9O 
 
 5-91 
 8.01 
 
 5.38 
 6.12 
 6.62 
 9.87 
 
 8.64 
 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 
 
 P3.I5 
 
 n-45 
 
 10.63 
 
 12.80 
 
 8.19 
 
 6-45 
 
 6.46 
 
 11. 01 
 
 11-73 
 
 H-75 
 
 11.25 
 
 12.94 
 
 7-63 
 
 7.67 
 
 6.91 
 
 12.01 
 
 7.90 
 
 6.12 
 
 6.62 
 
 14.99 
 
 119 
 
 174 
 120 
 
 157 
 127 
 128 
 180 
 141 
 141 
 192 
 161 
 152 
 114 
 100 
 167 
 
 193 
 189 
 129 
 129 
 196 
 
 150 
 
 .g ea 
 
 19 
 
 74 
 20 
 
 57 
 27 
 28 
 80 
 41 
 4i 
 92 
 61 
 52 
 
 67 
 93 
 89 
 29 
 29 
 96 
 
 50 
 
 This tendency is still more conclusively shown by the fact that 
 the fall in prices has been greatest in those commodities in 
 whose production there has been the greatest concentration of 
 
 1 The wages in the above table represent 386 occupations in Massachusetts ; 
 the data for 1S60 will be found in the Report of the Labor Bureau for 1884, and 
 those for 1885 in the Census Report for 1885 (volume on Manufactures). 
 
EFFECT OF TRUSTS ON PRICES. 
 
 409 
 
 capital, as will be seen by the accompanying table, which shows 
 the purchasing power of weekly wages in commodities furnished 
 by trusts and other colossal combinations for i860 and 1890 : 
 
 Purchasing power of weekly 
 wages. 
 
 i860. 
 
 1890. 
 
 Percentage 
 of increase. 
 
 Cotton-seed oil, number of gals. . . 
 
 Sugar refined, number of lbs 
 
 Freight New York to Chicago. 
 First class 
 
 tR 2 1 
 
 9°rihj 
 
 530 lbs. 
 
 654 
 822 
 
 1309 
 
 Q 25 !H 
 
 io 7A% 
 
 2 9;nnr 
 152 
 
 1317 lbs. 
 1520 
 1976 
 2822 " 
 
 1086^ 
 
 66 
 67 
 
 148 
 132 
 176 
 
 "5 
 
 283 
 907 
 
 
 
 Fourth class 
 
 Telegraph messages, number of. . 
 Pretroleum refined, number of gals. 
 
 It will be seen from the above tables that, although the general 
 purchasing power of wages has greatly increased since i860, the 
 increase has been very much greater in those industries where 
 the greatest concentration of capital has taken place. Taking 
 200 staple articles together, the increase is 53xVs" P er cent., 
 whereas, in cotton-seed oil, it is 66 per cent. ; in sugar, 67 per 
 cent. ; in transportation (all classes) together, it is 142 per cent. ; 
 in telegraphy, 283 per cent. ; and in petroleum, 907 per cent. It 
 should be observed in this connection that the figures for cotton- 
 seed oil only extended to 1878, and that more than \$ of the 
 entire fall in the price has taken place since the trust was formed 
 in 1884 3 ; and also that the fall in the price of sugar during the 
 last thirty years has all taken place since January, 1882.* 
 
 It may be said that the point has not yet been reached where 
 actual competitors are reduced to none, and therefore the cor- 
 rectness of the theory here presented cannot be inductively 
 verified. It is true that there are very few industries in which the 
 actual competitors are not still relatively numerous. Nor is there 
 any sufficient ground for concluding that the time will ever come 
 
 1 The figures in this table are for 1878. 
 
 2 These figures are for 1866. 
 
 3 In 1878 the price of standard summer oil was 47^% cents a gallon ; in 1883 
 it was 47ycTr cents a gallon ; it is now (September 27, 1890) 33 cents a gallon. 
 
 4 The average price of refined sugar in i860 was 9^ cents a pound. In Janu- 
 ary, 1882, it was 9I, and in July 9^ cents a pound. 
 
4IO STANDARD OIL TRUST. 
 
 when this will not be the case in a great majority of industries, 
 but that in some industries production may practically be in the 
 hands of a single concern is certainly within the range of possi- 
 bility, since we have at least one instance of this kind already in 
 the Standard Oil Trust. This concern comes nearer to having 
 complete control of a given product than perhaps any other en- 
 terprise in the world. When petroleum was refined by small con- 
 cerns, it was very poor in quality and very high in price. In 
 1861, when crude oil was only iy 2 /^ cents a gallon, refined oil 
 was 6i-$fo cents a gallon, making the cost of refining and trans- 
 portation 6o T 3 oV cents a gallon. By concentration of capital and 
 the improved processes of ten years, the price of refined oil was 
 reduced to 24 T 2 / 7 cents a gallon. The oil was still both poor and 
 dangerous to use, casualties from exploding lamps being of daily 
 occurrence. This was practically as far as small concerns were 
 able to carry the light-improving and price-reducing processes, 
 and although the quality was poor and the price high the re- 
 finers' profits were small. 
 
 In 1872 the refiners formed a combination called the Standard 
 Oil Company, which however did not include any considerable 
 portion of the refiners until 1874, but by this concentration of 
 productive power they were able to introduce various improve- 
 ments otherwise impracticable. For example, before the organi- 
 zation of the Standard Oil Company, crude oil had to be trans- 
 ported from the wells to the market in small quantities, in 
 barrels, tanks, etc. After the organization of that company, 
 various methods of reducing the cost of transporting oil were 
 adopted, which, about 1879, resulted in substituting for the rail- 
 road and other means of transportation, a general pipe line taking 
 oil from the various wells and delivering it directly to the market. 
 There are now two such lines reaching New York, with the capac- 
 ity of 25,000 barrels a day. There is also one such line to the 
 cities of Philadelphia, Baltimore, Buffalo, Cleveland, and Pitts- 
 burgh, and one is being constructed to Chicago. This was an 
 undertaking absolutely beyond the power of any of the smaller 
 corporations. Nothing short of a colossal combination was ade- 
 quate to the task, which resulted in a saving of over 66 per 
 cent, of the cost of transportation alone. 
 
 Similar savings in other departments, such as the manufacture 
 of their various supplies, have been accomplished by virtue of 
 
ITS ECONOMIC METHODS. 
 
 411 
 
 the consolidation. Thus in 1872 barrels cost $2.35 each ; to-day 
 the trust manufactures them for its own use at $1.25 each, a re- 
 duction of 47 per cent., or a saving of nearly $4,000,000 
 a year. In the cost of manufacture of tin cans, a saving of 50 
 per cent, has been made, the price having been reduced from 30 
 to 15 cents per can since 1874. As this company uses about 
 30,000,000 tin cans a year, that makes a saving of over $4,500,000 
 annually. The same is true of wooden cases, which in 1874 cost 
 20 cents each, while the company now manufactures them for 
 itself at a cost of 13 cents each, being an annual saving of about 
 $1,250,000. Similar economies have been established in the man- 
 ufacture of tanks, stills, pumps, and other things used in the busi- 
 ness. As a result of all this the price of the refined oil was 
 reduced in eight years, 1872-1879, from 24 T 2 /o- cents to 8^^ cents 
 a gallon, or 66^ v per cent. Moreover, in addition to thus low- 
 ering the price, the quality of the oil was greatly improved by 
 entirely eliminating the explosive elements and increasing its 
 illuminating quality. 
 
 By these improvements in quality and reductions in price, the 
 market for oil was greatly extended, and in 1880 a still further 
 combination of capital was undertaken and the trust formed. 
 This, as before remarked, included nearly all the leading refiners 
 in this country, and therefore actual competition in this business 
 was minimized. 1 Under these monopolistic conditions, accord- 
 ing to the usual predictions, the price of oil might have been ex- 
 pected to rise, but the fact is that it continued to fall as will be 
 seen by the following table : 
 
 
 Price of crude oil per gallon 
 
 Price per gallon of refined oil 
 
 
 at wells. 
 
 for export. 
 
 1880 
 
 2.24 
 
 9.12 
 
 1881 
 
 2.30 
 
 8.05 
 
 1882 
 
 1.87 
 
 7.41 
 
 1883 
 
 2.52 
 
 8.14 
 
 1884 
 
 1.99 
 
 8.28 
 
 1885 
 
 2.11 
 
 7.86 
 
 1886 
 
 1,69 
 
 7.07 
 
 1887 
 
 1-59 
 
 6.75 
 
 1888 
 
 2.07 
 
 7- 5o 
 
 1889 
 
 2.42 
 
 7.25 
 
 1 The Standard Oil Trust refines about 75 per cent, of all the oil in this country. 
 
412 EFFECT OF UTILIZING WASTE. 
 
 It will be observed that this fall in the price of refined oil 
 is none of it due to a fall in the price of the crude oil which re- 
 mained practically unchanged. This is the more surprising be- 
 cause improvements in the means of transportation and other 
 processes had already been practically maximized, and, as will 
 be readily observed, the possibilities for economy are very much 
 less when the price has reached 9 cents than when it was 24 
 cents a gallon. Manifestly if the community is to receive in 
 reduced prices the advantage of the limited improvements that 
 remain possible and profits are to be maintained, economies 
 must take a new direction. And this is exactly what has taken 
 place. 
 
 During the last few years, and especially since the organization 
 of the trust, a series of improvements has been developed by 
 means of which what had been previously wasted is now con- 
 verted into valuable commodities. In the refining of petroleum, 
 after the illuminating oil is abstracted, there is a large residuum 
 left which hitherto had only a fuel value. This formerly wasted 
 material is now converted into naphtha, lubricating oils, paraffine 
 wax, etc. In order to do this, however, expensive machinery and 
 manufactories had to be constructed expressly for the purpose, 
 which could only be profitably undertaken in connection with the 
 most colossal processes of petroleum refining. Some idea of the 
 extent of this may be formed from the fact that naphtha thus pro- 
 duced supplies more than two thirds of the public light of New 
 York City, Brooklyn, and Jersey City because it is cheaper than 
 gas. The price of paraffine oil also has been reduced by this 
 means from 22 cents to 1 1 \ cents a gallon, and has been improved 
 50 per cent, in its lubricating qualities. In 1875 the standard 
 for American paraffine oil by the commercial test viscosity was 
 100 seconds at a temperature of 70 ; it now tests 150, and its flash 
 point, which in 1875 was 300, is 380. 
 
 Moreover, in 1875, paraffine oil could not be used for lubrica- 
 ting machinery without an admixture of from 20 to 50 per cent, 
 of animal oil, while to-day it can be used without any animal oil. 
 This is true of several other lubricants made from petroleum, 
 especially cylinder oil. Even for railroad purposes this super- 
 sedes tallow and other animal lubricants, having the great merit 
 of preventing corrosion by keeping the metal surfaces bright and 
 
EFFECT ON OTHER COUNTRIES. 413 
 
 clean. In 1875 the price of petroleum cylinder oil was $1.25 per 
 gallon ; it is now only 35 to 40 cents. The price of black lubri- 
 cating oils used for railroad axles was 15 to 18 cents a gallon in 
 1875, and to-day it is sold at 7 and 9 cents. The monthly sales 
 of mineral lubricating oils were not more than 10,000 barrels in 
 1875 ; they are now nearly 70,000. Furthermore, the annual 
 product of paraffine wax from petroleum was less than 6,000 tons 
 in 1870, and this year the product is estimated at fully 20,000 
 tons, and the price has been reduced from 9 to 5 cents a pound. 
 It may be added that the quality of this product has been so im- 
 proved, that for candle purposes, especially in Great Britian, it 
 has superseded tallow, stearine, products of palm oil, etc., and 
 the price of candles has been reduced one half in consequence. 
 
 In addition to all this the trust has undertaken the manufacture 
 of its own sulphuric acid, having need of a greater quantity of that 
 product. Through improved processes introduced into the manu- 
 facture of this commodity the price has been reduced from a cent 
 and a quarter a pound to eight cents a hundred pounds. By such 
 means this trust has been able to give to the community in 
 reduced prices the full benefit of all improvements in refining 
 petroleum, and to obtain its profit from what formerly was mere 
 waste. 
 
 Nor is this all ; the series of improvements, from the pipe line 
 up, which have thus been developed through the increasing com- 
 bination of capital, has since been copied bodily in Russia. 
 Petroleum was discovered there long before it was known in 
 Pennsylvania, but because of crude methods for developing it 
 it was not much more serviceable to them than were the valuable 
 mineral and agricultural possibilities of this country to the 
 Indians. But after the development of these processes here, 
 the combination of European capital took America's experience 
 and discoveries to Russia, where oil is now produced by sub- 
 stantially the same process. It will thus be seen that the com- 
 bination of capital in this industry has not only lowered the price 
 and improved the quality of oil in this country, but has actually 
 transferred that much of our civilization to Russia. 
 
 It may be said that this is not true of all trusts, but that some 
 of these combinations have used their power to increase instead 
 of to reduce prices. That there are men at the head of trusts 
 
414 TRUSTS AND CORNERS. 
 
 who mistake their true economic function will not be questioned 
 for a moment ; but to the extent that trusts are used for specu- 
 lative instead of productive purposes — to create corners instead 
 of reducing the cost of production — will they fail to be a perma- 
 nent advantage either to the community or to those undertaking 
 them. Corners can only be successful to the extent that they 
 can control a commodity for a sufficient length of time to force 
 its price up abnormally high. The concentration of productive 
 capital in trusts, railroads, syndicates, and the like, tends to 
 ultimately prevent this in two ways : (i) By increasing the 
 amount of product to such proportions as to make its permanent 
 control by a few persons practically impossible. (2) By in- 
 creasing the facilities for communication and transportation so 
 that commodities can be readily obtained from any part of the 
 world. 
 
 Before the period of steam and the combination of productive 
 capital, although millionaires were few, corners were numerous 
 and relatively successful. With the development of the railroad, 
 telegraph, steamship, large factory, and trusts, however, corners 
 have become more and more impossible. This is shown by the 
 fact that during the last fifteen years almost every extensive 
 attempt to corner commodities has resulted in serious loss and 
 often ruin to its projectors. Witness Black Friday, and the ruin 
 of Keene in the wheat corner five years later, and the failure of 
 the copper syndicate last year, which came very near bankrupting 
 a number of the largest capitalists in the world and breaking the 
 bank of France. 
 
 The reason for the failure of these and many other efforts to 
 fictitiously inflate prices, is that the quantity of wealth produced 
 and the means for rapidly transferring it to any given point have 
 increased so enormously that to corner any staple product long 
 enough to accomplish the end desired is practically impossible. 
 Thus, so far from the combination of capital in production and 
 transportation being the cause of, or favorable to, corners, it 
 tends more and more to make merely speculative monopolies 
 impossible. The recent experience of the sugar trust and the 
 cotton-seed oil trust also illustrated the same tendency. The 
 combination of capital is strictly an economic phenomenon 
 subject to economic law, and when it is used for an uneconomic 
 
RESPONSIBILITY OF CAPITALISTS. 415 
 
 purpose it is pretty certain to bring its own punishment. In 
 other words, productive combination is in the order of industrial 
 evolution, and any attempt to permanently restrict that move- 
 ment is inimical to the best interests of a progressive society. 
 
 There is one fact, however, that capitalists would do well not 
 to overlook — namely, that their safety in the future depends upon 
 the economic use of their power. If they persist in the effort to 
 employ the power of combination for uneconomic purposes, they 
 will find themselves confronted by another and more summary 
 kind of opposition than economic law presents. In proportion 
 as the social condition of the masses improves and they become 
 more informed and politically powerful, do they become sensitive 
 about their rights, conscious of their strength, and indignant at 
 any effort to trifle with their interests. Consequently, if capitalists 
 fail to recognize this important fact and continue to trifle with 
 the interests of the community by perversion of their industrial 
 power, they may suddenly find themselves in the hands of an 
 arbitrary political authority whose action may be even more un- 
 reasoning than theirs has been uneconomic. There is nothing 
 which furnishes such a plausible basis for the demands of 
 socialism to-day as the uneconomic conduct of the capitalist 
 class. Whether industrial evolution and civilization shall be 
 permitted to advance by increasing the wealth-cheapening capa- 
 city of capital, or whether society shall be forced into an experi- 
 ment of socialism with its stultifying influences, will mainly 
 depend upon the use made by the capitalist class of the economic 
 power which society has conferred upon them. 
 
CHAPTER VII. 
 THE COMBINATION OF LABOR. 
 
 The combination of labor is the historic and economic accom- 
 paniment of the combination of capital ; it is as necessary to the 
 wages system as the factory is to capitalistic production. In the 
 preceding chapter we saw how uneconomic and short-sighted is 
 the policy of those who oppose the concentration of capital. The 
 unwisdom of this opposition is quite clear to the particular capi- 
 talists against whom it is directed. It was clear to small fac- 
 tory owners in the first quarter of this century ; it was obvious to 
 the corporations in the third quarter of this century, and it is no 
 less manifest to trusts, syndicates, and other colossal combina- 
 tions of to-day. But singularly enough they are all tacitly or 
 avowedly opposed to the combination of labor. The president of 
 a syndicate, trust, confederated railroad, or telegraph system, can 
 see the folly and inconsistency of the large newspaper, itself a 
 gigantic corporation, railing against the combination of capital ; 
 but he is apparently oblivious of his own inconsistency in 
 opposing the combination of labor. This attitude can be 
 explained only on the ground of mistaken notions regarding the 
 subject. A little reflection will show that every reason which 
 obtained for the concentration of capital applies with equal 
 force and for similar reasons to the combination of labor ; and 
 that all the objections urged against the combination of labor are 
 applicable to the combination of capital. 
 
 The standard by which all social institutions must be judged 
 is their influence upon the welfare of the community ; nothing 
 can permanently promote the industrial welfare of society which 
 does not either reduce prices or increase wages. Since the eco- 
 nomic effect of the combination of capital is shown in the price 
 
 416 
 
OBJECTIONS TO TRADES UNIONS. 417 
 
 of commodities, and that of the combination of labor is shown in 
 wages, the social utility of the former must be judged by its ten- 
 dency to make wealth cheap — to reduce prices, — and that of the 
 latter by its tendency to make men dear — to increase wages. We 
 have already seen that, judged by this test, combination of capital 
 is a great social benefit, and if we bear in mind the point of view 
 from which the discussion has proceeded, we shall have no diffi- 
 culty in seeing that the same is true of the combination of labor. 
 Among the many objections to trades unions it is urged : (1) That 
 they are un-American, because they were born in and belong to the 
 monarchical institutions of the old world, and are out of place in 
 a democratic republic ; (2) that they tend to destroy the right of 
 individual contract, and thereby limit the laborer's freedom and 
 industrial independence ; (3) that they tend to encroach upon 
 the employer's right to manage his own business by preventing 
 him from contracting for his labor with the laborers individually ; 
 (4) that they cannot increase wages and improve the laborers' 
 social condition, because they are contrary to natural law. 
 
 1. It is true that trades unions were not born in America ; neither 
 were factories and railroads. If labor combinations are to be 
 rejected in America because they arose in Europe, then the use 
 of steam, the daily press, our literature, language, religion, and 
 indeed our very civilization may also be rejected for the same 
 reason. Of all the objections urged against the combination of 
 labor, there are none more flippant and absurd than the fact that 
 it was of old-world origin. Trades unions arose in England 
 solely because capitalistic production and the factory system had 
 their rise there. The combination of labor, like that of capital, is 
 not a national but an economic institution, and must be judged 
 entirely by its economic characteristics. To call an institution 
 un-American because it did not have its birth in the United 
 States, is to fail to distinguish between an economic principle and 
 a geographical location. The truth or wisdom of a doctrine, in- 
 stitution, or policy, does not depend upon how or where it arose, 
 but upon the social effect of its application. 
 
 2. The contention that trades unions destroy the right of indi- 
 vidual contract and limit the laborer's freedom has a plausible 
 seeming, but it is singularly superficial. If it be true that com- 
 bination destroys the freedom of the laborer, why does it not 
 
 27 
 
41 8 SOPHISTICAL OPPOSITION. 
 
 also destroy that of the capitalist. It will hardly be contended 
 that capitalists who have steadily integrated into larger and 
 larger combinations are less free than formerly ; one great com- 
 plaint against them is that they are having too much freedom. It 
 is true that labor combinations have steadily increased during the 
 last fifty years, and it is equally true that the laborers' industrial, 
 social, and political freedom has increased more during that 
 period than ever before. 
 
 Nearly all opposition to labor combinations is ostensibly for the 
 laborers' benefit. As early as 1831, when the trades union asked 
 Parliament to reduce the working time of the factory operatives in 
 England from twelve to eleven and a half hours a day, the proposi- 
 tion was opposed on the ground that it would destroy the freedom 
 of the laborer to work as many hours as he chose. And forty-five 
 years later the same reasoning was presented in Massachusetts 
 against the adoption of a ten-hour factory law. Edward Atkinson 
 and others repeatedly pleaded against the measure on the ground 
 of individual freedom, claiming that to limit the working day by 
 law to ten hours was to deprive the working women (the law only 
 applied to women and children) of their sacred right to make an 
 individual contract to work as many or as few hours and for such 
 wages as they pleased. Such reasoning implies that the factory 
 women had previously enjoyed the precious boon of making 
 individual contracts regarding their hours and wages. The fact 
 is, however, that no such right existed ; there was never a time 
 since the factory system began when the operative of either sex 
 could make any such individual contract ; and prior to the fac- 
 tory system and the existence of trades unions the laborer had 
 neither part nor lot in determining either his wages, hours of 
 labor, or any other condition. Down to the fourteenth century 
 the laborer was the property of his master. From the middle of 
 the fourteenth to the close of the eighteenth century his industrial 
 conditions were determined by statute law, in which he had no 
 voice ; and during the first half of the present century they were 
 determined by the employer. 1 The right or expediency of con- 
 
 1 During the reign of Edward III., Richard II., and the Fourth and Fifth 
 Henrys, the law was chiefly directed to regulating the laborers' wages, 
 /ood, clothes, occupation, and mobility, coupled with severe penalties for 
 violation. And during the next four hundred years (1425-1825) this was supple- 
 
FALSE NOTIONS OF FREEDOM. 419 
 
 suiting the laborer in such things is a matter of recent date ; a 
 fact which labor combinations have made possible and are fast 
 making necessary. 
 
 The mistake in this attitude arises from a misconception of 
 what constitutes freedom. As already observed, 1 freedom does 
 not consist in the negative permission to do but in the positive 
 power of actual doing. The essence of freedom is power, and 
 the source of economic and social power is wealth. Nothing can 
 furnish the motive to associate but the fact that association 
 increases the power to obtain desired objects. The history of 
 freedom is the history of progress, and the history of progress is 
 the history of industrial, social, and political integration or com- 
 bination. Every movement towards freedom is a movement 
 towards greater economic and social interdependence between 
 individuals. Interdependence involves mutual helpfulness, which 
 in turn furnishes security of rights and the maximum free- 
 dom of action. The difference between freedom furnished by 
 savagery and that secured by society is that the former affords 
 the freedom to injure while the latter gives freedom only to help 
 our fellow-man, and thereby benefit ourselves. If trades unions 
 were inimical to the laborers' freedom we should find more indi- 
 viduality and freedom among unorganized than among organized 
 laborers. The facts, however, are everywhere the reverse. In 
 every country and industry it is the organized laborers who are 
 the most characterful and progressive, and the most difficult to 
 coerce or mislead, either industrially or politically. It is not cor- 
 rect therefore, either theoretically or historically, that labor com- 
 binations tend to destroy the laborers' freedom. 
 
 3. The complaint that trades unions invade the rights of the 
 capitalist to control his own business, is regarded as the greatest 
 grievance by the employing class. When discussing this point 
 however, it soon becomes apparent that the phrase, " preserving 
 the laborers' right of free contract " really means nothing but the 
 right of the employer to insist upon making contracts with 
 
 merited by laws making it a penal offence for laborers to combine for the pur- 
 pose of obtaining advance of wages, or for altering the hours of work." See 
 Encyclopedia Britannica, vol. vi., p. 181, and vol. xiv., pp. 166, 167. Also, 
 Rogers' " Six Centuries of Work and Wages," p. 399. 
 
 1 See page 12. Also, " Wealth and Progress," pp. 131, 132. 
 
420 ONE-SIDED ECONOMICS. 
 
 laborers individually. A very slight acquaintance with industrial 
 experience is sufficient to show that the reason for this is, that in 
 so doing the laborer is less able to make contracts to his own 
 advantage. 
 
 There is surely no principle in economics or equity which will 
 not apply with as much force to the capitalist as to the laborer. 
 If the capitalist has a right to object to the laborers acting col- 
 lectively, the laborers have an equal right to object to the associ- 
 ated action of capitalists. In truth however, such an objection 
 on the part of either is the very acme of absurdity, because 
 individual action has been rendered practically impossible on both 
 sides by the very constitution of the factory system. Everybody 
 is now aware that associated capital is practically indispensable 
 to successful production. No matter how desirable it might ap- 
 pear that each stockholder should directly participate in every 
 transaction of the concern, such a town-meeting method is now 
 utterly impracticable. That a considerable degree of associated 
 and representative action is necessary for capital is generally 
 admitted ; the individual contract system is literally insisted upon 
 only for the laborer. All contracts for labor must take place 
 between corporate capital and individual laborers. When the 
 laborer purchases commodities he must buy individually from cor- 
 porate producers, and when he sells labor he must sell individually 
 to corporate purchasers. 
 
 This position is as illogical as it is impracticable. Fortunately 
 economic law makes such an one-sided arrangement impossible. 
 The very conditions which have made the combination of capital 
 necessary, have rendered a practical uniformity in the price of 
 labor necessary for the same work in the same shop. It is mani- 
 festly impossible for a concern employing several thousand 
 laborers to make a special contract with each individual laborer 
 as to the wages he shall receive and the hours he shall work. In 
 the first place, a multitude of different rates of wages and other 
 conditions would throw the whole concern into confusion. Every 
 change of workman would be liable to involve a new price, and 
 thus change the cost of producing the article. Since the labor of 
 all the workmen is merged into a common product and sold at a 
 uniform price, it would be impossible to know from week to week 
 whether the selling price was above or below the cost of produc- 
 
INDIVIDUAL CONTRACTS IMPOSSIBLE. 42 1 
 
 tion. This difficulty would be further increased by the fact that 
 the productive capacity of operatives greatly varies, especially 
 where men, women and children all work at the same occupation. 
 It was this fact, together with the desire to spur the workman to 
 his maximum effort, that led to the introduction of the piece-work 
 system. It is needless to say that to have a special contract with 
 each individual operative as to the price paid per unit of product 
 is absolutely impracticable. 
 
 Still another obstacle to individual contract is the fact, that 
 under factory methods the tools are all driven by a single power. 
 This makes it essential to the economy of the process that there 
 be a uniformity of hours in order that all may commence and 
 stop at the same time, because it involves about as much cost to 
 run the machinery for a portion as for the whole number of 
 operatives. Furthermore, since every department supplies but a 
 fraction of the finished product, it is necessary that its quota 
 should be furnished in a uniform proportion to all the rest, as 
 any variation in this respect would be a disturbing hindrance to 
 the whole concern. In other words, the workers in the seventy 
 different branches in the manufacture of a shoe are simply inte- 
 gral parts of a continuous process, and therefore must all conform 
 to a general system of operations. It is as impossible for each 
 operative to make separate conditions without regard to the rest 
 as it would be to make the cogs of a wheel of different length, 
 breadth, or thickness, without regard to each other. Individual 
 contracts therefore, regarding wages, hours of labor, or other 
 working conditions, are absolutely out of the question under the 
 factory system. Indeed, no practical business man would ever 
 seriously entertain such an idea. 
 
 As a matter of fact, no such freedom on the part of the laborer 
 to make an individual contract for himself, different from that 
 under which his fellow-workman in the same shop or industry is 
 working, is ever intended by the much-heralded phrase " free- 
 dom of contract." All that is really meant by this phrase is that 
 the employer should have the freedom to take the laborers singly 
 in order to make them jointly accept his terms. It simply means 
 that in making a contract, the laborer shall not have the same 
 right to be represented by the most competent of his class or craft 
 that capital has ; but that each one, however ill-informed or in- 
 
422 UNFAIR CONTRACT. 
 
 competent to present his own case, shall be dealt with simply by 
 the representative of corporate capital. Every time a laborer is 
 induced, through ignorance or otherwise to accept inferior con- 
 ditions, it increases the power of the employer to enforce similar 
 terms upon others. Thus, while the uniformity of price for the 
 same work in the same shop prevails, this method enables the 
 employer to impose the maximum hardship and give the minimum 
 pay that the superior men can endure, whereas if the laborers 
 acted collectively, as the capitalists do, the more competent of 
 their number could be chosen to negotiate the contract for the 
 whole, thus preventing the inferior from being used as a means 
 of destroying the contracting power of the superior. And since 
 the contract made by the superior would always be as favorable 
 or more so than that made by the inferior, the poorest laborers 
 have every thing to gain and nothing to lose by associated or 
 representative action. Any system of jurisprudence which should 
 permit representation by counsel on one side and refuse it on the 
 other, would throughout Christendom be pronounced as a scan- 
 dalous violation of the principles of equity ; yet this relation 
 obtains between employers and employed in the most civilized 
 countries, except so far as it has been rendered impossible by the 
 power of organized labor itself. 
 
 As proof of the obvious one-sidedness of the individual-contract 
 idea, it is only necessary to go into any large factory and read the 
 printed rules which govern the conditions of employment. I have 
 read scores of them. They are usually printed and posted up 
 near the entrance of the factory, and they stipulate the various 
 conditions of work the employers desire to impose. Sometimes 
 these rules, miscalled contracts, appear to give the same rights to 
 the laborer as to the employer. This, however, is usually fol- 
 lowed by the qualification that in case of misdemeanor, inferior 
 workmanship, or other cause, the laborer can be summarily dis- 
 missed, and of these things the employer is the sole judge. In 
 short, these rules are formulated and enforced exclusively by the 
 employer. And when a new laborer is engaged he neither hears 
 nor sees any thing of them but the mere fact that they are posted 
 up in the factory, and that he was not coerced into taking the po- 
 sition, is held to constitute a free contract, the conditions of which 
 are legally binding, and are commonly so interpreted by the courts. 
 
 It may be replied that this is the only practical way of doing, 
 
TRADES UNIONS AND WAGES. 423 
 
 so far as the employer is concerned. This is undoubtedly true ; 
 but it demonstrates the impossibility of individual contracts ; 
 hence the absurdity of objecting to labor combinations, on the 
 ground that they destroy the laborers' freedom of individual con- 
 tract. The right of individual contract means nothing, unless it 
 means that every individual can make a contract for himself with- 
 out regard to that of others. Experience has shown that such 
 contracts are incompatible with a highly complex productive sys- 
 tem. To the modern employer laborers constitute various parts 
 of a vast productive machine, and hence must work in practical 
 uniformity or not at all. This is not only true of the laborers in 
 any given workshop, but it is practically true of the laborers in 
 different workshops in the same industry, whose products com- 
 pete in the same market. Thus it is the economic conditions of 
 production, and not labor combinations, that have destroyed the 
 feasibility of individual contracts ; and it is beyond the power of 
 either laborer or capitalist, or both combined, to restore it with- 
 out abrogating the factory system. Since both capital and labor 
 now necessarily move in large aggregations, for organized capital 
 to object to the existence of organized labor is manifestly as un- 
 just as it is irrational and uneconomic. 
 
 3. Another objection urged against labor combinations is that 
 they are uneconomic in their character and methods. It is in- 
 sisted that they cannot increase wages because wages are gov- 
 erned by natural law, whose operation is beyond the influence of 
 trades unions. That much of the conduct of trades unions has 
 been uneconomic will not be disputed by any one familiar with 
 their history. But it is scarcely less clear that this is mainly due 
 to their acceptance of the capitalists' doctrine of wages, and not 
 to any thing in the nature of labor combinations. This doctrine 
 is that wages are regulated by the proportion between the 
 demand for and supply of laborers, and consequently that 
 nothing can increase wages which does not diminish the supply of 
 labor, as compared with the demand. The supply of labor being 
 determined by the number of the laboring population, any en- 
 deavor to increase wages except by limiting the population was 
 held to be a futile attempt to suspend the operation of natural 
 law. 1 A doctrine according to which wages could only be raised 
 
 'See Mill's "Principles of Political Economy," vol. i., p. 428 ; " McCul- 
 loch's '" Principles of Political Economy," p. 174 ; Perry's " Political Econ- 
 
424 STRIKES AND CORNERS. 
 
 by increasing the deaths or decreasing the births in the laborers' 
 families was properly repugnant to them, though they were 
 unable to answer it. While the laborers accepted the economists' 
 theory, they rejected their means of applying it, and to their 
 credit be it said, they endeavored to control the supply of labor 
 without resorting to protracted celibacy or infanticide. 
 
 Moreover, they were constantly having object lessons in the 
 application of this doctrine by the employing class. Supply and 
 demand being regarded as the law of prices as well as of wages, the 
 capitalists had practically to deal with the same problem. With 
 this exception, however, that in their case supply involved the ex- 
 istence of commodities, in the case of the laborers it involved the 
 existence of human beings. In acting upon this doctrine, the 
 capitalists endeavored to regulate the price of commodities by 
 withholding a portion of the product from the market — reducing 
 the supply. This naturally led to corners and other forms of 
 artificial monopoly, which are now recognized as social evils, 
 especially as all such efforts are undertaken solely to increase 
 the price of commodities. 
 
 That the laboring class should imitate the policy by which their 
 masters had apparently been so successful cannot be a matter of 
 surprise. They naturally tried to do with labor what the capital- 
 ists had done with commodities — namely, to limit the supply in 
 order to increase its price, by withholding a portion of it from 
 the market, which in their case is called a strike. Every strike 
 for higher wages is simply the practical application of the doctrine 
 of " supply and demand " to labor ; it is to the labor-market 
 
 omy," 1st. ed., pp. 122, 123. Also Wells' "Recent Economic Changes," p. 
 124. Cf. " Wealth and Progress," pp. 35-52. Nor can it be said that this doc- 
 trine has been discarded although its fallacy has been repeatedly exposed. The 
 fact that Mill practically gave it up before he died, rendered the wages-fund 
 form of stating it unpopular. But the doctrine that wages are governed by the 
 relative demand and supply of laborers has continued to be taught by the most 
 scholarly economists. Cairnes tried to rehabilitate it after Mill's conversion. 
 Jevons reaffirmed it, and it is the essential idea in the most recent discussion of 
 wages by German, Austrian, English, and American writers. And Marshall in 
 his " Principles of Economics," (1890) which is characteristically the embodi- 
 ment of the most recent discussion of the subject by continental and American 
 writers, makes supply and demand the basis of all his reasoning on Distribution 
 and Exchange. 
 
FUNCTION OF COMBINATIONS. 425 
 
 precisely what a corner is to that of commodities. And yet this 
 is precisely what economists have taught in theory and the 
 capitalists have illustrated in practice. Thus the feature in the 
 combination of capital which the public most oppose, and that in 
 the combination of labor which the employing class most con- 
 demn, is the logical result of the popular doctrines of prices and 
 wages, and not a necessary part of industrial combination, either 
 of capital or of labor. 
 
 We have already seen that the arbitrary and speculative feature 
 of the combination of capital is the incident, and that its normal 
 function is to increase the economic efficiency of production and 
 reduce the price of commodities ; and also that the former is 
 diminished and the latter increased as the progress of society 
 advances. A very little consideration of the subject will show 
 that this is equally true of labor combinations. Not only have 
 the rise of wages and the general freedom of the laboring classes 
 everywhere advanced with the growth of trades unions, but these 
 organizations have been one of the most efficient means in pro- 
 moting that end. The reason for this is obvious when considered 
 in the light of the doctrine of wages already stated. When we 
 realize that cost, and not the mere ratio between quantities, is the 
 chief determining influence in prices, the importance of labor com- 
 binations as a means of raising wages is easily understood. Upon 
 the principle that the cost of labor is high or low according to 
 the simplicity or complexity of the social environment, it follows 
 that whatever increases the laborer's social opportunities — i.e., 
 forces him into more frequent contact with an increasing variety 
 of social influences, necessarily tends to increase his wages, and 
 this is precisely what labor organizations do. 
 
 Isolation is social death. The poverty of the laborer's social 
 life has always been the lack of social opportunity. For centuries 
 the only opportunity for social intercourse open to the laborer 
 outside of his meagre family circle and the church was the tavern. 
 During the middle ages and practically down to the present cen- 
 tury the church and the tavern or inn were the most prominent 
 social institutions. Although the church was the centre of culture 
 and refinement and furnished what there was of art and music, 
 its attitude towards the laborer was always that of authority. It 
 bade him obey under penalty of endless punishment. It afforded 
 
426 CHURCH AND TA VERN, 
 
 him little if any opportunity for social intercourse with his peers, 
 where he could talk over his grievances on equal terms with those 
 whose experience was practically like his own. 
 
 Social intercourse for the laborer, of a democratic character, 
 was first furnished by the tavern. There the laborers, tired 
 and heart-sore, with no industrial, social, religious, or political 
 rights which their superiors were bound to respect, could meet 
 over a mug of beer, relate their hardships to one another, and 
 exchange sympathetic encouragement. By such social inter- 
 course the laborers not only became more acquainted with, and 
 interested in, each other, but the more intelligent and characterful 
 among them were naturally inspired to suggest various methods 
 for improving their condition and demanding new rights and 
 greater freedom. Thus, by affording social opportunity, the 
 tavern was one of the early instruments of social progress ; it 
 may indeed be said to have been the birthplace of free speech 
 for the masses. 1 What the tavern was to the early peasantry 
 the trades union is to the modern laborer. Indeed, for the first 
 half of the present century the trades union was really a differ- 
 entiation of the tavern meeting. Instead of meeting in a general 
 social way, they met for discussion and united action regarding 
 their special industries. 
 
 The trades union tends to develop the intelligence and charac- 
 ter of the laborers in many ways. In the first place it stimulates 
 the study of industrial conditions, which involves a considerable 
 amount of reading and general information, and also a close 
 acquaintance with the industrial condition of their craft. The 
 discussion of the various propositions which arise for considera- 
 tion develops individual confidence, force of character, and a 
 consciousness of industrial rights and social power, not only in 
 those who actively participate, but in all who attend. In short, 
 the trades union is a great educational institution ; it is the eco- 
 nomic academy of the laboring class and is practically the only 
 opportunity for industrial education they have ever had. 
 
 1 The need of the tavern as a social resort will be better understood when we 
 realize the fact that the first public meeting ever held in England for the open 
 discussion of political rights did not take place till 1769. See Buckle's " History 
 of Civilization," vol. i., p. 311. Also Hallam's " Constitutional History," vol. 
 ii., p. 420. Cook's " History of Party," vol. iii., p. 187. Albemarle's 
 " Memoirs of Rockingham," vol. ii., p. 93. 
 
SOCIAL EFFECT OF LABOR UNIONS. 427 
 
 Moreover, the labor union is an important social centre ; in 
 addition to furnishing the laborers with the means of a better 
 knowledge of their economic conditions, it affords a degree of 
 opportunity for social intercourse otherwise practically impossible. 
 It is to the laboring class what clubs and other social institutions 
 are to the wealthy. The social intercourse and activity thus 
 created (which is frequently extended to their families and 
 friends) necessarily awaken new tastes, wants, and aspirations. 
 Nor is the influence of this limited to the personal character 
 and home life of the members of the association, but the social 
 rivalry between different organizations is equally pronounced. 
 So strong is this that a class feeling often exists between trades 
 as to their social position, the test usually being the wages paid 
 in their trade and the financial strength of their organization. 
 Thus, on all public occasions, they vie with each other as to 
 which shall make the most opulent appearance. This social 
 competition necessarily furnishes the incentive to new desires 
 and ambitions involving a greater variety of social life and a 
 more expensive standard of living. 
 
 The pressure of the increased necessities thus unconsciously 
 developed makes a demand for an increase of wages necessary. 
 This, of course, does not come suddenly ; it is felt first and most 
 keenly by those who have been most susceptible to the social- 
 izing influences and whose cost of living has been most increased. 
 Their expenditure begins to press uncomfortably against their 
 income, until finally they are unable to make both ends meet. 
 Those who first begin to experience this hardship, being the 
 most expensive of their class and usually the most intelligent 
 and characterful, bring the matter before the union and advocate 
 a general demand for an increase of wages. When this feeling is 
 shared only by a few, they fail to carry their point. 
 
 Since it is impossible both from the nature of the factory sys- 
 tem and the constitution of labor organizations to make special 
 terms for individual cases, the only way for the most expensive 
 laborers to secure an increase of wages for themselves is to ob- 
 tain the same for their whole trade. Being thus compelled to 
 rise together, or not at all, it becomes necessary to inspire their 
 associates with substantially the same feelings and ambitions 
 they experience themselves. To do this they are forced to argue 
 
428 TRADES UNIONS, ECONOMIC, 
 
 questions over and over again, showing not only the necessity 
 but the feasibility of their proposition. When they have suc- 
 ceeded in convincing twenty or thirty per cent, of the most char- 
 acterful in their union of the wisdom of their demand, the re- 
 mainder usually follow. With this united action of the whole 
 class they invariably succeed sooner or later in obtaining the 
 increase of wages or other improved conditions desired. All 
 this is educational and socializing in its influence. It is through 
 organizations which thus practically weld the laborers into a 
 social class that the economic condition of the whole is improved 
 by the efforts of a small but the most advanced portion. 
 
 It will thus be seen that trades unions are essentially economic 
 institutions ; instead of being inimical to the laborer's interest 
 and a menace to capital, they are a most important feature of 
 modern society. For the same reason that nothing can perma- 
 nently reduce the price of commodities, which does not diminish 
 the cost of production, nothing can permanently advance wages 
 which does not increase the laborer's cost of living. And upon 
 the same principle that the combination of capital increases the 
 facilities for diminishing the cost of production, the combination 
 of labor increases the opportunity for increasing the laborer's 
 necessities and cost of living. It is by their opportunity-creating 
 influences, and not by their power to limit the number of labor- 
 ers, that trades unions ever permanently affect wages. Of course 
 they resort to strikes as a means of enforcing their demands when 
 petitions and other more moderate forms of request have failed ; 
 not because it limits the supply of laborers, but because a con- 
 siderable portion of the laborers are acting under the pressure of 
 a social necessity, which if not satisfied will involve a protracted 
 social conflict. 
 
 It is commonly assumed that the conducting of strikes is the 
 chief function of labor unions. This is as erroneous as it would 
 be to say that the chief function of organized capital is to con- 
 duct lock-outs. Strikes are among the most reluctant and the 
 least beneficial functions trades unions perform. It is indeed 
 notorious that strikes diminish as labor organizations increase 
 in extent and efficiency. It is a fact well known to those con- 
 versant with the history of labor organizations, that far more 
 strikes have been prevented by the officers of trades unions than 
 
HOURS OF LABOR REDUCED. 429 
 
 were ever inaugurated by them. It is, however, through their 
 united efforts as industrial organizations and as the means of 
 concentrating the political influence of their class to promote in 
 a multitude of ways the improvement of their social condition, 
 that the trades unions have done their best work. Take, for ex- 
 ample, the reduction of the hours of labor ; this they have persist- 
 ently advocated for more than forty years, and in spite of the 
 almost united opposition of the employing class, have succeeded in 
 shortening the working time in almost every civilized country, in 
 many instances from fourteen to ten and nine, and in some cases 
 to eight, hours a day. It is due to their efforts that night-work 
 for women and children in factories was prohibited, education for 
 working children secured, and the truck system with numerous 
 other degrading features of the factory system abolished. It 
 may indeed be said that nearly all the improvements in the sani- 
 tary and social condition of modern workshops which have taken 
 place during the last generation are directly or indirectly the re- 
 sult of the indefatigable efforts of labor combinations. The rise 
 of wages is the secondary effect of these social improvements, 
 which are simply so much added opportunity for individual 
 development. 
 
 It is not pretended that these organizations furnish the only 
 social opportunity the laborer enjoys ; it is of course true that he 
 obtains some share in the benefit arising from the general progress 
 of society, but the degree in which he is thus benefited largely de- 
 pends upon the social preparation he receives in his own special 
 sphere. Suppose, for example, the mass of laborers continued 
 to work in an unwholesome atmosphere under demoralizing con- 
 ditions for twelve or more hours a day, and to spend their nights 
 in dismal tenements, compared with which a very ordinary saloon 
 is a wholesome attraction. The general culture of society would 
 have but a very slight influence upon their social life. This much- 
 needed preparatory social opportunity is what the trades union 
 largely supplies. It does this first through the social intercourse 
 and inspiration it directly furnishes within its organization, and 
 next by its persistent efforts to modify the form of labor and 
 diminish the amount of time the workshop shall exact from the 
 laborer's life, and by increasing that which is added to it by 
 leisure, and the general humanizing influences of society. Labor 
 
430 CHARACTER THE BASIS OF WAGES. 
 
 combinations, therefore, tend to promote the increase of wages in 
 the most truly economic way possible, which is by stimulating the 
 growth of the laborer's social wants and desires, and by promo- 
 ting industries, education, and the possibility of united, intelligent 
 action in economic and social affairs. 
 
 There is no force in society that can secure a permanen f rise 
 in wages unless the social necessity for it is previously developed. 
 When strikes take place for an increase of wages, or any other 
 object, before the demand of a considerable portion of the laborers 
 has ripened into a necessity for it, they generally fail. It is always 
 the most intelligent and characterful, whose habitual consumption 
 presses the hardest against their income, who are the most cautious 
 about entering upon a strike, and the most persistent in their en- 
 durance after the conflict commences. On the other hand, that 
 portion of the class which has a little bank account or a mortgaged 
 cottage, are the first to surrender when the real hardships of the 
 struggle begin to appear. The reason for this, however, is not 
 that they are inherently less heroic than the others, but that the 
 advance in their standard of living has not outgrown their wages 
 to the same extent. Consequently, the hardships arising from 
 the insufficiency of their wages are less severe than those of the 
 others ; hence their early surrender. In other words, their effort 
 to obtain the advance is relatively weak because the consciousness 
 of its necessity is relatively slight. And, conversely, those whose 
 necessary expenditures press the hardest upon their incomes 
 suffer the greatest inconvenience from the smallness of their 
 wages, and hence will endure correspondingly great hardships in 
 the efforts to obtain an increase. 
 
 It is, however, to the ill-advised strikes and other rash conduct 
 of trades unions that we are usually referred as evidences of 
 their evil influence. We are told that they are dictatorial, that 
 they arbitrarily disturb trade and industry, destroy the profits of 
 capital, and involve untold hardship upon the laboring class by 
 loss of wages. It is, indeed, one of the favorite themes of the 
 opponents of trades unions to foot up, periodically, how much 
 the laborers have lost in wages through strikes, and to point out 
 that they are the dupes of dishonest leaders. 
 
 This method of estimating the social and economic merits of 
 labor unions is at once specious and misleading. Judged by such 
 
GAIN AND LOSS BY STRIKES. 43 1 
 
 a standard, almost every great movement for social and political 
 reform would have to be voted a failure. The Wat Tyler insur- 
 rection, the uprising of the Roundheads against Charles I., the 
 Protestant Reformation, the Revolution of 1688, the French and 
 American Revolutions, and our Civil War, all cost more finan- 
 cially than was immediately realized from them. But if the results 
 of these struggles are estimated in their permanent effect upon 
 social well-being, they were all great successes, yielding indefi- 
 nitely more in benefits than they cost in sacrifice. 
 
 So it is with labor unions, notwithstanding their many mis- 
 takes. It is a great error to assume that, because a strike fails 
 to accomplish the specific object for which it was inaugurated, 
 the money and energy expended upon it are wasted. On the 
 contrary, the educational effect of an unsuccessful strike on the 
 employer and the public, as well as on the laborer, is often worth 
 more than all it costs. But if these efforts are judged by their 
 permanent effect upon the material and social well-being of the 
 masses, they will have to be regarded as great successes even in 
 a financial sense, to say nothing of the social and moral advantage 
 resulting from the reduced working hours and improved indus- 
 trial conditions they have secured. The increase of wages during 
 the last forty years is many times greater than all that has been 
 spent or lost through strikes since the dawn of the factory sys- 
 tem. Indeed, the amount the laborers in this country and Eng- 
 land have received through increased wages since 1850 is nearly 
 equal to all they received during the previous fifty years. But 
 what is still more important, all this gain will not only continue 
 in the future without any further effort, but will furnish a power- 
 ful lever by which to obtain still greater improvement. 
 
 The laboring classes therefore are not permanently impover- 
 ished by what they pay into unions or lose in strikes. It should 
 be remembered that their losses are only temporary, while their 
 gains are permanent. Thus when they strike for an increase 
 of wages or reduction of hours, if they fail to obtain that specific 
 object their loss is slight, since their future wages are not reduced 
 nor their hours increased on that account ; but if they succeed 
 they obtain a permanent gain. In other words, when they fail 
 they practically hold their own, and when they succeed they 
 gain forever. 
 
432 UNFAIR CRITICISMS. 
 
 That many strikes are unwisely inaugurated and badly man- 
 aged would be readily admitted by those acquainted with the 
 history of labor organizations. Nor will it be disputed *hat dis- 
 honest men, or men otherwise conspicuously unfit for leader- 
 ship, sometimes get at the head of labor organizations. But is 
 this not true of every other form of social and industrial organ- 
 ization ? Are capitalist organizations free from these charges ? 
 Do they not frequently act rashly and undertake enterprises in 
 which thousands of innocent confiding investors (often women, 
 children, and orphans) lose their little all ? Have they not their 
 Grant and Wards, whose rash (or worse) conduct often disturbs 
 the whole commercial and industrial world, bringing bankruptcy 
 and ruin to large numbers ? 
 
 Cannot the same impeachment be urged with quite as much 
 truth against political combinations, social clubs, and even 
 churches ? Would any one venture to say that because there 
 are dishonest railroad presidents and corporation treasurers, the 
 combination of capital should be prohibited, and because there 
 are dishonest and incompetent deacons and ministers church 
 associations should disband ? Why should working men be ex- 
 pected to be more honest and wise than any other class in the 
 community? Why should perfection be demanded of them, when 
 liability to err is conceded to every one else ? Since all other 
 social institutions are to be judged by their virtues, why should 
 labor organizations be judged only by their mistakes ? Considering 
 their limited opportunities and the extent of the forces arrayed 
 against them, the wonder is not that the laborers have made so 
 many mistakes, but rather that they have succeeded at all. 
 
 Another characteristic of labor combinations, which should not 
 be overlooked, is the marked improvement in their methods of 
 dealing with industrial disputes. In proportion as trades unions 
 become more complete in their organizations, and their members 
 more intelligent, they have become more rational and conserva- 
 tive in their attitude. Whereas physical force, often involving 
 the destruction of life and property, was once their chief means 
 of warfare, they now mainly rely upon reason and facts as their 
 economic weapons. Consequently we find to-day that in those 
 industries where trades unions are best organized and exercise 
 the greatest influence, strikes are fewest, wages are highest, hours 
 
TRADES UNIONS NECESSARY. 433 
 
 of labor shortest, and the relation between laborers and employers 
 the most confidential and harmonious. 
 
 Trades unions therefore are not only legitimate, economic, and 
 social institutions, but they are an integral part of the industrial 
 organization of modern society. They are the economic counter- 
 part of the combination of capital, and their existence and devel- 
 opment are equally necessary to the harmonious development of 
 society. It is an entire mistake, therefore, to regard trades unions 
 as necessarily a menace to industry and social welfare ; they are 
 constitutionally important educational institutions, and whether 
 they will be a power for good or for evil in society depends upon 
 what they teach and how they teach it. Since labor organizations 
 are the most effectual, and nearly the only means of furnishing 
 the opportunities for economic education to the wage workers, 
 instead of trying to degrade and suppress them, it is alike the 
 interest and duty of both the employing class and the community 
 to encourage their development and increase their usefulness. If 
 capitalists would devote one tenth the means for helping labor 
 unions to provide for more comprehensive and correct knowl- 
 edge upon economic and social questions that they devote to 
 opposing them, these organizations would become the source of 
 sound economic education and the training schools for intelligent 
 citizenship, instead of being the nurseries of industrial and social 
 
 antagonism. 
 28 
 
SUMMARY AND CONCLUSION. 
 
 In the preceding pages I have endeavored to discuss the gen* 
 eral principles which govern the economic relations of society, 
 and to indicate briefly their application to practical affairs. It 
 will be observed that this treatment of the subject widens the 
 sphere of economics, in that it applies these principles to society 
 instead of limiting their application to wealth or value. There- 
 fore instead of the principles of physical economics, which 
 political economy has hitherto taught, we have the principles of 
 social economics, a system which recognizes the tastes, habits, 
 and character of man, as the source of all economic movement, 
 and the development and perfection of man as the goal of social 
 evolution. Since this is a departure from the traditional meth- 
 ods of discussing economics and involves the consideration of 
 the whole subject from a different point of view, it may be well 
 to briefly summarize the leading principles laid down in each of 
 the four parts as follows : 
 
 Principles of Social Progress. — Social progress is here consid- 
 ered as a gradual movement of society towards a greater definite- 
 ness of economic and social relations, specialization of functions, 
 and interdependence of individuals and classes, and an increase 
 of wealth, power, and freedom for the individual, with a diminu- 
 tion of the arbitrary function of government. This movement 
 has two characteristic phases, distinguishable as industrial and 
 social. The former relates to the means of sustaining life, and 
 the latter to the mode of enjoying life. The development of 
 these two phases of progress in society is indicated respectively 
 as follows : In economics by a movement towards the de-indi- 
 viduation and aggregation of productive force — both of labor 
 and capital, — the individuation of management and responsi- 
 bility, and the socialization of results in the form of more, better, 
 
 434 
 
SOCIAL AND ECONOMIC PROGRESS. 435 
 
 and cheaper products. In society and politics it is indicated by 
 a movement towards increasing the sovereignty of the individual 
 and diminishing governmental authority. This produces two 
 changes in the laborer's condition : one specializes and limits 
 his economic function, the other generalizes and extends his indi- 
 vidual and social function. Thus in proportion as the laborer's 
 industrial individuality diminishes and he loses the economic 
 r>ower to employ himself, his social and political individuality 
 kicreases, and he gains the power to control his employer ; and 
 this power he will use to the detriment of existing interests and 
 institutions if his well-being is neglected or impaired. Therefore 
 as civilization advances, the prosperity and safety of the whole 
 community depend more and more upon the industrial and social 
 welfare of the laboring classes. The correctness of this view 
 is sustained by universal history, which shows that civil and 
 political freedom have everywhere followed the material pros- 
 perity of the masses, and this has everywhere been characterized 
 by specialization of labor, concentration of capital, and private 
 responsibility in industrial enterprise. 
 
 Principles of Economic Production. — Production is treated as 
 the creation or increase of transferable utility. Since nothing 
 has utility which does not serve human wants, effective desire or 
 consumption is the cause of production. Industrial progress 
 primarily consists in cheapening wealth, the test of which is the 
 increase of material well-being obtainable for a day's labor. It 
 is a universal law in economics, that productive efficiency is 
 increased and wealth is cheapened according as natural forces 
 are substituted for labor. Natural forces can only be harnessed 
 to production by the use of capital, and capital can only be 
 economically employed under conditions of increasing returns. 
 Increasing returns are only possible with a relatively larger 
 market, and this depends entirely upon the increase of consump- 
 tion per capita in the community. Large consumption, which 
 means high-priced labor, is one of the prime causes of cheap 
 wealth. 
 
 Value is here treated not as the ratio in which things exchange 
 for one another, but as the ratio in which wealth exchanges for 
 service. Economic prices are high or low, things are dear or 
 cheap, solely in proportion as a smaller or larger amount of them 
 
436 PRODUCTION AND DISTRIBUTION. 
 
 will exchange for a day's labor. A commodity at 50 cents in 
 China, a dollar in Russia, or $1.50 in England, maybe very much 
 dearer than at $2 in America. To repeat this in another form, the 
 economic status of wealth is determined absolutely by the ratio in 
 which it will exchange for service as an economic equivalent. The 
 basis upon which economic equivalents are determined is not 
 quantity but cost. Therefore economic value or prices are not 
 determined by the ratio between demand and supply, but by the 
 cost of production. Under free competition in open market, the 
 price of any given commodity tends towards uniformity, on the 
 basis of the cost of producing the dearest portion of the supply in 
 that market. Cost of production is determined not by the quan- 
 tity of labor expended, but by the aggregate cost of labor directly 
 or indirectly devoted to its production, and since large consump- 
 tion induces the economic use of machinery, which saves labor 
 and diminishes the cost of production, high wages promote low 
 prices. 
 
 Principles of Economic Distribution. — The distribution of wealth 
 is not a distinct economic function, but an inseparable part of 
 the process of production. Economic distribution takes place in 
 the form and order of wages (and salaries), rent, interest, and 
 profit. Consequently, the social theories based upon the assump- 
 tion that wages are determined by what remains of the product 
 after rent, interest, and profit are deducted, as held by socialists, 
 and practically supported by Jevons and Walker, are erroneous. 
 Wages differ from rent, interest, and profit, in that they are 
 economically cost, while rent, interest, and profit are surplus. 
 Wages, being the price of labor, are determined by the same law 
 as the price of commodities, namely, the cost of furnishing the 
 dearest portion of the necessary supply, and are necessarily 
 added to the price of commodities ; while rent, interest, and 
 profit, being surplus, are not items in the cost of production 
 by which the price is determined, hence do not enter into the 
 consumer's price of commodities, so that prices are not higher 
 or wages lower by virtue of rent, interest, and profit. The 
 chief problem, therefore, to consider in connection with the dis- 
 tribution of wealth is wages. To increase wages is to increase 
 the income of all who participate in productive enterprise, and 
 this in turn extends the market for products, diversifies industry, 
 
FOREIGN AND DOMESTIC RELA TIONS. 437 
 
 and makes the various forms of surplus possible. In other 
 words, the prosperity of all the other classes of the community 
 finally depends upon that of the wage-receiving class. Con- 
 sequently, the economic problem of society is not one of re- 
 ducing rents, regulating interest, or abolishing profit, but it is a 
 problem of increasing wages which finally depend upon the 
 wants, habits, and character of the laboring classes. 
 
 Principles of Practical Statesmanship. — In applying the princi- 
 ples of economics to the practical affairs of society, it should be 
 observed first of all that the functions of government are es- 
 sentially of a protective, educational, and judiciary character. 
 Therefore, while practical statesmanship has to deal with an 
 infinite variety of circumstances, the machinery of government 
 should be employed only upon the principle of protecting or 
 enlarging the industrial, social, or political opportunities of the 
 individual. This should be the test of every change in public 
 policy of whatever character. 
 
 Applied to international relations, this principle involves what- 
 ever is necessary to secure to the people of a nation the op- 
 portunities for developing their highest industrial and social 
 possibilities. This may take the form of protecting the people 
 against forceful molestation by military invasion or an encroach- 
 ment upon their political or territorial rights, or it may take the 
 form of protecting them against an industrial invasion, in which 
 the development of their home industries is menaced through the 
 underselling of their products by those of lower-paid labor in 
 less civilized countries. 
 
 Applied to domestic relations, the principle implies whatever 
 is necessary to protect the individual in all the rights and privi- 
 leges he now enjoys, and to increase in every possible way the 
 opportunities for developing his character and capacity for 
 assuming a still greater degree of individual responsibility and 
 freedom in every sphere of life. In the first place, the policy of 
 government should always be to encourage individual enterprise 
 by securing the greatest possible freedom to capital consistent 
 with business integrity and social safety. In other words, it 
 should be the guardian of the interests of the community without 
 assuming business responsibility. In the next place, it should 
 not only protect the laborer's industrial and social rights, but it 
 
438 POLICY FOR THE FUTURE. 
 
 should employ all possible means for improving his industrial 
 and social condition. 
 
 This is of fundamental importance: (i) because the laboring 
 classes constitute the great mass of the community, and therefore 
 most truly represent society ; (2) because under democratic in- 
 stitutions, public integrity, political and social freedom, depend 
 upon the intelligence and character of the masses ; (3) because 
 under factory methods of production material prosperity and 
 social welfare finally depend upon the consumption of wealth by 
 the laboring classes. 
 
 Thus it appears that, whether we consider the social question 
 from the stand-point of the general progress of society, as indicated 
 by the advance of personal, political, and religious freedom, or 
 from the standpoint of industrial progress, as indicated by the 
 development of labor-saving and wealth-cheapening methods of 
 production and the more equitable distribution of the products 
 of industry, as indicated by the increase of wages, or from the 
 standpoint of practical statesmanship, as indicated by legislation, 
 we find it all ultimately resolves itself into the problem of 
 developing the character, individuality, and social life of the 
 masses. When this fact shall become the accepted basis of 
 public policy, the true economic relation of the laborer to the 
 welfare of society will have been recognized for the first time, and 
 one great step will have been taken towards the solution of the 
 social problem. 
 
 Herewith is reached the end of our journey along the paths of 
 industrial human development. Dimly lighted as it has been by the 
 researchers and thinkers of the past, our way has been found 
 only by closely following the light of facts. No theories have 
 been allowed to stand against fact. No reasonings have been 
 sustained in spite of fact. No propositions have been given 
 credence contrary to fact. If novel and paradoxical conclusions 
 have been reached, it has been in humble obedience to facts. If 
 we have found the solution of many problems hitherto dark and 
 tangled, it is fact that has unravelled the complexities of the 
 subject. If many questions heretofore explained in tortuous 
 methods difficult to follow have been given the guise of sim- 
 plicity, it is because facts have been able to furnish a simple 
 explanation. 
 
A BRIGHTER FUTURE. 439 
 
 That this book issues in a system of social development at 
 once pleasant, profitable, and promising the greatest good, is 
 agreeable to me, and should be to the reader. It may at first 
 repel orthodox experts in political economy who have thought 
 so long on the old dismal lines that nothing agreeable seems to 
 them possible from the workings of economic law. Steeped in 
 the dreary reflections of Malthus, Ricardo, Mill, and the rest, 
 they may indeed reject with scorn any thing that opens a more 
 cheerful view. But the world actually goes from good to 
 better perpetually, despite their awful predictions. Men are 
 richer, brighter, more virtuous and happy, wiser, stronger, 
 and healthier than they ever were, and we have simply pointed 
 out the principles that have brought them to this finish. The 
 human race is on the road to better estates. Long ago it set 
 out on its unknown and perilous journey. At the time when 
 the first men learned to trust their brains instead of their muscles 
 the march was begun, and still it goes on. Every day sees 
 some new attainment of the human mind, some new conquest 
 over its environment, and every day sees more and more men 
 included in the general enrichment and enlightenment. The 
 world becomes more peaceful, more industrial. The rewards of 
 industry become greater ; the general comfort is increased ; the 
 powers of production prevail ; education becomes more general 
 and varied ; nature is subdued and harnessed ; political freedom 
 waxes, civil broils decline, occupations are diversified, cities 
 multiply, vast organizations are formed to contribute to human 
 welfare, and machineries proffer their million fingers swifter 
 than arrows, surer than muscles, more tireless than thought, to 
 the workshops of mankind. There are formed the countless ob- 
 jects of human desire, most potent of all earthly forces. Steam 
 drives the machinery, but human desire drives the steam. Out 
 of man the movement springs, for him it labors, him it improves, 
 and there is no limit to it. It has the nature of the infinite. 
 The more it gets, the more it wants ; the more it does, the more 
 it aspires to do ; the higher its advancement, the higher mounts 
 its ambition. 
 
 Still no advantage is gained by magical methods such as 
 those suggested by our modern dreamers of dreams, but all is 
 accomplished by the well-known and powerful methods al- 
 
440 THE VIRTUE OF NEW DESIRES. 
 
 ready at work among us — our present benefactors. No sequestra- 
 tion of the rents of land, such as Mr. Henry George is pleased 
 to advocate, has any share in the advance. How could it have, 
 when one sees that the more land there is to the person the 
 worse off all persons are ? The steppes and the untilled prairies 
 are the habitation of the idle nomad and the painted savage. 
 Miles of land per man, but no wealth. Men are richest where 
 each has least land, as in the teeming cities. " To every man his 
 own farm " is a motto of barbarism. Anti-poverty societies would 
 find plenty of land their death-warrant. It is to escape the bovine 
 monotony of farm life that men throng to cities and towns, where 
 intelligence is general and the resources of the individual enlarge, 
 where the interchange of human sympathies and criticism stimu- 
 lates thought and develops civility, where, as in a beehive, socia- 
 bility supplants the dull hut of the lonely agriculturist, with whom 
 new thoughts are as rare as roses in January. 
 
 Nor is progress to be speeded after any such fashion as Mr. 
 Bellamy has pictured, nor by the methods advocated by socialists. 
 Work and system, organization and struggle for better materials, 
 more productive energies, wiser laws, clearer principles, nature 
 better understood and made more obedient, will always be the 
 real agencies of amelioration. And by the use of these means 
 more intelligently applied and more completely developed, the 
 human race may legitimately and soberly expect to reach the 
 goal of its most sanguine expectations. To reach it quickly the 
 main thing is to widen human desires. The true ideal is that 
 everybody should want every thing enough to be willing to work 
 for it and to get it, since this is the source and fountain of prog- 
 ress. No wants means no advance. 
 
 The first economic duty of society and government is con- 
 stantly to stimulate desire. If the English in India could make 
 the Hindoo laborer want more things, they could soon civilize 
 him up to their own standard. If the Russian peasants were not 
 content with so little, the development of Russia might run on at 
 equal speed with that of the United States. If our Indians could 
 only be made to want houses and steam machinery and good 
 clothes enough to work for them, the Indian problem would solve 
 itself in a single decade. If the Southern negro could be made 
 discontented with his slovenly hut, his scanty clothing and food, 
 
WEALTH FOR ALL IS CHEAPER THAN POVERTY. 44I 
 
 the race problem would dissolve ; and if our own poorer classes 
 could only be made to crave better homes, better amusements, 
 better food, with better surroundings, the problem of poverty 
 would soon disappear, since they would universally begin to get 
 them. 
 
 To desire things is the first step in social progress, and this de- 
 sire no sooner sets in with force than it begins to establish a new 
 form of society. More wants means more factories, more ma- 
 chinery, cheaper products, our laborers more steadily employed, 
 capitalists more comprehensive and adventurous. Enterprises 
 on an ever enlarging scale are called for to produce the desired 
 result, — enterprises surpassing in their extent all the trusts yet 
 devised, controlled by individual management, under abler cap- 
 tains of industry than have yet appeared, and delivering cheaper 
 products to be used by larger proportions of the people. 
 
 The laborer must become more specialized as a laborer, though 
 more generalized as a man. His welfare must be seen to be 
 the welfare of the community, because he is really seven tenths 
 of the community, and his interest must be more and more 
 considered by all classes, as carrying with it the welfare of the 
 rest. When employers understand their true interest the stupid 
 and stolid resistance which they have long made to his progress 
 will give way to a genial and hearty co-operation in all that makes 
 for his advantage. They will realize that in his advancement lies 
 their own prosperity. 
 
 Then the future will be much brighter and happier, and larger 
 numbers of men will succeed to a secure and pleasurable career. 
 Since fifty years of devotion to industrial pursuits have wrought 
 the wonders we know, and led mankind from the days of plague, 
 pestilence, and famine, from general illiteracy, isolation, and 
 superstition into the prosperity and progress of to-day, what will 
 it be when a thousand years of intelligent progress have wrought 
 out the possibilities of human development ? When nature well 
 understood and well harnessed to the supply of millions of human 
 wants shall furnish the riches of her storehouse, abundance for 
 all will be more easily obtained than is the little which the great 
 mass of mankind now receives. 
 
INDEX 
 
 Abolition of rent simply an increase 
 of profits, 235 
 
 Absolute rights a social impossibil- 
 ity, 296 
 
 Abstinence, capital not the result 
 of, 79 
 
 Actual law of prices, statement of, 
 
 Adam Smith's definition of value 
 criticized, 90 
 
 doctrine as modernized by 
 
 Mill, 68 
 
 ■ policy of no government in- 
 terference, 284 
 
 Agricultural laborers, wages of, 208 
 
 — pursuits essentially non-socializ- 
 ing, 3 2 3 
 
 ■ — prices controlled by supply and 
 
 demand, 133 
 1 — products, supply and demand, 
 
 102 
 Altruism, errors regarding, 20 
 Amelioration of the masses, real 
 
 agencies of, 440 
 America, industrial conditions of, 
 
 58 
 American and French revolutions, 
 
 difference between, 59 
 
 — industry, growth of, 60 
 Ancient and modern discoveries, 87 
 
 — civilization not equal to modern, 
 86 
 
 — philosophy, effect of, 31 
 Arbitrary action involves inequity, 
 
 313 
 Arts and sciences, tendencies of, on 
 
 social progress, 19 
 Associated action of laborers, its 
 
 effect upon inferior laborers, 422 
 
 Basis of economic production, 80 
 Benefits, distribution of, 267 
 
 Blaine's error, cause of explained, 
 352 
 
 — mistake in regard to protection, 
 3Si 
 
 Brassey, Thomas, 142, 143 
 Buckle, 18, 28, 40, 43, 50, 55 
 Business depression by disturbing 
 equilibrium between consump- 
 tion and production, 385 
 cause of, 384 
 
 economic characteristics of, 
 
 382 
 
 — — famines and panics, 383 
 impossible when laborers are 
 
 all employed, 395 
 
 industrial and other condi- 
 tions under which they occur, 382 
 
 influences affecting consump- 
 tion must be looked to for both 
 cause and cure, 386 
 
 limited to machine-using 
 
 countries, 384 
 
 peculiar to factory conditions, 
 
 386 
 
 periods of industrial adver- 
 sity, 383 
 
 prevention of, 391 
 
 — - — symptoms of a, 394 
 
 uniformity of, 384 
 
 uniform and international in 
 
 their movement, 384 
 
 — phenomena, a proper knowledge 
 of would assist financial invest- 
 ment, 394 
 
 — prosperity assured as real wages 
 rise, 391 
 
 Cairnes, 109 
 
 — - and Mill, criticism of, 97 
 
 — error regarding supply and de- 
 mand, 109 
 
 Capital an economic instrument 
 whose utility must be maintained, 
 4°S 
 
 443 
 
444 
 
 INDEX 
 
 Capital and labor in their relation 
 
 to wages, 185 
 
 Marx's theory, 252 
 
 relation of, 206 
 
 reviewed, 199 
 
 table of profit, price, savings 
 
 and wages, 206 
 
 — arises from hope for gain, 
 79 
 
 — cannot create a market, 147 
 
 — combination of, 397 
 
 — combination of indispensable to 
 industrial progress, 399 
 
 — constantly being reduced to no- 
 interest point, 240 
 
 — constantly struggling from no- 
 interest to high profit, 241 
 
 — defined, 73» 
 
 — does not discharge labor, 145 
 
 — depreciation affects results, 273 
 
 — how created, 79 
 
 — increase of also advances price 
 of labor, 193 
 
 — land should not be considered 
 as, 75 
 
 — millions annihilated by improved 
 machinery, 274 
 
 — movement ©f, 241 
 
 — not the reward of abstinence, 
 243 
 
 — often forced to losing point by 
 competition, 241 
 
 — price of using, Dr. Wood, 189 
 
 — produced by surplus earnings of 
 capital already in use, 243 
 
 — proverbially sensitive, 404 
 
 — return for use of, 1 23 
 
 — rewarded by exceptional produc- 
 tive efficiency, 243 
 
 — seeking remunerative employ- 
 ment constantly increasing, 406 
 
 • — successful only when cheaper 
 than labor, Wood, 190 
 
 — the cause of industrial progress, 
 78 
 
 — the effect of progress, 80 
 
 — the means employed in produc- 
 tion, 73 
 
 — use of determined by increasing 
 returns, 76 
 
 — use of the term, 75 
 
 Capital, Walker's origin of, 77 
 Capitalistic concentration, fallacy 
 of opposition to, 398 
 
 — system of production a competi- 
 tive system, 401 
 
 Capitalists — Marx's mistaken as- 
 sumptions, 258 
 
 — prosperity finally depends upon 
 consumption of wealth by the 
 masses, 400 
 
 — responsibility of, 415 
 
 — should beware of uneconomic 
 policy, 415 
 
 Carey and Ricardo's theories of rent 
 discussed, 221 
 
 Cause and cure of business depres- 
 sions, 386 
 
 — assigned for business depression, 
 385 
 
 — of changes in social progress, 
 22 
 
 — of emigration stated, 196 
 
 — of social progress, human wants, 
 23 
 
 Change of labor, relative position, 
 
 213 
 operatives in New England 
 
 in the last forty years, 355 
 
 Character the basis of wages, 
 43° 
 
 Characteristics in which society re- 
 semblrs an individual, 303 
 
 Charters (English) rendered invio- 
 lable, 45 
 
 Cheap foreign imports would cause 
 an entire readjustment of Ameri- 
 can wages, 332 
 
 — labor competitor succeeds be- 
 cause of social inferiority, 334 
 
 — — prices are high, 331 
 
 — wealth, what constitutes, 329 
 Children's opportunities compared, 
 
 293 
 
 Children, successful rearing of in 
 its relation to government, 287 
 
 Chinese and American prices com- 
 pared, 330 
 
 Cities and towns the nurseries of 
 civilization, 323 
 
 — importance of, 323 
 
 City wages higher than rural wages, 
 353 
 
INDEX 
 
 445 
 
 Civilization, modern greater than 
 ancient, 86 
 
 — the price it has to pay to protect 
 itself from barbarism, 371 
 
 Clark, J. B., 144, 146, 192, 195, 197, 
 
 I99> 3° 8 . 3°9 
 Colossal enterprises require expert 
 
 management, 407 
 Combination of capital, does it tend 
 
 to destroy competition, 401 
 objections commonly urged 
 
 to, 399 
 for uneconomic purposes sure 
 
 to bring its own punishment, 414 
 to reduce prices a great social 
 
 benefit, 417 
 
 — of labor to increase wages a great 
 social benefit, 417 
 
 an economic institution, 417 
 
 fallacy of crusade against by 
 
 capitalists, 398 
 
 has the same reasons as con- 
 centration of capital, 416 
 Combinations, functions of, 425 
 
 — of capital and labor, features of, 
 425 
 
 Commodities, a fall in the value of 
 any or all implies a rise in the 
 value of labor, 98 
 
 — and labor, prices of move in op- 
 posite directions, 206 
 
 — furnished by trusts and purchas- 
 ing power of wages, relatively, 409 
 
 — relation of to labor, 98 
 
 — rise or fall in one does not nec- 
 essarily affect the other, 98 
 
 — theory of final utility, 185 
 Comparison of societies to living 
 
 organisms, 302 
 
 capital invested, 1850-1880, 273 
 
 Competition between England and 
 
 Russia compared, 340 
 unequal, tends to crush the 
 
 weaker, 293 
 
 — cannot promote industrial well- 
 being if not tending to make 
 wealth cheap, 329 
 
 — economic only between approxi- 
 mately equal competitors, 337 
 
 — effective and far more economic 
 with limited number of competi- 
 tors, 403 
 
 Competition, false notions of, 288. 
 
 — has not yet reached the zero 
 point, 409 
 
 — indispensable to development, 
 293 
 
 — must make the object possible to 
 either contestant, 293 
 
 — the criterion of, 402 
 
 Competitive influence much en- 
 larged by capital and products 
 thousands of miles away, 404 
 
 Comte, August, 18 
 Concentrated capital, effect of, 408 
 Concentration of capital, limit of, 
 407 
 
 industrial forces viewed with 
 
 alarm, 397 
 
 occupations depends on nat- 
 ure of industry, 323 
 
 population means greater 
 
 complexity of social life, 322 
 
 Condition of the laborer examined, 
 270 
 
 — changed by the advancement of 
 society, 316 
 
 Confounding metaphor with fact, 
 309 
 
 Conscious wants, intelligence and 
 will attributes of society, 305 
 
 Constitution of society and the in- 
 dividual organism — radical dis- 
 tinctions, 304 
 
 Consumable wealth, concentration 
 of not advantageous to the com- 
 munity, 399 
 
 no tendency in modern so- 
 ciety to accumulate, 400 
 
 use of, 178 
 
 Consumer's price and laborer's 
 wages, how determined, 233 
 
 Consumption and population in- 
 crease simultaneously, 83 
 
 wages increase at the same 
 
 time, 84 
 
 — arrest of, 388 
 
 — the cause of production, 80 
 
 — what constitutes, 175 
 Continental competition in regard 
 
 to England and America, 341 
 Corners becoming obsolete, 414 
 
 — frequently become boomerangs 
 on their projectors, 414 
 
446 
 
 INDEX 
 
 Corporate capital and individual 
 laborer theories impracticable, 
 420 
 
 Corporations, less danger in keep- 
 ing out than buying out new com- 
 petitors, 406 
 
 Correct views, importance of in 
 regard to capitalistic concentra- 
 tion, 398 
 
 Cost and profit, comparison of, 254 
 
 quantity of labor as deter- 
 mining values, 194 
 rent compared, 221 
 
 — determined by labor, 140 
 
 — due to difference in methods, 
 231 
 
 — in its relation to land, capital and 
 labor, 198 
 
 — of labor — time and product com- 
 pared, 257 
 
 ■ to value of product consid- 
 ered, 257 
 
 — of living, controls laborer's 
 wages, 365 
 
 ■ how affected, 216 
 
 regulates wages, 136 
 
 — of production affects consumer's 
 price, not employer's profits, 351 
 
 controlling element in price 
 
 movement, 391 
 explained, 121 
 
 is what is consumed in main- 
 taining its productive efficiency, 
 365 
 
 law of, 138 
 
 may be changed by labor, 142 
 
 popular errors regarding, 138 
 
 — reduced by cheap living, 204 
 
 — what is meant by, 204 
 
 Cotton industry, comparative fig- 
 ures in relation to, 345 
 
 considered, 326 
 
 : 1830 and 1880 compared, 263 
 
 s in England and America, 347 
 
 reviewed, 242 
 
 • review of, 263 
 
 ■ — cloth, the price of, 345 
 
 Crude oil, prices remain practically 
 
 unchanged, 412 
 Currency is not money, 164 
 
 Currency paper, basis of, 164 
 Cycle of productive effort, 72 
 
 Data, difficulty of obtaining, 277 
 Decline of the feudal system, 9 
 Defective methods in wages and 
 
 profits, 270 
 Definition of wages, 201 
 Degrading features of factory sys- 
 tem abolished by labor unions, 
 429 
 Demand causes supply, in 
 
 — creates prices, 112 
 
 — and supply, Cairnes' error, 109 
 doctrine of, 100 
 
 does not regulate wages, 106 
 
 not the law of economic 
 
 prices, 100 
 
 theory in its relation to 
 
 wages, 423 
 
 — is followed by supply, in 
 
 — mistaken idea of, 1 10 
 
 — to supply, relation of, 109 
 Democracy, volitional action of in- 
 dividuals, 297 
 
 Depreciation of capital, 274 
 
 Desire the cause of effort, 23 
 
 first step in social progress, 
 
 441 
 
 Despotism and democracy com- 
 pared, 297 
 
 Development considered in regard 
 to character and resources, 322 
 
 — of manufacture, necessary con- 
 ditions to the, 324 
 
 morality, 25 
 
 Difference between French and 
 American revolutions, 59 
 
 Direct taxation an enemy to public 
 improvements, 376 
 
 an inducement to dishonesty, 
 
 374 
 
 creates dissatisfaction, 375 
 
 does not accurately deter- 
 mine individual payments, 373 
 
 — — pernicious in many ways, 374 
 
 preferable, 373 
 
 Discoveries, ancient and modern, 87 
 
INDEX 
 
 447 
 
 Distribution, economic order of, 
 183 
 
 — historic order of, 182 
 
 — meaning of, 176 
 
 — of wealth, inseparable from pro- 
 duction, 175 
 
 — relations of laborer, capitalist, 
 landowner and entrepreneur, 181 
 
 Divisions of political economy, 
 175 
 
 Domestic trade and home manu- 
 facture should be developed, 327 
 
 Draper, 18, 31, 32 
 
 E 
 
 Earnings of men affected by em- 
 ployment of women and children, 
 214 
 
 Economic and social progress, 435 
 
 — basis for development of cotton 
 manufacture in United States, 
 346 
 
 — character of interest, 248 
 
 — combination encourages strong 
 competition and small margins of 
 profit, 401 
 
 — competition, 293 
 basis of, 335 
 
 — competitors harmless as long 
 as they use poorer machinery, 
 340 
 
 — conditions of production have 
 destroyed feasibility of individual 
 contracts, 423 
 
 — distribution, explained, 176 
 ■ order of, 178 
 
 • principles of reviewed, 436 
 
 ■ profit last, 181 
 
 statements in regard to, 178- 
 
 179 
 
 — doctrine, correct understanding 
 would obviate business depres- 
 sions, 394 
 
 — equality, basis of, 120 
 
 — equivalent, what is, 107, 120 
 
 — function of money, 150 
 
 ■ — incentive of combination of cap- 
 ital, 403 
 
 — law defined, 116 
 
 — — equity of, 124, 268 
 
 Economic law effectually deter- 
 mines the equitable movement of 
 capital, 408 
 
 of prices, verification of, 132 
 
 which make no-rent land and 
 
 no-profit factories make no-inter- 
 est capital possible, 239 
 
 — methods of the Standard Oil 
 Trust, 411 
 
 — mobility of tax not affected by 
 direct or indirect collection, 374 
 
 — opportunity, 324 
 
 — phenomena, classification of, 222 
 
 — price does not necessarily follow 
 supply and demand, 128 
 
 of labor the law of wages, 
 
 203 
 
 and movement the law of 
 
 wages, 203 
 
 govern labor, land and com- 
 modities, 198 
 
 tendency of, 118 
 
 — peculiarities of business depres- 
 sions, 382 
 
 — principles of the capitalist and 
 journalist considered, 391 
 
 — production, basis of, 80 
 principles of, 61, 435 
 
 — profit, how equitably evolved, 
 258 
 
 equity of, 260 
 
 — progress, character of, 1 1 
 
 — protection, law of, 337 
 
 — relation of the laborer to the 
 welfare of society, 438 
 
 — science, the phenomena with 
 which it deals, 117 
 
 — status of wealth, 436 
 
 — taxation, the principles of, 362 
 
 — theory of Quesnay et al., 284 
 
 — value, defined, 90 
 Economists at fault, 390 
 
 — relied upon for economic princi- 
 ples, 392 
 
 Effect of protective tariff in Austra- 
 lia, 354 
 - of trusts on purchasing power of 
 wages, 409 
 
 — tariff upon various industries 
 compared, 348 
 
 — WiclifFs doctrines, 50 
 
448 
 
 INDEX 
 
 Effectual and non-effectual desires, 
 
 23 
 Egoistic wants the source of social 
 
 progress, 26 
 Elective representation, 298 
 Elements in social progress, 15 
 Employer and employee, interests 
 inimical under home market 
 regime, 327 
 Employers' antagonism a miscon- 
 ception of economic relation to 
 laboring class, 390 
 
 — mistaken policy of, 389 
 
 — more prosperous with wages 
 doubled and hours reduced than 
 50 years ago, 390 
 
 Employing class, duty of, 393 
 should encourage the devel- 
 opment and usefulness of trades 
 unions, 433 
 
 errors of, 287 
 
 — nor laboring class can improve 
 by impairing each other, 398 
 
 Employment of women in factories 
 a domestic circle destroyer, 387 
 
 Enforced idleness infallibly indi- 
 cates business depression, 395 
 
 necessity of frequent statisti- 
 cal data in regard to, 396 
 
 of the laborer arrests con- 
 sumption and causes business 
 depression, 388 
 
 English and American manufacto- 
 ries compared, 346 
 
 — charters, rendered inviolable, 45 
 
 — Commons, political power of, 49 
 
 — economists' and Mr. Walker's 
 views compared, 242 
 
 oppose paternal legislation, 
 
 3i8 
 
 — free cities, most powerful, 43 
 not suppressed, 44 
 
 — postulates on profit, 250 
 Enrichment of the masses causes 
 
 civilization, 27 
 
 Entrepreneur, relation of to distri- 
 bution, 183 
 
 Equality, economic, basis of, 120 
 Equitable profit, not found, 258 
 Equitable taxation, economic basis 
 of, 362 
 
 Equity of economic law, 124 
 
 — origin of, 24 
 
 Equivalent, economic, what is, 107, 
 120 
 
 Errors regarding altruism, 20 
 Established conditions abandoned 
 
 only for improvements, 181 
 Establishment of free cities, 37 
 Evolution, distinguishing feature 
 
 of industrial, 106 
 
 — implies a progressive move- 
 ment, 306 
 
 — of social progress, causes of, 
 22 
 
 imperceptible, 117 
 
 — the doctrine of, 288 
 Exchange is the doing or giving 
 
 something for something, 95 
 Exploitation by labor and capital — 
 Marx, 261 
 
 — Marx's theory of, 251 
 Exports do not show prosperity of 
 
 nations, 328 
 
 Factors in distribution, 182 
 Factory employers as autocrats, 
 422 
 
 — methods bring people into close 
 social contact, 323 
 
 — operatives in New England, con- 
 dition of, 355 
 
 — system, deleterious effects of, 
 387 
 
 phases of, 387 
 
 rise of, 56 
 
 Failure of the Hussites, 51 
 Fall of feudalism, 47 
 
 — Italian free cities, cause of, 40 
 Family — the social unit, 7 
 Famines and business depressions 
 
 caused by opposite conditions, 
 383 
 
 — defined, 382 
 
 Fee-farm, letting towns in, 35 
 Fertility of land not a cause of rent, 
 
 224 
 Feudalism, a stepping-stone in 
 
 social progress, 33 
 
INDEX 
 
 449 
 
 Feudalism, birthplace of, 42 
 
 — how influenced by the increasing 
 importance of towns, 47 
 
 — overthrown, 47 
 
 — reconstruction of, in England, 
 44 
 
 — social character of, 9 
 
 Feudal systems of government re- 
 viewed, 284 
 
 decline of, 10 
 
 origin of, 33 
 
 Financial panics not necessarily 
 business depressions, 383 
 
 First step, toward freedom, 34 
 
 Fiske, John, 3, 16, 47 
 
 Force of character necessary for 
 advancement of society, 312 
 
 Foreign and domestic applications 
 of protective policy, 360 
 
 relations, 437 
 
 — laborers, their ability to save 
 discussed, 213 
 
 — manufactured imports would 
 tend to cheap labor and lower 
 civilization, 333 
 
 — products of low-paid labor ar- 
 rest human progress, 333 
 
 — trade, an economic disadvantage, 
 329 
 
 wasteful, 326 
 
 Four facts concerning government 
 
 established, 320 
 France the birthplace of feudalism, 
 
 42 
 Free cities, English, most powerful, 
 
 43 
 
 not suppressed, 44 
 
 establishment of, 37 
 
 fall of and effect upon social 
 
 progress, 39 
 rise and social power of, 
 
 33 
 
 social power of, 38 
 
 Freedom, false notions of, 419 
 
 — of contract, meaning of the 
 phrase, 421 
 
 the individual in trades 
 
 unions considered, 418 
 
 — first step toward, 34 
 
 — political, progress of, 49 
 
 — religious, progress of, 49 
 
 Freedom and independence in op- 
 position to each other, 310 
 
 Free-trade and protective reason- 
 ings, 336 
 
 — promoted by protection, 360 
 French and American revolutions, 
 
 difference between, 59 
 
 — free cities overcome by the 
 barons, 43 
 
 Functions of the state and of indi- 
 viduals, 314 
 
 — relegated to government by 
 common consent, 316 
 
 George's pessimistic declaration, 
 
 227 
 German free cities, 42 
 
 — nobles, practically highwaymen, 
 41 
 
 Giffen, 265, 266, 268 
 
 Gladstone and Blaine controversy, 
 
 350 
 Gold and silver, double standard of 
 
 158 
 tabular silver, 159 
 
 — price does not always indicate 
 labor-price, 330 
 
 Government, different forms de- 
 fined, 296 
 
 — economic and social functions 
 of, 294 
 
 — erroneous assumptions in re- 
 gard to, 286 
 
 — functions of protective, judici- 
 ary, educational and impersonal, 
 370 
 
 — in the middle ages, 283 
 
 — inevitable, 292 
 
 — necessary to society, 314 
 
 — should develop the highest pos- 
 sibilities of the individual, 318 
 
 — static and dynamic functions of, 
 370 
 
 — the function of, 310 
 
 — the nature and function of, 295 
 
 — the science of, 285 
 Governments all representative, 
 
 297 
 Grades of land compared in relation 
 to rent, 223 
 
45° 
 
 TPfDEX. 
 
 Grecians and Romans, few rich, 
 
 many poor, 29 
 Greece, originally slavery's strong- 
 hold, 29 
 Growth of American industry, 60 
 Guilds and their charters, 283 
 Guizot, quotations from, 34-36 
 
 H 
 
 Hallam, 34, 37, 39, 40, 41, 44, 46, 50, 
 5i 
 
 Higher civilization brings new de- 
 mands, increased wages and bet- 
 ter social life, 359 
 
 of one country a benefit to 
 
 the human race, 358 
 
 — prices for commodities cause 
 higher rates of wages, 366 
 
 — rates of wages tend to advance- 
 ment and intelligence, 208 
 
 — wages and lower prices the re- 
 sult of protective tariff, 348 
 
 level competition is progress- 
 ive, 334 
 
 benefit of to the commu- 
 nity, 368 
 
 causes low prices, 86, 436 
 
 causes high rent, 234 
 
 Historic tendency of economic 
 progress, 10 
 
 — — social progress, 5 
 
 History of business depressions, 
 
 384 
 Hobbes' and Spencer's theories of 
 
 society, 299 
 
 Home market always preferable to 
 
 foreign market, 329 
 need of a, 325 
 
 — — the real measure of social 
 status, 328 
 
 superior to foreign, 325 
 
 — wages and foreign markets, 327 
 Hours of labor reduced by labor 
 
 unions, 429 
 How taxes should be levied, 372 
 Human ability is not a constituent 
 
 part of wealth, 66 
 
 — invention, the most effective 
 economic force in society, 359 
 
 — labor saved by natural forces, 76 
 
 — race, divisions of the, 295 
 
 Human race on the road to better 
 estates, 439 
 
 — wants the cause of social pro- 
 gress, 23 
 
 Hussites, failure of the, 51 
 
 Idleness, statistics of, 395 
 
 Ill-advised strikes constantly re- 
 ferred to by labor union oppo- 
 nents, 430 
 
 Improved machinery cheapens the 
 cost of production, 144 
 
 concentrates capital and 
 
 makes lower prices, 241 
 
 considered in its relation to 
 
 wages, 266 
 
 — methods cannot cheapen, there- 
 fore must save labor, 229 
 
 create producer's surplus, 368 
 
 effect of, 229 
 
 tend to reduction to no-inter- 
 est point, 240 
 
 Improvement in social condition of 
 New England laborers explained, 
 356 
 
 — order of, 232 
 
 Inaction fatal to progress, 311 
 
 — involves destruction of human 
 race, 286 
 
 Incentive of profit — capital exploit- 
 ing nature, 261 
 
 Income of the family discussed in 
 relation to its sources, 215 
 
 Increased product furnished by 
 inventive genius, 266 
 
 — wages makes surplus possible, 
 
 437 
 
 the result of pressing de- 
 mands of laborer, 350 
 
 Increase of population increases 
 purchasing power, 228 
 
 prices a setback to civiliza- 
 tion, 227 
 
 taxation for public improve- 
 ments a positive benefit, 372 
 
 India, Ireland and Russia, 340 
 
 Indirect taxation favorable in that 
 the burden seems less, 376 
 
 favorable to public improve- 
 ments, 376 
 
INDEX 
 
 451 
 
 Indirect taxation avoids dishonesty, 
 corruption and evasion, 376 
 
 ■ a cunning device, 373 
 
 Individual action, sphere of, 315 
 
 — capacity increases freedom, 
 320 
 
 — contracts fail of advantage to 
 the laborer, 420 
 
 idea, one-sidedness of, 422 
 
 impossible, 421 
 
 — functions are personal, produc- 
 tive, commercial or experimental, 
 317 
 
 — rights determined by the state, 
 296 
 
 — service to the state discussed, 
 362 
 
 Industrial barometer, 394 
 
 — centres, birthplaces of freedom 
 and civilization, 208 
 
 — combination, lessons of history 
 in regard to, 397 
 
 — conditions of America, 58 
 
 — depressions, elimination of, 392 
 
 — disputes, marked improvements 
 in methods by labor unions, 
 43 2 
 
 — evolution, distinguishing feature 
 of, 106 
 
 — human development the policy 
 for the future, 438 
 
 j — improvement must come from 
 elevation of laborer's standard of 
 living, 392 
 
 — legislation, 56 
 
 — progress, primarily consists in 
 cheapening wealth, 435 
 
 < capital the cause of, 78 
 
 distinguished from social and 
 
 political, II 
 
 — organization frequently proves 
 to be a permanent benefit, 
 398 
 
 ; — progress the basis of all progress, 
 17 
 
 — prosperity, cause of our free in 
 stitutions, 60 
 
 — statistics of Massachusetts, 272 
 Industries of America, evolution 
 
 of, 35° 
 
 — economic selection of, 359 
 
 Infant-industry argument of pro- 
 tectionists, 338 
 
 Inferior man may regulate condi- 
 tions of existence, 292 
 
 Influence of towns over feudalism, 
 
 47 
 the wages system, 13 
 
 Injustice to the laborer treated, 
 265 
 
 Insurrection — Wat Tyler, 51 
 
 Intellect obeys the wants, 19 
 
 — ■ the guiding element, 18 
 
 Intelligence and character of the 
 
 laborer developed by trades 
 
 unions, 426 
 Interdependence the foundation 
 
 stone of human happiness, 358 
 
 — virtue of, 311 
 
 Interest and wages — Mr. Wood's 
 theory of their relations, 187 
 
 — a positive advantage to the com- 
 munity, 247 
 
 — and rent analagous, 237 
 wages not alike, 190 
 
 — a tax upon the consumer, 238 
 
 — a wealth-cheapening agency of 
 civilization, 248 
 
 — economic surplus for use of cap- 
 ital borrowed, 247 
 
 — economically identical with rent, 
 246 
 
 — how caused, 247 
 
 — movement of, 242 
 
 — not a part of cost, 247 
 
 — or profit, variableness of, 189 
 
 — popular theories, 237 
 
 — rent and profit, illustration of 
 the law of, 245 
 
 — the law of, 237 
 
 — the true theory of, 244 
 
 — Walker's view of, 238 
 International competition only 
 
 beneficial when approximately 
 equal, 341 
 the economic basis of, 329 
 
 — trade, the principle of, 320 
 Investment of taxes, determined 
 
 by results, 343 
 Italian free cities, cause of fall of, 
 40 
 
45 2 
 
 INDEX 
 
 Jacquerie and peasant war, 52 
 Jelly-fish period of society, 6 
 Jevons, 91, 158, 160, 163, 178, 179 
 
 K 
 
 King, Gregory, 161, 191 
 
 L 
 
 Labor, all useful, is productive, 70 
 
 — and capital, Marx's theory, 252 
 
 — high-priced lessens the cost of 
 production, 143 
 
 — human saved by natural forces, 
 76 
 
 — in different countries compared, 
 142 
 
 — may change the cost of pro- 
 duction, 142 
 
 — movement of, 186 
 
 — obtains a less relative share of 
 product, 269 
 
 — organizations, sophistical oppo- 
 sition to, 418 
 
 why should they be judged 
 
 only by their mistakes, 432 
 
 — price of, determined by its own 
 cost, 191, 203 
 
 — production, cycle of, 72 
 defined, 69 
 
 — relation of commodities to, 68 
 
 — rents replaced by wages, 46 
 
 — -saving machinery overcomes 
 low-priced hand labor, 340 
 
 — the combination of, 416 
 
 — most expensive families set the 
 price of, 205 
 
 — theory, non-productive, 69 
 
 — to value, relation of, 215 
 
 — unions and social and political 
 freedom of the laborer have in- 
 creased in the last fifty years, 418 
 
 a necessity, 433 
 
 ■ social effect of, 427 
 
 . the economic counterpart of 
 
 i capitalistic combination, 433 
 
 — and capital, net value of, 269 
 
 — — reviewed, 199 
 
 Labor and capital, table of savings, 
 wages, profit and price, 206 
 
 capitalist combinations both 
 
 unwisely and badly managed, 
 
 43 2 
 
 labor-power under freedom 
 
 and slavery explained, 201 
 
 raw material, relation of com- 
 pared, 256 
 
 surplus, Marx's illustrations 
 
 reviewed, 255 
 
 — combinations do not tend to de- 
 stroy laborer's freedom, 419 
 
 — — tend to promote economic in- 
 crease of wages, 430 
 
 — determines cost, 140 
 
 — division and formation of indus- 
 trial groups make differentiation, 
 191 
 
 — economic condition of, 183 
 Laborer and product, price of, con- 
 founded, 196 
 
 — controls the market, 148 
 
 — machine using and non-machine 
 using, 267 
 
 — receives constantly increasing 
 proportion of increasing product, 
 276 
 
 — • the dearer help the cheaper, 
 207 
 
 — will not work for less than his 
 cost Of living, 204 
 
 Laborer's advancement, the em- 
 ployer's prosperity, 441 
 
 — condition, 270 
 
 — errors of, 288 
 
 — relation to the cost of produc- 
 tion, 267 
 
 — right of free contract, 419 
 
 — wages not affected by instru- 
 ments used, 197 
 
 Laboring classes not impoverished 
 by losses in strikes or union as- 
 sessments, 431 
 
 Laissez faire, a non-aggressive 
 policy, 285 
 
 a retrograding principle, 290 
 
 as a public policy, 283 
 
 character of, 285 
 
 — — ■ doctrine of irrational, 117 
 
 essentially unscientific, 285 
 
 impossible in society, 292 
 
INDEX 
 
 453 
 
 Laissez faire, not a universal prin- 
 ciple, 284 
 
 origin of, 284 
 
 Land and its price-fixing increment, 
 195 . 
 
 machinery compared, 232 
 
 its cost of production dis- 
 cussed, 220 
 
 quality and fertility, 219 
 
 — law of price in relation to, 
 220 
 
 owner and laborer compared, 
 
 227 
 
 — rent of under economic freedom, 
 221 
 
 — should not be treated as capital, 
 75 
 
 — tax, advantages of, 377 
 
 affects all commodities in first 
 
 stage of production, 364 
 
 equitable nature of, 378 
 
 finally paid from surplus in- 
 comes, 378 
 not proportionate to raw ma- 
 terial in works of art, 379 
 
 objections answered, 379 
 
 Large capital, inability of, 405 
 
 — consumption means high-priced 
 labor and cheap wealth, 435 
 
 — corporations, their inducements 
 to keep prices low, 406 
 
 — investments not desirable to the 
 capitalist, 407 
 
 — production, home markets and 
 high wages must be the econom- 
 ics of the future, 328 
 
 — profits in protected industries a 
 fallacy, 350 
 
 Law, economic, defined, 116 
 
 — of economic prices, 115 
 individuation, 301 
 
 progress, the key to history, 3 
 
 social progress, 15 
 
 summarized, 21 
 
 Legislation, industrial, 56 
 Letting towns in fee-farm, 35 
 Living, increased cost of increases 
 
 wages, 267 
 Lower prices by improved methods 
 
 of production, 260 
 
 Low prices caused by high wages 
 
 — wages never cheapen wealth, 
 333 
 
 true remedy for, 217 
 
 Lubbock, Sir John, 6, 7 
 Luther's objections to Papacy, 53 
 
 M 
 
 Machinery and land compared as 
 to order of its coming into use, 
 232 
 
 — and methods, the most expensive 
 fixes the price, 196 
 
 — development benefited by pro- 
 tected cotton, 348 
 
 — improved cheapens the cost of 
 production, 144 
 
 — relation of to wages, 144 
 
 — ■ three facts regarding use of, 146 
 Magna Charta, granting of, 45 
 
 ■ some provisions of, 38 
 
 Maintenance, in its relation to the 
 laborer, 204 
 
 Man a unit in society, 307 
 
 — an organic aggregate in the 
 physical world, 307 
 
 — as a social being considered, 
 320 
 
 — richest where each has least 
 land, 440 
 
 — his labor the standard of values, 
 329 
 
 — the highest individual organism 
 yet developed, 306 
 
 Manufacture and agriculture, com- 
 parative savings, 212 
 
 Manufactured products, supply and 
 demand, 103 
 
 Manufacturing industries encour- 
 aged by national development, 
 321 
 
 ■ tend to socialize environment 
 
 and to supply social wants, 324 
 
 Market, relation of wages to, 144 
 
 — for production finally depends 
 upon laborer's consumption, 391 
 
 Marx, Karl, 177, 194, 195, 238, 251, 
 252, 254-259, 261, 262, 277 
 
 — and Spencer's positions on struc- 
 ture of society compared, 300 
 
454 
 
 INDEX 
 
 Marx's error repeated, 194 
 
 — mistaken assumptions in regard 
 to capitalists, 258 
 
 — theory stated, 252 
 
 that rent, interest and profit 
 
 are robbery, 25 1 
 
 Massachusetts labor bureau, statis- 
 tics of, 264 
 
 Maximum and minimum cost of 
 living — table, 204 
 
 McCulloch on supply and demand, 
 108 
 
 Meaning of social progress, 3 
 
 Metallic currency is wealth, 163 
 
 Methods, effect of improved, 229 
 
 Middle classes, Protestantism due 
 to the social condition of, 54 
 
 rise of, 48 
 
 wealth of increased, 48 
 
 Middlemen, are they parasites, 
 250 
 
 Migration of laborers tends toward 
 high rent locations, 234 
 
 Military force involves despotism, 
 316 
 
 Mill and Cairnes, error of, 97 
 
 — the modernizer of Adam Smith's 
 doctrines, 68 
 
 Mill's conflicting definition of 
 wealth, 63 
 
 — error in regard to profits, 380 
 
 Mining operatives of Pennsylvania, 
 
 condition of, 355 
 Misleading deductions, 271 
 Mistaken idea of demand, no 
 Mistakes of Comte, 18 
 Modern and ancient discoveries, 87 
 
 — civilization greater than ancient, 
 86 
 
 — industrial influences, effect upon 
 social condition of laborers, 357 
 
 Monetary standard, object of to 
 obtain even bases, 161 
 
 Money and its economic function, 
 
 150 
 wealth, difference between 
 
 explained, 151 
 
 — currency is not, 164 
 
 — definition of, 150, 153 
 
 — depreciation of, 161 
 
 Money, essential elements of, 156 
 
 — fluctuation in value causes loss 
 to neighborhood, 155 
 
 — Francis A. Walker's definition of, 
 150 
 
 — Herbert Spencer's view on who 
 should furnish it, 168 
 
 — how to adjust the quantity of, 
 170 
 
 — inadequacy of coin, 163 
 
 — is evidence of credit, 152 
 not wealth, 151 
 
 the equivalent of wealth, 152 
 
 — necessity for, 165 
 
 — panic, may reveal a business de- 
 pression, 383 
 
 — reason why coin is necessary, 
 166 
 
 — value of, 156 
 
 — what should it be made of, 156 
 
 — who should furnish it, 166 
 Monopoly not created by tariff on 
 
 cotton cloth, 346 
 
 — of the market by concentration 
 not a new feature, 402 
 
 Morality, development of, 25 
 
 — the fruit of progress, 16 
 Movement of labor, 186 
 
 profits and wages — table, 278 
 
 wages, rent follows, 230 
 
 Mutual dependence a promoter of 
 freedom, 311 
 
 N 
 
 National development, increased 
 by social opportunity, 320 
 
 Nation and society, relation of in 
 regard to development, 321 
 
 Nations are rich by what they use, 
 328 
 
 Natural forces save human labor, 
 76 
 
 — law, relates to the nature and 
 inherent constitution of things, 
 289 
 
 use of the term, 289 
 
 — order of distribution, 183 
 of social progress, 16 
 
 — remedy for business depressions, 
 392 
 
INDEX 
 
 455 
 
 Natural selection, 289 
 
 applied to the horse, 291 
 
 law of, 290 
 
 Nature and meaning of social pro- 
 gress, 3 
 of wealth, 63 
 
 — and natural law, 288 
 
 — is democratic, 4 
 
 — of progress, 4 
 
 Necessary factors in production, 72 
 Net product, increased percentage 
 
 goes for service, 274 
 New desires, the virtue of, 440 
 
 — employment creating conditions 
 229 
 
 must be created as labor-sav- 
 ing appliances are used, 391 
 
 — law of wages according to Mr. 
 Wood, 188 
 
 — wants create new markets, 85 
 No-interest capital, 240 
 Nominal and real wages, 202 
 Non-productive labor theory, 69 
 Non-protected industries maintain 
 
 the highest wages, 351 
 the relation of protection to 
 
 wages in, 349 
 No-profit capital, effect of, 406. 
 
 Oil, crude and refined, table of 
 prices 1880-1889, 411 
 
 Old machinery and methods yield 
 no profit, 196 
 
 Opportunity, distinctively educa- 
 tional in every respect, 371 
 
 — necessity of, 294 
 
 Order of economic distribution, 178 
 Organized capital objecting to or- 
 ganized labor manifestly unjust, 
 423 
 
 — labor a result of organized capi- 
 tal and the factory system, 420 
 
 enforces principles of equity, 
 
 422 
 
 — laborers most characterful and 
 progressive, 419 
 
 Oriental countries : China, India 
 
 are not progressing, 27 
 have small consumption, 27 
 
 Oriental countries ; many are poor, 
 few rich, 27 
 
 Original condition of society, 5 
 
 Origin of capital, Walker's, 77 
 
 equity, 24 
 
 supply, 113 
 
 Over-production precipitates bank- 
 ruptcy, 132 
 
 Parafnne oil, commercial teBts and 
 prices, 412 
 
 — wax reduces price of candles in 
 Great Britain, 413 
 
 Parsimony, mistaken praise of, 
 
 77 
 Paternalism and protection, 318 
 
 — a protest against, 283 
 
 — in government a substitute for 
 individual capacity, 318 
 
 Patriarchal family, the, 8 
 Patriotism and national autonomy, 
 321 
 
 Peasant and Jacquerie war, 52 
 Personal freedom, origin of, 12 
 Petroleum extracts used for lubri- 
 cation of machinery and cylinders, 
 412 
 
 — (refined) greatly improved and 
 reduced in price by combination, 
 410 
 
 Phenomena subject to the law of 
 
 prices classified, 115 
 Philosophy, ancient, effect of, 31 
 Physical and social phenomena 
 
 compared, 291 
 progress unlike, 306 
 
 — wants defined, 82 
 Plato's ideal republic, 299 
 
 Policy of protection not necessarily 
 narrow and exclusive, 360 
 
 Political combinations, social clubs, 
 and even churches sometimes 
 badly managed, 432 
 
 — economy, divisions of, 175 
 
 — freedom, progress of, 49 
 
 — power of English Commons, 49 
 
 — revolutions, 55 
 
 Poorest laborers — their relation to 
 wages, 187 
 
45 6 
 
 INDEX 
 
 Popular education as an investment 
 reviewed, 343 
 
 — fallacies in regard to tariff legis- 
 lation, 336 
 
 Population, effect of on prices, 228 
 
 Possible competitors increase as 
 
 combination of capital enlarges, 
 
 404 
 Potential competition increases as 
 
 phenomena grow in complexity, 
 
 404 
 Practical statesmanship, principles 
 
 of reviewed, 437 
 
 the principles of, 281 
 
 Prevention of business depressions, 
 
 393 
 Price and surplus, distinction 
 
 pointed out, 203 
 value are interchangeable 
 
 terms, 93 
 
 relation of, 92 
 
 wages not interchangeable 
 
 terms, 93 
 
 — determining point, 239 
 
 — determines the point of final 
 utility, 186 
 
 — economic movement of, 119 
 
 — lowest is the consumer's maxi- 
 mum, 125 
 
 — maximum determined by con- 
 sumer, 120 
 
 — minimum determined by pro- 
 ducer, 120 
 
 — of home products, effect of tariff 
 upon, 342 
 
 labor follows cost of produc- 
 ing, 135 
 
 labor in different countries, 
 
 I3S 
 
 land, how determined, 222 
 
 tends to uniformity, 221 
 
 manufactured products tends 
 
 to permanently fall, 132 
 
 refined oil continues to fall 
 
 under trust combination, 411 
 
 — the exact equivalent of co9t, 121 
 Prices, actual law of, 131 
 
 — agricultural, 133 
 
 controlled by supply and de- 
 mand, 133 
 
 — and rent, relation between, 226 
 
 Prices are regulated by supply, 
 102 
 
 — created by demand, 112 
 
 — economic, law of , 115 
 tendency of, 118 
 
 — formula of law of, 149 
 
 — induce supply, 112 
 
 — law of economic, 115 
 
 phenomena subject to 
 
 classified, 115 
 
 — primary law of, 118 
 
 influences which modify, 
 
 128 
 
 — reduction of enlarges the mar- 
 ket, 149 
 
 — statement of actual law of, 131 
 
 — tend to uniformity, 130 
 
 — variations in, 129 
 
 Primary law of prices, influences 
 which modify, 128 
 
 Principles of economic production, 
 
 61 
 Producer, definition of, 69 
 
 — will sell from cost price upward, 
 125 
 
 Production and distribution, 436 
 
 price of cotton in 1830 and 
 
 1880, 347 
 producers, 68 
 
 — consumption the cause of, 80 
 
 — cost of cheapened by high- 
 priced labor, 143 
 
 cheapened by the use of 
 
 machinery, 144 
 
 explained, 121 
 
 governs profits, 259 
 
 may be changed by labor, 
 
 142 
 
 — increased by taxation, 369 
 
 — involves distribution, 176 
 
 — law of cost of, 138 
 summarized, 89 
 
 — methods of in its relation to 
 price, 186 
 
 — necessary factors in, 7 2 
 
 — omitted data of, 272 
 
 — popular errors regarding the cost 
 of, 138 
 
 — what constitutes, 175 
 
INDEX 
 
 457 
 
 Productive combination in the 
 order of industrial evolution, 415 
 
 — efficiency obtained only by 
 greater specialization and concen- 
 tration, 399 
 
 — effort, cycle of, 72 
 
 — instruments, price of using, 193 
 
 — labor, all useful labor is, 70 
 defined, 69 
 
 various kinds of, 71 
 
 — wealth, may be accummulated 
 with benefit to the community, 
 400 
 
 — wealth, socialistic ideas of, 177 
 use of, 177 
 
 Product and wages, ratio of profit 
 to, 262 
 
 — price determined by what enters 
 into it, 197 
 
 of determined at the no- 
 interest point, 189 
 
 — value of diminishes as ratio of 
 product to cost of labor increases, 
 255 
 
 Products have a price only because 
 of the cost of manufacture, 124 
 
 Professions, result of research in 
 and production of principles re- 
 lating to, constitute wealth, 66 
 
 Profit a contingent remainder, 246 
 
 — and interest, similarity of, 239 
 
 — creating — Marx's misleading il- 
 lustrations, 253 
 
 — definition of, 123 
 
 — governed by number of hands 
 used in manufacture, 249 
 
 — how different from rent and 
 interest, 245 
 
 — must be obtained from nature 
 by economy of production, 380 
 
 — relatively decreased as compared 
 with wages, 279 
 
 — relative decrease of, 275 
 
 — to product, ratio of, 269 
 
 — reviewed by Adam Smith, Ri- 
 cardo, and Mill, 249 
 
 — the law of, 249 
 
 — Walker's view of, 238 
 
 Profits and surplus are drawn from 
 nature, 398 
 
 — do not tend to uniformity, 192 
 
 Profits, origin and explanation of, 
 126 
 
 — tend to absorb a diminishing 
 proportion of consumable wealth, 
 268 
 
 — to wages, ratio of, 278 
 
 — ultimate effect of taxation upon, 
 
 367 
 Progress causes specialization of 
 labor and union of capital, 12 
 
 — delayed by fall of free cities, 
 39 
 
 — in society increases complexity, 
 320 
 
 two phases of, 434 
 
 — its course shown by the develop- 
 ment of the family as a social 
 unit, 7 
 
 education of the 
 
 middle classes and the factory 
 
 system, 10 
 
 feudal system, 8 
 
 — first condition of 
 
 man, 6 
 increase of free 
 
 towns and personal rights, 9 
 
 — morality the result of, 16 
 
 — nature of, 4 
 
 — not apparent where cereals are 
 the staple articles of diet, 28 
 
 — of political freedom, 49 
 religious freedom, 49 
 
 — social, evolution of impercep- 
 tible, 117 
 
 — tendency of in society, 10 
 
 — what it consists of, 4 
 Property and income tax, 375 
 
 — tax, 363 
 
 Prosperity and safety depend upon 
 
 industrial and social welfare of 
 
 laboring classes, 435 
 Protected industries tend to raise 
 
 wages in non-protected industries, 
 
 3SO 
 Protection and education the duty 
 
 of the state, 319 
 free trade policies of various 
 
 countries compared, 337 
 
 — influence of in advanced coun- 
 tries upon progress of less ad- 
 vanced, 357 
 
458 
 
 INDEX 
 
 Protection necessary against lower 
 wage and civilization countries, 
 338 _ 
 
 in industrially weak countries, 
 
 338 
 
 — of home market a socializing 
 influence, 348 
 
 will it increase socializ- 
 ing industries, 325 
 
 — principle of, as ministering to 
 human welfare, 325 
 
 — required in higher wage coun- 
 tries, 339 
 
 — tends ultimately to make free 
 trade possible, 360 
 
 Protective policy, the individual 
 opportunity, 319 
 
 — principle applied, 361 
 
 — tariff as Perry regards it, 342 
 does not directly affect wages, 
 
 352 
 permanent economic influ- 
 ence of, 344 
 
 Protestantism due to the social 
 condition of the middle classes, 
 54 & 
 
 — growth of, 54 
 
 Public and private functions of 
 society defined, 317 
 
 — expenditures, legitimate sphere 
 of, 370 
 
 — highways in their relation to the 
 state, 317 
 
 — policy, basis of, 312 
 
 character of should be j udged 
 
 by permanent and ultimate influ- 
 ences, 357 
 
 economic and social wisdom 
 
 of, 3 2 4 
 
 — revenue, ability to contribute 
 measured by surplus income, 
 364 
 
 expended in dynamic func- 
 tions tends to decrease expendi- 
 ture in static functions, 371 
 
 Purchase and sale— rule governing, 
 130 
 
 Purchasing power of wages, 264 
 
 Quality and not quantity of labor 
 regulates compensation, 136 
 
 Rate of wages, the true basis of 
 comparison, 271 
 
 controlled by complex 
 
 social conditions, 353 
 
 Ratio of wages to profits, 277 
 
 product implies in- 
 creased profits — a mistake, 271 
 
 Real and nominal wages, 202 
 
 — cause of business depressions, 
 386 
 
 — estate tax easiest and most inex- 
 pensive to collect, 377 
 
 secures the greatest indi- 
 rection, 377 
 
 Reasons why dealers sell below 
 cost, 129 
 
 Reconstruction of feudalism in 
 England, 44 
 
 Reducing the supply, effect of, 
 424 
 
 Reformation, social character of, 
 
 53 
 Reforms, social, 57 
 Relation of demand to supply, 109 
 
 wages, rent and profit to 
 
 labor, land and capital, 197 
 
 Relations of society, general eco- 
 nomic principles, 434 
 
 the state to the individual, 
 
 298 
 
 Religious freedom, progress of, 49 
 
 Relative increase of wages, 276 
 
 Remuneration has increased gen- 
 erally, 265 
 
 Rent and interest, differentiated 
 portions of profit, 246 
 
 no-rent increment in deter- 
 mining values, 195 
 
 prices, relation between, 226 
 
 — definition of, 218 
 
 — economic basis of, 227 
 surplus, 219 
 
 — effect of abolishing, 235 
 
 — highest in most civilized coun- 
 tries, 234 
 
 — influences governing price the 
 cause of, 225 
 
 — its law and cause, 218 
 
 — not paid before wages, 231 
 
INDEX 
 
 459 
 
 Rent, net surplus of, in its relation 
 to production, 193 
 
 — question summarized, 236 
 
 — Ricardian definition of, 221 
 
 — surplus, price and wages table, 
 233 
 
 — the cause of, 222, 225 
 
 — to wages, economic relation of, 
 233 
 
 — the law of, 219 
 
 — interest and profit, 244 
 made necessary by dif- 
 
 ent ownership, 244 
 
 — — — profits all from the same 
 source, 245 
 
 Representation incomplete even in 
 
 democratic America, 298 
 Residual theory, fallacy of, 180 
 Result of social progress on com- 
 mercial law and transactions, 
 26 
 
 Revolt of the towns, 36 
 Revolutions, political, 55 
 Ricardian -Marx theory inadequate, 
 261 
 
 Ricardo, quotation from, 141 
 Ricardo's theory of rent, 221 
 — values, 256 
 
 — — criticized, 141 
 
 Right to vote extended to the labor- 
 ing classes, 57 
 Rise of the wage system, 46 
 Rodbertus* comparisons of profit 
 and wages, 250 
 
 — theory of diminishing wages, 
 262 
 
 Romans and Grecians, few rich, 
 many poor, 29 
 
 Roman empire, extent of slavery 
 in, 30 
 
 Salaries, evolution of, 273 
 
 Savings, agriculture unfavorable to, 
 212 
 
 — and wages — table, 204 
 
 — bank statistics, 210 
 
 — deposits a supposed gauge of 
 high wages, 209 
 
 worthless for comparison of 
 
 wages, 210 
 
 Savings, England and America 
 compared, 213 
 
 — the source of, 21 1 
 
 Science, economic, the phenomena 
 with which it deals, 117 
 
 Scientific application of protective 
 principles the true function of 
 statesmanship, 361 
 
 — law, condition of in regard to 
 labor and surplus, 257 
 
 of wages, 200 
 
 — selection promotes progress, 291 
 
 — statesmanship, 286 
 
 must be substituted for igno- 
 rant authority, 294 
 Selection, natural and human, 290 
 
 Self-improvement the first step 
 toward the advancement of 
 others, 358 
 
 Self-interest as a cause of rent, 
 224 
 
 — ignorance of, 287 
 
 — a universal principle, 286 
 
 Selling price, uniformity of, 259 
 
 Service, other costs, depreciation 
 and profit table, 276 
 
 — subject to the law of prices, 115 
 Silver and gold, tabular standard, 
 
 159 
 
 double standard of, 158 
 
 Simple phenomena misleading, 139 
 
 Slavery, extent of in Roman em- 
 pire, 30 
 
 — prevalent in Greece, 29 
 
 Social advancement, tends to higher 
 wages, 208 
 
 — aggregate has no attributes of 
 conscious entity, 304 
 
 — and political progress distin- 
 guished from industrial, 1 1 
 
 — character of feudalism, 9 
 • — the Reformation, 53 
 
 — condition of America and its 
 effect upon other countries, 357 
 
 — development and high wages of 
 labor rebound to advantage of 
 employer, 389 
 
 — economics, applied, 281 
 principles of, reviewed, 434 
 
 — forces only raise wages, 354 
 
460 
 
 INDEX 
 
 Social habits make the cost of 
 living, 211 
 
 — inferiority of the laboring classes, 
 292 
 
 — institutions of the laborer, 425 
 
 — intercourse for the laborer first 
 furnished by the tavern, 426 
 
 Socialism encouraged by the un- 
 economic conduct of the capital- 
 ist class, 415 
 
 — in its relation to rent, interest 
 and profit, 251 
 
 — promoted by the errors of 
 English economists, 319 
 
 Socialistic theories, orthodox eco- 
 nomics responsible for, 249 
 
 Socializing effect of the wages sys- 
 tem, 13 
 
 Social isolation impossible in man- 
 ufacturing industries, 323 
 
 — moral and financial advantages 
 gained by strikes, 431 
 
 — movement, initial point of, 312 
 
 — necessities of the laborer involve 
 social conflict if not satisfied, 
 428 
 
 — opportunity, what it implies, 321 
 
 — organism an active contracting 
 personality — Clark, 308 
 
 discussed by Mr. Spencer, 
 
 301 
 
 theory, 300 
 
 — power of free cities, 38 
 
 — problem, solution of, 438 
 
 — progress arrested by domination 
 of the inferior, 292 
 
 cause of, 22 
 
 develops the units, 306 
 
 effect of fall of free cities on, 
 
 39 
 
 elements of, 15 
 
 feudalism a stepping-stone in, 
 
 33 
 
 first element in is the mate- 
 rial, 17 
 
 greatest under factory and 
 
 capitalistic regime, 386 
 
 imperceptible evolution, 117 
 
 law of, 15 
 
 law of, summarized, 21 
 
 natural order of, 16 
 
 Social progress, nature and mean- 
 ing of, 3 
 
 opposed by obstructionists, 
 
 372 
 
 principles of, reviewed, 434 
 
 tendency of, 5 
 
 the arts and sciences 
 
 on, 19 
 
 the elements in, 15 
 
 — reforms, 57 
 
 — standard and money cost com- 
 pared, 216 
 
 — superiority makes protection 
 necessary, 339 
 
 — tax, is rent a, 230 
 
 — unit, the family, 7 
 
 — wants defined, 82 
 
 promote manufacture, 83 
 
 — welfare advanced by high wages 
 and low prices, 236 
 
 Society and association of individ- 
 uals, 308 
 living bodies, 302 
 
 — as an entity, 309 
 
 presented by Professor Clark, 
 
 308 
 
 — definition of, 5, 295 
 
 — Greek idea of, 299 
 
 — jelly-fish period of, 6 
 
 — makes intercourse and mutual 
 dependence certain, 321 
 
 — most truly represented by the 
 laboring classes, 438 
 
 — not an organism, 305 
 
 — original condition of, 5 
 
 — Spencer's theory of, 301 
 
 — systematized environment of as- 
 sociated individuals, 305 
 
 — tends to increase conscious con- 
 trol of parts over the aggregate, 
 3°S 
 
 Source of personal freedom, 12 
 Spanish, free cities, 40 
 
 — religious wars, 39 
 Specialization of effort, 24 
 
 labor diminishes demand for 
 
 skilled laborers, 387 
 
 Spencer's error in regard to socie- 
 ties and living organisms, 304 
 
 — postulates on society, 303 
 
INDEX 
 
 4 6l 
 
 Spencer unwittingly socialistic, 307 
 
 Specialistic tendencies of the fac- 
 tory system, 386 
 
 Spread of Protestantism, 54 
 
 Standard of living, the rule of 
 wages, 207 
 
 Standard Oil Trust considered, 410 
 
 its effect on civilization in 
 
 Russia, 413 
 
 profits made entirely from 
 
 former waste material, 413 
 
 State action, disadvantage of, 313 
 
 sphere of, 316 
 
 the dividing line important, 
 
 314 
 
 — and individual authority, proper 
 sphere of, 315 
 
 — definition of the, 295 
 
 — functions are protective, judici- 
 ary, educational and impersonal, 
 3*7 
 
 — socialism the result of Spencer's 
 theory, 307 
 
 — the authoritative expression of 
 society, 296 
 
 Statesmanship, opposite theories 
 of, 299 
 
 — the controlling principle in, 310 
 Stimulation of desires the first eco- 
 nomic duty, 440 
 
 Strikes and corners, 424 
 
 — are corners in the labor market, 
 25 
 
 — as frequent in protected as un- 
 protected industries, 350 
 
 — diminish as labor organizations 
 increase, 428 
 
 — gain and loss by, 431 
 
 — though unsuccessful, often worth 
 more than they cost educationally, 
 
 431 
 
 — why the highest paid laborers 
 cause, 214 
 
 Successful strikes a permanent 
 
 gain, 431 
 Sulphuric acid manufactured from 
 
 petroleum by Standard Oil Trust, 
 
 413 
 Sumner and Perry on cheap foreign 
 
 labor, 331 
 Superior methods of production 
 
 benefit the community. 260 
 
 Supply and demand, agricultural 
 
 products, 102 
 
 doctrine of, 100 
 
 — does not regulate wages, 
 
 106 
 ■ — Gregory King's observa- 
 tions, 101 
 in its relation to wages, 
 
 185 
 manufactured products, 
 
 103 
 not the law of economic 
 
 prices, 100 
 quotation from McCulloch 
 
 on, 108 
 
 relation of, 109 
 
 ratio between, not the 
 
 basis of economic prices, 108 
 
 — caused by demand, 1 1 1 
 
 — depends on the price, 114 
 
 — follows demand, m 
 
 — induced by prices, 112 
 
 — origin of, 113 
 
 — regulates prices, 102 
 Surplus, capitalists' method of pro- 
 curing, according to Marx, 252 
 
 — described, 198 
 
 — governs the law of rent, 222 
 
 — how replenished, 368 
 
 — income best means of taxation, 
 363 
 
 — incomes, how determined, 194 
 
 — most advanced laborer and poor- 
 est capitalist have none, 207 
 
 — or no rent, 232 
 
 — theory of, by Marx broken down, 
 256 
 
 — value fallacy, 254 
 Survival of the unfit, 291 
 
 Table of comparisons of the cotton 
 
 industry, 347 
 cost, profit and price by six 
 
 manufacturers, 259 
 percentages, wages, salaries 
 
 and product, 275 
 Tariff makes readjustment on 
 
 higher wage - plane necessary, 
 
 345 
 
462 
 
 INDEX 
 
 Tariff policy benefits the whole 
 community, 349 
 
 — preventing home products being 
 undersold not a tax upon con- 
 sumer, 344 
 
 — prevents wasteful readjustment 
 on lower wage-plane, 345 
 
 — promotes growth of manufactur- 
 ing industries, 344 
 
 — and profits, 344 
 
 — superficial objections to, 342 
 Tavern one of the early instruments 
 
 of social progress, 426 
 Taxation, abolishment of would 
 
 cause industrial depression, 370 
 — ■ a perplexing problem, 313 
 
 — consumption of wealth in public 
 form, 381 
 
 — direct and indirect, 372 
 
 — importance of, exaggerated, 370 
 
 — like wages, simply a form of 
 consumption, 369 
 
 — not necessarily an evil, 370 
 
 — question of much less funda- 
 mental than usually made to ap- 
 pear, 381 
 
 — ultimate effect upon general 
 wealth of the community, 367 
 
 Taxes and commodities relatively 
 compared, 342 
 
 — are investments, 343 
 
 — drawn from the surplus, 367 
 
 — economic mobility of, and their 
 relation to wages, 364 
 
 — how can they be equitably levied, 
 paid and collected, 372 
 
 obtain greatest indirectness 
 
 and least cost of collection, 377 
 
 to be drawn from economic 
 
 surplus, 364 
 
 — necessarily an evil an erroneous 
 assumption, 373 
 
 — should be based upon individual 
 ability, 363 
 
 — social development its only jus- 
 tification, 370 
 
 — tend to increase as society ad- 
 vances, 367 
 
 — the employer's position in re- 
 gard to, 366 
 
 shifting process from one to 
 
 another explained, 369 
 
 Taxes, to wages, relation of, 365 
 
 — transferred from the laborer to 
 the employer, 366 
 
 — what should they be levied upon, 
 372 
 
 Tax on raw material, its effect upop 
 the finished product, 379 
 
 — upon commodities paid by the 
 consumer, 364 
 
 objects of art enters mainly 
 
 through the labor, 379 
 
 Tendency of economic prices, 118 
 
 the arts and sciences on social 
 
 progress, 19 
 The higher needs protection against 
 
 the lower, a general principle, 339 
 The nation is social, 322 
 
 the people, 322 
 
 The state as a factor in civilization, 
 
 310 
 The true ideal, 440 
 
 Theory of Marx on capital and 
 
 labor, 252 
 
 surplus, cause of Marx's er- 
 ror, 256 
 
 wages, 184 
 
 wages — Prof. Clark and Hen- 
 ry George coincident, 193 
 
 Towns, influence of, over feudal- 
 ism, 47 
 
 — the revolt of, 36 
 
 Trades unions and wages, 423 
 are essentially economic in- 
 stitutions, 428 
 
 as an educational institution, 
 
 426 
 
 form a preparatory social op- 
 portunity for the laborer, 429 
 
 objected to as being uneco- 
 nomic, 423 
 
 objections to, 417 
 
 take the place of the tavern, 
 
 426 
 
 Transportation, cost of, considered, 
 275 
 
 — improved methods caused by in- 
 creased consumption, 230 
 
 — of oil by pipe line — effect on 
 prices, 410 
 
 Trusts for productive purposes not 
 to be compared with corners, 414 
 
INDEX 
 
 463 
 
 Trusts, effect of, on prices, 409 
 — syndicates, and corporate com- 
 binations alarm the people, 397 
 Two functions of government, 371 
 
 u 
 
 Underselling, establishes the meth- 
 ods of success, 191 
 
 Uneconomic production, 334 
 
 Uniformity in hours and wages 
 necessary under the factory sys- 
 tem, 421 
 
 Unremunerative capital the menace 
 of large combinations, 406 
 
 Unscientific interference may be 
 worse than laissez faire, 289 
 
 Use of productive wealth, 177. 
 
 Utility, meaning of, explained, 91 
 
 — relation of to value, 91 
 
 Utilizing waste, effect of, 412 
 
 Valuable commodities manufact- 
 ured from material previously 
 wasted, 412 
 
 Value and price are interchangeable 
 terms, 93 
 
 relation of, 92 
 
 — is not wealth, 90 
 
 the relation of things to men, 
 
 95 
 
 — its three necessary elements, 
 92 
 
 — meaning of explained, 92 
 
 — relation of to utility, 91 
 
 — and product compared, 264 
 
 — the ratio of exchange, 156 
 Variation in labor in different sec- 
 tions of the world, 143 
 
 Variations in prices, 129 
 
 Various kinds of productive labor, 
 71 
 
 Vote, right to, extended to the la- 
 boring classes, 57 
 
 w 
 
 Wages, actual rise of, 279 
 
 — a definite, not a contingent in- 
 come, 202 
 
 Wages and price not interchange- 
 able terms, 93 
 
 — — prices from 1 752, 264 
 profit compared, 250 
 
 profits — three important facts, 
 
 262 
 purchasing power, table of 
 
 percentages, 408 
 
 — cost of living the basis of, 204 
 
 — depend upon social character of 
 laboring classes, 216 
 
 — determined by conditions affect- 
 ing character and cost of laborer, 
 267 
 
 what the laborer is, 268 
 
 — differences between Marx and 
 Wood, 188 
 
 — do they equal interest, if so 
 what is the result, 188 
 
 — economic law of, 200 
 
 — general rate of in different coun- 
 tries, 191, 208 
 
 — how affected by tariff, 353 
 
 — labor rents superseded by, 46 
 
 — must rise as surplus increases, 
 235 
 
 — not regulated by supply and de- 
 mand, 106 
 
 — Prof. Clark's theory, 192. 
 
 — regulated by cost of living, 
 136 
 
 — relation of to economic distribu- 
 tion, 179 
 
 — relation of to machinery, 144 
 
 — relation to the market, 144 
 
 — rise of, promotes the use of cap- 
 ital, 148 
 
 — should they rise in proportion to 
 product, 266 
 
 — system, influence of, 13 
 
 — system, rise of, 46 
 
 — tending toward greater diver- 
 sity, 187 
 
 — the chief problem in connection 
 with distribution of wealth, 436 
 
 — the law of, 200 
 
 — theory of, 184 
 
 — the price of labor, 201, 235 
 
 term and its meaning, 200 
 
 Wage-earners, savings banks de- 
 posits of, 209 
 
464 
 
 INDEX 
 
 Walker's origin of capital, 77 
 
 — definition of wealth, 64 
 
 — support of the Ricardian theory 
 of rent, 223 
 
 Wants classified, 82 
 War, the Jacquerie and Peasant, 52 
 Wat Tyler insurrection, 5 1 
 Wealth, advancement of social wel- 
 fare depends on cheapening of, 
 117 
 
 — and freedom the important fac- 
 tors in society, 310 
 
 its relation to man, 199 
 
 the law of its production, 63 
 
 — essential elements of, 65 
 
 — and money, difference between 
 explained, 151 
 
 value distinguished, 90 
 
 — author's definition, 67 
 
 — cannot be cheapened if not re- 
 ducing cost of production without 
 diminishing wages, 335 
 
 — consumable, use of, 178 
 
 — distribution of inseparable from 
 production, 175 
 
 — economic distribution, facts con- 
 cerning, 178 
 
 — for all is cheaper than poverty, 
 441 
 
 — how it exists, 74 
 
 — human ability does not consti- 
 tute, 66 
 
 — may be money, 151 
 
 Wealth, metallic currency is, 163 
 
 — Mill's conflicting definition of, 63 
 
 — nature and meaning of, 63 
 
 — of middle classes increased, 48 
 
 — only cheapened by reducing 
 price of commodities relatively to 
 wages, 333 
 
 — Perry's substitution of property 
 for, 64 
 
 — principal divisions of, 175 
 
 — productive use of, 177 
 
 — result of research in and produc- 
 tion of principles relating to the 
 professions, constitutes, 66 
 
 — subject to the law of prices, 115 
 
 — superficial reasoning in relation 
 to, 336 
 
 — two kinds of, 399 
 
 — Walker's definition of, 64 
 Wheat, cost of reduced by use of 
 
 capital, 225 
 
 Where cereals are staple articles 
 of diet progress is not apparent, 
 28 
 
 WiclifPs doctrines, effect of, 50 
 Wittenberg, Luther's ninety-five 
 
 objections posted, 53 
 Wood, Dr. Stuart, theory of wages, 
 
 184 
 Wood's mistaken theory, 146 
 Women, the wages of, 208 
 Workingmen's homes, should they 
 
 be taxed, 375 
 
WEALTH AND PROGRESS. 
 
 A CRITICAL EXAMINATION OF THE LABOR PROBLEM. 
 BY GEORGE GUNTON. 
 
 12M0, 400 PAGES. PAPER, SO CENTS; CLOTH, $1.00. 
 
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4 
 
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 and deserves the most earnest consideration from all classes in the commu- 
 nity." — Literary World (London). 
 
 ' ' ' Wealth and Progress ' is certainly a work of great suggestiveness and 
 usefulness. The practical value of its conclusion is undeniable. Its theory 
 goes beyond explanation, and guides action — giving, indeed, a new scien- 
 tific sanction to schemes of social amelioration hitherto taken in a spirit of 
 vague philanthropy. He has gone far to achieve what economists and so- 
 cialists alike have failed to do. He has developed a theory of wages in 
 harmony with the social instincts and tendencies of to-day." — Scottish 
 Leader. 
 
 " The performance leaves little to be desired for clearness of statement or 
 for aptness of illustration." — St. James's Gazette (London). 
 
 " The idea is presented with clearness, and the arguments in its favor, as 
 well as some of the objections to its practical workings, are ably stated." — 
 Morning Post (London). 
 
 "The importance of the question, the ability, earnestness, and experi- 
 ence of industrial affairs which Mr. Gunton brings to the study of a difficult 
 problem, entitle his work to respectful consideration. Mr. Gunton's book 
 is very welcome, as it enforces from an economical point of view the great 
 importance which must be attached to character."— Charity Organization 
 Review (London). 
 
 " Mr. Gunton's book is written with great clearness and force of style and 
 thought, and attacks two of the most long-standing doctrines in Political 
 Economy — the doctrine of the wages-fund, and the determination of wages 
 by supply and demand." — The Spectator (London). 
 
 For sale by booksellers ; or will be sent by mail, postage-paid, on receipt of 
 the price, one dollar. 
 
 D. APPLETON & Co. MACMILLAN & Co. 
 
 i, 3 & 5 Bond St., New York London, Eng. 
 
LIBRARY OF CONGRESS 
 
 013 477 078 8