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A PRACTICAL AND VALUABLE WORK. 
 
 THE SCIENCE OF WEALTH: 
 
 A MANUAL OF POLITICAL ECONOMY, 
 
 EMBRACING THE 
 
 Laws of Trade, Currency, and Finance. 
 
 CONDENSED JLND ARRANGED EOR POPULAR READING 
 
 AND USE AS A TEXT-BOOK. 
 
 BY AMASA WALKER, LLD., 
 
 Late Lecturer on Public Economy, Amherst College. 
 
 STUDENT'S EDITION. 
 
 Complete in One 12mo Volume. Extra Cloth. $1.50. 
 
 OPINIONS UPON THE MERITS OF THE WORK. 
 
 *' Our country has produced no work on the subject that is better worth 
 reading." — The Nation. 
 
 " We strongly recommend the adoption of Mr. "Walker's work as a text- 
 book in our colleges all over the country. It has every quality to fit it 
 for profitable use in instruction." — New York Eveniny Post. 
 
 " I am much pleased with the clearness with which your positions are 
 stated and illustrated, and the power of condensation you have been 
 able to combine with this perspicuity." — William Cullen Bryant. 
 
 " It is an excellent manual, and well worthy of the popularity it has 
 attained." — Baltimore Gazette. 
 
 " The author of this volume has made a valuable addition to the 
 American literature of political economy." — North American Eeview. 
 
 "No writers of the present day are better guides than Mr. Mill and 
 Dr. Walker to persons desirous of obtaining information on the subject 
 of Political Economy. Both are profound thinkers, actuated by deep 
 and honest convictions, while their treatment of the subject is such that 
 there is little in the work of either writer that a man of ordinary edu- 
 cation would find it difficult to comprehend. Mr. Walker's familiarity 
 with the present condition and needs of our own country, renders his 
 book of greater political worth to the merchant and workman as well as 
 the student." — New York Times. 
 
"No book has been published in the United States with the same prac- 
 tical scope and design The practical aspects of the science 
 
 prevail throughout." — Sprinyjield Repuhlican. 
 
 "We feel justified, therefore, in saying that no system of economical 
 science, known to us, is so largely the result of a practical acquaintance 
 with manufacture, banking, and trade as this of Mr. Walker's." — Mer- 
 chant's Magazine. 
 
 "Dr. Walker's present volume is a condensation and abridgment of his 
 larger work with the same title, which appeared some years ago and 
 ran through several editions. The book is carefully arranged, and the 
 index and table of contents are full and correct. It will doubtless win 
 its way into favor as a text-book for students." — New York World. 
 
 "J. B. Lippincott <fe Co. have issued a new and revised edition of Dr. 
 Walker's weil-known Science of Wealth, which has long been recog- 
 nized as a standard hand-book of political economy and an authority on 
 the laws of trade and finance. The present volume is a condensation 
 rather than an abridgment of the work as first published, and in its 
 present shape is admirably adapted for a text-book, which will meet a want 
 much felt in the higher classes of our academies and schools. In this 
 work political economy is treated as a universal science, regardless of the 
 interests of particular sections of countries, which must, of course, limit 
 its effects in special cases. In a country like ours, where every citizen 
 is called upon to consider and decide for himself upon great questions of 
 national policy, an understanding of at least the rudiments of this science 
 is important to every one: and the youth of America are particularly for- 
 tunate in possessing a work in which its principles are so clearly and 
 fully set forth." — Boston Commercial Bulletin. 
 
 " There is much ability displayed in the work, and the author's views 
 are set forth with great clearness and force. . . . Mr. Walker's views 
 on the subject of labor and combinations of labor strike us as excellent' 
 and suited to the times. His views under the head of Consumption are 
 also excellent. The work as a whole is a good one for all persons to 
 read." — Ohio Educational Monthly. 
 
 " The Philadelphia publishers have just issued Amasa Walker's able 
 work on the Science of Wealth, condensed and arranged for popular 
 reading and a manual of Political Economy; a subject of vast impor- 
 tance, but of which few know anything, and many writers have darkened 
 with elucidations and bewildering entanglements." — New York Golden 
 Age. 
 
 "This an excellent manual of Political Economy, embracing the laws 
 of Trade, Currency, and Finance, condensed and arranged for popular 
 reading and use as a text-book." — Arkansas .Journal of Education, 
 
"The propositions brought forward are candidly stated, and great 
 care is taken to make each demonstration so simple as to bring it within 
 the grasp of those professing ordinary intelligence. We "Should think 
 that the work would be found very useful to students and others seeking 
 information on this important theme. Prof. Walker has held many 
 public positions in Massachusetts and represented the State in Congress, 
 is a man of wide experience in business, high personal character, and 
 general cultivation." — Phila. Age. 
 
 "It is a very complete treatise on the subject with which it deals." — 
 
 Pittsburgh Leader. 
 
 . ^ '. 
 "We have never met with a book so well adaj o the use of young 
 
 men who desire a thorough fundamental knowledge of the subject as the 
 work at the head of this article. . . . We bespeak for it a welcome 
 from all men who desire to see clearly the distinction between truth and 
 fallacy, and to build up intelligent popular convictions on the topics of 
 which it treats." — American Journal of Education. 
 
 " In it present form the book furnishes a clear and interesting state- 
 ment of all the important facts and theories of the science. Mr. Walker 
 is a skillful manipulator of figures, and altogether among the best statis- 
 ticians of the times. We commend the work as being, by reason of its 
 clearness of arrangement and style, one of the best books in Political 
 Economy with which we are acquainted." — Boston Journal. 
 
 "Mr. Walker is not unknown to the public as an author in this depart- 
 ment of literature. The present volume presents his carefully prepared 
 opinions upon Trade, Currency, and Finance, and will be a valuable 
 manual of Political Economy for schools and for general reading."^ 
 Maine Journal of Education. 
 
 "This work promises to be a standard, as was that first published in 
 1866. It is an intelligent presentation of the laws by which the Trade, 
 Currency, and Finance of the country are governed, and of the princi- 
 ples which underlie commerce between nations. The study of Political 
 Economy is one of interest to all thinking men ; but works on the subject 
 are sealed books to the masses, whereas with a work like this in hand, 
 rough places become plain and difficulties seem to vanish." — Pennsylvania 
 School Journal. 
 
 " Dr. Amasa Walker is one of the most voluminous writers on the 
 subject of Political Economy. The result of his long studies may be 
 considered to be comprehended in the volume before us. . . . There 
 is much to commend in the chapters on Trades, Strikes, Currency, Tax- 
 ation, etc." — Phila. Evening Bulletin. 
 
 " I have examined it, like it well, and hope it may be generally intro- 
 duced." — A. S. Welsh, President of Iowa State Agricultural College. 
 
"It is a most valuable work, and exceedingly well fitted for use as n 
 text-book. Political Economy owes much to its author." — Prof. Bascov, 
 Williams College. 
 
 "I regard it as one of the most valuable of recent contributions to the 
 science, because of the soundness of the principles it inculcates with ad- 
 mirable clearness, and of its general adaptability to the wants of the 
 teacher." — A. D. Welt, President of Miami Commercial College, Dayton, 
 Ohio. 
 
 " I like the work much for its compression into reasonable limits — for 
 the new matter it contains — for its positiveness where conclusions have 
 been reached. I have adopted it as text-book." — Rev. D. M. Graham, 
 D.D., President of Hillsdale College, Mich. 
 
 " I regard it as altogether the best treatise on the Currency that has 
 yet been published. I have always taken pains to recommend it to my 
 classes." — Prof. J. L. Diman, Brown University. 
 
 " We have used the original work with some of our classes, and I am 
 glad to see this cheaper and more compact form of the work." — T. C. 
 Abbot, President of State Agricultural College, Mich. 
 
 "It is a very valuable book for the student of Political Economy. 
 I know of no one who puts his views into clearer form than does Mr. 
 Walker." — Ellicott Evans, President of Hamilton College. 
 
 " I have used the original work with our senior classes for five years 
 know it very thoroughly and approve it very highly. . . . Should be 
 unwilling to exchange the work as a text-book for any I know." — H. D. 
 Kitchell, President of Middlehurg College. 
 
 *'I very cheerfully recommend the Science of Wealth as well adapted 
 to the wants of the class of pupils for whom it is prepared. I shall 
 place it in the hands of my class in my own school in a few months." — 
 E. S. Trisbee, M.A., Principal of High School, Binghamton, N. Y. 
 
 *' 1 have, during the past year, made use of Dr. A. Walker's Science of 
 Wealth in the new and condensed form he has given it, in giving instruc- 
 tion to the senior class here in Political Economy, and have found the 
 book better adapted than any other with which I am acquainted for use 
 in a college class-room. It is clear, compact, and ample in its illustra- 
 tions." — Prof. Julius H. Seelye, Amherst College. 
 
 *V* For sale by Booksellers generally, or will be sent by mail, post- 
 paid, upon receipt of the price by 
 
 J. B. LIPPINCOTT &L CO., Publishers, 
 
 715 and 717 Market Street, Philadelphia. 
 
THE 
 
 SCIENCE OE WEALTH. 
 
THE 
 
 SCIENCE OF WEALTH; 
 
 A MANUAL Of POLITICAL ECONOMY, 
 
 EMBRACING THE 
 
 LAWS OF TRADE CURRENCY AND FINANCE. 
 
 CONDENSED AND ARRANGED 
 
 FOR POPULAR READING 
 AND USE AS A TEXT-BOOK. 
 
 BY AMASA WALKER, LL.D., 
 
 LAT£ LECTURER ON PUBLIC ECONOMY, AMHERST COLLEGE. 
 
 
 FOURTH EDITION. 
 
 PHILADELPHIA: 
 
 J. B. LIPPING OTT & CO. 
 
Entered according to Act of Congress, in the year 1872, by 
 
 AMASA WALKER, L.L.D., 
 In tlie Office of the Librarian of Congress at Washington. 
 
 -c, cc o ^c c 
 
PEEFACE. 
 
 "The Science of Wealth" was first published by 
 Messrs. Little, Brown & Co., of Boston, in 1866. From 
 the sixth edition of that work, issued in 1811, the follow- 
 ing has been prepared. It is a condensation rather than 
 an abridgment ; nothing essential having been omitted, 
 while much new matter has been introduced. The motive 
 for doing this has been twofold: first, to make the work 
 more generally accessible, — better adapted to popular use ; 
 and secondly, and especially, to furnish a text-book on 
 political economy, which in size, cost, and arrangement 
 should meet more satisfactorily the present demand than 
 any heretofore provided. 
 
 Whether these objects have been successfully accom- 
 plished in the present volume, others can more impartially 
 decide than the author himself; but from the deep interest he 
 feels in a science to which he has devoted the greater part 
 of a somewhat protracted life, and his long experience with 
 college classes, he is led to hope that he has gained that 
 practical knowledge of the wants of the student which, in 
 some measure, qualifies him for the task he has undertaken. 
 
 The work now offered the public, to teachers, and others, 
 is intended to be entirely impartial. 
 
 Political economy can recognize no party interests, no 
 national boundaries, no prescriptions, no assumed antag- 
 onisms between the industries of different countries or 
 between the different parties to production in the same 
 country. Founded, like every true science, upon the ob- 
 
 1*. (v) 
 
 c 
 
VI - PREFACE. 
 
 servation of facts, its purpose is to show what those facts 
 teach. It pays no deference to the opinions or the preju- 
 dices of mankind. Its only inquiry must be, "What is 
 truth?" assured that in the answer to that question will 
 be found the highest interests of humanit3^ Political 
 economy may with great propriety be called the universal 
 science, it being that in a correct knowledge of which 
 every person, old or young, employer or employe, has a 
 direct personal interest. It is not essential to the welfare 
 of the State that every one should understand chemistry 
 or astronomy, but it is of vital importance to the public 
 welfare that every citizen should intelligently comprehend 
 those laws by which the trade, currency, and finance of 
 the country are governed. Public opinion, right or wrong, 
 as expressed through the ballot-box, will control the legis- 
 lation of the country, and determine its economic policy. 
 
 Fortunately the principles of this science are easily un- 
 derstood, when properly presented ; and the experience of 
 some twenty years with different classes has satisfied the 
 author that students in general enter upon this study with 
 greater alacrity, and pursue it with a higher zest, than 
 almost any other. There is a sufficient reason for this, for 
 it is at once discovered that every topic of which it treats 
 has an immediate interest, — that the questions it discusses 
 are those upon which they are certain to be called upon to 
 act whenever they assume the duties of citizens in public 
 or private life, — that while they might vote intelligently 
 upon most subjects of public concern without any special 
 acquaintance with many of the sciences, they could not, 
 without a knowledge of political economy, act understand- 
 ingly in regard to the trade and industry of the country 
 and the relations of capital and labor. 
 
 In a country where every citizen has the right of suf- 
 frage, its legislation must ever be in accordance with the 
 popular will. Whatever the people believe their interests 
 
PREFACE. Vli 
 
 to demand, their servants, in the halls of legislation, will 
 certainly grant, for they are sure to act in accordance with 
 the views of their constituents, whether tbose views are 
 right or wrong. Hence, if the people are so well informed 
 as to demand wise enactments, they will have them ; if 
 they ask for measures injurious to their interests, they are 
 equally certain to obtain them. 
 
 These considerations, the force of which no one can fail 
 to appreciate, render a knowledge of this science of high 
 importance in the estimation of all reflecting minds. 
 
 It may be added that the study of it need not be con- 
 fined to those merely who are far advanced in general edu- 
 cation. Common sense and a good knowledge of the Eng- 
 lish language only are requisite to its successful pursuit. 
 Intelligible and plain, the science has no abstractions, no 
 fanciful theories. 
 
 Although desirable that the instructor should be familiar 
 with the subject himself, it is by no means indispensable. 
 With a well-arranged text-book in the hands of both teacher 
 and pupil, with suitable effort on the part of the former and 
 attention on the part of the latter, the study may be profita- 
 bly pursued. We have known many instances where this 
 has been done in colleges and other institutions, highly to 
 the satisfaction and advantage of all parties concerned. 
 
 A. W. 
 
 North Brookfield, Mass., 1872. 
 
PREFACE TO FOURTH EDITION. 
 
 Three years have elapsed since the first issue of this 
 manual. In the mean time events of a striking character 
 have occurred in the monetary affairs of the United States, 
 illustrating- in a most remarkable manner the nature and 
 effects of the existing currency. It may now be seen by 
 reference to actual facts whether the predictions made on 
 the 254th page of this work have been verified or not, 
 whether the developments of the last two years go to 
 prove or disprove the correctness of the principles laid 
 down as governing such a currency. 
 
 Three years ago our monefar}^ circulation was generally 
 regarded with great favor ; it was thought to be more 
 stable and reliable than any that had preceded it; that 
 there could be no violent convulsion, or any great scarcity 
 of money with high rates of interest, to be followed by a 
 panic and the general suspension of the banks. All this 
 was supposed to be quite impossible, yet it has taken place. 
 The industry of the nation has been prostrated, and great 
 distress prevails throughout the nation. This has hap- 
 pened, not by accident, not in consequence of any unfore- 
 seen disaster to public affairs, but in the most natural 
 course of events, — by the simple operation of the laws of 
 trade. 
 
 The panic of 1873 was as certain, in the light of science, 
 
 as the succession of day and night. It came, because 
 
 under such a currency as existed it must come ; and it 
 
 will come again, and yet again, so long as our present 
 
 (viii) 
 
PREFACE. IX 
 
 monetary system exists. Expansion, rise of prices, specu- 
 lation, overtrading stimulated by a redundant circulation, 
 will follow each other until another and more frightful 
 catastrophe shall give additional evidence of the essential 
 weakness and viciousness of a currency consisting of mere 
 credit, issued in the form of promises to pay money by the 
 government and the national banks. 
 
 How long before such another explosion may take place 
 it is quite impossible to foresee, since a great variety of 
 causes may hasten or retard such an event, but that all 
 the pecuniary interests of the nation must be imperiled 
 until the true standard of value is restored is certain. 
 
 The currency in use is not in harmony with that of 
 international commerce. It gives a false valuation to 
 everything produced within the country. Hence, as in 
 the general commercial intercourse of the world all values 
 are measured by the gold standard, while those of the 
 United States are measured by an arbitrary and fictitious 
 standard, it may be seen at once that trade, and conse- 
 quently the productive industry of the country, must be 
 embarrassed and retarded by it. Whether consciously or 
 unconsciously, every interest must suffer. 
 
 Hence the great importance of the subject, — hence our 
 apology for calling the attention of the reader to it. The 
 currency question occupies a very prominent position in 
 this work, for the reason that its author regards it as, at 
 the present time, especially in this country, by far the most 
 worthy of investigation of any connected with the science 
 of political economy, and because it is, of all others, a 
 topic least understood by those by whose ballots every 
 question must eventually be decided. 
 
 The recent action of Congress, referred to on pages 
 255-258 of the present edition, has been such as to render 
 it nearly certain that the present abnormal condition of 
 monetary affairs will continue for several vears to come; 
 
X PREFACE. 
 
 consequently the subject must be one of constant discus- 
 sion by tlie press, upon the platform, and in the halls of 
 legislation. It is, in short, the question of the hour, to 
 the consideration of which the public mind should be 
 earnestly and persistently directed until the difficult prob- 
 lem is satisfactorily solved. 
 
 A. W. 
 February, 1875. 
 
TABLE OF COl^TEI^TS. 
 
 BOOK I.— DEFINITIONS. 
 
 Chapter I. — Character of Science. — Distinguished from politics, 17. — 
 The economic circle, 18. — Man's wants and nature's supply being con- 
 stant, political economy a positive science, 19. — How far affected by 
 legislation, 20. — Prejudices which retard its progress, 20. 
 
 Chapter II. — Definition of Wealth. — Includes all articles of value, and 
 nothing else, 22. — Definition of Value. — Objects of human desire, ob- 
 tained by human effort, have value, and none else. Value is power in 
 exchange, and nothing else, 23. — Illustrations, chiefly from F. Bastiat, 
 25. 
 
 Chapter III. — Distinction heticeen Value and Utility, 27. — Illustration, 28. 
 — Material wealth assumed to be a good, 29. — Nature gives value to 
 nothing, 29. — Illustration, 30. 
 
 Chapter IV. — Definition of Labor, 31. — Services of slaves not labor, 32. 
 — Definition of Capital. — The labor of the past, 32. — Growth of capital 
 illustrated, 33. — Relation of Capital and Labor. — Competitors, not 
 antagonists, 34. — A false philosophy, 35. — General Divisions of the 
 Science. — Production, exchange, 22. — Distribution, consumption, 36. 
 
 BOOK II.— PKODUCTION. 
 
 Chapter I. — Forms of Production. — Transmutation chiefly work of agri- 
 culturist, 38. — Agriculture supplies men and materials for other indus- 
 tries, 39. — Includes mining and fisheries, 40. — Transformation chiefly 
 work of manufacturer, 40. — Distribution of manufactures, 41. — By ter- 
 ritorial advantages ; by great accidents, 41. — Transportation chiefly 
 work of merchant, 42. — Where does the chemist belong ? Illustra- 
 tion, 42. — Several forms generally united, 43. — Conditions of the highest 
 production, 44. — Division of labor; co-operation of capital; economic 
 culture, 44. 
 
 Chapter II. — Division of Labor. — Illustrated, 46. — How far carried in 
 fact? 46. 
 
 Chapter III. — The Advantages of Division of Labor. — Increased dex- 
 terity; better knowledge of business, 46. — Time saved in transition; 
 invention facilitated, 47. — Individual abilities adapted to work, 48. — 
 Power of capital increased; manufactures concentrated; profits re- 
 duced, 49. — Apprenticeship shortened, 50. — Social development facili- 
 tated, 51. 
 
 (ix) 
 
TABLE OF CONTENTS. 
 
 Chapter IV. — The Limitations to the Division of Lahor. — When the opera- 
 tion can no longer be subdivided ; when interested |>er:?«jnal supervision 
 fails; when the operations cannot be sufficiently localized, 52. — By the 
 necessities of the seasons; for example, agriculture, 5o. — Hence tend- 
 ency of agricultural products to rise in price ; division of labor ap- 
 plied to sciences and professions, 54. — Specialties recommended, 54. 
 
 Chapter V. — The Disad'oantafjes of Division of Labor. — Tends to en- 
 ervate the laborer, 55. — This n)ay be avoided, 55. — Lesson of the 
 recent war; tends to cramp and enfeeble the mind: this compensated, 
 in part, bj' the greater communicativeness, 5tt. — By the intimate con- 
 nection of mental faculties, 57. — Tends to lower average of health, 
 shorten life, and diminish reproduction, 59. — Table showing average of 
 life in different occupations, 59. — Lessens the number doing business 
 for themselves, 60. — Relation of this to the formation of character, (51. 
 — To the fairness of remuneration, 61. — To steadiness of employment, 
 62. — Balance of results in favor of extension of the principle, 64. 
 
 Chapter VI. — The Co-operation of Cajyital. — Capital is wealth employed 
 in reproduction, 64. — Distinction between capital and wealth, 65. — 
 Fixed and circulating, 66. — Productive and unproductive capital, 68. 
 
 Chapter VII. — Union of Capital and Labor. — The union of capital and 
 labor effective when in just proportions; labor to decide the amount, 
 71. — That amount varies in different countries, 71. — What in United 
 States ? 72. — In Great Britain ? why Ireland is so depressed, 73. — Can 
 there be p surplus of capital ? — Emigration of capital, 76. — Its union 
 with labor effective, again, when each is sure of its reward, 76. — Limits 
 to its aggregation, 78. — Freedom of industry, 79. — Mischief of multi- 
 plied restrictions, 80. 
 
 Chapter VIII. — Eco)tomic Cultnre. — Is the distinction between produc- 
 tive and unproductive labor real ? Adam Smith's list of unproductive 
 laborers, 80. — All labor productive, 81. — Field of economic culture, 83. 
 — Economic culture concerned with secondary influences of production, 
 the rebound from consumption, 83. — Here production touches consump- 
 tion, 84. 
 
 BOOK III.— EXCHANGE. 
 
 Part I — Trade. 
 
 Chapter I. — The Principle of Trade. — Arises from division of labor, 
 illustrated by savage life, 86. — Divided as domestic, carrying, and 
 foreign, 87. — Its amount governed by surplus production, 88. — Those 
 trade most together whose productions differ, 89. — Climate, social con- 
 dition, ethnical peculiarities; territorial division of labor, 90. — Has few 
 limitations and no disadvantages, 90. — General principles of trade are 
 necessity of surplus, community of interests, 91. — Harmonizes indus- 
 trial differences, 92. — Diminishes wars, 93. 
 
 Chapter II.— Obstructions to Trade. — Of three kinds: 1st. Physical, ex- 
 pressed by the term location ; one nation produces what another cannot, 
 or can produce more cheaply, 93. — Illustration, two contiguous nations 
 separated by mountains; obstacle removed: advantage to both, 94.— 
 Production increased; industry diversified, 96.— How trade thus en- 
 riches nations, 97.— Obstructions the same in effect whether natural or 
 interposed by government, 98. 
 
TABLE OF CONTENTS. Xi 
 
 Chapter III. — Lerjal Ohstmctions, or governmental interference with 
 industry by tariff duties, imposed for one of four reasons: to raise a 
 revenue, 98. — To encourage home industry; to sustain existing man- 
 ufactures; to secure commercial independence, 99. — Tariffs of two 
 general kinds: 1st, for revenue onlj' ; 2d, for protection, 100. — Those 
 for revenue permit of free trade, 100. — A protective tariflF forces industry 
 into unnatural channels, and hence diminishes production and trade, 
 101. — Economically, that government is best that governs least, 101. 
 — No sense so subtile as that with which man detects his own wants, 
 102. — Protection is founded on the opposite principle, 102. — This illus- 
 trated by the iron manufHctures of the United States; six reasons why 
 this interest is selected, 102. — The five superior advantages enjoyed 
 for making iron in the United States, 103. — The great natural protec- 
 tion of cost of importation, 104. — Why, then, do we not make all we 
 need? 104. — Effects of protection begun in 1816; general loss to the 
 production of the country, 106. — Folly of anticipating an agricultural 
 glut, 107-. — Impolicy of legal interference, 107. — Illustrated by the paper 
 interest during the last war, 108. 
 
 Chapter IV. — Fallacien of tlie Protective Theory. — Fallacy 1. Good policy 
 to protect an infant manufacture, 109. — Protects the bad and good alike, 
 and perverts the industry of the country, 110. — Fallacy 2. Protection 
 especially develops manufactures and enriches countries, 112. — Fal- 
 lacy 3. Raises the rate of wages, 114. — Fallacy 4. Protection a defence 
 against pauper labor, 115. — Fallacy 5. A home market desirable to 
 place the agriculturist by the side of the manufacturer, 117. — Fallacy 
 6. Manufactures fatally exhaust the soil, 118. — Fallacy 7. That home 
 capital is especially benefited, 119. — Fallacy 8. That free trade is 
 especially beneficial to the mercantile class, 120. — Protection a tear oj 
 interests, 121.— Proof of this, 122. 
 
 Chapter V. — Protection {concluded). Other Obstacles considered. — Tariffs 
 imposed to support existing manufactures, 124. — The practical diffi- 
 culty, 125. — Tariffs imposed to secure commercial independence; in 
 commerce or of commerce? 125. — "If freedom of^ intercourse were 
 universal it would be well," 126. — The Cobden treaty between France 
 and England, 127. — Obstruction to trade by a defective standard of 
 value, 128. — Facts in proof of this, 128. — Transportation obstacles, 129. 
 — Social obstacles. Illustrated, 130. 
 
 Chapter VI. — Balance of Trade. — The true state of trade cannot be 
 ascertained by inspection of ofiicial returns, 132. — Balance of trade, 
 how adjusted, 134. 
 
 Part II. — Instruments of Exchange. 
 
 Chapter I. — Barter and the different forms of Currency. — Three instru- 
 ments of exchange, viz., barter, currency, different forms of credit, 
 136. — A currency wanted to act as a medium of exchange, 137. — And 
 as a standard of value, 138. — Requirements of such a standard, 138. — 
 Currency of four kinds, viz., money, credit, mixed, and mercantile cur- 
 rency, 139. 
 
 Chapter II. — Money. — Forms used in different ages and countries, 141.— 
 Advantages of gold and silver; possess value, are stable in value, 141. 
 — Conveniently portable, malleable, of uniform quality, readily alloyed 
 
XU TABLE OF CONTENTS. 
 
 or refined, are indestructible, generally diffused, sufficiently plentiful, 
 128. — And nearly inconsumable by use, 142. — Coinage, its advantages, 
 146.— Coin, 146. 
 
 Chapter III. — Credit Currency. — Transfers debts, does not pa.y them, 
 146. — Folly of gold bill by Congress, 147. — Depreciates fixed incomes, 
 133. — Vitiates contracts, 148. — Never kept to the natural volume of 
 currency; seldom paid, 149. — In efi"ect a forced loan; a direct tax, 150. 
 — Loss to United States during late war froui use of credit currency, 
 150. 
 
 Chapter IV. — Mixed Currency. — A modern invention ; Bank of England, 
 151. — Composition; value and credit; its quality the proportion be- 
 tween the two elements, 152, — Convertibility distinguished from re- 
 deemableness, 153. — Inconvertible currency annihilated by being 
 redeemed, 154. — Liabilities of mixed-currency banks, 154. — Bank 
 balances the most dangerous element, 155. — Resources of banks ; 
 definition of terms, 156. — Statistics of the mixed-currency banks, 158. 
 — Convertibility of their issues, 160. 
 
 Chapter V. — Analysis of Dejjosits. — Already defined; arise in five ways, 
 162. — May be classified as compulsory, fiduciary, and active, 162. — 
 The first kept to secure discounts, 164. — Highly dangerous to the cur- 
 rency, 164. — Other kinds legitimate, 165. — Are deposits currency? 
 opinion of Lord Overstone, 166. — Of New York Board of Currency, 
 166. — Indeed, more active. Illustration, 167. 
 
 Chapter VI. — Mixed Currency, Flitctnations in Quantity and Quality, l&S. 
 — We have two great questions : 1st, does mixed currency perform satis- 
 factorily the functions of money? 2d, what its effects upon public 
 interests? 168. — Mixed currency not governed by laws of value, 169. — 
 Expansion always in excess, because it creates speculation and a fever- 
 ish demand, 170. — Contraction takes place from any cause which aff"ect3 
 credit, 171. — Export of specie withdraws only its own amount, 171. — 
 Two classes of banks, 172. 
 
 Chapter VII. — Tables aiid Diagrams of Mixed- Currency Fluctuations. — 
 Table I., in absolute quantity. United States, 1834-59, 171. — Diagram 
 1, in currency and proportion of specie per capita, same period, 176. — 
 Table II., extremes of fluctuation, currency United States per capita, 
 and quality of same, 1834-59, 178. — Table III., quality of currencies 
 in the several States, 179. — Table IV., of currency of Massachusetts, 
 different dates, 179. 
 
 Chapter VIII. — Mixed Currency as a Medium of Exchange, 180. — Two 
 offices of such a medium ; to transfer commodities, 164. — Mixed cur- 
 rency satisfactory for this; to discharge indebtedness, coin always 
 reliable, 180. — Unsatisfactory, 182. — Dilemma of banks in panic, 183. 
 
 Chapter IX. — Mixed Currency as a Standard of Value. — Vast importance 
 of this function, 184. — What is a standard of value? 185. — Illustration, 
 186. — Justice of a uniform and universal standard, 186. — How a mixed 
 currency performs this function, 187. — Price, distinction between price 
 and value, 189. — Table of prices for twenty-six years. Shown by Dia- 
 gram No. 2. Explanation of it, 195. — Illustration of the effect of ex- 
 pansion and contraction, 197. 
 
 Chapter X. — Effects of a Mixed Currency. — 1st. Endangers domestic 
 tranquillity, 199. — Currency of Massachusetts: savings-banks com- 
 
TABLE OF CONTENTS. XHl 
 
 plicate the matter, 200. — 2d. Demoralizes society, 202. — 3d. Endan- 
 gers national safety in war, 202. — Obliges a nation to carry on war with 
 broken-down currency, 203. — United States in great Rebellion, 204:. — 
 4th. Discourages domestic manufactures, 205. — lias always neutralized 
 our tariff, 206. — Protection and currencv. Shown by facts and illus- 
 trated by diagrams, Nos. 3 and 4. What the diagrams treat, 211. 
 
 Chapter XI. — Effects of Mixed Currency {concluded). — 5th. Disturbs 
 and enhances interest, 212. — This the natural result; Diagram 5, 217. 
 — Frequent and extreme fluctuations; highest interest with greatest 
 expansion; lowest with least currency, 219. — Unequal effects of mixed 
 currency upon different industrial interests, 220. — Oppressive effects 
 upon agriculture especially, 222. — Table VI., 222. — How manufacturers 
 are affected, 225. — How trade and transportation, 226. 
 
 Chapter XII. — Fallacies rerjardiufj a Mixed Cnrrenci/. — 1st, that it 
 increases capital, 228. — Credit not capital; 2d, that it costs less than 
 money, 228. — Instruments, to be cheap, must be efficient; mixed cur- 
 rency is not, 228. — 3d, that it has caused the prosperity of the United 
 States, 231. — No grounds for the supposition ; 4th, that there is not 
 gold and silver enough, 232. — 5th, that it is favorable to those who 
 have little capital, 235. — 6th, that we could not have banks without it, 
 236. — Banking may be profitable without ; illustrated from British joint- 
 stock banks, 237. — 7th, that it can be regulated by law, 238. — 8th, that 
 banks ought to '' stave off " suspension, 239. — 9t;i, that at least stock- 
 holders are enriched by expansion, 240. 
 
 rJHAPTEU XIII. — Mercantile Cnrrenci/. — A substitute for the precious 
 metals : combines reliability with the convenience of paper, 242. — First 
 substitute currency; Bank of Genoa, bills based on full specie: Bank 
 of Amsterdam; Bank of Hamburg; England, 243. — English finance 
 continually disturbed, and millions of annual loss involved, for a paltry 
 saving, 244. — The change of currency easy to effect, 245. — Legitimate 
 banking profitable, 246. — Needs little legislation: transition easy ; /ree 
 banking', 24:7. — Upon what conditions, 247. — Gold notes, the true circu- 
 lating medium upon which all banking should be carried on, 248. — 
 Table VII. ; characteristics of the different kinds of currency, 250. 
 
 Chapter XIV, — National currency of the United States, 250. — In what 
 respects it differs from that of the State banks, 251. — In what it resem- 
 bles the latter, 253. — Panic of 1873-4 255. — Condition of the currency 
 in 1875, 257. — Clearing-house certif cafes, 259. — Statistics, 260. 
 
 Chapter XV. — Evidences of Debt. — Three kinds; book accounts, 262. — 
 N^otes, 263. — Bills of exchange, 263. — Exchange, foreign and domestic, 
 264. — Great saving of expense; indirect exchange, 265. — Foreign ex- 
 change illustrated, 266. — Indirect foreign exch mge illustrated, 266. — 
 Trade of United States 1857, 268. — Natural rate of exchange, 268. — 
 Rate of British exchange explained, 269. — Value of the pound sterling. 
 270. — Expense of shipping gold, 271. — Are bills of exchange currency ? 
 do not pass from hand to hand, 271. — Are themselves discharged by 
 currency ; are generally on time : if dishonored, do not reduce amount 
 of currency, 250. — Do not affect prices, 272. 
 
 BOOK IV.— DISTRIBUTION 
 
 Chapter I. — Divisions of the Subject. — Distribution the apportionment 
 of wealth, 274. — Labor, physical, mental, and subsidiary, all receive 
 wages, 275. — Capital loaned in two forms, one receiving interest, the 
 
XIV TABLE OF CONTENTS. 
 
 other rent, 275, — -Government claims a share ; we have therefore to pro- 
 vide for wages, profit, interest, rent, and taxation, 276. 
 
 Chapter II. — Wages. — Governed by laws of value; vary in different 
 countries and ages, 276. — Importance of freedom and equal'.ty in se- 
 curing fair wages; necessary wages, 278. — Wages depend on business 
 enterprise, 278. — Distinction between real and nominal wages; illus- 
 trated; facts in point, 279. 
 
 CaAPTER III. — Projjortioiiate Rise and Fall of Wages. — Do not rise so 
 soon or high as commodities generally, 280. — AVages unquestionably 
 have a tendency to advance; 1810 compared with 1860,282. — Work- 
 men better off, 282. — Unhealthy trades ; compensation should be made ; 
 agricultural wages, for this reason, lowest of all, 283. — Education of 
 the laborer; makes him more efficient, 284. — Frugality of the laborer; 
 makes him independent, 285. — Neutralizes the advantage of the em- 
 ployer; distinction of sex influences wages, 286. — Rate of difference, 
 286. — Equality of numbers; industrial sphere of woman closely circum- 
 scribed ; her products more dispensable; hence inferiority of compensa- 
 tion, 287. — Cannot be increased by mere philanthropic efforts, 288. — 
 Another classification of wages, paid respectively for physical, mental, 
 moral power, 289. 
 
 Chapter IV. — Labor Combinations. — Laborers have same right to com- 
 bine as capitalists; friendly associations of England, 29L — Trades' 
 unions ; lawful, but no coercion may be employed within or without 
 these unions, 292. — Strikes lawful within the same restrictions, 294:. — 
 Do not permanently raise wages, 295. — Co-operative associations ; ac- 
 count by Professor Fawcett, 296. — Conclusions, 298. — Conditions for 
 co-operative success, 299. — Managers must be able and faithful, 299. — 
 Credits must be neither given nor taken, 299. — Why ? 300. — Co-operative 
 partnerships, 801. — Results of experiments favorable, 302. — Reduction 
 of hours of labor, 302. — Effects of restricti'ig the hours of labor, 302. — 
 Must lessen production, 304. — Economic effecfif upon the laborer, 305. — 
 Illustrations, 305-6. — -Laborer a consumer as well as prodircer, 306. — 
 Eff'ects on capital, 307. — The increment must be abridged, 307. — Equali- 
 zation of loages, 309. — Interference with apprenticeship, 310. 
 
 Chapter V. — Profits. — The remuneration of the business man, 311. — 
 Must not be confounded with interest, wages, or rent, 312. — The forms 
 may be united, 313. — Profits of capital an inaccurate term, 314. Rate 
 of profit tends to decline, 314. — Rapidity of exchange; its effect on 
 profit illustrated, 314. — Profits governed by demand and supply, 315. — 
 Dividends, how classified, 318. 
 
 Chapter VI. — Interest. — Reward of circulating capital ; justified by right 
 of property, 319. — Interest dependent on productiveness of labor, 320. 
 Governed by demand and supply ; abolition of British usury laws ; usury 
 laws ineffective, 320. — Increase expense of borrowing, 321. — Create 
 compulsory deposits, 323. — Interest influenced by unsoundness of cur- 
 rency, 324, 
 
 Chapter VII. — Rent — Reward of fixed capital, 325. — 'Implies ownership ; 
 implies society, 325. — Land the foundation of rent, 326. — Location the 
 first element, 327. — Fertility the second element; illustrated, 328.— 
 Third element; population, 329. — Fourth element; not proportionally 
 productive in all cases, 329. — Land appendages, 330. 
 
 Chapter VIII. — Principles of Taxation. — Necessity of government; it 
 receives revenue; by taxation, 333. — Must be just and equal in a free 
 country, 334. — Principles of taxation propounded by Adam Smith : 
 
TABLE OF CONTENTS. XV 
 
 First, equality of contribution, 334. — Explained and illustrated ; second, 
 taxation must be certain and plain, 335. — Third, convenience of pay- 
 ment to be considered; fourth, economy; a fifth principle proposed, 
 taxation of mischievous consumption, 338. — Forms of American taxa- 
 tion, 338. 
 
 Chapter IX. — National Taxation. — 1. Customs: duties of two kinds, 
 specific and ad valorem, 339. — Specific duties unjust; ad fa^orew create 
 fraud, and so far defeat revenue, 340. — Customs as a mode of taxation ; 
 easy and effective; but unjust ; not clear and plain to the contributor, 
 340. — Customs expensive on account of the machinery, 341. — Bounties 
 preferable for protection to customs, 344. — Excise as a mode of taxa- 
 tion, 345. — Taxes on disadvantageous consumption ; eminently desira- 
 ble, 346. — Stamps, 347. — Licenses or special taxes, 348. 
 
 Chapter X. — National Taxation (continued). — Income tax; only per- 
 fectly just principle; established in Great Britain, in United States, 
 349. — Should be no exemptions as to persons or amount: objections 
 answered, 350. — Deferred income, to be estimated, 352. — Operation of 
 the income tax as between capital and labor, 352. — Taxation xijicn ex- 
 jjorts, effects of, 353. — Taxation upon cotton, when expedient, 354. 
 
 Chapter XI. — State Taxation, generally direct, 355. — Poll-tax payers 
 placed in a false position, 35(i. — The income-tax principle would re- 
 move this. 357. — Illustrations, 358. — Taxation upon credits, 360. — Illus- 
 trated, 361. — Ought fjovernment bonds to be exempted from taxation ? 363. 
 — Loss of valuation for taxation, 365. — Conversion of the national debt 
 into capital. How? 365. — Practicable, 366. — Beneficial results, 367. 
 
 Chapter XII. — Foreign Indebtedness. — Its economj', 368. — L>iflFerent 
 form, 368. — The exportation of stocks, 369. — Fallacies respecting foreign 
 indebtedness, 370. — Fallacies concerning national indebtedness, 372. 
 
 Chapter XIII. — Rise and Growth of the Modern Financial System, 377. 
 — William III. of England author of modern system, 378. — Establish- 
 ment of a revenue system, 379. — The Iv'vaA, funding, banking, and indi- 
 rect taxation, 380. — Diagram of the British national debt, 382. — Fruit 
 of this policy; extension of war system ; increasing indebtedness all 
 over the civilized world; impoverishment of the masses; such a debt 
 throws taxation on the productive classes, 384. 
 
 Chapter XIV. — On the Laios of Inheritance and Bequest. — To whom does 
 the world belong, the living or the dead ? 384. — The world belongs to 
 the living, 385. — Wealth tends to pass out of the hands of a family or 
 class, 386. — This liability of the rich is the property of the poor, 387. 
 — The laws of entail and primogeniture mischievous and unjust, 388. 
 
 BOOK v.— CONSUMPTION. 
 
 Chapter I. — Divisions of the Subject. — Consumption the use of wealth, 391, 
 — Illustrated, 392. — Consumption divided as mistaken, luxurious, and 
 public Consumption. — Mistaken consumption, 393. — Capital applied 
 for reproduction without result; frequent failures of industrial enter- 
 prises, 393. — Causes, 394. — Luxurious Consumption. — W^hat is luxury ? 
 395. — General formula, 395. — Do luxuries directly encourage industry ? 
 Illustration, 397. — Do they indirectly encourage industry ? 398. 
 
 Chapter II. — On the Degree of Luxurious Consumption, 400. — Luxuries 
 not confined to the rich; an extent of necessary wages, 400. — Relative 
 consumption in luxury by different classes in Great Britain ; historical 
 
Xvi TABLE OF CONTENTS. 
 
 examples of luxury, 402. — The causes of luxurious consumption, 402. 
 — Ot learning and art: have value; their price varies, 40 J^. — Effect of 
 8uch consumption, 405. — Sumptuary 1h ws ; supported by urgent reasons, 
 405. — Found impracticable, 406. — Laws in the interest of morality 
 should be sustained, 407. — Economical reason for government, 408. — 
 Right to partici]>ate in consumption ; share? 408. — Government should 
 take nothing from individual enterprise, 409. — Government should do 
 nothing for display, 410. — Expense of government varies with circum- 
 stances and character, 410. — Expenditures of European nations; of 
 United States, 410. 
 
 Chapter III. — Charity and Poor-Laicx. — Not very important in United 
 iStates, 41 I. — What classes entitled to charity? all who require it, 412. 
 — Who should administer charity, 412. — By what branches of the gov- 
 ernment ; to what extent, 414. — To what extent poor-laws may be effect- 
 ive, 414. — In what spirit charity should be dispensed, 416, 
 
 Chaptkr IV. — The Finance of War, 417. — Fallacy that more money is 
 wanted in time of war than in peace; evil effects of this, 417. — " Rais- 
 ii'.g money'" no more necessary in time of war than peace, 418. — Except 
 for obtaining foreign assistance, 418. — Economy of the war system, 
 419. — War the greatest fact in public consumption; not accidental; 
 consisting of (1; a permanent military and naval force; (2) constant 
 preparations; (3) large national indebtedness, 422. — Statistics of 
 European armies, 423. — Is war a moral neeesHity f 424. 
 
 Chapter V. — Economy of Public Education. — Economic results of edu- 
 cation, 427. — Prevents pauperism and crime; creates higher economical 
 condition, 428. — Secures more uniform distribution, 429. 
 
 CiiAi'Ticu VI. — Pupulation. — Reference to the theory of Malthus, his 
 two postulates, 431. — Three fallacies: (1) as to subsistence; (2) as to 
 propagation, 431. — (3) The supposed necessary relation of distress to 
 the>o postulates, 433. — Reference to English pauperism, 433. — Causes 
 that limit population, 433. — Self-restraint and social influence.-, 434. — 
 l)iHercnces in the increase of the native and foreign population; how 
 accounted for, 435. — (2) Engage in more healthy employments; (3) 
 but, principally, are far less influenced by prudential considerations; 
 American and foreign marriages in Massachusetts, 438. — Reflections 
 upon the facts given, 438. 
 
 Chapter VII. — Immiyration. — Its large extent, 439. — Statistics of cen- 
 sus of 1870. — Effect on wages, 440. — Effect on the condition of the 
 native laborer, 442. — Chinese immigration; its character; reflections, 
 442. 
 
 Chapter VIII. — Importance of a right consumption, 443. — Illustration 
 of a right and wrong use of wealth, 446. — What is the economic good f 
 447. 
 
POLITICAL ECONOMY, 
 
 BOOK I. 
 
 CHAPTER I. 
 
 CHARACTER OF THE SCIENCE. 
 
 Political Economy is the Science ofWealth, and 
 professes to teach the laws by which the production 
 and consumption of wealth are governed. 
 
 The term "political economy" is not a fortunate 
 one, since it leads the popular mind. to a misappre- 
 hension of what the science actually teaches, and 
 confounds it with politics, or the science of govern- 
 ment, from which it is distinct. 
 
 The relations into which these sciences enter are 
 voluntary, and for the supposed advantage of both, 
 not from any logical necessity to complete either. 
 A just and efficient government of the state is im- 
 portant to realize the largest development of wealth, 
 but only as a condition under which the laws of 
 wealth, already complete and harmonious, may have 
 their own proper sway. 
 
 Government cannot furnish a new power in man, 
 or a new agency in nature. It can, to a certain ex- 
 
 2* ( n ) 
 
18 DEFINITIONS. 
 
 tent, control the exercise of existing power, and the 
 use of existing agencies ; but it can control only by 
 limiting them. Nothing is added through legisla- 
 tion. The science of wealth is complete in its own 
 principles, though the statesman may think it policy 
 to contravene them for a supposed good. Political 
 economy is, then, silent before the law. 
 
 Political economy teaches the relation of man to 
 those objects of his desire which he can obtain only 
 by his efforts. lie has wants, he needs food, cloth- 
 ing, and shelter; he wishes many things not vital 
 to him. Together, these constitute his wants, in 
 the view of political economy. This is the first fact 
 of the science. It is the foundation of all. These 
 wants can only be satisfied by efforts. This is the 
 second fact. By it, man builds on the foundation laid 
 in his wants. The objects or satisfactions obtained 
 by these efforts are collectively called wealth, or 
 those things which contribute to the welfare of man. 
 This is the third fact to be noticed. The circle of 
 political economy is here completed. It may here- 
 after appear that there is a perpetual progress, an 
 unceasing self-multiplication; that each satisfaction 
 creates a new want, which in turn seeks its object 
 through an effort. 
 
 Let us make a formal statement of what we have 
 obtained : 
 
 Wants, Efforts, Satisfactions ; or, 
 Desires, Labor, Wealth. 
 
 The wants of man, in which are all the springs of 
 wealth, are various, and change their place and form 
 w^ith times and circumstances. But they arise from 
 
CHARACTER OF THE SCIENCE. 19 
 
 his nature. They are a certain and constantly- 
 operating force. They commence with man's ex- 
 istence, and terminate only with his life ; and, when 
 all the desires of the individual are satisfied in the 
 grave, and his labor paralyzed, the wealth he lays 
 down in death becomes the possession of other men, 
 with full strength and fresh desires ; and so the cre- 
 ation of wealth goes on in ever-increasing circles, 
 expanded by the central force, — the wants of man. 
 
 While the one element of wants or desires is 
 secured in the constitution of man's being, the other 
 element — viz., the relation of effort or labor to them 
 — is fixed in the constancy of nature, and the per- 
 manence we attribute to the created world, — a 
 foundation sure enough to build upon. 
 
 If, on the one hand, man's being were so consti- 
 tuted that his wants should cease, or be intermitted 
 without any reason at the time, and without any 
 assurance of return, or prove too weak to move the 
 activities towards their satisfaction ; or, on the other, 
 nature were so disposed that labor had no guaranty 
 of reward, resulting indifferently in good to the 
 laborer, or in nothingness, or in positive injury to 
 him who performs it, — we could have no science of 
 political economy. 
 
 J3ut, as man's being and nature's laws are found 
 in experience, political economy is to be regarded 
 as a positive science. Kothing in its fundamental 
 principles is hypothetical or problematic. I^Tone of 
 its methods are whimsical or accidental. Each 
 thing is susceptible of clear demonstration. All its 
 parts are calculable. 
 
 In his efforts to supply his wants, we have said, 
 
20 DEFINITIONS. 
 
 man avails himself of the powers of nature, the fer- 
 tility of the earth, the stimulating quality of the 
 sun's rays, the agencies of wind, water, and steam ; 
 all the dynamical forces and mechanical supports at 
 his hand. He must, therefore, recognize these, and 
 know the laws by which they are governed. But 
 such inquiries do not come within the field of the 
 political economist. He takes them from the hands 
 of the physical philosopher, furnished to his own 
 use. " 
 
 Let us sa}^ then, that human nature in its wants, 
 the physical laws which supplj^ them, and the sta- 
 tistics of human industry in all its manifestations, 
 are the material of our science. 
 
 Political economy is a science whose laws may be 
 disturbed in their operation, or made perplexing to 
 observation, by the legislation of the state. Practi- 
 cally, this is the great disturbing force which politi- 
 cal economy has encountered in all the past. Wealth 
 is the constant subject of legislation often in direct 
 antagonism to its own laws. 
 
 The express purpose of much legislation has been 
 to reform human morals by an external pressure on 
 man's desires, or, at least, to reform human manners 
 by denying all gratification of such desires; and 
 this, not in the interest of religion, or for the safety 
 of the state, but in matters of dress and equipage. 
 Hence the laws of political economy are not only 
 contravened by direct legislation," but are obstructed 
 or perverted in many ways by false social and politi- 
 cal opinions. 
 
 It will be easily recognized as a part of that human 
 nature of which we have spoken, that the promul- 
 
DEFINITION OF WEALTH. 21 
 
 gation of principles whose legitimate operation 
 threatens the overthrow of long-established abuses, 
 or which interfere with existing customs, should ex- 
 cite prejudice and opposition. This is one of the 
 chief difficulties the science has had to encounter 
 from the first. Here we have the reason why it has 
 made comparatively little progress, and is the only 
 science that cannot obtain a candid and impartial 
 examination from the mass of mankind. 
 
 CHAPTER 11. 
 
 DEFINITION OF WEALTH. 
 
 Having now given the three great facts on which 
 the science is founded, it becomes necessary to fix 
 precisely the terms to be used in the further devel- 
 opment of these inquiries. Political economy is 
 unlike all other sciences in this, that it has not the 
 option of making or choosing its own terms. From 
 the nature of the case, it is obliged to adopt words 
 in common use. It is encumbered with all the 
 notions, false or loose, which may have been at- 
 tached to these. It has to speak 'of wealth; of 
 value and utility; of labor and capital; of pro- 
 duction, exchange, distribution, and consumption. 
 These are common phrases. Each has a variety of 
 meanings in popular language ; yet, when used in 
 the discussion of this science, it must have one 
 meaning as definite, exclusive, and precise as the 
 
22 DEFINITIONS. 
 
 terms of natural history. The liability to confu- 
 sion from this source can only be guarded against 
 by being kept constantly in mind. Until the proper 
 definitions become instinctive, so that they arise 
 freely in their own shapes on the mention of such 
 terms, there will be a constant slipping back, as it. 
 were, to their habitual meanings in common life. 
 At the best, the laborious reference of the mind to 
 formal definitions will tend to diminish the force of 
 all representations and arguments where they ap- 
 pear. The greatest obstacle, however, encountered 
 by writers, is not that arising through popular 
 prepossessions in regard to words, but it is their 
 own misapplication of language, confounding things 
 essentially distinct, and clothing exact principles in 
 expressions so vague and indeterminate as to make 
 science impossible. 
 
 We have said that political economy treats of 
 wealth ; but what is wealth ? In popular language, 
 it is houses, lands, ships, merchandise, with a general 
 "and so forth," — all that we call property. In sci- 
 ence, the term "w^ealth" includes all objects of 
 VALUE, and no other. 
 
 The principle is cardinal. The science turns on it. 
 
 Political econom}' has been called the " science of 
 values." No definition could be more strictly accu- 
 rate ; but we shall retain that already given, as being 
 more popular, and as nearer to the customary use of 
 the words. It is, then, the science of wealth, under- 
 standing that wealth consists of objects of value only. 
 
DEFINITION OF VALUE. 23 
 
 DEFINITION OF VALUE. 
 
 What, then, is value ? When does an article or 
 commodity possess value ? 
 
 When it is an object of man's desire, and can he ob- 
 tained only by man's efforts. Anything upon which 
 these two conditions unite will have value; that is, 
 a power in exchange. Value is the exchange power 
 which one commodity or service has in relation to 
 another. 
 
 That such a power does exist is not a matter of 
 dispute. Its influence is felt and acknowledged in 
 every country, civilized or savage. This it is which 
 excites to industry, creates commerce, and supports 
 government. This power obej^s laws as certain and 
 immutable as those which appertain to any of the 
 great forces of nature. Just as man is sure to feel 
 wants, to put forth efforts, to realize satisfactions, 
 so he is sure to be found exchanging an excess for 
 a novelty, a home product for that which comes 
 from abroad, the work of his mind for the work 
 of another's body. 
 
 Again let us remark, that the term " value" always 
 expresses precisely power in exchange, and no other 
 power or fact. Desirableness is not value. Utility 
 is not value. 'No objects are more useful and desira- 
 ble than atmospheric air, the light of day, the heat 
 of the sun ; yet these have no value. They will ex- 
 change for nothing, because any one may have all 
 he wishes without effort. 
 
 An object, to possess value, must be desired by 
 some one who is willing to render a service or equiv- 
 alent in order to obtain it, for the reason that he can- 
 
24 DEFINITIONS. 
 
 not have it without. It is what a maD gets, what 
 another will give, that determines value. 
 
 It has been common for writers to speak of ex- 
 changeable value, intrinsic value, value in use, etc.; 
 but all these terms are inappropriate. The adjectives 
 are superfluous. To speak of exchangeable value is to 
 speak of exchangeable exchangeability. The term 
 "value," in the science of values, always implies 
 power in exchange, and nothing else. 
 
 Of all the writers on the subject, no one seems to 
 have been more full and clear in the definition and 
 illustration of value than M. Bastiat, in his " Har- 
 monies of Political Economy:" 
 
 "Theorists have s6t out, in the first instance, by confounding 
 value with utility. This was their first error ; and, when they per- 
 ceived the consequences of it, they thought to obviate the difficulty 
 by imagining a difference between value in use and value in ex- 
 change, — an unwieldy tautology, which had the fault of attaching 
 the same word ' value' to two opposite phenomena " (p. 161). 
 
 " The theory of value," he further says, " is to political economy 
 what numeration is to arithmetic. Value is the relation of two 
 SERVICES. The idea of value entered into the world for the first 
 time when a man said to his brother, ' Do this for me, and I will 
 do this for you;' they had come to an agreement: then, for the 
 first time, we could say the two services exchanged, — wei'e worth 
 each other. ''^ 
 
 The case of the blind man and the paralytic is given 
 in illustration. The blind man says, " I have limbs : 
 you have eyes. I will carry you : you shall be my 
 guide." Each receives a benefit; their services are 
 exchanged, — valued by each other. Here we have 
 value appearing, not in material wealth, but in ser- 
 vices ; yet the principle is just the same as when the 
 hatter says to the bootmaker, " I will give you a hat 
 for a pair of boots," and they change accordiugly. 
 
DEFINITION OF VALUE. 25 
 
 They really exchange their mutual services, which 
 have been put into the form of material objects. 
 Another illustration is given: 
 
 " I wish for water to quench my thirst ; I go two miles to the 
 spring and get it. My neighbor goes on the same errand. I say to 
 him, ' Bring me water, and I will do something in the mean time 
 for you; I will teach your child to spell.' Here is the exchange 
 of two services : one is worth the other. Presently, I say to my 
 neighbor, ' Instead of teaching your child while you are gone for 
 the water, I will pay you twopence each time.' If the proposal is 
 accepted, we say the service is worth twopence. If others in the 
 neighborhood employ the same man to bring water, he becomes a 
 water-merchant; and the value of water is as fully recognized as 
 the value of wheat. The water, at first valueless, is now an article 
 of wealth. It has not changed its chemical qualities, but services 
 have become materialized, or incorporated with it. If the well, in 
 the case supposed, were brought nearer to the village, the value of 
 the water would be reduced, because less labor or service would be 
 required to obtain it." 
 
 Suppose an aqueduct built by the joint labor of the community. 
 The business of the human water-carrier has ceased ; but not the 
 less is the value of the water, delivered at the door, the product of 
 labor. The labor has been invested with a permanent form, as 
 pipes, walls of masonrj'', gates, etc. Labor has been accumulated 
 for the purpose, instead of using the hourly labor of the water-car- 
 rier. The industry of the l^ricklayer and the plumber carries water 
 years after they ceased to work on the aqueduct. 
 
 We have said that it was not the properties of the water that gave 
 value ; no more does the value reside in the mere delivery of the 
 same. The water-works of some regions furnish them water on 
 the ground, at the rate of a million and a half square feet a da}' to 
 each square league. Yet the water has no value there ; for the 
 agencies employed are not the labor of man, but the currents of 
 air, — Nature's pipes and conduits. 
 
 A diamond, as M. Bastiat observes, makes a great 
 figure in works upon political economy, and he ad- 
 duces an illustration w^iich may be summarized as 
 follows: I find a diamond. I am put in possession 
 
 8 
 
26 DEFINITIONS. 
 
 of great value. lias it cost me great labor? I^o, yet 
 some one will give me $10,000 for it. Why ? Because 
 he knows that it was a fortunate accident merely 
 that gave me the diamond, and that he might search 
 for years without finding one of equal value. The 
 purchaser desiring it will give my price rather than 
 undertake to find a similar one. His desire and the 
 labor it mio:ht occasion him determine his estimate 
 of the gem, not the labor it cost me; it is therefore 
 true, that the value of the diamond is measured by 
 labor equallj^ with any other article. 
 
 M. Bastiat insists that value no more resides in the 
 diamond than in air or water. 
 
 "It resides exclusively in the services which we suppose to he 
 rendered and received with reference to these things, and is deter- 
 mined hy the free bargaining of the parties who make the exchange. 
 The pretended value of commodities is only the value of services, 
 real or imaginary, received and rendered in connection with them. 
 Value does nf>t reside in the commodities themselves, and is no more 
 to be found in a loaf of bread than in a diamond, the water, or the 
 air. No part of the remuneration goes to Nature, It proceeds 
 from tlie fimil consumer of the article, and is distributed exclusively 
 among men." 
 
 Again : 
 
 " In order that a service should possess value in the economical 
 tense of the word, it is not at all indispensable that it should be 
 real, conscientious, and useful service. It is sufficient that it is ac- 
 cepted, and ]iaid for b}' another service. It depends wholly on the 
 judgment we foi-m in each case ; and this is the reason why morals 
 will alwaN's be the best auxiliary of political economy. Economic 
 science would be impossible if we admitted as values only values 
 correctly and judiciouslj' appreciated." 
 
 The main principle in the theory of value is ex- 
 pressed in the common phrase, " A thing is worth 
 what it will fetch," — that is, what some one will give 
 
VALUE AND UTILITY. 27 
 
 for it; the value depending on the will of the pur- 
 chaser, as determined by his judgment. Value is the 
 appreciation of services. The value of a thing is the 
 service or labor which it will command in exchange. 
 
 If there is no resistance to the possession of an 
 article, it can have no value. Labor alone does not 
 always create value; but value never exists in an 
 article, unless some one is willing to give labor, in 
 some form or other, in exchange for it. 
 
 The ancients thus described the combinations of 
 exchange : 
 
 Do ut deSj Commodity for commodity. 
 
 Do ut facias, Commodity for service. 
 
 Facioutdes, Service for commodity. 
 
 Facio utfacias, Service for service. 
 
 This statement exhausts all the modifications of 
 the principle. 
 
 CIIAPTEli III. 
 
 DISTINCTION BETWEEN VALUE AND UTILITY. 
 
 We have now gone over all the ground belong- 
 ing to the theory of value: but we cannot leave it 
 without dwelling awhile on one part of it; witliout 
 clearly marking the boundary which separates it from 
 the domain of utility, — a most troublesome and in- 
 trusive neighbor. 
 
 There is between utilit}^ and value a distinction as 
 real as between weight and color. 
 
 Suppose a farmer in Vermont has one thousand 
 
Z9 DEFINITIONS. 
 
 bushels of wheat ; its value is two thousand dollars. 
 Its utility is, that it will make forty thousand pounds 
 of bread. 
 
 A farmer in Illinois has one thousand bushels of 
 wheat, equally good ; but its value is only one thou- 
 sand dollars. Its utility is just the same. It will make 
 as much and as good bread as the wheat of Vermont. 
 The value, then, does not reside in the utility, but in 
 the power in exchange. The wheat of Vermont com- 
 mands a higher price than that of Illinois, because 
 of its location nearer to the market. Here location 
 means labor, — that is, the labor required to overcome 
 it. This will be still more apparent if we suppose 
 the farmer removed a thousand miles by land from 
 any market. His wheat might then have no value; 
 yet its natural, inherent utility would be as great as 
 ever. 
 
 Take another illustration. A pound of small nails 
 or tacks formerly had the value of twenty-live cents, 
 equal to one-fourth of a day's labor. By the intro- 
 duction of machinery, the value was reduced to ten, 
 then to five cents, or the twentieth part of a day's 
 labor; the utility ren^iaining all the time as at first. 
 The value of many articles, especially those called 
 manufactures, are, in the ordinary progress of human 
 effort, constantly diminishing, though never annihi- 
 lated. This is because the labor or service to be 
 appreciated in such values is constantly lessening, 
 though it can never wholly disappear. In this is seen, 
 not only the certain distinction between value and 
 utility, but one of the most beneficent laws of the sci- 
 ence, which may be stated as follows : Value moves, 
 diminished constantly by the substitution of the gra- 
 
VALUE AND UTILITY. 29 
 
 tuitous agencies of ;N"ature, by the ingenuity and in- 
 dustry of man. Utility remains fast anchored in the 
 wants of man and the properties of matter. 
 
 Political economy makes no inquiry whether the 
 increase of material objects of desire is, in truth and 
 on the whole, a good. It assumes this. It leaves 
 to others the discussion whether the highest in- 
 terests of society are attained by repelling the kind- 
 ness of ^N'ature, and by denying the instincts of 
 man. This kindness, and those instincts, political 
 economy accepts, and goes forward from them. It 
 can never become stoic. It is not a science, unless 
 wealth is a good. 
 
 It is a science; and it has no doubt that the 
 healthful, honest increase of physical necessaries, 
 comforts, luxuries, and refinements, with the oppor- 
 tunities which they bring for mental improvement 
 and moral culture, with the safeguards they place 
 upon social order and personal rights, and with 
 the manifold strong and subtle motives which they 
 contribute to the exertion of all the human facul- 
 ties, and the full, friendly intercourse of all commu- 
 nities and peoples, — it has no doubt that this is 
 desirable. But it does not labor to prove it so. It 
 does not found itself on any supposed refutation of 
 asceticism. It takes without inquiry the universal 
 inclination to the accumulation of wealth, under the 
 restraints of mutual duties and common rights. 
 
 We have said that Nature adds value to nothing. 
 Though unceasingly at work for man, she receives 
 no compensation. She creates utilities beyond com- 
 putation, but does all gratuitously. Wind, water, 
 and steam are most efficiently engaged in produc- 
 
 3* 
 
30 DEFINITIONS. 
 
 ing commodities necessary to the welfare of man- 
 kind ; and the earth is unceasingly active to bring 
 forth man's food in its many forms. Yet all is done 
 without adding to the wealth of the world. The 
 forces *'work for nothing," and hence confer no 
 value. The power of the wind, for example, in pro- 
 pelling vessels, adds no value to the articles trans- 
 ported. But, it may be objected, would it not cost 
 a great deal more to transport that merchandise, if 
 it had to be done by human hands working at the 
 oar? Certainly; and, from the very illustration, it 
 appears that the power of the wind has not in- 
 creased the value, but rather diminished it. It has 
 taken the slaves from the bench, and does the mer- 
 chant's rowing for him. It is Nature's work, not 
 man's labor; and hence value goes down, while 
 utility stands fast. 
 
 Transportation does, indeed, add to the value, but 
 only because man's vessels and man's labor are em- 
 ployed in efiecting it. All the natural forces that 
 come in take off from value, because they reduce 
 the amount of labor required in production and 
 transportation. Take steam for an example in 
 point. The services of this great agent in England 
 are probably equal to the muscular effort of one 
 hundred millions of men; but the whole of it is 
 gratuitous. All that is required to secure these 
 services is machinery and fuel, whose whole value 
 has been given by labor. 
 
 If we look to the fertility of the land, by far the 
 greatest of all the natural forces engaged in produc- 
 tion, we shall find that it confers no value. Is it 
 asked, " Why, then, do men pay for the use of it? 
 
DEFINITIOX OF LABOR. 31 
 
 Why buy it at a large price ?" The answer at 
 length to this question will be deferred till the dis- 
 cussion of Rent; but it will be suOicient for the 
 purpose of the present argument to say, that it is 
 because appropriated or owned (whether rightly or 
 wrongly) by individuals who can make a profitable 
 use of it themselves. 
 
 CHAPTER IV. 
 
 DEFINITION OF LABOPw. 
 
 We have defined value at great length and with 
 various illustrations, with the result, to our minds, 
 that it arises from the union of desire and labor; 
 but we have not defined the latter term. 
 
 What is labor ? 
 
 The voluntary efforts of human beings to produce 
 objects of desire. 
 
 Labor is always irksome. This is law. Men do 
 not voluntarily put forth their exertions, except for 
 a reward. By the beneficent provision of I^ature, 
 habit assists our activities; great desires overcome 
 the sense of weariness and pain ; the impetus of one 
 movement carries us on into the next. Toil has its 
 compensations. Its fruit is pleasant and wholesome. 
 But not the less is it, of itself, against the drift of 
 man's natural inclinations. It is because men do 
 not voluntarily put forth exertions, except for a re- 
 ward, that everything which costs labor will, as a 
 
32 DEFINITIONS. 
 
 general rule, command a corresponding amount of 
 service or labor. Therefore it is that labor is the 
 essential measure of value. Whatever disturbing 
 causes there may be, it will, on the whole and in 
 the long-run, be true that labor commands its 
 equivalent in labor. 
 
 In this definition, we have spoken of voluntary 
 efforts alone, because involuntary or uncompensated 
 efforts are not to be classed as labor. They are 
 merely the result of the use of a given amount of 
 capital. Slaves are owned, like horses or oxen; and 
 what value they confer is from their employment as 
 so much capital. This distinction is not unimpor- 
 tant, because we shall see that capital is controlled 
 by other laws than those which govern labor. 
 
 Under a free-labor sj'stem, as will be shown, 
 there are two proprietors of value, — the laborer and 
 the capitalist. Under a slave- labor system, only the 
 latter has any share in the product. 
 
 DEFINITION OF CAPITAL. 
 
 Labor enters into production, or the creation of 
 values, in two w^ays: 
 
 First. As the labor of the "present. 
 
 Second. As the labor oiiho, past. 
 
 We call the first "labor" simply; the second, 
 " capital," which is accumulated labor. In their 
 nature, these are identical. They have assumed 
 different forms, have acquired independent rights, 
 and each obeys certain laws peculiar to itself. 
 These two forms of labor may be, and often are, 
 owned by different persons. One man has present 
 
DEFINITION OF CAPITAL. 33 
 
 labor at his command. This must be his own. 
 Another has accumulated labor. This may be his 
 own, or that of others, of which he has come into 
 possession. 
 
 In practice, the two forms of labor must come 
 together and help each other, if they would elFect 
 the barest subsistence of mankind. As society goes 
 forward to plenty, comfort, luxury, civilization, the 
 union and mutuality of the two become more inti- 
 mate and vital. 
 
 The growth of capital, and the steps by which it 
 comes to its proper position in the creation of values, 
 may be best shown by a familiar illustration. An 
 able-bodied workman presents himself to you, 
 having the full disposal of his own powers, fully 
 representing the labor of the present, and that only. 
 We will, however, compromise so far with his neces- 
 sities as to allow him to be clothed ; though each 
 article he wears has come from the labor of the past, 
 and, in this supposition, is capital. He has no tools; 
 and, if you have no work that can be done without 
 tools, you must deny him employment. His chances, 
 then, of labor are hardly as one to a hundred with- 
 out tools. In the other ninety -nine, he starves for 
 want of capital. But, by chance, you find work re- 
 quiring no help from accumulated labor. You set 
 him to clearing a field by throwing the stones into 
 heaps. He has secured subsistence for the day with- 
 out capital. It was uncertain whether he would 
 obtain it. His livelihood to-morrow is still more 
 precarious. But no : he carries away his earnings 
 for the day. He chooses to lay them out in an axe 
 rather than on any object of comfort or pleasure. 
 
34 DEFINITIONS. 
 
 lie has practised a self-denial. lie appears the next 
 morning with his axe. lie has enlarged the sphere 
 of his activity perhaps fifty-fold. lie has now tifty 
 chances of employment. Before the close of this 
 period, he can, by thrift, provide for his immediate 
 bodily wants; pay for his clothes, for which we gave 
 him credit more in charity than logic ; and become 
 the possessor of a pick and shovel, scythe and rake. 
 He is now a full farm -laborer, able to do any part of 
 the strictly necessary work of agriculture with such 
 tools as he has, and may rightfully expect employ- 
 ment every day of the year. So it is, in the grand 
 field of the world's industry, that capital — the accu- 
 mulation of labor — helps the labor of the present, 
 not only to its immediate sustenance, but to per- 
 manent occupation, to increase, and to the highest 
 economic civilization. 
 
 RELATION OF CAPITAL AND LABOR. 
 
 But this union creates the competing interests of 
 labor and capital, since they are generally found in 
 different hands. An interest is, in scientific mean- 
 ing, a share. Each has now only a share. Before, 
 each had the whole of its own product, but a most 
 melancholy whole. They are competitors ; for those 
 shares are not determined absolutely in the nature 
 of the union to which they have consented. It is by 
 the earnestness and persistency of competition alone 
 that eitlier can secure its remuneration, or maintain 
 its existence. 
 
 But they are not antagonists. All their effort, 
 even in the severest assertion of their individual 
 
RELATION OF CAPITAL AND LABOR. ^ 35 
 
 claims, goes to the increase of the common property, 
 and the advancement of their mutual se-rvice. An- 
 tagonism tends to destroy. Its purpose is, so far as 
 it proceeds, to remove one or the other of the par- 
 ties. The competition of labor and capital never 
 ceases; but it respects the bond of union in which 
 only each has its own full development. 
 
 Here we see the folly of the supposed antagonisnu 
 They are partners, and should divide the results of 
 industry in good faith and good feeling. False phi- 
 losophy, or unprincipled politics, may alienate their 
 interests, and set them at discord. Capitalists may 
 encroach on labor. Laborers ma}', in their madness, 
 destroy capital. Such is the work of ignorance and 
 evil passions. 
 
 However far such a strife may be carried, it must 
 result in mutual injuries; and health can only be 
 restored by obtaining the recognition of the full 
 rights and obligations of each. The condition of 
 well-being is peace. A false philosophy has set the 
 world at war for ages, proclaiming that what one 
 nation may gain another must lose. Such a philos- 
 ophy has had its trial, extending over centuries of 
 waste and terror; and is now, fortunately, dishon- 
 ored through the whole civilized world. 
 
 Akin to it is the belief that hatred and retaliation 
 are the normal relations of capital and labor, and 
 that mutual distrust and hurtfulness are inevitable 
 in all the developments of industry. Such a be- 
 lief blasphemes the harmonies of Providence, — 
 is sightless before the glorious order of man and 
 nature. The cruel, shallow selfishness of capital has 
 often robbed labor by means of law. Labor, im- 
 
36 DEFINITIONS. 
 
 * 
 
 poverished, ignorant, degraded, has often turned 
 upon its tyrant, and laid in a common waste church 
 and state, letters and wealth. 
 
 THE GENERAL DIVISIONS OF THE SCIENCE. 
 
 1st. It being admitted that man has wants which 
 lie can satisfy from the world around him, and which 
 he desires to satisfy as fully and easily as possible, 
 we are first led to inquire in what manner this can 
 be done most effectively, — how the forces at his 
 command may be most advantageously employed ; 
 in other words, what are the laws which govern the 
 
 PRODUCTION OF WEALTH. 
 
 2d. Since men have different capacities and tastes, 
 — since they are placed in a variety of circumstances 
 as to soil, climate, and civilization, — their products 
 will be various;' and yet, since all men desire nearly 
 the same objects, an interchange of their respective 
 commodities will become a necessity. Hence arises 
 that department of industry called exchange, the 
 laws of which it is the province of political economy 
 to investigate. 
 
 3d. Almost all objects which men desire are pro- 
 duced by the joint efforts of several individuals. 
 One contributes strength ; another, skill ; another, 
 capital, — yet the product must be distributed among 
 them all, and in just proportions. As this division, 
 it is quite clear, should not be left to the caprice of 
 individuals, but be determined by natural laws, it 
 becomes one of the departments of inquiry Upon 
 which the political economist must enter. It is here 
 his duty to ascertain what those laws are, and under 
 
GENERAL DIVISIONS OF THE SCIENCE. 37 
 
 what circumstances and conditions they will effect 
 an equitable distribution of the wiialth which has 
 been produced. . 
 
 4th. As all commodities created by human exer- 
 tion are designed for use, and as such use implies 
 consumption more or less rapid, and as upon this 
 depends the power and disposition for repi'oduction, 
 the question of consumption has a scientific place 
 among the objects of our inquiry, and will be found 
 to possess a practical importance second only to that 
 of production. 
 
 These are the four great questions which suggest 
 the general divisions of our subject; viz., produc- 
 tion, exchange, distribution, and consumption of 
 wealth. 
 
BOOK II. 
 
 lE'DROIDTJOTIOISr 
 
 CHAPTER I. 
 
 FORMS OF PRODUCTION. 
 
 All "values are created by modifications of exist- 
 ing matter. Man cannot create one particle ; but he 
 can modify what he finds, or change its condition, 
 in three ways ; viz.: 
 
 By TRANSMUTATION, hlj TRANSFORMATION, by TRANS- 
 PORTATION. 
 
 First, by transmutation. 
 
 This is eminently the work of the agriculturist, 
 who, availing himself of the chemical agencies of 
 the earth and air, transmutes seeds into vegetables, 
 fruits, and grains; and these again, by the aid of 
 animal organizations, into butter, beef, hides, etc. 
 This is the most extensive branch of industry, and 
 employs probably four-fifths of the human race from 
 generation to generation. It is the base of the 
 great pyramid of production. It furnishes the ma- 
 terial and the support of all other forms of labor; 
 and not this only, but it renews and restores their 
 waste with an unceasing supplv of fresh bodily and 
 (38) 
 
FORMS OF PRODUCTION. 39 
 
 mental power. The air of trade and of the mA\ 
 heats and rises, and cold currents rush in from the 
 prairie and the mountain. The foot of the rustic 
 is ever turned to the marts of commerce, and the 
 busy gatherings of men. 
 
 Jnst as agriculture sends to the markets and the 
 mills of the world their materials, so it sends them 
 their workmen. Strength and even life go fast in 
 the eager competitions of manufactures and trade. 
 Cool air, fresh blood, flows in from the country to 
 supply the waste. The bare, bleak hills, where 
 Nature grudges every morsel of food, and stabs 
 cruelly through every chink in the wall, every rent 
 in the clothes, feed the busy cities with men. The 
 streams of vigorous life run off from them to refresh 
 the plains below. 
 
 Agriculture has no need to receive back, in any 
 form, her contributions to the other occupations. 
 The power to give without exhaustion lies in the 
 liberal, healthful rej^rodudion of man, when living in 
 intimate relations with Nature. Here, after all its 
 hurts, humanity comes for healing. War and pesti- 
 lence, the tierce contest of the mart, the stifling 
 atmosphere of the mill, may waste our kind in quick 
 or lingering deaths; but still, by the side of the 
 brooks, men will be born to hold up the frame of 
 industry and social order when their supporters 
 faint and fail. 
 
 -But the department of agriculture is not confined 
 to tlje popular view of it. When grain is produced, 
 the seed must be planted in prepared ground, the 
 long interval of growth to maturity must be filled 
 with care and labor; and, at last, the work of 
 
40 PRODUCTION. 
 
 harvesting completes the round of duties that go to 
 the production of the grain. But there are great 
 industries in the department of agriculture, where 
 harvesting alone is performed by man. [N'ature has 
 done all the rest. Man's part is to find and to take 
 of her bounty. Such an industry is mining, — 
 whether of iron or coal, whether of diamonds un- 
 derground in Golconda, or sponge under water in 
 the Archipelago. Such an industry is the fisheries, 
 — whether of whales off Grreenland, of cod off New- 
 foundland, or of pearl-oj^ster off* Ceylon. 
 
 Man modifies matter and exchanges its condi- 
 tion, — 
 
 Secondly, by transformation. 
 
 This is the business of the manufacturer and the 
 mechanic. These create values by changing the 
 forms of matter, as cotton and wool into cloth, iron 
 into tools and implements. This is the second great 
 department of human industry. Its ramifications 
 extend throughout the world, yet not everywhere of 
 the same vigor and extent. Since manufactures, as 
 a whole, do not meet* wants so primitive and abso- 
 lute as does agriculture, they are, by a law evident 
 in all industry, found not to be so equally diffused. 
 Those needs which are peremptory and instant will, 
 from that reason, tend to obtain their supply from 
 the immediate neighborhood in which they arise. 
 The nearer objects of desire approach to being lux- 
 uries, the more cosmopolitan they become. 
 
 The distribution of manufactures is governed by 
 a variety of conditions, among which may be briefly 
 stated the following : 
 
 1. The industrial genius of a people. Without 
 
FORMS OF PRODUCTION. 41 
 
 plunging into the deep questions of ethnical differ- 
 ences, or compensations in the whole of character, it 
 is yet evident beyond discussion, that the active 
 powers of every people have something of their own 
 which they do not fully share with others. Were 
 all the nations of the earth possessed of mental, 
 moral, and physical qualities which could be posi- 
 tively estimated to be, in the sum of them, equals it 
 is quite certain that they would be far from simi- 
 lar: their energies would develop in different lines 
 towards different objects. Patience and a kind of 
 business faith distinguish some peoples, mark their 
 features, and are impressed distinctly in the results 
 of industry. Activity and daring speculation no less 
 characterize others. To a class of minds thoroughly 
 representative of more than one nation, mechanica. 
 contrivance gives the same glow of pleasui^e that 
 rewards the painter for his years of toil. 
 
 2. The territorial advantages of a people, which 
 are both positive and negative in their nature, — posi- 
 tive, as a people is endowed with water-power, and 
 with the collocation of necessary materials, as of ore, 
 coal, and lime for making iron ; negative, as a people 
 is not attracted to other branches of production by 
 superior facilities. It is estimated that Holland has 
 not agricultural capacities to supply a third of its 
 population. 
 
 3. Great accidents, belonging neither to the essen- 
 tial genius of the people, nor its territorial endow- 
 ments. Such are the transcendent discoveries in the 
 sciences and the arts. Such are wars which exhaust 
 nations, leaving them weak for generations. Such 
 are persecutions, like that whi^h scattered over the 
 
42 PRODUCTION. 
 
 continent six hundred thousand Ilnguenots, — the 
 cunning artisans of France ; like that which wrought 
 devastation still greater in the "reconciled" prov- 
 inces of Spain.* 
 
 But man modifies matter or changes its condi- 
 tion, — 
 
 Thirdly, by transportation. 
 
 The merchant does not primarily create value in 
 objects, but enhances that already existing by trans- 
 porting such objects from one locality to another. 
 
 The characteristic illustration is of the most fa- 
 miliar kind. Cotton bought at New Orleans, in 
 1860, for twelve cents per pound, transported to 
 Liverpool, would have sold, say, for fifteen cents. 
 By his capital and skill, the merchant has added 
 twenty -five per cent, to the value or exchangeability 
 of the cotton. lie has increased the wealth of the 
 w^orld so much. He, therefore, has produced value. 
 Such transactions are useful alike to the producer 
 and to the consumer of the articles transported. 
 
 In so far as the transportation of products gives 
 them value, it belongs to the present general division 
 of the subject ; but its methods and agencies are so 
 unlike those of the .other forms of production, it is 
 governed by laws so peculiar and complete in them- 
 selves, it composes so large and easily separate a 
 department of inquirj^ that it is, for the discussion 
 of its principles, placed as a general division of the 
 science under the title of " Exchanc^e." To com- 
 
 *" Our manufactures were the growth of the persecutions in the 
 Low Countries." — Edmund Burke, in his speech to the electors 
 of Bristol. 
 
FORMS OF PRODUCTION. 43 
 
 plete the sphere of production, we recognize here 
 the share it has in creating values; but the means 
 by which this is efiected, and the impressive phe- 
 nomena exhibited in the operation of this agency 
 throughout the entire w^orld, are set apart for special 
 consideration. 
 
 We have thus gone through the three forms in 
 which man modifies matter to create values, — trans- 
 mutation, transformation, and transportation. Tlie 
 inquiry will at once occur, whether these exhaust all 
 possible efforts in production. The answer may 
 come out more clearly if we proceed by an illustra- 
 tion. 
 
 The chemist has been ranked, by some scientific 
 writers, among the agricultural class, because he so 
 aids and directs the processes of Nature as to pro- 
 duce objects of value by changing the elementary 
 powers of acids and alkalies into salts, etc. That is, 
 he transmutes. It seems more accurate to say, that 
 he belongs among producers just so far as he assists 
 in any one of the three forms defined. 
 
 The division we have made of production into 
 three modes seems to afford the best view attainable 
 of the subject. It will be observed, that these are 
 not distinct forms in which labor appears, as in so 
 manj^ moulds; but that they result from an arbi- 
 trary classification of individual efforts, according to 
 the best reason of the case. The whole authority 
 of such a classification consists in this, — that it seems 
 more complete and definite than any other which is 
 ofiered. All these forms of productive effort may 
 be united in a single commodity; and, indeed, there 
 are but few products which do not contain them all. 
 
'14 PRODUCTION. 
 
 CONDITIONS OF THE HIGHEST PRODUCTION. 
 
 If labor, through some form, produces all wealth, 
 we are led to inquire into the circumstances and 
 conditions that increase or diminish the efficiency of 
 this great force. That there are mighty variations 
 as it appears in different countries, and even in adja- 
 cent communities, is so manifest as hardly to require 
 mention or illustration. 
 
 If the wealth of any nation cannot be determined 
 merely by the proportion of its population to that of 
 the world, or of its territory to the general mass of 
 the globe, — as it clearly cannot, — the question, 
 Why? introduces us to the discussion of all those 
 influences which directly or indirectly, immediately 
 or remotely, make one to differ from another. These 
 may be classed as follows : 
 
 Division of Labor. 
 Co-operation of Capital. 
 Economic Culture. 
 
 CHAPTER II. 
 
 DIVISION OF LABOR. 
 
 In some countries, a man wishing for a chair goes 
 into the forest, fells a tree, carries the timber to his 
 workshop, forms the parts, and puts them together 
 into a chair. It is a rude and imperfect article, but 
 it has cost him the labor of two days. 
 
 In other communities, we And a chair, equally 
 
DIVISION OF LABOR. 45 
 
 serviceable and far more elegant, produced by the 
 labor of half a dav. Here one man cuts the timber, 
 another transports to the mill, another saws it into 
 suitable dimensions, another forms the legs, another 
 the seat, another the back, another puts the parts 
 together, while still another paints it. A great many 
 chairs are produced by the combined labor of many 
 individuals; and the result is, that one chair has the 
 value of only half a day's labor. Three-fourths of 
 the labor employed in the making of chairs is, then, 
 liberated, to rest in idleness, or to apply itself to fur- 
 ther production with still increasing results, as the 
 desires which control efforts shall determine. We 
 cannot be ignorant, that, in some communities, 
 labor, when set free, does waste itself in idleness and 
 frolic. But this is true chiefly of those in which 
 leisure is bestowed, not by man's contrivance, but 
 by the generosity of Nature. 
 
 But it ma}' safely be assumed, that such an indus- 
 trial genius in a people, as seeks to lessen present 
 labor by the distribution of its several offices, will 
 find fresh objects of desire. The very thoughtful- 
 ness and care, the social confidence, and mutuality 
 of service, which are required to effect a division 
 of labor, insure such a susceptibility to new indus- 
 trial wants as shall necessitate the employment of 
 all the labor so relieved. 
 
 The full discussion and illustration of this princi- 
 ple, which governs the use of labor saved, belongs 
 to the third inquiry; viz., that of "Economic Cul- 
 ture." We have here, strictly, to show only how 
 labor is saved by the division of employments. This 
 forms the great fact of modern industrial civilization. 
 
46 PRODUCTION. 
 
 We shall find it the most important condition of 
 production, multiplying all its powers faster than the 
 soil multiplies the seed. Here is more of the expla- 
 nation of wealth than can be found in all other in- 
 quiries. This force is being rapidly introduced into 
 every department of industry, and will finally become 
 as general as the nature of the different employments 
 will admit. We do not find that it has 3'et reached 
 its ultimate limit in any sphere of human activity. 
 
 What is the significance of division of labor, as 
 expressed in the fewest words ? It is, that each 
 workman confine himself to a single operation. In 
 this way all great and successful manufactures are 
 carried on. 
 
 CHAPTER III. 
 
 THE ADVANTAGES OF DIVISION OF LABOR. 
 
 1st. It gives increased dexterity. All common 
 observation testifies how" rapid and accurate our mo- 
 tions become, when confined to a single operation. 
 The powers of his body are in perfect discipline. 
 They have learned their parts, and obey instanta- 
 neously and harmoniously. The more simple the 
 movement assigned, the greater will be the effi- 
 ciency of performance. 
 
 2d. It allows the workman a better knowledice of 
 his business. This is to the mental powers what the 
 first is to the bodily. It gives intellectual dexterity. 
 The man has a mastery of his special operation. He 
 
ADVANTAGES OF DIVISION OF LABOR. 47 
 
 knows more about it than if he bad two tbinsrs to 
 think of and care for. lie becomes shrewd in every 
 motion. He adapts his labor to the material ; he 
 discriminates between the qualities of that material. 
 lie meets the little difficulties of liis work with more 
 skill and less waste. 
 
 3d. It saves time, in passing from one work to 
 another. In the making of a chair after the primi- 
 tive fashion we have supposed, a great deal of time 
 will be spent in passing from one part of it to 
 another, from the place of one operation to that of 
 another. It is not a loss alone of the time physi- 
 cally necessar}^ in effecting the transition, but each 
 operation will leave something to harass the mind 
 in the other. During the iirst part, the attention 
 will be distracted by what has just been left. Dur- 
 ing the last part, the attention will run on, antici- 
 pating what is to come: The shadow is cast both 
 wa^'S upon the mind. 
 
 4th. It facilitates the invention of tools and ma- 
 chines. If a treasure of gold or iron or oil is hid 
 under the ground, the discoverer is more apt, other 
 things being equal, to be the man who owns the 
 land, and resides and works on it, than a casual vis- 
 itor. So, if there is possibility of adapting foreign 
 forces to the production of values, the inventor will, 
 on the same condition, more probably be the work- 
 man than any one else; he is constantly engaged 
 upon the operation; he desires, of course, to sim- 
 plify it, since it is a law of mind to do as little work 
 as possible for a certain result; he knows the wants 
 of ihe subject; he knows all the capabilities of his 
 material; he thinks about it all the time, and can 
 
48 PRODUCTION. 
 
 try an experiment without changing his place. 
 Therefore, by the logic of E^ature, he invents. 
 
 5th. It secures the better adaptation of physical 
 and mental abilities. 'No consideration is more vital 
 than this. The work which man linds to do, the 
 efforts he has to make for satisfactions, however 
 high his wants may rise, will be of the most various 
 character, and require the most diverse powers. 
 There are operations which demand great strength; 
 others, rapid motion; others, good judgment; others, 
 a mechanical eye ; others, fidelity and trust; others, 
 high intelligence and education. Such qualities, 
 even those purely physical, are not found equally in 
 all; nay, by the compensations of IM'ature, they are 
 generally, though not necessarily, found apart. 
 Therefore, unless work were divided according to 
 the several qualities required, a deficiency in one 
 would neutralize all the others, and exclude the 
 workman from employment, or compel him to work 
 at great disadvantage. 
 
 The extensive applications of this principle will 
 occur to every mind. Each man finds the sphere of 
 his highest usefulness as he is endowed by Nature. 
 Those who are gifted with education and ingenuity 
 devote all their time and energy to duties appro- 
 priate to such powers. They thus confer on others 
 the advantage of their own gifts, and are themselves 
 spared from drudgery and uncongenial labor. The 
 poorest in qualifications, also, find a place in which 
 they can produce within the great partnership of 
 society. Women are enabled to undertake business 
 of the most delicate and important character, to 
 which their strength is sufiicient ; while children of 
 
ADVANTAGES OF DIVISION OF LABOR. 49 
 
 all ages take parts that would otherwise occupy men. 
 The power saved or gained, by such an adaptation of 
 talents to special branches of industry, is incalculable. 
 
 And not merely do all find in a proper division of 
 labor their full occupation and fair reward, but the 
 work of each is just as truly productive as that of 
 any other. The boj^ who watches crows does as 
 much at that business as the bravest and greatest of 
 earth. He takes the place of some one who goes 
 avvav to do a lars^er work. 
 
 6th. It increases the power of capital in produc- 
 tion, tends to concentrate manufactures in large 
 establishments, and reduce profits. 
 
 Supposing all men equally capable of carrying on 
 independent business, which is not the case, — if we 
 compare seven men each with a capital of $1,000 and 
 one man with a capital of $7,000, we shall find the 
 economical advantage greatly in favor of the latter. 
 The former must do business on a small scale, and 
 purchase materials in small quantities. The latter 
 can buy at wholesale prices, can afford to go often to 
 market, and to keep himself well informed, and will 
 sell as well as buy to great ad\^antage. 
 
 In addition to this, the large manufacturer can 
 afford to work for a smaller rate of profit. 
 
 A single hatter, for example, who makes only 
 $2,000 worth of hats, must secure 25 per cent, in 
 order to have a net income of $500 ; while the man 
 who can make $20,000 worth of hats will, if he real- 
 ize only 12J per cent., have an income of $2,500.* 
 
 * The shoe trade affords a conspicuous illustration in point. At 
 the beginning of the present century it was almost wholly carried 
 
 5 
 
50 PRODUCTION. 
 
 We see from these illustrations why the great 
 establishments drive smaller ones out of the market. 
 A tendency to a reduction of profits is a natural con- 
 sequence of this. Therefore, other things being 
 equal, it is desirable that manufacturing establish- 
 ments should be sufficiently large to secure all the 
 advantages of concentrated capital, and eftect the 
 complete division of labor. 
 
 7th. It shortens apprenticeship. 
 
 Every art, trade, or profession must be preceded 
 by an apprenticeship, more or less extended, accord- 
 ing to what is necessary to be learned. A trade 
 which, in order to be perfectly understood in all its 
 parts, requires an apprenticeship of seven years, — 
 if it be subdivided into seven different operations, 
 may, it is evident, be obtained with as great a degree 
 of perfection by an average, in each branch, of one 
 year's service. Some of the parts may require more 
 than one year, others less. 
 
 IsTow, we find this to be practically true ; and the 
 result is a great saving of time, and time is money. 
 
 For example : 
 
 Seven men serve seven years each to learn to make hats, 
 
 — in all, a service of 49 years 
 
 Seven men serve one year each to learn to make a seventh 
 
 of a hat, equal to 7 " 
 
 Saving of 42 years 
 
 on by individual mechanics working in small shops and requiring 
 a " kit" costing but a few shillings. Now vast factories are erected, 
 steam oi* other power applied, a large variety of labor-saving ma- 
 chinery introduced, and the business is carried upon a scale of sur- 
 prising magnitude ; one establishment in Massiichusetts producing 
 6,000 pairs of boots and shoes daily. Of course a very small per- 
 centage of profits must give a great annual income. 
 
ADVANTAGES OF DIVISION OF LABOR. 51 
 
 in the mechanical education of every seven men employed in this 
 manner. 
 
 Apply this principle to the manufacturers of Massachusetts, 
 which has at least 75,000 skilled workmen, and suppose the appren- 
 ticeship to be seven years, we have — 
 
 75,000 at 7 years each 525,000 years 
 
 75,000 at 1 year each 75,000 " 
 
 Saving of 450,000 years 
 
 in one generation of skilled workmen. 
 
 If we suppose these years, saved from apprentice- 
 ship, to have an average value of $200, we have a 
 saving of $90,000,000 for each generation of skilled 
 workmen in Massachusetts. 
 
 The principle, under which this saving of time is 
 made, cannot be disputed. 
 
 8th. It gives opportunity for greater social devel- 
 opment, and increases the social power of labor. 
 
 This is immediately of moral interest; but it has 
 important economic bearings. The principle itself 
 is indisputable. IN^ot only is the workman brought 
 near his fellows, and, by such contact, stimulated to 
 industry, to acquisition, to taste; not only does such 
 association of purposes and. means afford more of 
 the instruments of intellectual advancement, — 
 schools, lectures, churches, journals ; not only does 
 the close neighborhood of mind quicken and 
 brighten all the faculties, teaching by example, and 
 firing by controversy; but, by such association, 
 workmen are brought nearer their employers, have 
 a greater sympathy and co-operation, act intelli- 
 gently and harmoniously as to their rights, and form 
 a public opinion among themselves which has often 
 been found a great power, economically and civilly. 
 
62 PRODUCTION. 
 
 CHAPTER IV. 
 
 LIMITATIONS TO THE DIVISION OF LABOR. 
 
 But the great principle of division of labor, so 
 very beneficial in its operations, is yet limited by 
 certain conditions, which it cannot disregard. 
 
 1st. When the principle has been so far applied 
 that each operation has been made as simple and 
 fully a unit as human ingenuity can devise. Be- 
 yond this, there is no division, but only repetition. 
 Any attempt to refine the process so far as to give 
 the workman less than one naturally complete 
 motion of the body, will only embarrass and delay 
 industry. 
 
 2d. When the concentration of capital has become 
 so great that interested personal supervision cannot 
 be brought to bear upon each department, and upon 
 the whole enterprise, with sutiicient intensity to in- 
 sure efficiency and fidelity on the part of those em- 
 ployed, and harmony in the general conduct of the 
 business. Beyond this point, the advantages derived 
 from the power of concentration are neutralized. It 
 may become mischievous. It is well that there 
 should be limitations, because they prevent such 
 aggregations of capital as would swallow up the 
 whole industrv of a state. 
 
 3d. Where the industry consists of an indefinite 
 number of parts, yet the special circumstances will 
 not allow each workman profitable employment in 
 
LIMITATIONS TO DIVISION OF LABOR. 53 
 
 a single operation, — for example, agriculture in most 
 of its branches : first, from the fact that its opera- 
 tions cannot be sufficiently localized ; and, second, 
 from the necessities of the seasons. No department 
 is capable of so much subdivision as this ; yet, in 
 practice, none experiences so little. In mining, the 
 fisheries, and many incidental matters, it is effected 
 to a considerable extent ; but, in most of the parts 
 of pure agriculture, it has very limited range. 
 
 Generally speaking, the farmer is a laborer of a 
 thousand duties. 
 
 This fact alone does not account for the different 
 productiveness of the manufacturing and the agri- 
 cultural interests. In the nature of their objects, it 
 is found that machinery must be applied to them in 
 far different proportions. The mechanic arts, which 
 can be localized to the highest degree of concentra- 
 tion, and made general to all seasons of the year, 
 admit also of prodigious multiplication by artificial 
 agents. From these considerations, we deduce the 
 principle, that the value of agricultural products, as 
 a class, — that is, their power in exchange for pro- 
 ducts other than agricultural, — will be constantly 
 increasing. A bushel of corn, in 1820, would pur- 
 chase only four yards of cotton cloth. In 1860, it 
 would purchase ten yards of the same or better 
 quality. This difference will continue to grow wider 
 and wider as the mechanic arts advance; but not 
 indefinitely, inasmuch as the materials of manufac- 
 tures are always themselves of agricultural origin, 
 and hence the depreciation of the price is limited. 
 
 We have thus far spoken of the division of labor 
 as applied only to direct, material production, aflect- 
 
 5* 
 
54 PRODUCTION. 
 
 ing the laboring classes, and those immediately 
 superintending them;, but the principle has been 
 extended to mental labor, as well as that which is 
 simply muscular. 
 
 The recognition of professions and industrial 
 classes is itself a tribute to the great principle of 
 the division of labor; but it proceeds still further, 
 to assign special functions, within those professions 
 and classes, to individual members. Thus the law% 
 when a sufficient concentration of legal labor is 
 secured, branches into the departments of titles and 
 conveyances, of insurance, of marine losses, forfeiture 
 and salvage, of patents, of criminal jurisprudence, 
 etc. In medicine, the eye, the ear, the skin, con- 
 sumption, fevers, cancers, have each their own prac- 
 titioners. 
 
 That science and skill are promoted by such sub- 
 division, and that the immediate efficiency of pro- 
 fessional labor is greatly increased thereby, cannot 
 be intelligently questioned. 
 
 As any community advances to a higher civiliza- 
 tion, specialties are more and more resorted to. In- 
 dividuals, finding themselves peculiarly adapted by 
 their talents and tastes to a particular calling, or 
 having unusual advantages for the pursuit of it, give 
 themselves up to that object. They concentrate upon 
 it their thoughts, their time, and their resources. 
 They excel. They know more, and can do better, 
 in their chosen line than those about them. This 
 gives them position and power. They are sought 
 for, are looked to, because they have something th.it 
 is wanted. No matter how humble his station, or 
 how minute his field of investigation, if a man under- 
 
DISADVANTAGES OF DIVISION OF LABOR. 55 
 
 stands something perfectly, his world — whether a 
 hamlet or an empire or the race — will resort to him. 
 He becomes a benefactor of society. 
 
 CHAPTER Y. 
 
 THE DISADVANTAGES OF THE DIVISION OF LABOR. 
 
 . 1st. It tends to enervate the laborer, because it 
 does not, as a general foct, give full activity and de- 
 velopment to all the functions of the body. 
 
 In the material occupations, it is found that con- 
 finement to a single operation is often highly injuri- 
 ous. There are forms of labor which sufficiently ex- 
 ercise the several parts of the body. But there are 
 those which require the constant fatiguing use of 
 some member, to the injury of the rest of the body ; 
 others require a cramping posture that oppresses and 
 disorders the vital organs; others still require the 
 workman to poison his blood with unwholesome 
 gases. In the great centres of capital and labor, — 
 whether we regard the mill, or that larger mill, the 
 city itself, — it is notorious that distortion, paralysis, 
 and organic feebleness are more common than where 
 labor is diffused, and the laborer changes his work 
 and his place frequently. 
 
 That this will occur in the course of all manufac 
 turing industry is probable. That it is inevitable 
 does not so clearly appear. The sanitary arts keep 
 evei> pace with the advance of machinery. The civil 
 war in America developed astonishingly the re- 
 
56 PRODUCTION. 
 
 sources, which are at the command of government, 
 to suppress malaria, and reform tlie habitations of 
 disease. The growth of manly sports, and the cul- 
 tivation of gymnastics for health's sake, are likely to 
 work a great change for the better in the sanitary 
 conditions of our people. Besides, a gradual reduc- 
 tion in the hours of labor is very certain to take place 
 with the introduction of improved machinery. Once 
 twelve hours constituted a day's work in the factories 
 of ^ew England. Eleven hours has since been 
 adopted, and now, in many cases, ten hours constitute 
 a day's work. A strong effort is being made to secure 
 that number of hours as the maximum for all women 
 and children. This is not only humane and just, but 
 truly economical ; since it cannot admit of a doubt 
 that ten hours is the utmost limit at which the health 
 and longevity of those classes can be preserved, while 
 no small children, if allowed to work at all in facto- 
 ries, should be employed more than half a day. 
 
 Mechanical opeiations were formerly considered 
 as disqualifying for military service; and even our 
 modern philosophy has found in them a reason for 
 the employment of mercenaries, and the maintenance 
 of standing armies. But the great civil war just re- 
 ferred to exhibited the novel fact, that, beyond all 
 dispute, the troops raised in agricultural districts are 
 not so hardy in the privations and exposures of camp 
 and field as those coming from the towns. This does 
 not, however, imply a better state of health at home. 
 It may be, that the latter class find, in the constant 
 exercise and the out-door employment, just that 
 change of habit and condition which they needed. 
 All that is different from their usual course of life is 
 
DISADVANTAGES OF DIVISION OF LABOR. 57 
 
 in the direction of more air and light and motion; 
 while the agricultural laborers find no change except 
 for the worse. 
 
 2d. This system, in some of its applications and in 
 certain degrees of extension, does not give that full 
 employment and expansion to all the powers of the 
 mind which its normal development requires. This 
 is obvious. The mind, if intensely devoted for a 
 whole life to a single effort, and that perhaps of 
 the most simple kind, cannot but be unfavorably 
 affected. Unless counteracting influences are re- 
 sorted to, it will undoubtedly be contracted and 
 enervated. 
 
 Ta this liability are opposed three compensations: 
 
 a. The great communicativeness observable in 
 sucn circumstances, the eager discussions, the free 
 inquiry, the school, and the lyceum. 
 
 h. The saving principle that the employment of 
 one member is, to a certain extent, the employment 
 of all. The human faculties, mental and physical, 
 are a knot. They interpenetrate so completely that 
 it is impossible to move one without affecting the 
 rest. The special use of one may develop it greatly ; 
 make it more strong and active than the others. 
 But such a predominance is not distortion. Few 
 minds are capable of even and temperate growth. 
 In this principle resides the variety of human char- 
 acter. It may be questioned whether any but the 
 most gifted can be educated in any other way so 
 thoroughly and efficiently as by interested applica- 
 tion to some single matter. Generalization and 
 broad philosophy rouse the full powers of but fe\r 
 intellects. In the majority of cases, it will remain 
 
58 PRODUCTION. 
 
 true that intense, spirited, persistent labor directed 
 to one point is better than the languid, nerveless, 
 unspurred, rambling play of all the faculties. 
 
 Indeed, the argument against division of labor on 
 this score would be better expressed by saying, that 
 the constant repetition of single acts so far dispenses 
 with thought, and even with consciousness, in the 
 operation, that it makes man, in some sense, a ma- 
 chine. This is, to a considerable extent, true; the 
 compensation being that it affords a greater oppor- 
 tunity for discussion and reflection, if the workman 
 chooses to avail himself of the kind of mental leisure 
 which is aflbrded by the monotony of his occupa- 
 tion. 
 
 c. The laborer is not all workman. While his 
 special occupation provides for his subsistence, and 
 endows him with energy, industry, and concentra- 
 tiveness of mind and character, he has other hours 
 and other duties, ample, if reasonably used, to com- 
 pensate for all the evil mental etfects of his contin- 
 uous toil. 
 
 It will be observed, that it is only to the division 
 of labor beyond a certain point, that the objections we 
 have discussed have any application. .A more ill- 
 developed society, with more ill-developed members, 
 could not be conceived than where this principle 
 was not applied to all. In fact, there could be 
 neither members nor society; but here and there a 
 savage would bask in the summer sun, or hide him- 
 self in the storms of winter, in hopeless, helpless 
 barbarism. 
 
 However we may speculate, a priori, on the conse- 
 quences of dividing minutely the parts of labor, we 
 
DISADVANTAGES OF DIVISION OF LADOR. .^9 
 
 may perhaps get a stronger light and a better view 
 by observing the mightiest experiment of industry 
 ever known in the world,— that of England to-day. 
 Nowhere are the natural advantages of agriculture 
 more apparent; nowhere has manufacturing been 
 more elaborated. Yet no person can be cognizant 
 of the condition of the English population without 
 being assured that the manufacturing, laboring class 
 is far above the agricultural in intelligence, in inde- 
 pendence of character, and obedience to law. . 
 
 3d. It will follow, from what has been already 
 urged, that division of labor, in its greatest exten- 
 sion, has a tendency, or at least there is found in it 
 a liability, to lower the average of health, to shorten 
 life, and prevent the natural increase of population. 
 
 All these results are found, on examination, more 
 or less, but still above the general facts of the 
 country, in all the great centres of manufacturing 
 industry, where the full possibilities of the mechanic 
 arts are realized by the intense subdivision of labor. 
 This result can only be partially and confusedly 
 shown by statistics : still enough can be extracted 
 to assure us that there is a great loss of vital energy, 
 whether or not it is necessary to such a state of in- 
 dustry. 
 
 The American average of life may be expressed 
 nearly as follows :* 
 
 Cultivators of the earth 64 years. 
 
 Active mechanics out of shops .... 50 " 
 
 Active mechanics in shops 47j " 
 
 Inactive mechanics in shops 41f " 
 
 Laborers, no special trades . • . . . 45 j " 
 
 *^ Massachusetts Registration of Births, Deaths, and Marriages. 
 
60 PRODUCTION. 
 
 These statistics, accurately gathered and showing 
 the results of many years, require correction in 
 several particulars, if the real lesson of them is to 
 be obtained. In the tirst place, two-thirds of the 
 class of mechanics as presented here are engaged in 
 Fuch occupations as do not allow any very extended 
 subdivision of the parts, so that the average of the 
 ffreat manufacturino: establishments and their de- 
 pendent cities would be found still more striking. 
 In the second place, the agricultural occupations are 
 continually making contribution to manufactures 
 of their best blood and bone, renewing the natural 
 waste of the mill and shop, and so interfering with 
 the statistics of the subject. This element can 
 neither be eliminated nor determined. So impor- 
 tant is it at times, that Lowell appears on the 
 tables as one of the healthiest cities of America. It 
 is unquestionably true that much of the historical 
 feebleness and mortality of such places has been 
 avoided by more humane and intelligent precau- 
 tions, by gymnastic sports and out door games, and 
 by a better adaptation of all the conditions of produc- 
 tion to the necessities of life and well being. But the 
 great fact which accounts for this seeming healthful- 
 ness of a manufacturing city is the constant infusion 
 of the fresh, vigorous, young blood of the country. 
 
 4th. The division of labor lessens the number of 
 those who do business on their own account. The 
 result of this, in agriculture, is to absorb the yeo- 
 manry into the class of those who labor by the 
 day or month, with no interest in the land. The 
 result in manufacturing is to subordinate hundreds 
 of operatives to the control of a single will. This 
 
DISADVANTAGES OF DIVISION OF LABOR. 61 
 
 has a threefold relation : a. To the formation of 
 character. Something of independence and self-re- 
 spect is unquestionably lost, so far as these depend 
 on external conditions. Position and responsibility 
 do foster and strengthen manliness and self-mastery. 
 By the division of labor, the independence of each 
 IS sacrificed to the good of all. It will not be 
 doubted, that, on the whole, it is desirable that it 
 should be so; nor can it be denied that there are 
 partial drawbacks, even in this plain tendency of 
 civilization. It is the sacrifice man has to make in 
 society, in industry, in government, h. To the fair- 
 ness of remuneration. A very few now participate 
 in the profits. The great bulk of workmen receive 
 only wages, and that on temporary engagements. 
 This disproportion may be excessive, and is likely 
 to be where laws or institutions check enterprise, 
 and discourage individual effort. In such cases, 
 laborers are practically a herd of cattle, driven about 
 from place to place, receiving bare subsistence, and 
 unable to mend their condition. But, even if we 
 come forward from the barbarous state to that in 
 which the work of man has divided itself into 
 numerous trades, each of these, however, yet re- 
 maining distinct, and compare this with the present 
 state, in which trades have been repeatedly subdi- 
 vided, — capital aggregate and labor subordinate, — 
 we shall yet find that the share of the poorest laborer 
 in the mighty product of our industry of to-day is 
 greater than ever before. Augustus, says Arbuth- 
 not, had neither glass to his windows nor a shirt to 
 his back. 
 
 Thus much could be urged of the wretchedet^t 
 
 6 
 
62 PRODUCTION. 
 
 operatives on the earth ; but, when we regard the 
 condition of labor as it exists in nearly all the coun- 
 tries of the world, we shall quickly confess, that, 
 though the laborer has given up his share of profits, 
 he receives back, as wages, far more objects of desire 
 than he could have obtained in the old way. c. To 
 the steadiness of employment. By the attraction of 
 labor to great centres, the fate of many laborers is 
 made dependent on that of a few capitalists. This 
 is a great fact, scientifically and historically. It 
 must continue. It has issued, in the past, in the 
 form of great industrial distresses, of a general sus- 
 pension of mcclumical \ix\)ov from causes affecting 
 only the mercantile credit of the employers, of frantic 
 appeals for support, of laws in which government 
 assumes the duty of providing work for its whole 
 population, of riots and revolution. So far as this 
 will occur in spite of prudence and careful manage- 
 ment, it is the condition on which we have the ad- 
 vantages of division of labor. 
 
 Where capital is concentrated, it is stronger, pro- 
 tects itself better; and, of course, the workman 
 shares in this power and immunity. Where the in- 
 dustry of thousands is controlled by the mind of 
 one, it will be more intelligently and harmoniously 
 administered, and with a larger view of the busi- 
 ness. By such superiority of union in production 
 (for that is synonymous with division of labor), the 
 industry of a country is lifted clean over obstacles 
 which individual enterprise could not pass, — is pre- 
 served amid storms that would shatter the feeble 
 tabric of sino-le hands. 
 
 But when the blow becomes so heavy as to shatter 
 
DISADVANTAGES OF DIVISION OF LABOR. 63 
 
 even the great workshops of modern industry, and 
 they come down, then truly the fall is great. The 
 ruin is more complete than if the storm had pros- 
 trated a village of huts. The reservoir of slathered 
 power has burst; the springs have long since been 
 broken down ; the wells been filled up ; and there 
 is no supply for immediate wants. Such a loss is 
 repaired slowly. Independent has been discouraged 
 by collective industry; the shop has been abandoned 
 for the mill ; each workman has learned only the 
 fraction of a trade; no one can buy, make, and sell; 
 no one dares to undertake any business, foreseeing 
 that the corporation must rise again. For awhile, 
 all is distress. It is only when the stately fabric of 
 associated industry is reared again that plenty is 
 known in the land. 
 
 We have discussed, somewhat at lengthy the rela- 
 tions which division of labor holds to the condition 
 of the laborer, by depriving liim of the opportunity 
 to do business on his own account. Until recently, 
 it has been supposed that the advantages of the 
 principle could not practically be obtained without 
 this defect; that capital could not be concentrated, 
 and the trades perfected, without diminishing the 
 independence and self-reliance of labor. But recent 
 developments seem to be anticipating the objection. 
 It is now a matter of common practice to admit the 
 laborer to an interest in business, — a share in profits. 
 This is done by merchants to their salesmen, by mas- 
 ter-mechanics to their workmen, by ship-owners to 
 their hands. 
 
 5th. This system, as it necessarily occasions the 
 concentration of the laboring classes, and thus 
 
64 PRODUCTION. 
 
 affords opportunities for intercommunication, natu- 
 rally gives rise to labor combinations and strikes, 
 — a subject to be discussed hereafter. 
 
 We have passed through the discussion of the ad- 
 vantages, the limitations, and the disadvantages of 
 the division of labor. 
 
 If, now, we inquire on which side the balance lies, 
 there will be no question that it is in favor of the 
 application and extension of the law. It appears as 
 the great multiplying power of modern industry ; it 
 has made the difference between barbarism and 
 civilization; it resides in man's being as the prin- 
 ciple of help ; it is the only name that savage nature 
 fears. 
 
 CHAPTER YI. 
 
 THE CO-OPERATION OF CAPITAL. 
 
 This is the second grand condition, through which 
 the productiveness of labor is increased. 
 
 We have before spoken of capital : we now pro- 
 ceed to define it strictly. 
 
 It is that portion of wealth employed in reproduc- 
 tion. 
 
 The distinction involved is an important one. 
 All capital is wealth, but all wealth is not capital. 
 Since it is recognized that human wants create 
 others of their kind, and hence go on increasing in 
 number and urgency, it is necessary that human 
 efforts should find some force having a corresponding 
 
THE UO-OPERATION OF CAPITAL. 65 
 
 rate of increase, by which to assist themselves in 
 supplying the growing demand. Such an agent is 
 found in capital which is taken out of wealth. 
 
 A man may have much wealth, and use little 
 capital. Wealth is as it is had ; capital, as it is used. 
 For example, a man may live in a house worth thirty 
 thousand dollars, and have ten thousand dollars in- 
 vested in a ship, from which he derives all his sup- 
 port, and which forms his capital. It may be asked, 
 is not the house itself capital ? It is, so far as neces- 
 sary to production, in sheltering the producer and 
 his family, even with the style and comfort usual to 
 such a degree of society. Beyond this, it ceases to 
 be capital. It is devoted, not to the creation of 
 values, but to personal enjoyment and culture; noble 
 and worthy ends for wealth, but not for capital. 
 
 We may change the supposition. The man may 
 have a house worth ten thousand dollars, and ships 
 to the value of thirt}^ thousand dollars. The differ- 
 ence to production will be apparent, inasmuch as his 
 active capital now consists of three-fourths of his 
 wealth, while before it was only one-fourth. 
 
 It will follow from this illustration, that there is 
 much of the wealth of the world which it is difficult 
 to classify whether as capital or not, much in which 
 the two ends unite, much in which the share de- 
 voted to reproduction is doubtful. Still, this casts 
 no discredit on the distinction itself, which stands 
 manifest to all. 
 
 6* 
 
66 PRODUCTION. 
 
 ORIGIN OF CAPITAL. 
 
 How does capital arise ? 
 
 From the net savings of labor. A person who 
 earns five hundred dollars a year, and places one 
 hundred dollars of it in a savings-bank, or invests it 
 in land or machinery or railroad stock, or anywhere 
 at work, has increased his own capital and the capital 
 of the country by so much. It is not wliat he lays 
 aside for use in his own occupation merely, but for 
 use anywhere. 
 
 All capital comes in this way. A country in- 
 creases in capital just in proportion to the increase 
 of capital accumulated by its members. If the indi- 
 viduals of a nation apply none of their net income 
 to reproduction, there is no increase of the national 
 capital. If they withdraw any of their capital to meet 
 personal consumption, the country becomes poorer. 
 
 Many of the considerations which pertain to the 
 accumulation of capital, and the ultimate use of it, 
 belong to the discussions of economic culture, or go 
 further on, to the general division of *' Consump- 
 tion." We have simply to do with those principles 
 which apply existing capital to the wants of present 
 labor. 
 
 Capital is known as " fixed" or " circulating." 
 
 Fixed capital consists of every description of prop- 
 erty emploj^ed in production, which, from its nature, 
 cannot be advantageously changed to any other use 
 than that for which it was originally designed. The 
 land, buildings, and tools of the farmer, the ships 
 and warehouses of the merchant, the machines and 
 implements of the manufacturer, belong to this class. 
 
/ 
 
 THE CO OPERATION OF CAPITAL. 67 
 
 They must be used for the purposes to which they 
 are particularly adapted, or they have little value. 
 They are fixed. The ship cannot be used as a wagon, 
 or the spinning-jenny as a locomotive. 
 
 Circulating capiiaL on the other hand, consists of 
 those articles or commodities which can be readily 
 changed from one purpose of production to another. 
 Of this class are the stock and produce of the farmer, 
 the money and wares of the merchant, the raw ma- 
 terials of the mechanic. These are easily transferred 
 from one business to another, and indeed from one 
 place to another, and may be used in a great variety 
 of forms. Of all these, money is the most mobile, 
 as it can be changed without delay or loss to any 
 occupation or locality. 
 
 Fixed is, in its nature, more permanent than cir- 
 culating capital, not merely in its adaptations, for its 
 name implies that, but in its existence. The greater 
 part of circulating capital — stock and materials, for 
 example — is held only in the immediate view of 
 transmuting or transferring or transporting it, so that 
 it shall pass into fixed capital. There, on the con- 
 trary, it has taken its ultimate form. If it loses this, 
 it is only by destruction. It does not intend to assume 
 any higher condition. 
 
 It is in this way that fixed capital receives the 
 mighty annual additions which astonish us on the 
 page of the statistician. The products of last year 
 form a part of the houses, ships, railroads, and ma- 
 chinery of the present. The farmer adds something 
 to his stock, or his land, or his buildings. The me- 
 chanic widens his shop, ^nd multiplies his tools. 
 The merchant enlarges his business, and extends his 
 
68 PRODUCTION. 
 
 connections. The laborer saves something out of 
 his wages, beyond the demands of immediate sub- 
 sistence. It is in tliis way that fixed capital is in- 
 creased by the contributions of circulating capital. 
 
 In popular language, all wealth is divided into 
 real estate and personal property. This distinction, 
 if not scientific, is convenient for occasional use. We 
 must bear in mind, however, that, while all real es- 
 tate is fixed, all personal property is not circulating 
 capital. Ships, machinery, and many other things 
 not attached to the soil, are personal property, though 
 standing in the category of fixed capital. 
 
 PRODUCTIVE AND UNPRODUCTIVE CAPITAL. 
 
 Is the distinction between productive and unpro- 
 ductive capital real? It has been urged by many 
 writers at considerable length. It is susceptible of 
 much illustration. It involves many important con- 
 siderations. 
 
 There is, however, no such thing as unproductive 
 capital. There may be misapplied wealth, misused 
 wealth, wasted wealth ; but capital reproduces. If 
 any discrimination is necessary between that portion 
 of wealth which is applied successfully to reproduc- 
 tion, and that wliich is intended for such an end, but 
 fails in attaining it, we may say that capital is that 
 portion of wealth applied to reproduction, which 
 secures a compensation to its owner. Whatever his 
 intention, if he uses any part of his wealth without 
 multiplying it, it remains wealth ; he has not made 
 it capital; it may, by unproductive use, cease even 
 to be wealth. Wealth put into an enterprise which 
 
THE CO-OPERATION OF CAPITAL. 69 
 
 results in nothing is no more capital than wealth put 
 into a house which burns down. 
 
 !N"ay, more: so far as wealth thus applied, while 
 making some return, fails of securing the fair, aver- 
 age remuneration of capital, it so far ceases to be 
 capital. It may be wealth merged for a time; it 
 may be wealth lost forever : it is not capital. 
 
 A complete illustration of this principle is found 
 in common business. Suppose a man to be pos- 
 sessed of fifty shares of certain stock, par value one 
 hundred dollars. The enterprise does not succeed ; 
 the stock does not pay adequate dividends ; the value 
 of the shares has sunk to fifty dollars. Would any 
 one say that his capital, so far, was five thousand 
 dollars? Clearl}^, it is but two thousand five hun- 
 dred dollars. Half of his investment has been sunk; 
 half is capital. 
 
 But it has been urged that much capital is repro- 
 ductive that does not aftbrd a remuneration to its 
 owner. For example : a railroad is projected and 
 built, does not pay; its stock sinks to nothing; yet, 
 though it does not pay dividends, it improves the 
 industry of the country through which it passes. 
 
 We have nothing to do, in the discussion of pro- 
 duction, with any such incidental advantages, even 
 if they exist. It may be that, in the consumptioyi of 
 wealth, we shall find principles explaining the eflects 
 of such an investment. 
 
 In the light of production, however, we can only 
 say that, in so far as the railroad does not remuner- 
 ate its owner, it ceases to be capital. So far as it 
 is supposed to promote agriculture or manufactures, 
 and indirectly help the industry of the community. 
 
70 PRODUCTION. 
 
 it is simply on the level of the gratuitous gifts of 
 iN'ature, — the powers of the wind, rain, and sun, or 
 the courses of streams and valle^^s ; assisting man 
 unquestionably, but having no value, being neither 
 capital nor wealth. A canal that does not pay for 
 its building is no more capital than a river. 
 
 CHAPTER VIL 
 
 UNION OF CAPITAL AND LABOR. 
 
 Having considered the two great agents by which 
 all wealth is created, viz., capital and labor, we come 
 to speak of their union, and to inquire under what 
 circumstances it will be most effective. 
 
 1st. When a due proportion of each is found. 
 Labor halts without capital ; capital wastes without 
 labor. Which shall govern the other? Which shall 
 be the fixed quantity to which the other must con- 
 form ? Labor, certainly, because it is less variable 
 in amount. It can be diminished or increased but 
 slowly, depending as it does on the propagation 
 of the human race ; an element that is determined 
 positively, in the old countries, to a very gradual 
 growth, and, in new" countries, has never more than 
 doubled itself in thirty or forty years. Capital, on 
 the contrar}^ is liable to very rapid fluctuations; can 
 be accumulated, under favorable circumstances, with 
 great ease; and can be wasted or scattered just as 
 fast under different conditions. 
 
 Labor, then, being that which is most restricted 
 
UNION OF CAPITAL AND LABOR. 71 
 
 in quantity, capital must, in order to the highest pro- 
 duction, conform to it. There must be as much 
 capital as labor requires, not as much labor as capital 
 needs. We do not put this on the ground of any 
 superior rights of labor. Capital is the labor of the 
 past, and has rights as perfect as that of the present. 
 It is certain there should be as many tools as work- 
 men needing the use of them, else some must stand 
 idle. It is equally certain that an excess of tools 
 will not aid in production. Capital is the instru- 
 ment of labor, and should, of course, be adapted to 
 the power of the laborer and the work to be done. 
 
 What this proportion should be in any commu- 
 nity, it would be impossible to declare beforehand, 
 as it is even impossible to decide precisely what it 
 is in fact. Still less could a proportion be deter- 
 mined which capital should bear to labor in all com- 
 munities. It is plain thajb this will vary according 
 to the occupation; as, for instance, we have seen 
 that in agriculture there cannot be so general appli- 
 cation of machinery as in the manufactures; while, 
 on the other hand, because its operations cannot be 
 localized or made independent of the seasons, the 
 number of tools is thereby greatly increased ; each 
 farmer requiring certain tools, yet not using them to 
 their full capacity at any season, and letting them 
 lie idle for months. 
 
 The mechanic, on the other hand, while he uses a 
 greater share of tool-power, has it yet so arranged 
 that the tools lie idle little of the time. 
 
 It is plain that the proportion will vary, also, ac- 
 cording to the natural advantages a person or com- 
 munity enjoys. 
 
72 PRODUCTION. 
 
 By the census of 1860, ^' the real jiiid personal 
 property of the Union was valued (shives excluded) 
 at $14,183,000,000."* A calculation made at the 
 Treasury Department estimates the products of 1860 
 at 26-8 per cent, of the wealth of the country at that 
 time. Without intending to vouch at all for the 
 correctness of this estimate, it is doubtless approxi- 
 mately true; and, if so, we shall be surprised, if we 
 look at the large proportion of annual product to 
 the accumulated wealth of the nation. If, for the 
 sake of convenience, we call the annual product 25, 
 instead of 26-8 per cent., we find that it amounts to 
 $3,545,750,000 per annum. It certainly appears 
 almost incredible that the total amount of wealth 
 accumulated in the countrj^ since its first settlement 
 should be only equal to four times the product in 
 1860 ; but such we understand to be the statement. 
 If so, it shows what an immense proportion of all 
 the wealth annually produced is annual Ij^ consumed. 
 From these figures, too, we may make an estimate 
 of the proportion of the product which belongs to 
 labor and capital. Allowing for the use of the latter 
 ten per cent., in the shape of interest and rent, or 
 use, the amount will then stand thus: 
 
 Aggregate national wealth, $14,183,000,000, at 10 per cent., is 
 $1,418,300,000, which deducted from the whole product, as before, 
 of $3,545,750,000, will leave us the share of labor, $2,127,450,000, 
 or about two-thirds of the whole. 
 
 From these statistics, we find that the whole na- 
 tional wealth is only equal to about seven times the 
 gross earnings of labor for a single year. 
 
 * Eeport of the Secretary of the Treasury, 1865. 
 
UNION OF CAPITAL AND LABOR. 73 
 
 "We have also an opportunity of comparing the 
 ^vealth and production of the United States with 
 Great Britain. The estimated wealth of the latter, 
 according to Leone Levi (see his work on Taxation, 
 page 6), is $80,000,000,000, or |1000 per capita; the 
 estimated yearly production, $3,000,000,000, or $100 
 per capita. The wealth of the United States, accord- 
 ing to the foregoing figuring, and taking the whole 
 population, as in 1860, at 31,443,321, is $451 each; 
 while the amount o^ product per capita is $112 each: 
 so that, while Great Britain has more than double 
 the capital, she has less annual product per capita. 
 This is a confirmation of the well-known fact, that 
 capital and labor, interest and wages, are at least 
 double in this country what they are in Great 
 Britain. We must not confound the annual pro- 
 duct with the annual accumulation : the latter being 
 but a small fraction of the former. 
 
 Capital should, at least, increase in a degree cor- 
 responding to the increase of population. If it does 
 not, labor is crippled, wages fall, and starvation 
 eventually ensues. Ireland may be quoted as an 
 illustration. Iler soil, wrested from the people by 
 conquest at different periods, from the reign of 
 Henry 11. to the battle of the Boyne, lias passed 
 into the hands of foreigners, who draw away an- 
 nually all her surplus products. Population in- 
 creases from year to year ; but capital does not 
 increase correspondingly. Nay, even the waste of 
 the soil and of implements is not fully and honestly 
 supplied. 
 
 What is the necessary consequence ? Increasing 
 poverty, and ultimate starvation or emigration. We 
 
 1 
 
74 PRODUCTION. 
 
 have said that capital is formed from the annual 
 savings of labor. Four million pounds a year go 
 from Ireland to absentee landlords, and eight mil- 
 lion pounds are taken away every year in taxes. 
 The Irish people can make no savings. There can 
 be no increase of -their capital. Starvation or emi- 
 gration is their inevitable fate.* 
 
 Is it possible that there should be a surplus of 
 capital ? 
 
 It is evident that there may become such a sur- 
 plus, if we assume that production itself does not 
 expand in the mean time. Given a certain industry, 
 within defined limits, it may become full and over- 
 flowing with its accumulations. By economy and 
 thrift, these multiply fast, and crowd their barriers. 
 Common observation shows this to be often true, 
 with the enterprises of individuals. The excess is 
 transferred to other branches, or withdrawn for per- 
 sonal gratifications. A seamstress, who, by saving, 
 obtains a sewing-machine, has a wonderful help in 
 her industry ; but a second sewing-machine would 
 not assist her a single stitch. 
 
 The same is true of special occupations. The 
 limit of profitable production being reached, the 
 amount of capital employed cannot well be in- 
 creased. The product, being generally in the form 
 of circulating capital, now flows ofl" to other busi- 
 ness, or is turned to purposes of adornment and 
 culture. 
 
 * From 9,000,000 before the famine in 1846, the population fell 
 rapidly to a little over 4,000,000. At this point the equilibrium 
 was so far restored that wages rose to a rate sufficient to secure to 
 the laborer a decent subsistence. 
 
UNION OF CAPITAL AND LABOR. 75 
 
 The same is also found true, though more rarely, 
 of entire communities. States and cities sometimes 
 reach the limits within which they desire to use 
 capital in their traditional industries. They become 
 bankers for the world, or direct their profits to sump- 
 tuous houses and works of art. 
 
 It is evident, then, that, w^ithin the bounds of 
 present occupations, capital might easily attain a 
 surplus, increasing as it can more rapidly than 
 population. It is productive only as applied by 
 labor; and therefore its production is limited by 
 the capacities of labor. 
 
 But in fact, and on the whole, the limits of in- 
 dustry do not remain the same. Wants expand, as 
 we have seen. Capital is relieved from its former 
 employments, and goes on to new efforts. 
 
 Yet we are not to anticipate the same rapid prog- 
 ress at all times and everywhere which we see in a 
 new country like our own, full of wants, and stimu- 
 lated to efforts. Capital has its checks, just as popu- 
 lation has. Theoretically, steady increase is certain 
 in both: practically, each meets obstacles; is lost 
 here, and checked there. The forces which operate 
 to stay it may be briefly summed up as follows: a 
 certain disinclination of capital to emigrate; the 
 lessening power of personal supervision from a dis- 
 tance ; and a distrust in the administration of foreign 
 laws. 
 
 Another constant force operating against the in- 
 crease of capital is found in those wants of man 
 which do not look to reproduction. The desire to 
 spend is just as truly in human nature as the desire 
 to earn, and can be as accurately calculated. Hence 
 
76 PRODUCTION. 
 
 it follows that, as the desire to earn loses power by 
 capital becoming plenty and cheap, the desire to 
 spend gains force. 
 
 Yet capital, when it has supplied the demands of 
 labor in its own vicinity, has gone abroad to colo- 
 nize. It has carried on great wars in which it had 
 no interest, has developed the resources of infant 
 states, and saved old nations tottering to their fall. 
 Capital has gone round the world in the same boat 
 with the inspired discoverer. 
 
 2d. The union of capital and labor will be most 
 effective, when each is sure of its just reward. If 
 the rights of man as a holder of property are sacred, 
 and his rights as laborer equally so, the greatest 
 motive to production can be secured. If otherwise, 
 the creation of wealth will be restricted. Men will 
 not work or save, unless sure of their reward. 
 
 There cannot come, out of the earth or heaven, a 
 blow that levels all industry in the dust so quickly 
 and hopelessly as wrong done between labor and 
 capital.* Pestilence, drouth, or floods do not so 
 thoroughly and permanently prostrate the strength 
 and hopes of a country as a breath of suspicion on 
 the union of the two great agents of production. 
 Then comes an antagonism, indeed, fatal to both. 
 There is hardly any climate or soil so unpropitious 
 that man will not struggle on, earning his livelihood 
 with much endurance, and laying something by for 
 the future. There is hardly any government so 
 rigorous as wholly to suppress the energy of its 
 
 * It will be recollected that production carried on by slaves is 
 done wholly by capital: the producer being a chattel, the whole 
 product is that of capital. 
 
UNION OF CAPITAL AND LABOR. 77 
 
 people. There is hardly any taxation so exhaustive 
 that something still cannot be got out of iJ^ature for 
 man. In all these difficulties, the motive to exer- 
 tion is not destroyed. But if foul play or legal 
 fraud comes between labor and capital and their re- 
 ward, the very life of industry ceases at the thought. 
 The spring of work is broken. Its admirable parts 
 and its cunning mechanism are useless, motionless. 
 
 Labor is the first to suffer. Its wants are instant, 
 immediate, vital. Capital, in such economical con- 
 vulsions, has the privilege of leviathan. It can dive 
 down to the depths, and give up breathing for awhile- 
 If labor goes under, it dies. 
 
 It is familiar to every reader of history how the 
 brutal rapacity of the Spanish conquerors terrified 
 the nations of Peru and the Antilles, and shut up the 
 treasures of the i^ew World in a secrecy that even 
 torture could not break. The wisdom of the man 
 that owned the hen that laid the golden egg has 
 been embodied a thousand times in the acts of gov- 
 ernment. The result is -never the enriching of one: 
 it is ever the ruin of all. Wealth itself becomes 
 valueless, since it has no security in possession, and 
 only excites the cupidity of the common tyrant. 
 
 3d. The union of labor and capital is most effect- 
 ive when the latter is appropriately distributed. 
 Capital creates no values by its own powers. It 
 must be joined with labor. Somebody must use it, 
 bring his personal energies to bear upon it, set it in 
 motion, watch its operations, work with it. The 
 farmer, the merchant, the manufacturer, must each 
 bestow constant attention on the capital he employs, 
 or no good will come of it. The more intense and 
 
 7* 
 
78 PRODUCTION. 
 
 vigilant the application, the more certain the return, 
 the larger the profits. This is a well-known practi- 
 cal principle; and from it follows that the point will 
 be reached where an individual has so much capital 
 under his control that his entire efforts, by himself 
 and those working under his direction, are not suffi- 
 cient to secure its greatest effectiveness. 
 
 Such limitations are highly beneficial to society; 
 for, were there no restrictions of this kind, were 
 capital in vast aggregations equally efficient as in 
 smaller bodies, the business of the world might be 
 controlled, and the profits appropriated by a very 
 few persons. 
 
 The point is of great importance. Such a con- 
 centration of capital as effects the highest division 
 of labor, and the fittest application of machinery, is 
 desirable for the interest of all : and for those pur- 
 poses, and up to such a degree, capital so concen- 
 trated has a wonderful power in production. But 
 its aggregation, merely, is a hinderance rather than 
 a help. After the two advantages spoken of above 
 are once secured, capital becomes potent and bene- 
 ficial just in proportion as it is distributed. By such 
 distribution, it comes closer to labor and natural 
 advantages. It makes use of various powers; it 
 defends itself better in emergencies; it adapts itself 
 more shrewdly to peculiarities of circumstance; it 
 has a keener intelligence of the public wants ; it com- 
 mands a greater amount of executive talent; it 
 superintends its emjployes with more accuracy. 
 
 The man who is to gain by the work is brought 
 nearer to it. He is well served, because he serves 
 himself. 
 
UNION OF CAPITAL AND LABOR. 79 
 
 For a long time, it was a favorite belief with the 
 Americau people, that corporations were the most 
 efficient agents of production, even where the work 
 was not so great as to be beyond individual enter- 
 prise. The older wisdom of the country turns more 
 and more to the smaller establishments, which secure 
 full, interested personal supervision of labor. The 
 English economy has always preferred these, ex- 
 cept where the operations were beyond the reach of 
 ordinarj^ capital. 
 
 4th. The union of capital and labor is most effect- 
 ive where there is the greatest freedom of industry. 
 
 Whenever a population is sufficiently intelligent 
 to understand its own interests, it should be left to 
 direct its own labors. Its industry should never be 
 interfered with by government. In all countries 
 which may be considered as enlightened or civilized, 
 like the European and Anglo-American, the people 
 have no occasion to look to government for direc- 
 tion as to the business they shall engage in, or the 
 manner in wliich they shall conduct it. Every 
 branch of industry, in a normal state of society, 
 grows spontaneously out of the wants and capacities 
 of the people. Tillage, manufactures, commerce, 
 fisheries, spring up in the places to which they are 
 best adapted. 
 
 But our immediate topic relates, not to acts of 
 government, based on a distinct purpose to change 
 the general course of national industry, — which will 
 be more appropriately discussed elsewhere, — but 
 rather to those which impose minor restrictions ; 
 directing the modes of labor, moulding the forms 
 of capital, and prescribing the conditions of their 
 
80 PRODUCTION. 
 
 union. All limitations of the rights and powers of 
 capital or labor, not required by the public morality 
 or security, are useless and mischievous. 
 
 CHAPTER VIII. 
 
 ECONOMIC CULTURE. 
 
 We shall best define the field of this agency by dis- 
 cussing one of the most severely contested questions 
 of political economy, viz.: 
 
 What is the distinction between productive and 
 unproductive labor ? 
 
 The form of this question is unfortunate, and has 
 caused the greater part of the confusion prevailing 
 on the subject. In itself, it is of slight importance; 
 but, in the course of the discussion, a very grave 
 matter has become involved with it, helping the 
 understanding of neither. 
 
 Dr. Adam 8mith insisted strongly on the distinc- 
 tion between productive and unproductive laborers. 
 In the former class he embraced all those who pro- 
 duce material objects, which are generally admitted 
 to be of use and benefit to mankind. Such, clearl}^, 
 are farmers, mechanics, and merchants, in the gen- 
 eral application of their industry. Of unproductive 
 laborers, he says, '* In this class must be ranked some 
 of the greatest and most important, and some of the 
 most frivolous professions, — churchmen, law3^ers, 
 physicians, men of letters of all kinds, players, buf- 
 foons, musicians, opera-siugers, opera-dancers, etc." 
 
ECONOMIC CULTURE. 81 
 
 This somewhat extended list by Dr. Smith has suf- 
 fered curtailment by almost all writers since. The 
 distinction between physical and mental labor, be- 
 tween direct and indirect agency in production, could 
 not long be permitted to remain as founding a dis- 
 tinction between productive and unproductive labor. 
 It is clear that the physician who preserves the life 
 and strength of the Avorkman on the farm or in the 
 shop is equally productive with him; and that the 
 lawyer by whom transfers of property are elfected, 
 and personal safety secured, is equally productive 
 with the owner or the overseer. 
 
 One occupation after another, '^ important or friv- 
 olous," was withdrawn from the unproductive class, 
 as prejudices disappeared in the light of a better 
 philosophy, and as the part of each in the great 
 economy became manifest; so that now little is left 
 of that sweeping condemnation of unproductiveness 
 passed by the father of the science upon the learned 
 and artistic professions. Yet there is a residuum, 
 which it is our purpose to notice. 
 
 All labor, in the economic sense, is productive. 
 The only office of labor is production. 
 
 Labor is defined as the efforts of man directed to 
 the satisfaction of his desires. Every effort that is 
 not so directed is thrown away. It is wasted 
 power, not labor. If I spend a twelvemonth in the 
 invention of a machine, which, when completed, is 
 of no sort of use to any one, and for which I can 
 get nothing, my exertions have been unproductive. 
 I have worked enough for a reward ; but, as it 
 proved, my work was not directed to the satisfa^tioii 
 of human desires. 
 
82 PRODUCTION. 
 
 THE FIELD OF ECONOMIC CULTURE. 
 
 But it may be asked, Does it make no difference 
 i.0 the community what objects of labor are selected, 
 and by what means these objects are attained ? Cer- 
 tainly; and, in this inquiry, we reach the field of 
 economic culture, which is that education of the de- 
 sires, that instruction of efforts, and that use of sat- 
 isfactions, which will unite to bring out desires, 
 efforts, and satisfactions in ever-increasing circles of 
 industry. Here arise, properly, all the important 
 questions which were formerly discussed under the 
 head of productive or unproductive labor. 
 
 Noic it can be asked with effect, whether the opera- 
 dancer, the physician, and the churchman are useful ; 
 whether they expand the desires, instruct the efforts, 
 and dispose the satisfactions of men to a constantly 
 enlarging industry. 
 
 Let us inquire closely. It will be readily granted 
 that these and other similar classes may have influ- 
 ence upon, or power in, production in two forms, 
 either primary or secondary. 
 
 Primary^ where a direct part is taken, an active 
 agency maintained, in the creation of values. 
 
 Secondary^ when an effect is produced, which, by 
 modifying human capacities or desires, however in- 
 directly and in whatever degree, brings about ulti- 
 mately a greater creation of values. 
 
 For example : that great class which, in various 
 offices, maintains civil justice and order, has indis- 
 putably a primary influence or power by rendering 
 possible the present creation of values, and by watch- 
 
THE FIELD OF ECONOMIC CULTURE. 83 
 
 ing over their keeping and transfer. Government 
 and the law are great agencies of production. With- 
 out them, however desirous people might he of 
 wealth, and however capable of eifort, little or 
 nothing could be pi-oduced. Robbery and violence 
 would scatter and destroy what already exists, and 
 a universal waste would speedily follow. But they 
 have, also, a secondary power or influence; for it is 
 found that the maintenance of peace and property 
 rights awakens new and increasing desires, widens 
 the horizon of ambition, and stimulates everywhere 
 to honest industry. Civil security is an education 
 for wealth, an economic culture. 
 
 Then that great class which teaches has both a 
 primary and a secondary power and influence, — 
 primary, in that it gives instruction to present labor, 
 as it is struggling to-day with the dithculties of pro- 
 duction ; explains chemical and mechanical laws; 
 and establishes the alphabet, the written letter, elec- 
 tric communication, the rules of book-keeping, and 
 the art of navigation : secondary, in that the prog- 
 ress of mind brings it infallibly to higher stations of 
 aspiration and activity. 
 
 The work of the physician is almost entirely of 
 the primary character. He saves the lives of pro- 
 ducers, and preserves their strength to labor. This 
 secondary power or influence of his profession, if 
 such exists, is distant and trivial. 
 
 On the other hand, we shall add nothing to the 
 dignity of the churchman or priest or minister, by 
 attributing to him any direct power in production. 
 Yet his part may be no less important because sec- 
 ondary. The influence of religion is hardly less 
 
84 PRODUCTION. 
 
 marked than that of race, in the creation of vahies. 
 If its influence tend to improve the morals, and thus 
 aid in the preservation of public order; to elevato 
 the mind, and thus give it nobler and higher aspira^ 
 tions, and a better appreciation of the right uses of 
 wealth, — it must be a great auxiliary to its produc- 
 tion. 
 
 That class of agencies which we have desig- 
 nated as primary comes within the view of pro- 
 duction. The class of secondary agencies belongs 
 to the department of consumption, which treats of 
 the use of wealth, so that it may bring forth more 
 wealth. 
 
 Here, in economic culture, is the point at which 
 production, passing by exchange and distribution, 
 comes into relation with consumption. In pure 
 theory, production and consumption complete the 
 economic good, which is reproduction. The harvest 
 which is gained in production is sown or wasted, as 
 the case may be, in consumption, to reappear in a 
 more abounding harvest, or in barrenness, in repro- 
 duction. Practically, however, we have to introduce 
 the laws of exchange and distribution, as the agen- 
 cies by which production is finished, and consump- 
 tion made possible. 
 
 We have used metaphors drawn from the chem- 
 istry of agriculture to express the significance of 
 economic culture. To illustrate from mechanics, 
 we should say that it treats of the reaction of labor. 
 No force can react except from something external. 
 Labor is a force directed to an object. The energy 
 with which it is to move in a new direction will de- 
 pend on the temper and shape of the body on which 
 
THE FIELD OF ECONOMIC CULTURE. 85 
 
 it impinges. Reproduction, then, is the rebound of 
 production from consumption. 
 
 If labor expends itself on objects that do not stim- 
 ulate to further efforts or serve as instruments to 
 further production, but rather debauch the energies 
 and corrupt the faculties, it is evident that repro- 
 <luction will be lessened and debased, and the whole 
 course of industry be downward. 
 
 If, on the contrary, labor expends itself on objects 
 that present fresh and urgent desires, and excite to 
 renewed activities, it is evident that the course of 
 production is upward ; and the people will rise 
 economically, with a i-apidity and force, such as 
 signalized the career, in the fourteenth century, of 
 Florence; in the seventeenth, of Holland; in the 
 eighteenth, of England; in the nineteenth, of the 
 United States. 
 
BOOK III. 
 
 PART FIRST-TRADE. 
 CHAPTER I. 
 
 THE PRINCIPLES OF TRADE. 
 
 Exchange has its origin from tlie division of 
 labor; and the further that division is carried, the 
 greater extension is given to exchange. If each 
 man supplied his own wants by his own work, trade 
 could not exist. But, so far from this being the 
 rule of industrial society, the article to which a man 
 devotes all his labor may be such as he never used, 
 perhaps never saw used. 
 
 Exchange is that agency which brings a man what 
 he wants for what he does not want, which fur- 
 nishes gratification for his desires out of objects which 
 are adapted to gratify few or none of his desires. 
 
 As the division of labor begins in the most savage 
 state, so exchange is known there. One goes into 
 the woods for venison ; another, to tlie river for 
 lish. At night, they divide. Half the fish is given 
 for half the meat. Perhaps other parties are intro- 
 duced. Instead of exchanging the whole of their 
 lish or venison, each of the two gives a portion for 
 a trinket, and another portion to the medicine man 
 (86) 
 
THE PRINCIPLES OF TRADE. 87 
 
 for herbs which he alone knows how to collect. We 
 have here brought in exchange, not only in regard 
 to the plain necessaries of life, but to the services of 
 science and to luxuries. Yet all this occurs in the 
 daily life of the savage. Only one went for venison ; 
 four have venison now. Only one went fishing; 
 four have fish to eat. The hunter and the fisher- 
 man have trinkets and medicine they know not how 
 to get. 
 
 *' Trade" is a technical term for the sum of all 
 actual exchanges. It is exchange realized. 
 
 There are several kinds of trade: 
 
 1st. Domestic or home trade, which includes what 
 is commonly known as the coasting trade. 
 
 2d. Carrying trade, in which the carriers have no 
 interest in the commodities beyond their transpor- 
 tation. 
 
 8d. Foreign or international trade, to which the 
 word " commerce" is generally applied. 
 
 These kinds of trade are subdivided into the 
 wholesale, retail, and jobbing trades; and special- 
 ized indefinitely as the iron, cotton, shoe trades, etc. 
 
 Whence does trade arise ? 
 
 From the desire which individuals and commu- 
 nities have for each other's products. It is evident 
 that this is essential to trade; since, if peoples pro- 
 duced by themselves all they wished for, there could, 
 as we have said, be no occasion for an exchange. 
 
 To what extent can trade be carried ? 
 
 To the extent of the surplus production of each 
 individual or nation. Given the aggregate surplus 
 products of all the people of a country severally, and 
 we have the amount of its entire trade. Given the 
 
88 EXCHANGE. 
 
 aggregate surplus products of the people collectively, 
 and we have the amount of its foreign trade. 
 
 Illustration: Suppose a community of onehun- 
 dred individuals, each producing three hundred 
 dollars' worth a year, — aggregate revenue, thirty 
 thousand dolhirs. If each person desires to consume 
 only one hundred dollars' worth of his own articles, 
 he will have left for trade two hundred dollars' 
 worth, — aggregate in the community, twenty thou- 
 sand dollars. But if, after exchano^ins: around with 
 his neighbors, it is found that each member of the 
 community has one hundred dollars which he does 
 not wish to part with for anything he can get at 
 home, we have the aggregate surplus available for 
 foreign trade, ten thousand dollars. 
 
 It will, of course, be remarked that the amount 
 of surplus, in particular countries, will vary with 
 the character of their products. We can suppose 
 an entire people engaged in industry, of which they 
 make no use themselves. In such a case, their 
 trade would be to the amount of their whole pro- 
 duction and their whole^^consumption. In fact, this 
 condition of things is never realized. The nearer it 
 is approached, the more general the trade. The 
 more vital and primitive the articles produced, the 
 greater will be the share consumed at home. Ohio 
 has no such trade, proportionately, as Rhode Island ; 
 not necessarily because the latter produces more, 
 but that she produces more of what she does not 
 want. The people of Birmingham consume but an 
 infinitesimal part of the articles they produce. 
 
 We have here the principle that the wealth of a 
 people is not determined by the extent of its trade. 
 
THE PRINCIPLES OF TRADE. 89 
 
 What persons or comniiinities will trade most 
 largely with each other ? 
 
 Other things equal, those whose productions differ 
 most. 
 
 Two tailors^ will not traffic much together. Both 
 will trade with the shoemaker and hatter. Indiana 
 will not trade extensively with Illinois ; but both 
 will trade largely with Louisiana and Massachu- 
 setts. Russia and Sweden will make ver}^ few ex- 
 changes, because their productions are so much 
 alike. Both will deal largely with the West Indies. 
 
 What determines the character and kind of pro- 
 ducts each country will afford ? 
 
 1st. Soil and physical conformation. One will be 
 a wheat- raising, another a wool- growing country. 
 Each will spontaneously turn its industry in that 
 direction where it will produce the greatest values 
 with the least outlay of labor and capital. 
 
 2d. Climate. From the Arctic regions to the 
 tropics, from Siberia to Hindostan, is infinite 
 variety, both of heat and moisture. Some coun- 
 tries are deluged with twenty-five feet of water in a 
 season ; others parch the year round with ten inches. 
 Some are locked with frost eight months in twelve ; 
 others are open the year round. 
 
 3d. Social condition. Take, for examples, Eng- 
 land and Brazil,— one distinguished for the high 
 moral and mental endowments of its citizens; the 
 other having a heterogeneous population, in a poor 
 and semi-barbarous condition. The latter would, 
 plainly, seek to enrich themselves from the sponta- 
 neous yield of the soil, from the wild wealth of the 
 pampas and the forests, from the precious ores and 
 
 8* 
 
90 EXCHANGE. 
 
 stones along their streams and in natural caves, 
 rather than till the ground to the fertility of a gar- 
 den, sink shafts into the solid rock, cast up high- 
 ways upon the rivers, and work iron into the anchor 
 and lancet. 
 
 4th. Difference of race. 
 
 This is additional to differences of social condition, 
 and looks to those peculiarities of industrial charac- 
 ter in tlie races of man, which are no less distin- 
 guishable than their peculiarities of stature, com- 
 plexion, and feature. These do not affect the 
 degree of production only, as greater or less, but 
 multiply the fashions, and complete the varieties of 
 wealth. 
 
 All the causes here enumerated conspire to give a 
 great extent and activity to trade. It is in the com- 
 merce of the world that we have illustrated — 
 
 THE TERRITORIAL DIVISION OF LABOR. 
 
 The Chinese raise tea and silk. This is their 
 specialty, the form of industry to them most profit- 
 able. The Cubans produce sugar; and the Sicilians, 
 oranges, for the same reason. England excels all 
 nations in useful manufactures; France, in those of 
 taste and beautj^; while the United States has its 
 great industrial power in cotton and the cereals. 
 
 Under the operation of natural laws, each country 
 employs and disposes of its labor, without any arbi- 
 trary enactments, in just the way most congenial 
 and profitable ; in other words, in that way which 
 develops its greatest industrial power, and secures 
 the largest possible production. 
 
THE PRINCIPLES OF TRADE 91 
 
 Suppose, on the contrary, that we of the United 
 States should determine to raise our own oranges. 
 We could do so, and create a supph^ equal to the 
 demand. The cost of one orange would probably 
 be equal to the cost of raising a bushel of wheat, 
 which would procure for us abroad one hundred 
 oranges. The loss would be equal to ninety-nine 
 out of every hundred oranges. We should force a 
 certain part of the labor engaged in other pursuits 
 into the business of raising oranges. The supply 
 would be fully equal to the demand; for, at the 
 rate of a bushel of wheat for each orange, few 
 oranges would be wanted. The people would lose 
 the enjoyment of ninety-nine out of every hundred 
 oranges they would otherwise consume, and could 
 just as well have, if allowed to pay for them in 
 wheat. 
 
 From these general considerations of trade, we 
 deduce the following principles : 
 
 1st. The individuals must produce a surplus of 
 their ow^n commodities to have an opportunity to 
 trade, and must trade to make it an object to pro- 
 duce a surplus. Wants create w^ealth, and wealth 
 creates wants. 
 
 2d. That every nation is interested in the produc- 
 tion of every other nation. Anything which im- 
 pedes the production of any individual or commu- 
 nity injures the trade of the world. The great 
 Rebellion in the United States was felt, it may 
 almost be said, by every human being on the globe. 
 'Not a consumer of cotton, high or low, civilized or 
 savage, but suffered in consequence. 
 
 3d. That this mutual interest exists between any 
 
92 EXCHANGE. 
 
 two nations, whether they have direct commercial 
 intercourse or not. For example : there may be a 
 German principality that purchases nothing of the 
 United States, yet it may purchase largely of the 
 cotton yarn of England. That causes a demand for 
 American cotton ; that benefits the Southern States ; 
 that, in turn, helps the trade of tlie North; and 
 that, again, the producers of the West, on whom the 
 North depends for agricultural supplies. 
 
 4th. Since, by the laws of trade, those countries 
 which lie most remote from each other, and are 
 most unlike in soil, climate, civilization, and ethnical 
 characteristics, are most nearly united by commerce, 
 it is shown, that, by this territorial division of labor, 
 the most extended production and the most be- 
 neficent distribution of all the commodities of the 
 earth are secured; and that, if any nation creates an 
 article of peculiar desirableness, it is placed within 
 the reach of all. Every invention or improvement 
 becomes, in this way, the common property of man- 
 kind. 
 
 5th. That commerce harmonizes all differences in 
 the industrj^ of the world. 
 
 " All Nature's differonce makes all Nature's peace." 
 
 " A commercial nation," says Sir James Mackin- 
 tosh, *' has the same interest in the wealth of her 
 neiofhbors that a tradesman has in the wealth of his 
 customers. . . . Not an acre of land has been 
 brought into cultivation in the wilds of Siberia, or 
 on the shores of the Mississippi, which has not 
 widened the market for English industry." And 
 we may add for American industry as well. 
 
OBSTRUCTIONS TO TRADE. 93 
 
 6th. That commerce diminishes the number of 
 wars, and shortens their duration. 
 
 The whole interest of commerce is the inalien- 
 able ally of peace. It has not been found sufficient, 
 thus far, to prevent all wars. But it enters into 
 negotiations, tempers grievances, and delays vio- 
 lence. 
 
 CHAPTEK II. 
 
 OBSTRUCTIONS TO TRADE. 
 
 These are of three kinds : 
 
 Mrst, physical, which are natural ; secondly, legal, 
 which are conventional ; thirdly, social, which are 
 incidental. 
 
 These we propose to consider seriatim, so far as 
 practicable. 
 
 1st. Physical obstacles are such as Nature inter- 
 poses. They may all be expressed by the term 
 location; because this includes soil, climate, and all 
 other natural conditions. Circumstances, as con- 
 nected with the location of different communities, 
 may render trade between them very difficult, how- 
 ever much they may desire commercial intercourse. 
 
 ]N^ations, like individuals, exchange products for 
 one of two reasons : 
 
 1st. That one produces what the other cannot; or, 
 
 2d. That one produces more cheaply than the 
 other. 
 
94 EXCHANGE. 
 
 In either case, if they desire each other's com- 
 modities, it is for their mutual interest to make an 
 exchange. It would, therefore, seem to follow that 
 all obstructions to the exchange of commodities between any 
 two countries desiring each other's products must injuri- 
 ously affect the interests of both. 
 
 It is our present purpose to inquire as to the truth 
 of this proposition, which, after the discussions of 
 half a century, is still a matter of grave dispute ; and 
 the legislation of nations has been, and to a large ex- 
 tent still is, in the direction of interposing, rather 
 than removing, obstacles to commercial intercourse. 
 
 To aid our inquiry, we shall make use of an illus- 
 tration that we think will show, in a clear manner, 
 and in a few words, the effects of physical obstruc- 
 tions. 
 
 Two communities, dwelling contiguous to each 
 other, are separated by a lofty chain of mountains, 
 which renders transportation between them so diffi- 
 cult as nearly to preclude all intercourse. On one 
 side the mountain, the soil is so admirablj^ adapted to 
 cereals, that wheat (and other grains in proportion) 
 can be produced at the rate of one bushel for a day's 
 labor; while fuel is so difficult to be obtained, that 
 six days' labor are required to produce one ton of coal. 
 
 On the opposite side of the mountain range, so 
 little is the soil adapted to the culture of grain, that 
 three days' labor are required to produce a single 
 bushel of wheat ; while the facilities for mining coal 
 are so great, that one day's labor will produce a ton. 
 Under such circumstances, it w^ould evidently be 
 quite advantageous to both countries to exchange 
 products, if there were no obstacles to prevent their 
 
OBSTRUCTIONS TO TRADE. 95 
 
 doing SO. Owing, however, to the resistance which 
 the supposed mountain interposes, the transportation 
 of a bushel of wheat 's equivalent to two days' labor ; 
 so that the wheat would cost three days' labor per 
 bushel when brought to the coal country, and for 
 that amount of labor, the inhabitants could produce 
 it themselves. So of coal. To transport a ton which 
 cost but one day's labor at the mines would require 
 the labor of live days; and therefore the people in 
 the grain country, who can produce it by six days' 
 labor, would gain nothing by getting it from abroad. 
 For these reasons there would be no trade or ex- 
 change of products so far as those articles were con- 
 cerned, except in case of some accident, as the 
 failure of a crop, or an unexpected obstruction to 
 the process of mining, by which the cost of the sup- 
 posed commodities should be enhanced. Virtually, 
 there would be no profitable trade between the two 
 communities, although in one coal was six times as 
 dear, and in the other wheat was three times as dear, 
 as in the neighboring country. 
 
 If, however, we now suppose a railway to be made 
 which reduces the ti^ansportation of a bushel of wheat 
 to one day's labor, and the freight of a ton of coal 
 to three days, we shall have conditions under which 
 an advantageous trade will be sure to spring up, 
 since the wheat-grower of the grain country can now 
 get a ton of coal for the labor of four days, thus 
 saving two days on each ton, equal to 3]J per cent.; 
 and the coal miner can get a bushel of wheat for two 
 days' labor instead of three: thus saving, as far as 
 his consumption of wheat is concerned, one-third or 
 33J per cent, of his labor. 
 
96 EXCHANGE. 
 
 If we farther suppose that the consumption of coal 
 in the wheat-growing country is five hundred thou- 
 sand tons per annum, two days' labor being saved on 
 each ton, the total saving will be one million days' 
 labor per annum. If the consumption of wheat in the 
 mining country be two million bushels on each of 
 which one day's labor is saved, the total saving in 
 the two countries will be three milion days' labor 
 per annum. 
 
 What we find true here, in pmciple, must be true 
 in all similar cases. Both parties gain largely ; and 
 the fact that the miners gain two millions while the 
 wheat-growers gain only one, is no good reason why 
 the latter should decline a trade that saves them a 
 million a year. The result, in this respect, is analo- 
 gous to the operation of the late Reciprocity trade 
 between the United States and Canada, which, 
 while highly advantageous to the former, was still 
 more so to the latter. 
 
 We must inquire as to the general effects of these 
 increased facilities for trade. 
 
 PRODUCTION WILL BE INCREASED. 
 
 First. As each of the supposed countries will now 
 have an equal quantity of coal and wheat for less 
 labor than before the obstacles were removed, the 
 large amount of labor so released will of course be 
 employed in the production of new commodities, 
 and industry will flow into new channels. This will 
 be done, not from compulsion, but from choice, and 
 therefore will take the most profitable directions. 
 The labor of each community, in the case supposed. 
 
OBSTRUCTIONS TO TRADE. - 97 
 
 will act under new and greatly improved conditions, 
 
 because,— 
 
 (a) In the mining country, the expense of support- 
 ing the laborer in consequence of the diminished 
 price of wheat, will so reduce the cost of producing 
 coal, that, other things equal, the miner will obtain 
 a larger profit, and the laborer higher wages. More 
 commodities being produced, there will be a larger 
 amount to be divided between the parties producing 
 it, of which the laborer will receive a larger share 
 than before. 
 
 (6) In the agricultural community, on the other 
 hand, the large reduction in the price of fuel will not 
 only liberate a large amount of labor and reduce the 
 expenses of living, but aftbrd facilities for the use 
 of steam power in manufactures and the mechanic 
 arts, which will now be introduced as fast and as far 
 as profitable. Thus the industry of both countries 
 becomes more and more diversified. Wants in cer- 
 tain directions being supplied with less labor, more 
 of the general industry may be employed in furnish- 
 ing other objects of desire. 
 
 Do we not here discover the jprindple upon which 
 the occupations of a people become diversified, and 
 the way in which this is brought about in an eco- 
 nomical manner under the unobstructed operation 
 of the laws of trade, without the smallest sacrifice on 
 the part of any class or interest? It is the sponta- 
 neous expansion of a nation's untrammelled industry. 
 
 HOW TRADE ENRICHES NATIONS. 
 
 Again, we here also ascertain the 'principle upon 
 which trade enriches nations. Each party obtains 
 
 9 
 
98 EXCHANGE. 
 
 more by exchanging than by producing, because 
 each produces that for which it has the most com- 
 plete adaptation and the greatest facilities. Each 
 nation, in fact, works for the other at a more profit- 
 able rate than it could work directly for itself. With 
 uninterrupted trade this must be true of all coun- 
 tries, at all times, and under all circumstances. 
 
 Furthermore, can it make any difterence to the 
 wealth of nations whether the obstacles preventing 
 their exchange of products are those existing in 
 nature or interposed by governments ? If, in the case 
 of the two countries in question, after an interchange 
 of products has been established by the construction 
 of a railroad, the gorernment of one or both should 
 impose such heavy tolls upon transportation as to 
 raise its cost as high as before the railroad was built, 
 would not the effect upon trade and industry be the 
 same as if the railroad itself were destroyed ? 
 
 CHAPTER III. 
 
 LEGAL OBSTRUCTIONS, OR GOVERNMENTAL INTERFER- 
 ENCE WITH THE GENERAL INDUSTRY BY TARIFF 
 DUTIES. 
 
 These may be imposed for one or more of four 
 reasons : 
 
 1. To raise a revenue. 
 
 2. To encourage the growth or manufacture of 
 certain commodities at home. 
 
PROTECTION. 99 
 
 3. To support or maintaiu existing forms of pro- 
 duction. 
 
 4. To secure commercial iadependence bj isola- 
 tion, or independence of commerce. 
 
 1st. To raise a revenue. So far as this is only a con- 
 venient way in which the State can collect a certain 
 sum of money it must have, it is but a mode oitaxa- 
 Hon, with which we have no present concern. So 
 far as it aflects the industry of the country by chang- 
 ing its direction to the production of articles that 
 cannot be raised or made at a proiit except by being 
 raised above their natural price, it becomes an ob- 
 struction to trade, or what is called protection. 
 
 We have not thus far used the term protection, 
 because in this connection it has a technical mean- 
 ing, designating a system of restrictive measures on 
 TJie part of the government intended to force the 
 industry of a people from its natural channels; and 
 we now use the term under protest. 
 
 Protection has been defined to be, "the establish- 
 ment of such duties on foreign goods as will protect 
 or cherish domestic industry." 
 
 We accept this as a correct definition of what the 
 protective system claims to be ; namely, an aid to the 
 general industry of a nation; not to a part, but to 
 the whole ; not of one class, but of all classes. And 
 this is the particular point of our present inquiry. 
 This is the field in which protection joins battle of 
 choice with freedom of industry. In all the other par- 
 ticular reasons its argument is, as we shall see, linked 
 with some real or fancied necessity; but here protec- 
 tion takes ground freely and fairly, and proposes 
 to do this by tariffs. Of these we will briefly speak. 
 L.ofC. 
 
100 EXCHANGE. 
 
 TARIFFS. 
 
 A tariff is " properly a list or table of goods with 
 the duties or customs to be paid upon the same." — 
 Webster. From their general characteristics, tariffs 
 may be divided into two kinds : namely, those im- 
 posed solely for revenue, and those laid intentionally 
 in such a manner as to restrict the importation of 
 certain articles with a view^ to cause their manufac- 
 ture or production at home. The lirst is properly 
 called a revenue or free-trade tariff", since it is not 
 intended to, nor does it in fact, diminish trade. 
 
 It may be objected to this last statement that any 
 duties, since they must increase the cost of com- 
 modities to the consumers, must necessarily dimin- 
 ish consumption. Is this true? 
 
 Suppose the amount of one hundred millions must 
 be raised to meet the wants of government, and that 
 this is done b}' direct taxation. Then those who pay 
 the taxes will have one hundred millions less of 
 means wherewith to purchase commodities, and 
 their trade must be reduced to that extent. Sup- 
 pose the same amount of one hundred millions be 
 raised by tariff", then the cost of the commodities 
 taxed will be raised one hundred millions, and con- 
 sumers must purchase one hundred millions less 
 than they otherwise might. In either case, the 
 ability of the tax-payers to purchase will be reduced 
 one hundred millions, and the trade of the country 
 would be as little affected in one case as the other. 
 
 So far as mere trade, therefore, is concerned, it 
 matters but little whether the supposed one hun- 
 dred millions be raised by a revenue tariff or direct 
 
PROTECTION. 101 
 
 taxation. The result of this mode of taxation, it 
 may be observed, is not to interrupt the industry 
 of the country, like restrictions upon trade, but 
 only to lessen the satisfactions of the tax-payers. 
 
 The protective system, on the other hand, is de- 
 signed to diminish foreign imports, and to direct 
 the industry of the country into new channels, into 
 the production of articles which will not pay a profit 
 unless raised in price; and since they can only be 
 raised in price, by the additional cost, or amount of 
 labor required to produce them, the general ^production 
 must be lessened to the extent of the extra labor re- 
 quired to furnish the protected articles. 
 
 Since the trade of a people depends upon produc- 
 tion, it is influenced by taxation only so far as it di- 
 minishes their ability to produce. A strictly revenue 
 tariff, therefore, like any other form of taxation (un- 
 less so excessive as to encroach upon production), 
 has no disturbing influence upon trade, and in no 
 way conflicts with the largest development of a 
 nation's industry and the widest extension of its 
 commerce. It preserves perfect freedom of exchange 
 with every part of the earth. 
 
 Economically, it will ever remain true, that the 
 government is best which governs least. The wants 
 of a people are the sole proper, the sole possible, 
 motives for production. Nothing can be substituted 
 for them. Anything that seems to take their place 
 is merely a debasement of them. The interests of 
 producers, whether laborers or capitalists, secure, 
 better than any other possible means, the gratification 
 of such wants. Their intelligence is always superior 
 on such points to that of any foreign body. These 
 
 9* 
 
102 EXCHANGE. 
 
 we believe to be absolute affirmations of universal 
 experience, not dependent on reasoning, not conde- 
 scending to argument. 
 
 General proposition : There is no sense so subtile 
 as that with which a man detects his own wants. 
 There is no spur so sharp as that which urges him 
 to satisfy them. 
 
 If, then, protection is founded on false economical 
 principles, we should expect to find it working 
 mischief in its application to national industry, per- 
 verting the desires, crippling the efforts, and plun- 
 dering the satisfiictions of society. 
 
 Since the subject is of great practical importance 
 and of great popular interest, we will take an illus- 
 tration at length from the history of American in- 
 dustry, exhibiting the principles thus far attained. 
 
 We choose the manufacture of iron, for six rea- 
 sons : 
 
 1st. Because it may be produced in great amount 
 in our own country, and is found in almost all others. 
 There is, therefore, nothing of the nature of a mo- 
 nopoly about it. 
 
 2d. Because it enjoys the largest natural protec- 
 tion arising from its weight and bulk. 
 
 3d. Because it is one of the most simple of all 
 manufactures. 
 
 4th. Because it has been tried on a large scale, 
 affording material for great inductions, and freeing 
 the results from any imputation of accident. 
 
 5th. Because the public attention has been turned 
 to it for a long time, and it is better understood 
 than any other we could name. 
 
 6th. Because a stronger argument can be made 
 
PROTECTION. 103 
 
 in favor of governmental intervention in its behalf 
 than any other. 
 
 What is the fact in regard to the manufacture so 
 described ? At present, iron cannot be so cheaply 
 and extensively produced in the United States as to 
 exclude the foreign article. Why is this? We 
 answer negatively : 
 
 1st. 'Not that we do not know how to make it. 
 Being, as has been said, the most simple of all 
 manufactures, we have had, from the earliest set- 
 tlement of the colonies, the necessary knowledge, 
 and have produced it from our colonial days. 
 
 2d. Kot that we have not sufficient capital. No 
 branch of business is more accessible than iron- 
 making, or requires less capital proportionally. 
 
 Besides, a successful business, once started, creates 
 its own capital. Labor no more seeks assistance 
 from capital, than capital employment by labor. 
 Every year of profitable enterprise aftbrds a sur- 
 plus, which can be applied to the increase of busi- 
 ness more efficiently than twice the amount of raw 
 capital, coming in the lump. The daily or monthly 
 increments are applied with an aptness and a 
 promptness that make them far more useful than 
 wholesale, occasional accessions of capital from 
 abroad. 
 
 3d. Not that we have not the best natural facili- 
 ties for the manufacture. 
 
 Five great conditions of success are found most 
 remarkably in the United States, — (a) Our ore is 
 not only of excellent quality and most abundant, 
 but (6) is found very generally on the surface and 
 (c) iij proximity to the best river navigation, and 
 
104 EXCHANGE. 
 
 almost always in close juxtaposition to (d) coal for 
 smelting, and (e) limestone for flax. Perhaps in 
 no other country of the world are these requisites 
 so fully secured. The absence of a single one of 
 them might be sufficient to destroy the prospect 
 of production. 
 
 4th. Kot that the manufacture here lacks good 
 natural advantages. America has been put at a 
 great distance from Europe. The eflects of this 
 we have already seen. The foreign product is, 
 in this case, charged with freight and insurance 
 for a voyage of three thousand miles. 
 
 Why, then, with all these facilities, do we not 
 produce all our iron without governmental coer- 
 cion? There is but one reason. 
 
 We can do better. We can obtain a part of 
 our iron with less labor than by making it. 
 
 How can this be ? Because, though we have 
 facilities for making iron, greater perhaps than 
 any other people, we have still greater facilities for 
 raising agricultural products. 
 
 We can raise forty bushels of wheat with, say, 
 twenty days' labor that will purchase a ton of iron, 
 to produce which would cost twenty-five days' labor: 
 net saving, live days, or twenty per cent, on all our 
 iron. 
 
 What is the explanation of this state of things ? 
 
 Land is an instrument, and the greatest of all, in 
 producing agricultural values. Good arable land, 
 on which wheat is raised in England, is worth, say, 
 two hundred dollars an acre. 
 
 In this country, the same is worth, perhaps, twenty 
 
PROTECTION. 105 
 
 dollars.* Then, with our price of land, we have the 
 advantage, so far, over the European, in the produc- 
 tion of crops, of nine-tenths, or ninety per cent. Our 
 capital in land is ten times as productive as that of 
 England. On the other hand, we have not an equal 
 advantage over the European in making iron ; for, 
 although it costs him more labor (and labor is, as 
 we have said, the chief item in making iron), that 
 labor costs him much less per day than it costs us ; 
 say, at least, fifty per cent. less. So that, if it is esti- 
 mated to cost him twice as much labor to make iron, 
 still labor costs him no more in money than ours 
 costs us. In respect of labor, then, we are on a 
 level. 
 
 So far as money, as capital, is concerned, the Euro- 
 pean again has the advantage of us by fifty per cent., 
 since money is as well worth eight per cent, here as 
 four per cent, there. 
 
 Now, these facilities which the European has, from 
 the cheapness of labor and capital, counterbalance 
 to a great extent, if not fully, the advantages which 
 we have from the ease with which we can get the 
 materials of which iron is made. 
 
 If so, in getting our iron by raising wheat, we have 
 the net advantage over the European of ninety per 
 cent, in the land, which is the great item of expense 
 in such products. 
 
 Such is the situation. We will now apply protec- 
 tion. Government, in 1816, laid a duty of thirty 
 
 ^ Often not a fourth part of that sum. The government holds 
 the best wheat land at one dollar and twenty-five cents, and gives 
 it away to actual settlers. 
 
106 EXCHANGE. 
 
 dollars per ton on bar iron ; equal to about fifty per 
 cent, on the cost of the foreign article. Let us in- 
 quire into the effect of this policy. 
 
 1st. More iron was produced. Labor and capital 
 were at once withdrawn from other occupations, and 
 invested in furnaces and iron-making. 
 
 2d. A great loss was caused to the general produc- 
 tion of the country. If labor and capital were with- 
 drawn from pursuits of ordinary profitableness, and 
 invested in business that required fifty per cent, pro- 
 tection to make it profitable, does it not follow that, 
 on the whole amount made under the forced system 
 of production, there was a loss to the country of 
 thirty-three and one-third percent.; thirty-three and 
 one-third per cent, of ninety, the enhanced price, 
 being fifty per cent, on sixty, the original price ?* 
 
 3d. Many wasteful and disastrous experiments 
 were made. When any branch of industry grows 
 up naturally, it commences upon a small scale, and 
 is cautiously extended, as found profitable. Under 
 a forced system, it is quite otherwise. A duty of 
 thirty dollars a ton is laid upon iron. 
 
 Pennsylvania is full of iron ore and coal. What 
 prevents her from making a vast sum by it? Has 
 she not a protection of fifty per cent? So every- 
 body reasons; so everybody acts. Great establish- 
 
 * It should be understood that there can be no greater discount 
 than one hundred per cent., which takes the whole of anything; 
 yet there are men who profess to be learned and even well versed 
 in financial matters, who speak very flippantly of two hundred or 
 five hundred per cent, discount. They confound discount with 
 premium. The first is limited to one hundred, the latter is illimi- 
 table. 
 
PROTECTION. 107 
 
 merits are started at once. There is no occasion 
 longer to consult adaptations of character, experience 
 in business, or local ecouoniy. Merchants, profes- 
 sional men, farmers, mechanics, all are seized with 
 the mania of iron-making. Large iron works are 
 hastily and ignorantly got up. They are managed 
 by incompetent men, worked by inexperienced hands, 
 they turn out imperfect iron, w\^ inevitable loss aud 
 final insolvency. 
 
 And the iron interest clamors loudly and success- 
 fully for more protection. These are not accidental 
 or peculiar results, but natural and certain, where 
 the great laws of trade and the even course of pro- 
 duction are disturbed. 
 
 Such were the actual facts in regard to the manu- 
 facture of iron in this country, and they illustrate 
 in the most clear and forcible manner the leofitimate 
 results that must ever attend all efforts to force the 
 industry of the nation into unnatural channels, or 
 stimulate a branch of production, which, as in the 
 case of iron, as just stated, had already been success- 
 fully started, was gradually extending and prosper- 
 ing as much as other industries. 
 
 But it may be urged that, if a part of the labor 
 of the country had not been taken from agriculture, 
 its products would have declined in value, and this 
 would have counterbalanced what was lost by the 
 manufacture of iron. 
 
 The markets of the world being open to us, all 
 our surplus products would remain in demand. Pro- 
 visions, especially, are a sort of " legal tender " the 
 w^orld over; and there seems to be no immediate 
 occasion to anticipate their disuse. 
 
108 EXCHANGE. 
 
 If there were no other markets open but those at 
 home, there would be a certain tendency, not at all 
 frightful in its vehemence, to a decline of prices, iff 
 a country like ours; because an agricultural people, 
 under favorable circumstances, always produces 
 more than it consumes, and would, sooner or later, 
 create such a surplus as to lower the price, and as 
 soon as wheat had fallen so low that it required as 
 many days' work to get a ton of iron by raising 
 wheat as by working the ore, the manufacture would 
 be successfully introduced. That is precisely the 
 point at which this branch of industry would legiti- 
 mately begin, and every other desirable manufacture 
 be successfully started. 
 
 A striking illustration of the sad effects certain 
 to follow protection, or any extraordinary and un- 
 natural stimulus given to a particular branch of 
 industry, has been afforded by the paper interest in 
 this country. 
 
 The late war created an immensely increased de- 
 mand for paper, and it advanced to an exorbitant 
 price. This caused a rapid extension of the busi- 
 ness, and mills were erected in all parts of the coun- 
 try. Peace came, the extra demand fell off, while 
 the number and capacity of the mills having been 
 largely increased, they were prepared to supply a 
 greater amount than was required, even during the 
 war. Over-production was the consequence; a ruin- 
 ous fall of prices, general stagnation; and when ^ 
 great freshet in Massachusetts, in 1869, swept off a 
 large number of these establishments, the event was 
 hailed as a fortunate circumstance, as undoubtedly 
 it was, to the trade. The destruc4:ion of property a 
 blessins:! 
 
FALLACIES OF PROTECTIVE THEORY. 109 
 
 CHAPTER lY. 
 
 FALLACIES OF THE PROTECTIVE THEORY. 
 
 We now pass from the consideration of the prin- 
 ciples of protection, to illustrate their application. 
 We believe we have shown the unsoundness of that 
 political philosophy which proposes to substitute 
 artificial for natural laws, in production. But there 
 remains some popular arguments, often sincerely 
 urged, which we will now notice. 
 
 PROTECTION OF INFANT MANUFACTURES. 
 
 Fallacy 1st. It is claimed as good policy to protect 
 " an infant manufacture" until it is well established, 
 because it will then take care of itself and ultimately 
 confer great wealth on the country. 
 
 This may be called the 'primary fallacy^ because the 
 first announced and most successfully advocated. It 
 was not contended, during the early period of tarifi:' 
 legislation (say from 1816 to 1828), that protective 
 duties were not a heavy tax upon consumers, but 
 that they were temporary, and would in a short time 
 secure the object sought, and be then discontinued ; 
 and it was only a belief in the truth of this assump- 
 tion which secured the enactment of the first tariffs. 
 
 In reply to the argument for protecting an infant 
 manufacture, it may be remarked : 
 
 (a) There is no assurance, under a system which 
 
 10 
 
110 EXCHANGE. 
 
 , removes the sole test of usefulness and self-support 
 from the production of a people, that enterprises 
 will not spring up which never will come to matu- 
 rity, which have no vital force of themselves, which 
 exist solely by reason of the protection, and will 
 never become remunerative. If good enterprises, 
 why not bad, since the test of bad or good has been 
 withdrawn? Thus the whole industry of a country 
 may become perverted and falsified by removing the 
 principle of natural competition. There will be no 
 reason for healthful industries to spring up, which 
 will not also give life to such as are weak, tardy, 
 ephemeral ; to such as are parasitic and exhausting. 
 
 (6) Other things aside, the desirableness of raising 
 the " infant" will depend very much on the length 
 of time and total cost required to bring it to full age 
 and size. 
 
 France protected one of these industrial infants; 
 i.e. the beet-sugar culture. Dr. Wayland said of it, 
 in 1837, '' The present protection costs one million 
 and four hundred thousand pounds per annum. 
 Suppose this to continue for twenty years, it will 
 amount to no less than twenty-eight million pounds 
 sterling; the interest of which, at five per cent., will 
 bring, at two and a half pence per pound, one hun- 
 dred and twenty-six million pounds of sugar, or 
 nearly the whole annual amount of sugar now con- 
 sumed in France." In 1871, we can say that this 
 child, born in the early part of the great Napoleon's 
 career, has not yet become strong enough to walk 
 alone, or hardy enough to take the air. Supposing 
 an equable annual consumption of any article, it re- 
 , quires but common school arithmetic to show that a 
 
FALLACIES OF PROTECTIVE THEORY. Ill 
 
 protection to the extent of fifty per cent., continuing 
 for eighteen years, would amount to a sum which, at 
 six per cent, interest, would furnish the nation in 
 that article to the end of time, without ever paying 
 anything more for it. 
 
 What has been the success of this system of legis- 
 lative protection in the United States? Beginning 
 with 1820, we find, in the five following decades, 
 that the average duties on dutiable goods were (see 
 "Wells's Eeport, 1869, page 144) : 
 
 1820 to 1830 38 per cent. 
 
 1830 to 1840 33 " " 
 
 1840 to 1850 28 " '' 
 
 1850 to 1860 . 23 " » 
 
 1860 to 1870 38i " " 
 
 Average duties for fifty years .... 32 " " 
 
 " " " last five years . . 45^ " " 
 
 " " " 1870 47 " " 
 
 Such has been the protection given to our indus- 
 trial proteges for the last half century, and yet we do 
 not find that they have arrived at that degree of 
 strength and maturity at which they are content to 
 be left to competition with foreign producers. They 
 still make strenuous exertions to maintain the pres- 
 ent high rates of duties, and in many cases to increase 
 them. 
 
 (e) Finally, no sound and healthful manufacture 
 needs protection at all. The phrase "infancy" is 
 entirely sophistical, as applied to any branch of legit- 
 imate industry. Each one comes full-grown and full- 
 armed into life. We do not mean that it has no 
 growth, as far as extension is concerned. It certainly 
 does go on from town to town, from State to State, 
 
112 EXCUANGE. 
 
 out of small beginnings. But there is no infancy, 
 so far as completeness or robustness of life is con- 
 cerned. 
 
 A remarkable confirmation of the truth of these 
 remarks is found in the history of the boot and 
 shoe manufactures of the United States. They 
 never asked for protection ; never received any 
 notice in all the conflicts for increased tariffs. 
 The trade grew up naturally, steadily, and profit- 
 ably from the first; increasing gradually, with the 
 growth of the country, until, at the present time, 
 it is not only the largest, but one of the most profit- 
 able branches of manufacturing industry. In Mas- 
 sachusetts alone, this manufacture extends to near 
 one hundred million dollars annually, and is by 
 far the most advantageous branch of industry iu 
 the State. 
 
 It is no exaggeration to say that hundreds of 
 millions of dollars have been sunk in the cotton 
 and woollen business in this country, in consequence 
 of the unnatural stimulus given by tariff* legislation, 
 which has induced at difterent times a too rapid 
 extension of those branches of manufacture. Tho 
 boot and shoe trade has lost nothing in that way. 
 
 DEVELOPMENT OF MANUFACTURES. 
 
 Fallacy 2d. That protection especially develops 
 manufactures; and manufacturing countries are 
 found to be in fact richer than those more ex- 
 clusively agricultural. 
 
 Both propositions are true in an isolated form. 
 
 Other things equal, in a normal state of things 
 
FALLACIES OF PROTECTIVE THEORY. 113 
 
 manufactiirino^ communities are older than ao^ri- 
 cultural, and, of course, have much greater ac- 
 cumulated wealth. England is older and richer 
 than the United States ;, Massachusetts than Ohio. 
 Manufactures arise because a people have a dense 
 population, abundant capital, and great industrial 
 activity. Under such circumstances, great wealth 
 will be created, because these are the fit conditions 
 of creatine^ wealth. 
 
 It is, without question, true, that in an equal 
 manufacturing population will be found a greater 
 accumulation of wealth. One important reason 
 of this is, that a larger share of the population 
 are engaged in production, and a larger amount 
 of capital is employed. Women and children, who 
 could earn but little in agricultural labors, can earn 
 much in manufacturing. This is one of the most 
 striking results of a division of labor, as we have 
 already shown. As we carry on agriculture, women 
 and children do little, though in Continental Europe 
 they do much. Agriculture, too, can be performed 
 only in certain portions of the year. Manufactur- 
 ing need never stop, summer or winter, cold or hot, 
 fair or foul. This makes a wonderful difference. 
 
 All these, however, are economical advantages, 
 which manufacturing communities have, when prop- 
 erly constituted and employed. These are reasons 
 which may induce such industry; never reasons 
 why it should be compelled. 
 
 There is a principle always operating to bring 
 manufactures out, on every part of the earth's sur- 
 face. It is the impossibility of carrying on certain 
 branches anywhere but at the place where the article 
 
 10* 
 
114 EXCHANGE. 
 
 is wanted. It would be within bounds to say that 
 four-fifths of all the present consumption of manufactures 
 would be supplied by our natiojial industry, irrespective 
 of protection. 
 
 RAISING THE RATE OF WAGES. 
 
 Fallacy 3d. That high tariff duties, by excluding 
 foreign commodities and causing their production 
 at home, raise the rate of wages, and thus benefit 
 the laborer. 
 
 Without entering upon the question whether 
 tariff' duties, however high, can have such an effect, 
 it is sufficient to say that this assumption ignores 
 the important consideration that the laborer is a 
 consumer as well as a producer; and that he con- 
 sumes as much in value as he creates. Yet such is 
 the fact. If he does not actually consume from day 
 to day all he earns, if he lays up a part, and finally 
 invests it in a house or other property, the result is 
 the same to him ; for whatever he purchases will be 
 equally advanced in cost by the supposed rise in 
 wages, since every kind of property being produced 
 by labor must rise equally with the rate of wages, 
 and therefore the laborer can gain nothing by a rise 
 of prices occasioned by tariff* taxation, even if it did 
 raise the general rate of wages. So far from being 
 benefited by duties imposed for the purpose of 
 forcing industry from one branch of production to 
 another, the actual wages of the laborer, as meas- 
 ured by the commodities he can get in exchange 
 for them, must be diminished. 
 
 To many minds it seems quite clear that, when 
 the laborer in America and the laborer in Europe 
 
FALLACIES OF PROTECTIVE THEORY. 115 
 
 are engaged in producing the same commodity, and 
 the wages of the latter are but half those of the 
 former, if the European is allowed to send his com- 
 modity free of duties to this country, the home 
 laborer must be driven from his employment, or 
 his wages be reduced to the same rate as those of 
 the foreigner. 
 
 The fallacy of this may be seen by the following 
 illustration: "Suppose pig-iron at the furnace in 
 Pennsylvania to be $24 per ton, and $24 in Wales ; 
 the wages of the Pennsylvanian might still be $3 
 per day and in Wales $1 per day, because it would 
 require only eight days' labor to quarry the ore and 
 coal on the surface in Pennsylvania, and twenty- 
 four days to haul it up from the deep mines of 
 Wales." This statement, which corresponds quite 
 truly to the facts in the case, shows conclusively 
 why it is that wages in this country may be double 
 and treble what they are abroad, and yet we may 
 compete successfully with the foreigner. 
 
 DEFENCE AGAINST PAUPER LABOR. 
 
 Fallacy 4th. That the introduction of foreign fab- 
 rics that come into direct competition with our own 
 must reduce the American to the same miserable 
 condition as the foreign laborer. 
 
 This is doubtless a most effective and popular ap- 
 peal in favor of excluding European manufactures. 
 
 That labor is lower in all other countries than in 
 the United States, is universally admitted ; that in 
 some communities laborers are so oppressed as to 
 be reduced to nearly a state of pauperism, is also 
 well known ; and in view of these facts, it is asked, 
 
116 EXCHANGE. 
 
 with great emphasis, whether we shall admit these 
 poorly paid laborers into competition with our own? 
 whether we shall reduce our workingmen to a level 
 with those of less favored countries? On this point, 
 there is but one opinion. All agree that nothing 
 should be done to degrade the condition or lower 
 the compensation of the American laborer; and the 
 only matter in dispute is, whether permitting the 
 latter to purchase the commodities of the former, 
 because they can be had at a less cost, will have the 
 assumed effect. If this can be shown, the argument 
 is at an end. If, on the other hand, the very reverse 
 of this is true, then the position taken by protec- 
 tionists falls to the ground. 
 
 The question of higher interest to the laborer of 
 every country is, how he can procure the largest 
 amount of the commodities he wants, with the 
 smallest amount of his own efforts. It matters not to 
 him whether the foreign laborer works for ten pence 
 or ten shillings per day: it is the quantity of that 
 laborer's products he can command in exchange for 
 his own labor that alone concerns him. He is neither 
 better nor worse off because the laborers of another 
 country live in comparative poverty. Daniel Web- 
 ster, in 1820, made the following impressive re- 
 mark: "We cannot afford to do with our intel- 
 ligent labor what paupers can do as well for us." 
 
 So far as the native laborer is concerned, the 
 lower the rate of foreign wages the better; for, as a 
 consequence, he gets a larger amount of the foreign 
 product in exchange for his own. This may be a 
 misfortune to the foreign^ but is certainly no dis- 
 advantage to the home laborer 
 
FALLACIES OF PROTECTIVE THEORY. 117 
 
 In the great competition of universal industry, 
 which countries have most to fear, — those in which 
 w^ages are high, or those in which they are low? 
 ITeither, in truth, has anything to fear on account 
 of the dearness or cheapness of the other's labor, and 
 therefore it cannot be good policy for any nation to 
 preclude the introduction of foreign commodities for 
 such a reason. 
 
 HOME MARKET. 
 
 ♦ 
 
 Fallacy 6th. That a home market should be created 
 for agricultural products, by restricting the impor- 
 tation of manufactured articles and causing their 
 production in this country, thus placing the manu- 
 facturer by the side of the cultivator of the soil. 
 
 This is a very pernicious, because a very plausible 
 and delusive fallacy. It was this idea that led Mr. 
 Calhoun and his friends to inaugurate the tarift' in 
 1816. They wished to secure a home market for all 
 their cotton. They tried the experiment, and found 
 that the whole consumption of the United States was 
 not, and could not be, equal to more than one-third 
 of their cotton crop, and therefore that they lost far 
 more than they gained by the restrictive policy. 
 Eftbrts have been made to induce the belief that the 
 people of the Western States would be especially 
 benefited if such restrictions were laid upon trade as 
 to insure the production at home of all manufactures 
 wanted for consumption, and thus create a home mar- 
 ket for all their products ; but experience would show 
 them that the home demand could never be made 
 equal to the productions of their prairies. Our terri- 
 tory is so vast and so fertile that we must produce 
 
118 EXCHANGE. 
 
 the largest surplus of breadstufFs, provisions, cotton, 
 and petroleum of any people on earth, and this sur- 
 plus will increase with the increase of population. 
 For this surplus we must have a foreign market, or 
 our own growth as a people will be greatly retarded. 
 Therefore a large export demand for all these pro- 
 ducts is of the first importance. ITot only shall we 
 produce a large surplus, but whatever that surplus is 
 worth will determine the price of all the crop, 
 whether of corn or cotton. Upon foreign markets 
 we must depend, and should therefore interpose 
 as little obstruction to trade as possible. This 
 would not at all prevent, but rather accelerate, the 
 normal and healthy growth of manufactures at the 
 West, the great natural section for agricultural 
 products. 
 
 EXHAUSTION OF THE SOIL. 
 
 Fallacy 6th. That the exportation of breadstuffs, 
 cotton, and other agricultural products fatally ex- 
 hausts the soil, and therefore a home market should 
 be created, so that this result may be prevented. 
 
 It is true, other things equal, that the constant 
 carrying away from the soil its fertilizing properties 
 will gradually reduce its productive power. It is 
 also true that in every new country the earliest 
 settlers rely entirely upon the natural fertility of 
 the earth. It is all the available capital they have. 
 It is well that they can do this, because having every- 
 thing to do, and but little to do with, — dwellings, 
 roads, bridges, school-houses, churches, and other 
 private and public wants to provide for, — if nature 
 were not thus kind, their progress would be slow 
 
FALLACIES OF PKOTECTIVE THEORY. 119 
 
 and difficult. This has ever been the case in all new 
 settlements. 
 
 But what succeeds to this primitive condition of 
 things? When the original fertility is exhausted, 
 when the people have acquired so much wealth as 
 to be able to attend to the actual cultivation and im- 
 provement of the soil, they invariably commence the 
 art of true agriculture, by various processes of fertili- 
 zation. The result always has been, always will be, 
 that old countries that have been long cropped are 
 the richest in their fertility. Instance Great Britain, 
 and every other country where persons and property 
 have been made secure by law. 
 
 PROTECTION or CAPITAL. 
 
 Faltacy 7th. That the home capitalist is especially 
 benefited by protective duties which shut off com- 
 petition with the cheaper capital of the foreigner. 
 
 This is a very common but mistaken opinion. If 
 it be for the interest of the laborer, as we have en- 
 deavored to show, that the rate of wages should be 
 lower abroad than at home, it must be equally for- 
 tunate for the capitalist that the rate of interest in 
 other countries is lower than in his own ; because in 
 exchanging his products, or that which has been 
 created by the use of his capital, for commodities 
 created with cheaper capital, he will have the same 
 advantage we have seen to inure to the laborer. If 
 the rate abroad is but half what he receives, he ob- 
 tains twice as many commodities for the use or em- 
 ployment of his capital as he otherwise could do. 
 The laborer and capitalist stand on precisely the 
 
120 EXCHANGE. 
 
 same platform ; and their interests are in this case, 
 as in all others, in perfect unison. 
 
 FREEDOM OP EXCHANGE ESPECIALLY BENEFICIAL TO 
 THE MERCANTILE AND TRADING CLASSES. 
 
 Fallacy 8th. That unrestricted trade benefits the 
 mercantile and trading classes only, at the expense 
 of all others. 
 
 This idea, b}^ whomsoever entertained, is but a 
 short-sighted and incorrect view of the matter, since 
 the amount of foreign or domestic trade can only be 
 as the amount oi production ; and therefore, if obstruc- 
 tions to trade do, as we insist, necessarily diminish 
 ]yroduciion, then they injure not only the producing 
 classes, but the trading and transportation classes as 
 well. 
 
 Besides the direct producers, the Laborers and 
 capitalists of the nation, a third class of persons is 
 found to whom the question of freedom of exchange 
 is of great importance ; viz., the entrepreneurs, the 
 mercantile, trading, and transportation classes, who 
 stand between the producer and consumer, and 
 through whose hands by far the greatest part of the 
 products of a nation must pass before they are finally 
 disposed of in use. 
 
 If it be true that the fewer the obstacles in the 
 way of exchanging commodities, the greater will 
 be the production, and of course the larger the field 
 of commercial operations, then we shall find that the 
 interests of this middle class are quite in harmony 
 with those of which we have previously spoken. The 
 business of the merchant must be extended or con- 
 tracted just in proportion to the extension or con- 
 
FALLACIES OF PROTECTIVE THEORY. 121 
 
 traction of the general production of the countrj in 
 which he resides. 
 
 If, then, as we have endeavored to show, the re- 
 moval of all obstacles to the most unrestricted com- 
 mercial intercourse is for the interest of the laborer, 
 the agriculturist, and other classes connected with 
 production and exchange, — as these must constitute 
 an immense majority of the entire population, at 
 least nine-tenths of the w^hole, — the conclusion is 
 irresistible that the general industry of any people 
 is best protected bj entire freedom of intercourse 
 w^ith all mankind, whether paupers or princes. 
 
 PROTECTION IS A WAR OF INTERESTS, 
 
 which necessarily introduces internecine strife be- 
 tween the different industries of a country; and the 
 further the policy is carried, the more severe the an- 
 tagonism. Whenever government interferes to favor 
 one industry by raising the price of its products, it 
 does so, of necessit}^ by taxing all other interests. 
 If prices are raised, somebody must pay the advance. 
 When the price of coal, for example, is enhanced by 
 a duty on the foreign article, every manufacturer in 
 the nation who uses coal pays a tax to the miner. 
 The interests of the miner and coal consumer are 
 brought into collision, and one must suff'er that the 
 other may l)e benefited. 
 
 If government interferes to obstruct the trade in 
 iron, every mechanic in the nation, to whom it is 
 raw material (and it is so to a numerous class of ar- 
 tisans), is injured in his business. There are proba- 
 bly at least a hundred different industries for which 
 iron, in some of its forms, is the raw material; and 
 
 11 
 
122 EXCHANGE. 
 
 in the aggregate these are many times larger than 
 the production of the iron itself; yet all must bear 
 the greater cost of the article which forms the basis 
 of their operations. Their power to compete with 
 the foreigner is reduced to the whole extent of the 
 duties they are compelled indirectly to pay. 
 
 Besides all this injury to the general industry, 
 every consumer of iron (and who is not such directly 
 or indirectly?) is brought into a position of antago- 
 nism with the iron producer. The former is injured 
 to a greater extent even than the latter is benefited. 
 Tliere is no escape from this conclusion. Protect 
 the domestic wool-grower by a duty upon the foreign 
 article, and at once the woollen manufacturer justly 
 complains that his business has been interfered with, 
 because he wants a free opportunity to get a supply 
 of the foreign article as low as it can be had in Eng- 
 land or any other country, otherwise he cannot 
 compete with the foreign manufacturer. Thus a 
 direct war of interests between the wool-grower and 
 woollen manufacturer is commenced, destructive to 
 both. If a duty is laid on wool, the manufacturer 
 certainly suiters : if, to counteract this, a duty is laid 
 on foreign fabrics, both parties are injured, and the 
 entire community is laid under onerous burdens. 
 
 Perhaps the most striking instance of the col- 
 lision of interests arising from attempts to favor a 
 particular branch of industry is found in the case 
 of the home duties laid to favor the manufacture of 
 steel. *' The whole number of persons engaged in 
 the direct manufacture of steel in the United States 
 is not, as the Special Commissioner of Revenue in- 
 forms us, in excess of three thousand live hundred; 
 
FALLACIES OF PROTECTIVE THEORY. 123 
 
 while the number of those who use steel as a raw 
 material for the manufacture of axes, chisels, files, 
 cutlery, spades, shovels, pistols, machinery, and 
 other tools and implements, is not less than two 
 hundred thousand ; while an addition of those in- 
 directly interested in having cheap steel would 
 swell this number to one million five hundred 
 thousand." 
 
 !N^ow if it were true that the duties upon steel 
 advanced the was-es of the three thousand five 
 hundred laborers employed in producing it, must 
 not the business of the two hundred thousand per- 
 sons using steel as a raw material be correspond- 
 ingly depressed? Would not the latter, being many 
 times more numerous, lose more than the former 
 gained? That-such was the view of the case taken 
 by those who used steel as a raw material, we know 
 from actual information, personally obtained from 
 one of the largest manufacturers of cutlery in the 
 United States. We heard him remark that the 
 heavy duties upon steel operated greatly to his dis- 
 advantage ; and if Congress would remove those 
 duties, he did not need any protection whatever, 
 nor ask any favors. 
 
 The result would seem to be that if the protec- 
 tive duties on steel benefit three thousand five hun- 
 dred laborers engaged in producing it, they must 
 injure two hundred thousand persons employed in 
 working it, and one million five hundred thousand 
 connected with their operations; while they impose 
 an oppressive tax upon a population of thirty-eight 
 millions. 
 
 In this last specimen of governmental intermed- 
 
124 EXCHANGE. 
 
 clling, we have a striking illustration of the certain 
 effects of all measures designed to favor particular 
 interests. 
 
 CHAPTEE V. 
 
 PROTECTION (concluded), other obstructions 
 
 CONSIDERED. 
 
 Legal protection, as we have already said, may 
 be imposed from one or more of four general 
 reasons. 
 
 We have discussed the two first, viz.: 
 
 To raise a revenue. 
 
 To encourage the growth of certain commodities 
 at home. 
 
 We now come to the remaining reasons, which 
 will demand but little attention, as their principles 
 have already been developed. 
 
 1. To support existing manufactures. 
 
 Here we leave the expediency of founding special 
 industries by a system of protection, and confine 
 ourselves to the question, whether such industries 
 having been begun and developed under high tariff's, 
 capital having become so engaged, labor having be- 
 come so employed, it is not necessary to continue 
 the protection. 
 
 So far as this acknowledges a moral obligation 
 on the government to save from loss those who 
 have followed the guidance of its laws, it is a ques- 
 tion for the statesman. But the economist can urge 
 
PROTECTION. 125 
 
 that, if the burden of such bad investments must be 
 borne by the public, it would be preferable to have 
 it assumed in the shape of direct relief to the manu- 
 facturers, rather than by a system which is sure to 
 multiply such unfortunate enterprises, and perpetu- 
 ate their weakness. That great caution and for- 
 bearance are necessary, in removing even a false 
 institution, is not a maxim which economy has to 
 teach politics. 
 
 THE PRACTICAL DIFFICULTY. 
 
 And here we come face to face with the great 
 practical difficulty of protection in our country ; 
 that which, if all its principles were triumphantly 
 proved in general reasoning, should still throw it 
 out of our legislation. If it were proved harmless, 
 if it were proved beneficial, there is a strong reason 
 against ever attempting to realize it here. That 
 difficulty resides in the varying politics of our 
 country. Injurious as protection is to the best 
 interests of the country, any system of it, however 
 severe, would be preferable to the '' open-and-shut" 
 policy, absolutely unavoidable in a government like 
 ours. It is not within the bounds of reason to sup- 
 pose that the alternate successes of parties will not 
 continue to convulse our national legislation; and 
 therefore it is with emphasis true, that a persistent 
 system of protection is only possible in a govern- 
 ment with great conservative force and great central 
 powers. 
 
 2. To secure commercial independence. True com- 
 mercial independence is attained by any nation, 
 when its natural resources are so developed and 
 
 11* 
 
126 EXCHANGE. 
 
 cultivated that it becomes a power in the world, 
 can command the products of the industry of every 
 climate, because it can furnish that which all others 
 want. This is independence in commerce. Inde- 
 pendence of commerce is the independence of the 
 savage. 
 
 But it is claimed that such a separation from all 
 offices of kindness is necessary to protect nations in 
 war. So far as the state urges the claims of its own 
 safety, the principles of economic science must be 
 silent. But this interference with the laws of value, 
 for the preservation of the national life, must be 
 strictly limited to the absolute necessities of war. 
 
 But the argument for protection from the neces- 
 sities of war has almost disappeared in the intenser 
 light of our growing civilization. The independ- 
 ence of each nation in commerce, existing harmoni- 
 ously with its dependence on commerce, forms the 
 best hope of peace and tranquillity for the future. 
 It may be safely assumed that the probabilities of 
 war between any two peoples are inversely as their 
 commercial relations. 
 
 THE FINAL ARGUMENT. 
 
 But, after all argument has been closed on the 
 principles of protection, we still find one plea re- 
 maining. If freedom of intercourse, it is said, were 
 only universal, it w^ould be well; but, since it is 
 not, each nation must protect itself, and do as it is 
 done by. 
 
 If England should exclude our wheat, she would 
 raise the price of the article at home ; that would 
 necessarily increase the expense of living with her 
 
PROTECTION. 127 
 
 working classes; that would cause a rise of wages, 
 that would enhance the cost of making iron, and all 
 other commodities; and that would make it more 
 easy for us to compete with her in producing every 
 article we need, and hasten the time when we should 
 supply ourselves. 
 
 Let us suppose that England refuses to take our 
 wheat. Would that be a good reason why we 
 should not take iron from her, if we get it so, 
 cheaper than by making it? We have already 
 shown that the protected suffers more than the 
 excluded community. 
 
 What advantage is there in refusing to buy of a 
 nation because it refuses to buy of us? It is re- 
 taliation and revenge, not self-defence or self- vindi- 
 cation. The most wise and useful economical act 
 of this century was that by which, by the exertions 
 of Mr. Cobden, England and France, so long con- 
 tending only in exclusions and mutual injuries, 
 threw open their ports to the free entry of hun- 
 dreds of articles, to the common benefit of both, 
 and to the advancement of o:ood feelino: and heartv 
 alliance ; a measure that, between the years 1859 
 and 1863, increased by seventy-three per cent, the 
 trade of Great Britain with France, while proving 
 no less beneficial to the labor of the latter countrv. 
 
 W^e infer, from all that has preceded, that '^pro- 
 tection" is an unfortunate expression. To restrict 
 industry, -to put the bad on the level of the good, 
 to remove from industry its only guaranty of a full 
 reward, to contract trade and neutralize the gifts 
 of IN'ature, is not protection, in any proper sense 
 of the word. It is spoliation. 
 
128 EXCHANGE, 
 
 OBSTRUCTION TO TRADE BY A DEFECTIVE STANDARD 
 
 OF VALUE. 
 
 Governments cannot only restrict trade by heavy 
 and discriminating duties on foreign goods, but 
 also by establishing or permitting a false standard 
 of value through a redundant and consequently 
 depreciated currency, which, of necessity, prevents 
 the exportation of many articles that might other- 
 wise be advantageously produced in the country. 
 
 The consideration of this question more properly 
 belongs to another department of our general sub- 
 ject, and we present it now only that it may be 
 recognized as one of the many ways in which gov- 
 ernments unintentionally, but not the less effect- 
 ually, diminish commerce and retard domestic man- 
 ufactures. 
 
 The principle involved may be briefly stated as 
 follows: A depreciated standard of value raises the 
 cost of all domestic products and the rate of wages 
 as measured by it, and of course increases the cost 
 of home manufactures to such an extent that they 
 cannot compete Avith forign products aoiome, or be 
 advantageously sent to those countries that hav^e a 
 correct standard of value. 
 
 The practical operation of this principle is abun- 
 dantly shown by the fact that in 1860, when our 
 currency was at par with gold, we exported of our 
 domestic manufactures $47,160,000, while in 1868 
 the amount was but $37,856,723. But the effect is 
 still more strikingly seen in the case of our cotton 
 fabrics, the exports of which amounted in 1860, 
 
PROTECTION. 129 
 
 under a currency at par with gold, to f 10,934,796; 
 while in 1868, under a depreciated currency, they 
 were but $3,479,324, — a falling off of nearly two- 
 thirds, while, according to the rate at which they 
 previously advanced, they should have trebled. ITo 
 demonstration of the truthfulness of our position 
 could be more complete than is afforded by the 
 tables from which we quote. Indeed, it would 
 seem that no proof in the case could be needed, 
 since the principle is self-evident and needs only 
 to be stated. 
 
 TRANSPORTATION OBSTACLES. 
 
 A new and serious obstacle to the general trade 
 of the country has presented itself within the last 
 few years, in the heavy railroad tolls imposed in 
 consequence of extensive combinations by managers 
 of different naturally competing lines, who are thus 
 enabled to establish exorbitant rates for freiofht. 
 
 This has already become an evil of great magni- 
 tude, and is evidently increasing with the constant 
 extension of railroads and the increase of these com- 
 binations, so that the industry of some sections of 
 the country is already sensibly affected by it. The 
 results of these monopolies are twofold : 
 
 1. They discourage production ; for when it takes 
 the value of one bushel of wheat to get another 
 bushel to market, the inducement to raise wheat is 
 diminished : so of all other products. The conse- 
 quence is, that farmers cannot afford to cultivate 
 their least productive lands at all, except so far as 
 they consume their own products. 
 
130 EXCHANGE. 
 
 2. To increase th6 cost of products at the place of 
 exportation is to diminish trade, especially foreign 
 commerce. All that is excessive in tolls is just so 
 much protection to the agriculture of other coun- 
 tries. If it cost ten or fifteen cents per bushel more 
 to transport wheat from Iowa to ITew York than it 
 ought, the wheat- grower on the shores of the Black 
 Sea, who competes with the American producer in 
 the markets of Europe, has the full advantage of it, 
 and will increase his production and profits accord- 
 ingly. 
 
 Duties upon exports which come finally into com- 
 petition with foreign productions are justly consid- 
 ered injurious to the industry and trade of a country ; 
 but excessive tolls have the same effect, besides 
 being more objectionable from the consideration 
 that, while duties would go into the public treasury, 
 and constitute a part of the national revenue, and 
 thus relieve the whole people of a part of the public 
 burdens, tolls only enrich the few who own or man- 
 age railroads. 
 
 SOCIAL OBSTACLES. 
 
 Another mode in which trade may be interrupted 
 is by what we have iermed social obstacles. We have 
 also called these incidental, there being no original 
 intention to affect the direction of labor. These 
 often have the same influence upon production and 
 exchange that physical or legal obstructions occa- 
 sion. A most impressive illustration is found in the 
 results of the war of the Rebellion in the United 
 States. The production and sale of cotton in this 
 country were for a time greatly hindered, almost 
 
PROTECTION. 131 
 
 annihilated. This caused an immense advance in 
 the price of that article in India and Egypt ; and 
 this, of consequence, greatly stimulated production 
 and speculation in those countries, especially in 
 India, where the culture had been comparatively un- 
 profitable. Under the encouragement thus afforded, 
 it became far more advantageous than any other 
 branch of industry. India increased in wealth with 
 surprising rapidity, and a great industrial revolution 
 was effected. But it was at a heavy expense to all 
 other peoples and countries. What India gained 
 Europe and America lost, the former as consumer, 
 the latter as producer. The wealth of the world was 
 not increased by all this, but largely diminished, and 
 healthy commerce widely deranged. 
 
 Even India itself has not been permanently bene- 
 fited by the extraordinary demand for cotton. The 
 return of peace in the United States, bringing down 
 the price of her great staple, caused extensive bank- 
 ruptcy and general commercial distress, greater than 
 ever known before. Thousands of the population 
 starved to death in consequence of the culture of rice 
 having been abandoned for that of cotton. 
 
132 EXCHANGE. 
 
 CHAPTER VI. 
 
 BALANCE OF TRADE. 
 
 What is meant by the balance of trade ? 
 
 An actual balance of trade is the difference be- 
 tween the amount of values exported and the amount 
 of values imported. This seems a very simple prop- 
 osition ; yet the question is one of great complexity, 
 from the fact that it is difficult to determine with 
 certainty whether the exports of a nation do or do 
 not actually equal the imports. Superficial observers 
 resort to the financial returns made to the govern- 
 ment; and finding, for example, that the imports of 
 1854 amounted to $304,562,381, while the exports 
 were but $278,241,064, leaving a difference of 
 $26,321,317, they hastily conclude that the balance 
 of trade was against this country to that amount. 
 Such a conclusion would not have a sufficient foun- 
 dation. 
 
 To understand this subject, we must notice that 
 the exports are stated at their value at our own 
 custom-houses, while the amount imported is stated 
 at the value in foreign countries. If we suppose 
 the amount exported in 1854 was on American ac- 
 count, and paid a profit of only nine per cent, on the 
 custom-house valuation, we shall find that it will 
 amount to $25,041,695, a sum ver3^ near the assumed 
 balance , and, if so, the commodities exported actu- 
 ally paid for the amount imported, and the supposed 
 unfavorable balance is annihilated. As the goods 
 
BALANCE OF TRADE. 133 
 
 exported should sell for enough abroad, and as they 
 do generally sell for enough to pay all charges of 
 freight, insurance, etc., with reasonable commissions, 
 say in all fifteen per cent., we may justly infer that 
 there was, in fact, a balance in favor of this country 
 in 1854. But the question whether there was or 
 was not an actual balance that year can only be 
 determined by ascertaining whether our exports gen- 
 erally sold for an advance sufficient to pay for the i i;- 
 ports. This is known only to those engaged in o • 
 familiar with the results of the export trade of 1854. 
 The balance might have been greater or less than 
 what it appears from custom-house statistics. 
 
 On the other hand, in 1855, our exports exceeded 
 our imports by $13,688,326. Does that show a bal- 
 ance in favor of the United States? Apparently; 
 yet there might have been a loss upon our exports 
 which would more than balance the $13,688,326. 
 
 Although the financial tables of the Secretary of 
 the Treasury do by no means decide the balance of 
 trade, and the custom-house returns are never con 
 elusive evidence, yet there are cases in which theie 
 is no reasonable doubt on which side the balance is. 
 In 1836, for example, we exported one hundred and 
 twenty-eight millions, and imported one hundred 
 and eighty-nine millions; an excess of sixty one 
 millions, making a difi^erence of sixty per cent, over 
 exports. In this case, there could be no doubt there 
 was a larger actual balance against the country, be- 
 cause the profits could not have been equal to the 
 excess. So too, to go further back, in 1816 the ex- 
 ports w^ere fifty-two millions; imports, one hundred 
 and twelve millions; excess, sixty millions, or more 
 
 12 
 
134 EXCHANGE. 
 
 than one hundred per cent. The unfavorable baU 
 ance in both cases caused great distress by the 
 necessary exportation of specie. 
 
 BALANCE OF TRADE — HOW ADJUSTED. 
 
 If the commerce of a country is in a really pros- 
 perous condition, the value of its imports will, in 
 the long-run, exceed its actual exports, because its 
 export trade should pay a protit. !N"o country is 
 enriched by trade, unless its aggregate imports do 
 exceed in value its exports. It is no matter whether 
 the excess of imports over exports is brought into 
 the country in specie or any other desirable com- 
 modity, provided its own currency be a true standard 
 of value. 
 
 The trade of the United States for 1863 showed 
 the following results : Exports (Financial Report, 
 18H4), $350,152,125; imports, $252,187,587; bal- 
 ance, $97,864,538. The returns also showed an ex- 
 port of gold to the amount of $82,364,482, an import 
 oFgold of $9,584,105,giving a balance of $72,780,377. 
 A considerable part of this gold was, doubtless, sent 
 abroad for safe keeping by timid capitalists, and not 
 over-loyal citizens. The large balance of seventy- 
 two millions in favor of the United States was no 
 indication of a profitable trade that year ; quite 
 otherwise. The balance of gold exported in 1864 
 was ninety-one millions. Another fact, that throws 
 additional conjecture upon the apparent balance of 
 trade, is, that false invoices are used to an enormous 
 extent at our American custom-houses. Whenever 
 duties are charged upon the cost of the commodities, 
 
BALANCE OF TRADE. 135 
 
 it is an object to have them invoiced as low as pos- 
 sible. Fraudulent invoices are often made out abroad 
 and sworn to by the importers here, and thus the 
 actual value or amount paid for the foreign merchan- 
 dise is not accurately exhibited. The Revenue Com- 
 missioners (see their Report to the Secretary of the 
 Treasury, January 29, 1866, page 45) estimate that 
 the frauds at the New York Custom-House alone 
 are from " twelve to twenty-live millions annually.'* 
 The aggregate of these frauds throughout the country 
 has been estimated as high us forty millions per an- 
 num ; but, if they amount to only thirty millions, 
 the " balance of trade" is seriously influenced by 
 them. 
 
 Many considerations of this general character 
 might be brought forward ; but sufiicient has al- 
 ready been said, we trust, to show what the real 
 nature of a balance of trade is, and how diflacult a 
 matter it must always be to determine with ac- 
 curacy upon which side it actually is, and what its 
 amount. 
 
PART SECOND -INSTRUMENTS OF EXCHANGE. 
 
 CHAPTEK I. 
 
 BARTER AND THE DIFFERENT FORMS OF CURRENCY. 
 
 We have discussed the principles upon which 
 exchanges are made. We now come to consider 
 the instruments by which they are effected. 
 
 These are of three kinds: 
 
 1st. Barter. 
 
 2d. A common medium, or cuurency. 
 
 3d. Different forms of credit. 
 
 'No person produces everything he wishes to con- 
 sume. Even in the savage state, men will obtain 
 different products, as they have skill and oppor- 
 tunity. These they will exchange among them- 
 selves in kind. 
 
 As the civilized state appears, the necessity for 
 interchange of commodities increases, and barter, 
 or exchange in kind, becomes a very inconvenient 
 and clumsy mode of effecting the desired object. 
 For example, the farmer may wish to exchange 
 wheat for a hat; but the hatter is already supplied : 
 what, then, will the hatter accept? A table. The 
 farmer must then go to the cabinet-maker, and offer 
 his wheat for a table. But the cabinet-maker is 
 supplied with wheat. He would, however, accept 
 a pair of boots. The farmer applies to the boot- 
 maker, who happens to wish for wheat and accepts 
 (136) 
 
BARTER AND CURRENCY. 137 
 
 the offerT "With the boots the farmer gets the table, 
 and with the table gets the hat which he desired. 
 
 In such a state of things, this was the only process 
 by which exchanges could be effected; circuit us, 
 and expensive in time and labor, as it was. 
 
 We might have supposed a far more difficult 
 case; but this is s-ufficient to illustrate the incon- 
 venience of barter, or the direct exchange of com- 
 modities. But there is still another difficulty, of 
 scarcely less magnitude. When articles to be ex- 
 changed became numerous, it would be found a 
 very intricate matter to establish satisfactorily the 
 relative value of each. For example, how many 
 sheep shall be given for a cow? How many cows 
 for a horse? How much corn for a bushel of wheat? 
 How much butter for a gallon of molasses? How 
 many eggs for a pound of tea, sugar, or coffee? 
 How many of any or all of these for a cart, plough, 
 spade, chair, table, etc., through an interminable 
 series of exchanges? 
 
 Under such circumstances, there could be no 
 such thing as pricey because there would be no com- 
 mon standard, to which the value of all articles 
 could be referred. 
 
 What, then, was wanted ? Evidently, some article 
 which all persons, either by common consent or the 
 force of law, shall accept for whatever they have to 
 sell, and by which they will measure the value of 
 anything sold. 
 
 That article would perform two important func- 
 tions ; viz., it would be an instrument of exchange, 
 and a standard of value : in other words, it would 
 be money. 
 
 12* 
 
138 EXCHANGE. 
 
 We learn the true nature of money, th"^en, from 
 its origin and the functions it performs. These 
 offices or functions we must examine in detail. 
 
 1st. As a medium of exchans^e. This mav be 
 wholly conventional. Anything, which, by general 
 consent or in obedience to law, all receive in ex- 
 change, will answer the purpose. So far as this 
 function is concerned, it is of no consequence 
 whether the article has value or not: safety and 
 convenience are the only considerations of impor- 
 tance. Money, in this respect, is simply a counter, 
 token, or universal equivalent. 
 
 2d. As a standard of value. Value is not con- 
 ventional. It attaches to all objects which are de- 
 sired, but cannot be had without eftbrt or labor. 
 Since the value of anything is its power in exchange, 
 we say that nothing is valuable which will not com- 
 mand labor, or that which costs labor. 
 
 "Value implies comparison, appropriation, estimation, measure. 
 In order that two things should measure each other, it is necessary 
 that they be commensurable; and, in order to that, they must be 
 of the same kind." — Bastiat. 
 
 Therefore, if we would measure value, we must 
 use an article that has value in it. The measure 
 must evidently have the same quality as the thing 
 to be measured, — weis^ht to measure weio-ht, length 
 to measure length, volume to measure volume, value 
 to measure value. 
 
 The standard must be as nearly invariable as pos- 
 sible. An absolutely invariable standard is unat- 
 tainable, because the standard itself must be subject 
 to the same laws as the objects to be measured; 
 
BARTER AND CURRENCY. 139 
 
 that is, cost of production, supply and demand, etc. 
 Hence we must take that for a standard, which, on 
 the whole and in the long-run, is subject to the 
 least fluctuation. Of all objects of this kind, we 
 shall see that the precious metals are the least liable 
 to great and violent changes in value. 
 
 In examining the principle of barter, we were, 
 forced, by its practical difficulties, to accept the re- 
 source of a universal equivalent for all commodities. 
 This, in its original form, is money. But the course 
 of civilized industry has introduced several forms of 
 such an equivalent, of which the money, by which 
 men first escaped from the difficulties of barter, is 
 only one. All these forms are classed as currency; 
 and therefore, in discussing the instruments of ex- 
 change, next after barter we come to the subject 
 of— 
 
 CURRENCY. 
 
 This is a general term for all the contrivances by 
 which society seeks to effect a general exchange 
 of values, and discharge pecuniary obligations. 
 There are four distinct kinds or species of cur- 
 rency, each differing from the others in important 
 particulars: 
 
 1st. The first of these instruments is called 
 MONEY. Any article, which, having a universally 
 recognized value in itself, all persons accept as an 
 equivalent, or medium of exchange, and which, 
 consequently, becomes the standard by which all 
 other values are measured or determined, and in 
 which all pecuniary obligations are expressed and 
 discharged, is money. Being composed generally 
 
140 EXCHANGE. 
 
 of the precious metals, it is often known as "hard- 
 money currency," but is more properly a value cur- 
 reiicy. 
 
 2d. The second kind of currency consists of 
 written promises, made usually by governments, 
 to pay money at a distant or indefinite period, 
 which nevertheless, by force of law or other cir- 
 cumstances, are accepted as money, and perform 
 its general functions. The notes issued by the 
 treasury of the United States, and familiarly known 
 as *' greenbacks," now in circulation, are of this 
 description. They form a strictly credit currency, 
 but, in common parlance, are called paper money. 
 
 3d. A third description of currency is formed of 
 written promises to pay specie on demand, issued 
 in excess of the actual amount of specie, or money, 
 in possession of 'the promisors absolutely held for 
 the redemption thereof. These notes or promises 
 are generally issued by corporations, called bank- 
 ing institutions, and circulate, while current, as 
 money, performing all its functions. This is called 
 a mixed currency. 
 
 4th. A fourth kind of currency consists of written 
 promises, payable on demand, issued by responsi- 
 ble parties, for the payment of which, in full, the 
 specie is actually held in trust by the promisors. 
 As such a currency is precisely adapted to all the 
 wants of the trading and business classes, and fully 
 combines convenience with safety, the two great 
 desiderata, it may with great propriety be called a 
 
 MERCANTILE CURRENCY. 
 
 Of the four kinds of currency, it will be observed, 
 that two, the first and fourth, are classed as value 
 
MONEY. 141 
 
 currency; the second, as credit; the third, as mixed, 
 consisting of value and credit. 
 
 To obtain a clear and intelligent view of the sub- 
 ject, it is therefore quite necessary, that we divest it 
 of all its usual environments and associations, and, 
 for the time being, even of the forms and terms 
 with which we are familiar, and regard the question 
 as abstractly as possible. 
 
 CHATTEIl IT. 
 
 I. MONEY. 
 
 Having examined the nature and functions of 
 currency, we shall now speak of the actual money 
 of commerce, or the universally accepted equivalent. 
 
 In all ages and countries, this has consisted of the 
 precious metals, gold and silver, with the baser 
 metals or alloys for fractional purposes. Local cur- 
 rencies have been various. Lacedsemon had iron 
 mone}'. The Romans are supposed by many to have 
 used cattle and sheep in the earl}- periods of their 
 history ; and their coins bear the images of those 
 animals, as indicating their value. Tobacco was 
 once currency, and a legal tender, in Virginia. 
 
 The first currency legally established in Massa- 
 chusetts was bullets. The *' General Courte ordered 
 [March 4, 1635] that bulletts of a full boare shall 
 passe currently for a farthing a peice, provided that 
 noe man be compelled to take above 12^^ at a time." 
 
142 EXCHANGE. 
 
 Again, it was enacted "that meixhantable beaver 
 shall pass at X' the pound." In 163T, the " Courte 
 ordered that Wanipumpege should pass at six for a 
 penny, for all sums under 12^^." In 1640 and 1641, 
 additional laws were enacted, making wampum a 
 lawful tender. 
 
 . Many expedients like these have, at different 
 times and in different countries, been adopted to 
 secure a temporary and partial currency ; but from 
 the daj^s of Abraham, who paid ** four hundred 
 shekels, current money with the merchants, for the 
 field of Ephron," to the present time, the money 
 used in commerce has always been composed of 
 gold and silver. These, and these onl^^, have formed 
 the universal medium of exchange and standard of 
 value 
 
 The use of these metals arises from nothing con- 
 ventional. No international agreement was ever 
 made respecting them ; yet they are everywhere 
 and at all times, without hesitation, received in ex- 
 change for whatever any one may wish to dispose 
 of. They secure their currency simply hy their 
 peculiar adaptedness to the purpose. 
 
 What these peculiarities are, we propose now to 
 consider. 
 
 1st. They possess value, that is, have power in ex- 
 change. They cost labor, and are olyects of desire. 
 They cannot be had without labor, or an equivalent. 
 They are subject to all the laws of value as truly as 
 wheat or an}' other commodity. 
 
 2d. These metals are stable in value; that is, the 
 most so of know^n commodities. They are subject 
 to no violent changes, like flour or cotton : for ex- 
 
MONEY. - 143 
 
 ample, wlieat often varies from twenty-five to fifty 
 per cent, in a few months. They change in value, 
 indeed, from age to age; but so gradually is this 
 accomplished as to be quite imperceptible at the 
 time. 
 
 3d. They are conveniently/ portable; the most so, in 
 fact, of all commodities existing in adequate quan- 
 tity. 
 
 4th. These metals are malleable. They can be 
 wrought into any shape, will receive and retain any 
 impression, may be divided into the minutest quan- 
 tities, and again united, with the smallest possible 
 loss. 
 ■ 5th. They are oi uniform quality. Gold and silver 
 are always and everywhere the same. Found in Cali- 
 fornia, Australia, or Russia, gold is everywhere gold. 
 
 6th. They maj^be readily alloyed or refined. By 
 alloy they are made harder, and so adapted to use 
 as money. However alloj^ed, they can easily be 
 restored to their original purity without loss. 
 
 7th. They are indestructible by accident. Fire does 
 not consume them ; atmospheric influences cause no 
 decomposition : so that the gold and silver in use 
 in the time of the Ptolemies may form a part of the 
 currency of the world to-day. 
 
 8th. They are universally ajypi^eciated. The precious 
 metals are regarded as beautiful and desirable in all 
 countries, and among all races, civilized or savage. 
 The demand for them is without limit. 
 
 9th. They are generally diffused. These metals are 
 found in every principal section of the globe, — Eu- 
 rope, Asia, Africa, North and South America, and 
 Australia. 
 
144 EXCIIAXGE. 
 
 lOtL. They are sufficiently 2de7iilfuL INot more than 
 two-thirds of the gold and silver now in the posses- 
 sion of man is believed to be used as money, the 
 balance being in plate or other objects of utility and 
 ornament. 
 
 11th. They are nearly inconsumable by use. The use 
 of almost all other commodities causes their rapid 
 destruction. Articles used as food or clothing, for 
 example, disappear entirely in a comparatively short 
 period. Even iron, as used for most purposes, — in 
 railroads, agriculture, the mechanic arts, etc., — lasts 
 only a few years. With gold and silver it is quite 
 different, though the exemption from waste is more 
 remarkable in the case of gold. Indeed, its ordinary 
 and principal use can scarcely be called consump- 
 tion, it is so gradual. 
 
 It has been ascertained, from data carefully ob- 
 tained in the Bank of England, that gold in coin 
 loses only 4*16 per cent, in one hundred years, or 
 about one per cent, in twenty-live years. 
 
 Investigations made at the United States Mint, as 
 by Keportof 1862, showed that the wear and tear of 
 gold and silver used as coin was only as 1 to 2400 ; 
 that is, it cost but one dollar to keep 2400 dollars in 
 circulation. Gold half-eagles only as 1 to 3500 per 
 annum. 
 
 When used for gilding and similar purposes, it is 
 much more rapidly consumed ; but the amount so 
 employed is very small, in comparison with the 
 whole mass. When used in plate, the consumption 
 is even less than in coin ; and a larger part of that 
 which goes into jewelry returns into bullion in the 
 lapse of time. 
 
MONEY. 145 
 
 COINAGE. 
 
 Having seen how admirably adapted the precious 
 metals are for use as money, we pass to a considera- 
 tion of those artificial arrangements by which they 
 are still further and more completely fitted for that 
 purpose. 
 
 At first these metals were used in ingots and bars, 
 and passed by weight. Whenever a pecuniary 
 transaction was made, scales were required to deter- 
 mine the quantity given in exchange. This was a 
 clumsy and imperfect mode of payment; for there 
 would arise the question of quality as well as quan- 
 tity, — of the pureness or fineness of the metal. This 
 could only be ascertained by assay; and that could 
 be accomplished only by persons having the neces- 
 sary knowledge of metallurgy, with apparatus for 
 conducting the process. 
 
 It was therefore natural, that, at an early period, 
 a contrivance was hit upon wliich obviated all diffi- 
 culties. The bars, or ingots, designed for money, 
 were first assayed, and made of one degree of fine- 
 ness. This degree was called the standard. The 
 metal thus assayed was then divided into pieces, and 
 the weight carefully ascertained, and stamped upon 
 each. These pieces were called coins; the process, 
 coinage. As this coinage involved great responsi- 
 bilit}^ it very properly became the duty and pre- 
 rogative of the government. Each government 
 established an institution for the purpose, called a 
 mint. To these mints the people carried their gold 
 and silver, and, b}' paying a very trifling seigniorage, 
 had the whole amount returned to them in coin. 
 
 13 
 
146 EXCHANGE. 
 
 Such is the character of a currency composed en- 
 tirely of money, or that which has value in itself. 
 Of ail subjects, this is one of the most simple, most 
 free from all complexity and mystery. IS^o one can 
 fail to understand it. Government has not the 
 slightest occasion to interfere with or regulate it. 
 It obeys certain natural laws, which cannot be im- 
 proved by man. All that government can usefully 
 do is to certify to the weight and fineness of the 
 coinage. It has no further concern with money. 
 
 The main point to be borne in mind, in relation 
 to coinage, is, that government does not determine 
 the value at all, but simply certifies to the weight 
 and purity. 
 
 CHAPTER III. 
 
 II. CREDIT CURRENCY. 
 
 This we have already stated to consist of the 
 promises of government to pay money, which, by 
 force of law or the necessities of the people, are re- 
 ceived as money. It is simply the credit of the 
 nation, used as currency. The element of value does 
 not enter into it at all. It is precisely the opposite 
 of a value currency. 
 
 CHARACTERISTICS OF CREDIT CURRENCY. 
 
 Such a currency may transfer debts, but it cannot 
 pay them. The creditor may accept the promises 
 of the government in place of that of an individual, 
 but he receives no value. So far as issued by the 
 
CREDIT CURRENCY. 147 
 
 government and accepted for taxes and other public 
 dues, such notes are mere counters, used for cancel- 
 ling reciprocal obligations. If such notes are issued 
 beyond the natural volume of the currency, they 
 can never be kept at par with specie, or circulate at 
 their nominal value. Gold, as compared with them, 
 will bear a premium, the amount of w^hich will indi- 
 cate the excess and depreciation of the currency. 
 
 This premium is the result of the operation of the 
 laws of value ; and no legislation of free government 
 or edict of despotism can permanently change it. 
 Governments might as well prescribe the height to 
 which the tides of ocean shall rise, as to restrict or 
 reduce the premium on gold. 
 
 Such legislation is not only futile, but injurious, 
 producing an effect just opposite to that intended. 
 It disturbs the market price of gold, destroys confi- 
 dence in its actual price, and, by exciting distrust, 
 drives the premium far up beyond its natural limit. 
 
 The experiment made by the Congress of the 
 United States in 1864 showed most conclusively the 
 utter folly of attempting to interfere with the laws 
 of value. After the ''gold bill," so called, became 
 a law, the premium rose at once some fifty per cent, 
 above its previous rate. The unwise act was speedily 
 repealed, and the excessive premium it had caused 
 fell off. 
 
 EFFECT OF CREDIT CURRENCY ON PRICES AND INCOMES. 
 
 A general rise of prices follows the introduction 
 of a credit currency, because it is always issued in 
 excess of the natural volume of money; and conse- 
 
148 EXCHANGE. 
 
 queiitly, as prices most, in the average, conform to 
 the quantity of currency, they will advance as it is 
 increased. It is quite idle to attempt to evade the 
 operation of this law. When the Secretary of the 
 United States Treasury endeavored to "float" his 
 bonds by the issue of credit currency, he unfortu- 
 nately " floated" all the merchandise of the country 
 at the same time, so that the rise of prices compelled 
 him to pay double for all the government needed; 
 and hence he lost at least one-half of all the bonds 
 that were thus sold. 
 
 The effect on fixed incomes is very marked. From 
 whatever source, fixed incomes are depreciated in 
 value just in proportion to the depreciation of the 
 currency. 
 
 EFFECT ON CONTRACTS. 
 
 A credit currency, it may be safely assumed, is 
 always redundant; and, as such, its effect on con- 
 tracts is twofold. Obligations to pay money made 
 with a specie standard, and paid with credit cur- 
 rency, will impose a loss of value on the creditor 
 equal to the depreciation of the currency. 
 
 On the other hand, contracts made to pay money 
 during the existence of a credit currency, but which 
 mature and are discharged under a value currency, 
 will subject the debtor to the loss of all the dift'er- 
 ence in the value of the two currencies. Great in- 
 justice and suflfering resulted from this source, on 
 the recognition of American independence, in the 
 last century, among the first of which may be reck- 
 oned the Shay's Rebellion of Massachusetts. 
 
CREDIT CURRENCY. 149 
 
 Historically, it is found to be true, that a credit 
 currency has never yet been kept within the natural 
 limit of the value currency of the country in which 
 it was established. The '' continental money" of 
 the American Revolution; the assignats of the 
 French Revolution ; the bank money of England 
 during the i^apoleonic wars ; and, lastl}^ the green- 
 backs, or treasury notes, issued during the late 
 Rebellion, and the present paper currency of Rus- 
 sia and Austria, are illustrations in point. 
 
 A credit currency never has been regulated in 
 such a manner as to keep it on a par with specie, 
 and probably never will be. The necessities of 
 government are so pressing that the temptation to 
 increase the amount becomes too great for resist- 
 ance. As prices rise in consequence, the currency 
 becomes of less and less value, that is, has a decreas- 
 ing power in exchange, so that the inducement to 
 issue becomes continually stronger as the volume 
 expands. 
 
 But the issue of a legal-tender credit currency *is, 
 under any circumstances, a great wrong, and can 
 never be justified except in the most extreme cases 
 of national peril ; and, even in those instances where 
 it has been defended as an indispensable measure, 
 events have generally proved it to have been a mis- 
 taken and short-sighted policy. 
 
 CREDJT CURRENCY A FORCED LOAN. 
 
 AVhen a government issues its notes as currency, 
 and makes them a legal tender, or authorizes other 
 parties to do so, it creates a forced loan. 
 
 13* 
 
150 EXCHANGE. 
 
 All creditors are compelled to receive these notes 
 for whatever may be due to them, which is equiva- 
 lent to making a loan to the government to the 
 amount so received; and those who sell their 
 property are obliged to take these promises, since 
 there is no other currency in use, so that the whole 
 amount thus put into circulation becomes a com- 
 pulsory loan to the government. 
 
 CREDIT CURRENCY A DIRECT TAX. 
 
 As soon as legal-tender credit notes begin to de- 
 preciate in value, or, in other words, as soon as com- 
 modities rise in consequence, each person who re- 
 ceives them pays a tax equal to their depreciation. 
 For example, if he receives a ten-dollar note, which 
 will bring him but eight dollars' worth of merchan- 
 dise at the gold price, he has contributed two dol- 
 lars to the government. So, of course, with all 
 who receive notes in payment for debts contracted 
 prior to the issue of such currency. 
 
 •For illustration, the government issues one hun- 
 dred millions of its notes at first; and for this, as 
 prices have not been raised, it receives an equal 
 amount in value. It issues a second hundred mil- 
 lions ; but prices have advanced in consequence of 
 the first issue, we will suppose, fifty per cent., so 
 that the government gets but $66,666,666 in value. 
 A third issue is made of one hundred millions; but 
 prices have gone up one hundred per cent., and 
 the government gets but fifty millions in value. 
 Another issue of one hundred millions carries 
 prices up to one hundred and fifty per cent., and 
 only forty millions is realized in value. This is not 
 
MIXED CURRENCY. 151 
 
 intended as a statement of the precise fact, but to 
 exhibit the natural operation of such issues, and 
 shows the operation or general result upon the com- 
 munity of a credit currency as a direct tax : but the 
 effects upon different individuals are diversified in 
 every possible manner; one man losing, another 
 gaining by it, according to the position in which 
 the parties are found at the time they were com- 
 pelled to accept such a currency instead of money. 
 The law^s of value having been violated, universal 
 chaos in all monetary affairs is the inevitable conse- 
 quence. 
 
 The final result of the issue of an inconvertible 
 currency, then, is, that, if it is never redeemed, the 
 taxation it imposes is most unequally and unjustly 
 distributed; if it is finally paid, then the taxation 
 is not only unfairly distributed, but the amount 
 vastly increased, since the expenditures of the gov- 
 ernment have been largely enhanced by it. 
 
 CHAPTER IV. 
 
 III. MIXED CURRENCY. 
 
 Mixed currency is a modern invention, as yet 
 known only to a small part of the human race, and 
 but partially understood even in those countries 
 into which it has been introduced. 
 
 The Bank of England, the parent of all mixed- 
 currency institutions throughout the world, was 
 
152 EXCHANGE. 
 
 established in 1694; but its operations were so 
 limited, and its influence so partiall}' felt, during 
 the first century of its existence, that the character 
 of the currency it issued was hardly appreciated. 
 This bank made a grand suspension in 1796, and 
 continued in that state for over twenty-three years. 
 This was the first occurrence which demonstrated 
 practically the true nature of this kind of currency. 
 
 If we carefully observe the composition of a 
 mixed currency, we shall find it to consist of 
 promissory notes issued by individuals or corpora- 
 tions legally authorized to do so, in excess of the 
 actual specie held for their redemption. 
 
 This is rightfully called a mixed currency , because 
 it is, in fact, composed in part of value and in part 
 of credit. So far as specie is held for the payment 
 of these notes, this kind of currency is actually con- 
 vertible, and equivalent to money; but, in so far as 
 the credit element exceeds the specie, it is only a 
 •promise to pay money, and is really inconvertible. 
 It is the proportion of specie, whatever it may be, 
 which determines the quality of this kind of bank- 
 note circulation. Its quality is the great question 
 of interest to all who use this kind of currency; 
 and of that we propose now to speak. 
 
 THE QUALITY OP A MIXED CURRENCY. 
 
 This is by far the most important matter in rela- 
 tion to a mixed currency. What is the proportion 
 of specie held for its conversion? To ascertain this, 
 we must know, on the one hand, the amount of 
 notes in circulation, and the inscribed credits, that 
 
MIXED CURRENCY. 153 
 
 is, the deposits; and, on the other, the amount of 
 specie in bank. We have naught to do with any 
 other inquiry, so far as the quality of the currency 
 is concerned. We have no occasion to naake such 
 an inquiry in regard to monej^, for that has value in 
 itself, and needs no conversion; nor in relation to a 
 purely credit currency, for that does not profess 
 convertibility; but a mixed currency, to be reliable 
 and beneficial to the public, must be what it pro- 
 claims itself to be; viz., convertible on demand into 
 coin. 
 
 And here it is necessary to distinguish carefully 
 between the convertibility and the redeemableness 
 of a currency. The first may be uncertain or im- 
 possible, while the last may be sure. A bank may 
 be perfectly solvent, while its currency is almost 
 entirely inconvertible. 
 
 For example, a bank has promised to pay one 
 hundred thousand dollars in specie, while it has 
 only ten thousand dollars to pay with. The same 
 bank has demands against individuals, for their 
 notes discounted, to the amount of two hundred 
 thousand dollars. E"ow, it is certain that this bank 
 can convert only ten thousand dollars of its bills; 
 but it can, if sufficient time is allowed, redeem the 
 whole amount, by taking in its own notes in ex- 
 change for those of its debtors. The power of the 
 bank ultimately to redeem or cancel its notes may 
 be amply sufficient; though, for the conversion of 
 them into specie, it has the ability only to the ex- 
 tent of one-tenth. 
 
 A bank-note converted into coin, the money still 
 exists in circulation; a bank-note redeemed byre- 
 
154 EXCHANGE. 
 
 ceiving it for indebtedness to the bank, is taken out 
 of circulation ; that is, it ceases to be currency, and, 
 for the time being, is practically annihilated. The 
 circulating medium of the country is diminished to 
 that extent. This is the one great defect of a mixed 
 currency. 
 
 To illustrate this point, and show how much de- 
 pends upon the qualit}^ or convertibility of a mixed 
 currency, we propose to take that of the United 
 States as an example. In doing this, it will bo 
 indispensable that we refer to the statistics of bank- 
 ing institutions, and use the terms commonly em- 
 ployed by them; and therefore we now proceed to 
 define them. 
 
 LIABILITIES OP A MIXED-CURRENCY BANK. 
 
 1. Capital Stock. — This is the sum total of all the 
 amount paid into the bank, to constitute its means 
 of doine^ business. 
 
 2. Circulation. — This consists of notes of the bank, 
 of different denominations, payable on demand, 
 signed by its officers, and issued to circulate as 
 money. 
 
 3. Deposits. — These include all sums, from what- 
 ever source, that stand on the books of the banks to 
 the credit of individuals. They are properly called 
 inscribed credits: they are nothing more or less. 
 They are all legally payable on demand, in specie, 
 to those persons in whose names they stand. A 
 more full description of their nature and effects 
 will be given hereafter. 
 
 Bank Balances. — "Due to other banks'' and "due 
 
MIXED CURRENCY. 155 
 
 from other banks " are terms used in the official re- 
 turns made to the Treasury Department of the 
 United States. 
 
 They explain themselves. Banks, like individuals, 
 have open accounts with each other. These, in the 
 aggregate, must balance each other; but there is 
 often a considerable apparent difference, arising 
 from the fact that large sums are constantly in 
 transitu. 
 
 As aiFecting the character of a mixed currency, 
 these balances are an important item, because they 
 form the most explosive and dangerous element. 
 They are "deposits" in their nature, certain to be 
 drawn in any sudden emergency. This was strik- 
 ingly illustrated in the autumn of 1857. At that 
 time, the banks in the city of Xew York owed 
 some sixty millions of dollars which had been left 
 with them by distant banks in order to meet their 
 own liabilities. When the pressure came on, in 
 September and October of the year mentioned, 
 these banks began, of necessity, to call in their 
 balances. 
 
 This placed the l^ew York banks in a position 
 of great difficulty. To answ^er these calls would 
 require a large part of all their means; while, at 
 the same moment, the merchants and business men 
 of the city needed all the resources they could com- 
 mand. But the banks must meet the drafts made 
 for their balances, or suspend at once; and, accord- 
 ingly, were compelled to cut oft* all discounts, or 
 loans, to their regular customers. This state of 
 things could not be long endured; and the mer- 
 chants of the city, being soon driven to despera- 
 
156 EXCHANGE. 
 
 tion, began to draw upon their own deposits for 
 specie; and thus a general suspension took place, 
 not only in the commercial metropolis, but through 
 the country. 
 
 These balances, as they exist extensively in all 
 great cities, form the train that ignites the magazine, 
 and causes an instant and general explosion. The 
 Bank of England was compelled, in 1847, to obtain 
 a suspension of the act of 1844, by the threat of the 
 banking houses to withdraw their balances, and again 
 in 1857, and 1866. 
 
 Other Liabilities. — These consist of various obliga- 
 tions, which banks incur in the course of their 
 transactions with the public and each other. They 
 are not large compared with their aggregate liabil- 
 ities, but must be taken into the account. They 
 may be immediate or remote liabilities, but are 
 mostly immediate. 
 
 RESOURCES OF A MIXED-CURRENCY BANK. 
 
 Loans. — This item includes the sum total due the 
 bank from its customers for discount and advances, 
 and for which the banks hold notes or other obliga- 
 tions, payable at some future time; say, from one 
 day to four or six months, as the case may \$q. 
 
 Stocks. — Banks are large purchasers of the various 
 national and State stocks, and also those of towns, 
 cities, railroad companies, etc. 
 
 Ileal Estate. — A place of business being indispen- 
 sable to the operations of banking, buildings are 
 erected for such purposes. These, being often be- 
 yond the needs of the bank, are rented in part. 
 
MIXED CURRENCY. 157 
 
 Other Investments. — A general term that includes 
 all kinds of property the bank may hold, from neces- 
 sity or choice, not embraced in any preceding title. 
 
 Notes of other Banks. — As banks, in the course of 
 business, are constantly receiving each other's notes, 
 they must necessarily have, in the aggregate, a large 
 amount, which appear among their assets. Notes 
 thus held in no essential particular affect the general 
 character of the currency : they only concern the 
 relations of the banks to each other. 
 
 Cash Items. — Many banks have the practice of 
 reckoning certain assets they hold as equivalent to 
 cash, and class them as ^'cash items" in their returns. 
 For example, a bank may hold a check upon another 
 bank for a given sum, which, in its account with that 
 bank, and for many other purposes, may be equally 
 available for the time being, with money actually in 
 hand. Checks drawn by individuals on other banks, 
 foreign exchange, sight drafts, and the like, are often 
 reckoned among these items. But, whatever their 
 origin or character, they add in no degree to the 
 strength of the currency. They may help the indi- 
 vidual bank that holds them, as compared with the 
 debtor banks, but not the general mass. 
 
 Undivided Profits. — Such an item appears in the 
 returns published by the general government, and 
 is of considerable importance. In most banks, it is 
 customary to reserve a certain sum from the profits 
 of each year, to insure against unexpected losses or 
 contingencies. In some cases, this reserve is large; 
 in others, small. It is, for the time being, an in- 
 crease of banking capital, but adds nothing to the 
 convertibility of current notes. 
 
 U 
 
158 EXCHANGE. 
 
 With this explanation of the terms employed, we 
 proceed to give such statistics of the banks of the 
 United States as shall exhibit the character of the 
 currencj^ they issue. 
 
 The first point to be noticed is the aggregate capi- 
 tal of these banks, which we find to be $421,880,095, 
 on the 1st of January, 1860. We have selected that 
 point of time, because the country was then undis- 
 turbed, and the currency in its natural condition. 
 This capital, as we have already explained, is the 
 amount which the banks have at their command, 
 and which it is their business to loan out to the 
 public; and, let it be recollected, this is all which 
 they can loan, except their own credit, issued in 
 the form of bank-notes, or inscribed in their books 
 as "deposits," in exchange for the notes of indi- 
 viduals or business firms and corporations. 
 
 The next point to be noticed is the aggregate of 
 all the assets or property of these banks ; and by 
 ascertaining this, and subtracting therefrom the 
 capital, as before stated, we shall find to what ex- 
 tent the banks have loaned their credit, and, of course, 
 to what extent credit enters into the currency. The 
 statistics which show this present the following 
 result : 
 
 The entire property in possession of the banks, at 
 
 this time, was $887,789,762 
 
 From which deduct the aggregate capital . . . 421,880,095 
 
 Total Credit issued by the banks $465,909,667 
 
 On this amount the banks were receiving interest, 
 or income beyond that received for their actual 
 capital. 
 
 This "total credit" issued by the banks was — 
 
MIXED CURRENCY. 159 
 
 Its circulation $207,102,447 
 
 Deposits 253,802,120 
 
 Total currency $460,904,570 
 
 The remarkable difference, then, between the 
 capital of the banks and their jproperiy in possession, 
 is the first thing to be noticed in regard to the niixed- 
 carrency system, because it shows how it is tliat 
 large profits may be made upon mixed-currency 
 l)anking. Interest is obtained upon twice the amount 
 of actual capital. This income, however, is not uni- 
 formly distributed among the banks acting under 
 the system. Some obtain more ; others, less. 
 
 We also see why it is that such banks must be 
 constantly desirous of increasing their loans, by 
 issuing their own credit in the shape of circulation 
 and deposits. The more they can get out, the 
 larger the income. This is the motive power that 
 insures the constant expansion of a mixed currency 
 to its highest possible limit. The banks will always 
 increase their indebtedness when they can, and only 
 contract it when they must. 
 
 These facts show, too, why a mixed currency 
 exists at all ; viz., because those who create it make 
 a profit both on their capital and credit, and as much 
 on the latter as the former. 
 
 But still another view of the currency is necessary, 
 to show the preponderance of the credit over the 
 value element in the actual currency : 
 
 1860. Circulation, as before $207,102,477 
 
 Deposits 253,802,129 
 
 Whole currency $460,904,606 
 
 Specie, or value 83,594,537 
 
 Pure credit $377,310,069 
 
160 EXCHANGE. 
 
 This will give eighteen cents and one mill on the 
 dollar as the value element, and eighty-one cents and 
 nine mills as the credit element, in the entire cur- 
 rency; credit heing to value as more than five to one. 
 
 But yet another view of the system is necessary, 
 if we would understand the true position of the 
 banks in relation to each other, in case of an actual 
 demand for specie, occasioned by want of confidence 
 or demand for exportation. 
 
 Immediate liabilities of the banks of the United 
 States, 1860: 
 
 Circulation $207,102,477 
 
 Deposits , . . . 253,802,129 
 
 Due other banks 55,932,918 
 
 Other liabilities 14,661,815 
 
 $531,499,339 
 
 Immediate resources : 
 
 Specie 188,594,537 
 
 Cash items 19,331,521 
 
 Notes of other banks 25,502,567 
 
 Due by other banks 67,235,457 
 
 195,664,082 
 
 Excess of immediate liabilities over immediate re- 
 sources . $335,735,257 
 
 CONVERTIBILITY. 
 
 From this statement we perceive the real position 
 of the banks in regard to the convertlhility of their 
 currency. They owed on demand $335,735,257, 
 which they had no immediate means in their pos- 
 session to meet ; but they held the following assets, 
 or ultimate resources : 
 
MIXED CURRENCY. 161 
 
 Loans $691,945,580 
 
 Stocks 70,344,343 
 
 Eeal estate 30,782,131 
 
 Other investments 11,123,171 
 
 Total $804,195,225 
 
 After deducting the excess of immediate liabilities, 
 
 as above 335,735,257 
 
 Surplus $468,459,908 
 
 This would seem a sufficiently large margin to guar- 
 antee the uUimaie redemption of the bank currency ; 
 but does it secure its immediate convertibility? 
 That is the point; and the answer must depend 
 upon the question, whether the banks can realize 
 from their assets (loans mainly) as fast as the redemp- 
 tion of their deposits and notes may be called for. 
 If not, they must suspend. Their loans are on time, 
 from one day to six months ahead, and therefore 
 may not be actually diie, so fast as the necessities of 
 the banks may require; but, even if they should 
 mature fast enough, the practical question would 
 still arise, whether, if the banks take in their notes 
 and refuse to put them out again, and decline to 
 make their usual loans, as in the emergency of a 
 large demand for specie they certainly must, how will 
 it be possible for the debtors of the banks to meet 
 their payments? If the banks could stop their 
 loans just when they pleased, they might perhaps 
 save themselves from dishonor; but they cannot do 
 this, because, unless they continue to make dis- 
 counts, their customers will certainly fail, since they 
 rely upon discounts to meet their obligations as they 
 become due; therefore they suspend, and then ex- 
 tend, their loans. 
 
 14* 
 
162 EXCHANGE. 
 
 n 
 
 CHAPTER V. 
 
 ANALYSIS OF DEPOSITS. 
 
 Our analysis of mixed currency will be far from 
 <Jomplete, if we do not give a full description of the 
 origin and character of what are called deposits, as 
 forming an element most dangei'ous to such a cur- 
 rency, and generally very mysterious in the popular 
 understanding. To the popular mind, the term 
 " deposits" conveys an impression directly opposite 
 to the truth. They are supposed to be actual 
 money or capital in possession of the banks, while 
 tbey are in fact debts which the banks owe to their 
 customers on demand. 
 
 In the currency of the United States, deposits 
 Constitute the largest item, considerably exceeding 
 the circulation. 
 
 The nature of these deposits has, until within a 
 very few years, been a matter of serious disagree- 
 ment among those who ought to be well acquainted 
 wnth their nature and effects. To present the sub- 
 ject in such a light that it shall be clearly under- 
 stood, we must carefully examine it in all its details. 
 
 First. What are deposits? We have already de- 
 lined them as credits given to individuals in the 
 books of the banks, for which they are authorized 
 by law to demand the specie. They indicate what 
 the banks owe on account 
 
ANALYSIS OF DEPOSITS. 163 
 
 Secondly. How do they arise ? In various ways. 
 
 1. A customer may deposit coin, and have the 
 amount passed to his credit. The proportion thus 
 deposited is infinitesimally small, compared with 
 the aggregate deposits. 
 
 2. He may deposit checks, drawn by himself or 
 others, on other banks. 
 
 3. He may deposit the notes of the same or other 
 banks. 
 
 4. He may deposit the notes of individuals, or 
 bills of exchange running to maturity; and, when 
 they are collected, the amount will be passed to his 
 credit. 
 
 5. The customer may get his own notes, or the 
 notes of others, discounted at the bank, and the 
 amount is passed to his credit; and this last is the 
 origin of the greater part of all deposits. 
 
 Of these different kinds of deposits, it will be 
 observed that only one, and that a small one, was 
 in specie; and yet the bank has promised to pay 
 specie on demand alike for all. But it must be ob- 
 served, that, while all these stand legally on the 
 same basis, as a matter of fact they are practically 
 held by the banks upon different conditions, ex- 
 pressed or implied. They may be divided into three 
 kinds : 
 
 First. Permanent or compulsory deposits, made 
 by business men wishing for bank accommodations, 
 in order to secure larger loans. 
 
 Second. Fiduciary or trust deposits, made w^holly 
 for temporary safe keeping, by executors, guardians, 
 treasurers of corporations, etc., who are receiving 
 funds to be paid out, or invested at a future period. 
 
16J: EXCHANGE. 
 
 Third. Active deposits, made by business men, to 
 be withdrawn to meet tlieir current payments. 
 
 It will be necessary to explain these different de- 
 posits. 
 
 Tlie permanent or compulsory deposits are not 
 used at all by those who make them. They are 
 made with the tacit understanding that they are to 
 remain in the bank, and not be drawn upon. They 
 are made to secure favors from the bank, and in 
 order to show a " good account." No bank, per- 
 haps, compels its customers, by any law or rule, to 
 do this ; but custom in such a case is as imperative 
 as law. Banks are conducted wholly with reference 
 to profit, and the most profitable accounts will secure 
 the most liberal discounts. 
 
 These deposits constitute a permanent loan to the 
 banks, without interest; and the banks can loan the 
 same to their customers upon interest. It is one of 
 the forms in which a bank may secure extra inter- 
 est in a legal way ; but it is done at the expense of 
 those who make the deposits. 
 
 This kind of deposits forms a very dangerous ele- 
 ment in the mixed-currency system, for the reason, 
 that, when the merchants of any great city are 
 driven to desperation, they may demand these de- 
 posits in specie, and then the banks must suspend. 
 This was done in New York in October, 1857, as 
 before stated. The merchants saw clearly, that, 
 unless the banks would make discounts, they could 
 not meet their eno^ao-ements. The banks refused to 
 do this, because they could not, and continue to pay 
 specie. The merchants then, by concerted action, 
 called for their deposits ; and the banks themselves 
 succumbed. 
 
ANALYSIS OF DEPOSITS. 165 
 
 This will always be re-enacted in a time of great 
 pressure, if the mixed-currency system is continued. 
 It is the only remedy which the mercantile interest 
 has within its power. It is properly used, because 
 the banks have no right to make promises which 
 they know perfectly well they cannot keep. 
 
 Another objectionable consideration is, that these 
 deposits greatly and unnecessarily enlarge the im- 
 mediate liabilities of the banks, and give them a 
 frightful preponderance over the immediate means 
 of payment. This injures the credit of the banks 
 in times of pressure. All sagacious financiers look 
 with suspicion on institutions owing ten or fifteen 
 dollars on demand for every dollar they have in 
 their possession. On the 29th of August, 1857, 
 the banks of the city of J^ew York owed for eighty- 
 four millions for deposits and nine millions for cir- 
 culation, — in all, ninety-three millions, — and had 
 but nine millions of specie. 
 
 Compulsory deposits mean, simply, e'xtra interest; 
 but that interest is paid in a manner most burden- 
 some to the depositors, and most dangerous to the 
 banks. 
 
 Of the second class of deposits, viz., those on trust 
 or for safe keeping merely, it may be said, that they 
 are perfectly legitimate, and may, to a certain ex- 
 tent, be loaned by the banks with safety. 
 
 The third class of deposits may be described as 
 follows: 
 
 {a) A business man, who is making sales each 
 day, will receive, in payment, notes of all the dif- 
 ferent kinds in circulation. He will also receive 
 checks on different banks. All these he will de- 
 
166 EXCHANGE. 
 
 posit ill bank; and the amount is passed to his 
 credit, and becomes a bank deposit. 
 
 (6) He will also receive notes of hand, drafts, and 
 bills of exchange in payment. All these, when 
 nearly due, he will deposit in bank; and, when 
 paid, they are passed to his credit. 
 
 (c) Or, if he desires to anticipate the payment of 
 such notes, he may ask the bank to deduct the in- 
 terest (and exchange, if there be any), and place the 
 amount to his credit; and this the bank will, in 
 ordinary circumstances, be ready to do; and the 
 amount so passed to the credit of the customer will 
 constitute a part of the deposits of the bank. 
 
 ARE BANK DEPOSITS CURRENCY? 
 
 Lord Overstone has maintained the negative; but 
 most writers in this country take the affirmative 
 side of the question : indeed, there are, at the present 
 time, few, if any, who doubt that deposits are cur- 
 rency. The New York Board of Currency has given 
 its verdict unequivocally as follows: '''-They constitute 
 at this time Jive-sixths of the active currency of this city.^' 
 See the official report of that association for Novem- 
 ber, 1858. No array of authorities, however, but 
 an examination of facts, should determine the 
 question. 
 
 Deposits are an instrumentality by which by far the 
 s^reatest amount of values are transferred in com- 
 mercial centres. They discharge debts, purchase 
 commodities, and perform all the functions of cur- 
 rency, except circulation. 
 
 For example, A has a deposit in the Merchants' 
 
ANALYSIS OF DEPOSITS. 167 
 
 Bank. He purchases of B a bill of sugars, amount- 
 ing to ten thousand dollars, and pays for the same 
 with a check on that bank, with which B either 
 draws the notes or specie of the bank, or has the 
 check passed to his credit by the bank. This trans- 
 action has been equivalent to the transfer of ten 
 thousand dollars in value from one party to the 
 other. 
 
 If A owed B a note of ten thousand dollars, he 
 might pay it in the same way. 
 
 ISTow, what difference did it make to A whether 
 he had ten thousand dollars of bank-notes in his till, 
 or an equal amount to his credit in the bank? 
 Clearly, not the slightest. One was as truly cur- 
 rency as the other. 
 
 All bankers and business men are well satisfied 
 that deposits are even more active by far in trans- 
 ferring values than the bank circulation; that a 
 much greater number of exchanges is made with 
 deposits than with an equal amount of bank-notes. 
 
 A little reflection will satisfy any one that such 
 is the fact. The sum of ten thousand dollars, for 
 example, might easily pay in a single day, in ten 
 ^ifferent transfers by checks, a total of one hundred 
 thousand dollars. This w^ould not be an extravagant 
 supposition; but it would be quite improbable that 
 bank-notes make ten payments in a single day. 
 
 The efficiency of money, or its substitutes, de- 
 pends greatly upon the rapidity with which ex- 
 changes are made. John Stuart Mill recognizes 
 this principle; and it is a very obvious one.. The 
 currency of any country is as its quantity multiplied 
 by the rapidity of its circulation. This considera- 
 
168 EXCHANGE. 
 
 tion will lead us to regard the whole amount of 
 deposits as equal in effect to an equal amount of 
 circulation. 
 
 CHAPTER VI. 
 
 MIXED CURRENCY. — FLUCTUATIONS IN QUANTITY AND 
 
 QUALITY. 
 
 A MIXED currency consists, as we have shown, 
 of two kinds of bank indebtedness, viz., what the 
 banks owe for their notes issued as circulation, 
 and what they owe on account, the payment for 
 both of which may be demanded in coin. We pass 
 now to consider this currency in its several rela- 
 tions to the public wealth. Such an inquiry will de- 
 mand great carefulness and impartiality, and must 
 necessarily be made in detail. 
 
 We have two grand questions which arise natu- 
 rally at the start: 
 
 1st. Does it perform satisfactorily the functions 
 of money? If we answer this inquiry favorably, 
 we have still to ask, — 
 
 2d. What, and how great, are its effects on public 
 interests, beyond the proper effects of value cur- 
 rency? 
 
 These questions are so full of interest to all the 
 departments of wealth, are so deeply obscured by 
 prejudice and misapprehension, and are so espe- 
 cially important at the present time, that their dis- 
 cussion will be protracted through several chapters. 
 
mixed currency. 169 
 
 1st. does a mixed currency satisfactorily per- 
 form THE functions OF MONEY? 
 
 Those functions are, as already stated, — to act as a 
 medium of exchange, and to be a standard of value. 
 
 Does a mixed currency perform them well? We 
 answer, no. The essential quality of such a currency, 
 which unfits it to act well as either a standard of 
 value or a medium of exchange, is this : 
 
 IT IS NOT GOVERNED BY THE LAWS OF VALUE. 
 
 It is subject to quite other laws. It varies as to 
 its volume and character; but we do not find that it 
 does this out of respect for value. The great prin- 
 ciple of value is, demand creates supply ; supply 
 satisfies demand. They are measured against each 
 other, and are found equal. There is no supply 
 which demand does not call for: there is no supply 
 which is not enough for demand. And the reason 
 for this perfect equality is that value cannot exist 
 without labor. The same cause that increases sup- 
 ply expands demand to the same proportions; the 
 same cause that restricts supply reduces demand 
 correspondingly. 
 
 Now, this law controls the expansion or contrac- 
 tion of money, or a value currency. If it is increased, 
 as it may be in the natural course of commercial 
 transactions, it is because actual money has been 
 brought into the country by the balance of trade ; 
 but a mixed currency is increased by the voluntary 
 and interested action of bank managers, without re- 
 gard to the laws of value, and without the addition 
 
 15 
 
ItO EXCHANGE. 
 
 of a dollar to the real money, or wealth, of the coun- 
 try. The increase of money by importation takes 
 place in obedience to causes that are gradual and 
 appreciable ; and any one who watches the course 
 of commerce can anticipate its arrival. If it comes 
 in excess, from any unusual source, it easily and 
 naturally passes off to other countries, till the balance 
 is restored. N^o artificial appliances or legal enact- 
 ments are needed to keep true money at a level the 
 Avorld over. 
 
 We have found that the quantitj' of a mixed cur- 
 rency is not governed by th.e laws of value. Do we, 
 then, find that it is controlled by accident? It would 
 be better so, for there would be more chances of its 
 coming right. But, on the contrary, we find laws 
 positively mischievous substituted for the wholesome 
 operation of sup[)ly and demand. 
 
 Firstly. Of expansion. The more that is issued 
 of a mixed currency, the more will be wanted. The 
 supply does not satisfy the demand ; it excites it. 
 Like an unnatural stimulus taken into the human 
 system, it creaes an increasing desire for more; 
 and the more it is gratified, the more insatiable are 
 its cravings. 
 
 There are two reasons for this : one, that, as the 
 currency is expanded, prices are raised correspond- 
 ingly, and more currency is demanded to effect the 
 same exchanges ; the other, that the speculation 
 inevitably following the rise of prices leads to an 
 enormous extension and repetition of indebtedness, 
 which requires, for its discharge, a greatly increased 
 amount of the circulating medium. Thus, by the 
 action and interaction of these causes, the demand 
 
MIXED CURRENCY. 171 
 
 for tiie issue of this kind of currency is certain to be 
 greatest when it is already redundant. All this, of 
 course, is quickened and helped by the fact that the 
 manufacturers of this currency are ready and eager 
 to crowd upon the public all it will take. 
 
 Secondly. Of contraction. We have seen the forces 
 that raise the currency higher and higher. We have 
 uot seen that it is done for the public good, or in 
 obedience to a call of trade. We might suppose that 
 there would be an unending progress in this direc- 
 tion, till any degree of expansion should be reached, 
 inasmuch as the law of value does not govern a prod- 
 uct into which the element of labor does not enter. 
 It is not, therefore, the expense of multiplying it, 
 nor is its increase limited by any consideration of 
 utility. The cause that limits expansion, and finally 
 produces contraction, is the liabilitj^ of the notes to 
 be presented for payment in money. The occasion 
 for this cause to operate may be almost anything, — 
 a political convulsion, an adverse balance of trade, 
 a failure of some large trading or banking company. 
 
 We will take that onq, which is most common and 
 sensible, — an adverse balance of trade. If it be 
 large, the demand for specie which it occasions will 
 create a profound sensation among the banks. With 
 actual money, there is, under these circumstances, 
 no reason for excitement or alarm ; ten million dol- 
 lars of the currency will discharge that amount of 
 debt abroad, and the currency at home is reduced 
 but so much. A mixed currency has, in itself, iio 
 power whatever to satisfy a foreign creditor. If ten 
 million dollars are to be paid abroad, it must be 
 taken from the specie of the banks ; the basis of the 
 
172 EXCHANGE. 
 
 currency is so much diminished, and the circuhition 
 must be curtailed according!}^ ; that is, notes must 
 be brought in, and not put out again till the basis is 
 restored. If the proportion of specie, as is the case 
 on an average in this country, is only as one to live 
 of notes, then the export often million dollars abroad 
 must cause a contraction to the extent of fifty million 
 dollars at home. The withdrawal of so much cur- 
 rency, and of that very part which circulates most 
 actively, causes stringency' ; and stringency causes 
 suspicion. Let- another ten millions be called for 
 out of the specie basis, and affairs will become very 
 critical. The legitimate effect of the export, so far, 
 would be to contract the currency one hundred mil- 
 lion dollars; but another cause is introduced now^. 
 Yague apprehensions abound, everybody gets pru- 
 dent, many are scared, and money is hoarded. Here 
 is another reason for contraction. With a value 
 currency, the fact that it was especially wanted would 
 be a reason why it should stay. Kot so with credit 
 money. 
 
 It is hardly necessary to trace the course of con- 
 tractions, they are so familiar to the American mind. 
 The banks know their own position better than any 
 one else. They understand precisely what they 
 must do. They act instantaneously. They curtail 
 their loans. They know that trouble is at hand, and 
 they propose to meet it in the best way for them- 
 selves. They know that their notes may now^ prove 
 their ruin, and they propose to get them out of the 
 way as fast as possible. 
 
 There are two classes of banks : 
 
 1st. Those who transact all their business in an 
 
MIXED CURRENCY. 173 
 
 honorable manner, and, so far as the nature of the 
 currency they issue will admit, on a secure basis. 
 
 2d. Those who get out, and keep out, all they 
 can, and carry their circulation, deposits, and loans 
 as high as possible, without regard to the specie in 
 their vaults. This class is numerous, especially 
 among those of small capital. 
 
 In case of a demand for specie, the latter class 
 are obliged to call for assistance from the former, 
 who, w^illing or unwilling, are equally obliged to 
 give it. The "feeble banks" must be sustained, or 
 the whole system will be suspected. If these be 
 allowed to dishonor their notes, a run will be made 
 at once on all the rest; and, having as we see only 
 one dollar in fiv^e to pay with, they must, of course, 
 soon stop paying altogether. 
 
 It is commonly said that the banks only increase 
 their issues as demanded by the wants of trade; 
 that they extend their credits, because the public 
 require them as business facilities. 
 
 If this were true, it would be of no consequence 
 in the discussion ; because, the laws of value having 
 been disturbed in this matter, the demand is no 
 longer normal. We have no longer the assurance 
 that trade will call into use just that amount of cur- 
 rency which it needs. 
 
 But it is not true. The movement always com- 
 mences with the banks. When, by a monetary re- 
 vulsion, their circulation and deposits have been 
 reduced so low that thev feel safe in commencinof 
 another expansion, the panic being over, the banks 
 begin to offer extraordinary inducements to their 
 customers to borrow money. They will discount 
 
 15* 
 
J 71: EXCHANGE. 
 
 all good paper offered, even if it has a long time to 
 ran. It is not uncommon, at such times, to solicit 
 the privilege of making loans.* As soon as this 
 state of things takes place, all business men begin 
 speculative operations ; for prices have begun to 
 rise. Speculation will give a still greater rise to 
 l)rices, and cause a still greater demand for cur- 
 rency. The expansive force is now in full opera- 
 tion, and is sure to increase in power till by re- 
 vulsion the equilibrium is restored. 
 
 CHAPTER VII. 
 
 TABLES AND DIAGRAMS OF MIXED-CURRENCY FLUC- 
 TUATIONS. 
 
 We have shown, from the reason of the case, that 
 a mixed currency is not governed by the laws of 
 value; and that therefore its variations are con- 
 trolled by other principles, which give no guaranty 
 to the public good, but, on the contrary, threaten 
 great mischief to the community, both by expansion 
 and contraction. 
 
 We now propose to show, by facts taken from 
 official statistics, that such fluctuations are frequent 
 and violent. 
 
 The following table exhibits the fluctuations in 
 the absolute quantity of the mixed currency (circula- 
 
 * This is within the personal knowledge of the author as a bank 
 director. 
 
Per 
 Capita. 
 
 S17_ 
 
 DIAGRAM N°- 1. 
 
 Showino- the fluctuation of the Currency of the 
 
 United States, and the Proportion of Specie 
 
 to Circulation and Deposits. 
 
 1837 
 
 36 
 
 16 
 
 15 
 
 14 
 
 13 
 
 12. 
 
 35 
 
 1834 
 
 11 
 
 10- 
 
 9 
 
 8-1- 
 
 4 
 3- 
 2- 
 1- 
 
 -i8a5^ 
 
 Per 
 Capita. 
 
 -Ul 
 
 57 
 
 -54- 
 
 39 
 
 3P 
 
 52 
 
 56 
 
 53 55 
 
 40 
 
 48 
 
 46 
 
 ?r 
 
 42 
 
 44] 
 
 45 47 
 
 50 
 
 Tssg- 
 
 16 
 
 15 
 
 14 
 
 58 
 
 49 
 
 1843 
 
 Circulation and Deposits per Capita. 
 
 1859 
 
 -59- 
 
 36 
 
 ■1§738 
 
 1834 
 
 1844 ^ 58 
 
 Specie per Capita. 
 
 - 13 
 
 - 12 
 
 - 11 
 
 - 10 
 
 - 9 
 
 - 8 
 
 - 7 
 
 - 6 
 5 
 4 
 3 
 
 - 2 
 
 - 1 
 
TABLES AND DIAGRAMS. 
 
 177 
 
 tion and deposits) of the United States from 1834 to 
 1859 inclusive, a period of twenty-six years: 
 
 TABLE I. 
 
 1834 170,000,000 
 
 1835 . ... 186,000,000 
 
 1836 255,000,000 
 
 1837 276,000,000 
 
 1838 200,000,000 
 
 1839 225,000,000 
 
 1840 182,000,000 
 
 1841 172,000,000 
 
 1842 146000,000 
 
 1843 114,000,000 
 
 1844 159,000,000 
 
 1845 177,000,000 
 
 1846 202,000,000 
 
 1847 197,000.000 
 
 1848 231,000, CO ' 
 
 1849 205,000.000 
 
 1850 240,000,000 
 
 185] 284,000,000 
 
 1852 328,000,000 
 
 1853 . . . . . 348,000,000 
 
 1854 392,000,000 
 
 1855 377,000,000 
 
 1856 408,000,000 
 
 1857 445,000,000 
 
 1858 341,000,000 
 
 1859 452,000,000 
 
 These facts are collected, as nearly as possible, 
 from the returns made at the beginning of the years 
 mentioned. Therefore the contractions or expan- 
 sions made during a year do not appear till the re- 
 turn of the next year. For example, the great con- 
 tractions of 1837 and 1857, beginning several months 
 after January, do not exhibit their full effects till 
 the currency returns of the years 1838 and 1858. 
 
 Diagram ISTo. 1, here introduced, exhibits the 
 fluctuations in the currency (circulation and de- 
 posits), and also the proportion of specie, from 1834 
 to 1859 inclusive, both reckoned per capita. 
 
 The upper line indicates the currency, the lower 
 one the specie. 
 
 This diagram shows distinctly the actual fluctua- 
 tions in the currency, because its amount, at the 
 several periods, is reckoned per capita. This is a 
 
178 
 
 EXCHANGE. 
 
 far more correct mode of getting at the real changes 
 than taking the absolute quantity. The upper line 
 represents the fluctuations in the quantity of the 
 currency, the lower line indicates its quality from 
 time to time. 
 
 The following table exhibits the extreme fluctua- 
 tions in the quantity of the currency of the United 
 States per capita, at diflerent times, with the cor- 
 responding variations per cent, in its quality: 
 
 TABLE 11. 
 
 Showing the Extreme Fluctuations in the Currency of the United 
 S'aies per Capita at different Times, with the Corresponding Vari- 
 ations in its (Quality, or the Proportion of Specie held for its Re- 
 demptioji. 
 
 Years. 
 
 1834 
 
 *1837 
 1840 
 ■lS4:-5 
 1846 
 1849 
 1 852 
 1855 
 
 *1857 
 1858 
 1859 
 
 Currency 
 per capita. 
 
 Fluctuations. 
 
 Per 
 
 cent. 
 
 Quality, or 
 
 specie to 
 circulation. 
 
 Variations in 
 quality. 
 
 Per 
 
 cent. 
 
 11-82 
 
 17-61 
 
 10-70 
 
 6-18 
 
 9-94 
 
 9-18 
 
 l:i-31 
 
 13-93 
 
 15-50 
 
 11-55 
 
 14-90 
 
 
 50 
 39 
 42 
 61 
 7 
 45 
 13 
 11 
 26 
 23 
 
 1514 to 100 
 Vi}4 to 100 
 18 " to 100 
 2 J to 100 
 21 to 100 
 21 tolfO 
 151^ to VH) 
 14 to 100 
 13 to 100 
 2 Kt'HOO 
 23 "to 100 
 
 
 :i3 
 
 61 
 
 36 
 
 
 
 '27 
 10 
 
 7 
 
 73 
 
 2 
 
 Expansion 
 Contraction 
 
 Expansion 
 
 Contraction 
 
 Expansion 
 
 Contraction 
 
 Expansion 
 
 Depreciation 
 Improvement 
 
 Depreciation 
 
 Stationary 
 
 Depreciation 
 
 « 
 
 Improvement 
 
 * Years when the banks suspended. Observe the great ex- 
 pansion between the year 1834 and 1837 of some fifty per cent.; 
 and between 1849 and 1857 of some seventy per cent. 
 
TABLES AND DIAGRAMS. 
 
 179 
 
 TABLE III. 
 
 The folloxoing Table exhibits the Composition of the Mixed Currencies 
 of the several States of the Union, Jan. 1, 1860 ; that is, the Per- 
 centage of Specie to the Circulation and Deposits in the Currency of 
 each State: 
 
 Louisiana 
 Missouri . . 
 Georgia . . 
 Kentucky 
 Tennessee 
 North Carolina 
 Indiana . . 
 Alabama . . 
 Maryland 
 
 Per 
 
 cent. 
 
 38-6 
 
 37- 
 
 23-7 
 
 23-4 
 
 23- 
 
 22-08 
 
 22-3 
 
 22-2 
 
 21-4 
 
 Pennsylvania 
 Iowa . . . 
 Virginia . . 
 New York 
 South Carolina 
 Ohio. . . . 
 Massachusetts 
 Florida . , . 
 Maine . . . 
 
 Per 
 
 cent. 
 
 21-3 
 
 20- 
 
 16-7 
 
 15-6 
 
 15-5 
 
 15-2 
 
 151 
 
 10-5 
 
 10- 
 
 Delaware . . 
 New Jersey . 
 Connecticut . 
 Rhode Island 
 New Hampshire 
 Wisconsin 
 Vermont . , 
 Michigan . , 
 Illinois . . , 
 
 Per 
 
 cent. 
 
 9-9 
 
 8-9 
 
 7.5 
 
 6.3 
 
 5.7 
 
 5-5 
 
 4-2 
 
 4- 
 
 2-3 
 
 But there are variations, not only in the general 
 currency of the United States, such as we have in- 
 dicated, but also in the currency of each State, at 
 different periods. 
 
 We take that of Massachusetts, in illustration : 
 
 TABLE IV. 
 
 Exhibiting the Qiiality of the Currency of Massachusetts. 
 
 Year 
 
 Specie, per cent. . . 
 
 1835. 
 
 1837. 
 
 i?4n. 
 
 1843. 
 
 1851. 
 
 1857. 
 
 1859. 
 
 1860. 
 
 71 
 
 8 
 
 18^ 
 
 441 
 
 7-5 
 
 8-9 
 
 14-6 
 
 15-1 
 
 Volumes of statistics might be given of the same 
 general character; but these, it is presumed, are 
 sufficient to show i\\Q fluctuating character of the mixed 
 currency of the United States, both in quantity and 
 quality; and of course, in degree, of all other coun- 
 tries where such a currency exists : for it is, at all 
 times and everywhere, the same in its general char- 
 acteristics. 
 
180 EXCHANGE. 
 
 CHAPTEE YIII. 
 
 MIXED CURRENCY AS A MEDIUM OP EXCHANGE. 
 
 Having Bhown that a mixed currency is certain 
 to expand and contract, without reference to the 
 healthful and harmonious provisions of value, and 
 to a degree more extreme and dangerous than a 
 currency composed of real money, we are prepared 
 to answer summarily the principal question. 
 
 Does a mixed currency perform satisfactorily the 
 functions of money? 
 
 1st. Does it act efficiently as a medium of exchange? 
 
 Currency, regarded merely as a medium of ex- 
 change, may be said to perform two offices : (a) To 
 transfer commodities from one person to another. 
 For this purpose, a mixed currency, having a circu- 
 lation wholly of paper, is found to he portable, 
 readily counted, easily carried, safely kept, and is, 
 consequently, as convenient as any agent that could 
 reasonably be desired. (6) To discharge indebted- 
 ness between different parties. For this purpose, 
 the thing to be desired is, that currency should be 
 reliable ; that is, that there should be nothing in its 
 own nature, which disqualifies it to act fully, at all 
 times, as a means of discharging obligations. 
 
 Coin is always perfectly reliable for the payment 
 of debts. When one debt has been discharged by 
 it, the coin is just as available and acceptable for 
 the discharge of a second or any succeeding debt. 
 
MEDIUM OF EXCHANGE. 181 
 
 If gold and silver are called for by foreign obliga- 
 tions, they retain their full power to discharge them. 
 
 We here make two principal statements : 
 
 A foreign demand is the only cause that can take 
 away the real money of a people. We have seen 
 that an indefinite number of causes may take away 
 a currencj^ based, in anj^ degree, on credit. 
 
 But, again, a foreign demand can only take away 
 Us oion amount of real money. We have seen that 
 such a cause takes away an amount of mixed cur- 
 rency of which the quantity required abroad is only 
 oue factor; the other factor being that number 
 which represents the proportion between the bulk 
 of the currency and the specie basis. In these two 
 statements are clearly shown the entire unrelia- 
 bility of mixed currencj^ to discharge indebtedness. 
 The man who promises to pay money can never 
 know what may be the demand for specie, arising 
 from a want of confidence in the banks, or from a 
 necessity of export; and, of course, can never be 
 safe in giving his notes predicated upon the cur- 
 rency as it exists at the time. 
 
 So far as the fluctuations we have shown derange 
 general plans of business, distort prices, work injus- 
 tice to one party of every bargain, and tend, by such 
 inequalities and uncertainties, to discourage steady 
 enterprise, they do not present themselves here for 
 examination. We shall meet them, when discuss- 
 ing a mixed currency as performing its function as 
 a standard of value. We have to do here, not with 
 the unfairness and injustice with which indebtedness 
 is discharged under such a currency, but with the 
 difliculty or impossibility of discharging it at all. 
 
 16 
 
182 EXCHANGE. 
 
 How does a mixed currency perform the functions 
 of money, so far as discharging indebtedness in 
 times of panic ? 
 
 Let us suppose the case of the best man in the 
 community. He has, in the legitimate course of 
 business, contracted obligations, all within the limit 
 of his abilities, now coming due. The banks are 
 withdrawing their circulation as largely as possible, 
 and do not mean to let it out again. The fact of his 
 own excellent standing is of no moment in securing 
 discounts; for there is just as much danger to the 
 banks in letting him have their notes as any one else. 
 It is the peculiar hardship of good men, in such 
 times, that it is not their credit, but the credit (that 
 is, the condition) of the banks, which is to decide 
 the question of loans. With a value currency, on 
 the other hand, the only matter of consideration is 
 the solvency of the applicant himself. 
 
 Of course, there are individuals and institutions, 
 who, in consideration of high premiums and full 
 securit}^ will grant accommodations to a limited 
 amount. A man may try to get along, sacrificing 
 his property to save his name, and paying twenty- 
 four or thirty six per cent, for loans. Perhaps, if 
 others stood well, he might get through; but all are 
 not so firm as himself. Most have less accumula- 
 tion and less credit. \l\^ debtors HaW to pay: how 
 can he answer his creditors? If he tries to go through, 
 the payments are all one way, like the tracks about 
 the lion's den. He has to pay both sides of the 
 ledger. 
 
 We have spoken of the credit element of a mixed 
 currency. But panic, suspicion, apprehension, are 
 
MEDIUM OF EXCHANGE. 1S3 
 
 the deadly enemies of credit: when these are 
 aroused in the community, it cannot go abroad. 
 Just as nearly as the object can be accomplished in 
 the time given, all forms of credit will be withdrawn. 
 But this will produce, in its several degrees, strin- 
 gency, distress, panic, ruin. 
 
 Is it, then, too much to say that credit is not reli- 
 able for the discharo^e of indebtedness ? 
 
 The element of credit introduces a direct hostility 
 between the interests of those who control the cur- 
 rency and those who wish to use it. The interest 
 of the one requires that the notes shall be with- 
 drawn. The interest, nay, the life, of the other 
 requires that they shall be kept in circulation. Is 
 there any such hostility in a value currency? Not 
 at all. 
 
 We have said that a sudden and severe contrac- 
 tion is necessary whenever any cause threatens the 
 specie basis of a mixed currency. Such a contrac- 
 tion deprives the community of the means of meet- 
 ing obligations undertaken when the currency w^as 
 redundant. 
 
 But this contractio!!, when it has become inevita- 
 ble, does not take place without danger and loss to 
 the banks themselves; danger and loss being the 
 proper consequences of such operations. The banks 
 make no more loans, or as few as possible. The 
 means of discharging 'debts become less and less in 
 the community each succeeding day, until the rate of 
 interest goes up to two or three per cent, a month, 
 and money can hardly bahad at all. 
 
 The banks now find themselves in this dilemma: 
 if they make loans, they must keep paying out their 
 
184 EXCHANGE. 
 
 specie. This will soon become exhausted, and they 
 must suspend and be dishonored. If they do not 
 continue to accommodate their customers with the 
 usual means of paying debts, the latter must suc- 
 cumb. But, if their customers generally fail, the 
 banks will lose their capital (it being chiefly in the 
 iorm of notes given by individuals), and be perma 
 nently ruined. The history of the country shows 
 on which horn of the dilemma they choose to be 
 impaled. They suspend or stop specie payments, 
 and then furnish the public with an abundance of 
 their notes, such as they are. 
 
 After this has been accomplished, and after the 
 credit of the banks has been exchanged for the 
 credit of the individuals who owe them, and after 
 the demand for specie has ceased, the banks can 
 resume payments. 
 
 CHAPTER IX. 
 
 MIXED CURRENCY AS A STANDARD OF VALUE. 
 
 2d. Does a mixed currency act justly as a stand- 
 ard of value? 
 
 This function of mone}' is of a very important 
 character. It lies at the foundation of all credit and 
 all business calculations. If no man dealt with or 
 trusted another, or waited a day to receive and con- 
 
STANDARD OF VALUE. 185 
 
 sume the reward of his labor, there would be no 
 great need of Such a standard. But whenever there 
 is the slightest exchange of commodities; whenever 
 one man trusts another for recompense of service, 
 or applies wealth and toil to an enterprise in the 
 faith of receiving a reward at a future time, — a 
 standard of value must be had, so that all can be 
 done safely, expeditiously, and justly. Unless some- 
 thing possessed the property of being a standard of 
 value, all exchange would inevitably be confined to 
 the gross and clumsy form of barter. It has already 
 been included in the definition of money, that it 
 performs this ofiice. There is not a possibility of 
 taking a scientific exception to this statement; yet 
 a great deal of popular controversy has arisen, which 
 we are obliged to stop here to notice. It has been 
 said, that a dollar, for example, no more measures 
 the value of wheat, than wheat does the value of the 
 dollar; that ''the dollar is wholly an arbitrary, con- 
 ventional standard, forced on the people, unjustly, 
 by legislative enactment." 
 
 WHAT IS A STANDARD OF VALUE? 
 
 Much confusion has undoubtedly been caused by 
 mistaken views of what is really meant by a stand- 
 ard of value. 
 
 Suppose A sells B a tract of land, and agrees to 
 take five hundred oxen in payment at a future day. 
 The value of the land sold is, in this case, clearly 
 measured by the oxen. These latter are the stand- 
 ard by which the value of the land is determined. 
 They form the money, or currency, by which the 
 
 16* 
 
186 EXCHANGE. 
 
 debt is legally and rightfully to be discharged. The 
 oxen here occupy precisely the position of the dollar 
 in ordinary contracts; and, if we suppose a com- 
 munity in which they are altogether used as mone}^, 
 they become, without any necessary legal enact- 
 ment, the universal standard, or that by which all 
 other values are measured and expressed. Yalue 
 must be determined in some way; and it can only 
 be done by comparison, — by measuring the land 
 against oxen, wheat, gold, or something else that 
 has value. 
 
 Asiong as the hind was measured, in the single 
 instance, by the oxen, so long each measured the 
 other alike.; but, wdien the use of tlie oxen was ex- 
 tended to a comparison with each other commodity 
 in the market, and all others together, then it became 
 as improper to say that the land measured the oxen 
 as to say that the wood or the cloth measure the 
 yardstick by which their length and breadth are 
 universally determined. 
 
 So, by universal consent, mankind have agreed to 
 measure everj'thing by the precious metals. The 
 laws of the United States, for example, enact that 
 a certain coin, or 2)lanchei, of gold, nine-tenths tine, 
 and weighing 25i^ grains, shall be called a dollar. 
 That is all the government does, all it ought to do. 
 It compels no one to receive the dollar for anything, 
 miless he has agreed to do so, any more than it compels 
 him to receive hats or boots, wheat or cotton. But, 
 the government having provided the coin, — that is, 
 having certified to its weight and fineness, — the 
 people, of their own choice, make use of it to 
 measure every other thing. If they buy merchan- 
 
STANDARD OF VALUE. 187 
 
 dise or land or cattle, tliey agree to take so many 
 of these dollars in payment. As society in general 
 adopts this way of determining the worth of prop- 
 erty, the dollar, not by law, but by the voluntary 
 preference of the people, becomes the measure, or 
 standard, of value, in all transactions. So far as 
 indebtedness between individuals is concerned, the 
 government makes the dollar lawful tender; that 
 is, if an individual has a just claim for a given 
 number of dollars, the government enacts that the 
 same number oi dollars shall discharo:e the debt. 
 
 Some writers have insisted that people should 
 not be compelled to pay so many dollars in coin; 
 then they should not promise dollars merely, but 
 anything else. The establishment of such a standard 
 is no wrong to the people; for it can easily be seen 
 that payments in any other specific product would be 
 more likely to involve hardships, e.g. an obligation to 
 pay wheat or potatoes or cotton at any certain time, 
 would bring infinitely more chances of distress re- 
 sulting from a failure of the crop in that particular 
 article. 
 
 Neither is it an arbitrary act on the part of the 
 government. Ft is purely a favor, an accommoda- 
 tion, provided at great cost, for the benefit of the 
 public. All objections, on the ground that it is 
 arbitrary and unjust to compel men to discharge 
 indebtedness in coin, are idle and absurd. Those 
 who make them are bound to show, what has never 
 yet been found, a better standard. 
 
 We are now pi( pared to inquire how a mixed 
 currency performs this function. 
 
 We have seen its fluctuations, certain to occur, 
 
188 EXCHANGE. 
 
 yet wholly uncertain as to direction and degree. 
 These fluctuations make it plain enough, that, as a 
 standard of value, a mixed currency must work in- 
 justice and mischief, both in expansion and con- 
 traction. Destructive as are the great occasional 
 convulsions of trade, it is doubtful whether they 
 produce as extensive evil as those minor disturb- 
 ances which come every year, and, indeed, affect 
 the entire transactions of the people. Arithmetic 
 will hardly suffice to compute losses on a scale of 
 such magnitude. Every bargain, in an industry 
 of three thousand millions a year, is more or less 
 vitiated by a harsh and unnatural change, one way 
 or the other, of the currency. 
 
 In the mildest form of such a currency, fluctua- 
 tions to the extent of fifteen per cent, are shown by 
 our diagrams to be as commonplace as yearly oc- 
 currence can make them. If the yardstick were 
 stretched to 42 inches one year, and shrunk to 30 
 another, or both should happen the same year, 
 without any possibility of anticipating the change, 
 or any public proclamation of it, that fact would in- 
 fluence manufactures, and every branch of produc- 
 tion, greatly. 
 
 'Not to insist here that injustice between the parts 
 is injury to the whole, or to dwell on the claims 
 of public morals, if we turn to that large class es- 
 pecially entitled to social and governmental care 
 and consideration, who put out money at interest 
 or in stocks, or rely on permanent salaries or wages 
 for support, we shall here find a mischief without 
 relief, a wrong without a remedy. These receive 
 no appreciable benefit from any of the changes of a 
 
STANDARD OF VALUE. 189 
 
 mixed currency, but all its evils fall heavy aud un- 
 brokeu upou them. 
 
 PRICE. 
 
 Currency performs the function of a standard of 
 value, V)y fixing the^nce of commodities. In order 
 to examine the subject intelligently, we shall be 
 called iirst to notice the import of the term "price." 
 It expresses the relation of all objects to a common 
 measure or standard. For example, if the standard 
 were sheep, it might be said that an ox was worth 
 twenty sheep; the "pnce of the ox Avould be twenty 
 sheep. If the standard were dollars, — that is, certain 
 well-known coins, — we should say that the ox was 
 worth twenty dollars, and that would be its price. 
 And it would be the same, if by dollars we meant 
 only certain pieces of paper, promising to pay these 
 coins. 
 
 Price and value are often confounded together. 
 The diflerence is this; value is the relation which 
 all objects have to each other in exchange; while 
 price is the relation of all commodities to one special 
 object, viz., money or currency. 
 
 Price may be increased without increasing value. 
 For example: the price of flour in 1859 was $5; in 
 1864 it was $10. Yet a barrel of flour had no more 
 value at the latter date than before the war, because 
 it would command no more of other value; that is, 
 of broadcloth or tea, or other commodity. 
 
 This discrepancy is found, not only at diti:erent 
 periods in the same country, but between different 
 countries at the same time. If all commodities in 
 all countries were always measured by the same 
 
190 EXCHANGE. 
 
 standard, price and value would be synonymous; 
 but if, as often happens, a standard is adopted in 
 one countr}' less valuable than that of others, com- 
 modities will adapt themselves to the currency, and 
 the agreement between price and value is destroyed 
 in the act of vitiating the standard. 
 
 If an inventory of all the property belonging to 
 the people of the United States had been made in 
 186J:, at the then prevailing prices, it would have 
 amounted to nearly double what it was two years 
 before, even though the quantity of all commodities 
 had been identically the same. This, because prices 
 were measured not by gold, but by credit, or the 
 promises of government alid the banks; but the 
 value of all these commodities in the commerce of 
 the world, and among themselves, was no greater 
 than two years before. 
 
 We here present a table, showing the historical 
 variations in certain commodities, for a series of 
 twenty-six years, under the undisturbed operation 
 of a mixed-currency system. 
 
 We have selected, for the purpose, the period 
 183-4-1859 inclusive, because it is the only one for 
 wliich we have correct data, — that is, well-authenti- 
 cated returns; and for the additional reason that 
 the period was one of genei'al peace, at home and 
 abroad, and the articles selected are the most com- 
 mon in use, whose prices are best known and least 
 liable to variations, except from changes in the 
 value of the currency. 
 
STANDARD OF VALUE. 
 
 191 
 
 
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192 
 
 EXCHANGE. 
 
 
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DIAGRAM N^- 2. 
 
 Showing the Corresponding Fluctuations in Currency 
 and Prices for 26 Years. 
 
 $30. 
 
 29! 
 
 28- 
 27- 
 26- 
 25- 
 
 36 
 
 -lEs^- 
 
 _56[ 
 
 -^7- 
 
 24- 
 
 _Pi'ices as per Table V., 
 
 23 35 
 
 22- 
 21— 
 20— 
 
 -55 
 
 ^gl83^ 
 
 18- 
 
 39L. 
 
 -5a- 
 
 -52- 
 
 40- 
 
 -37" 
 
 ]6- 
 14 
 
 13 35 
 
 12_1834 
 
 11 
 
 10 
 
 9_ 
 
 7- 
 c. 
 
 5_ 
 
 45 
 
 41- 
 
 17 36- 
 
 16 
 
 -39- 
 
 43 
 
 t2 
 
 -Till 
 
 46 
 
 51 
 
 48 
 
 149 
 
 50 
 
 54 
 
 —1859 
 5Sn 
 
 57 
 
 asT 
 
 -^^ 
 
 ..51 
 
 40- 
 
 -48- 
 
 4L 
 
 46— 
 47J 
 
 42 
 
 .50 
 
 49 
 
 1859 
 
 58 
 
 .Bank Currency per Capita.. 
 
 17 
 
STANDARD OF VALUE. 195 
 
 These facts are shown geometrically in Diagram 
 Xc). 2. 
 
 This Diagram may require some explanation. 
 The upper line represents the variations in the 
 prices of the ten commodities chosen, for each year, 
 from 1834 to 1859 inclusive, as alread}' given in the 
 tables. The lower line represents the bank cur- 
 rency, per capita, for the corresponding years. 
 
 Several important facts appear in this figure. 
 The first to be noticed is the remarkable corre- 
 spondence between the first and second lines, rising 
 and falling together; proving most conclusively, by 
 their agreement through so long a series of years, 
 that prices depend on the quantity of currency in 
 circulation. 
 
 It may be objected to this table that it does not 
 give a fair representation of prices, because one of 
 the articles included (mess pork) is so much greater 
 in value than the rest as to decide the character 
 of the general result. We have therefore selected, 
 from the same Financial Report (1863), ten other 
 commodities^ and present them in the following table, 
 which, it will be seen, corroborates Table Y., in 
 that it aifords the same general facts; viz., that prices 
 rise and fall with the variations in the quantity of the cur- 
 rency. The commodities taken are, — l^orthern corn, 
 per bushel; anthracite coal, per ton; Liverpool coal, 
 per chaldron; fish, per quintal; pig lead, per 100 
 lbs.; sperm oil, per gall.; tallow, per 100 lbs.; mess 
 beef, per bbl.; lard, per 100 lbs.; and clover-seed, 
 per 100 lbs. These, it will be seen, present a fair 
 average as to the amount of value in each. 
 
196 EXCHANGE. 
 
 The result obtuiiied from a table, constructed 
 from all these, is as follows: 
 
 First six years, 1834 to 1839, the 
 
 aggregate average price was .. . $72.51. — Currency, $14.24. 
 1840 to 1845, the aggregate average 
 
 price was 52.97. — Currency, 8.69. 
 
 1846 to 1851, the aggregate average 
 
 price was 54.08 — Currency, 10.23. 
 
 1852 to 1857, the aggregate average 
 
 price was 69.77. — Currency, 14.49. 
 
 The correspondence exhibited, in the foregoing 
 tables and diagram, between the quantity of cur- 
 rency and the rate of prices, shows conclusively 
 and impressively the eftects of a mixed currency as 
 a standard of value; viz., that as it expands or con- 
 tracts from arbitrary but resistless causes, so prices 
 are elevated or depressed, — variations which are 
 often sudden and excessive. 
 
 After making due allowance for those fluctua- 
 tions which arise from supply and demand and 
 from accidents, the evidence is most conclusive that 
 the quantity of currency in existence does determine, 
 essentiall}', the prices of commodities; and that, as 
 a mixed currency must fluctuate greatly in amount 
 from its inherent properties, it cannot perform satis- 
 factorily its function as a standard of value. 
 
 The foregoing calculations, it will be observed, 
 are made on the currency as estimated per capita. 
 This is regarded as the most correct mode; since, 
 as population increases, it is presumed that the in- 
 dustry and trade of tlie country is increased propor- 
 tionally, and, if so, a larger amount of currency will 
 be needed. If the increase of currency is greater 
 
STANDARD OF VALUE. 197 
 
 than the increase of population, the per-capita calcu- 
 lation will show it. 
 
 It may be said at this point, that the same eftect 
 on prices would be produced by an equal expansion 
 or contraction of a value currency. Granted; but 
 such rapid and violent changes could not take place. 
 Specie cannot be increased like paper. It costs 
 labor, like corn or cotton, and is subject to the 
 same laws of supply and demand. 
 
 To observe further the operation of mixed cur- 
 rency as a standard of value, and its effect, not on 
 trade generallj-, but on ordinary production, let us 
 take the case of the wheat-grower. 
 
 A farmer, we will suppose, lias a crop of one 
 thousand bushels of wheat, which he sells at ninety 
 cents per bushel, which is thirty cents more than it 
 would bring under a real-money system. N^ow, the 
 question — which is of great concern to him, and, if 
 to him, to all producers of all commodities — is, 
 whether he gains or loses by this transaction. 
 
 Take a single bushel. He gets ninety cents for 
 it. With that, he purchases six pounds of sugar at 
 fifteen cents. This, he observes, is five cents more 
 than he used to pay for sugar, when his wheat was 
 but sixty cents. He perceives, that, having paid 
 five centg per pound extra on the sugar, he has just 
 lost all the additional price of thirty cents on the 
 bushel of wheat. 
 
 This transaction of selling one bushel of wheat 
 for six pou!ids of ^ugar fairly represents the result 
 of selling the whole crop, and investing the pro- 
 ceeds in other kinds of property; because all com- 
 modities have alike risen in price. 
 
 17* 
 
198 EXCHANGE. 
 
 But it may be asked, Suppose the farmer paid 
 a debt of nine hundred dollars with the money he 
 obtained for his wheat, has he not gained by the 
 rise in price.? If he contracted the debt before the 
 rise, he certainly has made a large gain in the pay- 
 ment of the debt; for, as things were when the debt 
 was contracted, it would have taken fifteen hundred 
 bushels of wheat at sixty cents to pay nine hundred 
 dollars. Here he has gained three hundred dollars, 
 or saved live hundred bushels of wheat, less, be it 
 recollected, the extra expense of fifty dollars in the 
 raising of the crop. His net gain is two hundred 
 and fifty dollars. 
 
 But how is it with his creditor? He finds, on re 
 investing the money in cattle, horses, sheep, ploughs, 
 wagons, and the like, that the nine hundred dollars 
 will purchase but two-thirds as much as when he 
 loaned the money. He has lost three hundred dol- 
 lars. The farmer promised to pay " dollars;" but 
 he (lid not, he only paid the promise of dollars; 
 and these promises were so easily made, became so 
 plenty, proved so cheap, that they were really worth 
 but two-thirds of what they professed to be. This 
 he found when he came to use them in buying 
 articles for his family. 
 
 Much misapprehension arises from confounding 
 special and general prices, or the price of an indi- 
 vidual article, as distinguished from that of the great 
 mass of commodities. We are told that a variety of 
 considerations enter into and affect prices; viz., de- 
 mand and supply, cost of production, etc. etc. All 
 this is perfectly true of an individual article, whose 
 price may and does vary from time to time, as com- 
 
EFFECTS OF A MIXED CURRENCY. 199 
 
 pared with other commodities, under the operation 
 of these causes. One article msiy be very high, 
 while all others are low, or the reverse; but this 
 does not tend to disprove the principle, that gen- 
 eral prices are determined by the quantity of the 
 currency. 
 
 CHAPTER X. 
 
 EFFECTS OF A MIXED CURRENCY. 
 
 We stated two principal questions in regard to 
 mixed currency: 
 
 1st. Does it perform satisfactorily the functions 
 of raonev? 
 
 2d. What, and how great, are its effects on public 
 interests, beyond the proper effects of value cur- 
 rency ? 
 
 In the four chapters immediately preceding, we 
 have discussed the iirst question, with a result un- 
 favorable to such a currency. We now approach 
 the second of these questions, — What are the effects 
 of mixed currenc3\ 
 
 I. A mixed currency endangers domestic tran- 
 quillity. This is a proposition which we shall con- 
 sider solely with reference to society in the United 
 States. 
 
 That mixed-currency banks can never, in fact, 
 fulfil their agreements, if called on to do so, we have 
 already shown; and, since they are ever liable to 
 
200 EXCHANGE. 
 
 such calls, there is constant danger from this source. 
 At any moment, there may reasonably arise, through 
 this cause, such general dissatisfaction among the 
 lower classes as shall tend to extensive disturbances 
 of the public peace. 
 
 This danger is greatly enhanced by the fact, that, 
 within the last forty years, there has been created a 
 vast system of savings institutions, which receive 
 the money individuals are disposed to deposit with 
 them, and promise to return it on demand, or at 
 short notice; generally on demand. 
 
 Now, should any cause operate by which confi- 
 dence in the solvency of the general banking system 
 of the country is shaken, it will naturally, nay, in- 
 evitably happen that a run will be made on the 
 savings institutions. These can only meet their en- 
 gagements by drawing on the banks. But, if these 
 have all their resources strained to meet the ordi- 
 nary wants of the business community, how can 
 the drafts of the savings banks be met? How can 
 currency be supplied for this extraordinary demand? 
 Tliis question can only be intelligently answered by 
 reference to the condition of both these kinds of 
 institutions. 
 
 We will, for this purpose, take the currency of 
 Massachusetts as it stood in 1860: 
 
 The savings banks had on deposit $45,000,000 
 
 , , , , f deposits 30,000,000 
 
 The currency banks haa-< ... or rv^ > r^^rw 
 
 •^ (circulation 25,00.1,000 
 
 Total $100,000,000 
 
 The currency banks had specie 6,500,000 
 
 Difference $93,500,000 
 
EFFECTS OF A MIXED CURRENCY. 201 
 
 Here, then, are legal immediate demands, upon 
 the currency banks, of fifty-five millions; and, upon 
 the savings banks, of forty-five millions. Suppose 
 there should arise some dissatisfaction, or public 
 uneasiness, which should prompt to a run on both 
 these kinds of banks. It certainly is possible, not 
 to say probable. Suppose that the institutions for 
 savings are called on for only one-fourth of their 
 deposits. They must look to the banks for eleven 
 millions of currency at once. The banks begin to 
 pay out their bills; but the specie is at once de- 
 manded, and of that the}^ have but six and one-half 
 millions against their own immediate liabilities of 
 fifty-five millions. They could not stand a run 
 of two days, because their own deposits would be 
 drawn in specie just as soon as the real state of 
 aftairs was discovered. The banks must, therefore, 
 suspend at once. What would naturally follow in 
 a time of great public excitement, when the in- 
 terests of some party or faction required a general 
 breaking-up of society? 
 
 It is not enough to evade this, by saying that 
 such an event has never happened, though the 
 banks have several times suspended. That is quite 
 true; yet it does not follow that it never will. Pre- 
 vious suspensions have originated in commercial 
 causes. Suppose, on the other hand, a run were made 
 on account of political or social disturbances; that the 
 laboring class — factor}- operatives, railroad gangs, 
 the servants in our families — were incited to demand 
 their deposits in the savings institutions. Could 
 they not prostrate the entire currency in twenty-four 
 hours, by merel}^ demanding their just dues? 
 
202 EXCHANGE. 
 
 Should the present national banks resume specie 
 ■payments, under the mixed-currency system, they 
 will be exposed to the same dangers. 
 
 II. A mixed currency has a demoralizing influ- 
 ence upon a community, industrially and socially. 
 
 If what has been said in regard to this kind of 
 currency is correct, such an influence cannot for a 
 moment be questioned. If it excites to wild and 
 extravagant speculation at one time, and plunges 
 its victims into bankruptcy and ruin without fault 
 at another; if it excites hopes and expectations 
 which must necessarily come to disappointment 
 and distress; if it increases to an enormous extent 
 the natural risks of trade, and exposes all business 
 operations to an incalculable hazard, — then the mer- 
 cantile character and the general tone of morals 
 cannot but be unfavorably aflected. 
 
 III. A mixed currency endangers the national 
 safety in war. 
 
 With the existing ideas and institutions of society, 
 and while no preparations are made in time of peace 
 to prevent the recurrence of war, but every efl:brt 
 to meet it, and thus, of course, to strengthen and 
 perpetuate the war system, it becomes a matter of 
 great interest to inquire as to the eflects of a mixed 
 currency on the safety of a nation in the event 
 of war. 
 
 We have already shown that a niixed currency 
 is greatly aflrected by a demand for specie to send 
 abroad. Hence, as war must always call for an 
 extraordinary importation of foreign merchandise 
 and materials, and as such extraordinary importa- 
 tion must require the shipment of specie, a con- 
 
EFFECTS OF A MIXED CURRENCY. 203 
 
 traction and panic, or speedy suspension, must be 
 the certain consequence. 
 
 Again, since so great a part of a mixed currency 
 usually consists of credit, and since credit rests 
 wholly on confidence, anything which impairs the 
 latter compels a contraction or withdrawal of the 
 
 eurrencv. 
 
 «/ 
 
 E'ow, war generally, we may say uniformly, does 
 this: for how long it may last, how great may be 
 the demand for money, how large the destruction 
 of capital, and what the final issue, must be a matter 
 of doubt; and therefore its occurrence always im- 
 pairs public confidence to a greater or less extent. 
 
 These two causes, then, are at once brought to 
 bear upon a mixed currenc}^ with fatal efi*ect. The 
 result has always been, and always must be, that, 
 under such circumstances, the mixed-currency banks 
 suspend; because their circulation cannot be with- 
 drawn at the time without producing universal 
 bankruptcy, annihi biting their own capital, and 
 stopping the wheels of government. It was so 
 in England during the war wjth IN'apolen ; in the 
 United States during the war of 1812, and in the 
 time of the great secession movement. 
 
 What comes in consequence of all this? The 
 nation is obliged to carry on its vast pecuniary 
 operations with a broken down currency. This, 
 of course, involves the finances in great embar- 
 rassment, vastly increases the public expenditures 
 and the national indebtness. The whole financial 
 r^ystem of the country is crippled, and becomes aa 
 weak as its currency. 
 
 No better illustration of the truth of this state 
 
204 EXCHANGE. 
 
 ment was perhaps ever afforded than that found in 
 the experience of the United States during its great 
 strusro^le. The country was suddenly involved in a 
 stupendous war, — technically, only a civil war, but, 
 practically, a great international struggle, so vast 
 were its dimensions, so strictly was it sectional ; a 
 conflict between two different civilizations, on dif- 
 ferent though contiguous portions of the American 
 continent. 
 
 At the commencement of the struggle, the cur- 
 rency, as we have before said, amounted, circula- 
 tion and deposits, to four hundred and sixty mil- 
 lions against eighty-three millions of specie. Upon 
 the mere threat of secession, so greatly did it impair 
 public confidence that the banks at the South began 
 to suspend ; and their example was followed until 
 most of the Western, and many of the Eastern, were 
 in a state of suspension. After the first shock had 
 passed by, most of the banks in the loyal States re- 
 sumed specie payments; but the large demands of the 
 government, in the course of about a twelvemonth, 
 compelled a universal suspension by both the na- 
 tional treasury and the banks, and the whole country 
 was thrown upon an irredeemable paper currency. 
 All this happened, not because the currency was so 
 redundant, but because it was so unsound. Had it 
 been based in full on specie, this disastrous result 
 would have been avoided. 
 
 In time of war, a mixed currency always becomes 
 an unmixed paper currency. Being at all times 
 really inconvertible, any disturbance in public affairs 
 which destroys, or even essentially impairs public 
 confidence, will cause a general suspension of*the 
 
EFFECTS OF A MIXED CURRENCY. 205 
 
 mixed-currency banks, and, of course, of the govern- 
 ment, and the substitution of a credit for a value 
 currency. 
 
 If these are the natural and inevitable results of a 
 mixed currency in such an event, is it not true that 
 a people imposing on themselves a mixed currency 
 can never be financially ''prepared for war?" 
 
 lY. A mixed currencj^ discourages domestic 
 manufactures, disturbs the proper relation of ex- 
 ports and imports, and puts the balance of trade 
 against the people employing the greater proportion 
 of credit. 
 
 These effects will be recognized as injurious by 
 all classes of persons; but those who are so solici- 
 tous for the positive encouragement of domestic 
 manufactures, and for the restraint of imports, as 
 to favor the enactment of prohibitory or protective 
 laws imposing duties on the foreign article, will, of 
 course, most fully appreciate and deeply feel this 
 tendency of a mixed currency. 
 
 The course of this w^ill be best observed in an 
 illustration from the manufacture of a specific 
 article : 
 
 "Suppose that a certain kind of broadcloth can be afforded by 
 the foreign manufacturer, delivered at New York, for two dollars 
 per yard ; the same article might be made in this country, but 
 would cost two dollars a yard, without any profit whatever. Of 
 course, then, we cannot afford to make the article. The govern- 
 ment, in order to encourage its production here, lays a duty upon 
 the imported article of fifty cents per yard ; but, at the same time, 
 establishes banks which manufacture a mixed currency, and double 
 the natural amount of money. The American manufacturer now 
 proceeds to erect his mills; but wages and materials have so ad- 
 vanced in price, by the expansion of the currency, that it costs 
 him twenty-five to fifty per cent, more than it otherwise would have 
 
 18 
 
206 EXCHANGE. 
 
 done He builds machinery ; but this also co^ts him proportionably 
 high. He proceeds to purchase raw materials, and employ labor 
 in manufacturing ; but all are advanced in price for the same reason. 
 His own expense^i for living are also greater ; and, should he be 
 obliged to hire money, that will generally be found to have ad- 
 vanced in price, or rate of interest. Under these circumstances, he 
 cannot make the cloth so as to afford a profit; and it will not be 
 surprising if he should clamor for more protection. But it may 
 be said, that the same causes that have advanced the expenses of 
 living, and, consequently, of labor, will equally have advanced 
 the price of broadcloth. Not so. The price of the broadcloth 
 will be determined by the rate at which it can be afforded by the 
 foreign manufacturer ; and if he can pay the duty of fifty cents 
 per yard, and yet obtain a fair profit, he will send all the market 
 demands. 
 
 " There is another view of the matter. Suppose we would ex- 
 port our plain cottons, for example, to India. We there meet the 
 English article, made under a currency more valuable than our 
 own, which can consequently be afforded for less; since, with the 
 same amount of the money of India (i.e. value money), the English 
 manufacturer can pay for much more labor in England than the 
 American manufacture can in America."* 
 
 During the continuance of the compromise tariff, 
 established in 1832, and which terminated in 1842, 
 the currency varied from $11.82 to $17.(31 per 
 capita, equal to an expansion of more than lifty 
 per cent.; while, during the same period, prices 
 (as shown by table V., pp. 191, 192) fluctuated to a 
 greater extent. The variation in prices was larger 
 even than the percentage of protective duties. 
 
 So the tariff of 1842, which began to take eftect 
 in 1843, when the currency was $6.18 per capita, 
 was more than counterbalanced by the expansion 
 of the currency to $9.94 in 1846. But the manu- 
 facturer suffered as much from the periodical con- 
 
 * Walker on Money and Mixed Currency, p. 39. 
 
EFFECTS OF A MIXED CURRENCY. 207 
 
 tractions as from the expansions that preceded 
 them; for while, bj the latter, the duties were 
 rendered nugatory, all business men met great 
 losses from the failures and the general derange- 
 ment and stagnation which the former produced. 
 'No tariff of reasonable extent, such as the people 
 of the whole nation would endure, can ever place 
 the domestic manufacturer in a position of security 
 and of reliable profit, while competing with such 
 an immense advance in prices as must certainly 
 accompany an expansion of the currency. The 
 average tariff in 1868 was forty-eight per cent., but 
 the cost of manufacturing, owing to the deprecia- 
 tion of the currency, was some sixty per cent., so 
 that the duties designed to be protective were more 
 than neutralized. 
 
 The terrific struggles through which American 
 manufacturers have passed, ever since the establish- 
 ment of the first tariff in 1816, have been caused, 
 not by foreign competition, solely or mostly, but by 
 a false and delusive domestic currency. 
 
 PROTECTION AND CURRENCY. 
 
 There is a still more striking view of the connec- 
 tion between protection and currency. It is gen- 
 erally believed that high tariff duties restrict the 
 importation and consumption of foreign merchan- 
 dise. It is a popular cry, that "government ought 
 to lay heavy duties, so as to prevent an adverse bal- 
 ance of trade, and the consequent shipment of specie 
 abroad." 
 
 It is true, as a principle, that, the greater the 
 
208 EXCHANGE. 
 
 price, the less the consumption; and that, as the 
 imposition of taxes on the foreign article increases 
 price, so it must, other things equal, decrease con- 
 sumption. But other things are not equal. They 
 have not been so in this country during this century. 
 The facts in the case do not show that heavy duties 
 jiecessarily reduce the consumption of foreign arti- 
 cles. On the contrary-, it is found that the largest 
 importation has often taken place during the ex- 
 istence of the highest tariits. Diagram 'No. 3 will 
 exhibit the relations of the tariffs to the amount of 
 imports, from 1816 to 1861. 
 
 The tariff of 1816, the first ever laid for protection, 
 averaged twenty-one per cent.; it was increased, as 
 we have seen, to forty-two per cent., and became 
 nearly prohibitory on many articles, especially the 
 coarse woollens worn by the slaves. This gave such 
 great umbrage to the cotton-growing States that 
 the compromise tariff of 1832 was enacted, which 
 brought the duties down to twenty per cent, in 1842. 
 This was, unfortunately, a time of great depression 
 of prices and trade, growing out of the monetary 
 revulsion through which the country had just passed. 
 A strong and successful appeal was made for an in- 
 crease of duties; and the tariff known as that of 
 1842 was established, giving high protection. This 
 occasioned so much dissatisfaction, that, after four 
 years, the rates were again reduced by the tariff of 
 1846. This remained in operation for the unpre- 
 cedented period of eleven years, when another re- 
 duction was effected by the tariff* of 1857. This 
 lasted four years, when the necessities of the treas- 
 ury, in consequence of war, induced the imposition 
 
t— 1 I— 1 (— ' 
 
 ^ 
 
 Tl 
 
 ICO 
 
 ^OJ 
 
 i 
 
 h^l 
 
 S2 
 
 H 
 
 
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 I-! 
 
 ►J 
 
 13! 
 
 
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 00 
 
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 o. 
 
 
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 h- 
 
 
 
 
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EFFECTS OF A MIXED CURRENCY. 211 
 
 of higher duties in 1861, since which they have been 
 still further advanced. 
 
 WHAT THE DIAGRAM TEACHES. 
 
 With these explanations of the diagram, we are 
 prepared to inquire into its teachings. 
 
 Is there any such correspondence between the 
 two lines as to indicate that one is governed by the 
 other? Does it appear that, as the tariff rises, im- 
 portations fall off; that, as it is lowered, importa- 
 tions increase? Certainly not. We can perceive 
 no such striking correspondence between the two 
 lines as to lead us to believe that importations are 
 governed greatly by the tariff. There seems to be 
 a disturbing influence which deranges the natural 
 movement of the line of consumption. The two 
 lines clearly do not show such a correspondence as 
 to prove that importations are uniformly governed 
 by the tariff. 
 
 IMPORTATION AND CURRENCY. 
 
 A reference to Diagram !N^o. 4 will, we think, 
 show the disturbing cause, or rather by what law 
 importations are controlled. In this we find a cor- 
 respondence so uniform and persistent as to decide 
 the question, beyond dispute, that the demand for 
 foreign merchandise depends upon the quantity of 
 currency in tlie country; and, as that increases or 
 diminishes, so does the consumption of imported 
 articles. The immense expansion of 1836 carried 
 the consumption up to $10.93 per capita, under a 
 tariff of 31.6 per cent ; while, under a lower one, in 
 
212 EXCHANGE. 
 
 1840, the consumption was but $5.21. Whereas, if 
 consumption is governed by the tariff, it should 
 have been higher than in 1836. 
 
 According to the natural effects of the tariff (the 
 enhanced price of foreign commodities), consum[)- 
 tion should be uniformly highest when the tariff is 
 lowest, and vice versa. We have seen that such cor- 
 respondence does not take place. We then con- 
 clude that some other force or influence operates to 
 neutralize the power of protective duties, and even 
 reverse the natural effect. The last diagram proves 
 the existence of such a cause, and shows its effects 
 on imports. 
 
 Hence we lay it down as a principie that a sound 
 currency is more important as affording protection 
 against foreign competition than a high tariff*. 
 
 CHAPTER XL 
 
 EFFECTS OF A MIXED CURRENCY {concluded). 
 
 Y. A MIXED currency causes unnatural and ex- 
 treme fluctuations in the rate of interest. 
 
 If a mixed currency is in its nature constantly fluct- 
 uating, at one time very redundant, at another very 
 scarce, it would seem to follow, as a necessary conse- 
 quence, that the rate of interest, which is merely 
 the sum paid for the use of money, or currency, 
 would be equally so. Practically, we find that such 
 is the fact. While the currency is in the process of 
 expansion, and is enlarged by new issues from day 
 
DIAGRAM N°- 4. 
 
 Showing the Volume of the Currency and the Imports 
 for Consumption for 26 Years. 
 
 460 Millions of Currency-^ 
 
 450 
 
 440 
 
 1859 
 
EFFECTS OF A MIXED CURRENCY. 215 
 
 to da}', money must be plenty, and the rate of inter- 
 est low. 
 
 When the currency has become largely increased, 
 and speculation has been engendered by the rise of 
 prices, the demand for money will increase faster 
 than the supply, and the rate of interest will begin 
 to advance. 
 
 When the banks have arrived at that point at 
 which they must of necessity contract, and they be- 
 gin to take in their currency, and, of course, to create 
 a scarcity of the means of j)Ciying debts, then the rate 
 of interest will rise to a very high point, not unfre- 
 quently to four or six times its natural rate. 
 
 The indebtedness which the expansion has en- 
 couraged must now be met, at all events and at any 
 sacrifice. Sales of property cannot be made for 
 cash, because all cash resources are needed to meet 
 existing indebtedness, rapidly maturing; and, con- 
 sequently, a great pressure is made upon the money 
 market. The severity of this is indicated by the 
 rate of interest. 
 
 Such being the facts in the case, we need not be 
 surprised to find that the highest rates of interest 
 are paid at times when there is far more than the 
 average amount of currency. 
 
 On the other hand, when indebtedness has been 
 discharged, both by the banks and individuals, and 
 the currency reduced to very moderate dimensions, 
 we find the rate of interest very low. Take the 
 years 1837 and 1857. Interest was up to three per 
 cent, per month ; yet there was a greater amount of 
 currency, per capita, then in use, than ever before. 
 Take the years 1842-43, for an opposite example, 
 
216 EXCHANGE. 
 
 when there was less currency than ever before. 
 Money was very plenty and very cheap. 
 
 This law has governed the rate of interest at all 
 times under our currency, and is strikingly ex- 
 hibited in our Diagram 'No. 5, inserted herewith. 
 
 By this diagram, we see, — 
 
 If^irsL The frequent and extreme fluctuations in 
 the rate of interest. 
 
 Second. That the highest rates of interest occur 
 when there is the greatest expansion of the cur- 
 rency, as witness 1836, 1839, 1854, and 1857. 
 
 Third. That the lowest rates of interest are f )ni d 
 where there is the smallest amount of currency, as 
 in 1843-45. 
 
 Fourth. We observe some remarkable exceptions 
 to these general facts. 
 
 In 1834, we find the interest up to twenty-four 
 per cent., while, in the following year, it was down 
 to five. This is easily explained by those cognizant 
 of the facts. The United States Bank then in exist- 
 ence was extremely desirous of recharter; and, to 
 secure this, it was thought necessary to produce a 
 tremendous pressure in the money market. The 
 result was a high rate of interest. The following 
 year, 1835, the bank took the opposite course, and 
 interest fell below the natural rate. 
 
 In 1836, there was a great expansion of the cur- 
 rency, as shown in the lower line of the diagram. 
 Speculation was rife, the banks could not meet the 
 demand for money, and interest went up to thirty 
 per cent. In 1837, the banks suspended, then is- 
 sued freel}^, and interest went down to a low point. 
 In 1838, the work of contraction began ; a multi- 
 
DIAGRAM N°- 5. 
 
 Showing the Fluctuations in the Rate of Interest and 
 Volume of Currency. 
 
 36- 
 
 
 
 
 
 
 
 1839 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1857 
 
 
 
 
 
 
 
 
 34- 
 33- 
 3'? 
 
 
 
 
 
 
 - 
 
 
 
 
 - 
 
 
 
 
 
 31_ 
 30 
 
 
 
 
 
 1836 
 
 
 
 29- 
 
 
 
 
 
 
 
 
 
 
 
 
 27_ 
 26 _ 
 
 24 
 
 
 — 
 
 
 
 
 
 
 
 
 - 
 
 
 — 
 
 
 
 
 
 
 
 1834 
 
 
 
 
 
 
 
 2:^_ 
 22 
 
 
 
 
 
 
 
 
 - 
 
 
 - 
 
 
 
 
 
 
 
 
 
 21 
 
 — 
 
 — 
 
 - 
 
 
 
 
 
 
 - 
 
 20 
 
 
 
 
 
 
 10 
 
 
 
 
 
 
 
 
 
 \R 
 
 - 
 
 — 
 
 - 
 
 38 
 
 
 1847 53 
 
 
 
 YJ 
 
 
 
 
 
 
 
 
 
 
 16 
 
 
 
 
 
 
 
 
 
 
 
 
 
 15 
 
 
 
 
 
 
 
 
 -19 
 
 
 00 
 
 
 
 13_ 
 Ti- 
 
 
 
 
 
 
 
 
 
 - 
 
 
 
 
 
 
 
 
 
 
 - 
 
 - 
 
 — 
 
 
 
 
 
 
 
 
 
 
 
 
 
 33 
 
 
 
 42 46 
 
 
 48 
 
 
 
 
 
 
 
 
 
 ll 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 10 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 9 
 
 
 
 
 
 
 41 
 
 
 
 
 
 
 
 
 
 
 
 8_ 
 
 7 
 
 
 
 
 
 — 
 
 
 
 
 
 
 r 
 
 
 mI 
 
 
 
 
 59 
 
 
 
 
 
 
 
 
 
 
 
 50 
 
 
 1 
 
 y 
 
 
 
 
 
 6 y^ 
 
 
 
 37 
 
 
 
 
 ,i^ 
 
 
 ^51 
 
 
 
 
 
 n 
 
 
 35 
 
 
 40 
 
 
 
 r^ 
 
 
 - 
 
 
 4 
 
 
 
 
 58 
 
 
 3 
 
 .1843 
 
 -^ 
 
 
 •-> 
 
 
 ./?<2/^ (t/" Interest - 
 
 
 
 1 
 
 
 
 
 
 
 
 18- 
 17- 
 16- 
 15- 
 14 
 
 1837 
 
 
 36 
 
 
 
 
 
 85 
 
 
 
 
 
 J. 
 
 T 
 
 
 
 39 
 
 ro 
 
 o4 
 
 56J 
 
 "185*^ 
 
 i 
 
 IS 
 
 
 
 52;U li^ 
 
 
 
 
 12 f^ 
 
 
 m 
 
 K\ 
 
 
 58 
 
 
 
 11 
 
 34 
 
 
 40 
 
 48—50 
 
 P 
 
 
 10 
 
 mi 
 
 46 
 
 n 
 
 
 
 
 
 n 
 
 
 42— 
 
 45 
 
 47 
 
 r 
 
 49 
 
 
 
 s 
 
 
 44 1 — ^ — 
 
 
 
 
 
 
 
 6 
 
 
 
 
 
 h- 
 
 1S43 
 
 
 
 Cvrrenrv frr Ca/>ita 
 
 
 19 
 
EFFECTS OF A MIXED CURRENCY. 219 
 
 tilde of banks in the West and South failed, and the 
 pressure upon the solvent banks became great; in- 
 terest went up to eighteen per cent. The year 1839 
 .witnessed still greater distress for money. Resump- 
 tion of specie payments by the banks began to take 
 place, and consequently a great contraction of the 
 currency. There was also a very large exportation 
 of specie that year; and, by these combined causes, 
 the rate of interest ran up to thirty-six per cent. In 
 1840, on the other hand, more specie was imported 
 than exported. The indebtedness of the country 
 had been, in great measure, discharged, and money 
 was plenty. Interest was down to five or six per 
 cent. In 1841, there was again an export of specie, 
 and also in 1842 ; and the rate of interest went up 
 to nine and twelve per cent. But, in 1843, the low- 
 est point was reached, more than twenty millions 
 of gold were imported, and money was a drug. In- 
 terest was, for awhile, almost nominal. Large 
 amounts were negotiated as low as three and a half 
 per cent. 
 
 From this time forward, we have only the natural 
 results of a mixed currency in its fluctuations. In 
 1847, the rate of interest was high, — eighteen per 
 cent, — though the currency was not redundant. 
 This was the year of the Irish famine; and we im- 
 ported twenty-two millions of gold above the ex- 
 ports. From 1849 to 1857, the currency was 
 constantly increasing. Severe fluctuations in the 
 money market took place, but no grand revulsion 
 until 1857, when so great w^as the inflation of the 
 currency, and consequently the general credits of 
 the country, that an explosion took place; interest 
 
220 EXCHANGE. 
 
 going up to thirty-six per cent. All these facts are 
 significant, and form an essential part of the history 
 of mixed-currency banking. 
 
 Here it seems proper to mention the remarkably 
 fact, that the rate of interest is now, 1871, and has 
 heen for some time, much higher upon mortgages 
 than upon business paper. Up to the issue of legal- 
 tender notes, loans on mortgage could uniformly 
 be negotiated at a lower rate than the current dis- 
 count rate at the banks. When the latter was six 
 to eight per cent., the former, for large sums, was 
 often but five. Now the case is reversed, and mort- 
 gages are being made at seven to ten per cent, in 
 the Eastern States and much higher in the Western, 
 while money is plenty on call or short time at four 
 to six. The reason is obvious. Capitalists, owing 
 to the abnormal condition of the currency, choose 
 to have their funds where they can command them 
 at short notice, while rents being very high, those 
 wishing for houses, stores, etc., can afitbrd to pay a 
 hio:h rate for the means wherewith to build. 
 
 UNEQUAL EFFECTS OF MIXED CURRENCY UPON DIFFER- 
 ENT INTERESTS. 
 
 Unfavorable as the influence of a mixed currency 
 is upon the general industry of the United States, 
 it will upon examination be found far more detri- 
 mental to some branches of production than to 
 others, and that agriculture, the chief interest of 
 the nation, is by far the greatest sufi:erer. The 
 reason of this can, we think, be made sufficiently 
 apparent. 
 
EFFECTS OF A MIXED CURRENCY. 221 
 
 Other things equal, the general average of prices 
 is determined by the quantity of currency in circu- 
 hition, and prices advance or recede as that is in- 
 ci'eased or diminished. A particular article at a 
 particular time, owing to some circumstance con- 
 nected with its production or the demand for it, 
 may rise or fall in price as compared with other 
 commodities, but the general prices of all objects 
 of value will ever depend upon the quantity of cur- 
 rency existing in the country in which they are pro- 
 duced and sold. This is an economic law as certain 
 as any of the laws of I^atiire. 
 
 It must be borne in mind, however, that if the 
 currency of the country be a local or unnatural one 
 — that is, different from the currency of commerce, 
 which is gold and silver — it will accurately measure 
 only those commodities which are wholly produced 
 and consumed within the country where such local 
 currency is used. If there be any commodity of 
 which the country necessarily raises a surplus that 
 must be exported, and the local currency is in 
 excess of its natural volume, or what it would be if 
 composed of coin, such article will not be measured 
 correctly as compared with all others, because its 
 price depends upon its value for shipment to a for- 
 eign market, where it will be measured by the gold 
 standard. Such article is neither raised in value by 
 expansion nor depressed by contraction of the local 
 currency. The reason is obvious. There cannot 
 be two prices for the same thing at the same tinie, 
 and what it is worth for shipment will determine 
 the value of the whole product, whether consumed 
 at home or sent abroad. 
 
 19* 
 
^^^ 
 
 EXCHANGE. 
 
 On the other hand, all articles produced and con- 
 sumed wholly at home, like boots and shoes, farming- 
 machines and implements, furniture, carriages and 
 the like, are measured by the existing currency, 
 without reference to the gold premium, except to 
 the extent that the materials of which they are 
 composed are of foreign production, upon which 
 the gold premium has been charged. All these 
 home-produced and home- consumed articles feel the 
 full effects of a redundant currency, however great 
 that redundancy. 
 
 The position of the farmer or planter, and, we 
 may add, of the man who mines for the precious 
 metals or petroleum, is this: The commodities he is 
 compelled to purchase for his necessary consump- 
 tion are raised in price by every unnatural expan- 
 sion of the currency, how^ever great it ma}^ be, 
 while his own commodities are not raised in price 
 at all by such expansion. This may be seen in the 
 facts presented in the following table; 
 
 TABLE VI. 
 
 Showing the Price of Flour and Cotton from 1846 to 1859 inclusive 
 [\4: years), with the Currency per Capita, and General Prices at 
 cori'esponding Dates. 
 
 
 tn 
 
 t»-> . 
 
 >:i 
 
 
 
 <« 
 
 Vh . 
 
 >:b 
 
 
 
 
 o C 
 
 ZJ — 1 
 
 ^ xn 
 
 
 o C 
 
 O H 
 
 ^'^ 
 
 
 TEARS. 
 
 
 a> 2, 
 
 tr. 
 
 — o 
 
 TEARS. 
 
 as S 
 o o 
 
 0, _o 
 
 
 go 
 
 
 
 ■— o 
 
 
 ^ ^ 
 
 
 
 ■~ o 
 
 t-^ 
 
 QJ ^ 
 
 
 P^^ 
 
 P-iZJ 
 
 5S. 
 
 $16.69 
 
 
 C^^ 
 
 (IhO 
 
 51 
 
 O!^ 
 
 184G . . 
 
 $5.06 
 
 IV. 
 
 $9.9 i 
 
 1853 . . 
 
 $5.77 
 
 inVo 
 
 $13.65 
 
 $22.47 
 
 1847 . . 
 
 6.67 
 
 8 
 
 9.38 
 
 20.82 
 
 1854. . 
 
 8.94 
 
 9 
 
 14.95 
 
 20.84 
 
 1848 . . 
 
 5.96 
 
 8X 
 
 10.67, 
 
 16.53 
 
 I8r.5 . . 
 
 8.76 
 
 9^4 
 
 13.93 
 
 22.78 
 
 1849 . . 
 
 5.50 
 
 8 
 
 9.18 
 
 16.45 
 
 1856 , . 
 
 6.42 
 
 101^ 
 
 14.64 
 
 25.02 
 
 1850 . 
 
 5.55 
 
 12 
 
 10.39 
 
 16.20 
 
 1857 . . 
 
 5.78 
 
 14 
 
 15.50 
 
 25.13 
 
 1851 . . 
 
 4.52 
 
 10 
 
 11.86 
 
 19.-I2 
 
 1858 . . 
 
 4.30 
 
 13 
 
 11.55 
 
 21.92 
 
 1852 . . 
 
 5.00 
 
 9 
 
 13.31 
 
 21.42 
 
 1859 . . 
 
 1 
 
 5.10 
 
 iiy^ 
 
 14.90 
 
 22.11 
 
EFFECTS OF A MIXED CURRENCY. 223 
 
 This table proves conclusively that v^hile prices 
 in general conform remarkably to the existing quan- 
 tity of currency, flour and cotton do not rise and 
 fall with its fluctuations. Flour, for example, in 
 1846, with a currency of 9.94, was at $5.06; while 
 in 1851, when the currency had risen to 11.86, an 
 advance of twent}^ per cent., flour was at $4.50, a 
 decline of ten per cent. Cotton was at 12 cents, 
 under a currency of 10.39, in 1850, and but 9 cents, 
 under a currency of 14.95, in 1854. 
 
 If the views here presented are sound (and they 
 are certainly based upon indisputable facts), we have 
 established a most important principle, viz., that 
 while no industrial interest is benefited by credit 
 expansions of the currency, one branch of produc- 
 tion, and that by far the largest, is most essentially 
 and unjustly injured, and made to bear by far the 
 greater part of the loss inseparable from the use of 
 a fluctuating and defective standard of value; specu- 
 lators and the issuers of false currency being the 
 only gainers by its use. 
 
 The truthfulness of the principle laid down is 
 more strikingly shown at the present than any former 
 period. 
 
 The prices of agricultural products are now (1871) 
 nearly or quite as low, and in some cases lower, than 
 in 1860. Superfine flour has been quoted during 
 the present year in Few York at $4.45 to $4.95, and 
 mess pork, worth in 1860 $18.25, has been sold at 
 $14.50. 
 
 Wheat has been no higher in 1871 with a currency 
 (circulation and deposits) of $30 per capita, than in 
 1860 with a currency of $14 50 per capita. 
 
224 EXCHANGE. 
 
 If we contrast prices of the farmer's staples with 
 those -of articles wholly produced and consumed at 
 home, like boots and shoes, farming tools and 
 machines, furniture, carriages, and the like, which 
 are measured by the existing currency and varied 
 in price some 50 to 75 per cent., we shall realize how 
 greatly this class of persons is injured; yet these 
 results are simply an exaggeration of an ordinary 
 mixed currency expansion such as the country has 
 long been familiar with. 
 
 But this is not all the damage the agriculturist 
 sufters, because while he gets no more for his pro- 
 ducts, the wages he pays are nearly 50 per cent, 
 higher than in 1860. 
 
 The productive industry of the country may be 
 divided into three principal kinds, — viz., agricultural, 
 manufacturing, and mercantile, — the first employing 
 a large majority of the whole population, and of 
 course producing a large surplus of commodities to 
 be sent abroad, while the products of the second are 
 consumed almost entirely at home. The great staple 
 of agriculture is corn (to use the English term) in its 
 varieties, — wheat, maize, rye, oats, barley, etc. The 
 average value of either one of these determines the 
 value of all the others, because if any one — wheat, 
 for example — brings a higher price in proportion to 
 its cost, the production of that article is certain to 
 be increased until reduced in price to an equality with 
 the rest. 
 
 It may be thought that cotton must be an excep- 
 tion to what we have laid down, since its price is 
 now greater than before the war. It is worth at pres- 
 
MANUFACTURES. 225 
 
 eut, say 20 cents per pound,* while from 1850 to 1860 
 the average was but lOJ cents. This higher price, 
 however, is owing to the fact that the production of 
 cotton has been greatly diminished by the effects of 
 the late contest in demoralizing labor. If the pro- 
 duct were now as large in proportion as in 1860, the 
 price would doubtless be as low. The amount 
 raised in 1850 was 2,0.^i6,706 bales; in 1860 it was 
 4,669,770 bales, — an increase of 130 per cent, in ten 
 years. Had the production of cotton gone on at the 
 same rate of increase, the crop of 1870 would have 
 reached 10,740,471 bales! With such a crop, or 
 • even two-thirds of that quantity, would prices now 
 be higher than in 1860 ? Cotton, we may rest as- 
 sured, will not be found an exception to the law 
 w^iich governs prices when its production has been 
 fully restored. The planter will then have as much 
 reason to complain of the currency as the wheat- 
 grower. There will then be as much occasion for 
 "despondency" at the South as there now is at the 
 West. 
 
 MANUFACTURES. 
 
 The manufacturing interests of the country pre- 
 sent a strong contrast to those of agriculture, the 
 products of the former being measured wholly by 
 the local, the latter by the general, standard of value. 
 Hence it is comparatively a matter of indifference 
 to the manufacturer how much the cost of his goods 
 is enhanced by defective currency, because he can 
 obtain correspondingly high prices. The people 
 
 * It has been as low as 15 cents durins^ the year 1871. 
 
226 EXCHANGE. 
 
 must have his wares and pay him a profit. It is 
 only when he would send his goods abroad that he 
 feels the effect of the false standard of value under 
 which he has produced his commodities. He then 
 finds that, his goods having cost him much more 
 than they ought to have done, he cannot compete in 
 foreign markets as he could before the war. In 1860 
 our export of cotton manufactures was about eleven 
 millions, — now only one-third that amount. Thus, 
 our export of cotton fabrics, which ought to be large, 
 — at least as much as twenty-five millions, according 
 to the rate of increase for several years before the 
 war, — is now hardly worthy of notice. Although 
 thus deprived of an outlet for their goods, and suf- 
 fering many other disadvantages from unsound cur- 
 rency, manufiicturers are able to achieve a good 
 degree of prosperity compared with agriculturists. In 
 fact, they gain by the low price of breadstuffs, be- 
 cause they are enabled to support their workmen at 
 a lower rate. Protected by high tariff-duties from 
 foreign competition, they have the entire command 
 of the home market, while the farmer, depending 
 upon the foreign demand for the sale of his surplus, 
 must sell his whole crop at the gold value. 
 
 TRADE AND TRANSPORTATION. 
 
 The mercantile and transportation class, whose 
 business is transferring and exchanging the values 
 that others have created, are but partially affected 
 by the present state of the circulating medium. They 
 make all their transactions under the same standard 
 of value, and thus secure their profits without difli- 
 
TRADE AND TRANSPORTATION. 227 
 
 culty. The aggregate sales of merchants are larger 
 ill amount than formerly, because prices are so much 
 higher ; but, as an offset to this, their expenses are 
 as much increased as their gross profits ; and besides, 
 their profits when realized are in the currency of the 
 country, worth for the purchase of commodities, the 
 building of houses, stores, or ships, but a little more 
 than half what it was when the currency was sound. 
 In addition to this, the mercantile classes are con- 
 stantly exposed to the danger of a great financial 
 crisis, which may come at any time, and is certain 
 to come sooner or later, unless suitable measures are 
 seasonably taken for the gradual restoration of the 
 currency to par with gold.* 
 
 * A part of this argument is taken from an article by the author 
 published in Lippincott's Magazine for Nov., 1871. 
 
228 EXCHANGE. 
 
 CHAPTER XII. 
 
 FALLACIES REGARDING A MIXED CURRENCY. 
 
 Fallacy 1st. That by means of mixed-currency 
 banks, the capital of a country is greatly increased. 
 
 Capital is the portion of wealth employed in re- 
 production. Money is one form of capital. To the 
 banker or money-lender, it may be his entire capital; 
 but, to the merchant, manufacturer, or agriculturist, 
 it is capital only as the instrument by which he ob- 
 tains those commodities which constitute his main 
 capital, upon which he does his work, and from 
 which he makes his profits. 
 
 Of the great mass of the world's capital, money 
 is but a small fraction. Credit is no part at all. 
 Money is that portion of capital which is employed 
 in reproduction, for the special purpose of effecting 
 easily that exchange of values which itself confers 
 value, because done by labor. To the greater part 
 of mankind, money is only the means by which 
 capital is obtained from those who have it. 
 
 Kow, were it not for mixed-currency banks, all 
 the capital loaned in the form of money would be 
 reliable. Mixed currency, for the time being, takes 
 the place of actual money, and becomes an instru- 
 ment by which capital is transferred. But its nature 
 IS, as we have seen, to issue in greater volume than 
 necessar}^ for the wants of commerce, and, by this, 
 to disturb the business of the country, cause an 
 unnatural rise of prices, an increase of imports, a 
 
MIXED-CURRENCY FALLACIES. 229 
 
 decrease of exports, and finally a call for real money, 
 which causes the withdrawal of all the extra currency 
 at the very moment when, owing to the increased 
 indebtedness it has caused, it is more needed than 
 at any other period. It will then be discovered 
 that this excess was not capital, or actual value, but 
 credit, in the guise of capital, which the mixed- 
 currency banks had issued, and which they were 
 compelled to withdraw when most wanted. 
 
 Fallacy 2d. That mixed currency is cheaper than 
 a value currency, more economical, and therefore 
 more desirable. 
 
 Specie costs much labor. Paper costs but little 
 in comparison : therefore, as it answers the same 
 purpose, and is more conveniently handled, it con- 
 fers a benefit. This is a popular idea. 
 
 Money, we have said, is an instrument, nothing 
 else; we do not eat, drink, or wear it. All tools, 
 instruments, or appliances should be as cheap as 
 possible, provided, always, they are safe and eflicient. 
 
 A paper cap is cheaper than one of leather or 
 cloth; but is it as durable and comfortable? If not, 
 although in the first instance it costs less, it would 
 not be desirable for use. The same principle applies 
 to money. 
 
 If what we have already said of a mixed currency 
 is true, it is wanting in those qualities which would 
 make it cheaper than a value currency, because it 
 does not discharge fully or perfectly a single func- 
 tion of money. It deranges trade, because it does 
 not obey the laws of trade. It increases credit 
 enormously, by its expansions, because it is itself 
 credit, and impairs it by its contractions. 
 
 20 
 
2.0 EXCHANGE. 
 
 But the gain bj this substitution of credit for 
 value in the currency is insignificant, when com- 
 pared with the great interests of trade. The aver- 
 age of paper circulation in the United States from 
 1850 to 1859 inclusive, ten years, was not more 
 than $6.25 per capita. If from tliis we deduct the 
 average specie per capita for the same time held by 
 the banks, viz. $2.25, we shall have left $4.00, as 
 the amount for each individual of credit circulation. 
 On that amount, the saving, if any, is to be made. 
 If we compute the interest at six per cent., we have 
 twenty-four cents as the annual saving to each indi- 
 vidual by the use of credit currency ; a saving worth 
 the attention of the statesman, if it could be properly 
 and safely made, but paltry in comparison with the 
 losses and disturbances incident to a mixed cur- 
 rency. 
 
 Some have supposed that a great saving is made 
 by the use of paper money instead of coin. But it 
 is not necessary to have a Jinxed currency in order 
 to avoid abrasion of the coin. A mercantile cur- 
 rency, based wholly on specie, would equally avoid 
 loss from this cause, and yet secure all the advan- 
 tages of a value currency. 
 
 But, in fact, the abrasion of paper currency is 
 far greater than that of gold ; that is, it costs 
 more to keep out one hundred dollars of currency 
 than it does to keep out one hundred dollars in 
 coin. Gold and silver circulate themselves; but 
 it requires a formidable machinery to circulate 
 paper promises, — a machinery far more costly than 
 the slow wear of the precious metals. ITo banker 
 would venture to say that a paper currency can bo 
 
MIXED-CURRENCY FALLACIES. 231 
 
 maintained for one-twentieth of one per cent, per 
 annum.* 
 
 This argument of economy in the use of credit 
 money was presented by Dr. Adam Smith ninety 
 years ago. Even then the danger was apparent, 
 though the systQm had not been developed to its 
 proper character and consequences. Had the writer 
 witnessed the great convulsions from 1797 to 1866, 
 he would have dismissed, as wholly an idle fancy, 
 the scheme of substituting the "Daedalian wings" 
 (say, rather, the Icarian wings) of credit for the 
 '^ solid ground" of value. He says : 
 
 " The gold and silver money which circulates in any country 
 may very properly be compared to a highway ; which, while it cir- 
 culates, and carries to market all the grass and corn of the country, 
 produces itself not a single pile of either. The judicious operations 
 of banking, by providing, if I may be allowed so violent a meta- 
 phor, a sort of wagon- way through the air, enable the country to 
 convert, as it were,, a great part of its highways into good pastures 
 and cornfields, and thereby to increase very considerably the an- 
 nual produce of its land and labor. The commerce and industry 
 of the country, however, it must be acknowledged, though they 
 may be somewhat augmented, cannot be altogether *so secure, when 
 they are thus, as it were, suspended upon the Daedalian wings of 
 paper money, as when they travel about upon the solid ground of 
 gold and silver. Over and above the accidents to which they are 
 exposed from the unskilfulness of the conductors of this paper 
 monej'^, they are liable to several others, from which no prudence 
 or skill of those conductors can guard them." 
 
 Fallacy 2>d. That the use of mixed currency has 
 been the cause of the great prosperity of the United 
 
 States. 
 
 * By a statement of the Controller of the Currency, Sept. 30, 
 1869, it appears that the actual working expenses of the national 
 banks amount, irrespective of all taxes, to 3-6 per cent, per annum. 
 
232 EXCHANGE. 
 
 This is, doubtless, a very idle assumption, un- 
 worthy of discussion. Yet thousands are influenced 
 by it. A coincidence is taken, by force, for a cause. 
 
 The United States have prospered greatly, and at 
 the same time there has been a large consumption 
 of intoxicating drinks. Surely this does not prove 
 that the prosperity of the country was caused by the 
 use of liquor. Has the country flourished by reason 
 of, or in spite of, such use? Intoxicating liquors 
 stimulate men to greater effort; therefore they in- 
 crease production. Mixed currenc}^ stimulates ex- 
 changes, increases prices, promotes speculations ; 
 therefore it is favorable to production. 
 
 Such is the reasoning, and it is equally good in 
 each case. In both, the misdirection of effort and 
 tlie certain depression of energy are kept out of 
 sight. Mixed currency never gave strength or wis- 
 dom or skill or economy to any human being, and 
 therefore never can have increased the products of 
 the country, or enlarged its wealth, in any manner 
 whatever. Its unnatural excitements are followed 
 by unnatural prostration. Men do not work more, 
 but they trade uiore, speculate more, and squander 
 more, during the flood-time of an expansion. More 
 is expended for foreign luxuries; there is more ex- 
 travagance and waste, which superficial observers 
 take to be indications of prosperity. In the time of 
 reckoning, trade is as much depressed as it was 
 falsely stimulated. 
 
 Fallacy 4/A. That there is not gold and silver 
 enough in existence to form a currency adequate to 
 the rapidly extending operations of commerce; and 
 therefore resort must be had to paper substitutes. 
 
MIXED-CURRENCY FALLACIES. 233 
 
 Twenty years ago, this was regarded as an unan- 
 swerable argument in favor of credit currency. The 
 recent discoveries of apparently inexhaustible mines, 
 and the immense production already realized, have 
 to a great extent silenced the senseless clamor once 
 raised on this point. Yet the assertion is as true 
 now as ever. Only about one-half of the whole 
 amount of precious metals in possession of man, 
 from the fifteenth to the middle of the nineteenth 
 centuries, was required for coin ; the balance re- 
 maining in plate and ornaments, mostly in Europe 
 and the East. 
 
 The reason of such general error on this point is 
 found in the totally inadequate ideas prevailing as to 
 the amount of currency needed for trade. People 
 are informed that the annual products of the United 
 States, for example, are, say four thousand millions; 
 and tbey fancy that four thousand millions of cur- 
 rency', or something near that sum, is necessary to 
 transfer this immense production : whereas only a 
 very small fraction of the amount is required. 
 
 Mr. Col well, in his "Ways and Means of Pay- 
 ment," estimates that all the securities issued in the 
 United States, including " promissory notes, bank- 
 notes, bank credits, and other currency, — in short, 
 all which intervene between buyer and seller," — 
 amount to one thousand million dollars every three 
 months, or four thousand million dollars per year. 
 Yet we know that all this may be wiped off with, 
 at the most, not more than four hundred million 
 dollars of currency, or about one-tenth of the aggre- 
 gate indebtedness. 
 
 Now, that the people of the United States could 
 
 20* 
 
234 EXCHANGE. 
 
 not command sufficient gold to furnish a currency 
 equal to their wants is preposterous, since the yearly 
 production of California, for the last twelve years, 
 has amounted to fifty millions, — in all, say six hun- 
 dred millions of gold; a sum about double our re- 
 quirements for a sound currency. 
 
 Instead of using this, we find that the amount of 
 specie in all the banks in 1848, the time of the dis- 
 covery of the gold mines, was forty-six millions, and 
 that on the first of January,' 1860, the amount was 
 eighty-three millions ; showing that, of all the gold 
 obtained from California, only thirty-seven millions, 
 or about one-sixteenth, had found its way into the 
 bank currency of the country. In the mean time, 
 the total exports of the nation had increased from 
 one hundred and fifty-four to three hundred and 
 sixty millions, or more than double. Again, the 
 amount of specie per capita in bank for ten years 
 prior to the discoveries, say from 1839 to 1848 inclu- 
 sive, was $2.07; while for the succeeding ten years, 
 1849 to 1858 inclusive, it was but $2.10, — showing 
 an actual gain of but three cents to each individual, not- 
 withstanding the accessions of gold to the amount of 
 six hundred millions, or twenty dollars fer capita. 
 
 In connection with the fallacy we are now con- 
 sidering, it may be proper to speak of the opinion, 
 often expressed, that the amount of currency must 
 of necessity be enlarged proportionally to the ex- 
 tension of trade and the increase of population. 
 
 The experience of Great Britain, the most com- 
 mercial nation in the world, entirely contradicts 
 this theory, for while its trade and population have 
 trebled within the last fifty years, its bank currency, 
 
MIXED- CURRENCY FALLACIES. 235 
 
 its paper circulation, is no greater than in 1820, and 
 jet its money market is as well supplied as ever. 
 
 The phenomenon is easily explained. The vari- 
 ous substitutes now provided, and the great improve- 
 ment made in the "mechanism of exchange," have 
 so vastly increased the rapidity of circulation and 
 the efiectiveness of currency as to make any increase 
 of its volume unnecessary. 
 
 This principle is as applicable to the United States 
 as to Great Britain, but not perhaps to an equal ex- 
 tent on account of its large territory and more scat- 
 tered population. The rapid extension of railroads 
 and telegraphs will, however, in a gre^it degree re- 
 move even this difference. 
 
 And here it may not be irrelevant to present 
 the interesting fact that there is a remarkable uni- 
 formity in the amount of paper circulation in pro- 
 portion to population in three of the principal com- 
 mercial nations. In the United States, in 1860, when 
 the currency was redeemable, it was $6.48 per 
 capita;* in Great Britain, in 1868, it was $6.54; in 
 France, $6.63. 
 
 This correspondence in the amount of paper issues 
 per capita in the three most commercial countries 
 in Christendom is at least a striking fact, whether it 
 results from accidental circumstances, or the natural 
 operation of the laws of trade. 
 
 Fallacy 5th, That mixed-currency banks are par- 
 ticularly favorable to those who have little capital, 
 and must, of necessity, depend upon credit, since 
 they increase the facilities for obtaining capital. 
 
 * The irredeemable paper circulation of 1871 is c ver $18 per capita. 
 
236 EXCHANGE. 
 
 Whatever impairs credit and increases the risk 
 of loaning must be unfavorable to those who most 
 need to borrow. Other things being equal, it must 
 be easier to get credit in a community where only 
 one in twenty fails than where one in live fails; the 
 less the risk, the less the hesitation in giving credit. 
 Now, does the credit money of a mixed currency 
 diminish the risk of general credits? Far from it. 
 Common-sense teaches, and statistics prove, that the 
 hazards of credit must be just in proportion to the 
 credit money of any country. Instead, therefore, of 
 being favorable, it is adverse to all persons wanting 
 the use of capital. The hazards of credit in the 
 United States are at least four times as great as they 
 would be under a value money currenc}^ 
 
 A mixed currency, far from being advantageous 
 to persons needing credit, has an entirely opposite 
 influence, and is constantly tending to reduce the 
 number of those who can obtain sufficient to par- 
 ticipate in the profits of business. 
 
 Fallacy Qih. That, without a mixed currency, 
 banks could not exist, and all the advantages now 
 derived from them would be lost. 
 
 Such is the general impression among the masses 
 of the people. Propose to them the expulsion of 
 the credit element — that is, to forbid the issue of 
 notes beyond the specie in hand, the reply comes 
 at once that there would be no object in banking, 
 and we should have no banks ; but banking may be 
 carried on to any degree, and in the most profitable 
 manner, without the issue of a single bank-note. 
 This is done in Great Britain, to a wonderful extent, 
 by joint-stock and private banks. Only a very small 
 
MIXED-CURRENCY FALLACIES. 237 
 
 proportion of all the banks in the United Kingdom 
 issue their own notes; yet they make dividends so 
 large as to astonish us. 
 
 As an illustration of this species of banking, we 
 mention the fact that w^hile the Bank of England, 
 with a capital of fifteen millions, lias deposits, pub- 
 lic and private, of but twenty millions on an aver- 
 age, the three principal banks of London, with an 
 aggregate paid-up capital of only £2,320,000, have 
 on deposit £46,158,105; and that while the Bank 
 of England declares a dividend of about six or seven 
 per cent., these banks make an average profit of 
 about thirty per cent., and furnish the commercial 
 and manufacturing interest a much larger amount 
 of capital than the Bank of England itself. And 
 yet they manufacture not a dollar of currency. We 
 present the following statement of their condition : 
 
 Net profits Percentage 
 
 Paid-up capital. Deposits. for 6 mos per ann. 
 
 London and Westminster £1,000,000 £15,629,095 £147.816 29-56 
 
 Union 720,000 16,472,279 114,324 38-11 
 
 London Joint Stock . . 600,000 14,056,731 80,573 26-86 
 
 £2,320,000 £46,158,005 £342,713 
 
 We see by these facts that the issue of a paper 
 circulation is no necessary part of the most extended 
 and profitable banking. Foreign bankers pay in- 
 terest upon deposits, and are never restricted by 
 legal enactments. This is true banking. 
 
 Of all kinds of banks, with their branches, there 
 are, in the United Kingdom, about five thousand, a 
 small portion only of them being banks of issue. 
 Yet, as a general rule, all make large dividends, — 
 the largest dividends being by those banks which 
 issue no notes whatever. 
 
 20* 
 
238 EXCHANGE. 
 
 This fact gives sufficient proof, if any were needed, 
 tliat, in order to make large profits, it is not neces- 
 sary for a well-established, well-managed bank to 
 manufacture currency. 
 
 Banks belong to civilization. A bank is an insti- 
 tution intrusted by one class of persons with money 
 to loan another class. The existence of such insti- 
 tutions implies the existence of capital and confi- 
 dence; and these indicate culture and social eleva- 
 tion. Banks are labor-saving machines, of vast 
 power and utility. They exist of necessity. 
 
 No well-informed man can be opposed to banking 
 institutions conducted in a proper manner. It would 
 be as reasonable to object to railroads. 
 
 Fallacy Sth. That a mixed currency can be effect- 
 ually regulated by law. 
 
 Many of the mischiefs arising from a mixed cur- 
 rency are eo obvious that all persons desire their 
 removal, and naturally resort to legal enactments 
 for that purpose. The statute-books of every State 
 in the American Union contain laws for the regula- 
 tion of mixed-currency banks. Commissioners have 
 been appointed in many States, and a Bureau of 
 Currency established. Ingenuity has been taxed to 
 devise regulations by which these evils may be re- 
 moved or modified, — with what success? They 
 have never succeeded. 
 
 There is but one defect in a mixed currency; and 
 that is, it w^ants the element of value. There is no 
 sufficient remedy, but to supply this, by providing 
 that banks shall issue no promises of their own for 
 which they have not in possession the actual values 
 they promise. But this would be to change the 
 
MIXED-CURRENCY FALLACIES. 239 
 
 whole system, to make the currency mercantile^ and 
 to cut oft' all the profits arising from the issue of 
 bank debt as currency. The only complete remedy, 
 then, is restoration; that is, a return to the original 
 design and purpose of banking. 
 
 Fallacy Sih. That it is for the interest of the pub- 
 lic that the banks, in times of panic or stringency, 
 should be enabled to " stave oft'" suspension. 
 
 On the contrarj^, this can be obviated only to the 
 misfortune of the business community. A severe 
 pressure for money, as in the United States in 1847, 
 1851, and 1854, is experienced, and 3'et the banks 
 do not suspend. But how do they avoid it? By 
 throwing the strain upon the mercantile and busi- 
 ness community. This they can always do to a 
 limited extent, and thus maintain their own credit; 
 but it is done at an enormous amount of embarrass- 
 ment and loss to all engaged in business aftairs. 
 
 The banks may not only escape damage, but may 
 even profit very much by a pressure, if it does not 
 come to be a panic; for it greatly enhances the rate 
 of interest. The rate of interest in the Bank of 
 England, from 1848 to 1856, did not average three 
 and a half per cent. In 1857, when there was a 
 severe pressure, the bank was able to obtain ten per 
 cent. It had a harvest of profit, and the same in 1866. 
 
 Practically, mixed-currency banks expand as often 
 and as much as possible ; and, when the reaction 
 comes, hold on to specie payments and a high rate 
 of interest, until the bankruptcy of their debtors 
 begins to be so alarming as to endanger their own 
 securities. They then suspend, allow their debtors 
 to pay up in the notes they cannot redeem in specie, 
 
240 EXCHANGE. 
 
 and thus settle the indebtedness of themselves and 
 the public. There is no plan or design to do this; 
 but such is the natural result, and, on the whole, a 
 highly satisfactory one to the hanking interest. 
 
 Fallacy 9th. That, whatever the effect upon other 
 classes, bank stockholders at least are made richer 
 by an expansion of the currency. 
 
 That this is not generally true will appear on 
 examination. 
 
 An expansion of the currency raises prices : that 
 we take to be indisputable. If so, the stockholder 
 may be made richer or poorer by the cause that 
 increases his bank dividends. 
 
 For example : suppose he has an income from various 
 
 sources of $5000 
 
 And from bank stock 1000 
 
 Total income $6000 
 
 In consequence of an increase of circulation by the 
 banks, he gets an increase of $500, equal to fifty per 
 cent, on -his bank dividends, making his whole in- 
 come $6500. But prices and commodities have ad- 
 vanced twenty-five per cent, in consequence of the 
 inflation. What he would have bous^ht before for 
 $6000, now costs him $7500. The result, then, is, 
 that the bank stockholder has gained $500 in his 
 dividends, and lost $1500 in his purchases; so that 
 he is actually $1000 poorer, reckoning the real 
 satisfactions or commodities, etc., which he obtains 
 from his income. 
 
 It is only when a man's income is derived almost 
 wholly from bank dividends that he can gain, by the 
 fact that they have been increased in consequence 
 of currency expansion. 
 
MrXED-CURRENCY FALLACIES. 241 
 
 WHO GAINS BY FICTITIOUS CURRENCY? 
 
 But it may be asked, if stockholders do not gain 
 by bank expansions, who does ? There is an in- 
 crease of dividends: who o^ets the advantaijce? 
 
 This inquiry brings us face to face with one of 
 the prime mysteries of currency, and, indeed, of 
 political economy. ^''Who gains by fictitious cur- 
 rency?" Before answering this, we will ask. What 
 is gained by a currency not consisting of actual 
 value? We answer, nothing but j^rke. Prices are 
 changed by it. Values are not created : they remain 
 the same. By the change in the standard or measure 
 from a value to a mixed currency-, prices no longer 
 accurately determine value. Prices are increased. 
 Those who hold commodities while prices are ad- 
 vancing, gain by such an advance. Debtors may 
 discharge their obligations with less value. Specu- 
 lators may make favorable operations. The value 
 of every commodity has been interfered with ; the 
 integrity of every contract to pay value has been 
 impaired. 
 
 Such is the " consummation" of mixed currency. 
 "It is a grand system of insidious swindling." So 
 said "Hardcastle" (who was no other than Mr. Page 
 of the Bank of England) more than forty years ago ; 
 and what that shrewd observer then discovered is, 
 apparent now J:o all who enter into a full examination 
 of the subject.* 
 
 * Kicliard Cobden repeated this remark of Mr. Page to the 
 author at Manchester, more than twenty years since, with his 
 emphatic approval. 
 
 21 
 
242 EXCHANGE. 
 
 CHAPTER XIII. 
 
 MERCANTILE CURRENCY. 
 
 We have thus far examined three different kinds 
 of currency. 1st. Money, consisting of the precious 
 metals : this we have found to be admirably adapted 
 to the wants of trade, except that, for large ex- 
 changes, it is too cumbersome, requiring much 
 labor and time in use. 2d. Inconvertible paper, 
 or credit currency, which, we have seen, never has 
 been, and in the nature of things never can be, kept 
 at par with coin, and is therefore highly injurious 
 when introduced into commerce. 3d. A mixed 
 currency, or partly convertible paper, which, as it 
 is constantly varying in quality and quantity, cannot 
 be relied on as a medium of exchange or a standard 
 of value. 
 
 We now come to the consideration o^ a mercantile ^ 
 or substitute currency. 
 
 It is quite apparent that a cni-rency is needed 
 which shall combine all the advantages of the two 
 kinds first mentioned, without the disadvantages 
 which we have seen to be inseparable from the 
 *third. We w^ant the reliability of coin and the 
 convenience of paper. With these perfectly united, 
 there is nothing more to desire. We have no oc- 
 casion to increase the currency beyond its natural 
 volume, because that would impair the standard 
 of value. We wish only to have so much currency, 
 
MERCANTILE CURRENCY. 243 
 
 and of such a kind, as the laws of trade demand, 
 and, if undisturbed, will always secure. 
 
 Is such a currency practicable? 
 In answering this question, we remark that it 
 would not be an entire novelty^ since experiments of 
 this character have been made most successfully 
 upon a large scale, and extending over several 
 centuries. 
 
 The Bank of Genoa, established in the early part 
 of the fourteenth century, received deposits and 
 issued bills or notes of circulation extensively; but 
 *' these bills and deposits represented coins of full 
 weight and value, and were payable on demand in 
 such coins/' They formed a currency adapted to 
 the wants of that city when the great mart of trade 
 for all Europe, and were continued in use more 
 than five hundred years. The bank was abolished 
 when Genoa was united to the French Empire. 
 
 The Bank of Amsterdam received deposits in 
 coin and gave a receipt [recipisse) for the same. 
 These receipts formed a circulation for large mone- 
 tary transactions. 
 
 The Bank of Hamburg, established in 1619, has 
 the same o:eneral character, and confers immense 
 benefits on the trade of Amsterdam, issuing its ob- 
 ligations only to the extent of its specie. 
 
 We have referred to these individual banks, not 
 to give a history of their operations, but to show 
 that the essential principle of a substitute currency 
 has been long recognized, and thoroughly tried in 
 practice. 
 
 To keep gold and silver coin in bank, while they 
 are performing all their functions optside, with per- 
 
244 EXCHANGP. 
 
 feet accuracy and vastly augmented force, — this is 
 what a mercantile currency seeks to realize. It 
 is beyond doubt that this can be more effectually 
 done in the present, than in any preceding age, since 
 confidence and intelligence are more general and 
 controlling. 
 
 England affords the best illustration of the neces- 
 sity for such a currency at the present day, when 
 the commerce of the world is perhaps one hundred 
 times greater than when Genoa was its chief mart. 
 The monetary condition of England is peculiarly 
 appropriate in this connection, because its present 
 currency is probably the best in quality of all the 
 mixed currencies, and one with which the public 
 generally are well acquainted. Yet, notwithstand- 
 ing this superiority, we find the currency, on which 
 depend the trade and commerce of the British Em- 
 pire, in a state of continual fluctuation, and a matter 
 of unceasing solicitude: the bank reserve, by which 
 its discounts must be governed, varying from ten 
 millions in 18,46, to one and a half millions in 1847; 
 twelve and a half millions in 1849, to four millions 
 in 1854; one and a half millions in 1857, to thirteen 
 and a half millions in 1858; with corresponding 
 variations in the rates of interest. 
 
 Why all this fluctuation and anxiety? Why this 
 constant watching of the amount of bullion in bank? 
 Why this nervous solicitude about the reserve? 
 
 There is only one reason ; and that is, that the 
 Bank of England has issued from ten to fifteen mil- 
 lions sterling of notes, for which it holds no specie! 
 That is all the difliculty. It has disturbed the laws 
 of value, by issuing that as money which had only 
 
MERCANTILE CURRENCY. 245 
 
 the promise of valne; and, consequently, has ex- 
 pelled the actual value from the country where it 
 was needed. 
 
 And what does the Bank of England gain by 
 all this ? Why, the interest upon the excess of its 
 notes over the bullion in bank; that is, if its notes 
 are twenty millions, and it holds eiglit millions of 
 specie, then on twelve millions it obtains interest, 
 which, at say four per cent., as an average, is equal 
 to four hundred and eighty thousand pounds per 
 annum. So, then, it is for this paltry consideration 
 that the currency of Great Britain is kept in constant 
 fluctuation, and the business community in continual 
 anxiety. This gain is equivalent to about four pence 
 per head for the population of the nation. Yet for 
 this the public must, on an average, suffer to the 
 amount of many millions per annum. 
 
 The people of the United States, having a much 
 larger proportion of the credit element in their cur- 
 rency, suffer still more. 
 
 The remedy for all these evils is a very simple 
 one, and perfectly feasible whenever government 
 sees fit to make the needful enactments. Not 
 only so, but, from the nature of the case, there 
 need be no violent change. The experiment may 
 be made as cautiously as the most conservative can 
 desire. 
 
 If the principles we have previously laid down, 
 and the practical results which follow, are such as 
 we have stated, then no one nation need to hesitate 
 in making this experiment for fear that other nations 
 may not follow their example; for the community 
 which has the soundest currency will, other things 
 
 21* 
 
246 EXCHANGE. 
 
 equal, have the most profitable industry and the 
 most advantageous commerce. 
 
 There need be no legal restriction whatever upon 
 the issue of such a currency, and it matters not how 
 voluminous it may be ; since it will be composed in 
 fact of value money, will obey the laws of value, and, 
 of course, will regulate itself. There would then be 
 no expansions or contractions, except from the legiti- 
 mate operations of trade ; and the currency of the 
 nation would be perfectly sound. ITotes may be 
 safely issued, of any denominations, and to any 
 amount; still it would be desirable that no small 
 notes should be put out, because it is better that the 
 people should have the coin, so far as practicable and 
 convenient, in their own possession, rather than that 
 it should be needlessly accumulated in banks, where 
 it would be more exposed to danger in case of a 
 popular outbreak, or a financial coup d'etat. 
 
 That legitimate banking may be made sufficiently 
 profitable under such a system, we have seen in the 
 case of the joint-stock banks of England. All banks, 
 like them, should be authorized to receive deposits, 
 and allow such an interest upon them as they might 
 choose to pay. If there were no issue of promises 
 as currency, which in the nature of the case it was 
 impossible to make good, there would be no danger 
 in allowing them to borrow and loan money on any 
 terms they pleased. 
 
 There would be no occasion to enact that such a 
 currency as we propose should be received in pay- 
 ment of dues. It would take care of its own repu- 
 tation. It would be good as gold, and easier in use; 
 and it therefore would circulate itself. Of such a 
 
FREE BXNKING. 247 
 
 currency it might be said, in tiie language of Mr. 
 Burke, " It is of value in commerce, because in law 
 it is of none." 
 
 It would only be necessary to secure a gradual 
 substitution of the better circulation in place of 
 the old. 
 
 If, in carrying such a measure into practical opera- 
 tion, it should appear that there were banks which 
 could not make good dividends, such institutions 
 would be discontinued of their own choice, as not 
 actually required by the wants of the business com- 
 munity. Their capital would be paid back without 
 any essential loss to the stockholders. Those who 
 were concerned in their management would of course 
 be obliged to seek other employments, more bene- 
 ficial to the country, and perhaps equally so to them- 
 selves. The amount of disturbance so produced 
 would not exceed that occasioned, many times, by 
 the invention of a new description of machinery. 
 
 FREE BANKING. 
 
 Much has been said, at different times, of the de- 
 sirableness of free banking. Of the propriety and 
 rightfulness of allowing ai»y person who chooses to 
 carry on banking, as freely as farming or any other 
 branch of business, there can be no doubt. But it 
 is not, and can never be, expedient or right to au- 
 thorize by law the universal manufacture of currency. 
 While banking, as at present, means the issuing of 
 inconvertible paper, the more it is guarded and re- 
 stricted the better. But when such paper is for- 
 bidden, and only notes equivalent to so much coin 
 
248 EXCHANGE. 
 
 are issued, banking may be as free as brokerage. 
 There is not the slightest reason why any banker, 
 making loans, should engage in the manufacture of 
 currency. It no more appertains to his vocation 
 than to that of the merchant. On the other hand, 
 there is the most manifest impropriety and danger 
 to himself and the public in his doing so. His 
 business leads him, of necessity, to incur great 
 risks; and this being well known, as soon as failures 
 become frequent, as they will when there is a great 
 pressure for money, the banker w^ill be suspected, 
 and his depositors begin to withdraw their funds, at 
 the very moment when he is least able to spare 
 them. All this is inevitable ; and therefore no one 
 taking such risks, and exposed to «uch contingen- 
 cies, should be allowed by law to issue his promises 
 as money. 
 
 GOLD NOTES. 
 
 Fortunately, while it is thus improper that bank- 
 ers or banking institutions should be intrusted w^ith 
 the important function of issuing notes, there is not 
 the slightest necessity for their doing so. Gov- 
 ernment very properly certifies to the w^eight and 
 fineness of the national coin; and it is equally incum- 
 bent upon the government to certify to the sound- 
 ness of the paper circulation, which convenience 
 requires insteiid of the coin itself. It should receive 
 the gold of the people, and give its certificates there- 
 for; and those certificates (of all the denominations 
 required) would form a circulating medium, per- 
 fectly reliable, unfluctuating, and well adapted to 
 all the purposes of trade. 
 
GOLD NOTES. 249 
 
 To do this, government need assume no new func- 
 tion ; for it already issues this very kind of certifi- 
 cates for deposits of specie. They are called " gold 
 notes," and circulate as such. Wlien the specie 
 standard is restored, all the notes in circulation will 
 be gold notes, government being the trustee for hold- 
 ing the coin. This would not give any new power 
 to the government, or confer any additional political 
 influence. Being custodian merely, with no patron- 
 age to bestow, no loans to make, no accommodations 
 to grant, there could be no occasion to fear that the 
 currency of the country would be swayed by parti- 
 san politics. 
 
 And this important change may be effected with- 
 out any convulsion in the money market, or any 
 interruption of the trade and industry of the nation, 
 by the enactment of a law requiring a gradual with- 
 drawal of the existing circulation. And the con- 
 traction required may be made an entirely voluntary 
 one on the part of the people so far as the treasury 
 notes (greenbacks) are concerned, by providing for 
 the monthly issue of compound interest notes in 
 their stead, convertible, after a given time, into 
 treasury bonds, at the option of the holder. 
 
 The national banks, on their part, might be re- 
 quired to take in their circulation at a certain rate 
 per annum, and allowed to receive pro rata their 
 bonds now held as security by the government, thus 
 supplying themselves with reliable capital with 
 which to accommodate the business public. This 
 being accomplished, all restrictions as to paying in- 
 terest upon deposits, all requirement to hold specie 
 for the redemption of notes, and all taxation imposed 
 
250 
 
 EXCHANGE. 
 
 for their franchise, or privilege of issuing paper 
 money, might be removed, and the banks have the 
 whole field of legitimate and profitable operations at 
 their entire command. They would suffer no detri- 
 ment, while the trade and industry of the nation 
 would gain immensely. 
 
 TABLE VII. 
 
 Characteristics of the Different Currencies. 
 
 KIND. 
 
 COMPOSI- 
 TION. 
 
 CIRCULA- 
 TION. 
 
 STABILITY. 
 
 CONVE- 
 NIF.NCY 
 IN USE. 
 
 CONVERTI- 
 BILITY. 
 
 AS A STAND- 
 ARD OF 
 
 VALUE. 
 
 Specie 
 
 Precious 
 metals 
 
 Universal 
 
 Perfectly 
 reliable 
 
 Cumber- 
 some in 
 
 large 
 amounts 
 
 Needs no 
 conversion 
 
 Correct and 
 invariable 
 
 Credit 
 
 Paper based 
 on credit 
 
 Local and 
 arbitrary 
 
 Liable to 
 depreciation 
 
 Conve- 
 nient 
 
 Inconverti- 
 ble 
 
 False 
 
 Mixed 
 
 Paper based 
 
 on coin 
 
 and credit 
 
 Local and 
 conven- 
 tional 
 
 Constantly 
 fluctuating 
 
 Conve- 
 nient 
 
 Only par- 
 tially con- 
 vertible 
 
 Defective 
 and variable 
 
 Mercan- 
 tile 
 
 Gold notes 
 based wliol- 
 ly on coin 
 
 Local and 
 conven- 
 tional 
 
 Perfectly 
 reliable 
 
 Conve- 
 nient 
 
 Fully con- 
 vertible 
 
 Correct and 
 invariable 
 
 CHAPTER XIV. 
 
 THE NATIONAL CURRENCY OF THE UNITED STATES. 
 
 Having given an extended analysis of mixed cur- 
 rency as it has heretofore existed in the United 
 States, it seems proper that we should notice the 
 important changes that have taken place in that 
 currency. 
 
 In the month of February, 1863, Congress enacted 
 a law establishing a national and uniform system to 
 
NATIONAL CURRENCY OF U. S. 251 
 
 supersede the State-bank system. We propose to 
 inquire in what respect it differs from, and in what 
 respect it is like, the latter. 
 
 DIFFERENCES. 
 
 It differs from the old system, in that, — 
 
 (1) Being created by national instead of State 
 authority, it is entirely within the control of Con- 
 
 • gress, which, according to the last section of the 
 N'ational Bank Act, may at any time "alter, amend, 
 or repeal it." 
 
 (2) It differs, in that all the notes issued are guaran- 
 teed as to their ultimate redemption by the government 
 of the United States. This provision we presume 
 to be without any precedent; for the government 
 is not simply custodian, holding security for these 
 notes, as formerly in New York and some other 
 States, on the safety-fund principle, where stocks 
 were deposited to secure the circulation, but it abso- 
 lutely guarantees the final payment of all these 
 notes in full. 
 
 Every banking association, on its organization, 
 must deliver to the Treasurer of the United States 
 the bonds of the United States bearing interest, and 
 is then entitled to receive from the Controller of 
 the Currency circulating notes of different denomi- 
 nations, in blank, equal in amount to ninety per 
 cent, of the current market value of the bonds so 
 transferred, but not exceeding the par value of such 
 bonds. In case the notes issued by the banks are 
 not paid by them according to promise, the Con- 
 troller may sell the bonds left ns security, and 
 
252 EXCHANGE. 
 
 redeem the notes, making up to the holders of the 
 same any deficiency there may be in the securities. 
 This, it will be' seen, does not secure the immediate 
 convertibility, but the ultimate redemption, of the 
 circulation. 
 
 (3) It differs, again, in that these notes are legal 
 tender in payment of "taxes, excises, public lands, 
 and all other dues to the United States, except for 
 duties," and also are legal tender by the United 
 States in payment of all salaries and other demands 
 owing by the United States, except interest upon 
 the public debt; but they are not a legal tenaer as 
 between other parties. 
 
 (4) Unlike the State-bank notes, those of the 
 national banks, owning to the provision just men- 
 tioned, have a nearly uniform value in all parts of the 
 United States, and are therefore generally acceptable. 
 
 (5) They differ also in this, that the national 
 banks are compelled by law to keep on hand a cer- 
 tain proportion of " lawful money" to their circula- 
 tion and deposits. In specified cities, this propor- 
 tion is fixed at twenty-five per cent.; in all other 
 places, at fifteen. 
 
 Under the State systems, there was no legal obli- 
 gation on the banks to keep any specie whatever, 
 except in a few cases, as in Louisiana and (recently) 
 in Massachusetts, and (me or two other States. But 
 this provision in regard to the national banks is 
 practically, to a great extent, only a nominal matter, 
 because the law provides that *' bank balances (due 
 from one bank to another) shall be deemed to be 
 lawful money;" and therefore, as these balances 
 may be created fictitiously for the very purpose, the 
 
NATIONAL CURRENCY OF U. S. 253 
 
 clause obliging the banks to keep a certain propor- 
 tion of "lawful money" with which to redeem their 
 notes is nearly a nullity. However real these bank 
 balances may be, they are not specie, but, as we 
 have before show^n, constitute the most perilous 
 and explosive element of a mixed currency. This 
 is one of the great defects of the law, and, until it 
 is removed by the repeal of this provision, would 
 alone make the system a dangerous and unreliable 
 one. The object of requiring any specie, or lawful 
 money, is, that the currency may be made more 
 reliable; but, so far from giving strength, every 
 banker knows that these balances are a cause of 
 weakness in time of panic. 
 
 (6) Another important difference betw^een the 
 past and present currency is that in the former 
 the security of both circulation and deposits was 
 the same, while with the latter the circulation is 
 guaranteed by the national government, but the 
 deposits have no security except the stability of the 
 bank in which they are made. 
 
 Lastly, the national differ from the old State 
 banks in this, that the latter had almost their en- 
 tire capital to loan to the business community, 
 while the new banks have little or none at all, 
 having loaned their capital at the outset to the gov- 
 ernment, by the purchase of its bonds. 
 
 RESEMBLANCES. 
 
 The new currency resembles that of the old State 
 banks, in that it will be a mixed currency, with all its 
 characteristics, when specie payments are restored. 
 
 22 
 
254 EXCHANGE. 
 
 (a) It will expand and contract from the same 
 causes, and, so far as can be seen, with the same 
 violence and to an equal extent, and consequently 
 will be as fluctuating as the currency it is designed 
 to supersede, except in so far as a larger proportion 
 of specie shall be held for its redemption. 
 
 (6) It will be an equally delusive and false standard 
 of value, having in itself but a small proportion of 
 value. 
 
 (c) It will raise prices and cause speculatiou when 
 in the process of expansion, and depress prices and 
 produce bankruptcies when contracting. 
 
 (d) It will create an unnatural extension of credits 
 at one time, and a corresponding contraction at 
 another, producing great vibrations in the rate of 
 interest. 
 
 (e) It will derange the natural current of trade 
 from time to time, causing an increase of imports 
 and a decrease of exports, and thus forcing an ex- 
 port of specie to meet an unnatural balance. 
 
 (/) It will counteract the influence of both natural 
 and artificial protection, and retard the normal 
 growth of home manufactures. 
 
 Lastly, it will create panics, and csRise frequent 
 suspeyisions of all the banks in the country. 
 
 It may be thought that the fact that the govern- 
 ment guarantees the national-bank notes w^ill pre- 
 vent a run upon the banks; but that will be found 
 an entire mistake. Panics are created because 
 money is wanted to pay notes and discharge im- 
 mediate obligations, not because the people fear 
 that the banks are insolvent. 
 
NATIONAL CURRENCY OF U. S. 255 
 
 PANIC OF 1873-4. 
 
 The prediction at the bottom of the last page, 
 made in March, 1873, was fully accomplished in 
 the following September, when a sudden and fear- 
 ful panic occurred, and a general suspension of 
 the banks followed, with the natural and necessary 
 derangement of every department of trade and 
 industry. 
 
 Regarded purely in the light of science, this was 
 a most noteworthy event. It had no precedent in 
 history, since no other country ever had a monetary 
 circulation of the same character, consisting of 
 irredeemable legal tender notes of the government 
 and the notes of two thousand banks, redeemable 
 in the aforesaid irredeemable legal tenders. 
 
 As this currency had been in existence for some ten 
 years, it was thought by many persons that a panic 
 was impossible under such a system; yet the most 
 sudden and, for the time being, most disastrous con- 
 vulsion took place ever known ; and it came, how- 
 ever unexpected by the multitude, in obedience to 
 the natural laws of trade, acting upon an abnormal 
 and redundant paper circulation. So far from pre- 
 venting an explosion, its redundancy only made that 
 event more certain and severe. 
 
 We have only to refer to the facts of the case, to 
 the condition of the national banks, to discover an 
 adequate cause for this suspension, and the mischiefs 
 it brought upon the country. From official returns 
 made only one week before the great catastrophe, we 
 find that the national banks had of — 
 
256 EXCHANGE. 
 
 Loans and discounts $940,233,304 
 
 Overdrafts 3,986,812 
 
 United States bonds 411,960,250 
 
 Other stocks, etc 23,709,034 
 
 $1,379,889,400 
 
 The actual capital of these banks was, at that 
 time, — 
 
 Capital stock paid up $491,072,616 
 
 Surplus fund 120,314,499 
 
 Undivided profits 64,515,131 
 
 $665,802,246 
 
 Deducting this last amount from the former, we 
 have $713,987,154 as the pure credit or explosive 
 element of the currency at that time. 
 
 The following will show the ability of the banks 
 to sustain any shock they might be called to en- 
 counter. They owed for — 
 
 Outstanding notes $339,081,799 
 
 Individual deposits 622,685,563 
 
 United States deposits 7,829,327 
 
 Deposited by United States officers 8,098,560 
 
 $977,695,249 
 
 Their immediate resources were — 
 
 Legal tenders (greenbacks) $92,347,663 
 
 Specie 19,868,469 
 
 United States certificates of deposit 20,610,000 
 
 $132,826,132 
 
 equal to 13.6 per cent, upon the amount liable to 
 be called for on instant demand; and two-thirds of 
 their indebtedness consisted of what they owed their 
 depositors that was unsecured, and, of course, liable 
 and certain to be demanded whenever public confi- 
 dence became at all impaired. 
 
National currency of us. 257 
 
 Such was the aggregate, actual strength of the 
 national banking system as a whole; but its most 
 alarming and dangerous element consisted in the 
 relation of the redemption to the non-redemption 
 banks. Of these latter there were 1747, whose 
 immediate liabilities were $532,971,917, while their 
 specie and legal tenders, their means of payment, 
 were but $46,601,414, equal to but 8.7 per cent. 
 For the balance, 91.3 per cent., they were depend- 
 ent upon the redemption hanks^ who themselves owed 
 $474,731,060, while all their immediate resources 
 were but $86,399,716. 
 
 When the banks suspended, on the 10th of Sep- 
 tember, 1873, the people throughout the nation were 
 almost entirely deprived of the means of making 
 exchanges ; for as the banks would neither issue or 
 redeem their own notes, and the greenbacks were 
 hoarded, resort was had, of necessity, to contrivances 
 of all sorts for getting on with ordinary business 
 transactions. Such distress and embarrassment were 
 never known before. Issues were made by private 
 individuals and corporations of their own notes, 
 certificates of deposit by banks and by the clearing 
 houses, and these by the force of circumstances were 
 accepted as currency, and aided in relieving the g«n- 
 eral distress. The amount of these issues throusrh- 
 out the nation was roughly estimated at $100,000,000, 
 and might have been twice that amount. 
 
 CONDITION OF THE CURRENCY IN 1875. 
 
 Very important changes have been made in the 
 currency by the action of Congress during the month 
 of January of the present year. 
 
 22* 
 
258 EXCHANGE. 
 
 First, all restrictions limiting the aggregate 
 amount of circulating notes have been removed, 
 both in regard to existing banks and all that may 
 be hereafter formed. 
 
 Free banking is thus established without any 
 limitations as to the amount of notes that may be 
 issued. This secures unlimited expansion so far as 
 legal provisions are concerned. As all past experi- 
 ence shows that the larger the issues of the banks 
 the more prices are raised, speculation engendered, 
 and the demand for money intensified, it is suffi- 
 ciently certain that, sooner or later, the circulation 
 will be extended far beyond what it is at present. 
 It can, in fact, be limited only by the amount of na- 
 tional bonds, that must be deposited in the national 
 treasury as security for ultimate redemption. 
 
 Another alteration is that by which the Secretary 
 cf the Treasury is directed to call in 82 millions of 
 the greenbacks (treasury notes), and issue in lieu 
 thereof 102 millions of additional circulation to the 
 hanks as fast as they shall ask for the same. 
 
 Another provision is, that " on and after the first 
 (»f January, 1879, the Treasurer shall redeem in coin 
 the United States legal tender notes outstanding, 
 and for this purpose may use any surplus revenue 
 in the treasury, or may issue such United States 
 f)onds as have heretofore been authorized, to the 
 extent necessary for the purpose." 
 
 From present appearances, there can be no such 
 surplus in the treasury, and the issue of bonds to 
 redeem the balance, if the redemption of the notes 
 were really desired, might as well be made now as 
 four years hence. 
 
NATIONAL CURRENCY OF U. S. 259 
 
 CLEARING HOUSE CERTIFICATES. 
 
 This briugs us to the consideration of a very im- 
 portant part of the machinery of banking; viz., Clear- 
 ing Mouse Certificates. These are created each day 
 by the checks drawn upon the different banks, which 
 are all brought to the clearing house to be adjusted. 
 In the last return these "exchanges" amounted, the 
 8th of October, 1870, in JSTew York City, to the 
 enormous sum of 62 millions. 
 
 Were all these checks drawn in good faith upon 
 funds actually in bank it would make no difference 
 how large the amount; but if drawn without funds, 
 as it is believed a large part are, and certified by 
 cashiers to be "good," when it is well known they 
 are not, it does make a great and dangerous differ- 
 ence. A law of Congress exists against certifying 
 checks when there are no funds as a basis for them; 
 but "operators" care little for laws which they have 
 ingenuity enough to evade. 
 
 Such are the most important facts in regard to 
 the banks of the City of ITew York as a whoky upon 
 which, as we have said, the entire superstructure of 
 the National Banking System rests. But there are 
 still others worthy of consideration if we could have 
 a complete view of the case. Individual banks loan 
 far more than the general average. For example, 
 one of the city banks, with a gross capital of $590,000, 
 has loaned to individuals and the government, includ- 
 ing $300,000 in three per cent. certificates,$2,241,000, 
 or nearly four dollars to one of its capital. Its legal 
 tenders were $144,000, its specie $13,000. 
 
 Another bank presents the following: 
 
260 EXCHANGE. 
 
 Loans $8,424,r09 
 
 United States Bonds 536,000 
 
 Other stocks and mortgages 333,000 
 
 Three per cent, certificates 1,850,000 
 
 Total drawing interest $11,143,909 
 
 Its capital is $1,500,000 
 
 Surplus fund 298,633 
 
 Undivided profits 655,636 
 
 2,454,269 
 
 Excess $8,689,640 
 
 This last sum represents the extent to which this 
 bank loans its credit, and accounts for its heavy 
 surplus and large amount of undivided profits, in 
 addition to the large semi-annual dividends it has 
 made. Its indebtedness to individual depositors was 
 $4,024,843, and to the country banks $5,678,673. 
 
 We^add the following statement, showing very 
 nearly the condition of the entire currency of the 
 country in 1860 and 1870: 
 
 In 1860, circulation and deposits $400,000,000 
 
 Fractional circulation 30,000,000 
 
 Total currency $490,000,000 
 
 Bank circulation and deposits in 1870 ..... 809,000,000 
 
 Greenbacks, treasury notes ... .... 356,000,000 
 
 Gold notes 40,000,000 
 
 Three per cent, certificates, about . 40,000,000 
 
 Fractional, about 4;»,000,000 
 
 Total bank and government currency .... $1,285,000,000 
 
 If a population of 31,500,000 in 1860 required 
 490 millions of currency, how much would a popu- 
 lation of 38,500,000 require in 1870? Answer, 
 $598,888,888, say 600 millions, instead of which we 
 have 1285 millions, or a redundancy of 685 millions. 
 
NATIONAL CURRENCY OF U. S. 261 
 
 We say redundancy, because no good reason can be 
 given why more currency in proportion to popula- 
 tion should be required now than ten years ago ; 
 indeed, the increase of rapid intercommunication, 
 and the improved methods of using and transmitting 
 funds, make a less amount now as effective as a larger 
 one could have been before the late war. 
 
 It has been said that *' this excess will soon be 
 absorbed by the growing wants of trade." That the 
 country might "grow to it" ultimately, if it con- 
 tinued to advance in wealth, is certain ; but the 
 period is far distant. In 1835, the whole circulation 
 was 103 millions ; in 1860, it was, as we have seen, 
 207 millions, having increased at the rate of 4*36 
 per cent, per annum during the intervening 25 
 years. Should the demand continue to increase 
 in the same ratio, it would require the lapse of 40 
 years from 1860, or until the year 1900, to bring 
 the wants of the country up to the present supply. 
 In the mean time, the currency would remain not 
 only an inconvertible one, but, for all practical pur- 
 poses, irredeemable, even in greenbacks; because, 
 although strong efforts have been made by the 
 Controller to secure a system of redemption, op- 
 posing influences have hitherto been sufficiently 
 powerful to prevent it; the banks issue their notes 
 without any fear of being called upon to redeem 
 them; and, besides, additional issues have already 
 been authorized to the amount of 54 millions. 
 
 Facts of this kind to almost any extent might be 
 presented ; but the foregoing are believed to be 
 sufficient to show the character of the national 
 bank currency, and what may be expected from it. 
 
262 EXCHANGE. 
 
 The only complacency we can feel in the present 
 system, as compared with the past, is, that it is 
 more susceptible of reform, and of being restricted, 
 by national legislation, to legitimate banking. 
 
 CHAPTER XY. 
 
 EVIDENCES OF DEBT. 
 
 We have already spoken of two different modes 
 of effecting exchanges; viz., (1) barter, and (2) a 
 universal equivalent, money or currency. We now 
 notice a third mode of doing this; viz., by evi- 
 dences OF debt. 
 
 These are mainly of three kinds: 
 
 I. Book accounts. A sells B one hundred barrels 
 of flour, and charges him five hundred dollars in 
 account, to be paid, by verbal agreement, in four 
 months. 
 
 This is a verj^ extensive mode of effecting ex- 
 changes. Very large transactions are made in this 
 manner. Retail trade, especially, is almost wholly 
 carried on in this way. These accounts are often, 
 particularly in country trade, paid in commodities. 
 The farmer makes his purchases of the merchant, 
 from time to time, and sells him his produce when 
 ready for market. Both are entered in account, 
 and a final balance is ascertained, and adjusted by 
 money or other equivalent. 
 
 (a) Book accounts are, in some respects, an un 
 
EVIDENCES OF DEBT. 263 
 
 desirable form of transfer, because they are ex imrte^ 
 and may be disputed. The purchaser may deny 
 that he bought such a quantity, or at such a price. 
 An account, if disputed, is always a matter to be 
 proved ; and, although the oath of the seller is 
 generally de,emed conclusive evidence, there is 
 always opportunity for litigation. 
 
 (6) Another objection to book accounts is, that 
 they are not negotiable. C cannot readily purchase 
 B's account against A; but, if B had A's note, that 
 could be easily negotiated or transferred. Accounts 
 cannot, of course, be made available at banks, like 
 notes, or left as security for money borrowed. The 
 capital is locked up for the time being. 
 
 II. The next mode of credit is that of notes. 
 These are made payable for a given sum, and at a 
 given date. They are generally payabju to the 
 order of the payee, and, when negotiaryd, are in- 
 dorsed by the latter. This transfeis /:"i)e ownership 
 to a third person ; but the indorser is held to pay 
 the note, if the promisor fails to do so. 
 
 III. A third form is by bills of exchange, or 
 orders from A to B to pay C a given sum at a fixed 
 time. These differ from notes, in that they involve 
 three parties, — the draw^er, the acceptor, and the 
 payee. They have a form usually somewhat like 
 the following : 
 
 $1000 New York, Jan. 1, 1866. 
 
 Four months from date, pay to the order of J. Brentwood & Co. 
 one thousand dollars, value received, and place to account. 
 
 (Signed) Henderson, "Williams & Co. 
 
 To Messrs. Bennet Brothers & Co., Boston. 
 
264 EXCHANGE. 
 
 Here are three parties, — the drawer, the acceptor, 
 and the indorser or payee. 
 
 This is first called a draft. When presented to 
 the person on whom it is drawn, and by him ac- 
 cepted (which is done by writing the word "ac- 
 cepted" on the face, and signing the name), it is an 
 acceptance. When indorsed by the person in whose 
 favor it is drawn, it becomes a complete bill of ex- 
 change. 
 
 This species of transaction will arise mainly be- 
 tween persons residing in difierent places, and in 
 this manner: A, in Boston, orders of B, in 'Nqw 
 Orleans, one thousand bales of cotton, which B 
 sends, with a bill of the same, and then draws on A 
 for the amount. 
 
 The commerce of the world is carried on prin- 
 cipally by this agency. The transportation of money 
 is thus dispensed with, except to settle the final 
 balance of trade. 
 
 BILLS OF EXCHANGE. 
 
 Bills of exchange may be divided into two kinds, 
 — domestic and foreign. 
 
 Domestic bills are those drawn and payable within 
 the same country, as between different cities and 
 different States. The manner in which these bills 
 save the use of money, in domestic trade, is illus- 
 trated as follows : 
 
 A, in Boston, sells to B, in 'New York, goods to 
 amount of one thousand dollars. 
 
 C, in New York, sells to D, in Boston, leather to 
 amount of one thousand dollars. 
 
EVIDENCES OF DEBT. 265 
 
 Instead of sending the money, B, in 'New York, 
 goes to C, in New York, and gets his draft on D, 
 and remits it to A, in Boston, who receives the 
 money of D ; and the transactions are all closed 
 without a dollar in money having been transferred 
 from one city to another. 
 
 This is the course of all direct trade between any 
 two places. Kot, it must be understood, that, in the 
 case supposed, B actually goes to C; but the mer- 
 chants in Boston are owing millions to merchants in 
 New York, while persons of the latter place are 
 owing, it may be, an equal amount in Boston. 
 
 Bills are drawn on Boston for all due to New 
 York, and on ISTew York for all due to Boston. 
 These bills are, when completed, if not before, gen- 
 erall}' passed into the banks, which pay out the money 
 for them, deducting the interest (and exchange, if 
 there is any). Then, if a merchant in either city 
 wishes to remit, he goes directly to the bank, which 
 will draw on some bank in Kew York or Boston, as 
 the case may be, for such sum as he may want. The 
 banks negotiate or collect the whole, and sell or dis- 
 pose of their own checks or drafts for the amount. 
 
 This is a labor-saving arrangement of immense 
 importance, greatly reducing the otherwise inevi- 
 table demand for a large amount of money to be 
 kept in transitu between the different marts of trade. 
 
 INDIRECT EXCHANGE. 
 
 But all exchange is not direct between two places. 
 
 A, for example, in St. Louis, ships one hundred 
 
 thousand dollars' worth of lead to New York. He 
 
 23 
 
266 EXCHANGE. 
 
 wishes to pay sundry persons in Boston, Providence, 
 Lowell, and Lynn. He dravvs on bis correspondent 
 in 'New York for all these, in favor of the persons to 
 whom he is indebted ; and the drafts are negotiated 
 by the receivers, through bank in the several cities, 
 and finally all sent to New York for collection. All 
 domestic trade thus becomes a great web of ex- 
 changes, which adjust themselves by means of these 
 bills; and thus, to their entire aggregate amount, 
 obviate the necessity of transmitting money. 
 
 FOREIGN EXCHANGE. 
 
 This consists of orders ; that is, bills of exchange, 
 drawn upon each other by the merchants and bankers 
 of difierent countries. They diifer little in form 
 from domestic bills, but are usually drawn in sets of 
 three ; called, respectively, the first, second, and 
 third of exchange, in something like the following 
 form : 
 
 £1000. Boston, June 28, 1859. 
 
 At sixty days' siglit of this first of exchange (second and third 
 unpaid), pay to the order of A. Brown & Co. one thousand pounds 
 sterling, value received, which place to account. 
 
 BRYDONi: Brothers & Co. 
 George Peabody & Co , 
 London. 
 
 The party to whom the bill is payable takes these, 
 and forwards the first to London, where it is accepted 
 and paid. But an accident might occur b\ which 
 the bill would be destroyed or lost while on its way 
 to London ; and, in that case, the owner woui*-^ for 
 
EVIDENCES OF DEBT. 267 
 
 ward the second^ which would be paid. The third 
 bill is also held, for the same precautionary reasons. 
 
 These bills arise in a great variety of ways. 
 Persons wishing to purchase merchandise or other 
 articles abroad go directly to bankers in IsTew York, 
 Boston, etc., and buy a bill of the required amount. 
 So with persons wishing to travel abroad. But the 
 principal amount, of course, is drawn in payment 
 for importations of foreign merchandise. In general, 
 the trade between England and this country is car- 
 ried on by bills drawn on this side the water, upon 
 cotton and other produce shipped abroad, mostly 
 to Liverpool. 
 
 To illustrate the ramifications of this kind of in- 
 tercourse, we will suppose that A, in Boston, buys 
 merchandise of B, in Liverpool; C, in Boston, sells 
 goods to D, in New Orleans; E, in Boston, buys 
 cotton of F, in New Orleans, and ships the same to 
 G, in Liverpool. Each transaction, we will suppose, 
 amounts to five thousand dollars. 
 
 How are all these settled without the transfer of 
 mone}' ? A gets the draft of E upon G, and sends 
 it to B, in Liverpool ; E gets the draft of C upon D, 
 and remits it to F, at New Orleans, who receives the 
 amount of D.* 
 
 Thus four debts of five thousand dollars, in all 
 twenty thousand dollars, have been paid, and no 
 money has been transferred from one place to 
 another. A great saving of time, expense, and 
 interest is thus eflfected. 
 
 * These transactions go through banking houses, as in the case 
 of domestic exchanges. 
 
J* 
 268 EXCHANGE. 
 
 In 1857, the United States imported $362,000,000 
 
 And exported cotton, breadstufts, etc., $291,000,000; 
 gold, $69,000,000 360,000,000 
 
 Leaving a nominal balance of $2,000,000 
 
 Another thing in regard to exchange may be 
 noticed; viz., England received that year of (the 
 United States) fifty -four millions more than we 
 bought of her. The same year we bought of 
 
 Brazil more than sold to her $16,000,000 
 
 China 4,000,000 
 
 Spain, Cuba, etc 29,000,000 
 
 France 8,000,000 
 
 $57,000,000 
 
 These balances were mainly adjusted by drafts on 
 England, by which our balances against England 
 were discharged. 
 
 THE NATURAL RATE OP EXCHANGE. 
 
 By the rate of exchange is meant merely the price 
 or cost of transporting money from one point to 
 another ; say, from Cincinnati to IS^ew York. If the 
 time, freight, insurance, and other charges are equal 
 to one per cent., then that is the natural rate of ex- 
 change. We have shown that only a small amount 
 of coin, in the course of trade, is likely to be trans- 
 ported from one place to another. As there is a 
 mutual trade, as Cincinnati buys of Kew York and 
 lN"ew York of Cincinnati, it is only necessary to buy 
 bills of exchange between these places. But on 
 these bills there will be a premium or discount, as 
 
EVIDENCES OF DEBT. 269 
 
 the case may be. If lN"ew York has purchased more 
 largely in the mutual trade, there will be an excess 
 of demand in that city for bills on Cincinnati. Re- 
 verse the supposition, and there will be an excess 
 of demand in Cincinnati for bills on l^ew York. 
 The consequence, in either case, will be a rate of 
 exchange equal to the transportation of specie, as 
 above indicated. The rate of exchange will fluctuate 
 from time to time (other things equal) precisely ac- 
 cording to the transactions between the two cities. 
 It becomes, then, in point of fact, the barometer of 
 trade ; indicating, with perfect accuracy, the state 
 of trade between any two points, at home or abroad. 
 With a sound currency, the rate of exchange may 
 ever be relied upon, and is always watched with 
 great interest by every intelligent merchant and 
 banker. 
 
 If this be so, we see that perfect freedom of ex- 
 change is of great importance, and that no extraneous 
 influence should be brought to disturb this barom- 
 eter, to which all ought to look with entire con- 
 fidence. 
 
 THE RATE OF BRITISH EXCHANGE. 
 
 It is well known that the ordinary rate of ex- 
 change between this country and England is from 
 nine to ten and a half per cent, against the United 
 States; but the explanation of this is not generally 
 understood. The transportation of specie between 
 the two countries, all charges and time included, 
 costs only- about one and one-quarter per cent. 
 Why, then, this difterence? 
 
 23* 
 
270 EXCHANGE. 
 
 When the American government was first formed, 
 the old Spanish milled dollar was in use; and $4.44 
 were equal to the British gold coin called a sovereign, 
 or pound sterling. And Congress enacted that $4.44 
 should be the rate at which the pound sterling must 
 be computed at our custom-houses. 
 
 Since that time, important changes have taken 
 place; the relative value of gold and silver have 
 changed. The latter has advanced, or the former de- 
 clined. The American dollar, too, has been altered, 
 so that it has a less quantity of silver; and our gold 
 coins, also, proportionately. It therefore now takes 
 $4.86.6, in American coin, to be equal to a pound 
 sterling. Thus the — 
 
 Actual value of the pound sterling is $4.86.6 
 
 Exchange valuation 4.44.4 
 
 Difference $0.42.2 
 
 which, it will be seen, is equal to very nearly nine 
 and one-half per cent.; so that, when exchange is 
 quoted at nine and one-half per cent., it is really at 
 par. 
 
 ]N"ow, if this is the actual par value of the two cur- 
 rencies, it will happen that, whenever the market 
 rate of exchange rises so far above nine and one- 
 half per cent, as to be sufficient to pay the expenses 
 of sending specie and a trifle more, then the specie 
 will go forward. 
 
 What these expenses are will be seen by a state- 
 ment of an actual transaction between Boston and 
 London, February, 1865. 
 
EVIDENCES OF DEBT. 271 
 
 Gold purchased $50,000 
 
 Insurance, one-half per cent $250.00 
 
 Freight to Liverpool, three-eighths per cent. . 187.50 
 
 Carriage, Liverpool to London 5.00 
 
 Selling, commission, one-eighth per cent . . 62.50 
 Fourteen days' time lost, at six per cent. . . . 83.33 
 
 $588.33 
 
 These expenses are equal to about one and one- 
 uxth per cent. 
 
 There is always some risk that the specie sent 
 forward may not hold out full weight; that is, that, 
 owing to abrasion in use, it might fall short a trifle: 
 so that, probably, instead of one and one-sixth, the 
 exporter of gold might as well have bought a bill 
 of exchange, at one and one-quarter percent, above 
 9J, the actual par. 
 
 Then, if the difference in the par value of the two curren- 
 cies is equal to 9-5 
 
 And the expenses of remitting gold equal to 1-25 
 
 Real par value of exchange 1075 
 
 it will follow that gold will not ordinarily be exported 
 until the market rate of exchange is about ten and 
 one-half per cent. 
 
 ARE BILLS OF EXCHANGE CURRENCY? 
 
 It has often been maintained that bills of ex- 
 change are currency as trul^^as bank-notes. Let us 
 inquire. 
 
 1st. The definition we gave of currency, viz., that 
 instrumentality by which a general exchange of 
 values is effected and payments are made, does not 
 
272 , EXCHANGE. 
 
 embrace bills of exchange, which have themselves 
 to be discharged with currency. The fact that, 
 when found in equal amount on opposite sides, they 
 may be used to cancel each other, makes them no 
 more currency than is the credit side of a book 
 account, which balances the debit. Bills of exchange 
 dispense with the necessity of transporting currency 
 in a certain number of commercial transactions: 
 they are not, therefore, themselves currency. They 
 allow debts between ditferent States or nations to 
 be discharged in the local currencies ; but each bill 
 is itself discharged in full by the use of currency, 
 no less. 
 
 2d. Currency, if it be equal to money, can be at 
 once exchanged for specie at the place where issued; 
 but cash cannot be demanded for bills of exchange, 
 as they are generally on time. They are, in fact, 
 bought and sold for money, like the merchandise 
 on which they are drawn. 
 
 3d. If a bill of exchange be dishonored, that is, 
 not paid according to promise, the currency of the 
 country is not thereby diminished. Is it so with 
 currency? On the contrary, if a bank fails, so much 
 currency as it has in circulation is at once abstracted 
 from the community. 
 
 But how is it with bills of exchange and notes? 
 
 Suppose the indebtedness of a country were one 
 hundred millions, and its currency ten millions: 
 then, if fifty millions of the bills of exchange and 
 notes of hand fail to be paid, there still remain the 
 ten millions of currency with which to pay the 
 balance; and currency is twice as plentiful, rela- 
 tively to indebtedness, as before. 
 
EVIDENCES OF DEBT. 273 
 
 Suppose, on the other hand, that one-half the cur- 
 rency fails, while the whole amount of bills of ex- 
 change, etc. remain to be paid ; or, to go further, 
 suppose the entire currency to fail : then how can 
 the private bills be paid at all? 
 
 So far from being currency, then, they are the 
 very opposite in their nature, and can be discharged 
 only by the use of currency. 
 
BOOK IV. 
 
 CHAPTER I. 
 
 DIVISIONS OF THE SUBJECT. 
 
 Distribution is the apportionment of wealth 
 among the parties producing it. Like exchange 
 it arises from the division of labor. 
 
 We have seen by v^rhom all wealth is produced, 
 have examined the instrumentalities employed in its 
 transfer from one individual or people to another, 
 and have contemplated the nature and extent of 
 that great system of trade by which the products 
 of the world are made to minister to its wants. 
 
 We have observed that capital and labor are 
 united in production, — one as the labor of the past, 
 the other as the labor of the present; and that the 
 joint product is divided between them. We now 
 come to consider the laws by which an equal and 
 just distribution of the wealth produced shall be 
 secured among the parties. In doing this, we are 
 obliged to discriminate between the different kinds 
 of labor employed and the various forms in which 
 capital enters into production. 
 
 Labor, in the distribution of wealth, falls into 
 three general classes: 
 (274) 
 
 i 
 
DIVISIONS OF THE SUBJECT. 275 
 
 9 
 
 1st. Physical or muscular effort. 
 
 2d. Mental effort or enterprise, applied to the 
 union of capital and labor. 
 
 3d. Subsidiary labor, or professional services, 
 auxiliary to direct efforts in production. 
 
 The reward of the first is called wages ; that of 
 the second, profits; of the third, salaries, fees, etc., 
 — but another name for wao^es. 
 
 In these three general forms, labor receives its 
 reward. It is, however, to be observed that, though 
 the distinction is clear between the wages of direct 
 labor and the compensation paid for subsidiary labor, 
 — like professional services, — yet the laws which 
 govern are so similar as to render separate examina- 
 tion unnecessary. Both are controlled by the pro- 
 portion of supply and demand. 
 
 Capitally loaned in two general forms: 
 
 1st. When invested with a permanent character 
 and having a fixed place, — as houses, fields, etc., — 
 its compensation is called "rent." 
 
 2d. When in a shape, however solid and tangible, 
 which is not intended to be retained, but may be 
 altered to suit the business, or removed for con- 
 venience of location, — i.e. where not the identical 
 product, but only an equivalent, is to be returned, — 
 its compensation is called "interest." 
 
 Production, thus far, has been charged with wages 
 (and under this term we include all the rewards of 
 auxiliary labor, salaries, fees, etc.), profits, interest, 
 and rent. Between these parties the product is to 
 be divided. This division is made by natural laws, 
 which, if not interfered with by legal enactments or 
 social customs, will secure to each its rightful share. 
 
276 DISTRIBUTION. 
 
 But, while this is true, another party enters the 
 field, and makes a peremptory claim to a portion 
 of the wealth which the joint efforts of these has 
 produced. That party is government, demanding a 
 revenue for its maintenance, to which all must and 
 should contribute. This is done in the general form 
 of taxation. 
 
 Distribution is now complete, — wages, profits, 
 interest, rent, and taxation. These we shall ex- 
 amine in their order. 
 
 CHAPTER 11. 
 
 WAGES. 
 
 Since labor and capital join together in produc- 
 tion, each may rightfully claim, and in the nature 
 of things must receive, a share of whatever is pro- 
 duced. 
 
 The share whicn labor receives is called ** wages;" 
 and by this general term is meant that compensation 
 which the emplo^^er pays to the employed for his 
 personal services. The law of value is the law of 
 wages. Wages confer value, and are measured by 
 it. They depend essentially on the conditions of 
 cost, supply, and demand. Competition comes in to 
 influence their rate, as it does the price of all 
 commodities. 
 
 Wages vary greatly in different countries, and in 
 different parts of the same country; they vary, too, 
 
WAGES. 277 
 
 in all the employments and occupations of society. 
 These differences, however, are neither accidental 
 nor arbitrary, but depend on certain laws which it is 
 our purpose to point out. 
 
 The joint instrumentality of labor and capital 
 being necessary to the production of wealth, it fol- 
 lows that the interests of the two parties are closely 
 connected ; that capital is as dependent on labor as 
 labor is upon capital. 
 
 If this is so, the probabilities of an equitable di- 
 vision will depend on the freedom with which both 
 parties are able to act, and the equality on which 
 they stand when the contract or copartnership is 
 formed. 
 
 Whatever, in social arrangements or civil institu- 
 tions, destroys the natural freedom and equality 
 of the parties, gives one an advantage over the 
 other; and the party having the advantage will 
 profit by it. 
 
 Wherever, by class legislation, capital is allowed 
 to tyrannize over its copartner, or concentrate itself 
 in vast aggregations, and thus increase its natural 
 power over labor, which cannot be thus brought into 
 efficient and permanent combination, the latter will 
 be compelled, in one form or another, to accept 
 less than its just reward. 
 
 But, however unjust or arbitrary laws or institu- 
 tions may be, it is evident there are certain limits 
 beyond which the wages of labor cannot be re- 
 duced. 
 
 The cost of labor is identical with the cost of 
 maintaining the laborer in such circumstances that 
 he can not only support himself, but rear a family 
 
 24 
 
278 DISTRIBUTION. 
 
 of children sufficiently numerous at least to keep 
 the supply of laborers good. 
 
 Hence he must receive what has been properly 
 denominated necessary wages ; that is, to use in part 
 the definition of Adam Smith, "such wages as will 
 enable him not only to. obtain the commodities 
 absolutely necessary to the support of life, but what- 
 ever else the customs of society render it indecent 
 for persons in his rank in life to be without." 
 
 There being, then, no uniform and established 
 standard of wages, they vary according to the ex- 
 penses of subsistence in dilierent countries, and the 
 condition in which the laboring classes are willing 
 to live. 
 
 The cost of labor, or the current rate of wages 
 that can permanently exist, depends on the neces- 
 sary expenses of living; and these expenses, in turn, 
 depend upon the condition of the laboring classes. 
 Hence, other things equal, the more educated and 
 morally and intellectually elevated any community 
 of laborers may be, the higher will be their standard 
 of wages. 
 
 Wages are not high in proportion to the wealth 
 of a community, but rather to the disposition that 
 exists among those possessing wealth to pay it out 
 for labor; and this disposition will depend much 
 upon the security and profitableness with which capi- 
 tal can be employed in production, and the enter- 
 prise and aspirations of the people. 
 
 We make the following divisions of our subject: 
 
WAGES. 27ft 
 
 NOMINAL AND REAL WAGES. 
 
 There is often a considerable difference between 
 the nominal and real wages, or between the wages 
 of the employ^ when received in money or when 
 realized in such commodities as his wants require. 
 As this is a question of fact, we refer to pages 191, 
 192, of this work, as shown in Table Y. In that 
 table we find the prices of ten commodities, which 
 the laborer would be likely to use in his ordinary 
 consumption, such as sugar, coffee, molasses, pork, 
 cheese, rice, salt, etc. 
 
 By taking the wages of common laborers at certain 
 periods, and the prices at correspondiug periods, we 
 ascertain the desired results. We have added the 
 year 1864 from the best unofficial sources at hand: 
 
 1836. 1840. 1843. 1864. 
 
 .Wages $1.25 $1.00 $1.00 $1.75 
 
 Commodities . . . . 29 46 20.73 14 82 46.96 
 
 Labor required . . . 23J days 20| days 14| days 26f days 
 
 Nominal wages fell from 1836 to 1840 by one- 
 fifth, or twenty per cent.; yet the real wages (as 
 shown by the less number of days required to pro- 
 cure the same commodities) were higher in 1840 
 than 1836 by more than thirteen per cent. In 1843, 
 when the nominal wages were but one dollar, real 
 wages were about sixty per cent, belter than in 1836, 
 when the nominal wages were twenty-five per cent, 
 higher. In 1864, when nominal wages were at one 
 dollar and seventy-five cents, real wages were but 
 little more than half what they were in 1843 at one 
 dollar. 
 
280 DISTRIBUTION. 
 
 chapteh iei. ^ 
 
 PROPORTIONATE RISE AND FALL OF WAGES. 
 
 Although wages rise and fall with the general 
 rise and fall of commodities, they do not in equal 
 proportion. The fact is one of common observa- 
 tion: but the reason of this difference we do not 
 recollect to have seen stated by any writer. For 
 nearly all products there is both an actual and 
 speculative, or a present and prospective, demand: 
 for labor there is only an actual, present demand. 
 When business begins to be particularly prosperous, 
 there is a general demand for all kinds of merchan- 
 dise, and prices gradually begin to improve. This 
 at once occasions a speculative demand; for to buy 
 will be to realize an advance: the larger the pur- 
 chases, the greater the amount of profit. Every 
 operation pays. The rise continues until every 
 article bought and sold as merchandise goes up to 
 the highest point. 
 
 But no one speculates in wages. No one can, if 
 he would, buy a hundred thousand dollars' worth 
 of labor, and hold it for an advance, as he can of 
 flour, sugar, or tea. Of course, labor has no ad- 
 vantage from this kind of demand, but must rely 
 entirely on that which is immediate and actual. 
 Therefore it is that a general rise of prices, so far 
 as occasioned by speculation, must always operate 
 against the laborer, or the person employed on 
 salary or wages. 
 
RISE AND FALL OF WAGES. 281 
 
 But wages not only never rise so much as com- 
 modities, but do not rise so soon. The reason is, 
 that the rise of commodities is greatly accelerated 
 by speculation ; wliile labor, as before stated, is not 
 atfected by that kind of demand. Hence it does not 
 begin to rise until speculation has engendered a 
 spirit of extravagance and increased consumption ; 
 then wages make an advance about half as great, 
 OQ an average, as that of merchandise in general. 
 
 And, again, wages fall sooner than merchandise, 
 because the latter maybe held for high prices, if 
 need be. The fall of merchandise is broken by the 
 disposition and ability of the owner to hold on, and, 
 as far as possible, prevent loss ; but the laborer can- 
 not do this, — he must sell his commodity at once 
 for the most it will bring. 
 
 It is for those obvious reasons that wages, in times 
 of depression, must fall, not only sooner, but lower, 
 than property in general. 
 
 A real rise or fall in wages is a matter difficult to 
 ascertain with certainty. Fluctuations, since the 
 introduction of mixed currency, have been frequent 
 and violent, not in the rate of wages only, but of 
 those commodities upon which the laborer subsists, 
 and in which his real washes must be estimated. To 
 determine whether actual value washes have ad- 
 vanced or not since the commencement of the 
 present century, for example, we must have the 
 nominal rates, say in 1810, also in 1860. We must 
 then take the prices of commodities at the two 
 periods; and, by comparison, we may arrive at a 
 general conclusion. We should undoubtedly be 
 satisfied that there has been a decided increase in 
 
 24* 
 
282 DISTRIBUTION. 
 
 the average value of wages. In our investigation, 
 we should find that some articles were higher and 
 some lower in price in 1860 than fifty years hefore. 
 For example, while one dollar per day for labor 
 was probably as high wages in 1810 as one dollar 
 and a half in 1860, corn was worth the same at each 
 end of the half-century; but cotton cloth, whicli 
 was worth forty cents a yard in 1810, could be 
 bousrht in 1860 for ten cents. In all manufactured 
 articles, the difference is against the earlier labor; 
 so that it is true the laborer of to-day enjoys many 
 comforts which his predecessors could not obtain. 
 The wants of the laborer have immensely increased. 
 It would be impossible to give an inventory of 
 them ; but, could we compare the consumption of 
 laborers in 1810 with their consumption in 1860, 
 we should find the advance surprising. The amount 
 they expend for pleasure-travel, for example, is 
 now very large, while fifty years ago it was hardly 
 appreciable. So of the luxury of newspapers, mag- 
 azines, etc. Some part of the expenditures of the 
 poorer classes are for articles (like photographs) 
 which were absolutely unknown a generation since. 
 Workmen may be less satisfied with their com- 
 pensation now than fifty years ago; but it is really 
 far greater. We do not say they have no cause for 
 complaint, yet they are vastly better off than those 
 who went before them. Wages, when realized in 
 commodities, have increased. The general product 
 has been enlai'ged by the introduction of labor- 
 saving machinery, and therefore their absolute share 
 IS greater. Whether their relative share, as com- 
 
DIFFERENCE IN WAGES. 283 
 
 pared with that of the capitalist or employer, is 
 greater, we shall find place elsewhere to discuss.* 
 
 The laborer suffers nothing, but gains much, iu 
 the progress of civilization, if he is not despoiled by 
 an unsound currency. That is his greatest oppressor, 
 because his real wages — what he obtains in com- 
 modities for his labor — is determined to a consider- 
 able extent by the character of the circulating me- 
 dium of the country. If the value of that, or its 
 purchasing power, is less than it professes to be, he 
 cannot fail to be injured by it. 
 
 UNHEALTHY TRADES. 
 
 Those occupations which, although not immedi- 
 ately dangerous, are nevertheless unhealthy and 
 abridge human life, ought to command more than 
 ordinary wages. 
 
 If a man is liable to be made sick, and conse- 
 quently exposed to loss of time and expense for 
 medical attendance, he should be compensated for 
 that liability. If he shortens life in a particular 
 employment, that should be a matter of considera- 
 tion in determining the rate of wages. 
 
 It is not for us to inquire here whether a man 
 may rightfully engage in that which he knows will 
 abridge life ; but that multitudes do so is beyond a 
 
 * The very low rate of "corn wages" received by the English 
 laborer in times past may be seen from the statement of Mr. 
 Mai thus (Pol. Econ , p 228, Lond ed. 1836), that wages had 
 advanced, and wheat fallen, so much " that, from 1720 to 1750, 
 a whole peck of wheat could be had for a day's labor." 
 
284 DISTRIBUTION. 
 
 doubt. Kegarded in a merely economical point of 
 view, it is obvious that, on this account, some 
 laborers should receive much higher compensation 
 than they do at present. 
 
 Agriculture is evidently the normal employment 
 of man, that in which he lives longest and enjoys 
 the greatest health. Every other calling is un- 
 wholesome to the exact extent in which it departs in 
 its condition from the agricultural ; and the rate of 
 wages should be adjusted to a scale constructed on 
 this principle. 
 
 THE EDUCATION OF THE LABORER. 
 
 Other things equal, the man who has received 
 merely a common-school education will obtain 
 higher wages in any employment than one who 
 is entirely illiterate. He has some mental disci- 
 pline, will therefore be more intelligent and capable, 
 will better understand and recollect the directions 
 of his employers, better comprehend the nature of 
 his duties. If need be, he can keep an account of 
 what he does. He has in some measure learned to 
 think; he will have a higher sense of self-respect, 
 and be more reliable. 
 
 The difference in favor of a workman who is so 
 far furnished with intelligence that he can do his 
 own share of thinking, instead of relying entirely 
 upon his employer for every exercise of judgment 
 and forecast, is very great to the employer. If the 
 latter is compelled to supply all the head-work, he 
 must be in constant attendance, and exercise the 
 utmost vigilance. Five stolid workmen will cost 
 
FRUGALITY OF THE LABORER. 285 
 
 him as much time as ten intelligent ones, and a 
 great deal more care, vexation, and loss. Hence 
 intelligent labor is worth more, and will bring more. 
 
 THE FRUGALITY OF THE LABORER. 
 
 Another important consideration in connection 
 with this part of our subject is, that the educated 
 laborer will be more likely to appreciate his true 
 interests, and save a part of his earnings. Every 
 dollar he saves and accumulates in the shape of 
 property, of whatever kind, will render him more 
 independent; and the more independent he is, the 
 more likely he will be to get fair wages. He be- 
 comes, to a certain extent, a capitalist, and can 
 measure strength with capital on better terms. 
 
 The man who has nothing upon which to subsist 
 to-day must w^ork to-day, at whatever price, or 
 starve; while he who can get on for a fortnight 
 without employment may choose whether he will 
 work for less than a fair price to-day or not. 
 
 This is a matter of great importance to the 
 laborer; for the natural advantage the capitalist has 
 over him is, that the latter can wait a little, while 
 the former must work now. The laborer or em- 
 ploye of whatever kind (for all are subject to the 
 same law) should strive earnestly to make himself 
 as independent in his position as possible. Hence self- 
 denial and economy, when exercised by those who 
 live on wages or salaries, are amply repaid by better 
 terms of service. There is a homely adage, "that 
 a man is poorer for being poor," which laborers, of 
 all others, should bear in mind. 
 
286 DISTRIBUTION. 
 
 DISTINCTION OF SEX. 
 
 Women receive less wages than men. This ia 
 doubtless true in all the so-called civilized countries. 
 The difference may be stated at about fifty per cent, 
 to their disadvantage; that is, where the man re- 
 ceives one dollar, the woman receives fifty cents.* 
 And this, too, not only where the services of the 
 two sexes difi'er, but where they are identical, as in 
 school-teaching, tj^pe-setting, etc. Why this dis- 
 parity ? 
 
 Political economists, so far as we know, have not 
 troubled themselves much about it. Philanthropists 
 have taken cognizance of the fact, and have sought 
 to apply a remedy, but generally, w^e may say uni- 
 formly, with little success. We shall not go at 
 length into the subject, only endeavor to state the 
 causes from which we suppose the difference arises. 
 These may suggest the remedy. 
 
 The first consideration to be noticed is the fact 
 that the two sexes exist in remarkably equal num- 
 bers throughout the world. There are as many 
 women as men. 
 
 The second, that while almost all occupations and 
 employments are accessible to the male sex, but 
 comparatively few are, by tlie opinions and customs 
 of society, regarded as proper for women. One, 
 therefore, has the whole field of life in which to act; 
 the other is limited to a part. 
 
 * The average monthly wages of male teachers in the public 
 schools of Massachusetts, 1857-8, was $49.87. 
 
 The average monthly wages of female teachers in the public 
 schools of Massachusetts, 1857-8, $19.63. 
 
WAGES OF FEMALES. 287 
 
 Od the principle, then, of supply and demand, the 
 number of females being as great as that of males, 
 while their employments are so much fewer, they 
 must of necessity work for less reward. The supply 
 is greater than the efiective demand. 
 
 A third fact is, that the part of labor assigned to 
 women is of a more dispensable character. A great 
 part of the labor of women is connected with the 
 comforts, conveniences, and luxuries of life: hence 
 it can and will be dispensed with, unless it can be 
 had cheap. The staple productions — corn, cattle, 
 iron, cotton, and the like — must be had, at whatever 
 price or cost of labor; but not so with the thousand- 
 and-one little articles of beauty, taste, and fashion 
 which female industry creates in every household. 
 For example: suppose a farmer employs two men to 
 carry on his agricultural labors, and usually the same 
 number of females in the work of the house. ITow, 
 if he should be so pushed for means as to be obliged 
 to dispense with one of his employes, which would 
 it naturally be, one of his hired men or hired maids? 
 Doubtless one of the latter; because by doing so 
 he would only lose some of the conveniences and 
 comforts of life, without, perhaps, much sacrifice of 
 property ; while in the other case he would lose 
 part of his crop. As now employed^ by far the 
 greater part, of female labor creates no values, no 
 vendible commodities. 
 
 There seems to be a prevalent feeling at the 
 present day that the wages of woman ought to be 
 increased ; that her position ought to be less de- 
 pendent. But those who are satisfied with the ex- 
 isting customs and opinions of society, by which the 
 
288 DISTRIBUTION. 
 
 sphere of woman is restricted to its present limits, 
 ought to be equally well satisfied with the compen- 
 sation allotted her ; for it is just such as must follow. 
 
 No attempt to enhance her wages by legal enact- 
 ments or appeals to human sympathies or benevo- 
 lent organizations need be made; for there is a law 
 that overrides all these, — the law of supply and de- 
 mand; a law founded in nature, inexorable and im- 
 mutable. An increase of her wages can result only 
 from an increase of her employments, — of employ- 
 ments, too, of an equally indispensable character as 
 those of the other sex. 
 
 That a change of this sort is fortunately in pro- 
 gress in most civilized countries, and especially in 
 the United States, is apparent. The introduction 
 of machinery is doing much to equalize the wages 
 of the two sexes. Water and steam are now made 
 to accomplish that which could once be done only 
 by human strength, leaving the residue of labor, 
 which is, to a great extent, the exercise of intel- 
 ligence and attention, to be performed by persons 
 of either sex. Hence there is now a great demand 
 for the labor of females where there was once none 
 at all. There is less demand for muscle, and more 
 for mind: this brings woman nearer an equality 
 with man. 
 
A NEW CLASSIFICATION OF WAGES. 289 
 
 A NEW CLASSIFICATION OF WAGES. 
 
 There have now been presented most of the con- 
 siderations we have room to offer in regard to the 
 subject before us, and in somewhat the usual manner 
 of arrangement. We propose, in conclusion, to give 
 what may be a new, but, as we think, a more natural 
 and scientific classification of wages. 
 
 Properly considered, wages are paid for three dif- 
 ferent kinds oi power ; viz.: 
 
 1st. Physical Power, or mere muscular effort 
 w^ith the spade, shovel, hoe, and the like ; the kind 
 of labor least elevated above that of the horse or ox. 
 This power is most plenty, comes by nature, costs 
 the least, and is therefore* cheapest. 
 
 2d. Mental Power, — those faculties of mind that 
 give ability to manage complicated affairs, the gen- 
 eral operations of agriculture, manufactures, com- 
 merce, — all services, in fact, that require the exercise 
 of judgment, discretion, reflection, calculation. Such 
 power is more rare than physical force. It will 
 therefore command a higher price, especially in a 
 progressive state of society. To this class may be 
 referred all persons of natural ingenuity, inventors, 
 authors, and men of genius. Such often receive 
 great rewards. 
 
 To prepare men for the exercise of their intel- 
 lectual powers, a considerable amount of education 
 and training is necessar3\ Hence such powers are 
 not only more rare, but more expensive, than brute 
 
 25 
 
290 DISTRIBUTION. 
 
 force, and therefore rigbtfally command higher com- 
 pensation. 
 
 3d. Moral Power. As man advances in civiliza- 
 tion, — as v^ealth, its great concomitant, increases, 
 and social combinations are multiplied, — it becomes 
 more and more necessary that important trusts 
 should devolve on individuals occupying particular 
 stations. With all the checks and securities that 
 can be devised, the greatest reliance must ever be 
 placed on the character of the person to whom the 
 trust is committed. Oftentimes the honor and inter- 
 ests of vast bodies of men must be committed to a 
 single hand. 
 
 Hence arises a necessity for something more and 
 higher than physical and mental faculties or qualities 
 combined, — something that shall furnish a guaranty^ 
 irrespective of all contrivances, that these high 
 trusts shall be faithfully ' discharged. That guar- 
 anty is found in the moral power of the individual, — 
 that power which gives such a control over appe- 
 tites, passions, and propensities as affords assurance 
 that under no circumstances of trial or temptation 
 will he ever depart from the strict line of duty. 
 
 When men are found possessing this high moral 
 power over themselves and the accidents of their 
 position, they will, of course, be called to places of 
 high responsibility and trust. ^N^ow, as such men 
 are more rare than those having only physical power, 
 or physical and mental power combined, they will 
 command higher rewards, — the highest paid for 
 any class of services. 
 
LABOR COMBINATIONS. 291 
 
 CHAPTER lY. 
 
 LABOR COMBINATIONS. 
 
 In connection with the subject of wages, it seems 
 necessary to inquire somewhat in regard to the 
 rights of the laborer, since upon these his compen- 
 sation must to some extent depend. 
 
 Under a government acknowledging the rights 
 of all men, the laborer must, of course, have the 
 same rights as his fellow-citizens, neither more nor 
 less. He asks no favor, and grants none. He de- 
 mands the same justice, the same freedom, accorded 
 to others. He should be able, so tar as law is con- 
 cerned, to work when and for whom he chooses, 
 and for such consideration as he can get in the great 
 competition of industry. The law cannot say how 
 much he shall accept for wages, how many hours 
 shall constitute a day's work, nor how much the 
 employer shall give him. Each is left perfectly 
 free, and the competition is simply between labor 
 and capital. 
 
 But the laborer is not under obligation to act as 
 an insulated individual, any more than the capitalist. 
 If the latter is permitted, and even authorized and 
 encouraged, to combine with his fellows in order to 
 enhance the power and profits of capital, it is equally 
 the right of the laborer to do the same, and equally 
 
292 DISTRIBUTION. 
 
 the duty of the legislator to give him any facilities 
 for doing this he may justly demand. 
 
 If capital is incorporated, labor should have the 
 same privilege. If favors in any case are awarded 
 to one party, they should certainly be furnished to 
 the other. 
 
 Laborers, then, may combine, if they deem it best 
 to act in concert in regard to their interests. 
 
 As a matter of fact, they do form associations for 
 mutual beneiit. In England, these "friendly so- 
 cieties," as they are called, are numerous, and often 
 exert a very happy influence. They are formed for 
 a great variety of specified objects. 
 
 Some of these are merely charitable, — for assist- 
 ing members when searching for employment, — for 
 relieving them in case of disability from sickness, 
 and for simihxr purposes. 
 
 Others are for the diffusion of intelligence, like 
 lyceums, mechanics' institutes, etc., or for moral and 
 social elevation and improvement, as associations to 
 discourage the use of intoxicating drinks, and other 
 pernicious and degrading habits. Such societies 
 have been found highly advantageous, especially in 
 Great Britain. 
 
 trades' unions. 
 
 One of the forms in which these associations make 
 their appearance is that of trades' unions. The 
 principal object of these, generally, is the increase 
 of wages. The different trades often combine for 
 this purpose, and endeavor to fix the rate at which 
 they will work. This, it would seem, they have an 
 
LABOR COMBINATIONS. 293 
 
 undoubted right to do: whether it be good policy is 
 another question. 
 
 Men may mutually agree, for example, that they 
 will work only ten hours per day, and will have two 
 dollars per day as wages. All who voluntarily join 
 such an agreement are in honor bound to keep it; 
 and, if the association binds itself to support those 
 who are turned out of employment, it has also the 
 undoubted right so to do. 
 
 But, while all this is conceded, it does not follow 
 that if a member violates the rules of the society, 
 his associates may inflict any punishment upon him 
 for doing so, except such as the law of the land 
 authorizes. A trade's union is not an imperium in 
 imperio. It has all the rights which each individual 
 member has, and no more. Hence any attempt to 
 inflict punishment upon such delinquent is as much 
 an infringement of his rights, and of the laws of the 
 country, as if it were done by an individual. 
 
 Again: nor has a trade's union any right what- 
 ever, moral or legal, to interfere in any manner 
 with those of their craft who do not choose to enter 
 into their association. If such persons prefer to 
 work at a less rate of wages than that established 
 in the tariflPof the union rather than not work at all, 
 they have the most unquestionable right to do so; 
 and any attempt to prevent them by brute force is 
 an infringement of personal rights which govern- 
 ment is bound to resist to the utmost. Such an act 
 is merely the act of a mob, and has no justification. 
 J^ay, more: under a free government, where these 
 very men who have thus combined are citizens, 
 with the right of sufirage, and, in common with 
 
 25* 
 
294 DISTRIBUTION. 
 
 others, elect those who enact the laws under which 
 they live, any outrage of this kind is an overt act 
 of moral treason against republican institutions. It 
 is a virtual declaration that these institutions have 
 failed and must fail to give adequate protection, and 
 therefore these aggrieved parties are obliged to re- 
 sort to violence ; in other words, to override the 
 government, the Constitution, and the laws. 
 
 STRIKES. 
 
 The foregoing argument covers the whole ground 
 of right or wrong in regard to strikes. 
 
 Members of a trade's union, believing that their 
 wages are inadequate or less than their employers 
 can well afford, by mutual agreement strike for 
 higher wages. If not granted, they tarn out. To 
 produce effect, and aid in obtaining what they de- 
 mand, they parade the streets with banners and 
 music. Very well, so far; for other associations 
 do tlie same, whenever they see fit. If these dem- 
 onstrations do not interfere with the general avo- 
 cations and pursuits of the public, there can be no 
 reasonable complaint. The economy and utility of 
 such demonstrations is another matter; but the 
 right to make them need not be disputed. 
 
 But when, in addition to this, a procession, in- 
 stead of peaceably passing through the streets, pro- 
 ceeds to compel by force every person engaged in a 
 particular trade to quit his employment, the case is 
 entirely altered. The procession has become a law- 
 less mob, and is to be dealt with like any other body 
 of men disturbing the public peace. 
 
LABOR COMBINATIONS. 295 
 
 All demonstrations of violence of this kind are 
 in utter antagonism, not only to the institutions of 
 society in general, but to the real and permanent 
 interests of the party which makes them. They do 
 harm, and only harm, in the long-run, both eco- 
 nomically and morally, and degrade, instead of ele- 
 vating, the laboring classes, who really have much 
 to hope from their associations of various kinds, if 
 they be peacefully and properly conducted. There is 
 no one thing h}^ which the interests of the laborer 
 can be more effectually promoted than by associa- 
 tions for good and useful purposes, managed in a 
 sensible and becoming manner; and, on economical 
 as well as moral and social considerations, they 
 would then be worthy the approbation and patron- 
 age of the capitalist, whose interests would be 
 promoted thereby' ; but it should ever be remem- 
 bered that individuality is to be interfered with as 
 little as possible, since the more there is of indi- 
 vidual responsibility, socially and politically, the 
 better; the less men are called upon to resign their 
 freedom of action and personal reliance and choice 
 in the various duties and emergencies of life, the 
 more advantageous to their welfare and happiness. 
 
 COMBINATIONS TO RAISE THE RATE OF WAGES. 
 
 But strikes cannot permanently raise the rate of 
 wages. Combinations of workmen, taking advan- 
 tage of the peculiar state of trade when commodities 
 are in great demand, may, for the moment, extort, 
 from the necessities of their employers, an addition 
 to their compensation ; but they gain no substantial 
 
296 DISTRIBUTION. 
 
 advantage. When trade becomes dull, they are cer- 
 tain to be placed again in the power of the employer. 
 Especially is it injurious to the interests of the work- 
 men, where by strikes they have forced out of em- 
 ployment large numbers, whom they are obliged to 
 support out of previous accumulations. In such 
 cases, they consume their own little savings, injure 
 the interests of those who have employed them, and 
 render them less able to pay wages in the future. 
 
 Freedom, protection, and justice are what labor 
 needs, and must have, or its condition will be de- 
 pressed, and its productiveness diminished. With 
 freedom, the laborer can work for whom he will ; 
 with the ballot, he can insun^. to himself and his 
 interests protection and justice. 
 
 CO-OPERATIVE ASSOCIATIONS. 
 
 There is yet another mode in which those who 
 depend upon wages may secure very great advan- 
 tages to themselves; viz., by co- operative associa- 
 tions, formed for trading or industrial purposes. 
 These are ah^eady somewhat extensively introduced 
 into the United States; and, so far as is known, 
 have been attended with a good degree of success. 
 Prof Fawcett (now M.P.), in his "Manual of Polit- 
 ical Economy," has given a very full and interesting 
 account of certain co-operative societies in Europe, 
 from which we extract the followino^: 
 
 "The CO ojierative movement in England was first commenced 
 at Kochdale.* About 1844, a few working-men in that town sus- 
 
 * The residence of John Bright, M.P., and where his family 
 carry on a large manufacturing business. A. W. 
 
LABOR COMBINATIONS. 297 
 
 pected, and no doubt justly so, that they were paying a high price 
 for tea, sui;ar, and other such articles, when they at the same time 
 believed they were not free from adulteration. They therefore 
 said, ' Why should we not club together sufficient among our- 
 selves to purchase a chest of tea and a hogshead of sugar from 
 some wholesale shop in Manchester?' This they did ; and each 
 one of their number was supplied with tea and sugar from this 
 common stock, paying ready money for it, and giving the same 
 price for it they had been charged at the shops. When all the tea 
 and sugar had thus been sold, they agreed to divide the money 
 thus realized among themselves, in proportion to the capital each 
 had subscribed. They found, to their surprise, that a large profit 
 had been realized. The great advantage of the plan became self- 
 evident; for not only were they provided with a lucrative invest- 
 ment for their savings, but they obtained unadulterated tea and 
 sugar at the same prices they had been previously obliged to pay 
 for the same articles when their quality was deteriorated by all 
 kinds of adulteration. A fresh stock of tea and sugar was, of 
 course, purchased. Other laborers were quickly attracted to join 
 the plan, and subscribe their savings ; soon the society was suffi- 
 ciently extended to justify them in taking a room, which they used 
 as a store, and the success of the plan fully kept pace with its 
 enlargement. 
 
 "This society, now famous as the Kochdale Pioneers, possessed 
 in 1865 a capital of about £72,000. The business was not long 
 restricted to articles of grocery : bread, meat, and clothing were 
 all sold on the same plan. Their capital so rapidly increased, that 
 they were soon enabled to erect expensive flour-mills ; and a sup- 
 ply of pure bread, as well as unadulterated tea, was thus insured. 
 
 " A ready-money system is so scrupulously adhered to that 
 even a large shareholder cannot make the smallest purchase on 
 credit. The managers of the business are chosen by the general 
 body of shareholders ; and, in almost every case, an excellent selec- 
 tion has been made. 
 
 " With regard to distribution of the profits, a sufficient sum is 
 at first allotted to pay a dividend of five per cent, on the capital ; 
 the remaining profits are divided on the following plan : Every 
 person, when he purchases goods, receives one or more tin tickets, 
 on which is recorded the amount of his purchases. At the end of 
 every quarter each person brings these tin tickets, which form the 
 record of his aggregate purchases ; and the remaining profits are 
 
298 DISTRIBUTION. 
 
 distributed in proportion to the aggregate amount which each in- 
 dividual has expended at the store. Thirteen pence in the pound 
 (equal to about five and a half per cent, on the amount purchased) 
 is the average amount which, in this manner, is received as a draw- 
 back." An annual dividend was made in 1865 of £25,000, among 
 5500 members. 
 
 The reasons for this extraordinary success given by 
 Prof. Fawcett are the ready-money system, selling 
 for cash and buying for cash, — turning capital over 
 many times a year, — a large custom assured by the 
 large membership, and economy of administration. 
 
 A very successful association of co-operative 
 masons has existed in Paris since 1848, commenc- 
 ing with seventeen members, with a capital of $70. 
 It has grown to very large dimensions, lias a capital 
 of over $70,000, and contracts for the building of 
 the largest hotels and railway-stations. 
 
 CONCLUSIONS. 
 
 We have been thus full in our statement in regard 
 to co-operation, because it seems to offer a more 
 satisfactory solution of a great economical problem 
 — the relations of capital and labor — than any other 
 hitherto presented ; and the prospect now is that it 
 will soon be introduced extensively into the trade 
 and manufacturing industry of the world. 
 
 To all this the political economist does not object ; 
 on the contrary, he looks complacently on the grand 
 experiment. lie will only insist that co-operative 
 undertakings, as well as all others, to be successful, 
 must be carried on in strict conformity with those 
 laws of production and exchange which govern in- 
 
LABOR COMBINATIONS. 299 
 
 dividual transactions. Co-operation can have no 
 dispensation from the laws of trade. 
 
 If the management of a co-operative establish- 
 ment is intrusted to incompetent hands, — to those 
 who have neither the knowledge nor capacity to 
 conduct it wisely and efficiently, a failure must be 
 the consequence. If dishonest and unfaithful per- 
 sons are employed, disappointment and loss will be 
 certain ; and, especially if credits are given, the 
 final result will be disastrous. We regard it as in- 
 dispensable that no credit whatever should be granted. 
 The cash principle has been, so far as we can learn, 
 strictly adhered to by co operators in Europe. The 
 example set by the Rochdale Pioneers of selling en- 
 tirely for cash on delivery, which insured their mar- 
 vellous success, should be everywhere followed. We 
 could have no faith whatever in any such association 
 which bought and sold on credit. This for several 
 reasons : 
 
 1st. Because if credits were given, the purchases 
 must be made on credit, and of course the saving 
 which everybody knows is made in purchases by 
 cash payments could not be realized. This alone 
 would make a difference of at least a moderate 
 dividend to the co-operators. 
 
 2d. Because if credits are given, a considerable 
 additional expense must be incurred in keeping ac- 
 counts and collecting bills. The attention of the 
 managers must be divided and their minds distracted 
 by the vexations and delays inseparable from the 
 adjustment of book accounts. 
 
 With a co-operative association, the goods should 
 always be in one hand or the cash for them in the 
 
300 "^ DISTRIBUTION. 
 
 Other. Such companies cannot give and take credit 
 like private firms and joint-stock companies. As 
 every one of the co-operators mut^t be bound for 
 all debts incurred, every prudent man having any 
 pecuniary responsibility would be unwilling to en- 
 tangle himself with a concern that might occasion 
 him loss, the extent of which it would be impossible 
 for him to anticipate. 
 
 We are thus decided and emphatic in regard to 
 the giving of credit by the associations in question, 
 because we desire a wide extension of the co-opera- 
 tive principle and its permanent success, and feel 
 confident that if immediate cash payment is not 
 insisted on, there will be heavy losses to those who 
 can ill afford to meet them, and the general adop- 
 tion of the principle be delayed, though we should 
 not doubt that it would finally triumph. 
 
 Co-operation will be found, of course, much more 
 difficult in manufactures than in trade, for several 
 reasons : 
 
 a. A larger capital will be required, and a greater 
 proportion generally in that which is fixed, in real 
 estate, machinery, etc. 
 
 h. There will be greater need of skilled labor, 
 and a greater diversity of talents and acquirements, 
 than are demanded in the mere purchase and sale 
 of goods. 
 
 c. The number of persons actually employed in 
 work will be greater ; yet all must work in har- 
 mony and to mutual satisfaction, or there will be 
 no successful result. 
 
 d. The sale of fabrics, if disposed of for cash, in 
 competition with the large establishments, private 
 
LABOR COMBINATIONS. 301 
 
 and corporate, engaged in every branch of manufac- 
 turing industry, presents another obstacle to the 
 introduction of co operative labor. We have long 
 regarded the credit system, so universally adopted 
 and so widely extended in the United States, as the 
 greatest obstacle to a participation in proHts on the 
 part of the laborer. 
 
 e. Another very obvious consideration in regard 
 to the distinction between the operations of a trad- 
 ing and a manufacturing association is, that with the 
 former, the customers of the establishment are 
 already secured without effort, and their patronage 
 certain, since they will be for the greater part in- 
 terested as members of the concern ; while in manu- 
 factures, it will be generally true that but a small 
 part of all the articles produced will be required by 
 the. wants of the co-operators, and consequently 
 must find a market, however difficult that may be. 
 
 All these obstacles are overcome and the object 
 fully attained by adopting another form of associa- 
 tion, which may perhaps be properly called 
 
 CO- OPERATIVE PARTNERSHIPS. 
 
 Well-established firms in any department of in- 
 dustry may ofier the workmen in their employ a 
 share in the net profits of their establishments. For 
 example, a coal-mining company may propose that 
 after allowing a certain profit upon the capital em- 
 ployed, the workmen shall receive, say ten per cent, 
 of the net profits of each year, to be divided among 
 the workmen according to the amount of labor per- 
 formed by each during the year. 
 
 2G 
 
302 DISTRIBUTION. 
 
 This has been tried with most favorable results ia 
 Great Britain, France, and other parts of Europe, 
 and it has been found, in some cases at least, if 
 not in all, that the workmen were so much more 
 efficient and careful of making waste of tools, 
 machinery, and materials, that while receiving an 
 addition to their wages by a share of the profits, the 
 entrepreneurs or employers have not diminished their 
 incomes. This has not only given satisfection to 
 hoth parties, but has increased production. The 
 influence upon the morals of the laboring classes 
 has been excellent. 
 
 The results of experiments of this sort thus far 
 made seem to show that this kind of co- operation 
 will be adopted to a large extent in certain depart- 
 ments of production. That it is feasible in any 
 established business is certain; that it will be gen- 
 erally adopted depends, as it now seems, upon the 
 enlightened self-interest of employers. That it 
 may become very general in all the principal me- 
 chanical and manufacturing industries is at present 
 highly probable. It rests entirely with the employ- 
 ing class to say to wdiat extent it shall be carried. 
 It is not necessary for the accomplishment of the 
 object sought that employers should relinquish in 
 any degree the entire control and management of 
 their business aflairs. It is only a share of the net 
 profits with which the laborer has any concern. 
 
 REDUCTION OP THE HOURS OF LABOR. 
 
 An extensive movement is being made' in the 
 United States and Europe to reduce the number of 
 hours constituting a day's work. 
 
LABOR COMBINATIONS. 303 
 
 The present limit is generally ten hours, and 
 eight hours is demanded, — equal to a difference of 
 twenty per cent. This movement is an important one, 
 affecting in its results not only the strictly laboring 
 class but all others, and therefore entitled to a care- 
 ful examination. 
 
 What will be the economic effects of the pro- 
 posed change were it practicable? 
 
 Only in one of three ways can the object be 
 attained: 1st, by the universal consent of the em- 
 ploying class ; 2d, by the equally universal consent 
 of the laboring class ; or 3dly, by the authority of 
 law. 
 
 a. That the employing class (entrepreneurs) will 
 voluntarily consent to the contraction of their opera- 
 tions by twenty per cent, and the corresponding loss 
 ill the use of their entire capital employed in produc- 
 tion, is not to be expected. 
 
 b. That the laboring class will unanimously agree 
 to reduce their hours of labor, and consequently their 
 incomes by twenty per cent., is not to be supposed, 
 especially when a great proportion of them now 
 work by the piece, and would rather extend than 
 contract their hours of employment. Precisely how 
 great the proportion of piece-workers is has never 
 been determined that w^e know of, but from some- 
 what extended inquiries we have ascertained that 
 in many of the largest establishments the proportions 
 of this class of workmen is equal to fifty to eighty 
 per cent, of the whole, and the constant tendency is 
 to the increase of piece-work by new inventions of 
 machinery adapted to the purpose. 
 
 c. Whether the government of any country can 
 
304 DISTRIBUTION. 
 
 be induced to enact that no man shall work for 
 wages more than eight hours per day, will certainly 
 depend in all republics upon the sentiments of the 
 people. If the object commends itself to the intel- 
 ligence and good sense of the constituenc}^ to such an 
 extent that the necessary enactment can be secured 
 and enforced, the object may be effected. This seems 
 at present the only possible practicable way to es- 
 tablish eight hours as a day's work. Waiving all 
 objections to such a measure that may here be stated, 
 let us, for the sake of the argument, suppose that the 
 eight-hour limit is fully established as a day's labor. 
 
 EFFECTS OF RESTRICTING THE HOURS OF LABOR. 
 
 The first effect of this must be to reduce the 
 amount of commodities produced. It is certain that 
 men cannot produce as much in eight as in ten 
 hours, and consequently production must be propor- 
 tionally diminished. We know it has been claimed 
 that as much can be produced in eight hours as in 
 ten, because the workman can labor with more 
 energy and efiiciency for the shorter than the longer 
 time; but the practical question is, ?n7^ hef Why 
 should he? Will he have any greater inducement, 
 any stronger motive ? He is still at work by the 
 day, and what difference can it make to him whether 
 he works faster or slower so that he works as fast as 
 his fellow-laborers generally? Certainly none at 
 all. Why, then, should he use extra effort? We 
 may safely conclude he will not, and consequently 
 production must in the long-run be lessened to the 
 extent of the diminution of labor time. 
 
LABOR COMBINATIONS. 305 
 
 ECONOMIC EFFECTS UPON THE LABORER. 
 
 Will the laborer secure as large compensation for 
 eight as for ten hours ? It has been contended with 
 great earnestness and apparent sincerity that he will ; 
 indeed, it has been insisted that he will get higher 
 wages. 
 
 To ascertain the truth of this, let us suppose that 
 fifty hours' Uxbor are required to produce a gold 
 eagle worth ten dollars. Then working ten hours 
 per day the miner w^ould get an eagle in five days, 
 giving him two dollars per day as wages ; working 
 eight hours per day, he must expend six and a 
 quarter days in getting his ten dollars' worth of gold, 
 and his wages would be but $1.60 per day, because 
 $1.60 X 6.25 = 810.00. 
 
 The same result would be equally certain in regard 
 to every other product. It matters not in what form 
 the value is produced, the amount will be as the 
 quantity of labor required ; and therefore, by an in- 
 exorable law, the compensation or wages will be in 
 the same proportion. 
 
 The mistake of those who assume the contrary, 
 arises from not taking into consideration the differ- 
 ence between money- wages and commodity- wages, 
 or nominal and real wages. 
 
 The question for the laborer or salaried man to 
 consider is, not, as we 'have elsewhere said, how 
 many dollars he can get for his labor, but how much 
 of food, clothing, shelter, and other desirable objects 
 he can secure ; and in that view of the case, if he 
 Bhortens the hours of his labor he will diminish to 
 
 2G* 
 
306 DISTRIBUTION. 
 
 an equal extent the compensation he receives, 
 whether he is working for himself or on wages. 
 
 As this is an important point in our discussion, 
 we give the following illustration : 
 
 Suppose a hat to require thirty hours', or three 
 days', labor, of ten hours each, and a pair of boots 
 an equal quantity. The hatter can then obtain a pair 
 of boots for three days' labor, and the bootmaker a hat 
 for the same. But the eight-hour limit being adopted, 
 the hatter must work three days and three-quarters 
 for his boots, and the bootmaker the same length of 
 time for his hat. Each party makes a loss of six 
 hours, or three quarters of a day, upon his purchase; 
 each must expend the labor of three-fourths of a day 
 more to obtain his object — equal to a loss upon the 
 laborer's full time of twenty per cent., and that must 
 be the actual average loss upon his whole wages by 
 restricting him to eight hours' production instead of 
 ten. He works twenty per cent, less time, and has 
 for the same number of days' work twenty per 
 cent, less of commodities ; he virtually reduces his 
 entire income to that extent. 
 
 The great point overlooked by those who expect 
 equal wages for less labor is, that the laborer is a 
 consumer as well as producer, — that he consumes as 
 much in some form as he produces; for if he saves 
 money to purchase or build a house, or invest in 
 any other manner, the result to him will be same, 
 for all values will be equally affected. 
 
 A simple proposition will clear up much obscurity 
 in regard to the point under consideration. It is 
 this : A general rise of wages is of no advantage to 
 those who work for wages ; that is, if throughout 
 
LABOR COMBINATIONS. 307 
 
 the world all wages were advanced equally, the result 
 to the wages class would be the same as if no such 
 advance had taken place. If the laborer should get 
 more money for his labor, he must pay more for all 
 his purchases; because values would not be increased, 
 even if prices were advanced. 
 
 Again, if as much compensation can be had for 
 eight hours as for ten, why not as much for six 
 hours as for eight, for four hours as for six, for two 
 hours as for four? 
 
 If the principle assumed, that as high wages may 
 be had for the shorter as for the longer time, were 
 sound, it would hold throughout ; but we see it does 
 not, that it becomes absurd, and therefore conclude 
 it to be false. 
 
 EFFECTS UPON CAPITAL. 
 
 Another consideration connected with this subject 
 is the effect that a diminution of labor would have 
 upon capital. 
 
 Its profits, like the workman's wages, must be 
 abridged, and the increment that could be yearly 
 added to it w^ould be diminished. If production 
 were reduced by one-fifth, the previous increment 
 would be reduced far more than that, because there 
 could not be so large a surplus over necessary con- 
 sumption. A greater part of the gross earnings 
 must be consumed. Then, should the population 
 go on increasing at its former rate, while capital 
 was increasing at a slower one, the latter would 
 eventually become more scarce, and consequently 
 more difficult of attainment. Would this inure to 
 
308 DISTRIBUTION. 
 
 the advantage of the capitalist, the labor class, or 
 the country generally? 
 
 The loss that arises from a reduction of the hours 
 devoted by labor and capital to the production 
 of wealth must fall upon both ; but the greatest 
 loss in the aggregate must fall upon the laboring 
 classes, because they are by far the most numerous. 
 If it requires five days' labor to produce a barrel of 
 flour instead of four, it is clear that the class con- 
 suming the most flour must be the greatest sufferer. 
 
 Time is the working-man's capital, that which he 
 uses in the production of wealth. If there be three 
 hundred working days, of ten hours each, in a year, 
 he has three thousand hours per annum to invest, 
 through his labor, in such commodities as he de- 
 sires. At eight hours per day he would have but 
 twenty-four hundred. The latter limit being uni- 
 versally adopted, must not the aggregate production 
 of the world be diminished by one-fifth ? Then, if 
 the dividend, or amount to be divided, is reduced 
 one-fifth, must not the individual quotient, or each 
 one's share, be equally diminished ? And must not 
 the same principle apply to the capitalist whose 
 operations are curtailed in the same proportion ? 
 
 It may be said that it has never been proposed 
 that eight hours should be fixed as the limit of labor 
 for the whole industry of a nation, but only for that 
 part of it engaged in manufactures and mechanical 
 employments. But what would be the result of such 
 an arrangement? 
 
 If the agriculturist must work ten hours, while 
 the shoemaker, for example, wrought only eight, 
 is it not certain that farm-laborers would become 
 
LABOR COMBINATIONS. 309 
 
 shoemakers so fast as in a short time to reduce the 
 wages of the latter to an equality with the former? 
 No one can reasonably doubt that such would be 
 the result. 
 
 We have endeavored thus far to show only some 
 of the economic eflects that must follow a reduction 
 of the hours of labor. 
 
 Of the social and moral results of such a measure 
 we have said nothing. That subject is not within 
 our province. It belongs to the dominion of soci- 
 ology. 
 
 It may be true that, notwithstanding all that has 
 been oifered, however correct it may be, it is for the 
 best interests of all mankind that the proposed re- 
 duction of the hours of labor should take place. 
 There are certainly other and higher considerations 
 than the greatest production and accumulation of 
 wealth. Would society be improved and elevated 
 by such a reduction ? Would the highest interests of 
 man, whether laborer or capitalist, be promoted by 
 it ? This problem it is the province of social science 
 to examine and solve. 
 
 EQUALIZATION OF WAGES. 
 
 It is maintained and practically enforced by 
 some labor associations that all workmen in the 
 same trade should have equal wages, the active and 
 the stupid, the skilful and unskilful, the indus- 
 trious and the indolent. 80 that they are employed, 
 all must stand on the same level. It is sufficient 
 to say that such a policy must repress all emula- 
 tion, all desire for improvement, and all progress; 
 for the good reason that men do not act except from 
 
3i0 DISTRIBUTION. 
 
 a motive, and there could be no emulation, no motive 
 for improvement, vs^here there was no reward for it. 
 Should Buch an unwise policy be generally adopted 
 (which seems in the highest degree improbable), 
 the production of wealth would be greatly dimin- 
 ished and the laboring classes sadly demoralized. 
 
 INTERFERENCE WITH APPRENTICESHIP. 
 
 In some associations attempts have been made, 
 and with more or less success, to prevent the in- 
 crease of workmen in a particular branch of indus- 
 try, by forbidding any one to employ apprentices 
 except under certain restrictions and limitations. 
 
 This is a direct, arbitrary, and most dangerous in- 
 terference with that freedom of labor which is en- 
 tirely essential to the greatest production of wealth 
 and the most complete harmony of industrial in- 
 terests. 
 
 With freedom to enter or leave any particular 
 branch of production, it is certain that under the 
 natural law of supply and demand, each would 
 secure just that amount of labor which its own 
 best interests and the general welfare required ; 
 while under a labor monopoly like that of which we 
 speak, the trade itself for whose benefit it was de- 
 signed would not be developed in its true propor- 
 tions, and the public in general would be injured. 
 Were the same policy adopted by all trades, a gen- 
 eral war of interests would be the certain conse- 
 quences, resulting in general disadvantage. 
 
 A combination to prevent the learning of a trade 
 in no way differs in its effects from any other mo- 
 
PROFITS. 311 
 
 nopoly or interference with the industry of a coun- 
 try, — it interrupts only to diminish production and 
 demoralize labor. 
 
 CHAPTEli y. 
 
 PROFITS. 
 
 By the term *' profits," we mean that share of 
 wealth which, in the general distribution, falls to 
 those who effect an advantageous union between 
 labor and capital. 
 
 All wealth, being the product of labor and capital, 
 would be divided between them, were it not neces- 
 sary that still another agent should take part in 
 production; viz., an employer, manager, under- 
 taker* {entrepreneur), projector, contractor, business 
 man, merchant, manufacturer, farmer, or whatever 
 else he may be called, whose services are indis- 
 pensable. 
 
 Capital cannot move itself; labor cannot com- 
 mand capital, and therefore has little power: hence 
 the necessity for an employer, or business man, to 
 effect a union, and put both in successful operation. 
 Capital without labor is an infant; labor without 
 capital, a cripple. 
 
 * " It is to be regretted," says J. Stuart Mill, "that this word, 
 in this sense, is not familiar to the English ear. French political 
 economists enjoy a great advantage in being able to speak of les 
 profits de Vent epreneur.^' 
 
312 DISTRIBUTION. 
 
 The parties, then, to production are, (1) the 
 laborer; (2) the capitalist; (3) the employer, or 
 manager. Each lias a distinct province, and a 
 separate interest; and each must receive his reward, 
 or share of the general product. 
 
 This is, undoubtedly, the natural division of the 
 subject. To confound the capitalist with the em- 
 ployer, as often is done, throws the whole matter 
 into confusion. There is no occasion w^iatever for 
 this. The man who owns the capital, and receives 
 his compensation for its use in the shape of rent, 
 or interest; the laborer, who applies muscular or 
 mental power to the production of value; and the 
 man who, as employer or manager, relieves the lirst 
 from the anxiety and risks of trade, and furnishes 
 the second with the means by which alone he can 
 work to advantage, — are separate persons, with dis- 
 tinct interests. 
 
 The capitalist, as such, has no share in the profits 
 of business. He does nothing but loan his wealth, 
 which, by the value of its services, brings him an 
 income, in the shape of rent for real, or interest for 
 personal, estate. If he is careful in regard to the 
 securities he takes or the credit he gives, it is of no 
 immediate consequence to him whether trade is dull 
 or brisk, whether profits are high or low; but, of 
 course, it is true that the capitalist has a general 
 interest in the profits of business, to this extent, — 
 that unless profits, in the long-run and on the aver- 
 age, are such that the business man can afford to 
 pay the usual rate of interest, the compensation of 
 the capitalist, or his share in the general distribu- 
 tion, must be reduced. 
 
PROFITS. 313 
 
 On the other hand, to the employer, in whatever 
 department of husiness, the question of profits is 
 vital. His success depends upon the amount he can 
 secure, after meeting all his necessary expenditures 
 for labor, rent, interest, taxes, insurance, bad debts, 
 etc. 
 
 It often happens that the employer (manufacturer, 
 merchant, etc.) is the owner, in whole or in part, of 
 the capital used. This in no wise alters the case ; 
 for then he receives income both for his capital and 
 his labor, or efforts. He saves all the interest he 
 would otherwise pay to the capitalist ; he pays in- 
 terest to himself. He may own the buildings he 
 occupies; and in so far he is a capitalist, paying 
 rent to himself. 
 
 It is, then, by this triple alliance of enterprise, 
 capital, and labor that all production is effected ; 
 and between them, in the final result, it should be 
 shared. The economical question is. How shall an 
 equitable division be attained ? 
 
 We have previously said, in relation to capital 
 and labor, that there must be a just proportion of 
 each to the most efiicient production, — sufficient 
 labor for the capital, and capital for the labor: so 
 there must be suflicient enterprise, business talent, 
 and tact to use both; and the several parties must 
 be left to act voluntarily, under the instincts of hu- 
 man nature and the laws of value. Indeed, the great 
 difference in the wealth of nations is made by the 
 business class: mind is more effective than muscle. 
 
 With perfect equality and freedom of action, each 
 wnll certainly obtain the share that belongs to him. 
 Laws in regard to this, as all other property rela- 
 
 27 
 
314 
 
 DISTRIBUTION. 
 
 tioiis, are not needed to direct human industry, but 
 to control human passion; to prevent one party from 
 trespassing upon the rights ot* the other. 
 
 It has been common to speak of the profits of 
 capital, instead of the profits of business. This is 
 a mistake which confounds necessary distinctions. 
 The profits of trade, or business, are to be reckoned 
 \ipon the amount transacted, not upon the capital em- 
 ployed. The ditierence between the two modes is 
 often very great. 
 
 We give the following table as an illustration of 
 what we mean : 
 
 Difference of Profits as computed on the Capital employed or the 
 Business transacted. 
 
 Capital 
 employed. 
 
 Sale?. 
 
 Rate of Pro- 
 fits on Sales. 
 
 Gross 
 Profits. 
 
 Ex- 
 penses, 
 includ- 
 ing In- 
 terest. 
 
 Net 
 Profits. 
 
 $50,000 
 
 7,500 
 
 7,000 
 
 10,000 
 
 Net Profits, 
 if reckoned 
 on Capital. 
 
 Net Profits, 
 
 if reckoned 
 
 on Bu.siness 
 
 done. 
 
 $100,000 
 20,000 
 10,000 
 50,000 
 
 $500,000 
 
 150,000 
 
 30,000 
 
 350,000 
 
 15 per cent. 
 10 " " 
 30 " " 
 5 " " 
 
 $75,000 
 
 15,000 
 
 9,000 
 
 17,500 
 
 $25,000 
 7,500 
 2,000 
 7,500 
 
 50 per cent. 
 37^2 " " 
 70 " «' 
 20 " " 
 
 10 per cent. 
 5 " " 
 
 26%" " 
 2%" " 
 
 The actual transactions of business present an 
 
 endless variety, of which the above may be taken 
 
 as samples. 
 
 The object aimed at by the business man is to 
 obtain as large a net profit as possible, irrespective 
 
 of the per centum of the profit on the capital 
 
 employed. 
 
 RATE OF PROFITS. 
 
 There is a constant tendency, in the progress of 
 society, to a decline in the rate of profits; i.e. as 
 has just been said, of profits upon business done. 
 
PTIOFITS. 315 
 
 1st. From the acceleration of exchanges, or the 
 rapidity with which capital is used ; in consequence 
 of which, the same absolute remuneration can be 
 obtained with less charge on each transaction. 
 
 2d. From the increasing number of those who, 
 by education and training, are qualified for inde- 
 pendent business. 
 
 3d. From increasing facilities for intercourse by 
 steam, on land and sea, and the consequent diffusion 
 of intelligence in regard to prices and markets. 
 
 The rate of profit can never be arbitrarily fixed 
 where there is free competition, any more than the 
 wages of labor ; yet in a given country, or mart of 
 trade, there may be an actual average rate which all 
 individuals strive to attain ; say, for example, ten 
 per cent. As a matter of fact, each individual ob- 
 tains all he can. He does this, especially in places 
 of large trade, by charging as much advance on 
 every article as he finds it will bear. If his rate is 
 too high, his custom will fall off; or, if he has cus- 
 tomers, they will be of a hazardous class, by whose 
 delinquencies he will lose more than he can gain by 
 their patronage. Then, again, it is practically 
 true, that scarce any two commodities pay the same 
 rate of profit; some, it may be, only two, some ten, 
 some twenty per cent. And, further, while in the 
 same street one man sells his goods at ten per cent, 
 another is selling at seven and a half per cent., and 
 is making a larger amount of net profits at that. 
 "Why is this ? 
 
 First The latter buys more shrewdly ; secondly, 
 he carries on his business more by his own efforts, 
 and with less expense ; and, lastly, sells, as he will 
 
316 DISTRIBUTION. 
 
 be likely to do, to reliable men, who most certainly 
 discover where they can purchase to the greatest 
 advantage. 
 
 RAPIDITY OF EXCHANGE. 
 
 The necessary rate of profit depends greatly on the 
 rapidity of sales, as compared with the capital em- 
 ]^)loyed and the expense of conducting business. 
 
 Large sales, with small profits, or a rapid turning 
 of capital, is the natural tendency of trade, as popu- 
 lation and wealth increase, and especially as credits 
 are diminished. Those who sell for cash have im- 
 mensely the advantage of those who give long 
 credits, particularly under a mixed currency, which 
 so largely increases the hazards of trade. 
 
 In those communities in which the people are 
 generally poor, and their wants great and pressing, 
 as in newly-settled countries, credits are naturally 
 much extended, and, of course,' the rate of profits 
 proportionally increased. This is known to be the 
 case over a large part of our Western States. The 
 people can afford to pay large profits, if by so doing 
 the}' can get the use of capital, because capital pro- 
 duces so large a return; as, for example, one thou- 
 sand dollars invested in the spring in ploughing the 
 prairie, and getting in a crop of wheat, will, not un- 
 likely, give a net profit, within six months, of one 
 hundred per cent. But when such communities 
 accumulate capital, and are able to pay as they pur- 
 chase, they come to buy at greatly reduced rates, 
 and profits fall to the minimum. The average rate 
 of profits in a country is determined by the same 
 
PROFITS. 317 
 
 law as wages. Profits are merely loages received by 
 the employer. This idea should be kept constantly in 
 mind. 
 
 If there are more laborers than are wanted, wages 
 fall ; if fewer, they advance: just so with employers, 
 or business undertakers. If there are too many 
 competing for profits, the rate will fall until the 
 excess is driven back into the ranks of labor. As 
 there are, however, comparatively few, in proportion 
 to the whole number of persons capable of labor, 
 who have the requisite capacity and training re- 
 quired for transacting business successfully, and 
 fewer still who can command the necessary means 
 or capital, it will follow that the rewards of the em- 
 ployer will be larger than those of the persons em- 
 ployed. But we must not forget that this difference 
 is less than at first appears, because our observation 
 shows us that, of all who undertake to trade or 
 manufacture, a large majority become bankrupts ; 
 and, consequently, the average difference between 
 the employer and the employed is greatly reduced. 
 
 There is, undoubtedly, a constant tendency to an 
 equalization and reduction of profits from continual 
 improvements in the means of locomotion, and the 
 increasing intelligence of the people. The opening 
 of railroads has wrought a revolution in this par- 
 ticular. These not only greatly reduce the cost of 
 transportation, but the average rate of profits. 
 
318 DISTRIBUTION. 
 
 DIVIDENDS. 
 
 A large share of the income received by owners 
 of capital, at the present day, comes in the form of 
 dividends on stock, held in corporations and joint- 
 stock companies, formed for almost every conceiv- 
 able purpose. The introduction of railroads has 
 caused immense investments, the income from which 
 is received in dividends. How are these to be 
 classed ? They cannot be regarded as synonymous 
 with interest, or rent : they must be considered as 
 profits. They are received for the profits of busi- 
 ness done by proxy. The capitalist may not have 
 the slightest agency in the affairs of the company 
 from which he gets an income ; still, he is a partner, 
 though a limited and silent one, and receives his 
 share of the profit or loss. 
 
 It may be objected, that bank dividends must 
 surely be classed with interest, since they are made 
 up wholly of interest received for the loan of capital. 
 This is not strictly correct. No inconsiderable 
 share of profit to the banks of the United States is 
 derived from the premiums charged for exchange. 
 American banks are exchange-brokers. Besides, 
 nearly one-half of all the income of mixed-currency 
 banks is derived from the manufacture of currency, 
 not the loaning of money or capital. Although divi- 
 dends of his kind approach nearer to interest than 
 those of ordinary business corporations, still they 
 are most properly classed with profits. 
 
INTEREST. 319 
 
 CIIAPTEH YL 
 
 INTEREST. 
 
 What is paid for the use of money, or any 
 other form of loanable capital, is called "interest." 
 Hence the term " usury." 
 
 Interest has its justification in the right of prop- 
 erty. If a man can claim the ownership of any 
 kind of wealth, he is the owner of all it fairly pro- 
 duces. Past labor has all the sacredness of present 
 labor, and as justly claims its reward. An associate 
 in production, it is entitled to a share in the prod- 
 uct. Whoever by labor produces wealth, and by 
 self-denial preserves it, should be allowed all the 
 benefit that wealth can render in future production. 
 This is the only condition upon which the largest 
 accumulation of wealth can be secured ; it presents 
 the only motive that can withstand the impulse to 
 immediate gratification. The desire to gain and 
 the desire to spend are both in human nature, and 
 are conflicting passions. What one takes, the othei 
 must relinquish. If, therefore, the desire to spend 
 is unchecked, all wealth and physical well-being dis- 
 appear in riot and wastefulness. There is the further 
 consideration, that, since to loan capital is to incur 
 risk, that risk should be compensated. It has been 
 a favorite idea with many visionary writers, that 
 interest can be entirely done awayj\'ith. Proudhon 
 and others have speculated and theorized much on 
 
320 DISTRIBUTION. 
 
 this subject; but nothing can be more idle. We 
 can no more get rid of interest than value: both are 
 in the laws of nature. Yet this has been, in the 
 view of many, the philosopher's stone, that was to 
 transmute all baser metals into gold. It is akin to 
 the idea that credit can be made to take the place 
 of value, and is sustained by the same sort of reason- 
 ing as that "property is a crime; a monopoly that 
 must be destroyed." 
 
 We will notice briefly a few of the main princi- 
 ples that govern the rate of interest the world over. 
 
 1st. Interest, in its general rate, will be determined 
 by the productiveness of labor in the community 
 where it is employed. It is evident the reward of 
 capital cannot be larger than the total profits of busi- 
 ness, because it would no longer be used; nor can 
 it be equal to these profits, for no one would be dis- 
 posed to employ it and pay out his whole profits for 
 its use. Interest must, therefore, be less than the 
 aggregate amount of the returns of production; and 
 finding, as it does, a competitor in present labor, 
 capital will be obliged to submit to an equitable 
 division. 
 
 USURY LAWS. 
 
 2d. Interest will be governed by the law of sup- 
 ply and demand. This is so evident as not to require 
 argument or proof, hardly illustration. Old coun- 
 tries abound in accumulations of capital. Interest is 
 there found cheap. In all new countries, there is a 
 youthfulness of capital ; there has not been time to 
 develop the powers of production; and hence inter- 
 est is high. The United States of America afford a 
 
INTEREST. 321 
 
 most striking example in point. There is a vast 
 amount of uncultivated but fertile land, while the 
 amount of capital with which to cultivate it is com- 
 paratively small. So of its manufacturing capacities. 
 Hence there is a high general rate of interest. This 
 is governed by the supply and demand, i.e. by the 
 laws of value alone, and should never be interfered 
 with by legal enactments. 
 
 This is a lesson mankind have been slow to learn; 
 yet the most commercial nation in the world (Great 
 Britain) has abolished all usury laws. The experi- 
 ment was at first made with great caution, limiting 
 the exemption to a particular kind of paper, and the 
 time in which it should operate to a few months; 
 but it was found so perfectly satisfactory to the 
 community, that, after a fair trial, the abolition of 
 the usury laws was made final and complete. 
 
 But, upon a question so much in dispute, it may 
 be desirable to give the principal reasons why the 
 matter of interest should not be interfered with by 
 law. 
 
 [a) When it is made a penal offence to take over a 
 certain per cent, interest, if money is worth more, as 
 it often will be, it will be obtained by some indirect 
 process. Most persons do not like to directly violate 
 a law, however foolish or unjust they may deem it 
 to be ; consequently, they will attempt to evade it. 
 There is no difficulty in this. A note may be sold 
 to a broker for what it will bring; and the broker 
 buys it with funds furnished by the capitalist, who 
 stands behind the curtain while the borrower pays 
 the broker for getting the money he might otherwise 
 have obtained directly of the capitalist himself. The 
 
322 DISTRIBUTION. 
 
 law has not prevented the usury, only increased the 
 rate. The broker feels no responsibility; for he is 
 only an agent between the parties. The capitalist 
 has no scruples; for he is not known in the trans- 
 action. Instead of this, the borrower and lender 
 should be brought face to face, in an open market, 
 where each could be protected by law in the trans- 
 action; and then a fair, unrestricted competition 
 would assure the lowest rate of interest, obtained 
 most economically. 
 
 But for usury laws, the current rate of interest 
 would be as well known as the price of stocks or 
 corn or wool, and would, like them, be determined 
 by the laws of trade ; and men would act as intelli- 
 gently and as freely- as in the purchase of merchan- 
 dise. Freedom is as essential in the disposal of 
 money as in the intercourse of nations. 
 
 (b) Usury laws create an injurious distinction be- 
 tween different kinds of mercantile paper, and thus 
 occasion embarrassment and loss to borrowers. 
 
 For example, the law says in some States that 
 only six or seven per cent, interest shall be taken 
 by the banks. But money may be worth twelve 
 per cent.; and there are ten applications for it, at 
 that rate, to one that can be supplied. What is the 
 result? Why, the bank will make no loans except 
 upon such paper as it can charge with exchange. 
 Exchange is legal, whether it is real or fictitious. 
 A and B apply for discount at a bank in Boston. 
 A offers notes of the most undoubted character, 
 payable in Boston ; B offers notes or drafts payable 
 in New York, and he gets accommodated. His 
 dralts have sixty days to run ; he is charged one 
 
INTEREST. 323 
 
 per cent, exchange, and thu3 pays twelve per cent, 
 interest. A, having only notes on which no such 
 exchange can be legally charged, must " go into the 
 street," and employ a broker to sell the notes for 
 him at the best rates lie can. 
 
 (c) Usury laws are the principal cause of compul- 
 sory deposits, or deposits made to secure large dis- 
 counts. These are, as we have shown, exceedingly 
 burdensome to the business community, and most 
 dangerous to the currency. If the rate of interest, 
 as at the Bank of England, was left entirely to the 
 state of the money market, these deposits, now 
 peculiar to American banking, would disappear. 
 
 3d. Interest will be influenced largely by the safety 
 or hazard of capital. This will depend, — 
 
 {a) Upon the moral character of the people, 
 whether essentially honest or dishonest, whether 
 honorable or dishonorable, whether industrious, 
 frugal, and temperate, or otherwise. 
 
 (6) Upon the general thrift of the community; 
 for however well d'sposed to pay, if decay and de- 
 cline are general, the hazards of capital must be 
 greatly increased. It must share in the general 
 losses of business. 
 
 (c) Upon the justice and efficiency of the laws by 
 which the rights of property are secured, and the 
 obligation of contracts enforced. This, as can 
 readily be seen, is one of the most important con- 
 siderations in regard to the safety of loans; and, of 
 course, the rate of compensation in the shape of 
 interest. - 
 
 4th. Again, the uniformity of the rate of interest, 
 and its general average, will depend, other things 
 
324 DISTRIBUTION. 
 
 equal, upon the soundness of the currency. If it 
 consists wholly of value, — that is, if the credit ele- 
 ment constitutes no part of the circulating medium 
 or standard of value, — the rate of interest will be 
 as uniform and as low as the laws of trade admit. 
 The rate can never be absolutely fixed at one point; 
 yet, where no credit is used as currency, the credits 
 of the country will be so based upon values that the 
 vacillations will be very moderate. They were very 
 slight in Europe until within the last thirty years; 
 that is, until the general introduction of credit cur- 
 rency. 
 
 Under a currency in which credit is the principal 
 element, the fluctuations in interest are in propor- 
 tion to the extent of that element; because, as we 
 have shown, a mixed currency, whenever there is 
 any panic or distress for money, withdraws from cir- 
 culation with a rapidity proportionate to its weak- 
 ness, or want of value. Hence the frightful revul- 
 sions we have witnessed. 
 
 A legal rate of interest should be established by 
 law, in all cases where the parties have not them- 
 selves agreed upon one, so that, in the absence of all 
 agreement or contract, a given rate may be awarded 
 This legal rate would probablj^ be the general aver- 
 age obtained for the use of money. 
 
RENT. 325 
 
 CHAPTER YII. 
 
 RENT. 
 
 Rent is paid for the use of land and its append- 
 ages, which together are called ^'real estate." The 
 question of the rent of land is of much less practical 
 importance in the United States than in Europe, 
 since it is here generally held in fee simple by those 
 who cultivate it. Yet, as an economic question, it 
 deserves consideration. And there is an especial in- 
 ducement, since we certainly have in this country 
 the best opportunity to investigate, in their simple 
 primitive form, all the phenomena connected with 
 it. Constantly entering upon new lands, we have 
 exhibited for our observation the working-out of 
 problems which long puzzled the philosophers of 
 the old world. 
 
 1st. Rent implies ownership, since no one w^ould 
 pay for the use of that to which all had an equal 
 title. This may be called the first condition. 
 
 2d. It implies society, so that more than one per- 
 son shall desire the use of the same land or append- 
 ages. If exchange, as M. Bastiat says, "is civiliza- 
 tion," rent is society. This is the second condition. 
 
 From our definition, it will appear that rent is 
 paid (a) for land, (6) for whatever is added to its 
 value or desirableness. We cannot separate the two 
 considerations, nor would it be of practical utility 
 if we could ; as, from what we have already eu- 
 
 28 
 
326 DISTRIBUTION. 
 
 deavored to show, value is not derived from the gifts 
 of nature, but the hibor of man : " land, water, steam, 
 electricity, and the like, confer no value." 
 
 Land may be said to be the foundation of rent; 
 and, since the rightfulness of appropriating it has 
 been disputed, it may be proper to remark that we 
 deem it a sutticient answer, that appropriation is 
 indispensable to the production and accumulation 
 of wealth, to the progress of civilization, and the 
 welfare of the human race: therefore it is right. 
 
 Man, in his original or savage state, is a hunter. 
 He needs no appropriation of land; for he roams at 
 large through the forest. He accumulates little or 
 notliing ; and it is of small importance where he 
 builds his temporary cabin. 
 
 Nor in the second or nomadic condition, when 
 man becomes a shepherd^ does rent make its appear- 
 ance, llis business is no longer mere destruction, 
 but preservation and use. This elevates bis condi- 
 tion ; the employment has a far more ennobling 
 eifect upon character; higher faculties and better 
 feelings are developed. In the natural progress 
 of events, he becomes an agnculturist. His chief 
 business now is to till the ground. How can he do 
 this without preparation of the soil from which he 
 is to draw his sustenance? And why should he do 
 this, if another may at will dispossess him of his 
 labors ? The land must be divided, appropriated, 
 and held by some tenure that can be relied upon ; 
 and, when this takes place, rent makes its appear- 
 ance, and increases in intensity as man becomes 
 more and more advanced in social condition ; for 
 with agriculture come the mechanic arts, manufac- 
 
RENT. 
 
 827 
 
 tnres, commerce, villages, towns, cities, — civiliza- 
 tion. 
 
 We now come to the elements which enter into 
 the rental of land. 
 
 Ist. Location. — This grows out of the social con- 
 dition of man, to which we have alluded. If men 
 lived as isolate beings, and there were land enough 
 for all, and the whole equally fertile, there w^ould be 
 no rent; but, once gathered into villages and com- 
 munities, rent would make its appearance, although 
 there were as much land as all desired, and each 'part 
 eqiiallij productive. 
 
 This point we shall endeavor to make plain by 
 an illustration. A colony of thirteen families settles 
 along the shore, where all the land is unclaimed, 
 and immigrants have only to choose where and how 
 much they will occupy. We will ^upi)Ose the land 
 all equally fertile, agreeable, and accessible. In point 
 of fact, there shall be no natural difference between 
 one lot of one hundred and sixty acres (what each 
 famil}^ desires) and another; absolutely no choice 
 arising from anything appertaining to the land. 
 They accordingly lay out thirteen lots half a mile 
 square. This allotment and location upon the shore 
 we represent as follows : 
 
 1 
 
 2 
 
 3 
 
 4 
 
 5 
 
 6 
 
 7* 
 
 8 
 
 9 
 
 10 
 
 11 
 
 12 
 
 13 
 
 In this arrangement, it will be seen, the lots com- 
 mencing on the left are numbered 1 to 13. No. 7 
 is, of course, the middle lot. 
 
 N"ow, all being equally eligible, the land equally 
 accessible and good, and there being as many lots 
 
828 DISTRIBUTION. 
 
 as settlers, and each as large as any one desires, will 
 there he any value to them ?, Yes : because all will 
 prefer 'No. 7, for they perceive that it is most de- 
 sirable, inasmuch as it is central; and, if public 
 buildings are erected for the accommodation of all 
 (school-house, church, etc ), they must be placed on 
 that lot. If a landing-place is made, or a warehouse 
 put up, for the commerce of the settlement, it must 
 be on No. 7 ; for the obvious reason that it is the 
 point at which the whole population can most 
 readily assemble, and it thus forms the natural 
 centre of business. 
 
 All this is so apparent, that each man prefers No, 
 7; but only one can have it. What follows? It 
 must be sold to the man who will give the most 
 for it. Some one will s^ive one hundred bushels of 
 wheat, or its equivalent, — six bushels rent per an- 
 num. All this does actually happen in every case 
 of new settlement; not, indeed, in a manner always 
 so distinct and striking as in the case we have 
 supposed, but in principle as certain and absolute. 
 
 If this is so, we have established the fact that, 
 though all land were equally fertile, and there were 
 enough for all, and all equally desirable in every 
 other particular, yet that rent would arise from the 
 social wants of man, which make mere location a 
 circumstance affecting its value, and create a rental 
 independent of all other considerations. 
 
 2d. Difference of Fertility. — We will suppose four 
 different tiers of land, of unequal fertility. The 
 first will yield forty bushels of corn ; the second, 
 with the same labor, thirty; the third, twenty; the 
 fourth, ten. 
 
RENT. 329 
 
 Kow, while there was enough land of the first to 
 produce all the corn wanted, nobody would give 
 any rent for the first tier on account of its fertility; 
 but when, by the increase of population, it became 
 necessary to cultivate ^o. 2, which would only yield 
 thirt}', ^o. 1 would command a rental of ten bushels, 
 because a man might as well give ten bushels rent 
 for 'No. 1 as to cultivate Ko 2 without rent. 
 
 When, again, necessity compelled the cultivation 
 of j^o. 3, No. 2 would pay a rent of ten bushels, 
 and No. 1 of twenty bushels. And further, when 
 tier No. 4 must be brought under culture to pro- 
 duce the quantity of corn needed for consumption, 
 then, as it would with equal labor produce but ten 
 bushels, ]N^o. 1 would yield a rent of thirty, No. 2 
 of twenty, and No. 3 of ten ; while the last, or No. 
 4, would afibrd no rent. 
 
 3d. Populatiov. — We will further suppose that 
 from the increase of population, more corn is wanted 
 than can be raised; and, consequently, importations 
 are made at an increased price, — equal, say, to fifty 
 per cent. Now if, for the sake of convenience, we 
 take the price of corn to have been originally one 
 dollar a bushel, and to have advanced to one dollar 
 and fifty cents, it will come to pass that tier or 
 quality No. 1 will have a rent of $45; No. 2, of 
 |30; No. 3, of $20; and No. 4, which now for the 
 first time produces rent, of $5. 
 
 4th. Application of Capital to Land. — This is done 
 in various ways, — by the use of fertilizing materials, 
 drainage, deep ploughing, etc. For every such ap- 
 pliance, wisely made, a rent is received, supposed to 
 be equivalent to the expenditure incurred. 
 
 28*= 
 
330 DISTRIBUTION. 
 
 And here it may be found that the same expen- 
 diture, applied to the different qualities of land, 
 produces unequal results. Five dollars, expended 
 per annum on 'No. 1, may return but a profit or ad- 
 ditional rent of eight dollars; while the same amount, 
 applied to No. 2, will give seven dollars; or to I^o. 
 3, will give six dollars, etc. 
 
 This will cause a variation in the relative rentals 
 of the different qualities or tiers of land we have 
 supposed. 
 
 LAND APPENDAGES. 
 
 We have, thus far, noticed only the rent of land, 
 without reference to what may be placed upon it 
 for other purposes than direct production. 
 
 We now come to speak of real estate, consisting 
 of dwellings, stores, warehouses, and the like. 
 
 When buildings are placed upon farms, they form 
 a part of the preparations which are indispensable 
 to agriculture; and, if erected with suitable refer- 
 ence to economy, will add to the value of land as 
 much as shall be equal to their fair annual rent. 
 Farming cannot be carried on without buildings; 
 therefore, so far as buildings are absolutely neces- 
 sary, they will command a rent as certainly as the 
 land itself. This must be true; and yet all know 
 that *' improvements," as they are called, in the 
 shape of buildings, seldom increase the v^alue of 
 farms in proportion to their cost. For example, if 
 the land alone is worth three tiiousand dollars, and 
 buildings are put up costing two thousand dollars, 
 the whole will not, ordinarilv, sell for five thousand 
 dollars. Facts of this soit are observed evervwhere. 
 
RENT. 331 
 
 Farms maj, as a general rule, be bought, especially 
 in all the older States, at much less than their cost, 
 after making all due allowances for depreciation of 
 buildings, etc. We observe, first, that buildings are 
 not generally put upon farms for the purpose of 
 selling or letting them. They are almost invariably 
 erected by the owners of the land, in order to create 
 for themselves a home. To make that home pleas- 
 ant and desirable, a dwelling is erected according to 
 the tastes of the owner and his family, rather than 
 the direct profit of the farm. 
 
 Whenever, therefore, such farming properties 
 must be sold, the purchaser will rarely, if ever, give 
 more than a fraction of the original cost of the 
 buildings. 
 
 And, in the competition of cultivation in a com- 
 munity like the United States, it is to be remem- 
 bered that its agriculture is a unit; that the prod- 
 ucts of the accessible and fertile prairies of the 
 West are brous^ht into the same markets as those 
 of the hard and sterile hills of New England. And 
 it is also to be taken into account, that a farm in 
 Illinois, for example, with a productive power of 
 five thousand bushels of corn, will probably not 
 have upon it buildings worth more than one thou- 
 sand dollars ; while on many Eastern farms, of a 
 productive power of but two thousand bushels, the 
 buildings may have cost three thousand dollars. 
 ^NTow, as these farms are, in fact, competing in the 
 same general markets, it is clear that the ex- 
 tra expenditures upon Eastern farms can pay but 
 little, if any, rental, though they may be very pleas- 
 ant to the occupant. 
 
332 DISTRIBUTION. 
 
 It is on the same principle that the amount ex- 
 pended in clearings, building walls around farms, 
 and the like, do not, in the aggregate, return much 
 rent or income, compared with their cost. They 
 become, in the progress of years, to a considerable 
 extent, like the gifts of nature, gratuitous. This is 
 true of all countries, at all times. 
 
 In cities, where the value of real estate consists 
 principally of buildings, and improvements made 
 upon the land, we lind that the land itself feels the 
 operation of the first cause of rent or value, viz., 
 location, far more intensely than anywhere else. An 
 acre of land, once of the value of fifty dollars for 
 agriculture, becomes worth five hundred thousand 
 dollars for city purposes. 
 
 The absence of all restrictions upon the owner- 
 ship and transfer of landed property and real estate, 
 of all entails and mortmain holdings, njakes the 
 question of rent one of small practical importance. 
 Where owning is the rule, and hiring the exception, 
 rents regulate themselves; or, in other words, are 
 governed entirely by the operation of the laws of 
 value. They advance or recede with trade and 
 population. 
 
TAXATION. 338 
 
 CHAPTER VIII. 
 
 TAXATION. — PRINCIPLES OF TAXATION. 
 
 Since government, or social organization, is among 
 the wants of man, as truly as food or clothing, we 
 must recognize it in the science of political economy, 
 and provide for it. Government implies functionaries 
 and expenditures. How shall these be maintained? 
 Evidently by the contributions of all, for all are in- 
 terested. Government may, therefore, rightfully 
 claim a share of all that labor and capital have 
 created. The aggregate of all sums collected is 
 called Revenue; the system by which it is collected 
 is called Taxation. 
 
 Although the single object of taxation is to ob- 
 tain a given amount of wealth (generally in the form 
 of money), yet the modes by which that object may 
 be secured are various. 
 
 In ancient times, taxation was often imposed by 
 the arbitrary fiat of the ruler, with little or no refer- 
 ence to equity, or its effect on the prosperity and 
 happiness of the people ; but, in modern civilization, 
 it has come to be regarded as altogether the most 
 difficult and delicate task government is called upon 
 to perform. 
 
 The question of taxation, in its various bearings, 
 is now made the subject of examination and discus- 
 sion in all legislative bodies ; and taxes are imposed, 
 in all constitutional governments, not at the caprice 
 of the ruler, but by the representatives of the people. 
 
334 DISTRIBUTION. 
 
 If, then, the property of the citizen must be taken 
 to meet the exigencies of government, it becomes 
 highly important that those from whom it is taken 
 should feel that it is equitably done. ^N'othing in 
 relation to all the acts of government is more to be 
 desired than that its mode of raising a revenue 
 should be so wisely and economically arranged, so 
 manifestly just and equal, and so well understood 
 by all, that no opposition to its demands shall arise 
 from a sense of oppression. 
 
 In the distribution of wealth, as has been before 
 stated, government makes a peremptory claim to so 
 much as its necessities, real or supposed, may re- 
 quire. 
 
 This claim is not only peremptory, but prior to 
 every other claim. The laborer must contribute a 
 part of his wages; the business man of his profits; 
 and the capitalist, of his interest, or rent. Every 
 man knows, or should know, that when he creates 
 any kind of wealth, a share of it belongs to govern- 
 ment. He, in fact, creates a fund out of which 
 government is to be supported. 
 
 The paramount question, in regard to taxation, is, 
 On what principles shall it be founded? Adam 
 Smith, in his "Wealth of Nations," written almost 
 a century ago, laid down four maxims, or principles, 
 which have been so generally concurred in from that 
 day to this, that, as J. Stuart Mill says, '*they have 
 become classic." 
 
 I. "The subjects of every state ought to contribute to the sup- 
 port of the government, as nearly as possible, in proportion to 
 their respective abilities; that is, in proportion to the revenue 
 they enjoy under the protection of the state. In the observation 
 
TAXATION. 335 
 
 or neglect of this maxim consists what is called the equality or 
 inequality of taxation." 
 
 We accept this proposition, and our first inquiry 
 is, What is meant by "subjects"? We answer, 
 Every inhabitant, old or young, male or female. 
 Women? Certainly: if they have a revenue or in- 
 come, they are as justly bound to contribute to the 
 government as men, and in the same proportion. 
 Many women have large w^ealth: why should it go 
 untaxed? Children? There are some such who 
 are millionaires: w^hy should they be exempt? 
 Idiots, lunatics, cripples? Yes, if they have "rev- 
 enues." Many such persons have large estates, 
 which should contribute to the public treasury. It 
 is not the ability to hear or see or walk that is taxed, 
 but the income, or "revenue." 
 
 We next notice the condition mentioned, "as 
 nearly as possible." This implies that it may not 
 be practicable to secure perfect equality; indeed, 
 we know it is not, but such should be the aim of 
 government. 
 
 II. "The tax which each individual is bound to pay ought to 
 be certain, and not arbitrary. The time of payment, the manner 
 Df payment, the quantity to be paid, ought to be clear and plain to 
 the contributor, and every other person." 
 
 [a) "Certain, and not arbitrary." By this. Dr. 
 Smith evidently meant that the taxes should be 
 assessed by competent authority, and upon fixed 
 and well-known principles. 
 
 (6) The time of payment should be "clear and 
 plain." The citizen should \s.wo\\ when he pays; be 
 conscious of the fact that he is paying the govern- 
 ment a certain sum at the time he actually does it. 
 
336 DISTRIBUTION. 
 
 (c) "Tlie maDiier and the quantity plain." This 
 for the reasons just stated. He certainly ought to 
 know ill what manner he paj^s, and how much. 
 
 (d) Should be known "to the contributor, and 
 everybody else." In the method of taxation, the 
 people are joint partners: what one does not pay, 
 another must ; hence the right of every man to 
 know, not only what he pays himself, but what his 
 neighbor pays. Otherwise, how can he judge 
 whether he is overtaxed or not ? 
 
 There is nothing, therefore, inquisitorial, or of 
 tlie character of espionage, in any necessary inquiries 
 in regard to individual property or income ; because 
 it is what every tax-payer has a right to know, it is 
 that without which a just distribution of the public 
 burdens cannot be secured. 
 
 It is on tins account that the publication of tax- 
 lists is a duty on the part of the taxing power. 
 Then, if any property is omitted by accident or de- 
 sign, it w^ill probably be found out; for, being a 
 copartner, each man is interested in the taxes of 
 every other, and will or ought to give notice of any 
 omission or incorrect valuation. 
 
 III. "Every tax should be levied at the time, or in the man- 
 ner, which is most likely to be convenient to the contributor to 
 pay it." 
 
 As, for example, when the harvest has been 
 secured, and is ready for market ; when the fisher- 
 man returns with his "fare," etc. This, though not 
 a very important consideration, will readily be ad- 
 mitted as proper. 
 
TAXATION. 837 
 
 IV. "Every tax ought to be so contrived as to take out and 
 keep out of the pockets of the people as little as possible, over 
 and above what it brings into the treasury of the state." 
 
 Altliough the soundness of this principle would 
 seem indisputable, and will doubtless be theoreti- 
 cally admitted by all, yet Dr. Smith proceeds to 
 enumerate several modes in which the opposite 
 result may be brought about. 
 
 First By levying the tax in such a manner that a 
 great many officers will be required for its collection, 
 who will consume a great part of the produce of the 
 tax. This will depend in great measure on the ma- 
 chinery employed in collecting the public imposts. 
 
 Second. B}' diverting a portion of the labor of a 
 community from a more to a less profitable employ- 
 ment. For example, so heavy a tax might be laid 
 on carriages as to reduce their use or consumption 
 to such an extent that the manufacturer might be 
 compelled to go into some other business less pro- 
 ductive. This has often been done by unwise legis- 
 lation. 
 
 Third. By attaching such heavy duties as to occa- 
 sion smuggling, and thus create a multitude of 
 officers to guard the revenue. 
 
 Fourth. By subjecting the people to frequent and 
 inquisitorial visits, and interruptions in the pursuit 
 of business and in their domestic affairs, thus caus- 
 ing anno^'ance and dissatisfaction. 
 
 We now add still another principle, which, though 
 not among those laid down by Br. Smith, has been 
 adopted in every countr}^ having any considerable 
 taxation : 
 
 29 
 
338 DISTRIBUTION. 
 
 V. The heaviest taxes should be imposed on those commodities, 
 the consumption of which is especially prejudicial to the interests 
 of the people. 
 
 Having stated the maxims or principles which 
 should govern the imposition of taxes, we now 
 come to consider the different forms of taxation 
 which have been adopted, and, to a great extent, 
 are still in use, by the ditferent governments of the 
 world, in order to ascertain in how far they conform 
 to principles universally admitted as correct. 
 
 FORMS OF AMERICAN TAXATION. 
 
 Preliminary to an examination of the ditferent 
 modes of taxation, it may be proper to say that 
 there are, in the United States, two general sj-steras; 
 viz., by national and by State authority. The na- 
 tional government has a mixed system, imposing 
 taxes in every form, direct and indirect, except upon 
 the poll. The State governments generally rely 
 upon direct taxation ; and the poll-tax is often one 
 of the forms adopted. 
 
 Under State authority, counties, cities, towns, and 
 school-districts impose taxes; so, also, parishes and 
 religious corporations: but the latter, generally, 
 only on voluntary membership. 
 
 Taxes may first be divided into two kinds, — direct 
 and indirect. A direct tax is demanded of the per- 
 son who it is intended shall pay it. Indirect taxes 
 are demanded from one person, in the expectation 
 that he will indemnity himself at the expense of 
 others. Such are customs and excise. 
 
 In our further examination of the subject, we 
 
NATIONAL TAXATION. 339 
 
 shall refer to the Dational taxation of the United 
 States, and the State taxation of Massachusetts ; 
 selecting the latter State only for being the most 
 convenient, and as representing that of the indi- 
 vidual States generally with considerable exactness. 
 
 CHAPTER IX. 
 
 T^ATIONAL TAXATION. — I. CUSTOMS. 
 
 These are taxes upon importations, jind collected 
 through the custom-houses. Government establishes 
 a tariff; that is, a list of duties upon such articles 
 as it deems best: these are paid by the importer 
 before he can get possession of his goods. 
 
 Duties are general!}^ of two kinds, — specific and 
 ad valorem. Specific duties are imposed by the pound, 
 yard, gallon, etc. Ad-valorem didies, as the term im- 
 ports, are charged upon the value of the goods, as 
 twenty per cent, upon an invoice of silks, hardware, 
 sugar, etc. 
 
 In some of the American tariffs, the specific prin- 
 ciple has predominated; in others, the ad-valorem. 
 There has always been a struofo'le when the tariff* 
 was to be changed ; those desiring protection being 
 in favor of specific, those of the opposite views con- 
 tending generally for ad valorem duties. Hence much 
 conflicting legislation. 
 
 There are difliculties attending both. If specific 
 duties are laid, they operate with great inequality. 
 
340 DISTRIBUTION. 
 
 For example, suppose a duty of twenty-five cents 
 per pound upon tea. This would be equal to a 
 taxation of one hundred per cent, on that which 
 cost, originally, twenty-five cents, which the poor 
 man must consume; w^hile the rich, who would pur- 
 chase tea that cost seventy-five cents, would pay but 
 one-third as much per cent, as the former. 
 
 In regard to ad-calorem duties, the practical diffi- 
 culty has been, when the rates were very high, to 
 prevent fraudulent invoices. For example, the im- 
 porter must present his original invoice at the 
 custom-house, and make oath to its correctness. If 
 dishonest, he ma}^, by connivance with the shipper, 
 furnish false papers, showing the cost to be much 
 less than it really was. 
 
 Of all modes of raising a revenue, that by customs 
 is confessedly the most effective, and the most 
 readily accomplished; and its great importance, as 
 one of the chief sources of national revenue, de- 
 mands that we give it a careful consideration. 
 
 1. The first principle we laid down was '*that all 
 should contribute, as nearly as possible, in propor- 
 tion to their' respective abilities." 
 
 As all duties are laid upon articles of general 
 consumption, it will at once be seen that such taxa- 
 tion cannot have an equal bearing, because men are 
 thus taxed in proportion to what they consume, not 
 in proportion to their wealth. The poor man, with 
 a large family, may pay more than a millionaire. 
 Men are taxed in this way according to the mouths 
 they have to feed, and the bodies they have to clothe. 
 
 2. In the second place, we inquire, Is "the time 
 and manner plain to tlie person who pays" this 
 
NATIONAL TAXATION. 341 
 
 indirect tax? The farmer who purchases a car- 
 riage, — is he aware tliat he is pa3'iiig a government 
 tax by so doing? If so, does he know how much 
 he is paying? Does he understand that all the 
 materials have paid duties to government ; that the 
 linings, trimmings, and ornaments, the paints and 
 varnish, and the tools with which it was made, have 
 all been taxed ; and that he is to pay the sum total 
 with customary profits on the whole ? Even if so, 
 can he or any one else easily compute the amount 
 of taxation which enters into the carriage? So of 
 all commodities which have passed through the cus- 
 tom-house: people seldom realize when or how 
 much they are taxed. Then the second principle 
 we have laid down is violated. 
 
 3. But we shall not have a full view of the opera- 
 tion of duties on foreign merchandise, unless we 
 take into consideration the fact that they raise the 
 price of the home product, if there is one, to an 
 equal degree with the foreign article, and, in that 
 way, largely increase the burdens of the people, 
 without adding to the public revenue. Suppose, 
 for example, that the whole of a given commodity 
 consumed in the country is 20 millions, of which 
 5 millions are imported, and the balance produced 
 at home. Suppose, further, that the dut}^ upon the 
 imported article is forty per cent., equal in the 
 aggregate to 2 million dollars. The home pro- 
 duct must of course be raised in price to the extent 
 of the duty on the foreign article, and the amount 
 being 15 millions, is raised forty per cent. To 
 ascertain the net amount of the latter, we take a 
 sum to which, if forty per cent, be added, we find 
 
 29* 
 
342 DISTRIBUTION. 
 
 the total to be 15 millions. That sum is $10,714,286. 
 Deduct this last from $15,000,000, and we have 
 $4,285,714 as the difference, or enhanced price, the 
 people have to pay on the home product ; and the 
 matter stands thus: 
 
 Duties upon imported articles $2,000,000 
 
 Enhanced cost of the home article 4,285,714 
 
 $6,285,714 
 Of this amount the government gets 2,000,000 
 
 And the tax upon consumers $4,285,000 
 
 That is, the latter have paid three times as much 
 as the public treasury has received. 
 
 Practically, under our present tariff (1871), the 
 people pa}^ in some instances a much greater differ- 
 ence than here presented. 
 
 It is apparent, from this illustration, that the real 
 taxation of a people will depend very much upon 
 the proportion of duties which, designedly or not, 
 are positively protective. On the other hand, if we 
 suppose that the forty per cent, duty were laid 
 upon tea or an}' other article not produced at home, 
 the government would get the whole amount paid, 
 the people saving upon every 20 millions consumed 
 more than four million dollars. We omit here in 
 both cases all reference to profits paid on duties. 
 
 Such is the wide difference betwen duties imposed 
 for revenue and those laid for the advantage of home 
 productions. 
 
NATIONAL TAXATION. 843 
 
 CUSTOMS AN EXPENSIVE MODE OF TAXATION. 
 
 But, sotting aside all consideration of the addi- 
 tional burden of taxation occasioned, by protection^ 
 as just illustrated, we find this system is entirely at 
 variance with our fourtli maxim, which was ''that 
 no more should he taken or kept out of the pockets of the 
 people than absolutely necessary.'' This will be seen by 
 the following illustration : 
 
 The whole amount of dutiable merchandise con- 
 sumed in the financial year 1871 was $518,759,518, 
 upon which the duties were $202,416,473. Upon 
 these duties the importers charged their profits as 
 much as upon the original cost, also the jobbers and 
 retailers. The cost of collection we estimate at six 
 per cent.; though including all salaries, charges, and 
 interest in government investments, in custom- 
 houses, etc., the expense is doubtless much greater. 
 The matter will then stand thus: 
 
 Whole amount of duties $202,440,473 
 
 Importers' profits 12^ per cent 25,305,810 
 
 227,752,283 
 Jobbers' profits 7^ per cent 17,081,421 
 
 244,838,704 
 Retailers' profits 15 per cent 36,875,051 
 
 Paid by consumers 281,708,755 
 
 Received by government 202,446,473 
 
 Extra charge on the people $79,262,282 
 
 Or thirty-nine per cent, over the gross amount re- 
 ceived by the national treasury, and forty-five per 
 cent, over the net amount after deducting expenses 
 
314 DISTRIBUTION. 
 
 of collection. The estimate of profits is at a low 
 figure, less, probiibly, than the actual tact. 
 
 In regard to customs duties, then, we cannot but 
 conclude that, while they are a convenient and pro- 
 lific source of revenue, they are very unequal and 
 expensive, and little in accordance with the princi- 
 ples of justice and equality. 
 
 BOUNTIES. 
 
 At this point it may be most proper to speak of 
 the effect of bounties. If a home product is to be en- 
 couraged by government, it is desirable that it should 
 be done as economically as possible, or in such a 
 manner as to impose the least taxation and loss upon 
 the public, while it shall be as effective as possible 
 in securing the object. It should therefore be accom- 
 plished by direct bounties, by paying so many dol- 
 lars per ton on all ships built in the country; so 
 many dollars per ton on all iron produced at home, 
 etc. By this arrangement the people would pay only 
 the net amount of the actual contribution, while in 
 the form of duties it has been shown that they may 
 and often do pay three or four times as much. 
 
 Bounties, as a means of protection, have been but 
 little resorted to by governments. The reason is 
 obvious. The evident injustice of giving to one 
 class of men a premium upon their productions, in 
 order that they may be encouraged in a branch of 
 industry that cannot live without contributions from 
 the public treasury, is so apparent, and evidently un- 
 reasonable and unwise, that the people of no coun- 
 try would long tolerate it. It is, therefore, vastly 
 
NATIONAL TAXATION. 345 
 
 more feasible to give protection by duties on the 
 foreign article, although far more wasteful and 
 onerous. 
 
 EXCISE. 
 
 Excise are the opposite of custom-house duties, 
 being laid wholly upon articles of domestic produc- 
 tion, and paid first by the producer; and, after the 
 articles have passed through the hands of the mer- 
 chants, with their profits added, the sum total is 
 paid by the consumers. 
 
 This mode of taxation is obnoxious to somewhat 
 the same objections that may be made to customs. 
 Excise is unequal, because falling on rich and poor 
 alike; not in proportion to their wealth, but what 
 they consume. The merchants' profits are not quite 
 so large on these as on custom duties, because home 
 products do not ordinarily pass through as many 
 hands as foreign merchandise. The expense of col- 
 lection, though only perhaps about half as great, is 
 still a heavy charge upon the treasury. It is, not- 
 withstanding, a very productive source of revenue, 
 and must be resorted to by governments heavily in- 
 debted. Domestic manufacturers are not injured 
 by excise duties, unless they so increase the cost of 
 their commodities as to expose them to foreign com- 
 petition. Profits upon such duties are charged upon 
 commodities as a part of the general expense of 
 their production. 
 
346 DISTRIBUTION. 
 
 TAXES ON DISADVANTAGEOUS CONSUMPTION. 
 
 The principle has everywhere been acted upon by 
 governments that heavy taxes are to be laid on com- 
 modities " the consumption of which is especially 
 prejudicial to the interests of the people." This is 
 in accordance with our lifth maxim. 
 
 There are two strong and sensible arguments in 
 favor of this kind of taxation. One is that if it 
 should cause a falling-oft* in the consumption of the 
 articles so taxed, no detriment would come to indi- 
 viduals or the public; but, on the other hand, their 
 moral and social condition would be promoted, and 
 the power of production increased. 
 
 The other consideration is, that all those who 
 choose to abstain, as they can do without injury, 
 from the specially taxed articles, will avoid the pay- 
 ment of the tax altogether. Such taxes are volun- 
 tarily assumed by those who pay them. This kind 
 of taxation is found to be far more productive, in 
 proportion, than any other, and consumption is less 
 affected by heavy imposts. 
 
 The amount raised from liquors and tobacco in 
 Great Britain for the year ending March 31, 1871, 
 was as follows : 
 
 Spirits, customg £4,419,390 
 
 Tobacco " 6,613,608 
 
 Wine " . • 1,584,177 
 
 Malt, excise 6,978,370 
 
 Spirits, " 11,463,899 
 
 £31,059,504 
 
 equal to over $155,000,000. 
 
NATIONAL TAXATION. 847 
 
 To this may be added a large part of the amount 
 received for licenses, £3,728,769, or $18,500,000. 
 
 The amount raised in the United States in 1871 
 was : 
 
 From spirits $46,281,848.00 
 
 From tobacco 33,578,907.18 
 
 Fermented liquors 7,389,501 82 
 
 Total $87,250,257.10 
 
 The British duty on spirits is ten shillings, or 
 $2.50, per gallon, that of the United States, 50 cents. 
 
 When the system of war taxation was inaugu- 
 rated, $2 per gallon was laid upon whisky. This 
 was a very unwise procedure. Had only 50 cents 
 been imposed at first, there would have been but 
 little illicit distilling, and the government would 
 have collected its dues. Having done this, the tax 
 might have been increased ten per cent, per annum 
 until it rose to one dollar or. one dollar and fifty 
 cents per gallon. One-half of the necessary revenue 
 of the nation might, and for the good of the people 
 ought, to be raised from this source alone, — say 150 
 millions at least. 
 
 STAMPS. 
 
 There is still another mode of supplying the treas- 
 ury, viz., by the sale of stamps. This is an impor- 
 tant branch of the public revenue in all highly-taxed 
 communities. Stamps are required upon all letters, 
 newspapers, and other matter carried through the 
 mails; upon all bills of merchandise and bills of* 
 lading; upon legal instruments of every name and 
 nature ; upon patent medicines, etc. 
 
348 DISTRIBUTION. 
 
 This is cheap and efficient, and as desirable as 
 any form of indirect taxation. Of course it bears un- 
 equally upon different chisses, and is more or less 
 vexatious, particularly when first introduced ; but 
 habit will, after awhile, reconcile the people to it, 
 and it is as little likely to be resisted or evaded as 
 any other form of exaction. It is also collected with 
 very little expense, as no functionaries are necessary. 
 It should therefore be carried out as far as practi- 
 cable. The British government raises a large sum 
 in this wa}^ ; eight millions sterling are received for 
 stamps. The United States treasury received, for the 
 year ending June 80, 1870, the sum of $16,544,043. 
 
 LICENSES, OR SPECIAL TAXES. 
 
 These are granted by both national and State au- 
 thority, for a great variety of purposes. It is a 
 more economical and convenient mode of raising a 
 revenue than by excise on manufactures, etc., re- 
 quiring only annual renewal. There is also less op- 
 portunity for fraud and evasion. It is therefore a 
 very desirable form of taxation ; and the United 
 States government has already availed itself of this 
 mode of raising revenue, to the extent of $9,620,960 
 for the financial year 1870, and this sum may doubt- 
 less be greatly increased in the future. 
 
NATIONAL TAXATION. 349 
 
 CHAPTER X. 
 
 NATIONAL TAXATION {continued). — INCOME TAX. 
 
 This tax is in perfect accordance with the first 
 maxim laid down by Adam Smith, that " every man 
 should be taxed according to the revenue he derives 
 under the state," and also consistent with every 
 other principle we have stated. It is "- clear and 
 plain" to the contributor and every other person. 
 The income-tax payer knows when and how much 
 he pays ; and it can be collected conveniently and 
 economically. 
 
 This kind of tax was established in England in 
 1798, during the wars with Rapoleon, but was abol- 
 ished soon after the close of that struggle. About 
 1842, however, the government, finding its revenues 
 fall short of the expenditures, restored the tax; and 
 it has been continued to the present time. 
 
 This tax was first collected in the United States in 
 1863, and amounted to nearly three millions; in 1864, 
 to 20 millions; in 1865, to 32 millions; in 1866, to 
 72 millions; in 1867, to m millions; in 1868, to 41 
 millions; in 1869, to 31 millions ; in 1870 to 37 mil- 
 lions. 
 
 The above included the income tax upon banks, 
 railroads, insurance companies, etc. The tax upon 
 personal incomes over 1000 dollars yielded, in 1868, 
 32 millions, 1869, 25 millions; in 1870,27 millions. 
 
 30 
 
350 DI.-TIIIBUTION. 
 
 The amount exempted was raised from 1000 to 2000 
 dollars, and the tax has fallen off largely, and will 
 probably be allowed to terminate with the year 1872, 
 as it will expire at that time. 
 
 Yet of all modi's of taxation, this is the most jnst 
 and equitable. Every man can offord to pay accoi-d- 
 ing to his income, and ought to do so. There is no 
 other perfect standard of taxation ; none other which 
 does not iniiict more or less hardship and injustice. 
 
 The tax comes upon the annual private revenue 
 of each year, out of which the government should 
 receive its share for the annual revenue of the state. 
 If the private revenue is increased, so should be the 
 contribution to the public revenue; if the former is 
 diminished, the latter should be also. This is fair 
 and just. Were it to supersede all other forms of 
 taxation, perfect equality would be established; 
 property and labor would bear each its jnst share of 
 the public burdens. To do this, it would be nece:«- 
 sary to ascertain the income of every man ; of every 
 laborer, whether his wages amomitcd to one hun- 
 dred or one thousand dollars a year; of everr ] ro- 
 fessional man ; of every operative, male or female ; 
 every capitalist, banker, merchant, and mechanic. 
 Upon the gross income, thus ascertained, the general 
 tix should be levied, 'pro rata. In this way each 
 member of the community would be made to pay 
 his just proportion, and, of course, would be obliged 
 to save in his expenditures to that amount. 
 
 The objection to this form of taxation is the diffi- 
 culty of ascertaining what a person's income actu- 
 all}^ is. In i\\Q first place, it is said that many do not 
 know their affairs so as to be able to state their true 
 
NATIONAL TAXATION. 851 
 
 income. There is daibtless much of truth in this; 
 but the very fact that such a tax is certain to be en- 
 forced every year will, in a short time, remove this 
 difficulty to a considerable extent, because men will 
 be compelled so to keep their accounts as to know 
 what they gain or lose. The operation of the law in 
 this respect, therefore, is favorable to private inter- 
 est ; since the more intelligent every man is in re- 
 gard to his affairs, the better for him. Such, we 
 believe, has been the operation of the income tax in 
 England. 
 
 Secondly. It is said that some men will be dishonest 
 in their disclosures and statements, and therefore a 
 correct result cannot be reached. 
 
 That many men are dishonest there can be no 
 doubt; but, when the law taxing incomes is regu- 
 larly enforced from year to year, the difficulty of 
 concealment, on the part of the tax-payer, is con- 
 stantly increasing. His neighbors and competitors 
 in business have an eye upon him, if they believe 
 he is making false statements, and he cannot long 
 escape detection. Besides, as a man may be put 
 under oath (and, we think, ought always to be), the 
 crime of perjury must be committed with every mis- 
 representation of his affairs. The immense differ- 
 ence between the reported incomes of the United 
 States in 1864 and those ot 1863, even after allow- 
 ing for the general rise of prices, serves to give an 
 idea of the advance that will naturally be made in 
 the application of the income tax. 
 
 The third objection made is that men do not 
 always like to have their incomes known. But why 
 should they not? We have already said that, in the 
 
352 DISTRIBUTION. 
 
 matter of taxation, all are copartners, having a fro- 
 rata interest. Wliat one does not pay, others must. 
 All, therefore, may rightfully demand such infor- 
 mation as shall furnish the means of assessing a cor- 
 rect tax. There is certainly nothing unreasonable 
 in this. 
 
 Estimated Incwne. — But it may be said that the 
 ii.come-tax principle would not work well in some 
 communities, because a considerable share of its 
 wealth produces no income, and therefore would go 
 untaxed ; that this is especially so in the new States, 
 where vast quantities of land are held which yield 
 no rent or income whatever. 
 
 But this is a mistaken view of the matter. If 
 these lands are appreciating from year to year, — and, 
 as a general fact, owing to the increase of popula- 
 tion, they are, — the income from them is as real as 
 any other; but it is a deferred income, which is sure 
 to be realized in the end. All such property, 
 whether in city lots or forms, should, if an income 
 tax only were levied, be estimated yearly, according 
 to its increasing value, and be assessed upon that 
 principle. 
 
 An important consideration, showing the justice 
 of the income tax, is this, that, if removed, the 
 amount that has hitherto been raised by it must be 
 thrown upon consumption, and, of course, to a great 
 extent, upon the laboring classes. While laid upon 
 incomes over $1000, the tax fell mainly upon capital. 
 As the capitalist pays no more in proportion to what 
 he consumes of taxed commodities than the working 
 mechanic or day laborer, he ought to pay a tax which 
 shall, at least, in some measure, secure an equality 
 
NATIONAL TAXATION. 353 
 
 between him and the laboring man. Hence the re- 
 moval of this tax would be an act of great injustice 
 to the producing classes, who consume by far the 
 greater part of all commodities upon which customs 
 and excise duties are collected. 
 
 TAXATION UPON EXPORTS. 
 
 Whenever a people produce more of any commo- 
 dity than is required for their own consumption, the 
 surplus must lind a foreign market, or the produc- 
 tion will not be extended beyond the home demand. 
 Anything, therefore, which has a tendency to pre- 
 vent the sale of domestic products in a foreign mar- 
 ket must discourage home industry. Such being the 
 case, what must be, in general, the effect of duties 
 laid upon exports? Evidently to reduce the amount 
 exported, and benefit the foreign producer of the ar- 
 ticles thus taxed. 
 
 The unquestionable effect of export duties is to 
 lessen production at home and give encouragement 
 to foreign labor. This is a general principle, appli- 
 cable to every commodity of home growth or pro- 
 duction, except such as one nation may have a virtual mo- 
 nopoly of; that is, may be able to produce in so much 
 greater perfection, or at so much lower rate of cost, 
 or both, that no other nation can compete with it. 
 In that case the exporting nation might impose a 
 duty, which, while it should create a revenue, would 
 not lessen production materially, if at all. 
 
354 DISTRIBUTION. 
 
 TAXATION OF COTTON. 
 
 Many persons are of the opinion that an export 
 duty, or its equivalent in the form of excise, nnight 
 be laid upon cotton without any detriment to the 
 general interest of the trade of the country, while it 
 would produce a considerable revenue at the ex- 
 pense of the foreign consumers. 
 
 It is, then, an important economical and financial 
 question to the people of the United States, whether 
 the peculiar advantages they have over all other 
 cotton-growing countries give them such a monopoly 
 as to enable them to lay an export duty upon it, with- 
 out any immediate or remote injury to themselves. 
 
 The consideration which must determine the ques- 
 tion is simply this, — if cotton can be produced in 
 the TJtiited States so much lower than anywhere 
 else that the imposition of an export duty, say of 
 two cents per pound, would not affect its sale or the 
 demand for it in other countries, then the duty might 
 be laid, and the whole burden of it would fall on 
 the foreign consumer. The country would gain the 
 entire amount of the excise, and yet the producer 
 be in no degree injured by it. Such a result is pos- 
 sible in the future, since the advantages of our soil 
 and climate are so superior to those of an}' other 
 cotton-growing region, and the area upon which cot- 
 ton may be raised so extensive. 
 
 The area upon which the successful culture of 
 cotton may be carried on has been estimated at 
 666,196 square miles, while only 10,888 have as yet 
 been used. 
 
 From these facts it will l,e seen that the raisins: 
 
STATE TAXATION. 355 
 
 of cotton in the United States mugt eventually be 
 brought to the same general level of profits as other 
 branches of agriculture, and as its price in the mar- 
 kets of the world will be governed by the same law 
 as the price of wheat and similar products, it may 
 come to pass that it may be reduced so low, and yet 
 be as profitable as agriculture generally, that an ex- 
 cise duty might be laid upon it that would advantage 
 the nation to the full extent of its amount, and not 
 in the least injure the cotton grower. The future 
 will disclose whether such shall ever be the result. 
 
 CHAPTER XL 
 
 STATE TAXATION. 
 
 A GENERAL valuation of all real and personal prop- 
 erty is made by the authority of the State, accord 
 ing to which all State taxes are apportioned to each 
 county, city, or town. The municipal authorities 
 then assess the amount allotted them upon the prop- 
 erty and polls of their constituents, together with 
 the amount required for city or town expenditures. 
 
 Such taxes are direct, and laid wholly on property, 
 except the small amount of poll-taxes. There may 
 be some slight variation in different States from the 
 course we have stated; but it is quite unessential, 
 and does not materially change the grand result. 
 The law makes it the duty of each person to furnish 
 the assessors annually a true invoice of his estate, 
 
356 DISTRIBUTION. 
 
 and to its correctness he may be required to make 
 oath; and, if any person neglects or refuses to make 
 such inventory, the assessors make one for him, ac- 
 cording to their own judgment. 
 
 The rate of tax varies from year to year, and is 
 widely different in different towns and cities. Be- 
 fore the late war, the rate in Massachusetts was 
 seldom less than sixty, or more than one hundred 
 cents on a hundred dollars ; but such have been the 
 expenditures caused by the war, that few now have 
 a rate less than one hundred, and some have been 
 as high as three hundred and fifty, cents on the hun- 
 dred dollars. 
 
 This tax, if the valuation be fairly made, approxi- 
 mates to justice and equality. It is assumed that 
 every man's ability to pay is in proportion to the 
 property he holds; that his revenue corresponds 
 with his wealth. This may, or may not be true; 
 and, as we shall have occasion to show, there are 
 circumstances which disturb, to some extent, the 
 equal operation of this tax. 
 
 And here we may notice some of the objections to 
 this compound system of poll and property taxation. 
 Poll-tax payers vote directly upon the public appro- 
 priations, yet they have no personal interest whatever 
 in the amount of expenditures. No matter whether 
 a proposal to expend money is wise and necessary, or 
 frivolous and wasteful, the poll-tax payer can vote for 
 it with entire impunity. It is nothing to him whether 
 the sum be one thousand or ten thousand dollars. 
 Indeed, the influence of poll-tax payers is often in 
 favor of the most lavish expenditures. A new road, 
 for example, is proposed in town meeting. It may 
 
STATE TAXATION. 357 
 
 be quite unnecessary, and ought not to be made; 
 but the poll-tax payers, a large share- of whom are 
 laborers, will be immediately benefited by the de- 
 mand that will be made for labor, and will be very 
 likely to be in favor of it. It needs no argument to 
 show the bad effects of such a state of things, re- 
 garded onl}^ in an economical point of view. If 
 men may vote away money in the payment of which 
 they have no interest, is it likely to be done to the 
 advantage of the public ? Is it not certain that there 
 will be unwise and reckless expenditures ? 
 
 This false position of the poll-tax payer has at- 
 tracted the attention of those who are narrowly 
 watching the effects of equality of suffrage without 
 equality of taxation. The result of popular votes 
 during the civil war, by which immense, and often 
 quite unnecessary, burdens were imposed upon 
 towns, has caused no small anxiety among those who 
 have noticed the natural consequences of giving to a 
 class numerous and powerful, at the ballot-box, the 
 power to impose taxes upon the public, from which 
 they are themselves exempt. 
 
 On the other hand, the poll-tax payer, while he 
 contributes heavily towards the national expendi- 
 tures through customs and excise, has no direct vote 
 in regard to them, lie can vote where his own in- 
 terest would lead him to vote wrong, but has no 
 power to vote directly where his interest would lead 
 him to vote right. 
 
 The income tax principle, if universally adopted, 
 while it would doubtless relieve poll-tax payers of a 
 part of their present taxation, would, at the same 
 time, bring their interests into harmony with those 
 
358 DISTRIBUTION. 
 
 of property-tax payers, and thus promote the gen- 
 eral welfare of the public. 
 
 It hardly need be said that this form of taxation 
 is not in accordance with the maxims laid down by 
 Adam Smith ; those who pay it not having equal 
 ability, or enjoying " an equal revenue." It is a tax 
 founded on no sound principle whatever, and, if it 
 were the only tax imposed, would be as unjust as a 
 tax could well be. It forms, however, only a part 
 of a system which must be looked at in all its bear- 
 ings, in order to form a correct judgment of the 
 operation of this particular tax, which by law is a 
 limited one, determined by State legislation. In 
 Massachusetts, the maximum poll-tax is now fixed 
 at "not over two dollars," but maybe, as it has 
 been, changed from time to time. It has never, we 
 believe, been higher than at present. 
 
 The property- and poll-tax being the two modes 
 by which all revenues are raised by the individual 
 States, we will look for a moment at their operation 
 as between the difterent classes upon which they are 
 imposed. To do this, we refer to a valuation and 
 tax list before us, and find the following examples : 
 
 B. H.— Buildings and 45 acres of land . . $1000 
 Stock, etc 345 
 
 $1345. Taxes, $15.47 
 Poll, 2.00 
 
 T. G.— Buildings and 43 acres of land . . $1500 
 Stock 238 
 
 $17.47 
 
 $1738. Taxes, $19.99 
 Poll, 2.00 
 
 $21.99 
 
STATE TAXATION. 359 
 
 L. G. S.— Buildings and 56 acres of land . $1200 
 Stock 300 
 
 $1500. Taxes, $17.25 
 Poll, 2.00 
 
 $19.25 
 Average property, $1528. Average tax, $19.57. 
 
 We here find that these small farmers pay $19.57 
 each, equal to nine and a half times as much as the 
 poll-tax contributors. Does any one suppose that 
 the incomes of the former are nine and a half times as 
 great as the latter ? Let us test the question. 
 
 Suppose each of these farmers derives d^net income 
 of ten per cent, on his capital, over all outlays and 
 repairs, and that his labor is worth to him five hun- 
 dred dollars per annum. This is a large allowance: 
 
 Land and stock, as above, at ten per cent $152.80 
 
 His own labor equal to 500.00 
 
 Total income $652.80 
 
 I^ow, we will assume that the exclusive poll-tax 
 payers have an average income of four hundred dol- 
 lars. We include in this list not only all common 
 laborers, but skilled workmen, mechanics, and others 
 whose labor is worth, under a sound currency, $1.50 
 to $3 per day, and also all clerks, and others whose 
 salaries are six hundred dollars and under. Then 
 if these classes average four hundred dollars per 
 year, it will appear that while the income of the poll- 
 tax payf^rs is charged $2, these sni; 11 property 
 holders are charged $19.57, or six times as much as 
 they ought in proportion to pay. 
 
 A recent return made to the Legislature of Mas- 
 sachusetts showed that there were in the State 
 
860 DISTRIBUTION. 
 
 112,000 persons who paid only a poll-tax, and that a 
 majority of the voters in some of its chief cities 
 were of this class, and had, of course, the power by 
 their votes to determine the financial policy of the 
 cities in which they lived. 
 
 Effect of the Two Systems. — We are now able to 
 compare the results of the two different systems, 
 viz., national and State taxation. In the national, 
 we find that the greater part of all taxes are indirect; 
 the State and municipal taxes are, with slight excep- 
 tions, direct. The former fall almost wholly on con- 
 sumption ; the latter, upon property. The first is 
 unjust to labor, or the non-property-holding classes ; 
 the other is unjust to capital, or those who hold tax- 
 able estate. One operates as an offset to the other. 
 I^either is just in itself, nor does the action of the 
 two systems conjointly establish perfect justice, but 
 it approximates as nearly to it, perhaps, as any sys- 
 tem of taxation likely at present to be adopted. 
 
 TAXATION OF CREDITS. 
 
 It has sometimes been maintained that credits 
 ought not to be taxed, but all assessments be made 
 upon values, or property, personal and real. Taxes, 
 it has been argued, ought not to be laid upon per- 
 sons, but upon that out of which they can alone be 
 paid, viz., property. 
 
 But credits are taxed as well as values. A holds 
 a farm worth $10,000, mortgaged to B for |5000. A 
 pays taxes upon the whole valuation, and B upon 
 $5000, as money at interest. A, it is said, is doubly 
 taxed. This is a practical question that has often 
 
STATE TAXATION. 361 
 
 puzzled legislators. Let us. therefore, carefully ex- 
 amine it. 
 
 Suppose A and B aforesaid form an entire com- 
 munity, and that the whole tax of $150 is imposed 
 on property. The whole valuation will then be 
 $10,000 (A's farm), and the rate one and a half per 
 cent., which A pays, and B goes untaxed. We will 
 now change the principle, and have both property 
 and credits taxed. The valuation will then be, A's 
 farm, $10,U00, and B's money at interest, $5000 ; 
 total, $15,000 ; and, with the same amount to be 
 assessed ($150), the rate will be one per cent., of 
 which A pays one hundred, and B fifty, dollars. So, 
 then, we discover that A is not doubly taxed, as 
 assumed, but at the worst pays only twenty-five dol- 
 lars, or one-third more than his share. Such must, 
 in principle, be the result of this kind of taxation, 
 taking a whole community together. All the amount 
 taxed upon credit is so much relief to taxation upon 
 property. This seems to be clear; and the justice 
 of the thing is established by the fact that A bought 
 his fiirm knowing that it would be subject to a full 
 taxation, and bought it cheaper, as we have shown 
 in another place, on that account. B, on the other 
 hand, accepted his mortgage on the same ground, 
 knowing it would be subject to tax on the common 
 valuation. Is either party, then, wronged? 
 
 But perhaps another reason may be given why A 
 should pay taxes upon the whole value of his farm; 
 viz., that, having the usufruct of the whole, he is en- 
 titled to all the profits on the farm. "But he don't 
 own the whole of the farm." True, that is his mis- 
 fortune ; if he did, he would obtain a larger amount 
 
 31 
 
862 DISTRIBUTION. 
 
 of net profits ; but his obligation to pay tax on the 
 whole is not impaired because he has the use of a 
 part of B's capital. As the owner of the farm, A 
 has a chance for all the profits that can be made 
 from the whole, while, by the taxation of B on the 
 mortgage, the former saves a part of what he \vould 
 otherwise pay in taxes. One pays taxes for the 
 profits of business ; the other, for the income on his 
 capitah 
 
 In this case we find another very clear illustration 
 of the correctness of the income-tax policy. If there 
 were no other tax than upon income, the matter 
 would stand thus : 
 
 A's amount from his farm, say $900 
 
 He deducts the interest he pays B 800 
 
 A pays tax on his net income of 600 
 
 B's income is taxed as 300 
 
 Total income to be taxed $900 
 
 Amount to be raised, one hundred and fifty dollars; 
 of this, A will pay one hundred dollars and B fifty, 
 and there would be no question as to the justice of 
 the system b}^ which both were thus taxed. If A's 
 income should be more or less than nine hundred 
 dollars, he w^ould pay more or less, and B must pay 
 less or more accordingly. 
 
 In the absence of the income-tax principle, what 
 can be more equitable and just than the practice of 
 taxing both mortgagor and mortgagee ? If the 
 former \vere allowed to deduct from his inventory 
 the amount he owed the latter, it WT)uld often hap- 
 pen that, the mortgagee not living in the same town 
 or State, so much property w^ould escape taxation 
 
STATE TAXATION. S63 
 
 altogether. This in some communities, especially 
 our "Western States, would be a great evil. That 
 much hardship may often result from taxing credits 
 as well as property is undoubtedly true ; but that 
 only affords additional evidence that the income-tax 
 principle is the only correct one. Next to this would 
 be the levying of all taxes upon property exclusively ; 
 and if adopted at the very commencement of a 
 social organization, as at the landing at Plymouth in 
 1620, it would secure a just taxation, because all 
 property would be created, held, and transferred 
 under that well-known condition. 
 
 OUGHT GOVERNMENT BONDS TO BE EXEMPTED FROM 
 
 TAXATION. 
 
 The national securities are exempted by Congress 
 from all taxation by State and municipal authorities. 
 Is this a wise and just policy 
 
 The present debt (1871), if all funded, would 
 amount to about $2,300,000,000; at a low rate, the 
 interest must be abont $125,000,000, and so much 
 of annual income must, of course, escape taxation. 
 This, in many cases, would cause a very unequal 
 distribution of the public burdens. For example, 
 in a community where, as is often the case, the 
 chief wealth is in the hands of a few persons who 
 have succeeded in placing their funds in the national 
 stocks, the favored ones can vote for the most gen- 
 erous appropriations for any kind of public improve- 
 ments, and yet not be assessed a dollar for the 
 expense of making them. The poorer class of free- 
 holders, with their estates, perhaps, encumbered by 
 
364 DISTRIBUTION. 
 
 mortgage, find themselves taxed for every acre of 
 land, every horse, cow, and sheep they own, while 
 their rich neighbor is taxed upon nothing, because 
 he holds his property in United States bonds. It is 
 certainly very natural that those who are thus taxed 
 should feel themselves greatly wronged. They do 
 not see why the bondholder should not pay as well 
 as the landholder. 
 
 Setting aside all considerations of justice, and 
 regarding the matter only in an economical point 
 of view, we can perceive that by this exemption the 
 bondholder escapes his proper share of taxation, and 
 consequently may spend in luxurious gratifications 
 the amount he ought to contribute to the public 
 charges, while the less fortunate citizen , being obliged 
 to pay more than his true share of the public ex- 
 penditures, must deprive himself and family of 
 many things needful to their welfare and happiness. 
 One is made richer, the other poorer, than he ought 
 to be. This result cannot be for the public good, 
 and the glaring injustice thus inflicted becomes ap- 
 parent to every one. Hence the very general dis- 
 approbation with which this policy is regarded. 
 
 The apology for all this is the plausible argument 
 that if the bonds were not exempted. States and 
 municipalities might impose such taxes upon them as 
 to render them comparatively worthless, thus depriv- 
 ing government of the means of raising funds by the 
 issue of its bonds. That this is but a specious objec- 
 tion may be seen from the consideration that, to pre- 
 vent the possibility of such a result, Congress has only 
 to provide by law that none of its securities shall ever 
 be subjected to any higher rate of taxation than what 
 
STATE TAXATION. 365 
 
 is imposed upon all other property, personal and 
 real; that they shall be placed in general valuation 
 lists for taxation, and be assessed at a uniform rate. 
 The objection that the national government would 
 be obliged to pay a higher rate of interest, say six, 
 instead of five per cent., in consequence of this, has 
 no sufficient foundation, because the State govern- 
 ments and municipalities would gain the difference 
 by their increased valuation ; and, what is more im- 
 portant, justice would be secured to all parties con- 
 cerned. Each communitv would have its les^itimate 
 resources for taxation. The rate of interest paid by 
 the general government is far less essential than the 
 equality of the general taxation by which all public 
 expenditures, national, State, or municipal, are pro- 
 vided for. 
 
 With a single question we close the argument: 
 If the government of the United States can ne- 
 gotiate its bonds abroad, say at five and a half per 
 cent., and, at the same time, makes an exemption 
 of all local taxes upon the same, equal to at least one 
 and a half per cent, more, in consequence of which 
 the bonds are taken at home instead of abroad, do 
 not the several States lose in their revenues the full 
 amount of the exemption, without any advantage 
 whatever beiiig gained by the national government ? 
 
 CONVERSION OF THE NATIONAL DEBT. 
 
 We assume the national debt on the 1st of Jan- 
 uary, 1872, to be $2,300,000,000, and that the 
 annual interest hereafter will average at the rate of 
 ^ye and a half per cent., payable semi-annually. 
 
 31* 
 
366 DISTRIBUTION. 
 
 This is a liberal allowance for interest, since it is 
 sufficiently certain that the debt may be consolidated 
 at the rate of five and a half per cent, interest or 
 less, and of the principal, the sum of 400 millions at 
 present bears no interest at all. 
 
 With such data, we say that should Congress ap- 
 propriate the sum of $150,000,000 annually for the 
 payment of the principal and interest, the whole 
 debt would be liquidated at the end of thirty-three 
 years and ten months, or during the year 1905.* 
 
 The interest actually paid the last year was, in 
 round numbers, $125,000,000. In order to clear off 
 the debt, it would only be necessary to pay 25 millions 
 annually more than we must certainly pay while the 
 present debt lasts. 
 
 The precise burden, then, which the country will 
 assume if it undertakes to free itself from its pres- 
 ent indebtedness, is the payment of 25 million dol- 
 lars annually; no more, no less. 
 
 That a national debt is an unmitigated evil, a con- 
 stant drain upon the'public treasury, a continual ex- 
 pense for its management, an unceasing source of 
 official corruption, and a certain cause of weakness 
 and danger in case of war or any unlooked-for ca- 
 lamity, is quite too obvious to need proof: we there- 
 fore turn to the consideration of the practicability 
 of liquidating it, and the benefits that would result 
 from such a measure. 
 
 1. Its 2^TaciicahUiti/. — If the payment, as we have 
 seen, of 25 millions each year will secure the extin- 
 
 * Tor this computation we are indebted to the kindness of E. 
 B. Elliott, Esq., the able statistician of the Treasury Department 
 
STATE TAXATION. 367 
 
 guishment of the debt in thirty-three years and ten 
 months, and we assume that the population in the 
 mean time was but 40 millions, we shall find that 
 the annual tax per capita would be but sixtij-tioo and 
 a half cents, equal to one and a quarter cent per 
 week to each inhabitant. But instead of 40 millions 
 we maj' be sufficiently certain that the average num- 
 ber during the whole time will be 50 millions, re- 
 ducing the contributions to one cent per week. 
 
 Such w^ould be the extent of the effort required 
 to discharge the public debt within the period men- 
 tioned. Can any reasonable man doubt that the 
 people of the United States can make this effort 
 without any distressing sacrifice or painful self- 
 denial ? that they can save the almost infinitesimal 
 sum we have indicated without Sinj disturbance to 
 the trade and industry of the nation ? 
 
 2. Results of paying the deht.-^A.\t\io\\g\\ thus easily 
 accomplished, the result of doing this w^ould be no 
 Jess than the conversion of $2,300,000,000 of mere 
 debt, which produces nothing whatever, into capital 
 that would of necessity be employed in the active 
 industries of the nation ; because, as the bonds were 
 discharged from time to time, those who had held 
 them (as all do as a source of income) w^ould, of 
 course, seek some other mode of investment, and 
 railroads, manufactures, commerce, and agriculture 
 would be benefited to the full extent of the additional 
 investments thus made in them; consequently the 
 productive power of the nation would be enhanced 
 by this increase of its resources to the extent of over 
 two thousand millions of effective capital. 
 
 If it be urged as an objection to this view of the 
 
368 DISTRIBUTION. 
 
 subject that a considerable part of our national debt 
 is held abroad, and therefore the payment of it would 
 prove injurious, it may be replied that when that 
 part of the public debt were paid otl", a large share 
 of the amount would undoubtedly be reinvested in 
 this country in the various State and railroad stocks 
 and bonds that are sure to be in market; if not, 
 and the funds necessary to meet them were remitted 
 i } Europe, the practical effect would be to restrict, 
 for the time being, the importation of foreign com- 
 modities, a result by no means undesirable under 
 such circumstances. 
 
 In whatever way we regard the proposal for a 
 gradual but certain annihilation of the national debt, 
 it must be apparent to all intelligent minds that its 
 conversion into business capital will be the result, 
 and the nation be greatly benefited thereby. 
 
 CHAPTER XII. 
 
 FOREIGN INDEBTEDNESS. — I. ECONOMY OF FOREIGN IN- 
 DEBTEDNESS. 
 
 Pecuniary obligations, between different nations, 
 may be of four different kinds: 
 
 1st. Individual Indebtedness. — This can only be of 
 limited and temporary duration, since it must soon 
 be paid or wiped out by insolvency. 
 
 2d. Corporate Indebtedness. — This is of two kinds : 
 (a) the bonds or other obligations of incorporated 
 
FOREIGN INDEBTEDNESS. 369 
 
 companies formed for industrial purposes, the build- 
 ing of railroads, etc. ; and (6) the bonds of munici- 
 pal corporations, cities, towns, and counties. These 
 have been issued to an enormous extent in the United 
 States, and a large amount have been disposed of 
 abroad. 
 
 3d. State Indebtedness. — Nearly all the States of the 
 American Union have contracted debts and issued 
 coupon bonds, which, to a considerable extent, have 
 been sold abroad. These rest upon a different foot- 
 ing from the preceding, since they cannot be en- 
 forced by any legal process. They are secured only 
 by the honor of the promisor. 
 
 4th. National Indebtedness. — Great Britain has a 
 debt, as heretofore stated, of eight hundred millions 
 sterling ; but it is almost entirely held at home. The 
 rate of interest on her consols is only three per cent., 
 and there is little inducement for capitalists in Amer- 
 ica to invest in them ; but it is quite otherwise with 
 the United States. Interest here is at least six per 
 cent, on the best securities. 
 
 It is generally estimated that about one thousand 
 millions of the bonds of the United States have 
 gone to Europe. 
 
 II. THE EXPORTATION OF PUBLIC STOCKS. 
 
 Whether the sale of such stocks abroad is desir- 
 able or not, will depend entirely upon the character 
 of the commodities sent in return for them, whether 
 these be for advantageous or disadvantageous con- 
 sumption ; and this again will depend upon the 
 financial and commercial condition of the country 
 
370 DISTRIBUTION. 
 
 from which they are sent. Suppose one hundred 
 millions sent to England, and returned in railroad 
 iron, which, put into use, pays a net income of ten 
 per cent., besides facilitating the transport of cotton 
 and wheat, and thus adding to the national wealth. 
 As these stocks pay the American holders but six 
 per cent., and by selling them and investing the 
 amount in railroads they get ten, there is a clear 
 gain in income of 66| per cent. The foreigner, on 
 the other hand, who could only get four per cent, 
 for his money in home investments, now gets six, an 
 improvement upon his income of fifty per cent. 
 Both parties are benefited. On the other hand, if 
 the amount sold were returned in fancy goods, jew- 
 elry, etc., which increased the consumption of lux- 
 uries, but in no way contributed to reproduction, 
 the country would in a short time be poorer to the 
 whole amount. The foreigner would hold his bond, 
 and get his interest, but the American would have 
 nothing to show for it. Or stocks may be exported 
 in payment for an actual balance of trade. If, with 
 all our export of commodities and specie, there still 
 remains an adverse balance, American stocks of one 
 kind or another may be sent and sold to adjust it. 
 By this last operation the debt is merely " extended" 
 or postponed ; and as the interest upon this must 
 be annually paid, a larger export of commodities, 
 specie, or stocks must be made in the future. 
 
 FALLACIES RESPECTING FOREIGN INDEBTEDNESS. 
 
 ITo sentiment or opinion is more common, per- 
 haps, among the people, than that it is very unde- 
 
FOREIGN INDEBTEDNESS. 371 
 
 sirable, or dangerous even, to have the national 
 debt held abroad. Is this opinion well founded ? 
 
 1st. A debtor cannot always choose who his 
 creditor shall be. If deeply involved, those will 
 hold his securities who are most able to hold them. 
 They will, like commodities, go where they are 
 most wanted, where they will bring the highest 
 price. 
 
 2d. It makes little difference to the debtor, if he 
 can meet his obligations when due, who may hold 
 them. There is no friendship in trade. Native or 
 foreigner will alike demand his pay, when he has a 
 rifi-ht to do so. 
 
 If these propositions are true, we see that it is 
 quite impossible to prevent foreigners from pur- 
 chasing our national securities, and of little impor- 
 tance if we could. It is a great misfortune that we 
 are deeply in debt as a nation. If that indebtedness 
 were wholly to our own people it would be quite 
 favorable ; for then, as a people^ we should owe 
 nothing at all, since what was to the debit of one 
 citizen would be to the credit of another; but if 
 this cannot be, and if capital is worth more to us 
 than it is to others, then is it not fortunate if others 
 are ready to loan us theirs, that is, are ready to 
 take our public indebtedness? As an admitted 
 fact, the use of capital is about twice as valuable in 
 the CTuited States as in England : why, then, should 
 we not allow Englishmen to h )1(1 our public debt? 
 
 A foreign loan to the United States government 
 of one hundred millions in the latter part of 1861 
 would have saved the country several hundred mil- 
 lions, inasmuch as the suspension of specie payments 
 
372 DISTRIBUTION. 
 
 might thus have been postponed for a twelvemonth, 
 and, perhaps, even been avoided through the war. 
 By this means the prices of all the government had 
 to purchase would have been kept down to the 
 natural standard. This measure, if accompanied 
 with the expulsion of all bank currency from circu- 
 lation, and with the issue of government notes to 
 take their place so far as desirable, would, in the 
 end, have saved a great part of the present national 
 indebtedness. 
 
 From whatever point of view we may look at the 
 subject, we find there can be no well-founded ob- 
 jection to the sale of American stocks in Europe. 
 On the other hand, such a sale of them must be 
 advantageous, lohen made under a sound currency. 
 
 FALLACIES RESPECTING A NATIONAL DEBT. 
 
 1st. That a national debt is public wealth. 
 
 " The funded debt of the United States is, in effect, the addition 
 of three thousand millions to the realized wealth of the nation. 
 . . . Itis three thousand millions added to its available capital.'-'* 
 
 If this is so, it is fortunate, so far as the financial 
 condition of the country is concerned, that the Re- 
 bellion took place ; that it continued so long and 
 cost so much. Had it lasted long enough to have 
 made the debt tenfold greater than it now is, the 
 *' available ca[>itar' of the nation would have been 
 correspondingly enlarged; and, of course, its power 
 
 * See pamphlet issued by " Jay Cooke, General Subscription 
 Agent for the Sale of Government Bonds," entitled, "How our 
 National Debt maybea National Blessing." Philadelphia, 1865. 
 
FOEEIGN INDEBTEDNESS. 373 
 
 of production so much increased. It must be a 
 misfortune, economically considered, that the war 
 closed so early. But let us examine into the truth 
 of the assertion that " a national debt is public 
 wealth." 
 
 How was it created, and for what ? 
 
 It was contracted for war expenditures. The 
 operation was simply this: A certain part of the 
 people, having the ability to do so, furnished the 
 nation with the means to carry on the war. These 
 persons became the creditors of the government, 
 and they now hold the public stocks. All the rest 
 of the people are debtors, and jointly owe the 
 amount of the debt. It is a lien upon estates, per- 
 sonal and real, and must remain so until liquidated. 
 Are those who are the debtors to the bondholders 
 any richer in consequence of the existence of the 
 public debt? Certainly not: they are just so 
 much poorer. They must subtract from their in- 
 comes, each year, so much as they have to pay 
 for interest on the national debt. Are the bond- 
 holders any richer in consequence of the creation 
 of this debt? If they actually loaned money, that 
 is, coin, as some did in 1861, for which they are 
 receiving only the usual rate of interest, they are 
 neither richer nor poorer for the operation. They 
 have got public, instead of private, securities for 
 their funds. If they subsequently loaned mere 
 credit currency, or capital at prices advanced in 
 consequence of the depreciation of the currency, 
 then, in so far, they gained what the government 
 lost, or, rather, what that part of the people lost 
 who must pay the debt and interest. There was no 
 
 32 
 
374 DISTRIBUTION. 
 
 increase of wealth in consequence of the increase 
 of prices, but merely a transfer of commodities from 
 one party to another, without an equivalent. 
 
 But "the national debt is public wealth." Then 
 it follows that if the national debt w^ere repudiated, 
 the nation would be poorer by its full amount. Js 
 that so ? Surely not. The holders would be poorer, 
 doubtless, by the amount of their bonds, wdiich en- 
 title them to interest semi-annually, and linal pay- 
 ment in gold; but just what they lost their debtors, 
 the public, would gain, and the general wealth of 
 the nation would not be affected to the amount 
 of a dollar, except that in so far as the debt was 
 due to persons abroad, the repudiation of it would 
 save that amount to the nation. Other than this, 
 neither the security nor the insecurity of the national 
 debt has tlie least effect in determining the national 
 wealth. 
 
 2d. But, again, it is said that " the debt is active, 
 auailabte capital;'' and, in illustration, it is said '' that 
 a man having, say, twenty thousand dollars of tlie 
 bonds, can engage in any kind of business at once, 
 just the same as if he had so much cash capital." 
 
 ^ow, what is the fact? The bonds being good 
 securities, the holder can exchange them for cash, 
 and with this can obtain any description of capital 
 he may need. The bonds, then, are not capital, but 
 only the security upon which capital may be had. 
 If the holder had notes against individuals of 
 unquestionable credit, he could do the same. Art 
 private notes, then, capital? Surely not. 
 
 So far from aiding production, a national debt has 
 an effect directly opposite. It depresses industry by 
 
FOREIGN INDEBTEDNESS. 375 
 
 the taxation it imposes, and reduces its power to 
 compete with other countries. 
 
 3d. The third fallacy is, that a public debt gives sta- 
 bility to government. 
 
 Upon what should the security of a government 
 depend ? Evidently upon the convictions of the 
 people that it is a good government; that it secures 
 to them life, liberty, and the pursuit of happiness. 
 Any people who know they have such a government 
 will need nothing to assure their loyalty and attach- 
 ment. Where government rests upon universal 
 suffrage, the power is wholly in the hands of the 
 people, and no law or constitution can have any per- 
 manency that does not receive their approbation. 
 Anything that is regarded as oppressive and unjust 
 will certainly be abolished. 
 
 France has a large national debt; yet her govern- 
 ment has been revolutionized time and again with- 
 out any reference to that fact, and without at all 
 disturbing the security of the rentes. National 
 debts will be paid, if the people please to pay them; 
 and governments will be sustained, if the people 
 choose to sustain them. 
 
 Besides, it is, and always will be, true, that the 
 number of those who have neither direct nor indi- 
 rect interest in the public debt is far greater, prob- 
 ably five to one, than those who are interested as 
 holders of the stocks, or depositors in savings banks 
 who have funds invested to some extent in the pub- 
 lic securities ; and, in a great majority of cases, those 
 who are thus indirectly interested are so only to 
 such a limited extent that they would be actual 
 gainers if the debt were repudiated, since 'they 
 
376 DISTRIBUTION. 
 
 would gain more from their consequent exemption 
 from taxation than they would lose by the non- 
 payment of the national debt. 
 
 4th. A fourth fallacy is that a national debt in- 
 sures protection to home industry, since the heavy 
 taxation it causes will, if laid on foreign goods, se- 
 cure that object. Having already discussed the 
 question of protection, we need not now enter upon 
 it, but remark that a large national debt does not 
 make it certain that there will be a high protective 
 tariff. Great Britain has the largest debt of any 
 nation in the world, yet she has abandoned her pro- 
 tective system. She has become satisfied that such 
 a luxury is too great a hinderance to her commer- 
 cial prosperity, too heavy a burden upon her home 
 industry. 
 
 5th. But, again, it is said that a national debt is 
 desirable as a basis for a national currency. That 
 this is an idle assumption we have already endeavored 
 to show. JSTo such foundation is needed for any cur- 
 rency which the good of a nation demands. It is a 
 false and pernicious system which requires any con- 
 nection with national indebtedness. Debt is no 
 sound basis for banking. Banks should be created 
 to loan capital tliat exists, not debt for capital that 
 has disappeared. 
 
 6th. We will briefly notice one other fallacy in 
 regard to a national debt ; viz., that the generation 
 which contracts it is under no obligation to pay it; 
 since, having been contracted for the good of the 
 country, posterity ought to share, at least, the bur- 
 den of it. What is the principle involved in this 
 statement? Clearly, that one generation has the 
 
MODERN FINANCIAL SYSTEM. 377 
 
 right to create a debt for such purposes, and to such 
 an extent, as it deems best, and impose on another 
 the payment of the whole, or of such part as it does 
 not choose to discharge out of its own resources. 
 Can this be so ? Would it not follow from this that 
 one generation has the right to enslave another, 
 since, if it can impose a tax, it can enslave ? for, to 
 the extent of the tax, it is slavery, or labor taken 
 without compensation. Suppose the tax carried to 
 such an extent as to consume all the products of the 
 laborer over that which is absolutely necessary to 
 existence. If the present generation may lay a tax 
 of ten dollars on each producer for all time to come, 
 it may lay one of a hundred dollars, or a thou- 
 sand. If it may take away a fourth of a man's in- 
 come, it may take a half, or why not the whole ? 
 The right to tax posterity at pleasure is the right to 
 establish a most terrific despotism ; and yet this is 
 one of the popular sophisms of the present day. 
 
 CHAPTER XIII. 
 
 RISE AND GROWTH OF THE MODERN FINANCIAL 
 
 SYSTEM. 
 
 No large national debt has ever been paid, or in 
 any way discharged, except by repudiation. The 
 debt of the old French monarchy was wiped out 
 with the " assignats." The debt incurred in the 
 American Revolution vanished in worthless ^'con- 
 
 32* 
 
378 DISTRIBUTION. 
 
 tinental money." The present debts of England, 
 France, Austria, and other European countries are 
 so large, the constantly-increasing demand for more 
 extensive and costly armaments so pressing, so abso- 
 lutely overwhelming, that the hope of any payment 
 of the principal cannot be reasonably indulged. 
 
 That general system of finance, of which national 
 indebtedness forms so important a fact in its influ- 
 ence upon the industrial interests of mankind, de- 
 serves a careful consideration. 
 
 When William of Orange succeeded to the throne 
 of England, Louis XIV., then at the zenith of his 
 power, refused to acknowledge him as a legitimate 
 monarch, and espoused the cause of the exiled 
 Stuart. War, of course, followed. But fighting, in 
 consequence of the invention of gunpowder, and 
 the changes it gradually introduced into warfare, 
 had become a costly indulgence ; a game which 
 kings, with their limited and uncertain revenues, 
 could ill afford to play at, particularly for a great 
 length of time. War with one so powerful as the 
 Grand Monarque could not be safely commenced or 
 successfully prosecuted, while every penny must be 
 extorted from a reluctant and now independent 
 Commons, and the taxes immediately assessed on 
 the large land or other property holders of the realm. 
 
 Such was the difficulty which King William en- 
 countered; but, fortunately for his fame, he was a 
 shrewd financier, as well as an able soldier. Up to 
 this time, England had never had a permanent or- 
 ganized national debt, a national bank, or any regu- 
 lar and reliable system of revenue. Grants and 
 subsidies had been voted occasionaMy; duties and 
 
MODERN FINANCIAL SYSTEM. 379 
 
 special taxes had been imposed ; but these were not 
 to be depended upon. 
 
 The monarch might and did borrow money from 
 time to time, in great emergencies, but on the most 
 disadvantageous terms. The credit of the govern- 
 ment was always low, because there was no regu- 
 larity or system in the public finances. Men had 
 no confidence in the responsibility or punctuality 
 of the government. William changed all this. He 
 borrowed for a specified period, and promised the 
 punctual payment of the interest semi-annually, and 
 the principal when due; and pledged ^'the public 
 funds" for the fulfilment of his promises. 
 
 He negotiated loans and issued stocks. He granted 
 annuities, upon the payment of specific sums. In- 
 terest and principal were secured by a pledge of 
 the public funds, or revenues derived from specific 
 sources. This put a new face upon the financial 
 affairs of Ens^land: but somethino: further was de- 
 sirable; viz., an agency by which the national debt 
 would be readily managed, and its semi-annual in- 
 terest promptly paid. This was accomplished by 
 the incorporation of a national bank, consisting of 
 the holders of the public stocks, to the amount of 
 £1,200,000. 
 
 One thing more was wanting; viz., a permanent 
 and sufficient income, to meet not only the interest 
 on the accumulated debt, but the current expenses 
 of the government, already large, and constantly 
 increasing. To effect this, a land-tax was estab- 
 lished; small, indeed, in amount, and upon o. fixed 
 valuation, so that it could not be increased with the 
 increasing value of the land. 
 
380 DISTRIBUTION. 
 
 A tarifi'of duties on all imports was also introduced, 
 and an excise laid upon all home 'manufactures and 
 products. In short, a system of indirect taxation was 
 adopted, far more general and effective than any 
 which had before existed. 
 
 Thus was completed the grand triad of the system 
 of finance, inaugurated by the English Kevolution ; 
 viz., — 
 
 FUNDING, BANKING, AND INDIRECT TAXATION. 
 
 The immediate, as well as ultimate, results of the 
 new financial policy are alike remarkable and worthy 
 our attention. 
 
 1st. The credit of the government was now firmly 
 established. 2d. It could carry on war by borrow- 
 ing money instead of imposing taxes. 3d. This re- 
 moved the fear of oppressive taxes upon the land- 
 holders and other wealthy persons, because the 
 larger part of the taxation fell upon the masses of 
 the people, w^ho were obliged to pay not in propor- 
 tion to property, but consumption. The new policy 
 was especially acceptable to the aristocracy, who at 
 that time even more than now monopolized those 
 public offices whose emoluments and patronage 
 were increased by the increased war expenditures 
 of the government. 
 
 In the subjoined diagram, we have an exact and 
 comprehensive history of the British national debt, 
 in its origin and progress. And the historj^ of this 
 debt is the history of every other national debt. All 
 have originated in war, have grown by successive 
 wars, and have not been discharged in time of peace, 
 
DIAGRAM N°. 6. 
 Rise and Growth of the British National Debt. 
 
 1688 English Revolution ^ IVilliam and Mary. 
 
 War with Louis XIV. 
 
 1697 
 
 Feace. 
 
 171 3 War of the Spanish 
 Succession. 
 
 Thirty Years' Peace. 
 
 1739 
 
 War with Austria, 
 
 1756 Seven years' war with_ 
 France, 
 
 1763 
 
 Feace, 
 
 Avterican Revolution, 
 
 1793 
 
 War of the French 
 Revolution. 
 
 V&^flPeace of Amis. 
 XmZWar with the. 
 
 1815 
 
 1846_ 
 
 -Willtam III.- 
 
 -George I.- 
 
 George II. 
 
 George II. 
 
 George II. and III. 
 
 William IV. 
 
 803 Millions Sterling. 
 
 Victoria. 
 
 * Emancipation of the West Indies. 
 
MODERN FINANCIAL SYSTEM. 383 
 
 because the nations involved in them have squan- 
 dered their resources in preparations for future wars. 
 
 Hence this diagram, in all its essential features, 
 represents them all with equal correctness. 
 
 In connection with this policy of permanent na- 
 tional indebtedness, and the system of funding, in- 
 direct taxation, and paper-money banking growing 
 out of it, we now turn to consider 
 
 THE RESULTS OF THIS FINANCIAL SYSTEM. 
 
 1st. An immense extension of the ivar system. Prior 
 to the introduction of this policy, standing armies 
 and armaments were exceedingly limited. Now all 
 Christendom is armed, by land and sea. 
 
 2d. Universal and constantly increasing indebtedness. 
 This is true of nearly every country in the world. 
 England, indeed, has not increased her debt for the 
 last thirty years ; but almost every other govern- 
 ment has been borrowing money from year to year, 
 until many of them are as much burdened by their 
 indebtedness as England, because, in proportion to 
 their wealth and resources, they are as deeply in- 
 volved. 
 
 3d. Impoverishment of the masses. This is especially 
 apparent in England. What has become of that 
 YEOMANRY, oucc the pride of the country ? Their 
 little estates have disappeared, have been swallowed 
 up by the terrible system of taxation to which they 
 have been subjected. The pleasant hedges which 
 still surround the small inclosures, once constituting 
 the freeholds of her yeomanry, may yet be seen in 
 all parts of the country. They are the monuments 
 
884 DISTRIBUTION. 
 
 of an industrious, brave, and independent class of 
 men, now extinct. These lands are indeed tilled by 
 the hands of their descendants, no longer yeomanry, 
 but peasants, almost the paupers of the nation. How 
 strikingly true this is may be seen in the fact that 
 there are but one-third as many " holdings" at the 
 present time as one hundred and fifty years ago, 
 while the wealth and population of England have 
 doubled many times. 
 
 The economy of a national debt, under the modern 
 financial system, must always impoverish the pro- 
 ductive classes. Its entire influence on them is op- 
 pressive. It deprives them of their honest reward 
 by a false currency, which robs them of a large share 
 of their nominal wages; it imposes upon them, 
 through indirect taxation, an undue proportion of 
 the public burdens, and is, in fact, a stupendous 
 enginery for depressing them, though perhaps not 
 so intended. 
 
 CHAPTER XIY. 
 
 ON THE LAWS OF INHERITANCE AND BEQUEST. 
 
 Men die, and the property they had acquired or 
 held during their lives must pass into the possession 
 of others. May the person who is about to leave 
 the world say to whom his wealth shall immediately 
 descend? May he go further, and say to whom it 
 shall descend for all coming time? May he go 
 
INHERITANCE AND BEQUEST. 385 
 
 further still, and determine what specific use shall 
 be made of his wealth forever? Or shall the laws 
 of the State decide the questions, — to whom, for 
 what purposes, and for how long, the wealth of de- 
 ceased persons shall descend ? Does the world and 
 its wealth belong to the living or the dead, or to 
 both in common ? If to both, what portion should 
 belong to each ? Which party, the living or the 
 dead, will most intelligently decide how wealth can 
 be advantageously employed in production, or in 
 any other mode, for the benefit of the living? 
 
 These are the points involved in the subject of 
 Inheritance and the testamentary disposal of prop- 
 ert}^, and are important in an economical point of 
 view, irrespective of all other considerations. These 
 questions have been practically decided by the laws 
 and institutions of society in difi:erent ages and 
 countries. Governments have always interfered in 
 regard to the estates of deceased persons to such an 
 extent as to prescribe limitations and conditions. 
 So far as these have been in harmony with instincts 
 of humanity, and the laws of value, they have been 
 beneficent in their operation. But all the wealth, 
 all the institutions, all the interests of society, should 
 ever be regarded as fully under the control of the 
 existing generation of men. This should be a fun- 
 damental principle in civil polity ; and, if law^ may 
 interfere in this matter at all, it may do so to any 
 extent the public interest shall demand. 
 
 It has been said that nothing is more unwise than 
 to attempt to bind posterity with parchment; and 
 the more enlightened the public mind becomes, the 
 
 33 
 
386 DISTRIBUTION. 
 
 more apparent will be the utter folly of allowing the 
 past to govern the present. 
 
 In some countries, the laws have not only provided 
 for the manner in which wealth may he disposed of 
 by testamentary provisions, but have often ordained 
 that certain estates shall he inalienable. Thus, the 
 landed property of a people, seized by violence, has 
 been made a perpetual inheritance to the favored 
 parties and their descendants forever. This class of 
 persons has often been invested with the powers of 
 government; and class legislation has strengthened 
 and increased what force or fraud had achieved. 
 
 So far as a class, more or less strictly limited, or 
 highly distinguished, reaches a position of property 
 or influence by moral perfections, by high intel- 
 lectual endowments, or by successful business oper- 
 ations, agreeably to the laws of wealth, and under 
 the test of ordinary competition, it is not taken out 
 of the principles heretofore laid down. But so far 
 as it has been placed arbitrarily in the possession of 
 large proprietors, and maintained so by thwarting 
 the action of natural laws, it is by that removed from 
 the primitive rule of distribution, and requires to be 
 separately considered. We shall regard it only from 
 an economical point of view. 
 
 By an order of things in which we see great 
 benevolence, no family or class is able permanently 
 to secure the integrity of its estate. Otherwise, 
 property would tend to aggregate itself, so as to 
 crush competition, and leave the greater part of the 
 world destitute. As it is, the foolish son dissipates 
 the gatherings of the wise father, and alienates the 
 lands that have been annexed, acre after acre, by 
 
INHERITANCE AND BEQUEST. 387 
 
 prudence and frugality. A single break in the suc- 
 cession of industry and economy will scatter the ac- 
 cumulations of ages. This liability of the rich is the 
 property of the poor. Just as surely as the lapse of 
 ages wears down the craggy mountain-tops to form 
 the soil of the humble valleys, so surely do aggrega- 
 tions of wealth gravitate every hour to the general 
 level. 
 
 To contravene this provision of nature, the law of 
 the land often shuts in these estates by arbitrary 
 enactment or judicial interpretation, and so keeps 
 out the busy, unrelenting competition, which other- 
 wise would, sooner or later, bring the proudest struc- 
 ture to the ground. All such legal arrangements 
 may be summed up in — 
 
 THE LAWS OF PRIMOGENITURE AND ENTAIL. 
 
 1st. Of the rightfulness of such laws. 
 
 In the order of nature, no man brings with him 
 into the world a store of wealth for his subsistence 
 and support through life, or finds it w^aiting especi- 
 ally for him. His means of livelihood ai'e to depend 
 on the inborn faculties of appropriation, on the store 
 of wealth already existing from which these may 
 draw, and on the natural agencies of production 
 which they may employ. But if the latter condi- 
 tions are removed, and the man is forbidden access 
 to the fields of labor, he is condemned to be desti- 
 tute, in a greater or less degree, no matter how well 
 endowed, or how fully he obeys all economic laws. 
 With these open to him, he is certain of success. 
 It matters not at all, that all the wealth of the world 
 
3^8 DISTRIBUTION. 
 
 is now taken up, that every inch of ground is pos- 
 sessed. Though utterly without legal claim, he is 
 yet, in his faculties of industry and appropriation, 
 sure to become the owner of some part of it, at least 
 sufficient for his wants. 
 
 In the state of nature, man enters on life, feeble 
 and destitute, but with powers of absorption and 
 assimilation. These, not human charity or human 
 justice, award the world's wealth, and sustain the 
 lives for wise purposes created. 
 
 Injustice and mischief are done by laws of primo- 
 geniture and entail. So far as they operate, they 
 shut off the industry of the world (and the wants 
 which that industry must supply) from its proper 
 field. We have said that the liability of w^ealth to 
 dissipate is the property of the poor. It is so. A 
 man entering the world may have no claim to any 
 share of its previous gains; but he has a claim to a 
 chanceat them. This is the provision nature has made 
 for his maintenance. This is his inheritance. He 
 has a right, at least as complete as the plant, to get 
 his growth and his support out of the soil about 
 him. There is nothing in this view agrarian or 
 communistic. It admits that property should be 
 sacred ; but it asserts that it should be alienable. 
 The right of property does not include the right of 
 the wise to get wealth, and of fools to keep it. To 
 shut up any part of the world, for the benefit of one, 
 is to rob all others, not of it, but of their chance to 
 acquire it lawfully. A system of entail dwarfs all 
 existing industry, so far as it operates. 
 
 2d. But, besides the general objections to such a 
 system on the grounds of justice, we meet cer- 
 
INHERITANCE AND BEQUEST. 389 
 
 tain considerations of expediency that deserve 
 notice. 
 
 (1) The capital thus kept together by laws for- 
 bidding alienation is often so large that it cannot 
 be managed by individuals for the best economic 
 advantage. Of course, a government might provide 
 for the preservation of properties not excessive. But 
 it is not such that have been made perpetual ; and 
 there can be no occasion to lock up, in this way, 
 moderate estates. Great accumulations will be made 
 under any free and peaceful government; and it is 
 neither the right of government, nor the interest of 
 society, to interfere to scatter them. The sacred- 
 ness of property makes a greater demand than the 
 mere productiveness of capital. Besides, this has 
 been collected, and is kept together, by economic 
 virtues, which should ever receive their natural re- 
 ward. But it is not in the order of things that such 
 mountains of wealth should remain. 
 
 (2) Such aggregations of wealth destroy, in great 
 part, the desires which lie at the root of all activity. 
 The spring of industry is want. Let us take into 
 calculation the sum of one million of dollars. It 
 cannot be doubted that this, as a reproductive 
 agency, would be quickened by more desires if in 
 the hands of one thousand men, than if in the hands 
 of only one hundred. Certainly the necessities of 
 each will be more pressing: why not his activities 
 more aroused ? How much mightier, then, the cur- 
 rent of energy with which the greater body moves 
 on to its object! 
 
 On the other hand, if we suppose the sum to be 
 vested in the possession of one person, we shall have 
 
 33* 
 
890 DISTRIBUTION. 
 
 the desires greatly weakened. This is not the man 
 who, "from the rising of the lark to the lodging of 
 the lamb," toils with unrelaxed nerve; to whom 
 every gain is needful bread ; from whom every sav- 
 ing removes a pain. 
 
 Erskine, as his courage sank in dismay on his 
 first pleading, seemed "to feel his children pulling 
 at his gown," and so took heart to go on. Every- 
 where it is the hands of the little ones, plucking at 
 the sleeve, that elevates labor into heroism. 
 
 (3) Such aggregations draw off an undue propor- 
 tion of wealth into luxuries. This is the necessary 
 consequence of what has just been exhibited ; while 
 it& own results will appear more specially in the de- 
 partment of " Consumption." 
 
BOOK V. 
 
 OOIsrSTJIMIIE'TIO IsT. 
 
 CHAPTER I. 
 
 DIVISIONS OF THE SUBJECT. ' 
 
 Consumption is the use of wealth. It is precisely 
 the converse of production. If production were, 
 on the one hand, the creation of an article, consump- 
 tion would be its annihilation. But as human labor 
 cannot bring one atom into existence, so neither can 
 it return one to nothingness. Since man's efforts 
 expend themselves in arranging matter into certain 
 desirable forms, so man's satisfactions do, directly or 
 indirectl}^, soon or late, exhaust those properties or 
 peculiarities of form that have been imposed on 
 matter; and leave it, in the act and for the time, 
 vacant of the elements .of value. This result is 
 reached in the consumption of wealth. 
 
 There can be.no use of wealth, without this 
 change of form ; while the merest change of form 
 oftentimes answers all the conditions of consump- 
 tion. This consumption may be for any purpose, — 
 for luxury, wastefulness, or reproduction ; may be 
 within any time, — from the slow wear of the pre- 
 
 C891) 
 
392 CONSUMPTION. 
 
 cious metals to a perishing that is almost simulta- 
 neous with the making; may be in any degree, — 
 from a total disappearance, as when wood is burned, 
 to a change which the most practised eye can hardly 
 detect. 
 
 The seed is consumed when it is planted in the 
 ground to bring forth one hundred-fold. The cigar 
 is consumed when it goes off in smoke. 
 
 Such consumption of wealth is constantly taking 
 place in industrial society; and in this light we see 
 the great importance of the principles which govern 
 in this department: what momentous decisions are 
 made at each change of the form imposed by labor 
 on matter; how the wealth of the world goes up or 
 down, with the new direction given it. 
 
 It would be impossible to give a catalogue of all 
 the distinct acts of consumption that take place in 
 the narrowest field and in the shortest time. It 
 might be even impossible to decide distinctly when 
 any one of them actually began or ended ; so that, 
 if the science depended on determining them accu- 
 rately, we should be forced to close our inquiries at 
 once, as useless. No eye can detect their processes; 
 no thought can reach down to the real spring of 
 economical life. But we can find in the general 
 results, as they come out in national or individual 
 experience, enough for practical instruction and 
 guidance. 
 
 The consumption of wealth may be regarded as 
 of three kinds, — mistaken, luxurious, and public 
 consumption. We shall speak of them in that 
 order. 
 
MISTAKEN CONSUMPTION. 393 
 
 I. MISTAKEN CONSUMPTION. 
 
 "What shall we do with that large class of indus- 
 trial "actions which bring no reward to those who 
 perform them ? 
 
 We find labor and capital applied with the pur- 
 pose of reproduction, but without result. And this 
 not occasionally; but the share of failures can almost 
 be determined with certainty, and is found to bear 
 no inconsiderable proportion to business enterprise 
 the world over. Indeed, in some occupations, entire 
 success forms the exception. 
 
 These cases of mistaken industry would present 
 very few questions but for the secondary uses to 
 which we sometimes find them applied. Gibbon 
 describes the towers, citadels, and palaces of Rome 
 as built on the foundations of the ancient temples, 
 theatres, and arches. We can draw a figure thence 
 to our modern industry. The fortunes of one gen- 
 eration often rise from the failures of that which 
 went before. If we trace the history of many of 
 the most flourishing establishments, we shall find 
 them resting at last on some great outlay of capital, 
 or expenditure of labor, that ruined some man or 
 corporation, and finally went to pay taxes or office 
 rent. Such has been the fate of many of the rail- 
 roads of the United States; so much so, that it has 
 passed into a proverb that such stock must be sunk 
 once to pay at all. 
 
 The same thing occurs frequently in the course of 
 individual enterprises. Men undertake great mat- 
 ters, launch into immense expenses, and, after sink- 
 
394 CONSUMPTION. 
 
 ing the full amount of their capital and credit, stop 
 hopelessly. The works stand idle and melancholy 
 for years, till some new industry or some shrewder 
 manager takes them at half cost or for nothing, and 
 gets a fortune out of them. 
 
 When one of the later emperors would build a 
 monument of his achievements, he was forced to 
 use fragments of older architecture; and so, history 
 tells us, the head of Trajan frowned from the arch 
 of Constantine. Many a modern fortune is pieced 
 out of the wreck of earlier industry. 
 
 1st. Capital is fallible in its calculations. Plau- 
 sible schemes, based on views that are partial or 
 temporary, draw even the ablest financiers into such 
 investments. It would be out of reason that such 
 errors should not be committed, even with the keen 
 scent of personal advantage and trained observation. 
 
 2d. Extravagance is a frequent cause of business 
 failure. Men, in originating enterprises, sanguine in 
 feeling, and exhilarated by the possession of large 
 capital, almost invariably indulge in a scale of outlay 
 which the return does not justify. They find it un- 
 pleasant or undignified to omit anything from the 
 completeness of preparation out of considerations 
 of economy. The result is, the expense of starting 
 ( rags on them through the whole coarse, and perhaps 
 Tiiins them. 
 
 3d. Another reason is found in those accidents or 
 great developments which transfer business from one 
 seat to another, just as wells give out with no appa- 
 rent cause. The axis of commerce shifts its place, 
 and leaves tropical bones and tropical fruit high on 
 the northern hills. 
 
LUXURIOUS CONSUMPTION. . 395 
 
 Whatever, from any cause, fails to recompense its 
 outlay, though it may still have some utility, is to he 
 considered as so much added to the common agencies 
 of society. If anything comes out of it, this is to be 
 counted as so much received from the gratuitous 
 gifts of nature. Whoever, by shrewdness or chance, 
 has possession of them, is fortunate. A canal or 
 railroad, whose stock has been once sunk, stands in 
 just the same relation to political economy as do 
 rivers and natural causeways, which facilitate travel, 
 and render production easy, but are not capital, in 
 the scientific sense of the term. 
 
 II. LUXURIOUS CONSUMPTION. 
 
 Luxury, — what is it, and what are its effects, eco- 
 nomically considered ? E^oah Webster defines it as 
 " a free or extravagant indulgence in the pleasures 
 of the table, as in rich wines and expensive diet, or 
 delicious food and liquors; voluptuousness in the 
 gratification of the appetites, or the free indulgence 
 in costly dress and equipage." We must give a far 
 wider definition for our purposes, in the science of 
 which we treat. A fine house is certainly as much 
 a luxury as fine clothes or costly wines; so are 
 statuary and paintings; so are a vast number of 
 articles of common consumption in every condition 
 of life. It is quite clear, too, that what would be 
 esteemed a great extravagance in the royal establish- 
 ment of Dahomey would be far otherwise in the 
 humblest dwelling of Europe. 
 
 It is apparent that a specific definition of the term 
 " luxury" is impossible ; yet we can give a general 
 
396 CONSUMPTION. 
 
 formula that will be sufficient for our purpose 
 Luxury iu the community is indulgence in those 
 expenditures which are beyond the reach of the 
 great mass of the people : luxury in the individual 
 is indulgence in those expenditures which are be- 
 yond the strict necessities of maintenance, according 
 to the customs of the social or economic class to 
 which he belongs. 
 
 Of course, this standard will vary in different 
 countries, the inhabitants of one being able to com- 
 mand many indulgences which are denied to others. 
 The luxuries of Europe are daily fare in Asia, while 
 articles of common decency in an Irish hovel are 
 unknown in the court of Delhi. Nor only this : the 
 scale of luxury changes with every year. Those 
 articles which in one generation indicate wealth, 
 become common property in the next. This results 
 from the general progress of society and the constant 
 advance of economic powers. As production rises, 
 it covers the monuments of earlier taste or grandeur. 
 
 The ground of luxurious consumption is, perhaps, 
 b^st determined by the boundaries of its neighbors. 
 It embraces nothing that is spent in the purpose of 
 a reproduction, more or less immediate and direct. 
 The necessary consumption of a people depends 
 chiefly on absolute wants, is not greatly a matter of 
 choice, fancy, or taste ; but its luxuries, those things 
 which it may or may not have, depend entirely, for 
 their kind and degree, upon moral and intellectual 
 characteristics. Consequently, they furnish an index 
 of the national civilization. 
 
 1st. Do luxuries directly encourage industry? 
 
 We shall reach the truth of this by illustrations. 
 
LUXURIOUS CONSUMPTION. 397 
 
 When William TV. came to the throne of England, 
 he erected a tower at one of the entrances of the 
 palace where he made his residence. It cost 
 $500,000. There was no pretence of utility what- 
 ever in the building. It was pure luxury. It was 
 an elegant structure. It gratified the monarch's 
 taste. It w^'is highly ornamental to the castle and 
 the grounds. What was the economical effect? 
 The erection gave employment to mechanics and 
 laborers; it made a call for materials and architec- 
 tural skill ; it made trade brisk in the neighborhood. 
 Was it therefore beneficial? Suppose it had ac- 
 corded more with his majesty's views to take the 
 same money, and with it erect two hundred cottages 
 on the crown lands, at an expense of $2500 each. 
 This would have called for as much labor and ma- 
 terials as the tower; would have given as great an 
 impetus to trade. At the same time, it would have 
 brought into existence comfortable residences for 
 the families of two hundred laborers. If the cot- 
 tages were rented at a moderate rate, the income 
 would be equal to a fair interest, and the dwellings 
 would stand for generations, a valuable property, 
 conferring happiness and comfort on a thousand 
 people. 
 
 But there is more to come. We said, " take the 
 same money." What money ? Whose money ? 
 !N'ow, in arguments for govermental luxury, it is 
 always assumed that the money is in the treasury. 
 But how came the money into the public coffers? 
 Who furnishes the money ? The sober, steady in- 
 dustries of the country. The money to make King 
 William's tower came from Leeds and Sheffield and 
 
 34 
 
398 CONSUMPTION. 
 
 Manchester. It encouraged one class of artisans. 
 True. Whom did it discourage ? A class that is 
 always out of sight in such reckonings, — the class 
 that pays the taxes. 
 
 Then, so far, it only amounts to changing the 
 capital of the country from one hand to another ; 
 employing one class by turning ofFanother; a change 
 that is never made without distress and loss. 
 
 There is still more to be said. If the wealth had 
 remained in the hands of the manufacturer, say, it 
 would have been capital, and supported workmen 
 this year. So has the tower. But, in the latter use, 
 next year it will be no longer reproductive; while, 
 in cotton-spinning or land-draining, it would grow 
 with every day, and furnish unfailing employment 
 for labor. A thousand dollars spent in luxury will 
 pay a thousand dollars of wages (less certain little 
 items). A thousand dollars employed as capital will, 
 in ten years, pay twenty thousand dollars of wages. 
 Such is the dij5erence in results. 
 
 Wealth, employed as capital, is an annuity made 
 oujb in the name of the laborer, and good for life. 
 There is no possible case in which its employment 
 for purposes of luxury, as opposed to reproduction, 
 can be said directly to advantage industry. 
 
 2d. Do luxuries indirectly encourage industry? 
 Here we must turn sharply on our previous decision, 
 and see a further meaning in luxurious consumption 
 than first appeared. Unquestionably, a wholesome 
 luxury is one of the most important principles of 
 production. What is it that kindles the desire of 
 acquisition ; that keeps the hand strong to labor ? 
 Is it not the hope to spend ? For what else, the 
 
LUXURIOUS CONSUMPTION. 899 
 
 wretched miser excepted, do men toil early and late? 
 It is the promise of future enjoyments that calls out 
 kalf the work of the world. 
 
 There is one practical limitation of this principle, 
 which is of great social and economical importance. 
 It arises from the relative position of those who do, 
 and those who as yet cannot, indulge in luxurious 
 consumption. If a few are very rich, and the many 
 very poor, the expenditures of the former have very 
 little effect on the condition of the latter. Since 
 these cannot aspire to the enjoyment of their supe- 
 riors, their ambition, instead of being excited, is de- 
 pressed. If, on the contrary, the interval between 
 the classes is narrow and the difierences moderate, 
 the luxuries of the rich exert strong and increasing 
 desires in those who are less wealthy. These desires 
 create wealth. 
 
 The luxury of European courts has no elevating in- 
 fluence upon the masses : quite otherwise. Robbed 
 to furnish the means of others, they are hopeless 
 of ever attaining to such fortune themselves. But 
 where the grades of society are fixed only by dif- 
 ferences of natural endowment, and so are moderate 
 and regular, rising by easy steps, the entire popula- 
 tion becomes inspired with the purpose of reaching 
 a higher position. 
 
 We have, then, attained the principle, that luxu- 
 rious consumption, while it directly gives no help to 
 industry, but rather spends in one hour's enjoyment 
 the provision of months or years, may yet, by its in- 
 fluence on man's desires, create a productive force 
 which shall make its extravagance seem economy, 
 its waste appear frugality itself. But this is only 
 
400 CONSUMPTION. 
 
 true of liarmonious, temperate, aud well-propor- 
 tioned luxury. 
 
 Such is luxurious consumption, in its definition 
 and its general principles. We shall further discuss 
 the degree to which it is, or may be, carried in any 
 community. 
 
 CHAPTER II. 
 
 ON THE DEGREE OF LUXURIOUS CONSUMPTION. 
 
 We mistake, if we attribute luxuries to the rich 
 alone. It is estimated, on the best authority, that 
 of the taxes paid by the laboring poor of England, 
 out of every twenty-one shillings, eleven shillings 
 and fourpence were paid for what was, in the eco- 
 nomic view, not necessary, and, in the sanitary view, 
 not beneficial. If we estimate the amount expended 
 for luxuries by the corresponding class in our own 
 country, we shall find it as much greater as nature 
 is more liberal, labor more free, taxes lighter, and 
 the working-man more ambitious and sanguine; 
 while, if we turn to France, we find the proportion 
 much smaller; yet even here the laborer has his 
 holiday, and his theatre or fair. 
 
 Paradoxical as it may sound, it may be said that 
 a certain amount of luxuries forms a part of the 
 necessary wages of the laborer in these countries. 
 Indeed, it is true of all countries; for the human 
 
LUXURIOUS CONSUMPTION. 401 
 
 miud and the human body will have rest and recre- 
 ation in some form. Man is not all laborer. Some 
 indulgence is the demand of that part of his nature 
 which looks out on another field than production 
 and accumulation. And in this light we see the 
 vast importance of such social and moral influ- 
 ences as shall determine the laboring classes to 
 those relaxations and amusements which really 
 refresh both mind and body, and elevate the whole 
 t»ne of being. 
 
 l^ational taste determines, in a great measure, the 
 demands of wages. It is only required, by our present 
 object, that we take a good look at the luxuries of 
 the poor; not by any means grudgingly. Indeed, 
 we may ask why laborers are not everywhere allowed 
 more time and means for enjoyment, outside the dull 
 routine of work and the dry subsistence of life. It 
 is a wise and Christian statesmanship that seeks 
 to enlarge the simple pleasures of the poor. As 
 the intelligence of laborers increases, and their 
 political franchises extend, they will assert a larger 
 share of the products of industry; and very much 
 of this will go into what we call, not invidiously, 
 luxuries. 
 
 But it is with regard to the richer classes that the 
 question of luxuries becomes especially important. 
 The amount of wealth directed to these objects can 
 hardly be over-estimated. 
 
 The excise and customs authorities of Great Britain 
 recently made an attempt to ascertain the shares of 
 certain articles consumed, severally, by three classes 
 into which they divided the population of the 
 
 34* 
 
402 CONSUMPTION. 
 
 kingdom. The result is shown in the following 
 table :* 
 
 Class. Persons. Tea consumed. Sugar consumed. 
 
 1st. Upper . . 1,000,000 17J per cent. 22^ per cent. 
 
 -2d. Middle . . 9,000,000 38 " 88 " 
 
 3d. Lower . . 18,000,000 44^ " 39^ " 
 
 28,000,000 100 100 
 
 In these simple articles, which are almost included 
 in the strict necessaries of life, we see the great ex- 
 cess of the expenditure of the upper classes. When 
 we rise to take in services of plate and sets of jewelry, 
 galleries of pictures and parks of deer, studs of horses 
 and packs of hounds, we shall be impressed with the 
 immensity of outlay devoted to the luxuries of 
 society. 
 
 1st. What are the causes that set wealth apart for 
 luxury ? 
 
 {a) The most essential is the existence of a surplus. 
 Other things equal, the degree of luxury will be as 
 the surplus. The latter, however, will depend not 
 so much on the general mass of wealth as on its 
 apportionment among producers. 
 
 [b) The desire to gain and the desire to spend are 
 antagonistic. They meet in every act of life, and 
 one or the other must have its way. Luxury is the 
 victory of the latter passion. The mere possession 
 of a surplus is not enough. 
 
 2d. To what extent can wealth be devoted to 
 luxury ? 
 
 Gibbon gives countenance to the theory, that no 
 state can, without soon becoming exhausted, sup- 
 
 " Levi en Taxation. 
 
LUXURIOUS CONSUMPTION. 403 
 
 port more than a hundredth part of its population in 
 arms and idleness. This is to be understood as a 
 hundredth part of the population, taken out of the 
 able-bodied males; say, a twentieth part of these. 
 The estimate is interesting, and has a certain share 
 of truth; but its form shows it to be a very rude 
 one. Does it make no difference whether this 
 portion is simply unproductive or destructive? 
 Does it make no difference whether these idlers are 
 maintained in the dreamy, half-naked indolence of 
 Asiatics, or in war and the luxury of courts? no 
 difference whether the general production of the 
 country is large or small ; whether the wants of the 
 people and the necessities of government are few 
 and simple, or many and great ; whether rice enough 
 for a year can be had by the labor of two weeks, as 
 in India, or a bushel of grain costs the labor of 
 eleven days, as in Lapland ? 
 
 It is in this light that we see the impossibility of 
 fixing, for all nations, all climates, all ages, a com- 
 mon proportion of luxury that can be maintained, 
 without bringing down the standard of industrial 
 well-being. At the same time, it is plain that for 
 each nation, at any time, there must be a point be- 
 yond which wealth cannot be spent in enjoyment, 
 or time in idleness, without first oppressing the 
 laboring class by hard exactions, and afterwards de- 
 basing the entire state. 
 
 OF LEARNING AND ART. 
 
 These, in the economic view, may have value, and 
 so may be produced, exchanged, distributed, and 
 consumed. The reward they receive, the price they 
 
40i CONSUMPTION. 
 
 bring, is in no sense due to. them in their own right, 
 because they are true, beautiful, or good; but arises 
 legitimately out of the desires they gratify, and the 
 labor they cost. It is the appreciation of a service 
 rendered. That reward will vary in form and de- 
 gree, at every stage of society. 
 
 While the rewards of learning and art are uncer- 
 tain, and apparently waj^ward, they have yet, from 
 the earliest days, had a place with the most substan- 
 tial industries. Whatever may be true of the quality 
 of such productions, the amount of labor bestowed 
 on them obeys strictly the same laws of supply and 
 demand which govern the growth of cotton or wheat. 
 Economical science has no occasion to take them 
 out of the same category. When one man gives 
 his efforts to any work of this character, and linds 
 one other who has a desire for it, that work begins 
 to have value, comes hereby into the domain of 
 political economy, and must submit to its principles. 
 Milton, chaffering for the price of ''Paradise Lost," 
 forms no royal exception to the sovereignty of the 
 empire he has entered. 
 
 What is the character and effect of such consump- 
 tion ? This is a question doubly interesting, having 
 an importance to general scholarship, as well as to 
 our immediate science. Of course, learning and 
 art have not necessarily to establish an economic 
 usefulness, in order to justify their pursuit. In their 
 own names, they have sovereignty, and claim hom- 
 ao^e. But there is an economic relation which we 
 cannot overlook, and which must affect, somewhat, 
 the place which they shall be accorded in the world. 
 In brief, their effect upon industry may be defined 
 
LUXURIOUS CONSUMPTION. 405 
 
 as follows : So far as they give dignity to human 
 aspirations, furnish new objects to human desires, 
 enlarge ambition, develop the useful sciences, and 
 suggest the application of new powers, as the tele- 
 graph, the locomotive, and the magnet; so far as 
 they unite and harmonize social and political divi- 
 sions, — they are of inestimable value; and such 
 consumption of wealth as rewards and encourages 
 them is seed thrown into a soil more grateful than 
 any land of fable or story. But so far as learning 
 and art tend to produce that unmanly sentimentalism 
 which shrinks from dry details, present duty, and 
 simple fact; that mawkish cosmopolitanism, which 
 weakens each nationality, without promoting the 
 r-jinion of all ; that softening of the mental fibre, 
 Jjthat dissolution of the will, which makes man the 
 slave of his circumstances, and even of his fellows; 
 and, worst of all, that selfish fastidiousness which 
 shuts itself in from human activities and social alli- 
 ances, to dwell in dreams and idle imaginations, 
 whether of philosophy or art, — wh}^, in so far, we 
 must call such an employment of time and labor, 
 not merely unprofitable, but mischievous, consump- 
 tion. 
 
 SUMPTUARY LAWS. 
 
 No subject stands so peculiarly related to scientific 
 inquiry as this. There is no scheme of govern- 
 mental action which can present a more clear and 
 convincing argument, drawn from the nature of 
 things, and even from experience, prior to actual 
 legislation ; while none has been more effectually 
 exploded l)y trial. There seems to be a perfect 
 
406 CONSUMPTION. 
 
 reason for sumptuary laws ; yet the general sense of 
 civilization has, after fall experiment, settled deci- 
 sively against them. 
 
 It is impossible to look about the smallest com- 
 munity, without being grieved at the manner in 
 which much of its labor and wealth is expended. 
 What enlightened person can pass once through any 
 street of human habitation, without seeing very 
 many instances of folly, extravagance, perversion, 
 and indolence, which are wasting the best gifts of 
 God and the fairest hopes of man ? And, when this 
 view is carried out to all the communities of a nation, 
 it is not strange that philosophers and statesmen 
 have come to believe most earnestly, that by salu- 
 tary curbs on expenditure and spurs to exertion, by 
 reforming dress, diet, equipage, and establishment, 
 they could multiply manifold the comforts of the 
 people, the resources of the state, and the means of 
 social and moral culture. 
 
 And yet nothing has more utterly and conclu- 
 sively failed. It is not that the evil is imaginary; 
 for enough wealth and power are wasted to make 
 every human being comfortable and happy. It is 
 not that the state of things is unsusceptible of re- 
 formation ; for the matter is one wholly of human 
 choice, and open to the control of the public 
 sanctions. 
 
 Why, then, has law, acting to this end, failed of 
 its purpose so universally and so manifestly, that 
 such enactments are hardly ever proposed at the 
 present day, even by the most sanguine of philan- 
 thropists ? 
 
 It is difficult to give a full and satisfactory expla- 
 
LUXURIOUS CONSUMPTION. 407 
 
 nation. One reason is, that such enactments are 
 very easy of evasion. Expenditure is not a matter 
 that submits readily to inspection and proof. The 
 interest of the producer and of the desire of the con- 
 sumer are against the enforcement of the law. Then, 
 again, luxury can take on so many forms, can slip 
 so readily from the grasp of definitions and specifi- 
 cations, that the law becomes a greater trouble to 
 its oificers than to its ofienders. 
 
 The grand reason, however, is that it is against 
 human nature ; and with this we may fairly close 
 our objections. 
 
 But all these furnish no conclusion against the 
 regulation of public morals and manners in things 
 that afiect the happiness and safety of the commu- 
 nity. It is no longer legislation to supplement the 
 wisdom of the individual or instruct industry. It 
 becomes the defence of the general good. It is not 
 a breach of personal rights, but the safeguard of 
 public liberty. If there is any habit or practice 
 which brings disease and sufi:ering and disorder, 
 which abridges the power of labor and the span of 
 life, which infiicts misery upon the innocent and 
 unofiending, which entails expense upon the whole 
 community for the charge of pauperism and the pun- 
 ishment ofjcrime, there can be no doubt of the right 
 and duty of the people to protect themselves, through 
 the power of their government, by the most severe 
 and efficient laws that can be devised. To deny this 
 is to deny the validity of government itself. 
 
408 CONSUMPTION. 
 
 III. PUBLIC CONSUMPTION. 
 
 There is an economical reason for government. 
 Without the strong arm of the public force, men 
 could not work unmolested, or retain the results of 
 their labor. Without law, production would be hin- 
 dered directly, by the confusion of society and the 
 interruption of violence. But far more serious would 
 be the secondary eftects on industry. All motives 
 to the accumulation of wealth would be withdrawn, 
 by the insecurity of property. Its possession might 
 even become an object of terror. 
 
 To what share is government entitled in the gen- 
 ral production ? If, as we have seen, it is the indis- 
 pensable condition of all wealth, it can rightfully 
 claim a part of all wealth ; and that part will be, at 
 the least, enough to sustain itself in this economical 
 function. It owns just as much of this wealth it has 
 helped to create as is necessary to continue itself; 
 for, without this, wealth could not be. The absolute 
 necessities of government, then, afford the minimum 
 measure of its share in wealth. 
 
 Has s:overnment no ritrht to more than what is 
 essential to its support in this economical function ? 
 Its industrial work embraces a wider field than ap- 
 pears in the simple statement. In America, educa- 
 tion is required as a part of the public police ; and 
 onr eminent statesmen have estimated the outlay of 
 schools and colleges cheap, in the results on order 
 and security. Government may employ means of 
 influence, numerous and remote, all in the interest 
 of peace. 
 
PUBLIC COXSUMPTION. 409 
 
 But has it no right to property bej'ond this ? 
 Plainly it has. We must not be as stringent in our 
 scientific views as young Gobbo, and complain that 
 " this making of Christians will raise the price of 
 pork." Political economy recognizes that humanity 
 has other interests than wealth, and respects the 
 claim of government to duties and services for the 
 sake of a moral o-ood. 
 
 Having defined the right of government econom- 
 ically to participate in wealth, two considerations 
 naturally precede the discussion of methods: 
 
 1st. Government should undertake nothing that 
 can be accomplished by individual enterprise. 
 
 If we admit that the difficulties which surround 
 industry are imposed for our good, and form a part 
 of our discipline and culture, political society pal- 
 pably acts on a false idea when it relieves the citizen 
 of his own proper responsibility, care, or labor, and 
 assumes his natural duties. This, however, is not 
 the only reason against such interference. Govern- 
 ment never does the work of individuals as well as 
 it can be done by individuals. 
 
 It cannot be too often or earnestly insisted on, that 
 individual, interested supervision is the grandest 
 economical condition, and should never be departed 
 from till the work becomes too vast for single hands. 
 
 2d. Government should do nothing for display. 
 
 For ages the science of politics might be summed 
 up in the word " pageantry." To dazzle the vulgar 
 eye, and overawe the common sense of the people, 
 by splendid equipage and stately building, has been 
 the main theory of rulers. The system certainly has 
 not failed for w^^nt of trial. There have been gov- 
 
 35 
 
410 CONSUMPTION. 
 
 ernors who wisely sought to prove that the power 
 of the law and the peace of the subject did not 
 depend on show. The simplicity and austerity ex- 
 hibited by Carus of Rome, Julian of Constantinople, 
 Elizabeth of England, the Great Frederick of Prussia, 
 and the Saracen caliphs in all ages, stand in marked 
 contrast with the wicked and ruinous extravagance 
 that has marked the administration of mostfof /the 
 governments of the world. 
 
 3d. The expense of government will vary accord- 
 ing to the circumstances and character of the people. 
 
 Some peoples have a government as simple, primi- 
 tive, and cheap as their clothing; while otlfers, no 
 more highly civilized, manifest an inclination to 
 •complicated and refined forms of administering law, 
 Vvhich brino^ a heavv burden of taxation on the 
 present, and entail permanent debt on posterity. 
 Some nations surround themselves with fortifica- 
 tions, and maintain extensive forces, just as some 
 countries can keep out the ocean only by artificial 
 dikes and levees; others have a natural strength, or 
 an isolation, that is as good to them as strong armies. 
 
 Russia spends 3'early three dollars a head in gov- 
 erning her people and supporting her armies ; 
 Prussia, five dollars ; the United States, up to 18G0, 
 two and a half dolhirs, reckoning only the federal 
 establishment; Great Britain runs her expenditure 
 up to ten dollars. Political economy has great 
 charity for claims based on public considerations. 
 It allows that whatever is really necessary for peace 
 and order and property, in full view of the national 
 peculiarities or geographical difiiculties, is ecouv/tui- 
 cally well spent and a good investment of capiiui 
 
CHARITY AND POOR-LAWS. 4l3 
 
 Yet government charges heavily for what it does. 
 The expenditure of the United States, even if no at- 
 tempt is made to liquidate the public debt, will not, 
 probably, be less than three hundred millions ; and 
 this, exclusive of all the service of State and muni- 
 cipal government. 
 
 On the whole, it may be said of this duty of capi- 
 tal to support government, that it pays, as an invest- 
 ment, whatever it may necessarily cost ; but that the 
 expense should be strictly held down to the lowest 
 practicable figure. 
 
 CHAPTER III. 
 
 CHARITY AND POOR-LAWS. 
 
 In the United States, the question of charities has 
 not that engrossing interest which it commands 
 among the older peoples of the world. Land here 
 is so cheap, labor so much in demand, that no able- 
 bodied man has any excuse for pauperism. And 
 even many of those disabled by severe accidents are 
 yet competent to earn something for livelihood, in a 
 country where every hand is wanted for work. It 
 is probable that the pauperism of the nation is not, 
 in ordinary times, equal to one-half of one percent, 
 of its population ; while England and Wales had, 
 in 1859, four and a half per cent. ; Holland, in 1855, 
 eight and a half; Belgium, in 1846, sixteen; East 
 and West Flanders rising that year to thirty per cent. 
 
412 CONSUMPTION. 
 
 The methods of charity have not, therefore, the 
 same imjjortaMce with us which they bear elsewhere. 
 It is a matter of profound concern with others, that 
 pauperism should be in every way discouraged, and 
 that w^hat of it is necessary sliould be as cheaply 
 arranged as possible. Here, the only occasion for 
 anxiety is, lest some unfortunate should be over- 
 looked in the general prosperity of the country. It 
 will not, however, be witliout interest and instruc- 
 tion to regard carefully the practical principles which 
 should govern the administration of charity. 
 
 1st. What classes are entitled to charity ? 
 
 Manifestly all who are unable to subsist in common 
 decency without it. 
 
 But should government provide nothing for those 
 who, having wantonly wasted their means and gifts 
 of labor, find themselves, and those dependent on 
 them, suffering for the necessaries of life? We 
 answer, that the liberty of the subject is not a 
 privilege to become a pauper ; that government has 
 the right to protect itself; that it may, by stringent 
 enactments concerning vagrancy and indolence, an- 
 ticipate the operation of such causes; that it may 
 encourage industry by rewards, or compel it by pains 
 and penalties ; that it may apply to vicious pauper- 
 ism the same severity as to crime. Yet, when all 
 this is granted, and all this done, there will still re- 
 main a certain degree of physical want, the result 
 of sinful and slothful habits. Of this the state must 
 have charo^e. 
 
 2d. Who should administer charity? 
 
 An argument might be made from the principle 
 of benevolence and the sensibility to another's dis- 
 
CHARITY AND POOR LAWS. 413 
 
 tress found in the constitution of our nature, that 
 charity was not alone designed for government, but 
 that the relief of the poor is appropriate to private 
 hands. And there is a plain, economical reason, in 
 that such contributions can be made more timely, 
 more judiciously, and more cheaply, by the offices 
 of individuals than by public agencies. There is a 
 further reason, not less economical than moral, that 
 assistance rendered in this form does less hurt to the 
 feelings of the recipient. The interests of produc- 
 tion, not less than the law of kindness, object to 
 the unnecessary lowering of the self-respect of any 
 class or person. To accept charity from a neighbor, 
 under the pressure of extraordinary misfortune, 
 could impeach the honor of no one; but to take 
 bread from government carries with it a sort of 
 taint of beggary through life. 
 
 Here, then, in individual contributions, we have 
 one of the main instruments by which the relief of 
 the poor should be effected. 
 
 There is anotlier class of voluntary agencies, 
 standing between individual charity and that of the 
 state, consisting of mutual-relief societies and trade 
 associations, established for the purpose of assisting 
 their members over the rough places of life. When 
 honestly formed, and held to their legitimate work, 
 they have, economically, all the advantages of divi- 
 sion of labor. With this they unite a considerable 
 share of intelligence, as to the special deserts of 
 applicants. There is also, and principally, the con- 
 sideration, that relief from this source is thought to 
 have nothing degrading, and so preserves the self- 
 respect of those who receiye the aid. 
 
 35* 
 
414 CONSUMPTION. 
 
 Yet all these methods cannot be relied on, by 
 themselves, for all times and at all places. The 
 state should assume the responsibility and control 
 of the poor everywhere. It is a part of the national 
 concerns that no subject shall suffer from want. 
 After all that individual and associated charity can 
 do, there will be an immense amount of the most 
 repulsive and unromantic want and misery awaiting 
 remedy by government. 
 
 3d. By what branches of the government should 
 public charity be administered? 
 
 We answer, that, in the mere relief of poverty, 
 local authorities be charged with the dispensation, 
 though the state may^ and indeed should, compel 
 them to do it, and perhaps regulate the degree and 
 manner of it. Wherever a pauper has his residence, 
 there he should receive W'hatever assistance he is to 
 have. More work can be got out of him, his char- 
 acter and claims will be better understood, he will 
 be nearer to returning into the condition of self- 
 support, and each community will have an active 
 interest to diminish its pauperism. All this is addi- 
 tional to the greater expense of monster workhouses, 
 and the corruption they are sure to breed. 
 
 We said, '^ in the mere relief of poverty." But 
 government charity has to do wnth other classes 
 wdth which the rule of assistance is directly oppo- 
 site. Hospitals for the disabled, asylums for the 
 insane, schools for the blind, — these should be 
 aggregated to secure the best scientific treatment 
 and the greatest natural advantages. 
 
 4th. To what extent should charity be given ? 
 
 To the full extent of the necessities of the sub- 
 
CHARITY AND POOR-LAWS. 415 
 
 ject. The destitute, whether maintaiiierl in their 
 own homes or in public institutions, should be 
 required to do all the work they are able to per- 
 form. This is just; for the government has the 
 right to diminish its own burden. It is kind; be- 
 cause, by keeping up their habits of industry, it 
 preserves self-respect and bodily vigor, and may in 
 time enable them to return to a condition of self- 
 support. To render any moi'e assistance than is 
 really necessary, is not to relieve pauperism, but to 
 encourage it. 
 
 Poor-laws may be effective, to the full extent, in 
 providing for all pauperism that results from natural 
 or accidental disability of body or mind for self- 
 support. Grovernment may relieve every form of 
 such distress with entire satisfaction of the individ- 
 ual need, and with perfect justice to the community. 
 But as soon as the necessities of a people bring 
 able-bodied workmen within the scope of poor-laws, 
 it is certain that, while temporary relief should be 
 afforded, the remedy must be sought elsewhere. 
 The reason is as follows: Charity to the disabled is 
 simple gratuity, wholly outside the laws of value, 
 and involving a definite expense ; but charity to the 
 laboring class is an absurdit}^ only explained by the 
 wickedness of human institutions. It is an absurdity 
 liable to indefinite repetition. It indicates that the 
 point has been reached below which oppression and 
 greed cannot go. Poor-laws, permanently embracing 
 in their charit}^ able-bodifed workmen, simply show 
 that the gratification was long since abandoned ; that 
 comfort was afterwards denied by oppressive require- 
 ments or restrictions ; and that now the lowest plane 
 
416 CONSUMPTION. 
 
 of injustice has been reached, in the inability of the 
 laborer to support Ijiniself. There is no further de- 
 scent; nor have poor-laws any virtue to bring back 
 the right order of things. The great, the sole, regu- 
 lating principle of economical life, viz., the entire 
 self-sufficiency of labor, has been destroyed ; and 
 nothins^ but laws returnins^ labor to its own full 
 rights, not affording it charity, can restore health and 
 harmony. There is no proper ground for charity 
 but the inability to labor; and, when under the stress 
 of government injustice and social falsehood, it de- 
 parts from these limits, it begins a wandering that 
 has no end. The pauperism of America is the re- 
 sult of accidents, and expires with its special causes. 
 The pauperism of Europe is the effect of system, 
 and perpetuates itself. 
 
 5th. In what spirit should charity be adminis- 
 tered ? 
 
 In that of kindness and respect. No condition of 
 life and character is so abandoned that it needs or 
 deserves that marks of ignominy should be attached. 
 When the murderer, with his bloody hands, is to be 
 executed, the sentiment of the community shrinks 
 from the idea of adding insult to his doom. He is 
 treated among no magnanimous people with con- 
 tumely or outrage. If his manhood is respected, 
 even in his crime, should not those who are the vic- 
 tims of misfortune, or at the worst of only passive 
 vices, be free from more than the disgrace which is 
 necessary to their condition ? It is unchristian, it is 
 cowardly, to insult by word or badge the unfortu- 
 nates of society. No true man will do it: no brave 
 people will allow it to be done. 
 
THE FINANCE OF WAR. 417 
 
 Yet there should be no weakness or paltering in 
 charity. While all harshness and contumely are 
 avoided, public maintenance should never be made 
 desirable to the able-bodied workman, nor should 
 even the feeble be allowed to escape just so much 
 of labor as their condition permits. This is justice 
 to the community, and kindness to the unfortunate. 
 Especially should the public sense discourage and 
 banish that shameless and obtrusive medicancy b}^ 
 which the bold and bad snatch avray the portion of 
 the weak, the honest, the retiring poor. The truly 
 helpless and suffering should be sheltered under the 
 wings of charity ; the indolent and wasteful, driven 
 out into the storms of the world. 
 
 CHAPTER IV. 
 
 I. THE FINANCE OF WAR. 
 
 The finance of war is greatly perplexed to the 
 popular mind by one fallacy, w^hich is, that a vastly 
 greater amount of money is needed in time of war 
 than of peace. Bewildered by this notion, than 
 which none can be more absurd, the public are 
 easily induced to sanction a whole class of measures 
 that would be generally recognized as injurious in 
 ordinary times, but are imagined to have some virtue 
 to bring out a greater amount of money to meet the 
 supposed emergencies of war. The truth is, if we 
 
418 CONSUMPTION. 
 
 suppose no extra importation of foreign material 
 for consumption (and nineteen-twentietlis of the ex- 
 penditures of all wars are for domestic labor and 
 material), there is no larger production, no more 
 commodities to be exchanged, no more services to 
 be rewarded, and consequently no more occasion for 
 the use of money. 
 
 But government now becomes the great operator, 
 employs perhaps ten times its usual number of 
 agents, expends ten times its usual resources. It 
 then has need of more money : but as it only takes 
 the place of former employers, of former consumers, 
 so it only needs to take their place in the receipt of 
 money; and that may be effected by prompt, equal, 
 and thorough taxation, — taxation, too, conducted by 
 the established methods, and in accordance with such 
 principles as we have laid down. A state of war, 
 therefore, instead of being, as it is usually made, a 
 reason for departing from the ordinary rules of pub- 
 lic economy, is an additional reason for adhering 
 closely to them in every particular. 
 
 War is a business as much as agriculture. The 
 same resources are necessary: there must be mate- 
 rials, provision, tools, labor. This is all that is 
 needed in either; nor is there the least difference in 
 the two, considered as modes of production : their 
 principles and methods are the same. It is only 
 when considered as modes of consumption that they 
 have separate relations to the science of wealth. 
 " Raising money" has been generally accepted as 
 the great business of a nation in war; but it is no 
 more so than in ordinarv times. What is wanted are 
 labor, tools, provision, and materials: these are what 
 
THE FINANCE OF WAR. 419 
 
 must be '^ raised." And at least an equal amount, 
 though of different kinds and for different purposes, 
 is " raised'' every year or day of peace. Govern- 
 ment, however, is now the great employer; and, as 
 it is to furnish these, it must get them from the com- 
 munity which has them, and has been operating 
 tliem. 
 
 Indeed, war might be carried on without money ; 
 has been, to a great extent. The state might always 
 fill, as it often has filled, its armies by conscrip- 
 tion; its granaries, by a tax in kind; its arsenals, by 
 compulsory labor. The greatest armies the world 
 has ev^er seen were raised, supported, and disbanded 
 without a money chest. In the advance of civiliza- 
 tion, it has been found more expedient, as it is more 
 just, that government should purchase all it con- 
 sumes in war, obtaining the means in money by tax- 
 ation. As war does not increase the number of 
 laborers or augment their power in production, it 
 remains true that there can be no greater occasion 
 for the employment of money, whose only ofiice is 
 to exchange the products of labor. 
 
 It may be thought that if foreign labor (as mer- 
 cenary soldiers) or foreign material (the products of 
 foreign laljor) is introduced, there will be a greater 
 demand for money to make the exchanges of services 
 and values. Of the first, it may be said that the 
 employment of mercenaries is, in fact, too small to 
 be of any account in the great calculations of war- 
 like expenditures. The latter is of importance, but 
 really forms a small fraction of the actual outlays of 
 war, probabl}^ not equal to the reduced wages of 
 domestic labor in arms, as against the same labor in 
 
420 CONSUMPTION. 
 
 peace; it being true of almost all armies, that tbeii 
 pay is below the average of industrial occupations. 
 But, if we allow all the actual importation of foreign 
 materiel to be so much added to tbe necessity for 
 money, the effect will be simply what has been 
 already indicated in the philosophy of currency. 
 Money will be exported up to a certain point to pay 
 for imports : this will lower home prices, diminish- 
 ing the domestic expenditures of government, and 
 encouraging the export of produce, which will con- 
 tinually tend to restore the balance. Beyond the 
 point at which money cannot be sent off, without 
 domestic distress, government must resort to credit 
 by loans. Such loans, however, cannot increase the 
 money in the country ; for, even if they tirst assume 
 that form abroad, they are turned into materiel before 
 imported. 
 
 This discussion, it should be borne in mind, has 
 only regarded the amount oi money required in war. 
 We have had nothing directly to say as to the 
 amount of capital employed. Of this we express no 
 opinion; while we maintain that it is unquestionably 
 true, that no greater volume of money is needed to 
 effect all the exchanges incident to a state of war. 
 
 ECONOMY OF THE WAll SYSTEM. 
 
 War is the greatest foct that presents itself in this 
 part of our general subject. Its consumption, its 
 expenditures, are wholly for unproductive purposes, 
 and not only unproductive, but absolutely destruc- 
 tive of those by whose labor wealth is produced. 
 
ECONOMY OF THE WAR SYSTEM. 421 
 
 War demands by far the largest part of all the re- 
 venues of civilized governments throughout the 
 world. It therefore claims consideration as far as 
 our limits will permit. 
 
 That war is a political necessity while no prepara- 
 tion is made for preserving peace, cannot for a mo- 
 ment be denied. So also were private combats and 
 the wager of battle in by-gone ages. Disputes will 
 ensue between nations as between individuals; and, 
 if no provision is made for umpirage or arbitration, 
 a resort to the sword is inevitable. Hence the great 
 system of war. But for established laws and courts 
 of justice, individuals would, of necessity, be com- 
 pelled to seek redress for private grievances by an ap- 
 peal tobrute force. Thiswould not, indeed, determine 
 which of the parties was in the right, only which 
 was the strono^er or more fortunate in the struo:o:le. 
 So of nations. When differences arise between 
 them, how can they be settled except by a trial of 
 strength ? There is no well defined, well established 
 code of international law; there is no tribunal of 
 international justice: how then, except in battle, 
 can their disputes be adjusted ? It is a well-estab- 
 lished principle, that a man should not be a judge 
 in his own case; and therefore, as between indi- 
 viduals, it is decided that, instead of the wager of 
 battle, the aggrieved party sludl submit his case to 
 the arbitrament of his fellow-citizens. But, as be- 
 tween nations, no such arrangement has as yet been 
 made. 
 
 Hence we are to contemplate war as a political 
 necessity, until the nations of the earth shall estab- 
 lish a code of international law. and institute a high 
 
 36 
 
422 CONSUMPTION. 
 
 court of appeal, to wliich their disputes shall be re- 
 ferred for adjudication. 
 
 War, then, in the sense in which we are to look at 
 it, is not an accidental fact, but an established sys- 
 tem; and, as an economical question, is to be re- 
 garded from three different points of view. 
 
 1st. As consisting of a permanent military force, 
 a standing army, with all the paraphernalia of war; 
 and, if the nation be maritime in its position, a naval 
 force, somewhat proportioned to its military estab- 
 lishment. 
 
 2d. A system of constantly increasing preparations 
 for war, — arsenals, dockyards, and manufactories. 
 
 3d. A heavy indebtedness for wars of the past, 
 with unceasing taxation for the payment of accruing 
 interest and the extension and perpetuation of the 
 system. 
 
 These three items may be said to constitute the 
 war system of the civilized world at the present day. 
 Looking at war in its economical bearings only, the 
 great feature that presents itself is the immense and 
 constantly' increasing expenditures it requires. 
 
 In proof of this, we iirst refer to the statistics of 
 Great Britain, not because they are peculiar, but that 
 they are full and reliable. Her naval and military 
 expenditures from 1815 to 1865, during which period 
 of lifty years there has been no protracted war, have 
 been £1,084,330,507, equal to $5,000,000,000, or twice 
 as much as the whole present debt of the United 
 States: from 1855 to 1865 inclusive, £769,612,936, 
 of w^hich £301,618,920 were required to pay interest 
 on the national debt; £331,887,258 for current ex- 
 penses of army and navy ; for the cost of collection, 
 
ECONOMY OF THE WAR SYSTEM. 428 
 
 £48,733,823 (or about six per cent, of the whole reve- 
 nue); and only £105,472,935 for all the expenses of 
 civil government. So that, in paying interest npon 
 the debt wholly created in war and in meeting 
 present expenses, the war system swallowed np six- 
 sevenths of the entire revenue. And that which is 
 true of Great Britain is to nearly an equal extent 
 true of France and almost every nation of Europe. 
 
 The armed forces of Europe now (1871) are sup- 
 posed to be equal to near five millions of men, all 
 told, and the grand total of war debts some fifteen 
 billion dollars. 
 
 Another important point to be noticed in relation 
 to the war expenditures of European nations is, 
 that they have been constantly increasing, and at a 
 fearful rate. 
 
 The increase of taxation in England between 1863 
 and 1865 was fifteen millions sterling per annum 
 over the previous decade. The cost of the army, 
 navy, and ordnance combined, in 1835, was less than 
 twelve millions; in 1850, it was fifteen millions; in 
 1861, it had increased to thirty millions sterling. 
 
 Between the years 1842 and 1853, the income of 
 the wealth of Great Britain was at the rate of twelve, 
 and her expenditures were at the rate of eight 
 and three-quarters, per cent. ; while, between 1858 
 and 1859, the national wealth grew at the rate of 
 sixteen and a half, while the national expenditure 
 was at the rate of fifty- eight, per cent. 
 
 France is almost crushed under the excessive 
 burden of debt which her vast military system and 
 the disastrous results of her late struggle with Prus- 
 sia have entailed upon her. 
 
424 CONSUMPTIOX. 
 
 IS WAR A MORAL NECESSITY ? 
 
 We have said that, under existing circumstances, 
 war may be a political necessity; but is it a moral 
 necessity ? Ts there anything in the nature of man 
 which n.akes the destruction of his fellow-men in 
 war unavoidable ? Is it not as feasible and as con- 
 sistent with his nature to dispense with appeals to 
 brute force among different communities, as be- 
 tween different individuals in those communities? 
 Would not the same principle, the same common 
 sense, which establishes a court of justice for the 
 settlement of private disputes, establish a similar 
 tribunal for the settlement of international differ- 
 ences? If it is indispensable to the preservation of 
 peace among individuals, that there be a well- 
 detined code of laws, which all may understand, and 
 all must be required to obey, is it not equally indis- 
 pensable among diff'erent communities? 
 
 At present, as we have said, there is no established 
 code of international law, or any common tribunal 
 for the settlement of international disputes. Is the 
 attainment of these admittedly important objects 
 practicable? In what manner can they be secured? 
 Evidently in the same way in which all social insti- 
 tutions are formed; viz., by the voluntary, harmoni- 
 ous action of those who are directly concerned. And 
 this can only be secured by concerted and concen- 
 trated effort. This is a necessary preliminary. Is it 
 feasible? Can the human mind achieve this ad- 
 vanced step to a higher condition ? 
 
 We answer these questions, without hesitation, in 
 the affirmative, and for the following reasons : 
 
ECONOMY OF THE WAR SYSTEM. 425 
 
 First Beoanse the present system is at war with 
 the plainest dictates of common sense, and the high- 
 est interests of mankind. 
 
 It may be safely assumed, that any system, policy, 
 or practice which, in the course of events and the 
 lapse of time, has become, not only absolutely use- 
 less, but positively pernicious and absurd, cannot 
 long continue; that the advancing tide of intelli- 
 gence will sweep it away as the rubbish of the past. 
 
 Each nation, as we have seen, has its standing 
 army, its navy, fortifications, dockyards, arsenals, 
 etc., etc.; and, consequently, each is endangered by 
 the military and naval preparations of every other, 
 and they live in constant mutual jealousy. Hence 
 there is an unceasing competition. One nation adds 
 to its naval and military armaments because, and only 
 because, the other does, and still both are asrelativehj 
 defenceless as ever. This is, and has long been, the 
 universal European jiolicy ; yet is it not irrational? 
 
 Secondly: Because the changes which are con- 
 tinually taking place in the machinery of war are 
 so great and frequent as to forbid all hope that 
 nations can ever be fully prepared for war. What 
 terrible engines of destruction, what unheard-of 
 forces, are yet to be brought into use for the de- 
 struction of mankind? The mind stands aghast at 
 the awful possibilities of the future, if the present 
 senseless and inhuman competition in war prepara- 
 tions is to be continued. The moral sense of the 
 world revolts at the thought of such stupendous 
 folly and crime. 
 
 A third consideration which leads us to expect 
 that the present war system will be superseded by a 
 
 36* 
 
426 CONSUMPTION. 
 
 general confederation for the preservation of peace 
 that all the social iiidueiicesof the age are against its 
 barbarities. 
 
 (a) Commerce, as well as common sense, makes a 
 strong plea in favor of peace. Extending with al- 
 most inconceivable rapidity, its influence is every 
 day advancing, and its interests becoming more 
 identified with the harmony of nations. 
 
 (b) The rapidly increasing intercourse by travel 
 between the different peoples is making them more 
 acquainted with each other, and dissipating much of 
 that ignorance and prejudice which, in times past, 
 has been a prolific source of jealousy and distrust. 
 
 (c) The education of the masses, their gradual 
 progress in knowledge, and their growing influence 
 in public affairs, is another very hopeful indication. 
 The people are being enlightened, and are becoming 
 too *'wise" to be made the dupes of a system of 
 which they are the greatest victims. 
 
 But onr fourth reason for expecting that the great 
 object of disarmament will be accomplished, arises 
 from the consideration that public sentiment has 
 been evidently turned in that direction for the last 
 fifty years, and much has actually been done towards 
 bringing the subject directly before the different 
 nations. 
 
 Associations have existed for a long time, whose 
 object has been to bi'ing about permanent and uni- 
 versal peace; and one of the prominent measures 
 insisted upon as necessary to this end, has been a 
 congress of nations. And lastly, we hope much 
 from the pacific settlement now in progress between 
 Great Britain and the United States, by which dis- 
 
ECONOMY OF PUBLIC EDUCATION. 427 
 
 putes of the gravest character have been submitted 
 to peaceful arbitration. The Treaty of Washington, 
 under which this has been brought about, forms a 
 new era in diplomacy ; and the court of arbitration 
 now assembling at Geneva establishes a precedent 
 that we may reasonably anticipate will hereafter be 
 accepted for the honorable adjustment of differ- 
 ences between independent sovereignties, however 
 great and powerful. 
 
 CHAPTER y. 
 
 ON THE ECONOMY OF PUBLIC EDUCATION. 
 
 It is difficult for Americans to sympathize in the 
 least with the objection which is made in England, 
 even by those distinguished for liberal sentiments, 
 that compulsory education is a breach of the liberty 
 of the subject. Our incapacity for understanding or 
 even respecting that sentiment arises from the fact 
 that such education was early made one of the foun- 
 dations of our social and political organization, and 
 we have grown up to regard it as an accepted prin- 
 ciple of good government. Our intolerance of the 
 English theory, however, is not helped by the con- 
 sideration that the support of a particular religion 
 is made compulsory by the British government. 
 
 The economic results of public education are 
 manifestly in two directions. 
 
 1st. It is intended to effect the prevention of pau- 
 
428 CONSUMPTION. 
 
 perism and crime. To use a popular American 
 phrase, "It's cheaper to buihl school-houses than 
 jails." In looking at this matter, we need to take 
 a view between that of the optimist who expects the 
 extinguishment of sin and vice by the advance of 
 knowledge, and that of certain grossly material phi- 
 losophers who compose statistical tables to prove 
 that oreneral enlio;htenment rather encourasfes crime. 
 The first notion is refuted by sad experience. We 
 may fairly decline to consider the second till it re- 
 receives the sanction of one practical statesman. 
 Such is the theory of our government on public 
 education. 
 
 2d. Public education is intended to bring about, 
 positively, a higher economical condition. 
 
 It is mind that gives man power over the brute 
 creation ; and it is by enlarging and instructing the 
 mental power that the greatest possible factor is 
 introduced into his effort. 
 
 We do not speak now of the education of the la- 
 borer in art and science for their own sake, but solely 
 for his advancement as an individual being; nor do 
 we refer to the indirect influence on social order 
 and national power, eidarging the desires, stimu- 
 lating the activities, and promoting the frugality of 
 a people. We allude only to the education of all 
 who labor, whether as masters or apprentices, invent- 
 ors or drudges, governors or soldiers, in order that 
 they may more intelligently and efficientlj" discharge 
 their parts in production. 
 
 It pays to do so. A few years of boyhood spent 
 in practical studies has taken many a man out of the 
 class of day laborers, and placed him among those 
 
ECONOMY OF PUBLIC EDUCATION. 429 
 
 who superintend the work of hundreds, or by scieu- 
 titic discovery multiply the power of industry mani- 
 fold, ^ov is it alone in these marked cases that a 
 fortunate result has appeared. It is perfectly prac- 
 ticable in any country to raise the whole body of the 
 people one distinct grade in industrial character; to 
 make every hand and every eye more strong and 
 accurate, while giving to each the repeating ^^oz^er 
 of mind. 
 
 It is not only demanded in the interest of a 
 greater production, but also to secure a more just 
 and uniform distribution of wealth. The more 
 highly educated, industrially, the workman is, the 
 firmer and apter resistance will he ofier to the ag- 
 gressions of capital or competing labor; the higher 
 will become his necessary wages, the more reason- 
 able his remuneration. It is the poor man's share 
 of wealth which, after all (while we respect the 
 rights of capital for its own sake no more than for 
 the welfare of labor), is the object of humane science 
 and legislation. A great conflict between labor and 
 capital is now imminent throughout the civilized 
 world; but if there shall ever be a good and satis- 
 factory solution of the great question at issue, it will 
 be because the capitalist and the laborer have been 
 alike educated to understand the laws of wealth, and 
 the true relations between the two great competing 
 but not antagonistic forces of production. 
 
430 CONSUMPTION. 
 
 CHAPTER VI. 
 
 POPULATION. 
 
 The question of population has been invested, bj' 
 the treatment of British writers, with great mys- 
 tery and terror. The glut, famine, and death theories 
 of Mai thus have done much to impress upon politi- 
 cal economy the shape it has to-day in the world's 
 estimation. Rightly enough, if they are correct, is 
 it called a dismal science. Malthus exhausted the 
 direct horrors of the subject; but the effect was 
 greatly heightened by the benevolent efforts of many 
 subsequent writers to provide some way of escape 
 from this fatal conclusion, — efforts which, as they 
 resulted in palpable failure, only made the outlook 
 of humanity more dreary and hopeless. 
 
 The fact is, all this British philosophy of popula- 
 tion is perverted and diseased from its root. It 
 comes out of social wrongs and false political insti- 
 tutions. It strives to apply, as a universal condition 
 of human being, the miserable results of local mis- 
 rule. Prior to all consideration of such arguments, 
 there is reason to suspect theories of subsistence and 
 population that come from an island where holdings 
 of land are only as one to six hundred or seven hun- 
 dred inhabitants. 
 
 These principles are intended to apply to the en- 
 tire surface of the earth, and have no merit unless 
 capable of such extension ; but, to give them their 
 
POPULATION. 431 
 
 most favorable conditions, we will first consider a 
 single district of limited area, — say, England itself. 
 
 Two postulates are often assumed : 1st, that sub- 
 sistence is stationary or retrogressive ; 2d, that 
 propagation is a constantly operating force, enlarg- 
 ing population in some assignable ratio. The infer- 
 ence is, that the relation of these two must bring 
 out destitution and famine. 
 
 There are here three fallacies: 1st, that subsistence 
 is not progressive; 2d, that population necessarily in- 
 creases; 3d, that, even if these were granted, there 
 would exist between them any such melancholy re- 
 lation as is assumed. 
 
 1st. Subsistence. — The fertility of the earth, in- 
 stead of diminishing, is, under intelligent culture 
 and w^ith the aids of science and machinery, con- 
 stantly increasing. The advance of industrial power, 
 in commerce and manufactures, not only furnishes 
 direct assistance in agriculture, but releases, if re- 
 quired, a great amount of labor for the latter pur- 
 suit. As is the amount of labor applied to land, so 
 is the yield the world over. The England of to-day 
 is vastly more fertile than that of the Heptarchy, 
 the [N^orman conquests, or the civil wars. 
 
 2d. Propagation.— The rule of geometric increase 
 is a favorite weapon in the defence of certain 
 theories; but it is wonderfully far from the truth of 
 nature. Boys have frequently exliibited, on the 
 blackboard, the immense wealth they could acquire 
 if they should lay by a penny a day, at interest, for 
 so many years ; and the result seems very alarming, 
 as if that pai'ticular school would eventually become 
 the owners of by far the greater part of the earth's 
 
482 CONSUMPTION. 
 
 surface. So much for mathematics. But, in fact, 
 some days the boys don't earn their pennies, and 
 some days they don't lay them by, and some of the 
 boys die ; and perhaps the bank unfortunately breaks, 
 or, after a few months of continence, a juvenile rush 
 is "made upon it, and all hopes of fortune disappear 
 in a saturnalia of candy and ginger-pop. The illus- 
 tration is plain and humble ; but it involves all the 
 elements that limit the theoretic advance of wealth 
 or population. 
 
 Contemplating certain positive unquestionable 
 facts in history, great instances of depopulation, ages 
 of decline, the slow advances of reviving production, 
 we may ftiirly begin to doubt whether propagation 
 is a permanent force irrespective of conditions. We 
 may not. unreasonably inquire whether it ever ap- 
 pears without a special reason in the case; whether the 
 rule is not the other way; viz., not that population 
 does not proceed in spite of adverse influences, but 
 that it is never called out except by physical circum- 
 stances, which, in all their contradiction and bewil- 
 derment to us, really form the condition precedent 
 of human reproduction. Why not? We do not 
 say that individual growth, either vegetable or ani- 
 mal, is a constantly operating force, irrespectiv - o 
 circumstances. We recognize the necessity of heat, 
 moisture, and special properties of soil to educe the 
 latent powers of expansion. Similar, though more 
 remote and perplexed, are the influences which bring 
 out reproduction in the animal or vegetable. It is 
 therefore more correct to say that po[)ulation, in 
 stead of being limited by adverse, is on]y developed 
 by favorable, conditions. We are deceived in this 
 
POPULATION. 433 
 
 matter, since propagation acts almost universally. 
 That happens simply because the favorable condi- 
 tions are nearly universal. 
 
 3d. The third fallacj^ we detect is, that, granted 
 the tw^o postulates of stationary subsistence and ad- 
 vancing population in any country, there is any 
 necessary relation of distress and deterioration be- 
 tween them. Such a view puts commerce out of 
 the question. In the present state of the workl, 
 the only matter of interest to determine in regard 
 to the supply of any people is whether they are 
 able to produce values sufficient to command in ex- 
 change the commodities they must consume. It is 
 of no consequence whether Manchester and Birming- 
 ham can raise their own breadstutis within their 
 corporate limits, if they can create vahies which 
 will lay all the markets of the world under contribu- 
 tion. Labor, if law does not hinder, is self support- 
 ing. The powers of industry are commensurate 
 with their wants. But, if legal and social institu- 
 tions interrupt or burden exchanges, in one way or 
 another, distress will result. There is no fault in 
 human propagation, but in what is subsequent. 
 
 In England, bad laws, passed by class legislation ; 
 oppressiv^e institutions, the relics of feudalism ; oner- 
 ous taxation, incurred by the senseless war system; 
 and unjust monopolies, created for selfish purposes, 
 — have combined to cause the ignorance, poverty, 
 and degradation of the people, and to make the 
 beneficent agencies of reproduction a partial curse. 
 The laborers of England sufifer for the commonest 
 necessaries of life, wdiile England is the richest na- 
 tion on the face of the globe. Unquestionably the 
 
 31 
 
434 CONSUMPTION. 
 
 value of the total proclaction of English industry 
 amounts to five times the value of the simple neces- 
 saries of life for her whole population. Now, if 
 labor starves, is it the fault of nature? The density 
 of population has nothing to do with it. It is be- 
 cause the common people have so little influence 
 on the government; because the land is held for 
 the pleasures and dignity of the lordly few; and 
 because the national majority is borne dow^n by a 
 powerful, selfish, and grasping aristocracy. 
 
 If now we extend our inquiry from England to 
 the whole industrial world, we shall bring another 
 element into the calculation, not to increase the 
 chances of distress by over-population, but to di- 
 minish them. Whatever may be true of individual 
 ])eoples at any particular time, the general advance 
 of population all over the earth has not been very 
 clearly proved. But, whether it has taken place 
 fiom century to century or not, it certainly has not 
 progressed in the last five centuries at so rapid a 
 rate as the means of subsistence ; nor is there any 
 ground for believing that the present advance will, 
 the w^orld over, continue wdien the means of sub- 
 sistence shall become stationary. There never has 
 occurred a case of starvation in the history of the 
 world which resulted solely from a deficiency in the 
 natural means of procuring food ; and there is no 
 reason to believe that there ever will be one. There 
 have been countless millions of deaths from hunger 
 occasioned by the destructiveness, envy, or heedless- 
 ness of man, through war, commercial restrictions, 
 or personal neglect. 
 
 4th. The fourth cause which we shall notice is alto- 
 
POPULATION. 435 
 
 gether different in its origin and character. The 
 others have all been on the brutal side of man, oper- 
 ating by misery and want. This works in alliaiice 
 with the nobler part of his being, and is of a kind 
 witlr reason. It is self-restraint. In a degree, in- 
 deed, a great part of the world exercises this. The 
 
 Chinaman will rear as manv children as he can find 
 
 1/ 
 
 vermin for as food; but the Hindoo, through his re- 
 ligious faith, stops short of all animal food, and 
 limits population by vegetable subsistence. And so 
 almost all nations have a point of decency below 
 which they will not go. But the self-restraint of 
 which we speak is of a higher kind, and begins to 
 operate before the senses rev^olt in disgust or pinch 
 in hunger. It is found wherever there is self-respect 
 and social consideration. Hence the moderate in- 
 crease of many countries wdiere population main- 
 tains a just proportion to the general wealth, taste, 
 and customs. As this is a subject to which belongs 
 illustration rather than analysis, we give at length a 
 remarkable example, which will also enable us to 
 set in contrast the operation of the other causes. 
 We take the State of Massachusetts, of which, let it 
 be observed, only a very small class is influenced by 
 luxury, and a smaller class even affected by destitu- 
 tion. Vice and misgovernment certainly work as 
 little injury here as in any portion of the world. 
 
 The annual registration, made with much care, 
 shows the following result in regard to births among 
 the native and foreign population in 1860 : — 
 
 Native population, whole number of persons .... 970,952 
 Foreign " " " " . . . . 260,114 
 
 Number of births in native population 16,672 
 
 " '' forei2:n " 16,138 
 
436 CONSUMPTION. 
 
 The number of births in the native population, to 
 be in proportion to the foreign, should have been 
 60,*239, or nearly four times the actual number. This 
 difference is still more remarkable in the census 
 returns of 1870 : 
 
 Whole population of th^ State 1,457,351 
 
 Native population 1,104,960 
 
 Total foreign born 352,391 
 
 From the Registration of the State of Massachu- 
 setts for 1870, we learn that the whole number of 
 births was 38,259, equal to 2-62 per cent., viz.: ^ 
 
 Of foreign parents 18,339 
 
 Of American parents 15,563 
 
 The American births then were equal to 1*4 per 
 cent, upon the native population, while the foreign 
 births amounted to 5*2 per cent. 
 
 Besides this, there were of mixed parentage : 
 
 Poreign father 1,787 
 
 Foreign mother 2,256 
 
 Total 4,043 
 
 or lOJ per cent, upon the whole number of births in 
 the Commonwealth. 
 
 From all this, it appears that the foreign is gain- 
 ing relatively upon the native population by natural 
 increase at the rate of 5*2 to 1*4, or within a minute 
 fraction of 4 to 1 ; and this may be assumed with 
 considerable probable correctness as equally true 
 throughout the different States of the American 
 Union. 
 
 To offset this in some measure, we have the well- 
 known fact that the mortality among children is fiir 
 greater among the foreign than the native popula- 
 
POPULATION. 437 
 
 tion. The difference is very striking and suggestive. 
 It may be accounted for in part by the following 
 considerations : 
 
 (1) A very considerable share of the foreign popu- 
 lation consists of those under tifty years of age, and 
 so generally able to contribute to the increase of 
 population. How far this fact is operative maj^ be 
 seen in the statement, that, if all persons above fifty 
 were removed from the native population, it would 
 be diminished somewhat over one-sixth; that is, 
 brought so much nearer the numbers of the foreign. 
 
 (2) The foreign population is engaged somewhat 
 less than the native at in-door and sedentary employ- 
 ments, and in so far are likely to be more vigorous. 
 
 (3) But the grand cause for the remarkable differ- 
 ence we have observed is found in the fact, that the 
 foreign population are far less influenced by pruden- 
 tial considerations and social restraint. They there- 
 fore enter the marriage state with less regard to their 
 ability to support a family respectably. Destitution, 
 in the sense which restricts propagation, hardly ex- 
 ists among them. Indeed, it may be said that they 
 are actually richer, according to the standard of living 
 they were accustomed to at home, than are our native 
 population. Consequentlj', they do not for a moment 
 hesitate to marry from any fear of want or of losing 
 caste by poverty. 
 
 On the other hand, the resistance to marriage from 
 a more costly style of living, is constantly increasing 
 with the native population, among whom the stand- 
 ard of family expenditures rises rapidly with the 
 finer culture, the more elegant arts, and the greater 
 social vivacity of each new year. The foreign popu- 
 
438 CONSUMPTION. 
 
 lation can get food, shelter, and clothing of some 
 kind. That is their idea of life. Why, then, should 
 they not marry, and rear families? To show how 
 this cause operates to produce marriage among them, 
 we refer again to the statistics of Massachusetts 
 (1860): 
 
 American marriages 7,381 
 
 Poreign " 4,057 
 
 One party foreign 943 
 
 Nativity not stated 447 
 
 Total 12,828 
 
 In 1870, the marriages were : 
 
 American 8,3G0 
 
 Foreign 4,271 
 
 Mixed 2,075 
 
 Not stated 15 
 
 Total 14,721 
 
 According to population, the purely American 
 marriages should have been about 18,000, or consid- 
 erably more than twice the actual number. Here 
 we find the force of social restraint acting on the 
 native population. 
 
 Such, then, are the principal causes which limit 
 population. The course of propagation, as affected 
 by subsistence alone, may be described as follows: 
 From a given point destitution will bear it down by 
 the most painful pressure, involving social and indi- 
 vidual misery and degradation. Under a scant and 
 difficult livelihood it will bear upward by its inhe- 
 rent forces, but slowly and with constant opposition. 
 Competence gives it an assured and regular course; 
 relieving from all considerations of physical main- 
 tenance, but substituting therefor healthful and har- 
 
IMMIGRATION. 439 
 
 monious restraints, hardly less powerful. Under 
 these influences, society gains in wealth, leisure, and 
 comfort, and is able to organize, educate, and con- 
 trol its population. Every child born into this con- 
 dition may be born to health and happiness, and to 
 be a strength and ornament to the state. 
 
 We have thus far spoken of the reproductive 
 forces without recognizing the differences originating 
 in diversities of climate and ethnical stock. These 
 unquestionably exist, and greatly modify the facts 
 of propagation ; but, as they are local and peculiar, 
 we shall enter upon no discussion of them. 
 
 CHAPTER YIL 
 
 IMMIGRATION. 
 
 No other country is so much influenced in its 
 population by immigration, probably, as the United 
 States. The whole number of persons of foreign 
 birth arriving from 1820 to 1870 was 7,803,865. 
 The number in the country by the census of 1870 
 was 5,566,546, showing that of the whole number 
 of immigrants for fifty years 2,237,319 had died or 
 left the country. We make the following compari- 
 sons, drawn from facts found in the last census : 
 
 1. Total foreign born, as above 5,566,546 
 
 2. Total having both parents foreign born .... 9,734,845 
 
 3. Total having one or both parents foreign born . . 10,892,015 
 
 Deducting Ko. 1 from No. 2, we find the number 
 
440 CONSUMPTION. 
 
 of persons born of exclusively foreign parentage to 
 be 4,168,299, equal to near eleven per cent, of the 
 entire population of the country. 
 
 Deducting No. 2 from IsTo. 8, we have the number of 
 children of mixed parentage 1,157,170, equal to near 
 twenty-five per cent, of the entire number born ex- 
 clusively of foreign parents. This fact is interesting, 
 as showing the rate at which amalgamation is taking 
 place between the native element and the foreign. 
 
 In looking at the statistics of immigration for 
 several years past we lind that 3,857,850 arrived 
 during twelve years ending December 31, 1870. 
 This number is equal to one- half of all that bave 
 arrived since 1820, so that the immigration of the 
 last twelve years is equal to that of the thirty-eight 
 years preceding, that is, in a more than triple ratio. 
 
 Two prominent questions present themselves in 
 regard to the effects of immigration : first, upon the 
 general wealth of the nation; and secondly, upon 
 the rate of wages. 
 
 That the aggregate wealth of the country is in- 
 creased by great influx of foreign laborers there 
 can be no doubt, because, as a general fact, they 
 produce of values more than they actually destroy. 
 They open and improve farms, they build houses, 
 and make improvements which are of a permanent 
 character, and, therefore, the general inventory of 
 wealth must be enlarged. Whether the average 
 wealth per capita has been increased by the im- 
 mense immigration of the last twelve years is un- 
 certain, nor is it of much importance. 
 
 Effect on ivages. In regard to this point we may 
 notice the fact that, notwithstanding the large im- 
 
IMMIGRATION. 441 
 
 migration of the last fifty years, the rate of wages, 
 not only nominal, but real, has been constantly in- 
 creasing. The explanation is that the immigrant is 
 a consumer as well as producer, and consumes, in 
 some form, all he produces, — that is, he uses in the 
 supply of his daily wants, or for a farm, a habita- 
 tion, and their indispensable appendages, all that he 
 earns. The labor market is really no more crowded 
 than if he had stayed at home. His wants demand 
 all his labor and supply; therefore immigration has 
 no tendency to reduce wages, and will not have, 
 until our vast capital in virgin lands has been ab- 
 sorbed and put to use. 
 
 EFFECT OF IMMIGRATION ON THE CONDITION OF THE 
 NATIVE LABORER. 
 
 Has the physical condition and social position of 
 the native laborer been unfavorably affected by the 
 influx of foreisfners ? We answer in the neo^ative, 
 because the general intelligence and enterprise of the 
 native population are far itt advance of those of the 
 classes who come to this country to find employ- 
 ment, and consequently the former take the lead in 
 all industrial undertakings. Visit our great work- 
 shops and factories, and who are the leading work- 
 men, the overseers, and managers? Foreigners? 
 Very seldom. So in regard to female labor. Thirty 
 years ago the operatives in our mills were American 
 children and girls. Are they so now ? Certainly 
 not. Their places have been taken by Irish, French, 
 and other immigrants, and the young women and 
 children of American descent are in better employ- 
 ments, with increased compensation. 
 
442 CONSUMPTION. 
 
 Looking at tlie results, then, the native laborer 
 has nothing to fear from this influx of foreigners. 
 The development of the natural resources of the 
 nation is hastened by it, while the original inhabit- 
 ants, so far as wages and the rewards of labor are 
 concerned, are improved rather than injured thereby. 
 
 Chinese immigration. All this is more emphatically 
 true in regard to the Chinese laborer. He is docile, 
 industrious, economical, and has all those habits and 
 traits of character that flt him for a useful employe. 
 Like a labor-saving machine, he produces commo- 
 dities at a less cost than other laborers, and the ad- 
 vantage inures to all others as well as himself. 
 
 That there is a great difference in the physical and 
 moral quality of immigrants arising from ethnic pe- 
 culiarities and characteristics, there is no doubt ; 
 that some are far more desirable as settlers and citi- 
 zens than others cannot be disputed, but American 
 institutions receive all, tolerate all ; must educate 
 and elevate all, fusing the whole if possible into a 
 homogeneous, enlightened, and prosperous people. 
 Such is the grand experiment upon which for w^eal 
 or woe the American republic has entered. 
 
RIGHT CONSUMPTION. 4^3 
 
 CHAPTER VIII. 
 
 IMPORTANCE OF A RIGHT CONSUMPTION. 
 
 This has been already shown by the light of our 
 iletinition of consumption. It has all the importance 
 which belongs to the science itself. 
 
 Consumption makes use of the wealth w^hich pro- 
 duction has brought about with all the world's in- 
 dustrial energy. It determines how each appreci- 
 able atom shall be applied : whether to degrade, or 
 to elevate ; whether, like fruitful seed, to reappear 
 in harvest, or, like a virulent acid, to destroy the 
 very vessel in which it is placed ; whether to set 
 forth the humble household of the laborer, or to 
 gleam a moment in the halls of revelry ; whether to 
 feed a thousand workmen on the temple of national 
 industry, or to melt out of sight, like Cleopatra's 
 jewel, in w^anton luxury. 
 
 All the moral and social interest that belongs to 
 wealth, belongs to its use; for as that is right or 
 wrong, healthful or hurtful, so w^ealth itself is a 
 blessing or a curse; so science should strive after it 
 w^ith earnest efibrts, or guard against with the same 
 wise precaution and thorough research which keep 
 out the plague. 
 
 There is a right consumption of wealth that would 
 bring comfort, health, and education within the 
 reach of every human being not born incapable of 
 receiving them ; that w^ould make poverty impossi- 
 ble on the earth; that would dispense with half the 
 
444 CONSUMPTION. 
 
 inducements to crime ; that would beautify every 
 home, and lighten every work. It may not be wise 
 to expect the quick attainment of such a result, or 
 worth while to prepare our robes for such an ascen- 
 sion of humanity; but just as far as the consump- 
 tion of wealth can be affected by human laws, or 
 customs and agreements, in so far may this end bo 
 approached in every day of time. It is only one 
 part of this possibility at which the poet looked, 
 when he said, — 
 
 "Were half the power that fills the world with terrror, 
 AVere half the wealth bestowed on camps and courts, 
 Given to redeem the human mind from error, 
 There were no need of arsenals and forts." 
 
 The mind can hardly lift itself to see — 
 
 "What might be done, if men were wise." 
 
 Yet political economy is a " dismal science," in- 
 deed, if we cannot look on to the gradual ameliora- 
 tion of our human condition, not by miracle from 
 the earth or the air, but by a wiser use of wealth, 
 for kind purposes created and bestowed,— 
 
 "All slavery, warfare, lies and wrongs, 
 All vice and crime might die together ; 
 And wine and corn, 
 To each man born, 
 Be free as warmth in summer weather." 
 
 ITot only does all the advantage of present or ac- 
 cumulated wealth depend on the use made of it in 
 consumption, but the very existence of future wealth 
 is decided on the same ground. 
 
 We have said that w^ealth has its generations. The 
 life of man is brief, but he outlives property. A few 
 
RIGHT CONSUMPTION. 445 
 
 articles of value may endure for centuries; but, in 
 the average, their term is very short. Simply by 
 wear and tear, the earth would be left destitute in a 
 few years, if no provision were made for reproduc- 
 tion. Our kind is placed on the verge of such a 
 chance, and can never go away from it. The dreary 
 desolation of many nations illustrates the tremen- 
 dous possibilities that lie in the use made of wealth. 
 
 We are accustomed to things as they have been. 
 It is difficult to appreciate even that which we know 
 might be. There is no economical reason why every 
 people on the face of the earth should not be rich, 
 prosperous, and independent ; every person free, com- 
 fortable, ambitious, with plenty at hand, and every- 
 thing to hope for. As it is, the homes of competence 
 or decency are, the world over, hardly more than 
 islands struggling up from the ocean ; a few spots 
 redeemed from misery and ruin. 
 
 This advance towards economic good is not a piece 
 of work to be paid for only when finished. If the 
 grand result seems hopelessly distant, every step 
 towards it does yet receive its reward ; every effort 
 brings something of fruition. 'No government or 
 individual conforms, for a single act, to right prin- 
 ciples of consumption ; but the community gains 
 palpably by it : perhaps the '^ last straw" of taxation 
 is removed, or a capitalist offers employment to a 
 starving workman. 
 
 There have been efforts to restrict political 
 economy, so that it should have no occasion to ask 
 these questions ; to cut off all that view which looks 
 out on the field of reproduction ; to shut up our in- 
 quiries to the immediate, present creation of wealth, 
 
 38 
 
446 CONSUMPTION. 
 
 its exchange, distribution, and consumption, with- 
 out regard to ultimate effects, and considering one 
 article of value as equally commendable with any 
 for which it will exchange. Such a mode of treat- 
 ment practically detaches the department of con- 
 sumption from the science. 
 
 A sagacious and generallj^ correct writer* has even 
 gone so far as to announce, "if a laborer is willing 
 to work all day for a quart of whisky to get 
 drunk upon, political economy does not question his 
 wisdom." 
 
 It is, of course, within the discretion of any author 
 to confine his inquiries so narrowly, and to erect 
 them into a consistent system ; but such a system 
 will have little of that interest which attaches to a 
 scheme that considers the industrial interests of man 
 as a whole, and for all time. It mav be a science of 
 political economy, but not the science, as we choose 
 to regard it. 
 
 If the laborer expends his day's earnings on a 
 quart of whisky, he will, most likely, be disabled 
 one day after. The account with society will stand, 
 at the close of the second day, as follows : one day's 
 work done, of which the employer, and consequently 
 society, has the advantage ; no wages laid up ; some- 
 thing taken off the health of the laborer, and the 
 order of the community. But if the earnings are 
 spent on tools or the education of self and family, 
 or on personal support, the account will read quite 
 otherwise : two days' work done, of which the em- 
 ployer and society obtain the advantage ; two days' 
 
 * Prof. Newcombe, in his " Financial Policy." 
 
RIGHT CONSUMPTION. 447 
 
 wages in the hands of the laborer, to be applied to 
 the rearing of a useful and self-respecting family, to 
 the maintenance of government, to the increase or 
 perfection of tools, or to wholesome enjoyment and 
 culture. 
 
 It is not,. of course, possible, that, from a moral 
 standpoint, there can be an^^ question as to the im- 
 portance of a right consumption ; but does not the 
 same interest attach to it in the light of political 
 economy, considered merely as seeking to eftect the 
 largest production, and the most beneficent distri- 
 bution of wealth ? We do not ask whether such 
 inquiries cannot properly be received into the science, 
 but whether any scheme can be respectably complete 
 which does not embrace them. It must not, of 
 course, look at any question in a purely moral light. 
 Yet the two interests will not be found widely and 
 permanently apart. Political economy has for its 
 end the economic good of society on the whole, and 
 in the long-run. 
 
 We have used a phrase which explains itself, and 
 which has alreadj^ received various iUustrations in 
 what has gone before. But it may be worth while 
 to fix and detain in positive shape the general im- 
 pression we have of it. 
 
 WHAT IS THE ECONOMIC GOOD ? 
 
 It is that application of the industrial faculties to 
 the agencies of matt»er which will bring out, easiest 
 and fullest, the satisfaction of those desires which are 
 healthful and harmonious in the nature of man. 
 
 Does this imply the satisfaction of the greatest 
 
448 CONSUMPTION. 
 
 amount of desires, if, indeed, they can be thus 
 spoken of in aggregation? Kot necessarily, by the 
 terms of our delinition ; yet practically we believe 
 it is true, that, taking in all of life and the whole of 
 society, a greater satisfaction will be obtained by 
 ministering to those desires which are natural and 
 itiasonable, than by catering to artificial tastes, de- 
 praved appetites, and violent passions. 
 
 Does it imply the greatest possible creation of 
 values? 
 
 Again we say, not necessarily; and yet it is un- 
 doubtedly true, that there is no surer way of secur- 
 ing the best satisfaction of the greatest amount of 
 desires, than by striving for the accumulation of the 
 largest possible wealth. There may be, will cer- 
 tainly be, a portion of such wealth that does not 
 tend to improve its possessor, either as to character 
 or condition ; there will be a portion that will not 
 receive its best application, either morally or eco- 
 nomically, just as the nourishing rain falls not less on 
 the streams that do not need it, and on the stony 
 ground that will not profit by it, than upon the grass 
 and the grains that are thirsty for it, and will repay 
 it in a plentiful harvest. But this is the way of 
 earth. If human laws and institutions do not inter- 
 fere to prevent, the natural order of things will be 
 sure to bring out the best physical condition of man- 
 kind, through the greatest creation of values. 
 
 It will be observed, that this delinition of the eco- 
 nomic good requires an equitable distribution of 
 wealth, since the desires of one can be but poorly 
 satisfied out of the possessions of another. We 
 should therefore regard with more complacency a 
 
RIGHT CONSUMPTION. 449 
 
 certain amount of values, fairly divided, than a much 
 greater amount heaped in wasteful and unjust ag- 
 gregations, or bestowed on those that can neither 
 employ nor enjoy it. But this, again, we leave to 
 the operation of natural laws, when undisturbed by 
 legislation and prescription, confident that a better 
 state of things will result than can be brought about 
 by man's wisdom. 
 
 To sum up, then : Although much may be pro- 
 duced that does not satisfy any wholesome or lawful 
 desire of man's being; althuugh much inequality 
 and injustice may take place in distribution, which 
 shall so far neutralize the bounty of nature, and the 
 industry of man ; and although the greatest wealth 
 is not logically coincident with the highest economic 
 good, — we can yet accept the former as the end and 
 aim of our science, satisfied it is in this shape that 
 the latter is to come to us. 
 
 38* 
 
INDEX. 
 
 Agriculture, efiFected by transmuta- 
 tion, 38 ; the base of the pyramid 
 
 • of production, 38; furnishes men 
 and materials for other depart- 
 ments of production, 39 ; its pro- 
 ducts not correctly measured by 
 mixed currency, 220. 
 
 Amsterdam, Bank of, 243. 
 
 Apprenticeships, shortened by the 
 division of labor, 38 ; interfer- 
 ence with, despotic and disadvan- 
 tageous, 310. 
 
 Art, economy of, 427. 
 
 Balance of trade, 132. 
 
 Banking (Free), 247; joint stock, 
 profitable in England, 237. 
 
 Banking, profitable without issue 
 of notes, 237 ; banks belong to 
 civilization, 238; national bank 
 system, 250 ; differs from the State 
 bank system, 258 ; resembles it in 
 what? 253; statistics showing the 
 character of this currency, 255- 
 257. Savings-banks, 200. 
 
 Barter, inconvenience of, 235. 
 
 Bastiat, quoted on value, 24 et seq. 
 
 Bills of exchange, 264; the barome- 
 ter of trade, 269; are they cur- 
 rency ? 271. 
 
 Book accounts, 262. 
 
 Boot and shoe manufacture never 
 protected, 112; steady growth 
 and prosperity of, 112. 
 
 Bounties preferable to duties, 344. 
 
 British exchange, 269; why at a 
 high premium, 269. 
 
 Burke, quoted, 247. 
 
 Capital, definition of, 32 and 64; its 
 forms, 32; growth, 33; relations 
 to labor, 34; not the antagonist 
 
 of labor, 35 ; co-operation with 
 labor, 64; power of, increased by 
 aggregation, 62 ; origin of, 66 ; 
 fixed, 66; circulating, 67 ; pro- 
 ductive and unproductive, 68. 
 Union of capital and labor, 70 ; 
 when most productive, 70, 71 ; at 
 what rate it should increase, 73 ; 
 should correspond with popula- 
 tion, 73; can there be a surplus? 
 74. 
 
 Charity and poor laws, 411; what 
 classes entitled to it, 412 et seq. ; 
 how and by whom administered, 
 414. 
 
 Clearing-house certificates, 250. 
 
 Cobden, Richard, quoted, note, 241. 
 
 Coinage, 145 ; adaptation of the 
 precious metals to, 142; what the 
 government does by coinage, 146. 
 
 Consumption, 391; definition of, 
 392 ; importance of a right con- 
 sumption, 443 ; combinations to 
 raise wages, 295. 
 
 Contracts, effects of credit currency 
 upon, 148. 
 
 Convertibility distinguished from 
 redeemableness, 153. 
 
 Co - operative associations, 296 ; 
 Rochdale movement, 296 ; condi- 
 tions in regard to co-operation, 
 298 ; conditions of success, 299. 
 
 Co-operative copartnerships, 301. 
 
 Culture, economic, 80. 
 
 Currency, four kinds, money, 140 ; 
 credit currency, 146 ; effects of, 
 on prices, 147 ; mixed, 151 ; table 
 of, for 26 years, 175 ; fluctuations 
 of, 175; diagram, 176 ; proportion 
 of specie to circulation, table, 
 178; mercantile, 242; national 
 bank, 250; characteristics of the 
 
 (451) 
 
452 
 
 INDEX. 
 
 different kinds, 250. See mixed 
 currency, 168. 
 
 Debt, national, conversion into capi- 
 tal, 365 ; practicability and ad- 
 vantages of, 366. Fallacies re- 
 specting the payment of the 
 national debt, 372. 
 
 Deferred income, 352. 
 
 Deposits, analysis of, 162; perma- 
 nent or compulsory, 163 ; fidu- 
 ciary,163 ; active, 164 ,• dangerous, 
 164; are deposits currency? 166. 
 
 Dilemma of mixed-currency banks, 
 183. 
 
 Disarmament, general and simul- 
 taneous, 426. 
 
 Distribution, 274; arises from divi- 
 sion of labor, 274; complete in 
 wages, profits, interest, and taxa- 
 tion, 276. 
 
 Dividends — profits upon business 
 done by proxy, 318. 
 
 Duties, kinds of, ad valorem and 
 specific, 339 ; unequal bearings 
 of, 340 ; enhances cost of pro- 
 tected articles, 342. 
 
 Economic culture, 80 ; the field of, 
 82. The economic good, 447. 
 
 Education of the laborer, 284; pub- 
 lic economy of, 427. 
 
 Elliott, E. B., quoted as authority, 
 366. 
 
 English joint-stock banks profit- 
 able, 237 ; statistics of, 237. 
 
 England, the best illustration of the 
 want of a sound currency, 244. 
 
 Entrepreneur, 311. 
 
 Evidences of debt, different kinds 
 of, 252. 
 
 Exchange, 36 ; instruments of, 130; 
 indirect, 266 ; domestic and for- 
 eign, 266 ; natural rate of, 268 ; 
 British, 249 ; rapidity of, affecting 
 profits, 316. 
 
 Exports, taxation of, 353. 
 
 Fallacies of protection, 109. Infant 
 manufactures, 109. Development 
 of manufactures, 112. Raising 
 wages, 114. Defence against pau- 
 per labor, 115. Home market, 
 117. Exhaustion of soil, 118. 
 Protection of capital, 119. Mer- 
 cantile interests, 120. 
 
 Fallacies regarding mixed currency, 
 — increases capital, 228 ; cheaper 
 than a value currency, 229 ; a 
 cause of prosperity, 231 ; a neces- 
 sity, not gold and silver enough, 
 232 ; favorable to small capital- 
 ists, 235 ; could have no banks 
 without, 236 ; can be regulated 
 by law, 238. Banks should stave 
 off suspension, 239 ; benefits 
 stockholders, 240. 
 
 Fawcett, Prof., quoted, 296. 
 
 Flour and cotton, prices of, table 
 6, 222. 
 
 Foreign indebtedness, economy of, 
 368 ; fallacies respecting, 370, 
 Free banking, 247. 
 
 Geneva, Bank of, 243. 
 
 Gold, its qualities, 143 ; abrasion 
 of, 144. 
 
 Gold notes, 248. 
 
 Government, economically best that 
 govern least, 101 ; debt, 365; its 
 payment practicable, 366. 
 
 Hamburg, Bank of, 243. 
 
 Hours of labor, reduction of, 302 ; 
 economic effect on the laborer, 
 305 ; effect on capital, 307. 
 
 Immigration, 439 ; effects upon 
 American labor, 441 ; Chinese, 
 442. 
 
 Income tax-, 349, character of in- 
 come tax, 350 ; estimated income, 
 352. 
 
 Industry, how diversified, 97. 
 
 Infant manufactures, 109. 
 
 Inheritance and bequest, laws of, 
 384. 
 
 Interest, 319; effect of usury laws 
 upon, 320 ; rate of, determined 
 by the condition of society, 323. 
 
 Inventions hastened by division of 
 labor, 47. 
 
 Ireland, population before the fam- 
 ine, note, 44 ; her capital not 
 proportionate to labor, 73. 
 
 Iron, advantages for producing it 
 in the United States, 102 ; why 
 all required is not made, 103 ; 
 effects of protection upon, 106. 
 
 Joint -stock banks in England, 
 
 237. 
 
INDEX. 
 
 453 
 
 Tiabor, definition of, 31. Work of 
 slaves not labor, 32; division of, 
 44; advantages of, 46 ; limitations 
 of, 52 ; recognition of, in the pro- 
 fessions, 54 ; disadvantages of, 
 55; enervates, 55; cramps the 
 mind, 57; compensation, 57; less- 
 ens the number of employers, 60; 
 concentrates capital and gives it 
 power, 62. Productive and unpro- 
 ductive labor examined, 80. Three 
 classes of labor, 274; physical, 
 mental, subsidiary, 275 ; receives 
 its reward in three forms, 275; 
 reduction of hours of, 302 ; eco- 
 nomic effects of, on production, 
 304; effects upon capital, 307; 
 effects of foreign immigration 
 upon, 441. Levi, Prof., quoted, 
 402. 
 
 Labor combinations, 291. Right of 
 laborers to combine, 291. 
 
 Laborer, education of, 284; frugality 
 of, 285. Distinction of sex, 286. 
 Why females have less wages, 
 287 ; a favorable change in pro- 
 gress, 68. Economic effects of a re- 
 duction of the hours of labor upon 
 the laborer, 305. The laborer a 
 consumer as well as producer, 306. 
 
 Land the great instrument for pro- 
 duction of values, 104; great 
 advantages of a public domain, 
 105. 
 
 Laws of inheritance and bequest,384. 
 
 Learning and art, 403. 
 
 Learning as affecting wages, 284. 
 
 Licenses, or special taxes, 348. 
 
 Mercantile currency, 242; a substi- 
 tute or certified currency, 242 ; 
 practicability of, 243 ; illustrated. 
 Bank of Genoa, of Amsterdam, 
 of Hamburg, 243. England illus- 
 trates the necessity of, 244. Mer- 
 cantile currency, banking suffi- 
 ciently profitable without issues, 
 246. Gold notes, 248. 
 
 Mill, John Stuart, quoted, note, 311. 
 
 Mixed currency, 151 ; quantity of, 
 152; banks, liabilities of, 154; 
 resources, 156 ; statistics of, 158 ; 
 fluctuations of, 168, 174; not 
 satisfactory, 169 ; not governed 
 by laws of value, 169 ; expansions 
 of, 170; contractions of, 171. Ta- 
 
 bles, 175 ; Diagram, No. 1, 176 ; 
 extreme fluctuations of, a table, 
 178; composition of tables 2 and 
 3, 179 ; as a medium of exchange, 
 180 ; unreliability of, 181 ; defec- 
 tive as a standard of value, 184; 
 how it does perform this function, 
 188 ; effect on prices, Diagram 
 No. 2, 193 ; endangers domestic 
 tranquillity, 199, and national 
 safety, 202 ; discourages domestic 
 industry, 205 ; Diagram No. 3, 
 209; governs importations, 211; 
 causes fluctuations in rates of in- 
 terest, 216; Diagram No. 4, 214; 
 Diagram No. 5, 217; unequal 
 effects upon different interests, 
 220 ; injurious to agriculture espe 
 cially, 220 ; effects on manufac- 
 tures, 225 ; on trade and trans- 
 portation, 226 : fallacies respect- 
 ing, — see under that head, 228. 
 Money, a standard of value, 138, 
 139, 141. 
 
 Nation, how enriched by trade, 97. 
 
 National debt, conversion into capi- 
 tal, 365; its practicability, 366; 
 results of, 367 ; fallacies respect- 
 ing, 372. 
 
 National banks, 250. 
 
 Notes, gold, 248. 
 
 Notes of hand, 263. 
 
 Page, " Hardcastle," of Bank of 
 England, quoted, 241. 
 
 Paper, effects of war protection 
 upon its manufacture, 108. 
 
 Partnership in profits, 301. 
 
 Political economy, the science of 
 wealth, 17; what it teaches, 18; a 
 positive science, 19; embarrassed 
 by legislation, 20 ; by prejudice 
 and self-interest, 21; by loose 
 phraseology, 21 ; the science of 
 values, 22 ; division of the science, 
 36 ; what it has for its end, 447. 
 
 Poll-tax payers, 356. 
 
 Poor laws, 411. 
 
 Population, 430 ; fallacies respect- 
 ing, 431. Statistics of births, 435 ; 
 of marriages, 438. 
 
 Precious metals, their adaptation to 
 use as currency, 142; assumed 
 deficiency for the wants of trade, 
 232. 
 
6^^