/ /A(M&
THE
SCIENCE OF WEALTH:
A MANUAL OF POLITICAL ECONOMY.
TRADE, CURRENCY,
FINANCE.
BY AMASA WALKER,
LECTURER ON PUBLIC ECONOMY IN AMHERST COLLEGE.
BOSTON:
LITTLE, BROWN, AND COMPANY.
1866.
EMBRACING
TEE LAWS OF
AND 
Entered, according to &ct of Congress, in the year 1866. by
AMASA WALKER,
ln the Clerk's Office of the District Court of the District of Massachusetts
SECOND EDITION.
CAMBRIDGE:
STEREOTYPED AND PRINTED BY JOHN WILSON AND SON. 
PRE F ACE.
IN the preparation of the following work, it has been my
hope, while furnishing a Manual of Political Economy,
which should present clearly and intelligibly the leading
principles of the science, to afford a full and thorough
analysis and description of the different  urrencies used in
the commerce of the world, especially to exhibit the nature
and effects of the mixed-currency system of the United
States.
Regarding the instruments of exchange as essential, not
only to the largest production, but to an equitable distribution and advantageous consumption, of wealth, I have long
felt that a work was needed which should give more prominence to the subject of money and currency than it has
heretofore received. I have searched in vain for any work
on Political Economy, domestic or foreign, which even
attempted such a complete view of the monetary question, in
all its bearings, as it appears to me to demand. Especially
does such a work seem to be called for at the present time,
when there are more conflicting views and wider differences
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I
I
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PREFACE.
of opinion among professors of economic science on this
subject, and more popular ignorance and misconception,
than on any other. To pass lightly over a matter so important, so interwoven with all the great interests of society,
has seemed to me a great wrong to those who, as scholars,
are expected to prepare themselves for active duties and
responsible positions, and, as citizens, are to decide by their
votes the financial policy of the eountry.
In 1857, I endeavored, in a series of articles upon Political Economy, in the CNew York) "Merchants' Magazine," to
show the nature and effects of mixed currency, and its
practical influence upon trade and industry. This, so far
as I know, was the first attempt of the kind. These
articles, in connection with other matter appertaining to the
same subject, were published in pamphlet form in December
of that year.* In 1859, a small but excellent work on Political Economy appeared, from the pen of Professor Bascom,
of Williams College, presenting the currency question with
great correctness, but with such brevity as not, in my view,
fully to meet the wants of the public.  Within the present
year, and since this work has been mostly in manuscript, a
manual has been published by Professor Perry, also of Williams College. It is a work of great merit; the chapter on
Foreign Trade being the most able essay upon that subject
which has fallen under my observation. The work contains
sound views in regard to currency, and a more extended
discussion than any that has preceded it; yet it does not
give so full analysis as I had already prepared, such as it
seems to me one work, at least, should contain.
* Walker on Money and Mixed Currency, 83 pp.
iv 
PREFACE.
And here I would recognize the earnest and efficient
labors of William M. George, of Philadelphia, who published
ill 1841-2 " A Journal of Banking,'" and subsequently " A
Short History of Paper Money," in both of which he presented an immense array of facts, statistics, and arguments,
calculated to awaken inquiry. Hle was the pioneer in the
great work of calling public attention to the effects of such
a substitute for money; and his labors are appreciated in
this country and Europe, by those acquainted with his
writings.
Nor would I fail to acknowledge the valuable services
rendered to this department of the science by a profound
student and able writer in our public journals, over the signature of "Bullionist," whose untiring efforts have done
very much to diffuse correct ideas in regard to the nature
of money and currency.
I presume many persons will feel that a larger space has
been given to currency than properly belongs to it.  To this
I can only reply, that nothing is inserted not deemed relevant and essential to a complete understanding of the
question at issue, in all its relations. Statistics, facts, and
diagrams have been introduced to substantiate the principles announced, and impress their truthfulness.
It may be thought, that too many and too minute details
have been given in regard to trade and business affairs; but
experience has shown me, that we cannot safely assume
that the students of a college, or the masses of the people,
are so well informed in regard to these matters as to make
such explanations and illustrations unnecessary.
Another motive that has influenced my  mind in the
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PREFACE.
preparation of this volume has been the desire to produce
a work especially accessible and useful to business men,
merchants, manufacturers, &c. They have a deep and
immediate personal interest in all economical questions, and
need particularly to be fully informed of the character of
that instrumentality by which exchanges are made, and
obligations discharged.   They are not prepared for the
responsibilities and hazards of their several callings, unless
they fully comprehend the causes which operate to ilncrease
or depress trade, to assure or endanger credit, to expand or
contract currency. Political Economy may be considered
as emphatically a business science.
But, while a knowledge of the laws of wealth is especially
desirable and useful for particular classes and professions,
it is obvious that the masses of the people should have an
intelligent understanding of its principles. In a country
where suffrage is universal, every manl is virtually a lawgiver. His opinions will influence his action in his choice
of those who are to decide the policy of the government,
which will be but the general expression of the popular will.
Every man has his ideas of currency, trade, and finance;
and, however imperfect or mistaken, they influence his political action. Hence the great desirableness of a general
diffusion of sound views upon all questions appertaining to
the economical interests of the country.
That Political Economy is a science having nothing to do
with morals or religion, nor in any way appertaining to
human welfare, except so far as relates to the production
and accumulation of wealth, is a common opinion; but it
may be fearlessly asserted, that no other science is so inti
vi 
PR EFACE.
mately connected with the destiny of the human race, in its
highest and most enduring interests. Such has been the
uniform testimony of those in the clerical profession who
have given special attention to its teachings. Dr. Chalmers, while he held the chair of Divinity in the University
of Edinburgh, gave lectures upon Political Economy. In
the preface to the volume he published upon the subject, he
says, " We cannot bid adieu to Political Economy without
an earnest recommendation of its lessons to all who enter
upon the ecclesiastical profession." Rev. Dr. Bethune, in
his address before the Literary Society of Yale College,
1845, spoke of Political Economy "as that philanthropic
science, which, next to the gospel, whose legitimate offspring
it is, will do more than any thing else for the elevation and
fraternization of our race." Bishop Whately was heard to
remark, a short time before his death, that "no theological
seminary should be without its chair of Political Economy."
Agreeing fully with the opinions expressed by these eminent men, I have felt desirous,. throughout the following
work, to show how perfectly the laws of wealth accord with
all those moral and social laws which appertain to the
higher nature and aspirations of man.
TAXATION in all its forms, as imposed by national, state, or
municipal authority, has received a large share of attention
in this work. The great change that has taken place in the
fiscal condition of the country, by which the different modes
of raising revenue have become matters of the first importance to every citizen, has been an inducement to enter
more fully into details than usual with writers on the
general science of public economy.  The American system
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PREFACE.
of taxation is more complex, perhaps, than any other, fr6m
the fact of its triple character;  that on the, part of the
general government being both direct and indirect, while
that by State and municipal authorities is, in the main,
direct, upon property and polls. The National Debt and
Public Finances occupy that position in the present work
which their importance seems to require.  The subject may
almost be regarded as a new one in this country.
References are made in this work to the writings of the
late M. Frederick Bastiat.  No author of the present age
has done more to dispel popular delusions, and expose popular sophisms, -especially in his own country, France.  It
would be well if his writings were more extensively read in
this country; and the republication of his "I Harmonies of
Political Economy" here would be a great benefaction to
the public.
We are already furnished with the valuable work of John
Stuart Mill, who is undoubtedly the ablest of living writers.
Though more especially adapted to European than American
use in the application of economic principles, it is extensively read in this country. While the science of wealth
is always and everywhere the same, it is equally true that
certain subjects of which it treats have a more practical
interest in one country than another; and, of course, the
importance attached to different topics will be determined
by that consideration. Pauperism, and the economy of the
poor-laws, may be a matter of deep concern where a frightful proportion of the people are dependent upon public
charity, but of little consequence where very few, as in this
country, are found in that condition. It is for this reason,
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PREFACE.
that each community, while recognizing precisely the same
economic laws, finds that the subjects to which they may be
applied vary greatly in importance.
I cannot claim for myself any peculiar qualifications for
the work I have undertaken. Some twenty years of my
early life were devoted to pursuits connected with the trade
and manufacturing industry of the country, while a longer
period has since been devoted to the study of the laws of
wealth.  A  practical knowledge of business and banking
affairs generally, and a most earnest and persistent search
for the truth in all matters appertaining to my favorite science, are the only claims I have to the attention of the
public.
I should do injustice to my own feelings, if I did not
acknowledge the valuable assistance of my son, Colonel
Francis A. Walker, late of the volunteer service of the
United States, without whose aid it would have been nearly
impossible, amid other avocations, to complete this work.
A. W.
NORTH BROOKFIELD, MASS., 1866.
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TABLE OF CONTENTS.
BOOK I. -DEFINITIONS.
CHAPTER I. - Character of the Science. -Distinguished from polities, 1.
-The economical circle, 2.- Man's wants and nature's supply being
constant, political economy a positive science, 3.- How far affected
by legislation, 4. -Prejudices which retard its progress, 5.
CHAPTER II. -Definition of Wealth. - Includes all articles of value, and
nothing else, 7.
CHAPTER III. -Definition of Value.   Objects of human desire, obtained
by human effort, have value, and none else. Value is power in
exchange, and nothing else, 8.' Illustrations, chiefly from F.
Bastiat, 9.
CHAPTER IV. - Distinction between Value and Utility. - One of kind,
and not of degree, 14. -Material wealth assumed to be a good, 15.
-Nature gives value to nothing, 16.
CHAPTER V.-Definition of Labor. - Services of slaves not labor, 18.
CHAPTER VI. -Definition of Capital.- The labor of the past, 19,. -
Growth of capital illustrated, 20.
CHAPTER VII.- Relation of Capital and Labor.- Should be competi  tors, not antagonists, 21. -Results of their hostility in France, 22.
CHAPTER VII.   General Division of the Science. -Production, ex  change, 22.-Distribution, consumption, 23.
[xi] 
CONTENTS.
BOOK II. - PRODUCTION.
CHAPTER I. -Forms  of Production. -Transmutation chiefly work of
agriculturist,  24.-  Agriculture  supplies  men  and  materials  for
other industries, 25.-  Includes mining and fisheries, 26.- Trans  formation chiefly work of manufacturer, 26.- Distribution of manu  factures, not so generally as agriculture, governed by the industrial
genius of peoples, 27. - By territorial advantages; by great acci -dents,  28.-  Manufacturers  employ  fewer  laborers,  but greater
machine power, 29.   Transportation chiefly work of merchant, 29.
-WVhere does the chemist belong P this division arbitrary; their
forms generally united, 30.
CHAPTER II. - Conditions of the Highest Production.- Division of
labor; co-operation of capital; economic culture, 31.
CHAPTER HI. -Division of Labor. -Illustrated; does this saving of
time promote indolence? 32.'-How far carried in fact? 33.
CHAPTER WV.- The Advantages of Division of Labor. - Increased dex  terity; better knowledge of business, 34. -Time saved in tran  sition; invention facilitated, as in American manufactures, 35. -
Individual abilities adapted to work;  the weakest employed,  36.
-Power of capital increased; manufactures concentrated; profits
reduced, 37. - Apprenticeship shortened, 38. - Social development
facilitated, and influence of laboring classes increased, 39.
CHAPTER V.-The Limitations to the Division of Labor. -When  the
operation can no longer be subdivided; when interested personal
supervision fails; when the operations cannot be sufficiently local  ized, 40. -By the necessities of the seasons; for example, agricul  ture, 41.- Hence tendency of agricultural products to rise in price;
division of labor applied to sciences and professions, 42. - Special  ties recommended, 43.
CHAPTER VI.- The Disadvantages of Division of Labor. - Tends to
enervate the laborer, 43. - This may be avoided, 44. - Lesson of
the recent war; tends to cramp and enfeeble the mind; this com  pensated, in part, by the greater communicativeness, 45. -By the
intimate connection of mental faculties, and by opportunities outside
xi 
CONTENTS.
of labor for culture, 46.- Tends to lower average of health, shorten
life, and diminish reproduction, 47.- Table showing average of life
in different occupations; inaccuracies in vital statistics, 48. - Checking propagation in cities not an evil; lessens the number doing
business for themselves; relation of this to the formation of character,
49.-To  the fairness of remuneration;  to steadiness of employment, 50.- The last disadvantage being removed by the mutual
system in trade, insurance, fisheries, &c., 52.
CHAPTER VII.- The Division of Labor (concluded). -Balance of re  sults in favor of extension of the principle, 53.- The mercantile
theory, 54.
. CHAPTER VI. - The Co-operation of Capital. - Capital is wealth
employed in reproduction, 55. - Distinction between capital and
wealth; capital comes from saviigs of labor, 56. - Fixed and cir   culating, 57.
CHAPTER IX.-  The Co-operation of Capital (continued). -No  unpro  ductive capital, 58.
CHAPTER X.-  The Co-operation of Capital (continued). - The union
of capital and labor effective when in just proportions; labor to
decide the amount, 60. -That amount varies in different coun  tries, 61. - What in United States?  62. -In Great Britain? why
Ireland is so depressed, 63. -Can there be a surplus of capital?
lesson from Genoa and Venice, 64.- Capital checked by luxury, 65.
-Emigration of capital, 66.
CHAPTER XI. -The Co-operation of Capital (concluded). -Its union
with labor effective, again, when each is sure of its reward; injustice
the death of industry, 66.-Warning  from France,  67. -From
Spanish conquests; from Asia; again, when capital is well distribu  ted, 68.-Limits to its aggregation;  American  error in regard to
corporations; again, when there is freedom of industry, 69. -Mis  chief of multiplied restrictions; work of politician impertinent, 70.
CHAPTER XII. - Economic Culture. -Is the distinction between pro  ductive and unproductive labor real? Adam Smith's list of unpro  ductive laborers, 71.-All labor productive, 72.-Examples, 73.
- Economic culture concerned with secondary influences of produc  tion, the rebound from consumption, 74.- Here production touches
consumption, 75.
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CONTENTS.
BOOK III.-EXCHANGE.
PART I.-TRADE.
CHAPTER I.-The Principle of Trade. -Arises from division of labor;
illustrated by savage life, 77. -Divided as domestic, carrying, and
foreign, 78. - Its amount governed by surplus production, 79.  Those trade most together whose productions differ; kind of pro  ducts determined by soil, 80. - Climate, social condition, ethnical
peculiarities;  territorial division of labor, 81.- Has few limitations
and no disadvantages, 82. - General principles of trade are neces  sity of surplus, community of interests;  that community often  in  dependent of direct exchange, 83.-Largest production and best
distribution effected by territorial division of labor; international
unity secured; wars diminished in number, malignity, and dura  tion, 84.
CHAPTER II.-  Obstructions to Trade.- May be regarded as protection
to local industry; protection from physical obstructions, 85. -
Measured chiefly by bulk and weight; diminished by improved
transportation, 86. - But never annihilated, 87. - Protection from
social obstructions; illustrated by American civil war, 88. -Legal
protection; this of three kinds, -prohibition, bounties, imposts, 89.
-Only necessary to discuss the last, 90.
CHAPTER  III. -Protection.-  May be for four causes, -revenue, to
encourage home production, to support capital already enlisted,
to secure commercial independence; for revenue, considered; a
species of taxation, 90. -Should be governed by what shall be
decided in regard to protection;  to encourage home production,
considered; the battlefield of protection; two propositions, 91.  Reducible to one, i.e. man's economic desires need government by
law; that, false, 92.- Illustrated by American manufacture of iron;
best example, for six reasons stated; yet we do not produce success  fully; why? not for want of knowledge, 93. -Nor of capital:
business creates its own; nor of facilities and material, 94. -Im  portance of juxtaposition; example from India; nor of natural
protection; why, then? we can do better; superior profitableness of
agriculture, 95. - Yet protection was applied, 96.-Effect?  iron
produced: a great loss to general production, 97. - Wasteful ex  periments, 98. -Excluded country suffers less than the protected,
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CONTENTS.
99.-Folly of anticipating agricultural glut; the natural growth of
manufactures, 100.
CAPTER IV.- Fallacies of the Protection Theory.- That it is necessary
to protect infant manufacturers, 101. -Answer, this protects good
and bad alike, and encourages the birth and growth of worthless
enterprises; the infant may cost more Khan the man will be worth;
example, beet-root sugar in France, 102. -That it will protect us
against the pauper labor of Europe; answer, this system started the
immigration, and has continued it, 104.- That it raises the average
of profits, which is simply absurd, 105.-That manufacturing coun  tries are, somehow, richer than agricultural; answer, they are older,
105. - Besides, only those are richer which have taken to manufac  tures by reason of natural adaptations, 106.- Manufactures, to a
certain extent, arise by natural protection in every country; to
attempt more than this is simply waste of power, 107.- That it is
necessary to develop our resources; answer, American labor has
always been fully occupied, and, when let alone, in the most profitable
business; it can do no more by force of law; our ores will not spoil
by waiting, 108.
CHAPTER V.-Protection (continued). -Have discussed two  reasons
given in chap. iii.; next, to support existing manufactures, on the
ground of justice; answer, not a question of economy; better, how  ever, to pay outright for them than repeat and continue mistakes by
false legislation; allowing all the protectionist claims, protection is
an absurdity in American politics, 109.-Fourth reason, to secure
independence; answer, simple barbarism; rejoinder, it is necessary
to safety in war, 110. -Examined and found untrue, 111.-Final
claim of the protectionist, retaliation; found to be more injurious to
the protected than the excluded, 112. - French treaty of Mr. Cobden,
113. -The natural industry of the United States is agriculture;
some sections would manufacture without protection, as they began
to do, 115.-" Let us alone," the policy of trade, 115.-Was  the
original - policy of New England; protection the disease of in  dustry, 117.
CHAPTER VI.- Balance of Trade.- The true state of trade cannot be
ascertained by inspection of official returns; the profit of exporta  tion and importation generally make the difference between an adverse
or favorable trade; our foreign trade in 1863, 118. -Frauds at
- Custom House sufficient to change the balance from one side to the
other, 120.
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CONTENTS.
BOOK III.
PART II.- INSTRIUMENTS OF EXCHANGE.
CHAPTER I.- Barter and the different forms of Currency.- Three in  struments of  exchange,  viz. barter, currency, different forms of
credit; difficulties attending barter, 121. -A currency wanted to
act as a medium of exchange, 122.-And as a standard of value;
requirements of such a standard, 123. - Currency of four kinds,
viz. money, credit, mixed, and mercantile currency, 124.
CHAPTER Il.-Money. -Forms used in different ages and countries,
126. -Advantages of gold and silver; possess value, are stable in
value, 127. -Conveniently portable, malleable, of uniform quality
everywhere, can be readily alloyed or refined, are indestructible by
accident, generally diffused, sufficiently plentiful for trade, 128.
And nearly inconsumable by use, 129. -Coinage, its advantages,
130.-United States Government seigniorage, 130; government gives
no value to coin, only certifies weight and fineness, 131.
CHAPTER III. - Credit Currency. - Transfers debts, does not pay them;
inevitably at a discount; folly of gold bill by Congress, 132.- Occa  sions rise of prices; effect on United States during Rebellion;
depreciates fixed incomes and real estate, 133. -Vitiates contracts
(see American Revolution and Rebellion), 134. - Never kept to the
natural volume of currency; seldom paid, 135. -In effect a forced
loan; a direct tax, 136. - Government does not get full value, 137.  Loss to United States during late war from use of credit currency, 138.
CHAPTER IV. - Mixed Currency. - A modern invention; Bank of
England, 138.- Composition; called mixed, because consisting of
value and credit; its quality the proportion between the two ele  ments, 139.- Convertibility distinguished from redeemableness, 140.
-Inconvertible currency annihilated by being redeemed; analysis
of bank returns; definition of terms, 141.-Bank balances the most
dangerous element; agency in suspension of banks of New York and
Bank of England, 142.-Resources of banks; definition of terms,
144.-What the source of profit? motive power in expansion, 145.   Quality of the United States currency 1860, 146. - Grand problem
of banking, 147
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CONTENTS.
CHAPTER V. - Analysis of Deposits. -Already defined; arise in five
ways, 148. -May be classified as compulsory, fiduciary, and active;
the first kept to secure discounts, 149.- Highly dangerous to the
currency; not known in England, as there are no usury laws, 150.  Other kinds legitimate; are deposits currency P opinion of Lord
Overstone, 151. — Of New-York Board of Currency; they are as
much an instrumentality of exchange as bank-notes, 152.- Indeed,
more active; stocks not immediate resources to a bank; cannot be
realized in panic or pressure, 153.
CHAPTER VI.- Mixed Currency, Fluctuations in Quantity and Quality.
-We  have two great questions: 1st, does mixed currency perform
satisfactorily the functions of money? 2d, what its effects upon public
interests? 154.- Only one of these at present (see chap. x.); mixed
currency not governed by laws of'value, because it has not value;
can be increased without labor,' and must be withdrawn for reasons
not affecting articles costing labor, 155. -Expansion always in ex  oess, because it creates speculation and a feverish demand, 156.  Because, also, banks are interested to crowd it out; contraction takes
place from any cause which affects credit; hence without regard to
laws of value, 157.- Export of specie withdraws only its own amount
of value currency, but of credit currency that amount multiplied by a
factor expressing proportion of credit to value, 158.- Sound banks
no better than unsound in panic; movement of expansion begins with
the banks, not from want of trade, 159. -Tides of business need
not be ruinous, 160.
CHAPTER VII. - Tables  and Diagrams  of  Mixed-Currency Fluctua  tions.- Table I., in absolute quantity, United States, 1834-59, 161.
-Diagram 4, in currency and proportion of specie per capita, same
period; Table II., extremes of fluctuation, currency United States per
capita, and quality of same, 1834-59, 162. - Table III., quality of
currencies in the several States, 1860; Table IV., of currency of Mas  sachusetts, different dates; currency of New England a unit under
Suffolk system, 163.
CHAPTER VIII.- -lfixed Currency as a Medium of Exchange (see chap.
vi.). -Two offices of such a medium; to transfer commodities, 164.
- Mixed currency satisfactory for this; to discharge indebtedness;
coin always reliable, 165. -The best trader cannot rely on mixed
currency, for it may be withdrawn when his obligations mature, 166. -
- He must fail; credit not reliable for money, 167.-Dilemma of banks
in panic; they choose suspension, 168.
b
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CONTENTS.
CHAPTER IX. Mixed Currency as a Standard of Value. - Vast impor  tance of this function, 169. - Denial by some of a standard; answer,
170.-  Legal  tender,  what?  171.-The  fluctuations  shown  in
tables and diagrams prove mixed currency to be unjust and mis  chievous as a standard, 172. -Immense transfers of value without
an equivalent,  173.- Extract  from  "North-American Review;"
Price, what is it? 174. - Distinction between price and value, 175
- Illustrated from Confederate States, 176.- Table V., average price
of ten commodities for twenty-six years, 177. -Diagram 5, corre   spondence of prices and currency circulation, except as explained by
law of speculations, 179. - Cotton and flour omitted for reasons after
given; these calculations per capita; these fluctuations greater thai
possible with value currency, 180. -Effect on former illustrated,
181. -Who gains by all this? not the laborer, 182. -What is
gained? only price; who gains it? debtor or creditor, as the case
may be; distinction between general and special prices, 183.
-CHAPTER X.- Effects of a Mixed Currency (see chap. vi.). -1st, En   dangers domestic tranquillity; puts the finances at the mercy of a
faction, 184. -Currency of Massachusetts, Diagram No.  6;. sav   ings banks complicate the matter, 185.-Elements of our population
make this highly dangerous, 186. - 2d, Demoralizes society and
industry, by exciting to speculation, enriching without merit, and
ruining without blame, 187. - 3d, Endangers national safety in war,
187. -Obliges a nation to carry on war with broken-down currency;
England against Napoleon; United States in great Rebellion, 188.   If any gain can be made by substitution of credit, it should be
reserved till the emergency, 189.- 4th, Discourages domestic manu   factures, and puts a nation at a disadvantage in commerce, 191.   Has always neutralized our tariff, 192. -Distresses of American
manufactures due to the currency; popular error, that high duties
restrict importations, disproved by Diagram 7; want of corre   spondence in two lines, 193. -Another cause needed; Diagram 8
shows relation between currency and imports; exact correspondence,
195.-Extract from" Bankers' Magazine," 186.
CHAPTER XI.- Effects of Mixed Currency (concluded). - 5th, Disturbs
and enhances interest, 196. - This the natural result of its raising
prices and increasing indebtedness, while itself falls away at the
moment of need; Diagram 9, 197.-Frequent and extreme fluctu  ations; highest interest with greatest expansion; lowest with least
currency, 198.- Interest in United States and Great Britain com  pared, 199. -Table VI., fluctuation in interest, United States and 
CONTENTS.
Great Britain, 1844-58,  200.-Table VII., fluctuations at Bank of
England, 160 years; effects of great revolutions indicated, 201. -
Currency of Great Britain compared to that of the United States as
to circulation and deposits; superior quality of British, 202.- Irish
and Scotch currency; estimated specie in United Kingdom; numerous
failures in Scotland, 203.- Failures in United States; British bank
reserve; Table VIII., fluctuations in bank reserve, 204. -Diagram
No. 10; effects of mixed currency on American agriculture; its products sold at gold prices, while the farmer purchases at currency
prices, 205.-Table IX., price of wheat and flour from 1846-59, with
currency; compared with general prices (see chap. ix.); no correspondence; suffering of Western farmers, 206.- Interest of the West
for value money, 207.
CHAPTER XII. -Fallacies regarding a Mixed Currency.- 1st, That it
increases capital, 207. - Credit not capital; 2d, that it cost less than
money, 208.- Instruments, to be cheap, must be efficient; mixed
currency is not; cost of value currency, 209.- Damage of mixed
currency estimated; greatly exceeds the saving, 210. - Gold circu  lates itself; mixed currency requires machinery and great expense to
keep it out, 211.- Adam Smith's figure, and comments;  3d, that it
has caused the prosperity of the United States, 212.-  No grounds
for the supposition; 4th, that there is not gold and silver enough;
absurd since discovery of Australia and California, 213. -Never
was true; much gold never used as money; amount used in United
States not greatly increased by yield of California, 214. - Has been
exported; quotation from J. S. Mill; 5th, that it is favorable to young
men, 215. - Particularly injurious to them, enhancing the risks of
credit, which they especially need; 6th, that we could not have banks
without it, 216.- Banking may be profitable without; illustrated from
British joint-stock banks, 217.- Do not object to banks, but only to
manufacture of currency, 218.-Banks used to be safe and bene  ficial; Bank of Hamburg; 7th, that it can be regulated by law;
the only cause of the evil is want of value; the only cure, to supply
that; no remedy but revolution, 219.- 8th, That banks ought to
"stave off" suspension;  suspension the only relief the public can
have; is a wrong, but one included in the original wrong of fictitious
currency, 220.- 9th, That at least stockholders are enriched by ex  pansion; not always or generally, 221.- How stockholders may be
affected, 222.-Nothing but price gained, and that unjustly and to
the prejudice of one party; it is swindling, 223.
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CONTENTS.
CHAPTER XIII.- Mercantile Currency.- A substitute for the precious
metals; combines reliability with the convenience of paper; not a
novelty, 224.- First substitute currency; Bank of Genoa, bills based
on full specie; Bank of Amsterdam, 225.- Bank of Hamburg; Eng  land needs such a currency, 226.- English finance continually
disturbed, and millions of annual loss involved, for a paltry saving;
United States still worse, 227. -The change of currency easy to
effect; issue of small notes, 228.- Amount of paper money required
in United States; legitimate banking profitable, 229.- Needs no
legislation; transition easy; some banks would be superseded; bank  ing should be free, but not the manufacture of currency, 230.  What of deposits in a mercantile currency P 231.- Would not involve
any great risk to currency, 232.
CHAPTER XIV.-  The National Currency of the United State.- - Differs
from the old system; is under national control; ultimate redemption
of notes secured, 233. -Legal tender; uniform value through the
States; provision made  for banks  holding "lawful money" with
which to redeem, 234.- Last provision frustrated by allowing
"balances" to be counted; these banks have no capital to lend, 235.
-Resembles the old system in liability to expand and contract; fur  nishes a standard of value equally delusive; raises prices and creates
speculation; extends credit; increases imports; counteracts protec  tion, and discourages home manufactures; will continue to cause
stringency and panic; guaranty of ultimate redemption no security
against a "run," 236. -Operations of the new system; where the
profit is made, 237.-  Quality of the new currency, 238.- Illustrated
from an individual bank, 239.- New system better, as more suscep  tible of reform, 240.
CHAPTER XV.-Evidences of Debt. - Three kinds; book accounts, 240.
-  Ex parte, and not negotiable; notes; bills of exchange, 241.-Il  lustrated; exchange, foreign and domestic, 242. -Great saving of
expense;  indirect exchange, 243. -Foreign  exchange illustrated,
244.- Saving calculated; indirect foreign exchange illustrated;
trade of United States 1857, 245.-Natural rate of exchange, 246.  Exchange the barometer of trade; rate of British exchange explained;
value of the pound sterling, 247.- Expense of'shipping gold, 248.  Rectification of the legal value of pound sterling; are bills of ex  change currency? do not pass from hand to hand, 249.- Are them  selves discharged by currency; are generally on time; not proper
tender; if dishonored, do not reduce amount of currency, 250. -Do
not affect prices; their scarcity cannot create panic, therefore not
currency, 251.
XX 
CONTENTS.
BOOK IV. -DISTRIBUTION.
CHAPTER I.- Divisions of the Subject. -Distribution arises out of divi  sion of labor, 252. -Labor, physical, mental, and subsidiary, all
receive wages; capital loaned in two forms, one receiving interest, the
other rent, 253. - Government claims a share; we have therefore to
provide for wages, profit, interest, rent, and taxation.
CHAPTER II. -Wages. - Governed by laws of value; vary in different
countries and ages, 254. -Importance of freedom and equality in
securing fair wages; necessary wages, 255.- Wages depend on
business enterprise; distinction between real and nominal wages;
illustrated, 256. - Facts in point, 257.
CHAPTER.III. - Proportionate Rise and Fall of Wages. -Do not rise
so soon or high as commodities generally; reason, no speculative
demand; fall sooner; difficult to ascertain rise or fall of real wages;
unquestionably have a tendency to advance; 1810 compared with
1860, 259. -Difference from character of employments;  danger;
disgrace, 260.-Unhealthy trades; compensation should be made;
agricultural wages, for this reason, lowest of all, 261.- Education of
the laborer; makes him more efficient, and commands a reward; fru  gality of the laborer; makes him independent, 262. - Neutralizes
the advantage of the employer; distinction of sex influences wages;
rate of difference, 263.- Equality of numbers; industrial sphere of
woman closely circumscribed; her products more dispensable; hence
inferiority of compensation, 264.- Cannot be increased by mere phil  anthropic efforts; change must be effected on economic principles;
her occupations must be increased, 265. - Another classification of
wages, paid respectively for physical, mental, moral power, 266.
Gradation of wages on this plan; economical importance and value of
integrity; high rewards, 267.- Objected, confounds moral and eco  nomical philosophy;  answer, they do meet, and this ground  is
common to both, 268.
CHAPTER  IV.- Labor  Combinations. - Laborers  have  same right
to combine as capitalists; friendly associations of England, 269.  Their agency; official registration; moral influence, 270. -Trades'
unions; lawful, but no coercion may be employed within or without
these unions, 271. -Strikes lawful within the same restrictions, 272.
xxi 
CONTENTS.
- Do not permanently raise wages; freedom, intelligence, and virtue
must do this, 273. - Co-operative associations; account at length by
Professor Fawcett, 274.
CHAPTER V.- Profits. - The remuneration of the business man, 279. ---
Must not be confounded with interest, wages, or rent, 280.- The
forms may be united; freedom necessary to secure fair profits, 281. -
Profits of capital an inaccurate term, 282.- Rate of profit tends to
decline, from acceleration of exchanges, increasing competition, and
more rapid intercourse; difference in rate of profits in same commu  nity, 283. - Rapidity of exchange; its effect on profit illustrated, 284.
-Profits large in new countries; Western States of America; prof  its governed by demand and supply, 285. -Tendency to reduce
profits further discussed; effect on profit of temporary rise of wages
illustrated, 286.-Dividends,  how classified? 287.
CHAPTER YI. -  Interest. -Reward of circulating capital; justified by
right of property, 228. -By human wants; interest dependent on
productiveness of labor, 289.- Governed by demand and supply; abo  lition of British usury laws; usury laws ineffective, 290.- Increase
expense of borrowing, by danger and secrecy of transaction; create
fictitious exchange, 291. -Create compulsory deposits; interest
still further influenced by hazard of capital; this depends on honesty
and thrift of a people, and efficiency of laws affecting property;
interest influenced by unsoundness of currency, 292.- Illustrations
from Europe and America; legal rate should be fixed in the absence
of any agreement, 293.
CHAPTER VII.- Rent. - Reward of fixed capital; not of great impor  tance in United States; implies ownership; implies society, 294.
- Land the foundation of rent; does not appear in hunter or
shepherd state; begins with agriculture, 295. -Location the first
element; rent would appear though there were enough land for all,
with no difference of quality; illustrated, 296.- Fertility the second
element; illustrated, 297. - Cost of importation, third element-;
illustrated from Great Britain; application of capital, fourth element;
not proportionally productive in all cases, 298.- Great extent of
European improvements; land appendages; do not sell for cost, 299.
-Reason, difference between West and East, 300.- Improvements
become gratuitous; city rents generally on level with interest, 301.
CHAPTER VIII.- Wages, Rent, Interest, and Profits, as relatively af  fected by Currency lnfiation.-Not affected in equal degree; wages did
e, 
CONTENTS.
not rise in 1864-5 as prices did, 302. - Rents advanced little, interest
somewhat, but not as high as profits; state of things illustrated, 303.
- The laborer loses; the business man gains, but not so greatly as
supposed; is, however,ethe only party who gains at all, 304.- Except speculators; loss on all fixed incomes, 305.- Facts of the war
hold to a degree in all expansions.
CHAPTER IX. - Principles of Taxation. - Necessity of government; it
receives revenue; by taxation, 306.- Importation in United States;
must be just and equal in a free country, 307.- Government own a
share in every product, has a lien on every article of value; principles
of taxation propounded by Adam Smith; first, equality of contribu  tion, 308. -Explained and illustrated; second, taxation must be
certain and plain, 309.- Third, convenience of payment to be con   sidered; fourth, economy; how the last principle may be violated;
by great machinery of collection, 310.   By disturbing industry; by
encouragement to smuggling; by interruptions and vexatious visits;
a fifth principle proposed, taxation of mischievous consumption;
forms of American taxation, 311.- National; State; taxes divided,
as direct and indirect, 312.
CHAPTER X.- National Taxation.- 1. Customs; duties of two kinds,
specific and ad valorem; American policy has fluctuated, 312.  Specific duties unjust; ad valorem create fraud, and so far defeat
revenue, 313.- Customs as a mode of taxation; easy and effective;
a tax on consumption without reference to ability, therefore unjust;
not clear and plain to the contributor, 314.- Moreover, as they
raise the value of the home product, government gets only a small
part of what the people pay; illustrated, 315. - Example of taxa  tion laid on articles not of home production; customs expensive
on account of the machinery, 316. -Additional estimates showing
expense of raising revenue by customs, 317.- Bounties preferable
for protection to customs, 318.- Excise as a mode of taxation; un   equal, like customs; not so expensive; more vexatious, 319. - Taxes
on disadvantageous consumption; eminently desirable; revenue in
Great Britain thus obtained, 320.- Stamps, cheap, efficient, unequal;
licenses desirable, 321.
CHAPTER XI. - National Taxation (continued).- Income tax;  only
/perfectly just principle; established in Great Britain; in United
States, 322. -Should be no exemptions as to persons or amount;
-difficulties alleged; people do not know their income; answer, should
know, and will learn; some are dishonest; answer, every year in
xxiii 
CONTENTS.
creases difficulty of fraud; should be put on oath, 323.- Do not like
to have income known; answer, all are copartners in taxation, and
the contribution of each ought to be known; income deferred must
be estimated, 324. - Taxation of exports reduces power in commerce, e.g. wheat, 325. -Effect shown; except where there is a
virtual monopoly of product, 326.- This we have in cotton; universal
demand, 327. -Restricted culture; United States control the production; production constantly increasing; price advancing simultaneously; yield in United States different years, 328.- Value of crop;
limited export duty would not curtail the market, 329.- Amount of
revenue yielded; cotton capacity of United States, 330.
CHAPTER XII.-  State Taxation.- Is direct; increased by rebellion;
method of; false position of poll-tax payers, in regard to appropria  tions and expenditures, 332. -Income-tax would remove the diffi  culty; poll-tax unreasonable in itself, but tolerated as part of a
system, 333.- Burden thrown on property; effect on small farmers
unjust and mischievous, 334. - Great disparity of taxation; ad  vantages which the poll-tax payer derives from government, 335.  Return made for these;  effect of State and national system com  bined; affect each other's injustice, 336. - Apportionment of national
taxation among States considered; cheaper, if the States could
not be relied on; taxation of credits; propriety has been questioned,
337. -Matter discussed; this liability, being known, has entered as
an element into all purchases, 338. - Income-tax would avoid all
injustice; as it is, credit should be taxed; taxation of government
bonds; importance of the question, 339. - Proportion of national
debt to estimated wealth; large amount of income exempted; batter
pay higher interest, 349.- Such exemption diminishes the operation
of frugality; consolidation of national debt; proposition in Congress,
341. - Desirable, but no exemption from taxation should be allowed;
such exemption separates the rights of voters from their responsibili  ties; creates a mischievous class, 342. - Unjust for national authority
to limit, in this way, the control of State and town authorities over
property; creates inequality; will create an interest against the pay   ment of the debt, involving endless taxation; particularly unjust to
certain sections, 343.- Absorbs too large a proportion of the wealth
into the debt, as our bonds will be returned in consequence from
Europe; entirely unnecessary now; never was good policy; wisdom
of British financiers in Napoleonic wars, 344. - If wisely managed,
our debt need not burden the country excessively; a consolidation
should be effected, but not in a single issue; proposed sinking fund
considered, 345.
:/xiv
f4 
CONTENTS.
CHAPTER XIII.-Foreign.Indebtedness.- 1st, Economy of foreign in  debtedness; of four kinds, individual, corporate; these may be
enforced by law, are of great extent; State, 346. -National; no
legal remedy for these; amount already sent abroad; 2d, exporta  tion of public stocks considered; desirableness depends on return
made, 347. -Exporting stocks regarded as extending mercantile'
indebtedness; the return will depend much on condition of the
currency, 348. - Disadvantage at which stocks are now exported;
tariff will not help it, 349.- The remedy should be applied to the
currency; rapid depletion of the United States; objection to foreign
indebtedness; debtor cannot choose his creditor, 350.-Makes no
difference who the creditor is; we should be glad to have the use of
foreign capital; errors of financial management duringthe rebellion;
wisdom of the Confederate loan, 351.- Our debt can be cheaply
negotiated abroad, if rightly put out; can make no operations advan  tageously under an expanded currency; indefinite fear that foreign
indebtedness endangers a nation, 352.- The danger is to the party
owning, not the party owing, the debt; no evil can arise from this
source; fallacies respecting a national debt; Mr. Jay Cooke's first
proposition, 353.- If "our debt is so much added to our wealth,"
the war was a financial blessing; nobody is richer, the govern  ment is three billions poorer; the wealth which the debt represents
has been spent in war, 354. -If debt is wealth, repudiation would
destroy wealth; not so; again, "debt is active capital;" govern  ment debt, like individual, can be hypothecated to obtain capital, 355.
- Again, it "gives stability to government;" government depends on
the satisfaction of the people; Franice has large debt, yet undergoes
repeated and violent changes; but "every government creditor is in  terested in the stability of the nation;" who holds the debt? not one
citizen in fifty holds enough stock to make his interest from it so large
as the taxation it imposes, 357. - Illustrated, 358. - The debt will be
a source of discord and faction; again, "it insures protection to home
industry," 359.- England has a large debt, and has repudiated pro  tection; again, "it is a desirable basis for banking;" debt is no basis
for sound banking; again, "the generation contracting is under no
obligation to pay;" this simply enslaves posterity, 360.- But nations
must sometimes create debts;" very rarely, 361. - Ours should be
paid within the century, 362.
CHAPTER XIV.- Rise and Growth of the Modern Financial System. -
no large national debt ever paid; William III. of England author of
- modern system; his war with France, 363. - Disadvantages of former
kings of England; William established a regular scheme of borrow
XX~ 
CONTENTS.
ing; incorporated Bank of England to manage the debt; established
land-tax, 364. -Also indirect taxation; results of the new system;
unlimited credit; all check on war expenditures removed, taxation
transferred to the poor; the aristocracy conciliated, 365.- Progress
of British national debt, 366.-Diagram of the British national debt;
the bank grows up with it, 367.- Advantages and mischiefs of indirect taxation, 368. -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,
371. -Altered condition of the United States, 371.
CHAPTER XV. - On the Laws of Inheritance and Bequest.- To whom
does the world belong, the living or the dead P 371. - It is a concern
of government; Mr. McCulloch's argument; the world belongs to
the living, 372.- Laws entailing property established in certain coun  tries, 373.- Wealth tends to pass out of the hands of a family or
class, 374. - This liability of the rich is the property of the poor;
to contravene it by law is to rob them; the laws of primogeniture and
entail; their rightfulness; subsistence secured to man only in his
powers of industrial appropriation, 375.- Analogy of nature; defeat
his right to appropriate by making property inalienable, and you de  prive him of subsistence, 376.- Expediency of such laws; entailed
estates generally too large for economic well-being; monopoly of
wealth and monopoly of wives, 377.- Diminish the industrial de  sires; draw off wealth to luxury, 378.- Come to men incompetent
to administer them, 379.
BOOK V. -CONSUMPTION.
CHAPTER I.-Divisions of the Subject. -Destruction of wealth not a
subject for science;  consumption the use of wealth,  380.- Illus  trated, 381.-Upon consumption depends reproduction; the acts of
consumption often cannot be defined or even detected, 382.- Not
the less real; relations of production, exchange, distribution, and
consumption illustrated; consumptioni divided as mistaken, luxuri  ous, public, and reproductive.
CHAPTER II. -Mistaken Consumption. - Capital applied for reproduc  tion without result; frequent failures of industrial enterprises, 383.
- Secondary uses  of such failures, i.e. railroads, factories,  &c.,
xxvi 
CONTENT TS.
884. -Large proportion of industrial misadventures;  why?  capital
fallible; extravagance in outlay; great accidents or developments,
385.- Wealth unproductively applied is not capital; is waste or
luxury, 386.
CHAPTER III. - Luxurious  Consumption. - What  is luxury? 386. -
General formula; standard varies with classes, countries, and ages,
387. -Direction varies with individual taste; do luxuries directly
encourage industry? illustration, 388. - Encourages one class to
discourage another; capital thus spent pays less wages than that
employed reproductively, 389.- Do they indirectly encourage indus  try? the desire to spend is the origin of the desire to gain; great
economic importance of this; this influence of luxuries increased by
their general diffusion, 390.- Only temperate and harmonious con  sumption of wealth in luxury encourages industry; place of morality,
391.
CHAPTER IV..- On the Degree of Luxurious Consumption.- Luxuries
not confined to the rich; an extent of necessary wages, 392.  French and English workmen compared; popularization of'luxuries,
393. -Relative consumption in luxury by different classes in Great
Britain; historical examples of luxury, 394.- The causes of luxu  rious consumption, a surplus, preponderance of desire to spend over
desire to gain; this influenced by security and profitableness of capi  tal; extent to which luxury can be carried; Gibbon's theory, 395.  Modifications of this; no certain proportion for all nations; idleness
as a luxury, 396.- Of learning and'art; have value; their price
varies, 397.  Quantity of labor bestowed on them governed by sup  ply and demand; effect of such consumption, 398. - Sumptuary
laws; supported by urgent reasons', 399.-Found impracticable;
causes, 400.- Violations not easily proved; against human nature;
laws in the interest of morality should be sustained, 401.
CHAPTER V. - Public Consumption. - Economical reason for govern  ment, 401.- Right to participate in consumption;  share? 402.  Government should take nothing from individual enterprise; anec  dote, 403. - Government should do nothing for display; historical
instances of frugality; progress in this direction; expense of gov   ernment varies with circumstances and character, 404. - Expendi   tures of European nations; of United States, 405.-Does public
consumption encourage industry? if unnecessary, it is only charity,
requiring great expense beyond the help given to the poor, 406.   saves self-respect, entails burden on the future; if necessary, public
*e
XrXVUl 
CONTENTS.
does not get full value of the outlay, 407. -Government never
operates successfully; some duties must be undertaken directly by
government; these occasions few and definite, 408. - Disadvantages
of government consumption; seldom needed by the people; perpetuates dependence; demoralizes industry; induces political corruption,
409. -If government expends at disadvantage when necessary, it
should not go beyond its strict occasions; expenditures of United
States in recent war not economically advantageous, 410.
CHAPTER VI. -  Charity  and  Poor-Laws. - Field of this  agency;
restricted by family relation, 411. -Constituents of the class
needing support;  statistics of pauperism, 412.   Not very impor  tant in United States; what classes entitled to charity? P all who
require it; the vicious P Roman cruelty; Christian law, 413.  Who should administer charity; may be most judiciously and
economically done by private hands, 414. - Mutual- relief soci  eties another and advantageous mode of charity; such agencies
extensive in Europe and the United States, 415. - Christian
scheme of the Quakers or Friends, 415. -All these methods
insufficient, and the State must engage in the work, 415.-By what
branches of the government; to what extent; two English methods;
allotment of land and parish allowance, 416. -Failure of this sys  tem; to what extent poor-laws may be effective, 417.-Able-bodied
workmen as paupers, 418. - Pauperism of England, 418. - In what
form should charity be administered? 418, 419. -How government
should furnish charitable assistance, 420. -In what spirit charity
should be dispensed, 421.
CHAPTER VII.- The Finance of War, 422.-Fallacy that more money
is wanted in time of war than in peace; evil effects of this; govern  ment becomes the greater operator in war, and changes the
direction of industry, but does not increase production; war a
business as truly as agriculture, and needs similar resources,
materials, provisions, and services, 422. -" Raising money" no
more necessary in time of war than peace, 423.- Except for obtain  ing foreign assistance.
CHAPTER VIII. -Economy of the War System, 425.-War the greatest
fact in public consumption; not accidental; consisting of (1) a per  manent military and naval force; (2) constant preparations; (3) large
national indebtedness;  British statistics in proof, 426. - Statistics
of European armies; muster roll of the British army, 427. - State  ment of national debt of each European power, 428. - Small pro
XXVlll 
CONTENTS.
portionate amount required for civil service in Great Britain, 428. -
Rapid increase of war expenditures; statement of Mr. Gladstone, 429.
-War expenditures must be greatly increased by the revolution in
naval warfare inaugurated in the United States during the Rebellion;
the "Merrimack" and "Monitor," 430. - Questions whether new and
improved ideas of international intercourse are not quite as desirable
as new engines of human destruction, 431. -Condition of the United
States, 431.- Modern war debts will never be paid until the war
policy of nations is changed, 432. -Is war a moral necessity? would
not the same common sense that establishes courts of justice for
individuals, establish a similar institution for the settlement of international disputes? 432.   Folly of rival armaments, 433. - Changes
in war armament, 434. -Influences adverse to war; (a) commerce;
(b) increasing intercourse; (c) education of the masses; (d) example
of the neutralization of the American lakes and the Black Sea, 435.
-A  congress of nations probable, 436.-Motion of Mr. Cobden in
House of Commons;  Lord Palmerston's  declaration;  the French
emperor's proposal; declined only by Great Britain, 437. -Reply
of Emperor of Russia, King of Prussia, and other monarchs, 438.The public press in favor of disarmament, 438 and 439. -The
question rests with Great Britain, France, and the United States, 440.
CHAPTER IX. -Economy of Public Education. -Objection to compul  sory education in England not appreciated in the United States,
440.-Economic results of education; (1) prevents pauperism and
crime; (2) creates higher economical condition, 441. -Scotland and
the United States as illustrations, 442. -Secures more uniform dis  tribution, 443.
CHAPTER X. -Reproductive Consumption. -Its character and origin;
necessity for the use of reproductive capital, 444.- Importance of
frugality, 445. -What amount of reproductive consumption indis  pensable; (1) capital must support labor, 446.- Capital must provide
for the increase of population; must supply its own wants, 447. -
Must support government, 448.-What amount of reproductive con   sumption is desirable? 448.-Little occasion to ask this question in
a normal state of society, 449. - The degree somewhat determined by
geographical position and political relations, &c., 450. -Desires to
spend unequally developed in different communities, 451.
CHAPTER XI. -Population. -Reference  to the theory of  Malthus;
his two postulates,  452.- Three fallacies;  (1) as to subsistence;
(2) as to propagation, 453.-  (3) The supposed  necessary relation
xxix 
CONTENTS.
of distress to these postulates, 456. -Reference to English pauperism,
457. -Causes that limit population, 458-460. -Misgovernment and
war; -self-restraint and social influences, 461. - Differences in the
increase of the native and foreign population; how accounted'for;
(1) emigrants mostly young persons, 462.- (2) Engage in more
healthy employments; (3) but, principally, are far less influenced by
prudential considerations; American and foreign marriages in Massachusetts, 463.- Comparison of deaths in same population, note, 463.
-Reflections upon the facts given, 464.
CHAPTER XII.- Inmportance of a Right Consumption.- The moral and
social interest that attaches to the wealth, attaches to its use, 465. -
What a right consumption would bring, 465.- Wealth has its genera  tions, 466.- -No natural obstacles to its constant increase and the
general amelioration of the condition of mankind, 467. -Illustration
of a wrong and right use of wealth, 467.- The science of wealth not
complete which does not embrace moral considerations, 468.- What
is the economic good? the question answered, 469, 470.
XXX
i. 
THE SCIENCE OF WEALTH.
A MANUAL OF POLITICAL ECONOMY.
[ xxxi ]  
POLITICAL ECONOMY.
BOOK I.
DE F INITIONS.
CIIAPTER I.
-CHARACTER OF THE SCIENCE.
POLITICAL ECONOMY is the Science of Wealth, and professes to teach the laws by which the production and con.
sumption of wealth are governed.
The term, "political economy," is not a fortunate one,
since it leads the popular mind to a misapprehension of
what the science actually teaches, and confounds it with
politics, or the science of government, 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 thie state is important 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 extent, control
the exercise of existing power, and the use of existing
agencies; but it can control only by limiting them. Nothing is added through legislation. The science of wealth is
1                      [11 
DEFINITIONS.
complete in its own principles, though the statesman may
think it policy to contravene them for a supposed good.
Politicali economy is, then, silent before the law.
The science of wealth would be no less complete and certain, should the action of government render the creation
or possession of wealth impossible. The science would vindicate itself by saying, that, when wealtlh is created, it must
be as my laws determine. The independence of these
sciences does not imply that they are indifferent to each
other. The statesman must consult the economist at every
step, if he would use the powers of government to national
advantage, and legislate in accordance with the natural
laws of wealth, and to the advancement of the national industry.  It is not intended here to enforce this as a duty,
but to show, by these remarks, the relation of the statesman
to the science we are to investigate.
Political economy teaches the relation of man to those
objects of his desire which he can obtain only by his efforts.
He has wants: he needs food, clothing, 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.
Thlese 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 hereafter 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.
2
[BOOK I. 
CHARACTER OF THE SCIENCE.
The wants of man, in which are all the springs of wealth,
are various, and change their place and form with times and
circumstances. But they arise from his nature. They are
a certain and constantly operating force. They commence
with man's existence, 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 creation of wealth
goes on in ever-increasing circles, expanded by the central
force, -the wants of man.  While the individual awakens
but slowly to the consciousness of his needs, gradually
exhausts his activity in supplying them, and finally resigns
all as he passes from life, we find that the sum of such
wants and energies experiences no diminution by an atom,
no suspension for an instant. Differing as these do in the
individual, they are, in the world, as well ascertained and
determinate as the facts on which any other science rests.
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 constanilcy of nature, and the permanence we attribute to the
created world,- a foundation sure enough to build upon.
If, on the one hand, man's being were so constituted 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 (f political
economy.
But, as man's being and nature's laws are found in experience, political economy is to be regarded as a positive science. Nothing in its fundamental principles is hypothetical
or problematic. None of its methods are whimsical or acci
CUAP. I.]
3 
DEFINITIONS.
dental.  Each thing is susceptible of clear demonstration.
All its parts are calculable.
"Political economy plainly belongs to the same class of
sciences with mechanics, astronomy, optics, chemistry, electricity, and, in general, all those physical sciences which
have reached the inductive stage.  Its premises are not
arbitrary figments of the mind, formed without reference to
concrete existences, like those of mathematics; nor are its
conclusions mere generalized statements of observed facts,
like those of the purely inductive natural sciences." *
In his efforts to supply his wants, we have said, man
avails himself of the powers of nature, the fertility 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 hailds of the
physical philosopher, furnished to his own use.
Let us say, then, that human nature in its wants, the
physical laws which supply them, and the statistics 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.  No enactment could
affect the movements of the planets, nor could the utmost
tyranny of his age obscure the eye of the philosopher who
looked on the revolution of the earth.  So far as political
economy, as a science, is physical, depending on the forces
and agencies of nature, it is above legislation. So far as it
is moral, depending on human nature, it can be hindered or
deflected by laws not its own. The desires of man may be
influenced by enactments, not made to cease, not brought
into being; for they are all in his nature: they have been
* Logical Method of Political Economy, by Professor Cairnes, p. 38.
4
[BOOK I. 
CHARACTER OF THE SCIENCE.
created, and they are indestructible. But the force of the
state, while it is impotent to present man with a single new
motive, or to erase one from his mind, can,yet modify and
control what already exist. Practically, this is the great disturbing force which political 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. ~ Other legislation has sought to supply
supposed deficiencies in human intelligence, and has substituted blind laws for the keen sight of personal interest
and business experience. Institutions have been created, or
have grown up, whose actual effect at the present time, if
not their avowed design, is to counteract the operation of
the natural laws of wealth; and with these institutions vast
interests have become allied in such a manner as to influence
the material welfare of a great portion of the people. 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 political opinions.
It will be easily recognized as a part of that human nature of which we have spoken, that the promulgation of
principles whose legitimate operation threatens the overthrow of long-established abuses, or which interfere with
existing customs, should excite 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.   It is a long time since chemistry was considered a diabolical art, since geology and
archaeology were excommunicated as infidel, since the do
CHAP. I.]
5 
DEFINITIONS.
trine of gravitation was an offence in the nostrils of the
Church; but prejudices and ignorance and partial interests
never opposed economical truths more vehemently than today.
"A  science that comes in contact with the interests of
men, which lies in the region of daily action and desire,
will find its theories more frequently questioned, and its
proofs more severely tried, than one which has to do with
the relations of abstract ideas, or the facts of the external
world. Political economy is not a science varying with
climate and country.  There is not an English  and  an
American political economy distinct from each other, and,
in a measure, the reverse of each other. The forces of human nature, the agents of production, the arithmetic of
gains, are the same everywhere, and lead to the same principles of economic action."-Bascom's Political Economy.
Of the advantage of a knowledge of political economy, the
same writer thus speaks: "The knowledge which it imparts
is of an important and-if we choose to make that the test
- of a most practical character. Wealth underlies all civilization, and ultimately, therefore, in a large measure, both
knowledge and religion. It is among the lowest, but also
the first, steps to social worth and national strength. We
are not to value wealth for that which it is in itself, but for
that to which it can be made to minister. In its retinue
come, or rather may come, all intellectual, social, and religious advantages."
CHAPTER II.
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 development  of these
inquiries. Political economy is unlike all other sciences in
-.6
[BOOK I. 
DEFINITION OF WEALTH.
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 attached to
these. It has to speak of wealth; of value and utility; of
labor and capital; of production, 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 terms of natural history. The liability to confusion 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 appear. 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 distiuct, 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 science, the term "wealth"
inciludes all objects of VALUE, and no other.
A discussion of its principles will be satisfactory only so
far as the explicitness and. exclusiveness of this term is held
in view. No apology is to be given for the definition, and
no substitute offered. The least deviation from this line
will lead to ceaseless entanglements and perplexities.
- The principle is cardinal. The science turns on it.
Political economy has been called the "science of values."
CHAP. II.]
7 
DEFINITIONS.
No definition could be more strictly accurate; 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, understanding that wealth consists of
objects of value only.
CHIAPTER III.
DEFINITION OF VALUE.
WEAT, then, is value?  When does an article or commodity
possess value?
When it is an object of man's desire, and can be obtained
only by man's efforts. Any thing 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
obeys 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 desirable than atmospheric air,
the light of day, the heat of the sun; yet these have no value.
They will exchange for nothing, because any one may have
all he wishes without effort.
8
[BOOK I. 
DEFINITION OF VALUE. 
An object, to possess value, must be desired by some one
who is willing to render a service or equivalent in order tot
obtain it, for the reason that he cannot have it without. It
is what a man gets, what another will give, that determines
value. The use of this term, ill its strictest sense, is of the
utmost importance. If confounded with any thing, or taken
into any partnership, the whole science is thrown into confusion.
It has been common for writers to speak of exchangeable
value, intrinsic value, value in use, &c.; but all these terms
are inappropriate. The adjectives are superfluous: they
have no significance whatever. 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 thie 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 "Harmonies of Political
Economy: "
"Theorists have set out, in the first instance, by confounding
value with utility. This was their first error; and, when they
perceived the consequences of it, they thought to obviate the difficulty by imagining a difference between value in use and value in
exchange,   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, -were 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
CHAP. III.]
9 
DEFINITIONS.
each other. / HIere we have value appearing, not in material
wealth, but in services; 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 accordingly. 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 com.    munity.  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 masonry, gates, &c.  Labor has been accu  mulated for the purpose, instead of using the hourly labor of the
water-carrier. The industry of the bricklayer 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 day
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.
10
[BOOK I. 
DEFINITION OF VALUE..
The diamond, as M. Bastiat observes, makes a great figure
in works on political economy. It is adduced as an illustrationI of the laws of value, or of the supposed disturbance of
those laws; and, as he gives a more full and satisfactory
explanation of the cause of value in a diamond than any
other writer, we shall quote his words: -
"I take a walk along the sea-beach, and I find by chance a
magnificent diamond. I am thus put in possession of great value.
Why? Am I about to confer a great benefit on the human race?
Have I devoted myself to a long and laborious work? Neither the
one or the other. But, undoubtedly, because the person to whom I
transfer it considers that I have rendered him a great service, -all
the greater that many rich men desire it, and I alone can render it.
The grounds of his judgment may be controverted. Be it so. It
may be founded in pride or vanity. Granted again. But this
judgment has nevertheless been formed by a man who is disposed
to act upon it, and that is sufficient for my argument. Far from
the judgment being based on a reasonable appreciation of utility,
we may allow that the very reverse is the case. Ostentation makes
great sacrifices for what is utterly useless. In this case, the value,
far from bearing a necessary proportion to the labor performed by
the person who renders the service, may be said rather to bear
proportion to the labor saved to the person who receives it. This
general law, which has not, so far as I know, been observed by
theoretical writers, nevertheless prevails universally in practice.
"The transaction relative to the diamond may be supposed to
give rise to the following dialogue: —
"'Give me your diamond, sir.'
"'With all my heart.  Give me, in exchange, your labor for an
entire year.'
"'Your acquisition has not cost you a minute's work.'
"'Very well, sir: find an equally lucky minute.'
"'Yes; but, in strict equity, the exchange ought to be one of
equal labor.'
"'No: in strict equity, you put your value on your service, and
I upon mine. I don't force you: why should you lay a constraint
upon me? Give me a whole year's labor, or seek a diamond for
yourself'
CHAP. III.]
11 
DEFINITIONS.
"'But that might entail on me ten years' work, and would prob ably end in nothing. It would be wiser and more profitable to
devote those ten years to another employment.'
"' It is precisely on that account I imagined I was rendering you
a service in asking you only one year's work. I thus save you nine,
and that is the reason why I attach great value to the service.
If I appear to you exacting, it is only because you regard the labor
which I have performed; but consider also the labor I save you,
and you will find me reasonable in my demands.'
"'It is not less true that you profit by nature.'
"'And, if I were to give away what I have found, for little or
nothing, it is you who would profit by it. Besides, if this diamond
possesses great value, it is not because Nature has been elaborating it since the beginning of time. She does as much for a drop
of dew.'
" Yes; but, if diamonds were as common as dew-drops, you
could no longer lay down the law to me, and make your conditions.'
"'Very true; and, in that case, you would not address yourself
to me, or would you be disposed to recompense me highly for a
service you could perform yourself.'
The result of this dialogue, M. Bastiat regards as proving
that value no more resides in the diamond than in air or
water.
"It resides exclusively in the services which we suppose to be
rendered and received with reference to these things, and is determined by 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 not 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 the final consumer of the article, and is distributed
exclusively among men."
Again: -
"In order that a service should possess value in the economical
sense of the word, it is not at all indispensable that it should be
real, conscientious, and useful service. It is sufficient that it is
12
[BOOK I. 
DEFINITION OF VALUE.
accepted, and paid for by another service. It depends wholly on
the judgment we form in each case; and this is the reason why
MORALS will always be the best auxiliary of political economy.
Economic science would be impossible if we admitted as values
only values correctly and judiciously appreciated."
Value does not always exist in a visible form. The
wealth of a nation is generally supposed to consist in the
aggregate of its material objects having value, -in its lands,
buildings, ships, merchandise, treasure, canals, railroads,
&c.; but its potential wealth, or power of creating wealth,
includes not only all these named, but the intelligence, skill,
industry, and productive energy of its citizens.   No  inventory of a nation's effects will give an adequate idea of its
economic condition, unless we hold in view its capacity of
development, and the industrial genius of the people.
The main principle in the theory of value is expressed in
the common phrase, "A thing is worth what it will fetch,"
-that is, what some one will give'for it; the value depending on the will of the purchaser, 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:
Commodity for commodity.
Commodity for service.
Service for commodity.
Service for service.
This statement exhausts all the modifications of the
principle.
18
I CHAP. III.]
Do ut des,
Do ut facias,
Facio ut des,
Facio utfacias, 
DEFINITIONS.
CHAPTER IV.
DISTINCTION BETWEEN VALUE AND UTILITY.
WE have now gone over all the ground belonging to the
theory of value: but we cannot leave it without dwelling
a while oil one part of it; without clearly marking the
boundary which separates it from the domain of utility, -a
most troublesome and intrusive neighbor.
There is between utility and value a distinction as real as
between weight and color.
Suppose a farmer in Vermont has one thousand 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 thousand dollars. Its
utility is just the same.'It will make as much bread, and
as good, as the wheat of Vermont. The value, then, does
not reside in the utility, but in the power in exchange. The
wheat of Vermont commands 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 twenlty-five cents, equal to
one-fourth of a day's labor. By the introduction of machinery, the value was reduced to ten, then to five cents, or
the twentieth part of a day's labor; the utility remaining 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 annihilated. This is because the labor or service to be appreci
1,1
[BOOK I. 
VALUE AND UTILITY.
ated in such values is constantly lessening, though it call
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 science, which may be stated
as follows: Value moves, diminished constantly by the substitution of the gratuitous agencies of Nature, by the ingenuity and industry of man. Utility remains fast-anchored
in the wants of man and the properties of matter. This
is the primary fact.  But value moves again, -not to increase, but to multiply. Values are no greater, but there
are more of them. The factor that multiplies is the evergrowing wants of man. Now, utility begins to move, expanding with the enlargement of man's activities, and the
increase of the fruits of labor. Here we have the promise
that the human race is destined to a constant augmentation
of utilities; bringing in a great amelioration of its condition.
Man is relieved from part of his labor only to feel new
wants, and so, through'fresh efforts, to find greater satisfactions in life.
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 interests of society are attained by
repelling the kindness of Nature, 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 ef physical necessaries, comforts, luxuries,
and refinements, with the opportunities 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 subtile miotives which they contribute to the exertion of all the human faculties, and the full,
friendly intercourse of all communities and peoples, -it
CHAP. IV.]
15 
DEFINITIONS.
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 uLniversal 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 computation, but does all gratuitously. Wind, water, and steam are most efficiently
engaged ill producing commodities necessary to the welfare
of mankind; 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 propelling vessels, adds no value
'to the articles transported. 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 increased the value, but
rather diminished it. It has taken the slaves from the
benlch, and does the merchant'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 employed in
effecting it. All the natural forces that come in take off
from value. If a merchant were to make a charge for the
use of his vessel, the payment of his hands, and the ordinary rate of profit on his voyage, and, besidles these, for the
use of the wind, it would not be allowed.' Competition
would correct his philosophy; and the eloquence of unsold
merchandise would be his teacher in the theory of value.
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
16
[BOOK I. 
VALUE AND UTILITY.
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 production, we shall
find that it confers no value.  Is it asked, " Why, then, do
men pay for the use of it?  Why buy it at a large price?"
The answer at length to this question will be deferred till the
discussion of rent; but it will be sufficient 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.
There are many special products which have been presented, in discussion of this subject, as exceptions to the
principle, that value comes only with and by labor; e.g.,
precious stones, curiosities, the precious metals, monopolies,
patents, &c., &c.  The relations of the first two are fully
defined in the extract already offered from the work of M.
Bastiat. Of gold and silver, it is enough to say, that, whatever the theories of the past, it is'now an abundantly recognized fact, that the mining of these metals proceeds strictly
according to the laws of industry, with hardly its ordinary
accidents and chances. It is estimated, that, when brought
to market, these metals have cost sixty-six cents on the
dollar. The remaining thirty-four cents constitute the remuneration of the laborer and the capitalist; which cannot
be regarded as excessive when the privations, risks, and
hardships of the occupation are kept in view.  Monopolies
and patents confer no value, but simply contravene its laws.
This is their object. They are designed, by giving the
exclusive right to produce or sell a given article, to reward
the favored party for his skill in invention, or for a general
good supposed to be conferred upon the community. They
are compulsory contributions levied upon the public for tho
benefit of individuals.
2
CHAP. IV.]
17 
DEFINITIONS.
CHAPTER V.
DEFINITION OF LABOR.
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 Nature, 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 reward, that
every thing which costs labor will, as a 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,
* "Labor is either bodily or mental, or, to express the distinction more
comprehensively, either muscular or nervous; and it is necessary to include
in the idea, not solely the exertion itself, but all feelings of a disagreeable
kind, all bodily inconvenience or mental annoyance, connected with the employment of one's thoughts or muscles, or both, in a particular occupation.'
-J. STUART MILL, Principles of Political Economy, p. 29, Am. ed., vol. i.
18
[BOOK I. 
DEFINITION OF CAPITAL.
like horses or oxen; and what value they confer is from
their employment as so much capital. This distinction is
not unimportant, because we shall see that capital is controlled by other laws than those which govern labor.
Under a free-labor system, 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.
CHAPTER VI.
DEFINITION OF CAPITAL.
LABOR enters into production, or the creation of values, in
two ways: -
First, As the labor of the present.
Second As the labor of the 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
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 effect the barest subsist
ence of mankind. Even the naked savage goes hungry till
he gets his bow and his fishing-hook by the labor of his
hands.  As society goes forward to plenty, comfort, luxury,
civilization, the union and mutuality of the two become
more intimate and vital. By such a connection alone is
wealth produced.
19
OHAP. VI.] 
DEFINITIONS.
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 necessities as to allow him to be clothed; thoughl 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 without tools. In the other ninety-nine,
he starves for want of capital. But, by chance, you find
work requiring 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 without capital.  It
was uncertain whether he would obtain it.  It is certain the
employment cannot last long, since need of such assistance
closes, perhaps, with the first evening; and you send him
away helpless in the midst of civilization. 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.
He has practised a self-denial.  He appears the next morning with his axe.  He has enlarged the sphere of his activity,
perhaps, fifty-fold.   He has now fifty chances of employment.  He has secured work for fifty days.  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 employment every day of the year. So it
is, in the grand field of the world's industry, that capitalthe accumulation of labor- helps the labor of the present,
20
[BOOK I. 
CHAP. VII.]  RELATION OF CAPITAL AND LABOR.
not only to its immediate sustenance, but to permanent
occupation, to increase, and to the highest economic civilization.
CHAPTER VII.
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 meaning, 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
either can secure its remuneration, or maintain its existence.
But they are not antagonists. All their effort, even in
the severest assertion of their individual claims, goes to the
increase of the common property, and the advancement of
their mutual service. Antagonism tends to destroy. Its
purpose is, so far as it proceeds, to remove one or the other
of the parties.  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 antagonism.  They
are partners, and should divide the results of industry in
good faith and good feeling. False philosophy, or unprincipled politics, may alienate their interests, and set them at
discord. Capitalists may encroach on labor. Laborers
may, in their madness, destroy capital. Such is the work
of ignorance and evil passions. It is the surpassing folly of
the members that combined to cut off supplies from the
stomach.
- However far such a strife may be carried, it must result
in mutual injuries; and health can only be restored by oh
21 
DEFINITIONS.
taining the recognition of the full rights and obligations of
each. The condition of well-being is peace. A false philosophy has set tile world at war for ages, proclaiming that
what one nation may gain another must lose.  Such a philosophy has had its trial, extending over centuries of waste
and terror; and is now, fortunately, dishonored 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 belief blasphemes against the harnmonies of Providence, -is sightless before the glorious order
of man and nature.  It was the popular faith in such a principle of hurt, not help, between the two great divisions of
industrial power, that effected the Revolution in France.
The cruel, shallow selfishness of capital has robbed labor by
means of law.   Labor, impoverished, ignorant, degraded,
has often turned upon its tyrant, and laid in a common
waste church and state, letters and wealth.
CHAPTER VIII.
THE GENERAL DIVISIONS OF THE SCIENCE.
lst, It being admitted that man has wants which he 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
tile 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 vari
22
[BOOK I. 
CHAP. VIII.]  GENERAL DIVISIONS OF THE SCIENCE.
ous; 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 produced 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 what circumstances and conditions they will effect an equitable DISTRIBUTION of the WEALTH which has been produced.
4th, As all commodities created by human exertion are
designed for use, and as such use implies consumption
more or less rapid, and as upon this depends the power and
disposition for reproduction, 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., production, exchange,
distribution, and consumption of wealth.
Exchange might not improperly be regarded as belonging
to the first general division, since it contributes largely in
the actual production of wealth: yet, as it also greatly facilitates and increases consumption, and has influence throughout the whole domain of human industry, it seems desirable
to regard it as a separate department; and it has often been
treated as such by writers on the general subject.
23 
BOOK II.
P R O D U C T I ON.
CHAPTER I.
FORMS OF PRODUCTION.
ALL values are created by modifications of existing matter.
Man cannot create one particle; but he can modify what be
. finds, or change its condition, in three ways; viz.:
By TRANSMUTATION, b TRANSFORMATION, b TRANSPORTATION.
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, &c. 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 material
and the support of all other forms of labor; and not this
only, but it renews and restores their waste with an unceasing supply of fresh bodily and mental power. The air of
trade and of the mill 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. He comes with clumsy tread and
homespun dress; but he takes the first place in the market
and the synagogue. Basil enters Constantinople as night is
falling, stares about on the magnificence of the city, and
[24] 
FORMS OF PRODUCTION.
falls asleep on the steps of the Church of St. Diomede.
He is tired of Macedon.  He has business on the throne of
the world. He who restored the laws of the Eastern empire, and reclaimed the lands deluged by the barbarian
floods, is the exemplar of the countryman, in all times, gazing rudely around on the luxury his homely virtues are to
appropriate.  The millionnaire dashes by in his splendid
turnout: a raw, tall lad, with a bundle on a stick, looks on
with wonder, -the employer of that man's children.
Just 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 thlrough 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 reproduction of man, when living in intimate relations with
Nature.  Here, after all its hurts, humanity comes for healinlg.  War and pestilence, the fierce 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. Yet
agriculture does get back a certain share of what it gives.
Because it is not a labor of ambition, because honiors are
not to be gathered in the fields it cultivates, because the excitements of machinery and association are not to be found
in its work or play, because quick wealth is not to be realized in its slow increase, the rustic turns himself to the
city; and because it is not a labor of ambition, and for
each of the other reasons given, the citizen, weary with all,
CIIAP. I.]
25 
[BOOK II.
goes back to the open fields and fresh air of the country.
The cabbages of Diocletian, the eggs of John Ducas Vataces, the apples of Sir William Temple, are the return made
to, agriculture for Basils, Astors, and Lawrences.
But the department of agriculture is not confined to the
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 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. Nature 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 underground in Golconda, or sponge under water
in the Archipelago. Such an industry id the fisheries,whether of whales off Greenland, of cod off Newfoundland,
or of pearl-oyster off Ceylon. So great, indeed, is the scientific extension of the department of agriculture, that even
the smelting of the ore, and the transportation from the
fishing-grounds to the port from which the venture began,
are included in it, because these first put the products in
the possession of the capitalist in an available form. Any
further change, whether to make the metal up into forms
for use, or carry the fish or oil or pearls to market, would
come under the other forms of production, to which we now
proceed.
Man modifies matter and exchanges its condition,  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
26
PRODUCTION. 
FORMS OF PRODUCTION.
and absolute 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 luxuries, the more cosmopolitan
they become.  Other reasons, which will appear in our progress, will further account for the unequal growth of manufactures, which have yet more uniformity than is exhibited
in statistical tables, or in general estimation, since the
staple articles of manufacture attract more attention than
those multiform smaller products which far outweigh them
in value.
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  plunging into the deep questions  of ethnical differences, 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
positively estimated to be, in the sum of them, equal, it is
quite certain that they would be far from similar: 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, mechanical contrivance gives the same glow of pleasure that
rewards the painter for his years of toil. A distrustful,
reserved, secretive disposition may be observed through the
entire industry of another country, tending to individualize efforts and discourage combination. The catalogue of
'CHAP. I.]
f 27 
PRODUCTION.
traits has been extended sufficiently to account for much
of the inequality which exists in the distribution of manu factures among the nations of the civilized world.
2. The territorial advantages of a people, which are
both positive and negative in their nature,- positive, as a
people is endowed with water-power, and with the col location 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 esti mated that Holland has not agricultural capacities to supply
a third of its population. With some peoples, this niggardliness of soil would have been a reason for emigration or
starvation; but there, uniting with the peculiar genius of
the inhabitants, this necessity has produced a wealthy and
flourishing state. It has ever been held by moral writers,
that such unkindness of Nature develops the industrial
energies of a people, where it is not so extreme as to
destroy even the conditions of production. But the inquiry
is too abstruse for our purpose.
3. Great accidents, belonging neither to the essential
genius of the people, or its territorial endowments. 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 which
scattered over the continent six hundred thousand Huguenots, -the cunning artisans of France; like that which
wrought devastation still greater in the " reconciled" provinces of Spain.*   Such was the windfall of the Indies in
the lap of Europe.  The desirableness of such a distribution
of manufactures will be discussed elsewhere. Our purpose
here is only to show by what means it comes about so unequally.
Passing now from this question; and looking only to the
aggregate of such industries, we find it to be small, if we
* "Our manufactures were the growth of the persecutions in the Low
Countries."-EDMUND BURKE, in his speech to the electors of Bristol.
28
[BOOK II. 
FORMS OF PRODUCTION.
consider only the number of those employed. But labor
here acts in connection with a greater amount of capital
than in agriculture, and avails itself of more and mightier
agencies of Nature. The factor into which labor is multiplied is vastly increased when we enter the workshop and
the mill.
But man modifies matter or changes its condition,  Thirdly, by transportation.
The merchant does not primarily create value in objects,
but enhances that already existing by transporting such
objects from one locality to another.
The characteristic illustration is of the most familiar
kind.  Cotton boug.ht 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.  He has increased the wealth
of the world 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 themselves, it composes so large
and easily separate a department of inquiry, that it is, for
the discussion of its principles, placed as a general division
of the science under the title of" Exchange."  To complete
the sphere of production, we recognize here the share it has
in creating values; but the means by which this is effected,
and the impressive phenomena exhibited in the operation
of this agency throughout the entire world, are set apart
for special consideration.
We have thus gone through the three forms in which man
modifies matter to create values,- transmutation, transformation, and transportation. The inquiry will at once
CHAP. I.]
29 
[BOo  II.
occur, whether these exhaust all possible efforts in  production.  The answer may come out more clearly if we
proceed by an illustration.
The chemist, -what is his position in the world of values? He has been ranked, by some scientific writers, among
the agricultural class, because he so aids and directs the
processes of Nature as to produce objects of value by changing the elementary powers of acids and alkalies into salts,
&c. 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. He works by the side
of the agriculturist, helping how best to direct the labor of
the farm.  Here the chemist produces value.  He works by
the side of the manufacturer, with lubricants and solvents,
removing obstacles which no muscular strength could shake;
and here, again, he produces values. He may, also, labor
by the side of the merchant, making much cunning use of
Nature; and here, again, he produces values, in the form
of transportation. From each he receives remuneration in
proportion as he renders service.
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 many moulds; but that they
result from an arbitrary classification of individual efforts,
according to the best reason of the case.   The whole
authority of such a classification consists in this,-that it
is more complete and definite than any other which is
offered.
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. To the agriculturist has
been attributed the work of transmutation.   Yet, practically, he performs every function of human labor; and,
directly or indirectly, uses nearly every known agency of
Art or Nature. The manufacturer has the work of trans-i
30
PRODUCTION. 
CHAP. II.]  CONDITIONS OF THE HIGHEST PRODUCTION.
formation; but he can only create valuos by mingling his
labor with that of the agriculturist and the merchant, and
thus the final product is the property of all. By what
principle, and through what force, the remuneration of
each is determined, will appear under the title of" Distribution." Such, then, are the general forms in which man
puts forth his efforts for the satisfaction of his desires.
CHAPTER II.
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 adjacent 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.
31 
PRODUCTION.
CIHAPTER III.
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 find a chair, equally serviceable and far more elegant, produced by the labor of half a
day.   Here one man cuts the timber, another transports
to the mnill, 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 further 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.  Here the power
of labor is too often.corrupted by the very luxuriance of
growth, which gives it great opportunities, and opens a
world to its easy conquest.
But it may safely be assumed, that such an industrial
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 thoughtfulness and care, the social confidence, and mutuality of service, which are required to
effect a division of labor, insure such a susceptibility to new
32
[BOOK II. 
DIVISION OF LABOR.
industrial wants as shall necessitate the employment of all
the labor so relieved.
The savage who can provide himself with clothing, shelter, and food in twenty days of the year, may be willing to
spend the rest of the time in doing nothing. But it was
never heard that men came together to do any thing, and
remain content to do nothing more. The full discussion
and illustration of this principle, which governs the use
of labor saved, belongs to the third inquiry; viz., that of
" Economic Culture." 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.  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 explanation of wealth than can
be found in all other inquiries. 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 yet
reached its ultimate limit in any sphere of human activity.
We shall give its phenomena and its principles special attention; for the greatest interests of society, moral as well
as economical, connect themselves with it.
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.
Take, for illustration, that of boots. One person cuts the
fronts; one crimps; one cuts in; one cuts out the backs,
one the linings; one pastes together; one strips out the
sole leather; one cuts the soles; one makes the heels; one
stiches the backs; one sides up; one binds; one bottoms;
one buffs; one trees; one packs, marks, &c. Here are sixteen persons employed in the production of a single boot.
In many cases, a still further division of the parts is made
8
CHAP. III.]
33 
PRODUCTION.
with success. In passing, it may be remarked, that, of those
operations, seven are performed by the aid of machines, as
distinguished in popular acceptation from tools, which latter
are controlled by the hand, and have all their motive power
in the muscular force of man.
As long ago as Adam Smith wrote, it took sixteen persons to make a pin.
Such, in description, is division of labor.   Let us consider its advantages, limitations, and disadvantages.
CHAPTER IV.
THE ADVANTAGES OF DIVISION OF LABOR.
1st, It gives increased dexterity.  All common  observation testifies how rapid and accurate our motions become,
when confined to a single operation. The juggler is not
more remarkable for the nice use of his muscles, than is an
accomplished mechanic at his bench. The powers of his
body are in perfect discipline. They have learned their
parts, and obey instantaneously and harmoniously.   The
more simple the movement assigned, the greater will be the
efficiency of performance
2d, It allows the workman a better knowledge 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 knows more about it
than if he had two things to think of and care for. He
becomes shrewd in every motion. He adapts his labor to
the material; he discriminates between the qualities of
that material. He meets the little difficulties of his work
with more skill and less waste. These two advantages of
the division of labor are shown in the different wages which
skilled mechanics obtain as compared with unskilled, able
seamen with landsmen.
34
[BOOK II. 
CHAP. IV.]  ADVANTAGES OF DIVISION OF LABOR.
3d, It saves time, in passing from one work to another.
In the making of a chair after the primitive fashion we
have supposedra 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. And, even where we suppose a
laborer to be engaged in two operations only, there is still
a loss inflicted, just as often as he has occasion to leave one
for another. It is not a loss alone of the time physically
necessary in effecting the transition, but each operation will
leave something to harass the nmind in; the other.  During
the first part, the attention will be distracted by what has
just been left.  During the last part, the attention will run
on, anticipating what is to come. The shadow is cast both
ways upon the mind.
4th, It facilitates the invention of tools and machines. 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 visitor.  So, if there is a possibility of adapting
foreign forces to the production of values, the inventor will,
on the same condition, more probably be the workman than
any one else; he is constantly engaged upon the operation;
he desires, of course, to simplify it, since it is a law of mind
to do as little work as possible for a certain result; he
knows the wants of the subject; he knows all the capabilities of his material; he thinks about it all the time, and can
try an experiment without changing his place. Therefore,
by the logic of Nature, he invents. And, in fact, few of the
great aids to industry have been discovered by disinterested science.  They came from the laboring brain of the
mechanic. Where the work was almost too delicate for
human eyes, a thousand iron fingers go around to do it,
never losing their nimbleness, nor ever getting weary;
where the work was too great for human strength, monster
arms swing the hammer, or toss the load in air.
The history of American manufactures expounds the
35 
PRODUCTION.
phrase, "Necessity is the mother of invention."  Even the
slaves of the South have been directed to important mechanical discoveries, in the way we have described. One simple
operation, constantly employing the attention, must, in time,
lose all its secrets.
5th, It secures the better adaptation of physical and mental abilities. No consideration is more vital than this. The
work which man finds 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 Nature, 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 appropriate 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 withiin the great partnership of society.
Women are enabled to undertake business of the most delicate and important character, to which their strength is
sufficient; while children of 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. Without it, a great part of the human
36
[BOOK II. 
CHAP. IV.]  ADVANTAGES OF DIVISION OF LABOR.
race would be helpless paupers, and the remainder would
earn a scanty and miserable livelihood. Manl working by
himself is a poacher on the domain of Nature; men, i11
industrial society, found empires, build cities, and establish
commerce.
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 boy
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 away to do a larger work. In anthropology,
this is only a boy; in political economy, he is a man.   He
and the other make together two men.
6th, It increases the power of capital in production, tends
to concentrate manufactures in large establishments, and
reduce profits.
Supposing all men equally capable of carrying on inldependent 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 advantage.
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 realize only 12.1- per cent, have an
income of $2,500.  A cotton manufacturer, who makes 3,000
yards per day, or 900,000 per annum, if he gets but half
a cent per yard profit, has an income of $4,500; the man
who makes but 300 yards per day, at one cent per yard,
or double the profit, gets but $900.
37 
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 consequence of this.
Therefore, other things being equal, it is desirable that
manufacturing establishments should be sufficiently large
to secure all the advantages of concentrated capital, and
effect the complete division of labor.
7th, It shortens apprenticeship.
Every art, trade, or profession must be preceded by an
apprenticeship, more or less extended, according 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.
Now, 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
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 apprenticeship 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.
It will be observed that these are years of apprenticeship,
[BOOK II.
88 
CHAP. IV.]  ADVANTAGES OF DIVISION OF LABOR.
not of labor. In considering what is the saving to the
wealth of the country, we must estimate the amount of
values created by these workmen during the apprenticeship
under the first system supposed. Per contra, we must take
into account the greater amount of material destroyed in
teaching each man to do all the parts, and the greater interruption of the employer or journeyman.
If we suppose these years, saved from apprenticeship,
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 development,
and increases the social power of labor.
This is immediately of moral interest; but it has important economic bearings.  The principle itself is indisputable. Not 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 cooperation, act intelligently'and harmoniously as to their
rights, and form a public opinion among themselves which
has often been found a great power, economically and civilly.
Such an association, moreover, brings the workman nearer
the government and the public force; sometimes for evil,
but often for good.   A  population thus concentrated is
capable of prodigious impulses. All the artisans of the
empire are not equal to the mob of the capital. Govern ment knows and respects the power of this class, no matter
how fully disfranchised it may be in the law
$9 
PRODUCTION.
CHAPTER V.
THE LIMITATIONS TO THE DIVISION OF LABOR.
BUT the great principle of division of labor, so very bene
ficial 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.   Beyond  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 sufficient intensity to insure efficiency and fidelity
on the part of those employed, and harmony in the general
conduct of the business. Beyond this point, the advantages
derived from the power of concentration are neutralized. It
may even become mischievous. It is well that there should
be limitations, because they prevent such aggregations of
capital as would swallow up the whole industry of a state.
Experience shows that the greatest establishments are not
always or generally the most profitable. Those which are
large enough to secure all the real advantages of concentrated capital and combined effort, yet are small enough to
be brought under direct, personal, interested supervision,
are the most beneficial to their owners and the public.
3d, Where the industry consists of an indefinite number
of parts, yet the special circumstances will not allow each
workman profitable employment in a single operation, - for
example, agriculture in most of its branches: first, from
the fact that its operations cannot be sufficiently localized;
40
[BE oo I. 
OHAP. V.]   LIMITATIONS TO DIVISION OF LABOR.
and, second, from the necessities of the seasons. No department is capable of so much subdivision as this; yet, in
practice, noine experiences so little.  In milling, 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.  Boys and women
are indeed made useful in it, but they have not the same
continuous and profitable employment as in manufactures.
Nor does their work correspond precisely with what is
required in our definition of the division of labor. They
are occupied, generally, not in one operation so much as in
a miscellaneous class of light duties, too variable to realize
the dexterity and thoroughness obtained elsewhere.
There are other instances which seem to approach near
to the conditions of the highest efficiency. Some persons
are employed for an entire community to plant, to graft, or
to team; but not only does the extent of territory limit
their application to a single pursuit, but the change of the
seasons drives them from one to another ahlmost every
month.   Stock-raising, and gardening for large markets,
afford the best American example in agriculture; yet each
of these is not only a considerable department in itself,
but whoever engages in either of them must do much
not directly connected with it.
The culture of the grape realizes, perhaps, as fully the
mechanical advantage of division of labor as any in agriculture.
But, 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 agricultural 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 concentration, and made general to all
seasons of the year, admit also of prodigious multiplication
41 
PRODUCTION.
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 products other
than agricultural, - will be constantly increasing. A bushel
of corn, in 1820, would purchase 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 manufactures 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, affecting 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 professions known as the learned, and others which
have an important though indirect agency in production
(for, unless they have some agency in production, we have
nothing to do with them here), naturally divide themselves
into branches more or less numerous and special, as occasion offers. 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, &c. In
medicine, the eye, the ear, the skin, consumption, fevers,
cancers, have each their own practitioners.
That science and skill are promoted by such subdivision, and that the immediate efficiency of professional
labor is greatly increased thereby, cannot be intelligently
questioned.
42
[BOOK 1,I. 
CHAP. VI.]  DISADVANTAGES OF DIVISION OF LABOR.
As any community advances to a higher civilization,
specialties are more and more resorted to. Individuals,
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 call
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 that is wanted. No
matter how humble his station, or how minute his field of
investigation, if a man understands sometlhing perfectly, his
world -whether a hamlet or an empire or the race- will
resort to him. Hlie becomes a benefactor of society. He
receives its honors and rewards. There is no person in
any position in life, however exalted or lowly, who may not
advantageously cultivate a specialty.
CHIAPTER VI.
THE DISADVANTAGES OF THE DIVISION OF LABOR.
1st, It tends to enervate the laborer, because it does not,
as a general fact, give full activity and development to all
the functions of the body.
We shall proceed to show that this is true of those classes
who perform what we have designated as material labor,
while the very distinction of mental labor implies such a
separation between the natural functions as seems not to
consist with the best physical condition of those engaged.
Common observation will affirm that this is strikingly true.
It is not necessary, but the tendency exists.
In the material occupations, it is found that confinement
to a single operation is often highly injurious.  There are
43 
PRODUCTION.
forms of labor whlich sufficiently exercise the several parts
of the body.  The mere fact of uniformity of motion brings
no objection to such as these.  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 manufacturing
industry is probable.  That it is inevitable does not so
clearly appear. The sanitary arts keep even pace with the
advance of machinery.  The civil war in America developed
astonishingly the resources, which are at the command of
government, to suppress malaria, and reform the habitations of disease.   The growth of manly sports, and the
cultivation of gymnastics for health's sake, are likely to
work a great change for the better in the sanitary conditions
of our people.  The intelligent precaution of operatives in
every country, where their remuneration is any thing less
than robbery, can guard against all excessive derangement
of the bodily functions.
It is perhaps significant to the question whether  the
application of the bodily powers to a single continuous
action is really in practice injurious, that we find in the
statistics of Massachusetts, ranging over sixteen years,
the average life of "laborers having no special trades" to
be less by two years than that of " active mechanics in
shops."
Mechanical operations were formerly considered as disqualifying for military service; and even our modern philosophy has found in them a reason for the employment of
44
[BOOK II. 
CHAP. VI.]  DISADVANTAGES OF DIVISION OF LABOR.
mercenaries, and the maintenance of standing armies. But
the great civil war just referred 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 in the direction of more air and
light and motion; while the agricultural laborers find no
change except for the worse. They have been accustomed
to active employment; but the harsh necessities of the service come to them fresh and strong. It is perhaps the
direction of influences more than the degree of them which
determines these matters of health; or it may be, that
mechanical occupations, contrary to general opinionl and
in spite of some plain drawbacks, do tend to compact the
frame and the sinew, and lend force and vitality to the organs.'Whatever the explanation, we will rest with the fact,
that, in the severe trial of strength and endurance made by
the war, the mechanical occupations have not been dis.
credited.
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 resorted to,
it will undoubtedly be contracted and enervated.
To this liability are opposed three compensations:  a. The great communicativeness observable in such circumstances, the eager discussions, the free inquiry, the
school, and the lyceum.
b. The saving principle that the employment of one mem
45 
PRODUCTION.
ber 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. If we compare the mind to
a reservoir, we may say that the individual powers and dispositions flow out of it as so many streams; but there is
nothing to prevent them from flowing back, if the level is
sufficiently disturbed.  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 character.   It may be questioned whether any but the most gifted can be educated in
any other way so thoroughly and efficiently as by interested
application to some single matter. Generalization and broad
philosophy rouse the full powers of but few intellects. In
the majority of cases, it will remain true that intense, spirited, persistent labor directed to one point is better than the
languid, nerveless, unsputrred, rambling play of all the faculties. Mind, to be energetic, must not be republican. The
powers must be centralized.  Some must be despotic.
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 machine. This is, to a considerable extent,
true; the compensation being that it affords a greater opportunity for discussion and reflection, if the workman
chooses to avail himself of the kind of mental leisure which
is afforded by the moniotony of his occupation.  It is, therefore, not the excessive use, but the disuse, of the intellectual faculties, that is to be feared in those arts to which labor
has been carried to its fullest division.
c. The laborer is not all workman.   While  his special
occupation provides for his subsistence, and endows him
with energy, industry, and concentrativeness of mind and
46
[BOOK. II: 
CHAP. VI.] DISADVANTAGES OF DIVISION OF LABOR.
character, he has other hours and other duties, ample, if
reasonably used, to compensate for all the evil mental
effects of his continuous 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 at all. In fact, there
could be neither members nor society; but here and there a
savage would bask in the summer sun, or hide himself in
the storms of winter, in hopeless, helpless barbarism.
However we may speculate, a priori, on the consequences
of dividing minutely the parts of labor, we 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 apparant; 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
almost immeasurably above the agricultural in intelligence,
in independence of character, and obedience to law.  Probably the most conservative nobleman of the realm would
admit that the former class is far better qualified for the
franchise than the latter.
3d, It will follow, from what has been already urged, that
division of labor, in its greatest extension, 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 cenitres of manufacturing industry, where the full pos..
sibilities 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 ex
47 
PRODUCTION.
tracted to assure us thlat there is a great loss of vital
energy, whether or not it is necessary to such a state of
industry.
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.....   47,,
Inactive mechanics in shops.....     41-,,
Laborers, no special trades.....     45i,,
These statistics, accurately gathered and showing the
results of many years, require "correction" in several particulars, if the teal lesson of them is to be obtained.   Iil
the first place, two-thirds of the class of mechanics as presented here are engaged in such occupations  as do not
allow any very extended subdivision of the parts, so that
the average of the great manufacturing establishments and
their dependent cities would be found still more striking.
In the second place, the agricultural occupations are continually making contribution to manufacturers of their best
blood and bone, renewing the natural waste of the mill and
shop, and so interferifg with the statistics of the subject.
This element can neither be eliminated nor determined.
We shall rest satisfied with knowing it is there. So important is it'at times, that Lowell appears on thie 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 precautions, by gymnastic sports and out-door games,
and by a better adaptation of all the conditions of production to the necessities of life and well-being.   But the great
fact which accounts for this seeming healthfulness of a
manufacturing city is the constant infusion of the fresh,
vigorous, young blood of the country.
Massachusetts Registration of Births, Deaths, and Mlarriages.
48
[BOOK II. 
CHAP. VI.1  DISADVANTAGES OF DIVISION OF LABOR.
It is not necessarily a disadvantage in this respect, that
manufactures, in their greatest centralization, prevent the
full natural increase of population. Indeed, it is a beneficent provision of Nature which checks propagation in
precisely those circumstances where the offspring is less
likely to receive that nourishment and care and exercise
which shall secure its best development. Far from being a
misfortune, it is well that those who are to live in the cities
should be born in the country, and get size and strength on
the hills and in the open air.  This tendency does not go
so far as to deprive the dwellers in the cities, and the workers in brass and wool, of the cares and the pleasures and
the culture of paternity. Yet the law that men shall be
born upon the land is as clear in history, and in our common observation, as any fiat of Nature.
4th, The division of labor lessens the- number of those
who do business on their own account.  This is a natural
consequence of what has been shown. We have said that
capital has a tendency toward concentration; and, if it'be
aggregated, labor must also be. The result of this, in agriculture, is to absorb the yeomanry 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
has a threefold relation: a. To the formation of character.
Something of independence and self-respect 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 thlat
it should be so; nor can it be denied that tliere are partial
drawbacks, even in this plain tendency of civilization.  It
is the sacrifice man has to make in society, in industry, in
government. b. To the fairness of remuneration. A very
few now participate in the profits. The great bulk of
4
0
49 
0
PRODUCTION.
workmen receive only wages, and that on temporary engagements. This disproportion may be excessive, and is likely
to be where laws or institutions cheek enterprise, and
discourage individual efibfort. In such cases, laborers are
practically a herd of cattle, driven about from place to place,
receiving bare subsistence, and unable to mend their conditioli.  This is a lamentable state of things; an abuse of a
good principle.  No one Can deny, however, that the worsttreated operatives of the civilized world receive infinitely
more than if the efforts of men were all individual and
independent, and each was left to satisfy his wants from
the primitive. resources of Nature.  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 remaining distinct, and compare this
with the present state, in which trades have been repeatedly
subdivided, - capital aggregate and labor subordinate, -
we shall yet find that thie share of the poorest laborer in the
mighty product of our industry of to-day is greater than
ever before. Augustus, says Arbuthuot, had neither glass
to his windows nor a shirt to his back.
ThIus much could be urged of the wretchedest operatives
on the earth; but, when we regard the condition of labor
as it exists in nearly all the countries 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. e. 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 suspension of mechanical labor 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 popula
50
[BOOK 11. 
CHAP. VI.]  DISADVANTAGES OF DIVISION OF LABOR.
tion, of riots and revolution. So far as this will occur in
spite of prudence and careful management, it is the condition on which we have the advantages of division of
labor. Men cannot cross the great ocean alone. They
must go together, have help of each other, and embark
their fortunes on a common bottom. More of them would
perhaps be safe if each was on a ship of his own; but\ that
cannot well be.
Even in regard to steadiness of employment, the aggregation of capital and consequent division of labor assist
the workman up to a certain point.  That point is the great
catastrophe which no structure can withstand. Then, the
greater the structure, the more completely it crushes the
laborer.
Where capital is concentrated, it is stronger, protects
itself better; and, of course, the workman shares in this
power and immunity.  Where the industry of thousands is
controlled by the mind of one, it will be more intelligently
and harmoniously administered, and with a larger view of
the business. 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 preserved amid storms that
would shatter the feeble fabric of single hands. Industry
in masses, when it receives a shock, can hold on to the accumulations of the past and to the credit of the future, and so
stands firm.
But when the blow becomes so heavy as to shatter 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 prostrated a village of huts.
The reservoir of gathered 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. The trampled grass raises itself,
and looks up again; but the oak lies as it falls. Independ
51
p 
PRODUCTION.
ent 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 a while, 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 length, the relations
which division of labor holds to the condition of the laborer,
by depriving him of thie 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 master mechanics to their
workmen, by shipowners to their hands.  All stock-companies, of whatever character, admit of  this principle.
Mutual industrial associations for trade, mining, and insurance, furnish its most significant and hopeful applications.
There is no reason why these should not be extended much
further by a gradual growth, as they are found convenient
and profitable. Just so far as a sufficient spring of selfinterest can be maintained in the effort, both of the employer,
or manager, and of the operative, so far may mutuality of
profits be applied to all departments with the most beneficial results.
52
r-.
L-'OOX'I 
THE DIVISION OF LABOR.
CHAPTER VII.
THE DIVISION OF LABOR (concluded).
WE have passed through the discussion of the advantages,
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 indiustry; it has made the difference
between barbarism and civilization  it resides in man's
being as the principle of help; it is the only name that
savage nature fears.
If we could personify the forces of matter and the treasures of the earth, holding council how they might escape
being enslaved or plundered by rapacious man, we should
hear them say:'" Let us spread disunion among our foes;
let us convince them that their interests are separate, and
lie apart; let us excite among them suspicion and hatred.
Then the summer sun shall make them languid, and winter
shall bring torpor on them.  The waves shall overwhelm
them, struggling singly with the ocean; the drought shall
starve, the snow shall freeze them. So will we conquer, and
be safe."
And indeed, as if they had so talked, like the councillors
of a state invaded by a powerful foe, and had so planned,
we find them for ages deceiving the hearts of men, sowing
dissension, and enkindling strife by treacherous bounties of
gold and precious stones, like bribes sent into an enemy's
camp. Nations fell to quarrelling about the accidental and
trivial treasures scattered, in fraud of their full rights, upon
their paths.  Great wars were waged to secure paltry balances in coin: wealth of continents was disregarded. Men
stood over against each other, hunted for gold in the dust,
CHAP. VII.]
58 
PRODUCTION.
neglecting the mighty riches that lay deep in the soil.
They had no heart to say, Let us help each other, and see
what we can do. Whole peoples acted, and look now in
history just as we imagine miners to do when they suspect
the presence of some great treasure among them; each
hunting silent by himself, casting angry glances from under
steadfast lids; each heart beating fast with fear and wrath
that some other may find it first; hateful all, and hating
one another.
That this sketch is not exaggerated, let it be said, to the
shame of mankind, that the Mercantile theory was undoubted till the middle of the last century; proclaiming as
truth, and pursuing as policy, the world over, the double lie
that the only wealth is gold and silver, and that what one
people gains in trade another must lose. So man had need
of his fellow only to rob him; so man had need of Nature.
only to get her gold.
Palaces and warehouses floating safely on the waves;
breakwaters along the sea; coast4-lines of docks and wharves;
arterial railroads to the length of the continents; canals
connecting oceans; bridges leaping rivers; the genii of
the woods groaning in the windmills; brook-nymphs grinding corn in the valleys; the spirit of the air hard at work
pegging shoes; mountains of iron split open; precious
crystals, forming for ten million years, strewn about the
land,- these are the first fruits of man's confidence in his
fellow.
CHAPTER VIII.
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 proceed to
define it strictly.
54
[BOOK 11. 
CHAP. VIII.]   THE CO-OPERATION OF CAPITAL.
It is that portion of wealth employed in reproduction.
The distinction involved is an important one. All capital is wealth, but all wealth is not capital. The very use
of the term "reproduction" testifies to the feeling of man
that the object of any thing is not fulfilled in its own creation
or perfection, but that there is an endless series of propagations, with a constant view, and with increasing force, to
some ulterior end. And we find that production does go
forward, not by the increase alone of the laboring class, not
by mere annual savings and gross accumulation, but by the
employment of that which before was an object of desire in
itself, as now a means to the gratification of new desires.
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 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 invested in a ship, from which he
derives all his support, and which forms his capital. It
may be asked, Is not the house itself capital? It is so far
as necessary 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
thirty thousand dollars. The difference to production will
be apparent, inasmuch as his active capital now consists of
three-fourths of his wealth, while before it was only onefourth.
55
I 
PRODUCTION.
It will follow from thiis illustration, that thiere 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 devoted to reproduction is
doubtful. Still, this casts no discredit on tlhe distinction
itself, which stands manifest to all.  There are many such
principles in political economy, the general direction and
character of which cannot be intelligently doubted, yet in
whose particular applications we find difficulties and apparent contradictions; just as the mountain-ranges stretch
across the continent, unmistakable in their great course,
shedding the waters of one slope to the east and of the other
to the west, making clear separation between the Flora and
Fauna of the adjacent countries, and forming impassable
boundaries of empire, yet are occasionally initerrupted by
one cause or twisted away by another, so that we find peaks
here and there, which a little critic can take his stand upon,
and deny the geography of the hemisphere.
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 savinigs-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 what he lays aside for use in his own occupation merely,
but for use anywhere.
All capital comes in this way.  A  country increases in
capital just in proportion to the increase of capital accumulated by its members. If the individuals 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 accumulationi of capital, and the ultimate use of it, belong to the
discussions of economic culture, or go further on, to the gene
'0'6
[BOOK II.. 
CHAP. VIII.]   THE CO-OPERATION OF CAPITAL.
ral division of" Consumption." 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 property
employed 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. 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 capital, 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 materials of the mechanic. These
are easily transferred from one business to another, and
indeed from one place to another, and may be used ill 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 circulating
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 contrary, 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
57 
PRODUCTION.
the houses, ships, railroads, and machinery of thle present.
The farmer adds something to his stock, or his land, or his
buildings. The mechanic widens his shop, and multiplies
his tools. The merchant enlarges his business, and extends
his connections. The laborer saves something out of his
wages, beyond the demands of immediate subsistence. It
is in this way that fixed capital is increased by the contributions of circulating capital. The products of labor are
generally in this form; and it is enabled to pay its tribute
without being itself impoverished.
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 ill mind,
however, that, while all real estate 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.
CtIAPTER IX.
THIE CO-OPERATION OF CAPITAL (continued).
Is the distinction between productive and unproductive
capital real?  It has been urged by many writers at considerable length. It is susceptible of much illustration. It
involves many important considerations.
There is, however, no such thing as unproductive capital.
There may be misapplied wealth, misused wealth, wasted
wealth; but capital reproduces. If ally discrimination is
necessary between that portion of wealth which is applied
successfully to reproduction, and that which 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
58
[BOOK, II. 
CHAP. IX.]    THE CO-OPERATION OF CAPITAL.
secures a compensation to its owner. Whatever his initention, if hlie uses any part of his wealth without multiplying it,
it remains wealth; lhe has not made it capital; it may,
by unproductive use, cease even to be wealth.  Wealth
put into an enterprise which results in nothing is no more
capital than wealth put into a house which burns down, and
probably is wealth as little.
Nay, more: so far as wealth thus applied, while making
some return, fails of securing the fair, average remuneration of capital, it so far ceases to be capital. It may be
wealth merged for'a time; it may be wealth lost for ever:
it is not capital.
A complete illustration of this principle is found in commonl business.  Suppose a man to be possessed of fifty shares
of certain stock, par value one hundred dollars. The einterprise 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? Clearly, it is but two thousand five hundred
dollars. Half of his investment has been sunk; half is
capital.
But it has been urged, that much capital is reproductive
that does not afford 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 production,
with any such incidental advantages, even if they exist. It
may be, that, in the consumption of wealth, we shall find
principles explaining the effects of such an investment.
In the light of production, however, we can only say, that,
in so far as the railroad does not remunerate 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, it is simply on the level of the
59
t' 
PRODUCTION.
gratuitous gifts of Nature, - the powers of the wind, rain,
and sun, or the courses of streams and valleys; 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. Both may transport commodities with a
great saving of labor, and with great encouragement to production. The world abounds in natural bridges, causeways,
roads, mountain cuts, dikes, &c. If a man, with ill advice,
constructs artificial works of this character, which prove
failures, he adds just so much to what is gratuitous in the
world. Economically speaking, it has ceased to be property: it has become common.
CHAPTER X.
THE CO-OPERATION OF CAPITAL (continued).
HIAVING 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 conform? 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 contrary, 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.
60
[BOOK 11. 
THE CO-OPERATION OF CAPITAL.
Labor, then, being that which is most restricted in quantity, capital must, in order to the highest production,
conform to it. There must be as much capital as labor
requires, not as much labor as capital needs. We do not
put this onl the ground of any superior rights of labor.  Capital is the labor of the past, alid has rights as perfect as that
of the present.
What this proportion should be in any community, 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 determined which capital should bear
to labor in all communities. It is plain that this will vary
according to the occupation; as, for instance, we have seen
that ill agriculture there cannot be so general application
of machinery as in 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, according
to the natural advantages a person or community enjoys.
Expensive clothing and shelter are essentialto the support
of the laborer in some climates; in others, a piece of cotton
cloth and a bamboo hut serve for protection the year round.
In some countries, there is required an immense system of
pipes and conduits to water the soil, barely to preserve animal life; in others, an equable moisture is preserved the
whole twelve months without any application of capital.  In
some, strongly constructed and carefully connected dikes
and levees, extending hundreds of miles, are essential to the
use of the land; others were placed high and dry at first.
In some, the soil is so generous with fruit, that, "if you
CHAP. X.]
61 
[BOOK  II.
tickle Nature with a hoe, she laughs with a harvest;" in
others, the earth has to be carried in baskets up the sides
of the mountains.  That which, in one country, would be
capital, acquired by labor and having value, is, in another,
a free gift.
For these and other manifest'reasons, the proportion that
should exist between labor and capital cannot be deter mined with any considerable degree of assurance.  It is
plain that there should be as many tools as workmen need ing to use them, else some will stand idle. It is equally
plain that an excess of tools will not help at all in produc tion. Capital is the instrument of labor; and the instru ment should, of course, be adapted to the power of the
laborer and the work to be done.
By the census of 1860," the real and personal property
of the Union was valued (slaves excluded) at $14,183,000, 000." * A calculation made at the Treasury Department es timates 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
approximately true; and, if so, we shall be surprised, if we
look at the large proportion of annual product to the accu mulated wealth of the nation. If, for the sake of conveni ence, 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 country since its first settle ment should be only equal to four times the product in
1860; but such we understand to be the statement.  If so,
it shows what ail immense proportion of all the wealth
annually produced is annually consumed. From these fig ures, too, we may make anl 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: -
* Report of the Secretary of the Treasury, 1865.
62
PRODUCTION. 
THE CO-OPERATION OF CAPITAL.
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  national
wealth is only equal to about seven times the gross earnings
of labor for a single year.
We have also an opportunity of comparing the wealth
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 $30,000,000,000, or
$1000 per capita; the estimated yearly production, $3,000,000,000, or $100 per capita. The wealth of the United
States, according to the foregoing figuring, and taking the
whole population, as in 1860, at 31,443,321, is $451 each;
while the amount of product per capita is $112 eachl: 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 product with the annual accumulation; the latter being but a
small fraction of the former.
Capital should, at least, increase in a degree corresponding 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. Her soil, wrested
from the people by conquest at different periods, from the
reign of Henry II. to the Battle of the Boyne, has passed into
the hands of foreigners, who draw away annually all her
surplus products. Population increases 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 have said that
CHAP. X.]
63 
PRODUCTION.
capital is formed from the annual savings of labor. Four
million pounds a year go from Ireland to absentee landlords, and eight million 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 emigration is their inevitable fate.
Is it possible that there should be a surplus of capital?
It is evident that there may become such a surplus, if we
assume that production itself does not expand in the meantime. Given a certain industry, within defined limits, it
may become full and overflowing 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 personal 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 increased. The product, being
generally in the form of circulating capital, now flows off
to other business, or is turned to purposes of adornment
and culture.
The same is also found true, though more rarely, of entire
communities. States and cities sometimes reach the limits
witliin-whlich they desire to use capital in their traditional
industries. They become bankers for the world, or direct
their profits to sumptuous houses and works of art.  Such
were Genoa and Venice under the merchant princes, who,
having reached the boundaries of known trade, and brought
all its machinery to the perfection of existing art, began,
wisely enough at first, that wonderful career of architecture,
whose ultimate extravagance exhausted the industry that
gave it rise, and passed the commerce of the world to
traders who had not become gentlemen.
64
[BOOK II. 
CHAP. X.]    THE CO-OPERATION OF CAPITAL.
It is evident, then, that, within 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 of things, the limits of
industry do not remain the same. Wants expand, as we
have seen.   Capital is relieved from its former employments, and goes on to new efforts. It can hardly multiply
fast enough to meet the growing demand.   Enterprises
spring up over night.   Capital hardly breathes, for the
work it has to do.
We believe that the time when capital shall become excessive in the world is far beyond the occasions of reasonable
calculation. It is so distant at the nearest, so doubtful
every way, as not to be a question in a practical science, like
political economy. We are not called on to provide for the
day when all the continents shall be crowded with wealth
that can find no room to work. When wealth ceases to be
wanted for. capital, it is pretty certain to be consumed in
luxury. Yet we are not to anticipate the same rapid progress at all times and everywhere which we see in a new
country like our own, full of Wants, and stimulated to
efforts. Capital has its checks, just as population 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
distance; and a distrust in the administration of foreign
laws.
Another constant force operating against the increase 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. Hience it follows, that, as the desire to
5
65 
PRODUCTION.
earn loses power by capital becoming plenty and cheap, the
desire to spend gains force. A man is not nearly as likely
to use his money for personal gratification whenie  can get
eight per cent for it, as when he can get only four.
Yet, for all these obstacles, capital, when it has supplied
the demands of labor in its own vicinity, has gone abroad to
colonize. 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.   It watched with Columbus the weeds  drifting
from an unknown land; it " stared at the Pacific" by the
side of stout Cortes; it debarked with the gallant Cook, nor
was it frightened at the savage violence which took his life.
Like Cmsar, it would not wait for the boat to come to land.
It freighted vessels for countries not named; it sent fleets
to ports never visited by civilized man.
CHAPTER XI.
THE CO-OPERATION OF CAPITAL (concluded).
2d, The union of capital and labor will be most effect,
ive, 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,
* 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.
66
[BOOK II. 
CHAP. XI.]    THE CO-OPERATION OF CAPITAL.
or floods do not so thoroughly and permanently prostrate
the strength and hopes of a country as a breath of suspicion
onl 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 people. There is hardly any taxation so
exhaustive that something still cannot be got out of Nature
for man.   In all these difficulties, the motive to exertion
is not destroyed. But if foul play or legal fraud comes
between labor or capital and their reward, 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. The exactions and oppressions of
the old regime had not so broken the spirit of France, but
that her population and her wealth went on increasing,
slowly, painfully, but constantly, certainly.  The Revolution came; the Convention questioned the rights of property, confiscated the estates of nobles, and sequestered the
entire endowment of the Church. Half this would have
been enough for ruin. The industry of France dropped
where it stood. In a few months, the Convention was devising schemes by which work should be provided by the State
for all its citizens. Capital had fled to the dark places of
the kingdom. Labor was helpless, crippled, starving. What
had wrought all this?  The violation of rights.  Property
was discredited; capital outlawed; labor prostrate.
Labor is tihe first to suffer. Its wants are instant, immediate, vital. Capital, in such economical convulsions, has
the privilege of leviathan. It can dive down to the depths,
and give up breathing for a while. 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
67 
PRODUCTION.
Peru and the Antilles, and shut up the treasures of the New
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 government.  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.
If such is admitted to be the effect of occasional invasions
of property rights, either in labor or capital, we shall be
prepared to explain the barrenness of many countri,es the
oldest and best endowed of the world.
The dreariness of Asia rises in eloquent vindication of
the harmonies of natural law. A perfidious and cruel despotism has there made property undesirable. Man finds
safety only in poverty and degradation. The Jewish is perhaps the only people that has pursued wealth steadily and
unremittingly, in spite of injustice and robbery.
3d, The union of labor and capital is most effective 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 vigilant
the application, the more certain the return, the larger the
profits. This is a well-known practical 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
sufficient to secure its greatest effectiveness. Of course, in
such a case, it is economically right that the excess of capital should be transferred to some other position, where its
full productiveness can be obtained.
Such limitations are highly beneficial to society; for, were
68
[BOOK la. 
CHAP. XI.]    THE CO-OPERATION OF CAPITAL.
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 concentration
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 purposes, and up to such a degree, capital so concentrated 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 beneficial just in pro;
portion 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 commands a greater amount of executive talent; it superintends its employee with more accuracy; it saves the pieces,
keeps machinery oiled, looks after tools.
The man who is to gain by the work is brought nearer to
it. He is well served, because he serves himself.
For a long time, it was a favorite belief with the American people, that corporations were the most efficient agents
of production, even where the work was not so great as to
be beyond individual enterprise. The older wisdom of the
country turns more and more to the smaller establishments,
which Aecure full, interested personal supervision of labor.
The English economy has always preferred these, except
where the operations were beyond the reach of ordinary
capital.
4th, The union of capital and labor is most effective
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
69 
PRODUCTION.
government.   In all countries which may be considered
as enlightened or civilized, like the European and AngloAmerican, the people have no occasion to look to government for direction as to the business they shall engage in,
or the manner  in which they shall conduct it.  Every
branch of industry, in a normal state of society, grows sponltaneously out of the wants and capacities of the people.
Tillage, manufacturers, commerce, fisheries, spring up in
the places to which they are best adapted. They can never
be advantageously forced into being, or maintained by governmental authority and patronage. Every plant will thrive
best in its own soil. Soils and climates vary: productions
will differ in consequence.
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 union.   All limitations of the rights and
powers of capital or labor, not required by the public morality or security, are useless and mischievous.
No lawmaker can gather and express the desires of his
people so accurately and seasonably as they are shown in the
market demand; or set in train and carry on their efforts,
with myriad instrumentalities, to that end, so savingly and
earnestly as is done by interested, educated capitalists;  or
present satisfactions so fully and happily as is done by the
merchant whose fortune is to answer for his appreciation of
the public wants.
The work of the politician in this behalf is gratuitous
and impertinent. It is an indignity to industry which will
be revenged upon the people. Capital and labor should be
mobilized as far as possible; free to collect or divide, to
turn to the right or to the left; free in gift, purchase, and
heritage. On the contrary, the effort of legislation has gen
70
[BOOK II. 
ECONOMIC CULTURE.
erally been to impose checks and limitations and hinderances everywhere.
We have thus discussed at length the union of capital
and labor; passing close by the great practical questions of
protection and entail, but reserving them, the one to the
division of "Exchange," the other to that of "Distribution."
CHAPTER XII.
ECONOMIC CULTURE.
WE shall best define the field of this agency by discussing
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 Smith insisted strongly on the distinction
between productive and unproductive laborers.   Ill the
former class he embraced all those who produce material
objects, which are generally admitted to be of use and benefit to mankind. Such, clearly, are farmers, mechanics, and
merchants, in the general 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, lawyers, physicians, men of letters of all kinds, players, buffoons, musicians, opera-singers, opera-dancers, &c." This somewhat
extended list by Dr. Smith has suffered curtailment by
almost all writers since. The distinction between physical
CHAP. XII.]
71 
PRODUCTION.
and mental labor, between direct and indirect agency in
production, could not long be permitted to remain as founding a distinction between productive and unproductive labor.
It is clear that the physician who preserves the life and
strength of the workman on the farm or in the shop is
equally productive with him; and that the lawyer by whom
transfers of property are effected, and personal safety
secured, is equally productive with the owner or the overseer. 
One occupation after another, " important or frivolous,"
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 business to clear away.
All labor, in the economic sense, is productive. The only
office of labor is production. We do not, in either popular
or scientific language, call by that name the efforts a man
makes to do mischief, to dig away a dam or girdle trees,
though he may devote his utmost energies to such destruction. Nor do we call that labor which does not seek a
reward, whether it be play, though of the hardest kind, or
gratuitous service, however useful to the recipient.   No
more should we call by the name of labor that misdirected
or mistaken effort which fails of its reward.
Labor is defined as the efforts of man directed to the satisfaction of his desires.  Every effort that is not so directed
is a shot 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 satisfaction of human
desires. So of expenditures to improve land, which in no
72
[BOOK II. 
ECONOMIC'CULTURE.
way enhance its fertility.  There is a great deal of this kind
of effort: perhaps much is inevitable. It is waste, not labor.
But it may be urged, Suppose a man works for months
preparing ground, planting, and cultivating till his crop is
nearly ready; but a flood comes, and carries all off from
before his eyes, and leaves him nothing to show for what he
has done. Was there not labor bestowed? Certainly; and
the labor was productive, and it had its reward, not the less
that each individual effort did not carry off its result in a
complete form at the time, but waited for the harvest.
Value was produced at every stroke of the shovel - palpable, appreciable, marketable value -just as truly as if it had
been taken home at the close of each day. Labor had been
there, and received its recompense; but the flood made a
robbery of it all.  Not the less was there labor, not the less
was there production, not the less was thlere value.
In this view, we see that all labor is productive.
But it may be asked, Does it make no difference to the
community what objects of labor are selected, and by what
means these objects are attained?  Certainly; and, in this
inquiry, we reach the field of economic culture, which is
that education of the desires, that instruction of efforts,
and that use of satisfactions, 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.
Now 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 ihdustry.'
Let us inquire closely. It will be readily granted, that
these and other similar classes may have influence upon,
or power in, production in two forms, either primary or
secondary.
CHAP. XII.]
73 
PRODUCTION.
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 indirectly and in
whatever degree, brings about ultimately a greater creation
of values.
For example:  that great class which, in various offices,
maintains civil justice and order, has indisputably a primary
influence or power by rendering possible the present creation of values, and by watching over their keeping and
transfer. Government and the law are great agencies of
production.  Without them, however desirous people might
be of wealth, and however capable of effort, little or niothing could be produced. 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 today
with the difficulties of production; explains chemical and
mechanical laws; and establishes the alphabet, the written
letter, electric communication, the rules of book-keeping,
and the art of navigation: secondary, in that the progress
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 producers, 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
[BOOK II.
74 
ECONOMIC CULTURE.
the churchman or priest or minister, by attributing to him
any direct power in production. Yet his part may be no
less important because secondary.  The influence of religion
is hardly less marked than that of race, in the creation of
values. If its influence tend to improve the morals, and
thlus aid in thle preservation of public orders; to elevate the
mind, and thus give it nobler and higher aspirations, and a
better appreciation of the right uses of wealth, -it must be
a great auxiliary to its production.
That class of agencies which we have designated as primary comes within the view of production. The class of
secondary agencies belongs to the department of consump
tion, 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
re-appear in a more abounding harvest, or in barrenness,
in reproduction.   Practically, however, we have to introduce the laws of exchange and distribution, as the agencies
by which production is finished, and consumption made
possible.
We have used metaphors drawn from the chemistry of
agriculture to express the significance of economic culture.
To illustrate from mechanics, we should say that it treats
of the re-action of labor. No force can re-act 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 depend on the temper and shape of the body on which
it impinges. Reproduction, then, is the rebound of pro duction from consumption.
If labor expends itself on objects that do not stimulate to
further efforts or serve as instruments to further produc
CHAP. Xii.]
75 
PRODUCTION.
tion, but rather debauch  the energies  and corrupt the
faculties, it is evident that reproduction 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 up
ward; and the people will rise economically, with a rapidity
and force, such as signalized the career, in the fourteenth
century, of Florence; in the seventeenth, of HIolland; in
the eighteenth, of England; in the nineteenth, of the United
States.
76
[BOOK II. 
BOOK III.
E X C H A N G E.
PART FIRST.-T RADE.
CHAPTER I.
THE PRINCIPLES OF TRADE.
EXCHANGE has its origin from the 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 furnishes 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 the river for fish.  At night, they
divide. Half the fish is given for half the meat. Perhaps
other parties are introduced.   Instead of exchanging the
whole of their fish or venison, each of the two gives a portion for a trinket, and anothler portion to the medicine man
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.
[77] 
EXCHANGE.
Only one went for venison: four have venison now. Only
one went fishing: four have fish to eat.  The hlunter and the
fisherman have trinkets and medicine they know not how to
get.  The doctor and the cripple who made the trinket have
fish and venison they could not procure for themselves.
This is the idea of exchange.  It extends first to the
industry of a hamlet; it enlarges to take in the entire community; it remains through all the successive modifications
and refinements of labor and accumulations of capital. It
goes abroad; it crosses rivers, then narrow seas, then the
broad ocean; hunting out everywhere what the seller wants,
carrying everywhere what the buyer wants.   The word
" exchange" expresses thie economical principle of all this:
its office is the creation and apportionment of wealth.
" Trade" is a technical term for the sum of all actual
exchanges. It is exchange realiz6d.
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 transportation.
3d, 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 specialized indefinitely as
the iron, cotton, shoe trades, &c.
WThence does trade arise?
From the desire which individuals and communities have
for each other's products.  It is evident that this is essential to trade; since, if men or peoples produced by themselves all they wished for, there could, as we have said, be
no occasion for an exchange. It is evident, also, that this
is sufficient for trade, since it supplies all the motive that
can exist for an exchange.
To what extent can trade be carried?
To the extent of the surplus production of each individ.
78
[BOOK III. 
THE PRINCIPLES OF TRADE.
ual 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 aggregate surplus products of
the people collectively, and we have the amount of itsforeign
trade.
Illustration: Suppose a community of one hundred individuals, each producing three hundred dollars' worth a year,
-aggregate revenue, thirty thousand dollars.  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 thousand dollars. But if, after exchanging 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 any thing he can get at home, we have the aggregate
surplus available for foreign trade, ten thousand dollars.
Ordinarily, individuals or peoples do not wish to part
with all their products.  Ohio, for example, does not wish
to dispose of all her wheat. A share must be kept for
home consumption. The surplus will be exchanged for other
commodities abroad.
Exactly the amount to be so retained will depend, within
certain limits, on the degree of disposability. The more the
wheat is in demand, -that is, the more of desirable things
are offered for it,-the less will the producers be inclined to
retain it; the greater effort will they make to dispense with
its use themselves, or substitute other things for it at home.
But this result will be limited by the necessities of the people. It cannot be calculated on to increase very largely the
amount available for trade.
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 production and their whole consumption. In fact,
CHAP. I ]
79 
EXCHANGE.
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.
We have said that the trade of a community, whose whole
production was exchanged, would be equal to its production
and consumption. It would be so, but that would be deter,inned by its production only. It would be this alone which
it would carry in its hands into the markets of the world,
and on this would depend what it should get there.
What persons or communities 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 Massachusetts.   Russia and Sweden will
make very few exchanges, because their productions are as
much alike.  Both will deal largely with the West Indies.
What determines the character and kind of products each
country will afford?
1st, Soil and physical conformation. One will be a wheatraising, 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. This must be where the natural adaptations
of the land are followed. This operates, in respect to nations, precisely as we see it in smaller communities, where
one farm is especially fitted for grazing, another for tillage,
another for timber.
80
[BOOK III. 
THE PRINCIPLES OF TRADE.
2d, Climate.   From  the Arctic regions to the tropics,
from Siberia to Hlindostan, is infinite variety, both of heat
and moisture. Some countries 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. It is evident
that the conditions which are admitted to have given rise to
the differing species of fruits and grains and vegetables will
control their increase.
3d, Social condition. Take, for examples, England 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 spontaneous yield of the soil, from the wild wealth of the
pampas and the forests, from the precious ores and stones
along their streams and in natural caves, rather than till
the ground to the fertility of a garden, sink shafts into the
solid rock, cast up highways upon the rivers, and work iron
into the needle and lancet.
4th, Difference of race.
This is additional to differences of social condition, and
looks to those peculiarities of industrial character in the
races of man, which are no less distinguishable than their
peculiarities of stature, complexion, 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 commerce of the
world thiat we have illustrated
THE TERRITORIAL DIVISION OF LABOR.
The Chinese raise tea and silk. This is their specialty,
* The mountains south of Bombay receive three hundred and twenty
inches of'water a year, mostly in three months.
6
CHAP. 1.]
81 
EXCHANGE.
the form of industry to them most profitable. The Cubans
produce sugar; and thle Sicilians, oranges, for the same reason. England excels all nations in useful manufactures;
France, in those of taste and beauty;  while the United
States has its great industrial power in cotton and wheat.
Under the operation of natural laws, each country employs
and disposes of its labor, without any arbitrary 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.
Suppose, on the contrary, that we of the United States
should determine to raise our own oranges. We could do
so, and create a supply 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
ihundred oranges.  The loss would be equal to ninety-nine
out of every hundred oranges. We should force a certaim  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.
If we turn to the advantages alleged * of the division of
labor individually, we shall find that each one of them holds
good in the application of the principle territorially. Indeed,
it may be assumed that it is here more active and efficient,
since the differences of communities range higher than
those of individuals. On the other hand, the limitations
prescribed are indefinitely removed when we come to the
field of national industry; and the disadvantages disappear
altogether. That would be a bold philosophy that should
declare a people one-sided which does not produce every
thing it consumes.:So far from being considered a defect,
* See Production, ch. iv. et seq.
[BOOK III.
82 
THE PRINCIPLES OF TRADE.
that races or nationalities should develop very strongly in
special directions, it is highly desirable. While it takes
nothing from the individual excellence, each contributes
with a greater generosity to the completeness of the whole.
From these general considerations of trade, we deduce
the following principles:  1st, That individuals must produce a surplus of their own
commodities to have an opportunity to trade, and must
trade to make it an object to produce a surplus. Wants
create wealth, and Wealth creates wants.
2d, That every nation is interested in the production of
every other nation. Any thing which impedes the production of any individual or community injures the trade of
the wold.  Such causes, for example, are pestilence, as the
cholera, yellow-fever, and plague; the convulsions of nature, as earthquakes and inundations; war, as in the case
of the late war in India, which sensibly affected the trade of
the world, and, still more striking and recent, in the case
of the great Rebellion in the United States, which 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 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 the North; and
that, again, the producers of the West, on whom the North
depends for agricultural supplies.
By such ramifications, exchange extends itself through
the world.
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
CHAP. I.]
83 
EXCHANGE.
nearly united by commerce, it is shown, that, by this territorial division of labor, the most extended production and
the most beneficent distribution of all the commodities
of the earth are secured; and thlat, 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, thle common property of mankind.
5th, That commerce harmonizes all differences in the
industry of thle world.
"All Nature's difference makes all Nature's peace."
Any natural impediment or artificial obstruction to the
intercourse of nations, in fact, so far injures the production
and trade of all.
"A  commercial nation," says Sir James  Mackintosh,
" has the same interest in the wealth of her neighbors 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 thle shores of the Mississippi, which has
not widened the market for English industry."
6th, That commerce diminishes the number of wars, and
shortens their duration.
There may have been a time when the galleons of Spain
and the Indiaman of England bringing home the stored
treasures of barbarism influenced the cupidity of governments to the point of war. But as commerce abandoned
the spoils of conquest for the honest industry of the world,
as its field became widened, its connections more intimate,
its benefits more popular, the temptation to plunder and
violence died away. The advantages of a peaceful participation in trade are greater to every people, even those least
maritime, than all that could be hoped from the ravages of
a Drake or a Doria. The whole interest of commerce is
now the inalienable ally of peace. It has not been found
sufficient, thus far, to prevent all wars. But it enters into
negotiations, tempers grievances, and delays violence. And
84
[BOOK III. 
OBSTRUCTIONS TO TRADE.
when, in spite of its admonitions, war is declared and waged,
it remains still an argument for peace more impressive and
influential. by reason of the distresses and inconveniences
attending the loss of accustomed traffic.
CHAPTER II.
OBSTRUCTIONS TO TRADE.
THESE are of three kinds: -
First, physical, which are natural; second, social, which
are incidental; third, legal, which are conventional.
Looking at these in the light of what has gone before, we
shall be inclined to regard them as so much imposed as
a burden on industry, shackling the movements of capital
and labor.
But they have been presented in another aspect, as if
there were compensations for this hinderance of spontaneous trade; and to this, also, we will attend.
Inasmuch, therefore, as these obstructions to trade have
been regarded as the protection of local industry, and on that
account have been received with favor by scientific men and
rulers, we shall speak of them as different forms of PROTECTION.  The propriety of the term "protection" we shall
discuss at another point.
1st, Physical protection.
This results from obstacles which Nature interposes.
They may all be expressed by the single term "location."
The wheat of Vermont has a protection in its own markets
as against the wheat of Illinois, to the extent of all the cost
of transportation from the latter to the former State.  If
the cost of transportation and attendant charges are fifty
cents per bushel, then the farmers of Vermont can, as far
as competition from Illinois is concerned, continue to sell
CHAP. II.]
85 
EXCHANGE.
their wheat until they reach a price fifty cents per bushel
greater than they could obtain but for this. All this may
not much enrich the farmer; for the greater price may be
rendered necessary by the additional labor required.  But,
at any rate, it assists him in selling just so much. On the
other hand, the mechanic of Vermont must pay more, up
to fifty cents, for a bushel of wheat. The protection of the
farmer, though a natural one, is at the expense of the consumer. The mechanic, in so far as his bread is concerned, is
placed at a disadvantage in production, in competition with
those who can purchase their wheat at the prices of Illinois.
It costs him more to live: he must, therefore, charge more
for his wares, and, of course, sell less.
If, now, the introduction of railroads reduces the cost of
transportation to twenty-five cents, the Vermont farmers
have lost half their protection.   The consequence of this
will naturally be, that some of thlat class in Vermont will
become mechanics, because the latter class has gained what
the former has lost, by the reduction in the cost of transportation.  Any thing which reduces the price of agricultural
products has a tendency to increase all other branches of
production.
This protection amounts generally to an entire prohibition
of the foreign article in the case of certain manufactures,
such as houses, barns, stores, &c., which might often be
erected more conveniently and cheaply than in the country
where they are to be occupied; but the cost of transportation puts it out of the question, except in cases where the
local facilities are very crude and insufficient. There have
been great numbers of houses sent out by ship to California
and Australia; and there are, even now, remaining in the
eastern portion of thle United States, houses which were
framed in the old world, or which are made of brick imported from England.
Yet, looking to the whole of things, we find that this class
of protection builds up, in every country, an amount of
[BOOK III.
86 
OBSTRUCTIONS TO TRADE.
manufacturing and mining industry, often amounting to
one-half of its consumption in that line.
Such a.protection to industry being in the nature of
things, and, in fact, being the very condition of material
existence, we have no more call to inquire whether it is
desirable than we have to ask the same concerning weight.
It exists, and must continue. The effect of it may be lessened by man's contrivances, but can never be annihilated.
Those very contrivances will be among the effects of it.
In a certain sense, and to a degree, such obstructions,
even when apparently removed, still continue to exert a protection on local industry. Suppose, for example, a swamp,
near a certain town, requires a detour of many miles for
all passengers and freight. It is a natural protection on
the indus try of the place.  If, now, a causeway is constructed or the swamp drained, so that the difficulty of
travel is avoided, the protection is removed, unless, indeed,
it exists in the form of the debt incurred for drainage. In
either'case, the people are relieved of a certain amount of
labor once indispensable; and, though their "protection"
has been removed, their industry has been greatly benefited.
In the prodigious enterprises undertaken by science and
labor for removing, in every direction, obstacles to uninterrupted communication, do we not find the best practical
commentary on all artificial and conventional arrangements
for putting countries further apart by imposing restrictions
on commerce? If the approach of foreign industry is undesirable, it is an economic curse, that the steamship and the
Indiaman have replaced the galleys of Columbus or the
triremes of Themistocles.   Let the ocean be turned to
quicksand, and the earth to mire; that so the mutual hurt,
fulness of nations may cease in an entire impossibility of
reaching each other.
The second of the modes of protection is what we have
termed social. We have also called it incidental, there
CIIAP. II.]
81 
EXCHANGE.
being no original intention to affect the direction of labor.
It arises from social obstructions or political disturbances.
These increase the protection afforded the interests of particular localities. 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 was greatly hindered, and, for a time, almost annihilated. This operated as
an immense protection to the cotton of India and Egypt,
where, before, the culture was comparatively unprofitable.
Yet, under the encouragement of the American war, it became more advantageous than any other branch of industry.
Indeed, so largely was it raised in India, that the country
increased in wealth at a rate quite astonishing, and a great
industrial revolution, for the time at least, 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 producer, the latter as consumer.  The wealth
of the world was not increased, but greatly diminished, and
its natural and healthy commerce widely deranged.
Even India itself has not been permanently benefited by
the extraordinary demand for her cotton. The return of
peace in the United States, bringing down the price of her
great staple, has caused extensive bankruptcy and great
commercial distress.   The season of artificial prosperity
led to the wildest extravagance and speculation, to the
neglect of the culture of rice and other needful crops, so
that thd event, which, for a while, brought unwonted prosperity, must, in the end, produce equal depression and
suffering.
In some countries, the despotic rapacity of the government, and the violence and fraud that pervade society, serve
as a great protection to the industry of others, by diminish
ing personal safety and business security in trade. Such
an element affords the same encouragement to others as
the introduction of a bear into one store would give
to the sales of others.  It plainly reduces  the  quantity
88
[BOOK III. 
OBSTRUCTIONS TO TRADE.
or quality of inducements that can be held out to buyers
in the community where the disturbance or disorder exists.
Suppose the Gulf of Mexico to be infested with pirates, so
that the danger to life and risk of property should double
the price of sugar brought from New Orleans to NewYork.
This increase of price, caused by the cost of insurance
against robbery and murder, so long as it lasted, would be
a protection to that extent to the cultivation of maple sugar
in the North.
War, under all circumstances, whatever the occasion or
result, whether between different nations or parts of the
same, always has the effect of disturbing trade, arresting
all the healthful agencies of production, and disturbing the
harmony of the economic world.
3d, The last of the modes of protection is what we have
called legal. It is purely conventional, and arises with the
direct purpose of affecting production, or, at least, with
the expectation that such will be the result. This is effected,
firstly, by the prohibition of imports from one or all nations;
secondly, by a direct premium on the products of home
industry; or, thirdly, by the imposition of duties on the foreign article.
The former method is so violent and extreme as to be
entirely out of the sympatlhies of modern economy and
statesmanship.  In so far as it exists, it intends to destroy
trade.  It may arise during a state of war, or in greatly
embittered controversies for purposes of injury or revenge;
in which case its effects are to be regarded rather as belonging to a state of war, and as incidental to it, though
brought in by specific enactment.
The second, though used at different times and in different countries, has never been a favorite with governments,
although it is by far the most economical mode of giving
encouragement to a particular branch of industry.   An
illustration of the great advantage of this mode of protee
CIIAP. 11.]
89 
EXCHANGE.
tion over that of laying duty on exports will be given in our
chapter on national taxation.
We shall have to do, then, only with that kind of legal
protection which is secured by the imposition of duties on
imports. This has been the practice of nations generally,
in a greater or less degree, and so with more or less effect.
England formerly laid taxes on four hundred articles brought
into her ports from France. The United States has always
maintained a system of import duties of a varying character,
sometimes directed to one object and sometimes to another,
as thle popular feeling went.
CHAPTER III.
PROTECTION.
LEGAL protection may be imposed from one or more of
four general reasons:  1st, To raise a revenue.
2d, To encourage the protection of certain commodities
at home.
3d, To support existing forms of production.
4th, To secure commercial independence.
All these will be examined in detail.
1st, To raise a revenue. So far as this is the only convenient way in which the state can raise a certain sum of
money which it must have, it is but a mode of taxation, with
which we have no present concern. So far as it also affects
industry, it becomes a species of protection. We have not
called it incidental, because its bearing on industry is known
and considered in its imposition.  So far as the Clement of
protection remains, it should be subject to the judgment
which shall be pronounced on what follows.  If the "protection" of certain domestic products be found a good, then
the revenue duties should be so disposed as to afford them
90
[BOOK III. 
PROTECTION.
all possible assistance at the same time that it serves the
public purse.  If, on the other hand, it is decided to be mischievous to substitute man's law for Nature's, such revenue
duties should, as far as may consist with the public safety,
be imposed on articles where it will not mislead industry.
2d, To encourage the growth or manufacture of certain
commodities at'home. This is the field in which protection
joins battle of choice with freedom of industry. In all the
other particular reasons, its argument is, as we shall see,
linked with some real or fancied necessity; but here protection takes ground freely and fairly, virtually making two
propositions which it assumes to defend:  First, that the desires of man, as anl industrial being, are
so blind, so passionate, or so weak, as to require correction
by thie public will, enlightening, chastening, or stimulating.
Second, that the efforts of man, as an industrial being,
are not sufficient, of themselves, to achieve thie satisfaction
of desires, without the aid of law, coercing him  to that
which he would not voluntarily undertake.
What is industrially wanting, then, in man's nature, either
individually or in voluntary association, is to be supplied by
such enactments as are called protective.
We will inquire about the second of these propositions,
with the view of reducing both to one.
Man's industrial efforts can never be assisted in produc.
tion by any legal enactment. Deriving all value from labor,
we have here an adamantine basis, which no sophistry can
move. Laws may be supposed to stimulate desires, or to repress them; but they cannot lay hand on man's labor, except
to hinder it. It is a power given by the Creator, to work
upon the constant properties of matter. It has no fellow
in its work; its only tools are capital, its own creature, and
nature, whose forces are fixed by God. Labor has its
commission and its reward in itself. Just as surely as
man cannot add one cubit to his stature, so is law impotent
to help man's labor, except through man's desires.
CHAP. III.]
91 
EXCHANGE.
There is another reason, more abstract, for reducing these
two propositions to one.  It is, that the efforts men will
make are included in their desires. Those efforts are those
desires going out after their objects. Man's work is man's
want active.
We have thus to consider only the first proposition in the
theory of protection; namely, that the desires of man, in
the economic sense, need government by law. Men, as consumers, are to be shut off from certain objects to which they
naturally incline; and, as capitalists or laborers, are to be
shut up to certain efforts, which, so far as the legislation
has any influence, are not the direct, simple, and proper
means to the satisfaction of existing wants. And all this
not at all in the interests of morality or good government,
but wholly with a view to the greater wealth and industrial
prosperity of the community. This proposition -has its only
basis in a want of confidence in the intelligence of the people to direct their own desires, and of the competency of
labor to gratify such desires. The proposition here reaches
a point where there is no argument. Consciousness and
experience must affirm or deny sharply and decisively. Such
wisdom or power, we believe, has not been vouchsafed to
legislators, whether absolute or representing the will of a
people.
Economically, it will ever remain true, that the govern
ment 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. Any thing 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 we believe to be
absolute affirmations of universal experience, not dependent
on reasoning, not condescending to argument.
General proposition: There is no sense so subtile as that
92
[BOOK III. 
PROTECTION.
with which a man detects his own wants. There is no spur
so sharp as that which urges him to satisfy them.
This is all the defence it seems necessary to make against
the direct attack of the protection theory.  It will be more
troublesome when we meet it in alliance with other interests, on ground not its own, and displaying uncertain
colors.
If, then, protection is founded on false economical principles, we should expect to find it working mischief in its
application to national industry, perverting the desires, crippling the efforts, and plundering the satisfactions of society.
Since the subject is of great practical importance and of
great popular interest, we will take an illustration at length
from the history of American industry, exhibiting the principles thus far attained.
We choose the manufacture of iron, for six reasons:  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 monopoly about it.
2d, Because it enjoys the largest natural protection 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 in favor
of its receiving governmental protection 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
93
CHAP. III.] 
EXCHANGE.
has been said, the most simple of all manufactures, we have
had, from the earliest settlement of the colonies, the necessary knowledge, and have produced it from our colonial
days.
2d, Not that we have not sufficient capital. No branch of
business is more accessible than iron-making, or requires
less capital proportionally. As a matter of fact, the business was commenced with little difficulty, and we succeeded
up to a certain point.  Had it been as profitable as other
branches of industry, it would, like the manufacture of
boots and shoes, have been extended to the full demands
of the country. Yet the latter industry has been carried
nearly to the full demand. The former has stopped far
short of it.
It is to be observed, in this connection, that 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 affords a surplus, which can be applied to the increase of business 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 facilities 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 (b) is found very generally
on the surface and (c) in proximity to the best river navigation, and almost always in close juxtaposition to (d) coal
for smelting, and (e) limestone for flux. Perhaps in no
other country of tihe world are these requisites so fully secured. The absence of a single one of them might be sufficient to destroy the prospect of production.
The importance of this element will be seen in the follow
94
[BOOK III. 
PROTECTION.
ing remarks from Dr. Alleni's excellent work on "India,
Ancient and Modern: "
"India has valuable iron mines (the writer once heard a distinguished geologist, who had been inspecting them, say they contained
iron enough to supply the world); and yet nearly all the iron used
in the country is procured from Europe, because the iron mines
are in one province, and the coal is in another."
4th, Not that the manufacture here lacks a good natural
protection.  America has been put at a great distance from
Europe. The effects of such a protection we have already
seen. The foreign product is, in this case, charged with
freight and insurance for a voyage of three thousand miles.
This, with articles having little bulk or weight for the value,
might not serve as a great encouragement to the home product; but, with iron, it is a very considerable item.
Why, then, with all these facilities, do we not produce all
our iron without governmental protection? There is but
one reason.
WE  CAN DO BETTER.  We can obtain 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, five 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, say, twenty dollars.*
* 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.
CAP.,III.]
95 
EXCHANGE.
Then, with our price of land, we have the advantage, so far,
over the European, in the production 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 all 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 estimated to cost him twice
as much labor to make iron, still labor costs him no10 more in
money thlan ours costs us. In respect of labor, then, we are
on a level.
So far as money, as capital is concerned, the European
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 fulily, 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 Eutopean of ninety per cent in the land,
which is the great item of expense in such products; so
much so, indeed, that the pure rent of farms in England
is estimated to equal the entire wages of the agricultural
laborers.
Thus it is that our unequalled natural advantages, arising from cheap virgin lands, render it unprofitable for us
to make iron, or engage in many other kinds of manufactures.
Such is the situation. We will now apply protection.
Government, in 1816, laid a duty of thirty dollars per ton
on bar iron; equal to about fifty per cent on the cost of
the foreign article. Let us inquire into the effect of this
policy.
96
[BOOK III. 
CHAP. III.]
1st, Iron was produced. Labor and capital were at once
withdrawn from other occupations, and invested in furnaces
and iron-making.  We undertook to make iron ourselves,
under the belief, that, with a protection of thirty dollars per
ton, the manufacture would be found very profitable. So
far, the object of the duty was accomplished.
2d, A great loss was caused to the general production of
the country.. Labor and capital were withdrawn from pur
suits of ordinary profitableness, and invested in business
that required fifty per cent protection to make it profitable
at all.  If the duty was necessary to establish the manufacture in 1816, as it was,-for a still higher protection was
called for, - 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 per cent; thirtythree and one-third per cent of ninety, the enhanced price,
being fifty per cent on sixty, the original price?*
Is it possible that there can be ally doubt of this? The
production of wealth was decreased so much. The enhanced
price, thirty dollars per ton, took the following form:
* It should be understood that there can be no greater DISCOUNT than one
hundred per cent, which takes the whole of any thing; 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. Professor
Fawcett, in his "Manual of Political Economy," page 365, says, "Mr. Gladstone has been confident in his belief that a reduction of one hundred per cent,
in the price of inferior French wines, will cause those wines to be purchased
by classes of society in this country who have never before purchased them;
and, therefore, the consumption will increase more than one hundred per
cent." Certainly, Mr. Gladstone is right in supposing the consumption would
be increased more than one hundred per cent, if the price were reduced one
hundred per cent; but it seems almost incredible that the Chancellor of the
Exchequer could have used the expression attributed to him. The fact that
Professor Fawcett himself could write in this manner shows the importance
of having the exact meaning of the term "discount" defined and determined.
A writer in one of the most respectable magazines in New York lately stated
that a certain commodity "had fallen six hundred per cent."  Occurrences
of this kind are frequent. The difficulty in the case seems to be, that discount
and premium (or advance) are confounded. The first is limited to one hundred, tihe latter is illimitable.
7
97
PROTECTION. 
EXCHANGE.
Suppose the consumption of the United States at that
time, 1816, to have been eighty thousand tons per
annum, and that, under the system of protection, we
made twenty thousand tons, importing the balance;
there was, then, paid duty on sixty thousand tons,
at thirty dollars............
Twenty thousand tons made, at a price enhanced by
thirty, dollars...................
Total enhanced cost to the people *.....
Now, as the iron-masters did not get more than the average
rate of profits, the entire six hundred thousand dollars was
lost to the country, both to people and government. The
sum of one million and eight hundred thousand dollars went
to the national revenue. The protection of iron cost two
million and four hundred thousand dollars, the people payilg a tax not the less on the domestic than on the foreign
product.
But the real loss to the country was much greater, because -
8d, 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 everybody reasons; so everybody
acts. Great establishments are started at once. There is
no occasion longer to consult adaptations of character, experience in business, or local economy. Success and fortune
are secured to all by omnipotent protection. Men plunge
headlong into the work, if, indeed, they suppose it to be any
thing so serious as work. Merchants, professional men,
farmers, mechanics, all are seized with the mania of ironmaking. Large iron works are hastily and ignorantly got up.
* Besides all the profits charged on the duties and enhanced cost of the iron.
98
[BOOK III,4
$1'800,000
6001000
$2,400,000 
PROTECTION.
Incompetent heads manage them.
Inexperienced hands work in them.
Imperfect iron comes out of them.
Inevitable loss attends them.
Insolvency is the end of them.
And the iron interest clamors loudly and successfully for
more protection. Fifty per cent is not enough for the people
to pay extra on iron.  These are not accidental or peculiar
results, but natural and certain, where the great laws of
trade and the even course of production are disturbed.
We have seen these marked effects of protection in the
protected country. How of the excluded country?
Just so far as the " protection" is adequate, England
cannot send us iron. What then? So much of her iron
trade is cut off; and her capital and industry must be directed
to raising wheat, or to some other less profitable, productive,
and natural employment. A part of it is forced into wheatgrowing, and this reduces the quantity she would naturally
require of American wheat. Her industry is made less advantageous; our market is correspondingly diminished. So
far as her labor cannot find employment, it must emigrate,
as it has done by crowded packet lines, to Australia, Canada,
and the United States.
Which country will be most injured by this commercial
warfare?
We answer, decidedly, the protected, because England
would not have made, on thle iron sent us, more, say, than
ten per cent; while we make a clean loss, as we have seen,
of some thirty or forty per cent; that is, all left of the fifty
per cent enhancement of price, after the profits of the American manufacturer are deducted.
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. This is
a favorite view with a certain class of minds. There are
99
CHA.P. III.]
:   1...,.. 
EXCHANGE.
many theorists who are continually foretelling the decline
of prices, and general starvation; many business men, who
are expecting daily to exhaust the market, and reach the
limit of their industry; many householders, who dread
the disappearance of fuel and light from the earth, with untold horrors beside. Such persons are much afraid of using
nature up.
The markets of the world being open to us, all our surplus products would remain in demand. Provisions, especially, are a sort of " legal tender" the world over; and there
seems to be no immediate occasion to anticipate their disuse.
There is no market that keeps open so long and surely as
this.  The English ports-were wrested from the monopolists
of grain, by a power that government and society could not
resist, - the power of indignant want.  The misfortune of
overdone agricultural products is one that statesmen may
well leave to their successors.
But, if there were nd 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, in 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. Admitting, then, all that is claimed for such a possible glut, let us inquire into the results.
As soon as wheat, to take it as tlhe exponent of all agricultural products, 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 legitimately begin. It would not spring up
suddenly, at some arbitrary point, but grow up in those
places where the natural protection was most felt, and facilities for production were greatest; for instance, in a region
far from any considerable market, where iron could only be
obtained by long and expensive transportation, where the
100
[BOOK III,
. I 
CHAP. IV.]  FALLACIES OF PROTECTIVE THEORY.
land was not adapted to wheat, but where ore, coal, and lime
were plentiful. It would extend to all parts of the country
where it was as advantageous as whleat-growing.  The business would be introduced withlout any disturbance of existing
interests; without wild, extravagant, and wasteful experiments. It would be a natural development and growth, not
an arbitrary creation. It would feel its way with a sense as
subtile and secure as that with which the plant raises itself
into a world of big trees and wild tornadoes, and fierce, rushing life.
CHAPTER IV.
THE FALLACIES OF THE PROTECTIVE THEORY.
WE leave now the illustrations of the principles of protection,
as exhibited in the manufacture of iron.  We  believe we
have shown the unsoundness of all that political philosophy
which proposes to substitute artificial for natural laws, in
production. But there still remains some popular arguments, which we will notice.
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. Of this it may be said: -
(a) There is no assurance, under a system which 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 maturity, 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? In such a rankness of unnatural growth, it is far
more likely that weeds will be produced ithan useful plants.
Thus the whole industry of a country may become perverted
101 
EXCHANGE.
and falsified by removing the principle of 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.
(b) 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. There
have been nations that exposed sickly and unpromising children, holding it to be for the advantage of the state to rear
none but such as promised to become vigorous and useful
members of society. Religion and humanity have changed
this, out of respect for the image of God found in every human creature; and now the cripple and the idiot are reared
tenderly and patiently. But the protective policy extends
the same kindness and forbearance to industry. No matter
how plainly palsy, scrofula, or fatuity may appear in the
form or features, the infant is sure of an affectionate solici
tude, that only changes to become more anxious as the infant
gets punier and weaker.
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 thlousand pounds per annum.   Suppose  this to continue for
twenty years, it will amount to no less than twenty-eiglht
million pounds sterling; the interest of which, at five per
cent, will bring, at two and a half pence per pound, one
hundred and twenty-six million pounds of sugar, or nearly
the whole annual amount of sugar now consumed in France."
In 1865, 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
requires but common school arithmetic to show that a 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
102
[BOOK III. 
CHAP. IV.]   FALLACIES OF PROTECTIVE THEORY.
time, without ever paying any thing more for it. A child
that is so costly to bring up ought to make a very useful
man; whereas it is generally true that such children have
to be brought up three or four times over, and then live on
the poor-rates.  If such a protection, however, were to be
continued only eighteen years, and the necessity for it then
cease, the industry having become self-supporting, it would
yet be true that every pound would have two prices, added
to each other: one, the present cost of making; the other,
interest on old protection equal to the present cost.
In fact, iron and sugar have been protected in this country
since 1816, and the duties still continue.  And all for what?
Where is the advantage of making a great annual sacrifice,
for a long time, to establish an industry that will grow up
of itself as soon as it will pay, as was growing up slowly,
but successfully, before there was any protection?
(c) Finally, no sound and healthful manufacture needs
protection at all.  The phrase "infancy" is entirely sophistical, as applied to any branch of legitimate 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, out of small beginnings. But there is no
infancy, so far as completeness or robustness of life is concerned. Suppose, for example, that there was but one manufacturer of iron in the country, and he produced only to the
amount of five thousand dollars a year. Yet, if he could
bring to the market as good and cheap an article as the
foreigner, he would be nonie the worse for being a solitary
producer on some mountain in Pennsylvania. The security of any manufacture does not reside in the number of
those engaged, but in its power to meet the public wants.
However few may be employed, however humble their beginnings, they stand simply in their ability to sell a good
article at a reasonable price, and are as strong in this as
ever was the proudest guild of London.
103 
104
EXCHANGE.
Of course, there is a period in every enterprise when all
is experiment and outlay. But capital is always ready and
able to meet the necessity. It belongs to capital to do this;
for it gets the remuneration of it when the yield begins.
There is a remarkable confirmation of the truth of these
remarks 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 profitably, 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 profitable branches of manufacturing industry.  In Massachusetts alone, this manufacture extends to
over fifty millions of dollars annually, and is by far the most
advantageous branch of industry in the State.
There is another popular argument for protection.
2d, It is claimed that we ought to protect our labor against
the pauper labor of Europe.
Does a restrictive tariff do this? Does it prevent the
laborers of Europe from entering into competition with ours?
Does it not, in fact, bring them to our very doors?
For fifty years prior to the date of the first important tariff, viz. 1816, there was no immigration of any consequence.
Soon after this, we began to attract skilled workmen. Some
were expressly hired to come over to teach us how to spin,
weave, &c.  As we raised the tariff and increased mnanufactures, the current increased, until it has inundated the
country. All Europe pours in its starved labor upon us.
What kind of labor naturally emigrates?  The poorest,
because the better by character and capacity can protect
itself longer at home. An employer does not turn his good
men off first.
Why so large a proportion of Irish?  Because theirs is
the cheapest labor; the first thrown out in aniy reduction.
The tide, once turned upon us, kept swelling, till our nationality is almost in dispute.  This immense immigration never
[BOOK III. 
CHAP. IV.]   FALLACIES OF PROTECTIVE THEORY.
came here in obedience to natural laws, but to the legislation of Congress.   Instead of protecting American labor
against the pauper labor of Europe, we have brought that
labor here to meet the American citizen face to face, on a
perfect level, with equal civil rights, and have given to him
the advantage of our immense landed capital. Whether this
is good state policy; whether a forced immigration, in such
vast numbers as to prevent an easy and natural assimilation
with the native population, is desirable or not, -it is not our
province to discuss. That is a political question. It only
belongs to us to show that no protection has been given to
American labor.
3d, It has been gravely said, that the general average of
all profits is raised by a protective policy.
If true, this is a valuable discovery. It affords the easiest
known method of making everybody rich at once, and without effort. Government, has only to place sufficient restrictions on trade to carry up profits to one huniidred per cent;
and, when all trade has ceased, everybody's profits will be
immense!
The folly of such assertions is too apparent to justify any
considerable notice.
Where are the enhanced profits to come from?  Out of
the diminished production?  Is the whole lessened, and
every part increased? So far as protection creates a monopoly at the expense of the public, it may, for a while, add
to the profits of an individual or a class, but only by taxing
other industries for the purpose.
4th, But it is urged, leaving mere argument, do we not
know that protection especially develops manufactures? and
are not manufacturing countries found to be, in fact, richer
than those which are more exclusively agricultural? Both
propositions are true in an isolated form.
Other things equal, in a normal state of things, manufacturing communities are older than agricultural, and, of
course, have much greater accumulated wealth. England
105 
EXCHANGE.
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 creating wealth. Such
creations are natural.
It is, without question, true, that in an equal manufacturinlg population will- be found a greater accumulation of
wealth. One important reason of this is, that a larger
share of the population are enlgaged 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.  Manufacturing 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 properly constituted
and employed. These are reasons which may induce such
industry; never reasons why it should be compelled. If,
with so great a superiority, manufactures do not arise
freely and support themselves fully, it becomes  a double
argument for not forcing them.  If such advantage will not
secure free manufacturing, it is certain that compulsory
manufacturing will not secure these advantages, without
the sacrifice of other interests.
But all this argument in favor of manufactures, and
these anticipations of agricultural glut, come out of a false
idea of what are the natural relations of these two great
branches  of labor.   Granted, that manufactures  are a
desirable form of national industry, give a good market for
the produce of the farm and the mine, and help build up
106
[BOOK III. 
CHAP. IV.]   FALLACIES OF PROTECTIVE THEORY.
the common wealth; yet it is not necessary to bring them
on by a forcing process, for they come of themselves as
soon as profitable.   We have already shown  (page 86)
that certain large classes of manufactured products receive
such a natural or local protection as insures their home
growth.  But there are other classes which have an encouragement even more liberal.  There is a principle always
operating to bring manufactures out, on every part of the
earth's surface. It is the impossibility of carrying on certain branches anywhere but at the place where the article
is wanlted. The survey, grading, and construction of railroads and canals, forming as they do an immense portion of
the public industry, cannot be brought within the purview
of the customhouse.  They are necessarily confined to the
field in which these means of transport are to be used.
These may stand as examples of a vast class of industry,
which arises indifferently to protection.  So all tinkering,
patching, and repairing, great or small, must be done on
the spot. A glance at any village, no matter how intimate
its connection with some centre of trade, will show how
large a share of its labor, other than agricultural, is employed in its local work; so that, one way and another,
these classes of manufacturing interests, which inevitably
come to the community without help of law, form a very
considerable part of the whole.
The value of manufactured articles imported, for the four
years preceding the war of the Rebellion, ranged from one
hundred and fifty to two hundred millions a year; while
the authorities of the treasury and of the census estimate the value of home manufactures at not less thian one
thousand millions a year, for the same period.   Such
comparisons are necessarily crude; but it would be far
within bounds to say that four-fifths of all the present
consumption of manufactures would be supplied by our national industry, irrespective of protection.  All the matter,
thlen, comes to this: Shall we impose heavy duties to force
107 
EXCHANGE.
labor and capital into such channels as shall provide, at
great expense, the remaining fifth of the manufactures we
consume?
5th, Perhaps the most popular plea of all for protection
looks to "the development of our natural resources."  This
does not propose to increase the gross or net product of
national industry, does not assume or assert that the labor
and capital of the country are not well employed at present;
but it remembers the great mineral and metallic wealth we
have yet hidden in the Middle States and the West, and it
sighs for the thought of their uselessness.  It regards as
of no consequence the fact that digging or working the
ores will not pay.  It ean only exclaim, "What a pity that
such  great advantage  should be unimproved!"  These
reasoners would call labor off from the rich fields of agriculture, from no other motive than a desire to see our
wonderful mineral treasures developed.
The answer to this species of patriotism may be very
short. Since Nature has taken thousands of years to form
these ores and store these mines, man can at least take
time enough to wait till it will pay to dig them. It may
seem to some a pity they should remain underground; but
the true cause of the misfortune resides in the fact that we
have not population enough to settle densely one-tenth of
our territory. It is a misfortune that will cure itself as our
numbers increase. We can certainly afford to leave for
future generations what we cannot afford to take for ourselves.
CHIAPTER V.
PROTECTION   (concluded).
WE have said that legal protection may be imposed from
one or more of four general reasons.
We have discussed the first two; viz., —
108
[BOOK III. 
PROTECTION.
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.
To support existing manufactures.
Here we leave the expediency of founding special inidustries by a system of protection, and confine ourselves to the
question, whether, such industries having been begun and
developed under high tariffs, capital having become so
engaged, labor having become 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 question for the statesman.
But the economist can urge, 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 manufacturers, rather than by a system which is
sure to multiply such unfortunate enterprises, and perpetuate their weakness.  That great caution and forbearance
are necessary, in removing even a false institution, is not a
maxim which economy has to teach politics.
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-alnd-shut" policy, absolutely unavoidable
in a government like ours. It is not within the bounds of
reason to suppose that the alternate successes of parties
will not continue to convulse our national legislation; and
CHAP. V.]
109 
EXCHANGE.
therefore it is with emphasis true, that a consistent system
of protection is only possible ill a government with great
conservative force and great central powers.   A representative body, embracing the most opposite interests, swayed
by such influences and intrigues as notoriously possess
such an organization, and changed in all its parts every
few years, is not the place in which to adjust accurately
and dispassionately the economical parts of a nation, and
distribute the agencies of production.
It is our felicity, that our well-being does not depend on
such counsels, but that great Nature has fixed the forces
of industry in perfect harmony, and to the most beneficent ends.
To secure commercial independence.  True commercial
independence is attained by any nation, when its natural
resources are so developed and cultivated that it becomes
a power in the world, can command the products of the
industry of every clime, because it can furnish that which
all others want.  This is independence in commerce.   Independence of commerce is the independence of the savage,
or of undiscovered countries. To assume that such independence of all mutual helpfulness is desirable, outrages the
earliest sense of humanity.
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 preservea
tion of the national life, must be strictly limited to the
absolute necessities of war.
There are many reasons to suppose, that this interference
is rarely, if ever, necessary.   There  are very few states
which could not, on occasion, supply from their own soil
the means of warfare.  It would be much better that nations
should, by anticipation, secure from abroad a sufficient
amount of material, than by indirect efforts distort their
tio
[BOOK Ill. 
PROTECTION.
industry to an extent many times greater than would be
involved in obtaining beforehand, by commerce, whatever
might be necessary.
But finally and decisively, if it is alleged, under any circumstances, to be essential that a nation should possess
within itself the means of war, we answer that it should
undertake the manufacture by a special government agency,
not by changing the entire industry of a people to produce
this as an incidental result. Such is, in fact, the procedure
of most, if not all, civilized nations, and leaves no force
in the plea for national independence. But the argument
for protection from the necessities of war has almost disappeared in the intenser light of our growing civilization.
The independence of each nation in commerce, existing
harmoniously with its dependence on commerce, forms
the best hope of peace and tranquillity for the future. It
mnay be safely assumed, that the probabilities of war between any two peoples are inversely as their commercial
relations. The great reason against war, in the present
age, is not the expense of maintaining armies, nor the destruction of life, but the interruption of trade. This not
only puts peacemakers in the councils at home, but makes
all nations mediators between the parties at variance.
The intercourse between the United States and Austria
is but trifling. A little fire would kindle great strife between these two peoples. There would be no great motive
to forbear and adjust the occasions of dispute.  The United
States and England, on the other hand, have a yearly trade
of four hundred and fifty millions of dollars, which interposes itself between the nations, however angry, a great
standing policy of peace.
All general economic principles urge the extinction of
war.   All special economical interdependences postpone
and weaken the provocations of war. Resting on this principle, we shall findd nothing good in the scheme of making
nations independent, that they may the better fight. We
CIIAP. V.]
ill 
EXCHANGE.
shall recognize  commerce  as the great bond of human
brotherhood.
But, after all argument has been closed on the principles
of protection, we still find one plea remaining. If freedom
of intercourse, it is said, were only universal, it would be
well; but, since it is not, each nation must protect itself,
and do as it is done by.
Let us suppose that England refuses to take our wheat.
Would that be a good reason wlhy 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
thie excluded community.  If England should exclude our
wheat, whom would she injure?  Ourselves somewhat, that
is, to the extent of the profits we should have made; herself still more, that is, to the extent of the vastly enhanced
cost of the grain. If, ill retaliation, we exclude her iron,
whom do we ilijure? Her somewhat; ourselves much more.
Let us examine more in detail the consequences of our
exclusion from foreign ports. If partial, we could still, by
selling our wheat, get iron cheaper than by making it.
If total, the closing of our markets for wheat could turn
our industry towards other forms of production. This
would constitute one of the conditions under which manufactures would legitimately arise; and it would be more
sensible and healthful than if it came as the result of our
own restrictive legislation.
The full consequences of the policy of retaliation would
be, each people refusing to receive the products of others,
trade annihilated, industry crippled, all nations isolated,
with no mutual interest but robbery and plunder.
We have said, that England, by imposing a duty, say of
fifty per cent, on our wheat, would injure us to the extent
of our possible profits, and herself to the extent of the
enhanced cost of the grain. On a closer inquiry, we shall
see that the injury to ourselves is compensated in part; that
to herself is aggravated.
112
[BOOK III. 
PROTECTION.
The consequence of such a duty would be, that the consumptionl would fall off in some degree. Her poor would
subsist more on potatoes, or other articles cheaper than
flour.  But, notwithstanding these shifts, it would be found
that it cost her laboring population more to live, even
though they lived more meanly. Their wages must be
raised:  this is certain.   All taxes laid on commodities
which the laborer must use have the effect to reduce the
quantity or quality of his food to a certain point; but he
must live, and his wages must be raised to enable him to
do so with the enhanced price of wheat. This would make
it more expensive for England to manufacture her goods,
and would, in part, so far reduce her ability to compete in
the markets of the world. By such a policy, she would
weaken her own industry, and to a degree exclude herself
from  commerce.   This would  afford  another  condition
under which manufactures would legitimately arise in this
country, whose wheat was excluded.
That this is no impossible supposition, will be evidenced
by the condition of Ellgland before the repeal of the corn
laws. The movement in favor of that great measure originated ill Manchester, and was carried, against the nobility
and the landed interest, by the resolute efforts of the manufacturilg class.
What advantage is there in refusing to buy of a nation
because  it refuses to buy of us?  It is retaliation and
revenge, not'self-defence or self-vindication.   The first
historical instance of such retaliatory legislation is the
establis hme nt, by the V enetians, of customs duties, to deprive   foreigners of the     benefit of their trade; in return for
which, Charles V. imposed twenty per cent duty on all
Venetian merchandise. The most wise and useful economical act of this century was that by which, by the exertions
of  Mr. Cobden, Englan d and France, so long contending
only-in exclusions and mutual injuries, threw open their
ports to the free entry of hundreds of articles, to the corn
8
CHAP.'V.]
113 
EXCHANGE. 
mon benefit of both, and to the advancement of good feeling
and hiearty alliance; a measure, that, between the years
1859 and 1863, increased by seventy-three per cent the
trade of Great Britain with Prance, while proving no less
beneficial to the labor of the latter country.
We infer, from all that has preceded, that "protection" 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 nleutralize the gifts of Nature, is not protection, in any proper
sense of the word.
In conclusion of the subject, it may be proper to allude
to the great natural characteristics of our national industry.  We  see that the important fact of our condition is
-unequalled agricultural power. Possessing such an advantage, with an active, enlightened, and enterprising population,
and all industry perfectly untrammelled, we should naturally
become the granary of the world, and create, as a certain
consequence, the most extensive and powerful commercial
and naval marine on the globe. We should secure, by sea
and land, a greater power to give help to friends, or hurt to
foes, than any other people, and should rapidly attain our
best national condition.
We should have, not only the most profitable, but the most
salutary industry, as favorable to the acquisition of unlimited wealth as to a sound physical development and high
moral culture.  We should have manufactures, also, in their
spontaneous growth. They would arise - they were arising
previous to any tariff- as fast as the best interests of the
country required them.
States and sections, like New England, would naturally
and profitably undertake manufactures, because they have a
thinner soil, a denser population, and a larger capital relatively, than others. Such regions would be the workshops
of the nation, while the prairies of the West and the rich
uplands of the Middle States would be the nation's farms.
114
BOOK III. 
PROTECTION.
What manufactures arise of themselves should be wel
eomed, for they come in obedience to natural laws; they are
founded on extraordinary facilities, on higli natural protection, on local necessities. But we bind the swelling thews
of the youth when we endeavor to force on America the
industry of Europe. We grow enough every year to cover
some of the kingdoms of the old world.   Every year's
growth stretches over and appropriates some country, fertile as the plains of the Nile, and bearing every manner of
precious or useful ore. iHere is our destiny. This is our
wealth.
It camnnot be too often repeated, because it is the great
fact in regard to manufactures, that they only need to be
"let alone." When a distinguished French minister of
finance called the manufacturers of that country to Paris,
and asked what he could do for them, they made the wellknown answer, "Laissez nous faire."   It is within our
personal knowledge, that, when the proposal was made to
impose the protective tariff of 1816, the leading manufactures of Rhode Island, amongst whom was the late Mr.
Slater, the father of cotton-spinning in this country, met at
the counting-room of one of their number, and, after deliberate consultation upon the matter, came unanimously to
the conclusion, that they had " rather be let alone."  Their
business had grown up naturally, and succeeded well; and
they felt confident of its continued prosperity, if uninterfered with by government. On the other hand, they argued,
that, by laying a protective tariff, the business would be
thrown out of its natural channels, and become fluctuating
and uncertain. Hiow well founded were these anticipations
subsequent events have fully shown.
It will, doubtless, be a matter of profound astonishment
to the future historian, that a people who had a free and
untrammelled industry, with natural advantages for the
most productive agriculture in the world and for the legitimate growth of every kind of manufacture, should ever
CL:IAP. V.]
115 
EXCHANGE.
have asked for restrictions upon trade. But, in truth, they
did not ask for protection at the outset.  It was forced
upon them by politicians, irrespective of their wishes, for
the avowed purpose of securing a home market for cotton.
All New England was opposed to the policy, and protested against it; yet it was carried. Special forms of
manufacturing were brought into existence; and, as these
were sickly and needed all the help they could obtain from
government, an interested party was formed which clamored incessantly for protection. Yet it was not until the
third tariff, that of 1824, had gone into operation, that the
Northern and Central States became the partisans of protection. As New England was the last to assent to restrictive legislation, so she will undoubtedly be the first to ask
for its abandonment.  No policy could be more adverse to
her permanent interests.  She has great natural advantages
for manufacturing.   With these, she can carry them on
successfully. By high protective duties, other sections of
thle country, not having the same natural advantages, will
be led to introduce the same branches of industry,* and she
will find her severest competition at home; while all parts
of the nation will be crippled by a false system, equally
against the laws of nature and value; since protection, as
previously shown, puts the bad on the level with the good,
and destroys all natural tests of usefulness in production.
It should always be borne in mind, that protective duties
must be high enough to enable the home manufacturer to
get, at least, average profits; that is, such profits as commodities in general afford. IHe will not- make broadcloth
unless it is as profitable as any other branch of trade, manufacture, or agriculture.  Nothing short of this is protection;
and the duties must be carried upwards, until they arrive
at that point in which those who are manufacturing to the
greatest disadvantage can make average profits; otherwise
there will be a call for higher duties. This is one of the
* This is already becoming quite apparent.
116
[BOOK III. 
BALANCE OF TRADE.
practical difficulties of protection. The higher the duties
imposed, the greater will be the rush into the protected
branch of industry; and none will be satisfied until they
make  the business profitable, however imperfectly  conducted.  Hence there will be a constant call for increased
duties. Witness the history of protection in the United
States, - a tariff in 1816, a higher one in 1820, higher yet
in 1824, still higher in 1828, with continued changes from
that time to this.
CIHAPTER VI.
BALANCE OF TRADE.
WEAT is meant by the balance of trade?
An actual balance of trade is the difference between the
amount of values exported and the amount of values imported.  This seems a very simple proposition; yet the question
is one of great complexity, from the fact thiat 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 government; 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 $24,321,317, they hastily conclude that the balance of trade was against this
country to that amount.   Such a conclusion would not
have a sufficient foundation.
To understand this subject, we must  notice that the
exports are stated at their value at our own custom-louses,
while the amount imported is stated at the value in foreign
countries.* If we suppose the amount exported in 1854
was on American account, and paid a profit of only nine
* Besides, exports are estimated at currency prices; imports, in gold
values,-a very wide difference under a depreciated currency.
117.
CHAP. VI.] 
EXCHANGE.
per cent on the custom-house valuation, we shall find that it
will amount to $26,321,317, a sum larger than the assumed
balance;  and, if so, the commodities exported actually
paid for the amount imported, and the supposed unfatvorable balance is annihilated.  As the goods exported should
sell for enough abroad, and as they do generally sell for
enough to pay all charges of freight, insurance, &c., 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 generally sold for an
advance sufficient to pay for the imports.  This is known
only to those engaged in or familiar with the results of
the export trade of 1854.  The balance might have been
greater or less than what it appears from custom-lhouse
statistics.
On the other hand, in 1855, our exports exceeded our
imports by $13,688,326. Does that show a balance in favor
of thle 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 conclusive evidence,
yet there are cases in which there 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 difference of sixty per cent
over exports. In this case, there could be no doubt there
was a larger actual balance against the country, because the
profits could not have been equal to the excess. So too, to
go further back, in 1816, the exports were fifty-two millions; imports, one hundred and twelve millions; excess,
sixty millions, or more than one hundred per cent. The
118
[BOOK; III., 
BALANCE OF TRADE.
unfavorable balance in both cases caused great distress by
the necessary exportation of specie.
Balance of trade how adjusted.
We have heretofore said that an unfavorable balance
must be liquidated with specie. This is the general fact;
but it is not always disposed of in that way. For example,
the balance against the United States in 1853, as per Financial Report, was thlirty-seven millions.  Now, if this were in
fact an actual balance, a part of this might have been
extended to the next year, and paid in cotton or wheat; or,
what is more probable, several millions of railroad or other
stocks might have been sent abroad and sold, and the balance settled from the proceeds.
If the commerce of a country is ill a really prosperous
condition, the value of its imports will, in the long-ruii,
exceed its actual exports, because its export trade should
pay a profit.  No 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 ill specie or any other desirable
commodity, 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, 1864), $350,.
152,125;  imports,  $252,187,587;  balance,  $97,864,538.
The returns. also showed an export of gold to the amount
of $82,364,482, an import of gold 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 over4-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.
CHAP.  VI.]
119 
EXCHANGE.
Whenever duties are charged upon the cost of the commodities, it is an object to have them invoiced as low as
possible. 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 merchandise is not
accurately exhibited.  The Revenue  Commissioners (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-five millions annually." The aggregate of these frauds throughout
the country has been estimated as high as forty millions per
annum; but, if they amount to only thirty millions, the
" balance of trade" is seriously influenced by them.
There is still another consideration; viz., that the United
States are much indebted abroad, and a large sum is
required to pay the annual interest. This can only be paid
by our exports of merchandise or specie; for both are alike
reckoned in our list of " exports." We owed $500,000,000
abroad in 1860 (see Foreign and Domestic Commerce, 1863,
page 42, Treasury Report). The Comptroller of the Currency, in his Report for 1865, page 7, estimates the amount
of our securities sent abroad the last five years at $713,000,000,- in all, then, $1,213,000,000. The interest on this
sum, at six per cent, will be $72,780,000; and this must be
provided for in our exports.
Many considerations of this general character might be
brought forward; but sufficient has already been said, we
trust, to show what the real nature of a balance of trade is,
and how difficult a matter it must always be to determine
with accuracy upon which side it actually is, and what its
amount.
120
[BOOK 11. 
BARTER AND CURRENCY.
PART SECOND.- INSTRUMENTS OF EXCHANGE.
CHAPTER 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 currency.
3d, Different forms of credit.
No person produces every thing he wishes to consume.
Even in the savage state, men will obtain different products,
as they have skill and opportunity. These they will exchange among themselves in kind.
As the civilized state appears, the necessity for interchange of commodities increases.   Every mechanic must
exchange his products with every other mechanic, and all
these with the agriculturist and fisherman; so that exchange becomes one of the greatest departments of human
industry. But, under these circumstances, 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. HIe would, however, accept a pair of
boots. The farmer applies to thle boot-maker, who happens
to wish for wheat and accepts the offer. With the boots the
farmer gets the table, and with the table gets the hat which
he desired.
CHAP. 1.]
121 
EXCHANGE.
In such a state of things, this was the only process by
which exchanges could be effected; circuitous, and expeisive in time and labor, as it was.
We  might have supposed a far more difficult case;  but
this is sufficient to illustrate tihe inconvenience of barter, or
the direct exchange of commodities.   But there is still
another difficulty, of scarcely less magnitude. When articles to be exchanged 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, &c., through an interminable series of exchanges?
Under such circumstances, there could be no such thing
as price, because there would be no common 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 any thing sold.
That article would perform two important functions; viz.,
it would be an instrument of exchange, and a standard of
value: in other words, it would be money.
We  learn the true nature of money, then, from its origin
and the functions it performs.  These offices or functions
we must examine in detail.
1st, As a medium of exchange.  This may be wholly coInventionlal. Any thing, which, by general consent or in
obedience to law, all receive in exchange, will answer the
purpose.  So far as this function is concerned it is of no
consequence whether thle article has value or not: safety
and convenience are the only considerations of importance.
.122
[BOOK III. 
BARTER AND CURRENCY.
Money, in this respect, is simply a counter, token, or universal equivalent.
2d, As a standard of value. Value is not conventional.
It attaches to all objects which are desired, but cannot be
had without effort or labor. Since the value of any thing
is its power in exchange, we say that nothing is valuable which will not command 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,weight to measure weight, length to measure length, volume  to measure volume, value to measure value.
The standard must be as nearly invariable as possible.
An absolutely invariable standard is unattainable, because
the standard itself must be subject to the same laws as the
objects to be measured; that is, cost of production, supply
and demand, &c.
Hience 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 resource 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
exchange, next after barter we come to thie subject of
CHAP. I.]
123 
EXCHANGE.
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 currency, each differing from the others
in important particulars.
lst, 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 of the precious metals, it is often known as" liard-money currency,"
but is more properly a value currency.  Real money is
simply value in a form the most available for commanding
all other values, a service which all will accept for any
other kind of service, which measures all other services or
values most conveniently.
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 circumstances, 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 (1865) 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 ndtes or promises are generally issued by corpora
[BOOK III.
124 
BARTER AND CURRENCY.
tions, called banking institutions, and circulate, while current, as money, performing all its functions. This is called
a MIXED CURRENCY.
4tlh, A fourth kind of currency consists of written promises, payable on demand, issued by responsible 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 is with great propriety called a MERCANTILE
CURRENCY.
Of the four kinds of currency, it will be observed, that
two, the first and fourth, are classed as value currency; the
second, as credit; the third, as mixed, consisting of value
and credit.
The following is a brief recapitulation of the different
kinds of currency:
I. Money.....   i.e.. Specie.
II. Credit currency...  i.e.. Promises without specie.
III. Mixed currency...  i.e.. Promises with part specie.
IV. Mercantile currency.. i.e.. Promises with fuill specie.
After this statement and classification of the different
kinds of currency, it is proposed to examine each in detail,
and determine their several characteristics, and also the
influence of each upon the industrial interests and general
welfare of mankind.
No subject is more involved in mystery and uncertainty
in the popular mind than that of currency. This arises,
principally, from the fact, that the different kinds are confounded, and the whole matter thereby rendered incomprehensible. The general use of mixed-currency notes, which,
to a superficial observer, seem to possess all the attributes
of money, has a tendency to produce this result.
To obtain a clear and intelligent view of the subject, it is
therefore quite necessary, that we divest it of all its usual
CHAP. I.]
1215
I 
EXCHANGE.
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.
CHAPTER II.
I. MONEY.
HIAVING examined tihe nature and functions of currency, we
shall now speak of thle 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 currencies have been various. Lacedaemon had
iron money.  The Romans are supposed by many to have
used cattle and sheep in the early periods of their history;
and their coins bear the images of those animals, as indicatinlg their value.*
Tobacco was once currency, and a legal tender, in
Virginia.
TThe first currency legally established in Massachusetts
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 12d at a time."  Again, it was enacted " that
merchantable beaver shall pass at X' the pound."  In
1637, the " Courte ordered that Wampumpege should pass
at six for a penny, for all sums under 12d.'  Ill 1640 and
1641, additional laws were enacted, making wampum a law
ful tender.
Many expedients like these have, at different times and
different countries, been adopted to secure a temporary and
partial currency; but from the days of Abraham, who paid
" four hundred shekels, current money with the merchants,
* Hence called pecunia, money, from pecus, a flock.
[BOOK III.
126 
CHAP. II.]
for the field of Ephliron," to. the present time, the money
used in commerce has always been composed of gold and
silver. These, and these only, have formed the universal
medium of exchange and standard of value.
The use of these metals arises from nothing conventional.
No international agreement was ever made respecting them;
yet they are everywhere and at all times, without hesitation, received in exchange for whatever any one may wish
to dispose of. They secure their currency simply by their
peculiar adaptedness to the purpose.
What their peculiarities are we propose now to consider.
1st, They possess value, that is, have powuer in exchange.
They cost labor, and are objects of desire. They cannot be
had without labor, or an equivalent. We have already said
that the article used as a standard of value must possess
value in itself, since we can only compare value with value.
Gold and silver have this indispensable requisite. They are
subject to all the laws of value as truly as wheat or any
other commodity.
2d, These metals are stable in value; that is, the most so
of known commodities. They are subject to no violent
changes, like flour or cotton: for example, wheat 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 tis accomplished as to be quite imperceptible at
the time.
The discovery of the Western Continent, which opened to
the commercial world the accumulated treasures of Mexico
and South America, caused the greatest change known to
history; yet it is calculated, that from 1492 to 1650, a
period of one hundred and fifty years, gold and silver fell
only seventy-five per cent, equivalent to half of one per
cent per annum; so that even this great change must have
been so gradual as to have inflicted little injury on individuals, and could only have been appreciated by those holding
long annuities or similar securities.
127
MONEY. 
EXCHANGE.
3d, They are conveniently portable; the most so, in fact,
of all commodities existing in adequate quantity. One
pound weight of gold will ordinarily command, in exchange,
fifteen thousand pounds of wheat, thirty thousand pounds
of Indian corn, five tons of rice, or a ton and a half of
cotton.
4th, These metals are malleable. They can be wrought
into any shape, will receive and retain any impression, may
be divided illtO the minutest quantities, and again united,
with the smallest possible loss.  Hence they are admirably
adapted for coinage, or a great variety of alternate uses.
5th, They are of utniform quality. Gold and silver are
always and everywhere the same. Found in California,
Australia, or Russia, gold is everywhere gold. The iron
of different countries varies greatly. The copper of Siberia
is better than that of Germany, while that of Sweden is
better than that of Siberia, and that of Japan surpasses that
of Sweden.  It is not so with the precious metals.
6th, They may be readily alloyed or refined. By alloy
they are made harder, and so adapted to use as money.
However alloyed, 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 appreciated.  The precious met;
als 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, -Europe,
Asia, Africa, North and South America, and Australia.
10th, They are sufficiently plentiful.  Not more than two
thirds of the gold and silver now in the possession of man
[BOOK III.
128 
CHAP. II.]
is believed to be used as money, the balance being in plate
or other objects of utility and ornamnent.
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, &c., -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 consumption, it is so gradual.
It has been ascertained, from data carefully obtained in
the Bank of England, that gold in coin loses only 4.16 per
cent ill one hundred years, or about one per cent in twentyfive years.
The following comparison exhibits approximately the
great difference in this respect between gold and other
commodities: -
Potatoes consumed within....
Wheat,,,,  say...
Cotton,,,,  average, say
Wool,,,,,,..
Lead,,,,,,,.     
Iron,,,,,,,,.
Gold in coin,,,,,,,,. 
Lead,,,,,,,,..    10 years.
Iron,,,,,,,,..    20 years.
Gold in coin.    2400 years.
Investigations made at the United States Mint, as by Report of 1862, showed that the wear and tear of gold was
only as 1 to 2,400; that is, a gold dollar would be worn
out by 2,400 years' service, or the loss annually of 241
of one per cent.
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
9
129
MONEY.
1 year.
2 years.
4 years.
5 years.
10 years.
20 years.
2400 years. 
[BOOK III.
into bullion in the lapse of time.  So that we must estimate the yearly consumption of gold, in all its uses, exceedingly small as compared with the annual production.
C O I N A G E.
Having seen how admirably adapted the precious metals
are for use as money, we pass to a consideration 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 determine 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 quantity,- 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 necessary knowledge of
metallurgy, with apparatus for conducting the process.
It was therefore natural, that, at an early period, a contrivance was hit upon which obviated all difficulties.
The bars, or ingots, designed for money, were first assayed, and made of 6ne degree of fineness.  This degree
was called the standard. The metal thus assayed was theni
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 responsibility, it very
properly became the duty and prerogative 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, by paying a very trifling seigniorage, had the whole amount returned to them in coin.
Such, at least, has been the general fact; but in the
United States, and possibly some other countries, no seigniorage is charged, the whole being done at the expense of
130
EXCHANGE. 
CREDIT CURRENCY.
the government. The policy of this is quite doubtful.
Government should retain a slight compensation for two
reasons: first, a benefit has been conferred, for which the
recipient should pay a fair equivalent: additional value,
within the particular country, has been given by the additional labor; gold in the national coin being more useful
than in bars.  Second, because coin should be a slight fraction less valuable for mechanical purposes and for export
than bullion; otherwise it will be wrought up into jewelry
at home or shipped abroad, instead of bullion, and thus an
unnecessary waste in coinage will be the consequence.
Such is the character of a currency composed entirely of
money, or that which has value in itself.  Of all subjects,
this is one of the most simple, most free from all complexity
and mystery. No 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
improved 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.
CIIAPTER 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 received 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
131
CHAP. III.] 
EXCHANGE.
ITS CHARACTERISTICS.
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 government and accepted
for taxes and other public dues, such notes are mere counters, used for cancelling 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 which will indicate the
excess and depreciation of the currency, and the want of
confidence in the promisors.
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. Governors 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 confidence 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
132
[BOOK III. 
CREDIT CURRENCY.
the natural volume of money; and consequently, as prices
must, 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 unfortunately "floated" all the merchandise of the country at
the same time, so that the rise of prices compelled him to
pay double for all the government needed; and hence he lost
at least one-half of all the bonds that were thus sold.
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. But there
is one exception in the practical operation of this principle.
If the income received were to be expended entirely for
food, clothing, and other ordinary articles of merchandise,
the full depreciation of the currency would be felt.  But
if, as would usually be the case, a portion of it were used
for the payment of rent, the depreciation, in so far, would
be less operative. Neither the fee nor the use of real
estate rises in proportion to other things.
The price of real estate, and its use, would, however,
unquestionably advance to nearly the same extent as commodities in general, provided a credit currency were continned as the currency of the country for a long period, say
from one generation to another. This, however, never has,
and, in the nature of the case, is not likely to take place;
credit currency being, necessarily, of limited duration.
Doubtless, investments  have been made, especially in
large cities, that would not have been made but for the
great inflation in the currency of the United States during
the Rebellion; but the price of such property has advanced
slowly, as compared with flour, clothing, &c.*
* That real estate in some large cities has much advanced, we are well
aware; but, take the whole country through, it is doubtful if there has been
an advance of ten per cent. Indeed, none is visible in the country generally.
133
CHAP. III.] 
EXCHANGE.
A house in New York, worth twenty thousand dollars inll
1859, was not worth fifty thousand dollars in 1864; but
twenty thousand dollars' worth of flour, at prices of 1859,
would have brought fifty thousand dollars in 1864. Why
is this?  Because everybody believes that prices have not
permainently advanced, but will before many years, perhaps
before many months, decline.  Therefore permanent investments will not be made at prices corresponding to those of
ordinary merchandise. This difference betweeli real estate
and consumable commodities, as influenced by the expansions and contractions of the currency, should be borne in
mind, as it will explain phenomena that will be presented in
our further inquiries
EFFECT ON CONTRACTS.
A credit currency, it may be safely assumed, is always
redundant; and, as such, its effect on contracts is twofold.
Obligations to pay money made with a specie standard, and
paid with credit currency, will impose a loss of value on the
creditor equal to the depreciation of the currency.  Great
injustice and suffering resulted from this cause during the
progress of the American wars of the Revolution and, of
the Rebellion.
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 difference in the value of the
two currencies. Great injustice and suffering' resulted from
this source, on the recognition of American independence,
in the last century, among the first of which may be reckoned the Shay's Rebellion of Massachusetts. At what time,
and with what results, the return to specie payments at the
present period will next be made, it is yet impossible to
predict.
Historically, it is found to be true, that a credit currency
has never yet been kept within the natural limit of the
134
[BOOK III. 
CREDIT CURRENCY.
value currency of the country in which it was established.
The "continental money" of the American Revolution; the
assignlats of the French Revolution; the bank money of
England during the Napoleonic wars; and, lastly, the greenbacks, or treasury notes, issued during the late Rebellion,
and the present paper currency of Russia, are illustrations
in point.
The French assignats were issued in such excess that
their utter repudiation by the government became a necessity.  So of the "mandates" which followed them.  The
" continental money" became entirely worthless.  The notes
of the British Bank, which depreciated during the great
struggle with France, were finally restored to par at the
cost of immense suffering and loss to the commercial and
business classes.
The paper issues of the American government will,
doubtless, be paid; but, it will be at an incalculable amount
of bankruptcy and ruin to those who are greatly indebted.
The treasury notes, now acting as currency, will be
redeemed ultimately; that is, be taken in for taxes and other
dues to government, and thus annihilated.  They could not
be paid in coin, but are sufficiently certain to be cancelled
in the way just indicated.
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 resistance. As prices rise in consequence, the
currency becomes of less and less value, that is, has a
decreasing power in exchange, so that the inducement to
issue becomes continually stronger as the volume expands.
Unless this course can be arrested, final bankruptcy is
sure.
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;
CHAP. III.]
135 
EXCHANGE.
and, even in those instances where it has been defended as
all indispensable measure, events have generally proved it
to have been a mistaken and short-sighted policy.
CREDIT CURRENCY A FORCED LOAN.
When 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.
All creditors are compelled to receive these notes for
whatever may be due to them, which is equivalent 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 ino other currency in use, so that
the whole amount thus put into circulation becomes a compulsory loan to the government.
CREDIT CURRENCY A DIRECT TAX.
As soon as legal-tender credit notes begin to depreciate
in value, or, in other words, as soon as commodities rise in
consequence, each person who receives them pays a tax
equal to their depreciation while in his possession. For
example, if he receives a ten-dollar note, which will bring
him but eight dollars' worth of merchandise at the gold
price, he has contributed two dollars to the government.
So, of course, with all who receive notes in payment for
debts contracted prior to the issue of such currency.
When, as in the case of the c continental money," these
notes become utterly worthless, those through whose hands
they have passed have,contributed, at least nominally, the
whole amount. We say nominally; for the contribution
thus forced from the people is not in fact to the full amount
in actual value.
For illustration, the government issues one hundred 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 millions; but prices have advanced in
136
[BOOK III. 
CREDIT CURRENCY.
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 millionls carries prices up to one hundred and fifty per cent,
and only forty millions is realized in value. This is not
intended as a statement of the precise fact, but to exhibit
the natural operation of such issues. That it is not exaggerated, appears from what is well known, that the United
States government sold many millions of its bonds for that
which was equivalent to but forty per cent in gold. The
result is shown in the following recapitulation:
First $100,000,000, issued at par value,.....
Second $100,000,000, issued at 33~ per cent dis  count...............
Third $100,000,000, issued at 50 per cent discount
Fourth $100,000,000, issued at 60 per cent dis  count...............
Government receives in value for $400,000,000
issued................
Loss to the government, or people......
$256,666,666
143,333,334
$400,000,000
The people must finally pay in taxes $143,333,334 more
than the government received in value, if the debt is paid;
but, if it should be repudiated, the loss of actual value to
the people would be but $256,666,666, the balance being
merely the enhanced prices they have received for commodities furnished. But, unfortunately, those who received the
extra prices and those who will pay the taxes may not be
the same identical persons.
The foregoing illustration shows the operation or general
result upon the community 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
137
CIIAP. III.]
$100,000,000
66,666,666
50,000,000
40,000,000 
EXCHANGE.
found at the time they were compelled to accept such a currency instead of money. The laws of value having been
violated, universal chaos in all monetary affairs is the inevitable consequence.
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
government have been largely enhanced by it. It does not
admit of question that a large part of the debt of the
United States represents expenditures made solely to meet
the excessive prices caused by a credit currency, especially
in the years 1863-5, when the premium on gold averaged
nearly seventy per cent, and for a considerable period,
when the heaviest expenditures were made, as high as one
hundred and fifty. Of course, the taxation of the country
will be correspondingly increased for the payment of this
excess.
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 established in 1694;
but its operations were so limited, and its influence so partially 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
[BOOK III.
138 
MIXED CURRENCY.
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 corporations legally authorized to do so, in
excess of the actual specie held for their redemption.
These notes form the circulation or currency, and consist
wholly of paper; yet, as they profess to be convertible, they
have the same power in exchange as the specie itself, so
long as confidence in the ability and integrity of the promisors remains unimpaired.
This is rightfully called a mixed currency, because it is, ill
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 convertible, 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 inconvertible. A mixed currency, therefore, can only be regarded as
partially convertible; the degree of its convertibility depending upon the proportion the specie bears to the notes issued
and the deposits. It is this proportion of specie, whatever
it may be, which determines the quality of this kind of
banik-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 OF A MIXED CURRENCY.
This is by far the most important matter in relation 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 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 con
* The bank suspended for two years, very shortly after its organization;
but its capital and operations were then too limited to occasion much notice.
CHAP. IV.]
139 
EXCHANGE,
corned. We have no occasion to make such an inquiry in
regard to money, for that was 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
proclaims itself to be; viz., convertible on demand into coin;
and therefore a sufficiency of coin should be held to secure
that object.
And here it is necessary to distinguish carefully between
the convertibility and the redeemableness of a currency.
The first may be uncertain or impossible, while the last
may be sure.  A bank may be perfectly solvent, while its
currency is almost entirely inconvertible. By convertibility,
then, we understand the power of the bank to exchange
its promises for specie on demand; by redeemableness, its
power to liquidate or discharge its obligations some time or
other, by the resources it may possess for ultimate payment.
For example, a bank has promised to pay one hundred
thousand dollars in specie, while it has only ten thousand
dollars in specie to pay with. The same bank has demands
against individuals, for their notes discounted, to the
amount of two hundred thousand dollars. Now, 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 exchange for
those of its debtors.  The power of the bank ultimately to
redeem or cancel its notes is amply sufficient; though, for
the conversion of them into specie, it has the ability only
to the extent of one4-tenth.   This point needs to be well
understood and remembered, because, as we shall have
occasion to show, the difference between the redemption and
conversion of a currency is a matter of the utmost importance to the business world, and the former cannot be made
a sufficient substitute for the latter.  This is evident from
the following consideration.
A bank-note converted into coin, the money still exists
140
[BOOK III. 
MIXED CURRENCY.
in circulation: a bank-note, redeemed by receiving 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.
To illustrate this point, and show how much  depends
upon the quality or convertibility of a'mixed currency, we
propose to take that of the United States as an example.
In doing this, it will be indispensable that we refer to the
statistics of banking institutions, and use the terms commonly employed by them; and therefore we now proceed to
define them.
LIABILITIES OF A MIXED-CURRENCY BANK.
1.  Capital Stock.-This  is  the sum  total of all the
amount paid into thie bank, to constitute its means of
doing 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 whatever
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 from
other banks" are terms used in the official returns 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 transits.
CHAP. IV.]
141 
EXCHANGE.
As affecting the character of a mixed currency, these
balances are an important itemin, because they form the most
explosive and dangerous element.  They are " deposits" ill
their nature, certain to be drawn in any sudden emergency.
This was strikingly illustrated in the autumn of 1857. At
that time, the banks in the city of New York owed some
sixty millions of dollars which had been left with them by
distant banks ill 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 New-York banks in a position of great
difficulty. To answer 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 command.   But the banks must meet the drafts
made for their balances, or suspend at once; and, accordingly, were compelled to cut off all discounts, or loans, to their
regular customers.  This state of things could not be long
endured; and the merchants of the city, being soon driven
to desperation, 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 anld general explosion.
The Bank of England was compelled, in 1847, to obtain a
suspension of the act of 181,4, by the threat of the banking
houses to withdraw their balances, and again in 1857.
Other Liabilities.   These consist of various obligations,
which banks incur iq the course of their transactions with
the public and each other.   They are not large in the
aggregate, as compared with their aggregate liabilities, but
must be taken into the account. They may be immediate
or remote liabilities, but are mostly immediate.
142
[BOOK III. 
MIXED CURRENCY.
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 obligations, payable at
some future time; say, from one day to four or six months,
as the case may be.
Stocks. - Baniks are large purchasers of the various State
and national stocks, and also those of towns, cities, railroad companies, &c. The whole amount so held is included
in the term " stocks."
Real Estate.- A place of business being indispensable to
the operations of banking, buildings are erected for such
purposes. These, being often beyond the needs of the bank,
are rented in part.
Other Investments.- A general term that includes all
kinds of property the bank may hold, from necessity 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.
In their nature, they do not differ from other notes in circulation: they are held by corporations, instead of individuals.
They would not assist a bank in meeting immediate demands, as they are not legal tender.
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
CHAP. IV.]
143 
EXCHANGE.
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 individual bank that
holds them, as compared with the debtor bailks, but not the
general mass.
Reserved Profits.- Although no such item appears in the
returns published by the national government, it is one of
some importance. In most banks, it is customary to reserve
a certain sum from the profits of each year, to ensure against
unexpected losses or contingencies.  In some  cases, this
reserve is large; in others, small.   In Massachusetts, in
1863, the amount so reserved was nearly five millions, equal
to eight per cent on the capital.  This, while it does not in
any way change the character of the currency, gives the
bank greater ability to make  loans.  It is, for the time
being, an increase of banking capital. It adds nothing to
the convertibility of current notes.
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 currency they issue.
Tlie first point to be noticed is the aggregate capital 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 undisturbed, and the currency
in its natural condition. This capital, as we have already
explained, is the amount which the banks have at their comminand, 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-liotes,
or inscribed in their books as "deposits," in exchange for
the notes of individuals 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 extent the banks have loaned their credit,
144
[BOOK III. 
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MIXED CURRENCY.
and, of course, to what extent credit enters into the'currency. The statistics are presented in the form of a diagram,
as annexed. See Diagram No. 1.
From the foregoing, it will be seen that the whole
property in possession of the banks was (Fig. 1)  $887,789,762
From which deduct the aggregate capital (Fig. 2).   421,880,095
Total credit issued by the banks.....     $465,909,867
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
Its circulation............. $207,102,447
Deposits..............                  -       253,802,129
Total currency...........         $460,904,576
It will be -observed, that the "total credit" does not exactly correspond with the "total currency."  This may be
accounted for by the consideration that the item of" reserved
profits," though given in the returns of some of the State
banks, are not noticed in the returns made to the general
government; so that, as those "profits" increase the actual
capital of the banks, some unimportant discrepancies may
be found in the accounts.
This remarkable difference, then, between the capital of
the banks and their property in possession, is the first thing
to be noticed in regard to the mnixed-currency system, because it shows how it is that large profits may be made upon
mixed-currency banking. Interest is obtained upon twice
the amount of actual capital. This income, however, is
not uniformly 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 ensures the constant expansion of a mixed currency to
10
145
CHAP. IV.] 
EXCHANGE.
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
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 currency; credit being 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........2,                            4
Deposits..........
Due other banks.....
Other liabilities......
.  $207,102,477
253,802,129
55,932,918
~    14,661,815$531,499,339
Immediate resources: -
Specie......................... $83,594,537
Cash items.........              19,331,521
Notes of other banks......          25,502,567
Due by other banks......            67,235,457  195,664,082
Excess of immediate liabilities over immediate re-'6
sources................................$335,735,257
146
[BOOK III. 
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1711i,vi,ate.  
MIXED CURRENCY.
Diagram No. 2 presents to the eye the facts just stated,
and shows the real position of the banks in reference to the
convertibility of their currency.
It appears that the banks owed over three hundred and
tl-iirty-five millions on demand, which they had no means ir
their possession to discharge, but for which they held the
following ultimate resources:
Loans.................................$691,945,580
Stocks...................................70,344,343
Real estate...............           30,782,131
Other investments...........  I11,123,171
$804,195,225
This relation between the excess of immediate liabilities
and the mass of ultimate resources, is exhibited in Currency
Diagram No. 3.
From this view of the matter, we find that the banks had
a surplus of four hundred and sixty-six millions for the payment, the final payment, of their immediate liabilities.
It is, therefore, quite clear that these notes and deposits
are sufficiently secure, if the loans and other property of the
bank prove to be reliable. But this is not the main point
of interest.
The grand problem of mixed currency is to realize enough,
at the necessary time, out of Fig. 1, to meet the demands
of Fig. 2; that is, from eight hundred and four millions of
stock, loans, &c., to meet the three hundred and thirty-five
millions of instant obligations. The latter is all payable on
demand. The former is, in part, a permanent investment;
and, in part, falls due from one day to six months ahead.
The question, then, upon which the convertibility of the
currency depends, is as follows: Will the obligations constituting the item of "loans" be paid in fast enough to
meet the excess of immediate liabilities over immediate resources? That question we shall answer in the sequel.
CHAP. IV. I
147 
EXCHANGE.
CHAPTER V.
ANALYSIS OF DEPOSITS.
OuR analysis of mixed currency will be far from complete,
if we do not give a full description of the origin and character of deposits, as forming an element most dangerous to such
a currency, and generally very mysterious in the popular
understanding.
Ini the currency of the United States, deposits constitute
the largest itemn, considerably exceeding the circulation.
The nature of these deposits has, until within a very few
years, been a matter of serious disagreement amongst those
who ought to be well acquainted with their nature and
effects. To present the subject in such a light that it shall
be clearly understood, we must carefully examine it in all
its details.
first, What are deposits? We have already defined
them as credits given to individuals in thle books of the
banks, for which they are authorized by law to demand
the specie.
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. lte 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. Tile 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.
148
[BOOK III. 
MIXED CURRTENCY.
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 observed, 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,
expressed 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 wholly for
temporary safe keeping, by executors, guardians, treasurers of corporations, &c., who are receiving funds to be paid
out, or invested at a future period.
Third, Active deposits, made by business men, to be
withdrawn to meet their current payments.
It will be necessary to explain these different deposits.
The 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,
perhaps, 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 interest 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 element in
tie mixed-currency system, for the reason, that, when the
merchants of any great city are driven to desperation, they
CHAP. V.]
149 
EXCHANGE.
may dlemand these deposits 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 engagements. 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.
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 immediate 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 oity
of New York owed for eighty-four millions for deposits and
nine millions for circulation, -  in all, ninety-three  millions, - and had but nine millions of specie.
Here, perhaps, it is proper to remark, that this kind of
deposits is probably unknown in any other country than the
United States. In England, for example, the rate of interest is not arbitrarily fixed by government, but fluctuates
from time to time, according to the laws of currency and
the demands of trade.  Consequently, there is no occasion
for this indirect mode of obtaining extra interest, so common in some, if not all, the commercial cities of the American Union.
Compulsory deposits mean, simply, extra interest; but
that interest is paid in a manner most burdensome to the
depositors, and most dangerous to the banks.  The former
150
[BOOK III. 
ANALYSIS OF DEPOSITS.
must lie out of a considerable part of capital which they
need in their business; the latter must enlarge their deposits to a most unreasonable extent, and place themselves
at the mercy of the depositors in any time of severe pressure or panic.
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 extent, be loaned by the
banks with safety. They should be so loaned for the advantage of the public, and thus no capital be left unemployed.
An obvious benefit arises to all parties: the depositor has
his money securely kept, the borrower has the use of it,
and the bank rightfully gets interest upon so much of the
sum as it has loaned.
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 different kinds in circulationll. He will also receive checks on different banks.
All these he will deposit in bank; and the amount is passed
to his credit, and becomes a bank deposit.
(b) 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.
(e) Or, if he desires to anticipate the payment of such
notes, he may ask the bank to deduct the interest (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, one of the best authorities, has maintained the negative; but most writers * in this country take
* We  do not know  of any intelligent writer in this country who  now
denies that deposits are as truly currency as the circulation itself.
151
CHAP. V.] 
EXCHANGE.
the affirmative side of the question: indeed, there are, at the
present time, few, if any, who doubt that deposits are currency. The New-York Board of Currency has given its
verdict unequivocally as follows: " They constitute at this
time five-sixths of the active currency of this city."  See the
official report of that association for November, 1858. No
array of authorities, llowever, but an examination of facts,
should determine the question.
Deposits are an instrumentality by which by far the
greatest amount of values are transferred in commercial
centres. They discharge debts, purchase commodities, and
perform all the functions of currency.
For example, A has a deposit in the Merchants' Bank.
ile purchases of B a bill of sugars, amounting 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 transaction 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.
Now, 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 currency as the other.  If A was
pondering the question whether he should purchase the
sugar for cash (i.e., immediate payment), did not the consciousness that he had ten thousand dollars to his credit
in bank operate on his decision precisely to the same
extent as if he had ten thousand dollars of banlk-notes in
his pocketbook?  Undoubtedly.  Where, then, is the difference? And, if all this would be true in the case of A,
then in the case of any one similarly situated; and therefore
we must conclude, that deposits are, in their nature and influence, of the same character as bank-notes, and, of course,
are currency.
[BOOK III.
152 
ANALYSIS OF DEPOSITS.
All bankers and business men are well satisfied that
deposits are even more active by far in transferring 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 ill a single day, in ten different transfers by
checks, a total of one hundred thousand dollars.
This would 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, depends greatly
upon the rapidity with which exchanges are made.  John
Stuart Mill recognizes this principle; and it is a very obvious one. It is on that principle that we see the propriety
of admitting, that, although the active deposits in bank may
be less than its notes, yet the greater rapidity with which
they are used makes the whole amount equivalent in their
effects to an equal amount of bank-notes.
The currency of any country is as its quantity multiplied
by the rapidity of its circulation. This consideration will
lead us to regard the whole amount of deposits as equal in
effect to an equal amount of circulation.
STOCKS AS IMMEDIATE RESOURCES.
Here it may be proper to explain why we have not placed
the itemiof "stocks" held by the banks amongst their immediate resources. Many persons seem disposed to regard
them as such. But, so far as the quality and character of
the currency are concerned, the stocks held by the banks
do not essentially differ from any other securities.   Suppose a severe pressure  for specie comes  on, what  can
they do with them?  Force the sale, and realize the money
for them? This cannot be done, of course, at such a
153
CHAP V.] 
EXCHANGE.
time, except at a great sacrifice; besides, if they do this,
what will the banks receive for the stocks sold?  Their
own notes and deposits. There is nothing else in whichl
the stocks can be paid for. But if, after having received
their notes in this way, they refuse again to loan them,
they contract the currency by so much, and increase the
pecuniary distress by all that amount; if they do reloan
the notes, they have gained no relief to themselves by the
operation.  The great object desired is to relieve the pressure for money: the sale of the stocks will have the opposite effect. Hence they cannot be regarded as the
immediate resources.
CHAPTER VI.
MIXED CURRENCY.- FLUCTUATIONS IN QUANTITY AND QUALITY.
WE have explained the organization of mixed-currency institutions, the character of their operations, the quality and
form of their issues. We pass now to consider this currency in its several relations to the public wealth. Such an
inquiry will demand great carefulness and impartiality, and
must necessarily be made in detail.
We have two grand questions which arise naturally 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 currency?
These questions are so full of interest to all the departments of wealth, are so deeply obscured by prejudice and
misapprehension, and are so especially important at the
present time, that their discussion will be protracted through
several chapters.
154
[BOOK III. 
MIXED CURRENCY.
1st, DOES A MIXED CURRENCY SATISFACTORILY PERFORM 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 principle 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 supply, expands demand to the same proportions: the same cause that restricts
supply, reduces demand correspondingly.
A mixed currency is not regulated in this way.  In so
far as it has not value, it is not controlled by the laws of
value.
It is put out or taken in by bank managers at their
pleasure, and for their profit. It is not produced by labor.
This last fact removes the gravitation which alone call
secure a currency. It makes it a thing to be blown about
by every breeze, carried up or carried down with the currents, or whirled around in the eddies of trade. It should
be stable, and not sport for the winds. There should be
a reason for the putting-out or takinig-in of every dollar of
money;  and that reason should be found in the laws of
value.
CHAP. VI.]
155, 
EXCHANGE.
Now, this law controls the expansion or contraction
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,
withlout regard to the laws of value, and without the addi tion of a dollar to the real money, or wealth, of the country.
The increase of money by importation takes place in obe dience 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.  Real money is like the water of
the globe, rising and falling by natural laws, and keeping
its level by its own mobility. If a redundance exists in one
spot, there is, for that reason, a deficiency somewhere else.
Where it is, it is less valued; where it is not, it is the more
desired; and the equilibrium is soon restored. No artificial
appliances or legal enactments are needed to keep true
money at a level the world over.
We have found that the quantity of a mixed currency is
not governed by the 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 supply 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 creates
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 correspondingly, and more
1156
[BOOX III. 
MIXED CURRENCY.
currency is demanded to effect the same exclhaniges; tlhe
other, that the speculation inevitably following thile 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
for the 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, like a very earnest friend who thrusts
his purse into your hand before you are quite decided that
you wish to borrow.
Secondly, Of contraction.  We have seen the forces that
raise the currency higher and higher.  We have not 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 direction, till any degree of expansion should be reached, inasmuch as the law ofvalue
does not govern a product 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. If every dollar of credit were called a million
dollars, it would effect an exchange just as well. The only
difference would be the work of adding six ciphers in
accounting. No: the cause that limits the expansion, and
finally produces contraction, is the liability of the notes
to be presented for payment in money.
The occasion for this cause to operate may be almost any
thing,- a political convulsion, an adverse balance of trade,
a failure of some large trading or banking company, or an
unaccountable mood of the popular mind.
We will take that one 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
CHAP. VI.]
157 
EXCHANGE.
these circumstances, no reason for excitement or alarm:
ten million dollars 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, no
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 currency is so much
diminished, and the circulation must be curtailed accordingly; 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 five of notes, then the export of ten million dollars
abroad must cause a contraction to the extent of fifty million dollars at home. The removal of so much currency,
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 million dollars; but another cause is introduced
now.  Vague apprehensions abound, everybody gets prudent,
many are scared. 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. Not so with
credit money: it won't bear to be looked in the face.
It is hardly necessary to trace the course of contractions,
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 themselves. 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:   ist, Those who transact all their business in an honor
158
[BOOK Il. 
MIXED CURRENCY.
able manner, and, so far as the nature of the currency they
issue will admit, on a secure basis. They are careful not
to extend their loans beyond their means, and they keep a
respectable amount of specie.
2d, Those who get out, and keep out, all they can, and
carry their circulation, deposits, and loans as high as pos sible, without regard to the specie in their vaults.  This
class is numerous, especially among those of small capital.
They rely on their baseless circulation for extraordinary
profits.
In case of a demand for specie, the latter class are obliged
to call for assistance from the former, who, willing 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 five to pay with, they must, of course, soon
stop paying altogether.
It should be borne in mind that these contractions and
expansions are not imaginary, not possible only, not merely
occasional, nor at all local, but occur frequently and everywhere within the field of such a currency.
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 currency which it needs.
But it is not true. The movement always commences
with the banks. When, by a monetary revulsion, their
circulation and deposits have been reduced sd low that
they feel safe in commencing another expansion, the panic
being over, the banks begin to offer extraordinary induce
CHAP. VI.]
159 
EXCHANGE.
ments to their customers to borrow money. They will
discount all good paper offered, even if it has a long time
to run.  It is not uncommon, at suchl 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 prices, and cause a still greater demand for
currency.  The expansive force is now in full operation,
and is sure to increase in power till by revulsion the
equilibrium is restored.
But it may be asked, are there not natural tides in business, irrespective of a mixed currency?  Certainly; but
they are never aggravated or intensified until they end in
panic or ruin.  They are calculable and healthful.  They are
tests of business character.  They may go to the extent of
exposing the emptiness of bad concerns, but never destroy
those that are good.  When  they occur, money will be
wanted to pay debts; but, when one debt is paid, there is
just as much money as before with which to pay others.
The pressure does not annihilate any part of the  currency. The party who receives a payment does not put
the money away in vaults, not to appear again till the crisis
is past. The means of payment can be reduced only by
the amount actually sent out of the country.  Gold and
silver are as little injured by panic as by fire.
CIhAPTER VII.
TABLES AND DIAGRAMS OF MIXED-CURRENCY FLUCTUATIONS.
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 controlled by other principles,
* This is within the personal knowledge of the writer as a bank director.
160
[BOOK III. 
TABLES AND DIAGRAMS.
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.
We introduce a diagram, carefully prepared, for the purpose of showing, in the most compact and striking form,
these fluctuations  of the currency, both in quantity and
quality.
The following table exhibits the fluctuations in the absolute quantity of the mixed currency (circulation and
deposit) of the United States from 1834 to 1859 inclusive,
a period of twenty-six years.
TABLE I.
170,000,000
186,000,000
255,000,000
276,000,000
200,000,000
225,000,000
182,000,000
172,000,000
146,000,000
114,000,000
159,000,000
1877,000,000
202,000,000
These facts are collected, as nearly as possible, from the
returns made at the beginning of the years mentioned.
Therefore the contractions or expansions made during a
year do not appear till the return of the next year.  For
example, the great contractions of 1837 atld 1857, beginning
several months after January, do not exhibit their effects
till the currency returns of the years 1838 and 1858.
11
CHAP. VII.]
161
1834
1835
1836
1837
1838
1840
1841
1842
1843
1844
1845
1846
.1847
1848
1849
1850
1851
1852
185-3
1854
1855
1856
1857
1858
1859
197,000,000
231,000,000
205,000,000
240,000,000
284,000,000
328,000,000
348,000 000
392,000:000
377,000,000
408,000,000
445,000,000
341,000,000
452,000,000 
EXCHANGE.
Diagram No. 4 exhibits the fluctuations in the currency
(circulation and deposits), and also the proportion of specie,
from 1834 to 1859 inclusive, both reckoned per capita.
The upper line indicates the currency, the lower the
specie, and show the fluctuations of both.
In the last diagram, we see distinctly the actual fluctuations in the currency, because its amount, at the several
periods, is reckoned per capita.  This is a far more correct
mode of getting at the real changes than taking the absolute
quantity.
The diagram is prepared from a table published by the
Massachusetts Bank Commissioners, in their Report of 1861,
furnished by J. V. Yatman, Esq., of New York, to whom
the public are indebted for valuable contributions of a statistical character.
The upper line shows the fluctuations in the quantity of
the currency: the lower line indicates its qualitv from time
to time.
Thle following table shows the extreme fluctuations in the
quantity of the currency of the United States per capita, at
different times, with the corresponding variations per cent
in its quality
TABLE Il., showing the Extreme Fluctuations in the Currency of the United States
per Capita at different Times, oith the Corresponding Variations in its Quality, or
the Proportion of Specie held for its Redemption.
Years.   per capit    a Fluctuations.y    cent.   to circulation.   V ariations in quality.  Pent.
per! capita   lcutin.e    Qnlty,o  pceVaitoe
1834      11.82.........              151 to 100
*1837      17.61      Expansion         50      13L to 100      Depreciation       11i
1840      10.70     Contraction        39     18 to 100       Improvement         33
1843       6.18                        42     29  to 100,,          61
1846       9.94     Expansion          61     21  to 100      Depreciation        36
1849       9 18     Contraction         7     21  to 100       Stationary          0
1852      13.31     Expansion         45      15~ to 100      Depreciation       27
1855      13.93,          13      14 to 100,            10
*1857      15.50,,          11      13  to 100,,             7
1858      11.55     Contraction       26      23i to 100       Improvement        73
1859      14.90     Expansion          23     23  to 100,             2
* Years when the banks suspended. Observe the great expansion between
the years 1834 and 1837 of some fifty per cent; and between 1849 and 1857
of some seventy per cent.
162
[BOOK III. 
r -~
I. 
i5                                  I
9 I
~I
I I
I
I
I
l
'oa
I I
co
m CA
I
la
I l
t,
I
I.
I
I
i
ii
I
m                                                       OC) co E5  
TABLES AND DIAGRAMS.
TABLE IlL.- The following Table exhibits the Composition of the Mixed Currencies
of the several States of the Union, Jan. 1, 1860; that is, the Percentage of Specie to
the Circulation and Deposits in the Currency of each State: -
Per                             Per                              Per
Per
cent.
21.3
20.
16.7
15.6
15.5
15.2
15.1
10.5
10.
Delaware....
New Jersey...
Connecticut...
Rhode Island..
New Hampshire.
Wisconsin...
Vermont....
Michigan....
Illinois....
Louisiana....
Missouri....
Georgia....
Kentucky....
Tennessee...
North Carolina..
Indiana....
Alabama....
Maryiland....
Ma4and....    21.4    Maine............10.    Illinois....                                 2.3
But there are variations, not only in the general currency
of the United States, such as we have indicated, but also in
the currency of each State, at different periods.
We take that of Massachusetts, in illustration:
TABLE iV., exhibiting the Quality of the Currency of Massac7husetts.
Year......           1835.  1837.  1840.  1843.   1851.  1857.  1859.  1860.
Specie, percent..        7.1      8       184    44.1    7.5      8.9    14.6    15.1
From this it appears that the highest proportion of specie
was in 1843, which year marked the termination of the
great monetary convulsion that commenced with the failure
of the banks in 1837, at which date the banks of Massachusetts had but eight per cent, as shown above. The severe
pressure began in 1836, when the specie was seven.
By a law of that Commonwealth, passed in 1858, the
banks are required to keep at least fifteen per cent of specie. This law has much increased the average amount of
specie.
Another fact may be noticed in this connection; viz., that
the banks of Massachusetts were, to a considerable extent,
responsible for all the mixed-currency circulation in New
England, because the banks of the neighboring States had
all their bills redeemed in Boston. Those of Vermont, for
example, whose average specie is only four or five per cent,
kept bank balances (not actual specie, as often supposed)
163
CHAP. VII.]
P,,,
...t.
38.6
37.
23.7
23.4
23.
22-08
22.3
22.2
21.4
p
..t.
9.9
8.9
7.5
6.3
5.7
5.5
4.2
4.
2.3
Pennsylvania.
Iowa.'''
Virginia...
New York -.
South Carolina -
Ohio - - - -
Massachusetts -
Florida...
Maine... -
, I.. -1.
.....',. 1. ",
,,,'i i.
..,,. I. I 
EXCHANGE.
witl certain banks which were under obligations to redeem
all their bills as fast as presented. This, of course, greatly
enhanced the responsibilities of the Massachusetts banks,
and decreased the strength of their currency.
The currency of New England was thus made a complete
unit.  The system of redemption, first established by the
Suffolk Bank of Boston about forty years ago, was so perfected, that, while the banks of each State might act independently, they were bound together by a common tie, and
involved in a common fate.  This was known as the "Suffolk-Bank system."
Volumes of statistics might be given of the same general
character; but these, it is presumed, are sufficient to show
the fluctuating character of the mixed currency of the United
States, both in quantity and quality; and of course, in degree, of all other countries where such a currency exists:
for it is, at all times and everywhere, the same in its general characteristics.  The quality may and does vary greatly
in different communities, as we have seen it in the different
States of the American Union. But this is merely a ques
tion of degree.
CHAPTER VIII.
MIXED CURRENCY AS A MEDIUM OF EXCHANGE.
H.vING shown 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 exchange, may
be said to perform two offices: (a) To transfer commod
164
[BOOK III. 
MEDIUM OF EXCHANGE.
ities from one person to another.   For this purpose, a
mixed currency, having a circulation wholly of paper, is
found to be portable, readily counted, easily carried, safely
kept, and is, consequently, as convenient as any agent that
could reasonably be desired. (b) To discharge indebtedless 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. If gold and silver are called for by
foreign obligations, they retain their full power to discharge
them.
There can never be a scarcity of them that an earnest demand
will not create a supply for. If a community wants them
very much, it will certainly get them.
They crowd to their best market, as truly as cotton or
wheat.
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 currency based, in
any degree, onIL credit.
But, again, a foreign demand can only take away its own
amount of real money. We have seen that such a cause
takes away an amount of mixed currency of which the quantity required abroad is only one factor; the other factor
being that number which represents the proportion between
the bulk of tile currency and the specie basis.  In these two
statements are clearly shown the entire unreliability of mixed
currency 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,
CHAP. VIII.]
165 
EXCHANGE.
or from a necessity of export; and, of course, can never be
safe in giving his notes predicated upon the currency as it
exists at the time.
So far as the fluctuations we have shown derange general
plans of business, distort prices, work injustice to one party
of every bargain, and tend, by such inequalities and uicertainties, to discourage steady enterprise, they do not
present themselves hiere for examination. We shall meet
them, when discussing 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 difficulty
or impossibility of discharging it at all.
To falsify the standard of value is a serious, but not necessarily a ruinous error. It takes from one unjustly, and
adds to another; but it destroys nothing directly.  There
are fluctuations in the currency, found in our national experience and depicted in the diagrams given, which proceed
to an entire revulsion of the body of trade.  Panic is not a
century plant.  It blossoms and bears fruit once or twice
while a child is growing up; many times while a man remains in business.
How does a mixed currency perform the functions of money, so far as discharging indebtedness in such times?
Let us suppose the case of the best man in the communiity   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
banlks in his having their notes as in their being ai)ywhere
else. It is the peculiar hardship of good men, ill 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
166
[BOOK III. 
MEDIUM OF EXCHANGE.
matter of importance is the solvency of the applicant him
self.
If he cannot get money, he cannot meet his obligations;
for lie cannot pay inll merchandise or real estate.   The
money is not to be had; that is, if the banks would accomplish what they must do to save their credit.
Of course, there are individuals and institutions, who, ill
consideration of high premiums and full security, will grant
accommodations to a limited amount. He may try to get
along, sacrificing his property to save his name, and paying
twenlty-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 accumulation and less
credit. Hiis debtors fail 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 the deadly
enemies of credit: when these are aroused in the community, it cannot go abroad. Just as nearly as the object call
be accomplished in the time given, all forms of credit will be
withdrawn.  But this will produce, in its several degrees,
stringency, distress, panic, ruin.
Is it, then, too much to say that credit is not reliable for
the discharge of indebtedness?
The element of credit introduces a direct hostility between
the interests of those who control the currency and those
who wish to use it. The interest of the one requires that
the notes shall be withdrawn.  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.
No matter how intense the apprehension, how manifold the
suspicion, how frenzied the panic, there is never a moment
when it is not better for fthie owner that such money should
be used titan kept out of use.
CHAP. VIII.]
167 
EXCHANGE.
We have said that a sudden and severe contraction is
necessary whenever any cause threatens the specie basis of
a mixed currency.  Such a contraction deprives the community of the means of meeting obligations undertaken when
the currency was redundant.
But this contraction, when it has become inevitable, 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 be had at all.
The banks now find themselves in this dilemma: if they
make loans, they must keep paying out their 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 succumb.  But, if their customers generally fail, the
banks will lose their capital (it being chiefly in the form of
notes given by individuals), and be permanently 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 individ.
uals who owe them, and after the demand for specie has
ceased, the banks can resume payments.
It may be said, at this point, that the result we have
reached does not seem very formidable; that, let it but be
understood the banks are to suspend in such circumstances,
we can by this means still have the advantages of a mixed
currency in favorable times, and relieve the distress when
a contraction is threatened. The answer to this plea will
be deferred to the chapter on "Fallacies," in preference to
interrupting the present line of argument.
168
[BOOK III. 
STANDARD OF VALUE.
CIIAPTER IX.
M]IXED CURRENCY AS A STANDARD OF VALUE.
2d, DOES a mixed currency act justly as a standard of
value?
This function of money is of a very important character.
It lies at the foundation of all credit and all business calculationls. If no man dealt with or trusted anothcr, or waited
a day to receive and consume the reward of his labor, there
would be no great need of such a standard.  It would then
be only of scientific interest, to showwhat was the comparative wealth of different communities and ages, and what the
fairness of their several systems of distributing the result
of industry among the producing classes.  If every act of
labor received its own reward, in a distinct form, at the
time, to be consumed then and there, a standard of value
would be of less practical importance.
But whenever there is the slightest exchange of commodities or association of laborers; 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 something 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 office. 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, conventional standard,
forced on the people, unjustly, by legislative enactment."
169
CHAP. IX.] 
EXCHANGE.
Much confusion has undoubtedly been caused by mistaken views of what is really meant by a standard 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 standard by which the value of the
land is determined. They form the money, or currency, by
which the 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 community in
which they are altogether used as money, they become,
without any necessary legal enactment, the universal standard, or that by which all other values are measured and
expressed. Value 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.
As long as the land was measured, in the single instance,
by the oxen, so long each measured the other alike; but,
when the use of the oxen was extended 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.   The government does not insist
that length or breadth shall be determined in all bargains
by the yardstick.  Men can and do take arms and fingers
for tiie purpose, or any thing else they please: it is nothing
to government, which only says what a yard shall be.
So, by universal consent, mankind have agreed to measure
every thing by the precious metals. The laws of the United
States, for example, enact that a certain coin, or planehet,
of gold, nine-tenths fine, and weighing 25-s6 grainis, 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
any thing, unless he has agreed to do so, any more than it
compels him to receive hats or boots, wheat or cotton. But,
170
[BOOK III. 
STANDARD OF VALUE.
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 thiing. If
they buy merchandise or land or cattle, they agree to take
so many of these dollars in payment. They might say, so
many oxen or horses, or any thing else; but they prefer
dollars, merely because they have the most convenient form
of value, and are universally acceptable.   As society in
general adopts this way of determining the worth of property, 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 of dollars shall
discharge the debt.
True it is, that every object, having value and used in
exchange, is really, in so far, and for the time, a measure
of value; but that which has been selected by mankind as
the' best adapted for a universal equivalent, and actually so
used, is emphatically, and for all purposes, the measure
or standard.
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 any thing 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 resulting from a failure of the crop in that particular article.
Neither is it an arbitrary act on the part of the government.  It is purely a favor, an accommodation, provided at
great cost, for the benefit of the public. All objections, on
CHAP. IX.]
171 
EXCHANGE.
the ground that it is arbitrary and unijust to compel men
to discharge indebtedness ill coin, are idle and absurd.
Those who make them are bound to show, what has never
yet been found, a better standard.
During the suspension of the Bank of England  from
1793 to 1819, it was gravely argued, by some genltlemeii ill
the House of Comlmonis, that " the pound sterling was really
an abstraction;" but the return to specie payments in the
latter year showed that the pound sterling was really a coIncretionl of 113.001 grains of fine gold, by which all debts,
public and private, were to be discharged.
A mixed currency, wherever it exists, forms the standard
of value for the community, just as certainly as the precious
metals where they alone are used.   That of the United
States, to be sure, is not a legal tender,* like the Baink-ofEngland notes; but, as no other currency exists, as there
is no other money of importance in circulation, it must be
employed for all purposes, and so, to all practical intents, is
the standard of value.
We are now prepared to inquire how a mixed currency
performs this function.
We have seen its fluctuations, certain to occur, 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 injustice and mischief, both in expansion and contraction. Destructive as are the great occasional convulsions of trade, it is doubtful whether  they
produce as extensive evil as those minor disturbances 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.
* This whole discussion supposes this currency in the state it occupied
before. the war of the Rebellion.
[BOOIK III.
172 
STANDARD OF VALUE.
In the mildest form of such a currency, fluctuatiolls to
the extent of fifteen per cent are shown by our diagrams
to be as commonplace as yearly occurrence 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 ally possibility of anticipating the change, or
any public proclamation of it, that fact would influence manufactures, and every branch of production, greatly;  would
not only cause injustice to individuals, buyers and sellers,
but would have a bearing on the trade and public prosperity;
would influence investments, and affect labor no less.
Yet, under the fluctuations of a mixed currency, buyers
and sellers of all classes experience injustice as great and
as distressing as would result to the dealers in cloth from
the falsification of the yardstick.  If the great changes are
destructive, the more ordinary are constantly embarrassing.
Arbitrary interference with currency produces mischief and
injustice, just so far as it operates at all.   The quantity
cannot be artificially increased or diminished, but some one
is wronged; either he who relied on obtaining it at ordinary
rates to discharge his obligation, or he who trusted to get
quite another value fromnt what he does.
Enormous transfers of property take place under this system, without any desert in the party who receives what is
another's, and without any fault in the party who gives up
what is his own.  This it is which makes business a very
complicated kind of gambling. This it is which tosses up
or pulls down prices enough to ruin the merchant and manufacturer or make their fortunes, while their goods are in
their hands, before tlhey can be turned.
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 especially entitled to social
and governmental care and consideration, who put out
money at interest or invest in stocks, or rely on permanent
salaries or wages for support, we shall here find a mischief
CHAP. IX.]
173 
EXCHANGE.
without relief; a wrong without a remedy. These receive
no appreciable benefit from any of the changes of a mixed
currency, but all its evils fall heavy and unbroken upon
them.
This matter is so near our daily observation as scarcely
to need enforcement, so plain as to be scarcely susceptible
of illustration. The sad effects of such a currency are
strongly set forth in the following extract from all article in
the "N\Torth-American Review" of January, 1840, understood to have been written by one who has been long and
intimately connected with the banking institutions of MassachuLsetts: -
" It is the standing reproach of our commercial life, that it involves more intellectual suffering from violent fluctuations than any
other pursuit. With all our recuperative powers, there is a vast
waste of life amongst us as a people, growing out of our financial
disasters. Witness the fact, stated to be derived from accurate
statistics, that, among one hundred merchants or traders, not over
three ever acquire independence. Add to this the other fact, also
deduced from trustworthy records, that commercial and financial
revolutions produce excessive mortality amongst business men in
maritime cities. Here we have the cause and effect. Meanwhile
we have statistical data of the still severer calamities to widows
and orphans."
PRI CE.
Currency performs the function of a standard of value,
by fixing thie price of commodities.  In order to examine
thle subject intelligently, we shall be called first 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 price of the ox would be twenty
sheep.  If thie 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
174
[BOOK 111. 
STANDARD OF VALUE.
same, if by dollars we meant only certain pieces of paper,
promising to pay these coins.
Price and value are often confounded together. The difference 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 foiund, not only at different periods in
thie same country, but between different countries at the
same time. If all commodities in all countries were always
measured by the same standard, price and value would be
synonymous; but if, as often happens, a standard is adopted
iD one country less valuable than that of others, commodities
will adapt themselves to the currency, and the agreement
between price and value is destroyed in thle act of vitiating
the standard.
"The value of a thing is its purchasing power: the price of
any thing is its power to command gold, silver, or that which constitutes the currency of the country. Value may be expressed in
any commodity whatever: price is expressed in one commodity
only."-BASCOM, p. 22.
If an inventory of all the property belonging to the people
of the United States had been made in 1864, at the then
prevailing prices, it would have amounted to nearly double
what it was two years before, even though thie quantity of
all commodities had been identically ihe same. This, because prices were measured not by gold, but by credit, or
thie promises of government and 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.
175
CHAP. IX.] 
EXCHANGE.
The difference between price and value was also strikingly
exhibited in the history of the Confederate States during
the Rebellion. In both sections of the country, the variations in 1864 were so great as to attract universal attention;
but they always exist, in greater or less degree, under a
mixed-currency system, because the standard of value, except at short intervals, is not sound.  The difference begins
to manifest itself whenever the currency is inflated beyond
its natural volume, and increases with that inflation.
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 systenm.
We have selected, for the purpose, the period 1834-1859,
inclusive, because it is the only one for which we have correct data, -that is, well-authenticated returns; and for the
additional reason that the period was one of general peace,
at home and abroad.
The articles we have selected for this comparison are the
most common in use, whose prices are best known and
least liable to variations, except from changes in the value
of the currency, and therefore, it is supposed, most proper
for our illustration.
176
[BOOK III. 
TABLE V. -Average Prtice of Ten Commodities in the New-York Market for Tw
Cubrrency per capita.
YEARS.........
CURRENCY, PER CAPITA..
Coffee.........
Leather........
Molasses, Muscovado                         
Mess Pork.......
Cheese........
Rice, ordinary......
Salt, Liverpool......
Sugar, Muscovado                  7
Tobacco, Kentucky.6
Wool, common......
119.13+  22.81+  29.46+  28.40+  28.35+  22.21+  20.7
* Financial Report, 1863.
1834.
11.82
1835.
12.68
1836.
16.73
11i
183
891
22.50
9
3.68
1.91
9
73
421
29.461
1837.
17.61
10i
19
35~
21.08
91
4.01
2.00
7
6i
438
28.401
1838.
12.44
10
j8A
342
21.37
8
4.36
1.74
7
13
381
28.354
1839.
13.58
11
211
314,
14.80
9
4.36
1.74
7
13
381
22.213
184
10.7,
14
21
14.81
116
173
30
16.39
7i
3.50
,1.77
71
8
3322.81,
11I
163
27
13.71i
7
2.81
1.56
7
6i
30
19.131
3.3'
1.4',
0
31,
20.7'~ 
TABLE V. (continued). -Average Price of Ten Commodities in the New -York Mar?ket
of Currency per capita.
YEARS......
CURRENCY, PER CAPITA   
Coffee.........
Leather........
Molasses, Muscovado...
Mess Pork.......
Cheese........
Rice, ordinary.......
Salt, Liverpool......
Sugar, Muscovado....
Tobacco, Kentucky....
Wool, common......
20.821   16.53+  16.45    16.20L  19.42~  21.423
I
I
1847.
9.38
7
15{
27
14.42
7
4.121
1.35i
6
5
26
1848.
10.67
6
134
24i
11.11
7
8.17
1.39
4
5,
26
1849.
9.18 ~
.61
153
231
10.78
6
3.463
1.29
4i
6
291
1850.
1851.
11.86
9
141
253
14.02
51
3.023
1.34
5
81
351
1852.
13.31
8s
15A
223
15.55
7
3.71
1.20
4{
32
181
13.6
10.39
10.
15{
241
10.623
61
3.181
1.363
5
831
3221
1
2
16.0
3.9
1.3
4
22.4 
____________ ___ C
__    dd_X'11            -g
_____           _____   #1       __
__  __'-~~
ft
Th  _            _     _  _
-_ ~~
~~~~-~~~,c
-1
dw             ~  ~1"
6J   __  __________ ______                                     ____________           _____
_______                                                                          ___         Pt
LI
I j- m --
1 7
,4(I'
9'
L "
ill
91,
t,
69
I TIV I  
STANDARD OF VALUE.
These facts are shown geometrically in Diagram No. 5.
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 already given in the tables.   The lower  line represeuts the bank currency, per capita, for the corresponding
years.
Several important facts appear in this figure. The first
to be noticed is the remarkable correspondence 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 cur
rency in circulation.
The average currency, per capita, from
26 years, was........
Average prices during that time...
Highest amount of currency (1837)..
Highest prices (1836)......
Next highest prices (1837).....
Difference between lowest and highest cur]
Difference between lowest and highest pric
It will be observed, that the difference in prices is not as
great,per cent, as the difference in currency per capita. This
is in accordance with what has been already laid down in
regard to the unnatural extension of credits, caused by the
expansion of the currency. These, of course, require a
larger amount for their discharge. The currency has relation to credits as well as commodities.
The correspondence exhibited, in the foregoing tables and
diagram, between the quantity of currency and the rate of
prices, shows conclusively and impressively the effects of a
mixed currency as a standard of value; viz., that as it
expands or contracts from arbitrary but resistless causes, so
prices are elevated or depressed; -variations which are often
sudden and excessive.
CHAP. IX.]
1119
i
1834 to 1859,
$11.99
20-80
17.61
29.46
28.40
er cent.
er cent.
...... 
EXCHANGE.
In 1857, the highest point of expansion was attained,
amounting to 103 per cent over 1849;  and the price of
commodities had advanced 69 per cent.
The list (see United-States Financial Report, 1863) from
whichl the foregoing table of ten items was selected contains
seventy articles, the prices of which correspond essentially
to those we have presented.
Two important articles are omitted, viz. cotton and flour,
from the list here given, because their prices are more
affected by the foreign market than by our own, and may be
noticed hereafter.
After making due allowance for those fluctuations which
arise from supply and demand and from accidents, thle evidence is most conclusive that the quantity of currency ill
existence does determine, essentially, the prices of commodities; and that, as a mixed currency must fluctuate greatly
in amount fiom its inherent properties, it cannot perform
satisfactorily 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 industry and trade of the country is
increased proportionally, and, if so, a larger amount of currency will be needed.  If the increase of currency is greater
than the increase of population, the per-capita calculation
will show it.
It may be said, at this point, that the same effect 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. It can only
be brought in because it is wanted, -because some one
wishes to give its price for it.; but this desire to bring it ill
decreases regularly with the amount obtained. The more it
is introduced into the country, the less, by the natural laws
1.80
[BOOK III. 
STANDARD OF VALUE.
of trade, is it worth; tihe weaker the inducement to send
for it.  If, by any chance, it comes in till there is a reduidancy, the prices of other things are raised, its own value
is therefore lowered, and it flows off till the equilibrium is
restored. Such an exportation would cause no more anxiety
or alarm than the shipment of an equal value of flour.
With a mixed currency, there is the embarrassing fact, that
it cannot be exported. The foreign balances must be taken
out of the specie basis.  We have seen the course of contraction that must ensue.
To observe further the operation of mixed currency as a
standard of value, and its effect, not on trade generally, but
on ordinary production, let us take the case of the wheatgrower.
A farmer, we will suppose, has 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-monley system.  Now, the question-which is of great
concern to him, and, if to him, to all producers of all commodities- is5 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 cents per pound extra on the sugar, he'has
just lost all the additional price of thirty cents on the
bushel of wheat.
On further reflection, he discovers that he is not so well
off as when he sold his wheat at the money price of sixty
cents, because it cost him more to raise the wheat. Hie had
to pay more for the labor employed in its production,equal, say, to five cents per bushel, which,.on one thousand
* We here suppose, for simplicity of illustration, that the price of wheat
may be enhanced, by mixed-currency expansion, to the extent of fifty per
cent; but we shall hereafter show how far agricultural products, in general,
are permanently influenced by such a currency
CHAP. IX.]
181 
EXCHANGE.
bushels, amounts to fifty dollars; and that sum he will
actually lose, although selling his wheat at fifty per cent
advance in price.
This transaction of selling one bushel of wheat for six
pounds of sugar fairly represents the result of selling the
whole crop, and investing the proceeds in other kinds of
property; because all commodities have alike risen in price.
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 colntracted the debt before the rise, he certainly has made a
large gain in the payment 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 hle has gained three hundred dollars, or
saved five 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-invest
ing the moniey in cattle, horses, sheep, ploughs, wagonis, 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 dollars.   The farmer promised to pay
"dollars;" but he did 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. 
But, to carry the inquiry entirely thlrough, we must ask
who gained the fifty dollars the farmer, in the case supposed, lost by the extra cost of labor? The laborer? He
was certainly paid an extra price; but he gained no value
by it, because all the commodities he purchased with the
proceeds of his labor were raised more than his wages, so
that he lost more than he gained.  The rise in price has, in
182
[BOOK III.
I 
STANDARD OF VALUE.
fact, benefited nobody but the debtor, and him only at the
expense of the creditor, who was virtually swindled out of a
part of his property. This is the final result, when carefully analyzed, of an expansion of prices through the expansion of the currency. 
Every advance in price, occasioned by the depreciation of
the currency, is sure to be followed ultimately by a return
to the specie standard. Suppose that, during all expansion,
a farmer, encouraged by the high price of wheat, purchases
land to the amount of nine hundred dollars, il the expectsation that he can pay for it with one thousand bushels of
wheat, at ninety cents per bushel.  A  contraction takes
place, the price of wheat goes down to sixty cents, and, to
pay his note of nine hundred dollars, he must sell fifteen
hundred bushels of wheat. HIe has lost five hundred bushels, just what the debtor, in the other case supposed, gained,
less fifty dollars which he will now save in the labor cost of
his wheat.
We here see that the effect of raising prices without
increasing values is to vitiate all existing contracts to pay
money.  If the farmer, in the case supposed, had promised
to pay so many bushels of wheat, all would have been well;
but he promised to pay dollars;  and, when the price of
wheat was measured by dollars under a contraction, it made
the difference stated.
Much misapprehension arises from confounding special
and general prices, or the price of an individual 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., demand and supply, cost of production,
&c., &c.  All this is perfectly true of anl individual article,
whose price may and does vary from time to time, as compared with other commodities, under the operation of these
causes.  One article may be very high, while all others are
low, or the reverse; but this does not tend to disprove the
principle, that general prices are determined by the quantity
CHAP. IX.]
183 
EXCHANGE.
of the currency. We can take into view all the circumstances which act upon a particular commodity, and by
which it is made, for the time being, an exception to the
general rule, without disturbing the principle laid down, or
casting any doubt upon its operation.
CHAPTER X.
EFFECTS OF A MIXED CURRENCY.
WE stated two principal questions inll regard to mixed cur
rency:
1st, Does it perform satisfactorily the functions of money?
2d, What, and how great, are its effects on public interests, beyond the proper effects of value currency?
In the four chapters immediately preceding, we have discussed the first question, with a result unfavorable to such
a currency.  We  now approach the second of these questions, -What  are the effects of mixed currency?
I. A mixed currency endangers domestic tranquillity.
This is a proposition which we shall consider solely with
reference to society in the United States.
That mixed-currency banks call never, in fact, fulfil their
agreements, if called on to do so, we have already shown;
and, since they are ever liable to 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 thle 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.
184
[BOOK III. 
in 4i
rur~ren-ei  fa
rire-u-wio
01Cair~e&e   Bwtk,.
4ecil~e.
4  
EFFECTS OF A MIXED CURRENCY.
Now, should any cause operate by which confidence in the
solvency of the general banking system of the country is
shaken, it will naturally, nlay, inevitably happen that a run
will be made on the savings institutions. These can only
meet their engagements by drawing on the banks.  But, if
these have ail their resources strained to meet the ordinary
wants of the business community, how can the drafts of the
saving banks be met?  How can currency be supplied for
this extraordinary demand? This 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..
The currency banks had { deposits.
circulation.
.... $45,000,000
....          30,000,000
....          25,000,000
....   $100,000,000
....        6,500,000
.... $93a500,000
Total.........
The currency banks had specie...
Difference........
This is exhibited in Currency Diagram No. 6.
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 demanded, and of that they 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 affairs was discov
185
CHAP. X.] 
EXCHANGE.
ered.  The banks must, therefore, suspend at once.  What
would naturally follow in a time of great public excitement,
when the interests of some party or faction required a general breakinig-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. Previous 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 -factory operatives, railroad gangs, the
servants in our families - were incited to demand their deposits inll the savings institutions. Could they not prostrate
the entire currency in twenty-four hours, by merely demanding their just dues?
Whether such a probability is remote or uncertain, it
does not seem wise to maintain a system wlhich calln, by any
possibility, produce results so disastrous; especially, if there
are no advantages whatever in such a state of things.
Premonitory symptoms have not been wanting of such a
catastrophe as, under aggravating circumstances, might overthrow all the moneyed institutions of the country, and even
endanger the government itself.
We are not the homogeneous people we were. We
have elements of weakness and discord that did not exist in
earlier times. We have, especially, a large foreign population, as much interested as any other in the funds of our
savings institutions, which might, at any moment, if provoked to do so, throw our whole banking system into suspension.
It cannot be wise to ignore these palpable facts, or the
consequences that, in the natural course of tlhings, are likely
to come out of them. The danger can only be removed by
a change of system.
II. A mixed currency has a demoralizing influence upon
a community, industrially and socially.
186
[BOOK III. 
EFFECTS OF A MIXED CURRENCY.
If what has been said in regard to this kifnd 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 mercantile character and the
general tone of morals cannot but be unfavorably affected.
The influences that hold men to strict probity, steady
industry, and a strong sense of honor, are feeble enough,
and have enemies enough, without the discouragements and
embarrassments arising from such causes as we have described.
Society should place its premium on virtue, and not on
vice.
Those who have witnessed the terrible convulsions occurrinig in the United States within forty years, know but too
well how sad has been the effect on individual and nationdl
character.
It is unnecessary to dwell upon a point so evident, and so
generally admitted by all who Lnderstand the matter; yet
its recognition could not properly be omitted in the examination of the mixed-currency system.
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 effort 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 effects
of a mixed currency on the safety of a nation in the event
of war.
We have already shown that a mixed currency is greatly
affected by a demand for specie to send abroad.  Hence, as
CHAP. X.]
IST 
EXCHANGE.
war must always call for an extraordinary importation of
foreign merchandise and materials, and as such extraordi nary importation must require the shipment of specie, a
contraction and panic, or speedy suspension, must be tho
certain consequence.
Again, since so great a part of a mixed currency usually
consists of credit, and since credit rests wholly on confi deuce, any thing which impairs the latter compels a contraction or withdrawal of the currency.
Now, war generally, we may say uniformly, does thlis: 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 impairs public confidence to a greater or
less extent.
These two causes, then, are at once brought to bear upon
a mixed currency with fatal effect.  The result has always
been, and always must be, that, under such circumstances,
the mixed-currenlcy banks suspend; because their circulation cannot be withdrawn at the time without producing
universal bankruptcy, annihilating their own capital, and
stopping the wheels of government.
It was so in England during the war with Napoleon; in
the United States during the war of 1812, and in the time
of the great Rebellion.
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 embarrassment, vastly increases the public
expenditures and the national indebtedness. The whole
financial system of the country is crippled, and becomes as
weak as its currency.
No better illustration of the truth of this statement was
perhaps ever afforded than that found in the experience of
the United States during its great struggle.
The country was suddenly involved in a stupendous war,
188
[BOOK III. 
CHAP. X.]    EFFECTS OF A MIXED CURRENCY.
- technically, only a civil war, but, practically, a great inlternational struggle, so vast were its dimensions, so strictly
was it sectional; a conflict between two different civilizations, on different though contiguous portions of the American continent.
At the commencement of the struggle, the currency, as
we have before said, amounted, circulation and deposits, to
four hundred and sixty millions against eighty-three millionils 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 resumed specie
payments; but the large demands of the government, in the
course of about a twelvemonth, compelled a universal suspension by both the national 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.
Now, if it ever could be supposed politic or safe to send
away the real money of a country and live on credit, if this
could ever be regarded as good economy or statesmanship,
when should it be done?  When the nation is in prosperity,
and does not need this little gain, or when it is strained to
agony in the struggles of war? If this is really a resource,
should it be spent in time of peace for extra imports of
wine and silks, or reserved to the great trial of life for the
people, when it may bring back the munitions of war?
If we were to dispense with three hundred millions of
gold that form our material currency, was it wise to send
it off in years of quiet and prosperity, instead of reserving it
to the decisive hour of our nationality?
In time of war, a mixed currency always becomes an un
189 
EXCHANGE.
mixed paper currency. Being at all times really iinconvertible, any disturbance in public affairs which destroys, or
even essentially impairs public confidence, will cause a general suspension of the mixed-currency banks, and, of course,
of the government, and the substitution of a credit for a
value currency.
If this is true, -and all the facts of history go to prove
it, - then every nation, which, in time of peace, relies upon
a mixed currency, must, in time of war, suffer all the disasters incident to an irredeemable paper currency; must
pay a great deal more in all its purchases, require larger
loans, and accumulate greater debt,- greater in proportion
as the currency is deficient in the element of value.
"A  nation may almost as well go to war with paper guns as a
paper currency." -J. Y. SMITH.
The truth of this was certainly very strongly exhibited in
the experience of the government of the United States during the Rebellion.  The failure of the currency compelled
the national legislature to adopt the arbitrary measure of
making its own irredeemable notes legal tender.
This was a palpable violation of the most sacred rights of
the people, and involved the treasury in a labyrinth of embarrassment and wasteful expenditure. Necessity, which
knows no law, demanded all this; and there may be little
or no blame on the immediate agents. The law of value
had already been violated by the introduction, in peace,
of the element of credit into that currency, which the government was obliged to make use of in time of war. It was
not easy to change its character at such a crisis, and it
was allowed to go on to its proper consequences.
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"?
IV. A mixed currency discourages domestic manufac
190
[BOOK iir. 
CHAP. X.]    EFFECTS OF A MIXED CURRENCY.
tures, disturbs the proper relation of exports 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 solicitous 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 will 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 government. 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 advanced in price, by the expansion of the currency, that it costs him
twenty-five to fifty per cent more than it otherwise would have
done. He builds machinery; but this also costs 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 expenses for living are also greater; and, should he be
obliged to hire money, that will generally be found to have advanced
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.
191 
EXCHANGE.
"There is another view of the matter.  Suppose we would export 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 manufacturer can in America. It is true that the rate
of wages is lower in England than in this country; but, in addition
to this, England has the very great advantage of a currency nearer
the currency of international exchange, which is always strictly
value money. In such a state of things, not all the tariffs that ever
were or ever will be imposed can adequately protect our manufactures. So far as they have arisen or flourished, it has been in
spite of these disadvantages." *
During the continuance of the compromise tariff, established in 1832, and which terminated in 1842, the currency
varied from $11.82 to $17.61 per capita, equal to an expansion of more than fifty per cent; while, during the same
period, prices (as shown by table V., page 177) 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 effect ill 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 manufacturer suffered as much from the
periodical contractions as from the expansions that preceded them; for while, by the latter, the duties were rendered nugatory, all business men met great losses from the
failures and the general derangement 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 anl immenise
advance in prices as must certainly accompany an expansion
of the currency. Nor can it fail to be true, that the normal
industrial development of any country, in which such a
* Walker on Money and Mixed Currency, p. 39.
192
[BOOK III. 
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currency exists, must, to a very great degree, be interrupted
or distorted. All ordinary business calculations are overturned. An element of hazard is introduced, fatal to the
shrewdest schemes.
The terrific struggles through which American manufacs
turers have passed, ever since the establishment of the first
tariff in 1816, have been caused, not by foreign competition,
solely or mostly, but by a false and delusive domestic currency. Fully as we are opposed to the policy of protective
duties, we are still more opposed to that system of currency
which neutralizes them, and renders the legitimate success
of home manufactures impossible, even after so great sacrifices to introduce them.
There is a still more striking view of the connection between protection and currency.
It is generally believed that high tariff duties restrict the
importation and consumption of foreign merchandise. It is
a popular cry, that "government ought to lay heavy duties,
so as to prevent an adverse balance of trade, anid the consequent shipment of specie abroad."
It is true, as a principle, that, the greater the 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 consumption. But other things are
not equal.  They have not been so in this country during
this cenitury. The facts in the case do not show that heavy
duties necessarily reduce the consumption of foreign articles. On the contrary, it is found that the largest importation has often taken place during the existence of the
highest tariffs.   Diagram No. 7 will exhibit the relations of
the tariffs to the amount of imports, from 1816 to 1861.
Of this diagram, showing the tariffs and the consumption
of foreign commodities under each, it must be remarked,
that the line indicating the different tariffs does not express with precision the actual percentage of tax imposed
by each, because that is not practicable: it is only given as
13
CHAP. X.]
193 
EXCHANGE.
an approximation. Each of the tariffs imposed different
rates per centum onl different items; and some of the tariffs
have a large proportion of specific duties, or so much per
yard, gallon, or pound; so that the exact per centum cannot
be ascertained, nor is this necessary to our purpose. we
are able to determine, with sufficient  accuracy, the general
percentage of each tariff, to enable us to judge whether the
consumption rises and falls in correspondence.
The tariff of 1816 was the first ever laid for protection,
and is estimated at twenty-four per cent. Four years afterwards, viz. in 1820, the tariff was increased. Eight years
afterwards (1828), a very great advance was made, wllich is
placed in our estimate at forty-eight per cent; but it may
have been much higher than that, as many articles were
charged with high specific duties, amounting to from one
hundred to two hundred per cent.  It was almost prohibitory, and gave such umbrage to South Carolina and other
cotton-growing States, that the celebrated compromise tariff
of 1832 was enacted, which reduced the duties at the rate
of ten per centum, on all over twenty per cent, for tenl years;
so that, at the end of that time, there would only remaini the
twenty-per-cent duty.
This tariff came down to its minimum in 1842, 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
increase of duties; and the tariff known as tlhat 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 unprecedented period of eleven years, when
another reduction was effected by the tariff of 1857. This
lasted for four years, when the necessities of the treasury,
in consequence of war, required the imposition of higher
duties in 1861; since which they have been still filrtlier
advanced.
194
[BOOK III. 
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CHAP. X.]    EFFECTS OF A MIXED CURRENCY.
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, importations fall off; that,
as it is lowered, importations 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.
A reference to Diagram No. 8 will, we think, show the
disturbing cause, or rather by what law importations are
controlled.
Hlere we find a correspondence so uniform and persistent
as to decide the question, beyond cavil, that the demand for
foreign merchandise depends upon the quantity of currency
in the 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 medium tariff; while, under
a still lower one, in 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), consumption should
be highest when the tariff is lowest, and vice versa.  We
have seen that such correspondence does not take place.
We  then conclude 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.
195 
EXCHANGE.
IHence we may lay it down as a principle, that a sound
currency is more important, as affording protection against
foreign competition, than a high tariff.
We close our remarks on this subject, by quoting the following forcible and just statement, found in the "Bankers'
Magazine " (New York) for 1859-60, page 2: —
" So far as the currency of a country is alloyed, so far as any
thing inferior to bullion is allowed to ride as a dead weight on bullion's back, it is of little consequence whether such dead weight
be composed of lead or copper, paper or leather; nor, so far as the
country's home trade is concerned, does it matter whether the substitute for bullion circulates in distinct pieces, or is incorporated
into the gold and silver coin at the mint. It is of great importance
to the profits of our foreign trade, however, that every fraction of
gold and silver in our currency should have its own proper share
of alloy, or paper inseparably attached to it; so that foreign producers, after they have taken paper-money prices of us for their
goods, shall not wind up their business (as they have done hitherto)
by palming their share of paper money upon us at par for actual
gold. As things now are managed, American trade and industry
are made to buy paper at the banks at the price of gold, and sell
gold to foreigners at the price of paper."
CHAPTER XI.
EFFECTS OF A MIXED CURRENCY (concluded).
V, A MIXED currency causes unnatural and extreme fluctuations in the rate of interest.
If a mixed currency is in its nature constantly fluctuating,
at one time very redundant, at another very scarce, it would
seem to follow, as a necessary consequence, 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
196
[BOOK III. 
CHAP. XI.]   EFFECTS OF A MIXED CURRENCY.
expansion, and is enlarged by new issues from day to day,
money must be plenty, and the rate of interest 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 begin to take in their
currency, and, of course, to create a scarcity of the means
of paying debts, then the rate of interest will rise to a very
high point, not unfrequently to four or six times its natural
rate.
The indebtedness which the expansion has encouraged
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, consequently, 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  ld  1857.   Interest was up  to
thirty-six per cent; yet there was a greater amount of currency', per capita, then in use, than ever before or since.
Take tihe years 1842-43, for an opposite example, 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 exhibited in our Dia,
gram No. 9, inserted herewith.
197 
EXCHANGE.
By this diagram, we see,  First, 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 thle currency, as witness
1836, 1839, 18,4, and 1857.
Third, That the lowest rates of interest are found 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 existence was extremely desirous of recharter; and, to secure this, it was thought
necessary to produce a tremendous pressure in the money
market, or, ill the expressive language of tile day, "put on
the screws." This 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 currency, as
shown in the lower line. of the diagram. Speculation was
rife, the banks could not meet the demand for monley, and
interest went up to thirty per cent.  In 1837, the banks
suspended, then issued freely, and interest went down to a
low point.  In 1838, the work of contraction began; a multitude of banks in the West and South failed, and the
pressure upon the solvent banks became great; interest
went up to eighteen per cent.  The year 1839 witnessed
still greater distress for money. Resumption of specie'paymeits 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
[BOOK III.
198 
N!!9.
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I 
CHAP. XI.]   EFFECTS OF A MIXED CURRENCY.
great measure, discharged, and money was plenty.  Interest was downi 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 lowest point was reached, more than twenty millions of
gold were imported, and money was a drug. Interest was,
for a while, almost nominal.   Large amounts were nego
tiated 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 imported twenty-two millions of gold above
the exports.  From 1849 to 1857, the currency was constantly increasing.  Severe fluctuations ill the money market
took place, but no grand revulsion until 1857, when so great
was the inflation of the currency, and consequently the
general credit of the country, that an explosion took place;
interest going up to thirty-six per cent.  All these facts are
significant, and form all essential part of the history of
mixed-currency banking.
The comparative fluctuations in the United States and
England is shown by the following table of rates of interest
from 1844, when Sir Robert Peel's act was passed, up to
1858, inclusive, -fifteen years.  The rates of the Bank of
England are from official sources: those in the United States
are furnished by one * who has kept himself acquainted with
the street rates in the city of Boston. The banks being prohibited by legislation from taking more than a fixed per
cent, thle actual value of interest, or the use of money, can
only be ascertained from quotations of transactions outside.
These are essentially correct, as applied, not only to the particular market in which they were taken, but to the other
large money markets of the country.
* Joseph G. Martin, Esq., Boston, author of many  valuable. statistical
tables, &c.
199 
EXCHANGE.
TABLE  VI., showing the Fluctuations in the Rates of Interest in England and the
United States fron 1844 to 1858, inclusive.
YEAR.         Rate, Bank              Remarks.                Rate,
of England.                                  United States.
1844........        4 -  2+     Passage of English Bank Act.      4 -  51
1845........... 2-  31..............................          -  6
1846......      3-..... -..3............4-12
1847.......       8 -  8      Irish famine......                 7 -18
1848........... 5-3...............................   12-18
1849........... 3 -  2...........  -.......... 7-15
1850............- 2_........... 6-10
1851............   3..... 6-16
1852.... 3-.....................           5-  9
1853........... 2 - 5...........                               6..........6-18
1854........       5 - 51       Crimean war......           8-18
1855........... 5 - 6........... 6............... 6-15
1856........             6 -    4..........   -11
1857........5...      -lo        The great revulsion...          9-36
1858....... 9 -......   -  2.............  3-  9
The average rate of interest in the, Bank of Eng
land, from 1844 to 1858, as computed from tables
in the "Merchants' Magazine," vol. li. page 465,
was...............
Approximate average for the same time in the
United States..................
We say approximate average; for the data are too imperfect in this country to give any exact results. The average
of 10.5 may be somewhat too high; and yet, as computed
upon transactions made in Boston, New York, Philadelphia,
Baltimore, Cincinnati, Chicago, and St. Louis, it is doubtful whether it is much in excess of the true average rate.
The dividends which the banks of this country make,
after paying heavy taxes and general expenses, show, that
the rate of interest they obtain, notwithstanding the legal
restriction, must be high with them; and it is notorious
that interest " outside" at all times, when money is in
demand, is greater than that charged by the banks.  The
interest paid upon mortgages and other permanent investments is most commonly six per cent. It is mainly on
business paper that the high rates are obtained.
200
[BOOK III.
3.82 per cent. 
CHIIAP. XI.]   EFFECTS OF A MIXED CURRENCY.
TABLE VII., showing the Fluctuations in the Rate of Interest at the Bank of England
for 160 Years, divided into different Periods.
DATE.  Term.: Average    Rate of
DATE.
Term _    Term.    Interest.
Years.      Y'rs m. d'ys
1704 to 1814, inc.   111    5  20 5 20   4 to  5  Bank in suspension last 17 years.
1815 to 1835,,,    21    3    7 0  0  4 to  5  Bank in suspension first 6 years.
1836 to 1843,,,      8    8    1 0  0  4 to  6
1844 to 1858,,,    15   49         3  2  2 to 10   Bank Act of 1844 suspended 1847.
1859 to 1863,,,      5   44        2  8  2 to  8  Bank Act suspended 1857.
The foregoing table presents a striking view of the
mixed currency of England.
1st, The great contrast between the stability of the rate
of interest for the first one hundred and forty years and the
last twenty years; only sixteen changes in {he rate during
the former, and ninety-three changes during the latter
period.
2d, The great and violent fluctuations within the last
twenty years, ranging from two  to ten per cent, corresponding to the variations in the United States from four
to thirty-six.
3d, We observe the several suspensions of the Bank of
England, and of the Bank Act of 1844.
4th, We observe the same succession of panics as have
been witnessed in the United States.  Sir Robert Peel, in
his speech on the suspension of the Bank-chlarter Act in
1847, specifies the following: "the panics of 1784, 1793,
1810, 1819, 1826, and 1837."   The panics of 1847  and
1857 have since been added.
Between the years 1784 and 1857, inclusive, -a period
of seventy-thiree years,- there have been eight panics, or,
on an average, one in nine years, if we reckon that of 1784.
They correspond very nearly with those panics which
have occurred in the United States.  And here it may not
be improper to present some additional facts in regard to
the British currency, showing in how far it corresponds
to our own in its character and effects.
201 
EXCHANGE.
THE CURRENCIES OF GREAT BRITAIN AND THE UNITED STATES
COMPARED.
From 1844 to 1859, inclusive (sixteen years), the average
circulation of all the banks - English, Irish, and Scotchwas thirty-seven millions sterling; average specie, eighteen
millions.
We have not at hand any account of the deposits in any
of these banlks, except the Bank of England.  In that, the
average of deposits, public and private, was about sixteen
nillions, while the circulation was nearly twenty-one.  It
is well known that the deposits of the United Kingdon[ are
made chiefly in those joint-stock banks which do not issue
o
currency, but are confined to the operations of legitimate
banking. In addition to this, we have the consideration
that the Bank of England receives very largely of public
deposits, which go to make up the sum already stated.
We  shall therefore be safe in estimating that the deposits
of all the currency banks of the United IKinigdom are less
in proportion to their circulation than are those of the Bank
of England.  If, then, we assume the deposits to be on the
average, in all the remaining banks, fifty per cent of the
circulation, we shall have the following result for the currency of Great Britain:
Bank of England's circulation........  21,000,000
,,    -,,. deposits.........         16,000,000
Other Baunks' circulation..........           16,000,000
,,,,  deposits (estimated).......    8,000,000
61,000,000
Total specie, as before...........18,000,000
This would be equal to nearly thirty per cent against
eighteen per cent in the currency of the United States,
showing a considerable superiority in quality.
But this is only a partial view of the matter. The Bank
of England issues no notes of less denomination than five
202
[BOOK III. 
CHAP. XI.]   EFFECTS OF A MIXED CURRENCY.
pounds. The banks of Ireland and Scotland issue none
less than one pound (or five dollars); while, in the United
States generally, bank-notes are issued as low as one dollar
(or four shlilliugs sterling).  This makes a vast difference
in the amnount of specie in the hands of the people.
All small transactions are made in gold. A traveller
may pass months in England, and expend thousands of
dollars, without ever seeing a bank-note in the hands of any
body.
Probably it would not be extravagant to suppose, that
there was, on an average, a sum equal to two pounds to
each inhabitant.   It has, indeed, been estimated  much
higher; but allowing only two pounds each, equal to ten
dollars, we should have, on a population of twenlty-six millions, fifty-two millions sterling, equal to, say, two hundred
and fifty million dollars.
From the foregoing statements, it will be seen how much
greater is the stability of the currency of Great Britain
than that of the United States.
The currency of Scotland approaches more nearly to that
of this country than any other section of Great Britain.
One-pounld notes are issued to the extent of two-thirds of
its whole circulation; and the proportion of specie held by
the banks is smaller.
The consequence is, that monetary affairs are more flue,
tuating, and the number of bankruptcies greater, than in
the other part of Great Britain.
There are no reliable statistics by which to determine the
relative proportion of failures in each of the different mixedcurrency countries of the world; but, had we the data, it
would undoubtedly appear that the proportion of failures in
each country was governed strictly by the character of its
currency.
In the United States, where the currency for the last
thirty-five years has been weaker than any other in the
world, the proportion of failures are well known to be
203 
EXCHANGE.
greater than anywhere else.   The common estimate has
been ninety in one hundred.   There is nothing mysterious in this result.  It is the natural consequence of a
fluctuating and unreliable currency. Notwithstanding this
greater stability of the English currency, as compared with
that of the United States, it is still so essentially defective,
so alloyed or adulterated with the element of credit, that it
produces in degree, though not in extent, the same evils
suffered in the United States.  The commerce of the vast
empire of Great Britain is kept in a state of continual perturbation.   The "reserve" of the Bank  of England  is
watched with the greatest solicitude: as it rises or falls, so
every business man in the nation is affected. This has
become more strikingly apparent within the last twenty
years.  The fluctuations in the bank rate of interest have
been more frequent and violent than previously, and seem
to be growing worse from year to year.
We annex a Table VIfi., showing the bank reserve for
each year from 1844 to 1858, and the corresponding rates
of interest charged by tihe Bank of England, together with
a diagram, No 10, representing the same.
TABLE VIII., showing the Rates of Interest each Year in the Bank of England,
with the Amount of the Bank Reserve at the correspondiny Date, from 1844 to 1858,
inclusive, and the Suspensions of the Bank Act.
Bank Reserve.
81 millions
6,,
10,,
11      ",
12~,,
13,
18,,
7 )
14,,
6,,
4,,
12,,
8,,
1~,,
138,,
Bank Rate of
Inltcrest.
2i per cent.
31,, 7
83
3,7,,
3,,,,
5~,,,,
2     "     "
31,       7,
5L,...
41,...
10,.,.
2i,,
,, *.......
Suspension of Bank Act
~88........f Bank             Ac t,
*  *,.  *  *  *...
1849................12+~ ~~~,,,.................2,,,,. 
..  *.  *  *..
*......,.
*  *.  *.  *.
1852................14~~~~~,,,................,,,,oo  
~.......
Suspension of Bank Act
*..........,
204
[BOOK 111.
Y.AP
1844
1845
1846
'1847
1848
1849
1850
1851
1852
1853
1854
1855
1856
1857
1858 
i75
-zanle Resepve.
"eleent____1q7                                                               _
56
40q    50                                --
.45 -
i
11
--- -— I --
54
57
1857
T
1858 
A 
CHAP. XI.]   EFFECTS OF A MIXED CURRENCY.
Observe the correspondence between Diagrams No. 9 and
10.  The rate of interest in both countries is evidently
affected by the same disturbing force, though in different
degrees.
EFFECTS OF MIXED CURRENCY UPON AMERICAN AGRICULTURE.
Unfavorable as the influence of mixed currency is upon
all branches of industry, the agriculture of the United
States is especially injured by it, because, as a people, we
have a large surplus of agricultural products, that must find
sale in foreign markets. Whatever such surplus is worth
for export, determines the price of the whole crop;  and
the value or price is determined by the value or price of
gold.   Such products are virtually sold for gold.  It is
always a matter of choice with the merchant whether to
send wheat,* for example, or gold, as a remittance. The
produce of the farmer, then, must be sold at a gold standard; but all he purchases for himself and family is bought
at currency prices. Hiow much difference this may make
is seen at the present time, when commodities in general
are one hundred and twenty per cent above par, while gold
is but forty.
The currency is now  (1865) a credit, or inconvertible
one; but we are to inquire whether the principle does not
hold good at all times, under a mixed or partially convertible currency.  We  therefore refer to the statistical tables
of the Financial Report of 1863, as heretofore, for prices,
and construct a table which exhibits the price of flour and
the price of cotton for fourteen years prior to 1860. We
also give the general prices of certain commodities, as shown
ill our Table V., previously given (see page 178,) and also
the volume of the currency, per capita, at corresponding
dates: -
* Wheat may be taken as an exponent of all agricultural products exported.
205 
EXCHANGE.
TABLE IX., showing the Price of Flour and Cotton from 1846 to 1859, inclusive
(14 Years), with the
Dates.
YEAIS.       Q       Q:                       YEARS.:        Q:         l   C
1S46.. $5.06    71    $9.94  $16.69    1853.   $5.77   10~  $13.65   $22.47
1847..   667    8         9.38    20.82   1854..   8.94    9            14.95    20.84
1l48..   5.96    8~   10.67    16.53    1855..   8.76    91   13.93    22 78
1849..   5.50    8        9.18    16.45    1856..   6.42   101    14.64    25.02
1S50..   5.55   12       10.39    16.20    1857..   5.78   14          15.50    25.13
1851..   4.52   10       11.86    19.42    1858..   430    13          11.55    21.92
1852..   5.00    9       13.31   21.42    1859..   5.10   111    14.90          22.11
The foregoing table shows conclusively, that, while general prices conform remarkably to the existing quantity of
currency, flour and cotton do not rise and fall with its fluctuations.  Flour, for example, ill 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 twenty 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. But we need not point to
these facts; they are quite apparent throughout the whole
table, and show beyond cavil that the prices of agricultural products in the United States are not governed
by its mixed currency, as other products are which the agriculturist must purchase for consumption. Hence he is
always a sufferer, as compared with the manufacturer and
all other classes whose productions are not exported; for the
commodities of the latter, while they are advanced in cost
by currency inflation, are also, unless they come especially
into competition with foreign products, correspondingly
enhanced in price in the home market.
Ordinarily, this operation of a mixed currency is not apparent to superficial observers; but the effects are, nevertheless, always as certain as at the present time, whenl they
are seen by every one.
[BOOK DI.
206 
CHIAP. XII.]   MIXED-CURRENCY FALLACIES.
At the time we are writing, thle people of the West are
suffering prodigiously from the influence of a redundant
currency. All they consume of purchased commodities
they pay one hundred and twenty per cent advance upon;
while their products, wheat, corn, &c., can only be advanced
about forty per cent,-th-e premium on gold.  They feel distressed, and clamor against the tariff, as they have much
reason to do; but they suffer a loss of ten dollars from the
currency, to one from the tariff. Whenever they see this,
the evil will be remedied; for thie agriculturists of the nation hold the political power of the country in their hands,
and all this class of producers, East or West, North or
Southl in Maine or Texas, Florida or Minnesota, are alike
interested in this matter.
Again, agriculture is more disturbed by speculative op
erations than other branches of industry.   Its products
are great staples, thie necessaries of life. They are not
subject to quick decay; hence can be monopolized and held
for a rise of prices.  The sudden and excessive expansions
of a mixed currency afford great opportunities for opera,
tions of this sort; and no products, probably, are so much
speculated upon as those of the farmer and planter. The
profit of all this goes to those whlo call command the resources of the banks. The producers are far more injured
than benefited by these unnatural disturbances of the
market.
CHAPTER XII.
FALLACIES REGARDING A MIXED CURRENCY.
Fallacy 1st. That, by means of mixed-currency banks,
thie capital of a country is greatly increased.
Capital is the portion of wealth employed in reproduction.  Money is one form of capital.  To the banker or
207 
[BOOK III.
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 obtains 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.  Capital, we have
said, is that portion of wealth employed in reproduction.
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.
Now, 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 instrument by which capital is
transferred. But its nature is, as we have seen, to issue
in greater volume than necessary for the wants of commerce, and, by this, to disturb the business of the country,
cause an unnmatural rise of prices, an increase of imports, a
decrease of exports, and finally a call for real money, which
will cause 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.
Fallacey 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 comparisoil: therefore, as it answers the same purpose, and is
more conveniently handled, it confers a benefit. This is a
popular idea.
208
EXCHANGE. 
MIXED-CURRENCY FALLACIES.
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 efficient.  It would be cheaper to have
ploughs made wholly of wood. They would be lighter, and
quite as handsome, as when made partly of iron.  But
would they be as useful, and, in the end, as profitable?
A paper cap is cheaper than one of leather or cloth; but
would it be 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. It does not discharge
fully or perfectly a single function 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 when its
own credit is blown upon.
But the gain by this substitution of credit for value in
the currency is insignificant, when compared with the great
interests of trade.
The average of paper circulation in the United States from
1850 to 1859, inclusive, ten years, was not more than $6.25
per capita. If from this 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 individual 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 currency.
In this connection, it seems proper to introduce a distinct
14
CHAP. xII.]
209
I 
EXCHANGE.
calculation of the damage occasioned to the people generally
from this cause.
On the 7tli of January, 1841, Congress requested of the
Secretary of the Treasury, first, a return of the losses sustained by the government from using banks as depositaries,
and by its connection generally with them; and, secondly,
the amount the people had lost on account of the banks and
their issues. The replies were in substance as follows: *
Losses sustained by government to the year 1837.. $15,492,000
,,  sustained by the public........      108,885,721
,,  by bank suspensions and by depreciated notes. 95,000,000
,   by destruction of bank-notes......       7,121,332
,   by counterfeits beyond losses by cpin...   4,444,444
,   by fluctuations, revulsions, sacrifices.... 150,000,000
Aggregate............                     $380,943,497
Such were the estimates of the losses to the people and
the government resulting from the use of a mixed currency
up to 1841.  There can be no doubt, in the minds of men
who were in business during the period covered by these
figures, that they are so far correct that they fail only by
reason of being set too low, particularly those of the last
itemin; viz., " losses by fluctuations, revulsions, and sacrifices."
Twenty-four years have'elapsed now (1865) since the
foregoing table was prepared; and, during that time, the currency has been doubled, the country has passed through
several contractions and one or two explosions, and has
suffered as much probably as in the preceding period. If
so, the total loss would amount to seven hundred and sixty
million dollars. But suppose it to be only five hundred million dollars: that amount would furnish gold and silver
currency sufficient, not only to supply our wants at present,
but for generations to come.
Some have supposed that a great saving is made by the
use of paper money instead of coin.  But it is not necessary
* See "Merchants' Magazine," vol. 1. p. 9.
210
[BOOK III. 
CHAP. XII.]    MIXED-CURRENCY FALLACIES.
to have a mixed currency in order to avoid abrasion of the
coin. A mercantile currency, based wholly on specie, would.
equally avoid loss from this cause, and yet secure all the
advantages 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. No banker would venture
to say that a paper currency can be maintained for onetwentieth of one per cent per annum.
It may be said that the banks gain a considerable sum by
the accidental destruction of their notes. Doubtless; but
what they gain somebody loses. The amount estimated to
have disappeared in this manner up to 1841, as we have
seen in the'table just cited, was put at seven millions of
dollars. A very large proportion of this fell on the poorer
classes, as also do the losses by counterfeiting.
But, if we would comprehend the question of economy,
we must appreciate the expense of maintaining all the officers, managers, and subordinates of fifteen hundred banks,
with all the incidental charges of their operations. At a
moderate calculation, this would not average less than four
thousand dollars to each bank, or a total sum of six million
dollars per annum.
This argument of economy in the use of credit money
was presented by Dr. Adam Smith eighty years ago. Even
then the danger was apparent, though the system had not
been developed to its proper character and consequences.
Hiad the writer witnessed the great convulsions from 1797
to 1857, he would have dismissed, as wholly an idle fancy,
the scheme of substituting the "Dsedalian wings" (say,
rather, the Icarian wings) of credit for the "solid ground"
of value. He says:
211 
EXCHANGE.
"The gold and silver money which circulates in any country
may very properly be compared to a highway; which, while it circulates, 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 metaphor,
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 annual
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 unskilfuilness of the conductors of this paper money,
they are liable to several others, from which no prudence or skill
of those conductors can guard them."
This comparison is full and just in every particular.
Nations have been trying to make a small saving by dispensing with the vital condition of all their wealth. These
political farmers have always ached to be ploughing uLp and
seeding down  the very highways of their industry;  far
more intent on this than to improve the land already at
their disposal.  " A'wagon-way through  the air" is no
violent, but rather a modest, metaphor for the schemes by
which they propose to make nothing do the work of something.  A man might as reasonably try to make a saving
by selling his own blood as a nation gain aught by robbing
its commerce of money. It is an attempt to cheat the house
of its foundation, the animal of its food.
Nor is it even economy, at the first and on the face. Experience has shown that this extensive system 6f aerial
railways is rather more costly in its outlay than the more
natural one that rests upon the ground. Industrial ballooning has always been difficult and dangerous.
Fallacy 3d.  That the use of mixed currency has been
the cause of the great prosperity of the United States.
212
[BOOK III. 
CHAP. XII.]     MIXED-CURRENCY FALLACIES.
This is, doubtless, a very idle assumption, unworthy 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 despite of,
such use?  Intoxicating liquors stimulate men to greater
effort; therefore they increase production. Mixed currency
stimulates exchanges, 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 the certain depression
of energy are kept out of sight. Mixed currency never
gave strength or wisdom 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 more, speculate more, and squander more, during the
flood-time of an expansion.  More is expended for foreign
luxuries; there is more extravagance 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 4th. 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.
Twenty years ago, this was regarded as an unanswerable
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
213 
EXCHANGE.
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 remaining 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 they fancy that four thousand
millions of currency, or something near that sum, is necessary to transfer this immense production: whereas it is
true that a very small fraction of the amount is required.
Mr. Colwell, in his " Ways and Means of Payment," estimates that all the securities issued in the United States,
including " promissory notes, bank-notes, bank credits, and
other currency, - in short, all which intervenie 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 is wiped off with, at
the most, not more than four hundred million dollars of currency, or about one-tenth of the aggregate indebtedness.
Now, that the people of the United States could not command sufficient gold to furnish a currency equal to their
wants is preposterous, since the yearly production of California, for at least twelve years, has amounted to fifty millions, -in all, say, six hundred millions of gold; a sum about
double our requirements 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 discovery 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 thirtyseven 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
214
[BOOK 111.
0 
CHAP. XII.]    MIXED-CURRENCY FALLACIES.
more than double. Again, the amount of specie per capita
in bank for ten years prior to the discoveries, say from
1839 to 1848 inclusive, was $2.07; while for the succeeeding
ten years, 1849 to 1858 inclusive, it was but $2.10,  showing
an actual gain of but three cents to each individual, notwithstanding the accessions of gold to the amount of six hundred
millions, or twenty dollars per capita.
What had become of this gold? It had been exported.
Why? Because the credit currency of the country expelled
that part, which, but for itself, would have formed a reliable
and sufficient currency for the nation. The actual percentage of specie to currency from 1840 to 1849, ten years,
was twenty per cent; from 1850 to 1859, ten years, only
seventeen per cent,-showing that the quality of the currency was actually poorer after than before the gold discoveries.
But, while it is thus seen to be practically untrue that
thlere is not enough of the precious metals to furnish all
the currency needed in the most extended commerce, it is
plainly false ill theory.  We have already shown, that, as
the currency is increased, prices advance; so that money
becomes no more plenty by augmenting its quantity.
John Stuart Mill says: "The'uses of money are in no
respect promoted by increasing the quantity which exists
and circulates in a country, the service it performs being
as well rendered by a small as by a large aggregate amount.
Two million quarters of corn will not feed so many persons
as four millions; but two million pounds sterling will carry
on as much traffic, will buy and sell as many commodities
as four millions, tliough at lower prices."
Sufficient has been said in refutation of a fallacy, which,
though popular, is really not entitled to much consideration.
Fallacy 5th.  That mixed-currency banks are particularly
favorable to those who have little capital, and must, of necessity, depend upon credit, since they increase the facilities
for obtaining capital.
215 
EXCHANGE.
Whatever impairs credit and increases fthie 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 five 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 currency.
The more credits are extended, the more difficult it is for
persons of limited means to do any thing on their own account.  Unless an interest can be secured in some large
banking institution, business on a large scale is impossible,
because the manufacturer or dealer will give long credit, if
he can get credit at the banks. If it be true, as we have
seen, that introducing credit into the currency extends all
the indebtedness of the country, this must operate to the
disadvantage of all men of limited capital.
That all this is quite unnecessary, is proved by the condition of things in the years 1863 to 1865, when no credits
were given, all transactions being essentially on immediate
payment.  The war effected this, by destroying all confidence; but the fact that the business of the country was
carried on without extensive credits shows that such were
always unnecessary.
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 participate in the profits of business.
Fallacy 6th. That, without a mixed currency, banks could
not exist, and all the advantages now derived from tl-hem
would be lost.
216
[BOOK III. 
CHAP. XII.]    MIXED-CURRENCY FALLACIES.
Such is the general impression among the masses of the
people.  Propose to them the expulsion of the credit ele ment; 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.
This view of the matter arises from the fact that we have
never had in the United States any banks that did not man,ufacture currency out of their credit.  We  have therefore
come to regard the two things as inseparable.  But this is
an entirely erroneous view. Banking and currenlcy-making
are two perfectly distinct functions, though here uniformly
united.
Banking may be carried on to any degree, and in the
most profitable mainner, without the issue of a single bank note. This is done in Great Britain, to a wonderful extent,
by jointstock and private banks. Only a very small pro portion 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, while the Bank of England, with a capital of
fourteen millions, has deposits, public and private, of but
twenty millions on an average, the three principal banks
of London, with anl  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 anl average profit of about
thirty per cent, and furnish the commercial and manufacturilng 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:
Paid-up capital.
London and Westminster  ~1,000,000
Union.......              720,000
London Joint Stock..     600,000
~2,320,000
Deposits.
~15,629,095
16,472,279
14,056,731
~46,158,005
217
N.t p,.fit.
f., 6....
zCl47,816
114,324
80,573
X342,713
P""3.t.g.
p....
29.56
38.11
26.86 
EXCHANGE.
Of all kinds of banks, with their branchels, there are, ill
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.  Such as are regarded as " successful," divide from fifteen to twenty-five per cent. It is a
curious and instructive fact, that, while the average rate of
interest is there only half as great as in the United States,
the bank dividends are much greater. The largest divi-,
dends are made by those banks which issue no notes what
ever.
This fact gives sufficient proof, if any were needed, that,
in order to make large dividends, it is not necessary for a
well-established, well-managed bank to manufacture currenicy.
Banks belong to civilization. A bank is an institution
intrusted by one class of persons with money to loan
another class.  The existence of such institutions implies
the existence of capital and confidence; and these indicate
culture and social elevation.  Banks are labor-saving machines, of vast power and utility. Their legitimate purpose
is simply to facilitate the use of money, to make it more
effective in exchange, to give it greater activity in circulation.  This they accomplish.  A large amount of capital
is collected in one building, fitted especially for the purpose.
This gives greater security and conveiiience than if the same
were scattered abroad in many hands, and accidental places
of keeping. The lender knows where to go to dispose of
his surplus funds; the borrower, where such funds can be
obtained.  The bank introduces these parties, who otherwise
would probably remain unknown to each other.
No well-informed man can be opposed to banking institutions conducted in a proper manner.  It would be as
reasonable to object to railroads.
Banks, until a comparatively recent period, were as harmless as they were useful. They did no injury to any interest, but benefited all. When confined to the loaning of
[BOOK III.
218 
CIH P. XII.]    MIXED-CURRENCY FALLACIES.
actual values, to the negotiation and collection of notes and
bills of exchange, and to the reception and transfer of
money, they performed an immense service to the world.
But when they undertook, not only to loan money, but to
make it, to issue credit in the form of notes promising value,
their character was changed.
The Bank of Hamburg, which has existed since 1619,
never promised a dollar which it did not hold in its vaults.
It never expanded the currency, and therefore never had
occasion to contract it. It has never suspended specie payments for an hour,* and, while so conducted, never will. It
has created no panic, and has in no way disturbed the business of the city. It has conferred incalculable benefits on
European commerce, while contributing steadily to the
growth and prosperity of Hamburg.
Confining itself to the loan of its capital and of money
actually left on deposit, to the transfer of surplus funds,
and to the negotiation of commercial paper, a bank can, if
honestly and ably conducted, make good dividends, and
perform valuable services for the community, and furnish
the public with all the notes their convenience and that
of the banks require.
Fallacy 7th.  That a mixed currency can be effectually
regulated by law.
Many of the mischiefs arising from a mixed currency are
so 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 regulation of mixed-currency banks. Commissioners have been appointed in many States, and a Bureau
of Currency established. Ingenuity has been burdened to
devise regulations by which these evils may be removed or
modified,- with what success?
There is but one defect in a mixed currency; and that is,
it.wants the element of value.  There is no sufficient rem
* Various reports in 1857 to the contrary notwithstanding.
219 
EXCHANGE.
edy, but to supply this, by providing that banks shall issue
no promises of their ownl for which they have not in posses sion the actual values they promise. But this would be to
change the whole system, to make the currency mercantile,
and to cut off all the profits arising from the issue of bank
debt as currency. The only complete remedy, then, is res torationl; that is, a return to the original design and purpose
of banking.
Fallacy 8th.  That it is for the interest of the public, that
the banks, in times of panic or stringency, should be ena bled to "stave off" suspension.
On the contrary, this can be obviated only to the misfor tune of the business community. A severe pressure for
money, as ill the United States in 1847, 1851, and 1854, is
experienced, and yet the banks do not suspend. But how
do they avoid it? By throwing the strain upon the mercantile and business 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 embarrassment and loss
to all engaged in business affairs.
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.
The banks of the Uni;.ted States had a similar opportunity
in 1847, when the price of money "in the street" (for we
have no means of knowing what it was on an average in
bank) was up to eighteen per cent; in 1851, when it went
up to sixteen; and in 1854, when it rose to eighteen.  In
all these cases, the banks profited by the distress they had
themselves created; but, in 1857, the pressure became overwhelming, and, after having run the street rate up to three
per cent per month, they suspended payment.
220
[BOOK iir. 
CHAP. XII.]    MIXED-CURRENCY FALLACIES.
If it were necessary, we might multiply instances from
the history of the mixed currency of the tiUnited States and
England of the same kind. A semi-revulsionil is sure to
take place, under such a currency, every three or four years,
and a general break-down once in about nine or ten.
The greater strength of the British banks, together with
the temporary suspension of the Bank Act of 1844, enables the Bank of England to throw the sacrifices incident to
a great pressure more entirely upon the public than can be
done in this country.  Indeed, since the law of 1844 just
referred to, the bank has increased its average rate of interest, as we have seen, very much.
Practically, mixed-currency banks expand as often and as
much as possible; and, when the re-action 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, 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 banking interest.
Fallacy 9th. That, whatever thed effect upon other classes,
bank stockholders at least are made richer by an expansion
of the currency.
That this is not universally 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..................               $5,000
And from bank stock............   1,000
Total income.............        $6,000
221 
EXCHANGE.
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 income $6,500.   But
prices and commodities have advanced twenty-five per cent
in consequence of the inflation.  What he would  have
bought before for $6,000, now costs him $7,500. The result, then, is, that the bank stockholder has gained $500 in
his dividends, and lost $1,500 in his purchases; so that
he is actually $1,000 poorer, reckoning the real satisfactions
or commodities, &c., which hlie obtains from his income.
There is nothing fictitious in this statement.  The natural
and certain operation of an inflation of currency affects in
just this way all who hold bank stocks, but have the main
part of their income from other sources. But we can suppose a case in which the stockholder would gain by ex
pansioin.
For example: he has an income from bank stock of.. $4,000
From salary...................                1,000
Total income........    $5,000
Now, by expansion, his dividends are increased fifty per
cent, as before; and his income stands: -
From bank stock...............$6,000
From salary...............                      1,000
$7,000
Prices have advanced, as before, twenty-five per cent, so
that what he could have bought for $5,000, now costs him
$6,250; but, since his income has increased to $7,000, he is
a gainer by $750.
These two cases present, it is believed, a fair illustration
of the effects of an increase of dividends upon bank stocks
occasioned by an inflation of the currency. It is seen, that,
if a man's income is derived mainly from such sources, he
may gain by an increase of his dividends, notwithstanding
the rise in price. But few persons are so situated. Nearly
222
[BOOK 111. 
MIXED-CURRENCY FALLACIES.
all capitalists have a variety of investments, bank stock
being only one of them; so that, to the great mass of stockholders even, the gain by increased dividends is more than
counterbalanced by the loss from enhanced prices.
Who gains by fictitious currency?
But it may be asked, if stockholders do not gain by bank
expansions, who does?  There is an increase of dividends:
who gets the advantage?
This inquiry brings us face to face with one of the prime
mysteries of currency, and, indeed, of political economy.
" Who gains by fictitious currency? "  Before answering
this, we will ask, WHAT is gained by a currency not consisting of actual value?  We  answer, nothing but price.
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 values. Prices are increased. Those
who hold commodities while prices are advancing, gain by
such an advance. Debtors may discharge their obligations
with less value. Speculators may make favorable operas
tions. The value of every commodity has been interfered
with; the integrity of every contract to pay value has been
impaired. Some are constantly gaining; others, losing:
both parties, it may be, unconscious of the cause of such
prosperity or adversity.  "Times" are said to be good or
bad, as men gain without earning, or lose without a fault.
Hiere we have the answers of the questions, - What is
gained by a mixed currency? Who gains by it?
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) forty years ago; and what that shrewd observer
then discovered is apparent now to all who enter into a full
examination of the subject.*
* Richard Cobden repeated this remark of Mr. Page to the author at
Manchester, more than twenty years since, with his emphatic approval.
CHAP. XII.]
223 
EXCHANGE.
CHAPTER XIII.
[V. 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 exchanges, it is too cumbersome, requiring much labor and time in use.  2d, IInconvertible 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
Iqualityand quantity, cannot be relied on as a medium of
exchange or a standard of value.
We now come to the consideration of a mercantile, or
substitute currency.
It is quite apparent that a currency 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 want the reliability of coin and
the convenience of paper.   With these perfectly united,
there is nothing more to desire. We have no occasion to
increase the currency beyond its natural volume, because
that would impair the standard of value. We wish only to
have so much currency, 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.
224
[ BOOK III. 
MERCANTILE CURRENCY.
THE FIRST SUBSTITUTE CURRENCY ESTABLISHED.
In the early part of the fourteenth century, the Bank of
Genoa, or Ihouse of St. George, was established, especially
for the management of the public debt.  But, in addition,
the bank performed all such services as were required by the
existing wants of trade, at a period when Genoa was commercially the centre of Europe. Of course, its operations
were on a gigantic scale. Its affairs were conducted with
the greatest skill and fidelity, and were continued from its
foundation up to the time Genoa was united to the French
Empire, "when the bank was abolished, and the rentes,
3,400,000 Genoese lire, which they owed their creditors,
were transferred to the account-books of France."
This bank, like the Bank of England, had its stock invested in the public debt; but it received deposits of gold
and silver, for which it gave credit to the depositor. These
deposits, being easily transferable were employed largely in
commercial transactions.
The bank also issued bills extensively; but "these bills and
deposits represented coins of full weight. and value, and were
payable on demand in such coins." The common currency
of Genoa, for retail business and minor transactions, was
coin.
Thus the Genoese were furnished with a currency perfectly adapted to their wants.   It had all the reliability
of specie, with the convenience of a paper circulation, and
conferred immense advantages upon the trade of the city for
more than five hundred years.*
The Bank of Amsterdam was established in 1609 as a
bank of deposit, receiving gold and silver coins of all denominations and all nationalities, ascertaining their exact value,
and passing the amount to the credit of the depositor, or
* -For an interesting account of this bank, see "The Ways and Means of
Payment" (p. 311 et seq.), by STEPHEN COLWELL, of Philadelphia.
15
CHAP. XIII.]
225 
EXCHANGE.
giving him a receipt (recipisse) for the same. These receipts passed from hand to hand, and formed a circulating
medium for large monetary transactions.
The Bank of Hamburg was established in 1619. Like
that of Amsterdam, it is a bank of deposit; and all payments
are made by checks in the transfer of receipts. It exists at
the present day. It never promises more coin than it has
in its vaults. It is under the guardianship and guaranty
of the city. It has never deranged trade by contraction or
expansion. It has always been found reliable. It has contributed greatly to the prosperity of the city, and the convenience of all connected with Hamburg in trade.  At  the
same time, it has paid a considerable and constant revenue
to the city, a small agio or premium being charged on all
deposits.
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. The Bank of Genoa seems
to have developed this most fully.  Yet none of them would
afford a perfect model for the present age.
To keep gold and silver coin in bank, while they are performing all their functions outside, with the perfect 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 necessity for
such a currency at the present day, when the commerce of
the world is perhaps one hundred times greater than wheni
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, notwithstanding this supe
226
[BOOK III. 
MERCANTILE CURRENCY.
riority, we find the currency, on which depend the trade and
commerce of the British Empire, in a state of continual fluctuation, a matter of unceasing solicitude: the bank reserve,
by which its discounts must be governed, varying from ten
millions in 1846, 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, as seen in our Diagram No. 10.
Why all this fluctuation and anxiety? Wlhy 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 fourteen millions sterling
of notes, for which it holds no specie! That is all the difficulty.  It has disturbed the laws of value, by issuing that as
money which had only the promise of value; and, consequently, has expelled the actual value from the country in
which it was needed.
And what does the Bank of England gain by all this?
Why, the interest upon all the excess of its notes over the
bullion in bank; that is, if its notes are twenty millions, and
it holds eight 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 fourpence 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 currency, suffer
still more.
The remedy for all these evils is a very simple one, and
perfectly feasible whenever government sees fit to make the
CHAP. XIII.]
227
t 
EXCHANGE.
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 it be assumed that the banks of the United States have
usually twenty per cent of specie, then, if Congress should
require an annual addition, to this proportion, of ten per
cent, it would require a period of eight years to bring the
amount up to the proposed limit. That it would secure one
of the grandest results to all the great industrial and commercial interests of society ever known, there cannot be the
slightest doubt.
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 equal, have the most profitable industry
and the most advantageous commerce.
With such a currency, as there will be no inducement to
issue notes further than convenience demands, none of a
less denomination than ten dollars will probably be issued.
The Bank of England issues, we must bear in mind, no
notes less than five pounds (twenty-five dollars). In Scotland and Ireland, notes are circulated as low as one pound;
and it is found that two-thirds of their circulation consists
of these notes. Yet there is no more occasion for one-pound
notes in Scotland and Ireland than England. The only result is, that the bankers make profits on their credit issued
in those notes, which the people pay for, but for which they
receive no benefit whatever; while all their industrial and
trading interests are rendered more unstable and fluctuating
by the more sensitive currency.
In Massachusetts, where notes are issued as low as one
dollar, it has been found from statistical returns that more
than twenty per cent of the whole circulation was of notes
228
[BOOK III.
t 
MERCANTILE CURRENCY.
under five dollars. The exclusion of these notes alone
would reduce the credit element one-fifth. If all under ten
were excluded, the paper circulation would be reduced at
least as much more. If such a result would follow, then,
taking the whole currency of the United States as it was in
1857, when the circulation was largest, and amounted to
two hundred and fourteen millions, if we deduct from that
amount forty per cent, equal to eighty-five million and six
hundred thousand dollars, we shall have near one hundred
and twenty-eight millions as the paper currency of the country, and that would represent an equal amount of gold in
the banks; while all the rest of the currency of the nation
would be in specie, in the hands of the people. But 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 legitimate operations of trade; and the currency
of the nation would be perfectly sound.  Notes 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 ill
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 for them to make good, there would
be no danger in allowing them to borrow and loan money
on any terms they pleased. To attempt to control the
CHAP. XIII.]
229 
EXCHANGE.
operations of such banks would be as useless and absurd
as to attempt to regulate the trade in flour or cotton.
There would be no occasion to enact that such a currency
should be received in payment of dues. It would take care
of its own reputation. It would be good as gold, and easier
in use; and it therefore would circulate itself. Of such a
currency it might be said, in the language of Mr. Burke,
"It is of value in commerce, because in law it is of none."
The transition from an unreliable currency, like that
of the United States and England, to a sound mercantile
currency, can be made so gradually as not for a moment to
retard or interrupt the course of business. It would only
be necessary to require that the proportion of specie to circulation shall be gradually increased from time to time, until
the final exclusion of credit, as an element of the currency,
shall be effected.
If, in carrying such a measure into practical operation, 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 community.  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 beneficial to
the country, and perhaps equally so to themselves. The
amount of disturbance so produced would not exceed that
occasioned, many times, by the invention of a new description of machinery.
Much has been said, at different times, of the desirableness of free banking.   Of the propriety and rightfulness
of allowing any 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 authorize by law the universal manufacture of currency. While banking, as at present, means the issuing of
inconvertible paper, the more it is guarded and restricted
230
[BOOK III. 
MERCANTILE CURRENCY.
the better. But when such issues are entirely forbidden,
and only notes equivalent to certificates of so much coin
are issued, banking may be as free as brokerage. The only
thing to be secured would be that no issues should be made
except upon specie in hand.
With this restriction, however, it is plain that no banker
would issue paper for the profits of the circulations but
solely for the convenience of his business.
It may be objected to this programme of a mercantile
currency, that no provision is made for the convertibility of
deposits, which are..as truly currency as the circulation
itself.  To this we reply, that, if the circulation be represented by its full amount in specie, we think that little
danger or difficulty would be likely to arise from deposits;
because under such a system, suppose that twenty millions
of specie were wanted for exportation, the circulation could
only be reduced by that precise sum; consequently there
would be much less strain upon the money market. The
banks of Louisiana, under the State-bank system, held, on
an average, thirty-three per cent of specie to their immediate
liabilities. This, it was found, made them very stable, as
compared with the banks of other States, and enabled them
to withstand panics which drove their cotemporaries into
suspension. If the banks were required to hold one hundred per cent of specie upon their circulation, can there
be any doubt of their being able to meet all their liabilities
without embarrassment? The specie would be held, by the
terms of their charter, for the conversion of their notes. If
specie were wanted, it must be demanded for the notes.
Banks standing in that position would be very cautious in
making discounts, and passing the same to the credit of
their customers as deposits, unless they were in a condition
to pay the same in their own notes, and ready to cash the
latter on demand, if required.  They would not lend money
unless they had it to lend.  Who can question that such a
currency would be a stable one? -and stability is the great
desideratum.
CHAP. XIII.]
231 
EXCHANGE.
Panics in the currency would be unknown. Banking
companies, public or private, might, and very likely would,
often extend their credits so extravagantly as to involve
themselves in embarrassment or ruin.  That cannot be
helped. That is no concern of the government, whose only
duty is to forbid a false standard of value, and an unreliable
medium of exchange.  All notes used as money should be
virtual certificates of deposits for coin absolutely held for
their coniversion. Such a currency can be easily secured,
either through present banks, upon the principle here inldicated, or through the national sub-treasuries, which might
be authorized to issue certificates of any denomination (say
from ten to one thousand dollars) for all specie left with
them on deposit. Ill either case, the specie being held for
their redemption, all notes in circulation would be actual
molney, which could neither be arbitrarily expanded or contracted; and that is just what is wanted, - nothing more,
nothing less. If it be urged that this latter measure would
give the government the power to control the currency, we
reply, Not at all: government would be merely a trustee,
with no power to make currency or loan it to anybody. It
could exert no influence whatever on the money market.
We close with the following table: -
TABLE X.- Characteristics of the Different Currencies.
CONVE-                  AS A STAN KIN'D.      COMPO-    CIRCULA-  STABILITY   NENCY   CONVERT    DARD OF
KIND.   ~~~~                STABILITY.  I~IENCY
SITION.       TION.                     IN USE      IBILITY.    VALUE.
Cumber     Spreciou           e
Specie     Preci ous    Universal    Perfectly    some in    Needs no   Correct and
~~metals  mve       reliable      large    conversion   invariable
amounts
Liable to be
Credit    Paperbased   Local and    continu-         Conve-    Inconverti-      False
on credit    arbitrary    ally aug-      nient          ble
mented
Paper based   Local and   Constantly                  Only par-    Defective
!A ~~~~~~Constnlove —
Mixed       on coin       conven-    Fntatn           ne-       tially con-   and vari         and credit     tional    Fluctuating    nien          vertible       able
Paper based Local and
Maercantile   wholly on                  Perfectly    Conve-    Fully con-   Correct and
coin         tional       reliable      nient      vertible    invariable
232
[BOOK III. 
CHAP. XIV.]     THE NATIONAL CURRENCY.
CHIAPTER XIV.
THE NATIONAL CURRENCY OF THE UNITED STATES.
IHAVING given an extended analysis of mixed currency as it
has heretofore existed in the United States, it seems proper
that we should notice the important changes in that cur
rency soon to be consummated.
In the month of February, 1863, Congress enacted a law
establishing a national and uniform system of currency.
This has since been put into operation to such an extent
as nearly to supersede the State-bank system. We propose
now 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 Congress, which,
according to the last section of the National Bank Act, may
at any time "alter, amend, or repeal it."
(2) It differs, in that all the notes issued are guaranteed
as to their ultimate redemption by the government of the
United States. This provision we presume to be unique,
and without any precedent; for the government is not simply a trustee, holding security for these notes, as in New York
and some other States, on the safety-fund principle, where
stocks are deposited to secure the circulation, but it absolutely 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 Comptroller of the Currency circulating
notes of different denominations, in blank, equal in amount
233 
EXCHANGE.
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 Comptroller may sell the
bonds left as security, and 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 tender
as between other parties.
(4) Unlike the State-bank notes, those of the national
banks, owing to the provision just mentioned, will doubtless
have a nearly uniform value in all parts of the United States,
and will therefore be generally acceptable as currency.
(5) They differ also in this, that the national banks are
compelled by law to keep on hand a certain proportion of
" lawful money" to their circulation and deposits. In
specified cities,* this proportion is fixed at twenty-five per
cent; in all other places, at fifteen.
Under the State systems, there was no legal obligation on
the banks to keep any specie whatever, except in a few
cases, as in Louisiana and (recently) in Massachusetts, and
one 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 and clearing-house certificates shall be deemed to be
* These cities are St. Louis, Louisville, Chicago, Detroit, Milwaukie,
New Orleans, Cincinnati, Cleveland, Pittsburgh, Baltimore, Philadelphia,
Boston, New York, Albany, Leavenworth, San Francisco, and Washington
City.
234
[BOOK Ill. 
CHAP. XIV.]     THE NATIONAL CURRENCY.
lawful money;" and therefore, as these balances may be
created fictitiously for thie very purpose, the clause obliging
the banks to keep a certain proportion 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 shown, constitute the most dangerous and explosive element of a mixed currency.
This is one of the great defects of thie law, and, until it is
removed by the repeal of this provision, would alone make
the system a dangerous and unreliable one. Let us look
for a moment at the manner in which it may operate.
The Merchants' Bank, Baltimore, has a balance against
the Chemical Bank, New York, for twenty thousand dollars.
The latter bank has a balance against the Globe Bank,
Boston, for twenty thousand dollars.   The Globe has a
balance against the Merchants' Bank, Baltimore, for twenty
thousand dollars. I Here is sixty thousand dollars in this
circle, which is to be reckoned as equal to so much specie,
or lawful money. But is it so? So far from giving any
strength to the currency, it has the opposite effect. Tlte
object of requiring any specie, or lawful money, is, that the
currency may be made more reliable; but, if so, does not
this provision, to a large extent, frustrate that object? So
far from giving strength, every banker knows  that these
balances are a cause of weakness and peril in time of panic.
It can easily be seen that a very large proportion of the
nominal amount of specie or lawful money required may be
held in these "balances."
Lastly, the national differ from the old State banks ill
this, that the latter had almost their entire capital to loan
to the business community, while the new banks will have
little or none at all, having loaned their capital at the outset
to the government, by the purchase of its bonds. They
can, therefore, only loan their credit, in the shape of circulation endorsed by the government, together with their
deposits.
235
6 
EXCHANGE.
RESEMBLAN CES.
The new currency resembles that of the old State banks,
in that it is a mixed currency, and in all essential respects
as to its nature and effects, of the same character.
(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.
. (b) It will be an equally delusive and false standard of
value, having in itself but a small proportion of value.
(e) It will raise prices and cause speculation 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 export of specie to meet an
unnatural balance.
(f) It will counteract the influence of both natural and
artificlal protection, and retard the normal growth of home
manufactures.
Lastly, it will create panics, and cause frequent suqspensions of all the banks in the country.
It may be thought that the fact that the government
guarantees the national-bank notes will prevent 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 immediate obligations, not because the people fear
that the banks are insolvent; and, whenever it is out of the
236
[BOOK III. 
THE NATIONAL CURRENCY.
power of the banks to supply the currency immediately
wanted, the panic must take place, with all its sad conse
quences.
Such are essentially the points of difference and agreement between the two systems. The national government
may change the character of the new currency, and make it
approximate a value currency. It will have the power to do
this; and, as it is certain that the effects of this currency will
inevitably be disastrous, and give rise to grave periodical
disturbances in the monetary affairs of the country (notwithstanding its superiority in certain respects over the
State-bank system), it seems highly probable that this will
eventually be done; tle more so, because a large and growing section of the Union is already averse to any other than
a value currency. California and all the gold-bearing States
are now, and, if they understand their true interests, always
will be, hostile to any system which depreciates the value
of their great staple.
OPERATIONS OF THE NEW SYSTEM.
The national-bank system being in its infancy, but little
can be said of its actual operations.
We have, however, the first Report of the present Comptroller of the Currency (Freeman Clarke, Esq.), from which
we can learn its condition on the 1st October, 1865:
Loans.....................           $485,314,029
Bonds deposited for circulation.......       272,634,200
Other bonds held............            155,097,100
Total securities.........        $913,045,329
On this last sum the banks were drawing interest at the
rate of from 6 per cent in gold to 7.30 in currency. The
average rate of interest cannot be less than 7.30; for on the
gold interest bonds they get (at 40 per cent premium) 8.40,
and they have few securities that pay less than 7.30, to say
ClHAP. XIV.]
237 
EXCHANGE.
nothing of the exchange charged in making discounts.
We call the rate, however, 7.30 on the whole amount.,
$913,045,329 at 7.30.........           $66,652,309.01
This amount of income is equivalent to a little over
twenty per cent per annum on the entire capital invested.
It will thus be seen that the system is at least a "paying
one" to the stockholders.   It is estimated that the net
earnings of the banks for 186w will be twenlty-five per cent.
How it affects the quality of the currency (if it can be
said to have any quality when wholly inconvertible) may
be seen in the following statement.
Immediate liabilities of the national banks:
For circulation...................     $131,452,158
-Individual deposits...........               393,634,833
Public deposits............                   58,032,720
Total immediate liabilities.........           $583,119,711
Total'specie.................14,966,144
Excess Oct. 1, 1865.......            $568,153,567
Specie to credit equal to 21 cents on the dollar.   The
banks hold $193,094,364 in "lawful money" (greenbacks,
comnpounld-interest notes, &c.).  The excess of immediate
liabilities over specie and lawful money is three hundred and
seventy-five millions. This excess is some forty millions
larger than ever known under the State-bank system.
These statistics only show the condition of the national
banks at the date mentioned (Oct. 1, 1865). Since that
time, they have been rapidly increasing in number,* capital,
circulation, and deposits; yet the general character of the
currency they furnish will not essentially differ from what it
now is until the government withdraws its own note circulation. Then specie must be had to sustain the circulation
and deposits in the same manner, and at least to an equal
* There were over one thousand six hundred, April 1, 1866; and itis expected the number will be increased to two thousand one hundred.
238
'[BOOK III. 
THE NATIONAL CURRENCY.
extent, as under the old system. When that is done, the
character of the new system will be developed, and its
operations and effects made manifest. What they will be,
no one who knows the nature of a mixed currency call have
any doubt.
As a further illustration, we give the operations of an
individual bank in Massachusetts, as shown in the Comptroller's first Report.
The capital of this bank is $300,000.  As it is a converted
one, it has, of its old capital, a "surplus" of $106,000.
It has also $33,000 of "profits" on hand; total, $409,000.
This is the amount of capital it actually had to loan. Let
us see how much it has loaned: -
Loans (on private securities).........        $155,000
Loans on public securities, "United-States bonds".. 334,000
Loans on "other United-States bonds and securities". 266,000
Total amount on which the bank draws interest.. $755,000
The immediate liabilities and immediate resources of the
bank are, -
Specie.....
Lawful money. 
Total means in hand
Circulation..
Private deposits
Public deposits.
Old circulation.
$275,000
105,000
212,000
33,000
$625,000
This is equal to-about one mill of specie and ten cents
of lawful money to each dollar of immediate liabilities;
but it has about $233,000 of bank balances, and, if these
balances are sound, they furnish so much of additional
immediate resources to this' bank, though they' do  not
change the character of the whole currency, because what
one bank has due to it another must owe, leaving the result
as if neither existed, except that, as both are liable to
be instantly called for, they greatly endanger the whole
system.
CHAP. XIV.]
239
755
52,000
$52,755 
EXCHANGE.
Statistics might be multiplied indefinitely; but enough has
been given to indicate the nature of the new currency, and
the manner in which the new system is likely to be carried
on. Being wholly in the power of Congress, it can be made
whatever the people will.
The process, as we have already indicated, is very simple, by which the national currency can be made a convertible or mercantile one; viz., by enacting, from time to
time, that the banks shall keep a larger and larger proportion of specie, until the end is finally attained, and  the
currency made safe and reliable. This is the more feasible,
because the government, by making its deposits in these
banks, will enable them, with their other privileges, to
make good dividends without issuing any notes for which
they do not hold an equal amount of specie.
The new system, then, is in so far to be regarded with
complacency, as that it is more susceptible of reform, and of
being made what a currency should be, - an unalloyed blessing to the public.
CHAPTER XV.
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 EVID,NCES OF DEBT.
These are mainly of three kinds:  I. Book accounts. A sells B one hundred barrels flour,
and charges him five hundred dollars in account, to be paid,
by verbal agreement, in four months.
This is a very extensive mode of effecting exchanges.
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
[BOOk III.
240 
EVIDENCES OF DEBT.
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
the final balance is ascertained and adjusted by money or
other equivalent.
(a) Book accounts are, in some respects, an undesirable
form of transfer, because they are ex parte, 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 deemed conclusive evidence, there is
always opportunity for litigation.
(b) 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 suin, and at a given date. They
are generally payable to the order of the payee, and, when
negotiated, are indorsed by the latter. This transfers the
ownership to a third person; but the indorser is held to pay
the note, if thle 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 drawer,
the acceptor, and the payee. They have a form usually
somewhat like the following:
$1000.                                  LNEW 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.
16
CHAP. XV.]
241
0 
EXCHANGE.
Ilere 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 accepted (which is
done by writing the word "accepted" 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 exchange.
This species of transaction will arise mainly between persons residing in different places, and in this manner: A, in
Boston, orders of B, in New 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 principally 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 illustrated as follows   A, in Boston, sells to B, in New York, goods to. amount
of one thousand dollars.
C, in New York, sells to Da in Boston, leather to amount
of one thousand dollars.
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. Not, it must be understood, that, in the case sup
242
[BOO III. 
EVIDENCES OF DEBT.
posed, B actually goes to C; but the merchants 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 New York for all due to Boston. These bills are, when
completed, if not before, generally passed into the banks,
who 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 New 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 dispose of their
own checks or drafts for the amount.
This is a labor-saving arrangement of immense importance, greatly reducing the otherwise inevitable 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 wishes to pay sundry persons in Boston, Providence, Lowell, and Lynn. He
draws on his 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 exchanges, 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 different
I
CHAP. XV.]
248 
[BOOK III.
countries. They differ 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' sight 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.
BRYDONE 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 by which the bill would
-be destroyed or lost while on its way to London;  and, in
that case, the owner would forward the second, which would
be paid. The third bill is also held, for the same precautionlary reasons.
These bills arise in a great variety of ways. Persons
wishing to purchase merchandise or other articles abroad
go directly to bankers in New York, Boston, &c., 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
carried 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 intercourse,
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 cottonl 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 money?
A gets the draft of E upon G, and sends it to B, in Liver
244
EXCHANGE.
I 
EVIDENCES OF DEBT.
pool; 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.
Observe, now, the saving of time and interest:
To have transported $5000 from Boston to Liverpool
would have ordinarily required........           14 days.
The same amount from Liverpool to Boston....  14 days.
The transport from Boston to New Orleans.....           6 days.
The same from New Orleans to Boston......           6 days.
Total................                40 days.
Saving of interest on $5000 for forty days, at six per
cent, is $33.33.  From this view of the matter, we see what
an immense saving is made in the use of money, the expenses of transporting it, and the interest on the same, upon
the thousands of millions of dollars required in the trade
of the world.
In 1857, the United States imported.....      $362,000,000
And exported cotton, breadstuffs, &c., $293,000,000;
gold, $69,000,000..............        360,000,000
Leaving a nominal balance of...    $2,000,000
Another thiing in regard to exchange may be noticed; viz.,
England received that year of us (the United States) fiftyfour 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, &c...................        29,000,000
France................................. 8,000,000
$57,000,000
* These transactions go through banking houses, as in the case of domestic exchanges.
CHAP. XV.]
245 
EXCHANGE.
es were mainly adjusted by drafts on Eng our balances against England were dis
ke these, we can readily believe that at least
1 the trade of the world is carried on by bills
Such is the estimate made in England and
d there is reason to believe that it is approx
imately correct.
THE NATURAL RATE OF 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 New York. If the time, freight, insurance,
and other charges are equal to one per cent, then that is the
natural rate of exchange. We have shown that only a small
amount of coin, in the course of trade, is likely to be transported from one place to another. As there is a mutual
trade, as Cincinnati buys of New York and New 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 the case may be. If New York has
purchased more largely in the mutual trade, there will be
an excess of demand in that city for bills on Cincinnati.
Reverse the supposition, and there will be an excess of demand in Cincinnati for bills on New 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 (othler thiings equal)
precisely according to the transactions between thle 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 always be relied upon,
and is always watched with great interest by every intelligent merchant and banker.
246.
[BOOK III. 
EVIDENCES OF DEBT.
If this be so, we see that perfect freedom of exchange is
of great importance, and that no extraneous influence
should be brought to disturb this barometer, to which all
ought to look with entire confidence.
If, for example, there existed a national bank, having the
right to inflate the currency at pleasure, and with branches
so distributed over thie country that it could bring its whole
power to bear upon any given point whenever it chose, it is
easy to see that such an institution might control the exchanges, and thus do a great injury to the community; not
only by charging excessive premiums, but by disturbing the
normal indications of the exchange market. This, it has
been charged, the United-States Bank, whose charter expired in 1836, actually did; at any rate, it certainly had the
power and the motive to do it.
The Bank of England has never been permitted to deal
in exchange.
THE RATE OF BRITISH EXCHANGE.
It is well known, that the ordinary rate of exchange between this country and England is from nine t6 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 difference?
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 declined. The American dol
CHAP. XV.]
'"'4T 
EXCHANGE.
lar, 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
Legal valuation........................                4.44,4
Difference.............42,2
which, it will be seen, is equal to very nearly nine and onehalf per cent; so that, when exchange is quoted at nine
and one-half per cent, it is really at actual par.
Now, if this is the actual par value of the two currencies,
it will happen, that, whenever the market rate of exchange
rises so far above nine and one-llalf 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 statement of
an actual transaction between Boston and London, February, 1865.
Gold purchased..........
Insurance, one-half per cent......
Freight to Liverpool, three-eighths per cent.
Carriage, Liverpool to London.....
Selling, commission, one-eighth per cent.
Fourteen days' time lost, at six per cent..
.... $50,000
$250.00
187.50
5.00
62.50
83.33
$588.33
These expenses are equal to about one and one-sixth 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
per cent.
248
[BOOK III. 
CEVIDENCES OF DEBT.
Then, if th
cies is eq
And the ex
penses of remitting gold equal to.I....        1.25
Real par value of exchange, total.....      10.75
it will follow that gold will not ordinarily be exported until
the market rate of exchange is about ten and one-half to ten
and three-quarters per cent.
The same general principle applies to French exchange,
which usually stands at about five per cent against this country.  It is only the difference between the value of the coins
of the respective countries, as computed here.
The late Secretary of the United-States Treasury, Mr.
Chalse, tried to induce Congress to rectify the great difference between the nominal and the real value of our coins,
as compared with foreign coins; but the proposal was
not sustained by legislative action. This measure would
have added some ten per cent to the valuation of British
imports, and, of course, the same per cent to the revenue
derived from them; while it would have removed an absurd and cumbersome mode of computation at our customhouses.
A change so desirable and expedient cannot be long
delayed.
ARE BILLS OF EXCHANGE CURRENCY?
It has often been maintained that bills of exchange are
currency, as truly as bank-notes.  Let us inquire.
1st, The popular definition of currency is, that which
passes current from hand to hand in all transactions between
buyer and seller, in large or small amounts; and, also, in
payment of all obligations.  It is evident that this is not
true of bills of exchange, which may be taken as the example of all negotiable paper.  It is, indeed, said, that in some
countries, as in Great Britain, they are so used, in a limited
CHAP. XV.]
249
9.5 
EXCHANGE.
degree; but even such use does not bring them within the
definition.
2d, The wider definition which we gave of currency, viz.
that instrumentality by which a general exchange of values
is effected and payments are made, does not 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
different 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.
3d, Currency, if it be equal to money, can be at once exchanged for specie, at the place where issued; but cash cannot be obtained on demand for bills of exchange, as they
are generally on time. Here, then, is another wide difference between currency and individual promises. They are,
in fact, bought and sold for money, like the merchandise on
which they are drawn.
4th, Citrrency is that in which all persons promise to pay
their cash obligations. Is that true of bills of exchange?
Quite the reverse.
5th, 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 remains the ten millions
[BOOK III.
li. 
EVIDENCES OF DEBT.
of currency with which to pay the balance; and currency is
twice as plentiful, relatively to indebtedness, as before.
Suppose, on the other hand, that one-half the currency
fails, while the whole amount of bills of exchange, &c.,
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.
The more bills of exchange, the less, relatively, is the currency: the fewer bills of exchange, the more plenty, relatively, is money.
How, then, can bills of exchange and promissory notes
be synonymous with currency?
6th, Do bills of exchange affect the standard of value, and
consequently prices? If plenty, are commodities higher?
if scarce, are they lower?
If bills of exchange were passed from hand to hand in
exchange for merchandise (which we are sure is not the
case to any considerable extent in thie United States, if anywhere), it would seem that, so far as thus used, they would
affect prices; but this could only'be temporarily, because, in
a short time, tlhe state of the money market would restore
the equilibrium. If they do raise the prices, they will in so
far prevent exports, and increase imports and consumption;
and thus a demand must arise for specie for export, to settle
the balance of trade; and this will cause a contraction and
a fall of prices.
7th, A scarcity of bills of exchange, however great, can
never, under a sound currency, be the occasion of pressure
for money, or a panic; but a scarcity of currency may do
this, and often does.
Do we not see, then, that there is a wide distinction between currency and all forms of credit?- that to confound
them is to destroy necessary distinctions?
CHAP. XV.]
251 
BOOK IV.
DISTRIBUTION.
CHAPTER I.
DIVISIONS OF THE SUBJECT.
THE distribution of wealth, like its exchange, arises out of
the division of labor.
We have seen, that production might, in strict theory,
proceed without co-operation; with feeble and painful steps,
it is true: but its laws would still be perfect, should all men
refuse to associate in their efforts, and singly seek the satisfaction of their desires. In such a case, there would be
neither exchange nor distribution.
We have seen by whom 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.
[252] 
DIVISIONS OF THE SUBJECT.
Labor, in the distribution of wealth, falls into three general classes: -
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, &c.,-but
another name for wages.
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 examination unnecessary. Both are controlled by
the proportion of supply and demand.
Capital is loaned in two general forms: 
1st, When  invested with a permanent  character and
having a fixed place, -  as houses, fields, &c.,- its comlpensation 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 convenience of location,
i.e., where not the identical product, but only an equivalent,
is to be returned, -its compensation is called " interest."
Such, then, are the forms in which capital does its part
in production; and such the forms in which it receives its
share in distribution. They are, in their nature, the same,
and in scientific treatment might properly be discussed
under one title; but the common names are so deeply fixed
in the mind, so intimately associated with political economy,
and so interwoven with daily experience, that only confusion
could result from speaking of them as one.
Production, thus far, has been charged with wages (and
under this term we include all the rewards of auxiliary;
CHAP. I.]
253 
DISTRIBUTION.
labor, salaries, fees, &c.), 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.
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 examine in their
order.
CHAPTER II.
WAGES.
SINCE labor and capital join together in production, each
may rightfully claim, and in the nature of things must
receive, a share of whatever is produced.
The share which labor receives is called " wages;" and
by this general term is meant that compensation which the
employer 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 other commodities.
Wages vary greatly in different countries, and in different
parts of the same country; they vary, too, 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.*
* A part of this chapter appeared in the "Merchant's Magazine" in 1857.
254
[BOOK IV. 
CHAP. II.]
The joint instrumentality of labor and capital being
necessary to the production of wealth, it follows that the
interests of the two parties are closely connected; that cap
ital is as dependent on labor as labor is upon capital.
If this is so, the probabilities of an equitable division
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 institutions,
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 powerful and permanent
combination, the latter will be compelled, in one form or
another, to take up with less than its just reward.
But, however unjust or arbitrary laws or institutions may
be, it is evident there are certain limits beyond which the
wages of labor cannot be reduced.
The cost of labor is identical with the cost of maintaining the laborer in such circumstanices that he can not only
support himself, but rear a family 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 whatever 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 expenses of subsistence in different 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
255
WAGES. 
DISTRIBUTION.
permanently exist, depends on the necessary 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 amongst
those possessing wealth to pay it out for labor; and this
disposition will depend much upon the security and profitableness with which capital can be employed in production,
and the enterprise and aspirations of the people.
We make the following. divisions of our subject:
NOMINAL AND REAL WAGES.
There is often a considerable difference between the nominal and real wages, or between the wages of the employ4
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 177, 178, of this work, as shown in Table V.
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, &c.
By taking the wages of the laborers at certain periods,
and the prices at corresponding periods, we ascertain the
desired results.  We have added the year 1864 from the
best unofficial sources at hand:
1840.
$1.00
20.73
20} days
Wages*...
Commodities..
Labor required.
* It is to be regretted that we have no carefully prepared tables of wages
in the United States. Such are greatly needed. We have taken the rates
mentioned according to our own observation, and believe them essentially
correct.
256
[BOOK IV.
1836.
$1.25
29.46
23i days
1843.
$1.00
14.82
141 days
1864.
$1.50
46.96
341& days 
RISE AND FALL OF WAGES.
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 procure thie 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 better than in 1836,
when the nominal wages were twenty-five per cent higher.
In 1864, when nominal wages were at one dollar and fifty
cents, real wages were but little more than half what they
were in 1843 at one dollar.
In this connection, it seems appropriate to mention the
great difference to the laboring classes between a value and
a credit currency.  If the latter, as we have endeavored to
show, raises prices and causes speculation, and if the price
of labor does not rise in proportion to the rise of prices,
then it must follow that wages were really less at all times
of inflation than when the currency is in a natural condition. How great these fluctuations are we have seen in
Table V., pages 177, 178, from which, as an illustration in
point, we give the following triennial synopsis:
Years...    1834.  1837.  1840.  1843.  1847.  1850.  1853.  1856. 1859.
Prices...   $19.13 $28.40 $20.73 $14.82 $20.82 $16.20 $22.47 $25.02 $22.11
Every one acquainted with the rate of wages will realize
at once that they have not corresponded to their fluctuations in prices, and that the laboring and salaried classes
must have suffered great injustice in consequence.
CHAPTER III.
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 observation; but the reason of this dif                            17
CHAP. III.]
257
I 
DISTRIBUTION.
ference 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
demnand for all kinds of merchandise, 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 purchases, the greater the amount of profits. 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 call of flour, sugar, or tea.
Of course, labor has no advantage 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.
But wages not only never rise so much as commodities,
but do not rise so soon. The reason is, that the rise of
commodities is greatly accelerated by speculation; while
labor, as before stated, is not affected by that kind of demand. Hence it does not begin to rise until speculation
has engendered a spirit of extravagance and increased coinsumption;  then wages make  an advance about half  as
great, on an average, as that of merchandise in general.
And, again, wages fall sooner than merchandise, because
the latter may be 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 cannot 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.
258
[BOOK IV. 
RISE AND FALL OF WAGES.
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 wages must
be estimated. To determine whether actual value wages
have advanced 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 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 before. 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, which was worth forty cents a yard in 1810, could be
bought 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 to which his predecessors could not aspire. 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 those classes in 1810 with their consumption in 1860, we
should find the advance surprising.  The amount expended
for pleasure-travel, for example, by this class is immense,
while fifty years ago it was hardly appreciable.   So of
the luxury of newspapers,  magazines,  &c.  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 compensation
now than fifty years ago; but it is really far greater. We
do'not say they have no cause for complaint, yet they are
.CHAP. III.]
259 
DISTRIBUTION.
vastly better off than those who went before them. Wages,
when realized in commodities, have increased. The general
product has been enlarged by the introduction of laborsavinlg machinery, and therefore their absolute share is
greater. Whether their relative share, as compared with
that of the capitalist or employer, is greater, we shall find
place elsewhere to discuss.*
The laborer suffers nothing, but gains much, in 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 commodities' for his labor - is
determined to a considerable extent by the character of the
circulating medium 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.
DIFFERENCE OF WAGES FROM DIFFERENCE OF EMPLOYMENTS.
Occupations which manifestly involve a great amount of
personal danger command higher wages than those regarded
as perfectly safe. The risk of life must be taken into account.   The man who works at powder-making gets a
higher price than the mall who works upon a farm;  the
manl employed in blasting rocks, than the man who shovels
gravel.  So it ought to be, and so to some extent it is, in
regard to mining and other dangerous employments; though,
from the smallness of the difference, it is often quite manifest that human life is placed at a low valuation.
Any occupation which public opinion brands as odious
and revolting will usually be found to pay a large compensation, for the reason that honorable or conscientious men
will not engage in it.
* The very low rate of "corn wages" received by the English laborer
in times past may be seen from the statement of Mr. Matthews (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."
260
[BOOK IV. 
DIFFERENCE IN WAGES.
UNHEALTHY TRADES.
Those occupations which, although not immediately 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 consequently exposed to loss of time and expense for medical attendance,
he should be compensated for that liability. If lie shortens
life in a particular employment, that should be a matter of
consideration 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 doubt.
Regarded 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. To
determine what that increased pay ought to be, we should
be obliged to ascertain the value or expectation of life in
the different occupations.
The expectation of life should be a matter of consideration with every one choosing his business, and should have
importance in determining the rate of wages. That this is
not adequately the case now is quite evident, because wages
paid for labor in unwholesome employments do not correspond with the consequent abridgment of human life; so
that the laborer not only loses a good part of his life, but
also a share of the wages he oughlt to receive while he
does live.
Agriculture is evidently the normal employment of man,
that in which he lives longest and enjoys the greatest
health.  Every other calling is unwholesome 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.
261
CHAll. Ill.]
I 
DISTRIBUTION.
THE EDUCATION OF THE LABORER.
Other things equal, the man who has received merely a
common-school education will obtain higher wages ill any
employmelit than one who is entirely illiterate.  He has
some mental discipline, 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 lihe
does. iHe 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 him as
much time as tell 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 hle 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. Hie becomes, to a certain
extent, a capitalist, and can measure strength with capital
on better terms.
The man who has nothinilg upon which to subsist to-day
must work to-day, at whatever price, or starve; while he
f
262
'[BOOF, IV. 
WAGES OF FEMALES.
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 wvait a little, while the former must work
Now. The laborer or employe' 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.
DISTINCTION OF SEX.
Women receive less wages than men. This is 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 receives one dollar, the woman  receives fifty cents.*   And  this, too,  not only where  the
services of the two sexes differ, but where they are identical, as in school-teaching,  type-setting, &c.   Why  this
disparity?
Political economists, so far as we know, have not troubled
themselves much about it.  Philanthropists have taken cognizaice of the fact, and have sought to apply a remedy, but
generally, we may say uniformly, 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
* 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
I
CIIAP. III.]
263 
DISTRIBUTION.
two sexes exist in remarkably equal numbers throughout
the world. There are as many women as men.
The second, that, while almost all occupations and em ploymeits are accessible to the male sex, but comparatively
few are, by the 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.
On the principle, then, of supply and demand, the number
of females being as great as that of males, while their eim ploymenlts are so much fewer, they must of necessity work
for less reward. The supply is greater than the effective
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, conve niences, and luxuries of life: hence it can and will be
dispensed with, unless it can be had cheap. The staple
produfctions - corn, cattle, iron, cotton, and the like - must
be had, at whatever price or cost of labor; but not so with
the thousand-anld-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
oA his agricultural labors, and usually the same number of
females in the work of the house.  Now, if he should be so
pushed for means as to be obliged to dispense with one of
his employds, 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 thie conveniences
and comforts of life, without, perhaps, much sacrifice of
property; while, in the other case, he would lose part of his
crop.
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 dependent. But those who are
satisfied with the existing customs and opinions of society,
by which the sphere of woman is restricted to its present
264
[BOOK IV. 
WAGES OF FEMALES.
limits, ought to be equally well satisfied with the compensa
tionl allotted her; for it is just such as must follow.
No attempt to enhance her wages by appeals to human
sympathies or benevolent organizations need be attempted;
for there is a law that overrides all these,- the law of
supply and demand; a law founded in nature, inexorable
and immutable. An increase of her wages can only result
from an increase of her employments, - of employments,
too, of an equally indispensable character as those of the
other sex.
That a change of this sort is fortunately in progress 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 only be
done by human strength, leaving the residue of labor, which
is, to a great extent, the exercise of intelligence, care, and
attention, to be performed by persons of either sex. Hience,
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.
In the department of education, too, the sphere of
women's labor is vastly extended within the last forty
years; and, from existing indications, the present century
will not close before a considerable part of the business of
the medical profession will be in their hands.  Women are
also employed extensively in public offices and trading establishments.
All this is the natural result of our civilization, and
especially of a free common-school education. In a great
part of the United States, the same advantages are furnished
to both sexes.  The consequences are, that as the females
are more docile, have a quicker apprehension, and are more
studious generally, they acquire a better education in our
lower schools and seminaries than the other sex.
CIIA.P. III-]
265 
DISTRIBUTION.
ANOTHER CLASSIFICATION OF WAGES.
There have now been presented most of the considerations 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
is, as we think, a more natural and scientific- classification
of wages.
Properly considered, wages are paid for three different
kinds of power; viz.,  1st, PHYSICAL POWER, or mere muscular effort with 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. It would be so regarded theoretically: it is so practically. This has ever been, and will be, the lowest priced.
2d, MENTAL POWER. Those faculties of mind that give
ability to manage complicated affairs, the general operations
of agriculture, manufactures, commerce, - 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. In
this class may be placed the greater proportion of those professional services which are subsidiary to production, and
indispensable to its fullest development.
To  prepare men  for thie exercise of their intellectual
powers, a considerable amount of education and training is
necessary.   Hence such powers are not only more rare,
but more expensive, than brute force, and therefore rightfully command higher compensation. I
3d  AMORAL POWER.  As man advances in civilization; as
'266
[BOOK IV. 
CHAP. III.]  ANOTHER CLASSIFICATION OF WAGES.
wealth, 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 interests
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 guaranty is found in the moral power of
the individual, - the power which gives such a control over
appetites,.passions, and propensities as affords assurance
that under no circumstances of trial or temptation will he
ever depart from the strictest line of duty. This confidence
can be inspired only by the conviction that the individual to
be trusted has firm, abiding principle; that he will be honorable and true, not merely because it is for his immediate
interest to do so, but because such are his sentiments and
convictions that he cannot be otherwise; that no change of
circumstances will ever induce him to deviate from the path
of rectitude.
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 responsibility and
trust.
Now, 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.
The merchant must often intrust al} his fortune to a
single confidential clerk. He must put himself in the
power of that clerk to injure, it may be to ruin, if he will.
Hence, should he find a man to whom of all others he is
267 
e DISTRIBUTION.
willing to commit this power, he will be disposed - he can
afford -to give him large wages.  The incorporated com pany, with its capital of millions, must put into the hands
of its officers, sometimes of a single man, its whole wealth.
And, after all the bonds and guaranties that can be devised,
reliance must be mainly placed upon the moral character of
the man.
In affairs of state, in the highest public trusts, how
much must always depend on personal honor and integrity!
What other assurance can the people have, that their ser vant may not, under great temptation, prove recreant to
duty, and injure and disgrace himself and his country?
Looking at all rewards in the light of political economy, it
is here that we find the highest plane of human effort.
- It may be objected to this new classification of labor, that
we confound economic with moral science, and depart from
our appropriate sphere.   We  reply, that  men, if truly
moral, are so not because it is profitable, not because it
will enlarge the value of their services, but because it is
right, because they love integrity for its own sake. This
must be their motive, or their morality has no reliable foundation. Yet from this cause it occurs that their services
are more desirable, and they will receive greater remuneration, - will be paid for honesty as truly as for intelligence,
activity, and strength. So a man inust preserve his health,
if he would receive wages for even the lowest form of labor;
but that will not be his motive. The love of life and the
pleasures of health will form the grand consideration in his
mind why he should abstain from all that will imnpair his
physical energies; yet, as a consequence, he secures the
ability to command wages, and is paid for his abstinence
and discretion.
We cannot, therefore, acknowledge the validity of the
objection to that which seems to us the most natural and
scientific classification of wages.
268
[BOOK IV. 
LABOR COMBINATIONS.
CHAPTER IV.
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 compensation 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-citizenls, neither more nor less. He asks no favor,
and grants none.  He demands the same justice, the same
freedom, accorded to others. He should be able, so far as
law is concerned, 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 anl 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 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
benefit.  In England, these "friendly societies," as they
CHAP. IV-.]
269 
DISTRIBUTION.
are called, are numerous, and often exert a very happy
influence. They are formed for a great variety of specified
objects. One class, for example, provide,  1st, For assisting members when  they are obliged to
travel in search of employment.
2d, For granting temporary relief to members in distressed circumstances.
3d, For the relief and maintenance of members in case
of blindness, lameness, or bodily hurt through accident.
4th, For the purchase of necessaries to be supplied to
the members.
5th, For the purpose of assuring the members against
loss by disease or death of cattle employed in trade or
agriculture.
6th, For the purpose of accumulating at interest, for the
use of the member, the surplus fund remaining after providing for his assurance.
Some societies provide for a variety of other contingencies,-sickness, old age, and death.   These associations
are so numerous and important in Great Britain that the
government has appointed a registrar (John Tidd Pratt,
Esq.) for their general supervision, and his reports are
annually made to Parliament. All associations like these,
if properly managed, have a tendency, not only to relieve
the misfortunes of the laboring classes, but to enhance their
wages by making them more independent.
Societies are also formed for the diffusion of intelligence
amongst these classes, and for their moral and social elevation,-  like temperance associations, lyceums, mechanics'
institutes, &c. These, too, have the effect to influence
favorably the rate of wages, since they tend to bring laborers more upon a level with the more favored classes, to
increase their intelligence, and especially to divert them
from low and degrading occupations and amusements.
Associations of this kind will, in the progress of events,
undoubtedly contribute more and more towards an equal
270
[BOO,K IV 
LABOR COMBINATIONS.
distribution of the wealth which labor produces in conjunction with capital, provided they are formed for proper purposes, and conducted in an orderly manner.
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 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,
they have 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 whatever,
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 tariff of 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 infriugement of personal rights which government is bound to
resist to-the utmost.  Such an act is merely the act of a
CHAP. IV.]
271 
DISTRIBUTION.
mob, and has no justification.  Nay, more: under a free government, where these very men who  have thus combined
are citizens, with the right of suffrage, and, in common with
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 resort 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 turn out.  To produce effect, and aid in obtaining
what they demand, they parade the streets with banners
and music. Very well, so far; for other associations do the
same, whenever they see fit.  If these demonstrations do
not interfere with the general avocations 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 thiis, a procession, instead of
peaceably passing through the streets, proceeds 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 lawless mob, and is to be dealt with
like any other body of men disturbing the public peace.
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 economically and morally, and degrade, in
272
[BOOK IV.
AP 
LABOR COMBINATIONS.
stead of elevating, 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 by which the interests of the laborer can be more
effectually promoted than by associations 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 patronage of the capitalist, whose interests would be promoted
thereby: but it should ever be remembered that individuality is to be interfered with as little as possible, since the
more there is of individual 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.
But strikes cannot permanently raise the rate of wages.
Combinations of workmen, taking advantage 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 advantage. When trade becomes dull, they are
certain to be placed again in the power of the employer.
Especially is it injurious to the interests of the workmen,
where by strikes they have forced out of employment 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 depressed, and its
productiveness diminished. With freedom, the laborer can
work for whom he will: with the ballot, he can insure to
himself and his interests protection and justice.
18 
CHAP. IV.]
273 
DISTRIBUTION.
CO-OPERATIVE ASSOCIATIONS.
There is yet another mode in which those who depend
upon wages may secure very great advantages to themselves;
viz., by co-operative associations, formed for trading or industrial purposes. These are already somewhat extensively
introduced into the United States; and, so far as are known,
have been attended with a good degree of success. Mr.
Fawcett (now  M.P.), in his "Manual of Political Economy," has given a very full and interesting account of the
operation of certain co-operative societies in Europe, from
which we extract the following: -
The co-operative movement in England was first commenced
at Rochdale.* About 1844, a few working-men in that town suspected, and no doubt justly so, that they were paying a high price
for tea, sugar, 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 amongst ourselves 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 amongst
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 investment 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; sqon
the society was sufficiently 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.
* The residence of John Bright, M.P., and where his family carry on a
large manufacturing business.                                      A. W.
274
[BOOK IV. 
LABOR COMBINATIONS.
"In 1856, this society, now famous as the Rochdale Pioneers, possessed a capital of about ~12,800.  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 supply of
pure bread, as well as unadulterated tea, was thus insured. During the last few years, this Pioneers' society has attracted frequent
public attention; for it has gradually grown into a vast commercial
institution, embracing a great variety of trades. At the present
time (1863), its capital is ~32,000, the amount of business done is
~170,000, and the profits realized twenty per cent. The general
management of this society, and the mode in which the profits are
distributed, are both excellently arranged. 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 selection has been made. The accounts are
made up quarterly, and placed before the general meeting. London accountants have audited these accounts; and they express a
unanimous opinion that no business in the country is better conducted. 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
distributed in proportion to the aggregate amount which each indi-.
vidual 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 drawback."
Professor Fawcett then proceeds to give the causes of
this remarkable financial success: -
"The ready-money system, invariably adopted by these societies,
has probably promoted their prosperity more than any other circumstance. All bad debts are thus avoided; and, where credit is not
given, a certain amount of business can be transacted with much
less capital than would be required if large sums were locked up in
-0
CHAP. IV.]
275 
DISTRIBUTION.
book-debts. Under a ready-money system, the same capital may be
turned over perhaps twenty times a year; and, if one per cent only
is realized upon such transaction, the capital will sum an aggregate
profit of twenty per cent in the course of the year. When goods
are sold for ready money, they can be bought for ready money from
wholesale dealers. This is always a guaranty that the purchases
will be made on the most favorable terms. Again: the shareholders of the society form a nucleus of customers; and therefore, directly business is commenced, a certain amount of trade is insured.
If an individual commences business, he must attract customers
either by advertising or costly shop-fronts; he is compelled to conduct his business in crowded thoroughfares, where rents are extremely high: but a co-operative society is saved all these expenses.
Its shareholders are its customers; it therefore need not advertise;
it does not require a showy building; for its position is rather in the
centre of the homes of the laboring population. These and other
advantages sufficiently account for the large profits which have
been realized, not only by the Rochdale co-operative store, but by a
great number of similar societies, situated in almost every other part
of the country."
The author here enumerates a long list of different places
in which these stores are established, as Manchester, Hiuddersfield, Dover, Blackburn, &c. He then proceeds to
state some of the advantages of these institutions:   "The advantages which the working classes derive from a cooperative store are apparent. In the first place, it provides them with
a most eligible investment for their savings. This is important,
because the absence of good opportunities for investing small savings operates powerfully to increase the improvidence of the poor."
Again, he says:  "The co-operative principle, when applied to trade and manufactures, enables the laborer to support his industry with his own
capital, and, in this manner, to rise from the mere status of a hired
laborer.... There can be no doubt that these societies promote a
most healthy social intercourse between workmen; for, at frequent
meetings, the shareholders consult each other upon matters of business. They have to show their discrimination in selecting the propel
persons to be managers; and, in fact, the experience of the R.ch.
276
[BOOK IV. 
LABOR COMBINATIONS.
dale store proves that a co-operative society can succeed in carrying out many a social improvement, which would not otherwise be
introduced. Thus, two and a half per cent of the profits realized
at Rochdale support an excellent reading-room and library, which
the shareholders, as well as their wives and families, are permitted
to use gratuitously; the society organizes excursions, and often performs some united work of charity: not long since, its members
presented a magnificent drinking-fountain to their fellow-townsmen.
A co-operative store may, moreover, become a particularly powerfil agent in benefiting the working classes, because it can be conducted on the smallest possible scale. The experiment can be made
without involving any expense: any half-dozen working-men may
try the plan, as it was tried in 1844 at Rochdale, by clubbing together sufficient to purchase a chest of tea from a wholesale grocer.
If their first effort is successful, they may gradually develop their
plan, until, at length, it becomes a great and important trading establishment."
The same writer gives the following account of an industrial co-operative association:
"A small society of co-operative masons was established in 1848,
in Paris. This society was reproached for holding certain political
opinions, and the government attempted to discourage it by refusing to loan any capital. This intended hostility secured its future
success; for the societies which were assisted by the government,
in almost every instance, proved to be failures. The co-operative
masons endured many vicissitudes; and, in the year 1852, they determined to re-organize their society. It then consisted of only seventeen members, and borrowed no capital. They resolved to create
a capital, by depositing in a common chest'one-tenth of their daily
earnings. At the end of the first year, a capital of fourteen pounds
and ten shillings was in this manner created. At the end of 1854,
the capital had increased to six hundred and eighty pounds; and,
in 1860, consisted of one hundred and seven members, and the capital possessed by them was fourteen thousand and five hundred
pounds. The Ho6tel Fould, the H6tel Rouher, the H6tel Frescati, &C., &c., were erected by this industrial association. At
the present time, these co-operative masons are building an hotel
for M. Girardin, on the Boulevard of the King of Rome, and an
hotel at Montrouge, for M. Pacotte. No laborers, except the share
CHAP. IV.]
277 
DISTRIBUTION.
holders, are employed by the society. The laborers are paid the
ordinary wages, current in the trade, and the net profits realized are proportioned in the following manner: two-fifths of these
profits form a fund, from which the annual dividend is paid; and
the remaining three-fifths are appropriated to provide an extra bonus on labor. The bonus each laborer thus receives is proportioned
to the amount of labor he has performed throughout the year. No
arrangements that could be devised would more powerfully promote
the efficiency of labor. This is the secret of the remarkable success achieved by this society."
The advantages of these associations is further stated, as
follows:
"In the first place, it may be observed that the laborers receive
the whole profits which result from their industry; for they supply
the capital which is required. Another most important effect seems
likely to result from these associations; for they appear to hold out
a fair prospect of correcting a very disadvantageous tendency, which
is associated with the present rapid accumulation of wealth. For
we have previously remarked that each year the production of
wealth is conducted on a greater scale: manufactories are enlarged,
farms are extended in area, and in every branch of industry there
are those that seem, from the very vastness of their capital, to monopolize the additional profit, and thus compel the smaller producer
to succumb. Hence, each year it becomes more difficult for the
laborer to engage in any industry on his own account.... Hence,
the industry of the country must be conducted by two distinct clagses; namely, employers who supply the capital, and workmen who
provide labor; unless those who labor agree to form themselves
into associations, and subscribe amongst themselves sufficient capital to carry on production upon a large scale. It must be quite
evident, that co-operative trading establishments, when successful,
as it were intensify many advantages which laborers derive from
co-operative stores. But we have separately described these two
classes of institutions, because we think that the success of the former may be imperilled by many circumstances which do not affect
the latter. In fact, we have already stated, that, in the case of a
co-operative store, success may almost be guaranteed.... But the
case is very different with regard to a co-operative society carrying
on some branch of industry for profit."
278
I [BOOK IV. 
CHAP. V.]
This the writer shows to be more hazardous. ilie gives,
in connection with this, a statement of a very successful
agricultural co-operative enterprise, commenced some thirty
years since, in which the results were in the highest degree
satisfactory.
The description here given, by Professor Fawcett, of cooperative societies abroad, furnishes satisfactory evidence of
their feasibility, and the great advantages the laboring classes may derive from them. If true to their interests, they
will direct their attention to the formation of such associations in this country. By so doing, they will violate no
legal enactment, in no way disturb the public peace, or interfere with the laws of trade. They will simply avail themselves of their just rights, for the use of the power which
legitimately belongs to them.
CHAPTER V.
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 necessary thlat still
another agent should take part in production; viz., an
employer, manager, undertaker * (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 command capi
* "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 l'entrepreneur."
279
PROFITS. 
DISTRIBUTION.
tal, and therefore has little power: hence the necessity for
an employer, or business man, to effect a union;anid put both
in successful operation. Capital without labor is an infant;
labor without capital, a cripple.
The parties, then, to production are, (1) the laborer; (2)
the capitalist; (3) the employer, or manager.  Each has 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 employer, as often is
done, throws the whole matter into confusion. There is no
occasion whatever 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 first 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 distinct 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 inl 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-runi and on the average, are such that the
business man can afford to pay the tisual rate of interest,
the compensation of the capitalist, or his share in the general
distribution, must be reduced. He must rent or loan his
capital on such terms as those who employ it can afford,
* The term "personal estate," in distinction from real estate (land, buildings, and the like), is generally used in the United States to describe every
kind of movable property, and all evidences of debt.
280
[BOOK IV.
I 
CEAP. v.]
over and above all the charges and hazard of business, besides making a satisfactory profit. On the other hand, to
the employer, in whatever department of business, the question of profits is vital.  HIis success depends  upon the
amount he can secure, after meeting all his necessary expenditures for labor, rent, interest, taxes, insurance, bad
debts, &c.
It often happens that the employer (manufacturer, merchant, &c.) is the owner, ill 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. IHe
saves all the interest he would otherwise pay to the capitalist; he pays interest 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, Hiow 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 efficient production,- sufficient labor for the capital, and capital
for the labor: so there must be sufficient enterprise, business talent, and tact to use both; and the several parties
must be left to act voluntarily, under the instincts of human
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. Each party, too, must be
protected in his just rights, and be insured against the encroachments of the other.  No advantage should be given
by legal enactments to either. The capitalist should be free
to loan his money to whom he will, and at whatever rate he
can get; the employ6, to work for whom he pleases, and at
such compensation as he can obtain by the competition of
employers. If the laws allow capitalists, by concentrating
their wealth, to increase its powers laborers should have an
281
PROFITS. 
DISTRIBUTION.
equal right to combine their efforts; and employers should
be free to secure the services of either, on the best terms
they can.
With this perfect equality, each will certainly obtain the
share that belongs to him. Laws in regard to this, as all
other property relations, are not needed to direct human industry, but to control human passion; to prevent one party
from trespassing upon the rights of the other.
All these parties are equally necessary. In one respect,
labor has the advantage, since it can accomplish a little
without capital, while capital can produce nothing without
labor. On the other hand, capital can rest, without extinction; while labor, if not employed, will soon perish by starvation.
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 upon the amount transacted, not
upon the capital employed.  The difference between the two
modes is often very great.
We give the following table as an illustration of what we
mean: -
An MIllustration of the Difference of Profits as computed on the Capital employed or
the Business transacted.
NNet Profits,
CAPITAL    RSal     es. Rate of    Profits Gros                               l.        ose
Sa~~~~~~~~nlesdi ng Saes.  Profits. Exese,Ne            f         Preofits
inetodieg~~~~~~i reckoned
F~P OYED. o ae.Pois
Interest.             on Capital    s uois.
$100,000   $500,000' 15percent  $75,000  $25,000   $50,000  50percent  10 per cent
20,000    150,000  10,,,    15,000  7,500     7,500                       37,,,   5
10,000      30,000  30,,,,         9,000      2,000      7,000  70,,,,  26,,.
50,000    350,000   5,,,,        17,500      7,500    10,000  20,,,,    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 get as
large a net profit to himself as possible, irrespective of the
282
[BOOK IV. 
CHAP. V.]
per centum of profit on the capital employed. On his capital, if borrowed, he pays the interest; if he owns it, he computes the interest as a part of his expenses, reckoning the
latter as the income on his capital.
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.
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 independent 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, such
individual obtains 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, he
will find his custom fall off; or, if he has customers, 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 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?
FJirst, The latter buys more shrewdly.  Secondly, he ca
283
PROFITS. 
DISTRIBUTION.
ries on his business more by his own efforts, and with less
expense; and, lastly, sells, as he will 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 employed and the
expense of conducting business.
This may be shown in the following illustration:
A, with a capital of $10,000, which hlie turns every six months,
charges twenty per cent profit.
B, with same amount, turns his capital once in three months, at
fifteen per cent.
C, with same amount, turns his capital every thirty days, at
seven and one-half per cent.
Result: -A sells $20,000 at 20 per cent.
Interest on capital.....
Rent.........
Labor and other expenses..
A's net profit........
B sells $40,000'at 15 per cent.
Interest on capital........ $
Rent............6
Labor, &c.........
B's net profit.......                        $
C sells $120,000 at 7i per cent
Interest on capital.......                  $
Rent.........
Labor, &c.........                          3
C's net profit.......
Large sales, with small profits, or a rapid turning of capital is the natural tendency of trade, as population and
wealth increase, and especially as credits are diminished.
284
[BOOK IV.
$4,000
...
. $600
. 600
. 800
2,000
$2,000
$6,000
... $600
... 600
... 1,200
.....
2,400
$3,600
$9,000
. $600
. 600
2,500
3,700
$5,300 
CHAP. V.]
Those who sell for cash have immensely the advantage of
those who give long credits, particularly under a mixed
currency, which so largely increases the hazards of trade.
In those communities ill 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 they can get the use of capital, because capital produces so large a return; as, for example, one thousand dollars invested in the spring. in ploughing the prairie, and
getting in a crop of wheat, will, not unlikely, 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 purchase, they come to buy at greatly reduced rates,
and profits fall to the minimum. This is the general law in
all countries, though most clearly seen in new settlements.
The average rate of profits in a country is determined by
the same law as wages. Profits are merely wayes received
by the employer. This idea should be kept constantly in
mind.  The wages of the laborer depend upon supply and
demand:  why not the wages of those who employ him?
The employer is as truly a laborer as the man who toils with
the spade, only on a higher plane.
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 required for
transacting business successfully, and fewer still who can
command the necessary means or capital, it will follow that
the rewards of the employer will be larger than those of the
persons employed. But we must not forget that this differ
285
PROFITS. 
DISTRIBUTION.
ence 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 initelligenlce
of the people. The opening of railroads has wrought a
great revolution in this particular.  These not only greatly
reduce thie cost of transportation, but the average rate of
profits. For example, a given town is one hundred miles
from the mart of trade, by which it is supplied. There are
only common roads, and those of bad construction.  Eight
or ten days are required to pass teams to and from thie city.
Under such circumstances, the people generally will be likely
to know but little of thie market value of commodities. As
they must very rarely visit the places where merchandise is
obtained, and, consequently, are ignorant of the worth of
the articles they are obliged to purchase, and quite unable
to supply themselves directly, they are charged large profits
on what they buy. Let a railroad be put in operation, so
that the time distance is reduced from eight or ten days to
four or five hours, the price of all commodities in market
will be known, and those who supply them must do so at
a small advance; while yet, it may be, the dealers will
make as large aggregate profits from increased sales.
EFFECTS ON PROFITS OF A TEMPORARY RISE OF WAGES.
The effect of a temporary rise of wages upon profits may
be illustrated as follows:  A manufacturer of kerseymeres is able to produce an article for one dollar per yard, for which he can get one dollar
and twenty cents in the usual state of trade. A sudden
rise of wages advances the cost to one dollar and ten cents,
Thle result, under ordinary circumstances, will be that the
286
[BOOK IV. 
EHAP. v.]
manufacturer will not be able to obtain at once an advance
equal to the enhanced cost. He will be fortunate if he can
get one dollar and twenty-five cents for his goods, leaving
him but fifteen cents profit. But, if the rise in wages holds
on until the market has been cleared of the stock of goods
on hand, the price will then be easily brought up to one
dollar and thirty or one dollar and thirty-five cents.
But a rise of wages, especially if occasioned by an expansion of the currency, is sure to be followed by a corresponding decline when contraction takes place.  The manufacturer will then gain the advantage he lost by the rise of
wages. His goods will not fall at once as much as the fall
in wages.  This is the practical experience of business men;
and they can safely calculate to gain as much on the one
hand as they lost on the other. Wages, we have previously
shown on page 258, fall faster than commodities. It is from
the operation of this law that the entrepreneur gains in the
fall as much, ordinarily, as he lost in the rise of wages.
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 conceivable 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 business 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 profits 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
287
PROFITS. 
DISTRIBUTION.
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 the dividends of
banks, of this kind, approach nearer to interest than those
of ordinary business corporations, still they are most properly classed with profits.
Through associations, capital is largely connected with the
industrial operations of the country, and shares directly in
their prosperity or adversity. This result is in so far a
favorable one, as it unites the interest of capital with the
industry of the country.
CHAPTER VI.
INTEREST.
WHAT is paid for the use of money, or any other form of
loanable capital, is called " interest."  Hence the term " usury." It is all the reward that capital receives, not embraced
in the term " rent." It ordinarily insures the return made
for the employment of money, because loans are commonly
made in that form; but the idea of interest is general to all
articles having value, but not bringing rent.
Interest has its justification in the right of property.  If
a man can claim the ownership of any kind of wealth, he is
the owner of all it fairly produces. 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
product.  Whoever by labor produces wealth, and by selfdenial preserves it, should be allowed all the benefit that
wealth can render in future production.  This is the only
288
[BOOK IV. 
CHAP. VI.]
condition upon which the largest accumulation of wealth can
be secured; it presents the only motive that can withstands
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 other must relinquish.  If, therefore, the desire to spend is unchecked, all
wealth and physical well-being disappear 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  away with.
Proudhon and others have speculated and theorized much
on this subject; but nothing can be more idle. We can no
more get rIid 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 reasoiling as that " property is a crime; a monopoly that must
be destroyed."
We will notice briefly a few of the main principles 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 business, because it would no
longer be used; nor can it be equal to these profits, for
no one would be disposed 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 the power of present
labor, capital will be obliged to submit to an equitable di
vision.
If, then, the productiveness of labor is very great, if the
industry of the community yields easily and richly, capital
will naturally obtain a large reward; while, if Nature be nig
19
INTEREST.
289 
DISTRIBUTION.
gardly in her gifts, each of the parties must be content with
a pittance.
2d, Interest will be governed by the law of supply and
demand   This is so evident as not to require argument or
proof, hardly illustration. Old countries 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
interest is high.  The United States of America afford a
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 comparatively 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 experiment 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 (say six), if money is worth more, as
it often will be, it must be obtained by some indirect process. Most persons do not like to directly violate a law,
however foolish or unjust they may d'eem 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
k
290
[BOOK IV. 
CRAP. VI.]
pays the broker for getting the money he might otherwise
have obtained directly of the capitalist himself. The law
has not prevented the usury, only increased the rate.  The
broker feels no responsibility; for he is only an agent betweeii the parties. The capitalist has no scruples; for he is
not known in the transaction. 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 transaction; and then a fair, unrestricted competition would assure
the lowest rate of interest, obtained in the most economical
manner.
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 intelligently and as freely as in the purchase of merchandise. Freedom is as essential in the
disposal of money as in the intercourse of nations. To
hamper it with laws regulating the rate at which it shall be
loaned, is as absurd, and as repugnant to the laws of wealth,
as to fix the price of wheat or cotton.
(b) Usury laws create an injurious distinction between
different kinds of mercantile paper, and thus occasion embarrassment and loss to borrowers.
For example, the law says in Massachusetts that only six
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 for 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.
Hiis drafts have sixty days to run; he is charged one per
cent exchange, and thus pays twelve per cent interest.  A,
having only notes on which no such exchange can be legally
291
INTEREST. 
DISTRIBUTION.
charged, must " go into the street," and employ a broker to
sell the notes for him at the best rates he can.
This state of things occasions great annoyance and loss
to borrowers; yet it must continue so long as usury laws
exist.
(c) Usury laws are the principal cause of compulsory
deposits, or deposits made to secure large discounts. 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. If
every man could borrow money at what it was worth, there
would be no motive to bribe moneyed institutions indirectly.
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.
(b) Upon the general thrift of the community; for however well disposed to pay, if decay and decline 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 considerations 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 mainly upon the soundness of
the currency.  If it consists wholly of value,- that is, if the
credit element 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
292
[BOOK IV. 
CHAP  VI..]
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.
We have already shown, when speaking of a mixed currency,* how frequent and excessive are the fluctuations in
the rate of interest in the United States. In no other civilized country have they been so great, for the sufficient reason that no other country has a mixed currency so deficient
in the element of value.
We have shown, at the place referred to, that these variations have been from three and one-half to thirty-six per
cent. Now, no commodity, in time of peace, has varied to
an equal extent.  The reason is, that commodities are not
wanted to pay notes; but, to meet pecuniary engagements,
money is, and must be had.
Under a currency in which credit is the principal element,
the fluctuations in interest are in proportion 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 circulation with a rapidity proportionate to
its weakness, or want of value. Hence the frightful revulsions we have witnessed. And we may doubtless expect
that these will increase in force and frequency in the future,
since the mixed-currency system, once almost exclusively
confined to England, France, and the United States, is being
extended throtlighout the commercial world. The risks of
credit will therefore be greater, and the average rate of interest will, so far as risk is concerned, be enhanced.
But, in regard to a legal rate of interest, it may be asked,
whether a limit should not be established by law, in all cases
where the parties have not themselves agreed upon one.
Certainly, it would seem desirable and proper, that, in the
absence of all agreement or contract, the law should say
* See Diagram No. 9, p. 197.
INTEREST.
293 
DISTRIBUTION.
that a given rate should be awarded. This would not be
regulating the rate of interest, but establishing justice between the different parties in those cases where, from any
cause, no fixed rate of interest had been agreed upon. This
legal rate would properly be the general average rate obtained for the use of money.
CHAPTER VII.
RENT.
RENT is paid for the use of land and its appendages,
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 inducement, 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 would 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 person shall
desire the use of the same land or appendages.  If exchange,
as M. Bastiat says, "is civilization," rent is society.  This
is the second condition.
From our definition, it will appear thlat rent is paid (a) for
land, (b) 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
294
[BOOK IV. 
CHAP. VII.]
already endeavored to show, value is not derived from the
gifts of nature, but the labor 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 sufficient 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. iHe
needs no appropriation of land; for he roams at large through
the forest. Hie accumulates little or nothing; and it is of
small importance where he builds his temporary cabin.  His
means of living are precarious; he is often exposed to starvation, has nothing permanent, pays no rent, and population
but slowly increases.
Nor in the second or nomadic condition, when man becomes a shepherd, does rent make its appearance. His business is no longer mere destruction, but preservation and
use. This elevates his condition; the employment has a
far more ennobling effect upon character; higher faculties
and better feelings are developed. But still he lives in a
tent, and removes from place t6 place to find pasturage for
his flocks.  In the natural progress of events, he becomes an
agriculturist. 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 appearance, and increases in intensity as man
becomes more and more advanced in social condition; for
with agriculture come the mechanic arts, manufactures,
commerce, villages, towns, cities, - civilization.
We now come to the elements which enter into the rental
of land.
295
RENT. 
DISTRIBUTION.
THE FIRST ELEMENT OF RENT.
Loeation. - This grows out of the social condition of mall,
to which we have alluded. If men lived as isolate beings,
and there were land enough for all, and the whole equally
fertile, there would be no rent; but, once gathered into villages and communities, rent would make its appearance,
although there were as much land as all desired, and each part
equally productive.
This point we shall endeavor to make plain by an illustratioll.*  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 suppose 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 family desires) and another; absolutely no choice arising from any thing 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 commencing
on the left are numbered 1 to 13. No. 7 is, of course,
the middle lot.
Now, all being equally eligible, the land equally accessible and good, and there being as many lots as settlers, and
each as large as any one desires, will there be any value
to them?   Yes:  because all will prefer No. 7, for they
perceive that it is most desirable, inasmuch as it is central; and, if public buildings are erected for the accommodation of all (schoolhouse, church, &c.), they must be
* This illustration was given by the author in the "Merchant's Magazine," in 1860, vol. xlii. p. 306.
296
[BOOK IV. 
CHAP. VII.]
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 manl who will give the most for it. Some one
will give one hundred bushels of wheat, or its equivalent,six bushels rent per annum.  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 sup
posed, 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.
THE SECOND ELEMENT OF RENT.
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;
thie third, twenty; the fourth, ten.
Now, 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 No. 2, which
would only yield thirty, No. 1 would command a rental of
ten bushels, because a man might as well give ten bushels
rent for No. 1 as to cultivate No. 2 without rent.
When, again, necessity compelled the cultivation of No.
3, No. 2 would pay a rent of ten bushels, and No. 1 of
twenty bushels. And further, when tier No. 4 must be
297
RENT. 
DISTRIBUTION.
brought under culture to produce the quantity of corn
needed for consumption, then, as it would with equal labor
produce but ten bushels, No. 1 would yield a rent of thirty,
No. 2 of twenty, and No. 3 of ten; while the last, or No. 4,
would afford no rent.*
THE THIRD ELEMENT OF RENT.
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.
This represents the condition of Great Britain, which,
besides raising all the wheat her highly cultivated fields can
profitably produce, imports some eighty millions of bushels
annually. This causes a large increase of prices; consequently, of money rent.
FOURTH ELEMENT OF RENT.
Application of Capital to Land. - This is done in various
ways,- by the use of fertilizing materials, drainage, deep
ploughing, &c.   For every such appliance, wisely made, a
rent is received, supposed to be equivalent to the expenditure incurred.
And here it may be found that the same expenditure,
applied to the different qualities of land, produces unequal
results.  Five dollars, expended per annum on No. 1, may
return but a profit or additional rent of eight dollars; while
* Mr. Ricardo, we believe, first brought out this principle clearly in his
"Political Economy," London, 1819.
298
[BOOIK IV. 
CHAP. VII.]
the same amount, applied to No. 2, will give seven dollars;
or to No. 3, will give six dollars, &c.
This will cause a variation in the relative rentals of the
different qualities or tiers of land we have supposed.
Improvements, more or less permanent, are investments
of capital in real estate, changing the income from the form
of interest to that of rent. They are made to an immense
extent in the older countries of Europe.  Their profitableness depends, like that of all other investments, upon the
wisdom with which they are made: but men  are more disposed to invest capital in real estate, other things equal,
than in any thing else, for the reasons that it has the greatest security; that it gives a certain degree of social importance to the holders in all countries, and, in some, confers
political rights and privileges.
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 whicli are indispensable to agriculture;
and, if erected with suitable reference 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 necessary, 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 value of farms in proportion to their cost. For
example, if the land alone is worth three thousand dollars,
and buildings are put up costing two thousand dollars,
the whole will not, ordinarily, sell for five thousand dol
299
RENT. 
DISTRIBUTION.
lars.  Facts of this sort are observed everywhere.  Farms
may, 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, &c. We observe,
first, that buildings are not generally put upon farms for tlhe
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 pleasant and
desirable, a dwelling is erected according to the tastes of
the owner and his family, rather than the direct profit of the
farm. There is a natural and becoming competition among
agriculturists to have pleasant, and, as far as may be, elegant
residences. Hence, they build upon a more expensive scale
than the business of agriculture will fully justify; and though
they may be able to keep on, and even thrive, with their
establishments, these are, nevertheless, a heavy charge upon
their industry. 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.
If, as is generally the case, he must make the money off his
land to pay for the estate, he cannot afford the cost of buildings erected to gratify the taste of somebody else. He gets
the extra improvements gratis, really paying only for the
useful and necessary.
And, in the competition of cultivation in a community
like the United States, it is to be remembered that its agriculture is a unit; that the products of the accessible and
fertile prairies of the West are brought 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 thousand dollars; while on many
Eastern farms, of a productive power of but two thousand
bushels; the buildings may have cost three thousand dollars.
Now, as these farms are, in fact, competing in the same gen
800
[BOOK IV. 
CHAP. VII.]
eral markets, it is clear that the extra expenditures upon
Eastern farms can pay but little, if any, rental, though they
may be very pleasant to the occupant.
It is on the same principle that the amount expended 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 tlie land,
we find 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.   Such, and even more
extraordinary, instances'may be found, showing to what extent the principle of location may be carried. The estimated
wealth of cities consists, to a considerable extent, of the
appreciation in the value of land which the increasing density of population and the concentration of business enterprise has occasioned.
Investments in commercial cities depend, of course, for
success, upon commercial prosperity. Changes likewise
take place in the business  centres of every great city.
There is much of mere whim and fashion in this; but,
whether the commerce and trade of the city moves "up
town" or " down town," rents move with it.
City property, in all thrifty communities, is sure, on the
whole, to advance in value with the lapse of time; and hence
it is always a favorite investment.  Yet so great is the competition, so large the amount of capital in cities, that the net
average rental is probably not greater than the ordinary rate
of interest. Rents are based on permanent property that
requires much care; interest, upon securities that may prove
worthless, but which demand but little attention.
301
RENT. 
DISTRIBUTION.
The absence of all restrictions upon thle ownership and
transfer of landed property and real estate, of all entails and
mortmain holdings, makes the question of rent one of small
practical importance.  Where owning is the rule, and hiring
the exception, as is the case with us, 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.
CHAPTER VIII.
WAGES, RENT, INTEREST, AND PROFITS, AS RELATIVELY AFFECT               ED BY CURRENCY INFLATION.
IT is an important fact, not to be overlooked in our examination of incomes derived from wages, rent, interest, and
profits, that all of these are not only greatly affected by the
condition and character of the existing currency, but also in
very unequal degrees. We have already spoken of the influence of an inflated currency upon wages and interest; but
we are now to show its unequal operation upon all these
different kinds of revenuie.
The enormous inflation of currency during the rebellion
has given a most favorable, because a most striking, illustratration of the degree in which different interests may be
affected by any inflation.
Take, for example, the years 1864 and 1865. Wages
were, on an average, fifty per cent above their usual rate.
Where  a skilful workman  had previously obtained two
dollars a day, hle now got three: where the common laborer
got one dollar, he now got one dollar and a half. From
extensive inquiry and personal observation, we are satisfied
that the rise of wages, take the country through, was equal
to fifty per cent: such we have found-the uniform testimony
of employers.
802
[BOOK IV. 
IWAGES, RENT, ETC.
WAGES, RENT,2 ETC.
Rents, during the civil war, except in some large cities,
advanced but little, on an average, throughout the country:
it is much to be doubted if they advanced more than ten,
certainly not more than twenty, per cent.
The rate of interest advanced generally from 6 per cent
to 7.30; but this was mainly from the action of the government, which negotiated large loans at that rate, and consequently fixed that as a general standard. Yet, of the
immense amount loaned on mortgage, it is doubtful if a
tenth part of it has been raised beyond what it was previous to the war. But we may safely assume that the rise
of interest has been from 6 to 7.30 per cent, or about twenty
per cent.
Profits may be safely estimated, during 1865, at a hundred per cent higher than ordinary; that is, where they
were ten per cent on the business transacted, they were increased to twenty per cent. This we suppose a very low
estimate.  To recapitulate:
Interest and rent, the remuneration of the capitalist,
advanced..............                            cn
Wages, the remuneration of the laborer, advanced.
Profits, the remuneration of the business man, ad  vanced..............
What is the result of this?  Who wins, in consequence of
this rise of wages, interest, rents, and profits, occasioned by
the inflation of the currency? Prices rise, as we have seen,
to an unprecedented height; say, one hundred and twenty
per cent. Then we will suppose that
A, the capitalist, has an income from interest and rent. $4,000
Gains twenty per cent by rise of rate..........        800
Whole income in currency........             $4,800
If he expends this amount in general commodities, at the
advanced prices we have stated (one hundred and twenty
per cent), he can only purchase with his $4,800 the same
CITAP. VIII.]
303
20 per cent.
5 0 per cent.
1.00 per cent. 
DISTRIBUTION.
commodities he could have obtained before the general rise
for $2,181.81.
From original income...........      $4,000.00
Deduct...................2,181.81
Loss by change of prices........ $1,818.19
equal to a loss of 45.4 per cent, notwithstanding the nominal rise of twenty per cent in his income.
And now as to the laborer. His wages were three hundred dollars: they are now four hundred and fifty dollars.
This last sum is laid out in commodities, and brings him
$204.54 worth, as reckoned at the prices before the rise.
So, from $300 deduct $204.54, and his loss (in commodities)
is found to be $95.46, or nearly one-third (31.82 per cent)
of his sound-currency wages, or what they were before the
expansion.
But how with regard to the third party, l'entrepreneur,the nerchant, manufacturer, &c. His income, at first, was
$10,000: it is now $20,000.  If laid out in commodities,
the $20,000 would purchase, at the advanced prices, but
$9,090.90 worth; which sum deducted from $10,000, his
original profits, will give a loss of $919.10.
It is not to be presumed, however, that the whole of the
income of the business man is expended in commodities,
but a large share added to the capital. Suppose, before the
rise of profits and prices, his expenses were five thousand
dollars, and he purchases the same commodities now.  He
will then expend eleven thousand dollars, leaving him nine
thousand dollars to add to his capital; while, before the
general rise, he added only five thousand dollars.  So that
he is making a net gain of eighty per cent upon his income.
Recapitulation, on the foregoing suppositions:
The capitalist makesla loss of.......              45.4 per cent.
The laborer makes a loss of........         31.8 per cent.
The business man makes a gain of......              80  per cent.
304
[BOOK IV.
I 
WAGES, RENT, ETC.
Or, to state the result in another form:
The capitalist gets but 54.4 on the dollar of his just due.
The laborer gets but 68.2 on the dollar of his wages.
The business man gets 180 cents where before he got $1.00.
This statement, which we think will be found correct in
principle, and approximately so in the application we have
given it, shows the position of each party in reference to the
change in the standard of value occasioned by the war expansioni of the currency. The two first classes lose,- the
capitalist most heavily, but the laborer, perhaps, most dis'tressingly; because, as a general fact, the latter must expend all his income, and, under such circumstances, can
get only about two-thirds of the commodities to eat, drink,
and wear which he could obtain with his wages under a
sound currency. But one of the classes mentioned is getting rich; viz., that engaged in trade, manufactures, and
general business. Nor will this class, perhaps, in the end,
be so greatly benefited as might be at first supposed; for
it must sustain the entire loss which will take place upon
all the merchandise of the country, as the currency comes
down to a specie standard.  One class we have omitted;
viz., speculators.  To them, an expansion like that we have
experienced affords a golden and most plentiful harvest; and
they are not slow to enter the field of labor and fruition.
To them an expansion is always a good; for it necessarily
causes a rise of prices, and of course an opportunity for
speculative operations.  Expansion warms  them into life
and activity: contraction, to a sound standard of value, suspends their animation.
Upon certain facts, in regard to this matter, all will doubtless be agreed:  (a) That those who live on fixed incomes from rent, interest, or salary, were never so straitened as during the
war inflation.
20
CHAP. VIII.]
305 
DISTRIBUTION.
(b) That laborers got less commodities for their services
than before the expansion.
(c) That merchants, manufacturers, and business men
generally, made extraordinary profits.
(d) That speculators flourished beyond all precedent.
But the importance of all these facts and considerations
consists in this,- that all we find to be true, theoretically
and practically, during the great expansion occasioned by
the war, has always been true, in degree, during every expansion of the currency, though never before so palpable, because never before so excessive. There is nothing new in
these phenomena: they are only more strikingly exhibited.
The same effects have attended all previous expansions: the
same process has always been going on, always must go on,
under a currency capable of unnatural inflation.
CHAPTER IX.
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. Hlow
shall these be maintained?  Evidently by the contributions
of all, for all are interested in its existence.
It may, therefore, rightfully claim a share of all that labor
and capital have created.
The aggregate of all sums collected by government is
called its REVENUE;  the system by which it is collected
is called TAXATION.
Although the single object of taxation is to obtain a given
amount of wealth (generally in the form of money), yet the
modes by which that object may be secured are various.
306
[BOOK IV. 
CHAP. Ix.]
In ancient times, taxation was often imposed by the arbitrary fiat of the ruler, with little or no reference 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 discussion 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.
Until within a few years, the people of the United States
have been so fortunately exempt from heavy taxation, that
it has been felt to be a matter of small consequence what
the expenditures of the government amounted to, and still
less whether they were wise and necessary. That day has
gone by, probably not soon to return.
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.  Nothing 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.
Desirable as this would be under any form of government, it is manifestly quite indispensable in a country where
there is no force superior to the public will, and where it is
certain no taxes can be collected but such as are believed to
be both necessary and just.
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 require.
This claim is not only peremptory, but prior to every
other claim. The laborer must contribute a part of his
307
TAXATION. 
DISTRIBUTION.
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 government.
Hl, in fact, creates a fund out of which government is to be
supported. For example, should a man pre-empt a section
of land on the western prairies, and by his labor make it of
the value of ten thousand dollars, government has a lien
upon it equal to all the taxation it may choose to impose.
The value of the farm is just so much less than it would
otherwise be, by the burdens which it is known the government will lay upon it. For example, if the owner could sell
it, free of all taxation, instead of ten thousand dollars, he
could get, say, eleven thousand dollars for it. If we suppose that the annual tax imposed on the farm will be equal
to the income on one thousand dollars, then the farm is
worth one thousand dollars less on this account.
If the seller buys another farm, or any other property,
with his ten thousand dollars, he gets it at just the same
reduction as he sold his own farm; and, for the same reason, all property, whether personal or real, whether land or
merchandise, is exchanged under these conditions; and
therefore  all parties creating wealth  are placed on a
level.
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 support 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 or neglect
of this maxim consists what is called the equality or inequality of
taxation."
808
[BOOK IV. 
CHAP. IX.]
In examining this proposition, 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 income, they are as justly bounid to
contribute to the government as men, and in the same proportion. Many women have large wealth: why should it
go untaxed?  Children?  There are some such who are
millionaires: why should they be exempt?
Idiots, lunatics, cripples? Yes, if they have cc revenues."
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 of
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.
In many countries, taxes have been, and in some are still,
farmed out in gross to a publican, or tax-gatherer, who,
under the authority of government, imposes such sums as
he pleases to exact.
(b) The time of payment should be "clear and plain."
The citizen should know when he pays; be conscious of the
fact that he is paying the government a certain sum at the
time he actually does it. Otherwise, he will be liable to
great impositions, in one form or another.
(c) "The manner and the quantity plain."   This for
.309
TAXATION. 
DISTRIBUTION.
the same reasons as just stated. He certainly ought to
know how he pays, 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. If A pays less
than he should, B and C must pay more; hence the right
of every man to know, not only what he pays, but what his
neighbor does. Otherwise, how call he judge whether he is
overtaxed or not?
It is on this 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 design, it will probably be
found out; for, being a copartner, each man is interested
in the taxes of every other, and has a right to know what
they are, 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 manner,
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 fisherman returns with his
" fare," &c.  This, though not a very important consideraeration, will readily be admitted as proper.
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."
Although the soundness of this principle would seem indisputable, and will doubtless be theoretically 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 machinery employed in collecting the public imposts.
310
[BOOK IV'. 
TAXATION.
Second, By diverting a portion of the labor of a community from a more to a less profitable employment. For
example, so heavy a tax might be laid on carriages as to
reduce their use or consumption to such an extent that tlhe
manufacturer might be compelled to go into some other businiess less productive. This has often been done by unwise
legislation.
Third, By attaching such heavy duties as to occasion
smuggling, and thus create a multitude of officers to guard
the revenue.
This result has often been brought about in European
countries, and is now beginning to be seriously felt in
the United States, under the heavy duties at present imposed.
Fourth, By subjecting tile people to frequent and inquisitorial visits, and interruptions in the pursuit of business and
in their domestic affairs, thus causing annoyance and dissatisfaction.
We now add still another principle, which, though not
among those laid down by Dr. Smith, has been adopted
in every country having any considerable taxation -
V. The heaviest taxes should be imposed on those commodities,
the consumption of which is especially prejudicial to the interests
of the people.
HIaving 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 different goveriments 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 different modes of
taxation, it may be proper to say, that there are, in the
United States, two general systems; viz., by national and
CHAP. IX.]
311 
DISTRIBUTION.
by State authority. The national government imposes taxes
in every form, direct and indirect, except upon the poll.
The State governments generally rely upon direct taxation;
and the poll-tax is one of the forms adopted.
Under State authority, counties, cities, towns, and schooldistricts 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 person who it is
intended shall pay it. Indirect taxes are demanded from
one person, in the expectation that he will indemnify himself at the expense of others. Such are customs and excise.
In our further examination of the subject, we shall refer
to the national 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
individual States generally with considerable exactness.
CHAPTER X.
NATIONAL TAXATION. -I. CUSTOMS.
THESE are taxes upon importations, and 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 gain possession of his
goods.
Duties are generally of two kinds,- specific and ad-valorem. Specific duties are imposed by the pound, yard, gallon,
&c. Ad-valorem duties, as the term imports, are charged
upon the value of the goods, as twenty per cent upon an invoice of silks, hardware, sugar, &c.
In some of the American tariffs, the specific principle has
predominated; in others, the advalorem. There has always
312
[BOOK IV. 
NATIONAL TAXATION.
been a struggle when the tariff was to be changed; those
favoring specific duties, for protection, being in favor of specific, those of the opposite views contending for ad-valorem
duties.
There are difficulties attending both. If specific duties
are laid, they operate with great inequality. 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 pay; while the rich, who would purchase
tea that cost seventy-five cents, would pay but thirty-three
per cent, or on'e-third as much per cent as the former.
This was the character, to a large extent, of British taxation. The tax on tea was, for a long time, two shillings and
sixpence per pound (over sixty cents), paid alike by the
hand-loom weaver and the wealthy nobleman.
When laid upon cloth, for example, a specific duty frequently operates in a most oppressive manner.   By  the
American tariff of 1828, a duty of so many cents was laid
upon the square yard of coarse woollens. In applying the
principle, it was found that negro cloths, as they were
called, paid more than two hundred and fifty per cent.
This gave rise to great dissatisfaction, and was the ostensible cause of the nullification movement.
In regard to ad-valorem duties, the practical difficulty has
been, when the rates were very high, to prevent fraudulent
invoices.   For example,  the importer must present his
original invoice at the custom-house, and make oath to its
correctness.  If dishonest, he may, by connivance with the
shipper, furnish false papers, showing the cost to be much
less than it really was.
Precautionary measures have been adopted. Appraisers
have been appointed to determine the actual value; but,
with all possible care on the part of the government, there
is.danger of deception, and consequent loss to the revenue,
as well as injustice to the honest importer.
319
CH A.P. X.] 
DISTRIBUTION.
Of all modes of raising a revenue, that by customs is
confessedly the most effective, and the most readily accom plished; and its great importance, as one of the chief sources
of national revenue, demands that we give it a careful consideration.
The first principle we laid down was "that all should
contribute, as nearly as possible, in proportion to their respective abilities."
As all duties are laid upon articles of general consumption, it will at once be seen that such taxation 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
millionnaire. A case is personally known to us of one of the
latter class, who actually paid less on dutiable articles than
a printer, with a family, who received but fifteen dollars a
week. Men are taxed in this way according to the mouths
they have to feed, and the bodies they have to clothe.
In the second place, we inquire, Is "the time and manner
plain to the person who pays" this indirect tax? The
farmer who purchases a carriage, -is hlie aware that he is
paying a government tax by so doing? If so, does he know
how much he is paying'? Does he understand that all the
materials, except the wood, have paid duties to government;
that the linings, trimmings, and ornlaments, 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 of the whole?
Even if so, can he or ally one else easily compute the amount
of taxation which enters into the carriage? So of all commodities which have passed through the custom-house: people seldom realize when or how much they are taxed. Then
the second principle we have laid down is violated.
But we shall not have a full view of the operation 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,
314
[BOOK IV. 
NATIONAL TAXATION.
and, in that way, largely increase the burdens of the people,
without adding to the public revenue. We will take the
article of sugar as an illustration: -
he amount of...........               $23,000,000
was raised in the United States, same year.   25,000,000
Total original cost of sugar consumed... $48,000,000
On all the imported sugar a duty was charged of twentyfour per cent; and, of course, the home product was raised
to an equal extent; say, together: -
$48,000,000, at twenty-four per cent.....
Now, as all this sugar must pass through the hands
of wholesale and retail dealers, if we allow them,
altogether, only twenty-five per cent, we have.
$2,880,000
$14,400,000
Of this last sum, the treasury gets the
amount paid as duties.....        $5,520,000
Less expense of collection, ten per cent      552,000
4,968,000
$9,432,000
Loss to the consumers........
Hence it appears, that the government gets in the present
case but about thirty-five per cent of what the people have
paid.  We have estimated that the merchant charges a profit
upon what he pays as duties, just as much as upon any
other part of the cost of his commodities. We have put the
profits of the merchants at twenty-five per cent. This, we are
aware, is a low estimate; but we are governed by the consideration, that there would be no importer's profit on the
amount produced at home, and also that sugar is a "leading article," in the language of trade, upon which less aggregate profits are made.
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.
CHAP. X.]
. 315
In 185
to
There
$11,520,000 
DISTRIBUTION.
If, in the case presented, instead of a duty upon sugar, the
same impost had been laid upon tea and coffee, which articles were free in 1858, and of which together we imported
in 1858 about the same amount as of sugar, while we produced no tea and coffee ourselves, the case would stand as
follows: -
Tea and coffee imported.......
Duties, twenty-four per cent........
Importers' profits, twenty-five per cent.....
$5,520,000
828,000
$6,348,000
634,800
$6,982,800
1,396,500
$8,379,300
Jobbers' profits, ten per cent....
Retailers' profits, twenty per cent...
Total, paid by the people....
Of this amount, the government received  $5,520,000
Merchants' profits, paid by the people.   2,859,300
$8,379,300
The saving to the people in this case would stand thus: —
Paid by the sugar taxation, as shown before...  $14,400,000
Paid by tax on tea and sugar........             8,379,360
Saved to the people, in one year.......         $6,020,640
Such is the wide difference between duties imposed for
revenue and those laid for the advantage of home productions.  Some cases of protection would exceed this; others
would come far short: but the principle is shown by this
illustration.
CUSTOMS AN EXPENSIVE MODE OF TAXATION.
But, setting aside all consideration of the additional burden of taxation occasioned by protection, as just illustrated,
we find this system is entirely at variance with our fourth
maxim, which was " that no more should be taken or kept
316,
[BOOK IV.
... $23,000,000 
NATIONAL TAXATION.
out of the pockets of the people than absolutely necessary."
This will be seen by the following illustration: 
Supposing the custom-house duties collected to
amount, as in 1864, in round numbers, to.. $100,000,000
Expenses of collecting, in all................... 10,000,000
Total amount received by the treasury..   $90,000,000
We estimate the expense of collecting at ten per cent; but
including all salaries and charges, and interest upon invest
ments made by government, the expense is, doubtless, somewhat greater; but, to prevent dispute, we assume that the
net amount is ninety million dollars. To get this sum, how
much is paid by the people?
We will suppose that the importer's profit is fifteen per
cent, the jobber's ten, and the retailer's twenty per cent.
The matter then will stand thus:
Original duties paid........
Importers' profits, fifteen per cent...
$100,000,000
15,000,000
$115,00,000
11,500,000
$126,500,000
25,300i000
$151,800,000
100,000,000
Jobbers' profits, ten per cent........
Retailers' profits, twenty per cent......
Total, paid by the people........
Deduct gross amount paid into the treasury...
Taken out of the pockets of the people, and not paid
iin the public treasury.........
or more than fifty per cent extra taxation.
In regard to the general correctness of these estimates,
no well-informed person can have any doubt. Hon. George
Opdyke, a distinguished merchant, late Mayor of New York,
in a small but excellent work on "Political Economy," published in 1851 (page 200), computes the importers' profits
at fifteen, the jobbers' at ten, and the retailers' at twenty-five.
He had the best of means for knowing the amount of the
CHAP. X.]
317
$51,800,000 
DISTRIBUTION.
importers' profits. The retailers' were a matter of estimate
with him. We have supposed that they might be somewhat
too high, and have therefore placed them at twenty per cenlt.
This, considering that it is to be applied to all retail sales,
not only in cities and towns, but in the most remote districts of the country, is undoubtedly within actual limits.
As long ago as 1849, we made such investigations as satisfied us of the correctness of the estimates we now give, and
published tables at that time, illustrating the principle laid
down.
In regard to customs duties, then, we cannot but conclude,
that, while they are a convenient and prolific source of
revenue, they are very unequal and expensive, and little in
accordance with the principles 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 encouraged 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.
Let us, take the sugar crop of 1858, just referred to, as an
illustration. It amounted to $25,000,000. To protect this
to the amount of twenty-four per cent, the people paid, as
we have shown, $14,300,000, of which the government
realized but $4,968,000. Here was a clear loss to the consumers of $9,332,000.
Suppose, now, that instead of this protective duty of
twenty-four per cent, a bounty of equal amount (twentyfour per cent) had been paid by the government. The matter would then stand thus: twenty-four per cent on $25,000,000 is $6,000,000, which the people would pay to the
sugar growers, instead of $97332,000 they were obliged to
pay through protection; a saving of $3,333,000, equal to
318
[BOOK IV. 
NATIONAL TAXATION.
thiirty-three per cent of the amount paid under the protective
system.
This principle applies, in all cases, where an article is
actually protected, and shows that bounties are by far the
most economical form of governmental assistance. 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 unreasonable and unwise, that the people of no country would
long tolerate it. It is, therefore, vastly more feasible to
give protection by duties on the foreign article, although
much more wasteful and onerous.
EXCISE.
Excise are the opposite of custom-house duties, being laid
wholly upon articles of domestic production, and paid first
by the producer; and, after the articles have passed through
the hands of the merchants, with their profits added, the
sum total is paid by the consumers.
This mode of taxation is obnoxious to the same objections
that may be made to customs. Excise is unequal, because
it falls 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 collection, though
only perhaps about one-fourth part as great, is still a heavy
charge upon the revenue; but the most popular objection to
excise is the espionage which it necessarily requires.  It is,
notwithstanding, a very productive source of revenue, and
must be resorted to by governments heavily indebted. Domestic manufacturers are not injured by excise duties, iunless
319
CHAP. X.] 
DISTRIBUTION.
they so increase the cost of their commodities as to expose
them to foreign competition. Profits upon such duties are
charged upon commodities as a part of the general expense
of their production.
TAXES ON DISADVANTAGEOUS CONSUMPTION.
The principle has everywhere been acted upon by governments, that heavy taxes are to be laid on commodities "the
consumption of which is especially prejudicial to the interests of the people." This is in accordance with our fifth
maxim.
There are two strong and sensible arguments in favor of
this kind of taxation. One is, that, if it should cause a fall
ing-off in the consumption of the articles so taxed, no detriment would come to individuals 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 payment of the tax altogether:
such taxes are voluntarily 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. According to Professor Levi,
the working classes of Great Britain pay over tenl millions
sterling annually, in taxes upon tobacco and intoxicating
drinks. The whole amount raised upon these two articles
in 1858 was as follows:
British and foreign spirits and wine...... ~18,500,000
Tobacco.....................  5,500,000
~24,000,000
or about one hundred and twenty millions of dollars, equal
to four dollars to each inhabitant; or, allowing five persons
to a family, twenty dollars to each family. More than a
third part of the whole British revenue is raised by the taxes
320
[BOOK IV. 
NATIONAL TAXATION.
upon these articles alone; a remarkable fact, especially
worthy the attention of the American government at the
present time.                 N
STAMPS.
There is still another mode of supplying the treasury;
viz., by the sale of stamps.  This is an important 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, &c.
This is cheap and efficient, and as desirable as any form
of indirect taxation. Of course it bears unequally upon
different classes, and is more or less vexatious, particularly when first introd iced;  but habit will, after a while,
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 fiunctionaries are
necessary. It should therefore be carried out, as far as
practicable. The British government raises a large sum in
this way: eight millions sterling are received for stamps.
The United-States treasury received, for the year ending
June 30, 1865, the sum of $11,162,392.
LICENSES.
These are granted by both national and State authority
for a great variety of purposes. It is a more economical
and convenient mode of raising a revenue than by excise
on manufactures, &c., requiring only annual renewal. There
is also less opportunity 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 $12,613,478 for the financial year
1865; and this sum may doubtless be greatly increased in
the future.
21
321
C]AAP. X.1 
DISTRIBUTION.
CHAPTER XI.
NATIONAL TAXATION (continued). - INCOME TAX.
IT is unnecessary to say that 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
thie contributor, and every other person. The income-tax
payer knows when and how much he pays; and it can be
collected as conveniently and economically as any other.
This kind of tax was established ill England in 1798,
during the wars with Napoleon, but was abolished soon
after the close of that struggle.  About 1842, however, the
government, finding its revenues fall short of the expenilditures, restored the tax; and it has been continued to the
present time.
This tax was unknown, we believe, in the United States,
until the civil war, when it was laid by Congress, and has
been continued thus far. Total amount collected for the
year ending June 30, 1865, was $20,740,451.33; while the
whole internal revenue, for the same time, was $211,129,529,17; so that the income tax produced nearly ten per
cent of the amount.
Of all modes of taxation, this is the most just and equitable. Every man can afford to pay according to his income,
and ought to do so. There is no other perfect standard of
taxation; none other which does not inflict 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 rev
822
[BOOK IV. 
NATIONAL TAXATION.
enue: 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 just share of the public burdens. To do this, it would be necessary to ascertain the
income of every man; of every laborer, whether his wages
amounted to one hundred or one thousand dollars a year;
of every professional man; of evry operative, male or female;
every capitalist, banker, merchant, and mechanic. Upon the
gross income, thus ascertained, the general tax should be
levied, pro rata. In this way, it is clear, equality, as far as
that is practicable, would be established; and each member
of the community would be made to bear 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 difficulty of
ascertaining what a person's income actually is. In the
first place, it is said that many do not know their affairs
so as to be able to state their true income. There is doubtless much of truth in this; but the very fact that such a tax
is certain to be enforced 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 interest; since the more
intelligent every man is in regard 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 regularly enforced from
year to year, the difficulty of concealment, on the part of the
tax-payer, is constantly increasing. His neighbors and competitors in business have an eye upon him, if they believe
CHAP. XI.]
323 
DISTRIBUTION.
he is making false statements; and he cannot long escape
detection.  Besides, as a man may be put under oath (and,
by the way, ought always to be), the crime of perjury must
be committed with every misrepresentation of his affairs.
The immense difference between the reported incomes of
the United States in 1864 and those of 1863, even after
allowing 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 matter of taxation, all
are copartners, having a pro-rata interest. What one does
not pay, others must. All, therefore, may rightfully demand
such information as shall furnish the means of assessing a
correct tax.
Besides this, an income tax well enforced will be the
means of diffusing a large amount of information most important in regard to the credits which business men are
required to give. The position and ability of every man
will be better understood. This is not an unimportant consideration.  It is difficult to see any reason for objecting to
a disclosure of income for taxation, which does not equally
apply to the disclosure of property for the same purpose.
Estimated Income.- But it may be said that the incometax 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 population, they are,- the income
from them is as real as any other; but it is a deferred income, which is sure to come in the end. All such property,
whether in city lots or farms, should, if an income tax only
324
[BOOK IV. 
NATIONAL TAXATION.
were levied, be estimated yearly, according to its increasing
value, and be assessed upon that principle.
We do not advocate the adoption of the income tax as a
substitute for all other modes of taxation: our purpose is
to show, that, so far as practicable, it is the most just and
economical mode of raising a revenue.
TAXATION UPON EXPORTS.
Whenever a people produce more of any commodity than
is required for their own consumption, the surplus must
find a foreign market, or the production will not be extended beyond the home demand. - Any thing, therefore,
which has a tendency to prevent the sale of domestic products in a foreign market 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 articles
thus taxed. Take the article wheat as an illustration. It
can be produced in almost every country, and is an article
of export from many. Such are the facilities afforded by
commerce, that the wheat of onie country must enter into
competition with the wheat of every other country; and it
may therefore be taken as a fair exponent of commodities
in general.
If the price of wheat in New York is one dollar and fifty
cents under a currency at par with specie, it is because it
can be shipped to Liverpool or some other foreign port, and,
after paying freight and charges, make a remittance equal
to one dollar and fifty cents in specie. Under these circumstances, we will suppose an export duty of twenty-five cents
per bushel is laid on wheat.
Would the New-York dealer now pay one dollar and fifty
cents per bushel for the wheat? Certainly not, since he
could not export it without paying, in addition, a duty of
twenty-five cents per bushel; and, unless the article should
CHAP. XI.]
325
0 
DISTRIBUTION.
rise abroad, he would lose to the amount of the duty paid.
Of course, he now offers but one dollar and twelnty-five
cents instead of one dollar and fifty cents, and the difference
is the loss of the producers, who, in consequence of the
export duty, are at a disadvantage of twenty-five cents per
bushel, as compared with the wheat-growers of every other
country. They have nothing left but to accept a reduction
of twenty-five cents per bushel, or limit their production in
the future to the amount required for home consumption.
When they have done this, the price of wheat will corresponid with the prices of all the other agricultural products
of the country, whatever that price may be: for all such
products will be affected by an export duty laid on the
great staple of agriculture; every kind of grain and meat,
as truly as the wheat on which the duty was laid, though
not, perhaps, in the same degree. But, since the foreign
market has been to a large extent dependent for its full
supply upon American wheat, will not the price advance to
such a point as to bring up the price of thle Americanl article? If the American wheat must be had, such a price must
be offered as will bring it.  But, as soon as wheat begins to
rise abroad from this cause, a larger supply will be attracted
from other wheat-growing countries, in which production
will be stimulated to the extent it is depressed in the United
States.  The price having risen, a limited amount will go
from our ports; but wheat will not rise permanently to such
a point abroad as to make it twenty-five cents higher in the
United States.  The American producer must, in any event,
take a part of the loss, and the foreign consumer the balance; while foreign producers, hlaving an unnaturally high
price, will extend their cultivation as far as possible.
The unquestionable effect of export duties is to lessen
production  at home, and give encouragement to foreign
labor. This is a general principle, applicable to every commodity of home growth or production, except such as one
nation may have a virtual monopoly of; that is, may be able
826
[BOOK IV. 
NATIONAL TAXATION.
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.
TAXATION OF COTTON.
Many persons are of the opinion, that an export duty, or
its equivalent in the form of excise, might 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 expense 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, without any immediate or remote
injury to themselves.
There are several considerations which go to prove that
such is the case, some of which we shall notice.
I. UNIVERSAL DEMAND FOR COTTON.*
"There are only four articles of any considerable importance
used in the manufacture of clothing.  These are wool, silk, flax,
and cotton; two animal and two vegetable productions. The first
of these, though quite indispensable in the high latitudes, is only
partially available in the lower, and can be used but little in the
tropics. Silk, while an article from which beautiful and elegant
fabrics can be made, is not adapted to general use, and being, like
wool, an animal product, cannot be furnished in sufficient quantity,
or at so low a rate as to be made available for the greater part of
mankind.   Flax being a vegetable production, and its culture
adapted to a great variety of soils and climates, might doubtless
be produced in any desired quantity; but, like silk, it would but
partially meet the wants of that large portion of the population of the
globe where snows and frost prevail a considerable part of the year
* Extract from the author's speech in Congress, Feb. 18, 1863.
CHAP. XI.]
32T 
DISTRIBUTION.
"After looking at those several commodities, then, we find that
an article is needed which shall, as nearly as possible, combine the
peculiar properties and advantages of all of them; one that can
be cheaply and bountifully produced, and that may most readily be
converted into clothing, having, at pleasure, the warmth of wool, or
the elegance or lightness of silk or linen. Cotton we find to be
just that article, combining in a most wonderful degree the advantages of wool, silk, and flax. The earth has one thousand million
inhabitants, and each and every one of these need cotton. There
is no exception. Not, indeed, that human beings cannot possibly
exist without it, but their welfare and happiness are promoted by
its use."
II. RESTRICTED CULTURE.
"While cotton is one of the greatest necessities of mankind, we
find its successful culture confined to a very limited portion of the
earth's surface. I say successful culture; for although it may be
raised in India, Egypt, and other countries in similar latitudes, yet
the quality is so inferior, the quantity to the acre so limited, and the
labor so ineffective, that the countries in question do little more
than supply their own wants.
"It is reserved to the States of the American Union lying in
immediate proximity to the Gulf of Mexico to furnish the world
with the article in such quantities, and of such quality, as to meet
the general demand. The culture of the article began prior to the
Revolution; but it did not become an article of foreign export till
1784, when eight bales were shipped to Liverpool. These were
seized by the custom-house officers, on the ground that they could
not be of American production."
III. INCREASE OF PRODUCTION AND ADVANCE OF PRICE.
"No very great extension of the cultivation of cotton was realized until 1792, when Eli Whitney invented the cotton-gin; but,
from that moment, it increased with wonderful rapidity. The value
of the export of cotton was,
In 1821..............................    $20,900,000
In 1830..........................                    29,000,000
In 1840..................                      63,000,000
In 1850..................                      71,000,000
In 1860..................                191,000,000
328
[BOOY, IV'., 
NATIONAL TAXATION.
"This amount, it will be observed, is over and above the amount
consumed in the United States. The whole product in 1850 was
2,096,706 bales; in 1860, 4,669,770 bales. Mark especially the
great increase from 1850 to 1860, of one hundred and thirty per
cent!
"But the more striking and noticeable fact is, that, while the
production had increased at this enormous rate, the prices also had
advanced twenty-five per cent. According to the financial report
of 1861, the average price of cotton from 1840 to 1850 was but
8.2 cents per pound; while, from 1850 to 1860, the average price
was 10.5 cents per pound,- a difference, it will be seen, of a little
over twenty-five per cent.
"The difference between the value of the entire crop of cotton,
including all consumed at home and exported, is still more remarkable.  In 1850 it amounted to but $117,619,947; while, in 1860, it
was $308,865,280,- showing an increase of value of nearly two
hundred per cent, owing, of course, to the increase of quantity
and the advance of price.
Here, then, is the singular fact, unparalleled, perhaps, in the
commercial history of the world, that, while the production was
increasing at a rate so prodigious, the price was constantly advancing. This is contrary to all the ordinary laws of trade. As
production increases, prices fall; but in this case, instead of a
decline, we find a great advance of price."
Do not these facts and considerations show conclusively,
that the United States have such advantages over all others
in raising cotton that they may to a certain extent dictate
the terms of sale?  In just so far as this is true, might an
export duty be laid which would fall entirely on the foreign
consumer, without any injury to the American cotton-grower.
Suppose an export duty of five cents per pound. The
superiority and desirableness of the American article are
so great that it cannot be supposed the demand would be
lessened in any appreciable degree. From what we have
seen during  the Rebellion, need we  fear that the  demand would be perceptibly curtailed? If not, then no
damage would come to the grower; while a large revenue
CHAP. XI.]
329 
DISTRIBUTION.
would be secured by the government at the expense of the
foreign consumer.
The whole cotton crop of 1860 was 4,669,770 bales,
which, at 500 pounds to a bale, give a total of 2,334,500,000
pounds, which at five cents duty, or excise, would yield
$116,725,000.   To determine what rate of duty or excise
should be laid must be a matter of experiment.  If the
rate were found too high, - that is, so high as to reduce
consumption,-  it should be lowered; or, if too low, it
could be raised.
The immense extent to which the cultivation of cotton
in the United States may and doubtless will be carried is
shown by Edward Atkinson, Esq., of Boston, a most reliable statistician, in his map of the cotton kingdom; from
which it appears that while the whole area within the United
States adapted to profitable cotton culture is 666,196 square
miles, only 10,888 are in actual use for that purpose, or
but 1.634 per cent; that is, less than two per cent.  He
remarks, that, "with free labor, the capacity of the South to
raise cotton cannot be less than one hundred million bales"
against about four and a half millions in 1860; so that less
than one-twentieth of the capacity of the country has yet
been developed.
The principal point to be considered in regard to cotton,
or any other domestic product, is whether an export or
excise duty will essentially restrict the consumption of the
article, either at home or abroad.
330
[BOOK IV. 
STATE TAXATION.
CHAPTER XII.
STATE TAXATION.
A GENERAL valuation of all real and personal property is
made by the authority of the State, according to which all
State taxes are apportioned to each county, city, or town.
The municipal authorities then assess the amount allotted
them upon the property and polls of their constituents,
together with the amount required for city or town expenditures.
Thus all taxes, whether for State, city, town, or schooldistrict, 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, 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, according to their own judgment.
The rate of tax varies from year to year, and is widely
different ill different towns and cities. Before the Rebellion,
the rate in Massachusetts was seldom less than sixty cents,
or more than one hundred 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 hundred
dollars.
Thi;.s tax, if the valuation be fairly made, approximates 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
CHAP. XII.]
331 
DISTRIBUTION.
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 appropriations; 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 wastefuil, the poll-tax
payer can vote for it with entire impunity. It is notlhing 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 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 demand that will be made for labor,
and will be very likely to go in favor of it. It needs no
argument to show the bad effects of such a state of things,
regarded only 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
interests?  Is it not certain that there will be unwise and
reckless expenditures?
This false position of the poll-tax payer has attracted 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 amongst 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 expenditures through cus
332
[BOOK IV. 
STATE TAXATION.
toms and excise, has no direct vote in regard to them. He
can vote where his own interest 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 their present taxatiou, would, at the same time, bring their interests into
harmony with those of property-tax payers, and thus promote the general welfare of the public.
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 different
classes upon which they are imposed. To do this, we refer
to a valuation and tax list before us, and find the following
examples.
The poll-tax is one of the oldest and most general of all
taxes-imposed by State authority.  In Massachusetts, "every
male inhabitant over twenty years of age is included, except
persons who, by reason of infirmity and poverty, are, in the
judgment of the assessors, unable to contribute fully to the
public charges."
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 bearings, in order to form a correct judgment of the operation
of the particular tax, which by law is a limited one, deter
* States have, in some cases, derived a revenue from a tax upon banks.
In Massachusetts, it was for many years the greatest source of income; so
great, indeed, as to render any direct State tax unnecessary. Licenses have
also been granted, by State authority, in some instances; but the amount
received in any other mode, except by direct taxation, is too small to affect
essentially the public burdens. The establishment of the national-bank system has cut off bank taxation from the States as a source of revenue.
CHAP. XII.]
333 
DISTRIBUTION.
mined by State legislation. In Massachusetts, the maximum
poll-tax is now fixed at l not over two dollars," but may
be, as it has been, changed from time to time. It has never,
we believe, been higher than at present.
B. H. -Buildings and 45 acres of land.. $1,000
Stock, &c.......... *345 $1,345.
Taxes, $15.47
Poll,    2.00
$17.47
T. G. -Buildings and 43 acres of land.. $1,500
Stock..........    238 $1,738.
Taxes, $19.99
Poll,    2.00
$21.99
L. G. S. -Buildings and 56 acres of land. $1,200
Stock........-x*-.   300 $1,500.
Taxes, $17.25
Poll,    2.00
$19.25
Average property, $1,661. 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 a net income of ten
per cent on his capital, over all outlays and repairs; and
that his labor is worth to him four hundred dollars per annum.  This is a large allowance:
Land and stock, as above, at ten per cent.....    $166.10
His own labor equal to..........                  500.00
Total income............                 $666.10
Now we will assume that the exclusive poll-tax payers
have an average income of four hundred dollars. We include in this list not only all common laborers, but all
skilled workmen, mechanics, and others, whose labor is
worth, under a sound currency, $1.50 to $2 per day; and
also all clerks, and other employees, whose salaries are six
hundred dollars and under.  Then if all these classes aver
334
[BOOK IV. 
STATE TAXATION.
age four hundred dollars per year, as no one will dispute,
it will appear that the income of the poll-tax payers is
charged $2, while these small property-holders are charged
$19.57.
Here is a great disparity, but there is no exaggeration in
the statement.  From the same valuation and tax list, we
take three farmers, having about one hundred and twentyfive acres each, with buildings and stock, and find their
farms and stock average $3,757; and their average taxes,
poll inclusive, amount to $47.03.
On the same calculation as before,
Farm and stock, $3,757, at ten per cent.....        $375.00
Value of farmer's own labor..........      625.00
Farmer's total income..........  $1,000.00
Then, if tile poll tax-payer is charged $2, with an income
of $400, what ought the farmer to pay with an income of
$1,000? Answer, $5.
Instead, then, of $5, the true proportionate amount, the
farmers, as before shown, pay $47.03, or more than nine
times as muth.*  There is no escape from these conclusions; and we appeal with confidence to those best qualified
to judge, whether the estimate placed upon the incomes of
farmers of the description we refer to is not essentially
correct. In whatever way we look at the matter, we cannot
fail to see great inequality.  But the poll-tax is not only
unequal as between those upon whom it is assessed, and
whose incomes range from $150 to $600, and also unequal
as between this class generally, and all property holders,
but it is also very disproportionate to the advantages it
confers. Let us see what these are.
1. Entire protection to persons and property.
2. Right of suffrage, and eligibility to office.
3. The most ample means of education in common and
* And the hardship, in this case, is often increased by the fact that the
farmer is indebted for a large part of his capital, and paying interest upon it.
CHAP. XII.]
335 
DISTRIBUTION.
high schools, without charge, and a chance for a scholarship,
provided by the State, in one of the colleges.
4. Complete maintenance, and the highest scientific treatmelt, for life, if need be, if himself or ally member of his
family should be deaf and dumb, or afflicted with blindness, idiocy, insanity, or, last of all, helpless poverty. What
individual or corporation could be found to insure a laborer's
family against all accidents and deprivations, physical and
mental, from every source, through life, for one-half of one
per cent on the income of the family head, or for twenty
times that sum?
For all this, and much more that might be added, the
recipient of a revenue from any occupation, trade, or profession, of any sum not exceeding six hundred dollars, if he
has no visible property, pays an annual tax of not over two
dollars, or four cents per week! As we have already said,
considered in itself, disconnected from other forms of taxation, this is very unequal, and consequently unjust, as between the different classes.  The obvious result is to transfer an undue share of the burdens of State, county, and town
expenditure from the mechanical and laboring classes to
the agricultural; thus promoting the interest of the former
at the expense of the latter.
But all this applies, it must be remembered, to taxes
imposed under State or municipal authority only, from all
which the poll-tax payer escapes entirely by paying two dollars.
Effect of the Two Systems. -We are now able to compare
the results of the two different systems; viz., national and
State taxation.  Iln the national, we find that the greater
part of all taxes are indirect: the State and municipal
taxes are, with slight exceptions, direct.  The former fall
almost wholly on consumption; 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
taxable estate. One operates as an offset to the other.
336
[BOOK IV. -
i
I 
STATE TAXATION.
Neither 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 other system of taxation
ever adopted, or likely at present to be adopted.
Before leaving the subject of State taxation, we will
briefly notice the inquiry often made, why the UnitedStates government does not assign to each State its share
of the public burdens according to its general valuation,
and allow the State authorities to collect the amount at the
same time, and in the same way, as all the direct taxes of
the State are levied and collected. In reply to this, it may
be said, thlat, if the national government could rely implicitly upon the fidelity and promptness of every State, it
would be by far the most economical and efficient mode
of collecting the revenue.  The expense of collection would
be almost'nominal, probably not exceeding one-tenth of the
sum now required; and an army of office-holders might be
left free to engage in productive employments. But such
has been the state of society in some of the States in times
past, that reliance could not be placed upon their promptly
assessing and collecting a national tax; nor can it be expected that the time will soon come when such a measure
would be practicable.
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 persons, 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 $5,000. A pays taxes
upon the whole valuation, and B upon $5,000, as money at
interest. A, it is said, is doubly taxed. This is a practical
question, that has puzzled legislators in every age and country. Let us therefore carefully examine it.
22
C-HAP. XII.]
33T 
DISTRIBUTION.
Suppose A and B aforesaid form an entire community,
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 cenit, which A pays, and B goes
untaxed. We will now change the principle, and have bothl
property and credits taxed. The valuation will then be,
A's farm, $10,000, and B's money at interest, $5,000;
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 dollars, 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 farm
knowing that it would be subject to a fill 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 entitled to all the profits
on the farm.  "But he don't own the whole of the farm."
True, that is his misfortune: if he did, he would obtain a
larger amount 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 thie whole;
while, by the taxation of B on the mortgage, the former
saves a part of what he would otherwise pay in taxes. One
pays taxes for the profits of business; the other, fbr the
income on his capital.
In this case we find another very clear illustration of the
338
.[BOOK IV. 
STATE TAXATION.
correctness of the income-tax policy. If there were no other
tax thian upon income, the matter would stand thus:
A's income from his farm, say.................  $900
He deducts the interest he pays B.........             300
A pays tax on his net income of.........             $600
B's income is taxed upon............               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 by,
which both were thus taxed.  If A's income should be
more or less than nine hundred dollars, he would 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 were allowed to
deduct from his inventory the amount he owed the latter,
it would often happen, that, the mortgagee not living ir the
same town or State, so much property would escape taxation 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 wellknown condition.
TAXATION OF GOVERNMENT BONDS.
The question of taxing credits assumes great practical
importance, when regarded in relation to the national debt
CHAP. XII.]
339 
[BOOK IV
of tlle United States.  We will assume that debt to be three
billion dollars ($3,000,000,000). This forms a lien or mortgage upon the national wealth, which the Secretary of the
Treasury, in his report, December, 1865, estimates at a little
over fourteen billions: for convenience, we will call it fifteen
billions.  In that case, the national debt will be equal to
one-fifth of the national wealth. On this debt of three
billions, the interest, at six per cent, will be one hundred
and eighty millions.  If we suppose that all other demands
on the Treasury amount to one hundred and twenty millions annually, we have an aggregate of three hundred
millions as the amount of taxation.  The national debt, if
included in the national valuation, would increase it twenty
per cent, or from fifteen to eighteen billions.  This would
reduce the rate of taxation by one-sixth, or 1632 per cent;
that is, if only property was taxed, the rate would be two per
cent; if property and national stocks, the rate would be
1.66. 
Should the national debt be exempted from taxation, there
will be one hundred and eighty millions of income that will
go untaxed; and that, as can be readily seen, is a large share
of the net income of the whole nation, or what the people
save annually after supplying their necessary consumption.
The subject, therefore, is one of surpassing interest to the
country. Quite fortunately, however, the matter is wholly
within the control of Congress, which can, as fast as the
present bonds and other securities become due (and they
may all be redeemed* within seven, and most of them within three years from 1865), convert them into bonds not
exempted from general taxation.
Public faith should be kept inviolate, but public justice
should also be secured as soon as possible. Better far to
pay a high rate of interest, if need be, than have so large a
share of individual income, and, consequently, of ability to
pay taxes, escape its proper responsibilities. This is desirea
* Except the twenty-year bonds, which mature in 1881.
340
DISTRIBUTION. 
STATE TAXATION.
ble, not only as a matter of policy in removing a prominent
cause of popular dissatisfaction which may sooner or later
endanger the security of the debt itself, but as an economical advantage to the country.
The effect of exempting the public debt from taxation may
be illustrated as follows: A has an income of one thousand
five hundred dollars, derived from a salary; B has an equal
income, derived from coupons on the national stocks. A
must pay taxes, and, of course, must economize accordingly:
B pays no taxes, and consequently has no occasion to save
on that score. Now, as all national capital comes from the
savings of the people, it can be seen at once, that, if onesixth part* (in amount) of the taxpayers are exempted
from taxation, they are, to an equal extent, exempted from
all necessity of saving.
We are aware that the holders of public stocks pay indirect taxes (customs, excise, &c.), but so also does thle man
who has no interest in thie funds. What we intend to say
is, that so far as a man's wealth is invested in untaxed securities, in so far he has no motive to save arising from a taxation to which all others are liable. Looking, then, at its
economical bearings merely, ought not all public securities
to be included in the general schedule of taxation, both by
the national government, and thle States, cities, and towns in
which the holders reside?
CONSOLIDATION OF THE NATIONAL DEBT.
While this work is passing through the press, a proposition
is made in Congress to consolidate the debt of the United
States into a uniform five per cent stock, having thirty years
to run, payable, interest and principal, in gold.
It is, doubtless, desirable to effect such a consolidation,
* It is, doubtless, far more than one-sixth part of the net national ilncome,
probably at least one-fourth, or 25 per cent. A large share of the estimated
fifteen billions of aggregate wealth is of a character to escape taxation.
CIIAP. XII.]
341 
DISTRIBUTION.
provided it call be done in an economical and proper manner; but the proposal to exempt the consols from taxation
is quite another matter. We have already spoken of the
invidious, as well as unjust, operation of a system which
exempts from taxation one-sixth part of the national resources; but, since the proposal has been made, it becomes
desirable, we think, to give the subject some further consideration.
We shall not dwell upon the political bearings of a measure sure to create abiding dissatisfaction; sure to be a most
dangerous weapon in the hands of political aspirants, and
certain to endanger eventually the security of the debt itself.  We  shall speak only of its economic bearings.
1st, The exemption of three billion dollars from taxation
for all national, State, county, town, school-district, and
parish purposes, will create a very considerable and influeintial class of persons, who, while they will have the legal right
to vote appropriations for all public objects, will be under no
obligation to pay a farthing of the amount raised; who,
while interested in having large public improvements made,
will have no responsibility for the expense of them: a class
to whom it will be a matter of entire indifference how large
the assessments may be, or how unwisely or wastefully the
public finances may be conducted. Can any reasonable manl
think it expedient and proper to create such a class? Does
any one doubt that its influence would be unfavorable to the
public welfare?  We already exempt labor, to a great extent, from the burdens of State and municipal taxation, by
limiting the poll-tax to a fixed and very trifling amount, so
that the poll-tax payer can vote any sum he pleases with
entire impunity. By exempting three billions of the national
credit from taxation, it is now proposed to place capitalists,
so far as they are owners of the public stocks, in the same
favored position.  The interest of these two parties will then
be identical ill regard to all public expenditures paid for by
a direct tax on property, as State and municipal charges
842
[BOOK IV. 
NATIONAL TAXATION.
generally are. Both can vote away money, and leave the
unfortunate property-holders to settle the bills. By the exemption proposed, government creates a great antagonism
in the body politic. It grants a special and most important
favor to one class, at the expense of others. It may be
urged, that the favor has been paid for by the creditors of
the government, in that they took the stock at a less rate
of interest than they would have done had it been subject
to taxation. But can government, with any propriety, make
any such condition?  Can it rightfully grant, for any consideration whatever, a dispensation to one class of citizens
from all pecuniary obligation to State, city, and town authority throughout the nation?   Surely not, consistently
with justice and equality, because in one community the
favor granted may be worth one per cent, in another two.
In one locality, it may advance the general valuation onehalf; in another, only one-tenth: in one municipality, it may
increase the general rate of taxation five mills on the dollar;
in another, twenty.
Can that be just and equal? And yet all taxation, under
a free government, must be seen to be clearly impartial and
just, or the people will not submit to it.
2d, Such an exemption will create a powerful influence
against the payment of any thing but the interest of the debt.
This can be readily seen, and hence we perceive another unfavorable effect from the proposed policy. The debt should
be paid off as soon as practicable. It should not all be
placed out of reach for thirty years, and exempted for all
that time from contributing to its own discharge, unless we
are prepared to resign ourselves to never-ending taxation
for the payment of interest.
IIn a sectional point of view, the exemption principle will
be very unequal in its bearings.  In the new States, where
capital is comparatively scarce, and local taxation necessarily
heavy, its operation will be especially oppressive and odious.
Every available dollar will be put into government bonds,
CHAP. xiI.]
343 
DISTRIBUTION.
unless it will command an excessive rate of interest on individual security. Will not this enhance the rate of interest,
where capital is most scarce? If so, will it not be most
burdensome to those who can least afford to bear severe
taxation and high rates of interest?
3d, A consideration is, that the contemplated exemption
has a direct and powerful tendency to cripple the industry
of the country by absorbing a large proportion of its wealth
into the debt of the government. If the national bonds
should be relieved of taxation for thirty years, no more will
go abroad for sale, and those now in Europe will be returned
upon us.  Of that there can be no doubt.  The difference
occasioned by the exemption here, which does not attach to
bonds held abroad, will be so great as to insure their return
to the American market. That this will make the working
capital of the country scarce and high, and thus greatly injure all the industry of the nation, especially that engaged
in manufactures, is beyond a question.
The last consideration we shall name is, that the proposed
measure is entirely unnecessary. Such a policy should never
have been entered upon. It was bad financiering, even in
the darkest hour of our national struggle, and is wholly
inexcusable now.
But it may be replied, " The government cannot negotiate
its loans at five per cent, unless the exemption is made."
Very well; then promise six. The rate of interest is far
less essential than equality in the taxation by which that
interest is paid.  If onle-sixth more interest is to be provided for, there will be one-sixth more property on which to
assess the tax that is to meet it; the burden upon the people is not increased, only equalized.
The British government pursued a wise financial policy
during its great contest with Napoleon. It consolidated its
national debt, issued only three-per-cenlts, and negotiated
these on an average discount of about forty-one per cent.
Her exigency was great, but the United States is,under no
344
[BOOK IV.
I 
NATIONAL TAXATION.
such extreme necessity. If a policy is adopted which commends itself to the capitalists of the world, American consols,
at a low rate of interest, will, like the British, command
money on the most favorable terms. But there must be no
tricks, no subterfuges, no unjust exemptions, which sensible
men well know are certain to breed public discontent, and
imperil the national securities. All must be fair, honest,
and just; the resources of the United States are ample, and
rapidly increasing; we only need a wise and faithful administration of them.
We  have said there was no necessity for the proposed
measure; but it would be well to decide fully and finally
upon the policy of consolidation into one stock, at one rate of
interest; yet it is in no wise necessary to bind thle government to issue the whole amount, as proposed, in thirty
years.  The debt is not all due at this time: if a part, say
one thousand millions, were now authorized for thirty years,
when that was taken up the expediency of issuing more on
so long a time could be more judiciously decided upon than
at present; besides, if only a part were now offered, it would
be taken with more avidity than if the whole were put at
once on the market.  Policy, therefore, as well as economy,
requires a limitation of the issue of thirty years' bonds.
The proposal to save thirty millions per annum, by issuing bonds at five per cent, untaxed, instead of six per
cent, in order to form a sinking fund, we regard as idle and
delusive. The project never will be carried through. National sinking funds have always failed of success, and, in
the nature of things, always will; besides, if such a fund
were to be provided for, it could be done more  advantageously without exemptions from taxation.
CRA.P. XII.]
3,45 
DISTRIBUTION.
CHAPTER XIII.
FOREIGN INDEBTEDNESS. -I. ECONOMY OF FOREIGN INDEBTED                          NESS.
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 companies formed
for industrial purposes, the building of railroads, &c.;
and (b) the bonds of municipal 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. These two kinds of indebtedness
are alike in this, that they may be enforced by law upon the
promisors. Property may be attached and sold, if it can
be found; and as, in the case of municipal corporations,
there is rarely any deficiency in that respect, the latter are
quite sure of ultimate, if not prompt payment.
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 footing from the preceding, since they cannot be enforced by any legal process.
They are secured only by the honor of the promisor.  The.
Constitution of the Union gives no authority to the general
government to compel a delinquent State to regard its obligations; and no foreign power, if disposed, would be allowed
to enter the national territory. So there is no remedy.
State indebtedness abroad must amount, at the present time,
to many millions.
346
[BooK Iv. 
FOREIGN INDEBTEDNESS.
4th, National Indebtedness.- Great Britain has a debt,
as heretofore stated, of eight hundred millions sterling; but
it is almost entirely he6ld at home. Tile rate of interest on
her consols is only three per cent, and there is little inducement for capitalists in America 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.
We may safely assume, that the civil war has caused, or
will cause, the issue of United-States stocks to the amount
of nearly three thousand million dollars. According to
the comptroller's statement, seven hundred millions of these
have already gone abroad; and it is certain, if the credit of
the government is preserved, a large part of the balance will
take the same direction.  Is this desirable, or otherwise,
economically considered?
II. THE EXPORTATION OF PUBLIC STOCKS.
Whether the sale of such stocks abroad is desirable or
not, will depend entirely upon the character of the commodities sent in return for them, whether these be for advantageous or disadvantageous consumption;  and this again
will depend upon the financial and commercial condition of
the country 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 663 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, jewelry, &c., which increased the consumption
of luxuries, but in no way contributed to reproduction,
CHAP. XIII.]
347
p 
DISTRIBUTION.
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 ill 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.
If the foregoing illustrations of the manner in which a
foreign debt may be contracted are correct, as we think will
not be disputed, the remaining question is, what policy
on the part of the United-States government could have
secured in the past, or can secure in the future, a desirable
return for its bonds sent abroad.
If all bonds were sold for cash, and the specie sent in
return, the operation would be simple, and its effects apparent; but bonds, when sent abroad, in reality enter into the
exports of the country, are negotiated through bankers,
and their proceeds become "exchange."   If a railroad
sends its bonds abroad, the returns will probably be in
the iron used for its construction; but, if a city or State, the
funds are to be expended at home, and the currency of
the country is all that is desired by the sellers.  The bonds
go into the hands of a banker or agent, who  negotiates
them abroad, and holds the amount as foreign exchange,
which he sells to the merchant, who wishes to remit for purchases abroad. As these operations increase the quantity
of exchange for sale, they naturally promote importations,
not of money, but of merchandise. And here we must
ask pardon for again referring to the hackneyed theme of
an inflated currency. If, at the time when bonds are thus
being sent abroad, the currency of the country is expanded,
prices generally advancing, profits enlarging, and there is
348
[BOOK IV. 
FOREIGN INDEBTEDNESS.
great inducement to extend trade, the importer, consciously
or unconsciously, is affected by this state of things, and
sends forward large orders. The consumption of foreign
goods is encouraged, since they are easily paid for (in
promises), at home and abroad. It will not be surprising
if the consumption of the country is thus increased to the
full amount of the bonds sold; at all events, there can be
no doubt that it will be increased to a very considerable
extent.
The fact that the sale of these bonds has brought into
market a large amount of foreign bills of exchange gives
the banks an inducement to increase their discounts, because
there will be no10 call for specie to be sent abroad, the only
thing they ever seriously fear. Thus, on every hand, facilities for expansion and additional consumption are multiplied.  At present (1865), Americaa stocks are exported
under circumstances absolutely appalling.   With gold at
forty per cent premium, foreigners can obtain them at 7121
per cent; that is, at a discount of 28-  per cent.  With
the amount so disposed of, merchandise is purchased and
returned to the United States, where it is sold at the extravagantly inflated prices of a redundant credit currency.
What the consumer of the imported commodities is thus
taxed, and what the country actually loses, it is neither
easy nor agreeable to calculate.  But such is the condition
of our financial affairs at present; and it is quite likely to
continue, as no effectual measures are being taken at the
present time to contract the currency.
There are those who advise, as a remedy for the evils of
over-importation under such circumstances, the imposition
of a very high tariff, so that this influx of foreign goods
may be prevented. But, however disinterested such counsel may be, the remedy proposed will not meet the case.
We have already proved, if we have proved any thing in
this work, that the quantity of currency is more influential
in determining the amount of foreign importations than the
CIIAP. XIII.]
349 
DISTRIBUTION.
rate of tariff duties. While there is a great excess of currency, twice or thrice the legitimate amount required by
the exchanges of the country, as at present, nothing short
of absolute prohibition of all trade will prevent importations, however high the tariff, which, although it does have
a tendency to reduce the consumption of foreign goods,
may be more than counterbalanced by a superabundant currency.  The remedy lies in another direction; viz., in the
restoration of the currency to a specie standard. This, although it should be a gradual process, would, as soon as
it began, check importations and increase exports; the premium on gold would be reduced; and our stocks, when
sold abroad, would bring-us in return the full amount of
their value.   The process of saving amongst all classes
would at once commence.  Debts, principal or interest, can
only be paid by savings; and economy will begin when contraction is inaugurated.
With the present inflated currency, with high prices,
large speculative operations, and extraordinary profits, the
idea of economy is simply absurd. Hence the great necessity of a change of policy. No country was ever being
more rapidly depleted than the United States at the present
moment (1865), though the fact will only be realized when
the consummation of the present disastrous policy has been
reached.
FALLACIES RESPECTING FOREIGN INDEBTEDNESS.
No sentiment or opinion is more common, perhaps, among
thle people, than that it is very undesirable, 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.
350
[BOOK IV. 
FOREIGN INDEBTEDNESS.
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 demalud his pay, when he has a right to do so.
If these propositions are true, we see that it is quite impossible to prevent foreigners from purchasing our national
securities, and of little importance 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
United States as in England: why, then, should we not
allow Englishmen to hold our public debt?
We are aware that there is a deep prejudice in the public
mind against this. That prejudice has influenced the financial action of the government. Whelh the war of the Rebellion broke out, and vast demands were made upon  the
national treasury, instead of looking abroad for capital,
and offering our loans in foreign markets, on favorable
conditions, such a course was officially denounced as derogatory to the American people. Foreign capitalists were
actually snubbed, if we may use so unscientific a term.  The
Confederates on the other hand, took the wise precaution, from the outset, to establish their credit abr6ad, and
negotiated loans as extensively as possible. This fact gave
strength to their cause, since they soon built up in Europe
a large pecuniary interest in their success. 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 millions, inasmuch as the suspension of
specie payments might thus have been postponed for a
CHAP. XIII.]
351 
DISTRIBUTION.
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 circulation 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.
But, whatever may be true in regard to the past, it is
unquestionably an object of much importance to secure
foreign loans in the future at a low rate of interest. It is
not a question whether we shall owe a foreign debt, for
that is certain; but whether we shall negotiate it abroad at
par at five per cent in gold, or at home at six per cent in a
depreciated currency. If bonds were made payable, principal and interest, at London, Paris, Hamburg, and Frankfort, in the currency of those places, and suitable efforts
were made to inform foreign capitalists in regard to the
resources of the United States, there is not the slightest
doubt that most advantageous operations might be made.
But this, we are aware, cannot be done so advantageously
now as if we had a sound currency. At present, we could
only negotiate at a discount proportionate to the discount
upon our currency; say, about thirty or forty per cent: but
even that rate would be more favorable than negotiations
at home.   No financial operations can be made  to the best
advantage anywhere, until the currency is restored to a
specie basis. Then the credit of the nation will be fully
established, and its loans at five per cent may be sold at real
par; that is, for a currency equal to gold.
What the objections to foreign loans are, we have never
heard stated; those who have opposed such loans having,
so far as we have seen, contented themselves with denunciation: but the argument which seems to be floating in the
public mind is, that such a debt will give foreigners an advantage over us, since they may, at any time, combine to
352
[BOOK IV. 
FOREIGN INDEBTEDNESS.
send back our bonds, sell them for what they will bring,
carry off the specie, and throw our banks into suspension.
A frightful result, indeed. But is there any foundation for
such a supposition? Do not men act according to their interests? When hundreds of millions of our stocks are held
abroad, is it likely that the holders will "combine" to send
all, or any large amount, of them back, and force a sale,
when they cannot do so except at a great loss to themselves?
What object would be gained by it? What damage would
they do us? If they sacrificed their stocks, we should buy
them in at great advantage.
But it may be said, that they might drive our banks into
suspension. Possibly they might; but what of that? The
banks are accustomed to it: it would be nothing new or
uncommon.  Besides, if the stocks were held at home, and
money became scarce, or the credit of the government was
suspected, the public stocks would be thrown upon the
market at once, and with the same result. British consols
are thus thrown upon  the market. why not American
stocks?
From whatever point of view we may look at the subject,
we find there can be no well-founded objection to the sale
of American stocks in Europe.  On the other hand, such a
sale of them must be advantageous, when 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....
It is three thousand millions added to its available capital." *
* See pamphlet issued by "Jay Cooke, General Subscription Agent for the
Sale of Government Bonds," entitled, "How our National Debt may be a
National Blessing." Philadelphia, 1865.
23
CHAP. XIII.]
353 
[BOOK IV.
If this is so, it is fortunate, so far as tile financial condition of the country is concerned, that the Rebellion 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 capital" of the nation would
have been correspondingly enlarged;  and, of course, its
power 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, personal 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 incomes, 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,
inistead of private, securities for their funds. If they subsequently loaned mere credit currency, or capital at prices
advanced in conseqtuence 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 increase of wealth in consequence of the increase of prices, but merely a transfer of
commodities from one party to another, without an equivalent.
854
DISTP-IBUTION. 
FOREIGN INDEBTEDNESS.
But "the national debt is public wealth."  Then it follows, that, if the national debt were repudiated, the nation
would be three thousand million dollars poorer. Is that
so?  Surely not.   The holders of the stocks would  be
poorer, doubtless, by the amount of their bonds, which entitle them to interest semi-annually, and final payment in
gold; but just what they lost their debtors 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 is
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 the least effect
in determining the national wealth. 
2d, But, again, it is said that "the debt is active, available
capital;" and, in illustration, it is said "that a man having,
say, twenty thousand dollars of the bonds, can engage ill any
kind of business at once, just the same as if he had so much
cash capital."
Now, what is the fact? The bonds being good securities,
the holder can exchange them for cashl, 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. Are
private notes, then, capital?  Surely not.  The man who,
having invested his money or capital in public securities,
wishes to exchange them again for capital, can do so readily, because the nation is pledged to repayment, with interest. Bonds, while the credit of the government is sustained,
are only a very convenient form of credit. They have no10
element of capital about them. A thousand billions of them
would not add a farthing to the capital or wealth of a nation,
or increase the productiveness of any department of industry.
So far from aiding production, a national debt has an
effect directly opposite.   It depresses  industry by  the
355
CHAP. XIII.] 
DISTRIBUTION.
taxation it imposes, and reduces its power to compete
with other countries. If a laborer pays fifty dollars per
annum more for the commodities he consumes, in consequence of taxation occasioned by the interest upon the
public debt, then he must have fifty dollars more wages, or
reduce his style of living to such an extent as to save that
sum. If the former, his higher wages will enhance the cost
of products, and he will be less able to compete with the
foreign manufacturer or producer.
3d, The third fallacy is, that a public debt gives stability
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 attachment. Where government rests upon universal suffrage, the power is wholly in the hands of the
people, and no law or constitution can have any permanancy, that does not receive their approbation. Any thing
that is regarded as oppressive and unjust will certainly be
abolished.
France has a large national debt; yet her government has
been revolutionized time and again, without 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.
But it is said, that, since every person who owns a part
of the public debt will be interested in the permanency of
the government, all such will certainly be loyal; and, as
these will be in great numbers scattered over the whole
country, and belonging to the most influential classes,
their social and political co-operation will afford security to
our political institutions.   Such reasoning assumes, that
every man who owns a certificate of stock, will, on that
356
[BOOK IV. 
FOREIGN INDEBTEDNESS.
account, be loyal to the government. Let us examine the
matter. How numerous are those bond-holders who are
expected to sustain the government and its debt?
(1) There are those who directly hold the bonds.
(2) Those who have stock in State and national banks
whose capital is invested in government securities.
(3) Those who have deposits in savings institutions, the
funds of which are largely invested in public stocks and
in banks, whose capital, as just stated, is in the same kind
of investment.
These are the classes on whom reliance is placed to give
stability to government, in consequence of the interest they
are supposed to have in the public tranquillity, as security
for the national debt.
What the aggregate number of persons in all these classes
may be, we have no means to determine; but it is, doubtless, much less than most people imagine.  For
(a) Some seven hundred millions of the bonds are held
abroad.
(b) Many millions are held by aliens in this country.
(e) A large amount is held by females.
(d) Vast sums are held by trustees and guardians.
(e) Of the savings-banks depositors, who  are interested
to a limited extent, a majority, probably, have no vote.
(f) It is well known, that the capital stock of the currency banks is held largely by widows and orphans.
(g) A large part of the debt is absorbed by great capitalists, holding $50,000 to $500,000 each.
How many votes, then, can all these parties give?  The
whole number of voters in the United States is some five
millions.  What portion of the whole belong to the above
classes? Certainly a very small share indeed.
But this is not a full view of the case. Of those who do
own stocks, and can vote, very few    not one in ten, probably- have a sufficient ownership  to counterbalance the
amount of taxation they encounter in consequence of the
CHAP. XTII.]
357
I 
DISTRIBUTION.
debt. The average amount to the credit of ealch person in
the savings banks of New York and Massachusetts is about
$225; and we may safely assume that to be the general
average throughout the country.  Then it is quite certain
that an immense majority have an interest in the savings
banks of not over $200. What is the interest of all these
small holders, in reference to repudiation?
For example, a laboring man, having $200 in bonds or
in a savings deposit, expends  $400 per alnum, derived
from his wages, for articles required in the support of his
family. What amount of taxation will he incur annually,
in consequence of the national debt?  Is it not a very moderate estimate, that ten per cent of all his expenditures will
be occasioned by the higher duties, taxes, excise, &c. Ten
per cent on $400 is $40, which this man must pay annually;
while his whole income from the $200 in bonds, or savingsbank deposit, is only $12. Is it for his pecuniary interest
that the public faith be kept inviolate?  If he must pay $40
annually, while he gets but $12, how long will it take to use
up the $200 he has in government bonds?  In less than
eight years, he would have lost a sum equal to the amount
of his stock, and then be for ever after liable to the same
amount of taxation. Very clearly, the sooner the public
debt is repudiated, the better for this laborer, though holding $200 in the public funds.
We make the same comparison in regard to a man who
holds $1,000 in stock. His income we will suppose $2,000,
which he expends. On the scale before given, he will pay,
in increased prices, $200, while his coupons are but $60 per
annum; a balance against him of $140.  How long will his
interest require that the coupons be paid? Clearly, the
sooner they are worthless, and the taxation they impose
removed, the better. Another view may be given, of the
relations of the debt to the population of the country. It
may be assumed, that the debt will be equal to about $100
to each person, if the population is thirty millions. Then a
358
[BOOIK IV. 
FOREIGN INDEBTEDNESS.
family of five persons owe $500 of the public debt, and, on
an average, must pay the annual interest upon the same;
say, from $30 to $40. A little reflection will satisfy ally
one, that the number  of families that hold $500 of the
national bonds, compared with the whole number, must
be very small; and, therefore, that a vast majority can have
no pecuniary interest in securing the payment of the national indebtedness.
In these illustrations, we see the folly of the assumption
that a public debt gives security to government. Of all who
are directly or indirectly owners of the public obligations,
not one in twenty has so large an interest that hle would
not be greatly benefited by its repudiation. Of those who
vote, probably not one in fifty has an interest in the public
debt sufficient to counterbalance the taxation he must endure in consequence of its existence. How idle, then, to
talk of the stability a national debt gives to a republican
government, under which the will of the people is the supreme law!
On the other hand, who does not see plainly that such a
debt, from the necessary taxation it imposes, must be a constant source of irritation and dissatisfaction; that a party
will inevitably be formed for its overthrow, and that in such
a party will be found sectionalism and all the bad and dangerous elements of society? The future peace and prosperity of the nation is more endangered by the national debt
than by all other causes. In a country where the people
have little or no power at the ballotbox, a public debt may,
doubtless, be made an effective engine of tyranny, and contribute to the enslavement of the masses; but it is quite
otherwise where suffrage is universal.
4th, A fourth fallacy is, that a national debt ensures protection to home industry, since the heavy taxation it causes
will, if laid on foreign goods, secure that object. Having
already discussed the question of protection, we need not
now enter upon it; but remark, that a large national debt
.CHAP. XIII.]
359 
DISTRIBUTION.
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 protective system.
She has become satisfied that such a luxury is too great a
linderanlce to her commercial prosperity, too heavy a burden
upon her home industry; and that she can only compete
with other nations, in her manufactures, by maintaining
freedom of trade. No nation has had a larger experience
of the operation of a severe protective system than Great
Britain, and in none is it more heartily repudiated.
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. No such
foundation is needed for any currency which the good of a
nation demands. It is a false and pernicious system which
requires any connection with national indebtedness.  Debt
is no sound basis for banking. Banks should be created to
loan capital that exists, not debt for capital that has disappeared.
We will briefly notice one other fallacy inl regard to a national debt; viz., thiat 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 burden of it. What is the principle involved in
this statement?  Clearly, that one generation has the 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 nbt choose to discharge out
of its own resources. Can this be true? Does it not follow
from this, that one generation has the right to enslave allnother, 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 thie 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
360
[BOOIK IV. 
FOREIGN IND)EBTEDNESS.
time to come, it may lay one of a hundred dollars, or a thousand. If it may take away a fourth of a man's income, 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.
A slave is one who does not enjoy the fruits of his labor,
further than to preserve his efficiency, and to keep good the
number of laborers. It is little matter in what way this is
brought about, whether by lawless violence or legal exactions. The result is the same. The British laborer feels
it, has always felt it, and, so far as we can judge from the
present, always will. He cannot be bought and sold. That
is chattelism; that would convert him into capital: but his
earnings can be taken from him to pay interest upon debts
contracted long before he was born, and for purposes that
all now admit were useless.
If such is the effect of the principle which establishes the
right to entail upon posterity unlimited indebtedness, can it
be safe, economically considered? Surely no man can give
an affirmative  answer.  " But nations must sometimes create debts."  To this we reply,
1st, That the occasions when'nations are really so compelled, or can rightfully do so, rarely occur. The great
struggle through which the United States has just passed,
is one of the strongest cases that has ever been presented;
and yet, had the currency been sound at the commencement,
and had a sufficiently effective system of taxation been
adopted, there is little doubt that the war expenditures
might have been met as incurred. It is certain that almost
all thie service and material was furnished by the country;
and therefore, had the taxation been so laid as to apportion
the amount judiciously and fairly, the whole cost might
have been provided for, and we to-day be essentially free
from debt. Without entering, however, upon this question,
we can safely assume that the whole should be paid off
CHAP. XIII.]
361 
DISTRIBUTION.
within the present century, which will also be within the
present generation, as a generation is reckoned. We are
told by the Secretary of the Treasury (Report, 1865), that
two hundred millions paid annually, for principal and interest, will extinguish the debt within the period named.
Does any one doubt the ability of the people to do this, if
they will?  Is it not their duty, if they can?
Unless it is the settled policy of the nation to have a permanent debt, it should at once commence the payment, and
continue to discharge it in a regular, systematic manner;
for, unless the work is commenced promptly, it will never
be done. Like England, and other European countries, we
shall submit to never-ending taxation for miere interest.
We need not pursue the examination of these fallacies
further: indeed, an apology is demanded for noticing them
at all. And that apology must be found in the respectable
and semi-official source in which they originated. The
pamphlet referred to would be of little consequence, however, were it not for a prevalent popular delusion, that,
somehow or other, a national debt is real wealth.  It is that
fallacy which we have attempted to expose.
In conclusion, we will only observe that any people capable of maintaining self-government, and worthy of free institutions, will need no other bond of union than their common
loyalty; no other sentiment than that of honor and honesty, to induce them to sustain a national debt, contracted
in good faith for the preservation of national existence.
CHAPTER XIV.
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."
362
[BOOK IV. 
MODERN FINANCIAL SYSTEM.
Tile debt incurred in thie American Revolution vanished in
worthless "continental 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 absolutely overwhelming, that the hope of any payment of the principal cannot be
reasonably indulged. A national debt may be regarded,
under the existing war policy of the world, as a fixed institution, an inevitable appendage of government.
The United States, which, up to the time of the great
Rebellion, formed the only exception among the principal
nations of the earth, has entered upon the same course.
That general system of finance, of which national indebtedness forms so important a fact in its influence upon the
industrial interests of manlkind, deserves 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 an expensive luxury; a game which
kings, ivith 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 encountered;
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 organized national debt, a national bank,
or any regular and reliable system of revenue. Grants and
subsidies had been voted, from time to time; duties and sp
CHAP. XIV.]
363 
DISTRIBUTION.
cial 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 government was always
low, because there was no regularity 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.  Hence the public securities were
called " the funds."
He negotiated loans and issued stocks.  He granted annuities, upon the payment of specific sums.  Interest and
principal were secured by a pledge of the public funds, or
revenues derived from various sources.
This put a new face upon the financial affairs of England
but something further was desirable; viz., an agency by
which the national debt would be readily managed, and its
semi-annual interest 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 established; small, indeed, in amount, and
upon a fixed valuation, so that it could not be increased with
the increasing value of the land.
* That this has been disputed, on the authority of Mr. Macaulay, we are
well aware; but we do not find any thing in his statements that contradicts
our views of the subject. Partial efforts, more or less successful, for the establishment of a thorough financial system, had already been made in England, Italy, and some other countries of Europe; but the great work was
at length successfully inaugurated during the reign of William and Mary.
364
[BOOK IV. 
CHAP. XIV.]    MODERN FINANCIAL SYSTEM.
A system of duties on all imports was also enacted, 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 Revolution; viz.,
FUNDING, BANKING, AND INDIRECT TAXATION.
The immediate, as well as ultimate, results of the new
system are alike remarkable and worthy our attention.
1st, The credit of the government was now firmly estab
lished.
It could borrow more money, and at a lower rate of interest, than ever before.  Men of small means could now loan
money to thle government, and with entire confidence.  The
whole community could be laid under contribution.
2d, Government was enabled to carry on war by borrowing, instead of imposing taxes. War could be waged with
credit, instead of cash. Parliament had only to vote a loan.
No expenditure need be stopped for want of funids, while the
national credit was unimpaired.  This was a great change.
Many a war had been abruptly closed for want of funds.
There was to be no such necessity hereafter.
3d, This course removed the fear of immediate and pressing taxation from the rich, because the greater part was
now to fall upon the masses of the people, who pay taxes,
not in proportion to property, but to consumption. This
was an agreeable consideration to the wealthy classes; and
the more so, because, as the public stocks were multiplied,
better opportunities were afforded for investments.
4th, Especially was the new policy acceptable to thle aristocracy, who, at that time, even more perhaps than now,
monopolized the public offices, and whose revenues and patronage were increased by governmental expenditures.
365 
DISTRIBUTION.
We have said that William became involved in a war with
France.  In eight years, besides expending all he could
raise in taxes, hlie increased the national debt from ~1,200,000 to ~21,500,000.  A. peace of five years followed Anne's
accession (1701), during wh.iclh five millions of the debt
were paid off. Then camne the war of the Spanish succession.  The ostensible object was " to humble the Bourbons,
and deprive Philip V. of his crown." This lasted eleven
years, and added ~37,500,000 to the debt, besides consuming ~6,500,000 raised in taxes; so that, at the peace of
Utrecht, the national debt was ~54,000,000.
In 1727, the House of Hanover succeeded to the throne,
in the person of George I., and then came a peace of twentysix years; but, in all this time, the public debt was reduced
to the extent of only ~7,500,000.  Why?  Because it was
no object with the ruling class to pay off the debt, since
the national stocks had become the most eligible investments;
so the resources of the nation were squandered upon the
court.  In 1739, therefore, the debt was ~46,500,000, when
the war of the Austrian succession took place. Its specific
object was to secure the throne of Austria to Maria Theresa;
and the debt was carried up to ~78,000,000. Then came
eight years of peace; but the debt was reduced only three
millions.
In 1756 commenced what was known in this country as
"the old French War," or " the Seven Years' War."  It was
caused by a dispute about colonial boundaries, or, as the
wags of those days said, " about a few acres of snow in
Nova Scotia;" but it eventually involved a great part of
Europe, and the American colonies of both France and
England.
Then followed a peace of twelve years; but only ~10,500,000 were paid off. The war of the American Revolution
lasted seven years, and carried the debt up to ~239,000,000.
In the ten years of peace and prosperity which followed that
great contest, the public debt was reduced but ~5,000,000,
[BOOK IV.
366 
-     -
+ 
K
4
I  
CHAP. XIV.]     MODERN FINANCIATL SYSTEM.
notwithstanding that the resources of England were largely
increased, and her ability to reduce the national indebtedness was ample, if the disposition to do it had existed.
In 1793 began the war that grew immediately out of the
French Revolution. This lasted for nine years, and increased
the debt to ~526,000,000.  Then, in consequence of the
Treaty of Amiens, a period of one year's peace intervened;
but it was only all armed truce: military preparations were
continued, and the public debt was increased ~3,000,000.
In 1803 commenced the final struggle with Napoleon,
which terminated in 1815, leaving the British debt at
~865,000,000 sterling. During the twenty years following,
~87,000,000 were paid off. This was from necessity, rather
than choice; a measure of policy adopted to secure the
credit of the government. In 1835, the debt was but ~778,000,000; but the emancipation of eight hundred thousand
slaves in the West Indies added to the debt ~20,000,000.
It has stood at ~800,000,000, very nearly, ever since. We
give in Diagram No. 11, inserted here, an illustration of
the facts as we have stated them.
We have given this history of the rise and p ogress of
the debt of Great Britain, as exhibiting the natural effects
of such a system as she inaugurated during the reign of
William and Mary. But we have shown only a part of the
system. The history of the national bank is interwoven
with that of the national debt. It was incorporated in 1697,
with a capital, as we have said, of ~1,200,000. As the
public debt was enlarged, the capital of the bank was increased; that is, more and mo e of the debt was incorporated into the bank organization, until it amounts, at the
present time, to ~14,475,000. This bank, as before stated,
has never had a shilling of capital to lend to the people;
it has simply held a certain amount of the national stocks,
and, upon the credit of these, has issued its own promises
to pay; and these promises, having been made a legal tender
by Parliament, have circulated as money.
367 
DISTRIBUTION.
The government has no interest whatever in the bank, so
far as its profits are concerned; but it has always stood by
it, sustained it by its influence and legislation, besides allowing a large annual sum for its services, in paying the dividends on the public debt. When the bank was obliged to
suspend payment, in 1797, the government came to its
rescue, by legalizing the act; and the bank went on issuing
its notes during the twenty-three years that followed, and
sometimes to an amount so excessive, that gold was carried
up to a premium of twenty-five to forty per cent: generally,
however, during this period, the difference was small, -some
tenil to fifteen per cent. The last feature to be noticed in
this connection is that system of INDIRECT TAXATION which
became so general and efficient under the new financial
policy. Duties, as we have said, were laid upon every
description of foreign merchandise, and excise upon all
articles of home production. This measure was indispensable to the full development of the system.  When the
masses of the people can be taxed in such a manner that
they are almost unconscious at the moment that they are
taxed at all; whenr the amount taken is in very small sums,
so that, if the fact were understood, it would hardly be
appreciated; when the aggregate amount for a month or a
year cannot be ascertained, except approximately, and then
only by long and intricate calculation, -taxation may be
carried to its utmost possible limit, so far as to leave to the
poorer classes only the bare necessaries of life.  Such a
people may feel that they are very poor, but they will regard
this as thie consequence of their low wages; they may feel
that they are oppressed, but will naturally attribute it to
the want of justice or generosity on the part of their
employers. The true cause of their poverty and suffering
they do not perceive.  The gross taxes imposed in Great
Britain in 1859 amounted to seventy-three millions sterling,
equal to $14 per head, through the whole population, or $70
for a family of five persons. Such a taxation, if collected at
368
[BOOK IV-. 
MODERN FINANCIAL SYSTEM.
all, must be taken, as it is taken, imperceptibly, as it were
a penny at a time. This grand system of currency and
finance, so fully established ill Great Britain, has at this
time become the policy of all civilized, and to some extent
even of uncivilized countries,-funding, indirect taxation,
paper-money banking.
RESULTS OF THIS FINANCIAL SYSTEM.
1st, An immense extension of the war system.  Prior to the
introduction of this policy, standing armies and armaments
were exceedingly limited.  Now all Christendom is armed,
by land and sea.  France leads the van, with an army of
some 700,000; and each nation is struggling to create and
support the largest possible military and naval establishment: and all this can be done of credit, if need be; there
is no limit to these prepartionis, while national credit holds
out.
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 government 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
involved.  France, we suppose, is really more oppressed by
taxation than England. France is a great nation of poor
people, compared with England or the United States. She
has but a small margin for taxation. The same, indeed,
may be said of many other European nationalities.
3d, Impoverishment  of the masses.   This is especially
apparent in England. What has become of that YEOMANRY,
once 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 enclosures, once
24
CHAP. XIV.]
369
it 
DISTRIBUTION.
constituting the freeholds of her yeomanry, may yet be
seen in all parts of the country. They are the monuments
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. HIow 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. How this has been accomplished,
mnay be seen from statements made by Professor Levi of
the whole taxation of Great Britain for the year 1858.*
Total Taxation.       Paid by the Upper Classe s.
~73,000,000                  ~22,550,000
From this analysis, it appears that the amount paid b
the middle and working classes is equal to five-sevenths of
the entire revenue, while those who monopolized the landed
estates of the country, and an enormous proportion of
its public stocks and circulating capital, paid but two-sevenths.
We have said that no large national debt has ever been
paid or discharged, except by repudiation; nor does it
appear that such debts are likely ever to be paid, unless the
war policy of the world is changed.  All have been created
by war, and are perpetuated by constant demand for additionral armaments.
The economy of a national debt, under the modern
financial system, must always impoverish the productive
classes. Its entire influence on them is oppressive. 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
* Levi on Taxation, p. 82, London edition.
370
[BOOK IV.
Middl,, Cl....               W.ki.g
X-30,930,000                   X-20,320,000 
CHAP. XV.]      INHERITANCE AND BEQUEST.
intended.  IHitherto we have known little of its effects in
the United States. Until the present time, we have felt
little pressure from public indebtedness and consequent
taxation; but the case is now altered. We have an immense debt, and a larger amount of annual interest than
any other people on the face of tie earth. HIence the great
importance of understanding the whole subject of modern
finance by the people themselves; for without such an
understanding of it, however much they may suffer, they
cannot hope for relief. They must know the cause of their
sufferings, or they cannot apply the remedy.
CIIAPTER XV.
ON THE LAWS OF INHERITANCE AND BEQUEST.
MEN die, and the property they have 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 farther, and
say to whom it shall descend for all coming time? May
he go farther still, and determine what specific use shall be
made of his wealth for ever? Or shall the laws of the State
decide tihe questions,- to whom, for what purposes, and for
how long, the wealth of deceased 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? If the dead are allowed to control
a part, why not all? 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 property, and are
371
I. 
DISTRIBUTION.
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
different 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 fundamental 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.
Mr. McCulloclh,* in his "Principles of Political Economy" (page 267), says: "Every man should have such a
reasonable power over the disposal of his property as may
be necessary to excite his industry, and to inspire him with
a desire of accumulating.   But if, in order to carry this
principle to the furthest extent, individuals are allowed to
chalk out an endless series of heirs, and to prescribe the
conditions under which they shall successively hold the
property, it would be taken entirely out of the market; it
might be prevented from ever coming into the hands of
those who would turn it to the best account; and it could
neither be farmed nor maniaged in any way, however advatageous, that happened to be inconsistent with the will."
Mr. McCulloch here recognizes the correct principle; viz.,
that the interests of those who are laboring and suffering
now, are paramount to the whims and caprices of those who
have passed from the stage bf action; in other words, that
the earth belongs to the living, and not to the dead. To
exhibit the enormous abuses and perversions to which these
mortmain holdings must lead, we need only refer to the old
* Author of the "Commercial Dictionary," and one of the best writers
of his time upon Political Economy.
372
[BOOK    IV. 
CHAP. XV.]      INHERITANCE AND BEQUEST.
countries of Europe, England especially, where millions on
millions of wealth are held and used, not for the purposes
originally intended, but often for the very opposite. Many
of the objects for which benefactions are thus made, become
obsolete or absurd; yet the property must be held and misused, if really used at all.
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 more apparent
will be the utter folly of allowing the past to govern the
present.
Yet the author just quoted, advocates, with the most surprising inconsistency, the laws of primogeniture, and makes
an argument, though a very weak one, in favor of giving
the whole estate to the oldest son!- an illustration of what
has too often been found in the writings of English economists, who seem generally to assume, in advance, that the
laws and institutions of their own country are right, and
therefore the laws of wealth must be made to appear in
conformity with them.   Mr. McCulloch would  probably
never have been made a public officer, and held a lucrative
position under government, if he had taught the opposite
doctrine.
In some countries, the laws have not only provided for
the manner in which wealth may be disposed of by testamentary provisions, but have often ordained that certain
estates shall be inalienable. Thus, the landed property of a
people, seized by violence, has been made a perpetual inheritance to the favored parties and their descendants for ever.
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 intellectual endowments, or
by successful business operations, agreeably to the laws of
373 
DISTRIBUTION.
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 properties, and is 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.
The nobilities of the world have, in fact, been formed
off-hand, generally out of the personal favorites of the
monarch, or distinguished soldiers, by the grant of large
privileges and valuable estates. Would this perpetuate a
nobility?  On the one hand, we have the argument, a priori,
that the possession of wealth tends to secure its own continuance, both because possession is nine-tenths of all the
points, and because the vis inertie is against a change; that
the family which has property to-day has a better chance,
other things equal, to have it next year or next century,
than those who have it not. But other things are far from
equal, which introduces the argument from experience; viz.,
that estates tend to go out of the hands of any special
class. The forces that scatter are stronger than those that
hold together. Outside is a hostility to the individual appropriation, that never ceases, arising out of the desires of
the entire community for that particular property. There
is not a sentient being who has not the instincts that would
impel him to seize it if he could. Within, to hold the gates
against the assault of the whole world, is the solitary possessor. His strength must some time fail; his vigilance,
some time relax.
Such, in a figure, is the tendency of wealth to scatter.
By an order of things in which we can seem to see great benevolenlce, no family or class can 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
374
[BOOK IV. 
CHAP. XV.]     INHERITANCE AND BEQUEST.
gatherings of the wise father, and alienates the lands that
have been annexed, acre after acre, by prudence and frugality. A single break in the succession of industry and
economy will scatter the accumulations 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 aggregations 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 otherwise would, sooner or
later, bring the proudest structure 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 mall brings with him into the
world a store of wealth for his subsistence and support
through life, or finds it waiting especially for him.  His
means of livelihood are 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
conditions are removed, and the man is forbidden access
to the fields of labor, he is condemned to be destitute, 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 hinders not at all, that all the
wealth of the world is now taken up, that every inch of
ground is possessed. 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.
37,
iD 
DISTRIBUTION.
The tiny tree pushes its way through the matted sod.  It
comes out, one little stem, two little leaves. The squirrel
looks disdainfully over it. The ant can gnaw its trunk.
Pounds of atmospheric weight are already on its fluttering
expanse. Yet it stands. The world and the air are now
absolutely full, present not one inch of vacant space. The
universe seems to have no room for the little stranger. Yet
it grows. Simply confiding that the world -had need of it,
the seed broke its shell, and crept upward to the light.
And in the same unshlrinkinlg faith of a mission and of
room that shall be provided, it grows, atom by atom, till the
biparted leaf has become the giant tree, and takes its place
in the crowded universe, with always room to grow, and
never an inch to spare.
So, in the state of nature, man enters on life, feeble and
destitute, but with powers of absorption and assimilation
as evident as those of the tiny tree.  These, not human
charity or human justice, award the world's wealth, and
sustain the lives for wise purposes created. But, if the tree
is planted ill a pot, its capacity of growth is dwarfed to the
dimensions of the place in which it finds itself.  It cannot
enllarge; not because its vital germ is deficient, but because
it is placed in a false position, and deprived of natural
aliment.  If thle confines'are too close, the tree starves and
dies.
This is precisely the injustice and mischief done by laws
of primogeniture 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 wealth 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 chance at 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
376
[BOOK IV. 
CHAP. XV.]      INHERITANCE AND BEQUEST.
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. It has even proceeded to beggar an
entire people.  There is, therefore, no economic censure too
severe for it.
2d, But, besides the general objections to such a system
on the grounds of justice, we meet certain considerations
of expediency that deserve notice.
(1) The capital thus kept together by laws forbidding
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 sacredness of property makes a
greater demand than tlthe mere productiveness of capital.
Besides, this has been collected, and is kept together, by
economic virtues, which should ever receive their natural
reward. But it is not in the order of things that such mountains of wealth should remain. They will be rent asunder,
or worn away, in the lapse of comparatively few years.
Many reasons might be given why wealth, in such aggregations, is never so efficiently managed; but the assertion
hardly requires proof. We find, in certain countries, extensive systems of polygamy; but it is notorious that population does not advance as with those people where the
Christian law of marriage is observed.  Monopoly of wealth
no more tends to reproduction than monopoly of wives. All
377 
DISTRIBUTION.
this is true, even if the desire of increase remained the same;
but, -
(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. Without an attempt at mathematical
accuracy, it is certainly true that the machinery of reproduction would be set in motion by a deeper and broader
stream of human wants. It is evident, that the impulse of
the mass, the one thousand, will be greater; but it may be
questioned whether the impulse of each one is not greater
in the former than in the latter case. Certainly the necessities of each will be more pressing: why not his activities
more aroused?  HIQw much mightier, then, the current 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 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 saving removes a pain.
Erskine, as his courage sank in dismay on his first Rleading, seemed " to feel his children pulling at his gown," and
so took heart to go on. Everywhere it is the hands of
the little ones, plucking at the sleeve, that elevates labor
into heroism.
(3) Such aggregations draw off an undue proportion of
wealth into luxuries. This is the necessary consequence
of what has just been exhibited; while its own results will
appear more specially in the department of " Consumption."
When  the stern pressure of necessity is removed from
human activities, they bound into a thousand sports and
caprices.
378
[BOOK IV. 
CIIAP. XV.]     INHERITANCE AND BEQUEST.
(4) Such aggregations of wealth often come to men not
competent to administer them, either in use or enjoyment.
This appears in the very necessity of a law Of entail.
Under a free system, capital is sure to go into the hands
best fitted to manage it for the highest economic good. It
may pass through strange experiences, and take on many
doubtful forms; but it never, for a moment, escapes from
the grasp of economic laws, and must, at the last, reach
and rest upon true economic desert.
379 
BOOIK V.
C O N S U M P T IO N.
CHAPTER I.
DIVISIONS. OF THE SUBJECT.
THERE is a production, and there is a destruction, of wealth;
but the latter is not the subject of scientific inquiry.  Its
phenomena may, at times, be prodigious, terrific; its effects
may be most baneful and grievous; but there is no philosophy of it. It is all either unintelligent or malicious. Science is only of what is good, or may'be made good; and
of what is amenable to laws, either of human direction or of
human comprehension. The flood that drowns a thousand
farms, the storm that whelms a fleet, the earthquake that
shakes a city to the ground, are not so important to the
eye of philosophy as the difference between yesterday's leaf
and to-day's.
It is not, therefore, with wealth, as disposed of in destruction, but in consumption, that we have to speak.
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, consumption 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 indirectly, soon or late, exhaust those properties
[380] 
DIVISIONS OF THE SUBJECT.
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 consumption.  This consumption may
be for any purpose,-for luxury, wastefulness, or reproduction; may be within any time,- from the slow wear of the
precious metals to a perishing that is almost simultaneous
with the making; may be ill any degree,- from a total disappearance, as when wood is burned, to a change which the
most practised eye can hardly detect.
In the economical sense, iron ore is consumed when it is
wrought into chains and bars.  These, again, are consumed
when they are arranged into a bridge,-tlhough] each may still
retain its single shape.  And, when the bridge has been
worn out in time, it is said to be consumed, though it still
remains as an element ill all articles which have received
value by carriage over it.
Each one of these changes is an act of consumption; and
at each the character of the change determines the new state,
and the result, both in individual or national wealth. At
each, there is an application to a new purpose, and a new
economical direction is imposed.
While the iron remained in bars, it was liable to be
wrought into a bridge, as it was; or into ploughs, for the
tillage of the earth; or into weapons, for the destruction of
man.  When it was directed to one of these, a new object
was produced: it was consumed; not annihilated, but
changed in its form and purpose.  It is evident that the
effects on society and on industry would be vastly different, as one or the other of these directions should be taken.
The bridge itself might be used for facilitating commerce,
or for transporting armies; and, in each case, the new application would be a consumption of the article, the new pro
CHAP. I.]
381 
CONSUMPTION.
duct and the new result in wealth being determined in tihe
choice of uses to which it should be put.
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.
Although such consumption comes far more slowly in some
instances than in others; and seems at times to be indefinitely delayed, yet it is true that wealth has its generations,
like the race of man; that, in so long a time, all the present
accumulations of labor will hleave expended themselves; and
that upon the provision made for reproduction will depend
the condition of the future. The world -might be stocked
full of useful and precious goods, yet become seedy in ten
years, and beggarly within the life of man. And not only
is the change of form and the new direction of vital importance; but it is made so frequently, in such multitudinous
ways, often so silently and unobserved, always with so
much of complication and uncertainty, that the principles
which should control it have an interest at once, and a
difficulty beyond those which belong to any other part of
political economy.
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 accurately, 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
382
LBOOK V. 
MISTAKEN CONSUMPTION.
out in national or individual experience, enough for practical
instruction and guidance.
We cannot see the grain grow, or fix its daily increments;
yet we know the fact of its growth, and can study the conditions of its best development. So we cannot mark the periods of wealth, or note its phleases; yet in its great harvests
we can see the kindness or unkindness of the soil, tihe refreshing of the showers, or the parching of the drouth.
To employ a figure: Exchange and distribution form the
trunk of the tree, between the two branching worlds, above
and below. Through that narrow compact body passes all
that the intricate web of roots has to give, the product of
their silent, humble work; all that the interlacing limbs and
boughs, more fortunate and conspicuous, have to spend.
Below is the world of production, where myriad agencies
appropriate and assimilate the properties of the soil. Above
is the world of consumption, where is given off, in every
variety of foliage and flower and fruit, of use and beauty,
what has been long and patiently gathered.
The consumption of wealth may be regarded as of four
kinds,-mistaken, luxurious, public, and reproductive.  We
shall speak of them in that order.
CHAPTER II.
I. MISTAKEN CONSUMPTION.
WEAT shall we do with that large class of industrial actions which bring no reward to those who perform them?
We find labor and capital applied with the purpose 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.
CHAP. II.]
383
I 
CONSUMPTION.
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
generation often rise from the failures of that which went
before.   If we trace thie 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 railroads 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. A railroad is established, starts with brilliant
prospects, and, after a descending course for a few years,
arrives at bankruptcy.  Even so, when the stock can be had
for nothing, it may not pay for running, and lies idle, or
half run. But perhaps the industry of the country takes
a sudden start, or pushes up gradually, finds the old track
there, and demands that its goods be carried to market.
The experiment is made; and soon the road is worked to its
utmost capacity, enriching holders, who had forgotten the
existence of their stock.
The same thing occurs frequently in the course of individual enterprises. Men undertake great matters, launch
into immense expenses, and, after sinking the full amount
of their capital and credit, stop hopelessly.  Tile 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.
384
-[BOOK V. 
MISTAKEN CONSUMPTION.
This, of course, presents only the best view of such mistaken investments.  There are cases where industry, instead
of coming back to re-animate the lifeless body by sudden
movements, forsakes even the habitations it has delighted
in; and the machinery of to-day becomes old-fashioned
and useless under the surprising inventions of to-morrow.
Every locality has its " folly," named from some helpless
adventurer, who undertook more than he could carry, and
which has reached a death from which there is no resurrection. Long lines of railroad stretch across the country,
forsaken, apparently for ever, of passengers or freight.
Mills  and factories stand  tenantless till they  crumble.
These only enumerate the gigantic failures of industry;
while the amount of labor and capital misapplied in ordinary ways is beyond computationi. The three causes for
these industrial misadventures are as follows:  1st, Capital is fallible in  its calculations.   Plausible
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, howeveri, the prime 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 unpleasant or undignified to omit any thing from the completeness of preparation
out of considerations of economy.   The result is, that the
expense of starting drags on them through the whole course,
and perhaps ruins them.  They are kept down all the time
by the original outlay, and often have to vacate, their
magnificent establishments for the entrance of parties who,
getting them at half price, can afford to keep and work
them.
3d, Another reason is found in those accidents or great
25
CHAP. II.]
385 
CONSUMPTION.
developments which transfer business from one seat to
another, just as wells give out with no apparent cause.
The axis of commerce shifts its place, and leaves tropical
bones and tropical fruit high on the northern hills.
What shall we do in our discussion with such investments of labor and capital?  Shall industry carry them on
its books, like bad debts, in the hope that something may
some time come of them?  Political economy here takes a
lesson from the legislation by which obligations are outlawed after a certain time, and declares that wealth, unproductively applied, is not capital; that it must be struck out
of the account of the world's goods, to be reckoned either
as loss or luxury. Whatever, from any cause, fails to recompense its outlay, though it may still have some utility,
is to be considered as so much  added to the common
agencies of society.  If any thing 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.
CIIAPTER III.
II. LUXURIOUS CONSUMPTION.
LUXURY,- what is it, and what are its effects, economically
considered?   Noah  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
386
[BOOK V.
ik 
LUXURIOUS CONSUMPTION.
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
painitiings; 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 establishment of Dahomey would be far otherwise in
the humblest dwelling of Europe. The wigwam and the cottage exhibit very different phases of luxury.  The loathsome
poisons of" Gin Lane" are as truly luxuries, perhaps in the
sense of Webster more so, than the " rich wines" and " delicious liquors" of the palace. Idleness is a cheap enjoyment in some spheres of life; but many a seamstress's wealth
cannot buy her the time to weep.
" My tears must stop, for every drop
Hinders needle and thread."
It is apparent that a speeecific definition of the term "luxury" is impossible; yet we can give a general formula that
will be sufficient for our purpose.  Luxury in 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
beyond the strict necessities of maintenance, according to
the customs of the social or economic class to which he
belongs., It is not luxury for the ambassador of a nation
to pay thousands of dollars for a great disagreeable state
carriage, if the etiquette of court prescribes it: it is luxury for a laborer to pay five cents for a ride to his work, if
he could as well walk.
Of course, this standard will vary in different countries,
thie inhabitants of one being able to command 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.
CHAP. III.]
387
0 
CONSUMPTION.
Those articles which in one generation indicate wealth,
become common property in thie next. This results from
thie general progress of society and thie constant advance of
economic powers. As production rises, it covers the monuments of earlier taste or grandeur.
The direction, too, of luxurious consumption varies with
the culture and the aspiration of those able to indulge in it.
In one circle, it will run to horses and hounds; in another,
to paintings and statuary: some will turn for enjoyment to
architecture; others, to dress and equipage;  more, still,
to feasting and dissipation.
The ground of luxurious consumption is, perhaps, best
determined by the boundaries of its neighbors. It embraces
nothing that is spent in the purpose of a reproduction, muore
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. When
William IV. 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 whatever in the building. It was pure luxury. It
was an elegant structure. It gratified the monarch's taste.
It was 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 architectural skill; it made trade brisk in the
neighborhood. Was it therefore beneficial? Suppose it
had accorded 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 $2,500 each. This would
388
[BOOK V. 
LUXURIOUS CONSUMPTION.
have called for as much labor and materials as the tower;
would have given as great an impetus to trade. At the
samg time, it would have brought into existence comfortable
residences for the families of two hundred laborers. If the
cottages 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?  Now, 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 industries of the country.  The  money to
make King William's tower came from Leeds and  Sheffield and 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 off another; a change that is never made without distress and loss.
There is still more to be said. If the wealth had remained
ill 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-spinninig 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 difference
in results.
A similar instance is that of a man expending ten thousand dollars on an enlargement of his house for purposes
of grandeur or enjoyment, or laying it out in draining and
CHAP. III.]
389 
CONSUMPTION.
improving fifty acres of land. In either case, he pays a certain amount of wages; but, in the latter, he has added a
permanent value to the country; increasing his own annual
income, and affording the means of employing a certain
amount of labor to the end of time.
WTealth, employed as capital, is an annuity made out in
thie name of the laborer, and good for life.
There is no possible case in which tlie employment of
wealth, for purposes of luxury, as opposed to reproduction,
can be said directly to advantage industry. It is only the
fierce blaze of the burning house, at which a few may be for
a moment warmed, but which goes out, leaving desolation
where was habitation and home.
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
wretched miser excepted, do men toil early and late? It is
the promise of future enjoyments that calls out half the work
of the world.  It is this that makes the difference between
nations. No man passes by the abode of leisure and refinement without receiving an incitement to effort.
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 superiors, their ambition, instead of being excited, is depressed.
If, on the contrary, the interval between the classes is narrow, and the differences moderate, the luxuries of the rich
exert strong and increasing desires in those who are less
390
[BOOK V. 
LUXURIOUS CONSUMPTION.
wealthy.  These desires create wealth.  It is not the gifts
of nature, nor the constraints of law, that heap up the
stores of value.  It is tie force with which man mo:es to
production, wholly determined, as that is, by his economic
desires. The luxury of European courts has no elevating
influence 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 differences of natural endowment,
and so are moderate and regular, rising by easy steps, the
entire population becomes inspired with  the purpose of
reaching a higher position. In such a state, the imagination can hardly run ahead of wealth.
We have, then, attained the principle, that luxurious 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 influence on man's desires,
create a productive force which shall make its extravagance
seem economy, its waste appear frugality itself.
But this is only true of harmonious, temperate, and wellproportioned luxury. There are indulgences, great courses
of indulgence, which, while they excite, momentarily to production for the means of gratification, do yet, by their certain
and inevitable effect on the physical and mental powers
of the individual, by their demoralizing and perverting influence on the community, prostrate industry, and overturn
the foundations of the state. Many as are the unfortunate
possibilities which attend upon production and distribution,
they are all inferior in interest to the momentous decisions
of consumption; and here in luxury, as we find the spring
of all beneficent activity, we also find the root of all economic evils.  So vast and so important are the issues here
involved, that many of them are taken away from the political economist by the statesman or the moralist. We do not
propose to follow these principles into all their results; content with only indicating their starting-point and direction.
CHAP. III.]
391 
CONSUMPTION.
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 IV.
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 shlillings and fourpence were paid for what
was, in the economic 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 workingman 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 luxuiries forms a part of the necessary
wages of the laborer in these countries.  Indeed, it is true
of all countries; for the human mind and the human body
will have rest and recreation 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 influences as shall
determine the laboring classes to those relaxations and
amusements  which really refresh  both  mind  and body,
and elevate the whole tone of being.  If we mistake not,
a mighty industrial revolution, that promises effects more
searching and permanent than many illustrious victories in
arms, is now being accomplished by the divergence in taste
892
[BOOK V. 
LUXURIOUS CONSUMPTION.
and amusements of two nations. Gtreat Britain has, thus
far, maintained supremacy ill useful and ponderous manufactures; while the artisans of France have been almost
alone in the department of elegant and delicate fabrics.
But thie signs are clear that France is rapidly rising into
superiority in the former class of industries, and may yet
attain the primacy throughout the world. The French
workman is so economical, not only in his personal habits,
but, in handling materials and tools, has such generally
correct and wholesome tastes, and is so simple in his wants,
that his work is cheap as well as efficient.   On the contrary,
the English laborer seeks more and more the delusive relief
of strong and impure liquors, and, by this, adds so much to
his expenses, and takes so much from his power in production, as to place him at a real and increasing disadvantage.
It hardly admits of question, that, if the present causes
operate for twenty years to come, the close of that period
will find the most mercurial and sensitive people of the
world enjoying the supremacy of its weighty and useful
manufactures.
National 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.
It is a capital charge against despotism in every form, that
it breaks down the power of the humbler classes, to claim
them. 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
393
CHAP. IV.] 
CONSUMPTION.
of wealth directed to these objects can hardly be overestimated.
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 kingdom. The result is
shown in the following table: * —
Tea consumed.
17i per cent.
38,, 
441,, 
100
In these simple articles, which are almost included in
the strict necessaries of life, we see the great excess of the
expenditure of the upper classes. When we rise to take ill
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.
We are not surprised to hear that at Rome "almost any
profession, either liberal or mechanical, might be found
in the household of an opulent senator;" t  that  one
thousand barbers, one thousand cooks, and one thousand
cupbearers were employed in the imperial service of Constantinople, while the chief cook had a retinue of twenty
menials; that the baggage of a Persian monarch was
carried by twenty thousand camels, even in campaign; that
Zingis Khan maintained seven thousand huntsmen and
seven thousand falconers; that the revenue of two thousand
villages supported the temple of Sournat; that four cities
were allowed for the personal expenses of the dogs of a
royal establishment;: that the household of Philip II.
* Levi on Taxation.                       t Gibbon.
t The poodle of the Empress Livia seems to have been neglected. If the
authorities may be accepted, it enjoyed the entire services of only one nman.
-Gibbon, ch. 49, n. 155.
394
[BOOK V.
Class.
lst, Upper.
.2d, Middle
3d, Lower.
Persons.
. 1,000,000
. 9,000,000
. 18,000,000
- 28,000,000
Sugar consumed.
221 per cent.
38 1.1
3 9 -1      y
100 
LUXURIOUS CONSUMPTION.
numbered one thousand five hundred, while the queen was
attended by four physicians.
Nor was the luxury of those times of barbarous might
greater than that of to-day.  An easy walk with any people,
whether in city or country, will afford contrasts as striking
and painful as that between the palaces of Susa and the
corners into which the common people crept for sleep;
between the mansions on the Quirinal and the holes ill
which " Rome's rats" hid their wretched lives.
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
thie 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.  Some mnen remain eagerly devoted to gain, when
their wealth is counted in millions: others retire, satisfied
with the most moderate competency.  The force of either
motive will be greatly influenced, both by the security and
the profitableness of investments.  Every thing that renders
business unsafe, makes withdrawal more desirable.  On the
other hand, every thing which raises the reward of capital,
takes something from the zest of luxury.
2d, To what extent can wealth be devoted to luxury?
Gibbon gives countenance to the theory, that no state
can, without soon becoming exhausted, support more than a
hundreth 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.
395
CHAP. I-V.] 
CONSUMfPTION.
Does it make no difference whether this portion is simply
unproductive or also destructive?   Does it make no10 difference whether these idlers are maintained in the dreamy,
half-naked indolence of Asiatics, or in the splendid 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?  The Athenian was content with his figs and
philosophy: the cultivated Roman craved the brains of
birds-of-paradise for his food, and was positive he wanted a
palace on the Quirinal. Which maintained the larger share
of its population in idleness? When Frederick the Great
faced all Europe in arms, rye bread and potatoes, powder
and lead, were all he served his army, - marshals and
drummers alike. By such parsimony, he was enabled to
make Prussia what she was, -" all sting."  France, with
the perfection of her warlike equipment, and the fastidious
taste of her citizens, could not maintain a proportionate
number of troops, even under the conscriptions of the
empire.
It is in tl-is light that we see the impossibility of fixing,
for all nations, all climates, all ages, a common 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 beyond which wealth cannot be spent in enjoyment,
or time in idleness, without first oppressing the laboring
class by hard exactions, and afterwards debasing the entire
state.
We have already anticipated the remark, that idleness or
leisure is a form of luxury, -a form of luxury that, in
either sense, is almost unknown, to some peoples, whirled
about, as they are, on the untiring wheels of manufacture
396
[BOOK V. 
LUXURIOUS CONSUMPTION.
and trade; a form of luxury that, as idleness, is the most
costly of all indulgences, that corrupts all manners, perverts
all the offices of nature, wastes all the powers of labor,
and has its complete result in poverty, ignorance, and
political servitude; a form of luxury which, as leisure,
adorns life, and makes it worth living, compacts the
acquirements of study and toil, re-creates and refreshes
the whole man, and leads upward to an eternal rest and
felicity.
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 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
thiey gratify, and the labor they cost. It is the appreciation
of a service rendered.  That reward will vary ill form and
degree, at every state of society.  The wandering Homer
was content with the most simple hospitality.  The modern
man of letters has his rooms, his club, his carriage, his
opera, paid for perhaps out of very mild criticisms on the
blind bard of Greece. There'is not a real scholar of
the present day who would not work ten years in the mines,
to hear Homer recite the parting of Hector and Andromache.
So differently is the same service counted in different ages.
Cicero, long before he reached the height of his fame, had
received, by will, ~170,000, as a tribute to his genius. The
younger Pliny was loaded with wealth by his admirers.
The laureate of England drinks to the royal bounty in
royal wine. Blackstone's legal profits did not permit his
marriage till his thirty-eighthi year. A popular novel or
sketch-book to-day earns a fortune.
Thus it is that learning and art enter into wealth. While
their rewards are uncertain, and apparently wayward, they
have yet, from the mythic days, had a place with the most
397
CHAP. I-V.] 
CONSUMPTION.
substantial 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 finds 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 consumption?
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, ill order to justify their pursuit.
In their own  names, they have  sovereignty, and  claim
homage. 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 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 telegraph, the locomotive, and the magnet; so far as they
unite and harmonize social and political divisions, - thev
are of inestimable value; and such consumption of wealth
as rewards aid encourages them is seed thrown into a soil
more grateful than any land of fable or story. But so far
as learning or art tend to produce that unmanly  sentimentalism which shrinks from dirty details, present duty,
and simple fact; that mawkish cosmopolitanism, moral or=
political indifference, which weakens each nationality, without promoting the union of all; that softening of themental fibre, that dissolution of the will, which makes man
398
[BOOK V. 
LUXURIOUS CONSUMPTION.
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 alliances, to dwell
in dreams and idle imaginations, whether of philosophy or
art, - whly, in so far, we must call such an employment of
time and labor, not merely unprofitable, but mischievous,
consumption.
SUMPTUARY LAWS.
No subject stands so peculiarly related to scientific
inquiry as this. There is no scheme of governmental 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 by trial. There seems to be a perfect
reason for sumptuary laws; yet the general sense of
civilization has, after full  experiment, settled decisively
against them.
It is impossible to look about the smallest community,
without being grieved at the manner in which much of its
labor and wealth are expended. What enlightefied 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 salutary 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 why not?
That there is no reason manifest in the nature of things is
proved by the fact, that everywhere, and at all times, the
most benevolent, temperate, and sagacious, alike of political
CHAP. IV.]
399
ol 
CONSUMPTION.
rulers and of political writers, have agreed in recommending
stringent sumptuary provision and inspection by law.
And  yet nothing  has  more  utterly and  conclusively
failed. It is not that the evil is imaginary; for enoughll
wealth and power are wasted to make every human being
comfortable and happy. It is not that the state of things
is unsusceptible of reformation; for the matter is one wholly of human choice, and open to the control of tlhe public
sanctions. It is not that the aggregate sense of the community, in matters of consumption (not of production), is
not, on the whole, more enlightened and less fickle than that
of individuals. We say, on the whole; for there have been
instances in which laws were even behind the instincts of
the community, and proposed to compel the popular energies
and tastes to less advantageous forms of consumption.  As
instances, we may cite the enactment in the reign of Charles
II. of England, prescribillg, under penalties, the interment
of the dead in shrouds made of wool, for the encouragemelit of that manufacture; the Spanish Cortes, petitioning
in the same breath for the prohibition of coaches  and
encouragement of bull-fights; and all of the recent legislation of this country, in any form, which has taken for its
principle the absurdity, that to issue bonds for expenses
incurred in the work of destruction adds any thing but
weight to the national burdens, and can introduce aught
but grievance and faction into our politics. Yet, as we said,
the major will of the communulity would, on the whole,
prescribe a more harmonious and healthful consumption of
wealth than that which follows individual choices.  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 philanthropists?
It is difficult to give a full and satisfactory explanation.
One reason is, that such enactments are very easy of
evasion. Expenditure is not a matter that submits readily
400
[BOOK V. 
PUBLIC CONSUMPTION.
to inspection and proof. The interest of the producer and
of the desire of the consumer 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 specifications, that the law becomes a greater trouble
to its officers than to its offenders.
But the grand reason 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 affect the
happiness and safety of the community. 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 suffering and disorder, which abridges
the power of labor and the span of life, which inflicts
misery upon the innocent and unoffending, which entails
expense upon the whole community for the charge of
pauperism and the punishment of crime, 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.
CHAPTER V.
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 hindered directly, by the confusion
of society and the interruption of violence.  But far more
CHAP. V.]
401
26 
CONSUMPTION.
serious would be the secondary effects 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.
We cannot, indeed, trace society back to anarchy; for a
state of anarchy is impossible with human nature. Even
the. savage tribes take on political forms.   Like a drop
whose cohesion is violently broken, the public body seeks
to form itself anew, or at least to aggregate itself about two
or three new  centres.   Absolute isolation is not merely
impolitic: it is impracticable. But, as far as we can go back,
on the path of social order, we find industry answering
to law.
To what share is government entitled in the general
production? If, as we have seen, it is the indispensable
'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.
Hlas government no.right to more than what is essential
to its support in this economical function?  Its industrial
work embraces a wider field than appears in the simple
statement.   In America, education is required as a part of
the public police; and our eminent statesmen have estimated
the outlay of schools and colleges cheap, in the results on
order and security. In Great Britain, the church has been
held to be a legitimate agent of the public force, and its
maintenance is provided for out of the public purse. Government may employ means of influence, numerous and
remote, all in the interest of peace.
But has it no right to property beyond this? Plainly
it has. We must not be as stringent in our scientific
views as young Gobbo, and complain that " this making of
402
[BOOK V. 
PUBLIC CONSUMPTION.
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 good. But such reasons should
appear clearly. Nothing should be taken arbitrarily, or for
contingent use.  Man is the direct producer, and the product
remains in his hands.  If government, as indirectly engaged
with him, enters with a claim to share the profits, it must
show cause distinctly for whatever it takes. It is the part
of the statesman, not of the economist, to judge of occasions
like these.
Having defined the right of government economically to
participate in wealth, two considerations naturally precede
the discussion of methods   1st, Governmenit should undertake nothing that can be
left to 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 palpably 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.
Government never does the work of individuals as well as
it can be done by individuals.
It is related of ilerodes Atticus, that, having come upon a
great treasure concealed in the ground, he took it to Nerva,
and pressed it on his acceptance, saying," it was too considerable for a subject to use."-" Abuse it, then," replied
the emperor. The anecdote has great significance as to the
employment of wealth. Its abuse by the citizen is almost
preferable to its use by the state.  If government were
conceived to be always wise, it would still be better, on the
whole, that citizens should direct their own industrial matters, wisely or unwisely, as might happen.  But, when the
liability of government to err is confessed, we have a double
argument against taking the fee or use of wealth out of
CHAP. V.]
403 
CONSUMPTION.
private hands. 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 want of trial.
There have been governors who earnestly sought to prove,
that the power of the law and the peace of the subject did
not depend on show. The simplicity and austerity exhibited 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 most of the governments of the world.
It is gratifying to believe, that, in some countries, the
advance of economic principles has relieved the people
of great burdens by limiting the display of government.
Imagine tihe storm in Parliament, had it been proposed to
buy the great Sanci diamond * for the British crown. Yet,
two centuries ago, the heart of England would have craved
it for the royal brow.
3d, The expense of government will vary according to
the circumstances and character of the people.
Some peoples have a government as simple, primitive, and
cheap as their clothing; while others, no more highly civilized, manifest an inclination to complicated and refined
forms of administering law, which bring a heavy burden of
taxation on the present, and entail permanent debt on posterity.  Some nations are obliged, by their position, to build
themselves around with fortifications, and maintain extensive
forces, just as some countries can keep out the ocean only
* Disposed of at private sale in 1865.
404
[BOOK V. 
PUBLIC CONSUMPTION.
by artificial dikes and levees; others have'a natural
strength, or an isolation, that is good to them as strong
armies. Some peoples can be governed readily in the plainest manner by rulers who, like the caliphs, sweep their
own floors, patch their own shoes, milk their cows, and live
on soldier's fare; others are supposed to require an immense amount of pageantry to dazzle the public eye, and
occasional wars, wasting thousands of men and millions of
money, to divert the common mind from troublesome questions, and keep the peace at home.
Russia spends yearly three dollars a head- in governing
her people and supporting her armies; Prussia, five dollars;
the United States, up to 1860, two and a half dollars, 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 difficulties, is economically well spent
and a good investment of capital.
It is not alone the direct office of preventing immediate
crime, and protecting present property, that government performs at so great cost. Civil law is an educator. It gives
a prospect and a security for the future; it multiplies the
ambitions and the desires of all who live under it; it elevates the self-respect and trains the self-control of  ll good
citizens.
Yet government charges heavily for what it does. The
yearly revenue of the European states is, at present, very
little, if any, short of fifteen hundred millions of dollars.
The expenditure of the United States, even if no attempt
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 municipal government.
On the whole, it may be said of this duty of capital to
support government, that it pays, as an investment, what
CHAP. V.]
405 
CONSUMPTION.
ever it may necessarily cost; but that the expense should
be strictly held down to the lowest practicable figure.
DOES PUBLIC CONSUMPTION ENCOURAGE INDUSTRY?
We shall get the principles of such a discussion, in their
bare form, by taking the extreme actual cases of this mode
of consumption.
There have been instances il which the people of cities,
and even generally of States, have claimed work at the
hands of government, to support life; and we find that such
provision has been at times really made.
We will suppose the claim to be founded on absolute
necessity, 11no work whatever being offered at private hands.
The state, in compassion or from fear, employs the mass
of its laborers on public works, and pays them from the
public purse.
What is the real condition of things? It is one of two:  1st, If the work so performed is unnecessary, having
been arranged solely to meet the popular emergency, this
is merely a mode of government charity. So much is taken
out of the resources of the state to maintain its indigent
citizens.  It comes finally as a tax on all productive iiidustry. The classes that create values are called on to contribute, it may be largely and painfully, to feed and clothe
those which do not.
How does this answer the conditions of a successful
charity?
(a) Such artificial industries require great expense beyond the simple wages which the laborer receives from the
national treasury. If these workmen were employed only
in digging trenches to fill them up again, the additional
cost would be only for tools to work withl and land to work
over.  But government, in such cases, always maintains a
certain semblance of purpose. There is a pretence of usefulness, immediately or remotely. This generally calls for a
[BOOK V.
406 
PUBLIC CONSUMPTION.
great amount of material, in one form or another, all of
which makes a dead loss to the community, not even the poor
getting it as charity. Such is the case where costly public
buildings, or vessels of war, are constructed simply to provide labor for the destitute. Often the expense to the state
is many times greater than the sum which is divided among
the suffering poor.  There are, besides, the salaries of officials, in great numbers, to superintend the labor; no inconsiderable item in public industries.
(b) We have, on the other hand, an advantage; viz., that
this mode of receiving charity saves the self-respect of the
workman.   If government adjusts the rate of wages intelligently, it is certain that none but those who really need
employment will seek it; and in receiving wages for work,
even if that work is fictitious, they will not feel degraded.
Of course, it is economically very desirable that the instinct
of self-support should be kept strong and keen among the
laboring class.
(c) There is also the consideration that these artificial
enterprises entail a burden on the future.  The work, when
completed, is handed over to the public authorities, to be an
object of costly maintenance, till happily destroyed by time
or violence. In this way a tax is perpetuated on the community for a relief that was perhaps of the most temporary
character.
2d, If the work to be performed is, in whole or in part,
necessary or desirable, the pay of the laborer is so far taken
out of the denomination of charity. He has rendered a real
advantage, -it may be to the full extent of the wages he&
receives.  Neither government nor his fellow can question
his right to the remuneration, or taunt him with pauperage.
Still, supposing this mode of employment necessary, we
have some important considerations presented.
(a) Though the laborer renders the full value of his
wages, the public often does not receive it. It is a perfectly
established principle, that, in most departments of industry,
ICHAP. V.]
407 
C6NSUMPTION.
government cannot compete with individuals. The dishonesty and indifference of its agents need not be dwelt
on here. It is a recognized maxim of business, that selfinterest and personal observation are the conditions of
that intelligence and economy which secures success. Hiow
entirely evident it is, that the public will seldom, if ever, be
fortunate enough to obtain officers who can, if they would,
manage its affairs as their own!
(b) There are times and cases in which this wholesale
employment by government may be useful, even if we allow
the superior cheapness of individual work. There are
great enterprises which  can be undertaken only by the
constituted authorities of the nation.   There are duties,
not only too large for private or corporate power, but too
important to be left to the chances of individual manage
ment. Such, of course, is the maintenance of civil and
military police, which, so far as it is necessary, must be in
public hands, and cannot be let or farmed out, consistently
with the honor and dignity of government.
(e) But these occasions for government  to enter the
field of industry are few and definite. They cannot be
exceeded without loss of wealthi and demoralization of
labor.  Government should not only refrain from undertaking any work not necessary in its own interest, but
should, as far as possible, let out what is necessary to competition and individual enterprise.  Wherever the character
of the operation is not such that its reliability concerns
immediately the existence of the nation or the lives of
citizens, it should be left to the general industry.
We have, thus far, discussed the employment of laborers
by government, on the strict supposition of a necessity existing at the time. We have seen that such a necessity
might overrule economic laws, and justify governments in'
such a course; but we have also seen those evils, even
in this case, which will save us any very extended consideration of the question, whether governments should,
[BOOK V.
408 
PUBLIC CONSUMPTION.
without reference to an immediate distress among its
people, enter the market of labor; and, in the consumption
of wealth, become a competitor with individual indutry,
even when the objects selected are wholesome and natural.
(a) In a free people, and with fair laws of distribution,
there will seldom be occasion for such employment by
governments, except in its own interest. No able-bodied
laborer can render to an official as much service as to an
individual employer; the reason being, that the former is
not capable of receiving the service so perfectly. And it
ought never to be true, that an able-bodied laborer is
compelled to seek work at the hands of government.  It
will not happen, until wicked laws have deprived him of
that employment, which, in a natural order of things, he
obtains simply in virtue of his ability to achieve the satisfaction of human wants.
(b) Such employment by government perpetuates dependence. It has been found strikingly true in the history
of great experiments after this fashion. Men onice accustomed to feed at the public board; whether as princes
or day-laborers, are very loath to return to the primitive
fare of private life. Relief from the stringent but necessary laws of competition becomes almost a second nature;
and few are found willing to break off from this reliance on
government support. 
(e) Such employment by government demoralizes the
general industry of the country.  A false scale of prices is
established, since government does not buy or sell under
exactly the same motives as individuals.  An unnatural
competition is introduced into labor. The market is improperly controlled by the immense resources of the
administration: in consequence, all other branches of production are, to a greater or less extent, disturbed and kept
restless.
(d) Such employment by government induces political
corruption. It is not consistent with our purpose to enlarge
CHAP. V.]
409 
CONSUMPTION.
upon this subject, but only to show its place. The fact is
undeniable; and while government must accept, as a necessity, a certain amount of improper influences attending its
operations, this should be a potent argument against any
assumption, on its part, of unnecessary work.
A great part of the discussion of this question would
more aptly come iito the department of "Production; " but
it is so bound up with popular theories of government expenditures, as encouraging industry, that it is fairly brought
within the present field of inquiry: and it is from the
point now reached that we get the best view of that absurd
doctrine which proclaims that national extravagance stimulates trade, and promotes the general welfare.
We have seen, that any expenditure by government, even
for necessary purposes, is made at a disadvantage to itself,
and is attended by many marked inconveniences and mnischiefs to society; and that, so far as consistent, individual
enterprise should be substituted. Ill how strong a light,
then, do we see the folly of that scheme of national prosperity which looks to lavish outlay by government for any
purpose, whether productive or destructive, of luxury or
war! The share of some interested portion of the community may be larger, or come more easily; but the sum of
wealth is diminished, and the healthful laws of distribution
are disturbed.
Yet, in the recent gigantic warlike operations of the
Ulnited States, it was a daily experience to hear the accepted teachers of political philosophy gravely pronounce the
condition of the country to be most gratifying, loudly
congratulating the public on the stimulus given to industry
by the outlay of government. Trade was brisk, because the
nation was running three thousand millions in debt, to be
just so much poorer for centuries. We do not question that
the occasion justified the expense; but this was none the
less an unfortunate necessity, and the liveliness of business
was the most melancholy feature of the national condition.
410
[BOOK V. 
CHARITY AND POOR-LAWS.
CHAPTER VI.
CHARITY AND POOR-LAWS.
IN its broadest sense, half the world exists on charity;
and the amount of wealth so distributed, exceeds  calculation.
Man comes into the world a helpless being. If left alone,
he dies. He has not the faculties of self-defence and selfsupport that brute young possess.  Years pass before he
attains the power of maintaining his own existence.
Even inll the best states of society, woman is, to a great
degree, rendered, by delicacy of constitution, incapable of
self-support.   At times, the fierce competitions of trade
may be hushed when she comes among them; yet she must
always subsist somewhat by the sufferance of the fiercer
and stronger sex. In the barbarous state, she is the tool and
slave of man.
Besides these large classes, the field of adult manhood is
trenched upon by accidents of birth or circumstance, that
render tllhouLsands incapable, physically or mentally, of earning a livelihood.
All these must live by charity.
But in the sense of economy, in our modern civilized
state, the field of this agency is greatly limited. The family
relation adopts by far the greater part of all who are helpless to control their own condition. There have been peoples where children were the property of the state, and
were reared at the public charge. There have been communities where women were had in common, and their
maintenance was included in the budget of the treasurer.
But the world has settled down to the family relation, and
so we are to consider it.
But there are yet melancholy outcasts from society,aged folk and cripples and young children, -who have lost
411
CHAP. VI.] 
CONSUMPTION.
their staff and stay by the natural course of life, by the ravages of vice, by appalling accidents, or by the devastations
of war.  These form a great community, over which the
state is called to watch with tender care; a solemn trust,
appealing to the holiest feelings of our nature.  For these
it has to provide, not food and shelter alone, but healing for
their diseases, correction for their vices, help for their infirmities of body and mind, instruction and useful arts, as
far as they are capable of receiving them.
Such are the natural constituents of this class; but unfortunately, by social obstructions and political oppression,
we find, in some communities, thousands of able-bodied
and hard-working men  dragged down  into the mire of
beggary, compelled by wicked institutions to shameful
want.
- There is hardly any social result so distressing as the
reduction of the healthy workman to the low ground of
charity. This, found in almost any degree in a political
system, must be held to offset a great many splendid merits;,
while freedom from such conditions must be accepted as
satisfaction  for  many  conspicuous  defects.   Legislators
should ever consider the independence of the poor man as
the visible "fulfilment of the law."  It is a crying curse,
that ever a stout man, glad to work, should be forced to
beg.
In the United States, the question of charities has not
that engrossing interest which it commands in 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 a large share 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 pauperage of the nation is
not, in ordinary times, equal to one-half of one per cent of
its population; while England and Wales had, in 1859, four
and a half per cent; Holland, in 1855, eight and a half;
412
[BOOK V. 
CHARITY AND POOR-LAWS.
Belgium, in 1846, sixteen; East and West Flanders rising
that year to thirty per cent.
The methods of charity have not, therefore, the same
importance 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 what of it
is necessary should be as cheaply arranged as possible.
Here, the only occasion for anxiety is, lest some unfortunate should be overlooked in the general prosperity of the
country. It will not, however, be without interest and instruction 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 human 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,
anticipate 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 pauperism the same
severity as to crime. Yet, when all this is granted, and
all this done, there will still remain a certain degree of
physical want, the result of sinful and slothful habits.
Of this the state must have charge. No man may be allowed to starve, however clearly his destitution may be
the effect of his own folly or wickedness.  "It is better,"
said the Roman law, " that vagabonds should die of hunger, than that they should be supported in their beggary."
In the light of Christianity, we have a wider view of political duties.  The sharpest incitement to labor, the sternest
punishment of vice, is equally just to society and kind to
CHAP. VI.]
413 
CONSUMPTION.
the subject; but that the vilest outcast should perish of
hunger by the actual permission of government, would
eclipse the brightest glories of conquest or commerce which
a Christian nation can acquire.
Here we have an important practical precept concerning
governmental or individual charity; viz., the frequent and
careful revision of claims to assistance. There should be
no prescription in beggary, nor any thing taken for granted.
The inability of self-support should be distinctly proved, or
the applicant forced to work.
2d, Who should administer charity?
An argument might be made from the principle of benevolence and the sensibility to another's distress 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 production, 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.
But this does not in the least excuse mendicancy, whose
principle is directly opposed to that of intelligent, equable
charity. It is prohibited, under severe penalties, in almost
all communities, though the sympathy of the solicited and
the condition of the solicitor take much from the terrors of
the law.
Hiere, then, in individual contributions, we have one of
the main instruments by which the relief of the poor should
be effected.'
414
[BOOK V. 
CHARITY AND POOR-LAWS.
There is another 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 division of labor. With this they unite a considerable
share of intelligence, as to the special deserts of applicants.
There is also, and principally, the consideration, that relief
from this source is thlought to have nothing degrading,
and so preserves the self-respect of those who receive the
aid.
This agency is very extensive in all the countries of
Europe, and in all the States of America. By the most
recent statistics available, the voluntary associated charities
of London alone include the effoibrts of four hundred and
eighty-six institutions, with  the annual  expenditure of
~1,222,529, while the mutual-relief societies of France
number 4,125,/with a membership of 535,233, which, with
four persons to a family, would give a sphere of activity
embracing more than two millions of people.
Prominent, too, in this view, we see the noble, economical,
and Christian scheme by which the great body of Quakers,
or Friends, throughout tihe world, assume the care and
support of all the infirm or helpless of their order; so that
no one can come upon the colder charities and harsher discipline of public maintenance.
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.
415
CHAP. VI.] 
CONSUMPTION.
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 whatever assistance he is to have. More work can be got out of
him, his character and claims will be better understood, he
will be hearer to returning into the condition of self-support,
and each community, will have an active interest to diminish
its pauperage.  All this is additional to the greater expense
of monster workhouses, and the corruption they are sure to
breed.
We said, "in the mere relief of poverty." But governmnent charity has to do with other classes with which the
rule of assistance is directly opposite. 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 subject. The
destitute, whether maintained in their own homes or in
houses devoted to that purpose, should be required to do all
the work they are really able.  This is just; for the government has the right to diminish its own burden. It is kind;
because, 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
more assistance than is really necessary, is not to relieve
pauperism, btut to create it.
The English system includes two methods: 1st, The
allotment, which is the cheap rental to the poor of certain
portions of land, from which, by their own industry, to
procure some of the necessaries of life; 2d, The parish
allowance, wliich affords weekly assistance to a certain
416
[BOOK V.
qv 
CHARITY AND POOR-LAWS.
amount,- say, two shillings,- to eke out wages. These, in
some circumstances, may give a real and permanent relief;
but it is found in England, that this kind of charity is so
general, that employers reduce wages still further, in expectation of it, and the laborer is soon brought to distress
again. Such a state of things is a misfortune, arising, not
from defects in the system of charity, but jointly from the
want of independence and intelligence in the laboring class,
and from the operation of vicious institutions, which lock
up the natural means of subsistence, or take them away in
excessive taxes.
It is in this failure - acknowledged equally by government and by scientific writers -of the English charitable
system, under which one million families have been kept
in substantial pauperism, while there was found at least
another-million "just above the paupers, always ill peril,
lest they should become paupers," * -it is here we reach the
true principle of this matter of public charity.
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.   Government
may relieve every form of such distress with entire satisfaction of the individual 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 absurdity, 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. The Creator of this bountiful order has
made provision for the support, the comfort, and the
* John Bright, 1865.
27
CHAP. VI.]
417
I 
CONSUMPTION.
gratification of all our kind.   Poor-laws,  permanently
embracing in their charity able-bodied workmen, simply
show that the gratification was long since abandoned; that
comfort was afterwards denied by oppressive requirements
or restrictions; and that now the lowest plane of injustice
has been reached, in tile inability of the laborer for selfsupport. There is no further descent; nor have poor-laws
any virtue to bring back the right order of things. The
great, the sole, regulating principle of economical life,
viz. the entire self-sufficiency of labor, has been destroyed;
and nothing but laws returning 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 departs from these limits, it begins
a wandering that has no end. The pauperism of America
is the result of accidents, and expires with its special
causes. The pauperism of Europe is the effect of system,
and perpetuates itself.
England will retain her million of pauper families; her
other million of families, suspended over pauperism by a
cotton thread; her three millions more, scantily subsisted
and nourished, - until the axe is laid by giant hands at the
root of the evil.
The quackery of the Middle Ages applied herbs and
balms, not to the bleeding wound, but to the injurious
sword. Such are poor-laws for pauper populations. It is
not poor-laws, but rich-laws, that are needed.. The relations of capital to labor, of government to the people, of the
soil to the hand, need to be re-adjusted.
5th, In what form should charity be administered?
In deciding this question, we shall find it convenient to
distinguish between two classes of recipients; viz., permanent paupers and those occasionally destitute.   Of  the
former class we need hardly more than refer to the alternatives of in-door or out-door, mechanical or agricultural
418
[BOOK V. 
CHARITY AND POOR-LAWS.
employment, of home-relief or poor-house maintenance.
The habits and circumstances of each community must
determine the methods of its charity. This class, being in
the main composed of thlose hopelessly dependent, does not
present such perplexing questions as arise, when, by national
calamities or natural causes, great bodies of helpful industry are deprived of support.  The famine of 1693 reduced
twenty-five thousand in Paris alone to a starving condition,
and for a while overwhelmed the laws relating to mendicancy. The great number of persons now dependent on
government support,* throughout the Southern section of
the United States, strikingly illustrate that class of calamities which may reduce a population almost to general
beggary. These, when they come, must be promptly and
amply provided for: labor must be saved at all expense,
humanity out of the question.
(1) Such charity must not be administered in connection
with stated pauperism, or in public institutions.
(2) This is the best field for individual benevolence,
unless the prostration of business is so universal thliat
nothing but the credit and authority of the government can
intervene.
(3) Government may, by foieign loans or other means,
remit the pressure of ordinary taxation.
(4) Government may appropriate the necessaries of life
for the public good, if tihe emergency is as great as would
justify the same invasion of property in war; not otherwise,
not merely to save expense or extinguish speculation.
(5) Government may very properly employ its marine
and its finance in furnishing subsistence promptly, at low
rates, and on easy terms.
(6) Government may, in exceptional cases, offer employment on works of public concern. This should be done at
least to the extent of such enterprises as are in themselves
desirable and profitable. The time of general distress is
* Winter of 1865-6.
CHAP. VI.]
419 
CONSUMPTION.
the only time in which government can largely enter the
field of industry withlout working a considerable share of
disturbance and mischief.   All works of manifest utility
should be undertaken at such a time. This will cost less,
and be a mighty kindness to the suffering poor. Governments have often proceeded much further than thlis, have
undertaken works that involved a far greater expense to
itself than relief to labor, and entailed a permanent burden
on the country. This was done in Ireland during the great
famine, and has more than once been done in France. The
policy of such employment is very doubtful; for, -
(7) Government should administer its charity to the
necessary amount by direct personal assistance, generally
of supplies in kind, through its own local agencies. The
degradation of accepting relief is, in such cases, removed
by the universality of the distress. It is the most appropriate and least costly remedy.  For example: it is not a
matter of question, that the assistance which the United
States furnished during the Irish famine, in its cargoes of
provisions and clothing, was more sensible and effective, in
proportion to the expense, than the outlay of the British
Government on useless roads.
But the occasions for' such extraordinary charity are few.
The greater the freedom of intercourse, the wider the
ramifications of trade, the quicker the sympathies of industry, the less frequent and the less destructive will be all
local and temporary calamities. In the present winter,
when, by the unusual severity of war, hundreds of thousands of families have been thrown on the public support,
government, both State and national, has adopted, without
hesitation and without discussion, the most simple, economical, and beneficial method of relief. There has been no
loud outcry for grand public works. No useless costly piles
will remain as tokens of this hard winter, and burdens to
every succeeding year. The hungry mouths have fed off
the hand of government, open now in charity, as lately
clenched in wrath.
420
[BOOK V. 
CHARITY AND POOR-LAWS.
6tlh, In what spirit should charity be administered?
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 contumely or outrage.  If his manhood is
respected, even in his crime, should not those who are thile
victims 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 unfortunates of society. No true
man will do it: no brave people will allow it to be done.
The followers of Mahomet would not suffer a tattered bit of
paper to blow by them or remain on the ground, but would
reverently pick it up, lest it should contain some fragment
of Alcoran. There is no broken piece of humanity in the
mire of poverty and. crime on which the proudest of earth
can place his foot, and not crush God's image. Tenderly,
reverently, should we bear ourselves to all; but to none more
kindly, more ourselves rebuked, than to the forlorn and
helpless.
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 ablebodied 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 mendicancy by
which the bold and bad snatch away the portion of the
weak, the honest, the retiring poor. The truly helpless
and suffering should be sheltered under the wings of
charity; thle indolent and wasteful, driven out into the
storms of the world.
CHAP. VI.]
421 
CONSUMPTION.
CHAPTER VII.
I. THE FINANCE OF WAR.
THE finance of war is greatly perplexed to the popular mind
by one fallacy, which 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 of it is, if we suppose no
extra importation of foreign material for consumption (and
ninieteen-twentieths of the expenditures 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 public economy, is anl
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 materials, provision,
422
[BOOK V. 
THE FINANCE OF WAR.
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 ordinary
times. What is wanted is labor, tools, provision, and materials: that is what is to be "raised."  And at least an
equal amount, though of different kinds and for different
purposes, is "raised" every year or day of peace.  Government, however, is now the great employer; and, as it is to
furnish these, it-must get them from the community which
has them, and has been operat-ing them.  This, as we said,
requires taxation, but needs no financial jugglery, as is
supposed; and involves no departure from ordinary principles.
I Indeed, war might be carried on without money; has been,
to a great extent. The public force might always, as it
often has, fill its armies by conscription; its granaries, by a
tax in kind; its arsenals, by compulsory labor. The greatest
armies the world has ever seen were raised, supported, and
disbanded without a money chest. In the advance of
civilization, it has been found more expedient, as it is more
just, that government should purchase all it consumes in
war, obtaining the means in money by taxation. But, 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 office is to exchange the products of labor.
But it may appear, that, if foreign labor (as mercenary
soldiers) or foreign material (the products of foreign labor)
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
423
CHAP. VII.] 
CONSUMPTION.
warlike expenditures. The latter is of importance, but
really forms a small fraction of the actual outlays of war,
probably not equal to the reduced wages of domestic labor
in arms, as against the same labor in peace; it being true
of almost all armies, that their pay is below the average of
industrial occupations. But, if we allow all the actual
importation of foreign material to be so much added to the
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, diminishing the domestic expenditures of government, and encouraging the export of
produce, which will continually 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 first assume that form abroad,
they are turned into material before imported.
This discussion, it should be borne in mind, has only
regarded the amount of 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.
* For an able discussion of the subject in all its bearings, see "A Critical
Examination of our Financial Policy," by Simon Newcomb.   D. Apple.
ton & Co., New York.  1865.
424
[BOOK V. 
CHAP. VIII.]  ECONOMY OF THE WAR SYSTEM.
CHAPTER VIII.
ECONOMY OF THE WAR SYSTEM.
WAR is the greatest fact that presents itself in this part
of our general subject. Its consumption, its expenditures,
are wholly for unproductive purposes, andxnot only unproductive, but absolutely destructive of those by whose labor
wealth is produced. War demands by far the largest part
of all the revenues 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 preparation is
made for preserving peace, cannot for a moment be denied.
So also were private combats and the wager of battle in bygone 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 compelled to
seek redress for private grievances by an appeal to brute
force. This would not, indeed, determine which of the parties
were in the right, only which was the stronger or more fortunate in the struggle. 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-established principle, that a man
should not be a judge in his own case; and therefore, as
between individuals, it is decided, that, instead of the wager
of battle, the aggrieved party shall submit his case to the
arbitrament of his fellow-citizens. But, as between nations,
no such arrangement has as yet been made.
Hence we  are to contemplate war as a political neces
425 
CONSUMPTION.
sity, until the nations of the earth shall establish a code of
international law, and institute a high court of appeal, to
which their disputes shall be referred for adjudication.
War, then, in the sense in which we are to look at it, is
not an accidental fact, but an established system; and, as an
economical question, is to be regarded 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 establishment.
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 systeri.
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 first refer to the statistics of Great
Britain, not because they are peculiar, but that they are full
and reliable. Hier naval and military expenditures from 1815
to 1865, during which period of fifty years there has been
no protracted war, have been ~1,084,330,507, equal to
$5,000,000,000, or nearly twice as much as the whole present
debt of the United States: from 1855 to 1865 inclusive,
~769,612,936, of which ~301,618,920 were required to pay
interest on the national debt; ~331,887,258 for current
expenses of army and navy; for the cost of collection,
~48,733,823 (or about six per cent of the whole revenue); and only ~105,472,935 for all the expenses of civil
government.   So that, in paying interest upon the  debt
wholly created in war and in meeting present expenses, the
war system swallowed up six sevenths of the entire revenue.
426
[BOOK Av. 
CHAP. VIII.]   ECONOMY OF THE WAR SYSTEM.
The "Annuaire Encyclopddique" has tihe following statement of the armies of Europe for 1863:
Population.
64,000,000
37,500,000
35,019,058
39,000,000
21,!920,269
29,193X319
18,500,446
15,500,000
2,855,883
3,569,486
2,605,024
4,671,183
4,000,000
1,433,764
1,096,000
684X306
985,000
299,494,195
Cost per
Soldier..
$105.29
268.18
144.00
76.00
209.79
446.18
147.60
209.20
50.39
158.18
71.37
160.29
118.00
93.00
99.60
100.00
71.39
...
$168.87
Russia......
France......
Austria......
Turkey......
Italy...6
Great Britain 
Prussia....0
Spain....0
Sweden....3
Holland......
Denmark.....
Belgium......
Romania.....
Norway......
Greece......
Roman States.0
Servia......
Switzerland
*Total
*Total....   3,815217  299,494,195  $168.87    77  $644,283,888*
If we take the loss to production to be equal to $150 for
each soldier (a low estimate), we shall find the additional
amount to be five hundred and seventy-two millions of dol
lars per aniium.
The  following  statistics  from  the  muster-roll of the
British army show its entire strength and composition:
Regular troops......        218,971   Pensioners.......             14,768
Local and colonial....-.   18,249    Yeomanry.......                16,080
Foreign and colonial....  218,043   Irish constabulary.....             12,392
Indian military police...   79,284   Volunteers.......            170,000
Depot establishments...   28 141            Total number of men            820,928
MiliTotal number of men.........820 928
Militia.....45,000X
If from this total amount we deduct about 270,000 for the
constabulary, the militia, volunteers, &c., we have 550,000
men, as the non-productive force required by the war
establishment of Great Britain.
* The Report of the Secretary of the United-States Treasury for 1863
showed, that there was expended for the army $747,359,828, and for the
navy $82,177,510; total, $829,532,838, or about thirty-three per cent more
than all the war expenditures of Europe for that year.
427
0. i.
64
73
75
91
70
97
86
129
56
60
105
117
200
79
100
77
344
77
A.y.
1,000,285
513,349
467,211
429,000
314,285
300,323
214,482
120 1000
67,867
59,431
50,000
40,115
20 1000
18,157
10,291
8,845
2,500
3,815,217
T.t.1 C..t.
$105,848 000
137,729:075
67,310,840
30,000,000
65,934,225
135,485,875
31,346,730
25,132,370
3,417,320
9,381,580
3,507,729
6,450,525
2,360,000
1,689,540
1,084,500
886,965
178,880
$644,283,888*
but a part of the cost.
But tl-lis sum of $644,283,880 is 
CONSUMPTION.
The following is a statement of the national debt of each
of the nations mentioned:
~            800,000,000,
Francs,  11,902,000,000,
Florins,   2,360,000,000,
Reals,   14,531,000,000,
Roubles,    418,000,000,
Thalers,    301,000,000,
Milreis,    149,000,000,
~             31,000,000,
Francs,      655,000,000,
Rix-dollars,  95,000,000,
al to $4,000,000,000
,, 2,380,000,000
,, 1,120,000,000
,,    726,000,000
,,    300,000,000
a,    215,000,000
,,    168,000,000
,,    155,000,000
,,    131,000,000
,,     53,000,000
$9,248,000,000
.     752,000,000
* $10,000,000,000
2,750,000,000
. $12,750,000,000
If the debts of all other European powers may be estimated at.
We have a total of...................
To this we add the debt of the United States (say).....
Grand war total..................
The following table, which we take from the "Financial
Reformer" (British), is more impressive than any statements
we could make in regard to the expenses of the war system
in England, and the small proportion required for the civil
department of the government:
From 1834 to 1861 inclusive (nineteen years) the
total expenditure was.............. ~1,125,689,474
For army.......~226,084,027
For navy.....       177,654,537
Operations....   16,164,290
~419,902,854
Interest and charges on the debt.. 546,400,540
Total for fighting purposes and debt......       966,303,394
Leaving for all other purposes........        ~159,386,080
Hence it appears that there was ex  pended during this period for war,
preparations for war, and debt, a con  sequence of war, an average, every
year  of.................~50,858,073
~E50,858,073  8,388,741
~42,469,332 per annum.
428
[BOOK V.
Great Britain (1862).
France (1865)...
Austria (860)...
Spain (1864)...
Russia (1861)...
Prussia (1862)...
Portugal (1862)..
Turkey (1864)...
Belgium.....
]Denmark.... 
CHAP. VIII.]   ECONOMY OF THE WAR SYSTEM.
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.  Mr. Gladstone stated in 1861, that "the total
expenditure (imperial and local) had grown nearly twenty
million pounds in the space of seven years; and that, taking
the annual savings of the country of ~50,000,000, the
whole interest of eight years' accumulation was absorbed
and swallowed up in this expenditure."
Mr. Laing, Ex-Finance-Minister of India, in a late lecture,
said that "the national debt of France had, in ten years,
increased ~150,000,000, while that of Austria and Italy
had increased ~68,000,000. Spain was at its wits' end to
make both ends meet; while Turkey was knocking at tihe
doors of every banker in Europe, ready to accept any thing
from any body who was ready to lend them, on any terms.
... During thie last ten years; there had been an extra
expenditure of ~300,000,000, incurred by two great Europeanl wars; ~300,000,000 more added by minor wars and
an armed peace."
Mr. Gladstone has made the following statement,  " that
between the years 1842 and 1853, the income of the wealth
of this country (Great Britain) was at the rate of twelve,
and that her expenditures were at the rate of 8,-, per cent;
while, between 1853 and 1859, the national wealth grew at
the rate of 162, while the national expenditure was at the
rate (f 58, per cent."
Such, then, is the condition, not only of England, but of
all the European powers; and the United States of America
are now to be placed on the same level. All have an im
429 
CONSUMPTION.
mense indebtedness, the interest upon which consumes a
large part of their current revenue. Eachl finds its annual
budget increasing at a fearful rate; each finds itself obliged,
under the present competition in armaments, to expend an
increasing sum, from year to year, for warlike preparations
by land and sea.
These facts should be kept distinctly in mind, when we
look at the economic bearings of the war system of the
present day; and it should, moreover, be remembered, that
they apply generally to that system as it existed prior to
the civil war between the American States. But that conflict greatly changed the war system of the world: it perhaps would not be extravagant to say, that it revolutionized
naval warfare. In November, 1861, the British Government
had, in process of building, fifty-four steamships of war,
with a tonnage 95,855, with 10,930-horse power, and 1,254
guns.   On the 8th of March following, the Confederate
am " Merrimack" appeared in Hampton Roads, and in a few
minutes, with its formidable prow. sent to the bottom the
" Congress" and the cc Cumberland," two of the finest vessels
in the navy of the United States, and demonstrated that, in
the future, no reliance could be made upon wooden vessels
in naval warfare.   This great fact disposed of "wooden
walls."  On the next day, the " Monitor," with her turret, entered the Roads, engaged the "Merrimack," and she, in her
turn, fell before a new and still more powerful enginery.
Iron sides were no sufficient protection against the turret.
This was the second important fact; and, together, they
turned the whole current of preparation for naval warfare
in a new, ay and much more costly, direction.
These considerations have most important economic bearings; but their political significance is still greater. In the
first place, they destroyed the.vast supremacy which'England had held up to that time. ler previous preparations
and accumulations of war-ships were almost annihilated at a
blow; and the nations were thus left to commence together
430
[BOOK V. 
CHAP. VIII.]   ECONOMY OF THE WAR SYSTEM.
a new race of competition. In the second place, the inmense appropriations hitherto made for naval purposes must,
if the competition is to be kept up, be increased tenfold;
and since, as we have just shown, all the principal nations
of the civilized world are deeply involved in debt, it becomes
a very grave and embarrassing question, by what means,
and out of what resources, all these new expenditures are
to be met. Besides, the question may well be started,
whether invention and discovery in regard to military and
naval engineering and architecture have arrived at their
ne plus, so that there is no danger that all these now extraordinary means of destruction will not be superseded by
others as much in advance of these as Enfield rifles are
in advance of the old flint firelocks.   Such, fortunately or
unfortunately, is the condition and aspect of the war system
to-day.  -To the political economist, as well as the practical
statesman and financier, it must be a matter of serious
consideration whether the time has not come when new and
improved ideas of international intercourse are not quite as
desirable as new engines of human destruction; whether
the important events to which we have referred, do not suggest a different policy from that which has prevailed in the
past.
To take the United States as an example: The national
debt, when consolidated, will not be less than three billions,
the interest of which will be at least one hundred and eighty
millions. To this must be added the vast pension list which
a four-years' war has created. To this still is to be added
the immense amount which is sure to be awarded for claims
on the government for spoliations and damages occasioned
by the operations of war. And if we are to enter into competition, under the present policy, for iron-clads, monitors,
land fortifications, and standing armies, we must have an
enormous addition to our current expenses. Of necessity
there must be a very heavy and constant taxation to meet
all this, and that, too, with no prospect of paying off the debt.
It
431 
CONSUMPTION.
The war debts of modern times are not paid off, and never
will be, until the policy of increasing preparations for war
is discontinued.  But the condition of the United States
in this regard, as we have already shown, is the condition
of Christendom; and therefore, if a change is to be brought
about, all are alike interested, and must unite in effecting it.
We  have said, that, under existing circumstances, war
may be a political necessity; but is it a moral necessity?
Is there any thing in the nature of man which makes the
destruction of his fellow-men in war unavoidable? Is it
not as feasible and as consistent with his nature to dispense
with appeals to brute force amongst different communities,
as between 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 differences?
If it is indispensable to the preservation of peace amongst
individuals, that there be a well-defined code of laws, which
all may understand, and all must be required to obey, is it
not equally indispensable amongst different 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 institutions are formed; viz., by the voluntary,
harmonious  action of those who  are directly concerned.
And this can only be secured by concerted and concentrated
effort.  " Concentration," says M. Guizot, "is the highest
element of civilization." The parties must come voluntarily together; must consult upon their mutual interests; in
short, there must first be a general international convention,
or congress. This is a necessary preliminary. Is it feasible? Can the human mind achieve this advanced step to a
higher condition?
432
[BOOK V. 
CHAP. VIII.]   ECONOMY OF THE WAR SYSTEM.
We answer these questions, without hesitation, in the
affirmative, and for the following reasons:  first, Because the present system is at war with the
plainest dictates of common sense, and the highest interests
of mankind.
It may be safely assumed, that ally system, policy, or practice, which, in the course of events and the lapse of time,
has become, not only absolutely useless, but positively pernicious and absurd, cannot long continue; that the advancing tide of intelligence will sweep it away as the rubbish of
the past.
FOLLY OF RIVAL ARMAMENTS.
Each nation, as we have seen, has its standing army, its
navy, fortifications, dockyards, arsenals, &c., &c.; and,
consequently, each is endangered by the military and naval
preparations of every other, and they live in constant
mutual jealousy.  Hence, if it is known or suspected that
France is making an addition to her navy, England at once
makes as large or larger one to hers. And, having done
this, is either any safer than before?  Are not both as relatively defenceless as ever?  But France lays down still other
keels, and the dockyards of England are again in motion,
until the fleets of both are yet further enlarged; but has
the relative condition of either, as to security, been improved?  Has not each increased its means of aggression as
well as defense?
That which is true of France and England is true of all
the nations of Christendom.  Russia does her utmost to
create a vast navy.  Austria, Prussia, Turkey, Sweden, dot
all in their power to prepare for war, however great the burden and sacrifice. And yet does this general system of
mutual armaments make them any more safe, respectively,
than if no such preparations were made by either?  If this
question must be answered in the negative, is not the arrant
folly of the system fully demonstrated?
28
433 
CONSUMPTION.
CHANGES IN WAR ARMAMENTS.
Secondly, Because the changes to which we have already
referred, that are continually taking place in thie machinery
of war, are so great and frequent as to forbid all hope that
nations can ever be fully prepared for war.  We  need not
dwell upon this point; for its importance is obvious to any
one who looks for a moment at the subject. What terrible
engines of destruction, what unheard-of forces, are yet to be
brought into use for the destruction of mankind?
The mind stands aghast at the awful possibilities of the
future, if the present senseless and inhuman competition
in war preparations is to be continued.  The moral sense
of the world revolts at the thought of such stupendous folly
and crime.
INFLUENCES ADVERSE TO WAR.
A third consideration which leads us to expect that the
present war system will be superseded by a general confederation for the preservation of peace, is, that all the influences of the age are against its barbarities.
(a) Commeree, as well as common sense, makes a strong
plea in favor of peace. Extending with almost inconceivable rapidity, its influence is every day advancing, and its
interests becoming more identified with the harmony of nations. No stronger illustration of this was ever afforded
than that presented by the war of the Rebellion in the
United States. Although a civil war, confined, of course,
within the territories of our government, it deranged, to a
wonderful extent, the commerce of the world.  How  tremendous its effect upon European industry!  How rapidly
did it transfer the wealth of Europe to India and other
Eastern nations!  How severely did it affect the commerce
434
[BOOK V.
I 
CHAP. VIII.]   ECONOMY OF THE WAR SYSTEM.
of the United States, driving nearly half of it from the
ocean in the short period of three years!
But how circumscribed were the effects of that conflict to
what would be felt, should a war arise between Great Britain
and the United States!  In such an event, how painful and
wide-spread would be the devastation to the commerce of
the two most commercial nations on the face of the globe!
Hfow terrible the results to trade and industry in every part
of the earth! Yet no preparation is being made to prevent
the occurrence of such a calamity; but every thing is done
to make it as destructive and ruinous as possible, should it
take place. It does not seem reasonable to suppose that
such a state of things can be permanent; that all the great
social, moral, and material interests of mankind can, in the
present advanced period of intelligence, be allowed much
longer to be thus imperilled.
(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.
(e) The education of the masses, their gradual progress
in knowledge, and their growilig 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.*
(d) The neutralization of the Black Sea, by the treaty
* It may perhaps be expected, that we should mention "the onward progress of the gospel" as one of the influences adverse to war: but we are
indisposed to enter upon the theological question, whether Christianity
condemns war as sinfuil; and, consequently, as we cannot assume that it
does so, can make no argument as to its influence in preventing war.
Christianity, certainly, has no direct tendency to abolish any system which
it does not positively condemn, still less any practice which it openly sanctions and approves. We have our individual opinion, that war is not in
accordance with the teaching and example of the great Founder of Christianity, but shall not moot the question here. We prefer to look only at the
economical, political, and social bearings of the subject.
435 
CONSUMPTION,
made at Paris, 1856, at the conclusion of the war of the
Crimea, is a very significant fact, as connected with disarmament and the permanent peace of the world. By that
treaty, the parties agreed that no ships of war should enter
the Black Sea, but that its waters should be sacred to peacefill commerce. This was the introduction of a new principle into European diplomacy, although the idea had before
been adopted in the Treaty of Ghent, made, in 1815, between
Great Britain and the United States, which contained a
provision, that the great lakes, lying between the territories
of the contracting parties, should be neutralized, and neither
party build fortifications or maintain a naval force upon
them.  This treaty has been observed down to the present
time, upwards of fifty years, to the great advantage of both
parties.
The argument suggested by these two facts is, that, if the
neutralization of the American lakes and the Black Sea is
found so feasible and beneficial, the same principle might,
with still greater advantage, be extended to all the seas
and oceans on the globe.
A CONGRESS OF NATIONS PROBABLE.
But our 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.
(a) Associations have existed for a long time, whose
object has been to bring about permanent and universal
peace; and one of the prominent measures insisted upon
as necessary to this end, has been a congress of nations
To bring this idea distinctly before the public mind, an
international Peace Congress was held in London, in 1843;
in Brussels, in 1848; in Paris, in 1849; in Frankfort, in
[BOOK V.
436 
CHAP. VIII.]   ECONOMY OF THE WAR SYSTEM.
1850; in London, in 1851; besides several other general
convocations in regard to the same subject. At all these,
the prominent idea has been the establishment of a general
congress, organized by the representatives of all the states
of Christendom.
The result of these movements has been to awaken an
interest in the public mind in relation to this subject.
(b) In addition to these voluntary and merely philanthropic efforts, the question was distinctly presented in the
British House of Commons by the late Mr. Cobden, who
took great interest in the movement, and had perfect faith
in its ultimate sucCess.
So far back as June, 1851, this distinguished member of
Parliament moved, "That an humble address be presented
to Her Majesty, praying that she will direct the Secretary
of State for Foreign Affairs to enter into communication
with the government of France, and to endeavor in future
to prevent that rivalry of warlike preparations in time of
peace which has hitherto been the avowed policy of the two
nations; and to promote, if possible, a mutual reduction
of armaments."
Lord Palmerston expressed his high approval of the
mnotion, and said, "I am glad' the honorable member has
taken advantage of the meeting of the world (the Great
Exhibition), to declare in his place in Parliament those
principles of universal peace which do honor to him and
the country in which they are proclaimed." Yet his lordship objected to being "bound into negotiations;;" and, of
course, nothing was ever done.
(e) A still more encouraging fact is found in the actioli
of the French emperor in relation to this matter. Placed
at the head of the most military nation in Europe, he proposed a congress to devise, amongst other measures, the
means of reducing those enormous standing armaments
which are the curse and peril of the world.
This proposal England alone, of all the governments of
437 
CONSUMPTION.
Europe, declined. The Emperor of Russia, in his reply
to the invitation of the French Emperor, said: " A loyal
understanding between the sovereigns has always appeared
to me desirable.  I should be happy if the proposition issued
by your majesty should lead to it." The King of Prussia
replied, "In such a work I will join with all my heart,
and in perfect liberty only to consult my own solicitude for
the general interest of Europe." The King of Italy said:
"I adhere with pleasure to the proposal of your imperial
majesty. My concurrence and that of my people are assured to the realization of this project, which will mark a
great progress in the history of mankind."
The King of Norway and Sweden, the King of Denmark,
the King of the Netherlands, the King of the Belgians, the
Queen of Spain, the King of Bavaria, the King of Hanlover,
the Pope, the Germanic Confederation, the Kings of Saxony, Wurtemburg, and Greece, all replied to those pacific
proposals of the French Emperor in terms of hfgh and
cordial approbation.
(d) The public press in Europe has also spoken very
strongly in favor of disarmament.
The subject is thus referred to in the Paris journal,
" La France: "-" Now let us for a moment suppose, that
by an understanding with the great powers, a disarming
in the proportion of one-half was effected. Immediately,
1,907,924 men of twenty to thirty-five years of age, constituting the flower of the population of that age, are restored
to the labors of peace, and at once a saving of three hundred
and twenty million dollars is effected in the totality of the
annual European budgets; with that sum Europe might
add, each year, to the railways at present existing, six
thousand two hundred and fifty miles.  She might establish in every commune, and even in each section of tlhe
communes, a primary school.  These great improvements
once realized, she might, if she decided in maintaining the
same sum in her budget, apply it to the payment of the pub
[BOOK V.
188 
CHAP. VIII.]   ECONOMY OF THE WAR SYSTEM.
]ic debt. The annual interest upon the debts of the different
European states being about four hundred and sixty-five
millions of dollars, they might be paid off in about thirtysix years. If, on the contrary, the countries interested
preferred applying the four hundred and sixty-five millions
thus saved, to the reduction of those taxes which weigh
most heavily on the production or consumption of articles
of necessity, what an alleviation to the people, and what a
stimulus it would give to business! The labor of these
1,907,924 men, at only two francs (about forty cents UnitedStates currency) per day, would amount to about $1,500,000,000 per annum."
The "Journal des Debats," of Dec. 14, 1864, says:" The immense majority of the intelligent inhabitants of
Europe have pronounced a preference for peace rather than
war, for economy rather than enormous budgets, for productive rather than unproductive outlays;  and yet the
attitude of nations would lead one to believe that war is
possible and imminent, for on every side the system of
great armaments devouring so much capital is persisted
in."  " La Presse" says: " Disarming is the order of the
day in Italy, is in course of realization in Austria, and,
being proposed by the Palmerston ministry, has formed the
subject of discussion in the English journals.   Spain is
thinking of reducing thle number of men in her army and
navy, thanks to the still-increasing probability of a European congress, the present necessities for which begin to
popularize the Utopian character of the scheme.... We
are pleased with the transformation: it is the outset of a
prosperous career; it is the triumph of a truly great policy.
It is not the congress itself, but, as a Spanish journal said
a few days since, it is the preface to the congress."
In view of the encouraging facts we have presented,
does it not seem highly probable that a general congress of
nations will not be delayed much longer? The necessity
for such an institution, in an economical and commercial
439 
CONSUMPTION.
point of view, is becoming every day more apparent and
pressing.  The matter rests entirely with the three principal nations of the world,-Great Britain, France, and the
United States of America. They have the power to do as
they will. Acting in concert, their influence is irresistible,
and they can achieve any object that commends itself to the
common sense of mankind. There is no adverse interest
in the case, and it is only requisite that-some one of the
great powers should take the initiative. True, the French
Emperor's proposal failed; but the condition of tha world
has greatly changed since it was made. The American
Union has been restored, republicanism has been vindicated,
the barbarism of slavery abolished, and the civilization of
the world has received a powerful impetus.
CHAPTER IX.
ON THE ECONOMY OF PUBLIC EDUCATION.
IT is difficult for Americans to sympathize in the least with
the objection which is mnade 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
foundations of our social and political organization, and we
have grown up to regard it as an accepted principle of good
government. Our intolerance of the English theory, however, is not helped by the consideration that their own state
makes the support of a particular religion compulsory on
all inhabitants,.
This is not the place to discuss whether legal provision
for the instruction of youth is an invasion of that field
which is recognized, in all governments moderately free, as
440
[BOOK V. 
CHAP. IX.]   ECONOMY OF PUBLIC EDUCATION.
belonging to personal rights; but it may  not be inappropriate to remark, in passing, that the period to which
compulsion is applied in this matter is that which cannot,
for a moment, by any rational philosophy, be contemplated
as capable of liberty. It is the period of youth to which
restraint always attaches. Nor can it be urged that such
compulsory instruction is a breach of the rights of parents;
for their rights are not perfect and primary, but depending
on the gift of the state, which can resume the functions of
control in any degree for the public good.
The economic results of public education are manifestly
in two directions.
1st, It is intended to effect the prevention of pauperism
and 6rime.   To  use a popular American phrase, "It's
cheaper to build schoolhouses 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 philosophers who compose statistical tables to prove
that general enlightenment rather encourages crime. The
first notion is refuted all too quickly by sad experience. We
may fairly decline to consider the latter till it receives the
sanction of one practical statesman. Such is the theory of
our government on public education. We will not argue
this. We will say that it is an Americanism to rely on
general instruction to check the grosser inclinations of
society, refine its manners, foster its self-respect, and multiply its restraints.
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 laborer in
art or science for their own sake, but solely for his advance.
ment as an individual being; nor do we refer now to the
441 
CONSUMPTION.
indirect influence on social order and national power, elnlarging the desires, stimulating the activities, and promoting
the frugality of a people. We allude only to the education
of all who labor, whether as masters or apprentices, inventors
or drudges, governors or soldiers, in order that they may
more intelligently and efficiently 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 who superintend
the work of hundreds, or by scientific discovery multiply
the power of industry manifold. Nor is it alone in these
marked cases that a fortunate result has appeared.   It is
perfectly practicable 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 repeatinyg power of mind.
The two modern communities which earliest connected
a general education with the agencies of government were
Scotland and New England.  In each, the advance of local
industry, and consequently of wealth and social power, has
exhibited most strikingly the economical advantages of such
a system. But it was when the inhabitants of these regions
went abroad to engage -in the industry of foreign countries
that the triumph of public education became complete and
conspicuous. For more than a century, their intelligent labor
has reaped the richest harvests of the world. Not to speak
of social and civil honors, the Yankee and the Scot has
everywhere risen, by virtue of early and thorough training,
general information, and ready resource, to the mastership
of all enterprises, all sciences, all arts. Hle never remains
on the lowest plane of labor; for he always finds enough who
are condemned to it by ignorance and that want of selfrespect and social confidence which results from ignorance.
He becomes "boss," overseer, master, employer, contractor,
projector, from the force of thlat character which was im
442
[BOOK V. 
CHAP. IX.]    ECONOMY OF PUBLIC EDUCATION.
pressed by early education, and those accomplishments
which it bestows; nor only this.  Although we may remember that for the greatest inventions we are indebted to inborn
genius or fortunate accident, we cannot but admit that genius is more likely to be born in men of such a stock, and
that accidents are more likely to be fortunate under this
mental training and industrial activity; and accordingly we
find, that beneficent discoveries, whether in comprehensive
laws or little useful "knacks," have repaid a million-fold all
that education ever cost Scotland or New England, let alone
morality, honors in scholarship, happy homes, and civil
peace. In plain speech and literal truth, no miner, who at
the first blow broke into one of nature's sub-treasuries and
found gold rolling out upon his feet, ever by miracle of
fortune hit upon a richer reward than every people may
secure, beyond the slightest peradventure, by the public,
thorough education of its labor.
It is not alone 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
offer to the aggressions of capital or competing labor; the
higher will become his necessary wages, the more reasonable
his remuneration.  It is the po6r 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 lumane science and legislation. To rob
the rich, or to make them objects of invidious enactments, is
not to help the poor; it is only to make their misery complete and hopeless: but, while wealth is sacred and luxury
is unrebuked, to elevate and strengthen the humbler classes
by all moral and educational influences, - this is to bring
comfort and leisure to every cottage, frugality and temperance to every home, to attain the perfection of the industrial
state, almost to realize the dreams of Locke and Sidney.
443 
CONSUMPTION.
CHAPTER X.
IV. REPRODUCTIVE CONSUMPTION-ITS CHARACTER AND
ORIGIN.
REPRODUCTIVE consumption is the use of wealth as capital.
Only a portion of the wealth of the world is applied to the
office of creating new wealth.  That portion is called "capital:" that application is reproductive consumption.
It has been shown that mankind are continually wearing
out their wealth;  indeed,  that it wears out by natural
causes, independently of use; and that therefore, if men
would not become destitute, they must make constant, unceasing efforts after fresh production.
But it is a principle of our nature to do what we have to
do with as little labor as possible; that is, with as much
help as possible. Now, it is found true, that, by employing
present wealth, production is easier and larger, even after
the amount so used has been replaced. For this reason,
men take freely of what they have, and destroy it to-day
that they may get a greater good to-morrow. This is the
only reason why capital is used. The first capital was
created without capital. Why should not all succeeding
creations be brought about likewise? Because it is found
to save human labor and multiply hunfan enjoyments  to
devote the present to the future.
But this application of capital presupposes the constancy
of nature. Men would not put grain into the ground unless
they had the assurance of a return. Every act of this kind
requires faith,   is an act of faith.
But even yet we have not secured reproductive consumption. Every article of value, either in itself, or in that it
will exchange for other things, is fitted to gratify some
craving of the human appetites, tastes, or passions; and, if
444
[BOOK V. 
REPRODUCTIVE CONSUMPTION.
nothing withstands these, they will certainly prevail.  Hiere
is an object of value. A positive force operates on the possessor to consume it at once; and he will do so as surely as
a hungry lion will tear his prey, unless something more than
brutal instinct of immediate self-gratification is found in the
man.  What is that which can stand up against the craving
of immediate wants, and keep them away from wealth, that
it may be devoted to other uses? It is not necessarily a
high moral quality. It may be purely selfish. It may look
on to the gratification of personal desires only.   It may
entertain no benevolent designs, nor be capable of anlly sacrifice for others.  All its denial may be in its own interest.
Yet we say that it is wise and brave and commendable. It
is the principle of frugality. Only as this is found can the
reproduction of wealth be secured.   Here, then, we have
the conditions complete.   The process is as follows:  1st, The certainty that present wealth will fail in time.
2d, The willingness to anticipate such destitution by
labor.
3d, The fact that capital can greatly assist labor in this
matter.
4th, Such a constancy in nature as secures the return of
capital.
5th, Such a capacity of self-denial as will resist the
impulse of immediate gratification, and devote wealth to
reproduction.
But we find we have omitted one condition. Here is
wealth. If nothing intervenes, it will certainly be devoted
to luxurious consumption, because the desires of man in
that direction are a positive and constantly operating force.
Frugality comes in with wise forecast and strong restraint,
and wrests a share from the grasp of the appetites. Seemingly all that is necessary has been attained.  But it is yet
to be decided whether this share shall go into the province of
mistaken, or into that of reproductive consumption. There
is a very considerable chance yet before it.  We have not,
CEIAP. X. ]
445 
CONSUMPTION.
however, regarded this as of great practical importance,
inasmuch as it is generally admitted that the intelligence of
mankind is, on the whole, sufficient to direct its own industry; and that thlis intelligence resides not in the major will
of the mass, but in each individual, or voluntary association.
It has often been proposed to take wealth away from luxurious consumption, by force of law, for the good of the
whole; but legislators and philosophers have usually agreed
to leave it to the intelligence and self-iinterests of capitalists
and laborers how the wealth so saved from luxury shall be
applied. To be sure, we have found in certain specific
matters, and under the confusion of political forms, that
laws have been enacted to instruct industry as to its own
wants and behoofs; but such can never be reasonably defended on general grounds, and have to hide themselves
under pleas of state policy, or find " protection" under the
banners of party. It will not be necessary to discuss, as a
principle, the superiority of government over individual and
associated intelligence and interest in the direction of labor.
We have now shown how it is that wealth becomes capital; for what reasons and by what forces it is taken out of
the province of enjoyment or of waste, and devoted to the
office of reproduction.
I. What amount of reprqductive consumption is necessary?
What should be the proportion of capital to the entire
mass of wealth, to secure the industrial well-being of any
people?  This question will be best answered by an examination of the several offices which capital is to perform.
1st, Capital must support labor.
To all industry there is an entrance fee. Not only must
the child be supported through years of helplessness until he
becomes an able-bodied laborer; but even then every day's
work requires a previous supply of food, clothing, and shelter. These form, at the least, no inconsiderable share of
capital, though varying greatly with climates and habits.
446
[BOOK V. 
REPRODUCTIVE CONSUMPTION.
A country which turns its crops three or four times a year
will not need so large a stock of provisions for the maintenance of its labor as one that has a short season, and is locked
up in frost and ice the rest of the time. The same diversity
exists in respect to shelter and clothing. All degrees of difference will be found among the countries of the world.
Here, then, is the first duty of capital. It must support
labor. Out of its products enough must be regularly laid
by to subsist the laborers and those dependent on them till
the next yield. The necessity is so plain and absolute as to
be generally recognized. Few, indeed, are the peoples or
persons who have not forethought enough to prepare for
their bodily maintenance from year to year; while, yet, there
are found individuals in every community, and even large
communities are found in the world, which make so scanty
provision, that, at the least accident or delay of the coming
crop, they are caught ill great physical distress, and are often
-educed to suffering and beggary. What a light Alkman
throws on early economy when he calls spring " the season
of short fare "!
2d, Capital must provide for the increase of population.
This is not because capital wants population to increase,
but because population decides'so. It is elsewhere shown
what causes operate in limitation.  But, so far as this increase takes place, capital evidently must furnish support
either in pauperism or in labor. It is needless to say that
the latter is the cheapest and best, under any condition, for
capital. And this may be continued until the limits of capital are filled. If subsistence can be had, propagation will
naturally go forward. This, of course, increasing the industrial power, tends, in a healthy state, to augment capital;
and so, by mutual interaction, an advancing condition of
society is secured. It is only by false and vicious laws that
misery and crime are multiplied in this way, rather than
power and happiness.
3d, Capital must supply its own waste.
4.
CHAP. X.]
447 
CONSUMPTION.
Nothing else will. Labor only wears out capital. Whatever is wanted to renew and keep up the present stock of
machinery and material, must be got out of wealth.
4th, Capital must keep up with economic improvements.
Individuals and communities are affected in this respect just
as they are by the introduction of new implements of war.
All were on a level before; but, if new and deadlier arts are
introduced into one, all others are at once forced to adopt
them, or be at a disadvantage.  So while a people might be
getting along very well, and feel no need of any discovery
to shorten or supplement its labor, yet, if such a discoverv is
made, it must use it, or be thrown out in the competitions
of commerce.  The operations of this cause may sometimes
soon reduce the amount of capital required for a specific
purpose; but, generally, its effect is, while multiplying prodigiously the results of labor, to increase the actual amount
of tools and materials which labor employs. Irrespective of
this, a great deal is also wasted by falling out of fashion and
use, ill the change of business, or of location.
5th, Capital must support government.
This is not the place to show the economical merits of
government, or to dwell on its necessity. It does and will
exist, and capital will be charged with its maintenance.  At
thle last resort, and after all the complaints capital may
make of the burden, it would never consent to be deprived
of the protection of the public force. Capital can only live
under law, and for law it must pay,- no matter what the
price.
II. What amount of reproductive consumption is desira
ble?
We have been able to develop with- precision those absolute necessities which take wealth off to capital. Wealth
nust support population, provide for its increase, furnish
labor with tools and material, and meet the demands of
government.  In this it has no liberty.  It must do so, or
cease to be. But when these first gross demands have been
[BOOK V.
448 
REPRODUCTIVE CONSUMPTION.
met, shall wealth go further in the direction of ieproduction.   Shall the energies of the people still be bent on
acquisition? shall greater wealth be set always in front, as
the goal of universal effort? Shall the products of the past
be scrupulously employed as the seed of still more aboundimg harvests? or shall the energies relax, when nature is
satisfied in her simplest wants? Shall leisure or culture
or pleasure now become the objects of life? Shall the
fruit of to-day be enjoyed in itself, and the passing hour be
spent in its own duties and amusements?
It cannot be denied that these are vital questions, and
that as they are answered will the economical character of
each people be taken on. But we here enter rather the field
of the statesman, the moralist, and the philosopher, than of
the economist. The science of wealth, of course, cannot
reasonably object to the pursuit and acquisition of wealth
in any degree; yet it may also recognize that, as man has
other than economical relations, so he may have other obliligations, and may rightfully yield to them. These, while
it does not discuss, it respects. It is for the philosopher,
the moralist, the statesman, to decide, if they can, how far
the public or individual welfare, looking at all interests and
duties, will be subserved by the increasinig production of
wealth, by heaping store on store, gathered from the bounty
of nature; by pushing up the fabric of industry to its mightiest proportions; or, on the other hand, by resting satisfied
with a moderate and primitive competence, and working for
quite other objects than wealth.
So that we have no great occasion here to discuss these
questions, while yet two or three observations may set them
in their proper relation to our science.
(1) In a normal and healthful condition of society, there
will be as little reason to ask such questions, for practical
purposes, as to inquire how much centrifugal or centripetal
force the universe needs. All that is determined in the constitution of things.  The desire to gain and the desire to
29
-ijrlAP. X.]
449 
CONSUMPTION.
spend are both manifestly in the original appointment of
our minds; constant, abiding forces; and no more benefit
can be derived from destroying or weakening either, than
from loosening or tightening the bands of the universe. It
is just right as it is. The two forces, by their antagonism,
bring out the best order.
But human institutions and human actions can affect
these forces in wealth. The course of things may be such
that the possession of property shall be made undesirable by
violence; or the springs of industry fail, in the loss of ambition and hope; or bodily and mental vigor be sapped by
vice or self-indulgence.  On the other hand, the tendencies
of personal character and social condition may bring out
the desires of gain in such a degree as no moralist, no lover
of his kind, can approve; all arts, all interests, all duties,
may be forgotten ill the universal haste to be rich; avarice
may grow into a passion, may spring into crimnes; all that
is good or holy, all benevolent ministries, all noble aspirations, may be drowned in the fast-rising waters of greed.
These are the limits, on the one hand and the other, of
our economical condition.  It will not be denied that the
subject has all the interest that belongs to human welfare.
But, we repeat, this is'the province of other sciences than
that of wealth. Let the statesman, the moralist, the religious teacher, instruct and persuade men to the true wisdom of life. Political economy can only regard them as the
producers of wealth.
(2) We  may be permitted to remark, however, that the
degree of reproductive consumption which is desirable will
be determined somewhat by the geographical position and
political relations of a people. A nation that has, or aspires
to have, international power and influence, has need of
greater resources than one which is content with the simple
pursuits of internal comfort and tranquillity. There is a
marked difference in the degrees of wealth necessary, as a
people thrusts itself into the arena where commercial advan
450
'[BOOK'V. 
REPRODUCTIVE CONSUMPTION.
tages, colonial acquisition, territorial conquests, military
glory, and continental supremacy, are contended for; or retires to the development of its own soil, and the care of its
domestic happiness.
But, still further, we find that one controlling reason for
production, even in the least ambitious nations, has been the
general and distant apprehension that it may at some time
be called on to defend itself. The world over, statesmen, in
all ages, have felt the necessity of securing economical power
as the means of national security. Here, again, we see
that as a country is isolated or open to attack, is naturally
fortified or easy to be overrun, so the reasons for obtaining
a large production will be less or more urgent. Many such
considerations will influence the founder or governor of a
state, in determining whether  the reproductive agencies
shall be pressed to their extreme, and the influence of law
be thrown on the side of acquisition and accumulation, or
all shall be left to individual taste or caprice.
(3) It is unquestionably true, that, all other things equal,
the desires to spend or to gain will be differently developed in
different people, according to the individual genius. Peace
and liberty will not inspire some races with a high economical
ambition; nor can the utmost violence of persecution, disorder, and corruption wholly suppress the mighty instincts
of acquisition in others. And between these extremes every
degree will be met. Just as some plants are born for beauty,
grace, and fragrance; others with homely virtues and for unromantic uses,- so men bring with them impulses, ideal or
practical, that determine them to their several courses, all
the way from the serenest speculations in ontology to the
maddest speculations in oil.
CHAP. X.]
451 
CONSUMPTION.
CHAPTER XI.
POPULATION.
THE question of population has been invested, by the treatment of British writers, with a great mystery and terror.
The glut, famine, and death theories of Malthus have done
much to impress upon political economy the shape it has today 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 population is
perverted and diseased from its root. It comes out of social
wrongs and false political institutions. It strives to apply,
as a universal condition of human being, the miserable results of local misrule. 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 hundred inhabitants.
These principles are intended to apply to the entire surface of the earth, and have no merit unless capable of such
extension; but, to give them their most favorable conditions,
we will first consider a single district of limited area,- say,
England itself.
The two postulates of Malthus are, -1st, That subsistence
is stationary or retrogressive; 2d, That propagation is a
constantly operating force, enlarging population in some
assignable ratio. The inference is, that the relation of these
two must bring out destitution and famine.
462
[BOOK V. 
POPULATION.
There are here three fallacies: 1st, That subsistence is
not progressive; 2d, That population necessarily increases;
3d, That, even if these were granted, there would exist between them any such melancholy relation as is assumed.
1st, Subsistence.- The fertility of the earth, instead of
diminishing, is, under intelligent culture and with the aids
of science and machinery, constantly increasing.  The advance of industrial power, in commerce and manufactures,
not only furnishes direct assistance in agriculture, but releases, if required, a great amount of labor for the latter
pursuit. 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 Norman  conquests, or the civil wars. Nor are all its capacities of production exhausted. It has now millions of acres unreclaimed, which are susceptible of cultivation. It is no answer to this to say that they will not pay for reclaiming.
That merely shows that English labor has now a more profitable employment.  We  are discussing only the absolute
capabilities of the soil. With the known laws of agriculture, prudently followed, the produce of any country should
advance in a certain and considerable ratio. Besides, we
know not what new agents of fertilization may be discovered, or what shorter methods may be devised for applying
power. Certainly, the mechanical and chemical discoveries
of the last fifty years justify almost ally degree of expectation.
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 exhibited, 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 particular school would eventually become the owners of by far the greater part of the earth's
surface. So much for mathematics. But, in fact, some
CHAP. XI.]
453 
CONSUMPTION.
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 gingerpop. The illustration is plain and humble; but it involves
all the elements that limit the theoretic advance of wealth
or population.
To argue from abstract and individual possibilities of
propagation to the future actual increase of the race, would
be like a philosopher's predicting an infinite flight for his
arrow, because of his ascertained law of impulse and coIntinued motion, disregarding the opposition of the atmosphere and the constant subtraction of gravitation.
Indeed, contemplating certain positVe unquestionable
facts in history, great instances of depopulation, ages of
decline, the slow advances of reviving production, we may
fairly begin to doubt whether propagation is a permanent
force irrespective of conditions. We may not unreasonably
inquire whether it ever appears 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 inever called out except by physical
circumstances, which, in all their contradiction and bewilderment to us, really form the condition precedent of human
reproduction.  Why not?  We do not say, that individual
growth, either vegetable or animal, is a constantly operating
force, irrespective of circumstances. We recognize the necessity of heat, moisture, and special properties of soil to
educe the latent powers of expansion. Similar, thliough
more remote and perplexed, are the influences which bring
out reproduction in the animal or vegetable. It is therefore more correct to say, that population, instead of being
limited by adverse, is only developed by favorable, conditions. We are deceived in this matter, because propagation
acts almost universally. That happens simply because the
favorable conditions are almost universal.
454
[BOOK V. 
POPULATION.
This argument is not affected by exhibiting a great deal
of misery, the result of want. The laws of reproduction
are not responsible for subsequent mismanagement and
abuse. Nor does this obstruction to propagation, coming
out of circumstances, operate to the degree of preventing
deformity or suffering. But it does apply its check before
the limits of destruction are reached. Speaking generally,
nothing is born where it cannot live.
In reference to general use, however, we shall speak of
adverse circumstances limiting population.
This whole matter may be perfectly exhibited by an illustration from vegetable life. The forests have a constant
tendency to enlarge their bounds, and thicken their growth.
The rate of individual increase is prodigious in the family
of trees.  And so forests may, when there is no opposing
force, spread over all adjacent country, and may grow closer
and closer till the perfectness and beauty of the solitary oak
are lost in the maze of interlacing boughs. But just as it
would be absurd to suppose that the trees would ever grow
so thickly as to require the woodman's axe or a vegetable
pestilence, so it is unphilosophical to anticipate an increase
of population which will require war or plague to reduce it
to tile limits of food. The shoots of human life will no
more crowd their soil than will the children of the forest.
As well might a benevolent botanist, lamenting the natural
logical increase of the trees, predict internecine arborial
war or sylvan infanticide, as Malthus, from abstract principles of human increase, possible in individual cases, forecast
his dreadful tables of starvation and crime. The spread of
the human race, as of the sylvan, limits itself by the chemical resources of the soil, the fostering influences of the air,
the superficial capacities of the ground. The agencies of
animal as of floral propagation are possessed of a delicate
discrimination, a prudent forecast, and a virtuous continence, which shame the most cautious calculations of the
reason. They may err somewhat, and that, too, within lim
CHAP. Xi.]
455 
CONSUMPTION.
its which allow much deterioration of the species, and much
local misery; but their conditions restrict them within the
bounds of life.
What these circumstances are which control the increase
of population, we shall not discuss at this point.
3d, The third fallacy we detect is, that, granted the two
postulates of stationary subsistence and advancing populationl in any country, there is ally necessary relation of distress and deterioration between them. Such a view puts
commerce out of the question. In the present state of the
world, 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 exchange the commodities they must  consume.   It is of no  consequence
whether Manchester or Birmingham call raise their own
breadstuffs within their corporate limits, if they can create
values which will lay all the markets of the world under
contribution. Labor, if law does not hinder, is self-supporting. The powers of industry are commensurate with
their wants. But, if legal and social institutions interrupt
or burden exchanges, in one way or another, distress will
result. There is no fault in human propagation, but in
what is subsequent.  To illustrate: thirty years ago, there
was great suffering among the poor of England. This gave
rise to the very theory of population we are considering.
It became a matter of common belief, that starvation was
inevitable in human society.
Now it used to be a generally accepted principle of phys,
ics, that " nature abhors a vacuum;" and much machinery
was constructed on that principle.   On one occasion, an
experimenter happened to apply it to a tube longer than
usual, when it failed to work. Rushing in great excitement
to the office of a distinguished philosopher, he announced
the catastrophe. "Perhaps," was the quiet response,-" perhaps nature does not abhor a vacuum higher than thirty-four
feet."
[BOOK V.
456 
POPULATION.
Just such a discovery was made at this time in England.
The corn-laws were repealed, and half the misery of the
laboring class sank out of sight for ever. This it was
which first led men to suspect that " nature did not abhor
a vacuum higher thlan thirty-four feet;" that is, to drop the
anecdote, that nature creates no human labor to be starved
out of existence, but that whatever misery and suffering
there is, comes of man's folly and sill.
In England, bad laws, passed by class legislation; oppressive institutions, the relics of feudalism; onerous 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 suffer for the commonest
necessaries of life, while England is the richest nation on
the face of the globe.  Unquestionably, the value of the
total production of English industry amounts to five times
the value of the simple necessaries 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
because 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 down by a powerful, selfish, and grasping aristocracy. Though the people suffer, it is because of nothing in
the extent or fertility of their soil. But for a complicated,
legalized system of robbery and wrong, every man, woman,
and child in the United Kingdom might be as well fed,
clothed, and educated, as are the inhabitants of the United
States, and as much more so as England is to-day richer.
Any man and any people that can create value can command subsistence in God's way.
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
457
CHAP. XI.] 
CONSUMPTION.
population, but to diminish them. Whatever may be true
of individual peoples at ally particular time, the general
advance of population all over the earth has not been very
clearly proved.  But, whether it has taken place from cen tury 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 world over, continue when the
means of subsistence 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 no10 reason to believe that
there ever will be one.  There have been countless millions
of deaths from hunger occasioned by the destructiveness,
envy, or heedlessness of man, through war, commercial
restrictions, or personal neglect.
We  have spoken of the forces which limit population.
We  shall not assume to express them all, or to give an
exact measurement of them; yet we shall be able to state
enough to show what is the course of nature in this matter.
1st, Subsistence. -We do not mean any thing so commonplace as that there can be no more population than there is
subsistence to maintain in life. That, of course, could not
be. But it might be avoided in two ways,-by death operating on population, or prevention operating on propagation.
We mean that the ultimate bounds of food are the bounds
also of reproduction. At the last resort, and after its own
extreme limit has been reached, subsistence limits growth.
This, however, is only because to the impulse of the latter
is opposed an unyielding prohibition in the former; and
even this may only be effected (so far as the operation of
this principle is concerned), the springs of population may
only finally be dried, after a long and painful process:
after the comfort and health of the laboring classes have
been greatly, it may be permanently, reduced by continuous privation and hardship. So long as population can,
[BOOK V.
458
.1 
POPULATION.
so to speak, induce subsistence to increase, so long it may
itself increase; and it is only when the latter returns a
positive refusal that the former begins to check itself.  In
the interval of adapting itself, i.e. before it call hold up,
there may result much misery and crime. So long as the
increase of capital, i.e. food, clothes, and shelter, for the
laboring class, is possible, the natural advance in the wants
of the community, coming out of growing numbers, will
determine a still larger share to reproductive consumption;
will call off more and more from play to work.   The causes
that increase population, all other things being propitious,
are positive and powerful, and will not yield to any feeble
or distant objection from subsistence.   So long as more
capital can be taken up, they will continue to operate, and
wealth must conform itself accordingly. But, when capital
can go no further, propagation must stop, or population will
starve. The former will be found to occur. It does not
matter by what degrees of cold, hunger, feebleness, overwork, this is effected.   Nature secures the result.   We
are no more bound to show how it is brought about than
how it is that lions and elephants are not found on islands.
Nature has discrimination and proportion in her work, and
it takes all the recklessness and folly of man to bring about
the least degree of distortion.
Destitution is, of course, a relative term. Perhaps, as a
general condition, it is found mainly among savage tribes,
which subsist on spontaneous productions or the captures of
the chase.  This is the limited state, and here the increase
of population is very slow.  Such has been the case with the
North-Amnerican Indians, who, as we are told by Dr. Robertson and others, rear seldom more than two children to a
family, and often none.  We must not confound individual
with general destitution.  It is not claimed, that the former,
when abruptly occasioned, is sufficient to check propagation.
That would be against nature and reason. Such is the first
gross cause which limits population.
CHAP. XI.]
459 
CONSUMPTION.
It only applies to peoples in the lowest condition of life
and of the least moral endowment. Upon those of a higher
scale of being other influences will be found to operate.
2d, The second cause which we shall cite is directly the
reverse of the first.  It is luxury.  How any one could ever
have held the view that the forces of propagation are constanlitly operative, in thie face of the experience of the Roman
state, extending over many generations, destroying even the
name of nearly all its great families, calling for the earnest
remonstrances of its rulers, censors and emperors alike, and
forming the subject of repeated legislation both in premiums
and penalties, we cannot understand.
Luxury commences when trade and arts have been carried to a considerable degree of perfection. It is even a
stronger check on population than destitution, though acting
on a smaller class. Its artificial habits, its irregular occupations, its indolence, its self-indulgence, all combine to
weaken the forces of reproduction. Rarely indeed would
patents of nobility and entailed estates fall in, if committed
to the inhabitants of the cottage rather than of the castle.
3d, We have that class of influences which are found in
vicious habits and unwholesome occupations. The sure
results of these are to check propagation, a most beneficent
provision of nature.   In a marked degree is this true of
those occupations which, by heated air, by poisonous exhalations, by cramping postures or excessive labor, dwarf and
distort the functions of the body.  The same causes most
mercifully defeat the powers of reproduction. It is well
that it should be so; that, if these places must be filled,
fresh life may  be poured into them from  the hillsides,
rather than that the course of health and strength should
be downward without relief, falling faster every generation.
For the effects of vicious courses, we need only cite those
savage nations which, in every quarter of the globe, are disappearing so fast, not more by the pressure of civilization
than by their own destructive habits.
460
[BOOK V. 
POPULATION.
4th, We have also that class of influences which come
from misgovernment and war. These serve to retard the
progress of population, though not necessarily to throw it
backward.  France under the old regime, England through
her most sanguinary civil conflicts, still held on their way in
wealth and numbers; but Campania by excessive taxation,
Belgium by religious persecution, Germany in the Thirty
Years' War, Prussia under the great struggles of Frederick,
fell off widely in both respects. It really seems too bad to
quote, but many writers have ventured to suppose that war
was God's own method of restraining population! The
money spent in any war would, ten times over, support all
the men killed in it; if, indeed, the destruction of the ablebodied could be supposed to take any thing from the difficulty
of subsistence, especially when their helpless dependants
remain. How the war-system affects population may be
shown in an instance. Nearly half a million of young men
in France are required to serve in the army from the ages
of eighteen to twenty-five.   This embraces the period at
which the occupations of life are usually chosen, marriage
contracted, and domestic habits formed. At the end of their
service, they are thrown out on society with the vices of the
camp and the restlessness of military life, with no position
in life secured, and no occupation learned. The results have
been plainly visible in diminishing from year to year the
ratio of increase in population.
5th, The fifth cause which we shall notice is altogether
different in its origin and character.  The others have all
been on the brutal side of man, operating by misery and
want.  This works in alliance with the nobler part of his
being, and is of a kind with reason. It is self-restraint.
In a degree, indeed, a great part of the world exercises
this.  The Chinaman will rear as many children as he can
find vermin for as food; but the lHindoo, through his religious faith, stops short of all animal food, and limits
Io;;ulation by vegetable subsistence.  And so almost all
CHAP. XI.]
461 
CONSUMPTION.
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 revolt in disgust or pinch in hunger. It is found wherever there is
self-respect and social consideration.  Hence the moderate
increase of many countries where population maintains 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
destitution. Vice, war, and misgovernment certainly work
as little injury here as in any portion of the world.
- The annual registration, made with much care, shows tlie
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
,,,,   foreign,,.......          16,138
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. 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 population
consists of those under fifty years of age, and so generally
able to contribute to the increase of population. How far
this fact is operative may 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.
* Of these, 185,434 are from Ireland.
462
[BOOK V. 
POPULATION.
(2) The foreign population is engaged  somewhat less
than the native at in-door and sedentary employments, and
in so far are likely to be more vigorous.
(3) But the grand cause for the remarkable difference we
have observed is found in the fact, that the foreign population are far less influenced by prudential considerations and
social restraint. They therefore enter the marriage state
with less regard to their ability to support a family respectably. Destitution, in the sense which restricts propagation,
hardly exists 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. Consequently, 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 standard of family expenditures rises rapidly with the finer culture, the more elegant
arts, and the greater social vivacity of each new year. The
foreign population 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 to the
same statistics: -
American marriages.......................... 7,381
Foreign,,....................                         4,057
One party foreign.............,943
Nativity not stated.............,447
Total.......................12,828*
* Of deaths in Massachusetts the same year, we find that the whole
number was...................  28,068
Of which were American............                 19,404
Foreign.........................,881
Nativity not stated..............                   283
23,068
Here we see that the mortality of the native population exceeds that of
the foreign, comparing their respective numbers.  So that, while we attribute
CHAP. XI.]
463 
CONSUMPTION.
According to population, the purely American marriages
should have been about 18,000, or considerably 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 des
titution will bear it down by the most painful pressure,
involving social and  individual misery and degradation.
Under a scant and difficult livelihood it will bear upward
by its inherent forces, but slowly and with constant opposition. Competence gives it an assured and regular course;
relieving from all considerations of physical maintenance,
but substituting therefor healthful and harmonious restraints, hardly less powerful.   Under  these influences,
society gains in wealth, leisure, and comfort, and is able to
organize, educate, and control its population. Every child
born into this condition may be born to health and liappiness, and to be a strength and ornament to the state.
Luxury may now enter as an element (though luxury, in
the degree to affect population, is not a necessary concomitant of wealth and culture), and, as such, will either reduce
the rate of increase froin that of a condition of competence,
or, by becoming excessive, it may bring population down
with great rapidity. We have, then, these three grand conditions which limit the propagation of the race, of which two
can only operate, by debasing and perverting the bodily
powers of man; the third adds to his dignity, secures his
physical well-being, promotes industrial activity, and establishes the state. There can be no question towards which
the effort of the moralist and teacher, or the sanctions of
the statesman and jurist, should be directed.
to the latter a greater proportion of marriages and births, we find them falling
off in mortality. And what is true of Massachusetts probably holds true
throughout the United States. Of course, this diminished mortality is in part
accounted for by the fact before remarked upon, that their aged and feeble
members were left at home when the emigration took place.
464
[BOOK V. 
RIGHT CONSUMPTION.
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 XII.
IMPORTANCE OF A RIGHT CONSUMPTION.
THIs has been already shown by the light of our definition
of consumption. It has all the importance which belongs
to the science itself.
Consumption makes use of the wealth which production
has brought about with all the world's industrial energy.
It determines how each appreciable atom shall be applied:
whether to degrade, or to elevate; whether, like fruitful
seed, to re-appear 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 wanton 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 wealth itself is a blessing or a curse; so science should strive after it with earnest efforts, 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
would make poverty impossible on the earth; that would
30
465
CHAP. XII.] 
CONSUMPTION.
dispense with half the 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 ascension of
humanity; but just as far as the consumption of wealth can
be affected by human laws, or customs and agreements, ill
so far may this end be approached in every day of time. It
is only one part of this possibility at which the poet looked,
when lie said:
"WVere half the power that fills the world with terror,
Were 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," indeed, if
we cannot look on to the gradual amelioration 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 andl crime might die together;
And wine and corn,
To each man born,
Be free as warmth in summer weather."
Not only does all the advantage of present or accumulated
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 wealth has its generations. The life
of man is brief, but he outlives property. A few 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 reproduction. Our kind is placed on the verge of
such a chance, and can never go away from it. The dreary
466
[BOOK V. - 
RIGHT CONSUMPTION.
desolation of many nations illustrates the tremendous 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, comfortable, 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 principles 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 work
man.
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 inquiries to the immediate, present
creation of wealth, its exchange, distribution, and consump
tion, without regard to ultimate effects, and considering
one article of value as equally commendable with any for
which it will exchange. Such a mode of treatment pramctically detaches the department of consumption from the
science.
A sagacious and generally correct writer* has even gone
so far as to announce, "if a laborer is willing to work
all day for a quart of whiskey to get drunk upon, political
economy does not question his wisdom."
It is, of course, within the discretion of any author to
* Mr. Newcombe, in his "Financial Policy."
CHAP. XII.]
467 
CONSUMPTION.
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
whiskey, 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; something 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 onl personal
support, the account will read quite otherwise: two days'
work done, of which the employer and society obtain the
advantage; two days' 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 any question as to the importance of a
right consumption; but does not the same interest attach
to it in the light of political economy, considered merely as
seeking to effect the largest production, and the most beneficent distribution 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 ithe
whole, and in the long-run. It does not limit itself to
taking a section of the trunk. It is content with nothing
but the whole tree, and alive at that.
468
[BOOK V. 
RIGHT CONSUMPTION.
We have used a phrase which explains itself, and which
has already received various illustrations in what has gone
before. But it may be worth while to fix and detain in
positive shape the general impression we have of it.
WIHAT IS THE ECONOMIC GOOD?
It is that application of the industrial faculties to the
agencies of matter 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 amount
of desires, if, indeed, they can be thus spoken of in aggregation?  Not necessarily, by the terms of our definition;
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 reasonable, than by catering to artificial tastes, depraved
appetites, and violent passions.
Does it imply the greatest possible creation of values?
Again we say, not necessarily; and yet it is undoubtedly
tru%e, that there is no surer way of securing the best satisfaction of the greatest amount of desires, than by striving
for the accumulation of the largest possible wealth. There
may be, will certainly be, a portion of such wealth thiat 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 economically, 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 interfere
to prevent, the natural order of things will be sure to bring
out the best physical condition of mankind, through the
greatest creation of values.
CHAP. XII.]
469 
CONSUMPTION.
It will be observed, that this definition of the economic
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 certain amount of values, fairly divided, than
a much greater amount heaped in wasteful and unjust aggregations, 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 produced that
does not satisfy any wholesome or lawful desire of man's
being; although 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.
470
[BOOK V. 
I N D EX.
1471]
0 
*~~~~~~~~~~~ 
I N D EX.
Buildings, how affecting rent of land,
299-301.
Burke, Edmund, quotation, 28; law of
currency, 230.
CAIRNES, Professor, quotation, 4.
California, amount of gold yielded, 214;
interests opposed to mixed currency,
237.
Capital, definition, 19; growth of, 19,
20, 56, 57; relation to labor  21, 22;
office in production, 31; fuller defi   nition, 55; distinguished from wealth,
55, 56; divided as fixed and circulat   ing, 57, 58; distinction as productive
or unproductive rejected, 58-60; co   operates with labor, 60-76; the pro   portion between them, 60-62; can
there be a surplus?  64-66; import   ance that it be sacred from violence,
66-68; its best distribution, 68, 69;
freedom from petty restraints, 69-71;
is created by the business which re   quires it, 94; is it increased by issue
of paper money? 207, 208; or made
more  convenient  to young  men?
215, 216; loaned in two forms, 253;
its remuneration to be distinguished
from  profits, 280; applied  to land,
becomes an element of rent, 298; is
public debt capital? 355, 356; must
be reproduced, 382, 444; wealth un  productively applied not capital, 386;
relation to population, 447 458, 459.
Charity, its place in political economy
411, 412; discussed, 412, et seq.; how
far can fictitious employment be sub   stituted? 406, 407.
Circulating capital, 57, 58.
Circulation of mixed-currency banks,
141, 145, 209; fluctuations, 161, 232,
Coal, importance of its proximity t4
iron ore, 94, 95.
AD-VALOREM duties, 312, 313.
Agriculture, a form of production, 24   26; allows little division of labor, 41,
42, 106; or application of machinery,
61; products tend to increase in value
14, 15, 42; affected by mixed cur   rency, in America, 205-207; its
wages lowest of all, 261.
Allen, D. 0., quotation, 95.
Allotment system, English, 416.
Amserican civil war,  devel          oped sanitary
science, 44;  effect      on consumers of
cotton, 83;  encouraged cotton cul   ture elsewhere, 88; influenced by
mixed currency, 188, 189; did not
encourage industry, 410, 411.
Amsterdam, Bank of, 225, 226.
Apprenticeship, shortened by division of
labor, 38, 39.
Arbuthnot, quotation, 50.
Art, a form of consumption, 397-399.
Atkinson, Edward, statistics of cotton
culture, 330.
BALANCE of trade, 117-120.
Bankruptcies,                   relation to currency, 156   160,     166-168; correspond to quality
of                       currency, 203, 204.
B      anks,  mixed                        currency 141, et seq.;
Suffolk. 164;   savings',  184-186;
mixed currency favorable to? 216   219; English Joint Stock, 217, 218.
Bank  of England,                   142,  199, 201, 228,
247, 292,  363,  etseq.
Barter, 121, 122.
Bascom, Professor, quotation, 6, 175.
Bastiat, F., illustrations of value, 9-13;
quotations, 123, 294.
Bequest, laws of, 371-379.
Bills of exchange, 241-251.
Book accounts, 240, 241.
Bounties, compared with protective
duties, 318, 319.
0
[4731 
INDEX.
Cobden, his French treaty, 113, 114;
opinion of mixed currency, 223.
Coinage, peculiar adaptation of' gold
and silver, 127; discussed, 130, 131;
what government really does by it,
170-172.
Colwell, Stephen, his estimate of secu   rities in the United States, 214.
Congress of nations, 437-440.
Consolidation of national debt, 841-345.
Consumption, place in the science, 23,
56, 57; mistaken consumption, 72,
73, 383-386; how consumption comes
into relation          with production, 75, 76e
mischievous consumption should be
taxed, 311, 320, 321; to what  extent
consumpti o n            sho ul d  be  taxed, 313,
314; co     nsumption discussed,  380, et
seq.
Co ntraction        of mixed currency, how ef   fected, 157-159; illustrated, 161, 162,
168.
Contract s, effects upon them of credit,
134, 135; of  mixed                cur      rency, 166   174,  181-183.
Convertibility of cur rency distinguished
from redeemableness, 140,  1 41 of
different k inds of curr   ency, 232.
Cooke, Jay,  h     is pamphlet on National
Debt, 353-362.
C        o-operation of labor (see Division of
Labor), 54-71.
Co-operative associations, 274-279.
Corporations, not generally so effective
as partnerships, 69.
Corpora     te fo  reign         indebtedness, 346.
Cotton, relation to gold, 128; how af   fected by  mixed currency, 205 -207;
propriety of export or excise duty,
327-330.
Credit currency, defined, 124; d        iscussed,
131-138; is it capital? 207; f-~sumg,
232.
Credits, should they be                 taxed? 338, 389.
Culture ec onomic,  field                     of this  agency'
71-76.
Currency, defined, 124; its four kinds,
124, 125; are deposits currency? 151
-153; are bills of exchange currency?
249-251.
Customs, frauds in, 119, 120, 313; a
mode of taxation, 312; discussed,
312-318.
D)EBT, evidences of, 240-251; national,
consolidation of, 341-845; fallacies
respecting, 353-362, 410, 411; indi    vidual, affected by credit currency,
132; by mixed currency, 166-174,
181-183.
Deferred income, 324, 825.
Deposits, 141, 146; analyzed, 148-154;
under mercantile currency, 231, 232;
increased by usury laws, 292.
Destruction of wealth, 73, 380.
Direct taxation, 312.
Discount, its limits, 97, n.
Distribution, its place in the science, 23;
discussed, 252-379, 469, 470.
Dividends, how classed, 287, 288.
Division of labor, its place in produc  tion, 31; illustrated, 32-34; advan  tages, 34-39; limitations, 40-43; dis   advantages, 43-52;, the balance cast,
53, 54; r'sum~, 252.
EDUCATION, public, 402, 440-443; of the
laborer, affecting wages, 262, 443;
especially woman's wages, 265.
England, agricultural  class, 47, 369;
corporations, 69; compared with Bra   zil, 81; protection, 90, 360; value of
- land, 95, 96; emigration caused by
American protection, 99; trade with
United States, 111, 245; depreciation
of Napoleonic money, 135; currency
described,  202-205, 226, 227; ex   change with, 247-249; impoverish   ment ofmassea, 369, 370; mischievous
consumption,  392; pauperage, 412,
416 - 418; public  education,  440;
causes of "over-population," 456,
457.
Entail, 375-379.
" Entrepreneur," 279.
Ethnical characteristics,  affecting man   ufact ures, 27; trade, 81; c onsump   tion, 451.
Europe, rent,  294; improvements of
soil, 299;  f   inanc ial system,  363, et
seq.; lu xury, 391;   aggregate  reve   nue, 405.
Exchange, its place in the science, 22,
23; a form of production, 29-31; ori   gin, 77; principles of, 78-85; ob   structions, 85-117; international bal   ances, 117-120; instruments of, 121   251; bills of, 241-249; are they cur   rency?  249-251; fictitious (bank),
caused by usury laws, 291, 292.
Excise, 319, 320.                     i
Expansion of mixed currency,   how ef   fected, 156,157; illustrated, 161, 162,
179; affecting manufactures, 191,192;
affecting wages, profits, &c., 302-306.
Exports, origin, 79, 80; relation to im   ports, 117-120; *taxation of, 325-330.
Export of American cotton,  328; of
American stocks, 347-350.
FALLACIES respecting protection, 101   108; mixed currency, 207-223; for   eign indebtedness, 350-353; national
indebtedness, 353-362.
Fawcett, Professor, quotation,  77; his
account of co-operative associations,
274-279.
Fertility, an element of rent, 297, 298.
Fisheries, a branch of agriculture, 26.
Fix      ed cap  ital, 57, 58.
Foreign indebtedness, its interest  in    cluded in balance of trade, 120.
Foreign exchange, 243, et 8eg.
474 
INDEX.
specting, 353-362; national, relations
to modern financial system, 369; for   eign national, interest included in
balance of trade, 120; economy of,
346-353.
India, rebellion in, affecting trade, 83;
affected by rebellion in the  United
States, 88; distance of coal from iron
ore, 95; cotton culture, 328.
Indirect taxation, 312, 314, 365, 368, 369.
Individual opposed to public or corpo   rate enterprise, 40, 50-52, 69, 403,
404, 407-410, 414, 419.   (See- Co   operation and Division of Labor.)
Infancy of manufactures, argument from,
101, 102; sophistry of the argument,
103, 104.
Inheritance,'laws of, 371-379.
Interest, how related to mixed currency,
196-201, 220, 302-306; in England,
204; its place in distribution, 253;
discussed, 288-294.
Invention facilitated by division of la   bor, 35, 36; requiring increase of
capital, 448.
Ireland, causes of her decline, 63, 64;
causes of emigration, 104; famine of
1847, effect on finances,  199; cur   rencv, 202, 228; pauperism, 420.
Iron, manufacture in the United States,
93-101; period of its use, 129.
JEWISH, only race not deterred from
gain by persecution, 68.
LABOR, defined, 18; work of slaves not
labor, 18, 19; relation to capital, 21,
22; division of, 31-54; co-operation
with  capital,  60-71; proportion  to
capital, 60-66; productive or unpro  3 ductive? 71-73; classified, 253, 254;
combinations, 269-71.
Land, the foundation of rent, 295; ap   pendages,, 299-301.
Learning, economic relations, 74; affect   ing wages, 262; as a form of con
sumption, 397-399.
Legal tender, when unjust, 132-138;
how far just, 170-172; national-bank
currency, how far legal tender, 234.
Legislation, relations to wealth, 1, 2, 4,
5; when  mischievous,  69-71; in a
free government fatal to protection,
109, 110; does  not determine  the
value of money, 131: cannot control
premium on gold, 132; can it restrain
the issue of credit currency? 134   136; can it regulate mixed currency?
219, 220.
Levi, Professor, quotation, 63; estimates
revenues of Great Britain from dis   advantageous consumption, 320, 321,
estimates  contribution of the several
classes, 370.
Licenses, a mode of taxation, 321.
Life affected by employments, 43-49;
its risks affecting wages, 260.
France, conflict of capital and labor, 22;
injustice to capital, 67, 68; beet-root
culture, 102, 103; commercial treaty
with England, 113, 114; revolution   ary money, 135; trade with United
States, national debt, 356, 362;
growth of -manufactures, 394; pri   vate frugality, 394; public extrava   gance, 396; its war system, 461.
Free  institutions not suited to protec   tive policy,   109, 110.
Free banking, 230, 231.
Fr eedom essential to secure just wages,
255; just profits, 281.
Friendly societies of Great Britain, 269   271, 415.
Frugality,  i           o  ec     i e, 20, 445;  affetingwages,262.
263; dependent on sacredness of
lpr operty, 289, 450; examples               of pub   lic frugality, 296, 404.
Funding, its origin, 365.
GENOA, trade and decline, 64; bank of,
225.
G ibb         on, quotation, 384, 395.
Goldr, properties, 127-130; relation         s to
credit   curr enc   y, 132; sufficiently
pl entiful  for commerce, 213-215.
Government,  influence                on economic de   sires, 74;  cl     aim i n  distribution, 254,
449; a co partner  in production,  3       07,
308; n ecess      it    y for, 401, 402.
Government  b           onds,  taxation, 339-345;
exportat ion, 347-350.
Great Britain, estimated wealth, 63;
currency, 202-205; abolition of usurv
laws, 290; import of breadstuffs, ef  fect o         n            rent, 298;   taxation, 313, 320,
321; consolidation   of debt, 344, 347;
financial, 361-371; primacy in man   ufactures threatened by France, 393;
luxurious consumption, 394; church
establishment, 402; public expendi   ture, 405.
HEALTHT, affected by employments, 43   49; risks to, affecting wages, 261.
Holland, reason for commercial enter  prise, 28; pauperism, 412.
IMMEDIATE distinguished from ulti  mate resources in bank accounts,
140, 145, 147; are stocks' included?
153, 154.
Imports, origin, 79, 80; relation to ex  ports, 117-120; how related to pro' tective duties, 193-195; to mixed
currency, 195, 196; to rent, 298; of
foreign materiel in war, 424.
Incomes,~ affected by credit currency,
133; by mixed currency, 221-231,
305.
Income tax, 322, 339; political consid   erations, 333.
Indebtedness, discharged in currency,
165; national (Unlited States), its
consolidation, 341-345; fallacies re
475
. 0 
INDEX.
Location, an element of rent, 296.
Luxury, defined, 386-388; relations to
wealth, 388-392; on the degree of,
392-397, 449, 450; relation to popu   lation, 460.
MACKINTOSH, quotation, 84.
Malthus, his theory of population, 452,
et seq.
Manufactures, their products tend to de   crease in value, 14, 15; a form of
production, 26-29; law of their diffu   sion, 27, 28; amount of, 28, 29; be   long to old and rich countries, 105,
106; affected by mixed currency, 190
-196.
Martin, J. G., reference to, 190-200.
Massachusetts, shoe  trade, 104; cur   rencv, 163, 164, 185, 228, 234; rate of
taxation, 331; vital statistics, 462-464.
McCulloch, his theory of inheritance,
372, 373.
Mechanical    employments    affecting
health and life, 44, 45.
Medium of exchange, what, 122, 123;
is a  mixed  currency satisfactory?
164-168.
Mendicancy, 414, 421.
Mental power, its wages, 266-268.
Mercantile currency, defined, 125; dis   cussed, 224-232.
Mercantile theory, the, 54.
Mill, J. G., definition of labor, 18; states
law of currency, 215; quotation, 279,
n., 308.
Mining, a branch of agriculture, 57, 58.
Mistaken  consumption,  72,  73;  dis   cussed, 383-386, 445.
Mixed currency, defined, 124, 125; dis   cussed, 138-223; does it satisfactorily
perform the function of money? 155   184; its effects, 184-207; fallacies re   garding it, 207-223; cheapness, 208   212, 227; resum~, 232; effect on inter   est, 292, 293; complicates the whole
scheme of distribution, 302-306; neu   tralizes value of government bonds
sold abroad, 348, 349.
Money, defined, 124, 169-172; different
forms, 126, 127; is mixed currency a
satisfactory substitute? 155-184; is
money sufficiently plentiful for com  merce? 213-215- its relations to a
state of war, 422-424.
Morality, relatiQns to political economy,
391-393, 449-451, 461, 462.
Moral power, its wages, 266-268.
Mortgages, should they be taxed? 337   339.
Mortmain, 371-373.
Natural powers confer no value, 10, 12,
16.
Necessary wages, 255, 256; profits, 284,
285.
Newcombe, S, his "Financial Policy,"
424; quotation, 467.
New England, its natural industry, 114;
originally opposed to protection, 116;
currency,  163, 164; its agricultural
competition with the Western States,
300; public education, 442, 443.
New York, banks of, 142.
Nominal distinguished from real wages,
256, 257.
OPDYKE,  George, computes profits of
importers, &c., 317, 318.
Overstone, maintained th at deposits are
not currency, 151.
PARISH allowance, Englis h, 415.
Pauperag      e.   (S ee Poor L aws. )
Peel, his  Bank Act, 199, 200; quo    ta   tion, 201.
Personal estate, def ined,  280,  n.
Physica l  powe r, its  wages, 2 66-268.
Political e conomy,      defin ed, 1; a positive
science,  3, 4; embarrassed  by legis  lation, 4, 5; by prejudice  a  nd self  interest, 5, 6; by  loose p hraseo logy,  7.
Poli tics, relation to  political economy,
1, 2, 15, 16, 391, 449-451.
Poll-tax payers, political danger from,
332, 333.
Poor-laws, 411, et seq. (See Charity.)
Population 4, 447, 452,   et seq.
Price, what, 174; distinguished from
value, 175, 176; how affected by in   crease of currency, 215; is the only
thing gained by currency expansion,
223, 354.
Pr imog eniture,          suppo rted by.Mr. Mc   Culloch,  373;  disc    ussed,  375-379.
Production, its place in the science, 22;
its forms, 24-31; conditions of high   est production, 31; discussed, 32-76,
410.
Productive or unproductive capital, 58
-60; labor, 71-73.
Profits, place in distribution, 253, 254;
discussed, 279-288; affected by tem   porary rise of wages, 286, 287; by
currency inflation, 302-306; of im   porter, retailer, &c., 317, 318.
Property tax, discussed, 331-339.
"Protection," from physical causes, 85   87; for industrial purposes, 91-108;
for public justice, 109, 110; for na   tional security, 110-112; for retalia   tion, 112-114; defeated by mixed
currency, 190-196; cost of "protec   tion" through customs greater than
by bounties, 314-317; not secured
by national debt, 354-360.
Publication of tax lists, rightfulness of,
310, 324.
Public consumption, 401-410.
NATIONAL-BANK system, compared with
the State-bank system, 233-240.
National taxation, defined, 311; dis  cussed, 312-330; how supplemented
by State taxation, 336, 337;  debt,
341-345, 353-362, 410, 411.
4i6 
INDEX.
Taxation,  place  in distribution, 254;
discussed, 306-339; of government
bonds, 340-345.
Tea, taxation in Great Britain, 313.
Tender, legal, 132-138. 170-172, 234.
Territorial division of labor, 81-85.
Territorial endowments affecting manu   factures, 28; trade, 80; government
expenditures,  404,  405,  450,  451;
amount of capital, 447.
Tobacco, once legal tender in Virginia,
126; taxation in Great Britain, 320,
321.
Trade, relations to exchange, 77, 78 (see
F,xchange); balance of, 117-120.
Trades' unions, 271, 272, 415.
UNITED  States, estimated wealth, 62,
63; iron manufacture, 93, 101, 103;
immigration, 99; shoe manufacture,
104; true economical interests, 114   117; prosperity attributed to mixed
currency,  212, 213;  national-bank
system, 233-240; rents, 294; taxa   tion, 307; unnecessary losses during
rebellion,  137, 138; rapid depletion
in 1864-65, 350; railroads, 384; pub   lic education,  402; public expendi   ture, 405, pauperism, 412, 413, 419.
United-States Bank, control of interest,
198; of exchange, 247.
Usury laws, 290-293.
Utility, distinguished from value, 14-17.
VALUE, its elements,  8; illustrated, 9   1 3; distinguished from utility, 14-17
(see Standard of value); a property
of gold and silver, 127, 165, 166; its
laws do not  control mixed   currency
155, 156; dis ting uis hed f rom price,
175, 176.
Value-c urrencys, of     two  k inds, 124,125
how regula ted,  180, 1h 1; is it more
expensive than mixed currency? 208
-212.
Venice, trade and causes of decline, 64;
hostile commn ercial   legislation, 113.
WAo GES, affected by protective legisla   tion, 11 3; classified,  23-2,55; di s   cussed, 255-265; second classification,
266; discussed, 266-268; a temporary
rise in wages affecting profits, 286,
287; how affected by mixed cur   rency, 256, 257, 302-306; variations
in, 397.
Wants (human), place in the science,
2-4; affecting wages, 255, 256; the
spring of wealth, 378-390.
War, affecting trade, 83; affected by
trade, 84, 85; how far requires pro   tective legislation, l10-112; relations
to mixed currency, 187-189; to lmod   ern financial system, 369; the finance
of, 422-424; economy of war system,
425, et seg.; affecting population,
461.
RATES of interest, 196-201; of exchange,
246, 247; of profits, 2837 284.
Rent, an apparent anomaly, 17; how af   fected by credit currency, 133; place
in distribution, 253; discussed, 294   302; affected by currency inflation,
302-306.
Reproduction (human), chiefly through
agriculture, 25, 47-49; how affected
by destitution, luxury, &c., 453.
Reproduction of wealth, 75, 76, 377.
Reproductive consumption, 444, et seq.
Retaliation in commercial  legislation,
112-114.
Revolution,  American,  vast  transfers
without equivalent, 134, 135; debt
incurred, 363; expense to England,
366.
Ricardo, his theory                  of rent, 398, n.
Rom e, money, 126; luxury, 396; pau   perage, 413.
SAVINGS' banks, relations   to   mixed cur   rency, 184-186; character of               d     eposi   tor s, 358.
Scotland,                     currency, 202, 203, 228; public
education, 442, 443.
Sex, distinction made in wages, 263   265.
Shoe trade of the United States, 104.
Silver, properties of, 127-130.
Small notes, 228,                         2529.
Smith, Ad am, pin-n ak,ing in his time,
34; distinguishes  between productive
and unproductive labor, 71273; the   ory of cheap c    ur          rency, 211, 212; defi   nition of                          wages,  255; principles of
tax ation,  308-310.
Smith, J. Y., quotation, 190.
S     ocial condition,                             affecting trade, 81, 83.
Specific duties, 312, 313.
Speculation, affects wages differently
from other commodities, 257, 258.
Spirits, taxation of in Great Britain,
320, 321.
Stamps, a mode of taxation, 321.
Standard of value, what, 123, 169-72;
does a mixed currency act justly as
such? 172-184.
State taxation (American), discussed,
331-339.
Stocks, held by banks, 143; not imme   diate resources, 153, 154.
Strikes, 272, 273.
Subsistence (human), nature's provision,
375-377; relation to population, 452,
et seq.
Suffolk-bank system, 164.
Sumptuary laws, discussed, 399-401.
Surplus production necessary to trade,
83.
Suspension better than severe contrac  tion with mixed currency, 168, 220,
221.
TARIFF, history of American, 115-117,
192-196.
477 
INDEX.
Wheat, price, how affected by mixed
currency, 205-207; by export duty,
325, 326.
Woman,  her wages, 263-265; should
she  be       taxed?  309; largely depend  ent for support, 411.
YATMAN, J. Y., his tables of currency,
162.
Wealth, defined, 7, 8; forms in which
created, 24; is debt wealth? 353-355;
does it belong to the living or the
dead? 371-373.
Western  States of America,  mineral
wealth, 108; their natural industry,
114; how affected by mixed cur  rency, 205-207; rent, 300, 301; ne  cessity of taxing credits, 339.
THE END.
Cambridge: Stereotyped and Printed by John Wilson and Son
478