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No.

INTERNATIONAL CONGRESS
OF ARTS AND SCIENCE

THE TEMPTATION OF ST. ANTHONY
Hand-painted Photogravure from the Painting 'by C. E. de Beaumont

Few religio-classical subjects have received so much attention at the hands
of painters as " The Temptation of St. Anthony," a theme that possesses the
human interest to the utmost, and is fairly a composite of worldly desire and
pious abnegation. The picture which is here reproduced is from the brush
of the very distinguished painter, de Beaumont, whose treatment of the popular
story is not more original than it is impressive and beautiful. The ac-
cessories are so appropriate, the figures so characteristic that the composition
needs neither description nor interpretation, since every feature perfectly
reflects the incident and reveals the sentiment that invests the temptation.

INTERNATIONAL CONGRESS

OF

ARTS AND SCIENCE

EDITED BY

HOWARD J. ROGERS, A.M., LL.D.

DIRECTOR OF CONGRESSES

VOLUME XIII

ECONOMICS AND SOCIAL REGULATION

COMPRISING

Lectures on Commerce and Exchange, Transportation,

Money and Credit, Finance, Life Insurance,

Politics, National Administration,

Municipal Administration,

and Diplomacy

UNIVERSITY ALLIANCE

LONDON NEW YORK

COPYRIGHT 1906 BY HOUGHTON, MIFFLIN & Co.

ALL RIGHTS RESERVED
COPYRIGHT 1008 BY UNIVERSITY ALLIANCK

ILLUSTRATIONS

VOLUME XIII

FACING
PAGE

THE TEMPTATION OF ST. ANTHONY . . . . Frontispiece
Photogravure from the painting by C. E. DE BEAUMONT

HAROUN-AL-RASCHID

Photogravure from the painting by J. KOCKERT

RIGHT HON. JAMES BRYCE 338

Photogravure from a photograph

THE WITCHES 416

Photogravure from the painting by WALTER MACEWEN

TABLE OF CONTENTS
VOLUME XIII

ECONOMICS

The Fundamental Conceptions and Methods of Economics . . 7
BY PROF. FRANK ALBERT FETTER, PH.D.

Economic Science in the Nineteenth Century ..... 21
BY PROF. ADOLPH CASPAR MILLER, M.A.

ECONOMIC THEORY.

Economic Theory in a New Character and Relation ... 47
BY PROF. JOHN BATES CLARK, PH.D., LL.D.

The Scope and Method of Political Economy .... 57

BY PROF. JACOB H. HOLLANDER, PH.D.

TRANSPORTATION.

Transportation . . . . . . . . . .71

BY PROF. EUGEN VON PHILIPPOVICH, LL.D.

Problems of Transportation ........ 95

BY PROF. WILLIAM ZEBINA EIPLEY, PH.D.

COMMERCE AND EXCHANGE.

The Manufacturer and the Domestic Market . . . . . 115
BY PROF. EDWARD D. JONES, PH.D.

Foreign Markets .......... 133

BY PROF. CARL COPPING PLEHN, PH.D.

MONEY AND CREDIT.

Our Monetary Equilibrium ........ 151

BY HORACE WHITE

Present Monetary Problems . . . . . , . .161
BY PROF. JAMES LAWRENCE LAUGHLIN, PH.D.

PUBLIC FINANCE.

Eelation of the Science of Finance to Allied Sciences . .. . 179
BY PROF. HENRY CARTER ADAMS, PH.D., LL.D.

Pending Problems in Public Finance . . . .• . . 190
BY PROF. EDWIN ROBERT ANDERSON SELIGMAN, PH.D., LL.D.

INSURANCE.
Life Insurance as a Science ........ 207

BY FREDERICK L. HOFFMAN

TABLE OF CONTENTS

Present Problems in Insurance . . .' . . . 236

BY PROF. BALTHASAR HENRY MEYER, PH.D.

Works of Reference relating to Economics ..... 253
Works of Eeference relating to Commerce and Exchange . . . 257
Recent Works of Reference relating to Money and Credit . . . 258

SOCIAL EEGULATION

INTRODUCTORY ADDRESS.
Social Regulation . . . ... . . . . . 263

BY PROF. A. LAWRENCE LOWELL, LL.B.

POLITICS

The Fundamental Conceptions of Nineteenth-Century Politics . . 279
BY PROF. WILLIAM ARCHIBALD DUNNING, PH.D., LL.D.

The Tendencies of the World's Politics during the Nineteenth Century 293
BY CHANCELLOR ELISHA BENJAMIN ANDREWS, LL.D.

POLITICAL THEORY AND NATIONAL ADMINISTRATION.

Political Philosophy ......... 309

BY PROF. WESTEL WOODBURY WILLOUGHBY, PH.D.

•Problems of Political Theory 326

BY PROF. GEORGE GRAFTON WILSON, PH.D.

National Administration ........ 339

BY HON. JAMES BRYCE, M.P., D.C.L., LL.D.

DIPLOMACY.

The Proper Grade of Diplomatic Representatives .... 355
BY HON. JOHN WATSON FOSTER, LL.D.

The Contemporary Development of Diplomacy ..... 369
BY HON. DAVID JAYNE HILL, LL.D.

COLONIAL ADMINISTRATION.

The Control of Dependencies inhabited by the less developed races . 387
BY PROF. BERNARD MOSES, PH.D., LL.D.

The Problems of Colonial Administration . . . . . 399

BY PROF. PAUL S. REINSCH, PH.D.

MUNICIPAL ADMINISTRATION.

Relations of Municipal Administration ...... 419

BY ALBERT SHAW, PH.D., LL.D.

Problems of Municipal Administration ...... 434

BY JANE ADDAMS, LL.D.

Works of Reference relating to Political Theory .... 451

Works of Reference relating to Diplomacy ..... 452

Works of Reference relating to Colonial Administration . . . 454

Additional Works of reference relating to Colonial Administration. . 456

HAKOUN-AL-KA8UU1D

Photogravure from the original Painting ~by J, Kockert

Haroun-al-Raschid was Calif of Bagdad in the eighth century. Under him
the Eastern califate attained its greatest height of splendor and power. He
is, however, best known from the tales of the Arabian Nights, in which
everything curious, romantic, and wonderful is connected with his name, or i3
supposed to have happened in his reign.

DIVISION E
UTILITARIAN SCIENCES (continued}

DEPARTMENT XIX — ECONOMICS

DEPARTMENT XIX — ECONOMICS

(Hall 1, September 20, 11.15 a. TO.)

CHAIRMAN: PROFESSOR EMORY R. JOHNSON, University of Pennsylvania.
SPEAKERS: PROFESSOR FRANK A. FETTER, Cornell University.

PROFESSOR ADOLPH C. MILLER, University of California.

IN opening the proceedings of the Department of Economics, the
Chairman, Professor Emory R. Johnson, of the University of Penn-
sylvania, spoke as follows:

" The purpose of the deliberations of this Department will be to
point out the present status of economic thought and to indicate the
present trend of economic thinking. There is much evidence that
economists are to-day coming to view political economy less as their
predecessors of twenty-five and fifty years ago did, and to regard
the science as it was conceived by Adam Smith. In Smith's classic
work on the Wealth of Nations, the discussion arid analysis of pro-
duction occupies the larger part of the volume. Smith was con-
cerned but little with the distribution of wealth, but endeavored to
put in scientific form the principles of the production of wealth.

" Adam Smith and his successors for over a half-century studied
production very largely to the exclusion of other phases of economics,
because of the universal necessity for a greater amount of wealth.
The intellectual and social progress during the latter part of the
eighteenth and during the nineteenth century caused men to realize
more clearly than ever before the necessity for more efficient pro-
duction in order to satisfy the expanding wants of various classes
of society.

" With the industrial development of the nineteenth century and
with the rapid accumulation of wealth, the ethical problems of
distribution came to occupy the thought of social philosophers and
turned the minds of economists toward ethical problems. The
problems of distribution received almost exclusive attention for a
score of years following 1880. In dealing with the theory of value
and with the principles of the distribution of wealth, the most notable
contributions were made by the Austrian and American economists,
although Jevons and other English writers contributed in no small
measure to the theory of distribution. The American people may
well be proud of the achievements of their countrymen in the develop-
ing of the theory of the distribution of wealth.

" During the past few years the public has heard but little regarding

6

the theories of distribution. At the present time the economist as
well as the business man is dealing more and more exclusively with
the general problem of productive efficiency. The great technical
development of the past fifty years and the constant effort of all
classes of producers to secure greater economy through a more
efficient organization of industry are concrete evidences of the
subordination of distribution to production at the present time.

" The same thought may be stated in another way by saying that
men are now realizing more and more clearly that the distribution of
wealth among producers is determined by and is dependent upon the
relative productive efficiency of various producers. Recognizing
the fact that distribution depends upon productive efficiency, wage-
earners are striving to increase their efficiency by means of their
unions; manufacturers and carriers through their consolidations, and
capitalists by the formation of syndicates. The labor question and
the trust problem are, at bottom, problems of production, and are
being so considered both by the practical man and by economic
scientists.

" One other interesting evidence of the increasing demand for
productive efficiency may be seen in the rapid development of busi-
ness and commercial education. In Gennany and certain other
European countries technical education has been provided by public
authority with excellent industrial results. In the United States,
private funds have thus far contributed most of the money spent in
the development of facilities for technical, business, and commercial
education; but our public school system has already begun to
incorporate business education into its curricula. There are numer-
ous evidences of the tendency to look to educational training for the
promotion of economic efficiency. If it be true — and I believe it is
true — that the distribution of wealth is determined primarily by
relative productive efficiency, and that both industrial education of
an elementary grade, and business education of a secondary and
university grade can add to the economic efficiency of men and
women, we may feel hopeful regarding the future welfare of society.
There is no doubt about our being able to increase greatly our
productive efficiency, and it seems to be the opinion of economic
philosophers to-day that increasing economic efficiency will be
accompanied by a progressively better distribution of the results of
production."

THE FUNDAMENTAL CONCEPTIONS AND METHODS OF

ECONOMICS

BY FRANK ALBERT FETTER

[Frank Albert Fetter, Professor of Political Economy and Finance, Cornell
University, since 1901. b. Peru, Indiana, March 8, 1863. Graduated, Indiana
University, 1891; Ph.M. Cornell University, 1892; Ph.D. Halle, Wittenberg,
1894; The Sorbonne, and Ecole de Droit, Paris, 1892-93; and Halle, 1893-
94. Instructor in Political Economy, Cornell, 1894-95; Professor, Indiana
University, 1895-98; Professor, Leland Stanford Jr. University, 1898-1900.
Secretary and Treasurer of American Economic Association, 1901-05. Author
of Versuch ciner Bevoelkerungslchre, Jena, 1894; The Principles of Economics,
N. Y., 1904, Rent and Interest, 1904; also of many articles, monographs, etc.,
on economic subjects.]

I. Conceptions

Limitations of the subject. — This paper will necessarily be confined
to a few of the important aspects presented by this many-sided
subject. We proceed from the thought that economics as a science is
primarily concerned with the explanation of the process of evaluat-
ing objective things, materials and services, that minister to man's
welfare. Every such problem of valuation is an economic pro-
blem; every fact helping to an understanding of valuation is, in
that aspect, an economic fact. The vast and complex world pours
ceaseless streams of impressions into men's minds. As men have
striven to correlate these impressions according to various principles,
they have come to recognize value as one of the recurring and neces-
sary relations, and have come to group things according to the
economic principle. Historically viewed, the increasing scope and
exactness of men's evaluation of the world about them is seen to be
the unfolding process of men's thought. A theory of value logically
adequate, therefore, must trace the value conception from its genesis
through its successive stages of thought to the highest and most
complex value relations.

Good. — The primordial conception at the basis of all choice,
economic or other, is that of the good. There can be no conceptions
until mind has been evolved ; but an embryonic mind was in the first
forms of life reacting upon their environment, shrinking from that
which harmed and seeking that which helped. Before higher
conscious thought-centers existed, nerves in plants and animals
reached out toward the favorable and shrank from the unfavorable.
Even the protoplasm has its fundamental economic conception.
The evolution of higher animal forms is but the development of
special organs of selection to choose the good and to flee from the
evil. There need be, as to the use of the conception of good, at this

8 ECONOMICS

point no subtle controversy over Epicureanism, or of Hedonism, or of
Benthamite utilitarianism. " Good " is here any objective condi-
tion, thing, or act, which is seen to have a beneficial relation to the
man himself, or indirectly to any one, or anything, else to whom he is
bound by sympathy. The old discussion of the utilitarian philosophy
of morals has almost lost its meaning to modern thought. In the
light of the evolutionary theory it may now be said that a conception
of good and evil, in a physiological, an economic, a political, a moral,
and a religious sense, are rooted alike in this primordial fact of the
reaction of animate creatures upon their environment, choosing that
which makes for efficiency and life, and avoiding that which destroys
the individual and the species. When man at last rises to the stage
of conscious and purposeful mastery over the world, when he, at last,
in his gropings for a philosophy of things, begins to create also an
economic theory, he recognizes in the broad conception of 'the
good" the principle that has ruled the destiny of evolving life
throughout its struggles upward from the ocean slime to the highest
human intelligence.

Scarcity. — Next to the conception of the good the most funda-
mental economic conception is scarcity; indeed it may be said that
economy (which is the study of the good in the objective world) does
not truly begin until scarcity sets in. Among the many things
surrounding the wriggling bit of protoplasm are some comparatively
few things better adapted than others to further its life. It is the
appropriation of these better things that insures survival, and so
nature begins to shape the various species, making them larger,
stronger, swifter to get, more able to digest and assimilate. But
improvement in one individual and one species is met by improve-
ment in another, and the contest never relaxes. The origin of
species, once so mysterious, has, by the revelations of biology, been
made a familiar fact. Selection of the fittest is an agency of biologic .
progress because of the universal prevalence of superfluous life
germs, competing for a limited supply of scarce means of life. This
profound truth came to Darwin while he was reading Malthus'
Principle of Population. Malthus had got a partial and distorted
glimpse of a great fact of nature: the scarcity of food and the excess
of life germs. It may be questioned whether Darwin and his fol-
lowers in turn have sufficiently recognized that natural selection is
but a fragmentary expression of a greater economic principle, — the
scarcity of goods compared with wants. The survival and increase
of a species is but the ultimate resultant of a multitude of acts and
relations determining which of the individuals shall wax strong and
prevail in the struggle for the scarce goods of their environment.

The process of adaptation is twofold, — individual and racial, —
a contrast implied in the whole question of natural and acquired

CONCEPTIONS AND METHODS OF ECONOMICS 9

characters. Adaptation is likewise twofold, — subjective and
objective, — according as the change influencing fitness for survival
takes place in the living creature or in its environment. Both
modes of adaptation are related to scarcity, the subjective mode
enabling the individual to excel his competitors in securing and
utilizing the particular goods available; the objective mode concern-
ing the change in the environment itself, by natural means at first,
then later by artificial agencies.

Economic gratifications. — Now let us direct our attention to the
conscious human stage of developing thought. Among the varying
states or processes of mind and feeling, men distinguish some as good,
others as indifferent or as evil. The good became linked by experi-
ence and training with certain kinds of activity or with certain con-
ditions of the objective world. In the broad sense any good psychic
state or process is a gratification, and any objective condition of
it is " a good."

The scarce goods evidently are not all the goods necessary to life,
and yet from the beginning of evolution the struggles, the appetites,
and the interests center about scarce things. The superfluous things
are not in dispute; they are taken for granted. Survival is favored
by the concentration of all available energies at the strategic points
where the real rivalry lies. Attention becomes intense only when
focused upon a small area of thought; effort becomes effective only
when narrowed in its task. And thus, throughout the world of
animate life, the margin of scarcity bounds the field of economic
interest and of economic effort. A distinction, therefore, is to be
recognized between free goods, which exist in superfluity, and
economic goods, which are scarce in relation to wants. Correspond-
ingly there is a distinction between free gratifications and economic
gratifications, but the word " gratification " is generally used in the
latter and narrower sense. The quality of arousing gratification is
not attributed prodigally to all goods ; it is not generally thought of
as arising merely from the physiological action of free and super-
fluous goods; it is the psychological effect credited only to the
relatively scarce goods.

As gratification is the subjective aspect of the relation of man
to goods, so utility is the impersonal aspect, being the beneficial
effect of things, whether felt and recognized or not. The relations
of utility and value need further study. The paradoxes are forever
recurring, — of intense desire, of strongly felt dependence on things
far from vital, and of heedless disregard of things whose loss would
be fatal. Gratification and gratitude are closely connected in
thought and in life. The relations of man with nature are ruled
by the principle of centering effort, interest, and appreciation, upon
the scarce things. Relations of exchange are ruled by the principle

10 ECONOMICS

of giving scarce goods only in return for scarce goods, measuring the
equivalent more or less accurately in accordance with the gratifica-
tion expected; that is, with the felt and recognized dependence of
the want upon a particular supply.

It is to be feared that after all the able recent contributions to the
psychological economics, the terminology still bears the marks of an
origin in a narrower utilitarian psychology, now much disputed.
Fuller studies should clarify this important subject. Economists
meantime, however, may (despite the confusion of terms) recognize
that, as bearing on the analysis of value, the important factor is
gratification expected rather than realized, gratification in acting
quite as much as in being acted upon, gratification in the totality of
sentiments connected with experience rather than in an absolutely
isolated pleasure ; that, in short, gratification is an efficient
element in the valuation process only in so far as it is expressed
in volition.

Psychic income next must be recognized as a conception. The
various gratifications form a series of psychic conditions which
constitute the motives of economic activity. This subjective form
of income logically precedes all objective forms of income, for the
importance attributed to any objective goods is but the reflection of
the gratification which instinct, memory, and reason tell men those
goods are capable of affording.

Consumption goods are the favorable and scarce things about
men just being converted into psychic income. These are the
immediate points of contact of wants with environment. If men
lived their economic life in the immediate present, consumption
goods would be the only objects to which utility would be attributed.
In a philosophy of goods these present the simplest and most under-
standable problem of value. The animal economy, with rare excep-
tions, is concerned only with this phase of value. The child and the
savage recognize little dependence on any goods but these. Despite
the growing complexity of the value problem, this phase of it re-
mains .separable in thought from other phases, and both chrono-
logically and logically is the primary objective aspect. The problem
of value in its simplest form is that of the comparison of these
immediate objective conditions to gratification.

Usufruct. - - It is a slight step to the conception of usufruct.
The material things affording gratification are not all perishable and
destroyed, but are giving off or affording scarce uses, while h'ttle, if
any, injured by use. Ever since men began to think of economic
questions, this temporary use, apart from the durable bearer, of the
use, has been recognized more or less vaguely as one of the essential
aspects of the value problem. Usufruct always implies a more or
less durable agent which is affording a psychic product. The

CONCEPTIONS AND METHODS OF ECONOMICS 11

abstract ideal of usufruct, therefore, is that of an income yielded by
an everlasting agent.

Such a typical example is rarely presented by any concrete good.
Though the conception of usufruct is always in some measure an
abstraction rather than a fact, yet usufruct is a practical abstraction
indispensable to the understanding of value problems. In practice
a particular concrete agent may partake in varying degrees of the
nature of a consumption good whose utility vanishes in affording
gratification, and of the nature of a usufruct bearer, whose power to
afford a series of gratifications is unimpaired by the successive uses.
So essential is this conception in practical business that various
devices are adopted, such as repair- and sinking-funds, to give the
similitude of durability to agents which are gradually wearing out.
The confusion of the conception of usufruct with other conceptions
has been especially unfortunate in the treatment of rent.

Time-value. — The conception of the value problem has widened
through the centuries. The elemental phase of value, recognized
even by animals, is found in a consumption good, of substance and
material to afford gratification here and now. Primitive man
recognizes in addition to this the factor of form, and sees in a fitting
change of shape a rational cause of value. Many thousands of years
elapsed before the change of place ceased to be a mysterious factor in
value, and still in the late Middle Ages the merchant, the shipper,
and other agents of transportation, seemed to the mass of men to be
unproductive parasites upon the social organism. Even the over-
whelming evidence of the senses and the estimates of all men showing
that value was by these agencies imparted to goods did not, until of
late, shake the stubbornly materialistic conception that value
lay in the form and substance of things rather than in their psycho-
logical relations.

The time-relation proved to be still more subtle and difficult for
the concrete minds of men to comprehend. The chapter of eco-
nomic history dealing with the cruder aspect of the time-value
problem, the notions of, and opposition to, interest on money loans,
is familiar. Let us venture the more novel opinion that even certain
subtle current conceptions of the interest problems are mixed with
the dross of cruder materialistic thought, in that the theorists
persist in finding the essence of the problem of interest in the par-
ticular class of concrete agents with which interest is supposed to be
connected.

Economic theory is now ripe for the fundamental conception of
time- value as the difference in value of goods of any kind in dif-
ferent periods of time. Time-difference is a pervasive factor in the
valuation of the simplest goods and the simplest economic societies,
but so long as industry is concerned mainly with the present and a

12 ECONOMICS

narrow zone of the future, time-value, being exceptional, seems, even
more than place-value, to be a trick, a juggle, a thieving fiction of
avarice.

Capitalization. — The economic environment has progressively
enlarged, and thus has been broadened the zone of time in which
a rich and provident society lives its economic life and makes its
economic estimates. Time- value is no longer a minute factor; it
rises to a prominent place in the thoughts of men. The use of money
and the multiplication of exchange makes the value estimates of men
more general, conscious, and accurate. The most noteworthy
manner in which time-value is recognized is in the capitalization of
a series of incomes. When men provide for the future, they desire
to get possession of durable agents yielding a series of future uses.
Capitalization of a more or less durable agent is thus based upon
usufruct. Capital is but the value expression of a sum of incomes
reduced to their present worth by reference to a rate of time-discount.
Current conceptions may, from this point of view, be seen to halt con-
fused between the subjective conception of capital as the present
worth of any durable agent, and the objective conception of it as
consisting of certain concrete forms of goods (especially produced
goods). The general use of the capital expression of wealth is a
novelty, and the prevailing theories are medieval materialism united
to modern views, half-man, half-fish, quite untrue to reality.

Utility and Value. — We have made only passing use of the terms
utility and value, but these conceptions pervade the whole discussion.
Recent psychological economics has not entirely freed the terms
from difficulties. The use of " marginal utility " as synonymous
with '• value " of particular units in specific moments and conditions
seems near at times to a merely verbal shift. We may query
whether the difference is not deeper, " utility" expressing the real
benefits, and "value " those felt.1 Now, as the relation of goods to
gratification is recognized to be more or less direct or indirect, so
there are different grades, or phases, of value. The theory of marginal
units as applied to the exchanges made by groups of buyers and
sellers in a given market is but a portion of the whole theory; or
rather, the marginal unit theory as usually developed assumes the
most difficult parts of the problem, and leaves them unanalyzed and
unexplained. The commodities brought to a market are more or less
durable, more or less direct gratifiers, more or less immediate or
remote, in time, from gratification. Fish and meat exchanged for
horses, weapons, or dress are goods of entirely different orders.
Immediately consumable goods whose value is the exact reflection
of gratification are balanced against durable agents whose usufructs

1 The doubts expressed above (p. 10) as to the adequacy and consistency of
the terminology, apply to these terms also.

CONCEPTIONS AND METHODS OF ECONOMICS 13

are to be distinguished over a series of years, and whose present
exchange value is the capitalized sum of all the uses they contain.

Therefore " marginal utility " is not the theory of value; it is but
the alphabet of the theory of value. Building upon the conception
of immediate gratifications the conception of usufructs, and upon the
conception of usufructs the conception of capitalization and time-
value, the framework of a theory of value may be reared, unified,
consistent, and complete.

The conception of proportionality is not mentioned, but is implied
throughout the foregoing. In the progress of economic theory it
was under the aspect of "the law of diminishing returns " that men
first grasped a ragged corner of this broad principle. An historical
view helps us to understand how it was possible for the keenest
minds to believe at first that " diminishing returns " were peculiar
to land used in agriculture, and were due to the peculiar chemical
qualities of soil used for food production. Such a view mistook a
logical economic principle for a physical fact. Then the same
" law " was seen to be true of land in other uses; and of late by some
able thinkers has been seen to be true of all indirect agents. We
have now but to relate the " law of diminishing returns " in the
use of durable agents to the principle of marginal utility in the use
of immediately consumable goods for gratification, to arrive at
a broad conception of "the diminishing utility of goods" in all con-
ceivable applications, immediate or remote. This is the very heart
and essence of the economic problem. It is the proportioning of lim-
ited means to useful ends; it is the wise choice and union of limited
agents; it is the rule of economy. And this is but a special aspect
of a law as broad as life — the law of proportionality. In mechanics
it is the adjustment giving the maximum of efficiency; in chemistry it
is the union of elements in effective proportions; in politics it is the
rule of justice and expediency; in ethics it is the Socratic golden mean
between the opposing vices; in economics it is the wise adjustment of
goods to wants.

II. Methods

Controversy over the deductive and the inductive methods. — In
turning to the subject of the methods of economic inquiry I do not
purpose reviving and continuing the well-worn controversy over the
rival merits of induction and of deduction. That controversy may
have had its uses; in any case it seems to have been inevitable; and
yet to the eyes of to-day the issue appears to have arisen out of
false analogies with other sciences.

Induction and deduction are different modes of thought, or
processes of logic, to arrive at truth. The methods of inductive
thought and of deductive thought cannot validly be contrasted

14 ECONOMICS

as mutually exclusive alternatives in the study of any of the con-
crete sciences. Mathematics only, of all the sciences, moves in the
realm of purely abstract relations, dependent for the truth of its
conclusions only on the inner or logical consistency of its deductive
conclusions, not on their correspondence to any specific set of con-
crete facts. The ideal of shaping the social sciences on the model
of mathematics misled for a long time the votaries of the science
whose data were, to a greater or less degree, made up of the facts of
the concrete world. In every branch of inquiry except mathematics,
both inductive and deductive mental processes are constantly
employed. They are like the chisel and the hammer to the graver,
who must now use one, now another, and again both together.
Man's power of thought is not so in excess of its task of understand-
ing the economic world that only half of it need be exerted.

The natural sciences, such as physics, chemistry, and, later,
biology, suggested an analogy for economic students which was as
misleading, perhaps, as was that of mathematics. The rapid ad-
vance of the natural sciences, both in the bulk and in the exactness
of their conclusions, seemed to challenge economics and to point
the way to progress. Their predominant use of the inductive
method served to blind to the fact that deductive processes were
also frequently employed, and to offer the false hope that social
truths were to be found, if sought, in an exclusive study of the facts
of the objective world. And thus, in turn, as other sciences, as
psychology and biology, have taken the center of the stage and
have played the leading role in the drama of human progress, eco-
nomic studies have been more or less influenced by their examples.

The choice of method in any science must be made in the light
of reason, not in the deceptive shadows of analogy. The division
between the methods of economics and of the natural sciences is to
be found in the nature of the materials dealt with and in the point
of departure, whether in the thoughts of men or in the world of
things, — the subjective and the objective methods. This dis-
tinction appears to correspond with that between induction and
deduction, but this correspondence is external and fortuitous rather
than essential, as will be seen in considering more fully the special
character of the social sciences.

Dual nature of economics. — The social sciences have a character
as distinct from pure mathematics on the one hand as from the
physical sciences on the other. Mathematics presents the type of
most abstract subjects of scientific thought; physics the type of the
most concrete subjects; while social science presents a dual aspect.
But although it may seem to share the features of the other two
types, it is in no sense a mere compound of them. Mathematics
is concerned with the logical relations of numbers; physics with the

CONCEPTIONS AND METHODS OF ECONOMICS 15

observed and tested interrelations of material things; economics
with the relations of man's thought with the utilitarian aspects of
things. In this view the economist's problem as a whole is more
complex, shifting, and elusive than either of the other types of
problem. In part the problem can be studied in the realm of man's
psychical nature, — his feelings and his judgments; in part in the
physical world which appeals to and gratifies his desires; and
finally in the relations between his psychical nature and the object-
ive world. The value problem always involves this last relationship.

The nature of the economic problem should determine the methods
of economic inquiry. According as the ultimate relation is ap-
proached from the side of man's nature or from the side of the mate-
rial world, either the subjective or the objective method of study is
employed. The two are separable in thought and practice, and yet
as each is pursued it moves toward the other, and the labors and
results of all students should combine at last into one harmonious
body of knowledge.

Subjective economics. — The problem of subjective economic
analysis is that of interpreting man's psychical nature, his impulses,
his wants, his modes of thought, so far as they are concerned with
the utilization of the outer world. The subjective analysis should
discover and express clearly the economic conceptions which men
have regarding things, and it should thus clarify and harmonize the
economic categories. In other words it should provide, in place of
shifting and individual points of view, certain generally recognized
outlooks, from which the whole economic globe can be scientifically
charted and surveyed. The subjective study is to discover which
among the many shifting points of view are most frequently taken,
most essential, most grounded in the logical nature of the case.

The need in clear thinking of keeping the subjective and the
objective conceptions distinct may be seen in the confusion that
long has continued in the theory of land and rent. It could not
escape the earliest economic inquirers that some things appeal to
men as durable yielders of usufructs. What is paid for the use of
agents considered as indestructible was the "return" or rent for
them. In the eighteenth century, when the effort was made to
formulate a system of economic thought, it chanced that the only
large class of wealth dealt with in the market under the usufruct-
contract was land. Not apprehending the distinction between the
subjective and the objective basis of economic conception, the early
economists linked the idea of usufruct with that of natural resources
in a hybrid, illogical conception of rent, which has continued for a
century to puzzle and defeat much economic inquiry.

The first form in which the time-aspect of value challenged a
theoretical explanation was that of interest on money loans.

16 ECONOMICS

Eighteenth century students saw that the same value problem was
involved in the case of many agents generally exchanged for money,
which chanced to be the products of manufacture in cities; and the
term " interest " was thus extended. The concept of interest became
thus an illogical cross between a value aspect common to all goods,
and the income yielded by a certain objective class of goods. This
confusion has been but dimly perceived because of the failure to
distinguish consciously the subjective and the objective elements
in the so-called " interest problem."

The methods of subjective study. — The specific methods of study-
ing economics subjectively can be hardly more than mentioned.
It begins with introspection, and pursues the analysis of man's
nature and wants by observing and comparing the impressions, the
hopes, and the motives that determine acts in relation to gratifica-
tions. The method of psychological analysis requires here no
defense, and the service of the marginal utility theory, as developed
by various writers, will hardly be denied. That service has, perhaps,
been exaggerated, for in the enthusiasm over the discovery of a new
and exacter mode of economic inquiry it was believed by some that
this was the substance and scope of the economic problem. This
study must be extended from the individual consciousness to social
sentiments and social institutions, to class feelings, to the psychology
of the masses, and to the evolving standards of living. Every
degree of relationship of motives to gratification must be followed
out, and the whole field of human action must be studied from this
subjective standpoint.

Study of the growth of economic theory. — A much neglected but
fruitful field of subjective economics is the critical study of the
evolution of economic thought; not that students have ignored
the writings of their predecessors, but they have approached those
writings either in the spirit of implicit faith or of partisan opposition
to certain social institutions or plans. The scientific, critical spirit
has in both cases been7 lacking. Almost every chapter of the repre-
sentative economic works is bristling with logical difficulties and is
a challenge to the best critical faculties. As economic thought has
unfolded in the past two centuries it has presented errors and ming-
ling of errors in kaleidoscopic variety. Progress of the abstract
theory toward truth has been in an empirical manner. The whole
problem has not at any one time been investigated fundamentally;
rather, each new advance of thought has been inspired by a contem-
porary need, and has shown, therefore, a temporary character. The
analysis of the conceptions employed and close textual criticism
give a rare exercise in logical thinking, a conscious mastery of the
essential conceptions, and an historical perspective of the highest
value to the economic theorist.

r~ CONCEPTIONS AND METHODS OF ECONOMICS 17

Subjective analysis applied to practical problems. — Of what use
can the subjective analysis be in the practical aspects of industry
represented in this department? In seeking a science of the various
arts that make for the fuller life of man, we have to inquire what
are the wants that manufactures, transportation, commerce, mone-
tary'agencies, public finance, and insurance seek to gratify? How,
when called forth by human desires, do these great institutions react
upon the estimates and even upon the nature of men? What aspects
of value are presented by each of these industrial agents? What
abstract conceptions are needed to make possible a logical classifi-
cation of the phenomena in each of these lines of action? The sub-
jective analysis is indispensable to the task of bringing order out
of the chaos of facts. It gives the selective principles around which
a' scientific treatment of these subjects can be made. The logical
starting-point of all economic inquiry is human nature and human
wants, as it is also the completion of the circle of economic action
and of economic science.

The objective method of study. — In the subjective analysis a re-
cognition of objective conditions is already implied. Owing to the
dual nature of economics, the study of the conceptions held by men
regarding goods can proceed but a few steps without turning the
eyes now and again at the kinds and qualities of goods. Even the
study of the economic categories cannot be carried on by the closet
philosopher. A knowledge of the ways in which men contemplate
goods can be gained only by a study of men under manifold condi-
tions and in manifold relations with goods.

But there are many objective starting-points for economic study.
The animal has in its instincts and memory a store of conscious and
unconscious associations of goods with gratifications. The savage
from necessity roughly classifies the birds, beasts, soils, and materials
of his little world. Individual experience has grown at an ever-
increasing rate into a social store of accumulated wisdom. Maxims,
precepts, oral traditions, religious scruples, injunctions, faiths, and
moral codes embody the economic experience of generations. Frag-
mentary writings grow into systematic chronicles, and these into
the history of deeds and into the recorded observations and conclu-
sions of many minds. The growing delicacy of social organization
is making possible, and the scientific spirit is demanding, an exacter
study of contemporary occurrences. Larger resources are given to
the gathering and printing of statistics and to the establishment of
commissions of inquiry. Popular interest is encouraging the mono-
graphic study of the minutest details of industry, and the publica-
tion of these studies in many magazines. The spirit of economic
inquiry among industrial leaders is unlocking to the world untouched
treasures of practical experience and of wisdom in industrial affairs.

18 ECONOMICS

All this knowledge of the objects of economic endeavor not only
may be, but must be, made use of by the student who would attain
to the fullest understanding of the economic process. Paraphrasing
the words of the poet, the economist may well exclaim: I am a
man, and nothing that concerns the welfare of mankind is foreign
to me.

At this point of view we may wonder whether any one ever could
have sincerely doubted the worth of history as an agent of economic
inquiry. Are not the fruits of a single generation of studies in
economic history sufficiently visible in the broadening perspective
of all contemporary inquiry? We wonder, again, whether any one
ever could have seriously doubted the scientific worth of the psy-
chological economics. Is it not amply vindicated by the increasing
keenness of the critical faculties now attacking every moot point in
theory? The subjective and the objective methods are not rivals,
but allies; not mutually exclusive, but mutually indispensable. In-
deed, they are not so much different methods as different hemispheres
of the complete globe of economic knowledge.

The Economic Process. — The ideal has found repeated expression
among students that economics should, much more truly and fully
than now, formulate the laws of industrial development of the
economic process. A number of progressive steps have been made
toward this end, which yet, however, appears a long way off. In-
deed, as yet no thinker has been able to tell us more than vaguely,
in terms of analogy with the biologic sciences, what such an economic
process is. The suggestion ventured before (p. 15) may be repeated,
that it may possibly be developed along the subjective and object-
ive lines of inquiry. We may study historically the conception of
value relations as it has unfolded in the minds of men. Parallel
with this is the development of the material environment of wealth
which reflects and embodies the value concept. The process of
valuation is carried to a certain stage in each generation, corre-
sponding to the process of industrial activity pursued by each
epoch.

In each individual as he develops from childhood to maturity are
retraced the steps of the valuation process, and side by side at a given
moment are found within a single country the various family and
neighborhood economics at various stages of growth and complexity,
analogous to the different forms of plant and animal life. Some
such a conception is needed to make possible some unity in the
chaotic mass of historical and statistical material already available
to the student. The central thoughts may be economic desire and
will expressing themselves in acts and institutions, and in the eco-
nomic agents with which men have surrounded themselves.

Economics as a science. — As here discussed, economics is seen to

CONCEPTIONS AND METHODS OF ECONOMICS 19

be in no peculiar sense utilitarian, not more so than are the sciences
of minerals, of animals, or of plants. It is the philosophy of the
useful, but it is not necessarily, as a body of knowledge, more useful
than any other philosophy. Its highest aim is truth rather than
dollars, and theory rather than practice. But this does not imply
the popular and misleading contrast of theory as something certain
to fail, with practice as something sure to succeed; of theory as the
fantastic and impossible, with practice as the sane and useful.
Theory is truth-seeking, it is explanation, it is philosophy, and true
theory is the highest and best expression of the practical.

Neither is economics as a science to be thought of as useless know-
ledge, in contrast with art as its useful application. Science is truth,
not wealth; it is knowing, not doing. It has been said that the
beautiful is as useful as the useful, and it may likewise be said that
nothing has higher utility than truth. In economics more perhaps
than in any other branch of human knowledge, the desire for results
that can be immediately expressed in dollars tempts from the path
of truth, and thus here is the greatest need to hold up the ideal of
open-minded, disinterested research.

The social conception of economics. — With broad strokes have
been sketched the limits of our subject. Throughout the conceptions
and methods of economics is the pervading thought that economics
is a social science. The complex evaluation process can be carried
on only under social conditions. The judgments, feelings, and senti-
ments of men living in social relations must be studied to get an
understanding of the resulting valuation of goods.

As a " social" science, economics must be contrasted with the
natural and technical sciences, not so much in the subjects studied,
as in the point of view that is taken. When any man, or any group
or class of men collate facts for their own benefit, the knowledge
gained falls short of science, though it may provide material for
the scientist. Each of the subjects in this department must be
studied from the nearer standpoint of the technical manager; the
economist must view each in turn from the social point of view;
he must seek to understand the social functions of the railroad;
the motives and the social results of commerce; the origin and social
nature of money; the basis and the social effects of public financial
measures; the social conditions which have the magic power of
transposing a gambling debt into the social boon and blessing of
insurance. Economic study is bounded only by the public welfare.
The economist must be a devoted servant of the social truth, freeing
himself as far as may be from the prejudices of class, and the inter-
ests and the passions of the day.

The social conception of economics is growing. The national
studies of Ricardo, of List, and of Carey appear now to have been

20 ECONOMICS

narrow and temporizing. This international gathering of scholars
and of scholarly men of affairs calls to mind the growing international
exchange of ideas. We meet as co-workers in the fraternal task of
knowing the truth; we shall part with a broader social conception
of economic science, and of its pacific part in the progress of the
nations.

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY

[Adolph Caspar Miller, Flood Professor of Political Economy and Commerce,
University of California, b. January 7, 1866, San Francisco, California.
A.B. University of California, 1887; M.A. Harvard University, 1888; Post-
graduate, Harvard, 1888-90; Paris and Munich, 189-5-96. Associate Profes-
sor of Political Economy and Finance, Cornell University, 1891-92; Professor
of Finance, University of Chicago, 1892-1902. Member of American Economic
Association. Advisory editor of Journal of Political Economy.]

THE part assigned to me in the programme of this Congress is
an historical review of the science of economics in the nineteenth
century; more particularly, as I conceive it, such a review as may
serve to set forth the progress that has been made by the science in
that time. To compress a century's history of any active science
into a fifty-minute discourse is no easy task. But the task of the
historian of economics is especially great, for economics has had its
troubles in the nineteenth century. It has come by no short and
easy path to its present position, whatever this position may be
defined to be. And it has left the record of its troubles and wander-
ings in a literature of unusual extent and vast variety. Of activity
at least there has been no end. Economics has made a history for
itself if it has not made progress. So much, at least, is certain.
But the history of a science must not be confused with its progress.
Much that has a place in the history has little relation to progress.
Since our interest lies with the progress of economics, it is my purpose
to review the history only so far as it seems necessary for an appre-
ciation of its progress. And all that is requisite for this purpose is to
take a straight cut through the history, following the line that seems
most competent to exhibit those features of the past development
that are significant for the understanding of the successive phases
that make up the life-history of the science. But what shall be the
line of view?

This question is the more difficult to answer because of the absence
of a tolerable consensus of opinion among economists as to the
proper character and constitution of the science. The Methoden-
streit has not issued in a common understanding. I cannot agree with
Professor Marshall that we have "worked our way through con-
troversy to the extinction of controversy," if that is to be taken to
mean a rapprochement on the fundamental question of the constitu-
tion of the science. If less is said about this question than formerly,
it is rather because controversy has taught the futility of controversy
and that economists have taken to doing things instead of talking
about them. For one has only to compare the procedure of two

22 ECONOMICS

such master-works as Marshall's Principles and Schmoller's Grund-
riss, to appreciate how considerable the divergence of aims and
methods still is. Economic science is still a thing of schools, each
contemplating the results of its own work with much understanding
and satisfaction, but taking little regard of the others. It was only
the other day that a brilliant and dispassionate critic of the present
position of economics lamented the persistence of what he called an
"archaic habit of thought"1 in the methods of the economists
working under the guidance of the classical tradition. And but a
short time before this, Professor Nicholson 2 had characterized the
work of the historical school as "impressionism." This evidence
and much more of similar effect might be quoted to show that
economists are still far from being of one mind, and the reviewer who
looks to find in the present state of economics a definite objective
standard by which to estimate the work of the past, will find little
guidance. We must, therefore, look elsewhere.

The place assigned to economics in the programme of the Congress
might seem to suggest a way of handling the matter. Economics
is grouped here with the "utilitarian sciences," — with engineering,
medicine, and agriculture. Though it is true that economics, like
most of the sciences, began as a utilitarian science, its theoretical
formulations being directed by a keen practical interest, and though
it is true that the science derives its chief interest from the light it
may throw upon the great questions of economic organization and
control, and though it is also true that men of high repute claim that
the science "is wholly practical " and "has no raison d'etre except
as directing conduct towards a given end," 3 and though others, less
frank in their avowal have yet cultivated the science with homiletical
intent, yet I believe at this present day it would be a gratuitous
innovation to undertake to estimate the progress of economics as a
utilitarian science. The trend towards a scientific treatment of its
subject-matter as distinct from its application has been one of the
most marked symptoms of its growth. This is, in a sense, the
progress of the science. Few economists would go the length that
Cairnes did, a generation ago, but an increasing number would insist
upon the observance of a sharp distinction between economics as
science and political economy as art. Indeed, the vogue the term
economics is coining to enjoy, as against the older term political

1 Dr. Thor^tcin VeWen, in nn article entitled Why is Economics not an Evo-
h:lv>narji Hci<wrc, in the Quarterly Journal of Economics, vol. xil, p. 379. Pee
also the remarkable series of articles on The Preconceptions of Economic Science
by the same writer in the same journal, vols. xin and xiv. Much help has
heen derived from these articles in the preparation of this address.

J In his presidential address on The Reaction in Favor of Classical Political
Economy, piven In-fore the economic section of the British Association for the
Advancement of Science, 1803.

1 Dr. William Cunningham in his Politics and Economics, 1885, p. 12.

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 23

economy, is due, in considerable measure, to the widespread desire in
the science to have a name for the subject that shall be free from
the misleading associations of the old name, — one that will more
completely identify its character as a science after the usual meaning
of the term. And, therefore, though the shadow of its early days
still hangs over the science, it has happily moved too far away from
that position to make an estimation of it as a utilitarian science
advisable. Some other pourse must be chosen.

The course that I propose to take is to offer an outside view, to
see how economics looks when viewed from the general standpoint
of nineteenth century science. It ought not to be overlooked that
a leading purpose of this Congress is to bring out the fundamental
unity of all sciences, — their mutual relations and advance. The
advance of knowledge in the nineteenth century has done much to
dispel the notion that the several sciences are independent of one
another. Those sciences that have lived unto themselves have
lagged. The mutual advance of the progressive sciences has stimu-
lated a belief that, in the midst of seeming diversity of character and
interests, there is a fundamental unity of knowledge. Whether this
belief will ultimately establish itself as a tested conclusion of experi-
ence, it needs no great insight to perceive that economics has a close
relationship with other sciences. It must go outside its own boundary
for much of its material, and it uses it with poor effect when not
habituated to the methods and standpoints of those sciences from
which it borrows. It is true that economics has not always ac-
knowledged its dependent character and, in its desire to avoid en-
tangling alliances, has sometimes incontinently isolated itself and led
a barren life. Something of this sort is doubtless in the minds of
those workers in other fields who tell us that economics is discredited
by its old-fashioned habits of thought. Economists cannot afford to
be indifferent to criticisms of such import, especially when spoken
with the sanction of authority. And this accounts for much of the
perplexity in which economists find themselves when viewing the
results of the work in their science in comparison with those of
the material sciences.

Few things stand out more prominently in the history of nine-
teenth century thought than the change of attitude that the material
sciences have experienced. It is sometimes said that modern science
is realistic and sets a greater importance on facts as facts. But the
older sciences were surely not indifferent to facts; for all science
deals with facts. What distinguishes the later-day sciences is not
the insistence on facts, but the dispassionate habit of presenting
and construing them. For modern science, the matter-of-fact habit
of mind is everywhere decisive. Instead of seeking to find the
spiritual meaning which underlies appearances, modern science is

24 ECONOMICS

content to present things as causally related in a material sequence.
Helped on by the evolutionary concept of process and the notion of
cumulative causation, a large part of the discipline of the material
sciences has been devoted to purifying the scientific mind of the
metaphysical animus. Genetic coherence is sought where formerly
a spiritual tie was wanted.

How far our science has adopted the new conceptions is a matter
of such vital interest as properly to suggest the course of the review
to be undertaken. It must be admitted at the outset that it can
give no more than a partial view. An alternative course has much in
its favor. But with the echoes of controversy still sounding around
us, touching the character, province, and method of economic
science, it seems best to ask how the science has proceeded, rather
than what , in point of doctrine, it has taught. Until a science attains
a relatively high degree of maturity, a subordinate interest attaches
to the development of its particular theories, for development of this
sort may take place within, while the progress of the science as a
whole is arrested. It is only those developments of theory that
correspond to a change of front of the science that can be of conse-
quence when we are trying to measure its advance. It seems best,
therefore, in reviewing the science with this purpose, where brevity
is necessary, to treat the viewpoint as the paramount concern, and to
reach it by the shortest route. Progress in science means more than
one thing, but it means no one thing more than the successive con-
quest of viewpoints that afford a fuller and finer knowledge of the
conditions or processes with which the given science is occupied.
Just as the history of a country may be read in its highways, and the
progress of a people is written in their tools, so the history of a
science is most clearly revealed in the paths it has followed and the
methods it has used. In such a view of the matter, it is the lower
levels rather than the upper levels of the structure of the science
that are to be brought under notice. Economics has changed its
theoretic constitution from time to time in the course of its modern
history, and it will not be a misappropriation of time to inquire under
the pressure of what exigencies or the stimulus of what impulses the
modifications have taken place, and whether they have been in the
direction of progress. It is the foundation, framework, and outfit of
the science rather than its specific output that will need to be noticed,
the bases of its theoretical formulations rather than the formulations
themselves, — what is sometimes called the external history of a
science in distinction from its internal history.

For the purpose of understanding the theoretical constitution that
economics has had during the greater part of the nineteenth century,
it is necessary to go back to some of its eighteenth century ante-
cedents. To the Physiocrats belongs the credit of having attempted

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 25

the first great comprehensive synthesis in economics, and though the
structure they erected was airy and fantastic, it served as a model
for later generations beyond what has ordinarily been admitted.
Many a later thinker is of closer kin to them than he would be willing
to acknowledge.

Until the Physiocrats entered the field, economics was habitually
treated as an art, the chief concern of which was to formulate max-
ims of public policy. With the Physiocrats the study takes a new
direction, or what to all appearances is to be rated as a new direction.
They set out to discover the natural laws of wealth, though to the
Physiocrats natural law means something different from the em-
pirical generalizations of later science. Theirs is a metaphysical
conception of natural law and theirs is the metaphysics of the
order-of-nature. Starting from this as their central position, they
work outwards to the laws of society. The natural order of society
is to them a simple deduction from the physical order of the universe,
and the natural laws of society are simply the laws of the physical
order applied to social relations. Therefore, the Physiocrats address
themselves to a careful scrutiny of nature's processes and purposes.
As they conceive the matter, it is the ceaseless exchange of matter and
force between nature and man that makes up the natural life of
society. That exchange is the phenomenon to be explained, and the
order-of-nature explains it. The ultimate term of the Physiocratic
formulation of economic truth is, therefore, the order of nature. The
habitual effort to reduce all things to terms of nature is the char-
acteristic and dominant feature of their thinking.

To the Physiocrat, the course of human events is under the guid-
ance of nature. Nature is invested with a teleological propensity,
working always for the physical welfare of man. She can, however,
be hindered or even thwarted, — not only can be, but has been. But
as soon as men cease the infractions of her discipline, the natural
course is resumed. In the end, nature always has her way, and her
way is the best possible way, for she is the interpreter of the Supreme
Legislator whose laws are intended to secure the welfare of man.

Such is the Physiocratic view of the order of nature. Starting
with this conception, they set about to formulate the laws of wealth,
the aim being to construe the economic process in terms of the
natural order. And since the great enterprise in which nature is
engaged is the support and perpetuation of human life, it follows that
the supreme test of economic reality is the relation of any industrial
function to this nutritive function of nature. Man's work is to be
rated as efficient or otherwise according as it helps or hinders the con-
summations of nature's substantial end. Thus in the Physiocratic
analysis the interest centers chiefly in production, and their economy
is, therefore, mainly a theory of production. Specifically the test of

26 ECONOMICS

productivity of any activity is its bearing upon the fund of human
sustenance — food. Only such activities as enlarged the supply of
the material basis of life are accounted productive — all else is beside
the mark. Nature is not solicitous for the spiritual welfare of man;
hence no alleged spiritual gains coming from diversion of industry
from its true channel can compensate for the losses of nutritive
material. From this principle follow by logical necessity the Physio-
cratic theory of the "produit net," the "impot unique," their classi-
fication of industries and their predilection for agriculture. The
system is one of singular symmetry and nice adjustment of parts.

Their theory of value presents itself as an integral part of this
closely compacted system. If value be generically conceived to
mean that which avails towards some admittedly adequate end, then,
for the Physiocrats, value must mean that which avails towards
nature's work. Exchange values, those which result from the con-
ventional rating of things in the market, manifestly could not satisfy
the physiocrat's sense of reality. Natural values are the only real
values, to be arrived at through an appraisement of things from the
point of view of nature's purposes. Only that is accounted of value
which contributes to the increase of nutritive material. Nothing
could be farther from the Physiocrat's notion of wealth or economy
than to make vendibility the attribute of wealth. That would have
been a degradation of the science to the position of a mere "market
philosophy."

Other features and details of the physiocratic theory lend them-
selves readily to a similar construction, but enough has been said to
indicate how the metaphysics of natural propensity shaped the
theory and to justify the view that economics made its debut as a
systematic science under the patronage of the eighteenth century
metaphysics of nature. And it is a mistake to represent this ex-
pedient of thought as an invention of the Physiocrats. Their meth-
ods and procedure were such as commended themselves to the
scientific judgment of the eighteenth century, for the order-of-nature
conception played an important part in the philosophical speculations
of its moralists and political writers. What was original and striking
was the use the Physiocrats made of this conception in constructing
a philosophy of wealth, and the new method by which they arrived
at it, and the new authority with which they invested it. The postu-
lates of their system were a curious blending of physics and meta-
physics, but it is the metaphysics that is of chief significance for the
subsequent history of the science.

It gives, however, a very faulty idea of the significance of the
physiocrats to represent them as mere system-builders. For them
the distinction of a later day between art and science has no exist-
ence. Theirs is in truth a utilitarian science, — a sort of economic

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 27

sociology in which of necessity the is and the ought-to-be are merged
in one. They have no need of going outside the system to point
applications of its principle. Under the ordre naturel whatever is
of right ought also to be. The laws of the physiocratic economy are
not statements of mere historical uniformities or sequences. The
sequences are regarded of necessity as describing consummations to
be desired, for they are, in a discreet sense, natural sequences. So,
while thinking in the spirit of a utilitarian science, the Physiocrat is
able to speak in the language of positive science. But, for all that,
a positive science of economics, as concerned merely with the explana-
tion of things, had not yet emerged. And what is true of the Physio-
crats in this regard is true of much of the later science so far as it
worked under the guidance of the metaphysics of natural propensity
or any of its derivatives.

The next important advance in economics is connected with the
activity of Adam Smith; and it is to be rated the most considerable
advance ever accomplished for the science by any single individual.
And his work is to be rated as a great achievement whether we regard
the body of its specific teachings or whether we regard only its larger
features as set forth in the general attitude of the author. The pains-
taking scholarship that has been brought to bear in recent years on
the history of economic science has shown Adam Smith's indebted-
ness to his contemporaries to be greater than was once supposed.
Very real affinities of thought and attitude are now traced where
formerly the differences seemed prominent.

Particularly close is Smith's kinship with the Physiocrats; so close
that with the lapse of time there seems to be increasing disposition to
group him with them, rather than to set either them or him apart
from the direct line in tracing the pedigree of the science. Adam
Smith stands on much the same plane of culture as the Physiocrats.
With both, the fundamental constitution of the science is meta-
physical, and with him, as with them, the metaphysics is the meta-
physics of natural propensity; with this difference, that in Adam
Smith the metaphysics is toned down somewhat and is made to play
a less overt part in shaping the formulations of theory, which is,
perhaps, only another way of saying, with just about the difference
that we would expect between a representative French thinker of the
eighteenth century and a representative Scotchman. Indeed, in this
respect, Adam Smith may be said to occupy a transitional position in
the history of economic thought, if the greater prevalence of the
matter-of-fact habit of mind may be taken legitimately, as broadly
describing the cultural advance of the ninteeenth century. The
sources that fed this advance in Adam Smith need not detain us. It
is probably to be set down to the credit of no single influence or indi-

28 ECONOMICS

vidual. He simply shared in the change of mind that was being
operated for British eighteenth century thinking by the slow-
working influences of the time, and that found their most definite
philosophical expression in the skepticism of David Hume. So that
an admirer of Hume might be pardoned for thinking that Hume
did for political economy a service somewhat analogous to what he
did for philosophy. However that may be, an appreciable change
was coming over British thinking, characteristic out-croppings of
which meet us on every page of Adam Smith. So far as he was hard-
headed and factual he was a child of his time; but so far, again, was he
also child of his time as he preserved, along with the new habit, the
metaphysical bias from which it was not given his century to shake
itself free.

The feature of Adam Smith's thinking that is here under notice as
marking an advance in the progress of the science may be viewed in
another aspect. There has been not a little discussion as to the
method of investigation followed by Adam Smith. Spokesmen for
each of the rival methods — "induction " and "deduction " —have
claimed Adam Smith on their side. But all that this means is
that Adam Smith is in his ways of thinking at a transition. So far as
the deductive method goes with the metaphysical way of handling
things, the abundant use of it by Adam Smith shows the vitality of
the metaphysical animus; and so far as the inductive method is a
suitable companion of the more matter-of-fact habit, Adam Smith's
frequent resort to it points to the presence of a new item in the.
conceptual equipment of the science. For this reason it is a matter of
some difficulty to define Adam Smith's true attitude in a summary
statement.

Adam Smith, like the Physiocrats, is concerned to find the natural
laws of \yealth, and his discussion runs almost habitually on the
causal sequences of things; and, so far, justifies the title of his book,
An Inquiry into the Nature and Causes of the Wealth of Nations. But
a closer examination shows that, in his handling of the phenomena of
wealth, he is not content to let the inquiry stop with the description
of proximate causes. His feeling for reality is not appeased until the
causal material situation is resolved or, at any rate, is resolvable, into
its ultimate spiritual causes; in other words, for him things must
have a meaning beyond what the naked situation yields. For him
the causal sequence regularly implies a spiritual sequence, and some-
times a spiritual sequence is discernible where the causal sequence
is broken. His plan, therefore, like the Physiocrats', demands
a scheme that shall be competent to exhibit the significance of the
economic processes. But, while this much may be said with con-
fidence, it is not so easy to say what that scheme is. It is not put
forth with the Physiocrats' naive frankness. Adam Smith is a

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 29

Scotchman. Suffice it to say that to the older notion of a teleological
trend in the course of events, Adam Smith adds the notion of a
normal human nature. The human propensity to " truck, barter,
and exchange " becomes the mechanism through which the " in-
visible hand " of nature accomplishes its purposes, and since men are
pretty much alike, the mechanism is well-nigh faultless. It is, there-
fore, the workings of human nature as thus conceived rather than the
operations of physical nature that form the object of Adam Smith's
analysis. His system, like the Physiocrats', is mainly a theory of
production, but man, not nature, is conceived to be the central
agent in the process. His system has, therefore, been properly called
the industrial system, for human industry, labor, is its efficient prin-
ciple, the term in which economic knowledge is formulated. Though
he looks in much the same direction, his outlook is broader than the
Physiocrats'. Everything is viewed from the standpoint of pro-
duction; all the economic processes are construed as aspects of the
productive process, but the notion of production is widened so as to
include every variety of industry, not alone that which helps the
nutritive work of nature. So "natural " value belongs to whatever
embodies labor; labor is the cause of value, — the " real price " of
things.

But while Adam Smith's notion of the natural course is appreciably
nearer the truth as the ordinary layman sees it than was the Physio-
crats', it is very far from professing to be identical with the actual
course. Thus natural values are not the values causally determined
by the "higgling of the market." But, for all that, they are the
"real," the "necessary" values, and the market values are the
"nominal" values, the "accidents," though a cynic might be par-
doned for refusing to see wherein they were "necessary " except to
establish the logical congruence of economic theory with its postu-
late. Of course, the gap between nature and the market is bridged,
in thought at least, by the workings of self-interest. Where com-
petition is the regulator of values a reasonable correspondence is held
to ensue between the "real" and the "nominal" prices of things,
and thus is vindicated the economist's claim that nature does
all things well, and that, as she does them well, the logical is the
" natural."

Quite as characteristic of Adam Smith's attitude is his treatment
of distribution, and it is almost equally characteristic, it may be
added, of the attitude of many later economists toward the same
problem. The shares in distribution are to be accounted for. How
is it done? Briefly stated, by construing them in terms of the
"necessary " equivalence of effort and effect in production. Nature
does not waste. Therefore, when the natural course of things runs
off smoothly, that is to say, when competition does its part, effect

30 ECONOMICS

must be proportioned to effort, and vice versa; and thus the quantita-
tive equivalence between work and pay is neatly established. Man
bestirs himself to secure a gain with no intention of assisting the
productive processes of nature. But, for all that, the bargains that
he drives betray him into an alliance with nature, and therewith is he
led by the "invisible hand" to do his part in production and the
service of society. The resulting shares in distribution are " natural."
But, here again, it must not be supposed that the natural and the
actual correspond in Adam Smith, least of all in that state of
actual society which follows "the appropriation of land and the
accumulation of stock." Nevertheless, the distribution in question
is "natural," because it falls in with the author's preconception of the
orderly course of industry.

If it be asked whether the term "natural," as employed by Adam
Smith, implies the same unmitigated approval as with the Physio-
crats, the answer must be " No." In general, the " natural "
means "what ought to be," or "what is intended by a benevolent
Providence." But some telling passages might be quoted to show
that Adam Smith's enthusiasm for the "natural" is considerably
tempered by his noting the action of other plain, homely, matter-
of-fact causes, even under the "system of natural liberty." The
case of the landlord is one. His "rent costs him neither labor
nor care." So, again, "the interest of the dealers in a particular
branch of trade or manufactures is always in some respect different
from and even opposite to that of the public." The persistence of
these and similar cases were troublesome items in Adam Smith's
system. They must have offended his nice metaphysical sense of
fitness. But it is greatly to his credit that he did not attempt to
ignore them, and was willing to sacrifice symmetry to truth. That
would have offended his dispassionate practical judgment still more.
He is willing to let these blemishes stand as exceptions to the bene-
ficent trend of things. And in this respect he is better than some
of his followers.

But yet, looking backwards, the metaphysical animus in Smith
is strong. The notion of a natural economic order guided his think-
ing as it had done the Physiocrats'. But his natural order was the
result of the free and spontaneous action of individual interest,
acting, of course, under the constraint of Providence. This idea
of efficient self-interest was his specific innovation, and his legacy
to his followers. They seized upon it, and, informing and strengthen-
ing it with a new philosophy of the human mind, made it the basis
of the classical system.

With the turning of the century, the constitution of economics
experiences a substantial change, adding to its premises and shifting

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 31

its attitude, but not in any such thoroughgoing way as to divest
it of its metaphysical character. It is still a science dependent on
the apparatus of preconceptions and postulates.

The leading figures in economics at the beginning of the century
are Malthus and Ricardo, and they, with Adam Smith, are usually
represented as the great triumvirate that gave to English political
economy the character that it has held ever since. But it seems
doubtful if either Malthus or Ricardo has exerted a greater influence
than the great Utilitarian who was the tone-giving influence in nearly
every department of English thought for at least one half of the
century. To the influence of Bentham's teaching the science
owes that peculiar constitution which has given rise to its charac-
terization as "the mechanics of natural liberty." To that same
influence seems due the shifting of the center of interest from the
analysis of production to the theory of value. To him, also, is due
the rapid rise to ascendency of the abstract deductive method.
And to his teaching in particular we owe the creation of that bond-
man of the science, the economic man. No doubt, other influences
also contributed to these changes. The incorporation of the law
of diminishing returns and the principle of population into the
premises of the science are to be especially noted. As limiting condi-
tions of the environment within which the economic action of man
was noted they also served to add emphasis to questions of value
and distribution, and, besides, imported a strain of pessimism into
economic thinking. But no other influence was paramount to the
influence of the new habits of thought, the foundations of which were
so convincingly set forth in Bentham's Principles. That influence
was deep and pervasive.1 It was during the reign of Benthamite
utilitarianism that English political economy achieved its greatest
triumphs and worked its way to an authoritative position in Great
Britain as a foundation for public policy.

The specific innovation that utilitarianism accomplished for
political economy was the substitution of utility for providential
design as the basis of theoretical formulations. Bentham gave to
that metaphysics of human nature which had already emerged in
Adam Smith a matchless statement, an impregnable setting. It
became for political economy a first principle. Adam Smith had
shown how the^ctions of individual men, each seeking his own gain,
inevitably promoted the public interest. But Adam Smith was no
utilitarian. It was to only one class of actions that he assigned

1 It need scarcely be added that the influence upon the constitution of the
science here attributed to Bentham's teaching was not exercised by his own
economic writings, important though they were, but sprung from his general
philosophic standpoint, which found such ready assimilation and bore such
characteristic fruitage in the institutes of economics as developed by Ricardo,
Senior, and McCulloch.

32 ECONOMICS

self-interest, and even there self-interest was but a wheel in the
mechanism through which nature sought her ends. With the
school of Bentham, however, " there is no true interest but individ-
ual interest," not only in the region of business, but throughout
the whole of life. Self-interest is, therefore, not a method of nature;
it is nature.

To Adam Smith's followers, the Wealth of Nations was a sacred
text. But like other sacred books, it was not above interpretation.
At the opening of the century the succession to Smith was in ques-
tion. Malthus and Ricardo were aspirants for the leadership. Of
the two, Malthus stands much nearer Smith in his philosophical
preconceptions. Like Smith, he imputes a purpose and constraining
guidance to- nature. But the victory went to Ricardo. He is a
layman in philosophy, coming by his preconceptions tacitly, like
many a later economist, through a simple process of absorption.
That is, perhaps, what makes him so significant an exponent of
the change in the point of approach that was taking place in the
science. Ricardianism is Benthamite utilitarianism turned eco-
nomic. It was given to Bentham to formulate the new articles of
faith; to Ricardo to use them.

In the hands of Ricardo and the disciples of Bentham, economics
ceases to be a theory of the natural order and becomes, what was
already foreshadowed in Adam Smith, a theory of the workings of
human nature, but of human nature construed in hedonistic
terms. Human nature is regarded as a competent mechanism for
transforming the effects wrought upon it by the forces of the en-
vironment into an equivalent amount of conduct. Human action
is viewed as inert, mechanical reaction, the effect in conduct being
always quantitatively proportionate to the cause. This being the
general position of Hedonism, the particular office of each of the
sciences living under its dispensation was to show in detail, in its
appropriate department of activity, how this reaction takes place.
And since the process through which the human agent translates
the adequate cause into its appropriate effects is obviously a valua-
tion process, economics ceases to be primarily a theory of production
and becomes a theory of valuation. Its principal problem is not to
discover the causes of the productiveness of industry, but, as Ricardo
puts it, to "determine the laws which regulate distribution." Value
ceases to be regarded from the side of production and production
becomes a category of value, and political economy takes a long
step towards attaining, in appearance at least, what Professor Mar-
shall three quarters of a century later describes as its proper goal, —
a theory of the equilibration of economic forces. In keeping with
this change of base, value is no longer conceived as that which avails
towards production, but as that which avails towards exchange.

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 33

Labor falls from being the cause of value to being merely its measure.
Value being taken as the earmark of wealth, the Ricardian economics
becomes a theory of acquisition, attention being given to the money-
making propensities rather than to productive activity. The dis-
tinction between industry and business, between making things and
" making money," is obscured and neglected. Archbishop Whately
designated the essential interest of the utilitarian economics when
he proposed the name " Catallactics " —the science of exchanges.

But however considerable the changes thus wrought in the theo-
retical structure of the science, the adoption of the utilitarian con-
ception did not destroy or seriously damage the belief in a meliora-
tive trend in events. The fact of diminishing productiveness and
the law of population made it far from easy for the Ricardians to
contemplate the " natural advance of society " with the unmixed
satisfaction of the Physiocrats and Adam Smith. But utilitarian-
ism, with its " greatest good of the greatest number" and " every
one to count as one," saved the day for the system of natural liberty.
Since society is the sum of its individual men, and the collective
interest is the sum total of individual interests, it follows for utili-
tarian economics that each individual, in pursuing his own private
interest, is also furthering the social good in the most effective fashion.
And consequently the natural laws of the science under its utili-
tarian organization, though they have lost something of their former
coloring and unimpeachable authority, are still uttered in a sense
that usually implies approval, even though in a greater degree than
before they are expressed in the dry and conventional language of
science. Competition makes for the happiness of the greatest num-
ber. Therefore, the natural laws of political economy, which are
the laws of competition, carry with them the suggestions of precepts.

So long as utilitarianism maintained its position unimpaired,
economic science had a clear and easy course to follow, — that is,
until about the middle of the nineteenth century. During that time
it advanced to a commanding position among the social sciences,
because it was, of all of them, the most competent to. turn the
utilitarian expedient of thought to effective account in explaining
the motions of men and society. Its deliverances, frequently uttered
in a spirit of dogmatism, were accepted almost unquestioned. Its
standing with the public has never been better. There were differ-
ences among the Ricardians on questions of theoretical detail, but
nothing touching the spiritual stability of the system they had
devised. New departures in economics were taken or proposed by
Sismondi in France, List in Germany, and Richard Jones in England.
But highly valued as the work of these innovators has been by later
economists, it made little impression upon the development of the
science at the time. The authority of the classical political economy

34 ECONOMICS

was not impeached and could not be impeached by any such attacks.
The time had not yet come. So long as utilitarianism was in the
ascendent, the public credentials of political economy must needs
be the best. But let the supremacy of utilitarianism once be
threatened, and troubles must begin for economics. The old con-
stitution would no longer avail; a change must follow.

That change began about the middle of the century and, strangely
enough, was associated with the intellectual enterprise of the man
who frequently has been represented as having given to political
economy its most telling exposition from a clarified Bicardian
standpoint, — so much so, that the English economics of this middle
period has sometimes been called the Ricardo-Mill political economy.
But seen in the fuller and truer perspective of time, Mill's Political
Economy is read to little advantage and his position is badly under-
stood, when he is represented as merely the "Secretaire de la Redac-
tion," keeping to his task with the "piety of a disciple." The truth
of the matter is that Mill was at a transition in British thinking in a
sense which neither he nor his following appreciated. In his hands
political economy was shifting its ground, insensibly perhaps, but
nevertheless unmistakably. Mill may have echoed the laws and
phrases of the earlier generation of thinkers, but he was inform-
ing them with a new spirit which reflects the presence of the new
influences that were affecting the thinking of his day. This is not
the place to attempt an enumeration of these influences. They
were several and diverse. It will answer the purpose to mention a
single one connected with the decline of utilitarianism and its psy-
chological counterpart. For this decline imported a considerable
change in the outlook and status of economic science. The change
in question is already foreshadowed in Mill's Logic (1843), where the
older view that individual conduct and character are but the mechan-
ical product of the molding circumstances of the environment is
qualified so far as to allow to the individual himself an influence
and responsibility in shaping those circumstances. That is to say,
a teleological trend is coming to be claimed for individual conduct
where formerly such a trend was looked for and found only in the
sequence of events in nature. In other words, the human nature,
into the workings of which the economist inquired, is being differ-
ently construed under the guidance of a changed psychology. The
psychology that was making its way in Mill's time was moving away
from the older associationist standpoint and approaching the posi-
tion of modern functional psychology. Centering its interest in the
process of attention, it teaches that cognition or perception as the
attentive process always implies the presence of a purpose or interest
that elicits and guides the attention; that attention is essentially
the process of examining a situation with the view to discovering

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 35

what objects and conditions it contains that may be made use of
for a given intended purpose. Human conduct, as viewed from this
standpoint, ceases to be merely uniform, quantitative, inert reaction
to adequate forces, and comes to be regarded as qualitative, pur-
posive response to stimuli. The ethical counterpart of this revamped
Hedonism, the utilitarianism of Mill, correspondingly recognizes in
the motivation of human conduct differences in kind of pleasures
as well as in amount, and imputes to the selective agent in conduct
a continuity of purpose that gives a spiritual stability to the life
process. And herewith there begins to fall away from political
economy that ancient article of faith which had seen in nature, and
nature alone, the consummate, beneficent trend which enabled
the economist to go to his work with conviction in his heart and
confidence on his lips.

It is out of the question to pursue here the modifications wrought
by Mill and his following in the received version of economic doctrines
as a result of the change in their mental attitude. To one of these,
though it is far from being the most significant, Mill himself calls
special attention. It is the distinction he draws between the laws
of the production of wealth and the laws of its distribution. The
first are "real laws of nature dependent upon the properties of
objects " and cannot be modified; but the second are only the
"necessary consequences of particular social arrangements " and are
"liable to be much altered by the progress of social improvement."
Any attentive reader of Mill will recall many instances in which the
outcome in the economic situation is represented as controlled or
modified by other forces than mere pecuniary interest. The eco-
nomic situation is far from frictionless. The many circumstances
that Mill finds impeding the indiscriminate play of human competi-
tion as, for example, in his discussion of the causes of differences of
value or differences of wages, are cases in point. The "counter-
acting forces" as well as the "controlling principles" are noticed.
It is the "negligible factors " that mar the symmetry and flow of
his exposition. For similar reasons the unmitigated results of gain-
seeking traffic are not necessarily to be construed as good, and
competition loses something of its former virtue as the natural scheme
of social salvation. There is a visible shrinkage of the teleological
content of the laws of political economy. They imply less of approval
than formerly of the competitive process of which they are presumed
to offer the explanation. They are still natural laws but with more
of the limitations of later-day science, — empirical generalizations,
statements of impersonal uniformities, of coexistence, and of sequence.
Moreover, they are abstract laws built on assumptions and of hypo-
thetical validity only. They are not entitled to exercise, therefore,
a narrowly constraining influence on the economist who undertakes

36 ECONOMICS

to apply them. Hence, Mill does not hesitate, in applying the
principles of political economy to social philosophy, to propose some
very substantial departures from what so many of his predecessors
had been disposed to regard as a sovereign, natural principle of the
science, — the rule of laissez-faire. For Mill the "admitted func-
tions of government embrace a much wider field than can easily be
included within the ring-fence of any restrictive definition; and it is
hardly possible to find any ground of justification common to them
all, except the comprehensive one of general expediency." Liberty
and property cease to be "natural rights " and are treated as human
contrivances to be tried on their merits. To the emancipated mind
of Mill's day, Bastiat's Harmonies was an anachronism, a voice from
the past. Cairnes's impatient declaration that "political economy
has nothing to do with laissez-faire," shows how changed was the
animus of the science.

Clearly, then, the forces of disintegration were at work in political
economy, and the constitution of the science, as it left Mill's hands,
was a different affair from what it had been in the confident days of
his father. When Cairnes some years later undertook to restore the
prestige of political economy by a guarded restatement of its leading
principles and an explanation of its character and methods, he believed
himself, no doubt, to be walking in the footsteps of the masters.
But the net result of his effort was to show how far political economy
had drifted from its traditional position. The unpretentious char-
acter that Cairnes assigns to economic laws was far from expressing
the ambition of the masters. The fact is that Cairnes, in attempting
to give to political economy an irreproachable character, was simply
sterilizing it. He set out to do for political economy what was
being done in the natural sciences. In the overhauling the physical
sciences were experiencing in Cairnes's day, an attempt was being
made to read metaphysics out of them; and the physical sciences
were in this respect serving as an example to the social sciences.
Whatever success the effort to relieve science of the metaphysical
taint may have had in the field of the former, the results of the
innovation in political economy are not to be accounted as highly
effective. Under Cairnes's dispensation political economy became
not so much less metaphysical as less vitally metaphysical. The
virile and imposing metaphysics of natural liberty simply gave way
to an impersonal and spiritless conception of normality, and political
economy becomes what it has remained for many of Cairnes's fol-
lowers, — a perfect, hypothetical science, formulations of theory in
terms of tendencies, a body of so-called ultimate principles. For
the average reader, Cairnes took the discussion of economics out of
the older region of reality into an atmosphere so tenuous that it
could not preserve the aspect of vital interest. It was a meta-

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 37

physical science without a message. Political economy was losing
caste among the metaphysical sciences without acquiring the sought-
for status among the empirical sciences. It was neither stimulating
philosophy nor good observation. Is it then surprising that Cairnes
should have complained that political economy had " ceased to be
a subject of fruitful speculation " with the educated public, or that
Bagehot should have found that " it lies rather dead in the public
mind " and " no longer matches with the most living ideas of
people"?

It is hardly necessary to add that all this is said with no thought
of disparaging the services of Cairnes's school to economic science.
His is deservedly an honored position in the history of the science and
it may well be that the phase which it has seemed fit to connect with
his name was an unavoidable phase in the development of the science.
Indeed, there is good reason for thinking that it was. But, at best
the constitution that Cairnes proposed to give to economics could in
no sense become definitive, if the experience of other sciences that
had passed through a. somewhat similar phase could be taken as sug-
gestive of what might be expected to occur in economics. Econom-
ics, after the middle of the century, was threatening to become a
closed circle, and to come to a full stop. Such a condition could not,
however, long endure in a subject of such vital concern. A reaction
in some form was inevitable. What is matter for surprise in review-
ing the history of the past fifty years is that the reaction, in a form
competent to deliver the science and give it a modern constitution,
should have been so long in coming, and that so many of the econo-
mists of the generation that followed Mill and Cairnes should have
found themselves able and content to pursue their work in the spirit
of the old ideals or of other ideals which, though new, were not
much more to the purpose when seen in the light of those require-
ments which the admittedly progressive sciences of this period had,
in a sense, made authoritative. Earnest efforts to regenerate
economics and to recover for it something of its lost prestige have
surely not been wanting. But the record, if the truth is told, is not
one of big achievement or even of measurable progress when we con-
sider the startling advances that have been taking place in other
fields.

Looking first at the work of the economists of the last generation,
mainly English and American, who have set themselves the special
task of formulating economic theory, it will hold true, with some
exceptions, that their work has been mainly work of repair and exten-
sion, rather than of fresh construction. They are the legitimate
heirs of the classical tradition, — the classical school of to-day.
Magnify as we will the differences that separate these later theorists
from their classical predecessors, the differences are differences of

38 ECONOMICS

theoretic detail and emphasis rather than differences in point of
approach or method of attack. For them, it would appear, the
science has no new mission. The problems they handle are the old
ones and they handle them after much the old fashion, though, be it
said, with some change in the phrasing of their conclusions. Utility
may take the place of cost, and productivity that of sacrifice; a
single law of distribution may do the work that once required three;
but we still have the problems of the Ricardian economics, and the
apparatus for handling them shows little change. It is still deductive
economics of the old type, seeking by a skillful manipulation of
definitions to explain the normal case. A perfectly balanced system
in which everything is reduced to order and symmetry and congru-
ence with itself, — that is the accepted test of truth. Such, for
example, is Professor Clark's Distribution, a consummate achievement
in the art of syst em-making. And though the phrase " system-
making " cannot be applied to Marshall's Principles without much
qualification, it is largely because the amplitude of accessories with
which he invests his treatment divides our interest with the system.
Every competent reader of this monumental work knows how much
more it contains than a system. But though Professor Marshall's
practice is mrro liberal than his precept, he has made it clear on more
than one occasion that the ideal he cherishes for economics is to
place it on a firm foundation as a systematic science, seeking to
establish a body of general principles — an organon, as he has called
it — by those methods which the natural sciences of an earlier
generation have made familiar. He aspires to make economics a
perfect, quantitative science and would, therefore, keep value in its
traditional position as the central problem of the science, to which
and from which all else leads. The play of human motives working
their way to a position of equilibrium, — that is the thing to be
explained. Recourse is therefore taken to the analogies of physics
rather than of biology, and so the science remains a mechanics of
human action, — a study of balance rather than of growth, — a
theory of action, no doubt, but one in which the interest centers in the
conditions that limit the play rather than in the factors that vary it.
No doubt , neither Professor Marshall nor his colleagues are indifferent
to those considerations which the biological and anthropological
sciences of our day are pressing upon the attention of the learned
world. There are too many evidences in the writings of Professor
Marshall, at least, of a sincere and solicitous regard for the view-
points of these sciences, to charge such neglect. He is read to poor
purpose if it is not discovered how the notions of " continuity "
and " development " in the movement of things has tempered and
broadened his attitude. They are the watchwords of his preface.
But for all that, when the analysis is once under way, it is not

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 39

the notion of development, but rather that of stability that shapes
the discussion.

The legitimacy of systematic science is clearly not to be impugned.
Science it certainly is. The history of scientific endeavors in other
fields shows that such work has, at one time or another, engrossed
a considerable share of the attention of leading minds ; but the later
history of many of these same sciences shows a diminishing con-
viction of its present usefulness. And those that have been most
successful in detaching themselves from the discipline of philosophy
have given it up as an unprofitable enterprise and have taken to
other and less pretentious methods. Systematic science must lose
standing, because its tentative conclusions fail to satisfy that desire
for concrete knowledge of things as they are which it seems to be the
appointed mission of science in our day to provide. It has yet to
prove its competency, in the field of social phenomena as mostly
elsewhere, to present things in those aspects which modern science
has taught us to regard as indispensable for their appreciation. It
cuts out of the field of vision, under the name of "disturbing causes "
or what not, precisely those things which interest the man on the
street.

If this version of the matter be sound, it cannot but be cause for
serious misgiving that so much of the intellectual energy of the
economists of the present day that is being devoted to theory should
have taken such a lead. It lends substance to the criticism some-
times leveled against economics by the adepts of other sciences that
it is behind the times in its adherence to outworn methods of hand-
ling its subject-matter. There seems to be room, if indeed there is
not much need, for work of a different type from that which has
been engaging the attention of the Neo-Classical School. Progress
demands it.

And much the same may be said of the interesting diversion
created by the Austrians. However much they may have done to
advance the discussion of a particular detail of economic theory,
albeit an important one, their achievement is not to be rated as a
serious innovation for the science as a whole. Indeed, the ready
assimilation of the doctrines of the Austrians into the body of the
classical economics shows how near they were in temperament and
standpoint to the school they set out to supplant. The movement
has apparently spent its force and the science goes its accustomed
way.

What shall be said of the historical movement? To it is usually
accorded the place of chief importance in the history of the reaction.
It made its appearance about the middle of the century with the
intention of saving political economy from its unprofitable career.

40 ECONOMICS

The movement has been variously known as the inductive, his-
torical, or German school. It was in fact all three: historical and
inductive in its professed method, but German in its essential spirit.
The rise of this school is not a self-explanatory phenomenon, but it
is not enveloped in much mystery. Just as the classical political
economy was shaped by English utilitarianism, so the German
historical economics was an outgrowth of German philosophy. In
each case economics was building on the current metaphysics of the
home country. Each was a distinctive national product, and the
historical movement, though it has won adherents in other countries,
has preserved till this day a peculiarly German character. Roscher
started the movement. Reacting from the excessive a priorism of
English political economy, stimulated by the example of the new
historical jurisprudence, and inspired by the Hegelian notion of
development, he set out to reorganize economics on a broader basis.
The movement that he inaugurated soon found adherents. Bruno
Hildebrand followed in 1848 with his National Oekonomie der Gegen-
wart und Zukunft, and Karl Knies in 1853 with his epoch-making
Die Politische Oekonomie vom Standpunkte der geschichtlichen Methode.
Taken together, these works define the fundamental articles of the
constitution of the new historical economics. They were its con-
fession of faith. Knies emphasized the idea of the parallel develop-
ment of economic ideas and economic institutions, — the idea of
historical relativity. But Roscher was more ambitious; he aspired
to make of economics a "philosophy of economic history " whose
special function should be to discover the laws of cultural develop-
ment in their economic aspects. Hegel had given to German thought
the conception of organic society. According to this, society has
a life-history of like kind with organic nature; therefore, the process
of organic life supplies the proper analogy for studying the cultural
sequence. It was a part of this conception which Roscher seized on,
-that the cultural sequence repeats itself in cycles of "youth,"
"maturity," and "old age," each nation going through much the
same course. The history of the past, therefore, is prophetic of
the movement of the future; history repeats itself. The laws of his-
torical development are the only "natural laws " of society. It is
thus that history became the method of the new departure, — his-
tory, that is to say, as officially interpreted by Hegel's formula.
Seen in the light of its derivation, therefore, the historical school
was as much metaphysical as historical. History was to be read
with a purpose. "He," says Hildebrand, "can have no right under-
standing of history to whom the conditions and needs of his own
time are unknown." It is the business of the economist "to discover
the link which the present generation is to add to the chain of social
development." The movement, therefore, from the beginning

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 41

had an ethical as well as an historical import. Its self-appointed
mission was to control, as well as to explain, development. It was
an historisch-ethische Richtung. As Held stated it, the new school
"demands a conception of the science, which includes social policy; "
and since, according to the German view, the state is the appro-
priate organ of social control, the new economics was a theory
of the state and its functions quite as much as it was a theory of
economy and its changes.

Whether the reaction thus described is to be regarded as a far-
reaching and salutary reaction in the field of economic study is not
here in question except so far as it has a bearing upon the trans-
formation of the theoretic constitution of the science. Every
economist, no matter of what school, knows how much his attitude
has been modified and tempered by the criticisms of the " Histori-
ker." The " abstractor economics " has been shown its proper
place, its spiritual pride has been reduced, and it has been put, as
it were, on its good behavior. Every historian as well as economist
knows, too, how much history owes to the activity of the new school.
If it has turned out much lumber, of which nothing better can be
said than that it is scholarship, it has also given some noteworthy
and vital researches of the highest value. But all this and more
that might be said to the same effect is beside the mark of our
present interest. What has this school done, in a positive way, to
give a new formulation of theory? Its earlier champions promised
a rapid and radical transformation of economic science. Has that
promise been fulfilled?

It may be said at once that so far as the activities of the historical
school have moved in the orbit described for it by its founders, it
has failed to make good. Economic theory has not experienced at
the hands of the exponents of the new method the reorganization
of which it stood in need. Institutional history is not economic
science. A narrative and descriptive account of things is not a
scientific relation. The theory of institutions requires that these
should be accounted for in terms of determinable cause and effect.
A causal sequence implies very much more than historical succession.
So far as the work of the historical school has been a search after
the laws of social development, it has seldom eventuated in any
more definite articles of theory than such loose and sweeping his-
torical generalizations, as, for example, Wagner's law of the increas-
ing extension of state activity, or Held's law of the evolution of
industry through the successive stages of family system, guild
system, domestic system, and factory system. Such and similar
guesses at "the curve of economic evolution " may be useful for
the purposes of the economists who use them, but they do not make
good the claim of their inventors that they " see things as they

42 ECONOMICS

actually are," " free ... of all a priori theories." 1 The frankly
avowed preoccupation of many members of the school with learn-
ing the " significance and appropriateness " of things discredits
their theoretical work no less decisively than it does that of the
Manchester school which they set out to supplant. The doctrines of
the one are as unmistakably of metaphysical derivation as those
of the other. But since historical induction seems a less competent
contrivance than abstract deduction for turning a metaphysical
postulate to rapid account in the formulation of theory, the theoret-
ical output of the historical school has been notably small. Indeed,
many of the school appear to have given up the profession of theory,
being content to use as their working principles, when the occasion
arises, the body of doctrines worked out by the later economists of
the classical trend. It was such a change of heart, no doubt, that
made it possible for Professor Wagner,2 some years ago, to express
such ready acquiescence in the work of Professor Marshall. It
would appear, from this and many other symptoms, that the large
group of historical economists for whom Wagner speaks has aban-
doned the field of theory and taken to other work.

When, however, we turn to the branch of the historical school of
which Professor Schmoller may be taken as the representative, we
meet a different situation. There is much in the later activity of this
branch that is of promise for the future of economic theory, and
much that sets it apart from its own past as well as from the con-
ventional line of the historical trend. Taking, at the outset, a posi-
tion so radical that it drew from his colleagues the characterization
of " extreme Historismus," Professor Schmoller yet stands to-day
as one of the foremost workers in the field of theoretical con-
struction. Whether or not such an outcome was to have been ex-
pected as a result of the interest that has hitherto engaged the activ-
ity of Professor Schmoller and his school may be doubted. It is
well known that Professor Schmoller began his career by discour-
aging all attempts at theory as premature and ill-advised until an
extensive equipment of historical, statistical, and other material
should have been provided ; and his utterances on different occasions
left no doubt that this preliminary work would need to be done with
such exhaustiveness as to absorb the energy of at least one genera-
tion. An eventual formulation of results was avowed to be the end
in view; but the long-continued and painstaking devotion to history,
and the easy avoidance of theory, gave much ground for the belief
that history rather than theory would always be their characteristic

1 So Professor Ashley in the preface to his English Economic History. Cf.
the same author's inaugural lecture on the Study of Economic History
printed in the Quarterly Journal of Economics, vol. vn, especially p 136

In a r -view of Marshall's Principles of Economics published in the Quarterly
Journal of Economics, vol. v, p. 319.

ECONOMIC SCIENCE IN THE NINETEENTH CENTURY 43

product. Indications, however, have not been wanting in the
writings of Biicher, Knapp, Sombart, and others, that history was
not to be the last word of the school, but the pathway to construc-
tion. Above all, the work of these gave substantial promise that
the theory at which they aimed would not rest with empirical, his-
torical generalizations, but would lead to laws of causal sequence.
It is this latter aspect that makes German economics, as seen through
Schmoller's Grundriss or Sombart's Moderne Capitalismus, of such
significance for economic theory. The function of economic theory,
as these men appear to understand it, is very different from the con-
ventional view. Professor Schmoller made it clear some years ago,
in a review of the Austrian doctrines, that he could not regard the
problem of value as the main preoccupation of economic theory.
For him, the economic process includes much more, and much of
more significance than the process of valuation. What he aspires
to offer is a theory of institutions, more specifically a theory of the
factors that have shaped the successive phases that make up the
life-history of these institutions, and the outcome, as we have it,
in the existing situation. The economic situation, as Professor
Schmoller views it, has nothing definitive about it. Institutions
are regarded as a part of the conventional apparatus of life. They
are still in the making, therefore, and always will be; and they are
not accounted for by representing them as functions in an orderly
and rationalized eternal scheme of things. They represent the
accumulated influence of a complex of forces whose shifting play is
to be ascertained by a careful scrutiny of the exigencies under the
stress of which the process of institutional adaptation has taken
place. The interest centers, therefore, much more in the origin,
variation, and survival of institutions and habits, so far as these
determine or are the economic situation than in their present working
or efficiency as rated by some conventional standard. The result
is, therefore, to be described as a genetic rather than an historical
account of institutions, — a natural history of institutions in their
economic aspects, the chronological sequence always giving way to
the causal sequence. The point of view is that of evolution rather
than of " historical development," the discussion habitually follow-
ing the lines that -evolutionary science has made familiar. Elaborate
notice is taken of such features and circumstances of environment
as have an appreciable bearing upon the economic life-process,
and a no less careful regard is paid to the changing makeup of human
nature, for it is the complex interaction of man and his environment
that issues in institutions. Neither environment nor human nature
is treated as a given fact invested with stability. They each change,
both as cause and effect, and their interplay is therefore to be con-
ceived and described in terms of process and not of fixed condition.

44 ECONOMICS

For such a survey of the natural growth of institutions, history
is of obvious importance. It describes the field of investigation;
but more than history is needed. One has only to turn the pages
of Professor Schmoller's Grundriss to see how widely he has ranged
in fields of knowledge that lie beyond the conventional frontier of
economic science, as it has usually been cultivated by economists
of either the historical or the classical trend. Geography and geology
are pressed into sendee to explain environment, as ethnology and
psychology are to explain the human factors. It is the habitual
resort to knowledge of this kind, to explain the economic situation,
that gives to this latest enterprise of the leader of the historical
school its peculiar and striking character. Indeed, this most recent
example of Professor Schmoller's method marks so much of an
innovation upon the historical method, as it hitherto has been con-
ceived, that it is questionable whether it should be called historical
economics. What it is called is, however, of secondary interest.
The fact that is of moment, and that is to be signalized in following
the progress of our science, is that we have here a new type of eco-
nomics, a type that attempts, and with appreciable success, to carry
into the study of economic institutions something of the spirit and
method of the later-day sciences.

SECTION A — ECONOMIC THEORY

SECTION A — ECONOMIC THEORY

(Hall 15, September 22, 10 a. TO.)

SPEAKERS: PROFESSOR JOHN B. CLARK, Columbia University.

PROFESSOR JACOB H. HOLLANDER, Johns Hopkins University.
SECRETARY: PROFESSOR JESSE E. POPE, University of Missouri.

ECONOMIC THEORY IN A NEW CHARACTER AND

RELATION

BY JOHX BATES CLARK

[John Bates Clark, Ph.D., LL.D., Professor of Political Economy, Columbia Uni-
versity, New York. b. Januarv 26, 1847, Providence, Rhode Island. A.B.
Amherst College, 1872; A.M. ibid. 1875; Ph.D. ibid. 1890; LL.D. Princeton
University, 1896; ibid. Amherst, 1897; Post-graduate of Universities, Zurich and
Heidelberg, 1873-75. Professor of Political Economy and History, Carle ton
College, Minnesota, 1877-81; Professor of History and Political Science, Smith
College, 1882-92; Professor of Political Economy, Amherst College, 1892-95.
President of American Economic Association. 1893-95. Author of The Phil-
osophy of Wealth; The Distribution of Wealth; The Control of Trusts; The Pro-
blem of Monopoly.]

IT is the purpose of this paper briefly to indicate a certain enlarge-
ment which economic theory is undergoing and a certain new and
intimate relation to statistical knowledge which, in the newer
portion, it is assuming. It is obvious that general political economy
is becoming practical. It is emphasizing statistics and industrial
history, gathering from the field of business data which, in them-
selves, command a measure of respect on the part of employers of
labor, influential working-men, and even politicians. The conclu-
sions which may be based on such data constitute a new mass of
theoretical knowledge; and concerning this there is doubt as to
whether it is winning its full share of the respect which is felt for
tabulated statements of bald fact. While the work of the theoret-
ical economist has, at certain epochs, kept pace in recognition and
influence with that of the statistician and the historian, there has
arisen a suspicion that the recent gains in applied economics are made
at the cost of pure theory as such. They are supposed to represent
a reaction against its former spirit and method and in favor of a type
of research which calls men out of the study into the arena of active
business.

It will hardly be admitted by those who rejoice in an intelligent
way over the reaction which has taken place that it implies such an
exaltation of bald facts as to carry with it a contempt for principles

48 ECONOMIC THEORY

or a definite abandonment of the search for them. What is claimed
in this paper is that the new facts which are appearing will inevitably
prompt, not only scientists but practical men who think at all, to try
to discover the principles underlying them. The facts will not go
without interpretation. What Aristotle said of the general phe-
nomena of the universe applies in a concrete way to industrial
developments: "We must philosophize." It is not in the nature of
the mind to see what is occurring without trying to discover the
forces that cause it and the laws which govern their action. The
search for such laws holds the investigator in the world of realities,
and the modern extension of theory will meet the demand for know-
ledge which is, before all else, practical.

While much of the investigation of early economists could be
carried on without elaborate historical data and even without very
elaborate statistics, the special character of the new theoretical pro-
blems requires us to go below the recent and startling movements
in business life and see, if we can, what forces control them; and of
course we cannot do this successfully if we get at all out of touch with
the facts themselves. Ultra theoretical indeed will be the pure
economic science wrhich is thus to be attained and formulated. It
will be as far as possible from catering to a really philistine demand
for bare facts and figures and from showing any timidity as to the
use of the reasoning powers. It will not fear to analyze and general-
ize. It will do so boldly and confidently, but not without an inti-
mate acquaintance with markets, the organization of labor, and the
consolidation of capital, and not without a study of the new economic
influence of the law-making power and of party machinery. Philo-
sophical thought and practical life will thus come into the closest
connection, and the man of affairs will be worth most when he has in
mind correct theoretical principles, while the theorist, on his part,
will get most from the world and give most to it when he pursues
more rigorously than he ever pursued before, his analytical and
deductive work.

Intricate and difficult are the specific problems that now have
to be solved. Changes are in progress, the effects of which go
through the very structure of society itself. Population is increasing,
capital is accumulating, migrations are going on, revolutionary
inventions are in progress, the languid Orient is suffering invasions
by the irrepressible Occident and is itself about to undergo a radical
transformation and also to act in a powerful way on the destinies of
the West. These movements do not go on so completely of them-
selves as to permit no promoting or interfering by the state. Nations
seek to control and guide them in a conscious and purposeful way.
Diplomacy, war, and experimental law-making, not to mention
more experimental platform-making, range themselves among the

ECONOMIC THEORY IN A NEW RELATION 49

forces with which the economist has to reckon ; and if in the midst of
the over-turnings which result there can be detected the orderly work-
ing of economic law, nothing can be more important or practical
than discovering it.

The larger part of the work heretofore done in the realm of eco-
nomic theory has consisted in a search for standards of value, wages,
interest, rent, and in attaining truths so general that it is not depend-
ent on the amount of progress which a society has made. There is,
for example, the natural price for an article of commerce based on the
cost of making it, and towards this standard the actual price of an
article, at any stage in the development of a civilized society, is
always tending. There is a natural rate of pay for labor of a given
quality, to which the wages of actual workmen of this grade steadily
tend to conform; and there is a normal standard of rent for each
piece of land which the amount that the owner actually gets closely
or remotely approximates.

The establishing of scientific standards such as these does not
necessarily call one far into the field of history, though statistical
tables are eminently useful in assisting in the process and in verifying
its results. The theoretical work is chiefly static and it is in the
realm of dynamics that the historical data become most essential.

The economists have been quick to admit that this tendency
of values, etc., to conform to their theoretical standards is obstructed
by adverse influences and that the price of a commodity, the pay of
a workman or the rent of a piece of land is seldom, as they would have
said, exactly natural or, as we might say, static. They have admitted
the inexactness of the working of economic law, but have ascribed it
to friction and obstruction rather than to anything more general and
legitimate. It has not been clearly perceived that it is organic
change in society itself which causes the abiding differences between
the traditional standards of value, wages, and rent, and the actual
rates. The newer theory will give itself to the study of such organic
change and this will tie it closely to practical life and make theory on
the one side and statistics and history on the other mutually indis-
pensable. It will not confound theory with fact, but will make
theory dependent on fact, and vice versa. The assumptions with
which it starts will be supposed realities which it is in order to test
by practical inquiry, and the conclusions will be subjected to the
same testing process. On the other hand, the principles tentatively
attained by the use of the assumed premises will become an indis-
pensable guide in the search for facts. They will lead to the dis-
covery of facts which mean something and are capable of orderly
arrangement and interpretation. Otherwise there is danger of col-
lecting a mass of information so vast and chaotic that it will be useful
chiefly as a means of moral discipline for the baffled student.

60 ECONOMIC THEORY

Without fully realizing it the economists of an early day were,
as has been indicated, trying to establish static standards. Their
" natural " price of a commodity, for example, was one that might be
realized in practice if society were in a certain changeless state.
Stop the disturbance and movement which progress causes and wait
long enough to let friction be overcome, and the cost of an article, as
scientifically defined, will be the real price for which it will sell. If
the outlay involved in making a yard of cotton cloth of a certain
weight and fineness were forever fixed, it might be that the price it
would sell for would come to vary from the cost very little; but it is
quite otherwise when the cost itself is perpetually varying. When
such goods were made entirely by hand their makers' outlay afforded
for some time a more or less stable basis of price, but with the inven-
tion of the spinning-jenny the cost fell. The actual price began to
tend toward the reduced level, but before it could reach its new plane
further inventions were made and the standard of price again fell.
So long as such things occur the price of an article can never stand at
the cost-rate, but must forever pursue that rate, as the industrial
changes carry it lower and lower.

This is merely one illustration of what is occurring at innumerable
points and affecting many economic standards. There are natural
rates not only of prices for all articles, but for wages of labor and of
interest on capital. There is even a standard form of industrial
society itself, and this is continually changing. For the present the
standards of value, wages, and interest will serve as adequate illus-
trations of a general principle, for all these are undergoing perpetual
change and drawing actual prices, wages, and rates of interest after
them in their movement, though friction keeps the attracting stand-
ards and the pursuing practical rates by a certain distance apart.

The economic science of the future will have to deal compre-
hensively with industrial changes, their causes and their results, and
among the results will be alterations of the economic standards as we
have spoken of and of very many others. The productive power of
labor which constitutes the basis of its pay should, for the good of
humanity, grow larger from decade to decade, and the pay should
rise, following, at a certain distance, the rising standard. On the
other hand, if the gross amount of the social fund of capital increases
as much as the welfare of all classes requires that it should do. it may
be expected that the productive power of a unit of it will grow
smaller and actual interest will fall with this falling standard. The
theory of economic dynamics will endeavor to refer these and many
other changes to their causes and trace them to their effects and so
afford a comprehensive knowledge of the laws of economic movement.

At three of the general changes which are in progress we may
briefly glance in order to see how the phenomena of change, as actually

ECONOMIC THEORY IN A NEW RELATION 51

recorded in statistical tables, need to be appealed to. Population is
increasing, capital is accumulating, and new methods of production
are' coming into use. The most important single result of any one of
these is a change in the productive power of labor, which sets the
standard of its pay. By way of illustration we may notice each of
these changes with reference to this single effect.

On the basis afforded by common observation the effect of
each of these changes on the rate of pay for labor is now known. An
increase of population in itself and apart from any accompanying
change tends to reduce the productive power of a unit of labor and
thus to lower the standard of its pay. The more men there are
working in a field of a given extent and richness, the less each one
of them can create, and the less he can expect to get.

On the other hand, an increase in the amount of capital tends
to raise the standard of wages. If we enrich the field in which a
force of men is at work, leaving the size of the force unchanged, the
more each one of the men will create, and the more, in the absence
of excessive friction, he will actually get.

An improvement in the methods used in producing commodities
works, as far as wages go, in the same direction as an increase of
capital, in that it enlarges the amount which a single worker can
create and secure. If population grows moderately while capital
accumulates and methods improve rapidly, the standard of wages
moves upward at an encouraging rate, and the actual pay of working
men pursues this rising standard, though lagging somewhat behind it.
A check on the growth of population and a stimulus for the accumu-
lation of capital and for industrial discovery and invention would
together produce a result that is ideally desirable. By reason of the
enlarged total amount of his fund the capitalist would get an enlarged
total income, though the rate of interest would have somewhat fallen.
The entrepreneur, by means of the improved methods of production
put at his disposal, would have increased profits, and the laborer, by
a compounding of the various influences at wrork, would get a large
increase of pay.

Will these gains be neutralized, as an old view of the law of
population would have led us to suppose, or will they be perman-
ent? Will the worker who has gained something be in a position
to gain more?

It is already beginning to be evident that the latter effect is a
probable one, and there is pressing need of statistics that will fully
test this probability. An increase of general prosperity means the
promotion of men from an ill-paid class to a better paid one and a
numerical shrinking of the worst-paid class. This reduces the pro-
portion of population belonging to the class which shows a high
birth-rate and increases the proportion belonging to those which

52 ECONOMIC THEORY

have a low one. The accumulation of property by workmen is an
influence that retards the growth of numbers, and it is, of course,
the higher classes of laborers that are the best able to make such
accumulations. Education reduces the rate and the higher classes
have the more education. Finally, any prosperity which is long-
continued has a tendency to establish a progressive standard of
living. Men may even become habituated not merely to living on
a certain absolute level, but to living, as the years advance, on a
higher and higher level. This is the supreme possible result of an
era of prosperity, and if it ever becomes an assured and general
result, — if men come to require for their personal satisfaction that
they shall live in each decade better than they did in the preceding
one and shall act accordingly, — all danger that they will sacrifice
their gains, and, in so far as laboring-men are concerned, turn the
course of progress backward, will be forever removed. Gains for
labor will be precursors of no offsetting losses, but rather of further
gains, and men will hold their improved stations with an ever-
increasing firmness of tenure. The culminating result of progress
will be its self-perpetuating tendency — the law that insures that
" to him that hath shall be given." It is the function of the statis-
tician to measure quantitatively the influences which make for this
ideal consummation and to measure the grand resultant effect of
them all.

Only a study which is profound on the theoretical side and elabo-
rate on the statistical side can settle the issue as to whether the
favorable conditions are real and how powerfully they act.1

1 What Malthus proved is that when a standard of living is fixed, a quick
rise of wages above the amount necessary to sustain this standard causes an
increase of the birth-rate and a fall reduces it. If the height of the line AB
above a base represents the standard of living, and the length of it represents a

A''''l800 '* ''l900

century of time, it may be taken as representing a basis of wages which remains

fixed for a hundred years. The dotted line A'B' represents the actual pav of

ion, now rising above the standard and now falling below it. Each time

e pay exceeds its standard the birth-rate is quickened, and each time

_ that it falls below it,
• D the rate is retarded.
Now it may be that
the permanent average
birth-rate is so slow as
to permit a steady rise
of the standard. There
would, in such a case,
be the same fluctua-
tions of the rate of
wages above its stand-

tne same alternate quickening and retarding of the birth-rate as in the
case; but the steady rise of the standard itself would tend to retard

2 birth-rate and so to perpetuate its own upward movement

ECONOMIC THEORY IN A NEW RELATION 53

Analogous to the issue as to the law of growth of population is
that which concerns the law of accumulation of capital, and in this
connection less scientific work has been done than has been done
in the former field, and a highly questionable conclusion has been
lightly accepted. An increase in the amount of productive wealth
raises wages as a decrease in the number of workers would do. It
is the second of two coordinate causes of an enlarged return for the
laboring class, and it has been too readily assumed that an increase
in the productive fund of society tends to retard a further increase.

The conclusion is thus easily reached that any gain which labor
may make through an enlargement of the social capital will grow
smaller, because this enlargement itself will go on more and more
slowly. An influx of capital tends to retard rather than to stimu-
late a further influx. As capital becomes greater, the rate of inter-
est falls; and it has been assumed that this fall reduces the total
incentive to accumulation. Abstinence is foregoing something in
the present for the sake of something in the future, and if this
prospective reward grows smaller, it is taken as a matter of course
that the motive for securing further capital will also be smaller.

Now there is a theoretical condition in which the effect of an
increase of capital will be the opposite of this. It will stimulate
a further increase. It has been conceded that a desire to endow a
family with an income of a certain fixed amount may have such an
influence. If, in order to maintain an accustomed standard of
living, it is necessary that one's children should inherit an annual
income of four thousand dollars a year, a hundred thousand dollars
will be needed when the rate of interest stands at four per cent;
whereas, under a rate of five per cent, eighty thousand would have
sufficed. This qualification may have far more importance than has
been attached to it, for the reason, first, that a desire to place
descendants on a certain plane of life may become a dominant
motive of the capitalist class; and secondly, because this class may
come to include a larger and larger proportion of the men who
labor. Let it once be that workmen become habituated to a rising
standard of living, that they wish to see their children live better
than they do themselves, and that they rely on costly training and
on transmitted capital to enable them to do so, and we have a
motive for saving a greater amount of capital, the smaller the per-
centage of its annual earnings. If, further, the men who reap the
net rewards of business — the entrepreneurs' profits — look on such
returns more and more as a means of endowing descendants, you
have in their cases also a greater motive for saving as the income
from a given amount becomes smaller. The two chief sources of
increase of capital, namely, wages of labor and the net profits of
business, may, as interest falls, enlarge the grand total of wealth
more rapidly rather than less so.

54 ECONOMIC THEORY

Here, again, is an issue of fact which can be decided only by a
broad generalization following a difficult study of statistics. The
generalization that can so be made will furnish a law of accumulation,
- an important part of the theory of economic dynamics.

It is a question whether the march of invention will be accelerated
or retarded by the growth of wealth which results from it, and
whether this third basis of prosperity is self-accelerating or self-
retarding. This problem is even more complex than the former
one. The influences that will decide the issue are many and varied
and have been little studied. If a great accumulation of wealth
involves a growth of monopolies and a gradual extinction of compe-
tition, it will work unfavorably on the improvement of economic
methods. In the hands of secure monopolies industry would prob-
ably stagnate. Does the mechanical progress of the present day
in itself tend in this direction? It is an important question, but
is only one part of the larger question, Whether the principle of
monopoly is becoming supreme, and whether competition is on the
road to extinction. The answering of these questions will require
that we attain a law of progress in both the technique of industry
and in the forms of its organization. Theoretical and practical alike
must the study be which will yield it. A tentative conclusion must
be verified by an elaborate study in the domain of fact.

We have cited only three of the problems which progress presents
and have, therefore, only skirted the edge of the field of economic
dynamics within which, I believe, the chief work of the future will
lie. The problems which we have cited afford illustrations of the
general truth that economic study will, in its new domain, afford no
ground for the charge that it breaks away from the domain of fact.
Far, indeed, will it be from being a transcendental philosophy, a
product of mere ratiocination, or a system evolved from the inner
consciousness of a recluse. Facts will lie at the bottom of it, and
much needed guidance in dealing with modern problems will be the
immediate fruit of it. The new economic science, as statesmen
apprehend it, will have some effect on law-making, and as the people
will ultimately apprehend it, will have more. Some conception of
the laws of progress will, of necessity, take form in the popular mind.
Inevitably will each thinking man try to perceive what forces are
impelling us, whither we are moving, and whether we can control the
movement. The invitation which the age extends to its economic
students is to help men of the time to exercise such control and show
in what direction the movement should be turned. The age needs
charts for its practical guidance. To fail to furnish them would
bring economists into merited discredit, and to succeed in doing
it will require a great extension of economic theory. Both the value
of the science and the recognition it will receive will be in proportion

ECONOMIC THEORY IN A NEW RELATION 55

to this theoretical growth, and its fruit the chart-making. It will
be found, as this study of modern changes goes on, that men have
their fate more in their own hands than has been supposed. A
government can create conditions in which technical advances will
be made, new capital accumulated, and rising wages insured. It
can do much to save from suppression the vital force of competition,
and in this and in other ways it can avert disaster and insure a nor-
mal development. It can do this by respecting the principles of
economic dynamics as they shall come to be known through the work
of many theoretical students, whose conclusions shall be tested by
the work of many more statisticians. The economists of the future
have their work cut out for them and the plan of it determined.
The results will be as valuable as the work is extensive and difficult.

Squarely in the way of the realization of this effect appears to
stand the Malthusian law as originally understood; for it appeared
to show that whenever wages rise, a quick increase of population
takes place and brings down the pay of labor to its former level.
Rising wages would thus start an influence that would shortly in-
duce falling wages, and any gain which labor might make would be
transient. This is the essence of that dismalness which has been
attributed to economic theory.

On the other hand, it is possible to state theoretical conditions
in which the gains of laborers tend to perpetuate themselves. In
these assumed circumstances the enlarged income of the laborers
would not stimulate, but would retard, the growth of population.
Instead of causing something to ensue which soon neutralizes
transient improvement in the workers' condition, a rise in the earn-
ings of labor may thus have an effect which induces a further rise.
The workers' gains would be self-perpetuating.

The studies of Malthus constitute the most valuable work in
economic dynamics that was done by the early economists. Though
they were prosecuted with no reference to incorporating their results
into a systematic science of economic change, they furnished an
important fragment of such a science, and illustrate both its value
and its practical character. In their developed form Malthusian
doctrines do not afford for the laboring class an outlook that is quite
hopeless, for they do not lead one to predict a necessarily disastrous
world-crowding. They open a possibility of checks on the growth
of population which may operate more vigorously as laborers attain
a higher mental and moral level. Yet they leave small reason for
concluding that, in a merely economic way, a check on the growth
of population can give a permanent benefit to workers, since they
do not afford any ground for believing that such a check on the
growth .of numbers tends itself to cause a further check. With no
allowance for psychic gains it may be expected that workers, by

56 ECONOMIC THEORY

a quick increase of numbers, will lose the increments of wages which
any cause may bring to them. Whether they will do this or not is
a question of fact, and the decision will involve a further and pro-
found study of population.

What we need to know is whether the assumed theoretical case,
in which a rise in wages induces a further rise by means of the check
which it imposes on the growth of population, is or is not an actual
case. This will tell us whether any real increase in workmen's
pay tends to induce a condition in which a further rise may be
counted on. On this point we may confidently appeal to statistics,
past and future. It will be found that laboring humanity holds
firmly such gains as it makes and is in a position, by reason of these
enlargements of pay, to make further and greater ones. Civiliza-
tion does not debar labor from the benefits it confers.

THE SCOPE AND METHOD OF POLITICAL ECONOMY

BY JACOB H. HOLLANDER

[Jacob H. Hollander, Ph.D., Professor of Political Economy, Johns Hopkins
University, b. Baltimore, Maryland, 1871. A.B. 1891, 'and Ph.D. 1894,
Johns Hopkins University. Assistant, 1894-95; Instructor, 1895-96; Asso-
ciate, 1896-99; Associate Professor of Finance, 1899-1900; Associate Pro-
fessor of Political Economy, 1901-04, Johns Hopkins University; Secretary
of United States Bimetallic Commission, 1897; Chairman of Municipal Light-
ing Commission, Baltimore, 1900; Special Commissioner to revise the laws
relating to taxation in Porto Rico, 1900; Treasurer of Porto Rico, 1900-01;
Special Agent on Taxation in the Indian Territory, 1904. Member of Ameri-
can Economic Association; American Statistical Association; British Eco-
nomic Association; American Academy of Political and Social Science;
Maryland Historical Society; American Jewish Historical Society. Author
of The Cincinnati Southern Railway, A Study in Municipal Activity; The
Financial History of Baltimore. Edited Letters of David Ricardo to J.R. McCul-
loch; Letters of David Ricardo to Hutches Trower (with James Bonar, Ph.D.);
Studies in State Taxation; reprint of economic tracts; and has made numerous
contributions to economic journals and other serial publications.]

THE development of economic thought has been affected at inter-
vals by more or less formal consideration of the relative extent of its
subject-matter and the proper scope of its inquiry. Originally con-
ceived as the art of domestic government, political economy became
at the hands of the Physiocrats and their immediate precursors
a systematic study of the phenomena of wealth. Two influences,
emanating from the philosopher-scientists of the early eighteenth
century and together summed up in the historic ambiguity of the
term " natural," contributed to this end. First, the existence of
economic uniformities was asserted; and second, the possibility of
basic rules of social conduct was assumed. Similarly, Adam Smith,
starting from an academic discussion of " Police," in logical devel-
opment of the teachings of Pufendorf and Hutcheson, passed, with
growing sense of the importance of the subject and under the personal
stimulus of the Economistes, to a full consideration of national well-
being. Professor Sidgwick has pointed out how this transition from
political economy as an analysis of wealth phenomena is actually
crystallized in the Wealth of Nations. Explicitly denning the pur-
pose of economic study as the first, Adam Smith in fact devoted
the bulk of his treatise to an analysis of public well-being.

This drift of political economy away from rules of economic admin-
istration to an analysis of wealth phenomena was aided by the
intellectual reaction that followed the excesses of the French Revolu-
tion. Economic doctrines and, preeminently, the doctrines of the
new economic liberalism, were identified throughout Europe with
French principles and the revolutionary spirit. In 1793 — three
years after Adam Smith's death — Dugald Stewart still hesitated to

58 ECONOMIC THEORY

give, even before a select audience, any detailed account of the Wealth
of Nations. And Mr. John Rae cites Lord Cockburn's testimony to
the fact that, when Stewart first began to give a course of lectures in
the University of Edinburgh on " political economy " in the winter of
1801-02, the mere term ''political economy" made people start.
" They thought," he says, " it included questions touching the con-
stitution of governments, and not a few hoped to catch Stewart in
dangerous propositions."

But the determining force in the transition of political economy
from a body of precepts to a body of principles was the circumstance
that, with the dawn of the nineteenth century, the analysis of wealth
phenomena ceased to be exclusively the concern of pamphleteers and
special pleaders, and became the subject of deliberate and systematic
study by a widening circle of keen and influential minds. The Wealth
of Nations required too much thought and reflection to be popular,
lamented David Hume within a month after its appearance, and the
readers of the day, fresh from the pages of the Decline and Fall, might
well have found the Scotch philosopher turgid and prolix. But by
1800 the work had reached a tenth edition; its influence upon polit-
ical thought was evident; its impress upon political action was in
part realized, in part foreshadowed; Dugald Stewart's lectures at
Edinburgh were crowded, and young men like Francis Homer,
Samuel Romilly, Sydney Smith, George Grote, James Mill, David
Ricardo, and Thomas Robert Malthus were turning from natural
science, from legal studies, and from literary activity to earnest pur-
suit of the subject whose prosecution not only involved keen intel-
lectual pleasure, but whose results stood in intimate relation with
urgent practical affairs.

It is doubtful whether economic study has ever been pursued with
the same intent ness and enthusiasm as in England during the
period, roughly speaking, of the Continental War. The reflec-
tion is seen in Mrs. Marcet, in Maria Edgeworth, and in Harriet
Martineau. " It has now become high fashion with blue ladies to
talk of political economy, and make a great jabbering on the sub-
ject," wrote Maria Edgeworth in 1822. And again: "Fine ladies
require that their daughters' governesses should teach political
economy.'1 " Do you teach political economy? " " No, but I can
learn it." " Oh dear, no; if you don't teach it, you won't do for me."

Indeed, contemporary evidence abounds. For example, Francis
Horner — that brilliant young scholar-publicist whose too early
death surely meant grave loss to the progress of economic truth —
had read the Wealth of Nations before he was seventeen, had followed
Dugald Stewart's lectures in Edinburgh thereafter, and was devotedly
engaged in economic study while practicing at the bar in the Scotch
capital.

SCOPE AND METHOD OF POLITICAL ECONOMY 59

He describes in his journal under date of April 30, 1801, his sys-
tematic manner of approach: " In the afternoon Lord Webb and
I made our second attack upon Smith's Wealth of Nations, and
finished, for the present, the subject of the division of labor. Our
mode of reading is, first to go through each chapter with a minute
attention to the accuracy of the argument, endeavoring at the same
time to recollect all the illustrations by which we can either confirm,
contradict, or modify his general principles; when we have read as
many chapters as make a complete subject of itself, we review the
whole in a more general manner, and take a note of such subjects of
future investigation as seem necessary to complete the theory."
From the detailed study of Adam Smith, young Horner passed to the
writings of the Economistes, finding comfort in Lauderdale's remark
that he (Lauderdale) " had repeatedly left the study of the Tableau
Economique, cursing himself for a block-head." When Adam
Smith's perplexing fifth chapter on value and price proved a maze,
he sought the clue in the currency tracts of Rice Yaughan, Harris,
Bodin, Lowncles, and Locke.

It is to this fact of earnest and enthusiastic study, rather than to
any formal principle of schematization or methodology that we must
ascribe the Ricardians' easy use of the term " the science of political
economy." When Ricardo writes to Hutches Trower: " 1 am very
sorry to be obliged to agree with you that there are a very few who
are perfect masters of the science of political economy," or when he
states that it is in the domain of taxation that " the most perfect
knowledge of the science is required " — the concept of science
which he has in mind is a body of principles relating to the pro-
duction and distribution of wealth, obtained by systematic observa-
tion of actual phenomena on the part of a group of capable minds and
made useful by affording governments the possibility of wise economic
policies.

Sixty years after the Wealth of Nations was published, at the very
close of the first half of the century and a quarter that go to make up
the modern history of economic study, virtual unanimity had been
reached as to the changed purpose of economic inquiry. Rules of
governmental conduct had passed from primary to secondary
endeavor, and conceived as a science, political economy has become
the study of the phenomena of wealth, having for its object the
formulation of a body of abstract principles which should be capable
in their application of shaping public policy in economic affairs.

In 1837, Senior formulated the distinction by differentiating
theoretical political economy, which " explains the nature, production,
and distribution of wealth " from practical political economy, which
" ascertains what institutions are most favorable to wealth." John
Stuart Mill and Cairnes took practically the same view, and with

60 ECONOMIC THEORY

them, and after them, the majority of English writers of the earlier
school.

The tranquil acquiescence into which economic thought had thus
fallen in the late thirties with respect to accepted dicta of the province
and subject-matter of the science, was rudely shaken in the course
of the next generation by three distinct influences, about which
center the sustained and often acrimonious discussions of the proper
scope and method of economic science that constitute a distin-
guishing feature of the second half of the modern history of economic
thought.

From France came the message of the unity of social phenomena
and the concept of a master science of sociology. From Germany
came protest against the doctrines of economic universalism and per-
petualism, and insistence upon the principle of historical relativity.
From England came the gospel of economic development and the
evolution of industrial organization. Comte, Roscher, and Spencer,
with their prototypes Hegel, Savigny, and Darwin, represent the
great forces that, in succession, first shook the structure of economic
science to its very base, and then inspired its extension and forti-
fication.

We are still too near the scene of conflict to require any review of
its events. As so often in the history of science and, preeminently,
in the history of economic science, that which had come to overthrow,
remained to influence and to be influenced. The principles of indus-
trial evolution, of economic relativity, and of social interdependence
entered into the very heart and essence of economic study and left
their mark in a changed and bettered condition. If the din of doc-
trinal battle no longer resounds, it is not because of abandonment or
surrender, but because a sane and honorable modus has been arranged.

In but one corner of the field does the struggle yet continue.
A handful of doughty spirits are still bravely hammering one another
in theoretical determination of the precise bounds of economic sci-
ence. Yesterday it was as to the interrelation of economics and
ethics; the day before of economics and mathematics or statistics;
to-day it is the respective provinces of economics and sociology on
the one hand, and of economics and history on the other.

To this sustained dialectic I shall venture no further contribution.
Whatever advantages, in the nature of precision of thought and
economy of effort, attend the solemn partition of an undiscovered
country must long since have been attained. Further debate
suggests the waste of scholastic controversy, barren in result and
mischievous in the suspension of positive investigation, in the blunt-
ing of mental acumen and in the diminution of public respect.

A far more promising service than the text-book demarkation of the
kingdom of knowledge seems to lie in a comparative survey of what,

SCOPE AND METHOD OF POLITICAL ECONOMY 61

in default of a more exact phrase, might be termed the " pace " of
economic science. Political economy has for a hundred years or
more been " a going concern " the subject of sustained and deliber-
ate study. It seems high time to pause and inquire as to the
relative efficiency of its devotees. In what relation does the achieve-
ment of the economist stand to that of his fellow scientists? Accord-
ing as he has forged ahead or fallen behind, the economist must teach
to or he must learn from those who are speeding to the same goal,
although by other courses.

If recourse be had to the readiest empirical measure — public
estimate — we are left in no manner of doubt that the progress of
political economy, as tested by the practicability of its application,
has been incomparably slower in degree and less in result than that of
coordinate sciences. For example, at the present moment there are
three great economic problems disturbing the consciousness of the
American people: Trusts, Tariffs, and Trade-unions. It should be
as natural and proper for the public mind to turn to the scientific
economist for specific and definite guidance with regard thereto as
for the farmers of the arid regions to harken to the physicist as to the
efficacy of concussion as a means of rain-making, or for a municipal
administration to turn to a pathologist for counsel as to the best
method of dealing with epidemic smallpox. Each of the three eco-
nomic problems can be simplified, if not solved, by the determination
of an underlying principle. The public will know how to deal with
industrial combinations when an answer has been given to the
query: " Is there an assignable limit to the size of the modern indus-
trial unit, and if so, what determines it?" The tariff question will
speedily enter upon a new era if clear light be thrown upon the precise
relation of labor-cost and industrial efficiency. The crux of trade-
unionism is the determination of a natural law of wages and, no
less important, a practicable method of ascertaining it. In each of
these directions the economist might properly be expected to meet,
indeed to anticipate, the public appeal for counsel; and in each of
these directions the economist, within the ken of the ordinary man
of affairs, has been mute.

Unless, therefore, the economist is to acquiesce with a resigned
fatalism in a condition of affairs, of which my illustrations are, I
believe, fairly typical, it is imperative that there be profounder
searching of heart and more accurate scrutiny of fact for explana-
tion of the loss of popular respect for economic study, and for the
decline, at best partially arrested in our own day, of the economist's
influence in public affairs.

A generation ago, Arnold Toynbee asserted that " the wage-
fund theory was the great cause of the unpopularity of political
economy among working-men." More recently, President Hadley,

62 ECONOMIC THEORY

after deliberate inquiry, explained the smaller practical influence of
the economist in government and administration as due, first, to
the transition of political economy from an art to a science with
a corresponding loss of clearness and precision in its propositions;
second, to the use of precedent rather than scientific analysis by the
courts as the basis of the adjudication of modern economic problems;
third, to the neglect of collective interests and to the checks upon
administrative power in the organization of modern representative
government.

But whatever truth resides in these analyses — and there is
much — fundamentally and in the last instance, the distinctly, nay,
the distinctively unfavorable attitude of the public mind towards
economic theory can only be due to one or more of four causes:

First, the public mind may be inherently opposed to accept
scientific leadership in the formation of its economic opinions in
something of the same sense that the late Mr. Spencer noted that
men who would instantly disclaim judgment in problems of the
natural sciences, would, without correspondingly greater equip-
ment, give out-of-hand verdict upon complex questions of social
policy. Or, second, it may be that economic phenomena in their
complexity, variety, and inaccessibility defy, beyond a certain
point, that productive systematic inquiry which we term successful
scientific study. Or, third, the tribe of economists may be intellectu-
ally inferior to their fellow scientists, or at least less well equipped in
those particular mental requisites which go to make up the successful
scientist. Or, finally, the methods and the apparatus employed by
the political economist may be relatively inefficient.

If political economy as a subject of scientific study has any right
to be, we must of necessity reject the first three of these hypotheses
and concentrate our attention upon the fourth. Such a procedure
is, moreover, encouraged by the complexion of existing facts. It
requires the barest observation to realize a startling contrast in
method between political economy and any of the actively pursued
natural sciences. Let us turn for a moment to chemistry, where
within recent years the bounds of organized knowledge have been
extended with the most brilliant results. In so far as the layman
may speak, it appears that modern chemical — or for that matter,
physical or biological — study involves three consecutive stages:
(1) Inquiry and research; (2) experiment; (3) theorization. Asso-
ciated with these essential activities are the complementary processes
of initial conjecture affording a tentative working-plan; formation of
trial hypotheses in result of investigation and for submission to
experiment; and conversion, by demonstration, of theory into law.
But, in the main, chemical science advances from truth to truth,
from probability to certainty, because a body of mature workers,

SCOPE AND METHOD OF POLITICAL ECONOMY 63

equipped with intimate knowledge of the achieved, are busy mar-
shaling and classifying facts, searching for and formulating uni-
formities, testing hypotheses, and demonstrating laws.

If we return now to the domain of economic science and to the
scene of economic study, the contrast is fairly startling. We find
a body of capable and devoted workers, and a definite and inviting
subject-matter. But here, to any appreciable degree, the parallel-
ism stops. There is in collecting and classifying related data, no
tentative selection of economic uniformities, no verification of
hypotheses by reference and experiment. As agninst the chemical
investigator in his laboratory, deliberately and systematically gather-
ing a particular group of facts, and formally submitting the sequences
which they suggest to comparison and test, with a reasonably well-
established hypothesis as the ultimate endeavor, we have a corps
of student apprentices busy upon historical and institutional mono-
graphs, a group of younger scientists absorbed in academic duties,
and a body of sages engrossed in doctrinal discussion. A single
category has rarely been used to include two things less identical
than the term " scientific " in reference to chemical and economic
study, respectively. If the one be, the other is not. It is a differ-
ence in kind, not in degree of which the contrasted terms " deduct-
ive " and " inductive," " experimental " and " a priori " suggest
the consequence, not the cause. Some further interpretation of
this remarkable distinction is demanded.

A score of years have elapsed since the coincidence, roughly
speaking, of economic investigators and economic issues effected a
renaissance of economic study in the United States, synchronized,
let us say, by the organization of the American Economic Associa-
tion in 1885. Within that period every important university of
the country has found it necessary to provide more or less abundant
opportunities for economic instruction, increasing numbers of
capable students have gathered for training in economic investi-
gation, and economic science in the United States has come to be
studied with a vigor and an activity unequaled in any European
country and unsurpassed in the case of any of the natural sciences
in this. But the method of investigation has been narrow. On the
one hand we have permitted the Comptian influence and the " ex-
treme Historismus " of the German school to justify economic
microscopies; and on the other hand, dismayed by the vast area,
the extensive activities, and the scattered data subject to economic
inquiry, and poorly equipped both on the score of requisite resources
and opportunities, we have deliberately refrained from attempting
comprehensive induction.

In consequence, economic investigation in the United States,
although pursued with unexampled activity, has been in the last

64 ECONOMIC THEORY

twenty years almost exclusively historical or institutional on the
one hand, and local or intensive on the other. Of extensive eco-
nomic investigation, economic description in the proper sense of the
term, little has been attempted and less achieved. The historical
evolution of economic institutions as revealed in more or less access-
ible records, the functional activity of economic organizations as
displayed in limited areas — these have defined the scientific activity
of the ordinary economist. Of the comprehensive study of the
history, structure, and functions of any actual part of the economic
organism, we have had infrequent examples.

In the field of local finance, for example, we have had, on the one
hand, faithful historical studies of the finances of particular states
and cities and of particular fiscal institutions, and, on the other hand,
we have been given intelligent analyses of the present financial
status of specific localities. But the investigator has probably not
yet attempted — understand, I do not say completed — an exhaustive
study of local finance in the United States, in the spirit in which we
may conceive the chemist or the physicist approaching a kindred
problem. Similarly, the institutional history of the Negro in certain
states has been traced and his present status in certain limited
localities has been described. But the larger subject, the Negro in
the United States, taken in its scientific entirety, is still untouched.

Turn where we will, a similar condition prevails. Railroad trans-
portation, trade-unionism, taxation, industrial combinations, tariffs,
as fields of investigation, have been approached only fragment -
arily, historically, or locally. Brought face to face with exten-
sive subject-matter, economists have shown the white feather and
solaced their souls in the thought that comprehensive study of any
important economic institution might properly be postponed until
such number of detailed monographs, dealing with specific aspects
of the subject, have been completed as will permit full exposition
and safe generalization.

Monographs have multiplied; doctoral dissertations have accu-
mulated, arid the progress of economic science, as judged by results,
has been inadequate. The experience of twenty years seems to
suggest that the prime usefulness of intensive economic studies is
educational and local, and that variety of approach, distinctness of
treatment, and change of environment are grave qualifications, under
existing conditions, of the value, and certainly of the economy, of
large reliance upon this monographic method of economic investi-
gation.

The proposition which I venture to submit is that the time has
now arrived when, without any necessary cessation of historical and
local studies, the economic investigator, — and in particular the
economic investigator in the United States, — if he is to attain his

SCOPE AND METHOD OF POLITICAL ECONOMY 65

highest scientific possibility, must adopt a larger mode of inquiry,
a mode analogous to that employed by the natural sciences, and
described as extensive or experimental rather than intensive or
historical. He must derive his subject-matter not from past history
alone, nor from the present experience of restricted localities; but
he must observe and collate the phenomena under consideration
from an area practically coextensive with their manifestation; he
must interpret each group of facts in the light of the conditions pre-
vailing in that particular place, and he must test the uniformities
revealed by reference, as tentative hypotheses, to conditions in still
other localities.

If he is attempting safe and useful generalizations, he must con-
sider, for example, the taxation of corporations not by one state but
by every state. He must study the structure and functions of
trade-unions, not with respect to a handful of labor organizations
and a few convenient cities, but in the light of the policy and prac-
tice, declared and actual, of every important national labor-union as
displayed in many representative localities. In a word, the basis
of economic induction must henceforth be, to a much greater degree
than heretofore, qualitative data, amassed as deliberately and labor-
iously as chemical or physical data are collected by the natural
scientist in his laboratory, and at least approximating in compre-
hensiveness the quantitative material which the public statistician
makes available with increasing efficiency.

The successful conduct of economic investigation along the exten-
sive or experimental course thus outlined involves the use of a group
of workers, instead of the individual student, as the unit of research.
Until such time as the number of independent investigators shall have
greatly multiplied, the well-equipped department of political econ-
omy in the university will, naturally, be the prime agent of scientific
activity. Such an economic laboratory or seminary will include
not only a directing and teaching staff and a body of students actu-
ally in residence, but affiliated workers in the field and associated
beneficiaries of subventions, desirous of operating from an academic
base. A particular body of contemporary economic phenomena
will be selected for collective rather than cooperative investigation;
and specific aspects thereof will be assigned to individual workers for
research in accordance with an organic plan. A student showing
special interest in or capacity for investigation along lines other than
that selected for collective effort will be encouraged to follow his
particular bent; otherwise his energies will be directed, by delib-
erate assignment, to the seminary topic. Class instruction and the
use of bibliographical and documentary materials will serve as the
preparation for systematic laboratory and field work.

In regard to books and documents, the investigator must be able

66

to command, in addition to ordinary library apparatus, all primary
documentary material relevant to his inquiry, whether it be as
ephemeral as municipal reports and trade-union journals, or as
unobtainable by formal request as trade agreements and corporation
record. Similarly, he must be able to publish the results of his
investigations in the precise form which scientific fidelity or prac-
tical usefulness demands, without regard to their commercial
attractiveness or to the limited resources of existing scientific agen-
cies. A more liberal policy of library administration and a more
intelligent appreciation of the proper relation of publication to
investigation in the social sciences, have notably improved condi-
tions in the past few years with respect to these two requisites.

It is with respect to field and experimental work that the occa-
sion for largest change exists. Descriptive investigation, as dis-
tinct from historical study and local inquiry, must bear the same
relation to political economy that field work does to geology and
the clinic does to medicine. The immediate environment should
first be utilized as an economic laboratory for the development of
scientific spirit in economic study and sound method in economic
research, and as the field from which bases of working hypotheses
may be derived. Thereafter the investigator must extend the
range of his inquiry by visits to and even residence in representative
localities, with a view to collecting wider and more varied data
and to testing tentative conclusions.

Such a procedure involves two essentials, — leisure and resources.
The investigator's time and energy, if not entirely available for
scientific inquiry, must certainly not be unduly absorbed by the
routine engagements of the student or the teacher. To the extent
that he is still a student or instructor in academic attendance,
opportunity for extensive inquiry must come with greater promi-
nence of field-work and laboratory exercise in economic instruction.
Economic teaching can properly harken to the message of the physi-
cal sciences, that the ideal of student training is less the accumulation
of detail than the development of a mode of thought. An asso-
ciation of courses, a reduction of lecture attendance, a unification
of seminaries, and, most important of all, the utilization of the
long summer recess for field-work, will ordinarily effect an economy
of time, making possible that amount of experimental inquiry
demanded both by student development and scientific progress.

With respect to resources, the investigator must be in command
of funds sufficient to enable him to visit, and upon certain occasions
temporarily to reside in representative localities, for the purpose of
gathering additional evidence and of testing and verifying tentative
conclusions. To some extent, such funds can be made available
by a modification of the fellowship system, the original purpose of

SCOPE AND METHOD OF POLITICAL ECONOMY 67

which, the attraction of students to post-graduate study, has ceased
to be necessary, and the further extension of which along existing
lines threatens serious evils. Beyond this, aid may be anticipated
from cooperation with governmental agencies and with endowed
institutions of research. But most of all, university authorities
must recognize that " investigation funds " are as essential to scien-
tific activity in political economy as laboratory apparatus is to
chemistry and clinical provision to medicine. I have elsewhere ven-
tured the opinion that " less and less will lack of material resources
operate as a handicap," and that " as long as the method be sound and
truth light the way, economic investigation will probably receive as
generous an equipment as the economic investigator deserves."

In short, I urge a complete parallelism in method of investigation
between political economy and natural science. Comparative study
can fairly well replace deliberate experiment — certainly in a country
as varied in resources and institutions as the United States. Beyond
this, we need but a larger equipment and a common spirit. Here-
tofore the economist has adapted his method to his resources. Let
him now demand resources, made necessar}' by his method.

The significance of this great Congress is that every branch of
science is but a facet of truth, and that every aspirant is in motive
and endeavor as his fellow. No wise man will say, " I have the
true path and every other is false." But just as surely is he a blind
and foolish traveler who trudges along with eyes intent upon the
worn stone, neglectful of the shorter course and the smoother way
of him whose starting-point and whose goal are as his own.

SECTION B— TRANSPORTATION

SECTION B — TRANSPORTATION

(HaU 10, September 23, 10 a. TO.)

CHAIRMAN: PROFESSOR J. LAWRENCE LAUGHLIN, University of Chicago.
SPEAKERS: PROFESSOR EUGEN VON PHILIPPOVICH, University of Vienna.

PROFESSOR WILLIAM Z. RIPLEY, Harvard University.
SECRETARY: GEORGE F. TUMMELL, Chicago.

TRANSPORTATION

BY EUGEN VON PHILIPPOVTCH

[Eugen von Philippovich, Councillor and Regular Professor of Political Econ-
omy, University of Vienna, since 1893. b. Vienna, Austria, March 15, 1858.
LL.D. Vienna, 1882; Councillor, 1900; Privat-docent, Vienna, 1884; Special
Professor, Freiburg, 1885-88; Regular Professor, ibid., 1888-93; Member of
Academy of Sciences, Vienna. Author of Problems and Methods in Political
Economy; Studies of the Political Economy of Austria since 1899; The Basis
of Political Economy; and numerous other noted works and memoirs in social
and political economy.]

MARSHALL says, in his Principles of Economics, " The dominant
economic fact of our own age is the development, not of the manu-
facturing, but of the transport industries." 1 Indeed, hardly any other
facts illustrate the enormous changes of the conditions of human life
effected during the nineteenth century as clearly as the development
of transportation during recent years. In former days of greater
stableness the transportation of great numbers of persons appeared
rather occasionally, at festivals, movement of troops, and pilgrims'
journeys; but nowadays we see a multitude of men in daily repeated
flow, in the centers of transportation, arriving and departing.

To supply considerable masses of men, heavy freight was necessary,
for one or the other center, in former days; but in comparison with
the transportation of provisions, of raw material for industry, and of
industrial products which are shipped nowadays to all parts of the
globe, this freight is insignificant. And how limited was formerly
the sending of news which, in old times, was a privilege of princes and
financiers, in the Middle Ages also of the convents, universities, and
places of trade, but which benefits now the millions of inhabitants
of the large states and secures for every one, even the poorest, the
possibility of direct connection with all parts of the earth.

The system of the Roman roads is said to have comprehended

1 Second ed., 1891, p. 724. Cf. Lorenz von Stein, Handbuch der Verivalbungs-
lehre, 2. Aufl. 1876, S. 361; and Schaffle, Ban und Leben des sozialen Korpers.
3. Band, 1878, S. 180.

72 TRANSPORTATION

about one hundred thousand kilometers; its highways have never
been equaled up to to-day.

The development of transportation has been limited to improve-
ments of the construction of vehicles up to the nineteenth century;
in the eighteenth century even the most highly cultivated countries
did not possess any regular system of roads. Until 1750 the large
highways leading from London to the north were constructed solidly
only at the first one hundred miles; further north they were changed
to a narrow road which was admissible for but a few horses. At
the same time most of the roads in the central and northern parts of
England were still unbounded.1 What enormous progress have the
European nations made in the period of economic liberalism! In as
many decades as the Romans used centuries to construct their
much admired roads, the European nations have spread a net of
railroads over the countries which possess the threefold extent of the
Roman system of roads. Travelers upon Roman roads usually made
forty to fifty kilometers in one day; only at the beginning of the
nineteenth century this rate was changed and the fast mail reached
finally a rate of two hundred and fifty kilometers. To-day the trains
run with an average velocity of fifty to sixty kilometers in one hour;
hence, one thousand two hundred to one thousand four hundred
kilometers in one day. Thus men have been moved nearer to each
other, and the earth has, so to say, been diminished in the same pro-
portion as the velocity of transportation has increased. However,
not only on land, but also at sea we have surpassed all former
centuries.

The greatest progress in navigation since the invention of the com-
pass is marked by the application of steam, not only on account of the
greater velocity of transportation, but especially because thus the
construction of larger vessels was made possible and the ships became
less dependent upon wind and weather; thus gradually a regular
communication on sea was instituted over the whole globe.

In 1843 the first regular transatlantic line between Europe (Eng-
land) and America was opened, and now five hundred and seven-
teen seaports are reached from Europe by regular voyages. How
great the importance of this fact is may be shown by the fact that
the sea covers five sevenths of the surface of the earth, so that all
world's commerce and all world's transportation is done by sea.
Seventy to eighty per cent of the world's commerce is effected
on sea. At the beginning of the forties it took English troops
who sailed to India around the Cape of Good Hope seven months
(with bad weather) from Falmouth to Bombay; emigrants who at
this time sailed to North American ports traveled (against the wind)
four weeks. But when, in 1881, Francis Galton published the first
1 Spencer, Principles of Sociology, vol. in, p. 73.

TRANSPORTATION 73

isochronic passage charts (on which the average time is indicated
to navigate from a given point to certain other points in the
shortest way and with the fastest means of transportation), it
was shown that one could reach from the English Channel all ports
of the earth in less than forty-five days. The normal ship of the
thirties had a tonnage of 200, rarely 300; to-day 6000 to 7000 tons
are considered the average.

A steamer like Kaiser Wilhelm II of the North German Lloyd, with
a register tonnage of 19,500, is as large as the entire commercial fleet
of Bremen or Hamburg at certain times in the beginning of the nine-
teenth century. At present the oceans of the earth are carrying
about 30,000 vessels, with an aggregate tonnage of 30,000,000 tons.
The combined railroad lines are nearly one million kilometers long;
the telegraph cables, one third of which are submarine lines, have a
length of 2,000,000 kilometers.

History of mankind has no example for any such achievement in
former times, not even in the smallest measure. Only in the nine-
teenth century man has subdued space, diminished the globe, and
moved nearer to each other the nations with their mutual, hostile, or
brotherly relations, so that nowadays our mind must obliterate the
national boundaries and must comprehend continents, if it will judge
the forces innate to peoples and measure their effects. The conse-
quences of these changes in transportation are, to-day, still rather
felt than clearly recognized. We know that these changes influence
all conditions of social life, economics, politics, the production of
manufactures as well as of agriculture, of commerce, science and art
and military organization, national feeling and individual life; but,
as Gustav Cohn * remarks correctly, even if the theme is limited to
the economic effects, most work of its investigation is yet to be done.
This must not be wondered at; the most decisive progress has been
made only in the last twenty-five to thirty years, so that we find
ourselves still in midst of a process of transformation whose limits
cannot be drawn. The more interesting is the question which I am
asked to answer, in which wise science in its different branches has
treated this powerfully great subject.

Scientific treatment of transportation has been very insignificant
till late in the nineteenth century. Only the first greater organiza-
tion of transportation, the mail, invited historical reflections and
juristic investigations, while the social importance was not regarded.2
The development of the construction of streets and the improvements
of the waterways have been treated, in the eighteenth century, in
technical writings; later the new means of transportation, the rail-

1 Nationalokonomie des Handels und des Verkehrswesens, 1898, S. 976.

J Cf. Huber, Die geschichtliche Entwicklung des modernen Verkehrs. Tubingen,

74 TRANSPORTATION

roads, gave rise to a special technical literature. The authors foresee
the importance of the means of transportation and communication
for the economic, intellectual, political, and strategical life of the
nations, but they do not comprehend it to its full extent. Only
political economy has a presentiment of the effect of the improvements
of transportation in behalf of human society. But also political
economy shows a narrow conception and does not go beyond general
considerations of the economical effects and of the consequences of
the organization of post-roads and railroads. James Stewart men-
tions, in his Inquiry into the Principles of Political Economy, 1767, only
the influence which the improvement of the country roads exerts
upon agriculture on account of the facilitated sale of its products.

Adam Smith, in his Wealth of Nations (b. i, chap. 3), has a deeper
insight into the relations between space and national economy. He
recognizes the dependency of all economics upon the extent of
markets; this is augmented by good roads, channels, navigable
rivers. These means of transportation open the distant sections of
the country, which always are the most extended, and bring them
into connection with the consuming cities. Therefore, they are the
greatest progress of all; where they are missing, all production is
limited to the market which the surrounding country offers. For
this reason the entire interior of Africa and the whole northern part of
Asia is still in the same condition of barbarism as since the beginning
of the world. Smith was unable to foresee the possibility of a great
development of the ways and means of transportation. His recogni-
tion of the ways of communication is therefore limited to emphasizing
the greater advantages which the waterways possess in comparison
with the highways.

International transportation over extended spaces appears to him
as something impossible; what wares could, by their value, com-
pensate the expenses of the transportation overland between London
and Calcutta; or, if some were so precious that they could counter-
balance the costs of transportation, with what security could they be
carried through the territories of so many barbarous tribes?

The English followers of Smith, Ricardo and Malthus, do not con-
sider transportation at all; his French followers, Jean Baptiste Say
and Storch, have again taken up his idea, but have not developed it
further. Also these authors limit themselves to mention the greater
advantages of the waterways and to point to the importance of the
diminution of the freight expenses for production.1

Among the German economists Lotz and especially Karl Heinrich
Rau have paid special attention to transportation. Lotz 2 does not

1 Say, Trails <f economic politique, 1S03, vol. 1 ; appendix, chap. 16; and Storch,
Conrx d 'economic politique, 1818, part T, liv. i, chap. 9.

2 Ilandbuch der Staatswirlsckaftskhrc, 2. Aufl. 1837, S. 352.

TRANSPORTATION 75

go any farther than Smith, Say, and Storch, although he was able to
observe the railroads. But he mentions them in an annotation, as
standing between highways and waterways; the latter he considers
still the most important and the best. Rau has accomplished, for
Germany, the separation of the theoretical Volkswirthschaftslehre
from the Volkswirthschaftspolitik, i. e.,the separation of the knowledge
of the laws of economic life from the knowledge of the duties of
the state with regard to economics; he treats transportation in the
Volkswirtschaftspolitik 1 originally as an aid to certain kinds of com-
mercial affairs. Thus still in 1844; later among the measures by
which the state furthers commercial intercourse. In accordance
with this systematic position he does not deal with a theoretical
conception or with considerations of transportation which would go
beyond the economic deliberations. He describes the existing
means of transportation (highways, waterways, post -roads, railroads)
rather as organizations of public administration than as members
of the social organism. Thus he is led to a penetrating investiga-
tion of the state's relation to these institutions, but for this reason
his treatises lose the universal character. Adolf Wagner, who has
revised the books of Rau, has still further considered this administra-
tive, political, economic side of treating transportation,2 while Gustav
Cohn opened, with great success, the series of the historical and
economic monographs with his English railroad studies.3

Friedrich last and Knies have demonstrated, in monographs, the
importance of transportation. List has, above all, recognized the
great influence of the railroads upon the expansion of agricultural
and industrial production, but also far beyond this he saw the im-
portance for the national life of the nations.4 In his monograph 5
Knies has investigated the railroads and their influences in differ-
ent directions; he has correctly recognized, not only their economic,
but also cultural, political, and strategical significance, and pointed,
in a later treatise 6 especially, to the increased international com-
munication and to the transportation of raw products en masse as
decisive results of the improved means of transportation. Taken
all in all, even up to 1875, the investigation of transportation has
advanced but little. Schaeffle and Sax have given utterance to this.
Schaeffle pointed to the far-reaching relations connected with trans-
portation, to which the former connection of the ways, institutions
of transportation, and means of communication with the economic

1 Lehrbuch der polilischen Oekonomie, 2. Band; Grundsatze der Volkswirtschafts-
politik, 1. AufL 1828, 5. Aufl. 1863.

2 Lehrbuch der Finanzwissenschaft, 1. Abteil. Privatcswerb des Staates, 1877.

3 Untersuchungen uber die englische Eisenbahnpolitik, 187-1, 1875.

4 Ueber ein sdchsisches Eisenbahnsystem als Grundlnge des attgemeinen deutschen
Eisenbahnsy stems, 1833; das dcutschc Eisenbahnsystem, 1841.

* Die Eisenbahnen und ihre Wirkungen, 1853.

6 Die polilische Oekonomie von geschichtlichen Standpunkt, 1883, S. 444.

76 TRANSPORTATION

institutions cannot do justice. " For the ways of transportation and
communication are not only the base of the material and ideal com-
munication, but they serve also the transportation of persons, of
material, and ideal articles for all other purposes; they are a con-
stant fundamental element for the social, scientific, juristic, esthetic,
pedagogic, and political-strategic conditions of life." * After having
placed, in his social system of " human economics," 2the economic
systems of transportation in opposition to those of original produc-
tion, of the trade and commerce, as equivalent, he was the first to
investigate, in his great work, these further effects of transportation
from the point of view of their importance for society as unity.
Sax has devoted to transportation the first comprehensive mono-
graph. In his introduction he declares that national economy
neglects this point. While the qualities of other means of trans-
portation and their influence upon the formation of economics are
discussed in each systematic representation of the economic funda-
mental doctrines, and have even found, so to say, their distinct
place in these doctrines, the same is not the case with regard to the
means of communication. One is satisfied usually with a few rather
superficial remarks which, besides, are inserted occasionally and dis-
persedly, instead of being discussed " ex professo," connectedly.

The work of Sax is a very complete analysis of the institutions of
transportation from the point of view of technical organization and
of economy. He has not answered the question which place shall be
assigned to transportation in the system of national economy, how it is
to be used for the theory of national economy. Thus it has remained
to this very day. Only Thuenen makes an exception; in his " iso-
lated state " (1826), he discussed the importance of the distances and
of transportation for the selection of the places of agricultural pro-
ductions. Thus he has furnished the first contribution to a theoretical
valuation of space. Besides him we must name Diihring. He is
the only one who places transportation in the system of national
economy in a position determining the whole economy. He con-
siders the importance of transportation equivalent to that of the
organization of human forces, to the size of population, and to the
endowment of a country with natural resources; all these are general
conditions of increased productivity. Diihring stands under the
influence of the American Carey who, without treating transportation
itself, sees the determining principle for the progress or regress of
the national organization of production in the dependency of the
production upon the distance from the market and who strives

328;

. . . . Aufl.

1873.

TRANSPORTATION 77

to restrain the changes of place of the material to the possibly
least measure.1

In all other treatises of transportation by economists especially
the relation of the state to transportation stands in the foreground.
Only lately Schmoller, in his Grundriss der allgemeinen Volkswirt-
schaftslehre, recognized the real significance of transportation as
the base of the social process of productivity and distribution of
income.

It cannot be said that the position of transportation in the political
economic science is generally recognized and assured. It is certain
that transportation is treated exhaustively in treatises in which the
relations of the state to economy are the object of scientific research,
as in the separate treatment of political economy customary in Ger-
many. Here the organization and the juridic conditions of the
institutions of transportation are examined. The theory of national
economy has, however, not yet obtained any sure gain from these
studies, though relations to it are not lacking. But an independent
science of transportation had not yet been founded till now. The
last decades have, indeed, called forth an extraordinarily copious
and comprehensive literature of the railroad, and special railroad-
schools were established in Austria, Germany, Switzerland, and
England; during the last few years also the scientific treatment of
navigation has been advanced remarkably, yet no attempt has been
made to investigate the inner connection of the decisive facts and
to found them upon a general theoretical base. But transportation
is so closely connected with the entire life that its modern develop-
ment in a number of sciences has produced strong suggestions which,
in different cases, offer a clear image of the mutual relations of the
sciences. Above all, the close connection of transportation with
the physical features of the surface of the earth, with the courses
of rivers, and the extent of seas has effected that geography occupies
itself with these objects in a penetrating manner.

When, in the epoch of commercialism, about the middle of the
eighteenth century, the interest in the investigation of the economic
conditions of the state and of the rival countries awoke, as a part
of the great systematic science of commerce, the representation of
the expansion of commercial politics, of the articles of traffic, and of
the commercial roads arose, which became then an integral part
of political geography, and, finally, also, of the kindred statistics
and political science, systematized by Achenwall. In modern times
it has been integrated, and besides, the conception of economical
geography has been formed, which would have to show the influence
of " the physis of space upon the transportation and production of

1 Principles of Political Economy, 1837-40; Principles of Social Science, 1858-59.

78 TRANSPORTATION

material." l Distinguished from this economic geography is the
" geography of communication," about whose extent, limits, and
methods the opinions still differ at present. There are two tend-
encies, opposed' to each other. First, the applied or practical
geography of communication which starts from the given facts in
order to investigate their influences upon the economic, intellectual,
or political life, and in order to deduce therefrom the transformation
and improvement of the conditions of communication. It is evident
how closely this way of treating transportation must touch to the
political economic treatment.

The second tendency aims at the theoretical investigation of the
causes of the conditions of communication; here, again, a twofold
conception of its tasks can be formed: The investigation of the
influence of nature upon the actual communication and the explana-
tion of its natural causes; and an historical consideration which
pursues the diminution of distances of time and space in the histor-
ical development. According to Hettner's conception, it has to
show how in each space on earth and upon the surface of the earth
the system of communication taken as a whole is connected with
human settlements and places of production, and how it is dependent
upon the distribution of land and sea, the courses of rivers, the direc-
tion of mountains. On the other hand, there must be represented
how within each space or most spaces of the earth the communica-
tion is effected on the main and side lines in quite a different manner,
and how the spaces are distinguished from each other through the
different kinds of communication.

The first who investigated the natural dependency of communi-
cation was Kohl.2 But he tried to make the communication of
men too much mechanically dependent upon natural conditions;
in this he has found many followers.3 Contrary to this view Hettner
emphasizes that the opening of each way originates from acts of
human will, which are influenced by distinct motives and must be
subjected to psychological analysis. Thus the way is shown on
which the connection between geographical and social research can
be traced. At which extent of reflection one can thus arrive,

1 The first work aiming, at " economic geography " is Andree's Geographic des
Welthandch, 18(57. The French works are considered of greater value by geo-
graphers, e. <•/., the Precis de geographic economique, by N. Dubois and I. C. Her-
gonard, Puns, 1897. The definition given in the text is that of Goetz in the
/.eitschnjt dcr Gesellschaft der Erdkunde, Berlin, 18S2; cf. Sieger, Forschungs-
methoden in dcr II irtschaftsgeographie, Verhandlungen des Deutschen Geogra-
phentagex, 1903, p. 93.

1 Der Verkehr und die Ansiedclungen des Menschen in ihrer Abhdngigkeit von
der Gestaltitng der Erdoberstdche, Dresden, 1841.

•Cptta, Deutfichlanda Boden, scin geographischer Ban und dessen eimvirkungen
auf da* Lcben des Menschen, 1854, 1. Band, S. 18; and Jansen, Die Bedingtheit
des V erkehrs und die Ansiedelungcn des Menschen durch die Gestaltunq der Erdober-
stache, Kiel, 1861.

TRANSPORTATION 79

Ratzel shows in his Political Geography.1 He is able to pursue the
natural dependency of communication as regards its influence upon
the political organization of men in the formation of states and upon
their position in the world. The kernel of his discussion is that the
main features of the surface of the earth direct the chief currents of
communication. The communication by sea is determined by the
distribution of land and water, climate, and physical condition of the
sea-water; the communication by land depends upon climate, quality
of the soil formation of the surface, irrigation, and the vegetative
properties of the soil. Therefore, there is no random distribution
of the communication on the globe, but a normal, geographical
division into main and subordinate lines determined by the charac-
ter of the surface of the earth. They bestow upon each part of
the earth an individual character which is determined by the tend-
ency of each communication to grow, to get around obstacles, to
cross from one border to the other, from the habitable to the inhos-
pitable regions, and from those more favored by nature to the less
favored.2

No science is so closely connected with transportation as the
technical science. It sprang up, together with the development of
transportation, in the course of the nineteenth century, and grew
directly writh its progress. A prominent German technologist sees
four stages in the development of transportation. It begins with
finding the best way, the natural tracing formed by valleys, fords of
rivers, mountain passes, etc. The second stage is the development
of vehicles. Another progress is made by the improvement of the
road. The perfection attained by the Romans had been lost and
was reached again only in the nineteenth century. But the system
of roads had been little extended when a new stage of development
began with the application of steam power. Only in this latter
period the empirically founded activity yields to the scientifically
established. The scientific treatment of constructing roads can be
traced back to the technical construction of roads, which was intro-
duced since Macadam (1820), but the science of engineering took
its rise only with the invention of railroads. The railroad engineers
found themselves in a difficult position in the first half of the nine-
teenth century. Without personal experience and scientific founda-
tion of their task, they had to rely mostly upon their technical
instinct, by which they were not rarely led astray.3 Only the variety
of experiences and the new tasks of construction have become the
cause that the different technical theories, as those of the earth-
work, the vaults, the properties of material, of the wooden and iron

1 2. Aufl., Miinchen, 1903.

Ratzel, Politische Geographic, 2. Aufl., S. 473-475.
3 Birk und Krauter, Der Eisenbahnban, Einleitung und Allgemeines, 1897, S. 27.

80 TRANSPORTATION

bridges, were furthered considerably, and that quite new theoretical
considerations arose l as concerning the superstructure.

Freiherr von Weber, one of the most brilliant technologists, be-
lieves that all branches of the science of engineering arrived thus at
an extraordinary height, while with the ordinary course of events
only centuries could have accomplished the same.2 Even the earth-
work is performed not any more in an empirical way, but based upon
scientific principles. The solidity, possibility of slides, the rate and
costs of the work, the method of excavating and building embank-
ments are nowadays founded upon science.3 The building of tun-
nels, which formerly were driven only through firm, steadfast rock,
has become possible also in heavily pressed ground only through
the scientific development of tunneling; thus at the present time
extraordinary success has been reached.4 Dredging machines,
drills, the foundation of shafts by means of compressed air, the iron
bridges, have become complete parts of modern technical building
only in connection with railroad construction. The finer geodetic
instruments have been invented with the problem of tracing which
the railroad construction required. Metallurgy has entered into a
wholly new stage; iron, so important for the construction of build-
ings, bridges, machines, vehicles, has been introduced into life.
If the railroad engineers have made copious use of the results of
geological research in judging the formation of the soil or the con-
struction of tunnels, they surely have, on the other hand, also assisted
this science to an inspection into the structure of the surface of the
earth^ which under other circumstances could not have been attained
without great difficulties. Also the electrotechnic is a child of the
railroad period. Without it the magnificent development of the
railroads would not have become possible; but, without the con-
tinuous demands by the railroads, the electrotechnic would not have
reached its present high degree. Enormous progress has been made
within the few decades from the first application of electricity to
giving signals (1840, Great Western in, England, and 1847, Buckau-
Magdeburg) to the first vessel driven by electricity (Werner Siemens,
1879), and the first electric railroad (1887, in America). To appre-
ciate the powerful incentives which the railroads proved to be to
the construction of machines, it suffices to compare the renowned
locomotive Rocket, with which Stephenson gained the first prize,
in 1829, a vehicle of 4.5 tons, with the locomotive of our days,
whose colossal weight amounts to 240 tons. The construction of
the means of transportation has been raised for some decades from

1 Rzlha, Ei.«enbahn-Unlcr-und Obcrbau, 1. Band, Wien, 1876, S. 90.
* Freiherr von Weber, Die Schule des Eisenbahnwesem, 1857, S. 18.
3 Kzlha, S. 91.
4Mackensen, Tunndbau, 2. Aufl. 1902, S. 4.

TRANSPORTATION 81

the craft bequeathed by an empiric master to his apprentice into
the province of scientific research and application of technology.
Sombart has correctly pointed to this feature as decisive and char-
acteristic for the machinal equipment of the presence. The admir-
able development of the technical sciences in their application to
transportation owes very much to natural philosophy, but very
little to the social sciences, whose object is given by the regulated
association of men. Also here it is evident that the connection of
the sciences which occupy themselves with transportation is formed
not by a mutual dependency in the manner of investigation and
method, but by the homogeneity of the object. But, on the other
hand, all changes which one science causes in the object produce an
effect in all other sciences. The attainments of scientific technology
create new forms of communication and new relations in the exchange
of wares as well as in the intellectual connection of mankind, which
must be taken into consideration by the social sciences. And these
show to technology the direction in which it must master the natural
forces in order to respond to the demands of society. Therefore, the
technical sciences are always related to the social conditions. Frei-
herr von Weber has ingeniously shown the national character of the
railroad systems in different states and explained it from their
dependency upon the natural, economic, political conditions of the
life of the different nations. This dependency is also felt by every
technologist at the execution of his tasks; it is the reason for which
also the technical sciences make their problems depend upon the
economic conditions and the juristic conditions of the state. As to
the economic consideration of the technical problems, we owe to the
technologists very valuable incentives to transportation, of which
political economy makes use.

So the question of the feasibility of constructing a railroad has
been treated until now in a scientific way only by the technologists.
They have developed a theory of " commercial tracing " besides
the theory of technical tracing, and searched after formulae which
shall enable political economy to decide the arrangement of street
systems and of railroads, and the kind of their construction. The
commercial tracing must establish the capacity of the different
technically possible lines of a system of railroads or of streets, and
must select the most favorable line. Instead of the old method
followed at the construction of railroads and based upon the esti-
mation of the traffic on the highways, the French engineer Michel
was the first to employ a more perfect and, at the same time, more
simple method. In his investigations, which he extended to a large
part of the French railroads, he started from the assumption that
the transportation must be closely connected with the number of
inhabitants of a certain region, and he found that the transportation

82 TRANSPORTATION

was proportional to the number of inhabitants of the railroad
station, to which the inhabitants of the surrounding country must
be added; but also the different grades of economic importance of
the region must be distinguished, and very large as well as very
small places be omitted. According to the statistics of 1866, he
found that each day 6.5 passengers and 2.1 tons of freight cor-
respond to each head of the population concerned with trans-
portation. These numbers were changed in agricultural districts
to 4 passengers and 1.5 tons of freight, and in the more densely
populated industrial districts to 9 passengers and 3 tons.1 This
method has been perfected by Launhardt, who added to it a general
theory of tracing. In Launhardt's view, the characteristic of the
universal development of transportation consists in the fact that
the work of preparing for the single case of transportation constantly
increases in order to diminish thereby the executing work necessary
for utilization. Evidently the technologist has thus discovered
independently for transportation the law observed in production by
the economists of increasing substitution of circulating by standing
capital.

The diminution of the executing is equivalent to the lowering of
the expenses. In order to proceed economically, one must endeavor,
when determining the direction and construction of a road for
transportation, to make the expenses for the unit (" ton-kilometer "
or Parson-kilometer) as small as possible, these expenses being a
function of the yearly interest of the capital stock, the yearly number
of transported objects, and the expenses for operating the trans-
portation; at the same time the consumers' advantages must be
considered, which are due to velocity, security, regularity, frequency,
and efficiency of the transportation. On this general basis Laun-
hardt has construed different theories about tracing of streets and
railroads with regard to the markets, accessibility, connection with
other ways, and construction of centers of intersection; these theories
strongly support the economic conception of technical problems,
and have been extended to all branches of engineering. An import-
ant consequence was the individualization of the railroads by the
engineers, their division into main lines, branches, local lines, second-
ary lines, etc.

In many regards transportation has touched upon jurisprudence.
Each developed community must create regulations for the right
of ways. Although real estate is private property, yet the want of
communication presupposes the usage of at least certain roads by
all. Through this, numerous legal questions, often very compli-
cated ones, arise. Moreover, transportation involves many dangers
for the security of persons and of property and of the maintenance
1 Annales dc ponts, chausstes, 1866, p. 145.

TRANSPORTATION 83

of public order; to avert and suppress these dangers becomes a public
duty. Finally, any transportation passes beyond the boundaries
of the single states and causes international relations which must be
treated in legal form. Thus the public right, the right of transporta-
tion, and the international right of institutions of transportation,
has grown in the same measure as the increased communication.

Scientific treatment of the public right of transportation began
in Germany by the Cameralists of the eighteenth century, placing
besides, many older technical treatises on ways and communication,
new discussions in which this topic is considered from the point of
view of the administration of the state.

So did Justi in 1760 1 and Sonnenfels in 1798.2 In the first half
of the nineteenth century transportation is treated as subject of
public administration, partly in the works on public administration,
partly in those on state's right, partly in those on political economy.
Only since 1850 the right of administration has become an inde-
pendent science under the influence of the great German authors,
Mohl, Gneist, and Stein. This science has to establish the laws on
whose observation the solution of the problems of the state are based.3
One of these problems is the care of the necessary ways and institu-
tions of transportation, as far as these cannot be cared for by private
economic activity without detriment to the whole.

But also where this is the case, it agrees with our modern concep-
tion of the duties of the state, that it controls and supervises trans-
portation. The maintenance of roads was forever the duty of the
public corporations. Already the Franconian kings, especially the
Carolingians, displayed an energetic activity in building highways,
and the law-books of the Middle Ages contain regulations concern-
ing their width and the conduct of travelers on the highways. The
communities and markgenossenschaften provided the roads for imme-
diate neighborly intercourse. The large roads, the king's highways,
passed over to the ruler of the country, who used them in fiscal inter-
ests and acquired in them a " regal," the privilege to employ them
for fiscal purposes.4 It was a great progress in the development of
right that the idea of the supremacy of the state took' the place of
the " regal," and thus the administration of the roads was per-
formed in the interest of the community.5 The great juristic ideas
on which this administration is based are: (1) That the complete
transportation satisfies the claims of a many-sided and free cultural

1 A ussichtliche Vorstellung dcr gesammten Polizeiwissenschaft, S. 427-435.

2 Handbuch der innern Staatsverwaltung, S. 229-241.

3 A systematic treatise of German right of administration appears not earlier
than 1883: G. Meyer, Lehrbuch des deutschen Verwaltungsr edits, followed, 1884,
by Loening's Lehrbuch.

4Georg Meyer, Verwaltungsrecht, 1. Band, 2. Aufl. 1893, S. 511.
5 Stein, Verwaltungslchre, 2. Aufl. 1876, S. 359.

84 TRANSPORTATION

life and the needs of intercourse of all classes of society; (2) that
its usage is conceded to all with equal rights; (3) that it must be
administered and developed as an integral system.

In regard to the means of communication, first, the mail service
was influential upon the development of public rights. From the
institutions of messengers, which were, in the Middle Ages, estab-
lished by cities, universities, trade-unions, a regular mail service
by mounted messengers was developed in France and in Germany
during the second half of the fifteenth century. It was organized by
the rulers of these countries, serving at first only the official com-
munication, but soon after private persons were permitted to make
use thereof. A formal concession of the privilege to establish mail
service in the Empire, as an imperial right, was made in 1570 in
Germany, and in 1615 the office of general postmaster in the Empire
was bestowed, as Reichsregal und Leben, upon the family of Taxis.
They had, from then on, to maintain the mail service by their own
means, but were entitled, in return for it, to keep the intakes. This
Reichsregal was infringed upon by the rulers in favor of establishing
government's mail service, and since the seventeenth century it is
generally acknowledged that the right of establishing and con-
ducting mail service is a privilege of the Empire or the ruler. In
the second half of the seventeenth century the edict was made for-
bidding the dispatching of letters or persons in any other wise than
through the postal service.

A new epoch in the development of the rights of transportation
begins with the railroads. While Knies, fifty years ago, expressed
his astonishment that the influence of the railroads upon jurispru-
dence had scarcely been observed, we possess nowadays an extended
science of railroad rights. It comprehends the relation of the rail-
roads to the state and to the provinces or communities, the conces-
sion and organization of the railroads, the acquisition of railroad
estate, railroad service, and transportation, and the change of rail-
roads. Both the private and the public rights are equally influ-
enced by it. Generally the railroad supremacy of the state is recog-
nized as an extension of its supremacy of roads. The railroads are
considered as public ways and public institutions. The state has
(1) the right of concession; the state decides if the construction of
a railroad can be permitted, in case of a certain enterprise. The
state cares for the proper construction of the railroad. (2) The
right of supervision of the construction, operation, and adminis-
tration of the railroads. The state grants to the undertaker the
right of expropriation to acquire the necessary estate, but the state
is also concerned in a just indemnification.

The safety of the buildings and means of operation of a railroad
are matters of public interest; construction and operation are subject

TRANSPORTATION 85

to control. The railroads are conceded the right of transportation;
thus they gain a certain monopoly, which is counterbalanced by
a number of obligations: The obligation of transportation to every-
body; the recognition of the state's right to exert its influence upon
the rates of transportation; the duty to establish uniform conditions
of transportation, hence prohibition of arbitrary preference of certain
shippers; the duty to introduce uniform institutions of transpor-
tation; the duty to permit other lines to be connected, etc. Not
all, but most states of Europe, have regulated upon this basis their
relations to the railroads; also those which have not deducted
consequences from the right of railroad supremacy of the state in
all points mentioned, have done so at least in several points. Con-
sidering this far-going regulation of the private operation of rail-
roads, the acquisition of the railroads by the state seems to be the
next step; by far the majority of all states have already adopted the
idea of a railroad system of the state.1

The public right of the railway cannot be treated without referring
to its economic and generally cultural importance. The measure
of economic liberty which the state leaves to the enterprises, the
limit which it puts to its influence, will always be defined the concep-
tion of free competition, private monopolies, the principles of the
formation of price in free and in regulated transportation of the
economic and social function of the state.

It lies in the nature of institutions of transportation that they
obliterate the boundaries of historical and national peculiarities, as
they connect the nations in spite of all differences of nature and of
their striving for power; thus they " create a universal image of
the world which could not be possible without them, for which his-

1 Cf. Keller, Der Stoat sbahngedanke bei den verschiedcnen Volkern, Aaran, 1897.
That the principle of the supremacy of the state is generally recognized is
expressly pronounced by Emery R. Johnson, American Railway Transportation,
New York, 1903, p. 322. He declares that transportation is a public duty and
it is the duty of the government to regulate it. He quotes several very interest-
ing decisions of the United States Supreme Court in which also this principle is
recognized : " Whether the use of a railroad is a private one depends in no measure
upon the question who constructed it or who owns it. It has never been con-
sidered a matter of any importance that the road was built by the agency of
a private corporation. No matter who is the agent, the function performed is
that of the state. Though the ownership is private, the use is public." Also by
other authors the general political importance of the railroads in America is
fully recognized. K. H. White, History of the Pacific Railway, Chicago, 1895,
p. 7, mentions the approval of the first sketch of an Atlantic-Pacific railway by
the Street and Canal Commission of the Congress of the United States in 1850.
' ' Such a railway will connect more closely the eastern and western states in eco-
nomic, social, and political regard. It will become a road of commerce from
Europe to Asia. It will further universal peace and transfer a part of England's
commercial importance to the United States." In 1870 Charles F. Adams
writes in the North American Review (1870, I, p. 125): " Our railway system,
connected through the sentiment of equal interests and equal dangers, will once
exert the same great influence as the Roman Catholic Church, although it will
possess, instead of the religious and moral dominion only, the mighty influence
which the desire for material development bestows upon it, which it serves so
effectively."

86 TRANSPORTATION

tory possesses no example, and which is to be considered as the living
base of all progress.1 Eyen the independence of the states has sub-
mitted to them, and for the first time in the province of transporta-
tion those unions of administration2 of the states have originated
which establish international regulations for communication; the
legislation of the different states will be compelled to recognize these,
because universal intercourse demands so. " The state builds
ways and bridges for itself and regulates and administrates them
after its own will; but the mail-wagon, the locomotive, the electric
spark which goes beyond both, does not any more belong to the
state alone."3

Probably the first similar international treaties have been made
with regard to navigation on rivers. The Vienna Congress Acts of
1814 established first general principles for all rivers common to
several states. On these rivers navigation should be permitted to
all vessels. The police of the river and taxes should be regulated
uniformly. Later treaties have been made concerning the large
German rivers: the Rhine, 1831; Elbe, 1821; Weser, 1823; Dan-
ube, 1856 and 1857; Po, 1850; Pruth, 1866. Commissions and
inspections were established to make and enact regulations for navi-
gation, to determine the punishment for transgressing their norms,
so that they exercise acts of an international legislation. By the
treaty of Paris of May 17, 1865, the European telegraph union, and
by the treaty of Bern of October 9, 1874, the Universal Postal Con-
vention was formed, without board with executive right, as is the
case with the above-mentioned river commissions, but with an infin-
itely farther-reaching effect of international uniformity upon the
order of transportation. Never has the international communication
been acknowledged more distinctly and precisely than in Article I
of this latter convention, which reads: Les pays entre lesquels est
conclu le present traite former ont sous la designation de " Union gene-
rale des pastes" un seul territoire postale pour I'echange reciprogue des
correspondances entre leurs bureaux de poste.

This force of communication striving after unity has attained
still greater success as to the right of railway freight. As early as
1846 a union of German railway administrations had been formed,
which comprised not only the railways of the numerous German
states, but also those of Austria-Hungary and later those of Belgium,
Holland, Luxembourg. The purpose of this union was to create
common regulations of the operation of railways for all connected
lines and to subject thereby the freight transport to independent,
and in the several states, equal rights. However great the success

1 Jellinek. Lchre von den Staatenverbindungen, 1882, S. 158 ff.

2 Stein, Verwallungslehre, p. 361.
8 Stein, loc. cit.

TRANSPORTATION 87

of this union was which, in 1879, already comprehended a railroad
net of 55,000 kilometers, yet it was by no means complete, inasmuch
as large regions of Europe were not included (France, Switzerland,
Russia, and Italy), and as the contents of the agreed regulations
depended upon the conclusions of a majority and did not sufficiently
guarantee its consistency. Therefore Switzerland proposed to
create an international freight-right through a juristic convention,
which should encircle all states of the European continent. The
preliminary wrork was begun in 1876, and after many conferences
the convention concerning the freight transportation by rail was
adopted definitively by the delegates of the enumerated states, in
the conference at Bern on October 14, 1890; it was ratified on
September 30, 1892, and the regulations became valid on January

1, 1893.1 Although this convention did not establish uniform regu-
lations for the whole rights of transportation, as it concerns only the
railroad transportation from one state into another, but not the
internal transportation, which is governed by the laws of the single
states, yet the facilitation of transportation must be considered a
great progress in the organization of the European freight transpor-
tation; and Meili correctly demands, in view of this beginning
created by praxis of juristic science, " to create a universal right for
the world institutions of transportation."2

In the interior of the states the transportation of freight remains
still subject to the private law of the several states which have formed
a special source of it in the commercial law. Also for this branch
of jurisprudence many new legal questions have arisen through
,the modern institutions of transportation; the scientific treatment
of this subject brought about many investigations into the rights of
transportation and especially of transportation of freight by rail.

Also the international treatment of the rights of private persons
receives its material, increasing in quantity through the facts of
modern transportation, and thus the most important points in
which jurisprudence comes in contact with transportation have been
demonstrated. There does not yet exist any treatise on this devel-
opment and transformation of juristic material in connection with
transportation. Only Goldschmidt declares in his universal history
of commercial law 3 that a considerable part of the institutions in
that province of jurisprudence, of antiquity, and of the Middle Ages
have arisen from maritime intercourse, because at times of insuffi-
cient communication by land, communication was confined to navi-
gation. Through centuries all temporal and local differences in

1 Eger, Das Internationale Uebercinkommen iiber den Eisenbahnfrachivcrkehr,

2. Aufl. 1903.

2 Meili, Das Recht der modernen Verkehrs und Transportanstalten, 1888; and
Die intcrnationalen nionen Uilber das Recht der Weltverkehrsanstalten, 1889.

3 1. Band, 1891, S. 28.

88 TRANSPORTATION

commercial law are closely connected with the transformation of
maritime commerce and navigation.1

It would be of great interest to pursue the effect of transportation
on the forms of political organizations and on the utterances of
political life, and to investigate to what extent one has already
become conscious of these effects in scientific treatment.

Only the connection of transportation with the physical develop-
ment of power of nations and its valuation from the point of view of
modern military science shall be discussed here.

Modern strategy has to take into consideration three new factors
which arose in their beginning in the Franco-Prussian War, but
were not considered at all in earlier times. They are: The levy of
the whole national force for war, the progress of technical science,
and the development of transportation. The concentration of the
army formed by the entire armed nation, the sending of auxiliary
troops, their gathering at certain points, the care for provisions, are
conditioned by the organization of transportation. The mercenary
armies of the epoch of Frederick the Great must collect and keep
the whole amount of provisions that were needed in a campaign
before the war in a place as near as possible to the frontier. This
depot contained provisions, supplies of arms and ammunition,
materials for artillery, engineering, workshops of all kinds, even
barracks for recruits, and formed the basis of operation, which was
protected by fortresses. When the armies marched on, in most
favorable cases after ten days' march, a new basis had to be estab-
lished; this was the reason of the long duration of former campaigns
and of the lack of display of force and energy in comparison to the
present. Although Napoleon brought the system of requisition,
the sustenance of his army through the means drawn from the
enemy's country, to highest perfection, yet he could not entirely act
without establishing such " spaces of basis," as especially his prepa-
rations for the war against Russia (1812) demonstrate. In present
days these conditions are completely altered by the railway trans-
portation. Storing up supply in a prepared basis has become unneces-
sary, since reserve forces and any kind of provisions and materials
can be moved within a few days from the remotest districts as far as
the railroad is operated. The administration of the Prussian army
ought to have kept, according to old regulations, a supply of pro-
visions amounting, outside of the fortresses, to one or two years'
supply of rye and to one half-year's or one year's supply of oats.
Instead of observing this regulation, the supplies had been dimin-
ished, during the years preceding the declaration of war against
France, so that the supply for the need in time of peace would have
been sufficient for but few months ; at the time of harvest for an even
1 1. Band, 1891, S. 336.

TRANSPORTATION 89

still shorter term. And, nevertheless, Prussia could better than only
satisfactorily supply its field army in war, inasmuch as not only
Germany as a whole, but also foreign countries contributed to the
sustenance of the troops; for example, at the beginning of war the
Secretary of War had purchased forthwith three million pounds of
preserved meat, hard biscuit, oats, and pressed hay in England to be
delivered to the Rhine.1 The centralizing effect of a highly devel-
oped system of transportation is shown also there. The entire state,
with its industry, production of the soil, with all its auxiliary forces
of each kind, had assumed the role of the " basis ; " the widespread
net of railways had become the substitute of that formerly so-called
basis. It is evident that this valuation of the railroads in the
service of the army was not completely understood at first. The
first author who considers the railway seriously, from a military
point of view, and has a very clear insight into its importance,
Ponitz," still considers the transportation of one hundred thousand
men, with all supplies, improbable for great distances.

The first experiences with transportation of troops was gained
by Austria. In the war of 1859 against France and Piedmont, its
insufficient system of railways proved to be a disadvantage of serious
consequence.3 Only the experiences of the American Civil War,
especially on the side of the Northern States, opened a new epoch.
There a special corps of troops was formed, equipped with copious
material with which railways were built or destroyed. The state
alone ruled all railways through a "department of military railroad."
General David MacCallum, who was the chief of this department, is
the real founder of the military railway system.4 In the wars of 1866
and 1870-71, the importance of the railroads became strikingly
evident in Germany. Prussia had five railroad lines at its disposal
in 1866 for its invasion of Bohemia, while Austria possessed there
but one line; in 1870 Germany could send its armies against France
by means of nine lines, while France had only three at its disposal.
Only thus was it possible that within the short space between July
24 and August 3, in two weeks, 350,000 men, 87,000 horses, 8400
cannon and vehicles were sent to the frontier. Therefore the numeri-
cal preponderance upon the battlefield was secured for the German
army from the very beginning; this is the factor to which, according
to the experiences of the history of war, the most celebrated generals
of all times owe their victories.5 Upon such experiences military

1 Engelhardt, Ruckblick auf die Verpflegsvcrhdltnisse im Kriege, 1870-71,
Bcihcft zum Militarischen Wochenblatt, 1901.

2 Ponitz, Die Eisenbahnen ah Militarische Operationlinien, 1842.

3 Geschichte der Eisenbahnen der Oesterreichisch-Ungarischen Monarchie,
23. Band, 1898: Die Eisenbahnen im Kriege.

4 Jocstcn, Geschichte der Eisenbahnbenutzung im Kriege, 1896, S. 11.

5 Obauer und Guttenberg, Das Train-Kommunications-und Vcrpflegswesen
vom operativen Standpunkt, 1871, S. 50.

90 TRANSPORTATION

science has based its demands concerning the organizations of rail-
ways. The development of the railway system shows in the mili-
tary states of Europe, especially in France, Germany, Austria, in
large measure the characteristic type of military railroads which is
constructed, not with regard to local transportation of freight, but,
in the first line, with regard to transportation of military forces,
certain cases of war being presupposed. At the concession of each
new railroad to be built, officers of the Ministry of War participate
in the council; they decide about the minimum demands, as to ability
of transporting, construction of stations, water-supply, etc., which
the line has to fulfill before the concession to build and operate the
railroad is granted. The average daily supply of provisions for an
army of 1,000,000 soldiers and of 250,000 horses is estimated to
amount to 4000 tons; the transportation of this mass requires 14
trains with 5000 tons brutto-weight each day, a wagon carrying
8 tons. But as reserve forces, ammunition, material of each kind
must be transported besides, the number of trains must be increased.
This transportation can, of course, not be effected by any vehicles,
and a very well-organized system of railways is necessary to satisfy
these claims. Such extended use of railways requires also strong
defense and protection of the army's connections with the rear; a new
problem has thus arisen for the science of war.1 As the history of
war shows, the chief operations of the army depend greatly upon
good natural communications (brooks, rivers, the seacoast).2 In the
future the railways seem to be destined to a still more important
role. The war of the future will become rather a war in the province
of technic science; who possesses the most complete equipment and
institutions will finally be victorious. The armies of to-day are no
longer chained to one line as formerly, nor dependent upon the
possession or loss of a source of their force. They depend upon the
entire railroad region in the rear and are thereby closely connected
with their entire country. The railroads will bring about quick and
powerful decisions in future wars.3

In this essay on the relations of transportation to the sciences,
I have already spoken of political economy, but only in so far as I
tried to show at which place and in what way the science of econom-
ics has taken up this subject as a whole and how it has embodied it
in its system. I shall now return to the relations between trans-
portation and political economy in order to show that the efforts
to conquer space have also influenced other realms of political econ-
omy and have furnished new problems. I shall not direct the

1 Cardinal von Widdern, Der Krieg an den riickwdrligen Verbindungen des
deutfichen II fere vnd der Etappendienst, 1870-71, Berlin, 1893. And of the same
author: Der Kleine Krieg, 1. Theil, 1899.

'Obauer und Guttenherg, loc. cit. S. 292.

'Jocstcn, loc. cit. S. 83.

TRANSPORTATION 91

reader's attention to the great transformations of social life, to sub-
jection of the local markets under the influence of great central
markets, to the invasion of European agriculture by transatlantic
production, to the extension of capitalistic organization of produc-
tion under the dominion of European and North American capital,
but only to certain phases in this great process of development
which have become important for scientific treatment of national
economy. The institutions of transportation have created, in the
province of pure theory, the law of price. It is a fact that increased
communication, within a certain maximum of intensity, does not
increase the expenses, and that the expenses of transportation do
not grow with the distance over which transportation is operated.
Therefore it is to the interest of the undertaker of transportation
to invite, by proper rates, the strongest possible use of the means of
transportation; hence to set the prices low and uniformly. This
principle was followed first with postage (Rowland Hill's penny
postage; uniform world's postage); great consequences resulted
from it, and finally it was recognized as a special case of a general
law of the operation by monopolies.1 To the theory of formation of
capital another most important contribution was made, especially
by the railroads. It is often asked whence the monstrous capital
has come by means of which in about sixty years the railroads of
the earth were built; the expenses of the railroads in Europe which
were operated at the end of 1901 amounted to 21.262 millions of
dollars; those of all the railroads of the earth, which were certainly
all built with European or North American capital, were 40.574
million dollars. English, French, and German authors have de-
clared that this costly means of transportation has, in a certain sense,
built itself, inasmuch as the savings from expenses for production,
besides the powerful effect upon the increase of production, were
more than enough to make the capital free which was needed for
the construction.2 There is scarcely any more striking example to
refute the socialistic theory of the amassment of capital from " de-
predation of labor." Our knowledge of the form of organization of
human society has also been enlarged by the railways. The railways
are the first great operations of capitalism. The amount of the
amassed capital, the number of working forces, and, above all, the
undertaker's uniform authority over a far-stretching operation of
railroads with the various branch institutions, are something new
as to their great and careful division and to their inner organization.
The railroads have been first to introduce the modern form of asso-
ciation of capital, that of stock companies, into wider circles of
population, and to create the modern type of operation by large

1 Huber, Die geschichtlitche Entwicklung dcr modernen Vcrkehrs, !&•?•. S. 128.

2 Emery R. Johnson, American Railway Transportation, 1903, S. 2ii8.

92 TRANSPORTATION

concerns. There, for the first time, one has studied a great financial
success reached by well-organized cooperation of employees in whom
the interest of the owner which shows itself so distinctly in little
enterprises, does not appear individually.

But the means of transportation of the present have not only
created great organizations; they have also become instrumental
to the organization of production in gross. Thus industrial and
commercial monopolies were created, and the first example of or-
ganized cooperation of independent enterprises without competition
was given.

I need only, in first regard, to point to the history of the Standard
Oil Trust, which originated by the discrimination granted to Rocke-
feller by railways; in the latter regard I mention the fusions and
combinations of English railways, formed in the forties for the
purpose of removing competition, and the great development of
the pool system in the United States. The institutions of trans-
portation, which had always a tendency to uniformity, have become
the strongest force for centralization of economics, for preponder-
ance of the great industries over the smaller, of the large centers
of economic, intellectual, political life over the local districts with
individual characteristics of the large cities over the district. The
whole modern political economy and the discussion of the socialists
about the growing tendency of concentration of capitalistic eco-
nomics is connected with the institutions of transportation 1 and
their effects.

Also the doctrine of free competition has been strongly influenced
by the modern formation of transportation, and especially by the
railways, not only because the railroads proved by themselves
that free competition can lead to monopoly ; but especially by the
fact that, through their influence, the competition of single private
enterprises lost its regulating power. The attraction of low freight
rates proves to be stronger than the industry and ability of local
producers. Who has the enterprises of transportation on his side
needs no longer to be anxious about his victory in competition. But
where the influence of such factors which are not within the reach
of every single man have turned out to be so determinative, the law
of free competition is no longer valid, and science has no longer to
examine only the effect of free competition, but, above all, to inves-
tigate how the conditions for the competitor can again be equalized.
These facts have, in the highest measure, contributed to the fact
that the doctrine of free competition is much more complicated
nowadays, and that we cling less to the simple formulae of the past.
But from its effects the principle of state intervention has developed.

1 Knios. Die Eisenbahntnund ihre Wirkungen, S. 123. Cohn, Nationalokonomie
des Handcls-und Verkehrswescns, 1898, S. 785 ff.

TRANSPORTATION 93

No technical and economic fact has been more instrumental in repre-
senting the state as the living element of each economic organization
than the transportation of our days, which could not exist without
being supported by the state, and which, on the other -hand, would
turn out to be, not a creative, but a destructive force in economics
without being regulated by the state. The necessity of a principle
of common economics as supplemental to one of purely private eco-
nomics has been illustrated in transportation by the influences of the
corporations with common economics, viz., state and community.
Finally, I shall point to the fact that the consideration of com-
mercial organization and commercial politics is no longer possible
without simultaneous consideration of transportation. The estab-
lishment of roads for universal commerce as the result of the develop-
ment of transportation, especially the technical and systematical
improvements of navigation, the removal of the economic effects of
natural obstacles by tariff politics, the separation of the organiza-
tion of transportation with the organization of commerce, and, in
connection with it, the more perfect organization of expedition, have
caused most important changes of the world's trade as well as of
the interior commercial organization. I mention only the facili-
tated avoiding of staple places and the increase of direct communi-
cation between producers and their customers, which, for instance,
brought about the independency of the continental ports from Eng-
land, the destruction of the basis of existence of the smaller trades-
men in the interior of the, countries, the advancement of corporative
commercial organization with its own production. An apparent
contradiction between the exterior commercial politics and the facts
of communication is thus solved. " Railways, and commercial
blockade! The outlay of immense capital for the furtherance of
trade, and tariff laws for the obstruction of trade! *' Thus Prince-
Smith has exclaimed, to call attention to the economic politics of
the present time. But, in fact, it was the centralizing force of the
means of communication which had aroused powerfully the political
and economic common spirit; it contributed, as a mighty factor, to
the fact that the idea of the national protective tariff rooted deeper
in the foreign commercial politics and that it was demanded that
the state should similarly influence the international competition,
as in the tariff politic in the interior. Presumably the time is not
long when uniform tariff politic of transportation for international
commerce will be the topic of public discussion, as it indubitably
has been used already with success in several cases.1 The influence
of the institutions of transportation upon the cultural life of the
nations, independently from their material and political basis,

1 Cf. Seidler und Freud, Die Eiseribahntarife. Hire Beziehungcn zur Handels-
politik, 1904.

94 TRANSPORTATION

reaches beyond their economic effects. This influence is, in the end,
the most important; it is, at the same time, least open to the regulating
invasions of the states. " There is, in communication, a greater
necessity tha"n the political or purely economical, namely, the cul-
tural. Communication survives political changes; not only the states,
but also the nations which would separate themselves, are joined
against their will, by communication.1 What will be the last and
most powerful effects we cannot yet see to-day; for we do not stand
at the end of the development of transportation, but at its beginning.
Antiquity and Middle Ages, up to 1500, are considered one epoch
from the point of view of transportation. The sea voyages and
great discoveries in the space of the globe from 1500 to 1900 fill the
second great period, and the third, the period of increased intensity
of all means of and relations of transportation begins at the end of
the nineteenth century. We are overwhelmed by the progress
which the decades have matured; we feel how much they concern
not only the life of the nations, but the life of every one of us. And
yet we must confess, if we behold the image of the earth and of the
lines of communication drawn thereon by man, that the deeds of
the future will be infinitely greater than that which we see nowa-
days and which we may foresee for the next days. For wide regions
of the earth still belong, as to their wrays and means of transporta-
tion and forms of communication, to that period which is for us
a matter of the past of five centuries. It is still the smaller part of
the earth that has progressed to more intense communication.

The different effects of the attained progress of transportation
which we have shown or indicated are only a small part of that
which mankind may still expect, when the whole globe will be drawn
into the circle of culture of the nations of European origin, in the
same way as this is now the case between Europe and North America.
Whether then the results will turn out, as heretofore, as a blessing
for the peoples of European culture, this cannot be predicted by any
science. We must rather confess that science has, till now, pursued
facts only hesitatingly and recording what it has experienced; it
did not foresee nor determine facts of the future; thus it will prob-
ably also be in the future. For a science which would dominate
extent of men in space would, in reality, determine the whole life
of mankind. So high our fancy and ambition shall not soar!
We acquiesce in the hope that our review of the sciences whose
object is transportation has at least shown that social science,
and especially its most developed branch, political economy, finds
important reasons for investigating, with greater attention than
before, the influence of space upon the formation and development
of the human society.

1 Ratzel, Politifche Geographic, S. 529.

PROBLEMS OF TRANSPORTATION

BY WILLIAM ZEBINA RIPLEY

[William Zebina Ripley, Ph.D., Professor of Economics, Harvard University.
b. Medford, Massachusetts, 1867. B.B. Massachusetts Institute of Tech-
nology, 1890; Fellow, Columbia University, 1891-93; A.M. 1892; Ph.D.
1893. Instmctor in Economics, Massachusetts Institute of Technology, 1894;
Assistant Professor, 1896; Professor, 1900; Professor of Economics, Harvard
University, 1902; Expert, United States Industrial Commission, 1900-01.
Member of the American Economic Association (vice-president, 1899-1900);
American Statistical Association; Honorary Corresponding Member, Societe
d'Anthropologie, Paris; Societa di Antropologia, Rome, etc. Author of
Financial History of Virginia; The Races of Europe; Report on Transportation,
United States Industrial Commission; Trusts, Pools, and Corporations, etc.]

A GROWING problem in transportation is the determination of
trade areas, or spheres of influence, to borrow a phrase of interna-
tional law. This is another way of stating that the problem turns
upon the importance of distance in any scheme of rate-making.
Geographical location is a factor in commercial competition. Most
of the cases before the Interstate Commerce Commission concerning
the Long and Short Haul Clause raise this issue; wherever within,
or even outside, a given territory, lie a number of cities competing
for business. Take the Southern States for example. What are the
conditions at present as determined by the adjustment of freight
rates; that is, by an arrangement patched up between competing
carriers, each striving for all the traffic it can hold, irrespective of
any abstract rights of competitors or of the community at large?
Literally speaking, railway competition does not probably exist in
the Southern States to-day; so far has consolidation proceeded. But
inasmuch as the system of freight rates in force is an unchanged
hold-over from a competitive period, our statement holds good.
Large distributing-centers in the East are in the field seeking business.
Western cities are also actively bidding for trade, while indigenous
centers of primary importance like Atlanta, New Orleans, Nashville,
and Memphis are actively seeking to wrest the business of distribu-
tion from their older rivals.

This contest for trade may even descend into competition between
smaller local centers either struggling against one another or against
the larger cities. To be concrete, it may be a case of Atlanta against
New York and Chicago, respectively; or of Denver as between San
Francisco and the Middle West. Or the struggle may turn upon
the rights of a secondary center, such as Montgomery, Alabama,
lying between Atlanta and New Orleans. Columbus, Ohio, lying
between Cleveland and Cincinnati, is similarly situated. What

96 TRANSPORTATION

would be the ideal distributive system supposing the matter were
referred for decision to an omniscient governmental commission
with power? Precisely such issues are already before the Interstate
Commerce Commission. The immediate question may be a tech-
nical one, such as relative rates upon car-load or less than car-load
lots, or the relation between rates upon raw and finished products.
But underlying these technical details the real question pertains to
the relative rights of competing centers in certain territory.

Many elements in settling trade rivalry are, of course, .entirely
independent of transportation cost. Among such are native or
imported enterprise, available capital, and the like; but aside from
these the most important artificial factor is the adjustment of freight
rates.

There is a larger amount of waste due to a neglect of the element
of distance in transportation than most people appreciate. It is
wonderful how circuitously freight will travel, in order to reach a
certain point, when once loaded on the cars or vessel. More than
this, districts may even buy their supplies of the very things which
they produce, not from themselves, but through a distant distribut-
ing-point. Arkansas is a great fruit-growing state, yet wholesale
grocers are selling dried fruits from Chicago throughout its own
fruit-growing territory. Some years ago one of the most enter-
prising shoe jobbing-houses in Virginia, doing business throughout
the Southern States, was shipping its shoes made in New England
to customers, not as the bird flies, but back through New York.
It is not very many years since interior points in the South were
supplied with Western produce in part by goods which traveled
three quarters of a circle, going east over the trunk lines to New
York and then down the coast and away west into the interior.

Such facts illustrating the extreme fluidity of freight are familiar
to all students of this subject. As a deplorable waste in transpor-
tation, they are usually charged up to the carriers. Less attention
has been given to corresponding waste in transportation due to
unregulated competition, not of carriers, but of buyers and sellers
themselves in the ordinary course of business.

We buy hoes, rakes, and shovels in Massachusetts made in Iowa,
while the greatest manufacturers of some of these products, selling
goods all over the world, are situated within our own state. Nash-
ville, Tennessee, is selling Northern goods not only as far south as
its rival, Chattanooga, but beyond and all around it. Chattanooga,
in its turn, would like the privilege of similarly cutting into terri-
tory which its rivals enjoy. A great struggle in the Western field
illustrates the same difficulty. A bitter competition has long
been waged for distributive business between the Middle West and
Pacific Coast. St. Louis and Chicago are seeking markets out on

THE PROBLEMS OF TRANSPORTATION 97

the Pacific; San Francisco and the coast cities are striving to sell
not only in their own territory, but as far east as possible, and Denver,
between the two millstones, is striving to retain a few rights on
account of its geographical situation. What interest in the outcome
have the carriers? No adjustment on general grounds of equity or
economy can be expected to appeal to them. Every economy in
transportation means for them, in fact, a loss of revenue. The only
satisfactory issue for them is the one that yields the most returns.
The result is an appeal to the state to enforce an equitable adjust-
ment of the matter; or, in other words, to sanction a rate adjustment
which shall protect each market in the possession of its own rightful
geographical advantages.

Definitions of these rights, so-called, to definite territory are well
put in a recent case: " Every commercial city owes its existence to
its geographical position, giving it natural advantages which make it
a distributing-center or gateway for a territory, the periphery of
which is established at points better served by other cities possessed
of like natural advantages. As the original tributary territory of
a city increases in population and advances in development, com-
peting distributing-centers within this territory, having like natural
advantages in regard to the same, responsive to a natural demand,
spring into being and share in the business, each city practically
getting the trade to which its contiguity entitles it. Such is the
history of the cities of the Atlantic Seaboard, the Middle West, and
the Pacific Coast. " By such reasoning as this we find the commer-
cial zone of a city even more exactly defined in a recent case: " Tak-
ing into account the claims of those cities (Nashville and Knoxville),
the legitimate trade of Chattanooga covers a strip of territory ex-
tending northeast and southwest a distance of about two hundred
miles in length by about one hundred and twenty-five miles in width.
And a demand results for a rate adjustment which shall ' protect
this city in her natural trade rights.' '

At this point rises a difficulty, What are natural rights of
location? We may easily recognize these in the case of places like
New York, New Orleans, San Francisco, St. Louis, Chicago, or Minne-
apolis and St. Paul. A whole chain of cities from Richmond skirt-
ing the Allegheny chain around to Montgomery, Alabama, deter-
mined by the headwaters of navigation on the coastal rivers, are
likewise located where they are by act of God, but shall we say the
same of places like Indianapolis, Omaha, Denver, and Atlanta?
Neither one of them has any rights of natural origin. They are all
railroad towns, determined in location by the intersection of carriers.
They might have arisen anywhere within fifty or one hundred miles
from their present situs and have fulfilled their mission equally well.
Here, then, are two distinct classes of rights of location. The Inter-

98 TRANSPORTATION

state Commerce Commission, since its earliest Louisville and Nash-
ville interpretation of the Long and Short Haul Clause, doubtless
had in view real geographical rights when it consistently refused
to recognize the competition of carriers among themselves as justi-
fying a neglect of the element of distance in transportation. On the
other hand, the Supreme Court has, perhaps, been predominately
influenced by facts bearing upon the condition of our second class of
cities, which owe their prosperity not to natural, but to purely arti-
ficial causes, along which commercial competition is preeminent.
Atlanta, Georgia, is purely a railroad town, without historical ante-
cedents, without a water course or power, without fertile surround-
ings, remote from the sea, and with no natural charms save climate.
The location and prosperity of this most important city in the
South was undoubtedly due to the preferential treatment of the
many carriers who happened to meet or cross at that point. What
" rights " has such a place, — a creature of the railroads, — which
railroads are bound to acknowledge; or what rights worthy of
respect have any other competing centers which carriers will recog-
nize as equal to the railway rights which they themselves confer?

The waste in cross-freights, competing centers invading each
other's territory without regard to distance, is accentuated by the
operation of an economic law. Surplus production at low cost is
familiar to us in the case of international trade. The United States
Steel Corporation or the German Sugar Kartel can profitably sell
their surplus product abroad cheaper than at home. Within limits
this foreign sale may not injure the domestic consumer, but may
help to lower the price of his goods. Precisely the same principle
underlies all long and short haul adjustment. It is exemplified in
the case of low export and import rates. Given a volume of exist-
ing business at remunerative rates, which cover fixed charges, any
surplus business which repays direct outlay is worth while. Apply-
ing this principle to our case in hand, the farther each center extends
its market, the more ruinous becomes its price for the competing
city which looks to that trade, not for its infinitesimal surplus profit,
but for its staple and basic one. This principle not only influences
the merchant in fixing his price, but it also, of course, appeals to
the carrier to give lower and lower proportional rates as the distance
increases.

Various industrial influences seem to be at work to prevent a part
at least of this fruitless waste in transportation. Certain indus-
trial combinations have contributed appreciably by locating their
plants with reference to a division of the market and economy
of freights. Others attained this end by enforcing scales of prices
based on certain distributing-centers. Pittsburg, for example, is
made a base for the price of pipe, plates, and other steel products.

THE PROBLEMS OF TRANSPORTATION 99

Prices for these goods are fixed all over the country at this figure
plus the arbitrary approximate cost of transportation. One object
is that all traffic may be kept moving outward from the producing-
center. For obviously any shipment inward from any other dis-
tributing-center is penalized not only by lower and lower prices as
Pittsburg is approached, but also by the increasing freight rates in
proportion to the distance shipped backward. Still another device
for correcting undue competition at ruinous distances is the adoption
of a scale of crossed freights between several distributing-points.
Thus Cleveland and Cincinnati, competing for business throughout
Ohio, may agree, through a Wholesale Grocers and Hardware Asso-
ciation, to quote prices in the intermediate territory at a fixed price,
freight paid; or they might agree each to figure freights as based
upon a third point equally distant.

In any case the result is to give contiguity its due weight in fixing
the outline of trade areas tributary to each.

Agreements between carriers often seek to obviate unnecessary
waste in transportation. The division of territory between the east-
ern and western lines in Southern States is a case in point. Thirty
years ago competition for trade throughout the South was very
keen between great cities in the East and in the Middle West. Direct
lines to the Northwest from Atlanta and Nashville opened up a new
avenue of communication with ambitious cities like Chicago, St.
Louis, and Cincinnati. The state of Georgia completed the Western
and Atlantic Railroad in 1851 for the express purpose of developing
this trade as Western manufactures developed. A keen rivalry
between routes respectively east and west of the Allegheny Moun-
tains into the South developed. A profitable trade on food-products
by a natural direct route from the Ohio west of the mountains was,
however, jeopardized by ruinous rates made by warring trunk lines
to the Northern seaboard. Corn, oats, wheat, and pork came down
the coast and into the South through the back door, so to speak, by
way of Savannah and the seaports. On the other hand, the Eastern
lines into the South could not earn dividends because of the retalia-
tory rates on manufactures made by the Western lines on goods
from New York and New England. Finally, in 1878, a reasonable
remedy was found in a division of the field and an agreement to
stop all absurdly circuitous long hauls in each other's natural terri-
tory. A line was drawn through the Northern States from Buffalo
to Pittsburg and Wheeling; through the South from Chattanooga
by Montgomery, Alabama, to Pensacola. Eastern lines were to
accept goods only from their side of this line to points in the South
also on the same side of the boundary. Western competitors were
to do the same. The result was the recognition of the rights of each
to its territory on the ground of contiguity.

100 TRANSPORTATION

Such action for the reasonable definition of trade areas and routes
as has been outlined is feasible enough for industrial monopolies and
for those carriers who by agreement or by consolidation make them-
selves monopolies, but the remedy is not open to the general com-
petitive or consuming public. Merchants of Denver, Colorado,
cannot conclude a treaty with competing cities for the mutual deter-
mination of one another's territory. Nor would it be desirable to
have it so. Competition is the life of trade and the salvation of the
public, so long as it is reasonable. The only possible geographical
delimitation of each other's activities is, and must always be, through
the adjustment of freight rates. This function has heretofore been
performed by more or less beneficent autocracies — the carriers
themselves. That so important a public function, however, affecting
the origin, development, and continued prosperity of great com-
mercial and industrial centers should remain in purely private hands
without power of revision by representatives of the public, is con-
trary to the tendency of the time, and cannot long persist. This
does not mean that the task to be assumed by the state is an easy
one, nor, perhaps, that it would be more satisfactorily performed
in its larger aspects by the government than by private persons.
What the situation demands, however, is not so much an imme-
diately equitable adjustment of rights as a guarantee that the pro-
blem shall be worked out at least free from the bias of private interest.
Whether more or less satisfactorily performed than at present,
satisfaction must be afforded to the public that the decision is free
from the bias of private interest.

Territorial Division

All of these influences which we have adduced as making for a
wider and more general dispersion of manufactures will, of course,
never affect the great and unchanging influences which have placed
many of our staple industries where we now see them. The several
states of the Union will never probably roll their own steel rails or
make their own cotton cloth. Early fruit will still grow in Cali-
fornia and Florida better than anywhere else. Spruce trees for
paper, and grain for the distillation of liquor will still grow where
Nature bids. But, on the other hand, in the vast complex of manu-
factures, it can scarcely be doubted that a great many industries
having no special situs foreordained will follow the population which
they serve. And neglecting export to foreign countries, the business
of transportation will in just that proportion be changed from long
carriage for both raw and finished products to and from a specialized
center, to a long or perhaps even a short haul for the raw material,
and a distinctly short haul for the finished commodity. The only

THE PROBLEMS OF TRANSPORTATION 101

long haul definitely assured may be the staple food-supply, which
to-day, in the form of grain, or its derivative, beef, forms' perhaps
one third of the traffic of our carriers.

Are any influences yet discernible of the progress of industrial
specialization upon the character of transportation in older Euro-
pean countries? It would be of great interest to hear from our
foreign delegates.

One of the most interesting general problems for the student of
transportation concerns the effect of development of facilities for
the carriage of goods upon territorial division of labor, and the rela-
tive interdependence of regions or populations upon one another
for products. Marshall, the great English economist, thus puts it:
" Speaking generally ... a lowering of freights tends to make
each locality buy more largely from a distance what it requires, and
this tends to concentrate particular industries in special localities."
There should be comfort in this principle for the practical railroad
man. It means several things for him. It means with the growth
of a country, let us say the United States, not only an increase in
the volume of traffic far more rapid than the increase of population,
but also at the same time it implies an ever-augmenting proportion,
not only of long-distance traffic, but also of high-grade freight. The
first of these probabilities seems to be justified by the results of the
decade of 1902. The average ton-mileage of the railways of
the United States for the three years up to and including 1892
was 82,000,000,000. Ten years later the corresponding figure was
148,600,000,000 tons of freight hauled one mile. The increase in
freight traffic was upwards of 80 per cent. During the same time
the population increased about 20 per cent. Thus the volume of
traffic during a decade increased about four times as fast as the
population. That something like this proportionate rate of growth
will continue can scarcely be doubted. Let us assume it as assured.
The problem for discussion is not as to its volume, but as to the
precise character which this increase in traffic will assume. If
Marshall, expressing the orthodox view, be right, this increment will
progressively rise both in the length of haul and in character,
as specialization in agriculture, mining, and manufactures
develops.

Two economic forces are in continual opposition in any country.
Territorial division of labor, the specialization and localizing of
industry, mean an increasing dependence of men and communities
upon their neighbors, close at hand, or perhaps on the other side of
the globe. The trend in this direction entails an exchange, not only
of raw materials, but of a larger and larger proportion of finished
products. Even food staples, grain and cattle, are not carried
long distances in the raw, as formerly, but largely in the manu-

102 TRANSPORTATION

factured state, as flour and beef products. On the other hand,
with the maturer development of every community, comes an in-
creasing desire to «be economically independent and to develop
resources in a well-rounded way. The Pacific Coast wants to make
its own ships; the Middle West to make its own shoes; the South
to grind its own flour and spin its own cotton. Every force which
operates in this direction toward the decentralization of industry
means a reversal of the previous effects of industrial growth in the
line of regional division of labor. Every utilization of local raw
materials for local manufacture to be consumed at home means a
change in the character of freight offered for transport. The
problem comes home every day to the traffic manager of a great
system. If St. Louis shoes the great Southwest with hides of local
Western origin, what becomes of the long-haul business from New
England? If Richmond and Atlanta become the seats of thriving
local manufactures of furniture, crockery, wagons, and soap, what
becomes of the traffic displaced? The answer is, of course, that
every such industry has to be fed, clothed, and supplied in a hundred
ways which more than compensate the carrier for the direct loss of
traffic. This is, of course, true. But the change exemplifies exactly
what we have in mind, namely, that the maturer development of
a country will profoundly influence not only the amount, but the
character of the transportation service demanded as well.

Many forces tending to specialize industry and locate it predomi-
nantly in peculiarly favored places are familiar to us all. The
oldest, and for our country the most important, historically, is
nearness to the market. Nearly one half (48 per cent) of the manu-
factures of the United States, according to the latest data, are located
in the six states of Massachusetts, Connecticut, Pennsylvania, New
York, New Jersey, and Rhode Island. But this concentration is
rapidly yielding before the spread of population, with increased
consumption power, through the South and West. Who can say
that within a hundred years the center of manufactures will not pass
beyond the Alleghenies? It has already almost done so in the case
of several industries. A second concentrating influence is, of course,
the location of raw materials in the ground and of climatic advantages
in the air. There are no signs of weakening in the supremacy
of Pittsburg or Birmingham as centers of the iron and steel
industry.

Yet many of the more highly elaborated products of these staple
raw materials, from ships to hardware, will be more and more made
near where they are to be consumed. Other factors to be noted
presently may readily prove it to be more economical to carry the
raw material, pig-iron or steel billets, rather than the finished products
over the long haul. Consider the cotton industry. We hear a great

THE PROBLEMS OF TRANSPORTATION 103

deal in New England about the advantage of having cotton grown
at the mill door. Yet those conversant with the subject assure us
that freight rates play no part in the differential advantage which
the Southern mills enjoy over New England. In fact for many of
these mills, until very recently, it cost more to bring their raw mate-
rial two hundred miles than to carry it fifteen hundred to Boston.
The only real advantage for the South lies in its abundance of cheap
white labor and its freedom from legislative interference in the
interests of decency and humanity. Water-power and supply is a
powerful factor making for localization in manufactures. It still
determines the situation of certain industries, paper-mills for example.
But our cotton-mills are more and more relegating water-power to
the background in favor of coal. And, moreover, New York and
New England possess no monopoly of this gift of nature. Parts of
the South and West are overrun with it. Natural gas holds the
glass industry within its belt; but the life of this fuel supply is
highly uncertain. And, moreover, who can say what possibilities
lie before us in the line of electrical transmission of heat and power.
The twentieth century is not yet four years old. Niagara and many
of our interior rivers may offer great alternatives in the future loca-
tion of industry. Nor is our list of localizing influences yet
exhausted. A local supply of capital has been a powerful factor his-
torically in the geographical development of industry. But the
South and West have not only demonstrated their rehabilitation
as fields for Eastern investment. They have also developed indig-
enous supplies of capital, big with possibilities for the future. The
supply of available labor again has often determined territorial
division of labor. To be sure, the English cotton industry settled
in Lancashire because of its climate and in spite of its sparsity of
population; yet it is labor supply, and that alone, which to-day gives
our own South its hold on the world. Many highly specialized
centers of industry, Glovers ville, New York, for hardware; Brock-
ton, Lynn, and Haverhill, Massachusetts, for foot-wear; Attleboro,
Massachusetts, with its gilded reputation for jewelry; Troy, New
York, for its linen and laundry work; these and a score of other
places owe much of their supremacy to their local supply of skilled
labor. Yet the migratory habits of our American population show
no signs of decline; and, moreover, the dangers of overcentralization
in labor-unionism are inducing many manufacturers to long for a
little more industrial seclusion. A noticeable decentralization of
industry from the latter cause may be detected. And finally every
improvement in the technique of transportation, making it almost as
profitable to carry raw materials in bulk a thousand miles on a
commodity rate as to transport the finished product even in car-
loads at high-class rates, helps along the same process.

104 TRANSPORTATION

Prices

Another important problem at this present time is involved in the
relation of freight rates to general prices, as revealed by developments
of the last four years in the United States. An almost continuous
decline of freight charges characterizes the years since the close of
the Civil War down to 1900. The extent of this decline is indicated
very roughly by a fall in the average ton-mile revenue of the United
States from 1.92 cents in 1867 to less than three quarters of a cent
(.729) in 1900; or to take Massachusetts by itself, from 3.11 cents in
1871 to 1.22 cents in 1902. So long and unvarying did this phe-
nomenon appear that even traffic experts seem to have become
convinced that the downward impulse was irresistible, only to be
compensated for by increased efficiency in operation. Progress
during these years certainly seemed to inure to the benefit of the
public.

The prosperous years since 1900 have brought a sudden and
remarkable change. Carriers combined, tonnage was large, and
commercial sentiment against departure from published rates was
made enforceable by amendments of the Act to Regulate Commerce.
The consequence has been a reversal of the downward tendency in
freight charges. Rates have bounded upward, in fact, if not always
on paper, to a degree more than commensurate with the general rise
of prices characteristic of the time.

It is often difficult to prove these increases concretely. And it is
often easy for astute traffic experts to show averages which minimize
the real increases effected. The only way oftentimes to ascertain the
amount of increase is by going directly to the individual shippers,
asking them in fact what they used to pay and are now charged for
identical service. The complexity of traffic methods defies statis-
tical analysis. No general statement suffices; each rate must be
worked out in detail. Thus for example in the case of gram rates
from Chicago to New York, they were ostensibly raised from 17£ to
20 cents per hundred pounds, an increase of 12J per cent. But only
when it is made evident that owing to competition old rates actually
paid were always from two to five cents below the quoted tariff of
17£ cents, whereas now the full 20 cents is exacted from all shippers,
does the magnitude of a real advance amounting to 30 or 40 per cent
become apparent. The stiffening of rates may be more indirect still.
Rules of the Southern Railroad Association used to prescribe that for
all cars over 42 feet in length a minimum weight of 28,000 pounds
should be charged. In a particular case a shipper of wooden pails
states that to load 20,000 pounds of his product, wooden pails,
requires a longer car than this. Hence, if he be furnished one of these
long cars and desires a car-load rating, he must pay a nominal rate

THE PROBLEMS OF TRANSPORTATION 105

per hundred pounds for 14 tons for every 10 tons actually shipped.
Here is a real rate 40 per cent higher than it appears from the tariff.

Or, again to be specific : raising the minimum car-load weight of
caustic soda or lye from 20,000 pounds, where it used to be in Official
territory, to 24,000 and 30,000 pounds respectively, regardless of the
difficulty of filling so large a car with these products, amounts prac-
tically to increasing the rates by 50 per cent without changing a type
in the tariff sheets. And so, in a thousand little ways, abolishing
privileges in demurrage, in switching charges formerly gratuitous, by
stiffness in allowances for insurance, etc., the situation may be
changed. This is what has happened a number of times during the
last four years since January of 1900. The rates have universally
been raised and together with these increases a multitude of other
changes of the kind mentioned have all accentuated the same result.

The problem which we would raise is not as to the exact extent of
this rise in transportation charges, but rather as to its significance
in a well-ordered scheme of things economic. The old evil in this
field was inequality between individuals. To combat that injustice
was one of the main objects of the Act to Regulate Commerce in 1887.
This inequality, particularly with the law as fortified by the Elkins
Amendment, has now been more nearly obviated than ever before.
The present problem is not of inequality, but of the general level of
rates absolutely considered in its relation to prices as a whole. In
other words, are carriers justified in expecting a sympathetic rise of
rates in accordance with a general advance of commodity prices all
along the line? We have for thirty years become used to a move-
ment of railroad rates entirely independent of the course of prices,
efficiency in operation being correlated with a reduced cost to the
public. Are we to witness henceforth a reversal of this phenomenon,
characterized, let us say, by a sliding scale of transportation charges
following the upward and downward trend of prices of things in
general ?

The problem must, however, be simplified somewrhat further. All
expenses of operation have greatly increased as a direct result of
rises in wages and the cost of supplies. To be recouped for this
final outlay, owners are of course entitled, although they have never
heretofore been able to take advantage of any upward turn in cost
of operation of this kind since the Civil War. And in so far as it is
necessary to repay this added expense, no one will contest their
justification for the raising of prices of their own product, — trans-
portation. But the carriers have not alone been content to stop at
this point. They seem to have based their claims for increased
returns upon the necessity of continuing a high level of earnings and
dividends reached at an early part of the period of prosperity. Many
of them have in fact through consolidation capitalized the abnormal

106 TRANSPORTATION

prosperity of two or three years. They established an unprecedented
level of gross earnings from operation in 1900, of $1,500,000,000, as
compared with an average of less than $1,200,000,000 for the ten
years to 1899, an increase of more than 25 per cent.

It was frequently asserted in 1900 that this new high level of invest-
ment returns was henceforth to be maintained with net earnings and
dividend rates commensurate with the increased gross receipts.
Even this might be conceded could such results have followed at
existing rates. No one denies their right to share in the general sun-
shine of good times. But the crux of the question is met when a
decline in general business and prosperity gives rise to a claim, not
only to all that they have already received, but also to a continuance
of these high returns indefinitely. The means to this end lay close
at hand. Having demonstrated their power to turn back the long-
continued decline of rates upon itself, they now proceeded to hold this
high level of net earnings in the face of declining business by again
raising the price of their product. That the enactment of the Elkins
Amendment helped to make this possible, by prohibiting individual
discrimination and departure from established rates, cannot be
doubted. To be sure, the great coal-strike, with its largely enhanced
cost of operation, followed by demands for high wages on the part of
employees, would, without such increases in freight rates, have made
a considerable cut in net earnings. This, together with a cessation of
the increase, if not a positive decline in gross earnings, would un-
doubtedly have brought returns down with the general stagnation and
fall of profits in other lines of business.

On the other hand, something was surely to be expected from the
enormous outlays made during the fat years for permanent improve-
ments. These ought to have helped to maintain net returns, even
in time of stress. In this case both public and investors have been
somewhat disappointed. Yet the character of many of these im-
provements, rightly considered, was not aimed primarily at a reduc-
tion of operation cost at all. This point seems to have been largely
lost sight of. Many of them, improvement of terminals especially,
will never have as much effect upon earnings as upon the monopoly
control of the field. Every new station, every freight yard in large
cities, every grade-crossing abolished, every tunnel completed, makes
the possibility of effective competition more remote. The fact that
railway returns have not yielded save inconsiderably until January,
1904, means the establishment of a new ratio for the country at large
between transportation charges and the price of commodities, or at
any rate it denotes an elasticity between the two which inures
greatly to the advantage of the carriers at this time.

Who is to determine this question? At this present time more
millions of dollars would be involved and more people affected than

THE PROBLEMS OF TRANSPORTATION 107

in any fifty cases ever argued before the Supreme Court of the United
States. That one party to the issue shall at once be defendant,
judge, jury, and court of appeal and last resort, is, in my humble
judgment, a condition which an enlightened public opinion will not
long tolerate.

Consolidation

A third transportation problem still in the making is that of
railroad consolidation. A great movement began on the Eastern
trunk lines in 1898, which culminated two years later in a wild out-
break of combinations of railways in all parts of the country. It
was freely asserted that all of the carriers in the United States would
ultimatel}r fall into four or five groups, each holding a monopoly of a
definite section of the country. In other words, that a division of the
field similar to that which took place in France many years ago was
the only logical outcome. These predictions confidently made three
years ago are now being subjected to the test of experience, with the
result that an ultimate solution along the lines expected seems much
more remote than it did then.

The growth of giant consolidations has not ceased since the cul-
mination of the furor in 1900. The Great Rock Island system, con-
trolling over twelve thousand miles of line, has taken place since
1902. Of the first magnitude, this consolidation extends from Chi-
cago to Denver, to the Mexican line, and into the very heart of the
eastern Southern States. The Atlantic Coast Line Company, by pur-
chasing a controlling interest in the Louisville and Nashville Rail-
road, forms a vast railway loop reaching from Chicago to the Gulf
and away up round the Alleghenies on the east to Richmond. The
so-called Gould system has reached points on the Atlantic seaboard
through control of the Wabash and of the Western Maryland. In
fact the coup by which it broke the monopoly of the Pennsylvania,
by entrance into Pittsburg, is one of the most interesting episodes in
modern railway history. Another Eastern company ceased inde-
pendent existence early in 1903 by the joint control of the Phila-
delphia & Reading by the Baltimore & Ohio and the Lake Shore
companies. Inasmuch as these latter roads are controlled by the
great Pennsylvania and New York Central systems, consolidation
in trunk-line territory is appreciably advanced by this operation.
More recently still a considerable system is presaged by the appear-
ance of the Pere Marquette as an absorbing company. And finally,
if rumor be true, the Chicago & Alton Railroad is passing at this
present time into the great Union Pacific group.

Progress toward Consolidation has not, however, been universal.
A number of events are contributing toward an increasing independ-
ence of' many companies. The adverse decision of the Supreme

1 08 TRANSPORTATION

Court in the Northern Securities case in 1902 can scarcely be over-
estimated in importance as affecting the nature of corporate de-
velopment in this field. A most salutary check is thereby placed
upon a malign tendency in the so-called field of high finance, al-
though in this particular case the evils in sight were probably more
than counterbalanced by the advantages to be gained. The disso-
lution of several voting trusts, notably the Erie and Reading, On-
tario and Western, and Pere Marquette, have thrown these important
companies also more into the control of their owners. The Southern
Railway is, in fact, the only important voting trust giving control
to wholly banking interests, which remains from the period of reor-
ganization of 1893. The dissolution of these trusts may be, perhaps,
taken as symptomatic of a general loosening of the hold of Wall
Street upon railroads of the country. A large amount of so-called
undigested securities, products of the reorganizations of 1893 and
consolidations of 1900, were forced from banking control by the
great liquidation of 1903. Huge operations conducted upon bor-
rowed money were brought to an end by that wholesome event, so
that it may be presumed that a number of railroads once definitely
placed in groups named after prominent financiers are now to a far
greater degree in the hands of their owners. Whether this increasing
independence will render the properties more likely to be seized upon
by growing consolidations remains to be seen.

Viewing the nature of the more recent consolidations and the dis-
integrating tendencies above mentioned, it appears less likely that
a parceling out of our territory into monopolistic groups will be the
ultimate outcome. Scarcely any of the great systems in reality can
lay claim to an absolute monopoly of any considerable territory with
the exception of New England, and if some substitute for the North-
ern Securities Company be found, the Northern transcontinental
lines. Certain evidences appear that the process of merger cannot
hope to obtain this result. All that a great system can hope for is
that it shall connect the great strategic points of our vast territory.
They all seek entrances into Chicago, whether their systems lie west,
south, or southwest. Most of them aim at an outlet on the seacoast
east or south. With this result they must be content. Moreover,
the community-of-interest idea is working less smoothly than at the
high tide of our industrial prosperity. Several events, such as the
warfare between the Gould and Pennsylvania interests for entrance
into Pittsburg, and the still more recent struggle between the Gould
and Harriman forces concerning the Colorado iron and steel products,
cannot fail to be somewhat disquieting. And the supreme test of all,
hard times, has not yet arisen. The old prediction may come
true that present consolidations will merely transform railroad
competition from a multitude of petty conflicts between small com-

THE PROBLEMS OF TRANSPORTATION 109

panies to titanic contests between consolidations in case of a suffi-
ciently severe and prolonged period of depression.

But whatever the future of competition may bring forth, one
thing seems clear. If the carriers are to get together for the ad-
vancement of their interests, it behooves the public to do the same.
More and more is it being appreciated that ruinous warfare, be it of
railroads or between labor and capital, shall not be permitted to
jeopardize the welfare of the country at large. And the phe-
nomenal development of consolidation which makes such warfare
possible adds yet another forcible reason for the people to provide
adequately for safeguarding the public weal through governmental
supervision.

Governmental Regulation

It is often urged against a further extension of governmental
regulation of transportation that the interests of the carrier and
community are identical; in other words, that the interest of the
road in charging what the traffic will bear is a safeguard for the public
against charging what it will not bear. There are three objections
to this statement, or, in other words, three reasons why the adjust-
ment of freight rates under the present conditions of legally unre-
stricted private initiative are unsatisfactory.

These reasons, concisely stated, are : First, that the permanent
interest of the carrier is often directly opposed to an adjustment
favorable to the commercial or industrial welfare of the community
served; second, that even if the permanent interests of the carrier
and public are harmonious, yet the temporary interest of the carriers
may be at variance .with a policy favorable to the public; and
third, even if, as before, the permanent interests of the carrier and
community are one, competitive forces may prevent the manage-
ment of the railroad from doing what it concedes to be best and
what it would do if its hands were free.

Let us illustrate these three possible cases by concrete illustrations :

The clearest instance of a permanent divergence between the
interests of the carriers and the public is afforded by the great in-
crease and maintenance of freight rates yielding abnormal returns
to the carriers, to which reference has already been made. Let us
agree that equality as between competing shippers may obviate
any loss of those shippers due to an increase of freight rates; inas-
much as they all being raised at the same time simply shift the
burden upon the community by raising the price of their commodity.
But this very fact merely changes the contest of rights between the
shipper and the road to a divergence of interest between the carrier
and the consuming public. The case is so plain that it needs no
further elaboration. Another illustration of the same divergence

110 TRANSPORTATION

of interest is also often found in the establishment of a local industry
in a new country. Suppose it is a question of establishing a new
paper-mill at Denver, Colorado. The carriers serving Denver have
enjoyed a remunerative traffic in the carriage of wood-pulp paper over
a long haul from Wisconsin or elsewhere. The establishment of this
paper-mill will mean the substitution of a short haul to and from
Denver of wood pulp from Colorado, and of paper carried to a local
market in the same state. Argue as you may that every industry
added to Denver inures to the permanent interest of every carrier
which serves that city, yet the fact remains that the loss of traffic
is direct, while the ultimate gain is indirect and will have to be
shared with other roads serving the same territory. That this
argument is a cogent one may be illustrated any number of times
by the dog-in-the-manger policy which is too often taken by traffic
managers.

Our second principle is that, conceding a joint permanent interest
of carrier and public in a certain policy, the temporary welfare of
the management may often be directly opposed to that of the
community.

The best illustrations of this contingency are found in certain
phases of speculative finance which, like the poor, are always with
us. Of what use is it for the far-sighted traffic manager to seek
permanent development of his territory if a gang of speculators are
in control of the situation. What care they for the future growth
of the territory at large. They may merely hold the control of that
road for a few months in order to sell it out at a profit; or, perhaps,
to secure profits by speculative manipulation vastly exceeding
any legitimate earnings from operation. A huge volume of earnings
must be made, let us say, to attain this result. Efficiency or safety
does not count. Expenditures for permanent improvements are
sidetracked and the country is practically exploited until such
time as these speculative interests have accomplished their object
by selling out to their rivals, or perhaps, have been forced out of
control by bankruptcy.

Results of the experience of the last ten years in the field of high
finance emphasize the necessity of some adequate supervision by
federal authority, not only of rate-making, but of financiering.
This is perfectly evident. Such notorious episodes as the reorgan-
ization of the Chicago & Alton in 1899, by which its capital stock
was watered four times over; the stock-market raid upon the Louis-
ville & Nashville in 1903, by which its sale to the Atlantic Coast Line
was forced; and the entire process of financing of the Great Rock
Island system, — all emphasize the need of reasonable control. It is
useless to control rate-making so long as juggling with securities in
this way is possible. In this respect, both investors and the public

THE PROBLEMS OF TRANSPORTATION 111

have a joint interest. Consider particularly the last case above
mentioned, the financing of the Rock Island system, where less
than $55,000,000 gives entire control of a holding company through
its preferred stock, and thereby wields the entire destinies of a
railroad system capitalized at over $500,000,000 and aggregating
more than 15,000 miles of line. The commonwealth of Massachu-
setts did not hesitate many years ago to undertake the control of
operations of this sort. That some way will be found for extension
of federal power over this sphere is devoutly to be wished.

The third objection to the fixing of freight rates by purely private
initiative lies in the rigidity of freight-rate adjustment as between
competing carriers. This often makes it impossible for a road to do
what it concedes to be in the public interest and what it would do if
its hands were free. This case we may best illustrate by experience
in the Southern States. Two systems of transportation compete
for the carriage of cotton from the great Mississippi delta to the mills
in New England. One of these operates east of the Allegheny
mountains and the other west. The lines east of the Alleghenies
desired some years ago to lower their rates on cotton from the
Mississippi Valley to Carolina mills, inasmuch as the rate to those
Carolina mills was in fact four cents a hundred pounds higher than
the rate through the same territory away up to New England. Natur-
ally the Southern cotton-mill men objected to this discrimination,
yet it took repeated pressure to prevail upon the lines operating
west of the Alleghenies to acquiesce in the change. A widespread
and rigid adjustment had grown up through years, many of whose
arbitrary exactions would be endangered by modification. The
Western lines would not permit the Eastern lines to make a change
without exacting from these Eastern lines similar concessions for
which they had struggled in vain. In other words, each competitor
insisted upon jac king-up the other's rates regardless of the welfare
of the community. Precisely an analogous case was found in 1880,
when a committee of the Southern Railway and Steamship Asso-
ciation proposed to put in force an adjustment of rates throughout
the South, having reference in some degree to the factor of distance.
This proposed improvement was based, to take the words of the
committee of traffic experts themselves, upon " necessity for more
intelligent and defensible methods of making comparative freight
rates than the following figures descending to us from tariffs named
on arbitrary bases of conditions now obsolete." Such instances of
opposition to reasonable adjustment, not by carriers serving a definite
territory, but by competitors often far distant, might be multiplied
indefinitely. They emphasize most certainly the need of a regu-
lative force to be applied, not only in the interests of the public, but
in the permanent interest of the carriers themselves.

112 TRANSPORTATION

The argument that the community is naturally protected against
arbitrary exactions by the carrier, because any excessive charge will
kill the traffic, rests, moreover, upon a false assumption in part.
While freight rates may directly affect the volume of traffic, this is
not true of most high-grade commodities.

The fourth objection which we have stated to freight rates as
made without governmental supervision and control consists in the
often infinitesimally small proportion of the total price which
transportation forms. The rate on clothing from New York to
Chicago by less than car-load lot being, say, 75 cents per hundred
-pounds, a suit of clothes costs for freight perhaps from 7 to 10 cents.
The transportation cost for a silk dress for a similar haul of 1000
miles might be possibly 2 or 3 cents. These charges cannot approxi-
mately affect the volume of traffic if increased even by a large per-
centage. And therefore not affecting the volume of traffic, the
development of the territory served will not be affected, while a direct
revenue to the carrier will materially result. We have said that
the territory served will not be affected; that is not, of course, true,
because in all probability the extra cost of carriage will be added
to the price of the goods; but supposing the rates are similarly
raised over the entire United States, no single community will be
affected, but the general cost of living for the whole country will
be raised. Practically a tax is laid upon the community by private
initiative without any power of supervision or control.

Our final problem, then, involves the extension of governmental
supervision at the hands of an administrative board or a properly
constituted judicial tribunal. No domestic question before the
country is of greater significance, involving as it does the welfare
of practically every industrial and commercial establishment in the
country as well as every individual consumer of goods. The matter
is not settled by the enactment of the Elkins Amendment of 1903.
That law was granted because it contained something that the
carriers desired. The demand of the public for relief remains practi-
cally unanswered. Case after case before the Interstate Commerce
Commission remains unsettled either because of the refusal of the
carriers to conform to the decisions rendered, or because of pro-
longed and intolerable delay in the final adjudication by the courts.
Other countries have never hesitated to embark upon great social-
istic enterprises of popular ownership. In my judgment the only
way indefinitely to postpone an outcome of this sort, which is to be
deprecated in many respects, is that a compromise in the line of
more efficient control should be brought about.

SECTION C — COMMERCE AND EXCHANGE

SECTION C — COMMERCE AND EXCHANGE

(Hall 10, September 24, 10 a. m.)

SPEAKERS : PROFESSOR E. D. JONES, University of Michigan.
PROFESSOR CARL PLEHN, University of California.

THE MANUFACTURER AND THE DOMESTIC MARKET

BY EDWARD D. JONES

[Edward D. Jones, Junior Professor of Commerce and Industry, University of
Michigan, b. Janesville, Wisconsin, 1870. M.S. Ohio Wesleyan University;
Ph.D. University of Wisconsin; Expert in Social Economy, with Department of
Education and Social Economy, United States Commission, Paris Exposition,
1900; Assistant Professor of Economics, University of Wisconsin, 1901.
Member of American Economic Association; Michigan Political Science
Association; National Geographical Society; Political Economy Club of
Chicago. Author of Economic Crises; The People and the Country; Resources
and Industries of the United States.]

American Domestic Market

THE American domestic market is probably the most complex in
the world. It has become so because it occupies the largest eco-
nomically high-grade area which is under one political control, with
a uniform language, system of weights and measures, trade customs,
and laws. In America there have been lacking the diversified agri-
culture, the household industry, the public market-places, and the
inertia of custom which, in other countries, have kept the domestic
markets simple. Sharp territorial specialization has always char-
acterized our industry. The different forms of agriculture, devel-
oped under an essentially manufacturing instinct and compelled
to specialization by the distance of the European market, have a
clearly differentiated geography. The mining, lumbering, agri-
cultural, and manufacturing regions are singularly distinct. This
has compelled an extensive internal exchange, to facilitate which
adequate transportation facilities have been forthcoming; and it
has necessitated comprehensive methods of performing mercantile
functions, which the administrative genius of American industrial
leaders has provided. The result of these forces in our national
economy, as it finds expression to-day in the organization and
processes of the domestic market, is too large a subject for any paper.
I wish, therefore, to choose a theme, and I invite your attention
to the wide range of mercantile functions which is being assumed

116 COMMERCE AND EXCHANGE

by American manufacturing concerns and the unusual dominance
they are acquiring in the domestic market.

Manufactures Forty Years Ago and To-day

This movement, taken as a whole, is of recent origin. Before the
Civil War manufacturers had very restricted control over the move-
ments of internal commerce. There was no need for them to show
special enterprise in securing supplies of raw materials, for the seller
of the crude bounties of nature pursued the buyer. In the finished
products market, articles imported from foreign countries controlled,
and the autocrats of commerce, if there were any, were the great
importers, the so-called " merchant princes." The home manu-
facturers started with the humble role of supplying the lower grade
of products. Prejudice was still strong against home-made style
goods and much of the product of American factories went on to
the market anonymously or under misleading trade-marks to be
sold as imported goods.

The change of forty years has greatly altered the position of the
manufacturer in the distribution of mercantile power. In the major-
ity of modern national economies we find the most progressive indus-
trial group to be the manufactures; the least so, the extractive or
raw material industries, while the mutually accommodative ele-
ment is the mercantile. It is not difficult to mention some of the
causes of the increased power of manufactures in this country.
Manufacture, including railroad transportation, since the internal
economy of a railroad resembles a manufacturing rather than a
mercantile concern, possesses the advantage of being that form of
industry which best utilizes inanimate forces in a country where
power is cheap, and best allows an accurate division of labor in a
country where labor is expensive. It has enjoyed the special advan-
tage in this country of a high general average of intelligence and an
unusual mobility of labor. There has been the negative advantage
of entire absence of prejudice against machinery and the positive
advantage of the unusual mechanical ability which characterizes
Americans. When we couple with this the protective tariff, which
has insured a large and profitable market and made all other forms
of industry pay tribute to manufacturing, it can be readily under-
stood that our manufactures have resulted in recent years in an
enormous production of wealth, a portion of which has sought
investment in promising types of industrial enterprise under the
direct control of the parent concerns.

Not only wealth, but capable men of constructive genius, have
been produced in this branch of industry. In manufacturing, the
applications of science are so numerous and convincing as strongly to

THE MANUFACTURER AND DOMESTIC MARKET 117

develop the scientific frame of mind. The striking combination of
factors of production opens the thought to large plans. The changes
constantly required in machinery and processes impel the manager
to progressive policy, while visions of the economy of production on
a large scale attract him. The manager is in a training-school for
cultivating quick decision, figuring costs, managing men, freely
laying out money where conditions justify, and grouping, com-
bining, and governing the productive factors. The result is that
in and through our American manufacturing industries have arisen
the " captains of industry," who have laid hands upon the undevel-
oped or loosely coordinated commercial functions wherever found,
and have developed them and assumed the direction of them.

Struggle for the Control of Raw Materials

To take up our specific topic and define the controlling position
which the manufacturing industries have secured over the domestic
market, it will be convenient to divide the subject into three parts,
conforming to three classes of markets and the separate causes
operating on each.

Let us first consider the struggle for the control of raw materials.
For some time an effort has been made by manufacturers to more
effectually control the source of supply of their raw materials. For
those materials of which the quantity is relatively fixed, this has
resulted from the definite development of sources of supply and the
increase of manufacturing demand, carried to such a point that
the chances of accommodation on the open market are deemed by
business managers to be precarious. As a result, manufacturing
concerns in many lines are anticipating their needs and are buying
or have bought stocks of undeveloped materials, and are erecting
exploitive works and establishments for preliminary manufacture.
We find makers of soap and lard substitutes building cotton-seed oil-
mills in the South. Pulp-mills invest in pulp- wood lands; fertilizer
manufacturers open phosphate-rock quarries; oil-refineries lease and
purchase oil-lands. The change is already complete for anthracite
coal and Northern pine; it is just now being completed for Bessemer
ore and Western timber; it is rapidly going on for coking-coal, non-
Bessemer ores, and Southern pine. One of the striking signs of the
advent of a new economic condition in this country is the rapid rate
at which, during the last fifteen or twenty years, raw materials have
passed out of the hands of small holders who offered them upon
open markets, into the hands of large corporations closely affiliated
with manufacturing and transportation interests. To use an ex-
pressive phrase, there has been a scramble to prevent being frozen
out. This has not been due so much to exhaustion of supplies as to

118 COMMERCE AND EXCHANGE

the fear of their monopoly. It has, therefore, been immensely
stimulated by the formation of great consolidated corporations and
by the increased use of holding companies, stock syndicates, and
harmony-of -interest arrangements.

With respect to raw materials which are readily reproducible,
like wheat, cotton, and wool, the policy of our manufacturers is
not to own and manage agricultural and other industries. But the
tendency is increasingly shown to pass by the great primary or
terminal markets and the visible supply points on which raw
materials were formerly secured, and purchase upon the remote
local markets at which they first appear in commerce. There are
several reasons to account for this.

In the first place, the imperfect and unorganized condition of
many raw-material markets has forced it. The effort of our manu-
facturers to produce finer products, coupled with the increased value
of materials and the closer specialization of processes, has compelled
a sharper scrutiny of the supplies they purchase to secure purity
and uniformity. The offering to manufacturers of poorly graded
and mixed lots of materials has necessitated the substitution of
professional for amateur local buyers, as in the case of wool. A
poorly housed and protected product coming onto the market, water-
soaked and stained, as often happens with our cotton, has favored
direct shipments as opposed to the passage of materials through
several markets with their delays. The agriculturalist is with great
difficulty able to take initiative for the improvement of these condi-
tions by commercial organization. As Professor L. H. Bailey has
said, " The farmer reacts so slowly to changes in his environment
that after all other businesses have become adjusted, he is still
out of harmony with commercial conditions. Collective or cooper-
ative movement among the agricultural classes is difficult, because of
the lack of common interests. Farming is not one occupation, but
many occupations." The American farmer has furthermore been
engrossed in other things than the adjustment of markets. He
has had laid upon his shoulders the great task of finding out the
physical capabilities of a new country. Each region, climate, slope,
and soil has required countless experiments to explore. A stu-
pendous investment of labor and capital has been and is being made
in these experiments, the results of which will be enjoyed to remote
generations.

A second force drawing the manufacturer into the raw-material
market is connected with the financing of the products of agricul-
ture. The farmer is hampered by lack of ready money. The period
of his turn-over is long; the fixed capital is large in proportion to
the circulating. A considerable part of the spare money he has had
has been attracted to investment in. land. The statistics of un'm-

THE MANUFACTURER AND DOMESTIC MARKET 119

proved land included in farms show that land is the chief storehouse
of surplus agricultural wealth. Approximately one half of the land
included in American farms is unimproved. Under these conditions
the farmer has sought money crops, and has been obliged to market
as soon after production as possible. To secure adequate supplies
1 of materials, therefore, some lines of manufacturing have been
obliged to take direct part in the organization of a spot-cash market
on which materials would always be sure of sale at fair prices. Such
materials are then rendered good money crops and hence attractive
to short-handed farmers. An excellent illustration of the way in
which this has been done by manufacturers is afforded by the various
union stockyards of this country, in most of which the packing inter-
ests are prominent. The financial problem of accommodating the
even requirements of a manufacturing plant for materials throughout
the year to the necessity which the farmer feels of disposing of his
crop at once when it is matured, has been solved through the co-
operation of several agencies. The early purchases of manufac-
turers involve them in speculative risks. The profit or loss showing
of a cotton or woolen mill or the milling profit of a flouring-mill
often depends principally upon the correctness of the buyers' esti-
mate of speculative conditions. There are also independent insti-
tutions illustrated by the grain elevator companies which aid in
carrying speculative risks and controlling storage conditions. Fur-
thermore, by the organization of produce exchanges it has been made
easy for the general public, through speculative investments, to
assume a considerable part of the financial burden of carrying food-
stuffs and other materials through the year.

A third force drawing the manufacturer upon raw-material mar-
kets is railway competition. The result of intense competition for
traffic has sometimes been that, in pursuance of a compact, a road
has given substantial advantages to a large consumer when he has
acquired the ownership of materials at the market of their origin,
and is hence able to prevent their being diverted from the line at
any competitive point, and insures their routing as desired. The
transportation arrangement may include both the outgoing and in-
coming traffic of a concern in an agreement permitting manufacture
in transit. Between a group of competing roads manufacturing
interests have occasionally obtained advantages in return for acting
as traffic-distributers. The classic case of this is in the early history
of the Standard Oil Company. In these transportation struggles
the manufacturer has been unable to keep aloof. The old-time free
lance, the commission merchant, has been thrust aside; the raw-
material producer has been confined increasingly to his local market;
the manufacturer has taken up transportation worries and commer-
cial functions unknown years ago.

120 COMMERCE AND EXCHANGE

Elimination of Intermediate Markets

We now turn to a different type of buying and selling center,
namely, that group of intermediate markets lying between different
stages of manufacture and on which the finished product of one
establishment is transferred to another to be further elaborated.

From the beginning of the factory system in America there have
been fewer of these intermediate markets than in Europe. In the
older countries the introducers of machinery found already in exist-
ence a strong household and shop manufacture, including the pre-
parers of materials, those expert in the various intermediate pro-
cesses, and the finishers. The factory system took possession of one
process at a time, and thus independent concerns grew up, each
engaged in but one stage of manufacture, and between these there
continued to exist many of the intermediate markets. In America
the projectors of the first factories usually found the entire field open
and the products imported; consequently they were obliged to pro-
vide simultaneously for all stages of production. Hence we find,
for example, as a characteristic difference between the American and
European textile industry, that here the several processes of scouring
and combing, or throwing and spinning, weaving and finishing are
more often all controlled by one cotton, worsted, or silk concern than
in Europe.

Just as it began to be realized that there were disadvantages in
the American system, particularly in the adjustment of production
to a rapid succession of styles, the trust movement made itself felt
and stimulated the process of combination in all branches of indus-
try. The organization of consolidated corporations has had many
effects. It has made profits for the organizers through what Mr.
Lawson calls " made dollars." It has given us a highly centralized
type of business administration to experiment with. It has sub-
stituted a system of delegated authority for individual initiative. It
has eliminated some competition, substituting therefor emulation
and the comparison of records, and it has changed the form in which
competition manifests itself. It has secured certain economies of
production on a large scale. But among its various effects there is
one which has not been sufficiently noticed, and that is the elimina-
tion of intermediate markets. Complex manufacturing corpora-
tions have been constructed involving not only former competitors,
but businesses bound together in the sequence of production, capable
of manipulating materials from their first appearance as economic
goods until they are ready for the ultimate consumer, without at
any time making them the object of purchase or sale. This linking
together of processes in great corporations has coerced the inde-
pendents to similar consolidation through the fear of the monopoly

THE MANUFACTURER AND DOMESTIC MARKET 121

of raw materials, to which reference has already been made. The
movement has been, in this manner, made general, with the result
that many series of consecutive establishments can now be found
which are working into one another's hands within non-competi-
tive groups. The blast-furnaces have acquired ore properties, and
steel manufacturers have in turn absorbed them and transporta-
tion facilities. Furniture factories have built saw-mills upon their
own timber-lands. Cooperage- works , are owned by flour-mills and
whisky-distilleries. Pulp-mills and their spruce-timber are owned by
paper-mills. The meat-packers establish canning and car-works;
the car-builders operate linen-factories ; the reaper-works control the
manufacture of binder-twine; the breweries engage in the production
of malt. These combinations are made possible by the improve-
ment in systems of cost-accounting and internal administrative
methods. They give the supplying-plants certainty as to markets,
the receiving-plants certainty as to supplies and absolute control
over their quality. Shipments to and from intermediate markets
are unnecessary, and the expenses of traveling salesmen, dealers,
advertising, and the waiting period of the market are all eliminated.
In short, for the uncertainty and expense of competition is
substituted the economy and exact calculation of a system of
bookkeeping.

Before leaving the subject a word should be said about an entirely
different operating cause which is at work to withdraw many busi-
nesses from intermediate markets. This is the application of science
to the utilization of wastes. The growth of large concerns has often
made the quantity of mill-supplies and advertising materials, pack-
ages, etc., so great that subsidiary industries can be profitably
started in the interest of a single corporation. Repairs also become
important enough to warrant the erection of well-equipped shops.
In a like manner the accumulation of large quantities of waste
products in concerns of efficient management, equipped with scien-
tific laboratories and possessing the capital necessary to put through
any logical extension of the business, has given rise to a great variety
of by-product manufactures. These allied businesses are owned and
managed by the principal concerns and receive their materials with-
out purchase from them. They have been able to offer very effective
competition on the finished products market and so to command
attention to the commercial principles which they illustrate.

Let us pass to the third main division of the subject and consider
the attitude of the manufacturer toward the finished-products market.
It may be observed that while there is a great difference in the policy

122 COMMERCE AND EXCHANGE

pursued by large concerns, and we may find plate-glass jobbed, meat
sold from subsidized shops, and Standard Oil hawked upon the streets,
many of the consolidated corporations which have acquired large
control over the market do not attempt to invade it directly or
supplant dealers in the performance of mercantile functions. These
rather content themselves with exercising power over prices and the
terms of sale by curtailment agreements, price pools, joint selling
agencies, and other more direct means. The greatest invasion of the
mercantile field in the distribution and sale of consumers' goods
occurs under the influence of strong competition between manu-
facturers and especially where this meets a more or less obstructive
conservatism, not to say inefficiency, in the regularly constituted
agencies of distribution. Of the positive force, the competition
between manufacturers, it will not be necessary to say anything; of
the negative condition found in the inertia of wholesale and retail
trade a few words will be in place.

Confining our attention to the retail trade for the sake of brevity,
we must at once make an important admission. In this field there
has sprung up the remarkable institution known as the department
store. These establishments, dealing directly with manufacturers,
willing to engage in want-creation and increase the volume of business
by advertising and price reduction, willing to accept new goods of
merit because understanding the profit of novelties, and having a
clear grasp of the principles of merchandising, have not only been
able to serve the consuming public well, but have been satisfactory
distributive agents for manufacturers. The rank and file of the
million or more proprietors of retail stores have, however, been un-
satisfactory to such manufacturers as have been chafing for better
outlets under the stress of competition. The average retail store
proprietor has too easily accepted as unsurmountable the apparent
limitation of his local field, and has often been caught in the infinite
detail which characterizes the business and rendered by it incapable
of constructive commercial policy. Competition has choked many
who are lacking in ingenuity, for retailing is a business easily entered
on a small scale, and competition in it, almost more than in any
other type of business, takes the form of simple multiplication of
concerns and division of trade. More than anything else, however,
the business of retailing as a whole has been held back by confusion of
mind as to the proper policy — the economic laws so to speak — of
the business. This confusion may be partly accounted for by the
extreme variety of establishments which fall under the general
caption of retail institutions, but the chief explanation lies in the
recent history of American trade.

During the period of the Civil War and the immediately subse-
quent years there was such a scarcity of goods that overbuying was

THE MANUFACTURER AND DOMESTIC MARKET 123

almost impossible and the check upon buying, always so essential in
normal retail trade, did not seem so necessary. For a long period
prices rose with such rapidity that the profits of a rapid turn-over of
capital paled beside the estimated profit of appreciating stocks lying
on the shelves. Under these conditions it was natural that the
merchant should treat his customers with indifference. The fluctua-
tion of values made price publicity and a policy of fixed price
impossible. Dickering and bargaining became a natural accompani-
ment of all important sales of goods. In the settlement of accounts
long credits were not found to be very dangerous. Recent years
have reversed all of these conditions, and hence have demanded an
entire reversal of policy. The generation which did business in the
previous period has been put at sea, and there has been established
a confusion of principles penetrated until the last few years only by a
few of the stronger minds. The result has been to cramp the growth
of the retail industries as a whole and render them unsatisfactory to
the manufacturers as the distributers of their products.

The invasion of the realm of the retailer has been made by the
manufacturer in several ways; by establishing a mail-order trade and
eliminating dealers entirely; by distributing through the dealer, but
absorbing many of his functions and controlling his actions; and
finally by the ownership of retail establishments.

Direct Selling

When a manufacturer has been met with unwillingness on the part
of the dealer to educate new wants in the public and a refusal to
stock and introduce new goods, he sometimes appeals directly to the
consuming public. Direct selling has always had a considerable
field. Natural monopolies of necessity use it. Producers' goods
such as leather, billet-steel, and boilers, are usually sold in this manner.
Neighborhood manufactures, such as custom mills, and manufacturing
retailers, such as bakers and tailors, use it. The country at large is
familiar with the canvasser. As important as some of these lines of
distribution are, the great modern development of direct selling has
come with the perfecting of its chief instrument, advertising. So
great is the progress made in the arts of publicity that the entire
complexion of trade has been changed by it. Advertising is often
spoken of as a science. It is certainly a complex and powerful
engine. The development of the arts associated with it, that is,
printing, and especially illustration, has increased its potency.
The vehicles which convey it to the public are numerous. The
weekly newspaper is largely supported by it. The low-priced
magazine of our day exists because of it. Through it house organs
are built up scarcely distinguishable from independent scientific and

124 COMMERCE AND EXCHANGE

trade publications. It counts in its service the billboard, the dodger,
the sample, the catalogue of encyclopedic proportions, the commercial
package, and the follow-up system. Its technique has been care-
fully considered, and the statistical study of circulations has been
made the basis of a profession. Even its psychology is being ex-
plored in college laboratories. There is no need to enlarge on the
extent to which advertising has been applied by manufacturers to
direct selling. The examination of any popular magazine will be
convincing. As a method of distribution this affords a manufacturer
an outlet independent of the will of any dealer. It serves well to
introduce new articles, and trade built up by it can be used as a
means to bring pressure to bear upon dealers.

Control of the Dealer

It is not always, however, in attacking the market that a manu-
facturer is willing to cut loose entirely from the established retail
distributive agencies. Many articles cannot be readily sold by mail-
order. A way has, therefore, been discovered by which the manu-
facturer can distribute his goods through the dealers and still so
control every important part of the distributive process that the
dealer is reduced almost to the condition of an automaton. When
he is in complete command of his entire field the retailer is perhaps
the most universal servant of industrial society. His functions are
both varied and intricate, blending a mechanical element with the art
of personal service; controlling a flow of goods involving endless
detail by a system the correct formulation of which is a masterpiece
of commercial statesmanship. The task of the retailer is to furnish
the consumer goods wanted, at the time and in the quantity and
place desired. He chooses his stock from the infinite variety of
manufactured articles. He educates the customer to new wants,
making known to him new goods and showing their use. He ad-
vises with him in his purchases, that the adjustment of the want, the
goods, and the pocket-book may be as perfect as possible. He makes
the buying process easy and agreeable for his customers. He pro-
tects his merchandise from deterioration. He guarantees it to be as
represented, putting his reputation behind it. He measures it out in
quantities convenient for the customer, puts a fair price upon it, and
delivers it.

Now consider how many of these services can be rendered by a
manufacturer. Take the case of the sale of a spool of photographic
films. The manufacturer puts the article in a form ready for imme-
diate use. He furnishes a package which protects the goods and
shows the size, quantity, and age, besides carrying a guarantee and
serving as a memorandum of exposures and a cover for mailing.

THE MANUFACTURER AND DOMESTIC MARKET 125

A pamphlet of instructions is given away by the manufacturer, who
advertises extensively to attract trade. The price is fixed and is
everywhere the same. If you look for the goods in a strange city you
will probably be guided by a sign furnished to the dealer by the
maker and you will be attracted by large photographs, from the
same source, to show the range of work possible. As the films must
be developed, the company offers to do this, but it also puts on the
market a simple apparatus and all the necessary chemicals. The
value of films depends largely upon the possibility of obtaining them
in travel; consequently the makers have established agencies in almost
every important locality in the world. In the solution of this dis-
tributive problem, which was unusually complex and difficult, the
manufacturer has originated all the plans, done all the work, and
controls all the essential conditions. The most ignorant clerk can
quickly learn all that remains to the retailer to be done.

Tlie inventive genius and advertising talent shown by leading
American manufacturers in putting their goods upon the market
are certainly remarkable. By advertising, with the powerful indi-
vidualizing agency of the trade-mark, by sample distribution, by
demonstrations at the consumer's house or the merchant's place of
business, by exhibits at universal expositions, such as can be seen in
endless numbers and variety upon these grounds, the manufacturer
educates new wants in the customer and makes known new goods.
By explicit printed directions, in several languages perhaps, and
accompanied by ingenious pictures, he so clearly shows the use of the
goods that the advice of the dealer is rendered unnecessary to a
person of any intelligence. By the use of a package, perhaps air-
tight or moisture-proof, the dealer loses all credit for keeping goods
in presentable condition. As the customer knows, when he opens the
package, that it was closed at the factory, he feels that responsibility
for its quality is removed from the dealer; and when with the package
there is a strong and carefully emphasized guarantee, the dealer sinks
into a mere agent for the transfer of any complaints to headquarters.
Personal relations of customer with dealer are in this way weakened,
and the more so since the customer realizes that in any store where
this article with its identifying trade-mark can be had, an absolutely
identical ware is found. The package furthermore does away with
the necessity of weighing or measuring, and it usually carries pro-
minently marked upon it a price which sets a maximum upon the
charges of the dealer.

This incursion of the manufacturer into the province of the dealer
has been disadvantageous to the latter in several ways. In the first
place it has reduced the portion of the profit which the manufacturer
leaves to the dealer, for with every function which the manufacturer
takes up he makes a corresponding reduction in the profits allowed

126 COMMERCE AND EXCHANGE

the retailer. Again, it sharpens the competition of dealers in the
same line. The use of packages and trade-marks has, in a few years,
vastly increased the list of goods which can be recognized by cus-
tomers as identical in different establishments. The significance of
this lies in the use of leaders and other forms of price competition.
A leader, in retail trade, is a line of goods put on sale at a very low
price to attract the attention of the public and impress upon it the
idea that the establishment in question has very low prices in general.
There is no direct profit in leaders to the trade, since they must be
sold at or near cost. Now those articles serve best as leaders which
can be identified by customers as absolutely the same in different
establishments, because this identity gives force to the price differ-
ence. If there were not identity the customer and the higher-priced
dealer could easily claim that the difference in quality accounted for
the difference in price. Consequently the widely advertised goods
which carry trade-marks everywhere known and which are bought by
most dealers, all of them serve more or less as leaders. That is to say
many of them do not yield satisfactory profits, unless specially pro-
tected, because of the directness of the competition of dealers with
respect to them. The manufacturers have also created a new form of
competition between dealers in different lines of trade. The majority
of retailers have handled a restricted group of merchandise, as drugs,
shoes, hardware, or dry goods. There are many articles which cannot
well be sold by one not expert in the business. The druggist could
probably not explain the operation of certain tools; the dry goods
merchant would be dangerous as a compounder of prescriptions.
Within certain limits, therefore, stores in different lines have not com-
peted directly. There has always been, however, a class of goods so
easy to sell that they have been carried by dealers of all sorts as
side lines. The manufacturers have succeeded so well in rendering
simple the retailing of many of their wares that they have vastly
increased the list of articles which any dealer, regardless of his line, can
sell. The consequence is that dealers of all types are introducing side
lines taken from each other's field of trade. Reprisals are every-
where made, and so the number of competitors with whom each dealer
has to reckon is increased. The manufacturer, by direct selling to
large retailors, whether they be department stores or mail-order
houses, has put the small dealer, who depends upon the jobber,
under a great disadvantage. This compels the jobber and semi-
jobber, with the various classes of syndicate buyers, to take part
in the confused competitive strife now prevailing in the distributive
trades.

In this struggle, for which the manufacturers are largely responsi-
ble, it is interesting to see that appeals for help are made to them by
the dealers. These appeals, through trade associations and other-

THE MANUFACTURER AND DOMESTIC MARKET 127

wise, take the form of requests that the manufacturers should control
the retail price at which their goods are sold, and in so doing protect
and regulate the profit which the dealer is to receive. There has
been considerable response to these appeals, since the manufacturer
has a direct interest in the soundness and profitableness of the busi-
ness engaged in distributing his products.

From this has resulted a variety of plans by which the manu-
facturer can regulate retail prices and profits. One method is
through the establishment of Exclusive Agencies. By this I do
not mean the practice of giving an extra cash discount to dealers
who handle no rival goods, a practice pursued by some concerns
which are trying to perfect a monopoly, but I refer to the plan of
choosing a dealer as agent in each market and making it impossible
for his near-by competitors to secure the goods in question. The
retail exclusive agency is the application of an arrangement long
common between manufacturers and jobbers. The manufacturer
regulates the price at which the goods are sold, and, since the outlets
are restricted in number, keeps up an aggressive advertising cam-
paign to drive trade to them. Some articles sold in this way are
tools, men's linen, dress-patterns, shoes, and silks. The exclusive
agency prevents goods from being made common upon the market
as leaders, and this pleases a certain exclusive element of the buying
public. Its chief service, however, is to limit competition by pro-
viding one dealer only with the goods on each market.

A second way of regulating retail profits is by means of a Price
Contract. This involves an agreement regulating the selling prices
and signed by manufacturers, jobbers, and retailers. Such agree-
ments have been freely used in the sale of patent medicines under
the name of the " N. A. R. D. Plan," named from the National Associ-
ation of Retail Druggists. When there is printed upon the goods
or their labels directions as to retail price and terms of sale, and
these are worded to form a contract with any dealer who may
purchase the goods, the arrangement is known as the "Worcester
Plan." In the attempt to enforce these contracts by law different
interpretations have been encountered in various courts. In Massa-
chusetts the Supreme Court has held that the fixing of the price
of proprietary medicines is not contrary to public policy and that
as between the manufacturer and dealer the acceptance of goods as
billed makes the printed contract on their labels regulating distri-
bution binding on the dealer as a part of the contract of purchase.
In Rhode Island and Pennsylvania it has been held that the mere
purchase or acceptance of goods by a dealer without specific assent
to a contract printed on them does not bind him. Price contracts
have been used freely in the sale of patent medicines, books, and in
the case of at least one celebrated brand of soap.

128 COMMERCE AND EXCHANGE

A third means of regulating prices, known as the Factor or Rebate
Plan, is more elastic than the price contract. It has been used
chiefly between manufacturers and wholesalers, but is equally
applicable to retailers. According to this arrangement, after the
proper contracts have been made in writing, a manufacturer sells to
a dealer at a certain open price, giving the usual rebates for cash. It
is agreed that the dealer shall sell at a given price, and the differ-
ence between this and the manufacturer's price involves a small but
unsatisfactory profit for the dealer. At the end of a given period,
say six months, the dealer makes an affidavit to the manufacturer
that he has not sold his goods at less than the mentioned price;
thereupon the manufacturer pays to him a per cent of the original
purchase price in the form of an extra discount which, added to
the direct profits of sale, makes the transaction remunerative to the
dealer. The contract establishing these relations is so devised as to
take the form of creating the relation of principal and agent between
the manufacturer and dealer. The dealer is not bound to sell at a
given price, but he is paid a bonus when he does so. The rebate plan
has been most prominently applied in the sale of sugar. The so-
called Whisky Trust at one time used it. It is now used in a number
of the lines handled by grocers, such as soap and baking-powder.
The Pittsburg Plate-Glass Company employs it.

Probably the most effective of the means now in use for regulating
retail prices is called the Serial Numbering Plan. As used by a
prominent manufacturer of medical preparations the plan involves,
first, an exclusive system of distribution. Only authorized whole-
sale houses handle the goods, and they are under contract to sell
only to the retail agents of the company. Every retail dealer, before
he can purchase the goods, must sign a contract by which he becomes
an agent of the manufacturer and agrees not to sell the medicines to
any other dealer who is not an agent at any price whatever, and to sell
to others only at the authorized retail price. Second, the system
provides a means of keeping track of goods. Each dozen of bottles
sent to the wholesaler bears a certain consecutive number, and with
it is a postal card having stamped upon it the same number. When
the goods are sold by the wholesaler he sends the card to the manu-
facturer with the name and address of the dealer to whom sold and
the date. The retailer must not sell or otherwise dispose of a bottle
until his firm name has been plainly written or printed across the face
of each wrapper. By this means if a bottle of the preparation is
anywhere sold at less than regular prices and the manufacturer can
ascertain the serial number, he can trace out the responsible agent.
The latter, on proof of price-cutting, becomes liable to the company
for specified liquidated damages.

THE MANUFACTURER AND DOMESTIC MARKET 129

Ownership of Retail Establishments

We turn finally to the last of the methods by which the manu-
facturer is making his power felt upon the finished-products market.
This is by the direct ownership and operation of retail establishments.
As a method of distribution this innovation is as little subversive
of the usual equilibrium of trade as any irregular method. Each
establishment takes its place simply as one among other competitors.

Let us consider the actuating motives as they present themselves
to various classes of manufacturers. Take, for example, the sewing-
machine makers. In the sale of certain kinds of goods a somewhat
elaborate demonstration is necessary, and after sale, occasional
repairs, both of which require the presence of an expert more skilled
than the average storekeeper. Experience shows that the experts
are best chosen, trained, and superintended as direct agents of the
manufacturer. When sales made in this way are of sufficient density
to warrant the permanent location of an agent in a neighborhood,
and when the articles are sufficiently attractive to make the opening
of a public place of business with a stock-room worth while, the
system of traveling agents gives place to permanently located retail
agencies. The firm controlling the largest number of retail agencies
in this country is probably the Singer Company, which has eight
hundred stores in the United States, besides many in other parts
of the world. Automobiles, safes, phonographs, and typewriters
are sold in part by this system.

The case presented by the sale of carriages, wagons, plows, and
agricultural implements generally is very similar to the above.
Here an added motive for the direct control of retail agencies lies
in the economy of shipment by car-lots. An agency, because it
pushes the make for wrhich it was established and carries a full, line
of the goods, is able to take a larger proportion of its supplies from
the factory in car lots than the average independent dealer. If,
therefore, the goods to be distributed are very bulky, so that the
question of car-lots is important, the establishment of a few agencies
in the chief markets may be profitable because they will be able,
through their own sales, to take goods in car-lots, and they will also
serve as transfer-houses in distributing supplies to smaller markets.
If numerous agencies are desired to penetrate and hold a field, the
expense may be lessened by selling the goods of other makers on
commission. If the establishing concern makes plows, its agencies
can add on and sell goods germane to a plow agency, such as reapers,
wagons, and carriages. By selling on commission, car-lots of assorted
goods can be frequently sent out, keeping the stock fresh without
overloading the agencies.

The direct retailing of shoes presents an entirely different case

130 COMMERCE AND EXCHANGE

from that of agricultural implements. The general buying public
has recently become familiar with retail establishments owned by
manufacturers and which are stores in the usual meaning of the
term. They are not as yet very numerous, and their establishment
is not stimulated by any of the advantages which we have just con-
sidered. They are not practicable except for goods which can be
successfully sold by themselves in specialty stores (that is, they
are impossible for articles like sugar or saws), and in this fact of
depending upon specialty sale they meet their strongest check, for
the prevailing tendency which has originated among retailers is
integrating in its nature and is expressed in the department store.
Furthermore, a system of retail stores operated by a manufacturer
cuts him off from distribution through independent dealers, for the
dealer will not buy of his rival in trade. There are arguments, how-
ever, which have apparently been deemed convincing to many manu-
facturers. A chain of stores absorbing the output of a factory
affords an independent outlet entirely free from the control of jobber
or retail dealer. The maker also, by coming into direct contact
with the customer through his agencies, has the benefit of the direct
criticism of the user. He can from week to week follow the changes
in demand as they affect styles. He can to some degree avoid the
intensity of rush seasons and the idleness of dull ones in his factory
by supplying his stores evenly throughout the season. The domi-
nant argument in most cases is, however, undoubtedly the fact
that it is only through the ownership of retail stores that the full
profit of an extensive advertising campaign can be realized by the
manufacturer. By means of retail stores he takes all of the highest
retail price which the force of his advertising will induce the cus-
tomers to pay. The stores themselves also are an advertisement.
The independent dealer always wants his own name over the door.
The manufacturer's store exerts its entire force as an harmonious
element in the general scheme of publicity which is being followed.
This principle, which makes the store one means of realizing the
profit out of the modern gigantic campaigns of advertising, helps to
account for the shoe-stores of Douglas and Means, the forty-five
of Bliss & Co., and the twelve Crawford Shoe stores. It applies to
the Knox Hat stores. Together with the desire to intrench a mono-
poly, it explains the policy of the American Tobacco Company in
effecting distribution through the United Cigar-Stores Company and
other firms.

It is worthy of notice that there is a tendency at work which in the
near future may lead to an increase in the number of stores owned
by manufacturers or combinations of them. This is connected with
the growth of advertising. When a few manufacturers only are
conducting strong advertising campaigns they are conspicuous be-

THE MANUFACTURER AND DOMESTIC MARKET 131

cause they are the exception. When a large number of competitors
besiege the public, the conspicuousness of any one is lessened by
the eagerness of all. We have, in this country, in a generation been
introduced into an age of advertising. The very great advertisers
are yet conspicuous because they are not numerous. But when
the time comes, as it appears to be coming rapidly, that the multi-
tude of great advertisers in any single line is so large that the average
consumer is bewildered, then the retailer may again perform the
service he once performed; he will choose for the customer, and the
customer will follow his advice. Under such circumstances, unless
monopoly or some other combination of factors intervenes, the
manufacturer will feel a strong motive to control directly retail
establishments and so get a step closer to the consuming public
than advertising will bring him, and, if possible, distance his rivals.

Conclusion

In conclusion, let me recall briefly the chief points in the situa-
tion I have tried to picture, which is one phase of our evolution
from a raw-material producing to a manufacturing nation. Because
of its natural strength as a form of industry, and because of special
advantages accorded it in this country, manufacturing has in recent
years greatly increased its dominance in domestic commerce. In
the raw-material market this is shown first by the increased owner-
ship of materials of fixed quantity, stimulated by the fear of mono-
poly and the trust movement. Second, for materials easily repro-
ducible, it is shown by the advent of the manufacturer on the market
of origin, and the causes which have brought him there are the
unsatisfactory condition of materials offered, the necessity of
taking part in financing the movement of raw materials, and railway
competition. The intermediate markets, we have seen, are being
depleted by the withdrawal of manufacturing concerns from them,
which either became parts of non-competitive groups during the
period of trust formation, or have become attached to other indus-
tries as by-product or waste-utilizing manufacturers. On the fin-
ished product market the dealer has been eliminated from some
lines of distribution by direct selling, which advertising has made
possible, or by the ownership of retail stores, the function of which
is to secure to the advertiser all of the profit his advertising will
create. In other lines of distribution the retail dealer has been
deprived of many of his functions by the use of packages, trade-
marks, guarantees, printed directions, and advertising. This has
resulted in a smaller margin of profit for the dealer and sharper
competition because of the increase of leader goods and side lines.
In his extremity the dealer has besought the protection of the manu-

132 COMMERCE AND EXCHANGE

facturer, and the latter, in many lines of trade, now dictates the
retail profit and protects it by exclusive agencies, price contracts,
and the factor and serial numbering plans.

I have no wish to over-emphasize the tendencies I have presented.
Many of them are not as yet prevailing tendencies, but if all of them
taken collectively establish the fact that manufacturing in this
country is assuming mercantile functions, it is a subject worthy of
serious study. It involves the internal economy of businesses,
because up to this time it has been an axiom of trade that it is
dangerous for a business man or a corporation to undertake two
kinds of business the fundamental principles of which are entirely
distinct. It involves also larger considerations of the national
economy, because the three great categories of industry, raw material,
production or agriculture, manufacture, and trade, have, in the
period previous to this, been distinct, and a change in the domestic
market more fundamental than the coalescence of two of these or
the dominance of one by the other would be hard to imagine.

FOREIGN MARKETS

BY CARL COPPING PLEHN

[Carl Copping Plehn, Associate Professor of Finance and Statistics, and Dean of
the College of Commerce, University of California, b. Providence, Rhode
Island, June 20, 1867. A.B. Brown "University, 1889; A.M. and Ph.D. Uni-
versity of Gottingen, Germany, 1891. Professor of History and 'Political
Economy, Middlebury College, Vermont, 1891-93; Assistant Professor of
History and Political Science, University of California, 1893-96; Chief Sta-
tistician to United States Philippine Commission, 1900-01. Member of
American Econornic Association. Author of Introduction to Public Finance;
The General Property Tax in California; The Finances of the United States
in the Spanish War, etc.]

PART I

A Review of Recent Developments in that Part of Economic Theory
which relates to Foreign Markets

THAT part of the theory of political economy which relates to
foreign markets — the theory of international trade and the theory
of foreign exchanges — has had, of late years, an appearance of
finality which has been conspicuously absent from some other parts
of economic science. This stability has endured while the theory of
distribution — 'the rational explanation of rent, interest, and wages
— has been a sea of raging storms; it has endured while the theory of
value, which Mill regarded as so nearly perfect, even in his day, has
been subjected to extensive revisions, in phraseology if not in sub-
stance; and while even the theory of prices, so much more nearly
related to that of international markets, has been subjected to attack.
During all this time, through all this turmoil, the theory of inter-
national trade, as set forth by Mill, and that of foreign exchanges, as
expounded by Goschen, have remained well-nigh unaltered and little
criticised. A review of the latest text-books and treatises shows us
the same old theories, unchanged save in some slight details. For
the present, therefore, we may assume that the theory of these two
subjects is fairly satisfactory to economists as serving their purposes
and explaining the more important features of foreign trade.

Although the generally accepted theory of international trade is
in the main the same as it was fifty years ago, there is a tendency
among recent writers to make a change in emphasis. The theory of
comparative cost, or relative advantage, as the element chiefly deter-
mining the direction of trade, is so striking that it is apt to receive
more emphasis and to be given seemingly a more important place
than it really deserves. It is, of course, true that relative advantage,
entirely irrespective of absolute advantage, may, and in many cases
does, determine what goods a nation will produce for export and

134 COMMERCE AND EXCHANGE

what it will prefer to import. But by far the larger part of foreign
trade moves along the lines of absolute advantage, combined as that
is, necessarily, with relative advantage. Our largest exports are of
those products in which we have an absolute advantage over all but
a few sections of the world, and our largest imports of those things we
can scarcely produce at all. It is probable that the theory of com-
parative cost received undue attention mainly because it is not
obvious at first reading and requires careful expounding and elaborate
illustrations for its demonstration. But that absolute advantage
rules wherever it occurs has always been recognized.

The conflict between free trade and protection still continues with
unabated vigor, protection seeming to gain ground in practice. But
the chief features of this conflict are political, as they ever have
been, rather than economic, and the conditions have not been such as
to call forth any new arguments. The proposals of Mr. Chamberlain
and his party in England, and the possibility of tariff reform in the
United States, will be discussed in their practical aspects in the last
part of this paper. There are then no real changes to note in the
theory of international trade.

The theory of foreign exchanges or international payments has
also, as has been said, remained essentially unchanged, but there
has been a notable attack made upon that part of the theory which
explains the international movement of money or bullion. The
older theory was that whenever an excess of bullion accumulates in
any country (or locality, for in this respect national boundaries
present no barriers) from any cause whatsoever, it tends to raise
prices and that country (or locality) becomes a good place to sell in
and a poor place to buy in, and thus the excess is drawn off. This
involves the acceptance of the quantity theory of money. Those
writers who have abandoned the quantity theory of money have
found themselves compelled to criticise this theory of the inter-
national movement of money. Their criticism has been supported
by two lines of argument. The first is that international prices are
fixed by telegraph and other means of rapid communication and can-
not differ from country to country even for a short time. They
further allege that there is no statistical evidence, when money
moves from one country to another, of such changes in the price level
as are required by the old theory.

In all of this it appears to me these writers overlook the influence
of the discount rates in bringing about virtual changes in prices and,
above all, the fact that the rates of exchange are fluctuating con-
stantly. A change in the rate at which a man sells his bill is tanta-
mount to a change in the prices he receives for his goods. The
machinery by which foreign trade is governed is so delicate that a
very slight change will set it in motion. Those who criticise the older

FOREIGN MARKETS 135

theory make much of the argument that a uniform " general " rise
or fall in prices is never observable, as the prices of some commodities
fall when others rise. I am inclined to believe that a " general "
rise can and does occur. A change in the discount rates and a change
in the rate of exchange is tantamount to a general change in the level
of prices; as it affects all bills alike, it affects all sales alike. It is the
resultant of those forces which affect all prices uniformly, other
forces being at work on the different commodities separately, causing
the divergences which have obscured the issue. Such a change in
the rates of exchange is the very phenomenon demanded by the old
theory as the cause of the international movement of money. The
old theory does not require that merchants get out new catalogues or
change violently from what would otherwise have been the bids they
make or accept on the exchanges. A sale of wheat by a Chicago
shipper to London on a day when he can sell his bill at $4.89 is worth
one per cent more than if the sale took place on a day when exchange
is $4.84. Here we have a difference of one per cent which can
occur without a single change in quotations. Every such fluctuation
is felt at once by the delicate machinery that moves the tides in the
ebb and flow of bullion in international payments. As to the
argument that we have no evidence in current index numbers, showing
clearly that a rise in prices has followed an increase in the stock of
bullion, it may be said that we have no statistical device for watching
prices which will record such a change with the requisite delicacy,
even if we were warranted in looking for the change in the prices
current. The change required by the theory is too slight to be
detected by any statistical device yet invented. Such a criticism
amounts to saying that the governor of a steam engine does not
regulate its speed unless the arms and balls are gyrating violently up
and down, when, as a matter of fact, the better the governor, the
slighter the fluctuations. The weight of the argument in this con-
troversy that has recently grown so hot seems to me to sustain those
who have rushed to the defense of the quantity theory, and there seems
to be no occasion to qualify the statement made above that the theory
of foreign exchanges has undergone no important modification in
recent times.

PART II

A Review of Some of the More Important Recent Events in the Economic
History of Foreign Markets

Although the economic theories relating to foreign markets have
been quiescent enough of late, there has been stir and bustle indeed in
the markets themselves, and during the past five years certain great
changes affecting them have come to pass which are worthy of

136 COMMERCE AND EXCHANGE

enumeration and which suggest many important problems and con-
siderations. These changes affect primarily the markets for Ameri-
can and also for European goods in the Orient and the routes of
travel between the Far East and the markets for Oriental wares.
They are: (1) The acquisition of a trading-base in the Orient by the
United States; (2) the completion of the Trans-Siberian Railroad; (3)
the expansion of steam-carrying trade on the Pacific and the definite
determination of the fate of the Panama Canal ; (4) the opening
of China; (5) certain important changes in the conditions of the pro-
duction of several of the great commodities of the world's trade.

SECTION 1.
The Acquisition of a Trading-Base in the Orient by the United States

Chief, in many respects, among these changes is the advent of the
United States in the Orient by the acquisition of the Philippines; of
Hawaii, and of other islands in the Pacific. That this is an event
of first-rate importance is easily realized when we consider but for
a moment the significance of the Philippines in the past history of
Oriental trade. Manila has been in the past, and can again become,
a great commercial emporium. In 1573, when the Spanish acquired
Manila, there was no safe and economical route from Eastern Europe
to the Orient. Long and tedious as was the Spanish route by
galleons to Acapulco, across Mexico, and then across the Atlantic,
it was far less difficult than the older routes via Archangel or Northern
Russia and Central Asia. Moreover, Manila was, by virtue of its
location and of the local products of its immediate environment,
a natural emporium for the collection of some of the most precious
wares then or since known to commerce. Conveniently located
between China and the Spice Islands, with India also near at hand,
Manila had the additional advantage of being a collecting and dis-
tributing point for certain local wares which had, long before the
advent of the Spaniard, served as a lure to bring the Chinese and
other Asiatic traders to her harbor, and which in turn helped to
obtain the wares that Europeans sought. With silver from Mexico,
and by way of enforced " tribute," the Spaniard bought or collected
from the natives of the Philippines, rice, palm-oil, abaca and other
fibers, fine straws and cane, dye-woods and lumber needed in China,
and bartered these for the silks of China, the fine woven fabrics of
India, and the spices from the islands to the southwest of the Phil-
ippines, which the Chinese traders brought.

As a mere depot for southern Asiatic wares Manila has since lost
her original monopoly, and must now compete with Singapore and
Bangkok, and what is more important than either or both of these,
with the aggregate storage capacity of the many smaller treaty ports

FOREIGN MARKETS 137

south of Shanghai and the ports in French China. Her nearest
European rival, Hongkong, she need not fear, for Hongkong
has no warehouses and no local products, and is commercially but
a city of office buildings. Her vast shipping trade is a mere paper
record of tonnage passing by but rarely discharged. Hongkong,
moreover, is at a point slightly off the direct route of the most im-
portant lines of trade; Manila at a point where many lines of sail and
steam travel naturally converge or pass, and directly on the main
route from northern Asia to Australia. Imports into the Philippines
via Hongkong dwindled from $4,600,000 in 1900 to $500,000 in 1903
under the influence of direct steamer connection with northern
Asiatic ports. A day for a ship in Hongkong Harbor waiting for
orders usually means a day lost in idleness of men and capital, an
item of necessary expense, perhaps, but with nothing directly to
offset it on the profit side of the account nevertheless; while a day
in Manila Bay, by contrast, is one of busy activity and with a distinct
profit to offset expense. With rice and cotton goods inbound, abaca,
copra, and sugar outbound, Manila has business for a steady stream
of vessels; and as a collecting-point for spices, for Chinese table deli-
cacies, such as beche de m.er and birds' nests, and for shell and similar
valuable items al]/ northbound, she has no rival save Singapore, and,
although for silk, coffee, and spices westbound she has to compete
at some disadvantage with Singapore and Bangkok, she has no rival
when the same wares are eastbound. Tea is the only great staple
of Oriental export in which Manila cannot deal with advantage.

It is obvious that Manila can again be made a very great emporium,
and whatever tendency there may be under the flag to turn these
valuable wares which can be assembled there over an eastbound
instead of a westbound route tends to increase its importance. In
this respect it is a great pity that the exigencies of the revenue sys-
tem have not allowed the United States Government to make Manila
a free port like Singapore. To be sure, the methods of modern trade
do not demand, to the same extent as in the past, the gathering of
wares by small ships at great ports to be finally transported to their
destination in larger vessels. The large steamers of to-day have so
many ports of call that the territory contributing to any one depot
is limited. But Manila is so situated that the territory naturally
tributary to her is large. The entrepot business of Manila at the
present time is limited to products of the Philippines, and though
large, is but a small fraction of what it should be. The existence of
a custom-house, with the necessary inspection, delay, tonnage-duties,
port-charges, etc., even though duties are remitted on goods intended
for re-exportation, involves such a burden that a port so afflicted
cannot become a collecting center, save for goods produced within
the tariff wall. To afford Manila a chance to rehabilitate herself

138 COMMERCE AND EXCHANGE

as an emporium for the Orient, a portion of the port and harbor
might be set aside as free territory. There are islands in the harbor
which would serve this purpose admirably. Within this free terri-
tory goods not the products of the Philippines themselves and not
destined for importation into the Philippines could be landed, trans-
shipped, etc., and vessels come and go free of restraint. As there is
no hope that the custom-houses can be abolished in the islands for
years to come, because of the need of revenue, some such plan is
necessary to restore Manila to her proper place in Oriental trade.

The importance of Manila in Oriental trade may be illustrated in
another way than by the mere enumeration of her advantages of
location and the importance of the local products of her contiguous
territory. The fact that the Mexican dollar is the standard coin,
so far as there is any standard, in the greater part of Oriental trade,
shows the extent of Manila's- former commercial supremacy. For
two centuries a steady stream of these coins flowed through Manila
at the rate of from 250,000 to 3,000,000 Mexican dollars per annum
into her commercial connections. The extent of their dispersion
measures very nearly the extent of Manila's commercial influence.
That the United States, the only great Occidental nation still using
the dollar, should have entered the Orient over the pathway marked
out by that coin, is at least auspicious.

Manila's commerce has responded rapidly to the advantages of
American rule. During the first three years of our administration
it grew to double that of the best year under Spanish rule, and has
grown apace ever since in face of war, with its devastation, pestilence,
and terrible agricultural reverses, and in spite of a new tariff and
a severe customs administrative law.

SECTION 2
The Trans-Siberian Railway

The completion of the Trans-Siberian Railway took place so shortly
before the beginning of Russia's great diplomatic and military
struggle for the control of that railroad's best trade termini that no
satisfactory data are yet available to show the effects that enormous
enterprise will have. Much, too, turns upon the outcome of the
present war. It is obvious to the most superficial observer that
American and European trade interests in Manchuria and Northern
China will be safer under the yellow flag with its blue, green, and
red dragon, which, fierce as it looks, stands for the beneficent sway
of Sir Robert Hart, than in the claws of the Russian bear, or even
under the civilizing empire of the Mikado. But aside from the
problematical possible effects of artificial restraints on trade, the
Trans-Siberian Railroad will undoubtedly affect the markets and

FOREIGN MARKETS 139

the trade-routes of several of the great staples of Oriental trade,
namely, petroleum, cotton, and cereals for Oriental consumption,
and silks and tea for Occidental consumption. For all high-class
goods, where the saving in time is essential, the Siberian route will
be attractive. Neither the Panama Canal nor the combination of
well-equipped steam and rail lines across the Pacific and the United
States and Canada, can outrival the Siberian route, save in so far
as American Oriental trade is affected. So far as American cotton
and cereal interests are concerned, they can be protected, even in
Manchuria, barring extreme political interference, by the steam-
ship lines now in operation across the Pacific and so rapidly
expanding their capacity. The great disadvantage under which
the United States labors in competing for a general trade in the
Orient arises from the fact that our manufactures are for the most
part located on the Atlantic Coast. This disadvantage will be in
some measure overcome by the opening of the Panama Canal.
Meanwhile the service of steamships of ever-greater capacity in
connection with the transcontinental railways bears witness to the
ever-growing importance of that trade.

SECTION 3
The Expansion of Steam-carrying Trade on the Pacific

The sailing-vessel retained an important place on the Pacific long
after it had disappeared from any but secondary trade on the Atlan-
tic. The long distances to be traversed, the scarcity of coaling-
ports, together with the steadiness of the demand for and the slow-
sale character of the more important goods transported on the
Pacific, gave the sailing-ship an advantage. But during the past
ten years I have watched from the windows of my study, which
overlooks the bay and harbor of San Francisco, the progress of a
mighty but peaceful revolution, — a revolution typical of the whole
Pacific trade. Ten years ago, for every ton that entered or left the
harbor of San Francisco by steam, nearly two came and went under
sail. In 1898 the steam tonnage exceeded that of sail for the first
time, and now the conditions of ten years ago are exactly reversed,
and more than twice as much goes under steam as under sail, while
the total is over fifty per cent greater than in 1898. The hull of
many a fine ship lies rotting on the mud flats and in out-of-the-way
estuaries around the Bay of San Francisco, pointing the fate of
others still afloat. The grain, coal, and lumber trade alone now
offer a field for sailing-vessels, and this is fast narrowing, and will be
greatly curtailed when the Panama Canal is opened. These condi-
tions are a fair sample of those which prevail all over the Pacific,
and yet the growth of the steamship traffic is but beginning.

140 COMMERCE AND EXCHANGE

The definite determination of the fate of the interoceanic canal
has been so recently the subject of wide discussion that little more
need be said about it. To attempt to determine accurately, in ad-
vance, the exact effect of the canal assumes powers prophetic. Some
few things are, however, clear. The canal will greatly assist trade
between the manufacturing centers of the Atlantic and the Orient,
and also with the west coast of South America; it will afford a
cheaper route to market for grain and lumber from the Pacific Coast
of North America, and for sugar from the islands of the Pacific; it
will force a reduction in the through rates on the transcontinental
railroads and still further emphasize the advantage of coast over
interior by forcing still larger differentials than now exist in favor
of the former. It will mark the end of long-distance transportation
in sailing-ships.

SECTION 4
The Opening of China

The Japanese war with China, bringing in its train the cession of
many pieces of China's territory to foreign countries, created a
whirlwind in world politics of a very violent character. In the dust
which this whirlwind raised it looked as though China was threat-
ened with disintegration. When, after the Boxer outbreak, with its
accompanying international military pageant at Pekin, the storm
subsided and it became possible to estimate the results, it was seen
that from an economical and commercial point of view China had
changed but little. Nine cities had been added to the list of treaty
ports as a more or less direct result of the Treaty of Shemonoseki.
The inland waters of China had been opened to foreigners, and trading
and warehouse privileges extended, on paper at least. But the net
result to trade during the following six years was an increase of only
ten per cent, a rate of increase — less than two per cent per annum
on the average — which might well have come without so much
turmoil.

The insistence of Great Britain and of the United States upon the
open door in China, while preventing many complications that
threatened serious interruptions in trade, had a defensive rather than
an aggressive value. It held the doors open, but it stimulated no
new trade. In short, the opening of China in any real commercial
sense is still a matter of the future. The future, however, is in this
respect bright with hope.

The necessity for re-examining the customs duties of China, and
of strengthening the hands of its excellent administration, which
arose from the arrangements to insure the payment of the indem-
nity after the Boxer outbreak, afforded an opportunity for lighten-

FOREIGN MARKETS 141

ing the charges on commerce. The most burdensome of all these
charges, not so much on account of the actual taxes imposed as on
account of their uncertainty, were the interior or likin duties. By
the terms of the new commercial treaty with the United States,
ratified last January, China " undertakes that all offices, stations,
and barriers of whatsoever kind for collecting likin duties, or such
like dues on goods in transit, shall be permanently abolished on all
roads, railways, and waterways in the nineteen provinces of China
and the three eastern provinces." This does not affect the regular
customs duties which were increased by a surtax of about forty per
cent, to offset the decrease in revenue due to the abolition of the
likin. This consummation of a long struggle for sound trade rela-
tions with China promises a real opening of China. The ultimate
accomplishment of this undertaking may prove beyond the powers
of the Chinese Government, but the endeavor in that direction will
be watched with great interest.

The railways of China, except the connection with the Trans-
Siberian line and the few roads in the north in operation for some
years, are still largely a network of paper concessions and partial
surveys. Authoritative announcement has been made of the opening
to come this year of about two hundred and seventy miles of new
lines.

China is still far from " open " to Occidental trade, rich as are the
rewards which come from the interchange of commodities so differ-
ent in character between peoples so differing in customs.

SECTION 5
Changes affecting the Great Commodities of Foreign Trade

I have space for a consideration of but three of the most notable
commodities:

(a) S'-igar. During the past half-decade there have been changes
of considerable importance affecting the production of several of
the great commodities of the world's trade. Probably the most
notable of these are those affecting sugar. The abolition of the beet-
sugar bounties recommended by the Brussels Sugar Convention of
March 5, 1902, marks the end of a century's struggle in building up
an industry by artificial stimulus. Just before that time reciprocity
between Hawaii and the United States and the ultimate annexation
of Hawaii by the United States brought a rapid development of
great cane-sugar plantations and a marked increase in the output.
The restoration of peace in Cuba and the promise of permanent
peace under the American protectorate presages a steady increase
in that direction also; and, although the Philippines can, for some
years to come, produce but a comparatively small amount of sugar,

142

yet owing to their proximity to China they will probably meet any
increase in the demand from Asia without drawing upon the Euro-
pean or American supplies. The cane-sugar producing countries,
several of which were, but a few years since, the most disorderly in
the world, are now policed in a most satisfactory manner. On every
hand there is the promise of a vast increase in the output of sugar.
Yet so elastic is the demand that it has responded to the increase
in supply thus far without seriously affecting prices. European beet-
sugar, after the repeal of the bounties, advanced only about twenty
per cent, which was slightly less than the effect expected, while in
America, inside the tariff wall, the price of sugar, in spite of the
increased supply, has declined only about half a cent a pound. The
regularity with which the demand for sugar responds to every decline
in price is one of the marvels of modern commerce.

(6) Hemp. The United States and the United Kingdom have long
been the best customers for Manila hemp. But the United States
was formerly content to buy its share from English traders. Owing
to the removal of the duty and the pay ment of what is practically
a bounty, namely, the reimbursement of the insular export duties on
all hemp imported into the United States, we are now buying our
supplies direct. The hemp industry has responded to this stimulus
in a very striking manner, the total output in 1903 being nearly
threefold that of 1899, and over half of the whole goes to the United
States. The only discouraging feature is the fact that the resources
of this industry are overtaxed and there is a lamentable lack in the
preparation of the fiber, reducing its quality in a very marked degree,
the premium on good qualities not being sufficient to induce proper
care in its preparation.

(c) Cotton. The ravages of the boll-weevil in Texas and the conse-
quent unprecedented speculative fever in the cotton market has
caused a great deal of attention to be directed to the changes in the
cotton production of the world. Though not so spectacular as the soar-
ing and tumbling of prices, the thing of vital importance in the cotton
trade has been the rapid growth in the demand rather than any
fluctuation in the supply. The decrease of the output of cotton in
Texas from the promised yield suggested by the crop of 1900-01
was more than offset by the increase in other states, notably Arkan-
sas, Georgia, and Louisiana; and the commercial crop as a whole
was the largest on record. Yet large as it was, the crop did not
nearly meet the demands of the spinners who depend upon American
cotton. Mills everywhere have been shut down or run on short time.
The most marked feature of this growing demand has been the
growth of new mills in the United States. It is claimed that the
United States now consumes more raw cotton, by nearly a million
bales per annum, than any other country, and that it uses forty per

FOREIGN MARKETS 143

cent of the American crop. The crop conditions this year promise
to be about the same as last year.

The situation is, therefore, a bad one on the whole, a rapidly
growing demand not being met by an equally growing supply. The
Brazilian output has been greatly stimulated in the past few years,
and, unless the American conditions improve, will become a very
important factor. So far as the demand can be foreseen, it will
continue to grow. The opening of China will largely affect the
problem in the future.

PART III i

The Political Situation as affecting Foreign Markets

We have passed in review the recent changes in the theory of
foreign markets and the more important of the concrete changes in
the condition of the markets themselves. It remains to review the
political situation, always more or less fraught with meaning for
the world's trade so long as " national economics " rule. Space will
permit of only a brief glance at two of the most important phases
of the present situation; first, the agitation for protection in Eng-
land; and second, the necessity for tariff reform in the United States.
In this we shall necessarily take the American point of view.

SECTION 1
Mr. Chamberlain's Fiscal Policy

After half a century of free trade in England, a strong party is now
considering the advisability of resorting to protection. Although
it certainly cannot be said that the proposals put forward by Mr.
Chamberlain are " viewed with dismay " in the United States, yet
it is true that they are matters of serious concern. In industrial
circles the feeling seems to be that we shall be able, when the time
comes, to adjust our trade to the new conditions; but we are much
concerned to know the direction in which the adjustment will be
necessary and the time when it will come. It is, at present, ex-
tremely difficult to anticipate what is likely to be done. Not only
is there the problem of anticipating how far the programme is likely
to meet with the support of the people, but the leaders themselves
present a somewhat shifting programme. With true English con-
servatism, Mr. Chamberlain has been careful to disclaim any sympathy
with protectionists, and the leaders, to quote Mr. Balfour, " approach
the issue from a free-trade standpoint; " and yet, starting from that
standpoint, they seem to be proceeding with some rapidity in the
direction of protection, judging from the more recent of Mr. Cham-

144 COMMERCE AND EXCHANGE

berlain's utterances at Welbeck that " the effect of free trade on
the laborers of this country has been disastrous." The programme
put forward each time is characterized as provisional and subject
to modification. That part of it, however, which seems to be most
widely accepted and which develops most directly from the objects
which those who have advanced it have in view, is of vital interest
to the United States. The main object of Mr. Chamberlain's pro-
posed policy seems to be to cement a closer union of the Empire
and to draw the colonies nearer to the mother country, thus strength-
ening the Empire for national or imperial defense. If this object is to
be attained by preferential tariff legislation in favor of the colonies,
it cannot but seriously affect a number of important American indus-
tries. And if, as seems almost inevitable, the more general scheme
be entered upon and compensatory duties should be allowed British
manufacturers, it will involve a considerable amount of actual pro-
tection. In the programme outlined by Mr. Chamberlain in his
speech at Glasgow, on October 7, 1903, he proposed tentatively to
lay a tax of two shillings a quarter upon all foreign grain excepting
maize. Joined as this proposal is with a distinct purpose to build
up wheat-farming in the colonies, and especially in Canada and
Australia, by special exemptions and concessions which shall insure
them a market in England for all their surplus grain, it constitutes
a certain menace to American agricultural interests. For, although
the importations of food-products into Great Britain from the United
States fluctuate from year to year with the changes in the crops in
different parts of the world, yet, roughly speaking, Great Britain
still takes about fifty per cent of her necessary food — wheat, flour,
and meats — from the United States, and any curtailment of this
market, which, even at the present time, takes about one sixth of
the American output, cannot but be a matter of serious concern to
the United States.

Wheat-growing in the United States is still so important an indus-
try that its prosperity or the reverse may well-nigh be said to mark
the prosperity or depression of all industries throughout the United
States. The predominance of wheat-growing is not so great as it
was a few years ago, but, nevertheless, any disturbance of that
industry would be felt the length and breadth of the country. The
wheat-growing industry has already suffered a series of setbacks,
especially through the competition of the Argentine Republic, and
lately through an increased acreage and output from Russia. Any
further curtailment of the market for the surplus wheat of the United
States will be felt immediately. These considerations are, however,
offset by certain others which may have considerable weight. In the
first place, there has been a marked increase in the home demand
for wheat and flour products, an increase in the Asiatic demand, and

FOREIGN MARKETS 145

a promise of a still further increase in the consumption of wheat and
flour in China since the removal of likin, the duties already referred
to. More than that, the area of new wheat land available is some-
what limited, and the possibility of increasing the output upon the
acreage now under cultivation is not very large. With the growth
of population, land once used for wheat is found to be better adapted
to other uses and is removed from the wheat acreage. There is,
therefore, to be anticipated an increase in the demand in other places
which would partly offset any loss in the English markets, and a
tendency in the acreage under cultivation toward stability or possible
diminution.

In the earlier speech above referred to, Mr. Chamberlain suggests
a duty of five per cent on flour, meats, and dairy products, but he
was inclined to exempt bacon on the ground that it was a " popular
food for some of the poorest of the population." This proposal is
not likely to work serious interference with the market for American
meats. Five per cent is scarcely a protective duty, especially with
the exemption of so important an item as bacon. The strictly pro-
tective features of Mr. Chamberlain's programme, such as the desire
to give a " substantial preference" to British flour-mills, to prevent
the " dumping " of surplus iron and steel manufactures from Amer-
ica on the English market, are also so moderate as not to be consid-
ered dangerous. The unavoidable restraint upon trade which the
re-establishment of any system of customs duties in England will
impose is more serious, perhaps, than the protectionists' proposals
themselves. Rapid as seems to be the growth of favor toward Mr.
Chamberlain's financial policy, no one can foresee the result at the
present time.

SECTION 2
Tariff Reform in the United States

The preliminary skirmishes for the present presidential campaign
in the United States gave rise to the expectation that, whichever
party might come into power in the next administration, an attempt
would be made at a revision of the tariff in the United States. The
temper of both conventions, however, excluded from the platforms
any expression upon this important subject which made any definite
promises; the Republicans contenting themselves with the general
statement that if any tariff reform is to be undertaken, it would be
safer to intrust it to the hands of the friends of protection than to its
enemies; and the Democrats outlining a no more definite scheme for
revision than might develop from their free-trade traditions. As the
complexion of the Senate makes Republican control for some time
to come a certainty, any revision of the tariff must necessarily be

146 COMMERCE AND EXCHANGE

made along Republican lines. With the apparent willingness of
some of the more influential leaders to entertain some plan for a
gradual revision, so moderate as not to affect existing industries,
there is still a possibility that something may be done in this direc-
tion.

As the extent and direction of this revision, should it ever be under-
taken, will necessarily be determined by purely political forces,
economists are interested mainly in the method by which it may be
undertaken. Economic writers have frequently pointed out that
the methods pursued in the past for revising the tariff were unsatis-
factory because of the failure to collect, in a thorough and systematic
manner, the data necessary for a revision. Few, if any, of the
leaders now in Congress have even a modicum of the knowledge
necessary for a revision of the tariff. This may be said without any
disparagement, for, in fact, there are few men in the whole country
who have that knowledge. The precise effect of each of the duties
on some four thousand different articles covered in the fourteen great
schedules of the tariff cannot be ascertained by a hearing conducted
by a congressional committee in the hurry of preparing proposed
legislation, and at which only interested parties are examined. Only
by an extended and painstaking investigation along strictly scien-
tific lines can the effect of the present tariff or of proposed changes
be ascertained. The complex interrelations which arise from the
changes in the relative importance of different exports and imports
as affected by different duties offer problems which are among the
most difficult in the whole field of economic science. Temporary
commissions appointed to gather data desired for the information
of Congress when a tariff revision was under way have failed, not
merely because political considerations have forced Congress to
disregard their recommendations, but because their recommenda-
tions based on a brief study under pressure of temporary demands
could not be altogether sound and well matured. The following
principles may be laid down as generally admitted by impartial
authorities: (1) On account of the vast size of the interests involved,
sudden changes in the tariff are dangerous to the welfare of the
country; (2) for the same reason violent changes are equally danger-
ous; (3) changes should, therefore, be gradual and announced long
in advance; (4) to ascertain the exact effect of present duties or to
estimate the probable effect of proposed changes requires a careful
study of each of the industries or branches of trade affected, not only
in this country, but in other countries whose goods are affected.
If these four points be granted, then no exigencies can arise which
should be allowed to prevent what the nature of the work to be
done looking to a revision requires, namely, a long and careful inves-
tigation of every possible effect of the tariff.

FOREIGN MARKETS 147

This all points to the conclusion that there should be a permanent
bureau connected with the administrative department of the govern-
ment, whose function it should be constantly to gather and compile,
according to the most approved scientific methods, all the data neces-
sary for an intelligent appreciation of the exact working of the tariff.
Such a bureau could, when required, extend its investigation so as
to cover the probable effect of the proposed changes. Modern eco-
nomic science is equipped with the methods of research, of analyzing
and interpreting statistics, of delving into the forces which control
prices, and of ascertaining the cause and meaning of changes in the
direction and extent of trade, — in short, it has the methods neces-
sary for dealing safely with the multitudinous and bewildering facts
which enter into the problem of the effect of a tariff on the world's
markets. There is no reason for groping in the dark, when by a
little provision in advance we might walk in the light.

SECTION D — MONEY AND CREDIT

SECTION D — MONEY AND CREDIT

(Hall 5, September 24, 3 p. m.~)

CHAIRMAN: MR. B. E. WALKER, Canadian Bank of Commerce, Toronto.
SPKAK:ERS : MR. HORACE WHITE, New York City.

PROFESSOR J. LAWRENCE LAUGHLIN, University of Chicago.
SECRETARY: PROFESSOR JOHN CUMMINGS, University of Chicago.

OUR MONETARY EQUILIBRIUM

BY HORACE WHITE

[Horace White, Journalist, b. Colebrook, New Hampshire, August 10, 1834.
Graduate of Beloit College, 1853. Editor of Chicago Tribune, 1864-74; con-
nected with New York Evening Post, from 1883, as editorial writer, manager,
and editor-in-chief; resigned as editor in 1903, but still editorially connected
with the paper and president of the publishing company. Author of Money
and Banking, illustrated by American History; The Roman History of Appian
of Alexandria. Editor of Bastiat's Sophismes Economiques.]

Two months ago a political convention met in this city to nominate
candidates for President and Vice-President, and after struggling
a day and a night over the monetary plank of its platform, it decided
to say nothing whatever on the subject. This action was equivalent
to saying that the standard of value is no longer a matter of dispute.
Monetary equilibrium has returned to us after a disturbance of more
than forty years. This is merely saying that mental equilibrium
has been restored on the subject of money, for the disturbance has
been psychological and sociological rather than economical. Every
person in his individual capacity in his own oixoixpia., has always
preferred gold to irredeemable paper; but multitudes in their
collective capacity have preferred the latter to the former, and by
carrying this preference into their political action caused the dis-
turbance. The dispute has been a difference of opinion as to the
meaning of the word " dollar," some holding that it signified a
fixed quantity by weight of the metal gold, while others contended
that it meant also the government's stamp impressed upon various
things.

In this prolonged contest the borrowing and lending sections of
the Union were arrayed on opposite sides, as was shown by the
votes which they cast. The states having a relatively dense popu-
lation and concentration of capital adhered to the gold standard.
They accepted irredeemable paper as a temporary necessity, but
were inflexibly opposed to any lasting change in the definition of
the dollar. Those states in which contrary conditions prevailed
were in favor of cheaper materials for the making of money, because

152 MONEY AND CREDIT

they thought that money would thus be more easily obtainable.
A relatively small number of instructed persons, not belonging to
any particular section or party, but distributed among all, held a
balance of power and a preponderating influence. In all the vicissi-
tudes of the contest they were able to count upon the executive
branch of the government, which held the legislative branch in
check on some critical occasions.

The Legal Tender Act of 1862, an incident of the Civil War, first
unsettled people's minds on the question: What is a dollar? There
was no such question under debate previously. We had had con-
troversies in plenty about bank-notes, but nobody had imagined that
a piece of paper was real money, or could ever be made such. The
distinction between paper promises and real money was sharply
defined and was kept alive by frequent bank failures and by the
numerous " bank-note reporters," which were used in business
circles to distinguish between notes that were at par and those that
were at a greater or less discount.

In 1862 there came into the hands of the people a new kind of
paper currency called greenbacks, which seemed to be at par,
although they were actually at a discount. The average citizen,
unless he was a dealer in money or was engaged in foreign trade,
did not observe the discount. He perceived that the greenbacks
would pay his debts and buy the things he wanted. If the prices
of commodities were somewhat higher than before, they affected
both his sales and his purchases. If he had a fixed income or was
a wage-earner, and if his receipts did not keep pace with his expenses,
he thought that the difference was caused by the war. So the
definition of the dollar underwent a gradual change in the common
mind. Instead of being a fixed quantity of metal, it might be the
government's promise to pay the same at an indefinite future time.
Five years after the end of the war this new definition received the
sanction of the Supreme Court both as a legal and as an economical
proposition. When the court declared that 25.8 grains of coined
gold was in no sense a standard of a dollar, it gave a footing and
a license in Congress and on the hustings to every possible vagary in
finance. Congress, in 1874, availed itself of the court's permission
to pass a bill increasing the amount of greenbacks then existing.
But fortunately it was stopped by a presidential veto, which caused
the party in power to turn suddenly about and pass a specie resump-
tion act. This veto was the pivot upon which our financial policy
turned; for, although without it we should have found our true path
eventually, it would have been after a longer period and a more
painful experience.

The Resumption Act was passed to meet a political rather than
a financial exigency. The party in power was rent in twain by the

OUR MONETARY EQUILIBRIUM 153

veto of the Inflation Bill, and the only way for the fragments to come
together again was for Congress to accept the President's platform.
It was a case of Mahomet and the mountain. If the President would
not agree to inflation, then Congress must agree to resumption.
That it did so with reluctance was proved by subsequent events.
General Bristow, then Secretary of the Treasury, informed me that
it was with much difficulty that Senator Sherman was brought to
the support of a resumption policy. Mr. Sherman was a man of
clear and sane ideas on finance, but of extreme timidity in facing
hostile votes in his own state. His hesitation in adopting a policy of
resumption in 1875 was indicative, not of any misconception in his
own mind, but of much misconception in the public mind, wilich
manifested itself in the House two years later by the passage of a
bill to repeal the Resumption Act altogether. This bill failed in the
Senate by only one vote. Failing to repeal the Resumption Act out-
right, Congress passed by large majorities a bill to forbid the retire-
ment of the greenbacks, whose redemption the Resumption Act
had provided for. It was commonly believed that the retirement of
the redeemed greenbacks would cause contraction of the currency.
The fact was overlooked that the gold with which the greenbacks
were redeemed would take their place in the circulation, in the form
of coin or certificates, so that there would be no contraction.

Doubts existed as to the ability of the Treasury to resume on the
appointed day, notwithstanding a slow but persistent decline of the
gold premium. These doubts were felt even by men in the higher
ranks of finance, and some Wall Street capitalists lost large sums of
money by speculating on a speedy exhaustion of the government's
redemption fund. The saying of an influential banker, who was not
a speculator, that he would give a large sum to have the foremost
place in the procession at the door of the sub-treasury on resumption
day, was widely repeated and generally approved. These doubters
had failed to give due weight to events which were lowering the gold
premium independently of the action of the Treasury, and which
would soon have extinguished it altogether, even if no Resumption
Act had been passed. Given a fixed sum of depreciated currency in
a growing country, the demand for the circulating medium increases
pari passu with population and wealth, and augments the value of
the currency by the law of supply and demand. Secretary Boutwell
was right when he said, in 1871, that the country would grow up to
the volume of greenbacks and that the gold premium would disap-
pear in obedience to natural causes. Although he was right, neither
he nor anybody else imagined that the growth of business would
overtake the volume of the greenbacks within eight years. That
it did so may be reasonably inferred from the fact that the gold
premium disappeared before the date fixed for resumption and that

154 MONEY AND CREDIT

when the redemption bureau was actually opened, scarcely any gold
was called for. But the danger which menaced the cause of sound
money during the interval (1871-1879) was not economical. The
real danger was that public opinion would demand, and Congress
would vote, an addition to the volume of greenbacks. And if Con-
gress should vote for one such increment, there would be no assign-
able limit to future additions.

Specie resumption was followed by a period of great prosperity,
which would soon have extinguished all differences of opinion
touching the definition of the dollar and would have brought about
the desired equilibrium in 1879, but for an unexpected circum-
stance. Between the passage of the Resumption Act and its execu-
tion, the gold price of silver fell ten per cent in the market.

This was an unheard-of phenomenon in the modern world. Vari-
ous causes were assigned for it by experts and ignoramuses, by
economists and politicians. Some said that it was due to the great
output of silver from the Comstock mines; others, that it was a
consequence of the lessened demand for silver in India. Still others
thought that it was caused by the demonetization of silver by Ger-
many. Some even contended that our Demonetization Act of 1873
was at the bottom of the trouble. Official investigations were made
in various countries, including our own, which yielded scanty results.

We can see now that all of the foregoing reasons were either half-
truths or wholly erroneous. Forty per cent of the product of the
Comstock mines was gold. The surplus of silver was, therefore,
only twenty per cent of the total output. The difference was too
small to account for the disturbance.

The demonetization of silver by Germany was not a vera causa.
It was itself the result of something else. A nation does not take
the trouble to change its standard of value without good reason.
It does not incur the expense of re-coinage and suffer heavy loss by
the sale of the discarded metal from mere caprice. The lessened
demand for silver in India was likewise an inadequate explanation.
If it were due to a gradual substitution of gold for silver, both for
money and for ornaments, it was akin to what was going on in Ger-
many, i. c., it signified a change in the public demand and the public
taste. If due to a bad harvest and consequent poverty, these were
events of frequent occurrence in India. Why had they not affected
the relative values of the two metals before? As to our own Demone-
tization Act, we had no silver at that time to demonetize and throw
on the market. Moreover, the passage of the Act was not generally
known until after the great decline of silver had taken place. It was
the latter event that first drew attention to the former.

Looking at the phenomenon from the superior standpoint of the
present day, we can see that the great decline of silver that began

OUR MONETARY EQUILIBRIUM 155

about the year 1871 was due to uncontrollable commercial causes,
which the governments of Europe and America could not have
resisted even if they had tried. Gold had been the real standard of
value in the civilized world long before. As the metal most accept-
able and most convenient for the settlement of international balances,
it had become the cynosure of the trading community. Every
drawer and receiver of a bill of exchange had his mind fixed upon
gold when drawing or receiving it, even though the bill itself were
payable in silver. Hamilton observed this fact as existing in our
own country in the latter part of the eighteenth century. England
had been under the single gold standard twenty-four years before she
became conscious of the fact and gave legal sanction to it. Germany
was in the same situation long before 1871, although legally under
the single silver standard. Under such conditions it was inevitable
that whenever circumstances should impel the nations to overhaul
their monetary systems they should adopt the single gold standard,
thus making the law conform to the fact. Circumstances impelled
Germany to reform hers in 1871, and she took the inevitable step.
Her act was not the cause of the decline of silver in the early seven-
ties, but was rather the sign and symptom of a commercial move-
ment which was working with irresistible force in Germany and
everywhere, and had been signalized some years earlier by the Paris
Monetary Conference of 1867.

But whatever may have been the causes of the phenomenon, it
took place in our own country at a most unfortunate time, in the
midst of a monetary and political crisis, when it could produce the
greatest confusion by freshly unsettling the public mind and break-
ing the peace that had been nearly won by the passage of the Specie
Resumption Act.

Europe did not wholly escape this disturbance; but in Europe
the task of dealing with it was assigned to a small group of experts
in each country, the mass of the population taking no interest in it
even if they were aware that anything unusual had happened. The
same course of proceeding would have been followed here if circum-
stances had been the same. All of our previous coinage legislation,
from that of 1792 establishing the Mint to that of 1873 demonetizing
silver, had been the work in each instance of a few experts, the mass
of the people giving no thought to the matter. The same popular
apathy would have existed in 1876-1878 regarding the decline of silver
had not public feeling been already inflamed over the greenback
question. But for this special and temporary excitement we should
have contemplated the decline of silver in the same way that other
civilized countries did. We should have congratulated ourselves
that we had no stock of that metal on hand upon which a loss must
be incurred. We should have been thankful that the Demonetizing

156 MONEY AND CREDIT

Act of 1873 had been passed in time to prevent us from sharing the
embarrassments of France, Germany, and India. Our monetary
equilibrium would have been reached when specie payments were
resumed in 1879, and we should now have four or five hundred mil-
lions more gold and less silver in circulation than we actually possess,
since all of our silver certificates might have been gold certificates
if Congress had so willed.

Two matters of importance, both incidental to the Civil War
and contributing to our monetary equilibrium, remain to be men-
tioned. First, the national banking system. The public records
show that Secretary Chase adopted this plan as a means of selling
bonds and procuring money for the war, but that it had no per-
ceptible effect in that way. To recast the banking system of a
nation requires time, even when one knows how to go about it and
has all power in his hands. Mr. Chase's modus operandi was defective,
and he did not have unlimited power. The plan contemplated that
'all banks should secure their circulating notes by government bonds
deposited in the Treasury, but the federal tax which eventually
compelled them to do so was not enacted until the beginning of 1865,
and was not put in force until after the war was ended. Conse-
quently no bonds were bought for this purpose during the progress
of the war, except a mere bagatelle taken by the voluntary action
of a few banks. Nevertheless the new banking system was and
remains a gigantic success for banking purposes and a great bulwark
of our monetary stability. So far as it supplies us a currency, it
supplies one that is at par everywhere. It organizes credit and
vitalizes the productive capital of the country admirably. It does
not, however, supply a circulating medium to the extent that its
resources and reputation would justify. Of $2,500,000,000 now
circulating, national bank notes are only $432,000,000, — about
one sixth of the whole, and little more than one half of what the
law authorizes the banks to issue. The bank-note circulation does
not keep pace with the country's growth in population and trade,
and since all other fiduciary circulation is limited by law and has
reached its limit, further expansion will be mainly by means of
gold certificates.

This brings us to another incident of the war period, which has
proved to be a great convenience and an aid to monetary equilibrium.
The law authorizing the Treasury to receive deposits of gold and to
issue certificates therefor of $20 and upward was passed in 1863.
In the panic of 1893 the greenback redemption fund was reduced
below $100,000,000. The law required that the issuing of gold cer-
tificates should be suspended whenever that condition existed.
For some unexplained reason the Treasury officials thereupon treated
the law as though it were repealed, and refused to resume operations

OUR MONETARY EQUILIBRIUM 157

under it when the gold reserve was replenished. Congress accordingly
reenacted it in the year 1900, at which time the amount of old
certificates outstanding (held mostly by banks for clearing-house
purposes) was $228,000,000. The volume of certificates has since
increased by leaps and bounds. It is now above $500,000,000 and
is still growing, and most of the increment has gone into general
circulation, in obedience to a demand for a paper medium of exchange
that could not otherwise be satisfied.

While nothing of this kind was contemplated by Congress in the
original enactment of the law, it must be regarded as most fortunate
in two particulars. It has contributed to cure the prime defect
in the national banking system — the rigidity of its note issue —
and has saturated the currency with gold. Each new certificate
is a prop to our monetary equilibrium, since it increases the pro-
portion of gold to the credit circulation. That proportion at the
present time, counting only the gold in sight, is as 66 to 100, being
about the same as that of the Bank of England. Our proportion
would be even greater than it is if gold certificates could be issued
of lower denominations than twenty dollars. There is no valid
reason why ten-dollar certificates should not be issued. They are
greatly needed now, the Treasury being unable under present laws
to meet the public demand for the smaller denominations in any kind
of paper circulation. Of course, gold eagles, halves, and quarters can
be had without limit as to quantity, but our people do not like to
carry metal in their pockets, except for small change; moreover,
the frequent handling of gold involves waste and loss by abrasion.
The very next reform in our money system should be the lowering
of the denominations of gold certificates to ten dollars, both as a
public convenience and as a further support to our monetary equil-
ibrium.

What we mean by monetary equilibrium is a state of absolute
confidence that every dollar in circulation, whether of paper or of
metal, is the equivalent in the hands of the holder of 25.8 grains of
standard gold. Have we reached that state of confidence? If not,
how far do we still come short of it?

Probably ninety-five per cent of our people are perfectly satis-
fied on that point now. Yet the remaining five per cent think
that there is still some room for doubt. They know that the con-
tinued redemption of the greenbacks depends upon the will of
Congress, and they remember that only ten years ago Congress
refused to do anything whatever to replenish the redemption fund
when the Treasury was only two days removed from bankruptcy.
What protects us against a similar crisis hereafter?

I have already alluded to the action or non-action of the St. Louis
Convention, which assures us that no political party now calls in

158 MONEY AND CREDIT

question the standard of value. This is perhaps the strongest
guarantee we could have against a recurrence of the crisis of 1893,
but our position has been improved in other ways. The Act of
March 14, 1900, increased the gold reserve for the redemption of
legal-tender notes by fifty per cent, and provided for its replenish-
ment in case of need, and it made the notes expressly redeemable
in gold, whereas they had previously been redeemable in " coin."
It separated the fiscal from the currency transactions of the govern-
ment and prohibited the use of the gold reserve for any other pur-
pose than the redemption of notes. But it authorised the Secretary
of the Treasury to pay the notes out again " to purchase or redeem
any bonds of the United States, or for any other lawful purpose the
public interests may require, except that they shall not be used to
meet deficiencies of the public revenues."

Now a deficiency of the public revenues cannot be judicially
ascertained without a standard of a full or non-deficient revenue.
The law does not supply such a standard. Apparently a deficiency
means a shortage of ordinary income as compared with ordinary
expenses during one fiscal year, regardless of any preexisting surplus
or deficit in the Treasury. But there are extraordinary expenses
and extraordinary receipts in time of peace and still more in time of
war. Where is the line to be drawn which shall separate the ordinary
from the extraordinary? A little reflection will show that this
saving clause in the Act of 1900 is meaningless, or, at most, only
advisory. The Secretary of the Treasury must determine for himself
whether a deficiency of the public revenues does or does not exist
at any time. In other words, the paying out of redeemed greenbacks
is optional with him, as it was before. This is a defect in the law
which ought to be cured by an explicit proviso that legal-tender
notes presented for redemption shall not again be put in circulation
except in exchange for gold deposited in the Treasury by private
persons. Thus the reissued greenbacks would be gold certificates
in fact, although not in form; and in time public opinion would require
that the form be changed so as to correspond with the fact.

Are our silver dollars to be considered a source of anxiety? Theo-
retically they are. They are a part of the fiat money of the country.
They are like the greenbacks in all essentials. They circulate by
virtue of the government's stamp, and the government accepts
them in all payments to itself. There are $576,000,000 of them,
$70,000,000 being in circulation as coin and the remainder as cer-
tificates. The field of retail trade has been practically reserved for
them by law, and the growth of the country has been so rapid that
the redundancy of 1894 has become a deficiency in 1904. There is
not enough currency of denominations under ten dollars now to
meet the legitimate demands of trade, and while this condition lasts

OUR MONETARY EQUILIBRIUM 159

silver dollars must be at par, just as the subsidiary coins are. True,
the latter are redeemed at the front door of the Treasury, but the
dollars are redeemed at the back door, in the custom-house, and in
the tax-office. That a real danger once existed from silver coinage
was proved by experience, but it seems to have passed away. It
should not be forgotten, however, that the government paid $464,-
000,000 gold for the bullion from which these needless dollars were
manufactured. This was an unnecessary expense. It is possible
eventually to recover this $464,000,000 without throwing any silver
on the market. A bill is now pending in Congress, with the approval
of the Secretary of the Treasury, to convert silver dollars into sub-
sidiary coins as fast as the latter are needed. The annual increment
of subsidiary silver required by the growth of population and of
retail trade is about $5,000,000. If the policy is adopted of re-coin-
ing the dollars into smaller pieces instead of buying new bullion
therefor, the government will finally get back the money that was
expended under the Bland and Sherman Acts. Gold will flow in to
fill the vacuum, and Congress can regulate the denominations of
gold certificates to meet the public convenience.

May we not have too much gold in our circulation for the econom-
ical working of trade and industry? Of course our solvency can
never be impaired by having an excess of it, but gold is capital.
It is the product of labor, and the country may be compelled to
use more of it than is really needed for effecting its exchanges and
guaranteeing the soundness of its credit instruments. Credit dis-
penses with the use of capital to an incalculable extent. It is a
labor-saving machine of immense value, and it is not to be supposed
that we have yet seen the last of its devices or that we have exhausted
its utility. It does not fall within the scope of my theme to consider
plans for bettering our bank-note system so that it shall keep pace
with the growing demands of trade, but such plans cannot be post-
poned forever in the face of a decreasing public debt and an increasing
price of government bonds. If in the mean time we take more gold
than is really needful into our circulation, that certainly involves
some waste of energy, but of all financial evils it is the one most
easily cured.

Although the greenback and the silver dollar are not a present
cause for anxiety, all fiat money is objectionable, because it is a
noxious microbe capable of multiplication. It would be best to
remove it, so that its evil example may not be before the public eye
to lure us astray in some future emergency.

It is needless to say anything to this assemblage about the advan-
tages of monetary peace as contrasted with the turmoil through
which the nation has struggled during the past forty years. All
the reasons which exist for having any kind of money are reasons

160 MONEY AND CREDIT

for having a good kind. It is the agreement of mankind which
makes it good, and when we disagree about the definition of the
dollar, we are plunged in doubts and fears, confidence and credit
are impaired, enterprise is chilled, business partakes of the nature
of gambling, widows and orphans are defrauded, labor is deprived of
its just reward, and civilization sinks to a lower stage. All these
conditions have been within the nation's recent experience.

To sum up: We may say that once upon a time the nation lost
its financial pathway by accident and after wandering forty years in
the wilderness regained it by a process of self-education. During
all its wranderings, however, it never repudiated nor failed to keep
any contract that it had made. It has met both principal and
interest of its bonded debt in the times and manner agreed upon,
and has never imposed any tax thereon or allowed any inferior
authority to do so. For all this it reaps its reward in the highest
credit that any country ever enjoyed. There are some minor pro-
blems of finance yet to be solved, but since they may now be
approached without passion, we may fairly expect that they will be
solved rightly and in good time. Let us hope that we have learned
the cardinal principle of finance, viz., that the monetary standard
is established in the first instance by the tacit agreement of man-
kind, which it is the duty of the statute law to recognzie, ratify, and
enforce, not to resist, counteract, or annul.

May we confidently predict that the lessons of the past will not
be forgotten and that the monetary equilibrium will never again
be disturbed? Alas, history teaches that such lessons gradually
fade from the public mind. ^Our colonial experience with bills of
credit did not prevent the revolutionary fathers from following the
same disastrous policy, nor did their example prevent us from
repeating the experiment. Moreover, President Grant's veto of
the Inflation Bill did not prevent Congress from passing another
one sixteen years later, which was not vetoed and which was at-
tended by disastrous consequences. But history teaches also that
such disturbances of the monetary equilibrium usually have their
beginning in a state of jvar. The colonies issued bills of credit
in the first instance for war purposes and afterwards for other pur-
poses. The revolutionary fathers did the same, and we also did the
same. The teaching of history, therefore, is that if we would
avoid the grossest financial errors of the past we should avoid as
much as possible the direful curse of war. Perhaps no teaching
could be more salutary to mankind.

PRESENT MONETARY PROBLEMS

BY JAMES LA WHENCE LAUGHLIN

[James Lawrence Laughlin, Professor of Political Economy, Chicago University.
b. Deerfield, Portage County, Ohio, April 2, 1850. A.B., A.M., and Ph.D.
Harvard University. Assistant Professor in Political Economy, Harvard
University; Professor of Political Economy and Finance, Cornell University.
Member of International Institute of Statistics. Author of Facts about Money;
The Principle of Money; numerous articles for the Atlantic Monthly, Forum,
North American Review; and several books on political economy.]

I

Present Monetary Problems

THE development of thinking about money is the most interest-
ing portion of the history of political economy. The first dawn of
economic principles came with the discussion of monetary phe-
nomena, and monetary science has not only always had a peculiar
practical interest of its own, leading to its constant appearance in
political campaigns in all countries, but it has also had an organic
life persisting in its full vigor to the present day. In the United
States the monetary question is not at this very moment, as it
has been, the football of the political parties; but there has been
very recently an active upheaval in scientific discussion which is
healthy and worthy of attention. In Europe, while the active
discussions of bimetallism have simmered down to relative quiet,
yet the interest in the fundamental monetary questions among
scholars is burning with a clear flame. The present monetary pro-
blems are not only enlisting the interest of economic scholars and
reach the very center of systematic exposition, but they also happen
to be those which have to do with the truth or error of convictions
which are widespread among great masses of our countrymen.

It is passing strange that the vast literature of money has not
been marked by a passionate zeal for the statement of an organic
body of principles. Past discussions of money have been usually
started in some local, or practical, problem; and interest has cen-
tered largely in the acquisition of historical data, without any con-
siderable success in the formulation of the principles explaining
such data. Once that the problem of special interest to the public
had been settled for good or for ill, the real scientific interest seemed
to wane. To-day, in my judgment, the case is entirely different.
The attention now being given by scholars in both Europe and
America to the vital questions of monetary doctrine is nearly as
intense as that given to questions of wages and interest.

162 MONEY AND CREDIT

II

Functions of Money

Since the time of Ricardo there has been a magnificent confidence
that the theory of money has been so well settled that there was
little more to be said on the subject. The economic dogma of money,
at least, was supposed to be fairly complete. And yet, in my
judgment, the systematic treatment of the principles of money
has remained undeveloped almost to the present day. There is
scarcely any part of the field which can be regarded as thoroughly
disposed of. Indeed, the very definition of money itself is to-day
under the most critical examination; and with the definition goes
the question as to the functions performed by money. On these
points, like investigators in other sciences, we must frankly admit
our lack of agreement.

First of all it should be emphasized that the dispute about the
definition and functions of money is not merely a question of words;
it relates, in truth, to fundamental problems of great practical im-
port. Every day the statesman and man of affairs are confronted
by difficulties connected with the primary effect of " money " on
prices in general; but it is at once patent that the relation of the
value, or quantity, of " money " to prices cannot be disposed of
until we have determined what we mean by " money." As at
present used, " money " has no scientific precision; it is often care-
lessly employed in many different senses by one and the same author.

Evidently before a rational definition of money can be found,
some agreement based upon an analysis and description of the
functions actually performed by money must be reached. If
several dissimilar services are rendered by monetary instruments;
if each of these services is associated by usage with " money," and
if it happens that different things are employed in these different
services, then, while authors may agree as to many of the func-
tions of money, it may easily happen that they may still disagree
as to which shall be regarded as essential to the definition of money.
Money may have different meanings according as it is made to in-
clude, or exclude, some or any unquestioned services associated by
usage with money. In such ways, an important difference might
arise between that which is money in an economic, or true sense,
and that which is money in a legal sense. In fact, the economic
relations of money ought to be scientifically ascertained before legal
functions should be assigned to it. If, for instance, the state should
apply the quality of legal tender loosely to some instrument which
does not completely fulfill all the functions of money, then that
money is not, in the economic sense, true money. It thus often
happens that incomplete forms of money exist, which give the public

PRESENT MONETARY PROBLEMS 163

much difficulty to classify and define. The expressions " substi-
tutes for money," or " surrogates," or " representative money "
have arisen which depend for exactness upon the primary meaning
assigned to the money on which they depend. The very functions
of money need careful limitation.

Among writers as late as John Stuart Mill there is practically no
separation of these functions. The term " money" was applied
indifferently to an instrument which served only as a medium of
exchange, or only as a standard, as the case might be. Obviously,
it would not be possible here to summarize all the different ways
in which the functions of money have been viewed; they vary with
each writer. In the main, there is a discussion upon the merits of
the following separate functions:

1. A medium of exchange.

2. A standard, or measure of value.

3. A standard of deferred payments.

4. A legal means of payment.

5. A store of value.

6. A means of transferring value, or capital.

The most recent German writer, the distinguished scholar Helf-
ferich, in an epoch-making treatise,1 holds that there are only two
primary functions of money, neither being secondary to the other:
(1) Medium of exchange; (2) means of payment. He does not
regard the standard function as essential to the conception of
money, believing that any such service as may be included under
a measure of value has been derived from the two primary func-
tions given above. With several other writers, he finds that the
medium of exchange was the thing which first developed, and then
came into general use as a standard or measure of value. He
practically defines money as everything serving to facilitate exchange
between economic factors. Thus Helfferich would hold that the
state, by giving legal-tender power to things worthless in them-
selves, such as irredeemable paper, has created a means of payment
for debts, and therefore he would include even such instruments as
these under money, because they fall under one of his primary
divisions.

Whatever conclusions may be reached in regard to the functions
of money, the application to the system of any one country would
raise difficult questions as to the classification of money. If one of
the necessary functions is lacking to any one form of money, it is
not true money; for instance, in the United States no one would
hesitate to say that gold coin is true money, and yet it is very little
used as an actual medium of exchange. Therefore, we may easily
call that true money which does not serve principally as a medium
1 Das Geld, von Karl Helfferich, Leipzig, 1903, 8°, pp. x + 590.

164 MONEY AND CREDIT

of exchange. Also, silver dollars, and French five-franc pieces, in
the so-called " limping gold standard," could not be called true
money in all senses, because their value is dependent on a primary
form of money. Like national bank notes and greenbacks, they are
only " surrogates; " they are, perhaps, legal, but not economic,
money.

One may well doubt if the function of a means of payment can
be distinguished from that of a medium of exchange. At least,
most writers seem to agree that the medium-of-exchange function
is essential to money; but if the standard function be neglected,
could we possibly define that which acts only as a medium of
exchange as true money? Of course not. Deposit-currency (i. e.,
bank-checks) certainly act as a medium of exchange, and as a means
of payment; but we should, in all common sense, be obliged to place
such currency in a very different class from gold coin.

Therefore every one must agree that the critical discussion of
the meaning and functions of money is fundamental to scientific
progress and to all serious treatment of the main problems of
money, such as the theory of prices.

Ill

Credit

In regard to another unsettled problem of money, credit, it is
to be said not only that it has been very much misunderstood, but
that it has been given very little real study. There is to-day no
commonly accepted definition of credit; the element of futurity in
a credit transaction is generally admitted, but " confidence " is by
some regarded as the essential element; and yet " confidence " can
play its role only because futurity exists in the credit operation.

Nor is there any received opinion as to the real nature and func-
tions of credit. We seem, in the whole field of credit, to be on the
frontier of knowledge. In any true sense, the economic end of
society is the possession and use of goods which satisfy wants. Credit
has been devised as one of many means to aid in accomplishing this
end. In its fundamental relations it has to do with goods and their
increase. To some, however, it is related only to money. The
truth of this concept, to my mind, depends upon the nature of money.
If it be only a means to an end, and if it does not alter the elemental
principles of value, but aids and cheapens the exchange of goods,
then it is easy to understand that a borrower in reality obtains the
use of goods, as the purpose of a loan, and that money and credit
are but the instruments devised by society for effectually carrying
out that purpose. Hence the credit operation, as regards extension

PRESENT MONETARY PROBLEMS 165

or contraction, is primarily based on transactions in goods; its
relation to money is a secondary, and incidental , connection. Credit
being a transfer of goods involving the return of an equivalent in
the future, forms of credit appear only as a consequence of transac-
tions in goods. More transactions, not more money, cause an
increase of forms of credit; and, by an interesting process of evolu-
tion, forms of credit, especially the deposit-currency of banks, act
as a medium of exchange, obviating recourse to money. The belief,
however, that credit depends on money, and not on goods, is wide-
spread, and much discussion is probably before us on this point.

The relation of credit to the theory of prices is evident; some
think that all the money plus all the credit (whatever that may
be) act primarily to fix the level of prices; but any sane person will
see at a glance that the forms of credit, such as bills, drafts, etc.,
arising from the movement of the wheat crop, have no effect on the
price of that crop, the price having been made antecedent to
the creation of the forms of credit which came into existence only
because of the actual sales of wheat. Does a farmer wait until he
sees how many wheat bills are drawn before fixing the price of his
wheat? Evidently not; and the popular conception needs thor-
ough criticism.1

When men speak of " our expansion of credit," they have a very
vague and general idea in their minds. The definite and distinct
forces at work are covered with darkness; and when a revulsion of
trade comes the results are accepted as coming from some undefined
and mysterious force which can only be felt, but not explained. It
remains the duty of the economic thinker to outline with scientific
exactness the forces uniting in the upward wave of overtrading,
and to state with equal definiteness the causes of the receding move-
ment. Principles must be sought for which will explain the differing
actualities of each special crisis.

IV
Theory of Prices

Only after the honest student has come to a satisfactory conclu-
sion in regard to the nature of money and credit is he in a position
to discuss with profit the pivotal problem of this field — the theory
of prices. Perhaps I may be criticised for treating here the present
monetary problems from too theoretical a point of view; and it
may be urged that I should have presented the practical problems
confronting each leading nation, and discussed their relations to
the several monetary systems actually in use. But I must respect-

1 Fora full discussion of " Credit/' see my Principles of Money, chap. 4 (1903).

166 MONEY AND CREDIT

fully insist that the moment any practical problem in any existing
monetary system is taken up, one is instantly faced by the difficulty
of agreement upon the terms in use, and in fact upon the simplest
monetary principles involved in the examination of each case.
Every practical reformer in the field of money is in fact using some
theory of prices, true or false, in all the premises laid down in his
propositions. One might as well go into practical engineering
without a knowledge of thermodynamics as to discuss practical
monetary schemes without first settling basic monetary principles.
But, unfortunately, the thinking, even among so-called economists,
is to-day unsettled on so pivotal a question as the theory of prices.
Practical monetary legislation, in more than one country, would be
radically modified, accordingly as the so-called " quantity theory "
of money is accepted or not. In my humble opinion that theory
is indefensible and erroneous; and yet our great politicians in the
United States, in their fencing on the monetary problem, have
decided that the question of the gold standard has been definitively
settled because of the large recent production of gold. The par-
tisans of gold have thus accepted the principle on which the demands
for an extension of the circulation of silver and greenbacks have been
based, and the position is absolutely untenable.

The issues in this crucial problem are unmistakable, and they
must be threshed out to a conclusion before any practical appli-
cations can be attempted. These issues may be briefly stated in the
following heads:

(1) Is the price of goods the quantity of some standard commodity
for which they will exchange, or is it the relation between goods and
a variety of several media of exchange?

(2) If true money is a commodity, like gold, then what determines
the exchange value between goods and that commodity? Is the
problem in any way different from that of obtaining the exchange
value of any two commodities?

(3) What is the actual process of evaluation between goods and
gold?

(4) If demand and supply regulate the value of money (cost of
production apart), what is the exact meaning of demand for money,
and of supply of money?

(5) Is the demand for a money-metal only the monetary demand?
Is the demand for a commodity as money something sui generis ?

(6) In the theory of prices, what is meant by " money "? Is it
only gold, or gold together with everything, such as deposit-currency,
which acts as a medium of exchange? In short, what constitutes
the supply of money?

(7) If prices are influenced by " purchasing power," is that
synonymous with the sum of the existing media of exchange, multi-

PRESENT MONETARY PROBLEMS 167

plied by its rapidity of circulation? Or, is purchasing power in its
ultimate analysis synonymous with the offer of salable goods?

(8) Have the expenses of production, or progress in the arts, no
influence on the general level of prices?

(9) What is the effect of credit on general prices?

(10) How do fluctuations in bank reserves actually affect general
prices? Does the rate of interest, being paid for capital and not for
money, have an effect on prices through its effect on loans?

(11) By what economic process would a great new supply of gold
influence general prices? Only by being directly offered for goods
as a medium of exchange?

(12) Does the Ricardian reasoning in favor of the quantity theory
of prices hold in monetary systems where free coinage of the standard
money exists and where other devices are used as media of ex-
change? If mints are open, how can the coin differ in value from
the bullion of which it is made?

It is safe to say that the thorough discussion of these points, and
a satisfactory disposal of them, will aid in the solution of the central
monetary problem, not only of the past but of the present time. It
is one which cannot be blinked. It arises at every step in popular
monetary discussions, and the economists have not given it neces-
sary attention. On the settlement of the theory of prices, of the
value of money, a host of minor questions which have caused endless
and fruitless differences of opinion will disappear. The solution of
this matter of theory is of the greatest practical import; it is as
important to practical monetary action as a theory of heat is to
mechanics. Therefore, let us not be deterred from a struggle with
a fundamental matter of theory by any slighting and cheap sarcasm
about the futility of theoretical and abstract discussions. As well
scoff at the mathematics which lies behind physics and astronomy
as theoretical.

Nor will it be wise to minimize the differences between the old
and new points of view in the theory of prices. It may be said that
the quantity of money would have an influence on general prices
in any theory. True; but that does not touch the crucial point at
issue. The quantity theorists make the process of evaluation be-
tween goods and money dependent on the actual offer of the money
and goods for each other; an increase of transactions in goods is an
increased demand for money, resulting, unless the quantity of money
is increased, in falling prices. It is needless to say that the facts
do not agree with these statements. An inductive economist who
would be unwilling to state any principle which had not been the
outcome of a study of concrete data could never, under any possible
circumstances, have arrived at the quantity theory of money. In
no case coming under my observation has there ever been any corre-

168 MONEY AND CREDIT

spondence between the movement of general prices and the known
facts as to the quantity of circulation, or the money-work to be done.
If I am wrong, it lies in the power of induction to disprove my state-
ment by the facts. In truth, the quantity theory was the product
of the metaphysicians, and not of the men of affairs, and it never
has been in accord with the data of inductive study so far as I know.
It is true that a great increase in the supply of gold would lower
its value, other things remaining the same; but the effect on general
prices would be a simple one, such as would be produced by any
cheapening of the standard, like a change to a depreciated paper
standard. But this change in the value of the standard is a radically
different economic process from that by which prices are said to be
influenced only by changes in the quantity of the media of exchange
actually offered for goods. One or the other must be wrong.

V

Prices and the International Movement of Metallic Money

The settlement of the theory of prices, or the principles deter-
mining the value of money (suitably defined), has an importance
reaching out into the field of the international movements of specie.
We cannot properly formulate the methods by which the shifting of
specie and goods act upon each other in international trade without
having previously reached a definite conclusion upon the theory of
prices. Thus the examination of and agreement upon the theory
of prices will largely determine the statements made concerning the
relation between the shipments of specie and the level of prices
within a country.

With the Ricardian formula, derived from the experience of Eng-
land in the early part of the last century, writers have attempted
to solve this problem by using the quantity of money in a country
as the force regulating the general level of prices; if gold is exported,
prices must fall; if gold is imported, prices must rise. In brief,
the originating cause of a change in the general level of prices, so
far as international trade is concerned, is the shipment of specie.
The movement of goods is a consequence of the change of prices
brought about by the addition or subtraction of specie. That is,
the quantity theory has been relied upon to solve this highly im-
portant and practical problem of money.

The original statement of Ricardo has, of course, been added to
and amended; but, in the main, it is intended to show that any one
country obtains a part of the world's circulation of specie in the
proportion that its trade bears to that of other countries. This
quota of gold, for instance, is retained in a country by influences

PRESENT MONETARY PROBLEMS 169

working automatically on the .price level through changes in the
quantity of gold within that nation. If gold is withdrawn, prices
fall, exports of goods are increased, and in due time the gold begins
to return until the country's quota of gold reaches an equilibrium
adjusted to the relative demands of other countries. The move-
ment of goods forms the variable in the process which aims at a
correction of the quota of gold, whenever the equilibrium has been
disturbed. The shipment of gold is the initial cause; the movement
of goods is a consequence.

In support of this view, the orthodox view, it is held that gold
will flow wherever its exchange value is highest. The flow of gold
will make it abundant in the receiving nation, and thus raise general
gold prices there, or, vice versa, will lower prices in the countries
from which gold is taken. The possession of the proper amount
of gold seems to be the main consequence, while commerce is
regarded as the means to the end.

This manner of treating the problem, however, reverses the true
order of events. Commerce is the real objective which lies behind
all other phenomena, such as the methods of payment; the move-
ment of money is a secondary operation, dependent on the direction
and extent of the shipment of goods. Moreover, to say that gold,
like other goods, flows where its exchange value is highest, is a
truism; the real question to be settled is, How does the flow of gold
take its effect on prices? To say that because it is abundant, it
raises prices, is to assume the whole problem at issue. How does
a cheapened mass of gold adjust itself to other goods? What is
the price-making process? Are goods priced only by an actual
exchange of those goods against the increasing flow of gold? On
this point the adherents of the orthodox teaching of Ricardo have
offered no light.

The trouble with many symmetrical monetary theories is that
they do not agree with the facts. For instance, it has been pointed
out that the gold stock of the United States has increased three and
one half times from $326,000,000 in 1880 to $1,174,000,000 in 1902;
and yet that gold prices in the United States in that period have
fallen. This discrepancy between fact and theory is dogmatically
disposed of by assuming that the growth of our trade has outstripped
the supply of gold. This position is far from tenable; there are no
statistical data in existence worth a fig which could give us the truth
as to the money-work, or demand, for gold. To say that our gold
has increased only because of our phenomenal increase in trade
relatively to other countries, is to make a statement without proof.
Possibly our deplorable silver legislation of the past has forced us
to carry more gold than we ought to have held, just as men on the
frontier must invest considerable means in firearms for protection

170 MONEY AND CREDIT

from purely local dangers. Other .countries than ours have enor-
mously increased their trade, but they have not added in the same
proportion to their gold circulation. In truth, the old-fashioned
theory of international price-changes needs restatement in vital
parts. It will be found that forces affecting the prices of goods,
such as demand and supply of those goods, are of primary influence in
affecting prices, quite independent of the action of a medium of
exchange, which often comes into existence, in fact, as a consequence
of the exchange of goods. The movement of specie is not the end
of commerce, but specie moves as an instant consequence of com-
merce. The monetary changes follow, and do not precede the opera-
tions in merchandise.

VI

Bimetallism

Bimetallism was eagerly taken up by writers as a means of in-
creasing what was once regarded as a deficient supply of the world's
metallic circulation. The decline of prices, which in this country
began in 1866 and not in 1873, was attributed to a scarcity of
" money " throughout the world. Therefore, if silver could be
added to or retained with the circulation of gold, the larger quantity
of metallic money would, it was believed, support or even raise the
general level of prices. The theory of prices, assumed as a matter
of course in this exposition of bimetallism, was the quantity theory.

Throughout the recent writing and speaking on monetary topics,
both in Europe and America, if not also in Asia, there has been
a very general subsidence of interest in bimetallism. The demand
for silver has been believed to be unnecessary because of the enor-
mous production of gold in recent years. That is, by the old quan-
tity theory on which bimetallism was based, some authorities — and
more politicians — have saved their consistency by accepting the
gold standard.

The logic and character of bimetallism cannot escape so easily.
If the quantity theory falls., the whole artificial structure of bimetallic
argument falls; and the gold standard cannot possibly be supported
by intelligent minds on any such basis of theory. The facts are too
ugly. In the diagram which I have constructed here, it must appear
to the most casual student that if the fall of prices on or about 1873
was due to a scarcity of gold, then since the supply of silver has been
greatly increased, and especially since the supply of gold has been
about quadrupled since 1850, we ought to have witnessed a phe-
nomenal rise of prices in the last decade or two. The movement of
prices on the diagram has been generally downward, or at least not

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172 MONEY AND CREDIT

seriously rising, during all the years when the production of gold
has been so astonishingly large. The facts oblige us to question a
theory which presents such evident disparities as this; and one is
obliged, in all fair-mindedness, to accept the truth that many other
and potent influences, besides the quantity of the media of exchange,
have a powerful effect upon the price level. When this admission
is made, then the investigator is in a position to understand the
remarkable influences of the great industrial revolution of the last
thirty years upon the expenses of production of all articles, and
hence upon their market prices. Thus, the sweep of economic
forces, in the natural tide of events, is bringing us to a saner and
very different point of view from that of the scientific bimetallist
of past years.

VII

Stability of Exchange

Consistency is a jewel; but it may be questioned whether it is
always worth the price. The escape from the pitfalls of bimetallism
and the quantity theory has led to some new and surprising formu-
lations. It had been the hope of the bimetallists to secure a parity
of exchange between countries now using gold and silver standards.
If gold could be maintained permanently at a given ratio with silver,
this happy result might have been brought about. It is needless
to say that bimetallism proved to be a political impossibility, even
in the countries of the Latin Union. By force of business require-
ments, such silver as has remained in general circulation was effect-
ively kept at a value in gold equal to its face value by varying devices
in different countries, all of which had a common principle, practi-
cally equivalent in a more or less evident form to redemption in gold.
In the case of India, it is frankly accepted that the value of the rupee
has been maintained at a fixed price in gold by a machinery which
amounts to the establishment of the gold standard, involving a
quasi-redemption of silver rupees in gold at IQd.

If, however, there are some silver-loving sensibilities to placate,
such a process is not spoken of as the establishment of the gold
standard through the indirect redemption of inferior silver by gold,
but it has been discovered that a uniform ratio of exchange between
gold and silver-using countries can be established, not by the gold
standard, but by a " gold-exchange standard." In the recent pro-
posals laid before Mexico and China this new form of statement has
been employed. It is difficult to know what the new term means.
A bill of exchange in a silver country drawn on a gold country is
nothing but the amount of silver coins of the one nation which must
be given to buy a stated sum of gold coins of the other nation. The

PRESENT MONETARY PROBLEMS 173

silver bill varies relatively to gold coins in proportion to the changes
in the value of silver bullion relatively to gold, unless the silver
coins, under the laws of token-money, are kept at an artificial value,
above the market value of the silver bullion in them, by some method,
more or less direct, of redemption in gold. When silver bills are
offered in the exchange market, they are simply offers for the sale of
so much silver to be paid for in gold. If then the treasury of the
silver-using country buys the bills in certain emergencies of the
exchange market, it is paying gold for silver; or, in other words, it
is to that extent redeeming amounts of silver in gold.

Stripped of its enveloping mystery, the only way in which the
new proposals for Mexico and China can establish stability of ex-
change is to establish the gold standard. For that purpose, if the
silver coins in common use are to be rated in gold above the market
value of the silver content of the coins, the only way in which parity
in daily business or in the exchanges can be maintained is by creating
a gold reserve large enough to redeem coins at par, or buy exchange
at par, if no direct redemption is allowed. The whole operation,
therefore, harks back to the principles regulating the value of such
money as token-coins, bearing a seigniorage, or paper money which
has no value in itself. The worship of quantity as a regulator of
value of money may do for those who are unwilling to test their
theories by the facts; but inevitably one is obliged to admit that
other forces are far more potent than quantity.

VIII

The Value of Paper Money

I have said that the pivotal problem in the whole field of money
is the theory of prices or the value of money. How true this is
may be seen by the recurrence of this issue in each of the problems
noted in this paper; and in the last one which I shall take up it
again reappears. What regulates the value of those forms of money
which circulate at a rate above their content is a question which
forces itself to the front whenever we study a case of paper money.
In times past it has been sufficient to explain the value of paper
money by referring its rise or fall to an increase or diminution of its
quantity. This blind reliance on quantity as the main force con-
trolling the value of money cannot now, with our knowledge of the
facts, be consistently held.

The amount of notes which a merchant can put out, provided he
redeems them promptly, is limited only by the extent of his transac-
tions. So it is with a nation. Given a certain set of business opera-
tions, as many notes can be kept in circulation as are needed by the

174 MONEY AND CREDIT

community, and no more; and these notes will remain at par only
if there is a recognized system, not of ultimate, but of immediate
redemption. No matter what quantity of notes may be put out,
if there is no system of immediate redemption, the notes will de-
preciate. But if there is an effective system of immediate redemp-
tion in operation, then no matter what the amount issued, none
of it can depreciate, and only that quantity which is needed by the
convenience of the business public will remain outstanding. In this
way it may be realized that the element of quantity is incidental
to the more dominant factor of redemption.

The connection of the value of the standard money with the paper
promises to pay in that standard coin is the one important con-
sideration in determining the value of paper money. Redemption
is the only sure means of ascertaining automatically what quantity
of paper is needed by the public. Redemption determines both the
quantity and the value of the paper.

In the case of irredeemable paper, however, it is often assumed
that, in the absence of redemption, the value of the paper is deter-
mined directly by the amount outstanding as compared with the
uses to which such money can be put. There is believed to be an
imperative demand for money, as a medium of exchange, which
must be satisfied in some way; and in default of anything better,
irredeemable paper will be required, and a value will be given to it
by this imperative demand. Then, only if issued in excess of this
demand, will even irredeemable paper depreciate. This is the usual
explanation of the fact that irredeemable paper, worthless in itself,
bears any value at all.

But men of affairs are the last persons to exchange valuable goods
for valueless paper. They will use any medium only from a business
point of view. This paper is a promise to pay; the whole question
centers in the probability of keeping that promise sooner or later.

A guess is made on that point, and it is recorded in the value given
to the paper, just as in the case of quotations of stocks, not now
paying dividends, but believed to have some chance of paying in
the future. If the chances of redemption, consciously or uncon-
sciously, become brighter, the value of the yet irredeemable paper
rises, without any change whatever in the amount outstanding; or
an event which postpones redemption will correspondingly depreciate
its value. The history of our United States notes (greenbacks) from
1862 to 1879 furnishes abundant evidence on this point.

There certainly is an imperative demand for a medium of exchange
where goods are bought and sold; but there is no monopoly of any
one medium by which a monopoly value can be secured for it. As
regards metallic money this could appear only in the absence of
free coinage; and even with token-coinage it is a question if a value

PRESENT MONETARY PROBLEMS 175

can be given it by monopoly conditions. But as regards the usual
media of exchange, there are so many kinds — government notes,
bank-notes, bills of exchange, checks, and deposits — that a demand
for a medium of exchange can be satisfied by many alternatives.
A scarcity of one could not produce such a want that an unlimited
monopoly value could be given to it. Especially is this true when
we remember that deposit-currency is perfectly elastic, providing a
medium of exchange as a consequence of legitimate transactions in
goods whenever desired. Such a machinery, expanding according
to the work to be done, makes it impossible that the so-called im-
perative demand for a medium of exchange should ever give to any
one medium an exceptional, or monopoly value, due wholly to a
limitation of its quantity.

With coins having a seigniorage, such as the American silver
dollar or the French five-franc piece, their value is kept at par with
gold only by some method of redemption, more or less direct; and
the same general principle applies to the value of paper money, in
which the seigniorage may be one hundred per cent.

In this necessarily brief review of the present monetary problems,
as known to students of this branch of economics, I have attempted
to present the 'issues in a form which could be understood by the
layman as well as by the professional economist. In the nature of
things, it has been impossible not to give a setting to these problems
colored by my individual judgment. For that I have no apology to
make; I assume that it was intended to allow the author to give
such an exposition as, by his best lights, would present most clearly
the leading points at issue among scholars of money at the present
day.

SECTION E — PUBLIC FINANCE

SECTION E- PUBLIC FINANCE

(Hall 1, September 21, 10 a. m.)

SPEAKERS: PROFESSOR HENRY C. ADAMS, University of Michigan.

PROFESSOR EDWIN II. A. SELIGMAN, Columbia University.

RELATION OF THE SCIENCE OF FINANCE TO ALLIED

SCIENCES

BY HENRY CARTER ADAMS

[Henry Carter Adams, Professor of Political Economy and Finance, University of
Michigan, since 1887. b. Davenport, Iowa, 1851. Graduate of Iowa College,
1874; Ph.D. Johns Hopkins University, 1878; LL.D. Iowa College, 1898.
Lecturer in Johns Hopkins University, 1880-82; in Cornell University and
University of Michigan, 1880-87; Director of the Division of Transportation,
Eleventh United States Census, 1887; Statistician, Interstate Commerce Com-
mission, 1887. Member (President) of American Economic Society. Author
of Outlines of Lectures on Political Economy; Public Debts; State in Relation
to Industrial Action; The Science of Finance; and other works and memoirs on
political economy and finance.]

THE science of finance finds its place in the group of sciences to
which it pertains through the relation it bears to political organiza-
tion. This is true because of the nature of the task imposed upon
the public financier. He it is who provides for the support of the
state. Both public income and public expenditure are intrusted to
him. He is the business representative of the body politic regarded
as an active corporation. The particular form assumed at any
time by the political organization is of slight importance so far as
fundamental principles are concerned, but it is of great importance
when one undertakes to give formal expression to those principles in
a scientific treatise. The science of finance is before all else an analy-
sis and classification of those principles of conduct that the financier
finds it expedient to put in practice, from which it follows that as a
science not only does it borrow character from the nature of political
organization, but the scope of its investigation is limited by the
practical necessity of making pecuniary provision for the support
of that organization, and the relation which it bears to other social
sciences is determined by the manner in which these other sciences
affect the amount of money to be raised and the method by which it
is raised and expended. I am aware that this is not the philosophical
attitude in which the definition of the science of finance and its rela-

180 PUBLIC FINANCE

tion to allied sciences is usually approached, but it is certainly more
concrete and has the merit of being easily understood. I shall at
least ask your indulgence while developing along this line the subject
assigned by the committee. And first let us consider the relation
of the science of finance to political economy.

Relation to Political Economy

The most important fact of political organization for one who
seeks to define and limit the science of finance is found in its essen-
tially benevolent character. The state as an organization has no
personality of interest. A consideration that centers in itself, or a
policy that holds in view the power or prosperity of the state apart
from the well-being of the individuals who compose it, is bereft of
any sound basis of judgment or safe test of propriety; without such
judgment and test it is, of course, impossible for a science to exist.
The state feels no pleasure in riches nor ambition for wealth except
so far as an ample income ministers to the well-being of the people.
It is this fact, namely, the benevolent character of the political
organization, that gives to the science of finance its peculiar point
of view, and what is of more importance for the purpose of this
analysis, it is this fact that draws a clear and enduring line between
the science of finance and the science of political economy.

It may be well to dwell for a moment upon this distinction, for
it carries with it many formal and theoretical conclusions as well as
practical results.

The essential weakness of what is known as English political econ-
omy consisted in the assumption that material well-being can be
attained only through the agency of a single form of association,
that is to say, through voluntary association resting on contract.
This assumption is nowhere formally expressed by the writers of
the classical school for the reason that its expression would have
been superfluous. The establishment of this thesis, and the enact-
ment of laws to secure for the individual the exclusive right of oper-
ating within the industrial domain, was the sole purpose of all their
analysis and argument. This is not the time to pa^ss in review
the line of reasoning which identifies private gain and public welfare,
and which seeks to clothe with an ethical philosophy an industrial
organization directed by the hope of personal gain. It is sufficient
to note that while such a philosophy of industrial relations held
sway there was no place for the science of finance as a distinct and
independent branch of human knowledge. The course of events
has proven the limitations of this philosophy. Its modification
covers most of what is important in the development of economics
since 1850, and perhaps the most significant of the formal results of

SCIENCE OF FINANCE AND ALLIED SCIENCES 181

this development is found in the universal recognition by modern
economists of a science that has to do with the material well-being
of the state as well as a science that has to do with the material well-
being of the individual, both of which adopt the same ultimate test
of a well-organized society.

The relation which the science of finance bears to political economy,
the two sciences that together fill the field of economics, may be more
clearly suggested by passing in review the formal changes that have
taken place in economics since the time of John Stuart Mill, the
greatest as well as the latest expositor of the classical school of econ-
omy. Mill was too acute a thinker to ignore the existence of the
state in a study of industrial organization, but the philosophy in
which he was educated did not permit him to acknowledge the state
as a positive factor in industrial organization. It is true that in
his Principles of Political Economy he considers some of the problems
that are now included in the science of finance, but this considera-
tion is introduced in that part of the work which treats of justifiable
interference with the normal workings of economic laws.

Manifestly no science of taxatio-n was possible, to say nothing of
the science of finance which embraces much beside taxation, as long
as the influence of government in industry is regarded as a disturb-
ance of the normal working of natural law; for it is essential to
any science that it gives expression to laws that inhere in natural
conditions and to principles that are enduring because they are
vital to the existence of the subject investigated.

For the correction of this error of the older English economists
we are indebted to the economists of Germany, and in Germany
the change came rather as a result of the study of jurisprudence and
of the application of the historic method of investigation to all kinds
of social institutions, than as a formal criticism of individualism in
industry. The German economist was educated to the conception
of the state as an institution which existed by virtue of the forces
that gave it a history. One result of this study of Roman institu-
tions was the idea that the authority of the state rests upon necessity.
The material with which he dealt when investigating the industrial
life of his own people also obliged him to distinguish between the
political and the industrial organization, each with its own princi-
ples and its own natural order. It may be true, as some have claimed,
that German economists, when treating of the industrial and fiscal
character of the state, fall into an error the same in kind as the error
of the English classical economists, in that they subordinate the
industrial to the political organization. With that, however, we are
not concerned. We are endeavoring to thread our way between
public finance and political economy as formal expressions of scien-
tific conclusions, and certainly some help is obtained for this task

182 PUBLIC FINANCE

when we come to understand why German students were able to
accomplish what English writers thought it not worth their while
to undertake, namely, the development of an independent and self-
consistent science of finance and its presentation as one of the many
branches of knowledge that have to do with social institutions.
The German writer started with a scientific conception of the state;
the English writer, on the other hand, notwithstanding the marked
success of his people with practical problems of government, had no
such conception, nor, indeed, was it possible for him to gain such
a conception without confessing the inadequacy of his philosophy of
social relations. This he has not yet done in any formal and com-
prehensive manner, and this is doubtless the explanation of the fact
that the English language yet waits for a satisfactory treatise upon
the science of finance.

One generalization from the above may not be out of place.
Society exists by virtue of two principles of organization which
between them divide the field of social relations. These are the
principles of voluntary and of coercive association. The former
is motived by the proximate interest of the individual and finds
expression in contract and agreement; the latter is motived by the
welfare of the state and finds expression in fundamental law and
legislative enactment. The science of political economy and the
science of finance are dealing with the same material, but the former
confines itself to the domain of voluntary association and the latter
to the domain of coercive organization. It is doubtless this dis-
tinction that led Dr. Adolph Wagner of the University of Berlin —
he to whom this paper was first assigned by your committee, and
whose absence no one regrets more than myself — to begin his
encyclopedic work upon finance with the observation that " the
state is the sole depository of coercive power." This fact is the cor-
nerstone of his work, and properly so, for upon it are based the rules
by which we are to determine whether a proposition, an argument,
or a problem belongs to public finance or to private economics.

Other marks there are that differentiate the field of public finance
from the field occupied by political economy, but their mention at the
present time is precluded by the necessity of considering the rela-
tion of the science of finance to other fields of investigation that
touch the interests of society. The responsibility of condensing into
a single paper so broad a topic, I am glad to say, rests with the com-
mittee in charge of this programme and not with myself. Among the
sciences that demand consideration are political science, the science
of jurisprudence, and the science of sociology. Each will receive
brief consideration.

SCIENCE OF FINANCE AND ALLIED SCIENCES 183

Relation to Political Science

It is sufficient for our present purpose to know that political science
deals with the formal and administrative activities of political or-
ganization. It not unfrequently assumes the form of history, but
its history is limited by the purpose of understanding administrative
forms and of criticising administrative methods. The proximate
motive to which judgment is submitted is the same for political
science as for the science of finance. Both acknowledge public
welfare rather than personal advantage as the appropriate test of
all conclusions. It cannot, however, be claimed on this account
that political science includes a consideration of financial problems
or the search for financial principles. The distinction between the
two fields of investigation is more than a matter of convenience;
it touches the fundamental character of the two sciences.

There was a time when the science of finance might properly have
been regarded as a branch of, or chapter in, political science, but
this is no longer the case. With the recognition of voluntary asso-
ciation as a means of correlating social activities, the financier has
been obliged to pay closer attention to the business conditions of
private agencies than to the business management of public properties.
This is true because he is now obliged to rely rather upon taxation
as a source of revenue than upon the possession of public property
productively employed. Nor can it be said that the modern tend-
ency of giving to the state the exclusive proprietorship over certain
profit-bearing securities tends to relieve* the financier from the
necessity of administering such industries with a view to the endur-
ing prosperity of private industrial enterprise. Voluntary industrial
association is an established institution and the administration of
coercive association within the domain of industry, that is to say,
the nationalization of public-service industries, must be guided, if not
absolutely controlled, by what is required for the perpetuation and
success of private enterprises. This means that Kameralwissen-
schaf t, by some regarded as the forerunner of the science of finance,
and which might, perhaps, have been properly claimed as a branch
of the political science of its day, has passed, never to return. It dis-
appeared with the rise of the institution of private property, and in
its place there has appeared the independent and self-consistent
science of finance.

At what point, then, do these two fields of investigation touch,
and what is the nature of the influence that passes from the one to
the other? I shall answer this question from the point of view of
finance only.

There are two important lines of influence that political science
exercises upon the science of finance, the one formal, the other funda-

184 PUBLIC FINANCE

»

mental in character; the one having to do with procedure, so far as
financial legislation and administration are concerned, the other
relating to the source from which the financier may hope successfully
to obtain revenue.

The question is sometimes asked why the science of finance should
include a consideration of budgetary legislation and a chapter upon
financial administration, and it is indeed a difficult question to answer.
A casual survey of the literature, however, makes it evident that
these topics are included along with the topics 'of taxation, public
industries, and public credit, by the financial writers of all nations.
The explanation of this is, perhaps, found in the fact that the science
of finance is primarily a practical science. It has assumed its modern
form very largely as the result of the actual problems presented to
the practical financier. The financier is the only public official who,
by virtue of his office, is interested in holding legislative appropria-
tions within reasonable bounds. The painful experience of Albert
Gallatin, the greatest of American financiers, is ample proof of this
assertion. It is natural, therefore, that the financier should empha-
size, with all the power at his command, those rules and maxims of
legislative procedure which tend to the control of expenditures and
which demand from the legislative body due consideration of all
appropriations. Whoever feels responsible for public expenditure
must, from the very nature of the case, assume a responsibility for
the form in which those expenditures are determined and for the
mannsr in which grants of monsy are expended. Now the science of
finance, as already stated, consists in an analysis and classification
of those principles of conduct that the financier Ends it expedient to
put into practice. It is, therefore, inevitable that the publicist who
undertakes to write a comprehensive treatise upon financial pro-
blems should devote considerable space to budgetary legislation and
financial administration.

This brings us to the question with which we started, namely:
What is the formal relation that exists between political science and
the science of finance? So far as budgets are concerned, this relation
is found in the fact that there is no legislative machinery of which
the financier can avail himself to check excessive expenditures ex-
cept such as is provided by political science. The form of govern-
ment, the relative power of the legislative and executive branches
of government, the nature and extent of public responsibility, and
all other similar facts relative to political organization, are given
factors for the science of finance; but for political science they are
the material of investigation and the objects of explanation. Such,
as it appears to me, is the 'formal relation between these two fields
of investigation.

The vital relation to which reference has been made is much the

SCIENCE OF FINANCE AND ALLIED SCIENCES 185

same in kind as the formal relation just explained. The financier
is not at liberty to choose the sources from which public income is
drawn in an arbitrary manner. He is obliged, as he hopes for suc-
cess, to adjust fiscal machinery to existing industrial, social, and
political conditions. The amount of income required by the gov-
ernment raises a question which pertains primarily, if not exclusively,
to political science. It is true that many writers within the field of
financial investigation enter upon the discussion of the legitimate
sphere of government as bearing upon the question of reasonable
expenditure, but in so doing they encroach upon the domain of
political science. It is for political economy to discuss the problem
of governmental function from the point of view of industry and for
political science to consider it from the point of view of the state;
the science of finance should content itself with a consideration of
the proper adjustment of fiscal machinary, in view of established
industrial and political conditions. It is thus evident that, from
the point of view of public expenditures, political science has a very
direct bearing upon the science of finance.

Relation to the Science of Jurisprudence

Closely allied to the science of finance is the science which deals
with the fundamental rights and duties of persons and of property
in organized society. The relation between these two branches of
classified knowledge is clear because it is a relation that exists in
the nature of the case. As political science outlines the financial
programme, so far as the source of public revenue and the organization
of public industry are concerned, so juridical science places a limit
to the extent to which that programme may be carried when the ques-
tion of the amount of income to be drawn from one source as com-
pared with other sources is being discussed, and when the principles
that control the administration of public industries are under con-
sideration. There is not a state in the American Union that does
not in its constitution give expression to the principle that taxes must
be equal and universal. Such exemptions from the duty of paying
taxes as exist are clearly expressed and rest upon considerations of
general policy. Such specific taxes as are allowed also are explicitly
named and find their justification in the quasi-public character of
the property affected. In other countries than the United States,
also, where wrritten constitutions exist, the same legal conditions
relative to the exercise of the taxing power may be observed, nor is
the situation different in countries where fundamental law consists
in established custom. The foundation of the science of finance is
jurisprudence, a statement that is equally true of all the practical
sciences that analyze human society in order to learn how it should

186 PUBLIC FINANCE

be administered, and the success of whose administration depends
upon the accuracy of their analysis.

So important is this relation in the characterization of the science
of finance that an illustration may not be out of place. The illus-
tration I have chosen is pertinent to a current problem, for it shows
how hesitation on the part of jurisprudence to recognize a manifest
tendency of the time acts as a hindrance to the further development
of the science of finance.

The philosophy of human relations may be expressed in the form
of rights to which responsibilities are attached, or in the form of
duties that carry with them certain privileges, and society at any
time takes its color, if not its character, from the degree of emphasis
which jurisprudence in practice places upon the one or the other
of these two ways of expressing fundamental law. At present we
find ourselves at a point in the world's history when the theory of
personal rights is paramount, but when, also, the results that are
observed to follow from the extreme application of this theory are
forcing men to consider whether or not property and privilege
should not be a little more heavily weighted with responsibility and
duty. This observation is not submitted with a view to its dis-
cussion, but as preparatory to an illustration of the curb that is
put upon the development of finance by the disinclination of juris-
prudence to consider the consequent as well as the precedent.

The theory of property in harmony with the philosophy of per-
sonal rights and restricted governmental functions is well expressed
by Thiers when he says [in effect] that a man owns what he makes,
and that being its owner he can dispose of it as he sees fit. Upon
this assumption respecting the nature of property which may, per-
haps, be conceded when confined to primitive industry, the financier
has built the general property tax, as it is known to the nineteenth
century. This tax may be defined as a tax that accepts value as
a homogeneous element in property and which imposes a uniform
rate on property irrespective of the amount of property held. No
matter what injustice may result from the general property tax, it
is unfair to hold the financier responsible. The truth is that no other
form of taxation is possible as long as the science of jurisprudence
asserts the homogeneity of property and distinguishes public
property from private property according as its formal title rests
in the state or in the private person. The political economist, the
financier, and the sociologist have long passed that point in the theo-
retical development of their respective sciences. Thus the econo-
mist acknowledges frankly that quantity, whether it be of goods to
consume or of power in production, is measured by curves of inten-
sity; the financier admits that value varies in its personal as well
as its social significance according to the purpose and method of its

SCIENCE OF FINANCE AND ALLIED SCIENCES 187

use; while the sociologist has finally succeeded in giving vitality
to the conception of organic unity in social relations, from which
he concludes that any line of conduct that rests solely upon personal
or individual considerations will result disastrously for the individual
as well as for the state. But jurisprudence, the oldest as well as the
most dignified of all the sciences that deal with human relations, is
still confined within the narrow limits of the purely personal concep-
tion of private property. Such at least is the impression one re-
ceives when he considers the present condition of the science of
finance, for he observes many suggestions for the readjustment of
fiscal conditions, and for the development of financial institutions,
that must remain unrealized, if not, indeed, unexpressed, until
jurisprudence again becomes a living humanistic • science. The
writings of financiers are replete with condemnations of the general
property tax, but that scheme of imposts will continue to exert its
bansful influence as long as jurisprudence maintains that equity
between individuals demands equal and universal taxation, and
this claim will be maintained as long as the institution of private
propgrty continues to be defined in the language now common in
our courts of law.

This illustration pertains primarily and perhaps exclusively to
conditions as they exist in the United States. We need not consider
'European conditions. What has been said is ample to make clear
the relation that exists between the science of finance and the science
of jurisprudence. It is a vital relation, not only as limiting and
directing the development of fiscal institutions, but in theory also
the relation is vital. Even the nomenclature of finance is largely
supplied by jurisprudence.

Relation to Sociology

It is not, perhaps, necessary to make a formal statement of the
relation of the science of finance to sociology, partly because this
latter science is too new and as yet too indefinite to be in possession
of a well-defined field of investigation and a compact body of
classified information, and partly because the chief service of socio-
logy to the enlargement of human knowledge has been already
referred to, namely, the vitalization of the conception of social unity.
In a sense the science of finance has always made use of this concep-
tion. Considered philosophically, such a conception is inseparable
from financial analysis, while on its administrative side, the science
of finance is obliged to assume the fundamental unity of human
interests. When, however, the financier came to deal with individ-
uals, partnerships, and corporations under the industrial and jurid-
ical conditions of the last half of the nineteenth century, he seems

188 PUBLIC FINANCE

to have lost this sense of social unity, and, as a consequence, much
that he said was confused, and much that he did failed to prosper.
There was need of a new statement of these fundamental, ethical
relations, and it was reserved to that branch of investigation known
as sociology to render this service. Without undertaking to trace
the rise of the science of sociology we must, I think, admit that the
science exists, and that the organic nature of society is its cornerstone.
So far as fundamental ideas are concerned, the science of finance is
in perfect sympathy with the aim, purpose, and the methods of the
science of sociology. It will prove to be of great advantage to stu-
dents of finance, as well as to practical financiers, that their point of
view is thus emphasized by students and workers in yet another
field. No difficulty arises with sociology, but when one comes to
consider the point of view of many who assume the name of socio-
logists and who concern themselves with all kinds and sorts of social
reforms rather than with the investigation of the social structure
and the discovery of social principles, the attitude of the science of
finance is decidedly hostile. This is true because the social reformer
is determined to make use of fiscal machinery for all kinds and sorts
of social ends. It is superfluous to say that such an attitude of
mind fails to appreciate the relative values of social interests. It
seems scarcely pertinent, however, to follow this suggestion further.
The determination of the extent to which fiscal machinery should'
be directed for secondary ends rests on considerations that lie outside
the scop 3 of this paper. It is likely that the practical result of the
relation which at present exists between sociology and the science
of finance is that writers of finance will be forced to a clearer and
more definite expression of those rules and principles according to
which public expenditures are determined and by which the use of
the financial organization of the state is limited.

The relation of the science of finance to history and to statistics
might perhaps be considered under the title given to this paper, but
an analysis of this relation would introduce a point of view quite
foreign to that by which it has thus far been characterized. History
and statistics are methods of investigation rather than domains
of investigation. As methods they are common to all sciences, and
for that reason do not call for special treatment.

Conclusion

The impression left by the foregoing analysis must be that the
organization of our knowledge relative to human relations is neither
arbitrary nor directed by the convenience of the investigator. Each
of the sciences passed in review claims for itself a definite field of
investigation r.nd rests upon a definite and clearly defined purpose

which no writer is at liberty to disregard. It would be as great
a mistake in the domain of research to lay undue stress upon any
one class of considerations, or upon an analysis of society from
any one point of view, as it would be in the domain of administra-
tion, to endeavor to solve all public questions and meet all public
demands by a single agency. There are two thoughts to which
this analysis seems to me to lead. The first is that social sciences
cannot with safety be severed from their practical application; and
the second is that, as liberty of action is found in the balance of
power, so liberty of thought (I mean liberty, not license) is attained
when each investigator in any of the sciences of pertain to human
relations recognizes that what he says is true only as it bears har-
monious relations to that which other investigators may say.

PENDING PROBLEMS IN PUBLIC FINANCE

BY EDWIN ROBERT ANDERSON SELIGMAN

[Edwin Robert Anderson Seligman, McVickar Professor of Political Economy,
Columbia University, b. New York City, April 25, 1861. B.A. Columbia,
1879; Ph.D. ibid. 1884; LL.B. ibid. 1884; LL.D. ibid. 1904; Post-Graduate,
Universities of Berlin, Heidelberg, Geneva, Paris, 1879-82. Lecturer in
Political Economy, Columbia University, 1885-88; Professor of Political
Economy and Finance, ibid. 1891-1904. Former President of the American
Economic Association; American correspondent of British Royal Economic
Society; corresponding member of the Paris Socie"t6 d'Economie Politiqus, and
of the Russian Imperial Academy of Science; President of Society for Ethical
Culture. Author of many books and articles on railway, tariff, taxation, eco-
nomics, and public law.]

IN addressing myself to the task of presenting a survey of the
practical problems of public finance I am naturally confronted by
the difficulty that the actual problems assume a different aspect in
various countries, an aspect largely colored by fluctuating political,
economic, and social conditions. Notwithstanding this diversity,
however, there can be discerned an underlying uniformity in the
modern fiscal development of civilized nations, and it will be my
endeavor to point out some of the different phases of this develop-
ment.

To discuss all the modern problems of finance would be impossible
within the limits of a single paper. Whole groups of subjects mani-
festly must be omitted. The topic of expenditure, for instance,
may be passed over entirely, for the reason that expenditure is chiefly
statesmanship; the fiscal principles here are principles of interpreta-
tion rather than of construction. Again, the subject of public credit
has been so thoroughly elaborated that the scientific problems which
await elucidation are comparatively few and unimportant. The
budget, also, while susceptible of undoubted improvement, espe-
cially in the theory of municipal accounting, is so closely intertwined
with administration that it would be hopeless to attempt in this
place to disentangle it. Finally, in the great domain of public
revenue, the subject of income from government industry is of pre-
dominant economic, rather than fiscal, importance, and may thus
fitly be excluded from our short survey. There thus remains only
the field of taxation, a field broad enough and sufficiently hedged
about by difficulties to warrant a closer examination.

There are three considerations which distinguish the modern
science of finance in the study of tax problems. These are, in order,
the pursuit of justice, the emphasis put upon the modern economic
phenomena, and the insistence upon the conformity with economic
principle. Let us consider each of these in turn.

PENDING PROBLEMS IN PUBLIC FINANCE 191

The first point is well summed up in the alleged conflict between
the fiscal and the social principles of finance. I say alleged conflict,
because in reality there is, from a deeper point of view, no such conflict
at all. It is sometimes asserted that the fiscal object of taxation is
simply to secure revenue, while the social object is to effect some
desirable change in social relations. This antithesis rests upon a
failure to observe that finance, like economics, is a social science,
and that even from the narrow political point of view of the relation
between the government and the citizen, the government cannot
derive any revenue — that is, cannot take any part of the social
income — without inevitably affecting social relations. The fact
that the government has in mind solely the fiscal aim of securing
revenue does not alter the social consequences of the particular
revenue system. In modern times social conditions are influenced
to a large extent by changes in wealth. Every tax necessarily
affects the wealth of individuals, and if we could in all cases trace
the final consequences of even a " purely fiscal " tax, all kinds of
unforeseen results, social as well as fiscal, or perhaps better, social
because fiscal, would disclose themselves. Economics and finance
deal not with intentions, but with results. The function of fiscal
science is to point out to the legislator the necessary results of his
actions.

The distinguishing mark of modern social science is that it en-
deavors to explain not only what is, but also what should be. All
practical action is thus brought to the crucible of justice, and all sys-
tems of taxation are put to the test of conformity with this principle,
irrespective of the intentions of the legislator. The great problem
which still remains, however, is to elucidate the exact nature of this
economic justice. Every one agrees that the essential ingredients of
this scheme are equality, or uniformity, and universality of taxation.
When, however, an attempt is made to interpret them and to outline
the practical form which these principles should take, there is con-
siderable disagreement, because the actual nature of the principles
has not been thoroughly analyzed. It betokens, however, a step
forward in all practical finance that a more or less conscious effort
is everywhere being made to bring the tax system into some manner
of conformity with the principle, however dim its outlines may be.

II

The second point, which differentiates modern taxation from that
of the past, is the emergence of the new economic substratum of
society. These new facts of fiscal importance may be summed up
under the following heads:

192 PUBLIC FINANCE

First, the increasing economic significance of the laboring class,
with the corresponding growth in the importance of popular con-
sumption. It is not meant by this to imply any depreciation of the
role played by capital. On the contrary, it is a platitude to say that
this is preeminently the capitalistic age. What it is intended to
emphasize is that precisely because of the growth of modern economic
well-being, the great mass of the community, represented by the
laborers, are acquiring an increased consuming capacity and that
their demand is the very tap-root of modern progress. The recog-
nition of this fact has brought about vast changes in modern tax
systems.

In the second place we have to note the coming to the fore of the
corporation as the typical form of modern business enterprise. The
evolution from the individual to the early partnership, from the
partnership to the joint-stock company, from the joint-stock company
to the corporation, and from the corporation to the trust is one of
the most instructive lessons in institutional development. Finance
has not to study it, but to accept it. Tax systems framed upon the
assumptions of the older conditions, where corporate activity was
the exception rather than the rule, are manifestly inadequate and
belated.

The third change consists in the growing importance of the pro-
blem of franchises. This is not the same as the corporate problem,
although often confused with it. A franchise may assume many
forms. It may be a patent or copyright in the hands of an individual;
it may be the privilege of inheriting property, whether that privilege
be granted to a single person or a group; it may be a right accorded
to corporations to utilize opportunities which originally belonged to
the community, and which are for sufficient reasons given away.
Such privileges and franchises have indeed existed from of old, but
the complexity of modern society and the immense increase of
public wealth have vastly enhanced both their extent and their
significance. How to analyze them, how to measure them, and how
to fit the result into the system of public revenue is becoming one of
the most subtle and difficult problems, which will, no doubt, long
perplex the trained student as well as the legislator.

The fourth change is the economic revolution affecting the dis-
tribution of governmental authority as between the general and the
local government. The cause of this change, as is well known, is
not only the forging to the front of the interests of peace rather than
of war, but above all, the agglomeration of modern population into
urban centers. With the segregation of wealth and property into
great local masses, there is coming the need of administering to the
wants of such complex aggregates. Accordingly, while the last
century has shown a great increase of national expenditure and

PENDING PROBLEMS IN PUBLIC FINANCE 193

income, there has been a far larger growth in local expenditures and
incomes. And whereas formerly local taxation could be treated as
a relatively unimportant appendage to national taxation, it now
claims a distinct and separate place of its own.

Side by side, however, with this localization of wealth there has
been a counter-movement in the direction of the nationalization of
wealth, in the sense of nationalization in the opportunities of
securing wealth. The economic activities of to-day have far out-
grown the swaddling-clothes of former times. Business enterprise
not only covers the whole country, but encircles the globe. Citizen-
ship in the various commonwealths of a federal state, like Germany,
Australia, Switzerland, or America, has become in great measure
meaningless because its economic basis has been so effectively
weakened. In all federal states, therefore, the problem of taxation
is complicated by the difficulty of correctly apportioning the burdens
among the constituent commonwealths. In every country, federal
or not, a similar difficulty exists as between the local government and
the state government. Problems of double taxation resting upon inter-
state and interlocal complications arise to confront us at every turn.

The fifth and final point is that of modern social solidarity. In
former times the close relation subsisting between the various
branches of productive enterprise in the community was beclouded
by the predominant social and political influence secured by some
one factor. In an economy based upon slavery the only importance
of a slave is that of a working-tool; in an economy based upon the
predominance of the large landowner, the function of the moneyed
and commercial interests is apt to be overlooked. In the early stages
of the factory system, where the mass of the laborers are regarded
from the point of view of production rather than from that of con-
sumption, it is natural that the socialistic conception of class conflict
should emerge. A more careful study, however, of modern indus-
trial society has shown that while indeed there is no such thing as
a natural harmony of interest, there is a distinct and inevitable influ-
ence, sometimes for good, sometimes for evil, exerted by each factor
of production upon the other, and by each social class upon its
neighbor. Laborers and capitalists, landowners and traders, factory
owners and financiers, are pursuing their own interests, and in so
doing they necessarily react upon the interests of the others.

The distinguishing mark of modern economic life in this respect
is the realization of these close economic interrelations. The
machinery of production has become so subtle and so complex that
the disarrangement of any one part throws the whole out of gear.
The overburdening of any one class may have the most unlooked-
for consequences upon another. Taxation, as a weapon of retalia-
tion, often proves to be a boomerang. An undue pressure on a

194 PUBLIC FINANCE

railroad may decrease facilities rather than increase revenue. The
assessment of mortgages may hit the farmer rather than the money-
lender. The taxation of the laborer may limit the market rather
than increase the profits of the capitalist. Whether we desire it or
not, modern economic conditions are engendering a situation where
every one is in a larger sense his brother's keeper and where at all
events it is unsafe to disregard the often hidden and recondite, but
none the less active, influence exerted by each economic class upon
the others.

All these changes in economic life have affected the practical sys-
tem of taxation throughout the world. They have created new
problems for the scientific student. The justification of finance,
however, as a science, rests upon the correlation of fiscal problems
with economic principle. We thus come to the third part of the
discussion, the influence of economic analysis on fiscal facts.

Ill

The first result of economic analysis was to show the errors of a
tax system resting exclusively or in great part upon consumption.
The theory of consumption as the test of faculty or ability to pay
was promulgated in the later middle ages by reformers who despaired
of reaching the privileged class in any other way. Every man, it
was said, must consume, and the more idle a man is, the more luxuries
will he consume. A consumption tax thus seemed to be the sole
method of securing universality of taxation. To these considera-
tions there was added the thought on the part of some that so far
as the working-classes were concerned, taxes on the necessities of
life would be admirable, in that they would compel the laborers to
work harder.

In opposition to this view, a more careful economic analysis dis-
closed the fact that a tax on consumption, regarded as a universal
system, was unwise and unjust — unwise because a tax on mere
luxuries would be most disappointing in the yield; unjust because
a tax on necessities would fall with crushing severity on those classes
which could least afford to bear the burden. Above all, it was
recognized that by checking consumption we were thereby checking
production, and that a general tax on consumption would possess
most of the disadvantages of a tax on production and few of its
advantages. Consumption taxes, therefore, as a sole or chief reliance
of the government, have been fast disappearing. One of the first
acts of the American Government in Cuba and the Philippines was
to abolish the consumo tax; and it is well recognized that the con-
tinuance of the municipal octroi in France and Italy is deplored by
all serious students.

PENDING PROBLEMS IN PUBLIC FINANCE 195

The next triumph of economic theory was to disclose the dangers
of a system of taxation resting on production and exchange. In
one sense indeed every tax that is not a tax on consumption may be
regarded as a tax on production, for all wealth consists either of
producers' goods or of consumers' goods. It would, therefore, seem
to be impossible to avoid the imposition of taxes on production. In
the sense in which the term has usually been employed, however,
a tax on production has denoted a tax imposed directly, and at a
late stage, on the process of completing the finished article. Re-
garded in this light, such taxes manifestly impede the process of
production and are to be deprecated because they affect the able
and the shiftless producer alike. Taxes on production often put a
premium on inefficiency and are apt to clog the wheel of industrial
progress. The tendency of modern statesmanship has accordingly
been away from reliance on such methods.

Perhaps the greatest change in fiscal theory during the nineteenth
century has been, thirdly, to analyze and to explain the need of
taxing shares in distribution rather than consumption or production.
A vast amount of ingenuity has been expended upon the attempt
to disclose the real meaning of faculty or ability to pay as measured
by the property or the income of the individual. When we come to
consider the facts, however, there are two striking considerations
that confront us. The first is the pitifully small proportion that the
income tax bears to the total revenue. In France, for instance,
there is no income tax at all, and even in England and Germany the
proceeds of the income tax are utterly insignificant when compared
to the total revenue, state or local. The scientists may discuss and
do discuss the problems of progression and differentiation of taxation,
and all of the discussions rest on the assumption that the burdens
upon the individual must be in a certain proportion to this income;
yet we find as an actual fact that only a most beggarly proportion
of the taxes in the civilized countries of to-day stand in any direct
relation to the income of the taxpayer.

Not alone do the income taxes form so small a part of the whole,
but furthermore, in most countries the so-called income taxes are
really not income taxes at all in the sense of taxes on the personal
income of the individual. In England, for example, it is well known
that the so-called income tax is merely a collection of taxes on the
thing which yields the income rather than on the person who receives
it. That is, it is a collection of taxes on produce and not on income.
The only exception is the famous schedule " D," which is notoriously
the least successful of all. It may be claimed indeed that in Prussia
the income tax is really what it purports to be, but all who have
made a study of the system know that when similar methods were
employed in England at the beginning of the nineteenth century,

196 PUBLIC FINANCE

they proved to be a dismal failure. The English administrators
consider the principle of their tax far superior to that of the Prussian;
and to the extent that this contention is justified, the superiority
rests upon the fact that the tax is not one on personal income. Even
in Prussia itself, the home of efficient bureaucracy, the tax is some-
times called the Lug und Trug System. The same repugnance to
the personal element in the income tax which is found in England
explains why it has been impossible to introduce the system int9
France, with its still lively recollection of the abuses of personal taxa-
tion under the ancien regime, and explains also why the income tax
is beyond the range of practical politics in the United States.

We thus find the remarkable fact that while the science of finance
has been elaborating its fundamental principles, it has succeeded in
some respects, but has failed in others in imprinting its conclusions
upon legislation. It has brought the actual taxes on consumption
and production, to a great extent, into line with its conclusions, but
it has spent most of its time during the nineteenth century in working
out the principles of an income taxation, which is either not accepted
in legislation, or which, if accepted, is realized to so small an extent
and in such a half-hearted way as to be on the whole of little conse-
quence.

The conclusion is hence forced upon us that the fiscal analysis has
not proceeded sufficiently far. We are indeed grateful for what
has been accomplished, but we have evidently not yet reached the
goal. We need, therefore, a fourth and final economic principle to
help us thread our way through the maze of actual fiscal facts.

This fourth principle is that of the social versus the individual
basis of taxation. The conception which has dominated fiscal sci-
ence until lately is the individual conception. Direct taxes have in
theory been preferred to indirect taxes, because they were supposed
to rest where they were imposed, and thus to help in securing justice
as between individuals. The goal of all taxation was the attain-
ment of a method in harmony with individual faculty. The first
serious breach in this doctrine was made by the diffusion theory of
taxation. The diffusion theory erred, indeed, in that it went too far,
attempting to show that every tax is always and inevitably shifted
off from the shoulders of the original payer. The value of the dif-
fusion theory, however, consists in the fact that it put the problem
in the right way, by presenting the societary aspects of taxation.

Nevertheless, the diffusion theory made the situation too simple.
It has quite correctly been termed superficial and one-sided. To
make it at all serviceable, it needs to be supplemented by another
theory, w,hich I have taken the liberty of calling the absorption
theory of taxation. The absorption theory rests upon the doctrine
of capitalization. That is to say, where the tax is not shifted from

PENDING PROBLEMS IN PUBLIC FINANCE 197

the seller to the buyer and where the economic good has a rental
value as well as a capital value, the tax which remains on the com-
modity and which, therefore, to that extent diminishes the income
to be derived from it, i. e., its rental value, must also proportionally
diminish its capital value. The selling or capital value of anything
is always the capitalization of the actual and prospective rental or
income value. As a consequence, through this familiar principle
of capitalization the new purchaser of the commodity will buy it at
the reduced price, and will thus virtually buy himself free from
taxation. The tax is discounted, or absorbed, in the new and lower
price.

A new tax on city real estate, for instance, will either be diffused
by increasing the rents of the tenants, or it will be absorbed in the sense
that when the property changes hands the new purchaser will pay
a price reduced by the capitalization of the tax.

The combination of the diffusion and the absorption theories of
taxation explains several things. It explains why the theoretic
distinction between direct and indirect taxes based upon the alleged
facts of incidence is erroneous. It explains why in spite of this
theory the great mass- of revenue to-day continues to be raised in the
shape of indirect taxes. It explains why in countries like the United
States the state and local taxes, although still in principle levied on
persons, are slowly coming to be imposed on things rather than on
persons; it explains why in France personal taxes have been impos-
sible since the Revolution; it explains why in England, with the
exception of a single schedule of a single tax, the whole system of
taxation is based on things and not on persons; it explains why,
even in Germany, where the personal and individual elements of the
problem have been emphasized in theory, the personal share in
actual taxation is so very insignificant; it explains, finally, why the
legal decisions on taxation in the United States are coming to be
in harmony with the truer economic doctrine of universality and
equality of taxation. For this does not mean that everybody must
be taxed alike, but only that all the members of a given class must
be taxed alike, while there may be the greatest diversity between
classes. An equal tax on all corporations does not imply that each
individual stock- or bond-holder who may have bought after the tax
was imposed pays equally, just as little as an equal tax upon real
estate implies that each individual land- or house-owner everywhere
and necessarily bears the burden of the tax.

In short, the individual point of view in taxation, which assumes
that justice can be done by assessing each individual directly and in
first instance, rests upon an analysis suited only to primitive economic
conditions. The social point of view is that of modern economics,
which seeks to trace the workings of general economic law and to

198 PUBLIC FINANCE

study the forces which affect the distribution of the social income.
The individual point of view is not only inadequate in itself, but
fails to explain the development of modern taxation. The social
point of view, resting upon a combination of the absorption and
diffusion theories, is alone in harmony with the facts of fiscal life.
It is safe to predict that when once this is accepted, the most fruitful
work of the future in the science of finance will consist in the elabora-
tion in detail of the conditions and the limits of the absorption and
diffusion theories.

IV .

Regarded from this point of view, a new light is thrown on the
practical problems throughout the world. The most important of
these pressing problems are as follows : First, the reform of so-called
indirect taxation. The social consequences of indirect taxation are
now recognized to an ever-increasing extent. So far as taxes on con-
sumption are concerned, it is fairly well appreciated that the com-
modity taxed must possess the mingled qualities of a necessity and
a luxury; if it possess only the characteristics of a luxury the revenue
will be insignificant; if it possess only the qualities of a necessity,
it will fall with undue severity on the modest consumer; if, however,
it combines both characteristics, namely, that of wide use and at
the same time that of a certain degree of dispensability, the revenue
is apt to be large and -elastic and the burden not too severe. The
number of consumable commodities that unite both these charac-
teristics is small, and hence we find everywhere throughout the
civilized world the tendency to restrict taxes on consumption to
very few but very lucrative articles.

In the second place we find well-nigh everywhere the abandonment
of the old general property tax regarded as a personal impost. In
England and Germany it disappeared during the eighteenth century;
in France it was abolished by the Revolution; in America, where the
economic conditions brought it into life during the eighteenth century
and the early part of the nineteenth, it is beginning to break up
in those sections where the agricultural economy is giving way to
a commercial and industrial economy.

Thirdly, we notice everywhere the replacing of the general property
tax by taxes on the thing rather than on the person. In the local
tax on real estate this process has been carried almost to completion.
In Europe, for instance, the taxes levied on the land and on the house
are assessed irrespective of the owner or of the relations that may
be entered into between owner and tenant. Everywhere in Europe
the tax is a tax on the produce of the land or house — that is, upon
what it yields in the shape of rent or of profits equivalent to rent. In
some countries, as in England, the tax is not paid by the owner at

PENDING PROBLEMS IN PUBLIC FINANCE 199

all, but by the occupier. Even in the United States the tax is
assessed on the parcel of real estate and not on the individual who
owns it. Whether the owner or some one else pays the tax is imma-
terial, and if the tax is not paid, no regard is paid to the owner and
the land itself is sold. We could get scarcely further away from the
old idea of individual taxation. The tax is a tax on the thing and
not on the person.

In the other so-called direct taxes, a similar development is to be
observed. The business taxes in Europe are levied upon the business
as such and not upon the owner of the business. The inheritance
tax is levied upon the inheritance and not upon the individual who
receives the inheritance. The general land tax in England — the
last vestige of the medieval general property tax upon individuals —
has actually become a redeemable rent charge. Even the income
tax, which in theory is assuredly personal, has, as we have already
stated, almost completely lost its individual character and has become
in great measure, a tax upon the thing affording the income rather
than upon the person receiving the income. In the United States
the so-called personal tax, that is, the tax on individuals according
to their personal property, is fast becoming a farce in all the older
centers. It is especially noteworthy that in the one place where a
recent intelligent effort has been made to reform the personal property
tax — the city of Chicago — it is becoming in effect a tax upon the
thing rather than upon the person, and is being limited to the business
capital, assessed upon groups or classes of business men rather than
upon the individuals composing the classes. The problem is really
a deeper one than the German scientists have usually recognized.
It is not so much a conflict between a tax upon produce and a tax
upon income as it is a conflict between the social and the individual
bases of taxation.

In the fourth place, we find everywhere an increasing importance
attached to corporations as the source of revenue. In Europe this
process is somewhat concealed because of the inclusion of the revenue
from corporations in the income tax, just as in many of the younger
American commonwealths the revenues figure in the general property
tax. In the older states corporation taxes are put into a separate
category, and in some states, as in New York, they are even called
indirect taxes in contradistinction to the direct or property taxes.
Everywhere, however, they form a problem of increasing importance
and present an admirable example of what is meant by taxation from
a social rather than from an individual point of view. Taxation of
the corporation does not mean taxation of the security holder who
has purchased the stock or bond from the original holder.

The main outlines of the development of the immediate future,
throughout the world, are thus fairly clear. Each country will con-

200 PUBLIC FINANCE

tinue to have its particular problems based upon its special economic
und political needs. Everywhere there will continue to be an attempt
to realize the principle of fiscal justice, interpreting it, however, more
and more from the point of view of social interrelations rather than
from that of individual conditions. The statesmen and scientists
alike will find the great difficulty of the future to consist in attaining
this due proportion between the undoubted needs of the individual
and the consequences of his participation in the social group. For
we must not forget that while it is necessary to regard the ultimate
results of all fiscal policies, the immediate results are often of primary
practical importance. The conflict between immediate and ultimate
results is another way of putting the contrast between the individual
and social aspects of finance. To realize the truth contained in the
latter, without disregarding the legitimate importance of the former,
is the problem reserved for the coming decades.

SECTION F — INSURANCE

SECTION F- INSURANCE

(Hall 10, September 21, 3 p. ra.)

CHAIRMAN: DR. EMORY MCCLINTOCK, Actuary, Mutual Life Insurance Company,

New York.
SPEAKERS: MR. FREDERICK L. HOFFMAN, Statistician, Prudential Insurance

Company, Newark, N. J.
PROFESSOR BALTHASAR H. MEYER, University of Wisconsin.

IN opening the Section of Insurance the Chairman, Dr. Emory
McClintock, of New York City, spoke as follows:

" Our old proverbs embody and represent the experience and
wisdom of many generations. One of them wrarns us not to put all
our eggs in one basket. When this idea is carried out logically, it
really means that we should not put more eggs in one basket than we
can afford to lose in case of a smash. Insurance is a development
of civilization which was not known to those wise forefathers who
invented these proverbs of ours, and insurance has made this par-
ticular proverb, excellent as it is, practically obsolete. The object
and effect of insurance is to enable us to put as many eggs as we
please in one basket. This is accomplished by an agreement or
arrangement, by means of which, whenever one lot of eggs gets broken,
the loss is distributed among many owners of other lots. By means
of insurance you can safely invest your whole fortune in one ship,
or in one building, or in one mortgage; you can devote all your land
to a single crop which may be destroyed by hail in half an hour; you
can send all your gold across the country in one conveyance; you
can leave your whole property in a house unguarded, or in the charge
of an employee unwatched; and you can, if need be, live upon and
enjoy the use of the bulk of your earnings without anxiety, provided
you apply the remainder in such a way as to protect your dependents
in case of your death and to secure an income for your own old age.

" There are few corporations, and still fewer individuals, who
have absolutely no occasion for insurance. Indeed, insurance is
sometimes expedient even in cases where there is little or no logical
reason for it. I confess I should be puzzled if Mr. Carnegie were to
ask me why he should insure his life; but there are few business men
who, like him, have wound up their affairs while living, and whose
executors would, therefore, have no use for life insurance money
instantly available upon their death. There are corporations which
have their eggs in so many baskets as to enable them mathematically
to carry their own risk partly or wholly, yet which carry insurance
rather than incur reproach by going without it. There are great

204 INSURANCE

states which insure their public buildings against fire, and of course
they do it without real necessity; yet public opinion customarily
upholds them in this course, the habit of insurance being so univer-
sal, and when the practice is questioned, the answer is ready that
the annual payment of regular premiums works more smoothly than
the making up of large fire losses at irregular intervals. Take, for
instance, the recent burning of the state capitol of Wisconsin. The
capitol building had been insured according to custom, but the legis-
lature thought it best to save for the state the profits which the
insurance stockholders were making, and ordered the discontinuance
of the fire policies. Soon afterwards the capitol burned down, no
doubt to the chagrin of the legislators and the wicked joy of 'the
insurance men. Yet the legislature had mathematics on its side
when it stopped the insurance, for the fire losses of a great state like
Wisconsin, in case they are large enough to increase any one year's
taxes unpleasantly, can be defrayed in annual installments by means
of temporary loans, and still cost less in the long run than the pay-
ment of regular premiums. However logical its course was, public
opinion condemned it. If, indeed, it is true that the legislature
arranged for the accumulation of an unnecessary insurance fund by
appropriating annual premiums to be invested at interest in the
name of the state, its course in that respect was deficient in common
sense.

" It is unnecessary, before those who are here present, to dwell on
the economic benefits of insurance. As a mere matter of dollars and
cents insurance is worth all that it costs to those who need it. Those
who preside at the various congresses this week are expected to
make very brief addresses in opening the proceedings, and I shall
confine what I have to say to a single point. The dollar and cent
value of insurance is by no means its whole value. Insurance relieves
anxiety. It does away with many fears.

' That insurance relieves men of anxiety is well known; so well
known, indeed, that we seldom think of it. It would be hardly cor-
rect to put it the other way, and to say that anxiety is in these days
relieved by insurance, for there is in fact no such anxiety to relieve,
since the universal habit of insurance acts beforehand by preventing
the possibility of the fears and anxieties which would be severely
felt if there were no insurance, fears and anxieties of which we can
scarcely realize the magnitude.

"Marine insurance was known in early times, but was not always
to be had, and even when available was not always taken, for the
system was crude and expensive. In those days the owner of a
number of vessels was much better off than the owner of one vessel,
because his eggs were not all in one basket. The merchant adven-
turers who fitted out ships and supplied them with cargo were, of

CHAIRMAN'S OPENING ADDRESS 205

course, prudent in their day, but the circumstances were such that
they could not help making frequent and large losses, with corre-
spondingly large gains when successful. They were enterprising
speculators, and were never free from the anxiety which besets
speculation. The gambler in stocks lives in an exciting and unnat-
ural atmosphere of hopes and fears, but he can escape from it by
closing his accounts. The merchant adventurer of old times lived
constantly in such an atmosphere.

" Again, we may remind ourselves of the fear of fire which for
many centuries oppressed the minds of all whose savings or inherit-
ances consisted in houses or merchandise. In those old days cities
like London were built of wood, small fires happened frequently,
and conflagrations occurred at irregular intervals which were never
many years apart. Householders covered their fires at night with
the greatest care, and sprang from their beds whenever the cry of
fire arose. The fire danger was always imminent, and always a
matter of anxious fear.

" Those of us who are old enough can remember the days when
the greatest necessity for saving oppressed the young man with a
growing family during those very years when he needed most to live
almost up to his small but increasing annual earnings. The more
prudent such a young man was, and the more he cared for his wife
and children, the more he felt the burdensome necessity of saving,
and saving heavily, so as to leave at least a little for their support
in case of his early death. Notwithstanding everything that he
could do in the way of frugality, with his wife doing the housework
and his children going barefoot, his savings before middle life were
indeed small as compared with the needs which he was struggling to
provide for in case of his death. Insurance has rid the world of
the worst of those fears. Frugality is still necessary, but the burden
of it no longer comes heaviest in a man's younger days, when his
earnings are usually least and his necessary expenses usually greatest.

" By substantially banishing a whole class of fears insurance has
prolonged men's lives and made men happier and more useful. It
is one of those agencies of civilization which have in various respects
tended to reduce the element 'of fear in human affairs. Just as we
have almost ceased to think of the various kinds of fear from which
insurance has relieved mankind, we find it hard to realize all those
other fears which have dwindled as a result of civilization. Every
kind of danger which has been reduced by modern progress was
formerly a source of acute fear. Our early ancestors were in con-
stant fear of wild beasts, of bad neighbors, and of open enemies,
passing their days with arms in their hands and their nights with
some one on the watch. They feared uprisings of their inferiors,
and they feared the tyranny of their superiors. They feared pain,

206 - INSURANCE

which as a persistent thing has been almost banished by science.
They feared the terrors of the law, human and divine, to an extent
not customary with the present generation.

" This element of fear, affecting human society in old days as we
can now hardly realize, has been of enormous value to the race, to
look for a moment at the other side of the question. Without fear,
there wrould have been no caution, no prudence, no leadership, no
discipline, no laws, no social order, no patriotism; in short, no organ-
ization of mankind, if indeed mankind could exist at all without it.
It would seem impossible to look back without recognizing fear as one
of the most powerful forces which have affected the minds of men
and the progress of the race. Punishment of unwise acts by natural
law, punishment of criminal acts by the law of society, both have
assisted progress to an extent which we can hardly exaggerate.
Yet we sometimes hear the theory advanced that the fear of punish-
ment cannot deter any one from crime, and that society has, there-
fore, no right to punish criminals.

" In speaking thus of the useful fears which have benefited man-
kind, I may have seemed to be getting away from the subject of
insurance. It cannot, however, have been useless for us, during
a few minutes, to recall the enormous effects which fears of all kinds
have produced in the past upon the human mind, whether these
fears have been useful or injurious. It is a happy thought for us
that those fears which have been dissipated by insurance have all
belonged to that noxious class which paralyze human energies and
shorten human life."

LIFE INSURANCE AS A SCIENCE

BY FREDERICK L. HOFFMAN

[Frederick L. Hoffman, Statistician, Prudential Insurance Company of America,
b. Varel, Grand Duchy of Oldenburg, Germany, May 2, 1865. Lecturer on
Insurance, University of Wisconsin and Wharton School of Finance, Univer-
sity of Pennsylvania. Member of American Statistical Association; American
Academy of Political and Social Science; National Geographic Association;
International Congress of Tuberculosis, London, 1901 ; International Congress
of Actuaries, New York, 1903, etc. Author of Race Traits and Tendencies of
the American Negro, New York, 1896; History of the Prudential Insurance
Company of America, Newark, New Jersey, 1900 ; Tornadoes and Windstorm
Insurance, 3d Edition, Spectator Company, New York, 1901; also of a large
number of papers and public addresses on insurance, statistics, mortality, social
problems, etc. Contributor to the Encyclopedia Americana, article, " Insurance
Science and Economics."]

FOR the first time insurance is included in an authoritative classi-
fication of the sciences and properly so as a branch of the department
of economics, which, broadly defined, is " the science of the relation
between private property and public wealth." The honor of having
been the first to assign a definite place to insurance in the science of
economics appears to belong to Mr. Henry Dunning Macleod, whose
conception of economics comprehends first, material things; second,
personal qualities, both in the form of labor and credit; and third,
annuities. Most of the works on political economy and social science
are barren of references to the third department which, for want of
a better term, Macleod defines as annuities, or " the right to receive
a series of future payments." Such rights he terms " negative eco-
nomic quantities," comprehending all mercantile and banking credits,
checks, bills of exchange, terminable annuities, leaseholds, policies
of insurance of different kinds, and many other valuable rights,
amounting in value to thousands of millions of dollars, of which
there is scarcely any notice in the text-books on economics." He very
properly remarks that by introducing this class of incorporeal pro-
perty, he has doubled the field of economics.

To establish the relation of the science of insurance to the other
great divisions of accurate and systematized human knowledge is
the purpose of this address, and the more definitely this relation is
established, the more clearly we shall comprehend the true nature,
possibilities, and results of insurance as a vast and indispensable social
institution of to-day.

Insurance, reduced to its simplest term, means the application
of the principle of association to the equalization of losses resulting
from the inherent uncertainty in human affairs. This is the risk of

208 INSURANCE

untimely death, of fire, shipwreck, burglary, windstorms, floods, and
many other contingencies outside of the control of man. The uncer-
tainty of human life is modified by social progress, in particular by
the advances in medicine and related sciences, but there must always
remain the risk of premature death, which insurance alone can equal-
ize through the principle of association. In the classic language of
the first Select Committee on Friendly Societies, in 1825, this means
that " wherever there is a contingency, the cheapest way of provid-
ing against it is by uniting with others; so that each man may sub-
ject himself to a small deprivation in order that no man may be
subjected to a great loss. He upon whom the contingency falls does
not get his money back again, nor does he get for it any visible or
tangible benefit, but he obtains security against ruin, and consequent
peace of mind."

The theory of risk and insurance has been elaborated and set forth
by Mr. Allan H. Willett in a most instructive dissertation published
by Columbia University in 1901. He holds, and very properly so,
that as a general rule uncertainty exercises a repellent influence in
human life and that the existence of risk in an approximate static
state causes an economic loss, while, on the other hand, the assump-
tion of risk is a source of gain to society. From this point of view
the business of insurance does not differ essentially from general
commercial enterprises. Risk is assumed in mining and agriculture
in much the same manner as risk is assumed in the business of in-
surance, but in life insurance, for illustration, the assumption of a
risk and the equivalent premium payments required are determined
by the theory of probability and the established laws of human
mortality and observed experience. In general commercial enter-
prise the risk assumed is, as a rule, created, while in insurance the
risk assumed is preexisting. This marks the broad division between
gambling and insurance. Insurance is not " in the nature of a bet,"
for in insurance an effort is made to eliminate an existing risk by its
assumption on the part of the many, while in gambling a non-exist-
ing risk is created with resulting uncertainty and needless loss to
society.

The gain resulting to society is the reduction of the uncertainty
for the group as a whole, or the substitution of certain loss for un-
certain loss. By this process of diminishing the degree of uncer-
tainty, the cost of the risk to society is very largely and considerably
reduced, if not entirely eliminated, and thus it follows in the words
of Willett that " the risk an insurance company carries is far less
than the sum of the risks of the insured, and that as the size of the
company increases, the disproportion becomes greater ; " or, to use
a definition of Roscher: "The aggregate danger is less than the sum
of the individual dangers, for the risk of it is more certain, and uncer-

LIFE INSURANCE AS A SCIENCE 209

tainty itself is an element of danger." It is of the utmost importance
that this point should be thoroughly realized by the statesman and
the general public, so that from individual appreciation of insurance
as a beneficent social institution may evolve the national apprecia-
tion of insurance as an institution making for the security of society
and the well-being and effective protection of its members against the
uncertainties of human life.

At the outset we must consider the relation of insurance to ethics,
for unless the business of insurance has the sanction of private and
public morality it would be to no purpose to discuss its social and
economic importance. One of the earliest objections to life insur-
ance was the view of its being a form of gambling and that to in-
sure one's life was not quite in harmony with religious duty. Even
to-day a religious sect called the Dunkards object to life insurance
on the ground that it has not biblical sanction, or at least, is not
specifically enjoined as a duty by biblical authority. Few things,
however, it would seem, are more readily susceptible of proof than
that insurance must of necessity be included in the moral forces
which make for the betterment of mankind, and especially for the
gradual amelioration of the condition of the poor. Life insurance
in particular appeals to man's moral sentiments, making for the
protection and support of others at the cost of self-sacrifice and self-
denial. So well has this been realized that almost from its earliest
history we hea • of the duty of insurance, until to-day this sentiment
has become subconscious and a part of the conscience of civilized
man, practically the same under conditions of poverty as under
conditions of material well-being.

Much injury has been done to the cause of insurance by the un-
fortunate and unwarranted assumption that there is a fundamental
identity between insurance and gambling. There is this much truth
in the assumption, that the fundamental laws of chance and prob-
ability have at times and with great skill been applied to efforts at
systematic gambling, but speaking generally, without much success.
Gambling, lotteries, and kindred attempts to gain by the losses o~f
others are intrinsically immoral in their results, while life insurance is
intrinsically moral .as a method and means for the advancement of
mankind. Insurance advances progress, while gambling retards it.
This fact is well brought out by Dymond in his Essays on Morality,
and is indorsed by Wayland in his Elements of Moral Science. Dymond
remarks, with particular reference to the duty of insurance against
fire, that " the merchant who conducts his business partly or wholly
with borrowed capital is not honest if he endangers the loss of an
amount of property which, if lost, would disable him from paying his
debts." To guard against this possible loss he holds that it would be
unjust under such circumstances not to insure, for the majority of

210 INSURANCE

uninsured traders, if their houses and goods were burned, would be
unable to pay their creditors. The injustice, in his opinion, consists
in the taking of needless or unnecessary risk. Had life insurance in
1836, when this was written, been developed to the present extent
of a universal provident institution, the Quaker moralist would,
without question, have enjoined with even greater emphasis the duty
of insurance protection for widows and orphans and self-protection
against want in old age.

The second great division of science in the classification adopted
by this Congress is mathematics, itself the foundation stone of insur-
ance theory and development. Without mathematics life insurance
could not be thought of as a science, nor could its progress long con-
tinue without the application of mathematical checks to intricate
processes, the real nature of which can only be explained by mathe-
matical researches. It has, in fact, been common usage for many
years to speak of the work of the actuary as actuarial science, and
the training of the actuary and the required quality of his judgment
is very largely mathematical. It is a primary necessity if he is to
possess the ability to master the more subtle problems of insurance
theory. It is, however, with much justice that Young and other
writers hold that " every problem in life insurance administration —
the scope of investments, the ratio of expenditure, and the amount
of new business which will probably produce a favorable or disad-
vantageous effect upon profits — possesses an actuarial aspect of
definite significance, and demands the application of professional
knowledge and experience." But primarily the work of the actuary
is concerned with the mathematical and fundamental nature of life
insurance as determined by the laws of human mortality and ex-
pectancy, upon which the vast business rests with absolute certainty
for the ultimate fulfillment of contract obligations. Some of the
greatest names in mathematical science and astronomy are those of
men who have rendered signal service to the cause of insurance.
From Fermat and Pascal, Newton and Leibnitz, Bernoulli and De
Moivre, Laplace and Que"telet, we have a long list of mathematical
philosophers extending to the present time, whose work has made
possible the development of the science of life contingencies. It is
upon the science of mathematics that the science of insurance rests,
and it is the actuary who applies abstract mathematical principles
to the solution of practical problems of business administration.
Hence the actuary must be more than a mathematician, and the
tendency of the age is constantly to enlarge the function of this office
by delegating the purely mathematical side of the work to qualified
mathematicians. Much remains to be done in the field of insurance
mathematics to develop the science and art of life contingencies to
its highest possible degree of perfection. Great indeed as is the work

LIFE INSURANCE AS A SCIENCE 211

of Woolhouse, Gompertz, and Makeham, each period presents pro-
blems of its own which demand the specialization of expert talent,
never needed to such an increasing extent as in the administration
of a great and successful life insurance company of to-day.

Biological science, or the science of living things, rests in a larger
measure than, is commonly assumed upon a statistical foundation.
Much, if not most, of what life insurance companies require to know
of biology for the medical selection of risks relates to normal and
abnormal man from the viewpoint of anatomy and physiology.
American anthropometry, while well advanced since the army sta-
tistics by Gould were published in 1869, as a memoir of the Sanitary
Commission, leaves much to be attained before we shall be in a posi-
tion to deal in a strictly scientific manner with the problems of normal
stature, weight, chest-expansion, pulse-rate, and other elements too
numerous to be here referred to. The tables published by the Asso-
ciation of Medical Directors and rearranged by Dr. 0. H. Rogers,
are an admirable indication of the treasures which the archives of life
insurance companies yield when subjected to expert tabulation and
critical analysis. For the needs of accurate chest diagnosis we require
more determining data than are at present available, while the
field of human thermometry as applied to life insurance selection has
remained almost neglected since Seguin published his work in 1876.
The larger and more involved problems of human multiplication
and normal increase, the marriage-rate, fecundity and sterility, con-
sanguinity, race-mixture and intermarriage are all pending questions,
toward the solution of which insurance contributes much informa-
tion and expert talent. All that is summed up in the problems of
heredity, both direct from parent to offspring and through collateral
branches of the family, is of the utmost importance to life insurance
companies, and in time the vast number of accurate family records
in the possession of these companies as a part of the application for
insurance, supplemented by the known results of subsequent mor-
tality, with certified causes of death, must needs add much of value
and interest to the future development and practical value of bio-
logical science. Toward the problem of reproductive selection, so
admirably set forth by Karl Pearson, life insurance can contribute
much valuable information, particularly on the point of the effect of
the age of the parents at the time of the applicant's birth on the
subsequent chances of death.

If the mathematical basis of life insurance is derived from the doc-
trine of probabilities, the medical basis is derived from pathology, or
the doctrine of diseases, their causes, mode of occurrence, etc. The
position of the medical director is of equal fundamental importance
in the administration of a life insurance company to the position of
the actuary, in that upon the medical selection of risks proposed for

212 INSURANCE

insurance depends the subsequent mortality experience. With the
immense development of life insurance in all countries has gone the
advancement of insurance medicine, from the crude methods of the
London Equitable Society in 1762, when a health certificate was
required bearing the signatures of two witnesses, one of whom had
to be a physician, to the uniform blank for medical examiners pro-
posed a few years ago at the International Congress of Medical
Directors at Brussels. To-day there are few general practitioners
who have not, at one time or another, rendered services to life insur-
ance companies in the examination of proposed risks, and the number
of physicians regularly employed by these companies is constantly
increasing.

Insurance medicine has a large and valuable literature of its own,
to which constant additions are being made as the result of special
researches and increasing experience in a vast field with rare oppor-
tunities for the development of expert skill. The highly scientific
character of this work is due, in a large measure, to the close relation
of cause and effect. Errors of judgment in physical diagnosis, or
the omission to note symptoms of incipient diseases, are certain to
be followed by an unfavorable mortality experience. While errors
of judgment on the part of the general practitioner outside of hospi-
tals as a rule remain unknown, such errors on the part of the medical
examiner are a matter of permanent record and comparatively easy
discovery.

The neurology of the future will render even greater service to
insurance science than has been possible in the past. Brain diseases,
as a class, are unquestionably on the increase in this and other coun-
tries, and there is some trustworthy evidence to support the view
that insanity is increasing at a perceptible rate from year to year.
No extensive statistical investigation has been made into the alleged
increase in insanity, which may be attributed to the complex nature
of the problem, the difficulty of exact definition, the undefined border-
land of sanity and insanity, and many other causes; most of all,
however, to the'confusing effect of the improvement in the recovery-
rate and the decreasing death-rate in state and private institutions.
Actuarial skill can be of great service to the medical profession in
determining this question in much the same manner as in the inves-
tigation of the alleged increase in cancer by the eminent actuary,
Mr. George King, and Dr. Arthur Newsholme.

Suicide may also properly be referred to here as one of the problems
of neurology and one of great importance to life insurance companies.
Suicide is on the increase in this and other countries. For illustra-
tion, in American cities the rate per 100,000 of population has
changed from 12.0 during 1890 to 18.4 during 1903. Qualified inves-
tigations into the probable causes responsible for this much-to-be-

LIFE INSURANCE AS A SCIENCE 213

deplored increase in self-murder would be of considerable financial
value to insurance companies. Of the total mortality of insured
males, aged forty-five and over, 4.3 per cent are deaths from self-
destruction, and the financial loss to insurance companies is of much
larger proportions than is generally assumed to be the case.

The achievements of surgery are one of the glories of modern
civilization and of both direct and indirect value to life insurance
science in making for an improved longevity and a resulting increase
in the chances of a healthy life following a successful surgical opera-
tion. Beginning with the two principal factors — the introduction
of anesthetics and the introduction of antiseptics — wre have a long
list of important modern discoveries in surgical methods which have
done much to reduce human mortality and do away with needless
suffering.

Gynecology has an important relation to insurance science.
Woman as an insurance risk is one of the perplexing problems
in life insurance practice. In most of the mortality tables for the
general population women at nearly all ages experience a lower
death-rate than men, and the tendency would seem to be toward
a still greater difference in the future and in favor of women under
modern conditions of life. In contrast, insured women have often
proved a loss to the companies on account of certain subtle elements
of adverse selection not readily comprehended or allowed for in the
medical examination of women as insurance risks. As a rule, the
physical examination of women, for reasons of modesty and general
custom, is made with less care than in the case of men; obscure pelvic
diseases and diseases of the ovaries and uterus often exist, but they
are quite concealed. Many other facts, brought out by extensive
experience, tend to complicate the matter, and all companies exercise
great caution in the acceptance of women as insurance risks.

During the past thirty years the chances of death have undergone
a material modification, and in most civilized countries the general
death-rate is much lower to-day than it was during the early seventies.
This improvement in human longevity, however, affects almost
entirely the younger ages of life and in particular children under ten
years of age.

The modern treatment of the diseases of children, or the science
of pediatrics, combined with improved measures of public hygiene,
has resulted in a great saving of infant life, which goes far to balance
the general decline in the birth-rate. Industrial insurance companies
in particular are affected by this improvement, and the amounts now
paid for a weekly premium of ten cents are twenty per cent greater
than they wrere some twenty-eight years ago, \vhen this method of
family insurance was first introduced into the United States by Mr.
John F. Dryden. There are, however, general benefits resulting to life

214 INSURANCE

insurance practice as a whole from the gradual diminution of a need-
less waste of infant life. A healthier type of manhood and woman-
hood must develop from children free from the after-effects of acute
infectious diseases so extremely prevalent in the past.

The improvement in the chances of death is primarily the result
of our increasing knowledge of the causes and true nature of diseases,
the conditions favoring a high or low death-rate, and the resulting
means and methods for their effective control. For want of a better
term we use the one of " sanitary science, ""which includes both pre-
ventive medicine and public health administration. As a first require-
ment it was necessary to perfect the official registration of deaths
and the medical or legal certification of their causes. Vital statistics
form the groundwork of sanitary science as it has been developed
during the past fifty years in all civilized countries. Time is not
available for more than a cursory glance at the history of disease
prevalence, or in particular of epidemic diseases. The great work of
Creighton on Epidemics in Great Britain is an illustration of what
is required for other important countries before medical topography
and geographical pathology will have reached the high position to
which they are destined in due course of time.

The American life insurance companies of the first forty years of
the nineteenth century are of little more than historic interest to us
of the present time. The Pennsylvania Company for Insurances on
Lives and Granting Annuities, the Massachusetts Hospital, the New
York Life Insurance and Trust Company, the Baltimore Life Insur-
ance Company, the Girard Life Insurance and Trust Company, the
Ohio Life and Trust Company, and others, transacted but com-
paratively little business, so that by 1850 it is estimated only
about thirty thousand life insurance policies were in force in the
United States. In 1843, however, the organization of the Mutual
Life marks the beginning of a distinct period of life insurance history
which extends to 1875, when industrial insurance was introduced
by the Prudential. A number of valuable contributions to the lit-
erature of public medicine and medical topography had been made,
and it gradually became possible to obtain a more correct view
of the value of human life in the different sections of the country.
Bills of mortality were available for a number of important cities,
and Seibert, in his Statistical Annals of the United States, published in
1808, could supplement his observations by two life-tables calculated
for the use of the Pennsylvania Company for Insurances on Lives
and Granting Annuities. One of these tables was derived from the
records of the Episcopal Church, the other from the records of the
Philadelphia Board of Health.' The gradual development of public
medicine is exhibited in the volumes of the Journal of Health, the first
of which was issued in 1830. Ten years later a valuable report on the

LIFE INSURANCE AS A SCIENCE 215

Sickness and Mortality of the Army of the United States, embracing
a period of twenty years, was published by governmental authority,
and contains much interesting and suggestive information relative to
the health of different sections. This valuable document was followed
by the classical report of Shattuck on the Vital Statistics of Boston
for the period 1810-1841. In 1842 Forry brought out his treatise
on the Climate of the United States and its Endemic Influences, which
still retains its position as a work of great value. In 1845 Shattuck
supplemented his earlier work by a Census of the City of Boston,
which forms the first comprehensive statistical account of the popu-
lation of an American city. Dawson and De Saussure, in 1849,
published their Census of Charleston, S. C., which includes observa-
tions on health and mortality. In the same year the first report of
the Committee on Public Hygiene of the American Medical Asso-
ciation was published, which contains much valuable information
on the medical topography of the most important sections of the
North and South. The American edition of Tilt's Elements of Heal h
was published in 1853 in Philadelphia, a book admirably arranged
for the use of the period, with special reference to the requirements
of life insurance companies. In 1854 Drake issued his medical
topography on the Diseases of North America, with special reference
to the diseases of the Interior Valley, unquestionably the greatest
contribution to the medical topography of our country made up to
that time. Following Drake, Blodgett, in 1857, issued his well-
known treatise on the climate of the United States, which includes
a valuable chapter on medical topography. The scientific interest
of American life insurance companies in the subject of human
mortality is made evident by the publication, in 1857, of a Report
on Vital Statistics, by James Wynn, M.D., to the Mutual Life
Insurance Company, but the expenses for which were shared by
seventeen other companies, including all of the more important
and representative institutions of the period.

The office practice of the early American life insurance companies
during the fifties was, however, in a large measure determined by
very fragmentary data. Most of the observations and conclusions
of writers of the period on medical topography were derived from
extensive travels, carried on under great difficulties and at consid-
erable personal exposure to the ill-health-producing conditions de-
scribed. The general apprehension was not so much as to the prob-
able unfavorable experience in the country at large as in the Southern
and Far Western sections. The general apprehension as to the high
death-rate in the South was amply supported by the published mor-
tality statistics of New Orleans, Mobile, and Savannah, and many
able articles in the Southern medical publications. Dunglison, in
his treatise on Human Health, one of the first works on hygiene pub-

216 INSURANCE

lished in this country, connects the science of public medicine with
the science of insurance by a chapter on " Atmosphere and Locality."
An Englishman by birth, he states that when he was about to leave
Great Britain to occupy a situation for which he had been selected
in the University of Virginia, a life insurance company of which
he was a member declined to continue the insurance unless the pre-
mium was doubled. Dunglison states that this requirement com-
pelled him to sacrifice or lapse his policy. Many of the assumptions
with regard to health in Southern latitudes were, however, largely
exaggerated. Dunglison's treatise did much to correct erroneous
views, though on the whole a regard for truth compelled the author
to admit the extensive prevalence of health-destructive conditions
which it required time and an infinite amount of human labor to
change for the better. Even at this early period, however, it
could be said with much truth that within the last century the value
of life had increased progressively and was rapidly improving, but as
long as the primitive conditions of pioneer life obtained it was out
of the question for life insurance companies to develop their busi-
ness on a large scale, especially in the Southern and Western States.
Speaking generally, the slow growth of American life insurance during
the first half-century was, in a large measure, due to the high mor-
tality, the frequency of epidemic diseases, and the fragmentary nature
of the vital statistics of the period.

The selection of risks for insurance, while primarily medical, takes
also into careful consideration certain facts, most of which may be
included under the general term " environment." These are, locality
of residence, housing, occupation, habits, and war, all of which are
more or less comprehended in the department of preventive medi-
cine and public and personal hygiene.

The immense development of modern life insurance, approaching
that of a universal provident institution, is primarily the result of
the insurance education of the public through the solicitor or life
insurance agent. Psychology alone explains the mental processes
by which so abstract an idea as the theory of risk and insurance is
reduced to " insurance consciousness " and made operative on con-
duct. It is not necessary, in fact not desirable, because tending to
confusion of thought, that the abstract idea or even the business
methods of insurance should be comprehended by the applicant for
insurance protection, any more than we require to know the chem-
ical analysis of food-stuffs and the processes of their manufacture
to enjoy and digest our daily meal. What is required is education
in the simple elements of insurance protection, emphasized by intelli-
gent suggestion and an effective appeal to the emotions. What
the prospective policy-holder requires to know is the annual expense
of risk transference, the amount of insurance provided in the event

LIFE INSURANCE AS A SCIENCE 217

p

of certain contingencies, and the special contract provisions of the
policy which form the legal basis of the relation of the insured to the
company.

The principles of risk and insurance are of too abstract a nature
to be comprehended by the average mind, even after a considerable
amount of intelligent explanation. The elements of insurance prac-
tice and results, however, are readily within the mental grasp of all
but a small proportion of the public, and while in consequence of
the enormous development of the business there exists a vague gen-
eral consciousness of the insurance idea, it is but imperfectly under-
stood and not operative on conduct. We are taught by psychology
that " an object must be seen many times before it is rightly seen,"
and the abstract idea of insurance does not become concrete and
operative on conduct until it has been emphasized and reemphasized
by the insurance instructor, who is called the agent or solicitor. The
immense success of industrial insurance, with now more than forty
million policy-holders in the world, is due largely to the simplicity of
the idea itself — so much to be paid each week — so much receivable
in the event of death — which is readily within the mental grasp of
all the people. In the more complex form of ordinary life insurance,
especially when combined with investment, as in the case of endow-
ments, the process of insurance education is much more difficult
and results are secured more slowly. What is true of the progress
of life at large is equally true of the progress of insurance, that " the
adjustment of inner tendencies to outer persistencies must begin with
the simple and advance to the complex, seeing that both within and
without complex relations, being made up of simple ones, cannot
be established before simple ones have been established."

Abnormal psychology has already been briefly referred to under
neurology. The psychology of suggestion in its special relation to
the occurrence of mental epidemics is of considerable interest to
life insurance companies. The present-day frequency of self-
destruction and the unquestionable effect of suggestion in causing
small epidemics of suicide of a local character is a source of consid-
erable anxiety to the management of conservative insurance com-
panies. What is summed up in a dissertation on The Wonders of
Human Folly explains the need from time to time to recur to the
experience of the past for an explanation of the experiences and
occurrences of the present. Mackay's Memoirs of Popular Delusions,
for illustration, throw much light upon recent experiences, and it has
been said with much truth that while " time and progress have
changed the manifestation, the spirit of ancient folly lingers still.
. . . From time to time the infatuation to acquire wealth speedily
by an illegitimate shifting of the cards rather than by safe and equit-
able methods in the employment of capital and labor, seizes the

218 INSURANCE

people; and thus probably it will ever be until those who possess
property shall be acquainted with the principles and laws of trade
and shall at the same time be desirous to restore to the commercial
character generally an inviolate and inflexible spirit of single-minded
honesty."

In the selection of risks for insurance it is necessary to take into
consideration certain broad principles of anthropology, in particu-
lar the primary distinction of race, or the varieties of mankind.
Even the most cursory inquiry reveals important differences between
the longevity of different races and peoples which no conservative
insurance company can prudently ignore. " The physical peculiar-
ities and geographical distribution of the human family," wrote
Pickering, " form one of the most interesting problems in history; "
and in the words of Darwin, " There is no doubt that the various
races, when carefully compared and measured, differ much from each
other." Unfortunately, most of the earlier anthropologists took more
interest in speculations as to the unity or plurality of the human
species than in determining types of mankind by careful and exten-
sive measurements and observations of physical, psychological, and
pathological characteristics. Que"telet, to whom insurance owes
much light on the theory of probability, was also the author of valu-
able works on normal man and anthropometry, which have done
much to suggest the more recent investigations. The methods of
Que"telet, as to both measurement and description, were followed
to advantage in the more elaborate works of Beddoe, Roberts,
Gould, Baxter, and many others. We are nearer to the truth to-day
than we have been, but yet far from having the required data for a
practical anthropology or science of man applicable to the solution
of pending problems of insurance.

Every advance in geography and the more accurate mapping of
the surface of the earth contributes to the science of insurance.
Medical topography and geographical pathology depend primarily
upon accurate topographic surveys, and the immense advances which
have been made in this direction during the past twenty years have
been of great value to insurance science. The geographical distri-
bution of disease is receiving more and more the intelligent consid-
eration of the geographers of to-day. As an admirable illustration
of what in time may develop into a distinct science, I may mention
Haviland's work on the Geographical Distribution of Disease in Great
Britain. Even the very early American geographers recognized
the relation of physiographic and climatic conditions to health and
mortality, and Guthrie, for example, in his geography published in
1795, refers to the subject at some length. Darby, following Guthrie,
contributed valuable observations in his various writings, in particu-
lar his View of the United States, published in 1828, and his Geo-

LIFE INSURANCE AS A SCIENCE 219

graphical Description of Louisiana, published in 1816. The ultimate
tendencies of geographical science in this particular direction are
best illustrated in 'the Appendix of Maps to the Report by Sir H. H.
Johnston, as Special Commissioner on the Protectorate of Uganda.
These maps illustrate with exceptional clearness the average altitude
and the salubrity of each district, and it is not going too far to say
that we have really more accurate information regarding this distant
section of the globe than we have for many sections of our own
country. The importance to insurance companies of similar inves-
tigations into our own Southern States, and in particular into our
new possessions in tropical countries, cannot be overestimated. The
works of Sir Henry Johnston illustrate the methods to be followed
and the practical results to be attained.

It is hardly practicable to separate a discussion of geology from
the preceding discussion of geography in its relation to insurance
science, since every geographical survey contributes to the develop-
ment of the science of physiography by the mapping of surface
geology and general topography. Areal geology often discloses
important factors of soil composition, etc., which have a distinct
and well-understood relation to health and mortality; as, for illus-
tration, in the clay formations which underlie the Gulf coast of
southeastern Texas, and which, in a large measure, are responsible
for some perplexing sanitary problems at Houston and Beaumont.
The comparatively recent development of scientific soil surveys
may here be referred to, for many of the reports which have been
published emphasize important points in medical topography. Of
special interest, for illustration, are the reports for portions of the
Yazoo Delta and the Gulf parishes of Louisiana. In addition, these
reports often contain a careful analysis of the elements of climate
and other matters of interest and value to life insurance companies.

It is, however, in the field of economic geology and the mineral
industries and mining that life insurance companies have, perhaps,
the most important interest. The immense development of the
mineral resources of the earth give employment to a vast army of
men whose occupations are almost without exception of a dangerous
or unhealthful nature. Mining accidents are still of great frequency,
and the present-day tendency does not appear to be toward a sub-
stantial reduction in the rate. The problem of miners' phthisis is
attracting much attention, especially in Utah and South Africa,
where exceptional conditions present unusual difficulties. The
geological formation of coal areas determines in part the accident
frequency from falls of roofs and gas explosions. The mineral com-
position of rocks has a direct relation to the frequency of industrial
poisoning in the milling and reduction of copper and other metal-
liferous ores, while the accident liability of quarrymen depends pri-
marily upon the geologic formation of the strata to be removed.

220 INSURANCE

Meteorology I assume to include both climate and weather service.
The field is immense, for, as has been observed by Montesquieu,
" The empire of climate is the most powerful of all empires," and
the progress made by meteorology has been a material gain to life
insurance science. The normal climate of any given locality is a
factor of great importance in determining health and longevity. The
elements of temperature, barometric pressures, humidity, rainfall,
prevailing winds, etc., are of considerable determining value, but
as yet we have not the required standards by which accurately to
measure the effects of these elements on human health under the
varying conditions met with in different portions of the globe. We
still speak of the " deadly climate " of the west coast of Africa or of
French Guiana, with not much better knowledge of the facts than
when these expressions came into use, under entirely different condi-
tions of attempted settlement or colonization. While the climate
and weather of India are the same to-day as at the time of the great
East India Company, the mortality of European troops has been
reduced from seventy-six to sixteen per thousand. While it may be
true, as Ripley holds, that " the English of to-day are no nearer
to true acclimatization in India than they were in 1840," there can
be no doubt but that a more perfect knowledge of the elements of
tropical climates and the resulting tropical hygiene have done much
toward the ultimate solution of the white man's conquest of the
tropics.

The applied sciences I can only discuss in the most general way.
All improvements in processes and methods of manufacture, as a
rule, benefit the workmen by incidental improvements in the sanitary
condition of factories and workshops. The increasing proportion
of risks written by life insurance companies on the lives of persons
employed in manufacturing industries points to the importance of
all improvements in industrial hygiene and their resulting relation
to the diseases of occupations. The improvements in the processes
of manufacture imply, as a general rule, a decreasing amount of
waste in the form of dust, vapor, or gases, many of which are of a
health-injurious character. The utilization of waste products, on
the other hand, has led to new industries, many of which are injurious
to health and life. The consolidation of industries in the form of
industrial combinations or trusts, primarily for the purpose of effect-
ing economies, has done much to improve sanitary conditions by
providing larger factories with more light and better ventilation, so
that it is safe to say that since the introduction of the factory system
the average workman has never been employed under healthier
conditions than at the present time. To insurance companies the
problems involved in industrial technology are, however, extremely
complex and a never-ending source of anxiety. For illustration,

LIFE INSURANCE AS A SCIENCE 221

the relatively new process of pulp manufacture is carried on by three
distinct methods, the mechanical, the soda, and the sulphide, each of
which represents different conditions affecting health and longevity,
which require to be taken into account in the acceptance of this
class of risks. In electrical engineering the truly astonishing pro-
gress which has been made during the past few years has resulted in
entirely new conditions, which no prudent company can safely
ignore. As an illustration I may mention the introduction of elec-
tricity into mines which has recently been made the subject of a
special official inquiry in England and by state mine inspectors in
this country. The enormous development of electrical industries
in general has resulted in entirely new conditions, which cannot be
considered in the light of past experience. Mining engineering, per-
haps most of all, requires serious consideration, and among other
new factors affecting health and longevity I may mention the ex-
tensive introduction of coal-cutting machinery into the bituminous
coal-mines of our Western States. In ore-milling and smelting new
processes are constantly supplanting old methods, and here again
present-day practices cannot be determined by past experience. As
an illustration of the benefits to health arising from the utilization
of waste products I may mention the modern appliances in smelters
by which many of the health-injurious vapors and gases are converted
into profitable by-products.

The general conception of insurance law limits this term to the
settlement of legal difficulties arising from the contractual relations
of the company and the policy-holder. Most of the works which
essay upon the subject, from Park and Marshall to the latest digest
and dissertation, treat of insurance law in this narrow and restricted
sense. We have not as yet a comprehensive work which includes
the relation of the companies to the state and public policy in addi-
tion to the relations at law of the company to its policy-holders and
agents. The brief consideration which I am allowed to give to this
subject precludes proper treatment of so complex a relation as that
of insurance to legal science, and at best I can only indicate the more
important results of law, jurisprudence, and social regulation affect-
ing insurance interests.

Under modern conditions the conduct of a life insurance business
is beyond the reach of individual or private enterprise. It is to-day
an accepted principle of government that " life insurance is a business
of so sacred a character, and involving issues so important to the
national welfare of each country, that it must be the subject of
special legislation in order to safeguard the interests of the insured.
... It is their savings in the shape of premiums and their accumu-
lations which constitute almost the entire resources of every life
insurance company, and it cannot be a subject of unconcern to any

222 INSURANCE

government that its citizens should have made provision for the
future to so large an extent, and that the security for the eventual
payment of the sums assured, as they mature, should be guaranteed
by the solvency and sound investments of the companies that under-
write the contracts." Insurance companies derive their existence
from charters specially granted, but in conformity to the general
corporation laws of the different states. Corporations are by law
endowed with perpetual succession, or, in other words, artificial
persons having no necessary or natural term of life, and they may
be regarded as an extension of individual capacity. The earlier
charters of American insurance companies illustrate the crude ideas
regarding the business of life insurance prevailing at a time when
the term " insurance," in the words of Park, was practically equiva-
lent to "marine insurance." Almost from the beginning of the business
of insurance the importance and necessity of some form of state
supervision was recognized, and we meet with the inception of the
present form of state supervision in a Massachusetts statute of 1827,
which required the companies to report annually as to the condition
of their business. The growth of the business and the extension of
operations to other states developed the present system of state
supervision, which had its origin in a law passed by the legislature
of Massachusetts, establishing a separate department for the super-
vision of insurance interests, in 1855. To-day such departments
exist in every state and territory, with more or less comprehensive
powers for supervision and control. The resulting problems are of
most serious concern to the companies.

The insurance laws of the different states are often widely at
variance with one another. The remark of Mr. Griggs, ex-Attorney
General of the United States, that while " the interpretation of law
is a science, law-making is not," applies with special force to the
insurance legislation of the last thirty years. When, in 1876, Mr.
C. C. Hine issued his volume on Insurance Statutes, within six years
of the issue of a similar work by Wolford, he could truthfully say
that " the insurance laws of five years ago are almost obsolete, and
in their stead new statutes have come upon the books of almost every
state and territory." The process of grinding out laws has gone
on with undiminished energy, and the opinion of a learned judge
that " no attorney is bound to know all the laws " may give some
comfort to the law officers of insurance companies confronted by
the problem of digesting the large number of special statutes passed
annually or biennially by forty-nine different states and territories for
the ostensible purpose of regulating the insurance business. In
marked contrast, we may reflect upon the English legislation affect-
ing insurance interests, which since 1870 has practially remained
the same. Mr. Griggs, in his address on " Law-Making," properly

LIFE INSURANCE AS .A SCIENCE 223

remarks that " this history of the English law reveals change and
growth, but growth by slow and deliberate processes." It would
be an immense step in advance towards the perfection of Ameri-
can insurance law if a similar habit of mind prevailed in this
country.

The taxation of life insurance companies may be referred to here
as an important problem of insurance company administration.
If it is the duty of the state to encourage thrift or efforts on the
part of the people toward economic independence and a secure posi-
tion above the need of state aid, it is certainly a paradox to meet
with an increasing tendency to tax life insurance policy-holders out
of a relatively large share of their annual savings.

In many other countries than the United States insurance is
supervised and regulated by some central authority; — in England
by the Board of Trade, in France by the Minister of Commerce, etc.
There must come a time when the burden, expense, and annoyances
incident to supervision by some forty-nine different insurance com-
missioners of states and territories will become intolerable and some
form of federal supervision must be the result.

An increasing number of life and fire insurance companies are
extending their fields of business operations to foreign countries, and
in a few cases companies transact business in most of the civilized
countries of the earth. Without wishing to underrate the ratio of
progress made by life insurance companies of other countries, it is
generally conceded that the American life insurance companies
abroad are more aggressive, and as a rule attain more rapidly to a
commanding position than the home companies. As a result, there
is, at first, much local antagonism to foreign insurance com-
panies, to which, partly, at least, a large share of the burdensome
regulations which have been imposed in certain countries upon
American insurance companies must be attributed. On the other
hand, there can be no doubt but that during the past quarter of a
century the tendency has been politically and socially to draw states
together by the strong attraction of " common political sentiments,
common aspirations, and common interests of a permanent kind."
Insurance may rightfully claim to be one of the forces making for
international harmony and good will.

All insurance is in the nature of a contract between the company
and the insured, who is usually referred to as a policy-holder. The
policy is the instrument which defines the respective rights and
duties of the contracting parties, who are assumed to be aware of
the fact at law that " a contract is a deliberate engagement between
competent parties, upon a legal consideration, to do, or to abstain
from doing, some act." Out of the contractual relations and its
unavoidable disputes, misunderstandings, etc., has resulted a mass

224 INSURANCE

of litigation and court decisions usually comprehended under the
term " insurance law." A retrospect over the years since the
" Court of Insurance " was established by Queen Elizabeth, and the
sixty-odd cases tried during its entire history, to the present time
would carry us far beyond our present purpose. Suffice it to say
that the development of insurance law has gone forward with the
growth of the business until this term now comprehends a variety
of subjects unknown and unthought of at the time when Park and
Marshall first published their works, about a century ago. Consid-
ering the enormous extent and highly complex character of the
insurance business, it is a matter of surprise to find that, after all,
the amount of litigation should have been so small.

The tendency has been constantly towards a contract free from
restrictions likely to lead to litigation, until the insurance policy of
to-day is practically a promise to pay a certain sum on the occur-
rence of a given event, except in the case of fraud. There has always
been an unfortunate disposition on the part of the courts to construe
a policy of insurance more upon the grounds of sentiment than upon
the common law of contract and fraud. Mr. Davies, the eminent
solicitor of the Mutual Life, has discoursed upon this matter in so
able and interesting a manner that I take the liberty of quoting to
some extent from his lectures on the law of life insurance:

" A suit upon a life policy is an especially difficult one to defend
for several reasons. In the first place, there exists in this country
a very general prejudice against corporations, which inclines a jury
to view with favor any claim by an individual against one of them.
Then the plaintiff is usually a widow or some other dependent of
the deceased, and the contrast is strongly drawn by counsel arguendo
between her poverty and the heaped-up millions of the defendant,
the corresponding liabilities of the latter being carefully kept in the
background. . . . And to these considerations must be added
another of a much higher character, that natural human instinct
which leads us all to speak well, and to endeavor to think well, of the
dead. The fall of the curtain upon a human life covers at the same
time his faults and vices, and adds enormously to the difficulty of
establishing to the satisfaction of a jury facts which are notorious,
but which blacken his memory. The very neighbors, who during
a man's life denounce him as a worthless sot, will, when called as
witnesses in a suit upon a policy on his life, reluctantly admit that
he perhaps on rare occasions drank to excess, but not to an extent
to impair his usefulness or affect his health. So when a suicide takes
place the associates of the deceased at once begin to think that they
had previously noticed symptoms of aberration of mind, quite suffi-
cient to justify a strong suspicion of his sanity, although no such
idea had ever occurred to them before the catastrophe."

LIFE INSURANCE AS A SCIENCE 225

The life insurance agent is, as a rule, an appointed employee of the
company and under contract to perform certain services in return
for a stipulated compensation. The employment of agents is so uni-
versal that but few policies are obtained otherwise than through
these representatives of the company. Out of this condition some
very important legal questions and problems have arisen, aside from
the occasional difficulties and misunderstandings between the com-
pany and its employees. The agent, as a rule, is the only personal
representative known to the insured, and the agent's position is thus
one of very considerable responsibility and importance. The com-
pany naturally aims at a narrow limitation of the agent's powers as
to the issue or modification of the contract between the company
and the insured, and most of the policies issued contain a clause to
the effect that " no condition, provision, or privilege of this policy
can be wraived or modified in any case, except by an indorsement
signed by an executive officer of the company."

Insurance in its relation to public policy presents some very inter-
esting problems of law and jurisprudence. A policy of insurance is
issued upon the faith of the statements made in the application for
insurance, and the applicant is required to warrant the truth of his
statements. The effect of warranty is to insure the accuracy of the
state of affairs alleged in it; and consequently the greatest care in
making a declaration of them is requisite. There has been a con-
siderable amount of litigation and resulting decisions of the courts
on the question of concealment and misrepresentation, but as a rule
the decisions have been in favor of the insured. It should be mani-
fest that it is contrary to public policy to encourage fraud, con-
cealment, and misrepresentation, by means of which insurance is
obtained under conditions which would have precluded the issue of
the policy had the facts been truthfully stated to the company. A
common form of misrepresentation is as to the present state of health
of the insured, where even the most advanced methods of medical
diagnosis cannot establish with entire accuracy the facts at the time
the application for insurance is made. Losses are thus sustained by
the companies to the injury and disadvantage of the honest policy-
holder, and by this much the true progress of the business is retarded.
A strict construction of the statute of frauds is, therefore, one of the
most certain means of advancing life insurance interests.

The economic theory of risk and insurance has only received the
incidental consideration of writers on economics and social pro-
blems, with the notable exceptions of Willett and Macleod. This is
unfortunate, for insurance, one way or another, reacts upon the whole
economic life of the people, and there is no hope of a rational political
economy until all the elements of social and economic progress are
taken into account. The economic value and utility of insurance

226 INSURANCE

are important and proper subjects of economic inquiry, and the
immense progress of the business demands the impartial and critical
consideration of qualified experts in economic and social science.
The view of Macleod that " annuities or rights to receive a series
of future payments " are negative economic quantities, under which
term he comprehends all instruments of credit, shares in commercial
companies, policies of insurance of different kinds, etc., does not
seem to have been accepted by other writers on economic theory.

The earlier writers on the investments of the working-class gave
considerable attention to life insurance and its relation to the general
welfare. Gregg, among others, wrote in 1851, or three years before
the practical beginnings of industrial insurance in England, that
" life insurance policies offer one of the most important channels of
investment for the savings of all classes;" and he adds, " Of all
modes of employing small savings, there is none which we should so
earnestly desire to become general among workingmen; none which
appears to us so deserving of the fostering care of the legislature;
none which, if universal and habitual, would do so much to diminish
those cases of utter and helpless destitution which press so heavily
on the resources of the community in the shape of poor-rates, and
which are the fruitful parents of a long progeny of calamity and
crime."

The progress of insurance since this was written challenges the
admiration of the world. In the United Kingdom the industrial
companies alone, excluding collecting and other friendly societies,
have now some twenty-two million policies in force on the lives of
workingmen and their families. The question raised by Professor
Falkner as to whether " the growth of insurance in recent years
has been mainly among the well-to-do," can be emphatically an-
swered in the negative. In fact life insurance, almost from its incep-
tion, has met with greater appreciation among those who, for want
of a better tei'm, we speak of as the working-class. This aspect
of the business is one of economic history rather than theory, but
here again we find that, with few exceptions, writers on the progress
of economic and social institutions have made little of a fact which
is none the less of profound economic importance and significance.

The study of insurance history and the history of associations,
gilds, and friendly societies, is a most instructive chapter in eco-
nomics. Far back into ancient history careful students of commerce
and navigation have traced at least a semblance of our present form
of marine insurance. Anderson's History of Commerce contains some
very suggestive illustrations of a possible connection of present-day
methods to those of an earlier and almost forgotten time. Turner, in
.his History of the Anglo Saxons, and Eden, in his State of the Poor,
throw much light on primitive methods of solving social problems

LIFE INSURANCE AS A SCIENCE 227

in conformity to the principles of association. Walford, in his work
on Gilds, and Toulmin Smith, in his great work on English Gilds,
with the introduction by Brentano, are indispensable sources of
information to the student who would rightly understand the
foundations upon which the present massive structure of insurance
rests.

But other materials of great value are readily available to the
student of insurance and economic history. The great work of
Walford, unhappily not completed beyond the letter H in the Insur-
ance Cyclopaedia, published between 1871 and 1880, is a monumental
work of human industry and learning. Of more recent works on
insurance history I may mention Martin's History of Lloyds and
Marine Insurance in Great Britain, published in 1876; the century
History of the Insurance Company of North America, published in
1885; the semi-centennial History of the New York Life Insurance
Company, published in 1896; the quarter-century History of the
National Fire Insurance Company of Hartford, published in 1897; the
century History of the Norwich Union Fire Society, published in 1898;
the History of the Prudential Insurance Company of America, pub-
lished in 1900, and finally the half-century History of the Springfield
Fire and Marine Insurance Company, published in 1901. I must also
not fail to mention a reprint of Documents Relating to the Early
History of the Scottish Widows' Fund and Life Assurance Society,
published in 1901. The student of economic history and economic
institutions will find much of value in these volumes which will aid
him towards a more correct interpretation of the factors which have
made for social progress during the nineteenth century.

Any effort to trace the origin and growth of insurance must
necessarily take into account the development of navigation and
commerce during the last three hundred years. Evidence is not
wanting that even among the nations of antiquity marine insurance
in some form or other was not wrholly unknown. Park and others
have traced the beginnings of marine insurance to very early periods,
but it has remained for the last three centuries to develop the system
to its present state of universal utility. Even the most casual study
of the history of navigation and commerce reveals the immense ad-
vantages resulting from the practice of marine and fire insurance.
In the wrords of M'Culloch: "Without the aid that it affords, com-
paratively few individuals would be found disposed to expose their
property to the risk of long and hazardous voyages; but by its means
insecurity is changed for security, and the capital of the merchant
whose ships are dispersed over every sea and exposed to all the
perils of the ocean is as secure as that of the agricultural risk. He
can combine his measures and arrange his plans as if they could no
longer be affected by accident. He has purchased an exemption

228 INSURANCE

from the effects of such casualties; and applies himself to the prose-
cution of his business with that confidence and energy which nothing
but a feeling of security can inspire."

The principle of insurance in its application to commerce is, how-
ever, no longer limited to marine and fire insurance. The last fifty
years have seen the practical development of the insurance idea in
various other directions, of which I may mention the following:
Accident, health, and employers' liability insurance; fidelity, surety,
bond, mortgage, and title insurance; plate-glass, elevator, and boiler
insurance; hail, windstorm, and tornado insurance; and finally,
live-stock and burglary insurance. All of these have assumed
the character of instruments of commerce and are in theory and
fact an indispensable element of the commercial development of the
present age.

The present-day tendency to industrial organization and the
combination of capital is reflected in the status of the insurance
business of the United States, which has followed the general com-
mercial trend of the age. Of the ordinary life insurance business,
six companies have 62 per cent of the total insurance in force; of
the industrial business, 94 per cent of the policies are with three of
the companies transacting this form of insurance; and of fraternal
insurance, so-called, 64 per cent of the membership is in five of
the principal organizations. The resulting gain has been very con-
siderable, especially in the direction of enhancing the general security
of the business and public confidence in this form of individual and
family protection. This tendency has not operated injuriously to
the development of a healthy spirit of competition, which may be
illustrated by the fact that there are to-day seventy-nine ordinary
and thirteen industrial insurance companies transacting business in
the United States. The problem of wealth and its distribution may
be summed up in the statement by Thompson that "the property
of the most numerous class, that is, the poorest, is coming evermore
to the front as a great problem of modern statesmanship." Life
insurance is to-day one of the most important factors in the re-
distribution of wealth, and perhaps of all methods the most equit-
able and effective. It reaches every stratum of society and enables
the poorest to provide for the future a sum of money which in
every sense of the word represents capital obtained by individual
efforts as the result of habitual saving and prudent self-denial.
The insurance companies collect these savings in small amounts,
which range as low as five cents per week, or assume considerable
proportions per annum; the accumulations form the assets of the
companies and as such they become available for profitable invest-
ment in productive industries and trades; they are redistributed
through payments to policy-holders as claims or matured endow-

LIFE INSURANCE AS A SCIENCE 229

ments or annuities, in sums which range from an amount sufficient
to pay for a burial to returns which represent a considerable fortune.
As Walter Bagehot said some years ago, "People insure their lives
who save in no other way," and the vast sums accumulated by life
insurance companies, now exceeding two billion dollars, represent
an amount of economic security and evidence of an effective adapta-
tion to the exigencies of modern life without a parallel in economic
history.

The field of insurance is primarily the city and surrounding terri-
tory, but by degrees the more sparsely populated sections of the
country have become available in consequence of the development
of the science of transportation. From 92,000 miles in 1880, the
railway system of the United States has grown to over 200,000
miles in 1903, opening immense areas to settlement and leading to
the subsequent development of cities and towns, which necessarily
contribute toward the further extension of every form of insurance.
The remarkable development of electric railways has opened large
sections of the agricultural regions previously outside of the sphere
of profitable business operations. Railway and navigation com-
panies employ a large number of men exposed to a considerable
accident liability, which requires special consideration. While great
improvements have been made in railway transportation tending to
diminish the mortality from fatal accidents, especially in connection
with the coupling and uncoupling of cars, the mortality of certain
classes of railway employees remains very considerably above the
normal of men of corresponding age employed in less dangerous
occupations. There has not been the reduction in the death-rate
which earlier discussions and the passage of the laws relative to the
prevention of accidents seemed to warrant. The problem remains
one of serious concern to insurance companies transacting either a
life or accident business, or both.

In still another direction are insurance companies interested in
transportation science, and that is the opportunities for safe and
profitable investment in railway bonds and mortgages. An inci-
dental result of great importance has been the opening of new agri-
cultural areas with a corresponding opportunity for profitable farm
loans, which are the most advantageous and satisfactory investment
of insurance companies, if made with the necessary knowledge of
local conditions of soil and climate. There is, therefore, abundant
evidence of the close relation of the science of transportation to the
science of insurance.

Banking, currency, and public finance are fundamental factors de-
termining insurance progress. With more than $2,000,000,000 of
assets invested in interest-bearing securities, the companies have a
vital stake at issue in all questions of sound money, a stable currency,

230 INSURANCE

and healthful trade conditions. Of the assets of the companies,
about 75 per cent are securely invested in bonds, stocks, and mort-
gages, including every form of approved federal, state, and municipal
indebtedness, first-class railroad bonds, farm loans, etc. The neces-
sity of earning a certain rate of interest demands the most experienced
judgment in making these investments and a watchful eye on general
banking and trade conditions. All of the great financial reform
measures by which this country has reached its preeminent position
in the world's money market — the National Banking Act of 1863,
the resumption of specie payments in 1878, the defeat of the free
silver craze in 1896 and 1900, and, finally, the passage of the Gold
Standard Act — have contributed to the progress and stability of
life insurance during the past forty years. In fact, such progress
would have been out of the question as long as there existed
"great dissimilarity in the laws governing banks in the several
states, precluding uniformity, security, and safety." Hepburn
points out that, in 1861, "there were then some seven thousand
kinds and denominations of notes and fully four thousand spurious
or altered varieties." It is not a matter of surprise that under these
conditions, between 1851 and 1861, the actual increase in life policies
in force should only have been 30,600.

But the influence of life insurance extends to every aspect of
finance and trade. With its necessarily intimate relation to banks
and trust companies, life insurance assumes the position of a regulat-
ing medium to which in no small degree may be attributed the more
perfect control of the money market in hours of uncertainty and
impending financial disaster. If crises and depressions are to-day
a more remote element of business probability, and if this is due, in
part at least, to "the greater skill and prudence exercised by bankers
as the result of experience," I do not go too far when I hold that
this gain is due in a large measure to the fact that there are few
important banks and trust companies which have not on their
boards of directors one or more men who are also executive offi-
cers of life and other insurance companies. Our financial history
of the past ten years shows conclusively the influence of conserva-
tive life insurance finance as a restraint and preventive of a recur-
rence of the disastrous series of panics between 1825 and 1893.

Sociology and social science, including all the more important
divisions, is so comprehensive a term as to preclude consideration
in detail. Social structure alone, as revealed by the census and other
statistical investigations, bears a more or less direct relation to
insurance development and progress. Census inquiries are now
made with more skill and accuracy than heretofore, and every new
investigation brings out new facts and tendencies of society in the
process of evolution from homogeneity to heterogeneity. The

LIFE INSURANCE AS A SCIENCE 231

mere statistics of past and present population, its distribution by
rural and urban communities, its composition by sex, age, color,
nativity, and occupation, are all elements of a determining nature
which it is necessary to know for the more intelligent control of
insurance practice. Without an accurate knowledge of the popu-
lation and its distribution by age and sex, no life-tables could be
worked out for the general population, and without a careful analy-
sis of the facts of physical and social environment, no definite
business policy could be established.

We may briefly consider the relation of insurance to the family.
Life insurance as a social institution primarily contemplates the
certain and effective protection of widows and orphans, or, in other
words, an extension of conjugal duties resulting from marriage under
the existing conditions of modern life. Many of the earlier insurance
companies were, in fact, called " Widows' Schemes," or " Widows'
and Orphans' Assurance Societies," or, in the words of Price, " In-
stitutions for the Benefit of Widows." The biological problems
resulting from marriage and its relation to insurance are of much im-
portance, and I may point out that among the most involved calcu-
lations of insurance practice are those of survivorship in marriage.
Interesting data and calculations on this subject are to be found
among others in a comprehensive work on the Madras Military Fund,
which includes observations on the mortality of wives, the rate of
mortality and remarriage among widows, wives' chance of widow-
hood, etc. Westermarck has contributed the most important inves-
tigations on the " Statistics of Marriage," derived from Danish data,
but he has also a discussion on the subject in his treatise on Mortality
and Morbidity which, unfortunately, has not yet been translated
into English.

Considerations of the chances of survivorship in marriage, the well-
established lower mortality of wives than of husbands, the practical
certainty of surviving children, point to life insurance as the most
effective method yet devised to prevent suffering and dependence
upon the charity of others. " A family," wrote Professor Sumner,
some twenty years ago, " is a charge which is capable of indefinite
development," and whatever may be its ultimate evolution, there
can be no question but that life insurance acts as a conserving factor
in human marriage and develops the altruistic impulse of the hus-
band toward the wife and of the father toward the children. In
the homely language of insurance parlance: " Wives often object
to insurance, but widows never do," and I may add the glowing
tribute of Gilbert Currie, one of the earlier writers on insurance,
that " if we only could call from the dusty archives of these vener-
able institutions the huge piles of molding ledgers, and extract
from their records, what tales would be unfolded of miseries pre-

232 . s INSURANCE

vented, griefs and sorrows soothed, the briny tear wiped from off
the cheek, the balm of consolation imparted, the widow's heart
made to rejoice with gladness, and the helpless orphan to sing for
joy! This is no flight of the imagination, no picture of fancy, no
figure of speech; it is sober reality, the voice of experience, and the
simplicity of truth."

Of the problems of social well-being there are few of greater import-
ance than the development of voluntary thrift and resulting eco-
nomic freedom of the masses. What Mill calls " self-regarding
actions " and " actions which are not primarily or chiefly self-
regarding " admirably illustrates the fundamental difference between
insurance and mere saving habits. The hope of an earlier day has
been realized, and life insurance at the outset of the twentieth century
is a universal provident institution. The view prevails, as expressed
by Marshall, that "at last we are setting ourselves seriously to
inquire whether it is necessary that there should be any so-called
lower class at all." Life insurance precludes the necessity of abject
poverty and pauperism. Life insurance eliminates, for all but the
lowest and most depraved, the possibility of a pauper burial. It
has placed within the reach of the large majority at least a temporary
barrier between death and dependence and the poorhouse. We are
still far from having realized all that is implied in the insurance idea
and we still suffer much from an unsound social philosophy. We
are constantly in danger of delusive schemes of social reform not
based on individual effort and voluntary adaptation to existing
economic conditions. The tendency, however, I believe, is in the
right direction, and every year sees an advance toward a higher
degree of social well-being. Social reform of the right kind must
come from within; must be the result of individual character and
individual struggle. This is the social aspect of insurance, — that is,
prudently to economize, to save, to invest, to insure for the financial
protection of self and others in old age or at death. There is nothing
in the annals of the poor more remarkable than the rise and progress
of provident institutions, from burial clubs and friendly societies to
the different varieties of life insurance adapted to every stratum of
society. For wage-earners, or the industrial element of the popu-
lation, industrial insurance may rightfully claim to meet the require-
ments of Currie of " its being such a system as the circumstances
and conditions imperatively require, namely, the provision of means
whereby they are enabled to help themselves and their families
without depending upon the assistance of their neighbors or com-
promising in the smallest degree their independence of character."
I may also quote his conclusion, applicable to the conditions of
to-day, that " every poor man is now called upon to fulfill his most
sacred obligation, an obligation as binding upon the hard-working,

LIFE INSURANCE AS A SCIENCE 233

honest man as upon the most opulent individual, parent, or husband
in the world — to his wife and his helpless offspring." It is the
mission, the aim, and the object of insurance, primarily and chiefly,
to diminish dependence and increase by individual effort, frugality,
and forethought the social and economic independence of the masses.

While insurance may rightfully claim recognition as a science, as
a business pursuit it is still far from being a professional career.
The general aspect of insurance as a career or business pursuit has
been discussed in much detail by the Honorable John F. Dryden in
a paper contributed to a series of articles on the subject to the New
York Tribune. Of late years insurance education has been intro-
duced into colleges and universities, sometimes in connection with
general instruction in commerce and banking, as, for illustration, in
the Charter School of Finance, University of Pennsylvania, and in
the University of Wisconsin; or occasionally as an independent course
of instruction, as, for illustration, at Yale. In a general way, how-
ever, it is yet too early to speak of insurance education as professional
training. The general method of instruction in insurance is still
of too elementary a character, the elements of success in office and
field administration are too ill-defined, and the principles of business
conduct are too far from being reduced to scientific uniformity to
permit us to speak of insurance as a professional career.

But as a business pursuit it is deserving of the most serious con-
sideration, and I may repeat the glowing tribute to the insurance
agent by Elizur Wright that " among the honorable workers in the
civilized world to whom the public as well as the insured will die
indebted, we give faithful and successful life insurance agents a
high place. It is hardly possible to believe that a life insurance agent
can achieve any long-continued success without bringing into action
some of the noblest qualities of a sterling man, and no field that we
know of is more inviting to an ambition that would devote the best of
talents to the benefit of society at large and individuals in particular."

A prerequisite for an effective university education is the need
of comprehensive or approximately complete insurance libraries.
All of the more important companies have libraries of more or less
extent on insurance, statistics, and related sciences, but the three
libraries deserving of special mention are the Walford collection of
the Equitable Assurance Society, the Bibliotheque de 1'Utrecht, and
the library of the Prudential Insurance Company of America. The
Prudential Library of insurance and statistics includes over twenty
thousand volumes and pamphlets, supplemented by an extensive
collection of data on every subject relating to insurance science.
The Boston Insurance Society has a good library, of which a cata-
logue has been published. The Life Insurance Company of Utrecht
has published a valuable catalogue, which has been reissued in a

234 INSURANCE

fifth edition in 1903. No comprehensive bibliography of insurance
exists, but Pocock, in 1840, published a small volume, which is now
extremely rare, including a list of the more important works on
insurance, the doctrine of chances, gambling, lotteries, etc., which
had been printed up to that time. The list, however, is far from
being complete. Probably the most comprehensive collection of
works on insurance and related subjects is the library of the Insti-
tute of Actuaries of Great Britain.

The relation of insurance science to religious agencies and religious
influence, both individual and social, is implied in the earlier dis-
cussion of the ethical sanction of insurance as a method of social
amelioration. Professor Clark has well said that "certain modern
religious problems need to be apprehended as well from the material
as from the spiritual side," and of these life insurance has, almost
from its inception, received the sanction and active encourage-
ment of the Christian Church. The first name on the list of the
incorporators of the Amicable Society for the Insurance of Lives,
organized in 1705, is that of the Bishop of Oxford. The first compre-
hensive and practical work on life insurance theory was published
in 1762 by the Rev. Richard Price, a Unitarian clergyman. Some of
the earliest works on annuities and reversions developed out of con-
siderations of the value of church leases and inquiries into the tenant
rights of church and other foundations. Some of the first steps in
the direction of improving the tables and premium rates of burial
clubs and friendly societies were made by ministers of the Estab-
lished Church, and I may mention the Rev. Mr. Becher, whose works
are still valuable for instruction and reference. It has been for
many years the practice in England to organize burial clubs and
insurance societies of children of Sunday-schools, which, as far as
I know, have served and continue to serve a useful purpose. The
first two active insurance organizations in the United States, one of
which is still in existence, were the Presbyterian Ministers' Fund,
established in 1759, and the Society for Episcopal Clergymen, estab-
lished in 1769. An insurance company for clergymen has been in
existence in London since 1846, and among the efforts of the Salva-
tion Army I may mention the Industrial Insurance Department,
which has made satisfactory progress.

These illustrations will suffice to show that the insurance idea has
the sanction of the Church and religious approval generally, although
some have held and still hold that " these institutions are conducted
on a principle contrary to a trust in Providence." In answer it has
properly been argued that "life insurance takes its rise in one of the
most respected features of human nature — foresight, or a provision
against contingent evils; and having most particularly in view the
succor of the widows and fatherless, it is essentially a moral and

LIFE INSURANCE AS A SCIENCE 235

humane institution. Life insurance should not, therefore, be con-
sidered as an interference in any degree with the course of Providence,
which some rashly assume it to be, but, on the contrary, the taking
advantage of a means kindly offered by Providence for our benefit."
This is the view which prevails at the present time and which gives
religious as well as moral sanction to the development of life insur-
ance as a universal provident institution.

I have only given consideration to the most important depart-
ments of science in their relation to insurance, but had time per-
mitted, a more comprehensive survey would have disclosed other
important relations tending to confirm the view that insurance is by
right entitled to the position assigned to it in the classification of
the sciences as adopted by this Congress. As a comparatively new
department of human inquiry and action, insurance found no place
in the earlier classifications by Bacon, Comte, and Spencer, but no
scientist of the future and certainly no economist can rightly ignore
what, in time, will become a tremendous force making for the mate-
rial well-being and the economic independence of the vast majority
of civilized people in all portions of the earth.

It is equally certain that the insurance manager of the future
will give more and more consideration to the teachings of both the
abstract and concrete sciences, with the aim to adjust the practical
administration of insurance to sound scientific theory derived from
extensive investigations into the vast range of related sciences.
For the future conduct of the business the demand will be for trained
minds, qualified to deal with problems more complex and involved
than the problems and difficulties of the past. As it has well been
pointed out by the Honorable John F. Dryden in a paper on " In-
surance as a Career ": " In a general way it may be said that the
scientific temperament is most likely to lead to success in home office
administration, for scientific training, as well as all higher educa-
tion, distinctly qualifies a man for administrative responsibility."

Insurance is to-day the foremost social institution of civilized
countries. The business has assumed enormous proportions, and the
tendency of the " insurance idea " is toward an ever-increasing area
of general usefulness. To both the individual and the state, insur-
ance is to-day an indispensable method and means for the main-
tenance of our standard of social security and progress. In the
struggle of the masses for economic freedom and a more equitable
distribution of wealth, insurance aids and sustains all other forces
making for this much-to-be-desired end. Insurance in its final
analysis is simply a business method to make the world a better
place to live in, than which no aim or purpose could be a higher or
more worthy one.

PRESENT PROBLEMS IN INSURANCE

BY BALTHASAR HENRY MEYER

[Balthasar Henry Meyer, Professor of Political Economy, University of Wiscon-
sin, and member of the Railroad Commission of Wisconsin, b. Mequon, Ozauhee
County, Wisconsin. B.L. University of Wisconsin, 1894; Ph.D. ibid. 1897;
Post-graduate, Berlin, 1894-95; ibid. University of Wisconsin, 1895-97. As-
sistant Professor of Sociology, University of Wisconsin, 1897-99; conducted an
investigation on fraternal societies for the Committee of Fifty in 1900; prepared
a report for the United States Industrial Commission, 1901 ; expert special
agent, representing the Bureau of the Census and the Interstate Commerce
Commission, conducting an investigation on the valuation of railways in the
United States, 1904-05 ; appointed member of the Railroad Commission of
Wisconsin, June, 1905. Member of American Economic Association; Wisconsin
Academy of Sciences and Arts; American Academy of Science, etc. Author of
many papers and monographs dealing with transportation, special economic
and educational subjects.]

PRESENT problems in insurance are both theoretical and practical.
In their theoretical aspects they have been treated in the address
of my colleague on the relation of insurance to other branches of
knowledge. This paper aims to deal chiefly with the more practical
aspects of insurance problems in which the policy holder and the
public have an interest. The point of view will be the American
and only incidentally will references be made to foreign experiences
and conditions. Foreign countries offer much that has value for
purposes of study, and many an important lesson may be learned
from the manner in which the business of insurance has been con-
ducted in other countries and the relations which the various govern-
ments have maintained towards this business. Limitations which
must obviously be imposed upon this paper make it necessary to
confine the discussion primarily to conditions in the United States.

In some respects the problems with which the insurance world
has been concerned ever since the institution began to assume
definite form and affect a considerable part of the population, are
also the insurance problems of to-day. Numerous transformations
and additions have been made since the first struggles of the experi-
mental stage, yet the problem of organization is still before us.
The perplexities and diversities of the rise of the agency system have
disappeared, but the agency system itself requires the attention of
the best minds of the day, with the view of bringing about adjust-
ments more in the interest of the policy-holders and of a sound public
policy. The gloom of wholesale failure has been dispelled by the
light of sound finance; nevertheless the wild-cat organization still
prospers and the organization which makes impossible promises is
passing from the scene with painful slowness. Policy contracts have
been made more uniform, but the multitudinous details of endless
options which are spread before the policy-holder befuddle even the

PRESENT PROBLEMS IN INSURANCE 237

sanest minds. State regulation and supervision have been estab-
lished the country over. It lies with the future to reduce these many
divergent systems of supervision to one uniform and harmonious
whole. One branch of insurance after another has been developed,
and a number of new ones are at present in an inchoate state. Many
more must be added before the entire field has been covered.

These introductory remarks need not be extended to greater
length in order to suggest the variety of the problems which exist
in the vast field of insurance. Without further preliminaries, at-
tention may be directed towards one of the most important present
problems, namely, that of making insurance an all-inclusive insti-
tution — all-inclusive with respect to the population insured and
all-inclusive regarding the contingencies insured against.

The total number of policies in force in the old line companies
has been estimated at nearly 5,000,000, with an average policy of
about $2500. The total number of persons carrying industrial
insurance has been estimated at nearly 14,000,000, with an average
amount of insurance of $135. The membership of the fraternal soci-
eties is nearly 4,500,000. In addition, the insurance features of labor
organizations and relief associations must be considered. The total
number of persons who carry protection in one or more of these three
great groups aggregates nearly 25,000,000. Considering that this
estimated number of policy-holders includes many duplications, and
that industrial insurance statistics include not only the bread-win-
ners but all members of the family, it is obvious that many mil-
lions are without the protection of insurance. If insurance is a good
thing, if it is in the interest of public and private welfare that the
individual should be protected in this manner, — and I assume that
it is, — then something should be done to draw into the insurance
membership every person who has not won a position of economic
independence so far as it is possible within the realm of human action
and foresight to be independent. The exempted class is relatively
insignificant, and what may constitute the tests of exemption from
insurance is of little moment in comparison with the problem of
ways and means which must be devised for bringing into the insur-
ance fold the millions who are now recklessly, thoughtlessly, or crim-
inally assuming risks for which they lack both economic and moral
qualifications. Men frequently take their lives into their own hands.
Sometimes this is courageous; sometimes foolhardy; always hazard-
ous; but nothing can atone for the crime of taking into one's hands
the lives of others, unless these hands have the support necessary
for the successful performance of those duties upon which the safety
of the precious charges depends. Over the greater part of Europe
the problem before us has been solved through the establishment
of systems of compulsory insurance, much of which is state insur-

238 INSURANCE

ance. The people of the United States have thus far shown little
inclination towards an extension of state functions comparable to
the functions exercised by European states. Except within certain
well-defined limits such an extension may not, at present at least,
be in the interest of the population at large, whatever the future
may bring and irrespective of contemporary symptoms indicative of
a possible change regarding public sentiment upon certain phases
of this problem. If it is in the interest of the whole population that
every head of a family and every one who aspires to become such
should consciously and systematically make provision for the uncer-
tainties of life, then it becomes the function of the state to work for
this end, for no arbitrary considerations can limit the functions of
the state, which are coextensive with human welfare. While the
state cannot say to the citizen, " You must insure in this company,
and for such an amount," it can say to him, " You shall insure some-
where, and for a minimum amount." The general welfare clauses
of our constitutions provide an adequate foundation for such man-
dates. Under existing conditions, compulsory insurance would
mean insurance in established private companies or companies still
to be organized. Most men find ample choice among the many
excellent companies. Compulsion implies all men, and for those
who, for one reason or another, might refuse to take out insurance
in an existing company the state would obviously be obliged to
provide the facilities for insurance. Admit the principle of com-
pulsion and direct state action must be accepted as its corollary.
In other words, compulsory insurance means state insurance for
those who refuse to take out the legal minimum in existing institu-
tions. This is compulsory insurance, but not insurance compulsion,
which would coerce every eligible citizen into a specific organization.
The German law expresses this difference admirably in providing
for Zwangsversicherung, but not Versicherungszwang. Compulsion
is generic, and the limited state action just suggested is specific for
that part of the population which requires specific treatment.
However divergent men's views may be with respect to the extent
of state functions, there can scarcely be much difference of opinion
regarding the necessity of some degree of state compulsion if we
admit the universality and inclusiveness of the principle of insurance.
This necessity exists, and for proof of its existence one may point
to the swollen figures of charity and relief societies. There is scarcely
a community which has not its poverty-stricken mothers and children
left unprotected when the breadwinner was stricken down. Every-
where about us we see the evidences of want and poverty resulting
from accidents for which no one may have been directly responsible,
but which, nevertheless, cripple and annihilate homes. Whatever
the scope of compulsory action may finally be, it must, above all,

PRESENT PROBLEMS IN INSURANCE 239

include accident insurance. As consumers and as taxpayers the
vast majority of men will cheerfully contribute their share towards
compensating the wage-earner who has become completely or par-
tially incapacitated in consequence of an accident for which no one
may be responsible. Where such responsibility exists, employers'
liability and laws governing negligence can be invoked.

In view of the many opportunities offered by existing insurance
institutions, it is not probable that the state will be compelled to
perform the functions of an insurance company to any very great
extent. The principle of compulsion, however, will oblige the state
to provide insurance for the uninsured residuum, but for no more.
Whatever may be required of the state in order to provide for this
residuum is fully justified by the important social and economic con-
sequences of this form of state action.

When arguing in favor of more favorable laws governing taxation,
representatives of insurance companies generally allude to the phil-
anthropic element in insurance, because the companies assume a bur-
den which the state would otherwise be called upon to carry in the
form of aid and relief for dependents. This argument applies with
even greater force to state compulsion and the consequent saving in
expenditures for the poor and dependent. Insurance as a preventive
and remedial institution cannot be complete without direct action
by the state. On a limited scale state action has already been
resorted to in municipal insurance of firemen, policemen, and other
special classes, and a compulsory law of Maryland has recently been
declared unconstitutional.

Without attempting to establish a hierarchy of insurance problems,
in which every question shall succeed every other in logical succession
and in the order of its relative importance, next to the problem of
making insurance an all-inclusive institution may be placed the
problem of the better adaptation of the policy to the policy-holder.
Jefferson is credited with having said that a fool can put his coat
on better than a wise man can do it for him. A first-class agent
sees to it that his client selects none but the best-fitting policy;
but it is not difficult to demonstrate that for a considerable part of
the agency brotherhood it is assumed as a fundamental and deter-
mining consideration that the interests of the agent's pocketbook
are in absolute harmony with the interests of his client. Hence
we find men hopelessly attempting to carry high-priced investment
policies, who would be served much better by purely protective
policies. If, after a full, accurate, and truthful exposition, a client
deliberately selects an ill-fitting policy, the policy-holder must bear
the consequences, for no invention has yet eliminated the fool.
But when an agent deliberately talks half-truths or falsehoods with
a view to influencing a prospective policy-holder in the direction of

240 INSURANCE

the agent's purse, the company which he represents thereby becomes
morally responsible for the consequences. Much can be said in
favor of establishing legal responsibility in addition to the formal
policy contract in all cases where misrepresentations have been,
made to the client. For illustrations of such misrepresentations
one needs only look about in any community of some size. It is
probably unjust to express ethical judgments regarding any great
number of men taken collectively, and the judgment here indicated
does not apply to thousands and thousands of agents. It does apply
to others, and a greater feeling of responsibility, leading to proper
official action on the part of the administrative authorities of com-
panies, will do much towards purging the insurance fraternity of this
harmful element.

An unmistakable indication of the necessity of insisting upon the
better adaptation of the policy to the policy-holder is found in the
widespread and deep-seated demand for " cheaper insurance."
Inquiries among agents who keep in touch with the masses of the
common people elicit the reply that this demand is emphatic and
imperative. By cheaper insurance these people do not mean insecure
insurance, which is no insurance, but insurance which will afford
them the greatest protection at the least cost. No reference is made
here to so-called insurance or protection which lacks the scientific
foundation of all insurance. The cry for cheaper insurance, which
is most emphatic during periods of depression, emanates in part
from a reaction against the excesses of so-called investment insur-
ance. There exists a great demand for investment insurance, but
the demand for pure protection is greater and includes larger num-
bers of the population. There is no occasion for quarreling with
the man who advocates investment insurance and the man who
wants to buy it. Each individual may well be left to the dictates
of his own judgment with reference to the question. If he prefers
to enter into a contract with an insurance company for the care of
his funds, there is no reason why he should not be permitted to do
so. It is essential, however, that the investment feature of insur-
ance should remain differentiated from the purely protective element,
lest the branch ruin the tree. Protection is the institution; invest-
ment is an incident of its administration. The incident should not
be permitted to obscure the institution.

In further proof of the popular demand for cheaper insurance and
for insurance at retail, the marvelous growth of industrial insurance
and the enormous expansion of the fraternal system may be cited.
The industrial companies abandoned the struggle of three dogs over
one bone and pushed out into new fields where there were many
bones and no dogs. Industrial insurance extended the fields of
protection into the ranks of the humbler but highly self-respecting

PRESENT PROBLEMS IN INSURANCE 241

and respectable classes. The methods of industrial insurance in
collecting small premiums at brief intervals are expensive and waste-
ful. The army of house-to-house solicitors and collectors must be
clothed and fed. But we cannot suddenly unmake the character
and habits of mankind. Present methods of industrial insurance
are adapted to human nature and the existing state of society. In-
surance methods and conditions of society may change together, and
with the lapse of time improved methods may exert an increasing
beneficial influence upon the attitude of society toward insurance.

Regarding the gains in membership of fraternal societies, the
reports of insurance commissioners show that in many parts of this
country these gains exceed the gains made by old line life companies.
In part, the gains in fraternal membership are doubtless the result
of natural growth and the more or less artificial multiplication of
orders; in part, they are probably due to the wholesome reforms
which many of these societies have instituted; but to a large extent
these gains must probably be attributed to the appeal to prospective
members, successfully made, as the figures show, that old line insur-
ance is too expensive and that fraternal insurance meets the needs
of the man in moderate circumstances. No opinion is here ex-
pressed relative to the merits of this appeal. The fact of this appeal,
however, must be observed. This fact carries with it a note of warn-
ing to the old line companies that they may not lose sight of the great
central idea of pure protection; and to the fraternal orders that they
may be prepared to assume and faithfully discharge the duties
which they have assumed and are desirous of assuming. It is a
matter of common knowledge that scores of fraternal orders are to-
day openly and persistently violating the most elementary princi-
ples of protection. To bring about changes in legislation which
shall compel every fraternal order to observe and rigidly obey these
elementary principles is one of the greatest problems in the insurance
world of to-day. The spectacle of conventions to determine rates
of premium and mortality tables by popular vote is as absurd as
a popular vote to determine the latitude and longitude of the mag-
netic pole. It is more than absurd; it is criminal. A popular vote
on the location of the magnetic pole is simply nonsense, and science
continues to advance in spite of the nonsense. A popular vote for
the formulation of mathematical principles upon the accuracy of
which the welfare of millions of our population may depend is arro-
gant ignorance deserving of the penitentiary. To continue to solicit
membership at rates which have been condemned by competent
authority is at least as culpable, if not worse, than to receive deposits
in a bank after the same is known to be insolvent. And the latter
has long been a criminal offense. Some fraternal orders have em-
ployed competent actuaries; a small number have followed the

242 INSURANCE

advice given by these actuaries; but great numbers of them are
still marching on to certain ruin under the impulse of morbid appeals
to brotherly love and sentimental twaddle about philanthropy.
Everything that has been said thus far regarding fraternal societies
is meant to apply only to that portion of the fraternal system which
offers definite sums of money to beneficiaries on the occurrence of
certain contingencies in return for contributions made irrespective
of the terms which the various societies may employ in designating
these features of their system. In other words, these remarks apply
exclusively to fraternal orders which are also insurance companies,
and which no amount of sophistry can make anything else. No
reference is made to that other portion of the fraternal world which
practices genuine benevolence and brotherly love, and which ex-
pends millions of dollars annually in charitable and relief work, but
which does not do an insurance business. A root and branch reform
of some kind is needed for the first-named class of societies. Possibly
a system of voluntary registration similar to that which eventually
effected a rejuvenation of British Friendly Societies may be expedient,
provided it is distinctly understood that unregistered societies are
of uncertain merit. Much can even be said in favor of compulsory
registration, provided a reasonable length of time is given to the
unsound societies in which to do their house-cleaning. Many leaders
among the fraternal orders have recognized the urgency of reform,
in evidence of which the proceedings of the fraternal congresses may
be offered. In fact, the volume of proceedings of the last congress
stands in strong contrast to a similar volume of ten or fifteen years
ago in the abundant evidences of a vigorous reform movement.
But the organization of the societies is such that reforms are unusually
difficult in their execution, and a single effective stroke of the law
would suggest itself as the most feasible and certain method of ending
a great public wrong. Granting a thorough reform of this phase
of the fraternal system, its future prospects appear to be unlimited.
Mutuality, self-help, rigid economy, thorough democracy, personal
sympathy, genuine protection, are all in the interest of public and
private welfare.

The question of mortality experience and rates is not confined
exclusively to fraternal societies. On the other hand, some of the
criticisms passed by fraternal societies upon the old standard mor-
tality tables can be shown to be partially just by the published
experiences of the companies and the studies of actuarial societies.
During the year 1903, for instance, the companies doing business
in Wisconsin saved approximately $18,000,000 out of an expected
mortality charge of over $102,000,000, while on three and one half
millions of expected annuities they lost $175,000. These facts show
that the assumed mortality was much higher than the actual rate of

PRESENT PROBLEMS IN INSURANCE 243

mortality. Whether this margin of approximately 20 per cent is neces-
sary in the interests of safety must be left to the actuaries. There are
those who believe that so wide a margin is not necessary; and if
the fraternal societies, by means of the homogeneity of their mem-
bership and the care of selection, can effect much more favorable
experiences, so much the better for them. Great credit is due to
the Actuarial Society of America for conducting the mortality inves-
tigation designed to show the actual risk incurred, on the basis of the
past experience of the companies included in the investigation, in
case of certain classes of policy-holders. This investigation has not
only contributed to the greater accuracy of mortality statistics,
but it has emphasized the relative degrees of healthfulness of certain
employments, occupations, and habits of life, and thus it may exert
a powerful influence upon the conditions under which men live and
do their work. The investigation suggests the possibility of separate
mortality tables for each important occupation, profession, or trade,
with corresponding differences in the rates of premium charges,
although the practical difficulties involved in the administration of
the various classes may be insuperable. Perhaps this question should
be excluded entirely from the scope of the present paper and con-
signed to the borderland between insurance and speculative philo-
sophy. Equality of treatment among policy-holders cannot exist
where men live under widely different sanitary and industrial condi-
tions. It is in the interests of correct habits of life and wholesome
surroundings that a special mortality rate be established for the
greatest possible number of classes. It will then also be easier to
deal equitably and intelligently with the problems of the sub-standard
and special risks, and the insurance of women. All these classes
must be dealt with if insurance is to become, as it seems it should, an
all-inclusive institution.

The inequality among policy-holders due to different habits of
life and conditions of employment suggests another source of in-
equality, namely, the inequalities in the proportion of the total risks
assumed and benefits received arising from the different amounts
of insurance carried by policy-holders in the same company. A
single risk of a hundred thousand dollars is a very different thing
from one hundred risks of one thousand dollars each. It has been
ascertained that there are forty persons in the United States who
carry more than $500,000 of insurance. A company composed
exclusively of policy-holders who carry, say, $500,000 each, if large
enough to enable the law of average to operate, would be perfectly
equitable and safe. But no one will claim that forty is a number
sufficiently large for the application of the law of average. Since
these forty are scattered among different companies, the inequalities
resulting from such abnormally large policies become even greater.

244 INSURANCE

Most companies have established a maximum which they will not
exceed in case of a single life. These maxima range from $10,000
up, $25,000 and $50,000 being most common. The heavy policies
are bound to operate to the disadvantage of the smaller policies in
the same company unless the rate of mortality among large policy-
holders is proportionately more favorable than the average; never-
theless an insurance man who attempts to convince a client that
his company possesses superior merits on the ground that it has a
number of heavy policy-holders stands on ground as dangerous as
that of the fraternal society which, in a published circular, main-
tained that the death of a brother soon after his admission increased
the financial strength of the society, because, under the rules of the
society, this death led to the transfer of a certain sum to the emer-
gency fund; while if the brother had lived and paid his contributions
a much smaller sum would have been thus transferred! Theoret-
ically, equality can exist only when the policies are all of the same
size and the mortality experience is the same for all age classes.
This exact equality is obviously impossible, and great numbers tend
to rectify the errors as applied to individual cases. Different men
want different kinds of policies in varying amounts. Where the
variations are not excessive a practical and substantial equality is
achieved. Where policy amounts are highly disproportionate,
inequality and absolute injustice must follow. Attempts have been
made to justify the large policy in a company composed overwhelm-
ingly of small policy-holders. The multiplication-table rests upon
neither conviction nor opinion.

It is an axiom of insurance that the assumed rate of mortality
must be greater than the rate experienced by the companies; that
the interest earned must exceed the rate assumed, and that the load-
ing, or allowance for expenses, must be greater than the actual
expenses. The last member of this tripod can no longer take rank
among axioms, for although the companies have been struggling
to keep down the expense rate, the cost of conducting the business
has in many instances exceeded the loading for expenses. In case
of the life companies doing business in Wisconsin, according to the pub-
lished report of the commissioner of insurance, this excess amounted
to over seven and one half millions of dollars out of a total expenditure
of over one hundred and fifteen million dollars during 1903. This
means either that the original allowance for expenses on the part of the
thirty-six companies which exceeded their loading was inadequate
or that the expense rate has become excessive. If the loading was
sufficient in the first place, the additional funds required in conduct-
ing the business must have been secured from other sources. Chief
among these possible sources are the savings from mortality and
gains in interest on investments. Both of these sources create funds

PRESENT PROBLEMS IN INSURANCE 245

which belong to the policy-holders, and their use for excessive and
unnecessary expenses is a misappropriation of trust funds. The
problem of the disposition of the surplus has been thoroughly dis-
cussed in a well-known insurance case still pending in the courts.
It is asserted that under present methods the companies are not
held to a rigid accountability regarding surplus funds, and that
the accumulation of great surpluses for long periods of time is the
chief, if not the sole, cause of all the evils which exist in the life
insurance business. Without affirming or denying the validity
of these assertions, there can be no reasonable differences of opinion
concerning the desirability of a rigid accounting for every dollar
held in trust for the policy-holders as a part of the surplus to be
distributed during subsequent years. There are various types of
policies providing for the accumulation of funds in the hands of the
company for the benefit of the policy-holder or his beneficiaries.
Policies generally provide for the distribution of these funds at the
termination of specified periods of time. According to some, these
periods of time should be short, say, one year; or, at least not to
exceed three or five years. The representatives of this line of thought
are opposed to every scheme of surplus distribution which projects
the distributing period five, ten, twenty or more years into the
future. Their opponents ardently defend long-term distribution
periods. The practice of some companies furnishes a satisfactory
middle ground between these extremes. Instead of distributing
surplus funds annually or once in three or five years, they keep a
careful account of the surplus earnings of every deferred dividend
or analogous policy, usually apportioned on the contribution plan,
and then make a single payment to the policy-holder at the termina-
tion of the period. Each policy-holder knows from year to year
what his share in the surplus is; hence no amount of future extrava-
gance or mismanagement can deprive him of this money. The
company is not tempted to use the funds thus assigned to policies
in paying excessive commissions or doing other doubtful things,
because this practice would be detected. If a man desires to employ
an insurance company to accumulate a single large sum at a future
date from many small contributions, there is no reason why he should
not do so. On the other hand, every consideration of good public
policy demands a rigid accountability on the part of the companies.
The plea that the accounting required under such a method is im-
possible for a great company may be met by the statement of fact
that some great companies have been doing this very thing for many
years. Strong arguments can be advanced in favor of short periods
for the distribution of the surplus; but with proper restrictions the
long period plans offer advantages which the short ones do not possess.
The arguments are not all on one side.

246 INSURANCE

Little unanimity of opinion exists regarding the equities of policy-
holders in the reserve and accumulated surplus in case of lapse or a
surrender of the policy. The early hard custom of absolute for-
feiture has gradually given away to more liberal privileges; and,
to-day, there are not wanting those who advocate perfect freedom
of withdrawal and surrender. Where the policy is a contract of
pure and mutual protection, the withdrawal of a policy-holder theo-
retically weakens the bonds which support the whole, and to this
extent it appears to be hi the interest of all the policy-holders to
impose a moderate fine or surrender charge upon the defaulting
member. The well-known argument of adverse selection or the
withdrawal of the better risks with its concomitants is generally
applied at this point. Where the policy, however, is a protective
contract coupled with endowment or other investment features,
a different treatment of the surrendered or lapsed policy is de-
manded, it being assumed in this discussion and taken for granted
that any extra expense incurred by the defaulting member on the
part of the company be charged to his policy. An examination of
the columns of statistics headed " Lapse or Surrender Values " shows
conclusively that many companies levy fines on the surrender of
so-called investment policies which have no more justification than
if a bank were to levy a fine upon the withdrawal of deposits. In
fact, deferred dividend and similar funds are very much in the nature
of bank deposits, and to fine the withdrawal of the one is as unjust
as to make a special charge for the reclamation of the other. The
justice and expediency of a reasonable surrender charge may be
admitted for the reasons usually stated in support of such charges,
reasons which, it should be remembered, are discredited by com-
petent men who take a different view of the question, without
sanctioning a practice of mulcting depositors which rests upon
nothing but the arbitrary dictates of an insurance company and the
extravagancy of a bad administrative system. It is no justification
of this system to say that the companies have been struggling with
agency, publication, and other reforms, which have been considered
many times. This abuse exists, and it will continue to exist until
policy-holders rise against it and the attendant evils which it directly
supports.

At various intervals in the history of company development in
the United States attempts have been made to secure for a single
company the legal privilege of engaging in a variety of enterprises.
Within recent years this tendency has been, perhaps, the dominating
one, and companies with omnibus powers are numerous in the indus-
trial field. Among the companies which are devoted to the newer
branches of insurance, such as fidelity, casualty, plate-glass, tornado,
and other relatively recent developments, there are those which

PRESENT PROBLEMS IN INSURANCE 247

attempt to do two or more kinds of business under the same charter
and over the names of the same set of officers. It is conceivable
that the same set of men may be able to undertake successfully
different branches of insurance at the same time. It has been
done. If it is to be continued in the future, good public policy, as
well as the best interests of the insured, demands that the different
branches of the business shall be managed by different companies,
operating under separate charters, each legally restricted to one
branch of the business, each responsible to the proper supervisory
authorities, and each absolutely independent as a financial institution.
This point should commend itself to the legislatures of the various
states in which new charters are sought. On the part of the older
insurance companies the mixing of functions on the basis of express
charter provisions practically does not exist. Because of their enor-
mous financial transactions these companies have, however, become
to some extent affiliated with institutions organized for other than
insurance purposes. Business affiliations of this nature are extremely
common in the industrial world and constitute one of the distinct
characteristics of modern economic development. When such
affiliations of insurance companies arise naturally out of the neces-
sity of investing great sums of money in the most profitable manner,
consistent with security, and extend no farther, no valid criticisms
can be raised against them. When, however, these affiliations of
insurance companies become tantamount to the assumption of
banking, transportation, manufacturing, or other powers, the inter-
ests of policy-holders as well as public morality demand a peremptory
abrogation of such powers and a complete separation of the affiliated
institutions. By adding the columns in Wolfe's Investment Directory
of Insurance Companies for 1904, any one may ascertain that the
insurance companies listed in the Directory own a total of about
$21,000,000 par value of preferred, and $81,500,000 par value of
common railway stock. They also own nearly $26,500,000 par
value of miscellaneous industrial stocks, of which nearly $6,000,000
par value are preferred, and over $20,000,000 common. Disregard-
ing that part of the holdings of preferred shares, which represents
voting-powers, the exact extent of which cannot be readily deter-
mined, the common shares represent 100,000 votes, assuming that
all are $100 shares, in the election of officers and directorates of
railway and industrial companies. To this extent the insurance
companies concerned operate railway and manufacturing establish-
ments. That this power is actually exercised, and occasionally with
czar-like authority, can be easily confirmed by a visit to Wall Street.
It may be argued that, having invested their funds in stocks carrying
a franchise power, the insurance companies must participate in the
management of the establishments represented by the shares held

248 INSURANCE

by them in order to protect their own interests through the appoint-
ment of competent officials. It is a sufficient and final answer to
say that no insurance company has a right to touch the shares of a
company which requires the wisdom and experience of the insurance
officials for its safe conduct. Shares of stock issued by a company
with the least taint of a suspicion of incompetent or dishonest man-
agement condemn themselves as investments for insurance trust
funds. There is positive, direct, and immediate danger hi unre-
stricted insurance investments in the common shares of railway
and industrial companies. Preferred shares may be as good as bonds
or as uncertain as inferior common shares, depending upon the
particulars of the case. It should be added, however, that the
moderate market fluctuations of shares, unless the shares were pur-
chased at too high a price, do not necessarily constitute valid objec-
tions to the investments in such shares, because the insurance com-
pany is interested not only in the security of the principal, but also
in the certainty and continuity of the interest or dividends, and the
rate of interest earned is not necessarily affected by moderate
variations in the market price of securities. Investments in railway
and other first-class bonds do not offer the objections inherent in
investments in stocks for the reason that bondholders do not gen-
erally have anything to do with the management of the properties
upon which the bonds are issued. The quiet influences which large
bondholders may exert can scarcely be made the object of unfavor-
able criticism from the point of view of the policy-holder.

Before dismissing the question of the affiliation of insurance
companies with other kinds of business, it is desired to direct atten-
tion towards the use of names in connection with some insurance
companies, notably some of the newer or weaker companies. It is
well known in insurance circles that men will permit companies to
use their names as officers and directors when the man who carries
that name may be absolutely ignorant of both the nature of the
insurance business and of the standing of the company which the
public is made to believe he directs. Long lists of " advisers " and
" councilors " who, hi a quiet way, become interested hi the com-
pany on some " ground-floor plan " are published and scattered
broadcast with the view of securing as policy-holders persons who
will be influenced by the fact that certain names appear in the list
of officers, councilors, or advisers. Sometimes these decorative
persons are promised financial rewards, abstracted as robber-tolls
from the premium payments of more honest policy-holders. All this
wretched business is too contemptible to deserve more attention in
this place beyond the exhortation that every citizen should do his
utmost to secure legislation which will forever banish the dishonest
insurance prospectus and the dishonest use of names in connection

PRESENT PROBLEMS IN INSURANCE 249

with the insurance business. Existing legislation is inadequate
to accomplish this. Legislation is not regarded as a cure-all, but
within limits it can direct, shape, turn, encourage, or prevent. It
can preserve and promote public interests where competition and
self-interest, even in their enlightened form, tend to produce unde-
sirable results.

Indeed, a survey of the insurance laws of to-day offers a variety
of suggestions. The taxation of the companies rests upon no uni-
form rule of administration or principle of taxation. Inequalities,
anomalies, and absurdities are everywhere apparent. The barbarity
of reciprocal laws continues without abatement. The diversities
in state legislation and the duplications and repetitions involved
in state supervision needlessly harass the companies and drain
their resources. Every analysis of the situation, undertaken from
whichever point of view, points toward the great advantages of a
single, fundamental federal code of insurance laws. This applies es-
pecially to taxation and supervision. The insurance business is over-
whelmingly an interstate business. It is by its very nature subject
to a great deal of publicity. It is a centralized business and,
therefore, it is relatively easy for a federal authority to supervise it.
No convincing arguments have yet been presented against a system
of federal supervision. A federal authority could prescribe uniform
reports and uniform rules concerning the general administration of
the business. Possibly there are some points which could be left
to the states. That is a matter of detail which can doubtless be
adjusted without difficulty when the time comes. A single examina-
tion of a company would then authorize it to do business in every
state. At present a company may be compelled to submit to the
inconveniences and expense of a number of examinations. The
expense of a single examination, according to authentic figures,
may exceed $50,000. This is the highest figure known to the writer.
Possibly other examinations have cost more. A repetition of such
examinations must affect the earnings on policies. Even though
this should not be the case to any appreciable extent, the system
of charging the cost of an examination to the companies is wrong
in principle and has been condemned by scores of state insurance
commissioners. Federal legislation would remedy the evil.

Federal legislation, by instituting a single supervisory authority,
would also make it possible to exercise a more intelligent control
over the policy contract. Under a system of multiple state super-
vision this would be entirely impracticable. The language of the
policy contract is frequently involved and usually " composite."
A simple form of contract, which any intelligent man may under-
stand, is desirable. If, now, every form of contract were made
subject to the approval of a competent supervisory authority, many

250 INSURANCE

of the absurdities and unnecessary complications in present con-
tracts would disappear. A specimen of every contract-form issued
should be deposited with the supervising office, and every contract
departing from the recorded and deposited types declared illegal.
This is not an argument in favor of absolute uniformity among the
companies, which would be undesirable in that it would deprive
society of the benefits which come from individual initiative and
invention. The competition of the companies in the attractiveness
of their policy provisions is one of the most valuable features of
the rivalry which has been keen for many years. Rivalry in bene-
fits bestowed upon policy-holders and in economy of management
brings advantages to society. The suggestion here made has for
its purpose simply the elimination of objectionable features in policy
contracts. It is a difficult, delicate, but not impossible task, and,
with adequate provisions for appeal, entirely safe.

Turning now towards the great field of fire insurance, upon which
so much of modern business rests, the most characteristic feature
of recent development is the rapid extension of the use of schedules
in rating risks, and the establishment of fire insurance exchanges.
Not very many years ago fire insurance was accurately described
as a magnificent system of guesswork. The schedule has reduced
the guessing element by furnishing a basis for the classification of
risks and the determination of rates, which can be made intelligible
to men of average understanding. Existing schedules have laid the
foundation for the classification of risks which may lead to the estab-
lishment of loss ratios for certain classes of property, similar to
mortality statistics for different classes of the population. The
establishment of average losses for different classes of property,
such as planing-mills, breweries, foundries, warehouses, etc., is one
of the most important problems of to-day. Since not every building
must be destroyed, even partially, fire insurance tables of losses
can never reach the degree of accuracy possessed by mortality sta-
tistics. Nor is this necessary. But up to very recent times the
problem of scientific rating has received relatively little attention.
Each building was regarded as a unit by itself, and a rate fixed for
it in a haphazard manner. The schedule introduced a standard by
which to judge the merits of different types of buildings, contents,
appliances, etc. The schedule places a premium on high-class con-
struction, good management, efficient fire protection, and thorough
inspection. The value of rigid compliance with established
standards is amply demonstrated by the remarkable record of the
New England manufacturers' mutual fire insurance companies. By
establishing and maintaining an insurance engineering station these
companies are doing a most necessary and highly valuable work in
applying scientific methods by which the entire fire insurance world

PRESENT PROBLEMS IN INSURANCE 251

may profit. The fire insurance exchanges have aroused some oppo-
sition, and very recently action has been brought against one of
them on the ground that it is a conspiracy in restraint of trade. I
regard the exchanges as one of the most valuable and indispensable
developments connected with fire insurance. They are compilers
of information. They work for uniformity in the inspection of
risks, in rating, in building regulations, and in every other depart-
ment of the work. The exchanges might well be intrusted with the
establishment of net rates, leaving it to the individual companies
to compete in economy of management and in the care with which
their risks are selected and inspected. The establishment of rates
by an exchange is likely to arouse hostility on the ground that the
exchange is a combination formed for the purpose of exacting exces-
sive rates from the public. This is an old cry. That the danger
exists is obvious. That it can be prevented is not open to reason-
able doubt. The exchanges merit full legal recognition with safe-
guards against the abuse of the powers which they may exercise.
An atomistic fire insurance world can bring advantages to no one,
and it is likely seriously to prevent progress. The abolition of the
exchanges would remove one of the most potent factors making
for scientific methods, and it is to be hoped that no such drastic
measures will be resorted to anywhere in the United States. I
cannot leave the subject of fire insurance without protesting once
more against valued policy legislation, because it is an encourage-
ment to crime and subversive of private and public morality. It
is no more profitable to enter into hysterics over " insurance and
crime " than over " theology and crime," but the valued policy
law is in itself objectionable from every point of view.

In conclusion, a few words must be devoted to those branches of
insurance which are still in an inchoate state and which were re-
ferred to in an earlier paragraph of this paper, in connection with
the suggestion to make insurance an all-inclusive institution con-
cerning the contingencies covered. The urgent need of dealing
fully with the problem of accident insurance has already been
pointed out. Insurance against losses from flood, tornadoes, hail,
and other destructive agencies is in the interest of society as a whole.
In view of the fact that these causes of loss do not appear with known
regularity nor within well-defined territorial limits, the question
arises whether this foim of insurance may properly be left to the
government. Studies have been made of the destructiveness of
floods and tornadoes which might be used as the basis for the imposi-
tion of a tornado or flood tax. The levees on the Mississippi were
built partly through federal aid, partly through levee district taxes,
and partly through state taxes. The same principle might be ap-
plied to the collection of flood, tornado, and hail taxes. These

252 INSURANCE

branches of insurance do not appear to offer suitable fields for
private endeavor, and conservative state action is well adapted to
meet their peculiarities. Within the last year companies have been
organized to insure losses resulting from strikes. Insurance against
loss of employment has also been considered to a limited extent; but
hi this, as in so many other special forms of insurance, we have not
even made a respectable beginning, and the attempts which have
been made in foreign countries may be studied by Americans to
great advantage. Because of the peculiar character of the con-
tingencies to be insured against, the last-named branches of insur-
ance represent difficulties which are unknown in life or even fire
insurance.

In the concluding sentence the writer desires to remind his audi-
ence that he has written as a layman from a layman's point of view.
The professional insurance man, who is responsible for the success
or failure of his business, must decide to what extent a layman's
judgment can find practical application.

SHORT PAPER

JAMES W. ALEXANDER, of New York City, contributed a paper to this Section
on the subject of " Do Governments and Law-makers Regard Life Assurance
from the Right Point of View? "

WORKS OF REFERENCE RELATING TO DEPARTMENT
OF ECONOMICS

(Prepared through the courtesy of Professor Emory R. Johnson)
ECONOMICS GENERAL

BULLOCK, C. J., Introduction to the Study of Economics. Rev. ed., 1900.
Silver. $1.28 n.

CAIRNES, J. E., Some Leading Principles of Political Economy Newly Expounded,
1874. Harper. $2.50.

CAREY, H. C., Manual of Social Science. Being a Condensation of (his) " Princi-
ples of Social Science," by Kate McKean, 1879. Baird. $2.00.

CLARK, J. B., Philosophy of Wealth: Economic Principles Newly Formulated,
1894. Ginn. $1.

COSSA, LUIGI, Introduction to the Study of Political Economy, rev. by the author
and tr. by Louis Dyer, 1893. Macmillan. $2.60.

DEVINE, E. T., Economics, 1898. Macmillan. $1.00 n.

ELY, R. T., Outlines of Economics, 1901 (Cit. lib. of econ., pol., and sociol.)
Macmillan. $1.25 n.

FAWCETT, HENRY, Manual of Political Economy, 7th ed., 1888. Macmillan.
$2.60 n.

FETTER, FRANK, The Principles of Economics, 1904. Century Company. $2.00.

GEORGE, HENRY, Science of Political Economy, 1898. Doubleday. $2.50.

GIDE, CHARLES, Principles of Political Economy, 2d Am. ed., tr. and adapted
to Am. students by C. W. A. Veditz, 1904. Heath. $2.00.

HADLEY, A. T., Economics. An account of the Relations between Private Pro-
perty and Public Welfare, 1899. Putnam. $2.50 n.

INGRAM, J. K., History of Political Economy, pref. by E. J. James, 1888. Mac-
millan. $1.50 n.

MARSHALL, ALFRED, Principles of Economics, 4th ed. Macmillan. $4.00 n.

MILL, J. S., Principles of Political Economy; abr. with notes and a sketch of
the history of political economy, by J. L. Laughlin, 1898. Appleton. $3.50.

NICHOLSON, J. S., Principles of Political Economy, 3 vols., 1897-1901. Mac-
millan. Vol. i, $3.00 n.; vol. n, $2.25 n.; vol. in, $3.00 n.

PALGRAVE, R. H. I., Ed. Dictionary of Political Economy, 3 vols., 1894-99. Mac-
millan. $6.50 n. each.

PATTEN, S. N., Theory of Prosperity. 1902. Macmillan. $1.25 n.

RICARDO, DAVID, Principles of Political Economy and Taxation, ed. by E. C. K.
Conner, 1891. Macmillan. $1.50 n.

SEAGER, H. R., Introduction to Economics, 1904. Holt. $2.00 n.

SIDGWICK, HENRY, Principles of Political Economy, 3d ed., 1901. Macmillan.
$4.50 n.

SMITH, ADAM, An Inquiry into the Nature and Causes of the Wealth of Nations;
reprinted from 6th ed., with mtro. by E. B. Bax, 2 vols., 1901. (Bonn's stand,
lib.) Macmillan. $2.00.

WALKER, F. A., Political Economy, 3d ed., rev., 1888. (Am. sci. ser. Adv.)
Holt. $2.00.

WELLS, D. A., Recent Economic Changes and Their Effect on the Production
and Distribution of Wealth and the Well-Being of Society, 1898. Appleton.
$2.00.

WRIGHT, C. D., Industrial Evolution of the United States, 1897. Scribner.
$1.25n.

254 BIBLIOGRAPHY: DEPARTMENT OF ECONOMICS

CAPITAL AND WAGES

BOOTH, WILLIAM, In Darkest England, and the Way Out, 1890. Funk. $1.00.
CLARK, J. B., The Distribution of Wealth: A Theory of Wages, Interest, and

Profits, 1899. Macmillan. $3.00 n.
OILMAN, N. P., Profit-Sharing between Employer and Employee: A Study hi

the Evolution of the Wages System, 1896. Houghton. $1.75.
LEVASSEUR, EMILE, The American Workman, Am. tr. by T. S. Adams; ed.

by Theodore Marburg, 1900. (Johns Hopkins Univ. Studies in Hist, and Pol.

Sci.) Johns Hopkins. $3.00.
MARX, KARL, Capital: A Critical Analysis of Capitalist Production; tr. by Samuel

Moore and Edward Aveling; ed. by Frederick Engels, 1890. (Humboldt lib.)

Humboldt Publishing Company. $1.75.
MITCHELL, JOHN, Organized Labor; Its Problems, Purposes, and Ideals, and the

Present and Future of American Wage Earners, 1903. American Book and

Bible House. $1.75.
ROGERS, J. E. T., Six Centuries of Work and Wages; the History of English

Labor, 1884. Putnam. $3.00.
ROWNTREE, B. S., Poverty: A Study of Town Life, 2d ed. 1902. Macmillan.

$3.50 n.

TAUSSIG, F. W., Wages and Capital. An Examination of the Wages Fund Doc-
trine, 1896. Appleton. $1.50.
WALKER, F. A., The Wages Question : A Treatise on Wages and the Wages Class,

1891. Holt. $2.00.
WEBB, SIDNEY AND MRS. BEATRICE (POTTER), History of Trade-Unionism, new

ed., 1902. Longmans. $2.60 n.
Industrial Democracy, new ed., 1902. Longmans. $4.00 n.

MONEY

BAGEHOT, WALTER, Lombard Street; a Description of the Money Market, 1902.

Scribner. $1.25.
BULLOCK, C. J., Essays on the Monetary History of the United States, 1900.

(Cit. lib. of econ., pol., and social.) Macmillan. $1.25 n.
CLEVELAND, F. A., Funds and Their Uses, rev.ed., 1903. (Appleton's bus. ser.)

Appleton. $1.25 n.

CONANT, C. A., History of Modern Banks of Issue; with Account of the Eco-
nomic Crises of the Present Century, 1902. Putnam. $3.00.
DUNBAR, C. F., Chapters on the Theory and History of Banking, 2d ed., 1901.

Putnam. $1.25.
GREENE, T. L., Corporation Finance. A Study of the Principles and Methods of

the Management of the Finances of Corporations in the United States, 3d ed.,

1904. Putnam. $1.25.

HAMILTON, J. H., Savings arid Savings Institutions, 1902. Macmillan. $2.25 n.
HEPBURN, A. B., History of Coinage and Currency in the United States, 1903.

Macmillan. $2.00 n.
JEVONS, W. S., Money and the Mechanism of Exchange, 1875. (Internat. sci.

ser.) Appleton. $1.75.
LAUGHLIN, J. L., History of Bimetallism in the United States, 4th ed., 1897.

Appleton. $2.25.
SCOTT, W. A., Money and Banking. An Introduction to the Study of Modern

Currencies, 1903. Holt. $2.00.
WALKER, F. A., Money in Its Relation to Trade and Industry, 1889. (Lowell

inst. lect.) Holt. $1.25.
WHITE, HORACE, Money and Banking Illustrated by American History, 2d ed

rev. and continued to 1902, 1903. Ginn. $1.50.

BIBLIOGRAPHY: DEPARTMENT OF ECONOMICS 255
SOCIALISM

ELY, R. F., Socialism, 1894. (Lib. of econ. and pol.) Crowell. $1.50.

Fabian Essays in Socialism, by G. B. SHAW, SIDNEY WEBB, WILLIAM CLARKE,
SYDNEY OLIVIER, ANNIE BESANT, GRAHAM WALLAS, and HUBERT BLAND;
ed. by G. B. Shaw; Am. ed. by H. G. Wilshire, 1891. (Social sci. lib.)
Humboldt Publishing Company. $0.75.

Fabian Tracts, Nos. 1 to 117; pub. by the Fabian Society, 1884 to 1904. 1904.
Fabian office. 4s. 6d.

GEORGE, HENRY, Progress and Poverty, newed. Doubleday. $1.00.

KIRKUP, THOMAS, History of Socialism, rev. ed., 1900. Macmillan. $2.00.

MENGER, ANTON, Eight to the Whole Product of Labor; the Origin and Devel-
opment of the Theory of Labor's Claim to the Whole Product of Industry;
tr. by M. E. Tanner; intro. and bibliography of H. S. Foxwell, 1899. Mac-
millan. $2.00 n.

RAE, JOHN, Contemporary Socialism, 1901. Scribner. $2.50.

SCHAFFLE, A. E. F., Impossibility of Social Democracy; sup. to "The Quint-
essence of Socialism "; authorized Eng. ed. with pref. by Bernard Bosanquet,
1892. (Social sci. ser.) Scribner. $1 .25.

FINANCE

ADAMS, H. C., Public Debts. An Essay in the Science of Finance, 1893. Appleton.

$2.50.

BASTABLE, C. F., Public Finance, 3d ed., rev., 1903. Macmillan. $4.00.
DANIELS, W. M., Elements of Public Finance, Including the Monetary System

of the United States, 1899. Holt. $1.50 n.
DEWEY, D. R., Financial History of the United States, 1903. (Amer. cit. ser.)

Longmans. $2.00.

PLEHN, C. C., Introduction to Public Finance, 1897. Macmillan. $1.60 n.
SELIGMAN, E. R. A., Essays on Taxation, 1895. Macmillan. $3.00 n.

TARIFF

BASTABLE, C. F., Commerce of Nations, 2d ed., rev, 1899. (Social ques. of

to-day.) Scribner. $1.00 n.

Theory of International Trade, with Some of Its Applications
to Economic Policy, 4th ed., rev., 1903. Macmillan. $1.25n.
LAUGHLIN, J. L., and WILLIS, H. P., Reciprocity, 1903. Baker & Taylor. $2.00 n.
PATTEN, S. N., Economic Basis of Protection, 1890. Lippincott. $1.00.
STANWOOD, EDWARD, American Tariff Controversies in the Nineteenth Century,
2 vol., 1903. Houghton. $5.00 n.

TRUSTS

CLARK, J. B., Control of Trusts, 1901. Macmillan. $0.60 n.

ELY, R. T., Monopolies and Trusts, 1900. (Cit. lib. of econ., pol., and sociol.)
Macmillan. $1.25 n.

HALLE, L. L. VON, Trusts; or Industrial Combinations and Coalitions in the
United States, 1899. Macmillan. $1.25.

JENKS, J. W., Trust Problem, rev. ed., 1903. McClure. $1.00 n.

MEADE, E. S., Trust Finance: A Study of the Genesis, Organization, and Man-
agement of Industrial Combinations, 1903. (Appleton's bus. ser.) Appleton.
$1.25 n.

256 BIBLIOGRAPHY: DEPARTMENT OF ECONOMICS

TRANSPORTATION

HADLET, A. T., Railroad Transportation. Its History and its Laws, 1903. Put-
nam. $1.50.
JOHNSON, E. R., American Railway Transportation, 1903. (Appleton's bus.

ser.) Appleton. $1.50.
Inland Waterways, 1893. American Academy of Political

and Social Science, Philadelphia. $1.00.
Ocean and Inland Water Transportation, 1906. (Appleton's

bus. ser.) Appleton. $1.50.
MEYER, B. H., Railway Legislation in the United States, 1903. (Cit. lib. of

econ., pol., and sociol.) Macmillan. $1.25 n.

MARVIN, W. L., American Merchant Marine. Its History and Romance, 1620-
1902. 1902. Scribner. $2.00 n.

WORKS OF REFERENCE RELATING TO THE SECTION
OF COMMERCE AND EXCHANGE

(Prepared through courtesy of Professor Edward D. Jones)

NOTE. — There is no systematic or book literature in English covering the
ground of this paper. The printed sources of information are trade-papers, the
addresses and proceedings of conventions of business men, public documents,
periodical economic publications, the popular magazines, the annual reports of
corporations, etc. It is therefore practically impossible to give a bibliography
which will be available except in a few of the larger libraries of the United States
which specialize in the collection of current industrial and commercial literature.
A few references on certain topics to indicate the character of the sources are
as follows:

Control of Raw Materials, see literature of the recent " trust" movement.
Control of Agricultural Raw Materials, Industrial Commission, vol. vi.
Elimination of Wholesaler, Industrial Commission, vol. xix, pp. 546; Stoves and
Hardware Reporter, July 16, 1903; The Manufacturer, November 16, 1903;
The Manufacturer, August, 1905; System, September, 1905, pp. 212-222.
Use of Guarantee, Hide and Leather, September 6, 1902; The Manufacturer,

May 1, 1906, p. 26-
Package, President's report, National Biscuit Company, 1901; Commercial

Bulletin and Northwest Trade, September 16, 1903.

Trade-Marks, Trade-Mark Record, New York City; The Shoe Retailer, Febru-
ary 22, 1905, pp. 24-25.

Brands, Iron Age, various issues of July and August, 1902.
Advertising, Trade (Detroit), September 16, 1903; System, June, 1906, pp. 568-

574; July, 1906, pp. 31-36.

Regulation of Profits, Paint, Oil and Drug Journal, February 11, 1903; Indus-
trial Commission, vol. i; Proceedings of Conventions of National Association
of Retail Druggists. Paint, Oil and Drug Rev., January 18, 1905, pp. 27-28.

Some of the more important systematic works on commerce in German are :
R. VAN DER BORGHT, Handel und Handelspolitik. Leipzig, 1900, with extensive

bibliography.
GUSTAV COHN, System der Nationalokonomie. Bd. in. Nationalokonomie des Handels

und des Verkehrswesen. Stuttgart, 1898.

W. LEXIS, Handel. Schonberg, Handbuch. Bd. n, 2. Halbband, Tubingen, 1898
M. SCHIPPEL, Grundzilge der Handelspolitik. Leipzig, 1903.
E. GLEISBERG, Allgemeine Handelskunde. Wien, 1899.

RECENT WORKS OF REFERENCE RELATING TO THE
SECTION OF MONEY AND CREDIT

(Prepared through courtesy of Mr. Horace White)

ADAMS, HENRY C., Public Debts, New York, 1887.

BOLLES, A. S., Financial History of the United States, 3 vols., New York, 1884-86.

BULLOCK, CHARLES J., Essays in the Monetary History of the United States,

New York, 1900.

CANNON, J. G., Clearing-Houses, New York, 1900.

CARLILE, WILLIAM W., The Evolution of Modern Money, London, 1901.
CONANT, C. A., A History of Modern Banks of Issue, New York, 1896.

The Principles of Money and Banking, New York, 1905.
DEWEY, DAVIS R., Financial History of the United States, New York, 1903.
DUNBAR, CHARLES F., Laws of the United States Relating to Currency, Finance,

and Banking from 1789 to 1896, Boston, 1897.
Economic Essays (edited by O. M. W. Sprague), New

York, 1904.
HEPBURN, A. BARTON, History of Coinage and Currency in the United States

and the Perennial Contest for Sound Money, New York, 1903.
JEVONS, W. T., Investigations in Currency and Finance, London, 1884.

Money and the Mechanism of Exchange, New York, 1880.
JOHNSON, JOSEPH FRENCH, Money and Currency, New York, 1906.
KNOX, JOHN JAY United States Notes; a History of the Various Issues of Paper

Money by the Government of the United States, New York, 1884.
LAUGHLIN, J. L., A History of Bimetallism in the United States, New York, 1886.

The Principles of Money, vol. i.

LINDERMAN, H. R., Money and Legal Tender, New York, 1887.
MITCHELL, WESLEY C., A History of Greenbacks, with Special Reference to

Economic Consequences and Their Issue, Chicago, 1903.
MUHLEMAN, MAURICE A., Monetary Systems of the World, New York, 1895.
New York Journal of Commerce, A History of Banking in all the Leading Nations,

4 vols. New York, 1896

NOYES, ALEXANDER D., Thirty Years of American Finance, New York, 1898.
SCOTT, WILLIAM A., Money and Banking, New York, 1903.
SHAW, W. A., History of Currency, 1252 to 1894, London, 1895.
SPAULDIXG, E. G., History of the Legal Tender Paper Money Issued during the

Great Rebellion, 2d ed., Buffalo, 1869.
TAUSSIG, F. W., The Silver Situation in the United States, 2d ed., New York,

1896.
WALKER, FRANCIS A., Money, New York, 1878.

Money in its Relation to Trade and Industry, New York,

1879.

International Bimetallism, New York, 1897.

WATSON, D. K., A History of American Coinage, New York, 1899.
WHITE, HORACE, Money and Banking Illustrated by American History, Boston,
1895, 2d ed., 1904.

BIBLIOGRAPHY: MONEY AND CREDIT 259

Report of the International Monetary Conference held in Paris in August, 1878,
Washington, 1879.

Proceedings of the International Monetary Conference held in Paris in April,
May, June, and July, 1881, Cincinnati, 1881.

Report of the International Monetary Conference held at Brussels in 1892,
London, 1893.

Final Report of the Monetary Commission of the Indianapolis Convention, Chi-
cago, 1898.

Papers Issued by the Gold Standard Defense Association, London, 1898.

History of the Coinage Act of 1873. Official Document of the House of Repre-
sentatives, Washington, 1900.

Papers Issued by the Sound Currency Committee of the Reform Club, New York,
various dates.

DIVISION F — SOCIAL REGULATION

DIVISION F— SOCIAL REGULATION

(Hull 2, September 20, 10 a. m.)
SPEAKER: PROFESSOR A. LAWRENCE LOWELL, Harvard University.

SOCIAL REGULATION

BY A. LAWRENCE LOWELL

[A. Lawrence Lowell, Professor of the Science of Government, Harvard Univer-
sity, b. Boston, Massachusetts, December 13, 1856. A.B. Harvard, 1877;
LL.B. ibid. 1880. Author of Essays on Government; Governments and Parties
in Continental Europe, etc.; joint author, with Judge F. C. Lowell, of Transfer
of Stock in Corporations; with Prof. H. Morse Stephens, of Colonial Civil
Service.]

IT has been said that the object of every writer is to draw a new
diagonal line through the field of human knowledge. Men love to
point out the connection between things apparently so far apart
as the spots on the sun and economic crises, or as the invention of
bills of exchange at Venice and the rise of the mendicant orders.
But the topic assigned to me at this Congress, " The Unity and
Inner Relations of the Political, Legal, and Social Efforts of Society,"
has little of the charm of novelty. The path is well trodden; and,
until a new philosophic light breaks forth, whatever is said on this
subject must be trite; what can be said in a short address must
obviously be superficial.

Let us take, first, the relation between politics and jurisprudence,
using the term politics, not in the narrow sense in which it is currently
employed, to denote the struggles of political parties, but in the
larger sense of the conduct of public affairs.

Law both provides the framework within which political life goes
on, and it is also the result of that life. It is like the shell of a mol-
lusk, or the trunk of a tree.

Whatever definition we take of law, whether we regard it as the
command of a superior, or accept the theory that it rests upon in-
trinsic natural justice, we may say that it is that part of the rules
of human conduct which is enforced, or at least may be enforced, by
public authority; such a definition, although vague, is wide enough
to include on the one hand primitive law, where the public author-
ity is rudimentary, and on the other hand public international
law, — a body of rules which a number of civilized nations habitu-
ally obey.

Now so far as politics does not deal with pure questions of persons,

264 SOCIAL REGULATION

either in the sordid form of distributing spoils, or in the higher aspect
of selecting efficient persons for office, it is concerned mainly with
the creation of law; not that the direct aim and object of political
activity is always legislation, but legislation in some form is usually
the indirect, if not the immediate, consequence of political achieve-
ment; and this is true where at first sight the connection may appear
remote. Political questions concerning foreign affairs, for example,
often give rise to treaties, to the recognition of some principle of
international law, or to a change in the legal relations of territory.
A successful effort in a city to obtain clean streets, or a pure water-
supply, is almost certain ultimately to leave its mark upon the
statute-book. It is hard to conceive of a struggle, even over a matter
of administrative discretion, that is not likely to result in legislation,
or subordinate legislative ordinance, or in the increase or diminution
of taxation. That which does not exclusively concern persons almost
of necessity involves principle ; and if a decisive issue is reached
the victorious principle is likely to be established by law. So that
the political warfare of to-day leaves its traces in the legislation of
to-morrow.

This may be the case, although the immediate result of the contest
is not embodied in positive law. The constitutional rule about
the responsibility of ministers has become firmly established in
England, and all her self-governing colonies, without any recognition
in the law. Yet the principle has deeply affected legislation. It
has given rise to statutes that would doubtless not have been enacted
otherwise, and in fact it has created the body that really initiates
all the important legislation in those countries.

So far as law is the result of political struggle, it is somewhat in
the rear of social evolution, and represents not the last stage of
human thought, but the next to last. For a rule of conduct is usu-
ally followed by large numbers of people before an attempt is made
to enforce it on the rest, and it is certainly largely recognized as a
rule that ought to be observed for some time before it is made com-
pulsory by public authority; while, on the other hand, laws that
have been outgrown, and have ceased to be in harmony with social
conditions, often remain in force for a considerable period before
they are repealed or become quite obsolete. Law represents, there-
fore, the crystallized elements of social evolution, while politics deal
with the fluid or transient elements. It deals with questions that
arouse immediate interest, and involves a constant effort to trans-
form current opinion into law.

Nodoubt some laws are ephemeral. They are the result of abort-
ive political efforts to bring about a change. In that case they do
not represent the next to last stage in social evolution, but an aspir-
ation, an effort to anticipate and create a future stage, an attempt

SOCIAL REGULATION 265

to give effect to principles for which their advocates erroneously
believe the community is prepared. The history of legislation con-
tains many such wrecks of unseaworthy statutes, and they are not
less numerous to-day, in spite of the far greater power of the state
to enforce its laws. Legislation intended to promote what a friend
of mine calls " righteousness by statute " is particularly common in
the United States, because of the easy and irresponsible way in
which statutes are enacted, and because it suits both the idealistic
temper and the practical qualities of the people to pass unwise laws
designed to work moral reforms, and then leave them unenf orced.

Most prominent among statutes of the kind are the liquor laws
in many places, the evasions of the law being sometimes clandestine,
sometimes open, and sometimes done with the connivance of the
authorities. Statutes of this class are passed on many subjects, out
of good nature, or in deference to the urgent appeals of deputations
of influential citizens. They may be enacted without any serious
intention of enforcing them, or they may be such that local opinion —
as is often the case with game laws — or the difficulty of proving
violation — as in the case of laws concerning railway rates — makes it
very difficult to enforce them. Some of these laws are harmless;
others are demoralizing to the men who evade them and weaken the
law-abiding character of the people; while others are a fertile source
of political corruption. The author of The Boss, an exceedingly
acute study of New York city politics, written under a feigned name,
and far less widely known than it deserves to be, has pointed out
that sumptuary laws, which can be violated on payment of a con-
tribution to the campaign fund of the party, are almost a necessity
for the support of the machine in the city.

Apart from tentative, ephemeral, and inoperative statutes,
political contests are the struggles of political growth, and the
political growth of a nation is eventually embodied in its laws.

All this may be supposed to refer to public rather than to private
law. Napoleon expressed that idea when he said: " The legislature
should legislate, i. e., construct grand laws on scientific principles of
jurisprudence, but it must respect the independence of the executive
as it desires its own independence to be respected. It must not criti-
cise the government, and as its legislative labors are essentially of
a scientific kind, there can be no reason why its debates should be
reported."1 In other words, he regarded private civil jurisprudence
as a science, quite independent of politics and public opinion. This
may be true of the construction of a code based upon existing law;
but it is certainly not true of legislative changes. In countries with
a popular government, deliberate alterations of the law are made to-

1 Quoted in Ilbert's Legislative Methods and Forms, p. 208. The original letter
does not appear to be extant.

266 SOCIAL REGULATION

day only with the consent of representative bodies, which are intended
for that purpose to reflect public opinion.

Such a relation to politics is not limited to statutes. Law is
created every day by bodies of learned lawyers. It takes the form
of precedents established by courts of justice in the course of the deci-
sion of actual cases, — the so-called judge-made law; nor is this process
confined to jurisprudence affecting private persons. The distinction,
indeed, between public and private law in no way coincides with the
difference between statutory and judge-made law; for, in the first
place, private law is freely made or changed by statute; and in the
second place, the most important body of judge-made law in Continen-
tal Europe to-day is the French droit administratif, which regulates
the official rights and duties of state functionaries and is, therefore,
pure public law. In this connection it may be noted, in passing, that
in Anglo-Saxon countries the administration of public law can be
safely intrusted to the ordinary courts, because there are always in
them a number of judges who have had actual experience of public
life. Chief Justice Marshall could hardly have laid, as he did, the
foundations of constitutional interpretation had it not been for his
knowledge of national affairs acquired in the public service, and the
same principle applies to every court when called upon to deal with
questions that touch administration. A certain sprinkling of judges
with political experience is needed to supplement those trained simply
by study and at the bar. This is one of many cases where the
efficiency of a public body depends upon the presence in small
quantities of what in large doses would be a poison.

A full discussion of the relation of politics in the larger sense of
the word to judge-made law would entail an examination of many
conflicting theories of jurisprudence. In his Beruf unserer Zeit fur
Gesetzgebung und Rechtswissenschaft, Savigny, the most celebrated
opponent of codification, declared that, for the most part, law, like
language, has developed by a process of natural growth in accord-
ance with the character of the people. Von Ihering, pushing
Savigny 's comparison of the growth of law and language farther,
perhaps, than the author really intended, criticised his theory, and
insisted that, instead of developing by the same quiet, unconscious
process as the rules of grammar, law was, and always had been, the
result of a struggle between conflicting aims and principles. As this
is not intended to be a discourse on jurisprudence, but merely an
attempt to point out certain relations existing at the present day,
it is not necessary to consider how far such doctrines are really in
conflict, and how far each of them is historically true. Nor is it
necessary for our purpose to analyze Austin's theory that law is a
command, and that courts in establishing precedents are creating
law by virtue of a legislative power delegated to them by the sover-

SOCIAL REGULATION 267

eign. Austin was not an historian, but a philosopher who based his
theories upon the facts that came under his immediate observation.
His insight into contemporary matters was keen and accurate, and
although his admiration for judge-made, or as he has called it,
" judiciary law," was by no means unbounded, his analysis of its
real nature is one of the best parts of his book. He made, however,
an admission which certainly goes far towards upsetting his theory
that the courts exercise a delegated legislative power. After declar-
ing that " the sovereign administering the law through subordinate
courts of justice is the author of that measureless system of judge-
made law or rules of law made judicially which has been established
by those subordinate tribunals in directly exercising their judicial
functions," Austin goes on to say: " In this country, where the rules
of judge-made law hold a place of almost paramount importance in
our legal system, it can hardly be said that Parliament (the so-called
legislature) is the author of those rules. It may, indeed, be said that
Parliament, by not interfering, permits them to be made, and, by
not repealing them by statute, permits them to exist. But, in truth,
Parliament has no effective power of preventing their being made,
and to alter them is a task which often baffles the patience and skill
of those who can best command parliamentary support."1

Now this remark is interesting because it would seem that the
legislature is constantly acquiring greater capacity of controlling
and reversing judge-made law. In the past we have seen cases where
the legislature has found it impossible to carry out its will, and where
courts have virtually made a statute of no effect by their interpreta-
tion. This was true in the celebrated case of the English Statute
of Uses, which was designed to prevent the creation of subordinate
interests in land, but is commonly said to have resulted only in the
addition of three words to every conveyance. A very striking
example in later days is the decree of the French Government of
National Defence in 1870 repealing the provision in the constitution
of the year VIII that protected public officials from suit or prose-
cution. The decree was intended to remove all hindrances in the
way of bringing the officials before the ordinary courts; but the
Tribunal of Conflicts decided that it applied only to their personal
protection, and did not affect the principle of the separation of
powers which, as understood in France, forbids the ordinary judges
to pass upon the legality of official acts. This example of the exer-
cise of power by a court to defeat the intent of the legislature is
certainly very recent, but it could hardly have occurred except in
the revival of the ordinary functions of government after a period
of revolution.

Austin's Jurisprudence, Campbell's Students' Ed., p. 99. This does not
appear in the original edition of Austin's work.

268 SOCIAL REGULATION

Austin's remark, however, still retains some truth. Even at the
present day the legislature has no effective means of anticipating by
statute the doctrines laid down in judicial decisions, and does not
always find it easy to alter them after they have been made. A
representative assembly that would reject by an overwhelming
majority a bill to enact a certain principle of law may hesitate to
reverse that principle when it has been sanctioned by the courts.
It often happens that a negative course is the most prudent and
politic for a representative chamber, and this gives real force to judi-
cial initiative.

Nevertheless the decisions of the courts on important questions
of law attract so much attention to-day, and the power and flexi-
bility of legislatures has increased to such an extent, that the enact-
ment of a statute to change a principle judicially declared is less
difficult than it was formerly. Judge-made law has, therefore,
become subject to legislative revision to a greater extent than in the
past. In giving their decisions the courts are, and it is of most
fundamental importance that they should be, absolutely free from
political control, but the growth and stability of the law they make
depends ultimately on its accord with the public sense of justice.
Law cannot endure permanently upon any other basis. At the
close of the Middle Ages the customary law of most of Continental
Europe, having failed to develop with advancing civilization, was
swept away by the advent of the Roman law. Such a legal revolu-
tion could hardly occur again, because with the growth of legisla-
tive power the control over judge-made law is more rapid and more
constant. If the courts are too closely bound by precedents which
are no longer adapted to social conditions, or if their judgments do
not accord with the public sense of justice, their law will be changed
by statute. So that judge-made law, not the decisions in particular
cases, but the principles established by those cases, is to-day ulti-
mately subject to political approval. The nineteenth century has
certainly shown that in Anglo-Saxon countries the vitality of judge-
made law has in no wise diminished; but it endures upon the con-
dition that the principles of law so established must be in general
accord with the sense of justice of the community; and that where
this is not the case they can be and will be set aside.

Let us now turn to the relations between social science on the one
hand and politics and jurisprudence on the other.

The collections of people treated in the various sections under the
Department of Social Science at this Congress fall into two distinct
classes. They appear to be distinguished in the programme by the
terms community and group, and hence those expressions will be used
in this paper, the word " group " indicating a body of people who, as
the cause or result of similar conditions, display similar feelings and

SOCIAL REGULATION 269

opinions; while the so-called communities have in addition a sense,
or at least a much stronger sense, of solidarity and of common inter-
est, some organization, and a capacity for common action. In
short, the members of one class have similar, and those of the other
have common, sentiments and opinions. The line between these
classes is not absolute, and the classes themselves are by no means
fixed. A body of persons, that form at one period of the world's
history a group, may at another form a community. The family and
the local community were, of course, true communities before the
dawn of history; and certain bodies of people, such as the dependent
group, and still more clearly the groups of lunatics, feeble-minded,
and infants, have never been, and could hardly be, communities at all;
but, on the other hand, bodies of men pursuing the same occupation,
though usually mere groups, have become communities at times and
under exceptional conditions. The trade-guilds of the Middle Ages
were communities of this kind, and many bodies of workmen that
had previously been nothing more than groups have developed into
communities during the last hundred years. The trade-unions of
the present day are both an expression of a sense of solidarity and
an attempt to turn a group of workmen into a true community.

Now, although neither of these classes can be left out of account
in the study of politics and jurisprudence, the community, with its
capacity for common action, is" by far the more important of the
two. Groups involve less difficult problems for both politics and
jurisprudence, because in their case the only matter to be consid-
ered is the welfare of the group and of the public at large. In the
case of communities the question is further complicated by the
wishes and the action of the community itself. This may or may not
lead to a more just solution according to the wisdom, moderation,
and mutual respect, or the animosities and the exasperation, of the
various bodies of men concerned. But in any case it adds to the
elements of the problem. Whether the movement, for example,
to transform bodies of workmen into communities in the form of
trade-unions has been beneficial or not, it has certainly, from the
point of view both of politics and of jurisprudence, made labor ques-
tions more pressing and more complex.

In treating of the relation of communities to politics and juris-
prudence, we must distinguish between those that are based upon
status and those that are voluntary. For although this distinction
applies to groups as well as to communities, it is naturally far more
important in the latter case.

The classification of social entities according as they are based
upon status or upon voluntary association requires, however, both
explanation and definition. In some cases the members become such
without any voluntary action or possibility of choice on their part.

270 SOCIAL REGULATION

This is true of children born into a family, and, in an early period
of society, into a tribe or local community. Then there are cases
where the membership, while not assumed for the purpose of mem-
bership, is the result of a condition or status which is voluntary in
the sense that in theory, at least, the condition is the result of choice,
or might have been avoided. That is the case with the dependent
and criminal groups. It is the case also with the urban and rural com-
munities. A man is free to live in a city or not as he pleases, but
he usually moves his abode to a city, or remains there because his
occupation or engagements lead him to do so, not because he desires
to be a member of an urban community. In all groups or com-
munities of the foregoing kinds the membership is the inevitable
result of a status which may itself be voluntary or not; and these
are the only kinds of groups treated under the different sections of
Department 22 at this Congress. But there is another kind of
entity, the membership in which is purely voluntary, because the
members belong to it not on account of any extrinsic condition
or status, but for the sake of the group itself. How far the choice
is really deliberate or free, and how far the result of environment,
of the association of ideas, and of suggestion, over which the in-
dividual has little actual control, we must leave to the psycho-
logists, and especially to the Section on Social Psychology. We are
concerned here only with the political and legal aspects of the pro-
blem, and from that point of view the membership may be regarded
as voluntary. Of such a character are social and learned clubs of
various kinds, religious bodies, philanthropic organizations, and,
let us add, political parties. In this connection it may be observed
that the trade-unions are striving to become communities based
upon status instead of voluntary association. This effort lies at the
foundation of the conflict over the open and closed shop. The policy
of the closed shop, if successful, would drive every man who pursued
a certain occupation into the trade-union; while the principle of
the open shop leaves the union a voluntary body, and for that reason
any one familiar with the trend of civilization will be very much
inclined to doubt whether the effort is likely to succeed.

As an example of the political and legal problems presented by
communities based upon status, we may take the race question.
This problem, in one shape or another, faces most of the great civil-
ized nations at the present day, either in their national or their
colonial administration. A number of solutions of it have been
essayed. The simplest and most drastic is that of expelling or ex-
cluding the weaker race. At various times in the world's history
the Jews have been expelled from different countries. The Chinese
are now excluded from the United States and from Australia.
But expulsion on a large scale is clearly impossible to-day among

SOCIAL REGULATION 271

civilized people, and exclusion is possible only under favorable
conditions.

In other cases an attempt has been made to transform or absorb
a race. This is the solution commonly tried by the governments
of Continental Europe. It is manifestly out of the question except
when the differences are not very profound. It may or may not be
possible to make Slavs into Germans, or vice versa, but no one would
expect to make Europeans and Chinese interchangeable. Even as
between European races the efforts in this direction have not of
late been generally successful.

The third solution is to ignore the difference of race and legislate
as if it did not exist. That was the solution applied in this country
after the Civil War; but it cannot be said to have fulfilled the hopes
cherished by its authors, and the present generation, even in the
Northern States, seems inclined to regard it as neither satisfactory
nor final.

The fourth solution has been that of disregarding the rights of the
weaker race altogether. This has been tried at various periods in
the world's history, especially in the case of colonies. It is safe to
say it will never commend itself permanently to the conscience of
mankind.

Other partial solutions have been tried, more or less deliberately,
and with varying degrees of success. This is not the place to follow
them in detail, but merely to point out that the problem is one that
will hang heavy on the hands of the twentieth century; and that
with the growth of popular government and the increasing indus-
trial, intellectual, and social opportunities throughout the world,
the task of governing a people that is not homogeneous has become
far more difficult. Although these very forces may tend to efface
race differences where they are not profound, the differences are
often so great that one can entertain little hope that they will
disappear.

Except for the questions arising from race, legal and political
problems connected with status have tended to decline in import-
ance, while those connected with voluntary associations are increas-
ing in gravity, and are likely to do so for a considerable time to come.
Man's mastery over the forces of nature, and the improvement in
transportation that is bringing the whole world into active com-
petition, have made cooperation upon a large scale a necessity.
One form of this has been economically highly successful. That is
the combination of small amounts of capital into great corporations,
and its very success has made abuses possible and legislation neces-
sary. Transportation has also made the wants of all civilized
mankind more alike, while the diffusion of a common elementary edu-
cation and the ease of communication have brought about uniform-

272 SOCIAL REGULATION

ity of thought and the possibility of combination in all directions.
Hence associations of many kinds which, being capable of good and
evil, must be regulated by law, and must often be the subject of
political action.

The solution of social and political questions by the progressive
thinkers of the eighteenth and the early part of the nineteenth
centuries was based mainly upon individualism. They considered
man, not combinations of men, and they regarded all individuals
as equal, isolated, and independent units. The prophets of demo-
cracy, supposing that each person would think for himself, failed to
appreciate the contagious quality of ideas and the compulsory
power exerted over opinions by organized bodies of men. They
assumed also that the real interests of all men were fundamentally
in harmony, and hence they saw no strong motive for combina-
tion. The English individualists, moreover, looked upon freedom to
combine as an essential part of personal liberty, and they did not
perceive a danger that the right might be so abused as to encroach
upon the liberty of others. This is very clearly put in Professor
Dicey 's Law and Public Opinion in England during the Nineteenth
Century.

Rousseau, whose acumen in grasping the real nature of a problem
is more striking than his good sense in finding the solution of it,
perceived the difficulties that might arise in his ideal commonwealth
from the presence of combinations of men. He saw that his prin-
ciple of a common will, ascertained by counting votes, and then
accepted as the unanimous wish of the whole people, would be futile
where there was an organized minority. He declared, therefore,
that a community is incapable of a common will where factions or
sects exist. If he really imagined that any community would ever
arise without those incumbrances, he showed that although a good
philosopher, he was a bad prophet. He was a particularly luckless
prophet, because he wrote just at the time when the era of invention
was about to open the gates for the greatest development of volun-
tary combinations of men that the world has ever known, and when
in public life the very democracy which he preached wras about
to make political parties a recognized and permanent element in the
state.

He was, however, a good philosopher, because he was right in
believing that the presence of associations, or groups, or bodies of
men of any kind, makes the opinion or action of a community quite
a different thing from what it would be if no such bodies existed ;
and this for several reasons.

In the first place, a composite majority made up of majorities of
fractional parts is a very different thing from a majority of the whole
people, and may be exactly the reverse of it. Each man in such

SOCIAL REGULATION 273

a case puts himself into the hands of some body of men whose will
is in Rousseau's sense general as regards him, and partial as regards
the rest of the community.

Then man is only in a small degree a rational animal, and is mainly
a creature of suggestion. He takes his opinions largely from the
society of which he is a part. In fact he does not so much join a
church, for example, or a political party, because he agrees with its
objects, as he accepts its policy because he belongs to it. An asso-
ciation becomes indeed an end in itself, and thus a body may act in
a way that the bulk of the individuals who compose it would not act
if left to themselves.

In the third place, a large body of men has power to affect the
destinies and curtail the freedom of action of other people in a way
that individuals could not do. Even without acquiring an actual
monopoly, a trust or a huge corporation can drive smaller rivals
out of business, or force conditions of labor or trade, or affect the
method of conducting other distinct trades, when smaller concerns
would have no such power. Moreover, they can do it without resort-
ing to any conduct that would be illegal, oppressive, or even improper
in the case of individuals. The same thing is true of trade-unions,
or any other combinations of men on a large scale. To take a most
familiar illustration: An individual may buy or sell where he pleases,
and the motires for his choice are nobody's affair; but if a large
number of men agree not to trade with a certain person it becomes
a " boycott," and a terrible engine of compulsion.

It follows that formidable combinations stand in a peculiar posi-
tion. Their acts have different effects from those of individuals.
Their moral rights and duties are not the same, and they must to
some extent be subject to peculiar laws. The difficulty in dealing
with them comes in drawing the line between freedom of combina-
tion and the liberty of the individual. The question — in some
ways akin to the problem of reconciling order and progress, which
has at times occupied so much attenion in Europe — will loom large
in the twentieth century.

While dealing with voluntary associations it is interesting to
observe how far we have already gone in solving an important
problem arising out of their development. I refer to the case of
political parties. The greatest contribution to the art of politics
in the nineteenth century is expressed in the phrase " Her Majesty's
Opposition." It implies a recognition that organized bodies of men
who are loyal to the state and to the established form of government,
but who are opposed to the administration in power, have a right to
exist and to carry on an active propaganda. Germs of the modern
party system can, no doubt, be traced farther back in some countries,
but the system cannot be said to have developed fully until the nine-

274 SOCIAL REGULATION

teenth century. The legitimacy of party as a factor in public life
is now fully admitted in all countries which have possessed popular
government for a considerable length of time, and it is admitted to
some extent in all countries that have a popular element in their
governments. The system is, however, based upon a number of
conditions.

On the one side there must be a recognition that differences of
political opinion are legitimate and may be advocated by argument
and all the proper arts of persuasion.

On the other side the opposition must not urge revolutionary
opinions. It must not be what is sometimes called irreconcilable,
that is, it must not aim at the destruction of the existing foundations
of government and of society. The limits of legitimate difference
in political opinions vary, of course, from place to place and from
time to time; but it is necessary that the limit should be generally
recognized at any given moment, and this is one of the most import-
ant functions of a constitution.

Then again the means employed by each party for obtaining
power must be proper, and for this reason many laws have been
enacted in the nineteenth century against the bribery of voters,
and provisions have been made to prevent intimidation — by the
device, for example, of the secret ballot.

Finally, there must be a universally recognized means of deter-
mining which opinion ought to prevail. This is another function of
a constitution and of constitutional law.

The party system is by no means without grave faults, but without
it popular government could not have endured. The system has
reconciled to a great extent liberty of political opinion and action
with the stability of popular institutions.

One of the chief problems of the twentieth century will be the
regulation of other combinations of men, whether based upon race
or upon voluntary associations for industrial and other purposes;
and that problem will involve politics, jurisprudence, and social
science. The solution will not be the same as that adopted in the
case of political parties, but some hints may, nevertheless, be ob-
tained therefrom, such as the plan of leaving the right to organize
free, but regulating the ends and means of operation. In one point
certainly the example set in the case of political organizations must
be followed. It is that of accepting the natural tendencies of a
progressive age instead of trying to run counter to them. The
method of approaching the problem and the principles applied to it
will, no doubt, be different in different countries and under varying
conditions; but just as the nineteenth century showed an inclina-
tion to lay too much stress on the individual, we may perhaps
expect in the twentieth century a reactionary tendency to treat

SOCIAL REGULATION 275

bodies of men too much collectively. But the true and, therefore,
the permanent solution must be found in keeping in mind both the
individual and the group, and politics and jurisprudence can be
wisely directed only by a thorough study of the psychology of the
group; in other words, the effect of the group upon the mental
attitude of the individual.

DEPARTMENT XX — POLITICS

DEPARTMENT XX -POLITICS

(Hall 2, September 20, 2 p. m.)

SPEAKERS: PROFESSOR WILLIAM A. DUNNING, Columbia University.

CHANCELLOR E. BENJAMIN ANDREWS, University of Nebraska.

THE FUNDAMENTAL CONCEPTIONS OF NINETEENTH-
CENTURY POLITICS

BY WILLIAM ARCHIBALD DUNNING

[William Archibald Dunning, Lieber Professor of History and Political Philo-
sophy, Columbia University, b. Plainfield, New Jersey. A.B., A.M., Ph.D.,
LL.D., Columbia University. Fellow, Lecturer, Adjunct Professor, and
Professor, Columbia University. Member of American Historical Association ;
American Political Science Association; New York Historical Society; Massa-
chusetts Historical Society (corresponding). Author of Essays on the Civil
War and Reconstruction; History of Political Theories. For nine years man-
aging editor of Political Science Quarterly.]

WHEN Louisiana was acquired by the United States the politics
of the world was centered about a single nation, and the politics of
this nation was centered about a single individual. France and
Napoleon epitomized the dominant principles of the day; revolu-
tionized France meant liberty and equality, the rights of man,
national democracy; Napoleon meant the resistless armed might
of democratic propagandism. Before the enthusiasm of the French
nation and the genius of their chosen leader the principles, the
practices, and the men of the old regime vanished from Western
Continental Europe. Only in Russia and in the British Isles did
conservatism find a secure refuge, and from these points of support,
with the principles and material resources of England as its chief
dependence, it waged unrelenting war on all things French and all
things Napoleonic, and in the end it was triumphant.

With 1815 came the termination of the long wars; the smoke and
shouting of battle passed away and the readjustment of institutions
and political systems began. Reaction was manifest everywhere;
the dogmas and the men that for nearly twenty-five years had
cowered in the remotest and obscurest hiding-places of the Continent,
now assumed control of political life, and a war of extermination
was entered upon against everything that had been identified with
the Revolution. But the work of the French Republic and the
Napoleonic Empire had been too thoroughly done throughout western
and central Europe to permit of ready eradication, even by the
drastic methods employed by Metternich and his satellites. Lib-

280 POLITICS

eralism, proscribed and hunted by the triumphant powers, lived
nevertheless, and resisted its adversaries with the weapons that
were nearest at hand — conspiracy, assassination, insurrection —
as well as by ceaseless agitation and debate, so far as these were
permitted in practical politics, and at last, but only when the middle
of the century had been reached, it had secured a definitive triumph
throughout the better part of Europe. After the revolutionary wave
of 1848, the prevailing governmental systems, as well as the prevail-
ing beliefs in both scientific and popular thought, expressed with
more or less completeness the principles for which the liberals had
contended. And far more fully than anywhere in Europe, these
principles pervaded the government and the general life of that
growing people across the Atlantic, whose development had already
begun to make them a factor of large significance in the affairs of
the civilized world.

This conflict between liberalism and conservatism, then, may
be taken as marking in a general way a period in nineteenth-century
politics. The influence of the antithesis of doctrine appeared in
every phase of the political life of the time, and in most phases this
influence was decisive. In the internal affairs of every country,
the struggle for the realization of liberal ideas furnished the most
conspicuous incidents. France was the recognized leader and gave
the impulse to all Europe in this respect, and the history of her party
politics is merely a recital of the strife of liberalism and conserva-
tism. Spain and the Italian states exhibited a series of transfor-
mations in governmental institutions with the same division as the
basis. The German states experienced many vicissitudes of agita-
tion and insurrection, but the hand of Metternich was strong in
central Europe, and while liberalism got a footing in some of the
smaller states, the time of the greater did not come until 1848, and
even then the success of the liberals was but temporary in Austria
and greatly qualified in Prussia. England felt the effect of the
spirit of the times in the great struggles for Catholic emancipation
and Parliamentary reform and in the abortive movement of the
Chartists. Even Russia had a little experience of uprising for liberal
government in 1825 at the accession of the first Nicholas, and a very
serious experience with the combination of liberalism and national-
ism in the Polish war of 1830. And finally, at the cither extreme,
across the Atlantic, the United States exhibited the influence of the
Zeitgeist by the transition from the Jeffefsonian to the Jacksonian
type of democracy.

When we glance at the international politics of the period we find
the same influence largely operative. The grouping of the great

FUNDAMENTAL CONCEPTIONS OF. POLITICS 281

powers in reference to their policy of supervision over the affairs
Europe was frequently determined by the real or assumed bearing
of the policy on the great issue between liberalism and conservatism.
Metternich's astute suggestion that the Greeks, in their struggle
for independence, were liberals in insurrection against their legiti-
mate sovereign, the Sultan, illustrates the potency of the leading
idea of the time, as a force for diplomats to conjure with. The
policy of England toward Spain's American colonies during the
twenties, with the incidental though hardly anticipated result of
our own Monroe Doctrine, had for its foundation Canning's dislike
of ultra-conservatism, while the long and influential entente between
the English reformed government and the government of Louis
Philippe rested notoriously on the sympathy between the leaders
of political thought in the two countries, as opposed to the autocratic
and reactionary influence represented by the three Eastern powers.

Assuming, then, that the struggle between liberalism and conserva-
tism was the characteristic mark of the practical politics of the period
extending to the middle of the century, let us consider what wrere
the principles of political science that were involved in the struggle
and its result.

Fundamentally, nineteenth-century liberalism meant democracy.
Its ultimate aim was to break down the bars which excluded from
political life the classes of people whose intellectual, social, and eco-
nomic significance was becoming unmistakably predominant. For
its immediate aim it demanded liberty and equality. The content
of these much-abused terms was explained in accordance with the
philosophy of the eighteenth century, that is, by the dogmas which
had been demonstrated by Montesquieu and Rousseau and had been
formulated in the Declaration of the Rights of Man. Liberty was
held to consist in a series of rights defined by nature itself, and
equality in the possession of all these rights by every man by the
fact of his humanity. Within the sacred circle of these rights no
governmental power could intrude. Against every claim of author-
ity to do so as derived from God or custom or tradition was opposed
the decree of supreme and beneficent nature. The precise character
of nature — this kindly source of human rights — was no less
variously and indeterminately defined by nineteenth-century than
it had been by eighteenth-century philosophers; and the list of
rights that were deduced by laborious speculation from nature in
the abstract bore a suspiciously close resemblance to one which
could be compiled from the very concrete constitutional law of
England and the United States. Yet nature — whatever the diver-
sity of ideas connoted by the term; and nature interpreted by
reason, regardless of the skeptic's query, Whose reason? — continued
throughout the period we are discussing to be the ultimate basis of
the liberal creed.

282 POLITICS

It was, however, in regard to civil rather than political rights that
the code of nature was considered conclusive by all shades of liberals.
As to political rights, especially that of the suffrage, liberalism was
much divided. The more extreme spirits in its ranks were quite
sure that nature and reason immutably prescribed participation in
all the functions of government as the right of every man. Less
radical elements found in nature the right of representation, but not
of participation, in political functions; and many were loath to admit
that even participation in the designation of a representative was
within nature's gift to every man. Finally those liberals who shaded
imperceptibly into the ranks of conservatism itself, maintained
that while nature enjoined indisputably the guarantee of civil rights
to every man, the assignment and enjoyment of political authority
was a matter of human expediency, varying with times, places,
and circumstances, and not determinable a priori. Liberty for all,
authority for the qualified, was the maxim of this school.

The list of names identified with these various shades of purpose
and belief — the honor-roll of early nineteenth-century liberalism —
includes many which have no meaning to the present generation, but
a few which still symbolize something distinctive in theory or in
practical achievement. France furnishes Benjamin Constant, Royer-
Collard, Guizot, Tocqueville, Lafayette, Comte, Louis Blanc; Ger-
many gives Fichte and Hegel (whose systems, conceived in the spirit
of liberty, had, however, the defect of extremely refined abstraction,
that they could be as readily adapted to the support of reaction as
of progress), Rotteck, Welcker, and the ultimately Americanized
Lieber; England offers Bentham and his radical followers, Grote,
the two Mills, and the redoubtable Brougham; Italy gives Mazzini,
and all Europe the group of devotees who worshiped the thought
and carried into operation the wild schemes of that amiable fanatic.

The conservative opposition to the views and purposes represented
by the foregoing names was embodied for the most part in the royal
and aristocratic classes of the old regime. Its practical spirit was
expressed in that curious intermonarchic agreement known as the
Holy Alliance; in the forcible interference to suppress constitutional
government in Italy, Spain, and elsewhere; in the rigorous espion-
age and censorship over thought and expression throughout Europe;
in the bitter resistance of the aristocracy in England to the diminu-
tion of their ancient prerogatives by Parliamentary reform; and in
the extreme assertions of aristocratic and monarchic privilege which
led to the explosions of 1830 and 1848. Philosophically, conserva-
tism expressed itself in three theories: First, that of the divine
right of the old monarchic and aristocratic order — that political
authority emanated from God and could not be questioned by any
merely human agency; second, the theory that if nature were to

FUNDAMENTAL CONCEPTIONS OF POLITICS 283

be consulted at all as to the basis of political organization, her answer
would be that inequality and not equality was the universal principle
among men, and that, therefore, aristocracy and not democracy
was the order of nature; third, the theory that the appropriate
social, legal, and political institutions for any people were to be dis-
covered, not through any assumption as to the nature of man in
general, but by a consideration of the character of the particular
people as revealed in its history, and that the institutions which
had come to prevail at any particular time through peaceful develop-
ment must be presumed to have more inherent justice and validity
than any others that might be suggested.

Of these three views, the first, which defended absolute monarchy
on the ground of mystical divine right, was already antiquated, and
in the prevailing rationalism found no adherents save a few obscur-
antists. The second view had a more intellectual support, and was
sustained in a manner that at times manifests no little force by
Ludwig von Haller, whose bulky volumes are now rarely opened.
The third view characterized the most moderate of the conservatives
and determined the actual solution of the problems of the time. It
afforded a ground on which the least extreme of both liberals arid
conservatives were able from time to time to stand together. It
triumphed in the Whig reforms in England and in the July Monarchy
in France, and it profoundly influenced, if it did not fully control,
the application of that principle which on the whole expresses most
fully the contribution of. this period of the nineteenth century to
political science, — the principle, namely, of constitutionalism in
both state and government.

Let us consider for a moment the source and nature of this prin-
ciple. To liberals of every shade in this period, the indispensable
token and guarantee of the liberty which they sought was a body
of law which should to some extent control and determine the power
and procedure of the persons who exercised political authority.
With few exceptions, the liberals demanded that this body of law
be expressed in a written document. " Constitution " came to
mean specifically "written constitution," and the triumph of liber-
alism is no more significantly shown than by the fact that at the
middle of the century a great majority of states in the civilized world
were equipped with instruments of this kind. But the written
constitution was so intimately associated in origin and character with
revolution that the established conservative powers could never
contemplate it save with abhorrence. Its earliest appearance had
been in the abortive efforts of the English Independents during the
Puritan Revolution to formulate an operative system that should
embody their ideals; it had been resorted to in America on a large
scale when the colonies separated from the mother country; and it

284 POLITICS

had figured multitudinously in France between the Bourbon of
1789 and the Bourbon of 1815.

Moreover, the content as well as the history of the written consti-
tution made it an object of abhorrence to ultra-conservatism. Two
features were generally insisted upon as indispensable: first, a dis-
tinct enumeration of the rights of the individual with which govern-
ment was under no circumstances to interfere; second, a description
of the organs of government and a body of rules determining their
actual operation. The individual rights normally secured were
those that had come to be known as natural rights, and the organs
of government with which the practice of written constitutions was
associated included some form of popular representative assembly.
But both natural rights and popular representation were, of course,
diametrically opposed to the ideas of the old regime, and, furthermore,
the most fundamental conception of the nature of state and govern-
ment that underlay the theory of a written constitution was unac-
ceptable to conservatives of every shade. For to the liberals the
constitution was the expression of the people's will, and had no
more of permanence or immutability than that will. As Rousseau
had demanded on principle, and as several of the American states
had undertaken in practice, the people must assemble in convention
at not infrequent intervals to declare whether they would longer
maintain the existing system. State and government, in other words,
were mere creations of the will of certain groups of individuals, and
a constitution was merely the formal expression of that will at any
given time.

Upon this view of political fundamentals conservatives of every
shade made aggressive war. The high priests of autocracy saw only
horrid sacrilege in any meddling by the common people with the
divine mystery of the state. To suppose that any written phrases,
open to the interpretation of the vulgar, could express the essen-
tials in political life was to the obscurantists and mystics supreme
foolishness. No constitution, declared Joseph de Maistre, the
most brilliant exponent of this view, results from deliberation. In
every constitution there is something that cannot possibly be written
— that must be left in venerable obscurity under penalty of destroy-
ing the state. The more there is that is written, the feebler is the
political structure. When a nation begins to reflect upon itself, its
laws and its life are already determined. Sovereignty is an emana-
tion from God himself, and man must not tamper with it.

Something of the spirit of these phrases of de Maistre appears also
in the thought of the scientific and the historical schools of conserva-
tism. To the theory that the state is made, they oppose Topsy's
idea, that it merely grows. Burke's glowing denunciation of the
French Revolution gives the keynote of their cry. Men are in the

FUNDAMENTAL CONCEPTIONS OF POLITICS 285

state and subject to government, not through their own deliberate
choice, but through an inexorable decree of their nature. The con-
stitution of a given political society is never to be found in any docu-
ment, however carefully framed and however solemnly proclaimed
as the fundamental law. The bond which truly unites and deter-
mines a people in their social and political life consists in the aggre-
gate of- the numberless conventions and understandings through
which in the course of ages the varying relations and institutions of
the community have been developed and adapted to its greatest
convenience. In other words, — and in the phrase which became
the distinguishing mark of a prevailing school of political philosophy,
— the state is not a mechanism, but an organism. There is, indeed,
a mystery in the state, but it is the mystery of all life and growth;
and the remedy for intolerable ills in the state, as in the individual,
is not the charlatan's panacea of death and resurrection, however
attractive and logical the prescription may appear, but the wise
physician's careful study of the history and character of the particu-
lar condition, followed by the removal of defects in this organ and in
that, without any pretense of touching the life principle itself.

This general view was that on which the practical constitutionalism
of the first period of the century was worked out. It was the doc-
trine which the reforming Whigs in England applied, as against the
demand of Bentham and the Radicals for a remodeling of institu-
tions in accordance with their a priori scheme. It was the doctrine
which inspired the famous protest of Savigny against codifying and
thus assuming to stereotype German private law. It was the doc-
trine, finally, which is clearly revealed by an examination of the
content and working of the constitutions that resulted from the
agitations of the period we are discussing. These constitutions were,
indeed, written constitutions; but how different in character from
the type which had been conceived in the enthusiasm of the early
Revolution! In many cases the actual document announced itself
to be, not the deliberate expression of a people's will, signifying
their choice of government, but the grant of certain institutions by
a monarch to his subjects. Liberties were indeed guaranteed to the
man and the citizen, but rarely the sweeping immunities that had
figured in the Declaration of the Rights of Man. A representative
legislature was in every case provided for, but rarely so organized
as to interfere with the ancient domination of the aristocratic classes,
or endowed with such power as to insure the development of more
popular institutions. And above all, there very early appeared the
vexed question of the right of interpretation — the question which
in the long run showed to every one that a written constitution
was not a remedy for all the ills that political life is heir to, but
merely a palliative for some particular evil conditions at some par-

286 POLITICS

ticular times. It was under color of an interpretation of a written
constitution that Charles X of France issued his July Ordinances
and precipitated the Revolution of 1830; it was by an interpretation
of the Prussian constitution that Bismarck carried through his policy
of the conflict time — an interpretation, moreover, which he, with
characteristic cynicism, readily abandoned when it ceased to serve
his purpose; and it was through interpretation that the constitution
of the United States — the written constitution par excellence, the
most wonderful instrument, according to Mr. Gladstone, ever struck
off at a given moment by the thought and purpose of man — was
made the basis for the resolute efforts of two great masses of fellow
citizens to annihilate each other.

The written constitution had, indeed, done its work by the time
it had become generally prevalent. In its true character it was
found to be not an indispensable feature of every sound political
system, but merely an ingenious expedient for facilitating the trans-
ition from one system to another. Through it the political ideals
and characteristic principles of the eighteenth and early nineteenth
centuries have been crystallized and put into form for permanent
exhibition. Political antiquarians are thus enabled to study the
past at their ease; lawyers can wrangle and construe and assert —
sometimes with real belief at the basis of their assertion — that in
the articles and sections and phrases and words of the document
are to be seen the essence of the state; but behind and all around
the scanty code the real life of the body politic goes serenely on,
regardless of all the puny efforts to cramp and fetter it.

In the development of nineteenth-century constitutionalism, the
chief types — the unwritten and the written, or, in the terms sug-
gested by Mr. Bryce, the flexible and the rigid — have been fur-
nished by Great Britain and the United States respectively. In
the long run the British type has proved the more permanent; for
the limitations on government and on sovereignty itself, which were
originally the characteristic mark of American constitutionalism,
have in large measure disappeared, and on the impressive but unstable
foundation of necessity and destiny has arisen for the contemplation
of mankind that structure which to the forefathers would have
seemed such a monstrosity — the unwritten constitution of the
United States.

II

The second period of the nineteenth century, embracing the dec-
ades from the sixth to the ninth inclusive, has, for the controlling
topics of its politics, both theoretical and practical, nationalism
and socialism. This is the period of Bismarck and Lincoln, of Karl
Marx, and, equally significant in the opposite sense, of Herbert

FUNDAMENTAL CONCEPTIONS OF POLITICS 287

Spencer. The constitutional liberty of the individual, secured by
the strenuous struggle of the previous decades, was now subordinated
to the demand for national unity in governmental organization and
for majority rule in economic organization.

The idea of nationality, as the normal and natural criterion of
political organization and independence, was by no means new in
this period, but it now gained overwhelming importance from the
practical work of Bismarck and Cavour in Europe and from the
terrific struggle through which the principle was maintained in the
United States. The working out of the idea was attended by a
change of relative position among the European Powers. France
was supplanted by Germany as the central figure. France, with a
homogeneous population and a compact territory under a unified
government, had only that interest in the principle of nationality
which was incidental to the ambition of the third Napoleon. Eng-
land, with Ireland on her hands, was necessarily cold toward the
doctrine of nationality per se. Her philosophy easily conceded that
the Poles were not Russians because they said they were not, and
that the South Carolinians were entitled to independence of the
United States because they believed they were; but it could not
admit that Irishmen were not Englishmen or were entitled to inde-
pendent government for any such reasons. The German, the
Italian, and the American peoples, however, were able to make the
principle of nationality predominant in both theory and practice.
Yet, it is not to be presumed that either Bismarck or Cavour was
under any illusion as -to the abstract conclusiveness of nationality
as a principle; to them the cause of the Hohenzollern and the Savoyard
dynasties, respectively, was as much end as means in the policies
which they carried through. And, even as to the United States,
the time has probably now come when it will not be held unpatriotic,
as it certainly is not untruthful, to say that sordid considerations
of selfish sectional interest played a large, if not a decisive, part in
the struggle through which national unity was preserved.

The triumph of nationalism in the seventh decade of the nineteenth
century was promptly followed by a transformation in the principle
that has determined in large measure the later stages of political
development throughout the world. In the first period of the
century nationalism had been the sister creed of liberalism. Na-
tional independence and constitutional government had commonly
been united as summing up what was just and natural in the aspi-
rations of a people. In the name of both principles together the
Poles had fought for independence of Russia, the Belgians had
achieved their independence of the Dutch King, and the Magyars
and Italians had resisted the Austrian Dominion. Nationalism
had been essentially defensive in character and application; its

288 POLITICS

goal had been the release of a people from alien governmental
control. But the events of the sixties revealed a new and widely
different aspect of the doctrine. Nationalism passed from defense
to aggression. Its chief end came to be, not the release of a people
from foreign rule, but the subjection of every people to its appro-
priate domestic rule. In the name of the nation politicians, theo-
retical and practical, demanded a re-ordering of the world. God
and nature and human reason and history were all triumphantly
shown to have decreed that in the homogeneous population inhabit-
ing a continuous territory should be the final and unquestionable
unit of political organization. " National unity " superseded the time-
honored " consent of the governed " as the justifying principle of sov-
ereign dominion. Love of liberty and of self-government, once the
noblest theme of poetry and philosophy, now became mere graceless
" particularism." In the name of the nation, Hanoverians, Saxons,
and Hessians were incorporated in the Prussian state; in the name
of the nation eleven million Southerners were harried into subjection
to the government at Washington. Political science mapped out
the whole world into geographic unities, in each of which it was
solemnly declared to be the end of all human destiny that some
ethnic unit should be neatly and eternally ensconced.

There were difficulties in the practical application of this, as of
every other ultimate principle. Ethnic homogeneity was in last
analysis rather hard to define. Some clear objective test was needed
to determine where one nation ended and another began. Identity
of blood, of language, of religion, of traditions, of history, were all
duly tried and all alike found wanting. Nor was the bounding of
geographic unity any easier in practice. Alsace, we know, was
and doubtless still is German, because it is east of the Vosges, but
equally French because it is west of the Rhine. The Alps were un-
doubtedly ordained by God and nature to be the divider of nations;
but it is hazardous to assert the same of the scarcely less formidable
Rockies. Yet with all these difficulties perfectly apprehended, the
idea still persists that there is something peculiarly natural and
permanent and rational in the so-called national state. Switzer-
land and Russia and Austria-Hungary are all looked upon as rather
out of the orbit of the scientific student of politics because they do
not conform to the canons of ethnic and geographic unity.

Without examining farther the characteristics of this peculiarly
nineteenth-century idea of nationality, let us look a moment at
the influence which the idea has had upon the development of the
conception of liberty. Pari passu with the realization of demo-
cratic ideals in governmental organization, there had developed the
antithesis of the two systems of thought familiar to us as socialism
and individualism. But vaguely and obscurely manifested during

FUNDAMENTAL CONCEPTIONS OF POLITICS 289

the first half of the century, the conflict between the two became
well defined and furious with the triumph of constitutionalism in
1848-1849. Both the opposing systems derived their lineage from
the earlier liberalism. The socialist claimed that, with the people
in control of the governmental organization, there could be no limit
set to the power which they could justly exercise; restrictions that
had been insisted upon before, when political authority was in the
hands of the one or the few, had no justification, he declared, when
authority was in the hands of all. The sovereignty of the people
and the welfare of the people he interpreted as involving necessarily
the supremacy and the primary interest of the classes which had
just obtained political recognition, and the powers of government, he
insisted, should be used as freely for the benefit of these classes as they
had heretofore been used for the benefit of the classes now deposed.
The individualist, on the other hand, steadfastly maintained that
the rights of man had not ceased to exist with the triumph of demo-
cracy. The end of government, whether controlled by classes or by
masses, was to protect these rights, not to override them. The
state, indeed, had no other cause for its existence than to assist the
individual in developing the powers that are in him, and any appli-
cation of the public resources to other ends than this was tyranny
and despotism.

This modern doctrine of individualism, having its source in the
idealism of the German Fichte and Humboldt at the beginning of
the nineteenth century, received a very perfect development through
the works of the English Mill and Spencer in the fifties and sixties.
It is, indeed, not too much to say that the whole magnificent system
of Synthetic Philosophy was wrought out by Spencer to furnish a
scientific foundation for the individualist thesis which he laid down in
the first edition of his Social Statics. England at this date had just
abandoned her ancient system of agricultural protection, and her
philosophers, followed by many in other lands, were enthusiastically
in favor of extending over the whole field of commerce and industry
the laissez-faire which had been applied to English agriculture.
The paternalism, which, after all, lies always close behind the fra-
ternalism of the socialist, was, without doubt, distinctly overpowered
by that ardor for individualistic liberty which was so widespread in
the two decades following the middle of the century. If since then
socialism and paternalism have gained the upper hand, and govern-
ment is now conceived rather as an agency for the positive promo-
tion of the interests of those classes who control it, the result may
be traced to that passion for nationalism which supplanted the
passion for constitutionalism. With the cry that industrial inde-
pendence was essential to the complete national life, the United
States and Germany took the lead in reversing the tendency which

290 POLITICS

England's free- trade policy had created, and gradually all the leading
nations of the earth fell into line with them. In the presence of
universal tariff barriers, in which the powers of government are most
extensively and ingeniously employed for the primary advantage
of specific classes, it is hard to find an adequate ground on which to
resist the demand of any other class for a similar employment of
governmental power in behalf of its interests. Nationalism has
sounded the knell of individualism — whether forever or not, it
remains for the future to disclose.

Another conspicuous feature of nineteenth-century politics that
experienced serious if not irreparable disaster through the national-
istic movement was the doctrine of federalism. As the principle
upon which the United States developed its astonishing progress in
the first half-century, federalism came to be regarded as the touch-
stone of pure gold in governmental organization. The most logical
constitution-makers in the world, the publicists of Latin America,
brought forth a large crop of systems embodying this vital principle.
Witness the United States of Mexico, the United States of Colombia,
the United States of Venezuela, the United States of Brazil, and so
on. Only yesterday our government relieved itself of the embarrass-
ment in diplomatic intercourse caused by this very sincere flattery.
By order of the Department of State, we are henceforth to be, not
the " United States," but " America," distinguishing ourselves from
our sister republics by simply appropriating to our exclusive use
the name of the hemisphere of which they are a part. Though fed-
eralism was in its first application merely a more or less mechanical
device for combining previously well-defined and independent
political units into a single system, there came later to be found in
it the invaluable principle of local self-government. The partition
of power between central and state organizations was treated, not
merely as an essential to the union of distinct sovereignties, but as
a guarantee of individual liberty against all sovereignty. But the
sweep of nationalizing sentiment obliterated this beneficent con-
ception. In realizing the ends and aspirations of the nation, the
autonomy of states received as little consideration as the rights of
individuals. Centralization of power, in the name and for the pur-
poses of national unity, accompanied the progress of every body
politic in which federalism had for any reason obtained a hold.

Ill

After this very general survey of the tendencies manifested in the
nationalistic stage of the century's progress, we are able to under-
stand readily the influences which have produced the later and final
stage. This, covering the last fifteen or twenty, years, may with a
fair degree of accuracy be designated the era of the new imperialism.

FUNDAMENTAL CONCEPTIONS OF POLITICS 291

The events that have given character to the period are so recent and
familiar as not to need detailed recital. The broad principle that
has underlain them is that the nation, perfected through the sup-
pression of individualism and of federalism, must break the bonds
of ethnic and geographic homogeneity and project its beneficent
influence into the world at large. Such, at all events, is the philo-
sophic theory of the movement. The practical aspects of the opera-
tion have, of course, been of a rather less exalted nature. The
impulse has come from the demand for markets on the part of the
highly stimulated industries of Germany and the United States.
It was in the eighties that the Germans instituted that picturesque
world-wide hunt for colonial lands that gave such a shock to Great
Britain and such amusement to the rest of mankind. It was in the
early nineties that Africa was parceled out, with a brave paraphernalia
of " spheres of influence " and " hinterlands " for the parcelers,
but with no sign of respect for ethnic and geographic unity among
the parceled. Three years later the unmistakable ambition of the
American people to manifest their power beyond their national
boundaries was thwarted, though with great difficulty, by President
Cleveland; but in 1895 he also gave way, and by his Venezuelan
message unchained the passions and aspirations which found a
temporary satisfaction in the incidents and results of the war with
Spain. The United States, the most perfect type of advanced
democracy and nationalism, entered fully upon the task of govern-
ing distant and hopelessly alien peoples by the methods of autocracy.
In the movement for the final partition of Asia into spheres of influ-
ence for the European powers — a movement to which the indomit-
able will and energy of one brave little Asiatic people have raised up
an obstacle which at the present moment seems likely to be insup-
erable — the great American Republic has taken a recognized part
as a regulating, if not a promoting, factor. There no longer remains
one first-class nation whose conscious aim is rather internal per-
fection than external dominion — not one that does not see in de-
pendencies the indispensable proof of political competence. Under
such circumstances it needs no exalted intelligence to see that con-
stitutionalism and nationalism have been definitively superseded
as controlling dogmas in the world's politics.

What, now, is the meaning of this new imperialism? Is there in it
anything really new? Is it any different from the imperialism of
Athens in the days of Pericles or the imperialism of Rome under the
late republic? Has it for its underlying principle anything different
from that proclaimed by Machiavelli, that no state, whether mon-
archic or popular, can live a peaceful and quiet life, but each must
either conquer or be conquered? Or anything other than the doc-
trine of the doughty Thomas Hobbes, transferred from individual

292 POLITICS

to nation, that life consists in an unceasing struggle for power that
ends only with the grave? Or anything different from the principle
to which the theories of evolution lend support, that a nation,
like any other organism, must either grow or die, and that its growth
involves the absorption of other organisms?

To very many thoughtful supporters of the new imperialism a
way of escape from the implications of these questions appears in
the conception that the modern movement is essentially altruistic, —
that it is founded upon duty to others rather than satisfaction of
our own desires. This is not a new idea in the history of politics.
Athens pointed to the beneficent effects of her supremacy upon the
subject states. The philosophical clients of the plundering Roman
proconsuls could always declaim with great effect upon the rescue
of suffering peoples from misrule and upon the uplifting influence of
the pax Romana. Likewise, the supporters of our modern im-
perialism find comfort in the good that has been done. The British
in India, it is pointed out, have abolished suttee; the French in
Africa have made Timbuctoo accessible to the methods of modern
commerce and to the allurements of Parisian art; the Germans have
made the forms of their bureaucracy familiar in darkest Kiao-Chow;
and the United States has begun at least to inspire in its Philippine
subjects a longing for the English language and a respect for the
clothing of the temperate zone.

Whether or not -the bestowal of these and other even more im-
portant blessings of Aryan civilization upon races that yearn pas-
sionately to be uncivilized, is the true and an adequate justification
of the modern imperialism, it is not the province of this paper to
determine. Its function is fulfilled in merely setting forth the
succession of ideals and leading principles that has characterized
the past century. The constitutionalism of the first period took a
form which was in some measure novel in the history of politics;
the nationalism of the second period presented also certain features
that had no precedent; but the imperialism that closed the century's
record can hardly be said to have manifested thus far any charac-
teristics that distinguish it from the movements in which throughout
all history the powerful governments of the earth have extended
their sway over the weak and incapable.

THE TENDENCIES OF THE WORLD'S POLITICS DURING
THE NINETEENTH CENTURY

BY ELISHA BENJAMIN ANDREWS

[Elisha Benjamin Andrews, Chancellor of the University of Nebraska since 1900.
b. Hinsdale, New Hampshire, January 10, 1844. A. B. Brown University,
1870; ibid. Newton Theological Institution, 1874; LL.D. Brown University;
ibid. Nebraska University; ibid. Chicago University; University of Berlin,
1882; University of Munich, 1883; Massachusetts Institute of Technology.
President of Denison University, Ohio, 1875-79; Professor of Homiletics, New-
ton Theological Institution, 1879-82; Professor of Political Economy and
History, Brown University, 1882-88; Professor of Political Economy and
Finance, Cornell University, 1888-89. President of Brown University, 1889-
98 ; Superintendent of Chicago Public Schools, 1898-1900. Member of Ameri-
can Economic Association; Loyal Legion; United States Delegate to Brussels
Monetary Conference, 1892. Author of Institutes of General History; Insti-
tutes of Political Economy; History of the United States; History of the United
States in Our Own Times; Outlines of Principles of History; Outlines of Cos-
mology.]

IN speaking of the politics of a period, I suppose that we contem-
plate, in the main, three orders of elements: (1) Political psychology,
viz., theories, thoughts, beliefs, and feelings, so far as these are con-
ceived of as fertile and causal; Boulanger's influence for a time in
France, for instance. (2) Political movements, whether these have
attained definite results or not. Chartism in England would illus-
trate and so would the Abolitionist crusade in the United States.
(3) New political creations, such as new states, leagues, alliances,
conquests, policies, institutions, maxims, codes, modes of political
procedure, or shiftings of political emphasis.

These three sets of elements may perhaps be brought together
without confusion under the general caption of political movement
considered in itself, in its causes, and in its results.

Reversing this order and proceeding from surface to center, we
notice, as a good way to get started, alterations in the political
geography of the last century. Even apart from the bouleversement
wrought by Napoleon, when, for the time, Europe did not venture
to stereotype any maps, the century was a rather busy cartographer.
I mention only historically significant changes and omit all details.

The United States has come to embrace the whole territory lying
west of the old Thirteen to the Pacific, besides Alaska, the Philip-
pines and Porto Rico. Spain is no longer an American power; all
her old dependencies here, save Porto Rico, now an appanage of
the American Republic, having become sovereign states. Brazil,
independent of Portugal since 1823, is a republic, the last American
political community to oust a monarch.

Great Britain grew greater and still greater; South Africa became
hers; so did Egypt, for, though the Union Jack is not unfurled there,

294 POLITICS

its flagstaff, in the person of the Earl of Cromer, is firmly planted
by the Nile, which answers every purpose. It is understood that
railway and telegraph concessions to British parties, all the way
from Rhodesia to the head waters of the Nile, connect those two
British poles of the African continent. Australia and New Zealand
were nominally British in 1800, but their erection into veritable
membership of the Empire occurred later.

British rule in India was fairly begun by dive's victory at Plassey,
June 23, 1757, but it was rickety till 1798, when Lord Mornington,
later the Marquis of Wellesley, became governor-general, with his
policy of uncompromising British paramountcy over all native
princes, — a policy consummated when, at Disraeli's instance, Vic-
toria was proclaimed Empress of India in 1877. Since then Upper
Burma has been made British, British India thus covering the
whole of southern Asia, from Baluchistan, itself a British depend-
ency, to the meridian halving the Gulf of Siam. To this add Ceylon,
the Straits, and Hong Kong, which are British out and out, and the
vast and valuable sphere of British influence in China. Innumerable
minor dependencies and protectorates I omit, as of no bearing on
my discussion.

Since the Second Peace of Paris, France has lost Alsace and much
of Lorraine, but has gained, and holds with sovereign or some looser
tenure, Savoy, Algeria, and Tunis, Madagascar, rather important
districts in West Africa, French India and Indo-China, Cochin China,
Annam, Cambodia, and Tongking, besides minute islands and main-
land patches here and there over the earth.

The Congo Free State was erected during the eighties, the United
States first recognizing its flag in 1884.

On the Continent of Europe, the Congress of Vienna and the
Second Peace of Paris restored the map to about the form it had in
1791. The number of states was much reduced, chiefly by quashing
ecclesiastical principalities. The Germanic Confederation replaced
in a very general way the Holy Roman Empire. Prussia was vastly
increased in size, thus put in a way to gain, in 1866 and 1870, still
more extensive increments of territory and of power, insuring her
the headship, as against Austria, of the new German Empire, which,
in 1871, succeeded the confederation.

The nineteenth century saw the various governments of Italy
unite under a single sovereignty for the first time since Justinian;
Greece independent of Turkey; Egypt, also all the northern pro-
vinces in Europe that were formerly vassals of Turkey, free from
their suzerain save in name, or, in some cases, tribute.

At the Congress of Vienna originated the European concert idea, —
the system of relegating the weightiest affairs of European politics
to the great powers for decision, which has since become a recog-

WORLD'S POLITICS AND NINETEENTH CENTURY 295

nized part of international law. The congress was an epoch in
international law. Private international law may be said to have
had its birth here, as public international law had its birth at the
Congress of Westphalia. Certain valuable forms and rules for inter-
national intercourse date from this congress. A lively interest now
first began to be manifested in Europe's common weal. New agree-
ments were here set in train for the free navigation of rivers having
an international character. The powers united to do away with the
slave trade and directed new attention to the rights of foreigners
resident in any land. " The business policy of the eighteenth
century had as its fundamental principle that one nation's gain is
another's loss. Now for the first time a European treaty appealed
to the doctrine of the new political economy, that the alleviation of
commerce is for the common interest of all peoples."1 Only in
tariff legislation has Adam Smith been ignored. In this field even
Great Britain is considering whether or not to disown him.

The five powers of the Holy Alliance sought at the Congress of
Aix la Chapelle and still more at the congresses of Laibach and
Verona, to fix as a bottom tenet of international law the principle
of dynastic legitimacy. They damned as revolution all limitation
by constitutions of a sovereign's power and all tampering with the
territorial lines traced at Vienna. They further assumed the duty
of protecting in their possessions the sovereigns then on thrones,
and of assuring and guarding the public law of Europe as they under-
stood it.

This effort the march of events and of European public opinion,
which by this time began to count for a good deal, soon brought
to naught and rendered ridiculous. The Bourbons ceased to reign
in France. Revolutions in Italy dispossessed a number of families
restored in 1815. The Pope surrendered his temporal power.
Belgium was separated from Holland, and Savoy joined to France,
while Austria lost her best Italian lands. Germany became a unit
and an empire, besides appropriating Alsace and most of Lorraine.
The Spanish American republics remained independent of Spain.

October 27, 1860, Lord John Russell sent abroad perhaps the bold-
est dispatch which a British Minister ever drew: " The governments
of the Pope and the King of the two Sicilies, he said, provided so ill
for the welfare of their people that their subjects looked to their
overthrow as a necessary preliminary to any improvement. Her
Majesty's Government were bound to admit that the Italians them-
selves are the best judges of their own interests. Her Majesty's
Government did not feel justified in declaring that the people of
southern Italy had not good reasons for throwing off their allegiance
to their former government. Her Majesty's Government therefore

1 V. Treitschke.

296 POLITICS

could not pretend to blame the King of Sardinia fer assisting them.
We cannot wonder that such words as these spread in Italy like
flame, that people copied the translation from each other, weeping
over it for joy and gratitude in their homes, and that it was hailed
as worth more than a force of one hundred thousand men." l

The principle of the balance of power among nations, which the
Congress of Vienna applied with such mechanical fidelity, lapsed
into desuetude, giving way to the maxims of non-intervention and
respect for each people's sovereignty.

Louis Napoleon's wish to interpose for the South in the American
Civil War, and Great Britain's unwillingness, which deterred him,
are remembered by all. On Prussia's seizure of Schleswig and Hoi-
stein in 1864, and of Hannover, Electoral Hesse, Nassau and Frank-
fort in 1866, powerful influences in England and France wrought
for intervention, but in vain. At the Schleswig-Holstein crisis, Lords
Palmerston and John Russell were for war, and bemoaned the timidity
of their colleagues; but Victoria was strongly against them and
prevailed. In Great Britain still louder cry for intervention was
heard, first when Louis Napoleon made himself Emperor, and again
as his fall became imminent; but both times the Ministry was im-
movable. Public sentiment in the fatherland demanded German
intervention in favor of Kriiger during the South African War, but
the imperial government resolutely held aloof.

In fine, while the right of a nation, in certain cases, to interfere for
mere equilibrium's sake with a neighbor nation's extension schemes
may, perhaps, still be defended in abstract international law, the
corresponding practice in international politics is dead and buried.

The last century also saw given up, or at least greatly decreased,
ideality of aim, whether in international or in national politics, part
result, perhaps, of the state's completer freedom from church influ-
ences. Natural rights are little pleaded any more. You must
claim acquired rights or get out of court. It is frankly admitted that
politics has its field right here hi this actual earth and that earth is
not yet heaven. In politics now we do the best we can, then feeling
it a duty to be satisfied, provisionally, be the results never so far from
ideal. " Hope not for the republic of Plato," says Marcus Aurelius,
" but be content with ever so small an advance, and look on even
that as a gain worth having."

It would be a mistake, however, to suppose current politics less
genuinely moral or humane than the politics of the seventeenth and
eighteenth centuries, when it could be said:

" Earth is sick

And Heaven is weary, of the hollow words
Which states and kingdoms utter when they talk
Of truth and justice."

1 Morley's Gladstonell, 15, 16.

WORLD'S POLITICS AND NINETEENTH CENTURY 297

Any surmise of deterioration ought to be dissipated by noticing the
numerous and momentous questions which nations have of late been
settling by arbitration, the treaties of arbitration now existing, or the
erection, by the fifteen most powerful states on earth, of The Hague
Tribunal for quieting disputes such as once usually meant war.

I cannot subscribe to the theory that the course of history is
directed wholly by economic causes, — the so-called economic inter-
pretation of history. But there is one economic might which shapes
human events to an even greater extent than the advocates of that
theory have observed; I mean the money power; and it is among
the philanthropist's most gratifying notes that this incalculably
strong force is at every crisis of strained relations between nations
exerted on the side of peace. As a preservative of peace the money
power deserves rank alongside The Hague Tribunal.

It is worth notice that the freest populations are the ones which
multiply the most rapidly. The population of the United States
and Great Britain with their dependencies and protectorates is now
some 522,000,000. Sir Robert Giffen a little time ago made the
population of Europe and of nations of European origin, like the
United States, something over 500,000,000; the United States,
80,000,000; the United Kingdom, Canada, Australia, and the white
population of South Africa, 55,000,000; Russia about 135,000,000;
Germany, about 55,000,000; Austria-Hungary, 45,000,000; France,
40,000,000; Italy, 32,000,000; Spain and Portugal, 25,000,000;
Scandinavia, 10,000,000; Holland and Belgium, 10,000,000; other
European countries, 20,000,000. A century ago, adds Sir Robert,
the figure corresponding to this 500,000,000 would not have been
more than 170,000,000.

The point is that the development was not uniform, but the most
marked in the Anglo-American section, where a population of some
20,000,000, which was about the figure for the United States and
the United Kingdom together a hundred years ago, has grown to
not less than 130,000,000. Russia and Germany also show remark-
able increases, but nothing like the Anglo-American.

The system of " spheres of influence," so admirably elucidated by
Professor Reinsch, is a creation of the century, its chief exempli-
fication, at present, being in China, where Russia, Germany, Great
Britain, and France all have footholds.

The storm-center of world politics, always in the East, has moved
on to the Far East, Great Britain and Russia continuing to be the
head contestants.

Thwarted by Turkey in his resolve to connect the Black Sea for
naval purposes with all the oceans, the Muscovite reconnoiters
toward India, only to find the Khaibar Pass occupied by men he
has seen elsewhere. Nothing daunted, the British being busy in

298 POLITICS

South Africa, the Colossus plants one foot near the ice-free water
on the Persian Gulf, the other on ice-free water at Port Arthur, the
tip of Chinese Manchuria, which 6500 miles of railway connect with
St. Petersburg. A Russo-Japanese war ensuing from this move,
the Briton counters by pocketing Tibet.

The chess-game is interesting, but hardly as yet bears out Mr.
Tarde's view that one or the other of these powers, or at any rate
some nation, is destined to world-empire. Too many checks and
balances are in reserve. For instance, suppose Great Britain at
this moment in the ascendant; yet, as I once heard Archibald Col-
quhoun explain, Russia's methods of colonization in Asia are superior
to the British, being less radical. Again, the day that sees Great
Britain victorious over Russia may also see Canada, Australia, and
South Africa independent nations. But should Russia then swing
dangerously to the fore, the entire Anglo-American world would be
one flint, fire-striking rock against her, while Germany would be as
likely to side with England as France with Russia.

Mr. Tarde's theory is too a priori, too " previous ; " as is that of
Mr. Pearson and others who proclaim the yellow peril, whether from
Chinese industrial or from Japanese military efficiency; and also
that of those who, gleefully contemplating The Hague Tribunal and
the rapid progress of arbitration, expect all war to end the day after
to-morrow.

Having glanced at what may be considered the chief political
creations, crystallizations, fails accomplis, of the century past, we
go back upstream to sight the main movements whence those new
formations causally sprang.

Notice, first, the centralizing tendency, including (1) the enlarge-
ment of the territories ruled from a single center, accompanied or not
by the spirit of imperialism, and (2) the strengthening of the central
authorities in all nations. Both forms of the tendency are observed
in the United States, in Russia, in Germany, and in Italy; also in
the foreign takings of England, Germany, France, and Chile, in
Austria's reluctance to end in any degree her lordship in Italy, and
in the impulse which Austria shares with Russia to appropriate as
much as possible of the Balkan Peninsula.

Modern means of communication by steam and telegraph im-
mensely facilitate the unifying of large and widely separated bodies
of men. Railways and telegraphy explain why our generation
could witness the rise in Germany of the first solid central govern-
ment there in all history, giving the lie at last to Niebuhr's saying that
anarchy was the God-ordained constitution of the German people.

But for the agencies named, the United States could not be per-
manently or strongly ruled as a single nation, and the victory of
central government in the Civil War would have been in vain. But

WORLD'S POLITICS AND NINETEENTH CENTURY 299

for them, further, no Dominion of Canada and no Australian Federa-
tion would exist.

National expansion would undoubtedly have gone much further
than it has but for the antagonism it encounters from the disposition
of blood-related communities to get together under the same gov-
ernments. Blood is not only thicker than water; it is thicker than
the ink in which pacts are written or constitutions printed. In deter-
mining the boundaries of states, a wholly new prominence has come
to be assumed by consanguinity, the nation political inclining to
coincide with the nation as an affair of race.

Ireland's wish to shake off or minimize English rule illustrates
this, as does the centrifugal energy tending to dirempt Hungary from
Austria and Norway from Sweden. The centripetal working of the
idea is seen in the unity of Germany and of Italy. Many think that
the German Empire will in time embrace German Austria and Italy
Italian Austria. Slavic races, too, desiderate political unity, but
the feeling as yet ends in sighs, brochures, editorials, and speeches,
choked there, it wrould seem, through dread of Russia's supposed
absorption policy.

Both these tendencies — to centralize and governmentally to
group consanguineous peoples — are insignificant beside the one
next to be named, the republican or democratic, so pronounced in the
political history of my hundred years.

When the American Revolution broke out, a method of governing
states to which we of to-day can give no tenderer name than abso-
lutism was practically universal. Even Great Britain \vas no true
exception. Not a constitution in the sense now usual existed in all
the world.

Since then absolutism in government has given way, no longer
existing in any state of first rank. Only the Czar and the Sultan
rule in the old fashion, and even they are bound by public opinion,
local and ecumenical, considerably to heed the popular wish. Mon-
archy has been dispensed with by many peoples, in form as well
as in substance; in the rest most of its old power is gone. Civil-
ized lands are ruled in unprecedented measure for the people and
by the people. Suffrage has been enormously extended, serfs and
slaves set free. Of all the emancipation edicts and statutes on
record, an overwhelming majority hail from days since the
French Revolution. The list of those uttered during this period in
Germany alone makes up a half-page close fine-print note in Roscher's
Political Economy.

This strongly-marked democratic period had its proximate and
for us its practical opening in the French Revolution, though its
absolute origination must be referred to the Cromwellian revolution
in England. Sir Henry Maine has pointed out that the character-

300 POLITICS

istic doctrines which that revolution propounded were then wholly
new to mankind. They were, moreover, then set forth in almost
the very form now familiar to all civilized men. The " Agreement
of the People," issued in the name of the Commonwealth army and
dated January 15, 1649, clearly enunciates that sovereignty resides
in the people. It would have placed supreme legislative power in
a representative assembly elected for a limited term, given equal
voting privileges to all payers of taxes, established religious freedom,
and separated church from state. Even the idea wrought into our
governmental system, of limiting the legislature's function by cer-
tain vital principles fixed beforehand in a constitution, is clearly
embodied in that Agreement.

That Agreement of 1649 and the debates and struggles by which
men sought to give it effect furnished Locke and Algernon Sidney
their alphabet and their inspiration, which they in turn passed on to
Rousseau and to the American revolutionists.

While all this is to be admitted, still Guizot's remark that every
characteristic element of modern civilization has been mediated to
the world through France is substantially true of democratic gov-
ernment as it has come to be practiced. It is the product of the
French Revolution.

Whatever opinion may be held of its character in other respects,
no one can question the importance of that revolution in shaping
political ideas and affairs since. Description and discussion in fact
hardly hint at the radical, pervasive, and lasting changes which the
revolutionary movement effected in the political condition of Europe,
not a single element of which escaped positive influence therefrom.

The main significance of the revolution does not lie in the facts
that France, from a condition of abject weakness, making her the
scorn of Europe, suddenly rose up, changed her form of government,
and in a few years forced a continent to her feet, her empire surpass-
ing Charlemagne's in size and recalling that of Augustus; it resides
rather in the irresistible will first revealed in all this against monarch-
ical, feudal, and ecclesiastical oppression and unreason, — " organic
torpor," a decayed, inefficient, and inexpressibly burdensome public
system. The cause of these brilliant deeds was passion for a rational
public order, educated and developed by a series of French writers
and fired to frenzy by Bourbon tyranny, stupidity, and immorality.

Pressed by his Minister to attend to affairs of state, Louis XV
would retort, " Bah, the crazy old machine will last out my time,
and my successors must look out for themselves."

" Unhappy man " — you are hearing Cariyle — " there as thou
turnest in dull agony on thy bed of weariness, what a thought is
thine! Purgatory and hell-fire, now all too possible in the prospect;
in the retrospect, — alas, what thing didst thou do that were not

WORLD'S POLITICS AND NINETEENTH CENTURY 301

better undone? What mortal didst thou generously help? What
sorrow hadst thou mercy on? Do the five hundred thousand ghosts
who sank shamefully on so many battlefields from Rossbach to
Quebec, that thy harlot might take revenge for an epigram, crowd
round thee in this hour? Thy foul harem! The curse of mothers,
the tears and infamy of daughters! Miserable man! thou hast done
evil as thou couldst; thy whole existence seems one hideous abortion
and mistake of nature."

Only thus from its causes can the Revolution be justly judged.
If it is so viewed, its errors and excesses may be explained and in
part condoned, as the inevitable friction generated in producing
a great and worthy piece of work against fearful resistance.

I cannot agree with those writers, like Taine and Sir Henry Maine,
who reprobate the Revolution itself, believing that whatever good
it wrought could have been accomplished without it. " The French
Revolution," declares Bisset, " was the wrork of philosophers, and it
was, compared with the English revolution, a failure and ended in
Cffisarism, that is, in the government of hell upon earth*"

In this hostile mode of estimating the movement, Burke's Reflec-
tions led the way, swayed too much in their judgment of it as a whole
by the fate of the unfortunate Marie Antoinette, who had so im-
pressed the author when in France.

" It is now sixteen or seventeen years," he says, " since I saw the
queen of France, then the dauphiness, at Versailles, and surely never
lighted on this orb, which she scarcely seemed to touch, a more
delightful vision. I saw her just above the horizon, decorating and
cheering the elevated sphere she just began to move in, glittering
like the morning star, full of life and splendor and joy. O, what
a revolution! and what a heart must I have to contemplate without
emotion that elevation and that fall! "

Sir James Mackintosh's Vindiciae Gallicae introduced the apprecia-
tive criticism of the Revolution, whose freshest note Frederic Harrison
has sounded in saying: " The history of our entire nineteenth cen-
tury is precisely the history of all the work which the Revolution left.
The Revolution was a creating force even more than it was a destroy-
ing force; it was an inexhaustible source of fertile influences; it not
only cleared the ground of the old society, but it manifested all the
elements of the new society. It would be easy 'to show that the
last fifty years of the eighteenth century was a period more fertile in
constructive effort than any similar period of fifty years in the history
of mankind. . . . Truly we may call the Revolution the crisis of
modern reconstruction.

" ' When France in wrath her giant limbs upreared,
And with that oath which smote air, earth and sea,
Stamped her strong foot and said she would be free.' "

302 POLITICS

Bisset, of all men, should admit that the Revolution did not end
in Caesarism. " If there is one principle in all modern history," to
quote Frederic Harrison again, "it is this: that the Revolution did
not end with the whiff of grapeshot by which Bonaparte extin-
guished the dregs of the Convention."

In France the fires of republicanism never went out, though at
times smouldering. They burst forth powerfully under Louis
Philippe in the Second Republic, in the present republic — these
republics no new creations, but adjourned sessions, as it were, of
the original. Since 1789 every anti-republican polity arising in
France has passed its life in unstable equilibrium.

Elsewhere in Europe as well, old style political ideas began to
lose power. Constitutions were in time introduced in all the Ger-
man states. A national-liberal party rose in Prussia, which at last,
after so many ages, made the political unity of Germany a reality.

This result might have been attained much earlier but for the
conflict of the sentiment for unity with that for constitutional rule.
Prussian policy was strongly anti-republican. King William and
Bismarck were, so late as 1863, still heavily tarred with Metternich's
brush, repelling liberals like Rotteck, Welcker, and Gagern, in the
center and south, in lands which the confederation of the Rhine
had embraced, even when they were convinced that Prussian
victory" meant a united fatherland. Union finally came by compro-
mise, Prussia turning more liberal, the ultra-liberals insisting less on
ideally free institutions at once.

Italy, even more than Germany, took impulse towards freedom and
unity from the good influences connected with French occupancy.

Great Britain, where the good seed fell into the best ground, bene-
fited infinitely from the Revolution. Few English, to be sure, sym-
pathized with Dr. Price in seeing a millennium at hand. " What an
eventful period is this," he exclaims in a sermon, part of which
Burke quotes: " I am thankful that I have lived to see it. I could
almost say, Lord, now lettest thou thy servant depart in peace, for
mine eyes have seen thy salvation."

Soberer men avowed sympathy with the essential in the new
movement. Fox was among these. He believed Pitt's repressive
measures to be of dangerous tendency.

On Pitt's death, Sir Walter Scott wrote:

" Now is the stately column broke,
The beacon light is quenched in smoke,
The trumpet's silver sound is still,
The warder silent on the hill."

One can imagine Fox reciting this, not as a threne but as a psean.

The career of British liberalism since Fox and Pitt's day has been

peculiarly proud. To it is mainly due that noble succession of

WORLD'S POLITICS AND NINETEENTH CENTURY 303

reform acts extending the franchise until manhood suffrage is
realized in Britain more perfectly than in the United States. Laws
have been passed unshackling British trade, greatly to the benefit
of the common people. Popular election has been carried into
counties and cities, placing the peasant and the mechanic in condi-
tion to hold his own against wealth and rank as he could never do
before. The extra voting power of the rich has been mostly annulled,
the public service purified and opened to the humblest, the adminis-
tration of justice immensely improved. A system of public educa-
tion has been launched, by which the poorest youth may win intelli-
gence that shall be worthy of his freedom and enable him to utilize
and enjoy it.

Nor is the train of causation starting from the French Revolution
exhaustively conceived without recalling again the freedom of the
Spanish-American republics, the rise and life of the democratic
party and of the Monroe Doctrine in the United States, the creation
of Belgium, and the liberation of Greece.

Hardly had the French Revolution democracy begun its race when
it suffered serious arrest. An absolutist reaction set in: in France
itself, under Napoleon, the restored Bourbons, and, later, the Second
Empire; Metternich arose and the Holy Alliance; strife for free
institutions was repressed in Germany, Italy, and Spain; reform
became and for a time remained a hateful word all over Europe;
Louis XVIII dated the state papers of 1814 as of the nineteenth
year of his reign, affecting to ignore all that had passed since Louis
XVI's death.

Queen Victoria once said: " As I get older I cannot understand
the world. I cannot comprehend its littlenesses. When I look at
men's frivolities and littlenesses it seems to me as if they were all
a little mad." This insanity of petty-mindedness was never more
patent than in Germany after Napoleon's fall.

The German Confederation was Metternich's tool to stay the
advance of liberalism. The presence of the French in Germany had
quickened and generalized the wish for constitutional and hatred of
personal rule. While peril lasted the powers heeded. Czar Alex-
ander received Poland on condition of granting it a constitution.
Frederic William promised Prussia a constitution; Article 13 of
the Confederation Acts declared that each of the confederate states
was to have a constitution with representation. Liberals fully
expected that before long constitutional methods would prevail all
over the Continent as in England.

Bitter disappointment resulted, the next period being but a record
of Metternich's triumphs, of monarchs' mean devices to evade their
pledges and to hush the popular cry. Save Saxe- Weimar, not a
state in the Confederation obtained at this time a liberal ground law.

304 POLITICS

Bavaria, Wiirttemberg, and Baden, which had felt France most,
had charters by 1820, but these modified absolutism only a little,
and were given partly to spite the larger states surrendering to
reaction.

The privileges which were here and there conceded were vitally
vitiated by appearing as grants, not as rights. All seeking by the
people to wrest concessions was viewed as Jacobinism with reign of
terror behind. Press, pulpit, school, and platform were under gag
laws, patriots excluded, exiled, or silenced by an infamous system
of espionage, which Napoleon would have blushed to own.

All this proved in vain, however. The good leaven went on per-
meating the meal till all west Europe was leavened. Liberal ideas,
domestic, and streaming in from Switzerland, Italy, Greece, Eng-
land, and France, especially during her revolution of 1830, proved
at last more than a match for Metternich; and when the new re volu-
tion of 1848 rocked to its base every throne of Continental Europe,
he fell and his system was doomed.

Men had come more and more into Gladstone's state of mind in
1851, when he wrote: " It is a great and noble secret, that of consti-
tutional freedom, which has given us the largest liberties, with the
steadiest throne and the most vigorous executive in Christendom.
... I am deeply convinced that among us all systems, whether
religious or political, which rest on a principle of absolutism, must
of necessity be, not indeed tyrannical, but feeble and ineffective
systems; and that methodically to enlist the members of a commun-
ity, with due regard to their several capacities, in the performance of
its public duties, is the way to make that community powerful and
healthful, to give a firm seat to its rulers, and to engender a warm
and intelligent devotion in those beneath their sway."

Republicanism has encountered, and is still struggling therein,
a second impasse, which threatens to be far graver than the
first.

A wide and deep remission of philanthropy marks the intelligence
of our time, partly speculative in origin, as seen in Nietzsche, who
ridicules consideration for one's enemies and for the weak, as slaves'
ethics; partly resulting from fuller acquaintance with the inferior
races of men. Tongues thoroughly trained in trick gymnastics stick
at vocables like " equality," " brotherhood," " the race," " human-
ity," much more than when only missionaries had first-hand famil-
iarity with Bushmen and Igorrotes. Such a generalization as
" man " does well enough in zoology, but in practical ethics it finds
its position harder and harder to keep. The changed thought
promptly sidles over on to political ground. Having radically
subordinated certain races to others, we find it easier, if not inevit-
able, to subordinate certain classes.

WORLD'S POLITICS AND NINETEENTH CENTURY 305

Another boulder badly obstructing democracy's path is socialism.
The socialists have, agreeably to their wish, convinced great multi-
tudes that their programme is simply the logical working-out of
democracy. At the same time, against their wish, they have begotten
the conviction in others that socialism put in practice would mean
anarchy, communism, leveling, a crusade against the highlands of
men's life in the interest of the bog. It would build forth the social
body utterly without regard to heterogeneity, allowing no place for
the genius, the artist, the dreamer, the mugwump, the non-con-
formist, the rebel. The Church in its worst days never meditated
rendering life so insipid. Prisoned in the iron orderliness socialism
must bring, real men would cry out with Walt Whitman:

" O, something pernicious and dread,
Something far away from a puny and pious life,
Something unproved, something in a trance,
Something escaped from the anchorage and driving free."

I care not what others may say, but as for me, give me the privilege
of nonconformity or give me death.

The modern liberal deems a never so mountainous district preferable
to a dead level. If democracy is that, and he frequently fears it is,
he will none of it. Rather, he shouts, my kingdom for a horse with
a man astride! If it is the only alternative, give me monarchy,
aristocracy, even plutocracy, rather than the democracy which
stifles and kicks the individual.

Again, liberalism has disappointed early expectations. Its devo-
tees at first looked for economic and moral as well as political
millennium as soon as men were set free from monarchic rule.

But it is clear that the device of simply knocking off men's political
shackles falls short. Bare civil liberty does not constitute or assure
social weal. Society sunders itself worse than ever into disparate
and hostile classes. Poverty and oppression have not come to an
end. This century of political equality, of status changed to con-
tract and of a ballot for all, is precisely the one wherein pessimism
has been born, which is no longer the smart hobby of a few, but the
fixed conviction of multitudes.

Distracted over so many unfulfilled prophecies, a host of liberals
almost conclude that they have been following an ignis fatuus, to
turn from which is the beginning of wisdom.

Lastly, the gaucherie of popular government in executive function-
ing, and especially in war, renders it odious with a great and increas-
ing number.

The modern mind is of a practical turn. Men theorize less than
formerly, but administer better. We delight in facile practice, in
bringing things to pass. Familiarity with colossal businesses, rail-
way systems, trusts, where single minds with absolute authority

306 POLITICS

produce wonders in the way of dispatch, coordination, and com-
bination, brew relish for order and rapidity in business, and discon-
tent for the slow, lumbering, awkward methods which, to date,
most democracies insist upon in conducting public affairs.

The inclination is, therefore, observable on every hand to allow
executives longer rope, a freer hand, more independence in detail
from legislatures and from the constituency. Whereunto this will
grow, none can tell. As it is, however, clearly inconsistent with the
democracy hitherto expounded and practiced, it helps to swell and
spread the conviction that democracy, at least democracy as we
know it, cannot be the final polity.

SECTIONS A AND C

POLITICAL THEORY AND NATIONAL
ADMINISTRATION

SECTIONS A AND C

POLITICAL THEORY AND NATIONAL
ADMINISTRATION

(Hall 15, September 22, 3 p. m.)

SPEAKERS : PROFESSOR W. W. WILLOUGHBY, Johns Hopkins University
PROFESSOR GEORGE G. WILSON, Brown University.
RIGHT HONORABLE JAMES BRYCE, London, England.

SECRETARY: DR. CHARLES E. MERRIAM, University of Chicago.

POLITICAL PHILOSOPHY

BY WESTEL WOODBURY WILLOUGHBY

[Westel Woodbury Willoughby, Professor of Political Science, Johns Hopkins
University, b. Alexandria, Virginia, July 20, 1867. A.B. Johns Hopkins
University, 1888; Ph.D. ibid. 1891. Member of American Political Science
Association; American Economic Association; American Historical Associa-
tion; American Academy of Political and Social Science; Secretary and Treas-
urer of the American Political Science Association. Author of The Supreme
Court of the United States; The Nature of the State; The liights and Duties of
American Citizenship; Social Justice; Political Theories of the Ancient World;
The Amencan Constitutional System, etc. Editor of The American State Series.
Co-editor of the Johns Hopkins University Studies in Historical and Political
Science. Managing Editor of The Amencan Political Science Review.]

THE term " political philosophy " is not so self-explicative as to
render unnecessary an inquiry into the character and value of the
speculations with which it has to deal. The adjective " political "
is easily reduced to its proper meaning. Correctly used, it has
reference to those matters that directly pertain to the organization
of men in corporate communities over which some paramount
ruling authority is generally recognized as the legitimate source of
all legally binding commands. We thus term " political" all matters
that concern the state, its origin, history, right to be, organization,
activities, administration, and aims. When, however, we turn to
the meaning of the substantive " philosophy," when used in connec-
tion with the qualifying adjective "political," the matter is not
quite so simple. It is clear that we cannot speak of a philosophy
of politics in the metaphysical or epistemological senses of the word,
nor can we employ it in its cosmic application as a synthesis of the
doctrines of all the sciences. The only meaning, then, which we
may properly attach to the word, when used in the phrase " political
philosophy," is that which it has when we speak of the philosophy
of any science as that portion of it which is concerned with the

310 THEORY AND ADMINISTRATION

theoretical discussion of the essential characteristics of the material
and phenomena with which such science has to deal. When we
thus speak of a philosophy of a science as dealing with its theoretical
principles, it is not to be understood, however, that it is therefore
concerned with its hypothetical or undetermined part. A philosophy
in this sense is theoretical only in the sense of being abstract, that is,
as dealing with generalizations rather than with particulars, and as
predicating essential and fundamental qualities rather tfian acci-
dental or unessential characteristics. Its results are, or should be,
as exact as those reached in the corresponding sciences and arts.
Indeed, the correctness of the principles reached in these latter
fields is almost wholly conditioned upon the truth of the distinctions
philosophically determined.

In its methods and aims, political philosophy is, upon the one side,
teleological or ideal; upon the other side, scientific or analytical.
Upon its ideal side it seeks to discover the nature of political society
and the legitimate sphere of its authority as determined by the
nature of men, that is to say, by their need of political organization
for the satisfaction of their proper desires and for the realization of
their possible perfections. It thus defines the state in terms of its
end, and essays to determine what its activities and organization
should be, rather than to describe its form and functions as they
actually are. Upon its analytical side, political philosophy is wholly
concerned with the state as it is, with its nature as determined by
the elements of which it is composed, and by the manner in which
they are united. From the innumerable and diverse ways in which
political organs are framed and political authority manifested, polit-
ical philosophy discovers those underlying qualities which are essen-
tial and common to them all. From its search for the real source
and nature of political power or sovereignty, it returns with criteria
according to which political phenomena of all kinds and all ages
may logically and satisfactorily be analyzed and classified. Political
philosophy thus, upon its analytical side, affords the means of uniting
into an harmonious whole that multitude of phenomena which, in
appearance, is so confused and confusing. It makes it no longer
necessary to declare law, the state, or sovereignty to be one thing at
one time and another thing at another. In its light the changes or
evolutions of political institutions and activities are seen to be
changes in form or manner of outward manifestation of political
authority, and not alterations in nature. History shows us that
neither in governmental organization nor in actual activity and
social efficiency have two states ever agreed, nor has the same state
remained the same in these respects at different periods of its exist-
ence. Yet the state itself, considered abstractly as a political power,
has not changed in character. Its sovereignty has remained the

POLITICAL PHILOSOPHY 311

same that it ever has been, and always will be, so long as it exists
at all. Those who deny this (as does, for instance, Professor Rowe,
who says that "it is impossible to formulate a political terminology
applicable to all times and to all countries ") deny not only the pos-
sibility of a philosophy of politics in any sense of the word, but, by
necessary implication, deny the possibility of framing definitions in
political science whose validity may be unquestionably accepted.
If law and sovereignty change at different times, not only in form but
in character, what criteria are afforded for determining at any given
time what their real characters are, and therefore the tests by which
their presence may be infallibly detected; or what possible basis
is there left for comparison between institutions of different times
or of the same time, but among nations upon different planes of
civilization? What hope will there be, reasoning from such a basis,
of finally determining political legitimacy in any individual case, or of
founding systems of constitutional law or international procedure
upon anything but empirical and therefore largely arbitrary bases?

A survey of the history of political speculation shows that, up to
comparatively recent times, political philosophy received almost no
attention upon what we have termed its analytical side. The ideal,
the ethical, or, as one might almost say, the metaphysical method,
saw the one almost exclusively followed. The nature of the state,
and especially its relation to the church, its ethical right to existence,
the legitimate sphere and content of its law, the character and
extent of the authority properly exercisable by its rulers, and the
reciprocal rights and duties of its subjects, — these, rather than the
examination of the ideas of sovereignty and law as positive legal
concepts, were the questions that were over and over again discussed,
and the answers to them sought not in a utilitarian consideration of
existing needs and conditions, but in purely subjective examinations
of the essential nature of men and the contents and character of
divine or natural law.

Thus, during all this time, political philosophy, in so far as it was
not theological or metaphysical, was ideal or ethical. Its inquiries
extended little beyond the domain of Naturrccht or Naturrechtlehre.
The existence of these so-called natural laws, absolutely binding in
their force, and possible of exact and definite statement, being
assumed, speculators, one after another, essayed the elaboration of
codes of conduct that should govern rulers and ruled in the es-
tablishment, organization, and maintenance of political relations.
Absoluteness was the one characteristic of all the systems that were
elaborated. Ideal forms of government, applicable at all times and
to all peoples, and systems of law, complete, and in conscience
absolutely binding upon every one, were almost uniformly the results
reached. Being almost purely subjective in character, the freest

312 THEORY AND ADMINISTRATION

possible play to the speculative abilities and inclinations of their
authors was permitted, and thus, as a writer in the Quarterly (October,
1900) has remarked, the science or philosophy of natural law, while
preventing the creation of a true and useful science of politics, was
the apotheosis of political philosophy.

In our day, however, in both ethical and political speculation,
the absolute has given way to the relative. That the best form of
government and the best code of laws are not the same for all peoples,
and that, though the distinction between right and wrong is abso-
lute, no particular rules of conduct are, are now truisms.

This, however, has not meant the total, or, indeed, the considerable,
destruction of political philosophy even upon its ideal or ethical side.
Though we now no longer believe that it is possible to construct
a political Utopia everywhere applicable, or an ideal code of laws
ethically and absolutely binding upon every one, we still hold it
profitable to subject existing political conditions to ethical and
utilitarian criticism, and consider it possible to outline systems of
governments and elaborate codes of laws, which, while admittedly
imperfect, and applicable only to particular conditions, are, never-
theless, improvements upon those existing. Furthermore, we still
see the necessity of discovering an ethical quo warranto both for
the existence of political authority in general and for the given state
or government in particular.

But it is especially upon its analytical side that political philosophy
now flourishes and demonstrates its value. First of all, rigid political
analysis has rendered possible the creation of a true political science.
A science has been defined as " knowledge gained and unified by
exact observation and correct thinking, especially as methodically
formulated and arranged in a rational system " (Standard Dictionary).
Thus it is not until the related facts obtained by research, observation,
and experimentation have been coordinated and logically classified
that a science is created. But before this coordination and classi-
fication are possible the facts themselves have to be correctly ana-
lyzed and their essential characteristics ascertained, so that exact
definitions of them may be drawn and criteria discovered that may
serve as the bases of correct classifications. Thus political philosophy
upon its analytical side, by ascertaining the precise connotations of
such terms as law, government, state, suzerainty, sovereignty, and
the like, has rendered possible the formulation of exact definitions and
classifications and, consequently, the creation of a political science.
Especially in the fields of constitutional jurisprudence and of
international law is the value of political analysis made manifest.
Political philosophy, in fact, supplies the logic of constitutional
law, and where fundamental political concepts have not been intelli-
gently thought out and harmonized into a system, vagaries in consti-

POLITICAL PHILOSOPHY 313

tutional interpretation, and inconsistencies in political action, have
been almost surely the result. Chief Justice Marshall was great as
a political philosopher rather than as a lawyer. All of his chief
opinions were essentially essays in political theory. This is evident
from the fact that in them very rarely is a legal authority or pre-
cedent cited to sustain the reasoning employed or the conclusions
reached. And, since his time, though references to predecided
cases abound in its written opinions, the ratio decidendi of the deci-
sions of the United States Supreme Court has in all of the more
important cases been derived from the principles established by
pure political theory. Thus, to cite but a few instances, this is
seen in United States vs. Lee, where the right of a private citizen to
recover possession of property held by a federal officer under author-
ity of an unconstitutional executive order was sustained by basing
it upon the general principle that in a republican government no
authority can be so high that an act by it, unauthorized by a valid
law, can operate to divest the private citizen of a legal right. So
also in Texas vs. White, the distinction between a state and its gov-
ernment — a distinction emphasized by political theory — was
seized upon by the court to enable it to assert the continuance of
a state in the Union at the same time that the legitimacy of its
government was denied. Finally, in the recent cases dealing with
the constitutional rights of the inhabitants of our insular possessions,
the decisions are based upon the purest of political theorizing re-
garding the nature of the rights enumerated in the first eight articles
of amendment to the Constitution.

In the field of international law the sphere and service of political
theory or philosophy is even more conspicuously manifested. In
the beginning, the principles of international law were deduced in
a purely philosophical manner, custom and precedent playing little
or no part. And though convention and custom are now the chief
sources of its rules, the part played by pure political theory is still
very important. This is due to the fact that at the same time
that the principles of international law, through the practice of
nations and the efforts of commentators, have been rendered fairly
definite and systematized, and the formal rights and duties of sove-
reign nations towards one another thus made, in the main, evident,
the application of these principles and the determination in concrete
cases of these respective rights and duties have been made, if any-
thing, more than ever difficult by the great increase in the com-
plexity of constitutional and international relations which has marked
the last century, and, especially, the last quarter of it. Instead of
a family of nations composed of members completely autonomous in
fact, as well as name, we find nations, each sovereign in name and
theory, associated in the closest of constitutional and international

314 THEORY AND ADMINISTRATION

bonds, in some instances exercising their international powers in
common, and in others surrendering up the enjoyment of their inter-
national rights in whole or in part to alien powers. In not a few
cases, indeed, this surrender has extended to the exercise of domestic
powers as well. Thus it has come about that just as in the Middle
Ages the feudal state was the prevailing civic type, and in the early
modern age the absolute monarchy, so at the present time the dom-
inant type seems to be the composite or federative form. In Europe
we have the federal state of Switzerland, the dual empire-kingdom of
Austria-Hungary, and the great German hegemony under the leader-
ship of Prussia. In the Americas we have the federal states of the
United States, Canada, Mexico, and the various South and Central
American federations. Australia is now a federated commonwealth.
In South Africa a federal movement among the several British colonies
exists, and finally, the scheme of an imperial federation of all the
English colonies with their mother country is in many quarters being
vigorously pressed. Each of the greater powers of the world has
within comparatively recent years established political interests over
the less developed peoples of Asia, Africa, and the Pacific Islands.
Where these political interests have taken the definite colonial form,
international conditions have not been greatly complicated; but where,
as is the case in so many instances, these interests have been asserted,
not as a result of the formal subjection of the territories in question
to the sovereignty of the powers claiming the interest, but as based
upon treaties providing for the establishment of a protectoral rela-
tion, or for the lease for a number of years of a particular tract of
land, or the recognition of simply a " sphere of interest," or, most
indefinite of all, for the lease of a sphere of interest, — where these
have been the international relations that have been established,
a host of novel international problems have been born, for the solu-
tion of which, in most instances, only pure political theory is com-
petent. The connotations of the terms sovereignty, suzerainty,
half-sovereignty, protection, vassalage, allegiance, have to be exam-
ined with a carefulness never before required. Among other pro-
blems it is necessary to determine anew what powers and attributes
are incidental to the possession of sovereignty, whether its existence
is an infallible and necessary test of statehood, to what extent the
exercise of its powers may be delegated without parting with its
possession, the distinction between governments de facto and govern-
ments de jure, whether states may be created by international com-
pact, whether the origin of political authority in general is susceptible
of a juristic interpretation, what is the essential character of positive
law and whence its validity, and to what extent so-called inter-
national law is binding, or is law at all in sensu strictiore.

POLITICAL PHILOSOPHY 315

The Relation of Political Philosophy to Other Departments of
Speculative Inquiry

From the definition and sphere of political philosophy, we turn now
to a consideration of the relations in which it stands to some of the
other departments of speculative inquiry.

Political Philosophy and Metaphysics

Though, as has been pointed out, political theory cannot be spoken
of as a philosophy in its metaphysical sense, there is a very close
relation between political philosophy and metaphysics in so far as
political philosophy attempts to determine the nature of the state
from its final cause, and metaphysics seeks to state teleologically
man's nature. Except in so far as the existence of the state is con-
ceived to be an end in itself, the definition of political authority in
terms of its proper end is, of course, governed by what is conceived
to be man's end and destiny. Thus, as a matter of fact, it is found
that abstract political speculations have ever been carried on in
intimate union with ontological and teleological inquiries. The
aim of almost all philosophizing is the discovery not only of the essen-
tial nature of things, but the determination of their justification
and purpose with reference to an ideal or end. It is, therefore, but
to be expected that in all times those minds which, by nature and
temperament, have been inclined to seek for the nature of reality in
general, should have also searched for the nature, justification, and
end of the state, the greatest of all human institutions. Thus it is
found that very many of the chief political philosophers have been
also conspicuous as philosophers in the general sense. This is as
true of Plato and Aristotle in ancient days as it is of Aquinas and
Suarez in later times, and of Spinoza, Locke, Hobbes, Mill, Kant,
Fichte, Hegel, and Green of still more recent date.

Inasmuch as there is no logical connection between metaphysical
and political speculations, that is to say, no syllogistic dependence
of the results of the one study upon the conclusions of the other,
philosophers have not attempted to deduce political principles
directly from ontological premises. At the same time, however,
the general cast of mind, the philosophical Tendenz of writers, has
often influenced them in their political inquiries. Thus, to take a
single instance, the difference in the views of Plato and Aristotle
as to the relation of the individual to the state, and as to the proper
sphere of control of the latter over the private life of the former, is
explainable by the divergency of the views respectively held by
them as to the relation between universals and their particulars.
Plato, in his conception of the state, treats it as, in a sense, a universal,

316 THEORY AND ADMINISTRATION

the universal of man; and as, in his general philosophical system, the
general is considered as more real, more important, than the partic-
ular, so the body politic is conceived to represent, if not actually
to be, a higher type of humanity than the single individuals compre-
hended within it. Hence, in his political scheme the welfare of these
individuals is wholly subordinated to that of the civic generality,
and the citizen is treated as having no rights, no aims, indeed,
apart from the state. Aristotle, on the other hand, while not denying
reality to ideas or universals, yet holds that they do not exist apart
from the particulars included within them. The particulars are thus
given an importance and a self-existence, as it were, of their own.
They are treated as having a life that is not and cannot be com-
pletely swallowed up in that of their universals. The reflection of
this in his political thought is seen in the increased rights and claims
which are given to individuals, qua individuals, as against the state.

Political Philosophy and Ethics

The relation between political and ethical theories has been even
more intimate than that which has existed between political philo-
sophy and metaphysics. So intimate, indeed, has this association
been that Janet, who has given us, perhaps, our best history of po-
litical speculations, has found it practicable to combine this history
with an account of the ethical systems of the writers considered.1

Upon its theoretical, side, ethics necessarily depends upon meta-
physical inquiries into the essential nature of man and of the moral
order of the universe. Upon its practical side, however, its union is
with politics. When the character of moral obligation or of sanc-
tion, or the nature of the highest good is dealt with, we are in the
realm of theoretical or abstract ethics. When the establishment of
proper norms for human conduct is essayed, the domain of practical
ethics is entered. Practical ethics is essentially a social science in
that it has for its aim the determination of just rules for the guidance
of men in their dealings with one another. The solitary individual
may be and is, in fact, a moral being, but until he is brought into
association with others of his kind there can occur to him few, if any,
obligations of a moral nature. For though we may hold that the
feeling of moral obligation is an original datum of human conscious-
ness, and that man, as a partaker in the divine or absolute reason,
is potentially a moral being, the possibility of his coming to a self-
recognition of this fact, as well as the opportunity of realizing it in
practice, is only rendered possible in the social and political state.

1 The title of his work is Histoire dz la Science Politique dans ses Rapports
avec la Morale. When completed, Dunning's History of Political Theories will
easily rank as the best account of political speculations. Thus far two volumes
have appeared, bringing the history down to the time of Montesquieu.

POLITICAL PHILOSOPHY 317

The concrete facts which condition the formation and exercise of
ethical ideals are thus preponderantly of a political character. The
influence exerted by the commands of the state in creating and mold-
ing current conceptions of right and justice is necessarily enormous.
The true and desirable relation between law and ethics is, of course,
for ethics to dictate the principles and distinctions which the laws
embody. As a matter of fact, however, it has always been the case,
and always will be the case, that until men become generally moral-
ized and intellectualized, legal determinations have been and will be
to many persons the source whence they derive their ethical dis-
tinctions.

When, from the formation of ethical conceptions, we turn to the
realization of them in practice, the dependence of the ethicist upon
the politician becomes in many cases absolute. In so far as ethical
speculation is devoted to a search for a justification of the existence,
and the manner of existence, of the authority of a political institu-
tion, its inquiries are as much political as ethical. So, conversely,
in so far as the political philosopher seeks for the moral basis for
institutions and authorities, his speculations are as much ethical
as political. Thus, while ethics has no concern with the analytical
questions of political philosophy, with its teleological problems it is
intimately connected. These teleological problems have to deal
with the right of the state to be, the legitimate extent to which the
freedom of the individual may be restricted by public control, and
the aims which a body politic should strive to realize.

Speaking upon the relation of ethics to politics, Professor Hyslop
writes: " For the sake of an effective comparison, politics should
be defined as the science of the regulation and restriction of human
conduct by law. It thus seeks to determine how certain courses
of action may be artificially induced or prevented. It aims by law
to establish social order, or a condition of things which the unor-
ganized wills of men would not spontaneously produce. It is, there-
fore, the science of the artificial limitations of human liberty, in the
protection of rights and the regulations of external conduct. On
the other hand, ethics is the science of what a man can and ought
to do, whether government exists or not. It determines the justice
and validity of all political principles, but it does not investigate
the means of putting them into force. It is, therefore, concerned
with the phenomena of free action, or the voluntary choice of the
good. Hence, in contrast with politics, it may be defined as the
science of the extension of human liberty or of those conditions under
which morality is realized without a resort to civil law. For this
reason it is strictly the science of the conditions under which morality
becomes internal as well as external. Politics stops short with the
attainment of the external good, an order in which free morality is

318 THEORY AND ADMINISTRATION

possible, though it does not and cannot affect this morality. Ethics
aims with this to attain internal good or virtue, and is consequently
concerned with the ' good will,' as well as with the good conduct
externally considered. But it deals with morality only as it is the
product of free will, while politics subordinates freedom to the attain-
ment of social order."1

While substantially correct, there may, however, be room for
questioning whether a false impression may not be gained from the
above concerning the aim of politics. It is true that political insti-
tutions and laws are necessarily limited to the control of external
acts. Men cannot be made moral by act of parliament. But the
ultimate aim sought or which should be sought by all political powers
is that through their influence and assisted by the environment
which they create, the highest possible moral life may be lived. In
final purpose, then, ethics and politics agree. Only in the instru-
mentalities through which they operate do they differ. The one
seeks to control human conduct by direct appeals to the individual's
reason and conscience; the other, to render these appeals effective
by the educational influence of the institutions which it establishes
and the order and formal justice which it maintains.

Thus, indeed, Plato makes politics a part of ethics, while Aristotle
declares politics the major science of which ethics constitutes but one
division. Despite their differences, both of these positions are based
upon the fundamentally true premise that the real object of all
inquiries which have to deal with the lives and conduct of men is
that a " good life " shall be realized. This is the one bond that
unites them all, and, whether we give to ethics or to politics the more
comprehensive meaning, or include them both within some wider
term, is nothing more than a matter of terminology.

Political Philosophy and Theology

No necessary or logical relation exists between political principles
and theological speculations. As a matter of historical fact, how-
ever, they have often been closely associated. So long as political
authority was given a directly divine character, political inquiries
were necessarily limited by, and included within, religious theories.
Thus the great variety of political theories which have been advanced
to explain the relations which church and state bear, or should bear,
to one another have in large measure been of a theologico-political
character. This problem of church and state, as is well known,
was, indeed, the central point around which mediaeval political
speculation centered. Out of this general controversy sprang a
host of divergent views regarding religious toleration, the right of

1 Elements of Ethics, pp. 10, 11.

POLITICAL PHILOSOPHY 319

tyrannicide, the divine rights of kings, popular rights of resistance
to political oppression, and especially the right of the church to
determine when subjects should be released from their oaths of
allegiance and obedience to their political sovereigns.

Political Philosophy and Political Economy

The use of the term " political " in the titles of each of these
departments of thought indicates a more intimate relation between
the two than actually exists. Voltaire is reported to have said that
the Holy Roman Empire was neither holy, nor Roman, nor an
empire. With equal truth it might be said that political economy,
at least as the science is now conceived, is neither political nor eco-
nomic in the ordinary sense of the word. When economic specula-
tions first began to assume a form sufficiently coherent and consid-
erable to warrant their being grouped under a distinct title and to
receive treatment as a separate department of human inquiry, they
were essentially cameralistic in character; that is to say, they cen-
tered around the problems of public finance. They had to do pri-
marily with the questions of maintaining the public credit, and of
securing to the state an income adequate for its needs. Thus, at the
hands of the first real school of economists, the mercantilists, its
relation to practical politics was so intimate that the new science
did deserve the title " political economy." By the physiocrats the
center of interest was taken from the state and placed in the citizen,
the problems surrounding the production of wealth by the individual
being the ones especially emphasized. At the same time, however,
that the direct dependence of economics upon considerations of
political polity was thus lessened, the relation between the philosophic
bases of economic and political speculations was rendered more
intimate by the founding of economic views upon those same doc-
trines of natural laws and inalienable individual rights which were
at that time current in political thought.

In the epoch-making work of Adam Smith, An Enquiry into the
Nature and Causes of the Wealth of Nations, the science of political
economy assumed more nearly its modern form, but doctrines of
natural rights still played a considerable part in its theory. Fur-
thermore, as the title partly indicates, questions of political policy
were everywhere emphasized. Since Smith's day, however, the
uniform tendency among economists has been to consider as the
primary purpose of their science the investigation of the production,
distribution, and consumption of wealth; and questions of public
policy are held to have a place in their inquiries only in so far as they
introduce modifying conditions. This fact is shown by the general
tendency of the economists of to-day to discard altogether the use of

320 THEORY AND ADMINISTRATION

the qualifying adjective " political " and to term their science simply
" economics." It is still, of course, true that when the economists
attempt to make practical applications of the principles which they
have deduced, they are concerned with questions of the exercise
by the state of this or that function, or the adoption by the law of
this or that policy. But this is only the application of principles
already determined. So far as economics is considered as a science
or a philosophy, it is concerned solely with the discovery of the
physical laws that control industry, and the psychic laws that regu-
late the conduct of men in their efforts to secure wealth and obtain
the greatest amount of benefit from its consumption.

Political Philosophy and Sociology

Giving to the term " sociology " its broadest meaning, as the title
of the comprehensive science that embraces the study of all social
facts, political science is, of course, one of its subdivisions, and its
philosophy a branch of social philosophy. If, however, we accept
the definition of Giddings, according to which sociology is that
science which has to deal with the primary psychological facts and
elementary social phenomena which the students of politics and of
the other social sciences assume without analysis as the foundations
upon which to erect their respective scientific superstructures,
sociology, in so far as it deals with political facts, covers much of the
ground that the political philosopher has been wont to claim as
his own. Speaking especially of political science, Giddings says in
his Principles of Sociology:1 " How is it with the theory of the state?
Political science, too, finds its premises in facts of human nature.
The active forces of political life, as of economic life, are the desires
of men, but they are no longer merely individual desires, and they
are no longer desires for satisfactions that must come for the most
part in material forces. They are desires massed and generalized;
desires felt simultaneously and continuously by thousands, or even
millions, of men who are by them simultaneously moved to concrete
action. They are desires of what may be called the social
mind in distinction from the individual mind, and they are chiefly
for such ideal things as national power and renown, or conditions
of liberty and peace. Transmuted into will, they become sover-
eignty — the obedience-compelling power of the state. Political
science describes these gigantic forces of the social mind and studies
their action; but it concerns itself with their genesis no more than
political economy concerns itself with the genesis of individual desires.
It simply assumes for every nation a national character, and is content
that the political constitution of the state can be scientifically

1 Page 36.

POLITICAL PHILOSOPHY 321

deduced from the character assumed. It takes the fact of sove-
reignty and builds upon it and does not speculate how sovereignty
came to be, as did Hobbes and Locke and Rousseau. It starts
exactly where Aristotle started, with the dictum that every man is
a political animal."

In another place he says: " So far, then, as the objective inter-
pretation is concerned, neither political economy nor politics can
pretend that it goes back to the primary facts in the social category.
Both frankly assume without explanation the phenomena of human
association." 1

To the position thus taken that political science, in common with
the other special social sciences, requires the services of another
science to establish the fundamental principles and interpret the
primary facts with which it has to deal, two objections lie. In the
first place, it is not to be admitted that the politician takes sove-
reignty or any other primary political fact without inquiry as to its
origin. The historical or descriptive publicist or the writer upon
practical politics does not, of course, concern himself with the origin'
and nature of political authority, or with the basis for political right.
But the political philosopher or theorist does, and many works exist
in which the origin of political power has been traced back of the
mere fact of its existence to its ultimate psychological genesis. In
the second place, in Giddings's statement of the case for sociology
as a science fundamental and logically prior to political science, it is
incorrectly assumed that political societies result from an organic
development of antecedent groups that are without political organ-
ization, — from groups, in other words, that are purely social in
character. As a matter of fact, though the time cannot here be
taken even to outline the argument, it is easily demonstrable that
the psychological basis upon which the state is founded is a senti-
ment of unity which exists in individual wills and that the political
unit is not a development from some lower social unit. The body
politic is not a development from the family or the tribe. It may
be that, historically speaking, the social group is earlier formed than
the political group. This is due to the fact that a degree of mutual
restraint and tolerance which is sufficient to maintain a slightly
coherent social group is more easily established than the mutual
cooperation and individual self-subjection which are necessary for
the creation of a political unit. But the social group does not by
a simple process of growth become a political group. Psycho-
logically as well as teleologically the state is independent of the facts
of mere social groups; and hence, that science which studies the
genesis and nature of social groupings cannot be fundamental to the
science of politics.

1 Giddings, Principles of Sociology, p. 34.

322 THEORY AND ADMINISTRATION

In taking this position we are not to be understood as denying to
sociology the right and title to a place among the other social sciences
as concerned with a distinct and important body of social phenomena.
Our criticism extends only to the point of refusing to entertain its
claim to be the science logically antecedent to political science. We
fully agree with Professor Giddings that it is quite feasible, as well
as eminently desirable, that special and exclusive study should be
made of those peculiar and essential facts which concern the genesis,^
organization, and evolution of human association. It may be that
from this study it is possible to obtain, upon the objective side, laws
of growth which may be stated in terms of a physical process, and
that upon its subjective side social phenomena may be interpreted by
reference to discoverable motives or facts of human consciousness
of kind. Whether, as thus pursued, sociology may claim an existence
as a science independent from, but coordinated with, the other social
sciences, we do not say. But we are not ready to concede either that
political philosophy has yielded, or properly may yield, to the social
psychologist all inquiries as to political origins.

Political Philosophy and the Philosophy of History

Political philosophy is related to the philosophy of history only
through its own history, but here the relationship is very intimate.
Political theories, however abstract their form of statement, have
ever been the product of the objective conditions and needs of their
times. Also, though in much less measure, they have, when formu-
lated, influenced the course of historical movements. Thus, in
tracing their development, one necessarily discovers and discusses the
same fundamental motive ideas which the philosophical historian
has to deal with in his efforts to explain and rationalize the past.
Thus, not only does an adequate grasp upon political theory enable
one correctly to determine the thoughts and intentions of men of
the past, but a history of the development of political theories, in
its reflection of the thoughts and actuating motives at the basis
of important political movements, furnishes the historical student
with an insight into the logic of events which he can obtain from
no other source. Especially where, as in the history of the United
States, questions of constitutional right have required practical
solution, a knowledge of political theory and of its history is of the
greatest value. A noteworthy illustration of this is seen in Professor
McLaughlin's article, " Social Compact and Constitutional Con-
struction," contributed to the American Historical Review.

POLITICAL PHILOSOPHY 323

Political Philosophy and Philosophy of Law

In order to understand the exact relation which the philosophy of
law bears to political philosophy it will be necessary to consider for
a moment the different senses in which the term " philosophy of law "
is used. By a philosophy of law may be meant two things: first,
an inquiry into the nature, or source of obligation, of the rules of
conduct that are enforced by the governing power; or, secondly, a
search for those principles which, from an ethical standpoint, should
be accepted as juridical. If we accept the view of the English
analytical school that all laws, in so far as they are laws at all, are the
commands of the state, an inquiry into their nature and source of
authority necessarily becomes a single topic of a general political
philosophy. If, however, following the general lead of Continental
schools, it is held that enforcement by the state is but an incidental
fact, and that, in the truest sense, laws derive their authority from
their inherent rationality as tested by their consonance with abstract
principles of right and their suitability to the civic needs of the
people whose conduct they control, a philosophy of the law becomes
in effect largely an ethical undertaking.

In England those attempts which have been made to outline
ideal systems of law have usually had the practical object in view
of seeking to bring about immediate reform in existing laws. This
being so, such efforts have been generally termed " theories of
legislation." Upon the Continent, however, though the idea of
ultimately bringing about legal reforms by educating the legal sense
of the community may not always have been entirely absent, the
immediate object sought has been by no means so practical a one.
As Pollock says:1 " The only strictly necessary difference between
our ' theory of legislation ' and a German philosopher's Naturrecht
is that Continental schools consider this ideal of legal institutions
as a thing to be contemplated in and for itself with a metaphysical
interest which is, as it were, cut adrift from practice; while the
.Englishman's ideal is of something to be realized, or approached as
near as may be, in an actual state, for actual citizens, and by the
positive enactment of a legislature."

That Naturrecht, ideal law, or philosophy of law is purely an ethical
inquiry is frankly recognized by Contintental writers. Lasson begins
his System der Rcchtsphilosophie with the definite statement that
legal philosophy is a branch of ethical philosophy. So also Kant, in
his Philosophy of Law, says: " The science of right designates the
philosophical and systematic knowledge of the principles of natural
right." 2 Likewise says Friedlander, in his System of Jurisprudence

1 "Methods of Jurisprudence," Law Magazine, vol. vn.

2 Hastie, transl. p. 43.

324 THEORY AND ADMINISTRATION

as a Scientific Organism : x " Jurisprudence is a branch of ethics. Its
function as a science is to establish the essential principles of right;
and as right only obtains reality among men who are united into
a state, it has also to establish the fundamental principles of the
state."

It is to be observed, however, that a system of Naturrecht, as thus
defined, is not conceived to set forth a complete ethical system. To a
Continental, Recht or droit includes only that portion of human con-
duct which is possible of enforcement by the state, without reference
to the fact whether it is so enforced or not. Thus, upon the Conti-
nent, ethics is divided into two parts, — the one dealing with actions
which can be enforced by external compulsion, and as such forming
the subject-matter of jurisprudence or Rechtslehre, or the science
of droit or Recht; the other dealing with those actions that cannot
be so compelled and which must therefore be left to individual
conscience, and as such forming the subject-matter of morale or
Tugendlehre or Ethik in a narrower sense, or the science of moralite
or Tugend. It will thus be seen that in France and Germany droit
and Recht are applied not only to actions that actually are enforced
by the state, and which the English and American jurist designates
as positive law or law proper, but to all actions capable of such
enforcement, whether or not they are as a fact so enforced. Corre-
spondingly the terms morale and Tugendlehre are not made appli-
cable to all portions of right conduct, but simply and solely to those
actions that do not admit of external compulsion.

With this explanation of the meaning of the term " philosophy of
law," we can see how necessarily intimate is its relation with political
philosophy. In so far as laws are viewed as commands of a political
superior to a political inferior, from a sovereign to a subject, a legal
philosophy is, as has been already said, nothing more than a particu-
lar branch of political inquiry. Also, when viewed as a search for
ideal principles of right, its connection with political speculations is
very close. For, in determining these ideal principles, the consid-
erations involved are almost identical with those that the political
philosopher has to bear in mind in his attempts to ascertain the
elements of an ideal commonwealth. In fact, the only important
distinction between a system of ideal law and a political Utopia is that
in the latter there must necessarily be included, in addition to the
statement of the general principles of right which should be recog-
nized, the outline of a scheme of governmental organization through
which such principles are to be declared and enforced.

1 Hastie, transl. p. 140.

POLITICAL PHILOSOPHY 325

Conclusion

By way of summary of our statement of the relation which polit-
ical philosophy bears to other fields of speculative inquiry it may
be said that metaphysics, ethics, and political philosophy constitute
the three divisions into which any general philosophical system is
logically divisible. By metaphysics are determined the nature and
essential attributes of men as rational moral beings. Upon its con-
clusions are based the principles which the ethicist declares. Finally,
the results reached by the ethicist are in turn those which it should
be the aim of all political life to realize. Thus, to state the sequence
in other words, metaphysics determines the possibility of human
freedom, ethics lays down the principles by which it should be regu-
lated, and politics ascertains the means through which those princi-
ples may best receive recognition and enforcement. Thus, the final
aim of philosophy is fulfilled. Without ethics and politics, meta-
physics is reduced to useless imaginings. Without metaphysics,
ethics has no foundation for its premises, and without politics it is
without the means of securing a realization of the aims which it
declares desirable. Without metaphysics and ethics, politics is
unable either to determine the relative values of different possible
lines of public policy, or to establish grounds upon which political
obedience may rightly be demanded.

By way of final word, the speaker would repeat what he has had
occasion in an earlier paper to declare, that, though abundantly
justified by its practical fruits, the greatest incentive to the study
of political theory is that pure intellectual delight which is to be
obtained from the pursuit of any speculative inquiry. Philosophy
is the search for the essentially true, and alone is able to satisfy the
mind's insatiable demand for the whence, the how, and, to use a
scholastic term, the whatness or quiddity of human phenomena. Its
results are, therefore, satisfying apart from their practical value, and
its method enticing by giving play to our highest intellectual facul-
ties. At all times political speculation has occupied an important
place in the general field of philosophy, and has attracted the atten-
tion of the greatest minds, from Plato and Aristotle, Augustine
and Aquinas, Locke and Spinoza, to Kant and Hegel, Savigny and
Austin, Jefferson and Mill. And, when we reflect upon it, what can
be more provocative of inquiry than the nature of the corporative
control to which all men submit in one form or another, and under
which and because of which they have been able to progress from
the lowest stages of savagery to the highest attainments of civilized
life? What wonder that, apart from the pursuit of practical ends,
the greatest minds should have been stirred to its critical examina-
tion !

BY GEORGE GRAFTON WILSON

[George Grafton Wilson, Professor of Social and Political Science, Brown Uni-
versity, and Lecturer on International Law at the United States Naval War
College. A.B. Brown University, 1886: A.M. ibid. 1888; Ph.D. ibid. 1889.
Member of Historical, Economic, and of Council of Political Science and Inter-
national Law Associations. Author of International Law Situations; Interna-
tional Law Discussions; joint author of International Law; and author of
articles on political science and international law and relations.]

IT is not uncommon for such as call themselves "practical " to
give slight regard to the serious politico-scientific presentation of a
topic bearing upon the management of state affairs. They say, " 0,
that is the point of- view of a theorist; " " he is bringing in historical
illustrations. These do not apply to present conditions; " " that is
all right in theory, but it will not work in practice; " or " I have
no respect for those fine-spun theories that never lead to anything."

Such opinions are not confined to " practical politicians," but find
expression elsewhere, even in the works of those engaged in the
presentation of the claims of other than the political sciences. The
critics sometimes see little reason for the existence of political science,
and still less for the elaboration of political theory.

To such detractors the first problem of political theory would be
for it to prove its right to exist.

It is true that practical necessities gave rise to political phenomena
long before any theoretical consideration of politics was conceived.
The state existed prior to political speculation and independent of
it. The fact of this priority of existence does not, however, prove
that political theory may not have a right to be any more than the
fact of the existence of electricity before the existence of theories
in regard to its nature would discredit the theories which have given
such beneficent results to man. These theories have not modified
the essential nature of electricity, but have made it possible for man
to control electrical energy for his own purposes. The problem of
political theory is in part so to reveal the nature of political energy
that it may be controlled for man's benefit. If this can be done, even
those who demand " practicability " would grant that political theory
has a right to be.

In the consideration of the right of political theory to be, it must
at the outset be admitted that, like other theories, there have been
theories in the political field that have been only in small part
tenable and others not at all tenable by a normal mind.

Here there arises the problem of the relation of political theory to
political action. It must be admitted that political theories have

PROBLEMS OF POLITICAL THEORY 327

often influenced political action most profoundly. The works of
Aristotle have again and again become not merely the subjects of
study for those interested in Greek literature, but for those engaged
in political affairs. They have been used as the sources of arguments
for determining practical political action. Eginhard in his Life of
Charles the Great states that the great ruler delighted in the works
of St. Augustine, especially in De Civitate Dei.1 The influence of the
works of Grotius upon the political policy of his contemporary
Gustavus Adolphus is evident. In some of its aspects the French
Revolution was a crude attempt to work out what was thought to
be a correct political theory. The influence of the same theories is
evident in the enunciation of some of the fundamental principles
upon which the United States Government was founded. The debates
upon the adoption of the Constitution of the United States, the Fed-
eralist Papers, and the writings of other of the early political leaders
in the United States show the influence of the understanding of
political theory. The political movements of the first half of the
nineteenth century in Europe show how the theory that a nation-
ality had a right to embodiment in a political unity influenced
practical politics. Theories as to what a state might do in the \vay
of determining economic prosperity have been the basis of many
political party struggles, and claims based upon lack of understand-
ing of political theories have led to the downfall of " practical poli-
ticians " and political parties.

Those widely versed in political theory have also often been
leaders in the political activities of their times. This has been par-
ticularly true in Germany, and some of the great development of
that state can be traced to a recognition of the worth of political
theory as a guide for practical action. Where political studies have
received the most careful attention and most rational consideration,
there the political action has been in general most consistently pro-
gressive.

It is as reasonable to believe that practical political affairs may be
more properly understood and directed when the theories under-
lying political action are comprehended, as it is reasonable to expect
similar treatment of affairs in other lines of human activity when
the underlying theories are understood.

It would seem, then, that political theory has in the past strongly
influenced human activity, that men who have led in political affairs
have often been guided by political theories, and that in itself polit-
ical theory would have the same reasons for its existence as the
theory of other studies dealing with human activities. If political
theory can lead to action so disastrous to human well-being as has

1 " Dclectabatur et libris sancti Augustini, praecipueque his qui De Civitate Dei
praetitulati sunt." Eginhard, Vita Karoli, cap. 24.

328 THEORY AND ADMINISTRATION

sometimes been the case, then there is reason for an investigation in
order that sound and beneficent theories may take the place of
those of the opposite character.

Those who would attempt to discredit often do not know what is
the nature of political theory at present nor what has been its influ-
ence in the past; indeed, while decrying the theorist, they as prac-
tical men may be acting upon principles which the theorist has
enunciated, and their successes may be due to the correctness of
the theory or to its fitness for the conditions at the time existing.

Again, problems of political relationship arising in consequence of
the growing importance of the state itself and the extension of its
powers in comparison with such institutions as the family and the
church have emphasized the importance of political theories.

The growth of parties, schools, systems, governmental policies,
and the like, based upon theories makes necessary attentive study
of their bases. Many of these parties distinctly call themselves by
the theory name, as in the case of the " socialistic party/' the
" nationalist party," etc. The courts of justice often incline
toward a theory in accord with a political platform, and in some
cases judges are elected for the purpose of supporting a party theory.

As the state is one of the most important of the products of human
association in its effects upon associated life and in its influence
upon the individual, there is a final and sufficient reason for the
mastery of the fundamental principles of its being, and with these
political theory purports to deal.

Even this brief survey shows that political theory has a right to
exist and to claim respect, though it must always be admitted that
there may be false as well as true theories.

Granting that political theory has a right to be, the next general
problem is one of subject-matter.

One of the first difficulties in regard to the subject-matter is that
of discriminating between the political and non-political in the data
of human association. Much of the data relating to early human
association which has been used as a basis for political theorizing
is certainly very imperfectly understood, and in some cases the data
are not reliable for political theorizing, as they were gathered with
an entirely different purpose in view.

Some writers speak of the Hebrew theocratic state, of primitive
states among aboriginal tribes, and of states bound only by family
ties or by clan relationships. If the organization prevailing among
the early Hebrews and these other early relationships are to be called
states, then the problem of dealing with these and modern states
under the same system of definitions becomes very difficult, even in
theory. The points of identity in organization between a savage
tribe and the British Empire would not be many, and to attempt to

329

give a common explanation for each would lead to absurdities. It
is evident that some of the confusion and differences which have
arisen are due to the attempt to account by political theory for non-
political facts. Dunning, in his History of Political Theories (p. xvii),
has observed that a history of political theories " would begin at the
point at which the idea of the state, as distinct from the family
and the clan, becomes a determining factor in the life of the com-
munity." It would not be maintained that any particular date or
degree of civilization could be fixed upon as a prerequisite for political
action. It is affirmed that there exists a problem for both the stu-
dent of political theory and political science in the way of discrimi-
nation between the political and non-political in early social data.

Another important question in the consideration of the subject-
matter would be as to when and under what circumstances social
data would become political data properly to be used for political
theorizing. Dunning, in accord with the position above taken,
says, " Of all the multifarious projects for fixing the boundary which
marks off political from the more general social science, that seems
most satisfactory which bases the distinction on the existence of a
political consciousness."

The subject-matter presents another difficulty from the fact that
the data upon which political theory must draw do not remain fixed.
Even if agreement were to be had upon definitions, the content
would change with the change in human relations. To adapt
political theory to the dynamic character of the subject-matter is an
ever-recurring problem.

Much of early political theory and, to some extent, present political
theorizing is concerned about the doctrine of form of the state, —
the question as to whether monarchy, oligarchy, or democracy is the
best form. This is a problem of some importance, but is insigni-
ficant in comparison with the problem of rendering efficient such form
as may exist. The consideration of political data without pre-
disposition in favor of any particular form of political organization
will discover efficiency under varying forms and also will discover
that in most instances the efficiency is not due to the form of organ-
ization.

By political theory is generally understood the theory centering
upon the state. One of the primary problems would therefore be to
determine what the state is, and upon this definition wrould depend
much of the scope of the theory. After establishing a definition,
which the great diversity in existing definitions shows to be no easy
task, the problem of determining the relations of the states to each
other, to other political institutions, and to other social institutions
arises. This involves the question of the limits of state action, one
of the most difficult of all problems and one upon which much dis-

330 THEORY AND ADMINISTRATION

cussion has been had. This will, in part, depend upon the conception
of such political ideas as sovereignty, law, etc. In the field of per-
formance of state functions and the exercise of state activities there
are questions of relationships. The separation and limitation of
powers, the character and range of governmental activity, and the
nature of government itself become problems for political theory.
The subject-matter of political theory is varied, and different writers
have given to it very diverse treatment. The same general sub-
ject-matter has in some instances, particularly in the eighteenth
century, given rise to theories leading to entirely opposite conclu-
sions, and later individualistic and socialistic theorists have used the
same subject-matter in support of the contentions of then* respective
positions.

Admitting that political theory has a right to existence, and
that from the extent and nature of its subject-matter diverse con-
clusions may be drawn, the next general problem becomes one of
method. It would need no argument to arrive at the conclusion
that a theorist starting with a series of political axioms would arrive
at different conclusions from those of a theorist who viewed the state
as an historical evolution or that a believer in " the divine right of
kings " would evolve a different theory from that of an advocate of
the social contract theory. The problem of method easily becomes
a significant one for the political theorist. Indeed, it has been
claimed by some that the method is the most important of all the
problems as to political science and theory.

Various methods have been used by political theorists.

The formal explanation of political facts which has viewed the
state as static and subject to logical analysis has profoundly influ-
enced political theory. Certain valuable conclusions can doubtless
be drawn from such theorizing. The tendency of this method is
toward a purely legal view of the state. The method of pure logic,
as it has been called by some writers upon the Continent, tends to
give a narrow point of view, while at the same time the view gains
influence from its positiveness.

A more positive method was that which assumed its definitions
and the reasons for them as well as assumed certain political axioms ;
then, by deductive reasoning in regard to the assumed state and
also in regard to the assumed character of man, drew its conclusions.
This doctrinaire school of theorists corresponded in some respects
to the Manchester school of economists.

The historical method corrects many of the errors consequent upon
the rise of the above method. It shows what analysis or logic can-
not show, viz.: that reason is not the source of certain political
institutions and phenomena, but rather that their source is in special
conditions which arose in some earlier time. The doctrinaire

PROBLEMS OF POLITICAL THEORY 331

method, with its axioms and formulae, regards such phenomena as
exceptions. In a negative way the historical method gives to
political theory the data for correcting conclusions of the two first-
mentioned methods.

In a positive manner, the historical method furnishes political
data in their " time-setting," making possible the interpretation of
political phenomena with reference to their conditioning circum-
stances. The method of comparison has also served most efficiently
in political investigation and interpretation. Montesquieu gained
not a little by its use. De Tocqueville says, " In America I have
seen more than America; I have there sought an image of demo-
cracy itself."1

In connection with the question of method, there is the problem
of freeing political theory from the extended use of analogy which
has often given a false idea of the nature of the political facts. In
the case of the biological analogy which has been most extensively
used, there has often been a tendency to make little or no dis-
crimination between physical and political phenomena. This
method has doubtless served a purpose in strengthening the idea of
the unity of the state, but an analogy cannot take the place of correct
reasoning. Of this T. H. Green says, " If it were held, then, that
the state were an organized community in the same sense in which
a living body is, of which the members at once contribute to the
function called life, and are made what they are by that function,
according to an idea of which there is no consciousness on their part,
we should only be following the analogy of the established method of
interpreting nature." :

As by these and other methods the facts are presented, the pro-
blem of reconciliation of the points of view thus gained comes to the
political theorist. He must also recognize the modern tendency to
give a sociological interpretation to many of these facts, which is now
as marked as was the tendency to give a legal interpretation at an
earlier time.

It is evident that each method may be capable of rendering service
to the political theorist. To give to the conclusions of each the
proper value and place is a problem deserving and receiving more
and more attention.

In considering the more concrete problems of political theory
one of the first is that which is concerned with the origin and basis
of the state. This problem is one that very early received attention
from political theorists and writers upon political subjects. Its
solution may make a great difference in the working-out of other
portions of a general theory of the state.

1 De la Democratic en Amerique, i, p. 19.

2 Principles of Political Obligation, sec. 125.

332 THEORY AND ADMINISTRATION

To some writers both of early and later periods, political life is
innate, and man is man only as he is political. It should be observed
that among those using somewhat similar terms in regard to this
basis of the state in the nature of man, there is often a wide difference
in the content of these terms. Some draw one conclusion along
the lines of a natural law as the basis of the state and others another.
Some base the state in might or force and enter upon the elaborate
explanations to account for the source of this force which they
claim makes the state possible.

The theory that the state is the product of " natural law " gave
to the term " natural law " and its various modifications the most
divergent interpretations.

The same may be said of the attempts to base the state in a " so-
cial contract."

That there are still problems in regard to the origin of the state
will be evident in the comparison of the points of view of almost any
of the recent discussions upon the subject. Some even question the
right of the state to be.

These problems have occupied so much of the space in the books
upon political topics that more than a mere mention of the fact that
the problem of origin still remains seems unnecessary.

These theories as to the origin of the state serve to show that
there is a problem for the political philosopher in the distinction of
causes of political phenomena from conditions of political phenom-
ena. It is possible that had this question been earlier raised, politi-
cal theory would have been more advanced. The attempt to account
for non-political facts by political causation has been common in
the field of theory. A clear discrimination between the phenomena
that condition and those that cause political activity removes many
difficulties. Not all theorists would agree in regard to the respective
categories. It is probable, however, that to most investigators
soil, climate, configuration of the land and sea-lines would, in gen-
eral, condition political development. The solution of the problem
of placing conditioning phenomena in their proper relations is one
which will bear valuable results. The elimination to a great extent
of time and space in human relations has removed conditions favor-
able to the individualistic theory of the state and furnished new
problems.

Before discussing further problems, it seems fitting that a
question that logically might have been raised earlier should be
proposed, viz. : What is the state as the subject about which political
theory centers?

The problem of definition is not a simple one. There are many
excellent descriptions of a state which contain an enumeration of
such of the conditions of state existence as seem to the given writer

PROBLEMS OF POLITICAL THEORY 333

desirable, such as the number of persons, the territorial basis, or the
end for which the state exists. These facts in regard to the state
may be enlightening to a general reader, but become a source of
confusion when attempt is made to use them in a definition for
political theorizing, as would be the case in a chemical experiment
where a bottle bearing a given name contains not merely what the
name indicates, but other chemicals as well. Frequently accidental
attributes are regarded as essential and are accordingly made a part
of the definition. The attempt should therefore be made to exclude
from trie definition everything not essential to the state and to include
everything essential.

While the writer of this paper was requested to set forth some
of the problems of political theory only, it may not be out of place
to offer a tentative definition of the state. Whether or not this
definition meets the standards which the problem of definition sets
forth, it has in actual use been found a convenient point of departure
for political theorizing. The definition offered for consideration is
that the state is a sovereign political unity.

This definition is offered in part that the proposition of subsequent
problems may be somewhat more definite, and that, if possible, their
solutions may be less complicated. The terms used in the definition
need for themselves definition, and in their definition important
theories are involved.

The term " political " has had various meanings placed upon it and
its content has increased or diminished from time to time till now,
in the days of world-politics, its content is very different from what
it was in the days of the Grecian city-state. The \vord seems, how-
ever, to have attained a fairly clear meaning at present as the term
for public in distinction from private affairs of men.

When coupled with the word " sovereign," the unity is marked off
from any other in which men are associated. The problems con-
nected with sovereignty will be considered later.

By the definition, the state is distinguished from a social unity.
Consequently, there are many problems of the relationship between
the state and voluntary organizations within and without the state.
There may remain and does remain the problem of determining how
far the state, e. g., shall concern itself with religious affairs, but here
it will be a problem of determining the external conditions of relig-
ious life rather than the religious life itself. That the state could
only condition non-political life, not create or destroy it, has been
a lesson which nearly all religions have been slow to learn. It may
be said of the conduct of state authorities toward other human
activities that they have often mistaken the power to condition for
a creative or causal power and have attempted to solve by state
agencies problems which could only be solved by other means.

334 THEORY AND ADMINISTRATION

Whatever be the definition of the state, the doctrine of sovereignty
is generally regarded as the central doctrine of political theory. Few
topics have been the subject of more extended treatment, and as
there does not even yet seem to be an agreement as to what is meant
by the term sovereignty, it may be assumed that here will be found
an important problem. The word is used in different senses by
different writers and not infrequently in different senses by the same
writer in succeeding pages. With comparatively few exceptions,
as will be seen from Merriam's History of Sovereignty since Rousseau,
the doctrine of sovereignty advocated by a given writer was based
upon the grounds of temporary political expediency rather than upon
philosophical reasoning. That the theorists of the present day
should show the same tendency would be natural, and hence arises
the necessity for guarding against the influence of psycho-political
environment of the period.

Closely related in its results to this influence of environing condi-
tions is that which leads writers to give to earlier political or other
concept an importance and emphasis commensurate with that which
it has previously received. This is particularly true in regard to the
emphasis placed upon the doctrine of sovereignty. It might be
proper to raise the question whether too much attention has not been
given and is not now given to the consideration of the doctrine in
its various forms. Whatever be the answer to this question the
problems connected with the exercise of the supreme political au-
thority are becoming complex to a high degree through the differen-
tiation consequent upon new forms of dependencies and modern
interstate relations.

Bryce, in his essay on " The Nature of Sovereignty," * says, after
discussing various confusions in regard to the subject of sovereignty,
"Had the qualifying terms ' de jure ' or ' de facto ' been added every time
the word ' sovereignty ' was used, most of these difficulties would have
disappeared." Later (p. 546), he says in speaking of international
relations, " Nevertheless, where some legal tie has been created be-
tween two or more states, placing one in a lower position, wre may
say that inferiority exists de jure, while if there is an actual and con-
tinuing disposition of the weaker one to comply with the wishes of
the stronger, there is inferiority de facto. Where the laws made by
the legislative authority of one state directly bind the subjects of an-
other state, the latter state cannot be called in any sense sovereign."
Burgess 2 says: " Really the state cannot be conceived without sov-
ereignty, i. e., without unlimited power over its subjects; that is its
very essence." These quotations show the tendency shared also
by many writers to establish an extreme definition for sovereignty.

1 Studies in History and Jurisprudence, p. 542.

2 Political Science and Constitutional Law, i, p. 57.

PROBLEMS OF POLITICAL THEORY 335

Such definitions give rise to the problem of classification and
determination of the character of the so-called half-sovereign, parti-
sovereign states, or fragments of states.1 At the same time the
extreme definition of sovereignty gives rise to the problem of the
political status of members of federal states, confederations, and
other 'unions. To this problem some give the terse solution that
such are not states at all, but retain their names as such only by
courtesy and should receive consideration only as administrative
divisions. This is the position which has been growing more and
more into the political theory of the past forty years. The question
arises as to whether this theory has not simply reflected the Actual
political development of the period.

Are states which voluntarily make treaties limiting the range of
their freedom of action therefore no longer sovereign? If so, just
what kind of a treaty renders the loss of sovereignty certain? Is it
such a treaty as the defensive treaty between Great Britain and
Japan, the Triple Alliance Agreement, the Arbitration Treaties of
1904, or the Anglo-Franco Agreement in regard to North Africa?
All of these limit the free exercise of sovereign powers in certain
respects. What is the position of neutralized states? Such pro-
blems as these become of practical importance for international law.
While international law admits that "it is not inconsistent with
sovereignty that a state should voluntarily take upon itself obliga-
tions to other states, even though the obligations be assumed under
stress of war, or fear of evil,"2 yet there remains the problem of
determining the limit to which obligations may be assumed without
loss of sovereignty. A state may be deeply in debt and still be
classed as sovereign, may be neutralized, may be closely bound to
another or to several other states, may be internally disorganized,
may be insignificant in area, population, and power, or seemingly
may lack all attributes but recognition in the family of nations, and
still be regarded as sovereign in international law. Is it necessary
to answer that some of these " are sovereign because they are states
and are states because they are sovereign "?

The problem arises as to how far sovereignty may be said to exist
among these so-called states, and further, how such conceptions as
spheres of influence and the like shall be regarded, and, again, how
far sovereignty can be divided in states of various forms. Indeed,
the question may be seriously raised whether there is at the present
day with the close system of international relationships any sove-
reign state and whether with an extreme definition of sovereignty
theorists will not soon be discussing a political phenomenon which
has no corresponding entity in fact.

1 Jellinck, Ueber Stoats fragmente.

2 Wilson and Tucker, International Law, p. 40.

336 THEORY AND ADMINISTRATION

With such political doctrines as the. " concert of powers," " dom-
inant influence," " Monroe Doctrine," " world conferences," etc.,
will not new and wide modification of a theory enunciated in the
sixteenth century be necessary?

There are also numerous problems centering about sovereignty as
viewed from an internal as well as from the international standpoint.
Here the problems of federation, confederation, colonies, protect-
orates and other subdivisions need merely to be mentioned as sug-
gestive of fruitful fields for discussion.

Again, such questions as the residence of sovereignty, the divis-
ibility of sovereignty, the nature of the legal sovereign, and many
others offer problems which are not yet fully solved.

All definitions of the state recognize its political nature and that
it may exercise its authority in political affairs. This does not,
however, solve the ancient problem of the limit to which the state
may extend its authority. In ancient days, when the state was
everything and man was held to exist for the state, the problem was
much more simple than in the days of pronounced individualism.
The problem of the limits of state interference has always been a
difficult one. The reaction against the medieval state with its privi-
leged classes left a strong prejudice against state interference which
the doctrines of individualism strengthened. The problem is to
establish the proper degree of state regulation. As the state is
political, its action should be for public ends. The solution of the
limits of interference with and regulation of individual action can
in part be determined by theory as to what is individual and what
public; e. g., religion is now generally regarded as personal and not
subject to state regulation, while freedom to worship is regarded as
something to be secured by public authority as conducive to public
well-being. The state exists for civic purposes. The individual
considers his life as his own to be lived in freedom. To determine
at what point the state authority may properly begin or cease is
easy in extreme instances. There is, however, a wide zone in which
this question is open to debate; e. g., undoubtedly the proper edu-
cation of children is a moral duty resting upon the parent, and to
relieve the parent of this duty may weaken him morally, yet the
state in many instances educates the child and compels him to attend
school even when the parent may object. The question of the
nature of the interference aids in clearing the problem of interfer-
ence of some difficulties. If interference is classified, as with (a)
beliefs, (6) property, and (c) conduct, a general solution of the
problem can be more easily reached. Beliefs would in general be
individual. Property is at least protected by the state, if not
made possible by the state. Conduct may be individual or may
affect the state. With beliefs the state would not interfere; over

PROBLEMS OF POLITICAL THEORY 337

property the state must have jurisdiction, and in regard to con-
duct the state itself must judge.

The problem of how far the state may regulate conduct is partly
solved by reference to the existing body of law, which gives to the
state extreme rights, even to the power of putting an end to a sub-
ject's existence in some instances. This gives rise to the problems
centering upon the right to punish crime which has received much
theoretical attention. It is granted that certain acts should lead
to the exercise of counter acts by the person who suffers, by his
family or friends, by the community, or by some properly consti-
tuted power. There might be danger both to the offended and
offender if the exercise of force was uncontrolled. The right to
exercise such force has therefore in most cases been asserted to belong
to the state. The problem of the efficient and just exercise of force
therefore appears.

What political weight should be given to a particular individual
because of his possessions, status, capacities, etc., is a problem once
thought to be solved, but again arising.

The problems centering about the varied ideas of liberty, freedom,
and equality have been greatly modified by the influence of the
theory of evolution. The problems formerly having an individual-
istic basis are now calling for a sociological solution.

Other such problems as rest upon the attempts to regulate power
and responsibility in state agents, to create a form of state control
that shall be adapted to political needs, and problems having prac-
tical ends in view demand theoretical consideration.

From the theoretical point of view all these problems must be
solved in the light of the solution of another problem to which all
bear a relationship, viz.: the problem of the end or ideal for which
the state exists. Bluntschli1 formulates as the proper and direct
end of the state, " the development of the national capacities, the
perfecting of the national life, and, finally, its completion, provided,
of course, that the process of moral and political development shall
not be opposed to the destiny of humanity." This is an excellent
example of the influence of the time-spirit upon political theory.
The development of the theory of nationality and the emphasis
upon the embodiment of nationality in state form was a mark of his
time and is reflected in his theory. Other theories as to the end of
the state reflect the influence of the times as well. Sometimes it is
protection of the individual, sometimes development of culture,
sometimes perfection of liberty, and so through a long list of special
ends.

The solution of the problem of the end of the state will depend
upon the theory of the nature of the state. If the state be regarded
1 Theory of the State, p. 300.

338 THEORY AND ADMINISTRATION

as an organism, the end will naturally be found within itself. If the
state be regarded as an organization, the problem of the end becomes
open to broader discussion. Is the state ever anything other than
political? Can its acts ever be other than public acts? Does the
state exist for other than political ends? There are varying answers
to such questions, though the tendency is to answer all in the nega-
tive. If answered in the negative, then a step toward the setting-
forth of the end of the state is taken. Will not the end be in line
of progressive public well-being, as the state is an organization based
upon the will of human beings ?

Even if all these problems were set forth in proper form and
solved, if there is to be progress in human association and organiza-
tion, and such seems to be the destiny, the political theorist has the
great problem which early confronted Plato, the problem of formu-
lating such political ideas and ideals as shall cause mankind to aspire
to the progressive realization of the possibilities of human develop-
ment.

her than

i a fk">' » >ward th
Will i-v>l ih<- cad

forth in proj
i a^sf'oi.'xlion
• • V)olitk-al tli

RIGHT HON. JAMES BRYCE,
British Ambassador to the United States.

NATIONAL ADMINISTRATION

BY JAMES BRYCE

[James Bryce, Member of the British Privy Council, M. P. for Aberdeen, b.
Belfast, May 10, 1838. B.A. Oxford University, 1862; D.C.L. ibid. 1870;
Hon. LL.D. Edinburgh, St. Andrew's, and Glasgow Universities, Columbia
University, Dartmouth College, University of Toronto, University of Michigan;
Litt.D. University of Cambridge, Victoria University; Doctor of Political
Science, Buda Pesth University. Post-graduate of Oxford and Heidelberg.
Barrister-at-Law, Lincoln's Inn, 1868; Regius Professor of Civil Law, Oxford,
1870-93; Under-Secretary of State for Foreign Affairs, 1886; Chancellor of
the Duchy of Lancaster, and Member of Cabinet in Mr. Gladstone's last Minis-
try, 1892-94. Foreign member of the Institute of France and Royal Acad-
emies of Turin, Brussels, and Naples; Societa Romana di Storia Patria;
Corresponding Member of the Massachusetts Historical Society, Royal Acad-
emy of Canada, and Literary Society of Iceland. Author of The Holy Roman
Empire; The American Commonwealth; Studies in History and Jurisprudence;
Impressions of South Africa; Studies in Contemporary Biography ; and many
other works.]

THE subject of national administration, on which I am invited to
address you, is one of wide scope as well as great importance. It
covers so large a field, it ramifies into so many branches of inquiry,
that all I can attempt in the limited time allotted is to sketch its
outline and to indicate the chief topics which would need to be dis-
cussed in detail were a detailed discussion possible. It is a bird's-
eye survey of the landscape rather than a description of its features
that I must proceed to attempt.

By national administration I understand the whole action of the
state in maintaining and defending itself and in securing for its mem-
bers, the citizens, what it undertakes to do for them. It is that
organization which the community has created for the two great
purposes of self-preservation and of mutual benefit. Speaking more
precisely, it has four aims. The first is the defense of the community
against external forces, i. e., neighbor states or tribes, who were in
early times presumably enemies. The second is the defense of the
persons or bodies that govern the community against internal
forces that may assail it, i. e., against rebellion. The third is to
provide for the members of the community the things for the sake of
which the state is primarily formed, viz., order and the enforcement
of civil rights, or, in other words, peace and justice. The fourth is
to extend to members of the community various advantages which
they might conceivably provide for themselves, but which it is
supposed that the state through its servants can provide more effi-
ciently. I omit the provision of religion, because many modern
states leave it on one side and do not touch on the administration of
dependencies, because this is frequently absent.

340 THEOR^ AND ADMINISTRATION

Of these aims, the first three have always existed in every com-
munity deserving to be called a state, and till quite recent times they
covered all the services an administration was expected to render.
Government existed for the sake of defense or conquest — in rude
time defense passes naturally into conquest — and of order. In
other words, the work of a national administration might be summed
up as war and justice, and of these justice came second. But within
the last two centuries, and especially during the nineteenth century,
the last of the four grew apace, and now in the more advanced coun-
tries, more than half of the functionaries whom a national adminis-
tration employs, as well as a considerable part of the money it
spends, go to providing the citizens with things which in earlier times
they either did without or provided for themselves. Such, for in-
stance, are police, the transmission of letters and other articles,
internal communications by railway or telegraph, the instruction of
the young, the health or safety of persons engaged in various em-
ployments, the construction of works of real or supposed public
utility, the development of material resources (agriculture, forests,
fisheries), the supplying of information serviceable for commerce or
industry.

It is in this direction that new work is being undertaken in so
many ways and on a daily increasing scale. But in all branches of
administration there has been a prodigious extension of state action.
It is not only that the progress of civilization creates new wants and
leads to new demands; the old functions also have becpme more
complicated with the progress of science. Armies are larger; navies
are larger; both are incomparably more costly, because all the
processes of war are more elaborate. These two services cost in
England to-day nearly $300,000,000, as much as the total expend-
iture of the national government was for all purposes sixty years ago.
At the siege of Port Arthur, Japan has probably already spent
$5,000,000 in projectiles discharged and ships destroyed, not to
speak of the loss of men. The whole tendency of recent years has
been to throw upon national administration more work, to require
from it more knowledge and skill, to intrust it with the expenditure
of more money, to make its efficiency more essential, since it is ex-
pected to help the nation in competition with other nations, and to
expose its members, the civil servants of the state, to more frequent
and stronger temptations. This evident tendency to widen the
sphere of national administration raises the question, What kinds of
work ought it to undertake, and from what ought it to abstain?
Here we have a topic more than large enough for a whole course of
lectures, so I will indicate only the most general considerations that
apply to it. These considerations are not the same for all countries
In some countries the people are backward, ignorant, uninventive,

NATIONAL ADMINISTRATION 341

and may need more leading from their government than is needed in
other countries. In some countries the standard of honor and purity
among officials may be comparatively low, and it may, therefore, be
unsafe to intrust to such officials the disposal of large sums of money
or the management of costly enterprises. Apart, however, from
these local sources of difference, there are three general considera-
tions tending to dissuade a wide extension of such functions of a
government as are not essential to the defense and internal order of
a country. One is the danger of discouraging or superseding indi-
vidual enterprise. The greatness of a state depends in the last
resort on the vigor, the alertness, the self-reliance of its citizens. To
reduce their initiative, to teach them to follow passively instead of
leading and guiding their administration, may be the worst service
you can do them. A second ground for caution is the risk of reduc-
ing the amount of care and forethought which people take for their
own interests. If you carry too far your efforts to protect them
either against physical harm or against self-indulgence, or against
fraud, evils which their own activity, self-control, or prudence might
avert, you may so discourage the habit of looking after their own
interests as ultimately to do more harm than you prevent. Leading-
strings destroy the sense of individual responsibility. Lastly, you
may incur the danger of making the administration too powerful a
factor in the social and political life of the country; you may teach it
to feel itself a master instead of a servant; you may form the whole-
some habit of obedience to the law into the slavish habit of obedience
to the official. Did time permit one could illustrate these risks from
the examples of some modern countries, which have been led, partly
by an exaggerated conception of the all-pervading grandeur of the
state, partly by the natural tendency of officials to grasp at more
power, partly by an honest wish to effect improvements with the
utmost speed, to push far beyond the old limits the interference of
public authorities in fields formerly left to the individual. Doubt-
less there is one important argument on the other side to be regarded.
It does not follow that what government leaves alone is left alone
for the benefit of the individual citizen. The monopolist — be he
a man or a combination of men who are rich, who are active, who are
able, who are perhaps also unscrupulous, though not necessarily
unscrupulous, for we must not allow the resentment which some
combinations have evoked to prejudice us against all those who try,
possibly by fair means, to draw vast branches of business within
their grasp — is in the field; and he may not only extrude the in-
dividual, but may appropriate to himself immense gains which the
action of government might have secured for the community. These
are cases, therefore, in which national administration may undertake
work which otherwise it would have declined, because in doing so

342 THEORY AND ADMINISTRATION

it is really protecting the interests of the individual as a business man
and a taxpayer, and preventing the growth of a power which might
reach dimensions dangerous to the community as a whole. Never-
theless, it may safely be said that the general presumption is in favor
of leaving individuals to do whatever it is not either necessary or,
at least obviously, advantageous that the state should do for them.
State intervention can doubtless often be shown to be desirable, even
where it is not essential. But the burden of proof lies on those who
would introduce it, for natural laws generally, though I repeat not
always, work better than human devices intended to modify them.

Before leaving this question let me note that I am speaking pri-
marily of national administration, not of public administration gen-
erally. There are some kinds of work not safe or suitable for the
government of the state, which local authorities may properly under-
take. The objections above indicated need to be qualified when we
apply them to local elected bodies, through which the energy of the
private citizen may exert itself and which may check the dominance
either of private monopolists or of an organized bureaucracy. In
England, for instance, we are now experimenting in large extensions
of the work of local municipal and county councils, and we hope
for good results.

Let us pass to consider what are the principles that should deter-
mine the character of a national administration, and what are the
conditions of its efficiency. I do not enter into the question of its
structure, nor into the distribution of functions between it and the
local authorities of the country, for these matters depend largely
on the political constitution. They are different in a federation
like yours from what they are in a unitary country like Great Brit-
ain; they are different in free states and in absolute monarchies.
They are different in highly centralized countries like France from
what they are in England. Yet one point deserves to be noted:
To be strong for national purposes a government need not be cen-
tralized. For all administrative purposes the United States supplies
an obvious example, and an administration which controls all local
affairs may not only reduce the habit of independence among the
people, but may also, if the country is managed on a party system,
become an engine of mischief. The best scheme seems to be one
which leaves to local authorities, and preferably to elected local
authorities, all such functions as can safely be intrusted to them,
together with a limited power of taxation for local purposes, while
retaining some measure of control by the central administration in
case they overstep either the statutory limits of their powers or the
limit of a discretion exercisable in good faith, and in a spirit neither
corrupt nor oppressive. To fix the precise amount of control to be so
reserved for the central administration is no easy task. But it is

NATIONAL ADMINISTRATION 343

not an impossible task, for in England, where it has been tried, we
find that comparatively few difficulties arise in practice.

Passing on to principles which apply to administrative systems
in general, there are some points that may be taken for granted.
There must be a systematic organization of the work in each depart-
ment of administration; there must be proper regulation for pro-
motion and for discipline among the officials. But the question
of providing for the representatives of each great department in
the political scheme of the national government, whether in the pri-
vate council of an autocrat or in the cabinet of a constitutional
country, or in the ruling assembly, presents grave and interesting
problems.

It is essential that those who do the departmental work of a
country in all its main branches, such as collection and expenditure
of revenue, preservation of order, education, carrying-out of various
administrative statutes, should be in close touch with the political
organs of national life; and this in several ways. They must be
responsive to public opinion; they must be liable to have their
action criticised publicly and freely; they must have opportunities
of defending their conduct when so criticised; they must have means
of suggesting changes in the law which their administrative experi-
ence shows to be necessary, and of tendering to the legislative power
evidence and arguments in support of their proposals. These are
matters which an autocratic government can deal with readily
enough if it has the wisdom and public spirit to do so, for there the
executive which conducts the administration is also the legislative
authority which changes the law. The weak point of such a govern-
ment is the want of control by public opinion. But in a popular
government administration and legislation may be quite disjoined.
I will endeavor presently to show how in England and her colonies
provisions have been made for conjoining them which have, on
the whole, worked well and given satisfaction to the people.

Now let us come to what is the most material thing, the persons
who compose the administration, i. e., the civil service of the country.

Their first and highest merit is honesty, and the rules of the serv-
ice must be such as to help them to be honest by removing tempta-
tion as far as possible from their path and by keeping them under
vigilant supervision. The second requisite is capacity, that is to
say, not merely general ability and diligence, but also such special
knowledge and skill as their particular line of duties requires. The
increasing specialization of all kinds of work, due to the progress of
science and the further division of labor in a civilized society, makes
this need more urgent than formerly. It is, however, still imper-
fectly recognized, except perhaps in Germany, where persons enter-
ing official life receive an elaborate special training.

344 THEORY AND ADMINISTRATION

In order to secure capable and diligent men, the civil service must
be made attractive; that is, it must offer advantages such as to draw
into it persons who might expect to obtain wealth or distinction in
other occupations, as, for instance, in the legal or medical or literary
or engineering professions, or in commercial business. How is this
to be done? Many things go to make people seek public employ-
ment. Nowhere, perhaps, is it so much sought as in Greece, — a poor
country offering few careers to a surplus of educated and aspiring
men; yet those who know Greece know that the attractiveness
of the profession has not given Greece an exceptionally efficient civil
service. But, speaking generally, the way to draw talent into state
service is to make it perfectly open to all citizens, to make it per-
manent, to pay it well, and to make it socially respected. Posts
ought to be filled by appointment or other than by election. Elec-
tion by the people is almost sure to be made on party grounds, and
party views are no guide to the finding of a capable man whose busi-
ness it will be to do official work into which party views do not or
ought not to enter. Election by a legislative body, such as an assem-
bly or a city council, may give better opportunities than does a vote
at the polls for ascertaining the qualifications of a candidate; but
it is likely to be made for other reasons than the candidate's fitness, —
possibly party reasons, possibly the wish to please a candidate's
friends. The only way to fix responsibility is to give the function of
selection to a single person and make it his interest as well as his
duty to select carefully and honestly. To secure even this is so
difficult that an examination either fixing a minimum level of
knowledge or awarding posts by open competition has been found
a valuable expedient.

The reasons for making the civil service a permanent service are
no less obvious. Unless a man is sure that he will not be dismissed
except for some fault, he will not spend his time and money in getting
a proper preparatory training, and will not feel that sort of interest
in his work and loyalty to the nation as his employer which go so far
to make him do his work well. If, moreover, the occupants of the
posts are frequently changed, the experience they have acquired
will be lost to the public and the new appointee will be for a time less
competent, because he will have to learn his work. As respects
payment, it ought to be on a scale properly adjusted to the cost of
living and to the incomes made in other occupations requiring a
similar amount of knowledge and skill, though, of course, the scale
may fairly be fixed somewhat lower in respect of the permanence of
the employment as compared with the risks which the professional
or commercial man has to face. It is a good plan to let part of
the remuneration take the form of a pension, which is practically
deferred pay contingent on good conduct. Where poverty forbids

NATIONAL ADMINISTRATION 345

the public servant to live in a style corresponding to his social posi-
tion, he is more likely to yield to the temptation of supplementing
his salary in an illicit way. The social status of the civil service does
not indeed wholly depend on what the government gives as payment.
Much turns on the habits and traditions of the people, though the
amount of payment is a considerable factor in making men seek that
career. In Germany, for instance, and in France official salaries
are lower in proportion to the cost of living and to the incomes of
professional and business men generally than are the salaries of civil
servants of the same class in England, while their average ability
is as good. It would seem that employment is more sought after
in the two former countries than in England because Frenchmen and
Germans have a relatively stronger sense of the grandeur of the
state and because state service carries a relatively higher social
standing.

Not less important is the principle, amply approved by experi-
ence, that the servants of the state must be kept entirely out of
strife of political parties. Appointments ought not to be made on
party grounds; promotion ought to be made either by seniority
or by merit; no political work ought to be expected from officials,
nor should they be suffered, even if they desire it, to join in political
agitation. It may, indeed, be doubted whether they and the
country would not benefit by their exclusion from the suffrage, but
no one who knows the temper of democracies will suggest this as
a practical measure. Rather may it be deemed what is called a
" counsel of perfection," for no nation seems to have adopted or
to be in the least likely to adopt it. The mode of promotion raises
difficult questions. If it is by seniority only, able men will be kept
out of the higher posts until perhaps the best working years of their
life are over, while dull men may happen to be at the top. If senior-
ity is disregarded, there will be many jealousies and heart-burnings
among the veterans who are passed, over, and imputations of favor-
itism will be made, possibly often with reason, for it is so hard to
say who are the men most worthy of advancement that an uncon-
scientious head of an office may indulge his personal predilections
or yield to the pressure of his friends urging the claims of their
friends. An old Scotch official is reported to have said that he
always gave the posts to the best men, but he usually found that his
relatives, belonging to the same vigorous stock as that from which
he came, were the men. I can say from experience that the exer-
cise of patronage is one of the most difficult as well as the most
disagreeable parts of an administrative work. Whatever care one
takes, mistakes will occur, and for one friend you make three
enemies.

Between the political form of a government and the excellence

346 THEORY AND ADMINISTRATION

of its administration there is no necessary connection. It used to be
thought that despotisms were favorable to efficiency, and doubtless
such autocratic eighteenth-century reforming monarchs as Frederick
the Great did improve the management of their state affairs. The
example of Rome supported this view: her provincial administra-
tion, bad under the Republic, improved immensely under the earlier
Empire, and it was indeed the strong and skilled civil service that
more than anything else enabled the Eastern Empire so long to
resist the foes that encompassed it on every side. But the least pure,
and probably one of the least efficient, administrations in Europe,
is that of Russia; Turkey is, of course, much worse, but then the
Turks are still a barbarous people. The civil service of England
under a polity practically democratic is better to-day than it was
under the oligarchical rule which lasted till 1832, and it may, along
with that of France, claim to be the best in Europe after the German,
which is, probably, the most efficient in the world.

It is, however, true that in popular governments the civil service
is exposed to some special dangers. There is a danger that it may
be used in the game of politics; a danger that its members may try
to secure their own ends by bringing pressure to bear upon politi-
cians. In Australia, where the railways belong to the state govern-
ments, the railway employees, forming in some places a considerable
proportion of the electors, gave so much trouble by their efforts
to obtain higher pay that they were at last taken out of the local
constituencies and given separate representation. A difficulty of
a quite different kind is that the masses of the people, not realizing
how much skill and capacity are needed in officials holding the high-
est kinds of posts, may be unwilling to pay adequate salaries. The
voter to whom $1000 (£200) a year seems vast wealtn does not see
why he should pay one of his servants $10,000 (£2000). Yet a
capable official may save the nation twice that sum annually by
his exceptional skill.

It may give some concrete vitality to these general observations
if I illustrate them by a few references to the administration of Great
Britain, of which I know something practically, having been at one
time at the head of one of the largest public departments. In
Britain, the national administration is practically a growth of the
last seventy years. Before the Reform Act of 1832 the only public
offices were the Treasury, the Foreign Office (the names were not
then the same), the departments of the Navy and Army. There
was a Home Office and a Board of Trade and Foreign Plantations,
which pretended to look after North America (not very successfully)
and the West Indies, but they had very few duties and a very small
staff. There was no India Office (though a germ of it existed in the
Board of Control), no Colonial Office (colonial work went along with

347

war), no Education Office, no Local Government Board, no Post-Office,
no Board of Agriculture, no Scottish Office. Yet this increase of
the central departments in England is not due to a suppression of
local authorities, for these are far more numerous and more important
now than they were in 1832, and are more important than in any
other of the large countries of Europe. Each of the great depart-
ments is presided over by a leading politician; the chief among
these have seats in the Cabinet. The civil service, which is under
these chiefs, has for a long time been a permanent service, the mem-
bers of which are not dismissed except for misconduct or inefficiency.
A few of the highest posts are political, and change with a change
of government, but these are little more than forty in number. Am-
bassadors are members of the permanent service, and so are colonial
governors, though occasionally some person of special fitness is
brought in from outside. Every one is obliged to retire not later
than at sixty-five years of age and is then entitled to a pension, which
may, after forty years' service, be as high as two thirds of the salary
which was being received when the time for retirement came. Till
1855 posts were filled by the patronage of the head of the office,
which was usually exercised either by favoritism or else to win or
to reward political support. In 1855 a strict entrance examina-
tion was instituted, and in 1870 the great majority of the posts,
higher as well as lower, were thrown open to competition, an experi-
ment that had already been made with the large and highly paid
civil service of India. A few posts at the top and the bottom still
remain outside the competitive system. The former, among which,
of course, were embassies and governorships, may, in some cases,
only with the sanction of the Treasury, be filled by the appoint-
ment of an outsider; and in this way good men are occasionally
brought in where the office may contain no man specially qualified,
while there are also occasional jobs, which personal friendship or
party affiliation have prompted. The places at the bottom not
awarded by examination are now not numerous and receive quite
small salaries; they are mostly petty appointments in the customs,
needing nothing more than honesty and diligence. Even those are
a vexation to members of Parliament to whom their constituents
apply for recommendations, and there is a general wish to take them
altogether out of the sphere of political patronage, as postmaster-
ships recently have been taken out. In one or two offices there
still exists a system of what is called limited competition, i. c., the
candidate must be nominated by the head of the department and
a competitive examination is held to select the best men from among

the nominees. This prevails in the F— - O . It is not hard

to obtain a nomination, and the nomination is deemed to afford
some guarantee that the candidate is in the position of a gentleman

348 THEORY AND ADMINISTRATION

and may be trusted not to betray or misuse whatever knowledge of
confidential matters he may obtain.

All the examinations are conducted by a body called C. S. G.,
under regulations regarding subjects and marks for excellence
approved by the Treasury and published. Complaints are some-
times made that an examination in literary and scientific subjects
does not prove a man's fitness for practical life, and least of all for
the work to which in India a youth of twenty-six may be set, of
governing hundreds of thousands of people. But the answer is that
neither does a system of political patronage secure fitness in point of
character, while it offers far less security for intellectual competence.
Accordingly, the competitive system has taken root and is not likely
to be abandoned. It satisfies the popular desire for equality, and it
has raised the level of ability without lowering the level of integrity
in the civil service. The officers employed by local authorities (such
as city and county councils) are usually also permanent, i. e., are
not removed except for misconduct or inefficiency. No executive
officer is elected by the people.

The British civil service is broadly divided, omitting some minor
details, into two sets of officials, who correspond, roughly speak-
ing, to that distinction which holds its ground in England between
those who are and who are not what is conventionally called " gen-
tlemen." The second division clerks have duties of a more mechan-
ical and less responsible kind, which needs a less complete education,
and they receive salaries of from £70 ($350) to £300 ($1500) a year,
a very few going as high as £500 ($2500). There are about three
thousand in all, and the competition is keen and copious. The first
division, higher class, or men who have received a high education,
usually at a University, have salaries which, beginning at £200
($1000), rise in the first class of this division to £1000 ($5000) by
gradual increment. Some few of the great posts have a salary of
£1500 ($7500) or even £2000 ($10,000). In the Indian colonial
service the salaries are generally higher and the length of service
does not exceed, except in very special cases, twenty-five years, after
which the official can retire at £1000 ($5000) a year pension.

Promotion in the lower grades of both divisions is by seniority,
but for important posts this is disregarded, and men may rise by
merit. Where exceptional ability is shown, a person may be raised
from the second into the first division.

Those who have had experience in the working of an office gener-
ally wish that they had a freer hand in promotion than our system
allows. They would like not only to secure quicker advancement
to capable men, but also more frequently to bring in from outside
men of exceptional talent, and to be able to offer them exceptional
salaries. I have already indicated the dangers incident to the giv-

NATIONAL ADMINISTRATION 349

ing this freedom to the head of a department. It might be allowed
to the best Ministers and the best permanent heads of departments;
they, of course, have more to do with all promotions, save those to
the highest places, than the Minister has, for they know the staff
much more intimately. But it would be abused by all but the most
conscientious.

Three other topics need a passing mention. One is the general
control which the Treasury exercises over all the departments,
through its power of fixing salaries, through the fact that it has to
approve and present to Parliament and defend in the House of
Commons the estimates for the expenses the departments incur in
the public service, and through the fact that in some cases statutes
make its consent necessary to certain acts of the other departments.
The Treasury is really the keystone of the British official system,
holding the various departments together; and I remember how
frequently it used to happen that when some change in organization
was desired, or when some new kind of work was to be undertaken,
one had to say to the permanent head, " We must now see the
Treasurer about this. He can meet the objections they will prob-
ably raise."

A second point has already been adverted to. It is the supervision
of local authorities all over the country by some of the central de-
partments, and to some extent by the Home Office, to a still larger
extent by the Board of Education and the Local Government Board.
This last in particular has received by various acts important func-
tions in watching, and if need be, arresting or controlling the action
of county and district councils and of city and borough councils.
This control, however, is not arbitrary and hardly even discretionary,
for it chiefly consists in requiring them to observe strictly the pro-
visions of the statute law. Nor dare the local government board
act in an arbitrary way. The county councils are powerful bodies,
powerful socially as well as legally, for they contain many men of
high position and great influence. The borough councils are also
strong, and have great strength in the House of Commons through
their parliamentary representatives. There is, therefore, little risk
of encroachment by the central government on the powers of these
local bodies.

A third topic has been already mentioned in passing, viz., the
relation between the civil service of the country and the political
organs of government, — the Cabinet and Parliament. In Britain
this relation is secured by the plan which places a leading parlia-
mentary politician, who is necessarily also prominent in one of
the two great parties, at the head of each of the great de-
partments, about twelve in number. He, sitting in Parliament;
speaks for the department to Parliament and to the nation. He is

350 THEORY AND ADMINISTRATION

responsible for everything the department does or omits to do.
He has to explain its policy, to defend its acts, to stand the fire of
parliamentary criticism. He may be every day publicly questioned,
and he is bound to answer, unless he can say that the matter is con-
fidential and that the interests of the public service require him to
keep silence. It is to him that suggestions are made by members
of Parliament and others regarding needed legislation or adminis-
trative action. It is he who receives deputations complaining of
something done amiss, or asking that something should be done.
It is he who appoints royal commissions or departmental committees
to investigate and report on difficult problems. When his perman-
ent departmental advisers think that legislation on any topic is
needed, it is he and his parliamentary under-secretary, if he has
one, who bring in the bill and argue for it in Parliament. So through
him the department obtains the means of extending the scope of,
or improving, its own action, and thus of better serving the country.
Finally, as he is a member of the Cabinet, he consults his colleagues
on such departmental questions as involve exceptionally large in-
terests or have a political bearing, obtains their sanction for any new
departure, and thus sees that the policy of the department is in har-
mony with the general policy which the Cabinet is following and
which its supporters presumably approve. Thus the harmonious
working of the whole machinery is insured and the department is
kept in that close touch with public opinion which is essential to
the proper conduct of affairs under a free constitution. It is a
further advantage that as the parliamentary opposition almost
always contains some person who has been head (or under-secretary)
of each department, there are always men in Parliament besides
the men actually in office who can bring practical experience to
bear on departmental questions when they come up. It is now
our custom that a former head of a department, though he is ex-
pected to watch and to attack (when necessary) the action of his
successor in office, helps his successor to pass department bills which
raise no controversy over the principles on which the two parties are
opposed. There are almost always friendly and often confidential
relations between the present Minister and the ex-Minister for each
department, and the advantage of these relations is so evident that
the rank and file of the two hostile parties, though seldom backward
in their criticism of what are called " the two front benches," take
no serious objection to the custom just described.

The English civil service impressed me, when I saw it at close
quarters, as being an efficient service. Twenty years ago it had not
quite as much first-class ability, either at home or in India, that is,
quite as large a proportion of the available talent of the country as
perhaps it ought. But with the coming up of younger men ad-

NATIONAL ADMINISTRATION 351

mitted under the competitive system, the level of capacity has been
rising. Many of the best men from the great universities now enter
it. It is, perhaps, still deficient in special training for the scientific
side of administrative work, but this defect diminishes as better
provision is made for instruction in these subjects, a matter hereto-
fore neglected in England. It is not always abreast of new ideas
and expedients, but one can hardly expect a public service using
public money to be as bold and enterprising as private firms. It
maintains an extremely high level of purity, scandals being almost
unknown. It has a strong corporate public spirit and sense of duty
to its o\vn reputation and to the country. It exerts a great and,
I think, a growing influence upon legislation and upon the way in
which legislation is carried out in practice. This it does, not because
the law allows a wide stretch of power to officials, for in this respect
England resembles the United States, and gives no such free hand
as France and Germany do, but because each department has formed
its own settled habits and traditions, and impresses these traditions
and its own views upon its parliamentary head. That head is, no
doubt, its absolute master. But he is obliged by his want of special
knowledge to lean upon the experience and judgment of his staff,
and he needs a keen mind and a firm will if he is to overrule their
counsels. The permanent officials usually serve him loyally, what-
ever their private political views may be. The trust he reposes in
them and the credit they enjoy in the country are due to the fact
that a civil servant is understood to have no politics and must not
meddle with party controversies, either by speaking at meetings or
by writing in the press. It is against constitutional doctrine to impute
any blame or attribute any policy or any responsibility to a member
of the permanent civil service. Policy and responsibility belong to
the parliamentary head, because he has the power of controlling and,
if necessary, of dismissing, for serious fault, his subordinates.

In my own country of Scotland a sermon — and this sermon would
be for Scotland a short one — usually winds up with what is called
" The Application." If I am to append an application to this dis-
course, in extenuation of the dryness of which I must plead the
overmastering necessity of severe compression, the practical lesson
to be enforced is the following:

Every country which desires to be well administered must keep
two things vital. One is to keep its public service pure. To keep it
pure it ought, in these days of increased temptation, to be well paid.
If it is well paid, it is sure to attract plenty of ability, and ability may
be trusted, under an honest and careful system of promotion, to find
its way to the top.

The other thing is to make appointments by merit and promo-
tions by seniority and merit combined. For this purpose it must be

352 THEORY AND ADMINISTRATION

kept out of politics. Let admission to the public service and ad-
vancement in the public service be altogether removed from the
political pressure of legislators and unaffected by the political opin-
ions of candidates. Forbid the civil servant to canvass or to speak
or to write on any party political questions. Teach him to regard
himself as the servant of the whole nation, and not of a party in the
nation. You are no doubt debarring him from one of the privileges
of a citizen. But he has other privileges which the ordinary citi-
zen does not possess, and his special powers carry with them special
disabilities. He must submit to the latter if he is to be trusted in
the exercise of the former.

The chief danger which seems to threaten political life in our
times is the growing power of wealth and the tendency to abuse public
authority and public office for the sake of private gain. This was a
gross evil under the despotisms and oligarchies of former days, and
an evil from which it was hoped that democratic government would
deliver us. It has, however, reappeared under new forms, and in
many countries it threatens the honest and efficient working both of
the elective and of the administrative machinery of the nation.

The grander and the wider the part which administration plays
in the highly developed modern state, attempting a hundred new
tasks and handling sums of money of unexampled magnitude, so
much the more essential has it become that the machinery of gov-
ernment should be worked with a high-minded and single-minded
devotion to the interests of the whole people.

It is for the people themselves to secure this by showing that keen
and sympathetic watchfulness over administration which the
founders of the American Republic nearly three hundred years ago
gave to those simple and homely institutions, the product of long
English centuries, out of which the vast fabric of your present
national government has grown. The state is no doubt only a name
for the totality of the individuals who compose it. But it repre-
sents, or ought to represent, those individual citizens in their highest
aspect, in their most earnest hopes. It embodies the hallowed
traditions of their past. It looks forward to an ever-widening col-
lective effort after progress in the future. A state wisely, purely,
energetically administered is not only itself the product of an en-
lightened and upright people; it is a mighty factor in helping to cure
their faults, to cultivate their virtues, to bring them nearer and nearer
to their ideal of a happy and noble life.

SECTION B — DIPLOMACY

SECTION B — DIPLOMACY

(Hall 1, September 23, 3. p. m.)

SPEAKERS: HONORABLE JOHN W. FOSTER, Ex-Secretary of State.

HONORABLE DAVID JAYNE HILL, Minister of the United States to
Switzerland.

THE PROPER GRADE OF DIPLOMATIC REPRESENTATIVES

BY JOHN WATSON FOSTER

[John Watsoa Foster, Lawyer, Washington, D. C. b. Pike County, Indiana,
March 2, 1836. A.B., A.M. Indiana University, 1855; LL.D. Wabash College,
Princeton and Yale Universities. United States Minister to Mexico, 1873-80;
to Russia, 1880-81; to Spain, 1883-85; Special Ambassador to Russia, 1897;
President of National Arbitration Conference, 1904-05. Member of Washing-
ton Academy of Sciences; President of Washington Archeological Society, etc.
Author of various magazine articles and diplomatic subjects; also many books.]

IN the letter inviting me to speak on this occasion, I have been
requested to prepare a paper on present problems in diplomacy.

Had I been asked to treat of present problems in international
law, I would have found a wide field open for our consideration.
That branch of jurisprudence is a progressive science. Old theories,
such as mare clausum and the three-mile ocean limit, are being
discarded or modified by the changing conditions of commerce and
invention, and new principles are sought to be introduced into the
code of nations. The question of the exemption of private property
from seizure on the high seas in time of war, advocated more than
a hundred years ago, is still under discussion and likely at no distant
day to be accepted by the nations. The practice of blockade has
undergone marked changes in the past century, and the theory of
peaceful blockade is under present-day discussion. Modern warfare
has created new questions. It is requiring a revision of the contra-
band list and a more accurate definition of the rights of neutral
ports, accepting more humane methods, and raising new topics, as
the use of mines on the high seas and the proper restrictions as to
wireless telegraphy.

But in diplomacy, strictly so-called, we find few topics of present-
day discussion. The one which I consider of most importance is
that to which I ask your attention — the proper grade of diplomatic
representatives.

International law is of modern origin and recent growth, the at-
tempt at its codification only dating to the seventeenth century,
and it scarcely came to be recognized as binding upon nations before

356 DIPLOMACY

the nineteenth; but the practice of sending and receiving ambassa-
dors or diplomatic representatives has existed among nations from
the earliest recorded history. The ancient Egyptians are known to
have frequently observed the practice; early biblical history con-
tains references to the custom; it was quite common among the
Greek states, and observed by Rome both during the Republic and
the Empire.

But in all these cases and during the early period of modern Euro-
pean nations, embassies or missions were only used on special or
extraordinary occasions, and were of a temporary character. Not
until late in the fifteenth century did the diplomatic service become
permanent in its character and the governments establish resident
embassies or missions. This stage of organized growth was reached,
however, a century and a half before Grotius began the task of giving
shape and authority to international law. Still, the rights and duties
of diplomatic representatives were at that period imperfectly defined.
This is seen in the accounts of the great congresses or conferences,
following the long wars of the European powers — those of West-
phalia, Ryswick, and Utrecht; and the controversies then developed
over the rank or relative standing of the respective ambassadors had
a marked influence in fixing more accurately their status, but not
until the Congress of Vienna in 1815 did the grade of the members
of the diplomatic corps become authoritatively established.

It is a matter of some interest or curiosity in this connection to
recall the fact that the question has been mooted, both in Europe
and America, whether, in the existing conditions of the world, the
diplomatic system is necessary and its utility justifies its expense. It
is claimed that with the present development in steam communica-
tion, the rapid transmission of intelligence by electricity, and the
general diffusion of news by the press, diplomatic negotiations might
readily be carried on directly between the foreign offices of the vari-
ous governments, that the interests of citizens and subjects might
be attended to by consuls, and that on extraordinary occasions the
business might be intrusted to special temporary missions. With
many the diplomatic service is regarded as a purely ornamental
branch of government and its maintenance a useless expenditure
of public money.

This subject was, some years ago, considered by a special committee
of the Parliament of Great Britain. Lord Palmerston, the Prime
Minister, and the best informed and most experienced statesman of
his day in international affairs, was examined. John Bright put to
him the question, "Whether it would not be practicable to transact
the ordinary business by means of written communications between
the two foreign offices, and when anything arose requiring particular
attention to have a special mission of some member of the Cabinet? "

PROPER GRADE OF DIPLOMATIC REPRESENTATIVES 357

Lord Palmerston replied: " I do not think it would;" and proceeded
to give the reasons for his belief.

Mr. Cobden propounded the following: " If you go back two or
three hundred years ago, when there were no newspapers, when there
was scarcely such a thing as international postal communication,
when affairs of state turned upon a court intrigue, or the caprice of
a mistress, or a Pope's Bull, or a marriage, was it not of a great deal
more consequence at that time to have ministers at foreign courts
. . . than it is in these constitutional times, when affairs of state
are discussed in the public newspapers and in the legislative assem-
blies ? . . . Under these circumstances, are not the functions of an
ambassador less important now than they were two or three hundred
years ago? "

Lord Palmerston replied: " I should humbly conceive that they
are more important on account of the very circumstances which
have just been stated. ... I should think that the change which
has taken place with regard to the transaction of public affairs in
Europe tends to make diplomatic agents of more importance rather
than of less importance."

This question has been made more than once the subject of in-
quiry by the Congress of the United States, and the various Presi-
dents and Secretaries of State have given their opinion in favor of the
utility and necessity of the service, and the Congress has continued
to authorize it. The controlling judgment is well expressed in the
language of Secretary Frelinghuysen to Congress: " Diplomatic
representation is a definite factor in the political economy of the
world; and no better scheme has yet been devised for the dispatch
of international affairs, or for the preservation of friendly relations
between governments." President Harrison, after his retirement
from public life, left on record his view of it as follows:

" The diplomatic service has sometimes been assailed in Congress
as a purely ornamental one; and while the evident necessity of
maintaining the service is such as ought to save it from the destruc-
tionists, it is quite true that our diplomatic relations with some of
the powers are more ceremonious than practical. But we must be
equipped for emergencies, and every now and then, even at the
smallest and most remote courts, there is a critical need of an Ameri-
can representative to protect American citizens or American inter-
ests."

The grade or rank of diplomatic representatives has been the
subject of discussion and fierce controversy from the date of the first
establishment of permanent missions, more than four centuries ago,
and although it was thought to have been finally and definitely
settled at the Congress of Vienna in 1815, and that settlement was
accepted and followed by the United States, it has recently been a

358 DIPLOMACY

source of discussion and embarrassment at Washington. To fully
understand the question, it will be proper to make some reference to
this controversy in the past.

A diplomatic envoy is the representative of his government or
sovereign, and his claim of rank is for his country and not for him-
self; so that the controversy in the past has been one of nations
rather than of persons. During the medieval period the struggle
of the European nations for preeminence in rank was the special
feature of the era, and it gave rise often to the most absurd preten-
sions. It was sought to be maintained for various reasons, such as:
The title of the sovereign, the size of the dominions, the antiquity
of the royal family or date of independence of the country, the nature
of the government (whether monarchy or republic), the population,
its achievements in arms, the date of the conversion of the people
to Christianity, and even the services rendered to the Pope or the
Church. Up to the time of the Reformation, the Pope was univer-
sally recognized in Christendom as having precedence over all sove-
reigns; next in order was the Emperor of Germany, as successor of
the Roman Emperor, and below them a constant strife existed
among the nations. For a time the republics were refused what were
termed " royal honors," but finally Venice, the United Netherlands,
and Switzerland were accorded recognition in the order of precedence
here named. The title of Emperor was sought to be made exclusive
to the old German Empire, and Russia was forced to wait several gen-
erations after its ruler assumed that title before being accorded recog-
nition as such. Four centuries ago the Pope of Rome, by virtue of
his conceded preeminence and ecclesiastical authority, sought to
settle the vexed question by issuing an order fixing the relative rank
of the then existing nations of Christendom. It illustrates the inten-
sity of feeling which the question had aroused to state that, notwith-
standing the high papal authority of that date, this arbitrary settle-
ment was not accepted and was only observed in Rome, and even
there merely for a brief period. It also illustrates the evanescent
character of the honor and the changes of the governments of the
world, to note that of the score and a half of nations enumerated
in the papal order, only three (England, Spain, and Portugal) exist
to-day with the royal titles then accorded them. It is also curious
to note that in this table of precedence England stood eighth in
order and Russia does not appear in the list.

A large part of the deliberations of the great congresses of Euro-
pean nations, up to and even including the early part of the last
century, was taken up in settling the question of precedence among
the envoys or delegates. This was notably so at the Conference of
Westphalia. At the Congress of Ryswick a warm debate occurred
over the demand of the ambassadors of the Emperor of Germany that

PROPER GRADE OF DIPLOMATIC REPRESENTATIVES 359

a particular space should be set apart for their carriages, and that
this should be the post of honor; a fierce quarrel occurred over the
allotment of rooms, and in the conference-room a single table had
been provided; but no agreement could be reached as to the order
of seating, and so in that room they all stood, and another room was
provided in which there was no table, and the envoys sat in a circle.
At the Diet of Regensberg the precedence of the ambassadors
was decided by an arithmetical rule by which each had precedence
over the rest twice in ten days. At Utrecht a round table was used,
but this lost its accommodating qualities when it was discovered that
the place of honor was opposite the door of entrance, and that every
place of honor has a right and left. At this congress a quarrel for
precedence took place between the footmen of the several ambassa-
dors, in the account of which it is recorded that it " threatened to
retard the peace of Christendom." Addison gives an amusing
account in the Spectator of a discussion over it which he heard in one
of the coffee-houses of London, the result of which he sums up in
these words: " All I could learn at last from these honest gentlemen
was that the matter in debate was of too high a nature for such heads
as theirs, or mine, to comprehend." Macaulay, in his History of
England, describes in his best vein the Congress of Ryswick, which
well illustrates these idle controversies.

The contest of envoys to these international congresses of the past
have not been more animated and absurd than those of the envoys to
the several courts of Europe. Many amusing and sometimes tragic
incidents have been narrated of the latter, from which I give some
instances. It is related that the Spanish ambassador to England, in
1661, in order to secure a place in the royal procession next to the
King and before his French colleague, attacked the latter's coach in
the streets of London, hamstrung his horses, and killed his men,
thus vindicating his country's greatness. When the plenipoten-
tiaries of France and Austria met to settle the conditions of marriage
between Louis XIV and Maria Teresa, in order to preserve the full
dignity of their nations, they stepped together, with the right foot,
side by side, into a council chamber hung in corresponding halves
with their respective colors, and sat down at the same instant,
precisely opposite each other, at a square table, on two mathemat-
ically equivalent armchairs. A story is told of two newly arrived
envoys from Italy and Germany, who, being unable to agree on which
should first present his credentials to the King of France, stipulated
that whoever reached Versailles the soonest on the day of their
reception should take precedence of the other. The Prussian went
the night before the audience and sat on a bench before the palace
until dawn. The Italian, arriving early in the morning, saw the
Prussian there before him and slipped surreptitiously through

360 DIPLOMACY

the door of the King's bedroom and commenced his salutation. The
Prussian rushed after him, pulled him back by the skirts, and com-
menced his harangue. The memoirs of diplomatists and the his-
tories of Europe are full of the exalted and absurd contentions of
envoys, but the foregoing are sufficient to illustrate their extreme
and often farcical pretensions.

None of the monarchs of Europe was more insistent upon his
rank than the " Little Corporal" when he made himself Emperor of
France. On inviting the Pope to attend his coronation, it was
stipulated that the same ceremonies should be observed as at the
coronation of the ancient Kings of France; but on the arrival of the
Holy Father, the latter was astonished to see Napoleon take pre-
cedence over him, as if there were no question about it. In 1808 he
caused the edition of the Almanack de Gotha to be seized, because, as
was its custom, it arranged the reigning houses alphabetically and
did not place Napoleon first.

The question of the precedence of nations extends into the nego-
tiation and framing of treaties. In former times the more powerful
or more ancient of nations claimed the right to be first named in
conventions and other diplomatic instruments, and not until the
nineteenth century has it been yielded. As one of the younger
nations, the experience of the United States illustrates the progress
made toward equality of treatment. In all of its treaties made in
the eighteenth century it was named last. France first recognized
with the United States in its treaty of 1803 (the Louisiana Purchase)
the practice of the alternat, that is, the right of each chief of state
to have his name and the name of his plenipotentiary appear first
in the original copy of the treaty or other instrument which he
retains. Great Britain refused to concede this right to the United
States in the treaty of peace of 1814 and in anterior conventions, but,
upon the insistence of the latter, yielded it in the treaty of 1815 and
thenceforward. It was first conceded by Spain in the treaty of
1819. The Spanish negotiator in consenting intimated that on
signing he might deliver a protocol against its use being made a
precedent for the future; whereupon the stout John Quincy Adams
informed him that the United States would never make a treaty
with Spain without it.

The contest as to the rank of the states, which had been waged for
centuries, was sought to be settled at the Congress of Vienna of
1815. A committee was appointed with instructions to fix the
principles which should regulate the rank of reigning monarchs and
all questions connected therewith. The committee submitted a
report to that end; but after a long discussion, the powers abandoned
the project as one too difficult to realize, and confined their action to
prescribing the composition and rank of the diplomatic corps only

PROPER GRADE OF DIPLOMATIC REPRESENTATIVES 361

at their respective courts. But since that period, by the practice of
governments, it has come to be recognized by them all that there
can be no rank or precedence among independent and sovereign
nations, but that all must stand on an equality in their negotiations.
For instance, at the Conference of Paris in 1856, one of the most
important in that century, the representatives sat at a round table
in the alphabetical order, in the French language, of their national
titles. In the Bering Sea Tribunal of Arbitration of 1893 the
United States had precedence over Great Britain because of this
order of arrangement. The same practice was observed at The
Hague Peace Conference of 1899. At that conference it was expressly
declared by the representatives of the great powers of Europe, " Here
there are no great, no small powers; all are equal, in view of the task
to be accomplished."

The United States, when at its independence it entered the family
of nations, accepted the order prescribed by the Congress of Vienna
in 1815, which, with the addition made in 1818, recognized the com-
position of the diplomatic corps in four classes, to wit: ambassadors,
ministers plenipotentiary, ministers resident, and charges d'affaires,
with rank in the order named. For more than a century this country
sent abroad, as its highest diplomatic representatives, those of the
second class, and this practice was observed up to a recent date.
But the ministers plenipotentiary of the United States at the capitals
of the great powers of Europe where ambassadors were maintained,
have repeatedly complained that they were often humiliated and
their usefulness sometimes impaired by the lower rank which they
were assigned in the diplomatic corps, and this assertion gained
general currency and acceptance through the press. It is true that
ambassadors take precedence over ministers in the order of reception
and seating on public occasions, at entertainments, and, at some
European capitals, in order of their admission to interviews at the
foreign office. It certainly is not agreeable to a minister of the great
American Republic, who arrives first at the foreign office, to be re-
quired to step aside and give place to the representative of Turkey
or Spain and wait till the latter's audience is concluded with the
Secretary of Foreign Affairs, simply because he bears the title of
ambassador. Mr. Bancroft, the American minister at Berlin, when
subjected to this treatment protested against it, and Prince Bismarck
decided that the practice should not be continued. Other American
ministers who were made to suffer inconvenience or humiliation
from the custom might possibly, by firm or considerate remonstrance,
have obtained relief. The remedy uniformly suggested has been
to raise the grade of representatives at the capitals named to that
of ambassador; but the successive secretaries of state declined to
make the recommendation to Congress'. Such was the action of

362 DIPLOMACY

Secretary Marcy in 1856. Secretary Frelinghuysen said that the
department could not, " in justice to its ministers abroad, ask Con-
gress to give them higher rank with their present salaries; neither
could it with propriety appeal to Congress for an allowance commen-
surate with the necessary mode of life of an ambassador." When, in
1885, Mr. Phelps, the American minister to Great Britain, urged
that the mission be raised to an embassy, Secretary Bayard replied:
" The question of sending and receiving ambassadors, under the
existing authorization of the Constitution and statutes, has on several
occasions had more or less formal consideration, but I cannot find
that at any time the benefits attending a higher grade of ceremonial
treatment have been deemed to outweigh the inconveniences which,
in our simple social democracy, might attend the reception in this
country of an extraordinarily foreign privileged class."

Notwithstanding the reasons given by successive secretaries of
state against the creation of the grade of ambassador, the Congress
of the United States in 1893 did just what Secretary Frelinghuysen
said would be an injustice to American ministers — authorize the
grade without increasing the pay of its representatives. The legis-
lation to this effect was inserted as a clause in one of the regular
appropriation bills, and was passed through both chambers without
a word of discussion or comment. If its effect in changing a practice
of the government for a hundred years had been made known at the
time, it is extremely doubtful whether it would have secured the
approval of the Congress.

An ambassador has been held in Europe to be the special or per-
sonal representative of his sovereign, and to stand in his place at
the foreign court, with the right to claim audience at any time with
the head of the state, and entitled to privileges and honors not
accorded to other envoys of nations. This claim had some force
when the monarch could boast, " I am the state; " but with the
establishment of constitutional government and a responsible min-
istry, all foundation for such a claim was removed, and it certainly
should have no place under a republican form of government.

Events in Washington following the passage of the law creating
the grade of ambassador in the American diplomatic service have
shown that Secretary Bayard was not astray in his fears as to "the
inconvenience which in our simple social democracy might attend
the reception in this country of an extraordinarily foreign privileged
class." The reception of ambassadors from Great Britain, France,
Germany, Russia, and Italy, in reciprocity for the nomination of
American ambassadors to those countries, was followed by the scan-
dalous scenes in the Senate Chamber on the first inauguration day
following their appointment, when in the zeal of the subordinate offi-
cials to show special honor to those newly created and exalted digni-

PROPER GRADE OF DIPLOMATIC REPRESENTATIVES 363

taries, all the other members of the diplomatic body were neglected
and left to find their way to their residences without an opportunity
to witness and honor the induction of the new President into office;
and, if the press reports are to be credited, further trouble was occa-
sioned by the question of the proper location of the ambassadors at
the last inauguration. Then came the problem whether the Vice-
President of the United States should make the first call upon the
new ambassadors, and the further question whether the Secretary
of State, who stands second in succession to the presidency, and on
the death of the Vice- President first in succession, should give place
at entertainments and public functions to those dignitaries. These
momentous questions were doubtless settled aright in the light of
European precedents, and the good sense and prudence of the
eminent gentlemen who hold the ambassadorial rank have, it is prob-
able, prevented other embarrassing and foolish questions from
arising; but these events and those which attended the advent of
the Mexican ambassador, whose coming was resented by the Euro-
pean ambassadors, as well as the recent unpleasant incident at the
White House, when the ambassadors collided with the Supreme
Court, would have been avoided if the Act of 1893 had not been
passed. When the act creating ambassadors was passed by Con-
gress, the government of the United States had grown to recognized
greatness and dignity in the eyes of European sovereigns, its diplo-
matic service had in the past hundred years and more won deserved
honor and distinction, and it did not require the bauble of a title
to' give its envoy greater standing or efficiency. I doubt very much
whether the absence of rank has ever prevented any really able min-
ister of the United States from rendering his country a needed service.
I have referred to the theory that ambassadors, because of their
supposed investiture of a special capacity to represent their sove-
reign or head of their state, have the right to demand an audience at
any time with the chief of the nation to which they are accredited,
and that such right does not pertain to diplomats of the next lower
grade of ministers plenipotentiary. It is a theory which has come
down from the medieval period, but in modern times has become
pure fiction. Vattel says of ambassadors that their " representation
is in reality of the same nature as that of the envoy " or minister
plenipotentiary. Calvo, one of the highest living authorities on
international law, referring to the claim that ambassadors " have
a formal right of treating directly with the sovereign, of which the
others [ministers] are deprived," says: " This is a distinction with-
out a meaning, especially since the organization of modern nations
no longer rests exclusively upon the monarchical principle, and there-
fore renders it impossible for sovereigns personally to conduct inter-
national negotiations. ... In our eyes the agents of the first two

364 DIPLOMACY

classes are exactly on the same line from the point of view of their
character as of their duties and powers." Martens, the leading
authority on diplomatic ceremonies and practice, writes: " Con-
sidered from the point of view of international law, all diplomatic
agents, without regard to their class, are equal. This equality is
shown by their all possessing, in a like degree, all diplomatic rights.
. . . Many writers have tried to infer from the rules of Vienna
that ambassadors, as representing the person of their sovereign, have,
in distinction from other diplomatic agents, the formal right of
treating with the sovereign to whom they are sent, and of being
received in audience by him at any time. We cannot admit
this inference. As Prince Bismarck opportunely remarked, ' No
ambassador has a right to demand a personal interview with the
sovereign.' The constitutional government of West European mon-
archies compels ambassadors to treat with the minister of foreign
affairs." Lawrence (T. J.), one of the latest authors on international
law, says: " Ambassadors, as representing the person and dignity of
their sovereign, are held to possess a right of having personal inter-
views, whenever they choose to demand them, with the sovereign
of the state to which they are accredited. But modern practice
grants such interviews on suitable occasions to all representatives
of foreign powers, whatever may be their rank in the diplomatic
hierarchy. Moreover, the privilege can have no particular value,
because the verbal statements of a monarch are not state acts.
Formal and binding international negotiations can be conducted
only through the minister of foreign affairs."

It has been seen that the increased expense of maintaining an
embassy was one of the reasons given by American secretaries of
state against the creation of the grade of ambassador. The style
of living or the establishment which a diplomatic representative
maintains has been given great importance, especially in the Euro-
pean capitals. It is a curious fact that in the early period after the
establishment of embassies or legations it was the practice for the
government to which the ambassador was accredited to defray his
expenses. For instance, we have the record that the Court of
Vienna in 1679 appropriated a sum equal to $2000 per week to meet
the expenses of the Russian embassy, and of the Turkish embassy
something over $1000. A century later the Turkish embassy at
the same court cost the latter 2000 rubles daily. The papal legate
at Paris in 1625 cost the King of France 2500 livres daily. The cele-
brated Lord Macartney, British embassy to China, is said to have
cost the Chinese Government a sum equal to $850,000.

But in the course of time these splendid and extravagant expendi-
tures became both burdensome to the court which furnished them
and humiliating to the representatives of the country receiving

PROPER GRADE OF DIPLOMATIC REPRESENTATIVES 365

them, and it came to be the practice of each government to defray
the expenses of its own mission; but it was assumed that this should
be done on a scale befitting the dignity and standing of the nation,
and governments are supposed to keep this standard in view in
making their appropriations for the diplomatic service. An envoy
who is sent abroad to represent his country ought not to be expected
to maintain a more expensive establishment than is warranted by
the salary paid him, and yet every American ambassador accredited
to the capitals of Europe, who in any degree meets the expectations
of his countrymen, spends annually much more than he receives
from the national treasury.

But the government of the United States is not the only one
which fails to meet the expenses of its embassies. In his testimony
before the parliamentary committee from which I have already
made extracts, Lord Palmerston stated that the salary of the British
ambassador in Paris was not sufficient to meet the outlay actually
made by him; and yet the salary and allowances of the British
ambassador are more than three times as great as those received
by the American ambassador to that capital. I have been informed
on the best authority that when the post of British ambassador in
Paris became vacant a few years ago by the retirement of Lord
Dufferin, it was offered in succession to three British statesmen of
prominence, who declined the honor on the ground that they could
not afford the extra expense that would necessarily have to be met
from their private purse.

This fact may suggest the inquiry whether the style of living of
ambassadors and the demands made upon them have not exceeded
the proper bounds, and whether there is not some force in the argu-
ment used to. justify Congress in its course, that it is not becoming
our democratic representatives abroad to maintain such an osten-
tatious and extravagant style of living. The change of the American
legations to embassies in the European capitals seems to have called
for the maintenance of large houses or palaces and a much more
lavish style of living, which have so greatly increased their expendi-
tures that only persons of wealth can afford to accept these posts.
It is a sad day for any country, but more especially for a republic,
when its highest offices cease to be rewards of merit and fitness and
when they can only be filled by rich men.

Many incongruities and embarrassments result from the continued
adherence to the several grades or rank in the diplomatic service
established a century ago by the Congress of Vienna. The great
powers of Europe, the United States, and Mexico send to other
governments respectively the four grades of diplomatic representa-
tives, and even a fifth grade has been added by some of them, who
clothe consular officers with diplomatic functions under the title of

366 DIPLOMACY

" diplomatic agent," but no uniformity of action is observed. France,
for instance, accredits an ambassador to Switzerland, but ministers
plenipotentiary are sent by the other neighboring powers — Ger-r
many, Austria, and Italy. On the other hand, France accredits
only a minister plenipotentiary to its neighbor, Belgium. Another
illustration of irregularity or inconsistency is found in the diplomatic
body to the independent government of Morocco. There are minis-
ters plenipotentiary from Germany, Great Britain, France, Italy,
and Spain, ministers resident from Austria and Russia, charges
d'affaires from Denmark, and the United States is represented by
a consul-general, who acts in a diplomatic capacity, but in grade
stands below all other powers.

Each government determines for itself the grade of representative
it will send to other countries, but the government to which the
representative is sent claims and exercises the right of receiving or
rejecting such person because of grade. But reciprocity of grade is
not always observed. A representative of a lower grade is some-
times received from a country to which one of a higher grade is sent.
The irregularity of rank is likely at any time to create diplomatic
embarrassments, as it already has in more than one instance. We
have seen that the reception at Washington of an ambassador from
Mexico was resented by the ambassadors of the European powers.
As one of them remarked to me, they did not regard Mexico as suffi-
cient in population and importance to exercise the right of ambassa-
dorial appointment. Suppose China, embracing more than one
fourth of the population of the earth, older by thousands of years
than the oldest of the so-called great powers of Europe, and possessing
a high grade of civilization and intellectual attainments, should
accredit ambassadors to those powers — upon what reasonable
ground could they be rejected? And yet should they have an inti-
mation that such was the intention of that ancient empire, it is
more than probable that its foreign office would receive such repre-
sentations as would lead it to desist from its intention.

The most serious embarrassment resulting from this difference
in grade of diplomatic representation is furnished by the relations
at present existing between the United States and Turkey. For a
number of years past these relations have been in a most unsatis-
factory condition. In no country of the Western world could the
old fiction of the ambassador as the personal representative of the
sovereign to-day approach so nearly a reality as in Turkey, as the
Sultan is more fully than any other monarch the personal ruler of
the state. All the great powers of Europe, and even the Shah of
Persia, are represented at Constantinople by ambassadors, and they
exercise the right of access to the Sultan at will to discuss official
matters. The American ministers plenipotentiary have represented

PROPER GRADE OF DIPLOMATIC REPRESENTATIVES 367

to their country that it is very difficult to get any just and proper
consideration and dispatch of their business, because of the irre-
sponsible character of the Secretary for Foreign Affairs or even of the
Grand Vizier, as all important matters are determined by the Sultan;
and that, as they do not possess the ambassadorial character, they
cannot without great difficulty have audience with him to discuss
official business.

To remedy this embarrassment, President McKinley caused appli-
cation to be made to the Turkish Government for the appointment
by the two governments respectively of ambassadors; but the propo-
sition was not accepted by Turkey. The condition of the interests
of American citizens in that empire continuing to be very unsatis-
factory, President Roosevelt renewed the application for the appoint-
ment of ambassadors; but it was again rejected. It cannot well
be understood in the United States why this application should be
refused, when ambassadors from much smaller and less powerful
countries, like Italy and Persia, are received at Constantinople.

Last year a delegation of some of the most prominent citizens of
the United States, representing large property interests in the
Turkish Empire, made a visit to Washington and laid before the
President a memorial, setting forth that American citizens and
property in that empire were denied the rights and protection which
had been secured by the ambassadors of the great powers of Europe
to their subjects and property interests. The President, being im-
pressed with the justice of the memorial, caused a cable instruction
to be sent to the American minister in Constantinople, directing
him to ask for an audience of the Sultan in the name of the Presi-
dent, to enable him to communicate a message from the President
to the Sultan on the subject of the memorial. After a delay of some
weeks an audience was granted on the express condition that the
minister should be limited to delivering the message of the President,
but that he would not be permitted to discuss the subject with the
Sultan.

Even this decisive action of the President seems to have had no
effect, as the American citizens continued to be deprived of the rights
and privileges enjoyed by the subjects of the great powers of Europe,
and for a third time an application has been made and rejected for
the reception of an American representative with the grade of am-
bassador. The press has informed us that the American minister
at Constantinople, under renewed and urgent instructions from
Washington, pressed for a settlement of the question at issue, but
that he was greatly delayed and embarrassed by the fact that the
ministry have no real power to dispatch any important public busi-
ness, because the Sultan reserves to himself that prerogative, and
that, not being an ambassador, he found great difficulty in reaching

368 DIPLOMACY

the Sultan. Meanwhile this important question remained undeter-
mined,.and it became necessary to dispatch a formidable American
fleet to Turkish waters to evidence the President's interest in the
question, and the fleet was held in the Turkish port until the demand
of the United States was complied with. What more striking argu-
ment can be presented against the maintenance of the various grades
in the diplomatic service?

There is no good reason why the representative of the smallest
American republic or European principality should have a different
standing, for instance, at the foreign office in London from^ that
freely conceded to him in the Peace Conference of the nations at
The Hague; neither should it be expected that any government
would be forced, because of a mere grade in the diplomatic hierarchy,
to maintain a more lavish display at a foreign court than its princi-
ples or convenience would determine.

The remedy for the embarrassments arising from diplomatic rank
is a simple one. In the reference I have made to the foolish contests
which were carried on for centuries by the nations of Christendom,
great and small, for precedence, we have seen that only one solution
of the problem could be found, and that was so simple we wonder
now that so fierce a warfare could have been possible, that is,
recognition of the equality of sovereign nations, so that to-day the
smallest republic of Central America is equal in negotiations and at
international conferences with the most powerful empire of Europe.
There will be no satisfactory settlement of diplomatic rank until
all distinctions and special privileges are abolished and a single grade
is established in all the capitals of the world.

THE CONTEMPORARY DEVELOPMENT OF DIPLOMACY

BY DAVID JAYNE HILL

[David Jayne Hill, LL.D., Envoy Extraordinary and Minister Plenipotentiary
of the United States, American Legation, The Hague, Netherlands, b. Plainfield,
New Jersey, 1850. A.B. Bucknell University, 1874; Graduate Student,
Universities of Berlin and Paris, and of Ecole Libre des Sciences Politiques,
Paris, in 1888 and in 1897; Honorary LL.D. Colgate University, 1884; Union
University, 1902; University of Pennsylvania, 1902. Professor of Rhetoric,
Bucknell University, 1877-80; President, ibid. 1880-88; President of Univer-
sity of Rochester, N. Y., 1889-96; Assistant Secretary of State of the United
States, 1898-1903; Professor of European Diplomacy, Columbian University,
1899-1903; Envoy Extraordinary and Minister Plenipotentiary of the
United States to Switzerland, 1903-05; Envoy Extraordinary and Minister
Plenipotentiary to the Netherlands, 1905. Fellow of the Association for the
Advancement of Science; Member of American Academy of Political and
Social Science; Member of American Historical Association. Author of
various text-books of rhetoric, psychology, and economics; Genetic Philosophy,
1893; International Justice, with a Plan for its Organization, 1894; The
Conception and Realization of Neutrality, 1902; A History of Diplomacy in the
International Development of Europe, 1905.]

AMONG the great interests of modern times, none is more deserv-
ing of public attention than the transaction of international business.
Every ship that discharges a cargo in a foreign port, every telegraphic
message from beyond the sea, every exchange of commodities across
a national frontier, imparts to the world a deeper sense of its unity
and solidarity.

While private enterprise, seeking legitimate extension, is thus
becoming international, public functions are passing through a
significant process of development. Politically and legally, the
surface of the earth is held under the sovereignty of independent
governments, sometimes remote in space from the territories over
which they exercise control, and all intent upon extending their
power and importance. At a moment when industry and commerce
have become most keenly aware of a world- wide interest, the political
system is most vigorously emphasizing the power of territorial control.
The situation thus created presents the most intricate diplomatic
problem of our time, — the reconciliation of political conceptions
originating in an age of national isolation and general hostility
with the rising tide of human activity which is asserting, and will
never cease to assert, the rights of commercial intercourse.

I. The Classic Conception of Diplomacy

The fundamental doctrine of diplomacy is the absolute sovereignty
of the state. Raised by this theory above all laws, each state exists
for itself alone. Without distinction of governmental forms,
empires, kingdoms, and republics alike all pretend to possess those

370 DIPLOMACY

unqualified attributes which ancient Roman theory accorded to
a practically universal empire. When the great national monarchies
rose out of the ruins of the ancient system, each assumed the im-
perium which Rome had formerly exercised, and subsequent con-
stitutional transformations, while profoundly modifying the state
as regarded from within, have never affected its sovereign preten-
sions. The existing international system, therefore, presents the
contradiction of merely territorial sovereignties claiming the preroga-
tives of absolute power. The tardy recognition of formal equality
among them has, indeed, conceded something to the order of fact;
but this concession confronts us with the anomaly of actually limited
and theoretically co-equal political entities, all assuming to possess
supreme authority.

The diplomacy based on this conception has been rendered classic
by gifted writers, who draw their inspiration from these pretensions.
Its patron saint is Machiavelli, its consummate apostle, Talleyrand.
Its maxims, creations of eighteenth century philosophy, — half
imagination and half metaphysics, — have been formulated by
Ancillon and Count de Garden. " Whoever can do us harm, wishes,
or will wish, to injure us. Whoever, by superiority of force or geo-
graphic position, can injure us is our natural enemy. Whoever is
unable to harm us, but can, by the extent of his power or the advan-
tage of his position, injure our neighbor, is our natural friend. These
propositions," concludes Ancillon, " are the pivots upon which all
international intercourse turns."

The forces of a state are grouped by Count de Garden under four
rubrics: territorial, pecuniary, military, and federative. A nation
becomes strong by extending its frontiers, augmenting its material
wealth and credit, maintaining a powerful military organization,
and entering into conventional arrangements with other powers
for its own exclusive advantage.

All this implies that national prosperity consists in acquisition
and expansion, unlimited in principle and measured only by the
energies of the nation. It is egoism made public, systematic, and
absolute. Self-aggrandizement being the mainspring of national
life, all our neighbors are our natural enemies; for they will take
all that we do not appropriate, and when they are able, will strip us
of what we already possess. The only means of preserving national
existence is, therefore, to appropriate so much and to possess it so
securely that we may become irresistible.

The normal relation of human societies, according to this con-
ception, being one of permanent hostility, material greatness is
the one purpose of public action, and armed force the only safeguard
of existence. In this system, the diplomatist has no other function
than to exercise his personal cunning in securing the preponderance

CONTEMPORARY DEVELOPMENT OF DIPLOMACY 371

of his sovereign master. Since the destruction of competitors is an
indirect method of increasing our own superiority, the aims of
diplomacy — according to this school of thought — are not only
to keep our own secrets, but to discover those of our neighbors; not
only to form favorable relations with other powers, but to destroy
those of our rivals; not only to establish our own commerce, but to
undermine and defeat the commercial enterprises of others. Depth
of knowledge, rectitude of principle, elevation of character, and
regard for the common good may be personal adornments; but they
are not indispensable to a diplomatic agent, and may even embarrass
his success.

Let us admit that nations cannot exist without a primary regard
for their own interests; that force is the final safeguard of justice
in every form of human society; and that war may sometimes be
necessary and even become a duty. But is it true that suspicion
and hostility, rather than mutual confidence and friendship, are the
natural basis of international relations? Is it true that honor,
justice, and cooperation can produce a reign of prosperity and
security within the boundaries of particular states, but must
obstinately halt at the national frontiers and refuse to pass beyond
them?

It is time to treat the classic axioms of diplomacy as economists
have treated the fictions that so long separated economic philosophy
from the realm of fact. The theory of the physiocrats, that a nation
can be prosperous only as it develops agriculture; and the doctrine
of the mercantile school, that national prosperity consists in the
accumulation of precious metals, are both now seen to be without
foundation. Production is a vital process as manifold as human
wants and human faculties, and wealth a state of satisfaction not
capable of being measured in the terms of one commodity. Modern
thought has made it plain that the deductive method has crippled
and disfigured every science which it has ever attempted to organize;
for no concrete being is the incarnation of a single principle, and no
living thing is incapable of transformation. The law of evolution
is as applicable to the forms and elements of human society as it is
to the natural world. The sociology of nations presents no exception;
and diplomacy neecls to be brought down from the realm of false
abstractions and unverified traditions, and made to grasp the full
significance of the facts and forces of contemporary progress.

Since the great classic masters of diplomatic science formulated its
theories, a profound transformation, half-conscious but wholly
inevitable, has taken place. Public attention may accelerate this
movement and public indifference may retard it, but no conceivable
influence can wholly destroy its work. Since the era of absolutism
— which the French Revolution interrupted and the Congress of

372 DIPLOMACY

Vienna attempted to restore — the constitutional movement has
placed charters of popular rights in the hands of nearly all civilized
peoples, and the work of national unification has thrown new light on
the moral nature of the state. In place of chance aggregations of
disparate elements, held together by arbitrary force, homogeneous
nations have come into the foreground of history to work out their
natural destinies. Within these states, law, order, justice, and
security have come to be respected. But the crown and completion
of the political system — the establishment of law, order, justice, and
security between nations — still remains inchoate.

How are these great aggregations of humanity to be brought under
the laws of social well-being and progress ? Diplomacy must seek the
answer from those historic forces and those forms of human know-
ledge which have modified and still continue to modify the conditions
under which its task is to be accomplished. In a general sense, the
whole onward movement of human knowledge and culture — in-
cluding the art of warfare, the means of transportation and communi-
cation by steam and electricity, the influence of the press, the diffu-
sion of education and culture, the expansion of the horizon of public
interest by trade, travel, and the prompt publicity of remote occur-
rences — has transformed the organization of society. But we may,
in particular, better comprehend the task of modern diplomacy by
considering some of its relations to history, jurisprudence, ethics,
economics, and education.

II. The Relation of Diplomacy to History

" History," as De Tocqueville has remarked, " is the breviary
of the diplomatist." It not only explains the nature of his functions,
but it is the record of his achievements. It recalls the former
existence of a vast intercontinental state, — comprising parts of
Asia and Africa, and nearly all of civilized Europe, — embracing a
single faith, governed by a single code of law, and comprising nearly
all that then existed of human civilization. It shows how the polit-
ical unity that held in the embrace of one universal empire the
Britain and the Numidian, the Spaniard and the Assyrian, and for
centuries made of the Mediterranean a Roman 'lake, realized a state
that included a great part of humanity. It explains how an organ-
ization so complete and powerful was finally overwhelmed and
dismembered by a mistaken policy toward the despised barbarians
who surrounded it. It reveals the psychological and moral unity
of Europe in that marvelous transformation of the barbarian king-
doms into another vast empire founded on community of religious
faith, the reunion of free assemblies, and the organizing capacity of
Charles the Great. It proves the practical futility of the imperial

CONTEMPORARY DEVELOPMENT OF DIPLOMACY 373

conception by the whole course of subsequent events. The inevit-
able dismemberment of the medieval empire into independent
kingdoms, the development of feudal society as a means of local
defense, the inadequacy of merely local government for the neces-
sities of industrial and commercial growth, the rise of the great
monarchies as a means of emancipation from feudal servitude, and
the reconciliation of local sovereignty and universal authority in
the formation of modern states, are all consecutive links in a chain
of irrefutable argument by which the diplomatist vindicates the
indispensability of his science to the world.

It is an historical certainty that the permanent organization of
mankind must henceforth rest on the basis of independent political
communities. No one familiar with history can imagine the possi-
bility of reestablishing a universal empire. No thinker permeated
with the historical spirit entertains a serious hope of a general federa-
tion of sovereign states. Smaller political communities may, per-
haps, be gradually absorbed in the larger; but the great powers
give no promise of coalescence, and no indication of uniting to form
a permanent confederation. These great masses of organized human
energy may still modify their frontiers, but they will continue for
centuries to confront one another, as fixed and enduring on the
surface of the earth as the stars in the firmament.

The task of the diplomatist is, therefore, neither a vanishing nor
a declining enterprise. It is one which, on the contrary, in the
presence of the bristling array of terrific instruments of destruction
on sea and land, assumes an ever-increasing solemnity and respon-
sibility. The diplomatist should know the history of these great
national entities, and of their relations to one another, as a compe-
tent physician would wish to know the life-record of a delicate or
dangerous patient; for the present — in nature and in life, individ-
ual and national — is but the epitome and expression of the past.
The future knows no other guide, and it is from history that we are
to gather the formulas of present action.

In view of its importance, it is astonishing that no complete his-
tory of diplomacy exists in any language. Such a history would
include not only an account of the rise and progress of international
intercourse, but an exposition of the motives by which it has been
inspired and the results which it has accomplished. But even this
statement does not fully define the scope of such an undertaking;
for an intelligent comprehension of diplomacy must also include a
consideration of the genesis of the entire international system, and
of its progress through the successive stages of its development.
Thus regarded, it would be seen that diplomacy — taken in its largest
sense, and including the foreign policy of nations — possesses the
deepest qualities of human interest ; for the whole fabric of present

374 DIPLOMACY

international relations, embracing its laws, usages, privileges, and
obligations, is the result of past diplomatic activity.

If, therefore, the diplomatist is deeply indebted to the historian
and would gladly increase his indebtedness, his guild is prepared to
make a rich return in compensation. It is from his archives that
the most precious and trustworthy materials of history are to be
derived. It is his dispatches that explain the origin and causes of
every war and the terms and conditions of every peace. It is in
the correspondence and records of his government and in the details
of his letters, memoirs, and reminiscences that the whole psychology
of international policy must be sought.

A new type of history came into being when Von Ranke in Ger-
many and Mignet in France turned their attention to unused diplo-
matic sources. For fifty years past, innumerable scholars have ran-
sacked the archives of the European governments, gathering a rich
harvest of data and documents relating to special questions; and
thus, at last, international events, studied from many angles of
observation, as from a multitude of photographs, begin to assume
their just proportions. On some future day, when the scientific
historian has made full use of this authentic material, a mirror will be
held up to nature, in which not only the diplomatist may perceive
the lessons of past negotiations, but citizens of once opposing na-
tionalities may discern the true merits of great controversies, so
easily distorted by patriotic pride and popular tradition. Every
such revelation, by diminishing the role of passion and prejudice,
will narrow the chasm which separates peoples, by enabling them to
discover that in their most bitter contentions there were two sides
where they have beea accustomed to see but one.

Passing over a multitude of instances, a single example may serve
to illustrate what remains to be accomplished in the vast and fertile
field of diplomatic history. Toward the close of his reign, his
Holiness, the late Pope Leo XIII, opened to the use of historical
scholars the secret Archives of the Vatican. Thus, for the first time,
were presented to the scrutiny of the historian the records and corre-
spondence of the most ancient international institution in the world.
The reports of the papal nuncios alone fill more than four thousand
volumes, divided into twenty-one groups, according to the places
from which they were written. There are, besides, letters of import-
ance covering centuries of intercourse by kings, princes, cardinals,
bishops, and eminent individuals.

The labor bestowed upon this rich collection of documents has
already borne precious fruits, but a vast proportion of its contents
still remains to be explored. The Austrian and Prussian Institutes
have published a part of the reports of the nuncios emanating from
Germany, but the great mass of these reports still remains untouched.

CONTEMPORARY DEVELOPMENT OF DIPLOMACY 375

The French School at Rome has published many valuable docu-
ments found in the papal archives, including the registers of several
popes, and also a number of special studies, such as the scholarly
works of Deprez and Pelissier, which exemplify what may yet be
done for the history of diplomacy, now, for the first time, rendered
possible in the scientific sense.

But even when made accessible in printed form, the contents of
diplomatic archives have little human interest until they are placed
in those relations which render them significant to the public mind.
No text-book of mathematics is more dull and unattractive than a
volume of treaties; yet, when we enliven its dreary text by bringing
upon the scene the national interests involved, the deep, human
sentiments affected, the exciting drama of negotiation, the deadly
struggle and ardent aspiration which its contents represent; when
we follow the conflict of which this dull document forms the conclu-
sion, and perceive .in it a victory of peace and intelligence that
swallows up and symbolizes the victories of war; when we see in it
the triumph of a just cause, the sepulchre of a false ambition, the
ruin of a hopeless system, or the consecration of a great principle,
we realize that nothing serves better to mark the rising tide of human
progress. But when a treaty of peace becomes a yoke of servitude
imposed by force upon a prostrate people, defeated in a just cause,
we learn how infinitely far the triumphs of arms are removed from
the triumphs of reason; and that the least certain path to equity is
that appeal to* force which adds to the misfortune of injustice the
calamity of defeat.

III. The Relation of Diplomacy to Jurisprudence

Trial by battle has long since been suppressed in all civilized com-
munities, as essentially barbaric and irrational; yet great nations
continue to arm themselves for future conflicts, and appeal to the God
of battles to crown them with victory. What is it, then, which justi-
fies the use of armed force by the state, while the forcible avenging
of private wrongs is condemned in the individual? What is it that
dignifies with the honorable name of " war " the confiscation of
property and the taking of human life by public determination, when
these are punished as " robbery " and " homicide " if parpetrated
by private persons?

Jurisprudence replies that the state is an association of human
beings organized for the attainment of common ends, — among
them public peace, justice, and security of life and property, — act-
ing in the interests of all, not for the benefit of one or a few. Its
laws are the necessary antidote for anarchy, and its authority to
make and enforce them is derived from its " sovereignty."

376 DIPLOMACY

It is precisely this conception of " sovereignty " that reveals the
transformation of human thought with regard to the organization and
relations of the state. In the Roman Republic, it signified simply
" the majesty " of the Roman people, but under the Empire it lost
its connection with the constituent elements of the state, and was
translated into " the will of the Emperor." j In the revival of Roman
law that accompanied the formation of modern states, it assumed
the form of absolute monarchy, and accepted the formula, " What-
ever is pleasing to the Prince has the force of law." In the philosophy
of the revolutionary era, the source of authority was sought in the
people, but without losing its absolute character. The doctrine of
" popular sovereignty," in its crude and unanalyzed form, suggests
that whatever is pleasing to the majority has the force of law, —
an inference which might be used to justify any enormity which
a vicious or misguided multitude might choose to perpetrate upon
the few, or upon the rights of foreign peoples. •

Such a conception of the state would be as false as it is inade-
quate, and no thoughtful and well instructed jurist would defend
it. The essence and justification of the state lie in the social pur-
pose which it seeks to accomplish, as defined in its constitution, for
the bare and formless will of a people cannot serve as its foundation.
A state is not a chance or arbitrary association of men bent on
a predatory expedition. Such a group of human beings would be
called a mob rather than a commonwealth. Nor can such an aggre-
gation of men rise to the dignity of a state by mere organization
and discipline, as a band of highwaymen might be subordinated to
the direction of a chief. A state is brought into being by historic
conditions which unite men in a body politic for the purpose of self-
regulation and the realization of common ends of order, justice, and
security. The state, therefore, is a moral entity, in which all private
benefits are subordinated to public well-being.

It is only as a moral entity, — or, as it has even been called, as
a " moral person," — possessed of will, intelligence, and determin-
ing principles, that a form of human society can claim the attributes
of a state. Otherwise, it is merely a form of force, without pre-
rogatives founded on juridical conceptions. What, then, is " sover-
eignty," if not the prerogative of a state to command its own
constituents, to make and enforce laws, to guard its own being
and independence from aggression, and to be recognized as a moral
entity?

Such is the modern juristic conception of the state, and as such
it holds its place in the family of nations. Is it, then, a moral entity
when seen from within, and devoid of all relation to law and justice
when regarded from without? The qualities which support and
justify its claim to " sovereignty " within establish its place as a

CONTEMPORARY DEVELOPMENT OF DIPLOMACY 377

responsible agent in all its intercourse with other bodies politic. To
say that the state exists solely for itself, and is subject to no law
or principle which it chooses to deny or disregard, is to destroy at its
root all civil authority whatever. The individual does not volun-
tarily enter the state; he is placed in it by an act of nature. By
another act of nature, nations of men exist side by side, forming
separate political communities. Whatever principle of natural right
subordinates the subject or citizen to the legal jurisdiction of his
birth, coordinates coexisting sovereign states and creates between
them reciprocal rights and obligations.

Before the time of Gentilis and Grotius, the states of Europe had
as little regard for each other's rights as rival bands of brigands;
but these great jurists and their successors, appealing to the intelli-
gence of all nations, by disclosing the existence of universal prin-
ciples inherent in human nature, convinced mankind that even in
a state of war, laws are not wholly silent.

In his great work on The Laws of War and Peace, Grotius, appeal-
ing to the universal rights of humanity, pointed out that the state,
existing for the realization of justice, must apply just principles
even in its use of force. A body politic, refusing to be governed by
rules of justice, thereby forfeits its claim to sovereignty; for, in
declining to perform its obligations, it destroys the only logical
foundation of its rights.

It is for the recognition of this universal juridical bond between
all nations that international jurists have labored during the last
three centuries. Natural law, the Christian religion, the juris-
prudence of Rome, general custom, common consent, and conven-
tional agreement have all been advanced as furnishing proper ele-
ments'for the construction of that international code which all jurists
have agreed does, or should, exist; and all these elements have
afforded contributions to that great body of principles and usages
which constitute the present system of international law.

Vague and undetermined as this body of jurisprudence is, no
civilized nation denies its existence and its general authority. On
the contrary, most nations not only recognize it, apply it, and appeal
to it, but in some manner formally adopt it as a part of their own
municipal law. The United States of America has not only done
this, but has by constitutional provision declared that treaties with
foreign powers constitute " the supreme law of the land; " and has
attempted, in a digest prepared at public expense and by official
direction, to define with minute exactness the whole body of inter-
national law. Such a course, if followed by all nations, would
furnish the materials for the ultimate formation of that formal
international code which jurists like Bluntschli and David Dudley
Field have endeavored to construct.

378 DIPLOMACY

What, then, is necessary to establish between nations the observ-
ance of those principles of equity which are universally recognized in
civilized communities? International law possesses no guaranty
except the good faith of nations and of their public men, and no
penalty for open violation except such as the injured party may be
able to inflict. In the society of nations, there is neither legislature,
nor judiciary, nor executive.

For this reason, one of the most important events of the nine-
teenth century was the establishment of a permanent international
tribunal at The Hague. As in the case of the Supreme Court of the
United States, which to-day regulates the most important contro-
versies of forty-five great commonwealths, its inauguration was
greeted with doubt and distrust; and because it has not in the few
years of its existence proved a preventive of wars and a touchstone
of universal peace and concord, it is still, perhaps, regarded in some
quarters as a mere chimera.

It is true that The Hague Tribunal at present appeals to us by its
possibilities rather than by its actual achievements, but its mere
existence, composed of jurists among the most distinguished in the
world, is an immense gain to civilization, and cannot fail to promote
the pacific settlement of international disputes. It adds to the
dignity of this tribunal that, by the munificence of a wise, generous,
and cosmopolitan benefactor, a splendid palace of justice is soon to
be erected for its use, in a country whose thrift, integrity, and place
in history make it a fitting seat of international mediation.

But the progress of this movement is not merely theoretical and
material. One of the founders of The Hague Court has initiated
parliamentary action that is spreading out into a network of treaties
by which questions not affecting national honor and independence
are, henceforth, to be referred to this tribunal. His Majesty the
King of England has been especially active in promoting these con-
ventions; and their Majesties the German Emperor, the King of
Italy, and the King of Spain, and his Excellency the President of
France, have united in concluding treaties by which these great
powers are setting the example to smaller states of an appeal to law
and justice as the normal standard of public action.

While the age is fortunate in possessing among its rulers and public
men enlightened leaders who truly represent the progress of thought
and society, it would be 'visionary to expect that, hereafter, rivalry
or misunderstanding may not again bring into violent collision the
vast armaments which continue to increase rather than diminish.
The raison d'etat which has so often plunged nations into armed con-
flict still controls public policy; and although there may be a grow-
ing disposition to respect acquired rights, there are still abundant
opportunities for contention.

CONTEMPORARY DEVELOPMENT OF DIPLOMACY 379

IV. The Relation of Diplomacy to Economics

The most potential source of peril to public peace and international
justice is, at present, the conflict of economic interests. The irre-
sistible increase of population, the demand for territorial expansion,
the development of the colonial system, and the struggle for new
spheres of influence, in the quest for raw materials and foreign mar-
kets, create a situation fraught with danger.

It is to the science of economics that diplomacy must turn for
the means of averting this danger. Questions of far-reaching conse-
quence still remain unanswered. Is the political control of territory
necessary to the enjoyment of its commercial advantages? Is it a
profitable enterprise to divide the world into purely national mar-
kets, thereby excluding ourselves from the areas of trade held by
other nations? Is it more remunerative to acquire, control, and
defend colonial possessions than it would be to share their advan-
tages with others under the protection, wherever necessary, of an
international police? Is it not possible to diminish the cost of
modern navies by intrusting the defense of commerce to an inter-
national marine governed by an international code?

These questions are not addressed to any particular nation, nor
is it intended to answer them in any definite sense; but simply to
call attention to the problems that press equally upon all, and to
inquire if there is not a pacific solution of them based on the principle
of general welfare.

The classic maxims of diplomacy forbid all cosmopolitan bene-
volence and represent the hostility of national interests as inherent,
inevitable, and permanent; but those maxims, if logically applied,
would have prevented all political progress founded on the sacrifice
of private interests for the public good. Every advance which the
world has made in civilization has resulted from the perception
that mutual advantage might be obtained by harmonizing con-
flicting interests. The formation of the American Union, the uni-
fication of Italy, and the consolidation of the German Empire are
among the greatest achievements of modern history, and illustrate
the prosperity that may be realized from mutual concession for the
common good. Out of struggling colonies and rival principalities
great states came into being, blessed with unexampled prosperity,
because their constituent parts ceased to waste their energies in
obstructing one another's welfare and joined their forces for mutual
benefit.

Beneath the surface of political phenomena flows a great historical
current which deserves the attention of thoughtful men. The ex-
pansive instinct of humanity changes its direction of action according
to the obstacles it has to overcome. In the era of political inequality,

380 DIPLOMACY

the general aspiration was for liberty, which created in the eighteenth
century a struggle for national independence; but in the consti-
tutional era that followed, the larger human relations were revealed,
and in the nineteenth century was developed the idea that modern
nations are essentially interdependent. The special task of the
twentieth century will be to reconcile these two great conceptions,
and to unite independent states in bonds of peace, amity, and
fruitful intercourse.

This, in the broadest sense, is a task of diplomacy, but it is also
a problem of economics; and its most vital energies will be derived
from economic considerations. At present, the cost of national
armaments has reached an overwhelming height, and raises the
practical questions: How long will the wealth-producing population
continue in silence to support this burden? and, How long will the
wealth-possessing population confide in the ability of governments
to meet their financial obligations?

Diplomacy would be untrue to its high vocation if it did not direct
public attention to this costly guardianship of peace. It is true that
it is not for aggressive warfare and inconsiderate bloodshed that these
millions are expended; and that, so long as great nations continue
to arm themselves, others must do likewise in self-defense; but the
day is coming when humanity, feeling its kinship of suffering more
keenly than its hereditary fears, will cry out in universal protest
against a system which does violence to its better instincts. No
process of thought or of negotiation will be too costly if it can open
the door of exit from the condition of mutual distrust that arrays
great nations against one another in constant apprehension of
hostile intentions. Next to national honor, which need never be
sacrificed, the one great interest of mankind is peace.

V. The Relation of Diplomacy to Ethics

But there is a deeper spring of human action than the desire for
material welfare, and the costly sacrifices of war are its best witness.
We must not, in the name of economic selfishness, nor even of mis-
taken moral sentiment, condemn the measures needful for national
defense. A morbid idealism has proclaimed the dogma that no
war is just, that bloodshed is never right, and that all exercise of
force is wrong. Such a doctrine owes its very possibility to the
protection of institutions that would not exist for a single day if
society had not the force and determination to destroy its enemies.
There is no idea of " right " except in opposition to that of " wrong,"
and because existence itself is an equilibrium of energies, force is
the necessary basis of society. It is in the awful heat of battle that
the state has triumphed over anarchy and justice established a

CONTEMPORARY DEVELOPMENT OF DIPLOMACY 381

throne upon the earth. In a world of mingled good and evil, there
can be no perpetual peace.

Of this no one is more fully conscious than the diplomatist, whose
negotiations would degenerate into empty words if they were not
supported by a material force capable of vindicating disregarded
rights. But certainly the measure of force is in no sense the measure
of international rights and obligations, which exist independently
of military strength. The little states have the same right to exist-
ence and to respect as the great powers; for, as moral entities, all
civilized nations, pursuing a common end, have an equal claim to
ethical consideration.

It will be a great advance in education when our text-books on
ethics devote their concluding chapter to international morality,
for no ethical system can be complete, either in a public or a scien-
tific sense, which does not include in the scope of its theory the moral
functions of the state and the ethics of international intercourse.
When, in the schools of all civilized countries, the young are taught
that moral obligation does not end with national frontiers, that
states are moral entities subject to the great principles of ethics,
and that treaties once freely accepted are sacred; when national his-
tory has learned to be fair and honest in its representation of other
nations, a new era of human development will be opened, and diplo-
macy will enter upon a new period of efficiency.

The national conscience of every people cannot fail to be touched
by the mere recital of the decalogue which will be written in that
new Book of Genesis:

I am the God of truth and righteousness, and thou shalt have no
other gods before me;
Thou shalt not steal;
Thou shalt do no murder;

Thou shalt not covet thy neighbor's industries, nor his foreign
commerce, nor his colonial possessions, nor anything that is thy
neighbor's;

Thou shalt honor thy wise men and thy teachers of righteousness,
that thy name may be long in the land which the Lord thy God
giveth thee.

Who will venture to complete that august code of public duty?
Who, bravest of all, will dare to apply it in practice? Yet, who will
be so bold as to deny its application to the affairs of nations?

Diplomacy already reveals the influence of that growth in public
morality which is characteristic of our time. The day has passed
away forever when intelligent men would accept Sir Henry Wotton's
definition of an ambassador as " a clever man sent abroad to lie for
his country." Permanent diplomatic success cannot be based on
falsehood; and the highest attribute of a statesman is to discern

382 DIPLOMACY

just and enduring relations, and build his policy upon them. A
venerable and experienced ambassador once confessed to the writer
that he had for months deceived himself and seriously misled his
government by assuming that a certain minister of foreign affairs
meant the opposite of what he said. Afterward, with shame and
humiliation, he was obliged to confess his error.

VI. The Relation of Diplomacy to Education

The advance made since the middle of the last century in the princi-
ples and methods of diplomacy are chiefly owing to two causes, both
of which are educational. The first of these is the better prepara-
tion of men for the work of establishing just and reasonable inter-
national relations. In nearly all the countries of the world — except
the United States of America — candidates for the diplomatic serv-
ice are rigorously examined before they are received, not only in
international law and history, but in the laws, languages, and con-
stitutions of other countries, and especially in commercial geography
and the statistics of foreign trade. The result is that the men who
serve modern governments as diplomatic representatives are coming
to have, in general, a knowledge of what is true, what is just, what
is expedient, and what is right in the relations and conduct of foreign
states. They constitute a valuable body of peacemakers and public
advisers, whose counsel is useful because it is based on knowledge.

The second cause is the enlightenment of public opinion by means
of travel, the press, and the increased interest in foreign trade.
Even where the people do not participate in affairs of state, they are
beginning to regard with a new solicitude the part their governments
are taking in the great field of international politics. Statesmen
and diplomatists are, therefore, working in the presence of a public
interest more keen and intelligent than has ever before been awak-
ened in questions of foreign policy.

To train men for the diplomatic service and to create and guide
public opinion in the right way, through the knowledge and influ-
ence of properly qualified journalists, legislators, and other public
officers, special schools, like the Ecole Libre des Sciences Politiques
at Paris, have been established in several countries, in which inter-
national subjects are receiving increased attention, but no educa-
tional enterprise of a truly international character has yet been
undertaken.

Here is a vast, fruitful, and wholly uncultivated field for public
benefaction. One can imagine a time when teachers and students
of different nationalities will meet at a common center, or pass from
country to country to examine and discuss, in a scientific spirit,
questions which concern the general welfare. If it is true that at

CONTEMPORARY DEVELOPMENT OF DIPLOMACY 383

the heart of every controversy there is a right unsatisfied, it is equally
true that for every right intelligence can devise a mode of satisfaction.
It is not by force, or the menace of force, that human differences are
finally to be adjusted; it is by the calm verdict of unruffled reason,
pursuing an honest path to an honest end.

Intelligent patriotism is as sensitive to national honor as it is
solicitous for national success, and good men everywhere wish for
nothing so ardently as to be understood. The sword has had its
day of glory; great states have come into being; public order has
fought its way to the seat of power; and from the elevation of the
throne and the parliament, men may at last reason together in
tones that are audible. True patriots will everywhere feel a new
thrill of pride and confidence in their rulers and leaders when they
behold in them the triumph of great principles of reason and con-
science; for these are the elements that dignify our human nature,
lifting it above the passions of the moment, and connecting it with
the permanent interests of mankind.

SECTION D — COLONIAL ADMINISTRATION

SECTION D — COLONIAL ADMINISTRATION

(Hall 4, September 24, 10 a. m.)

CHAIRMAN: PROFESSOR HARRY P. JUDSON, University of Chicago.
SPEAKERS: PROFESSOR BERNARD MOSES, University of California.
PROFESSOR PAUL S. REINSCH, University of Wisconsin.

THE CONTROL OF DEPENDENCIES INHABITED BY THE
LESS DEVELOPED RACES

BY BERNARD MOSES

[Bernard Moses, Ph.D., LL.D., Professor of History and Political Science, Uni-
versity of California, b. Burlington, Connecticut, 1846. Ph.B. University
of Michigan, 1870; Ph.D. Heidelberg, 1873. Professor of History, Albion
College, 1875; Professor of History and Political Science, University of
California, 1875 — . Member of the United States Philippine Commission,
1900-02. Author of Politics (with W. W. Crane); The Federal Government of
Switzerland; The Establishment of Municipal Government in San Francisco;
Democracy and Social Growth in America; The Establishment of Spanish
Rule in America.]

IT is one of the simplest and most evident facts of social growth
that in the early history of peoples now civilized one generation
succeeded another with very few changes either in character or
outward condition. If some of these peoples developed peculiar
institutions, and established independently peculiar manners, cus-
toms, and ordinances, this result was made possible by their long
isolation, or their freedom from external influences through extensive
periods of time. Such isolation and such freedom were characteristic
of the early ages of social life. The barbarians of long ago were
left undisturbed through centuries, and if they had capacity, they
had also the opportunity to develop an indigenous civilization.
The barbarians of to-day, if they have the capacity, have not the time
at their disposal, have not the opportunity, to effect an independent
development.

The creation of the means of communication, the desire and the
ability of the strong, enlightened nations to expand the field of their
dominion, and the economic need felt by civilized society for the
resources of the whole world, take away from the undeveloped peoples
the opportunity for a centuries-long process of slow, independent,
social growth. If it were assumed that the American Indians, left
to themselves for a thousand years longer, would have advanced to
a state of civilization, this capacity would have been of no avail
because the other factor, the period of a thousand years, was not
accorded to them. In the days of old it might have been reasonable

388 COLONIAL ADMINISTRATION

to urge the leaving of each barbarian people to work out its own
progress independently. Such a policy then might have been
effective. There were few and imperfect means of communication.
There were strong prejudices holding one tribe or race aloof from
another. The commercial motive that leads civilized men to in-
vade every corner of the world was almost entirely wanting.
Then it might have been possible for a people to have a thousand
years of isolation in which either to stagnate or to develop its
institutions.

All this is now changed. Modern means of communication have
drawn together the ends of the earth. They have made every
country contiguous to every other country. The representatives
of modern enlightenment have laid aside most of the barbarian's race
prejudices, and their commercial relations bring them into relations
with the inhabitants of every quarter of the world. No tribe or
nation, whether rude or civilized, can now maintain its isolation.
The view that a rude people should be permitted to develop its own
life without foreign interference may have involved a practicable
policy in the beginnings of social growth. As applied to the present,
it is Utopian. Dominated by notions founded on ancient traditions,
we may think that a policy involving this view ought to prevail;
but our opinions of what ought to be the attitude of one people to
another have no necessary relation to the facts in the case. The
curiosity of the civilized nations and their economic needs have
thrown down all partition walls. If there is any people now in the
state of barbarism with capacity for independent development under
long isolation, it is safe to affirm that it will not achieve such devel-
opment. The spirit of contemporary civilization is intolerant of
barbarian isolation. The peoples of the uncultivated races may not
now have the same time for independent development and the same
freedom from interference that they might have had in the earlier
ages of social progress. There is thus no vital question now be-
tween the independence of Java and Dutch control, or between the
independence of the Philippines and American control. The real
question in these and similar cases is between control by the present
superiors and control by other superiors. The present tendency in
the world politics is not to create new sovereign states, but to enlarge
the jurisdiction- of a few of those already existing. The continent of
Africa has been divided by lines of political demarkation without
calling into existence a single new sovereign; and some of the regions
that have hitherto been politically independent appear destined to
fall under foreign control. It would not be difficult to recognize
in such an event, particularly in the subjection of Morocco to the
government of France, a movement to advance the interests and
increase the realm of civilization.

CONTROL OF DEPENDENCIES 389

Having celebrated annually for more than a hundred years the
attainment of independence as our greatest national festival, we are
likely to lay much stress on political independence and regard it,
everywhere and under all conditions, as the paramount political
good. But it is quite possible that this is an exaggerated view. An
impartial examination of it is presupposed in a critical discussion of
a nation's colonial policy and administration; and when it is deter-
mined that in the present state of international politics the barba-
rian tribes or rude peoples have not, under the actual demand for
universal intercourse, the opportunity for independent development,
part of the basis of the claim that such tribes or peoples should be
independent appears to fall away.

In view of these considerations, it becomes necessary to recognize
dependence, or union with some great nation, as inevitable in these
cases. For the inhabitants of regions like the Dutch East Indies,
the Philippines, and similar countries there is practically no alterna-
tive to control by some superior power. The question of the inde-
pendence of such countries in the present political state of the
world is a purely academic question. Dependence in these cases is
not only inevitable, but it may also be advantageous for the social
body over which authority is exercised. The advantage, however,
does not appear in all cases. The advantage to such communities
brought under foreign control appears when that control is exercised
by a liberal and enlightened nation. They become associated with
representatives of a higher form of life, and acquire a knowledge of
the arts by which wealth is increased and the physical well-being
of a community is promoted. They become familiar with the more
effective modes of social organization. They learn the language of
an enlightened people, and through it they are brought under the
influences that make for cultivation. The dependent body is drawn
into the current of the superior nation's life, and is carried along by
the momentum of its progress. There is, moreover, no necessary
connection between political independence and personal liberty.
Paraguay threw off the rule of Spain and was politically independent
under Dr. Francia. After the death of Francia, the Paraguayans,
still independent, fell under the even more brutal domination of
Lopez. To them independence brought only tyranny and disaster.
Under independence the nation was broken under the heel of an
absolute ruler and led into wars that brought it to the verge of ex-
tinction. Independence is not a universal social remedy, nor every-
where a sure introduction to a higher phase of political life.

The dominant political ideal of the societies now on the lower
level of civilization is that of arbitrary personal rule. The Javanese
accepted the decrees of their native princes as if they were the inevi-
table decrees of fate. The subjects of the native princes of India have

390 COLONIAL ADMINISTRATION

practically no initiative, and submit without question to the will
of a ruler whose conduct is not modified by any organized expression
of a popular desire. The brief struggle for independence in the
Philippines was not a movement to establish the liberty of the
people, but an effort to set up the rule of a limited oligarchy. Before
the occupation of the islands by the Americans there were probably
not forty persons in the whole population who desired to see political
power pass into the hands of the great body of the people. Inde-
pendence for a people on the social level of the Javanese or of the
bulk of the inhabitants of the Philippines means the establishment,
immediately or ultimately, of some form of absolute rule, destined
to manifest the qualities of a more or less oppressive tyranny. In
£ pite of the exactions of the Dutch in the East Indies, or of the strong
rule of the English in India, there is a vastly higher grade of popular
prosperity and personal liberty in those parts of Java or of India
where the people are directly under the Dutch or English control
than in the native states where the immediate government of the
people is in the hands of the native princes. This is not a far-
reaching argument, but it is a sufficient refutation of the statement
that the rule of the Anglo-Saxons or kindred peoples never tends
to elevate the lower races brought under their control.

The question of vital importance for the inhabitants of depend-
encies is essentially the same question as that which is important
for the members of the dominant nation itself. The popular welfare
in both cases depends largely upon the character of the national
government. If the authority of a reckless and tyrannical govern-
ment is extended over a semi-barbarous people, it is not to be
expected that the inhabitants of the dependency will be greatly bene-
fited or have abundant reasons for rejoicing. On the other hand,
the extension 9f a wise and beneficent government's authority over
a rude people may furnish it an impulse and guidance toward the
attainment of a higher form of life and larger liberty for the individ-
ual citizens. Even a nation not especially noteworthy for political
wisdom may, in the position of a superior, materially assist a rude
people to take important steps toward civilization. The political
wisdom of Spain has never been adequate to her great opportunities,
yet the inhabitants of the Philippines owe to Spain their most im-
portant achievements in social progress. Practically all the qual-
ities they now have distinguishing them from the non-Christian
barbarians of the East Indian Archipelago have been acquired under
the direction of their European superiors.

In passing under American control, the inhabitants of the Philip-
pines fell under the influences of a new form of society and a new
system of instruction. The cultivation of a rude people begun by
the Spaniards is continued on more practical lines by the United

CONTROL OF DEPENDENCIES 391

States, and no good reason has hitherto been advanced for with-
drawing instruction from them and leaving them with their lessons
half-learned, particularly in view of the fact that, without the stimu-
lating and directing influences proceeding from union with a civilized
nation, the bulk of the inhabitants would tend to revert to a condi-
tion not greatly unlike their ancient barbarism. No people is so
conservative as the barbarian. The restraining force of centuries of
tradition make it difficult if not impossible to take a step forward
without a helping hand.

For these and other reasons it is safe to assume that the question
of Javanese independence, or Indian independence, or Philippine
independence may be ignored in a practical discussion, or relegated
to the limbo of academic debate. Neither the past nor the present
gives any indication that any change is practicable beyond a change
of superiors. If the Dutch should ever be willing to lay down the
burden of their East Indian administration, other nations would be
found who would not hesitate to take it up. If the people of the
United States should conclude that they are too arbitrary or cruel
in their dealings with dependencies, too corrupt or incompetent to
continue a directing hand over the government of the Philippines,
candidates for the suzerainty will not be wanting.

The permanent control of certain dependencies appears thus to
be part of the general policy of the leading Western nations, and
there is no doubt that by this policy, taking into consideration the
whole history of colonies, the well-being of the inhabitants of de-
pendencies has been materially advanced by influences that have
come to them in consequence of their relation to a superior nation.
And the result on the superior nation has been scarcely less advan-
tageous. It has tended to substitute a generous view of humanity
for the narrow conceit which made even the wisest nations of an-
tiquity regard all nations beyond their borders as barbarians.
Working with another people or members of another race for the
advancement of public interests and the welfare of all members of
society tends to establish common views and sentiments of mutual
sympathy. England's character and standing among the nations
have been greatly influenced by her experience outside of her insular
boundaries. The wealth that has come to her from trade with her
dependencies has been less important than other results of her
political association with strange peoples and her cooperation with
them for the promotion of a higher form of civilization. And it may
be expected that conspicuous responsibilities for dependencies will
tend to steady the political mind of America. The policy of holding
dependencies is, however, not new for the United States, although
its continental dependencies have been inhabited by men having
part in the inheritance and cultivation of the rest of the nation.

392 COLONIAL ADMINISTRATION

This policy is older than the Constitution. The government of the
Northwestern Territory had originally no source of authority but
the central government of the nation. It was strictly a colonial gov-
ernment, even if we sometimes balk at the name. The changes
effected in it as it passed from the earlier to the later stages corre-
spond with the development observed as an English crown colony
advances from its original position to the state of a colony with
representative institutions. Moreover, the status of the North-
western Territory, as also that of the subsequent territories under
the Union, was essentially that of a British colony. The organic law
of the British colony is an Act of Parliament as the organic law of
an American territory is an Act of Congress. The inhabitants of
the American territory have, however, generally escaped the un-
pleasant suggestions that might have been made to attach to their
position as colonists. The fact of their dependence on a political
superior outside of their borders was never especially emphasized,
and even the political division to which they have belonged was
given the colorless designation of territory. An important point of
difference between the continental territory as it has hitherto
existed under the United States and the British colony consists in
the fact that the status of the territory has been regarded as trans-
itory; that the territorial organization has been regarded as the first
step toward statehood. As long as we had to do in the territories
with societies made up of emigrants from the states, it was not diffi-
cult to carry out this idea practically. But when a colonial territory
was annexed that was largely populated by members of an alien race,
whose antecedents and ideas, traditions and customs, differ widely
from those of the bulk of the nation, the colonial question for the
United States assumed a new aspect. It was no longer possible to
emphasize the idea that the dependency will ultimately grow into
a state. It is not alone the number of inhabitants that determines
whether or not a territory shall be transformed into a state and
admitted into the Union. The character of the population is also
considered. New Mexico, with a population of 195,000, remained
a territory, while Idaho, with 161,000 inhabitants, Nevada, with
42,000, and Wyoming, with 92,000, became states. The determina-
tion of the time when a territory or dependency shall be converted
into a state is with Congress. If Congress in its wisdom finds that
it is not advisable to transform a territory into a state after fifty
years, there appears to be no constitutional power in the present
organization of the government to override it if it adheres to this
view after four hundred years. The United States has had terri-
torial dependencies throughout the whole period of its existence
under the Constitution. It would not, therefore, be doing great
violence to tradition or to the Constitution if it should continue to

CONTROL OF DEPENDENCIES 393

hold dependencies throughout the future periods of its existence.
If this should happen, made advisable by the character of the inhab-
itants of the districts in question, there is no reason to suppose that
our institutions would, on this account, suffer deterioration. There
is, moreover, no reason to suppose that the inhabitants of territories
so held would be deprived of any privileges essential to their well-
being. If, in the future, the discussion on this subject should refer
to the Filipinos, evidence will probably not be wanting to show
that in their relation to the government of the United States the
Filipino people will enjoy more rights and privileges and a greater
degree of security and prosperity than under any government that
would be created for them if they wrere politically independent; for
all their traditions, whether from the days of their tribal barbarism
or from the days of Spanish occupation, are traditions of absolute
rule. They entertain only such conceptions of political organization
and administration as are consistent with their antecedents. What-
ever political ideas they derive from the United States will be ideas
of individual liberty and of a tolerant government.

America's undertaking in the control of dependencies, whether
within the limits of the continental territory or elsewhere, repre-
sents or emphasizes the administrative policy which the enlightened
nations have been and are gradually approaching. When England,
France, and Portugal made their first settlements in India, they had
no plans for changing the condition of the people among whom they
settled. They sought to trade with them as they were. Gradually
it has become clear to the leading nations that highly developed
peoples are both better producers and better purchasers than rude
nations in the beginning of their economic development. California
is of. more advantage to the commercial world to-day than it was
when its population consisted of a few thousand domesticated In-
dians and their contented masters, and its wealth was measured by
the herds that roamed over its hillsides and along its fertile valleys.
The dependency of great natural resources manifests its full com-
mercial significance only when its population has developed the
higher as well as the lower needs of a civilized society. Herein is
a justification of the new colonial administration. To undertake
to develop the wealth of a dependency peopled with" semi-civilized
inhabitants, without at the same time bringing about that social
differentiation characteristic of a high grade of society, is simply
to exploit that dependency, for without the forms and institutions
of a cultivated society, accumulated wealth will not be largely
sought and cannot be maintained. Sometimes a differentiated
society is formed in a dependency by introducing members of the
dominant nation to constitute the higher ranks. These members
then assume all the higher occupations, while the natives are rele-

394 COLONIAL ADMINISTRATION

gated to agricultural and unskilled employments. This is essen-
tially the state of things in Java. The native Javanese constitute
only a fragment of a society. The positions requiring mechanical,
clerical, or professional skill or ability are held by Europeans or their
descendants. There has been little or no attempt made to draw
out of the body of the people persons trained to fill the civil offices
or perform any of the higher functions of society. If, therefore, the
European element were withdrawn, there would remain the culti-
vators of rice and the other limited classes of unskilled laborers, but
the social structure would collapse. The administrative policy of
Java is a survival from another age. It draws a hard line between
the natives and the Europeans, and determines the position of
persons with mixed blood in such a way as to discriminate unjustly
between the pure Javanese and persons having a slight trace of
European blood. It appears to maintain the view that the white
race should rule, not because it can lift the dependent people to a
higher plane of life, but simply because it is the white race and has
the necessary power.

The extreme of liberalism in dealing with colonies of an alien
race in the tropics is represented by America's government of the
Philippines. Of course, England's great dependencies of English
stock are practically self-governing commonwealths, and even her
dependencies within the tropics are no longer dealt with in the
ancient manner. But the new policy of colonial administration,
involving a people of another race, is more thoroughly carried out
under the United States than elsewhere.

No line is drawn between the American and the Asiatic. By
this order many difficulties are destroyed before they are born.
The questions which arise in Java concerning the status of persons
of mixed blood do not appear in the Philippines. There is one law
for all and one system of tribunals, before which every offender,
regardless of his race or descent, must be brought for trial. Abun-
dant means for popular education are provided, which persons of all
classes and conditions are free to use. There are no forbidden sub-
jects. There is no attempt to uphold the prestige of the dominant
nation by limiting the field of the Filipino's knowledge. The local
government rests entirely on a popular basis. Any office in any
municipality may be held by any resident who has the qualifications
of a voter, and is able to secure the suffrage of the other voters of the
municipality. The governors of the province are elected by an
electoral college composed of the members of 'the town councils
within the province. The insular legislation is to rest in the hands
of an elective assembly cooperating with the governor and a smaller
appointed body acting in the double capacity of upper house and
executive council. Internal peace and order are maintained by a

CONTROL OF DEPENDENCIES 395

body of Filipinos organized and trained as an insular constabulary.
The power and prestige of the United States constitute a sufficient
guaranty that the archipelago will not be invaded by a foreign enemy.
Under these conditions the inhabitants of the islands enjoy
opportunities for their intellectual and political development which
were never extended to them before. The essential feature of the
new phase of colonial administration is that it sets a higher estimate
on the dependent people than was usual when Europeans began to
exercise political authority over communities composed of members
of other races. It recognizes racial differences, but at the same time
it finds in the less developed races other sentiments than fear to
which it may successfully appeal. Of the old system of controlling
dependencies the rule of the Dutch in Java furnishes an illustration.
The government of the United States in the Philippines furnishes
an example of the new system. In the social affairs of Java nothing
is more conspicuous than the line that separates the Dutch from
the Javanese. The extreme humility and submissiveness of the
Javanese in the presence of their political superiors have not been
maintained without reason on the part of the natives, or without
design on the part of the Dutch. Even to-day the representative
thought of the Dutch in Java lays stress on this attitude of the Java-
nese as indicating the efficiency of the Dutch rule. The natives have
been made to understand that intercourse between themselves and
the Dutch is something different from intercourse among the Dutch,
where men address one another as equals. That this idea might
be impressed upon them, the Javanese have not been encouraged to
learn the Dutch language or allowed to use it in addressing the Dutch
residents of the islands, and as a consequence of this a social barrier
has been erected between the two elements of the population.

Under the policy established in the Philippines other sentiments
than fear are made use of in adjusting the relations between the two
peoples. The Filipino has a strong desire to be counted in with
the members of the dominant nation, whether Spaniards or Ameri-
cans. Nothing affords this ambition a more immediate gratifica-
tion than the opportunity to learn the language of the nation in
power. If the inhabitants of a dependency speak the same tongue
and read the same books and periodicals as their political superiors,
they not only seem to themselves to belong to the controlling class,
but, in fact, by these means they become rapidly assimilated to
that class.

The eagerness with which the Filipinos have seized the oppor-
tunity to learn the English language is a strong indication of their
desire to be affiliated with the Americans. If two peoples, or parts
of two peoples, are politically united, and one adopts the speech of
the other, the strongest barrier between them falls away, and racial

396 COLONIAL ADMINISTRATION

discrimination, with respect to all spheres of activity, tends to dis-
appear.

In view of the political assimilation involved in the modern plan
for colonial administration, the question naturally arises as to the
bearing of this on social assimilation. For Anglo-Saxons this ques-
tion is of special interest. It is interesting to know whether their
rigid race-respect, which has hitherto held them aloof from strange
peoples, is to be overthrown in the pursuit of a political ideal. The
Anglo-Saxon's instinct has kept his stock free from the contamina-
tion of foreign blood, and herein is one of the sources of his strength.
By this he has been able to keep the gains of his progress. The
Spaniards, on the other hand, in their colonization, mingled their
blood with the blood of the less developed races, and their descend-
ants counted, in many instances, less for the continuance of Spanish
strength than for the upbuilding of Indian nations. But as the
Anglo-Saxon has moved upon foreign territory and established
himself among rude peoples, his increase has always counted for
civilization. In his early colonial administration of branches of
alien races he assumed not only the political but also the social
inferiority of the aliens. Under the newer plan of colonial adminis-
tration the two elements of the population cooperate in conducting
the government, and thus the Anglo-Saxons are brought into a rela-
tion to the dependent people different from that which they held
in the early history of their colonization.

The experience of the Anglo-Saxon and kindred peoples does not
furnish adequate data for a satisfactory solution of the problem
here suggested. Questions concerning the social relations that will
ultimately exist between members of dominant Western nations
and the inhabitants of alien dependencies are conspicuous among the
unsettled questions of colonial policy. It is evident that there are
to continue to be instances of members of widely different races living
in the same community and participating in a common government.
The negroes of the South appear destined to abide in this country
yet many generations, and also to have some part in the govern-
ment. The English are not likely soon to withdraw from India;
and if the Dutch cease to rule in the East Indies, it is quite probable
that a nation of the white race will succeed them. The living
together of parts of different races is evidently one of the facts that
must be accepted for the future, and the coming generations will
be under the necessity of elaborating some basis of coexistence and
common participation in public affairs. The only alternative is the
relegation of one or the other of the races to a position of social and
political subjection, and this is less probable than some adjustment
of the different elements to one another and the management of
their common interests in common.

CONTROL OF DEPENDENCIES 397

It might be suggested with some plausibility that this condition
of things, where Anglo-Saxons are involved, necessitates a departure
from that people's traditional policy of social exclusiveness. A care-
ful observation, however, seems to indicate that under present
conditions there may be cooperation in government as well as in
business without social amalgamation. It was once thought that
there could be no cooperation in political affairs except among per-
sons of a common descent or a common religious faith. But recent
experience has given us a new view. Men may have the most diverse
private interests, and move along separate lines in the ordinary con-
cerns of life, and yet have a strong common interest in the affairs of
their government. It is not necessary that the Anglo-Saxons should
be shaded off into the indigenous inhabitants by a system of cross-
breeding in order that social peace and political harmony may be
preserved. There is mutual respect between races of pure blood,
and the mestizo is seldom a source of political strength. Yet it is
possible that the peaceful cooperation of two races is more difficult
under a liberal colonial administration than where the members of
the controlling nation exercise an uncompromising domination.
The more liberal administration will doubtless advance the well-
being of all concerned, but it will require for its successful prosecu-
tion the exercise of qualities which the Anglo-Saxons have only
imperfectly cultivated. If the Dutch policy is to be carried out,
there is need of a certain amount of force, but it may not be neces-
sary to lay great stress on conciliation or the compromising spirit.
It is more difficult to administer the present than the earlier form of
colonial control, for it is more difficult to acquire the wisdom with
which to govern under freedom than the force with which to rule
arbitrarily.

As to form of control, our race appears to be limited to a narrow
range. The colonial governments established by Western nations,
as well as the national governments themselves, seem to be deter-
mined by the force of a political instinct, and are in large measure
merely reproductions of an original type. The original tribal chief,
council, and assembly which are reproduced in the King, Lords, and
Commons, and in the President, Senate, and House of Representa-
tives, reappear in the governmental forms of the most important
modern colonies. Where the colonial organization falls short of this
elaborate form, the limitation appears to be determined by the
quality of the inhabitants or by some external physical condition.
The suggestion that we should govern as dependencies branches of
an alien race under the forms and according to the ideas of the inhab-
itants has not great practical force; for wherever we govern, we are
moved to govern by our hereditary rules. We know only imper-
fectly the governmental forms of other races, and we know less about

398 COLONIAL ADMINISTRATION

their ideas of administration. Our governments, to illustrate, are
based on the idea of individual responsibility to established author-
ity, and we should probably make a very poor display in attempt-
ing to apply, for example, a scheme of control under which a clan or
an association was found to be responsible for each of its individual
members. %

If this government, or any other enlightened government, assumes
to exercise authority over territory occupied by members of an alien
race, it may maintain temporarily the institutions and usages of
the adopted society, but ultimately it must stand for its own laws
and the acceptance of its own social ideas. It is not worth the while
to proceed practically as if the institutions and customs of the unde-
veloped peoples were to be permanently preserved. Their customs
and institutions are often their shackles which make it impossible
for them to run the course of progress. Nobody supposes that
the institution of caste and its attendant customs are anything but
a hindrance to the social progress of India. The spirit of many of
the institutions of the less developed races is the spirit of domination
and bondage. The spirit of civilization or enlightenment is liberty.
The undeveloped tribes or nations may be politically independent,
and yet in bondage to then* traditions. If America has any mission
outside of her continental limits, it is not to preserve among less devel-
oped peoples such institutions and customs as make for bondage and
social stagnation, but to put in their place the ideas that have made
for freedom, and the laws by which this nation has been enabled to
preserve its freedom.

THE PROBLEMS OF COLONIAL ADMINISTRATION

BY PAUL S. REINSCH

[Paul S. Reinsch, Professor of Political Science, University of Wisconsin, b.
Milwaukee, Wisconsin, June 10, 1869. A.B. University of Wisconsin, 1892;
LL.B. ibid. 1894; Ph.D. ibid. 1898; Post-graduate, Berlin, London, Paris, and
Rome. Member of American Historical Association; American Political
Science Association; American Economic Association. Author of The Common
Law in the American Colonies; World-Politics at the End of the Nineteenth
Century; Colonial Government; Colonial Administration.]

FUTURE students of political evolution will note a strange simi-
larity between the theories which are now being advanced to defend
imperialistic expansion and that humanitarian optimism which ani-
mated the period of the French Revolution. The ideas through
which the French Revolution attempted to conquer the world were
based upon an intense and undoubting belief in the equality and
uniform virtue of human nature. Freed from the shackles wrhich
perverted forms of society had formed, humanity would again be
true to itself, would follow its rational impulses, and under sane in-
stitutions, inherit a millennium of peace and happiness. These hopes
of the young century were bitterly disappointed in its later years.
It became impossible to realize the unity of civilized mankind, and
the narrower feelings of nationalism and race antipathy took the
place of the earlier enthusiasms. But at present, when a new and
universal forward movement of civilized society is taking place,
the same ideals are again appealed to. Humanity is one, and the
members of the brotherhood who through barbarous customs and
irrational institutions are kept in a state of backwardness are to be
led out into the light of freedom and reason and endo\ved with the
multiform blessings of civilization. Many of the races embraced in
this ideal love are as little inclined to accept the dispensations of a
human providence as were the European nations who resisted the
spread of revolutionary ideas as interpreted by Napoleon. Their
resistance may, however, turn out to be less formidable, and so the
course of history may not repeat itself. The experiment may be
more successful this time than it was before, and a new era may
actually be dawning upon the outlying regions of the world.

But if this forecast is to come true, it will be due primarily not to
the general ideas to which we have just referred, but to certain great
economic changes which have taken place during the last century
and which have laid a material foundation for a world-wide organiza-
tion of social life. The movement began a few centuries ago with the
creation of commercial stations along the coasts of distant conti-
nents. The basis of intercourse was then frankly commercial. There

400

was no attempt to interfere with the interior social and political
arrangements of the native races, and only in India, where the British
were spurred onward in the course of empire by the ambitions of
the French conquerors, and in the Dutch possessions and other
plantation colonies, which were looked upon as estates waiting ex-
ploitation, was there any penetration of the interior regions. But
after the middle of the last century, the great advance made in the
rapidity and ease of communication revolutionized the entire move-
ment of colonial activity. Being brought so much nearer to the
European countries, the undeveloped regions in general became
looked upon as promising fields for the investment of capital in the
extractive and agricultural industries. This implied a far different
relation to internal affairs than had obtained before. While the
merchant was satisfied with small trading-stations or river-hulks,
the colonial entrepreneur looked to the interior regions for an invest-
ment of his capital. It was essential to him that these regions should
be made accessible, and that within them law and orderly conditions
should be established; that a steady labor-supply should be pro-
vided, and that so far as possible the mechanism of Western indus-
trial life should be introduced. The inevitable result of such changes
was the demand for political sovereignty over extensive tracts of
territory. The struggle for colonial possessions commenced, and
with great rapidity Africa was divided among the colonizing nations,
while preemption rights were claimed in other unoccupied regions.
Having thus forcibly seized upon large tracts of land and established
a claim of sovereignty over their inhabitants, the nations engaged
in this movement looked for some moral principle upon which this
procedure could be defended. At this juncture it was very natural
to fall back upon the earlier theories of the unity of mankind and of
the destiny of rational civilization to embrace the entire globe. The
missionary spirit was evoked, the duties of the civilized nations
towards the less fortunate were unfolded, and the whole movement
was represented as one of altruism and benevolence.

This intermixture of economic forces and idealistic moral impulses
has brought great confusion into the entire political thought of our
period. So chaotic is its condition that many minds have despaired
of discovering in the entire movement of expansion any vestige of
the moral sense. They are ready to stamp the entire idealistic
theory as pure cant, consciously designed to veil a most selfish type
of aggression. They point out that while we preach the doctrine of
universal brotherly love, we look with disdain upon nations, no
matter how highly civilized, who differ from us in the least shade
of color; we abolish slavery, and under the pretext of providing
a moral education for the natives, introduce forced labor; we preach
peace while we are stirring up into warlike feelings societies that

PROBLEMS OF COLONIAL ADMINISTRATION 401

for ages have lived in a condition of peacefulness; we cry for the
open door, meanwhile plotting all the time to reserve to ourselves
the markets over which we can exercise any control; and while our
science has made the idea of evolution an ingrained part of our being,
we carve up the world into artificial tracts and attempt to impose
upon the natives an alien system of social institutions. Such con-
tradictions invite the suspicion that we have here to do with a vast
aggressive movement of national selfishness, which is simply paying
a bare and empty respect to ideas of morality which in practice are
totally disregarded. And yet such a conclusion would hardly be
just. In the complex system of thought which directs the action of
our time, the enthusiasm for the ends and purposes of civilization
is more than a mere veil of selfishness; but it remains to be deter-
mined how this idea can have any effectual influence in the construct-
ive work of colonial administration.

Like strong personalities, the modern nations are filled with a
desire to impress the mark of their genius upon the world. While
there are many ways in which this may be done, one of the most
obvious is that of gaining followers for their ideas of life and civiliza-
tion. Nations desire wealth, and expand their trade; they desire
prowess; they create great industries and maintain powerful navies
and armies; but in their heart of hearts there can be no truer gratifi-
cation than that of hearing their language spoken in a strange land,
than having their customs and institutions acknowledged as superior
by other races. This leads to the conception — surely not ignoble —
that the area of civilization is expanding, and that by the patient
efforts of centuries one nation after another will be raised to a higher
level of social efficiency and allowed a greater share of social happi-
ness. As from the small altar of civilization in Greece the torches
were carried to the east and west, even by the armies of Alexander
and Ca?sar, the imperialists hope that this same heritage, enriched
by the achievements of many intervening centuries, will henceforth
be spread throughout the globe through the peaceful means of eco-
nomic development, supported only when absolutely necessary by
the arm of force. But we have already seen how unsafe a guide
an ideological conception like this will ever be. In order that it
should become useful, we must avoid the danger of a vagueness which
would include all manifestations of expansive energy under its mantle
of approval. We must analyze the forces at work in order to deter-
mine which of them are really in accordance with the aims and the
character of civilization. We must inquire what our civilization
demands, and what constructive elements in a colonial policy may
be judged to flow from its character and essence. Our own civiliza-
tion is the only criterion we can apply, because, while we may despair
of being able to bestow its outward blessings upon alien races, we

402 COLONIAL ADMINISTRATION

must, in our relations with them, be governed by the inherent laws
of our own rational nature. An attempt to act otherwise would
imply a claim to the wisdom of providence in ordering the destinies
of alien races. But we are on safer grounds when we conclude that
we are entitled to do what is natural to our own civilization and
what its character demands, and as long as we do not depart from
its principles in our intercourse with other races, we shall not have
to reproach ourselves, at any rate, with having deserted the only
clear guide we have.

Colonial expansion must first be judged from the point of view of
the needs of our own civilization. To what extent is it a normal
result of those forces which constitute the civilization of the West?
The conception that the whole movement is undertaken in an unself-
ish spirit in order to help the less fortunate races cannot be seriously
considered. Nations that have so many unsolved problems at home
would be stultifying themselves by trying to straighten out the diffi-
culties of others. Unless a vital need of our own civilization for this
very expansion and interference with other races can be shown, it
cannot claim any justification on humanitarian grounds, because we
have no way of proving that our interference with others will be
necessarily beneficial to them. When we inquire what are the truly
essential characteristics of our civilization which distinguish it from
all others, we shall perhaps find in the last analysis that they are
mobility, concentration, and mastery over the forces of nature. In
no other society are the individual members so independent, so able
to move within the social body, to determine their own development,
and to bring their energies to bear in a variety of places and manners.
No other society has so high a concentration of individual forces or
social ends. No other society has achieved so complete a mastery
over the productive and impellent forces of nature. Out of these
characteristics the expansion movement has naturally developed. It
was impossible to restrict the mobility of social forces to national
boundaries. Passing beyond, they for a time escaped social control,
and the action of the individual adventurers by no means always
redounded to the credit of civilization. It was found necessary to
follow them up and to bring social conscience and control to bear
upon them in the new regions which they had penetrated. The
principle of concentration naturally led to the demand that the new
regions whose resources were being opened up should be brought into
close relations with the national industrial life to which they are
subsidiary. Finally, the great problems of the control and utiliza-
tion of the vast productive forces of the new continents invited the
ability trained in the narrower European field to prove its mettle
in coping with greater difficulties.

It has been urged that since the characteristic mark of modern

PROBLEMS OF COLONIAL ADMINISTRATION 403

economic life is the intensiveness of its methods, the attempt to
spread economic effort over larger areas would necessarily mean the
return to the barbarian system of exploitation. According to this
view we have to choose between the constantly more productive
intensive culture of a smaller territory and the extensive exploitation
of ever-widening areas. A real danger is here pointed out. If, on
account of the rapid and easy profits gained through a reckless ex-
ploitation of the natural wealth of new regions, our capital should
neglect the steady intensive improvement of industry at home, a
marked retrogression would soon set in. Our industrial supremacy
would be threatened and our social life corrupted, on the one hand
by a degeneration of industries at home, on the other hand by a
wealth too easily gained and by the consequent rigid stratification of
society. The lesson to be drawn from this objection, therefore, is
that by all means reckless exploitation in the new countries is to be
made impossible, not only in order to protect the inhabitants of these
regions, but also to prevent a very dangerous reaction upon our own
industrial and social life. But if a sane and rational policy of eco-
nomic development should be followed, it is difficult to see why it
is not justifiable to extend intensive methods to wider areas, and to
introduce a productive economy into regions where at the present
time barbarian exploitation alone holds sway. It has also been
urged that the present movement only emphasizes the nervous rest-
lessness of Western civilization. We have given, it is said, too much
attention to means, too little to the ends of life, and in the great
movement that we are now undertaking, we are striving simply for
new means, we are erecting a vast mechanism which will embrace
the entire world and crush it in a dreary uniformity. What result
are we aiming at in the construction of this vast machine? Who is
to be happier for it? How can it conceivably increase our happiness
or the happiness of the native populations who are turned from their
natural mode of existence, and forced to adopt a new and irksome
way of life? Questions like this are too general in their reach to
admit of a conclusive answer. We may grant that our civilization
is lacking in definiteness of aim, that its general tendencies are con-
fused and uncertain; but may it not be that in the contact with the
older civilizations of the Orient, it will be led to a new interpretation
of life? Such would seem to be the natural outcome. When once
the world has been organized as a system of civilized states and
future expansion becomes impossible, it will, of necessity, have to
seek satisfaction in static rather than in dynamic ideals.

In contemporary thought the idea is often expressed, or at least
suggested, that our civilization is to be the ruling force in the future
in this sense, that all other civilizations are to be subservient to it,
and that the Western races are to form a privileged caste. A concep-

404 COLONIAL ADMINISTRATION

tion such as this is untrue to the fundamental characteristics of our
civilization. A return to the caste system, even with our race as the
ruling order, would be a denial of the essential principle of social
mobility. The wealth that would be drawn from the subject terri-
tories under a system of this kind would inevitably lead to national
degeneracy. The social and political attitude thus introduced
would have a most pernicious reflex influence upon the internal in-
stitutions of the Western nations. As they are not so constituted as
to form in themselves a compact caste, the result would be that an
inflexible social stratification would be developed within them, and
the laboring classes reduced again to a position of virtual serfdom.
It is due, therefore, to the very ideals which constitute our superiority
and secure our welfare that we should allow to the territories which
come under the control of the Western nations the same freedom of
economic development which has rendered the latter powerful and
prosperous.

The movement which we are considering carries with it the danger
of a revival of actual slavery. As the former stages of evolution
which our civilization has passed through began with the existence
of a large slave population, — in the ancient cities and in the societies
of medieval Europe, — so there is now, with the entry upon that
phase in which the whole world will constitute a unified economic
organism, an una vowed but powerful tendency to reduce a large part
of mankind to a position of servitude. The belief in the perfect-
ibility and ultimate unity of the human race is on the wane, and
present inferiority is treated as necessarily permanent. With the
economic development of the new regions that are now coming under
European control there is created a great demand for unskilled labor,
far greater than the slight inclination of the black races to work
prompts them to fill. It is not surprising, therefore, that the intro-
duction of a system of compulsory labor is advocated. The dignity
of labor is to be taught the natives by force, and methods which
we have been accustomed to consider among the worst abuses of
slavery are freely advocated as the only means of endowing the back-
ward races with the progressive spirit of industry. Should this
tendency continue to gain strength, it is clear that the world will
have to fight the anti-slavery struggle over again from the beginning,
but on a far wider area and involving far more powerful interests
than the recent national anti-slavery crusade which we had thus
far considered as the final word in this matter.

We have thus far looked at the movement of expansion from the
point of view of the interests of our own civilization. We now ap-
proach the far more difficult question as to what is to be our attitude
towards the civilizations and social systems with which we have to
deal in colonial administration. At first sight it would seem an

PROBLEMS OF COLONIAL ADMINISTRATION 405

eminently proper policy to favor the introduction of our own insti-
tutions among all the populations that come under our control.
Every nation considers its own institutions as the highest products
of social evolution, and no better destiny could be conceived for
other races than that they should be allowed to share in the benefits
which rational laws would bestow upon them. Moreover, it is ex-
ceedingly difficult to understand alien social systems and to judge
correctly the trend of their evolution. It would indeed require
the wisdom of a platonic philosopher to forecast properly the spon-
taneous development of such societies. With our own institutions
we are familiar. Their virtues \ve believe in. They seem simple
and rational; we can easily put them in the form of legal enactments
and thus bestow them upon our dependents as a complete and satis-
fying whole. Moreover, the general desire to set the impress of our
national genius upon the world finds no better expression than this
propaganda of institutions. In fact, to many people the entire
justification of the expansion movement lies in the promise of the
spread of better institutions of the European or American type.
When we, therefore, ask ourselves the question, Which is the better
policy, — not to interfere with native customs and civilization, in fact
to foster their natural development, or to sweep away the customs
of backward races which so often seem but the bonds which hold
them in slavery and to put in their stead the liberal institutions
of our own society? — the answer is most readily given in favor of the
latter alternative.

And yet the policy of assimilation has thus far in practice proved
unsuccessful and at times even disastrous. Experience seems to
show that even those institutions which are by us considered the
very foundation of good government may have harmful results when
introduced into another society. The most striking example of this
is found in the experience of Great Britain in India. The English are
not an assimilating race. They have always had clearly in mind the
economic purposes of expansion, and have allowed the political
missionary spirit comparatively little sway. They have not been
filled with the desire' of transforming native societies. Still, they
have introduced certain institutional reforms, which to them seemed
absolutely essential and not attended with any risk. Thus, who
would not agree that the impartial enforcement of contracts, the
system of judicial appeals, representative government, the institu-
tion of the jury system, a free press, and liberal education are things
about the usefulness of which among us there can be no two opinions?
The British introduced these institutions into India, with the best of
intentions, and yet with such results that their opponents can now
plausibly argue that they must have been animated with the sinister
purpose of disrupting and undermining Indian society. The most

406 COLONIAL ADMINISTRATION

unforeseen consequences have resulted. Through the rigid enforce-
ment of contract the vast agricultural debtor class has been gradu-
ally enslaved to the money-lenders and is being ousted from its
ancestral holdings. As the government upholds the principle of
freedom of contract and will not fix the price of grain in times of
shortage, the calculating native capitalist is enabled to hold his
stock of food for higher prices regardless of the fact that people may
be dying of famine by the thousand in the neighborhood. The sci-
entific system of appeals favors the machinations of unscrupulous
native pleaders, who gain a livelihood by stirring up litigation and
making the most of judicial delays, with the result that the confidence
of the Indian population in the justice and efficiency of the law has
been impaired. The granting of representative government in
municipalities has led to the sharp accentuation of religious and
racial animosities, and has especially increased the bitter feeling
between Mohammedans and Hindus, the former of whom oppose
strongly any system of representation based upon numbers. The
same result has been brought about by the creation of a free press,
which uses its freedom not only for the purpose of constant agitation
against the British, but also to stir up and perpetuate the feeling of
mutual hatred between the various great religions of India. The
jury system has undermined the confidence of the natives in the
justice of the British, because no wrhite jury can be found to con-
demn a white man for the murder of a native. And finally, the sys-
tem of higher literary education, conceived by Lord Macaulay for the
purpose of initiating the Oriental mind into the philosophy and
literature of the West, has resulted in the destruction of native
morale among the educated classes and in the creation of a literary
proletariat, hungry for public employment. The complete bearing
of these social changes deserves more careful study than we can here
give it, but the above brief indication may suffice to point out how
incalculable are the results of the importation of foreign institutions
inio a native society.

France is the classical land of assimilation. The colonies that
were left to France after the Napoleonic era were few and small. A
certain romantic and sentimental interest attached to Martinique
and Guadeloupe, and they became the spoiled children among colon-
ies. Most of the institutions of the mother country were extended
to them. When in the middle of the last century the colonial empire
of France again expanded, through the acquisition of territory in
Africa and Asia, the older principles of action were not abandoned.
The new territories were treated as regions within which French
civilization was to be forthwith established. The most radical belief
in constructive meliorism still governed French political thought.
The results of this policy are now before our eyes. Algeria has long

been treated as a part of France. The attempt has been made to give
the natives a personal status, to destroy the family and the tribe, to
break up the communal land-holdings, to apply to the forests the
stringent regulations of the French forest laws, with the result that
to-day the natives look upon the French as their arch enemies, bent
upon destroying their social life and utterly ruining them. It is in
the matter of individualism that the assimilating policy is apt to
make its most radical attempts at reform. The grouping of popula-
tions in families and tribes is looked upon as a mark of barbarism,
and it is regarded as the first principle of a liberating policy to
recognize the right of the individual fully to control his property.
While this is apparently a liberalizing movement, its results are usu-
ally far from those aimed at. Not prepared by gradual social evo-
lution for the individual status, the native when artificially placed
in this position is helpless and becomes a victim of shrewder persons
ready to take advantage of his weakness. Thus the natives of India,
the fellaheen of Egypt, and the Kabyles of Algeria, when legally
individualized, soon lose all effective economic liberty.

In Indo-China the French began by remodeling and destroying
the native institutions and even attempting to introduce the entire
legislation of Continental France. But they discovered in time that
such a policy, of doubtful wisdom in Algeria, is totally unsuitable
for a tropical colony like Indo-China, and at present they show a
tendency to maintain such native institutions as the Annamite com-
mune and even allow the mandarinate a certain influence. Wherever
the French elective and representative institutions have been intro-
duced into tropical colonies they have led to the most grotesque
results. In the Indian possessions as well as in Senegal, the elections
have become a pure formality. Thus, while thousands of votes are
officially returned, hardly a native is seen to enter the polling-place
on election day, the entire reports being prepared in advance by
public officials. During the last decade a powerful opposition has
arisen in France to the continuance of the policy of assimilation.
This movement has received much support from the success of the
French administration in Tunis, where the native institutions,
beliefs, and customs have not been unduly interfered with. In West
Africa and in Madagascar there has also been a certain willingness
to acknowledge the justification of divergent social institutions.
But the essential character of French colonial policy is still assimi-
lative in the main, although a greater willingness is shown to make
concessions to the natural obstacles opposed to such a policy.

The policy of assimilation rests upon the old rationalist doctrine
of the universality of human reason. An institution once declared
rational must as such be applicable at all times and in all places; and
though individuals may at first in the darkness of superstition resist

408 COLONIAL ADMINISTRATION

the introduction of such institutions, they will, if forced to accept
them, be ultimately liberated thereby and raised to a higher plane
of existence and civilization. The essential element in this belief
is that reason is the one controlling force in human conduct, and that
rational institutions are productive of rational action, and hence
are the sole requirement for well-ordered and civilized Me. As
a matter of fact, however, the science of the nineteenth century has
abandoned this belief in the universal supremacy of the conscious
rational faculty. Men are governed far more by their inherited
beliefs, customs, and instincts, than by a conscious choice between
different courses of action. This is true among ourselves, and it is
so to an exceedingly greater extent among more aboriginal peoples.
The doctrine of assimilation makes a demand upon the rational
element in human nature which not even the action of the most
highly developed individuals, not to say nations, could justify. The
natives are to abandon the entire complex of customs and beliefs
which have thus far guided them through life, and by an act of
selective reason, to adopt institutions foreign to their social experi-
ence. Modern science is agreed that inherited psychological ele-
ments — the constitution of the mind — are the most persistent
phenomena of which we have any knowledge. New ideas may be
poured into the consciousness, may even be understood by the
rational faculties, but they will leave no trace upon the mental
constitution and upon the real spring of action. The most conclu-
sive proof of this is found in the psychology of those races which
have come, through the chance of history, under the control of dif-
ferent conquerors. Through numberless generations under the most
varied historical conditions and environments, the descendants of
the same race will continue to develop similar psychological traits.
Thus, parts of the Malay race have been for centuries under the rule
of three different European peoples, and nevertheless the Filipinos,
with their Spanish instruction, the Javans trained under the Dutch
colonial system, and the Malays of the mainland who have been
under English tutelage, all display identical characteristics and have
the same intellectual constitution which the earliest explorers noted
in their day. In the same way we may trace among the negroes of
the United States, of Hayti, and of Martinique, the same psycho-
logical tendencies which are found among their distant relatives
in the African forests. The actual experience of colonizing nations
and the results of scientific investigation leave room for but one
opinion upon the policy of assimilation, that it rests upon a purely
ideological basis and runs counter to the scientific laws of psychic
development.

The very first requirement in laying the foundations of a colonial
policy is, therefore, the careful study of the ethnical character of the

PROBLEMS OF COLONIAL ADMINISTRATION 409

races with whom we come in contact. The ethnological survey is the
most important part of colonial administration. We must learn to
respect the psychological and social character of the people with
whom we have to deal, — respect it sufficiently at least to become
acquainted with it, to study it carefully, and to analyze its elements.1
When we consider the difference between the highly trained, indus-
trious, peaceable, frugal Chinese and the shiftless, indolent Malays;
between the dreamy, philosophical Burmans and the warlike,
laborious tribes of Central India; between the fellaheen of Egypt,
the Moors of Algeria, and the multitude of negro races in Central
and Southern Africa; the very idea that one set of institutions, one
form of social practice, could be applicable to all these multiform
societies, would seem the result of pure ignorance. What the colo-
nial administrator needs above all else is imagination. Not the
abstract imagination which would create an artificial system, but
the reconstructive imagination which is able to understand the
social conditions of an alien population. In colonial affairs we are in
need more of the sense of justice than of benevolence.2 Nothing is
more dangerous than an active benevolence without a proper know-
ledge of the civilizations with which it interferes. But the sense of
justice which accords them a certain right to live, which agrees that
there may be a justification for divergence from our standards, is
absolutely essential for lasting results in colonial administration.
Native societies themselves desire justice rather than benevolent
interference, and appreciate far more a ruler who respects their cus-
toms while governing them with a strong hand, than one who, under
the claim of humanity and benevolence, meddles with their every
social arrangement and institution.

But, \ve may well ask, if we are not to use our civilization as a
criterion for our colonial activities, how shall we be guided in the
construction of a colonial policy? Are we to follow simply the most
material needs of our commerce and industry, and, totally disre-
garding the higher civilization of the natives, allow them to shift for
themselves; or is there some way in which we can understand the
needs of their own civilizations and assist them in realizing their
destiny? The simplest answer, and one that appeals to many
minds, is that we should let all these alien societies alone, and allow
them to develop unhindered, because no nation has the right to regard
itself as a providence for the social regeneration of other races. But
when we consider that we have actually become responsible for the
destiny of great multitudes of people, and that this responsibility

1 The most successful investigation into the psychology of native populations
has been carried on by the ethnological department of the Dutch colonial gov-
ernment under the councilor on native affairs, Mr. Snouck-Hurgronje.

2 It is an Arab proverb that one day of justice is better than seventy years of
prayer.

410 COLONIAL ADMINISTRATION

cannot practically be avoided, we shall not be satisfied with any such
negative statement of our duties and relations. We need a more
positive guide, one also that will harmonize our attitude toward the
various elements in civilization. May we not, after all, find in our
own civilization the guidance which we seek? We have found that,
statically considered, as a definite system of customs and institu-
tions, we cannot apply it directly in solving the problems of colonial
development. It is clear that we cannot confer by acts of legislation
the results of our social and political evolution upon an alien people.
The fruits of civilization cannot thus be transferred. But will not
a study of the dynamic elements that have assured our social pro-
gress give us some clue as to a proper colonial policy? While we may
well despair of bestowing upon an alien race the entire complex of our
civilized institutions and customs and beliefs, may it not be possible
to modify their social evolution in accordance with our experience
and thus to obtain for them gradually a higher degree of social well-
being and efficiency? The evolutionary and structural ideals of our
civilization may be of greater value in this matter than its positive
standards and its resultants in our social life.

Defined from the structural point of view, civilization implies
a social organization of highly centralized energy combined with
great mobility of the individual parts. This mobility involves the
absence of a deadening fixation of activities by custom or caste, leav-
ing the individual free to seek the line of endeavor in which his own
energies may find their best and most fruitful expression. It in-
volves a constant betterment of the condition of humanity through
invention, and consequently an intensive cultivation of the natural
resources of the civilized state. The surplus thus obtained enables
the civilized society to devote a large part of its energies to the ad-
vancement of education, art, and science. The distinction between
civilization and barbarism lies, therefore, primarily in the mobility
of social forces and in the readiness with which they are able to con-
centrate their efforts at any given point. The impact thus produced,
no barbarian society can withstand. The positive superiority of
a given society is thus not due to the presence of a large armed force,
but to the maintenance of conditions which will enable it to bring
to bear at any time and at any given point the entire national energy.

It is imperative that we should clearly see that in colonial politics
we have to deal with societies in their broadest aspects, — with
civilization and not with individuals. The greatest mischief is
wrought by looking upon the natives as so many individuals, clay to
the hands of the potter, to be fashioned with ease into some resem-
blance to European or American. It is only as we modify the struc-
ture, principles, and customs of native societies, that we can exert
any lasting influence upon individuals. Just as the quality of our

PROBLEMS OF COLONIAL ADMINISTRATION 411

Western civilization depends closely upon social structure, so —
though in a much larger degree as social cohesion is much stronger
in the lower strata of mankind — the civilization of a Hindu, or a
Malay, or a Hausa, depends not upon what we can teach him indi-
vidually, but how we can affect the structural character of the society
to which he belongs. To modify the direction of social evolution by
slow and natural methods, that is the most ambitious program we
can in reason set for ourselves; to take a Tagolog and make of him
an American is the naive impulse of inexperience. For though iso-
lated individuals may adopt the best thought of a higher civilization,
• — we need but think of the negro valedictorians in our universities
and of men like the Maharajah Dhuleep Singh, — they cannot hold
out against the social influences of their own race nor can they im-
part to it their acquired civilization. Societies must be viewed as
a whole, united by the strong bonds of tradition and of lasting and
intimate relations among the members. There is a life purpose,
unconscious though it be, even in the lowest forms of civilization.
This we cannot simply suppress by rough-shod measures, and substi-
tute for it point blank and indiscriminately the purposes and
methods of our own civilization. Indeed, we can do no more than,
by gradually substituting new economic forces and new social mo-
tives, to foster a development in the general direction of our own
civilization.

Bearing in mind constantly the path which our own social evolu-
tion has traveled, and analyzing the conditions of its development
and progress, we shall give attention, first of all, to the creation of a
sound economic basis for social life in the colonies. The develop-
ment of a productive, in place of a purely consumptive, economy,
and an assurance of the increasing mobility of all factors in economic
life, are the first desiderata. All the higher elements of civilization
can be obtained only as the fruit of a wise and perfectly adjusted
economic system. The art of Florence arose after medieval human-
ity had served a long and laborious apprenticeship in industrial life,
and the dramas of Shakespeare could not have been written had the
nation been living merely from hand to mouth. The most element-
ary purpose of a civilized colonial policy would therefore seem to be
the prevention of the reckless and destructive use of the natural
wealth in forests and mines for mere private profit, and the encour-
agement of settled agricultural and industrial pursuits. The greatest
among the American negroes clearly perceives and founds his life-
work upon the fact that a race cannot be given a self-sufficing position
in civilized life unless it has a sound economic organization, and
unless it has trained itself to a productive industry.

Among the essential duties of a civilized state there is none more
important than the guaranty to every individual under its rule of

412 COLONIAL ADMINISTRATION

the conditions which make healthy life possible. As long as a state
has not solved this elementary problem, as long as periodical famines
sweep away large numbers of peasants, or accumulations of filth
make residence in the towns a constant danger to health and life, the
state or society which permits such conditions cannot be called fully
civilized. No efforts should, therefore, be spared in the prevention
of plague and famine, the two dark thunder-clouds which overhang
backward communities and which relentlessly threaten suffering
and destruction. No society, no group of individuals, can attain to
a state of self-realization and of true inward freedom, as long as it
is under the spell of such sinister powers.

It is, however, not only our duty to free these populations from
terrors and dangers inherent in their civilization and surroundings,
but to protect them against the even more serious risks which are
involved in the meeting of civilizations on different planes of devel-
opment. These dangers are twofold, — arising from the use of
deleterious substances and modes of life, or from the creation of an
apparent individual freedom of contract, which, however, usually
results in the entire destruction of economic independence. The
surest means of protection against these risks lie in a scrupulous
maintenance of the native morale and social organization; any
attempt to deal with natives merely as individuals in the Western
sense will, without fail, endanger their independence, their health,
and their life. It has been abundantly experienced that when the
ordinary members of a backward race are dissociated from the organ-
ism to which they belong and are brought into direct contact with
a higher society, they will usually lose their native morale and add
only the dangerous and even vicious sides of the advanced civiliza-
tion. The only way to protect the individual is to protect the society
to which he belongs, and if any improvement of his condition be
attempted, it should not involve the weakening of social relations.

To foster the cohesion and self-realization of native societies, while
at the same time providing the economic basis for a higher form of
organization, — that should be the substructure of an enlightened
colonial policy. We can conceive of no greater crime than the wanton
destruction of such societies, for it involves the moral and physical
degeneration of their members. This is true of even the lower forms;
there is no excuse for destroying the tribal organization ; it should be
allowed to develop into the higher phases of social life. But when
we have to deal with such nations as the Annamites, Burmans, and
Chinese, the insensate folly and criminal cruelty of treating their
civilization as mere rubbish to be cleared away would seem too ap-
parent to need further emphasis. Such nations should rather be
encouraged to take pride in their own historic character, to develop
their marvelous inborn artistic talents, and thus to impart to the

PROBLEMS OF COLONIAL ADMINISTRATION 413

general civilization of the world new and rare treasures, than to be
treated as unworthy savages fit only for work as beasts of burden
and for an apish imitation of European forms.

When we consider the specific basis of a colonial policy with re-
spect to the native races, we shall see that it rests upon a foundation
composed of a few simple economic principles. In such an investiga-
tion it becomes clear that while Western societies in their contact
with the natives of Africa and Asia will be able to accomplish certain
useful results, they are, on the other hand, attempting many things
which it will be impossible to attain under the present methods. The
one indisputable blessing which Western nations are bestowing on
primitive races is that of peace. This is the greatest achievement of
the European regime in India and in Africa. The terrible inter-
tribal warfare and the bloody raids organized by Arab slave-drivers
in Africa have largely been put an end to and have given place to
more peaceful ambitions. In connection with this, a civilizing
colonial policy will also improve the general conditions of life. The
introduction of a scientific medical service and of advanced princi-
ples of sanitation is a primary duty of colonial administration. The
most fundamental conditions of life being thus assured, it is neces-
sary that mobility of the elements in economic action and free mutual
intercourse be made possible by the opening-up of routes connecting
the various regions and making them accessible to the populations
of one another. The construction of roads and railways is therefore
one of the most potent agencies of civilization. In that way alone
is the penetration of the methods and products of civilization to
the interior regions made possible. In order to provide for improve-
ments such as these as well as to undertake lines of industrial devel-
opment which surpass the capacity of the natives, it is necessary
that capital should be invited to participate in the development of
new regions and that such investments should be rendered as safe
as possible. The native population should be trained in industrial
pursuits as well as in the arts of agriculture so as to utilize the natural
resources without exhausting or destroying them. The substitu-
tion of intensive methods for the exhaustive barbarian exploitation
which is now the rule throughout Africa as well as in other undevel-
oped regions of the world is the essential purpose of the civilizing
policy.

But when we come to the higher elements in civilization, — in-
tellectual culture and religion, — the road is not so plain nor is it at
all certain that an attempt directly to influence the more primitive
races will at first be successful. In this connection we must again
remember that we are dealing not with individuals, but with societies,
and that it is impossible to change the complexion, the character,
and the morale of a society by giving a certain intellectual education

414 COLONIAL ADMINISTRATION

to a few among its members. We have already dwelt upon the fact
that civilization can affect the condition of backward societies only
by setting in operation economic forces which will gradually modify
the social structure. But the attempt to eradicate the intellectual
character of these peoples and to substitute for it the complex
intellectual and moral culture of Western civilization through the
process of instruction, cannot in the nature of things be accompanied
with any large measure of success. Psychological characteristics
are among the most stable and fixed phenomena of which we have
any knowledge. They are undoubtedly subject to modification,
but only very gradually in the course of centuries and as a result of
radical structural modifications.

The British policy of educating the Hindus according to Euro-
pean methods has failed and has produced lamentable results,
because it entirely overlooked the truth that we cannot modify
societies by giving them the accessories, even the highest, of
another civilization, but only by influencing structural development.
As in this case of India, so in general, this can be effected only by
changing the economic basis on which the social structure rests.
The form of education which will yield the greatest results is technical
training, accompanying the actual development of economic life
and the growing consciousness of control over natural forces. The
political organization that will be most potent in influencing social
growth is the city; and through the creation of a true communal life
in towns and cities lies the road to the ultimate self-realization of
native societies, just as national life in the West is only an expansion
and development of the ideals and institutions of the classic and
medieval city-state.

A more rapid and direct influence could be looked for should race
mixture between Europeans in India and in the tropics become
general. Were the conditions in the tropics such that the Europeans
could freely intermarry with the native populations the problems
we are considering would assume an entirely different aspect, for,
as in the white population of the United States, there would come
into being a new race. Through the amalgamation of racial charac-
teristics there would arise new beliefs, customs, and ideals, in fact a
new philosophy of life and a new intellectual constitution. Though
in the past there has been some mixture of European and native
blood, and especially the Latin races have shown themselves willing
to enter more freely into alliance with dependent races, it still remains
true that the results of such racial union have not been of the most
encouraging nature. The mixed breeds have at times, as in the case
of the mulattoes, shown great excellence of physique and considerable
power of mind; in most cases, however, they have appeared rather
as degenerate types. They have occupied an unfortunate social

PROBLEMS OF COLONIAL ADMINISTRATION 415

position, being looked down upon and suspected by both of the races
from whom they have descended, and becoming the easy prey to vice
and to general decadence. At the present time the tendency toward
race mixture is less strong than ever before. Races are becoming
mutually exclusive, and especially those which consider themselves
higher show a strong desire of keeping their blood pure. It is there-
fore not to be expected that the psychological differences which
separate white and colored mankind will be modified by racial
mixture.

The side from which the intellectual nature of the non-European
races will, perhaps, prove most accessible is that which is connected
with the mastery of nature. The people of both Asia and Africa
have lived under the overpowering influence of resistless phenomena
of nature. The primeval forest world of Africa, the typhoons and
floods of the East Indian islands, the famine and pestilence of India,
her vast mountains, and the ferocious rivers of China, which bring
destruction to millions every few decades, — these are phenomena
the like of which the Western world does not know. With us nature
is more docile and of greater amenity. It is consequently not a
matter of surprise that the forces of nature should have been under-
stood and mastered first by the Western mind. It is through this
mastery that the Western peoples Qan impress other nations most
successfully with a sense of their superiority. By relieving the
tyranny which nature now exercises in the primitive forests of Africa
and in plague-stricken India, Western civilization may become the
Prometheus of the nations that are yet in bondage. The mastery
of the resources and forces of nature has given us a new conception of
life, it has relieved us from the fear of the capricious powers by which
primitive man sees himself threatened on all sides. When we look
back at the medieval man, whose belief in miracles, amulets, and
incantations do not put him at a very great distance from modern
barbarians, we feel that our command over natural forces makes a
return to the medieval point of view hardly conceivable. As we
prepare the more backward races to share in this mastery over
nature, they will also have a better understanding of our intellectual
life and of our beliefs. The haughtiest Brahman even stops to
wonder as he sees the processes of electrical industry and notes the
sure grasp with which the forces of nature are made subject to the
human will.

" From the ground up " should be the motto of an intelligent
colonial policy. Not to attempt to bestow upon the backward races
the blessings of a civilization which they cannot understand and
which may be a deadly poison in the form in which they are offered,
but to wrork in alliance with the universal forces of social evolution,
to battle against the exploitative tendencies which would carry us

416 COLONIAL ADMINISTRATION

back into another age of barbarism more cruel and more difficult
to overcome than any former one, and to give to the more primitive
societies a secure economic foundation for future progress and devel-
opment, — these should constitute the elements of a sound colonial
policy. If we restrict our efforts to those things which we clearly
see can be accomplished, — to the maintenance of peace, the pro-
tection of health, the creation of adequate means of communication,
and assistance in industrial development; if we set our face firmly
against slavery and exhaustive exploitation in all its forms, we may
rely upon the working-out of the colonial problem with the same
confidence that we place in the mechanism of a complicated electrical
motor. But in order to obtain such results patience is most needful.
Civilization cannot be transferred as a whole. To deal with intel-
lectual and spiritual matters directly involves such difficult psycho-
logical considerations, such incalculable contingencies, that in an
effort to develop a constructive colonial policy, it seems wiser to
make sure first of the things in which at least a somewhat clearer
forecast of results and a somewhat safer calculation of effects can
be had, than is the case with impulses and enthusiasms the range of
which passes at present the scope of careful analysis. Activities
along these lines are by no means to be discouraged, but they fall
into a different sphere from tb.at which the legislator and adminis-
trator can hope to deal with successfully. One principle seems clear
enough, namely, that our moral civilization cannot be propagated by
laws, perhaps not even by exhortation, but that the only true civil-
izing influence is example freely followed. Thus the primitive Ger-
mans voluntarily chose their Roman neighbors as models for their
action, and Japan to-day is of her free will imitating our institutions
and methods because she recognizes in them a certain superiority.
By setting up models of action and conduct which wiH be gladly and
spontaneously imitated by other races, the Western nations may,
indeed, hope to exert a powerful civilizing influence.

It will, therefore, be wise for the colonial legislator not to attempt
too much, not to have too ambitious a programme. But if rightly
planned, the economic reforms which it is in his power to effect with
success, may, like the massive architecture of a cathedral crypt, in
time upbear an edifice which will answer larger purposes than those
of mere economic welfare and progress.

SHORT PAPER

PROFESSOR ALBERT G. KELLER, of Yale University, presented a short paper
to this Section on " The Value of the Study of Colonies from a Sociological Stand-
point."

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former one, and to give to the
s a *ecur* economic foundation for future progn
t, tht*e .«h<>'.M constitute the element* of a sound col
p<»! f we restrict ->ur efforts to those things which we clearly

•Mi bt- accomplished, — to the maintenance of peace, the pro-
f hen't1 ' he creation of adequate means of communication,
industrial development; if we set our.faee firmly
UIKI exhaustive exploitation in all its forms, we may
working-out of the colonial problem with the same
•<• place in the mechanism of a complicated electrical
t in order to obtain such results patience is most needful,
ion ' ;mnot be transferred as a whole. To deal with intel-
itual matters directly involves such difficult psycho-
•< moderations, such incalculable contingencies, that in an
develop a constructive colonial policy, it seems wiser to

{ejt)HPtyi¥bpiM^

of results and i. somewhat, safer calculation of effects can
Photogr«vur« from a Wntfng by -fflf^-M^fflnis the range of

Hawthorne's pen pictures of the superstitions respecting witches that cul-
minated in Salem, Mass., two centuries ago, have been used by MacEwen to
objectively impress those of the present age with the savage folly that dis-
tinguished some of our ancestors. In the painting as reproduced, a handsome
young woman is about to become the victim of a jealous rival, through
accusations of alliance with Satanic powers. Some thus falsely charged were
burned, so that to fall under suspicion brought terror to victim and friends,
a situation which Mr. MacEwen has chosen to make the subject of his
famous picture.

examt h freely followed, ihus the primitive Qer-

V cboae their Roman neighbors as models for their

'';.'= ..i <>f her free will imitating our institutions

-w .•>!*- recognizes in them a certain superiority.

i •!.* < f MriicM! uud conduct which wiH'be gladly and

iitt-J by other races, the Western nations may,

•\er! a i.oworful civilizing influence.

fi.se for the colonial legislator not to attempt

.•nuch, not to have too ambitious a programme. But if rightly

eronomic reforms \vhich it. is in his power to effect with

like the massive architecture of a cathedral erypt, in

;i- MII C'hfico which will answer larger purposes than those

•rnic V"iiar»; and progress.

SHORT PAPER

SECTION E — MUNICIPAL ADMINISTRATION

SECTION E— MUNICIPAL ADMINISTRATION

(Hall 15, September 24, 3 p. m.)

SPEAKERS: MR. ALBERT SHAW, Editor American Monthly Review of Reviews.

Miss JANE ADDAMS, Hull House, Chicago.
SECRETARY: PROFESSOR JOHN A. FAIRLIE, University of Michigan.

RELATIONS OF MUNICIPAL ADMINISTRATION

BY ALBERT SHAW

[Albert Shaw, Editor of American Monthly Review of Reviews, b. Shandon,
Butler County, Ohio, July 23, 1857. A.B. Iowa College, 1879; A.M. ibid.
1882; Ph.D. Johns Hopkins University, 1884; LL.D. University of Wis-
consin, 1904; Post-graduate of Johns Hopkins University and universities
of Europe. Editor of the Minneapolis Tribune. Member of Academy of Poli-
tical Science, American Statistical Association, American Historical Association,
American Forestry Association, and many others. Author of Icaria, A Chapter
in the History of Communism; The National Revenue; Cooperation in the North-
west; Municipal Government in Great Britain; Municipal Government in Con-
tinental Europe.}

THE century whose progress this Exposition celebrates has been
for nothing else more remarkable than for its creation, not merely
in this new world, but also in the old world, of the modern urban
community. Speaking broadly, the cities of Great Britain and
Germany in their present characteristics are as recent phenomena as
the cities of this Louisiana Purchase region itself. Where five mil-
lion people live under urban conditions as a part of a great com-
munity adjacent to New York Harbor, there were not one hundred
thousand people when the Louisiana Purchase was consummated.
London and Paris were ancient cities, with their splendors of old
architecture and their pride of municipal and local tradition. But
all that vast and complex development of the metropolis that London
and Paris, Berlin and Vienna, have to deal with to-day, is of as late
emergence as Buenos Ayres or Chicago. The modern city, whether
of cosmopolitan character or merely commercial and industrial, is in
all its larger aspects, for political and social purposes, the outgrowth
of new conditions which began to make themselves powerfully
effective only in the nineteenth century. Those conditions were
brought about chiefly by the utilization of steam power for manu-
facturing and for locomotion. In the econpmic world the predomin-
ant modern factor has been the creation of productive capital.
Capital has aggregated itself principally in machines and instruments
of transportation. The result has been that we live under material
conditions that have become more profoundly transformed since

420 MUNICIPAL ADMINISTRATION

the days of Napoleon and Jefferson than during any previous ten
or twenty centuries of the world's history.

The new economic efficiency resulting from the creation and em-
ployment of productive capital has multiplied the population of all
civilized countries. It has placed a premium upon intelligence,
moreover, and has been the most potent agency in the banishment
of popular ignorance. Its inevitable concomitant, moreover, has
been the wide diffusion of the means of subsistence and the steady
reduction of the domain of poverty.

Not only, however, has the modern system of economic produc-
tion multiplied population and lifted the people up in the scale of
physical well-being, but it has had a most striking and even sensa-
tional effect upon the re-grouping of population. It is this re-
grouping that has created the modern conditions of industry and
of transportation, and that has concentrated the steadily increasing
surplus of the population in centers of manufacturing and trade.

The growth of capital and the average increase in wealth have
created many new wants, which in turn have been supplied by the
products of new forms of trade and industry. And these differen-
tiations have in turn increased the town population and added to
the complexity of town life.

The same conditions of industry and transportation which have
created our modern cities and multiplied their population have had
a striking though not revolutionary effect upon agriculture and the
rural industries. They have tended to bring about the opposite
condition of a relative sparsity of rural population. This has been
due to two principal facts: first, the introduction of machinery,
which has made possible the cultivation of a given area of land by
a smaller number of people; second, and more important, the new
prevalence of extensive, as opposed to intensive, methods in agri-
culture, as a result of the opening-up of vast areas of new and virgin
soil through the construction of railways.

The competition of the new soils, with their access to markets,
will continue for some time to come to keep the older lands depressed
in value and subject to extensive rather than intensive methods
of culture. So long as this condition remains, surplus population
will continue to flow from the agricultural to the manufacturing
neighborhoods, that is to say, from country to town. These tenden-
cies can be amply illustrated by facts derived from every country
within which Occidental civilization prevails. Even here in the
states which have been built up upon the soil of the Louisiana Pur-
chase, — in all the older parts of states like Missouri, Iowa, or Minne-
sota, — the agricultural population has been a fixed or slightly
diminishing factor for two or three decades past, while the town
population has been increasing by leaps and bounds.

RELATIONS OF MUNICIPAL ADMINISTRATION 421

The general statistics showing the growth of urban population in
Europe and America are accessible and familiar, and it would be
needless to cite them at this point in evidence of a tendency that
could not have been different under existing conditions and that
cannot be changed for a considerable time yet to come. In the older
parts of the United States, as in Great Britain and the more highly
developed industrial parts of the Continent of Europe, the urban
population already far outnumbers the strictly rural population.

Modern municipal government, which forms the topic of our con-
ference this afternoon, has to deal with a variety of political and social
problems that arise from this modern growth and radical re-grouping
of population. These problems relate, on the one hand, to forms of
organization, — that is, to the framework and method of the machin-
ery of municipal government; and, on the other hand, to the objects
and scope of the government of urban communities, that is to say,
to the functions, political and social, that pertain to the municipal
authority.

During the first half or even three quarters of this century of urban
development now under consideration, the typical new industrial
community was enormously hampered through the existence of
evils that for a long time were not clearly understood to be curable.
With the creation of factories and the concentration of industry
in towns, rural hamlets were depopulated by the decay of old handi-
crafts, and a rustic population crowded into towns that were in no
manner prepared to receive such accessions.

The results were painful and seemingly disastrous. There was
overcrowding to an extent now almost incredible. So unwholesome
were the surroundings that epidemics were the rule rather than
the exception. Invalidism reduced the economic effectiveness of
the workers; the average expectancy of life was very low; infant
mortality was so sweeping that only a small percentage escaped;
and thus, as a net result, the death-rate of every considerable urban
community was to a marked extent higher than the birth-rate, and
town life and industrial progress could only be maintained by the
influx of surplus population from the country districts for fresh
sacrifice on the altar of modern industrialism.

It is true enough that there had been an earlier phase of urban
life which had also to some extent produced overcrowding and dis-
tress, and intramural life in walled cities in the Middle Ages had been
frequently characterized by unwholesome conditions and decimating
infections. But in those days the overcrowding in its worst aspects
was usually a temporary condition due to war or to disorders which
obliged the country folk to seek shelter within fortified walls. Gen-
erally speaking, no European countries were very densely populated.
The town dwellers were in a very small minority. Epidemics were

422 MUNICIPAL ADMINISTRATION

regarded as divine visitations. Political economy, social science,
and bacteriology had not entered into the vital consciousness of
men. And thus the conditions with which municipal activity in
our time has been most deeply concerned, were in those periods for
the most part disregarded.

There were, to be sure, other aspects in which towns and their life
were of much significance. The seaport towns were the centers of
maritime trade, and many of them became rich and famous through
traffic and merchandise. Witness the Hansa towns, Venice, and
many another. Other cities, as centers of governing activity and as
capitals of kings or of princes or grand dukes, had distinctions and
splendors that have furnished them with a continuity of life very
dignified and ennobling. Most or all of the old-time towns had their
organizations or guilds of handicraftsmen, these in the aggregate
constituting a free citizen or burgher body, which body in turn had
secured from the reigning authority a charter or grant of communal
privilege and corporate self-direction.

The municipal corporations thus formed almost invariably had
their old town halls centrally placed on the market square and of
imposing and beautiful civic architecture. The survival of great
numbers of these old buildings as centers of a wholly new kind of
municipal corporate activity helps not a little to carry the mind
in imagination over the chasm that separates medieval from modern
ways of life, thought, and action. But, although in the case of
many towns there has been unbroken use for several centuries of
town halls and other appurtenances of the Gemeinde, or organized
community, and although also in many cases there has been legally
no break in the continuity of the incorporated municipal body, there
has in reality come about a change not merely profound, but alto-
gether revolutionary in the characteristics of town life and in the
aims and methods of the municipal corporations themselves. It is
in this sense that Vienna is new rather than old, and that the thriving
urban communities of the Rhine Valley are of as recent development
as those in the Mississippi Valley.

For a considerable time, as I have said, after the development of
the factory system and the building of railroads had brought us
fairly into the midst of present-day conditions, — in which popu-
lation is everywhere forming in the new urban groups with which
we are now concerned, — for a considerable time this re-grouping
was regarded even by those who extolled the new agencies of produc-
tion and the new implements of exchange, as a thing deeply to be
deplored by reason of attending ills that seemed beyond remedy.
Those ills went farther than the physical maladies that invalided
the workers and crowded the cemeteries. Town life seemed to foster
every sort of crime and vice, and to threaten the swift decay of civic

character and private virtue. Thus, looking into the future, one
seemed to face the paradox that the very methods which were mul-
tiplying wealth, diffusing comfort, gradually shortening hours of
brutalizing toil, and promising, theoretically at least, to emancipate
and elevate the masses, were so working themselves out in practice
as to devitalize and degenerate whole nations through the many-
sided and incurable evils under conditions of life prevailing in the
densely inhabited centers of new industry. This seeming paradox
confused and alarmed many minds until a very recent period.

The paradox disappeared with the great discovery that, after all,
the evils of city life cannot only be abated, but so fully removed as
to make conditions in populous towns both endurable and advan-
tageous. The remedial measures have been worked out along many
lines at the same time, all having to do with the growth of intelligence,
the application of science, the improvement of the mechanism of
public administration, and last, but not least, the achievements of
modern commerce and industry in creating masses of wealth that
can be drawn upon in a large way for the common welfare.

The recognition of the possibility of making city life positively
desirable has in some places been tardy, and even now the political
reformer and the social worker sometimes doubt and sometimes
despair; * but hope and confidence have everywhere triumphed,
the best evidence of which is found in the dazzling array of public
improvements and ameliorations of the general welfare that every
important urban center of Europe and of America has accomplished
within the past fifteen or twenty years. For every serious malady
that continues to afflict any given community, the remedy has been
discovered and successfully applied in one or another great town
elsewhere under analogous conditions.

As respects the application of the different forms of remedy, we
must, in a general way, assign the first place to British municipal life.
The various phenomena of modern industrialism had an earlier and
a more pronounced development in Great Britain than anywhere
else. The rapid upbuilding and over-population of factory towns
compelled the attention of English and Scotch reformers to the new
conditions as requiring public treatment. It might be more logical
to take up first the progress that has been made in the application
of these remedies, — in other words to discuss the growth of munici-
pal functions. But since I must also speak somewhat of reforms in
municipal structure, it may be well to allude first to these questions
having to do with the forms of town government.

The reconstruction of English municipal government belongs to
the reform period of seventy years ago. It was that same re-group-
ing of population which had by that time created the factory towns
that had compelled the reform of representation in Parliament. The

424 MUNICIPAL ADMINISTRATION

enfranchisement of the populous new boroughs for parliamentary
purposes was attended by inquiries and discussions which showed
the necessity of reforming the inner or municipal structure of these
new communities. Some of these were without any form whatever
of municipal government, while others were subject to serious abuses
under outgrown medieval charters, which practically excluded the
people themselves from a share in the control of their own local
affairs.

The Municipal Government Act of 1835 is the great legal landmark
in the development of modern town organization. Its lines were so
broad and so simple that its essential features have sufficed for nearly
three quarters of a century, and will undoubtedly continue through
the new century upon which we have entered. Many old forms and
old terms were retained, and the chartered life of the county cities
and the medieval boroughs seemed to go on without a shock or a
break. Nevertheless, the Municipal Government Act brought new
life into the old forms, while it cut off unjust privileges and mono-
polies, and enlarged the conception of the municipal corporation from
a narrow, close, self-perpetuating body to a body made up of all the
resident householders and occupiers.

Under this elastic common framework it has been possible from
time to time to enlarge the municipal electorate as English life has
grown more completely democratic. The central fact in the ad-
ministration has been and will continue to be the popularly elected
municipal council, sitting in one chamber, acting as a board of direct-
ors for the conduct of municipal affairs, and carrying on the various
departments of executive work under the supervision of standing
committees.

Each working department is carried on under the direction of an
employed expert head, whose tenure is presumably permanent, and
who has in a large measure the authority to appoint and dismiss as
well as to direct all the subordinates in his branch of the municipal
service. The municipal or town council is a financial as well as
an administrative body, and, under parliamentary authority and
a certain measure of central supervision, it levies local rates and
taxes, contracts interesi^bearing loans, and in general carries on
the work of municipal administration very much as the directors
of a railway company, or of any other large industrial or financial
enterprise, carry on the business with which they have been intrusted
by the shareholders.

In this British system, the mayor is simply the presiding officer of
the municipal council, is selected by the council itself, and is almost
invariably one of its oldest members. By way of exception, the
administration of the schools falls to a separately elected school
board, and the care of the poor in like manner devolves upon a sepa-

RELATIONS OF MUNICIPAL ADMINISTRATION 425

rately organized administrative group. In sound logic, there is no
important reason why the schools and the department of public
relief should not also come under the control of the municipal
council, and the oversight of its standing committees. But in both
instances there have been reasons of history and tradition for the
separate control of these two functions.

Speaking in general, the enormous demands of an expanded and
ever-improving municipal life have constantly added to the volume
and the variety of the work intrusted to the British municipal coun-
cils. Yet these boards of directors have been fully equal to the new
tasks imposed upon them, and it will be generally agreed that from
the standpoint of the framework or organization of municipal gov-
ernment, the British cities have no serious problems remaining to be
solved. As science and the arts of civilized life point out new and
better ways to promote the well-being of the people through munici-
pal effort, the British town councils show themselves fully competent
to initiate and to administer the new services.

Similar though less acute and less aggravated conditions of urban
growth had required municipal reorganization in other countries.
Those most important for our present purposes are the municipal
codes of France and of Prussia. It was characteristic of the law-
giving work of the Napoleonic period that it should have been at
once drastic and of uniform and logical character. Making an
exception of Paris, — as the English system has made an exception
of London, — the French communal and municipal code of the
early part of the nineteenth century created a system which was
made applicable to the entire territory of France. The central
feature of the system was the communal council. The number of
members of the council varied in the ratio of population of the
communes. As the rural commune grew into the urban community
or municipality, its organization became more elaborate, but all upon
a sliding-scale plan prescribed in the terms of a universally applicable
statute.

In the long struggle between centralized authority on the one hand
and the spirit of local self-government on the other, this municipal
mechanism has sometimes been administered by the higher authori-
ties through a system of central appointments, quite as bureaucratic
as the institutions of Russia itself. At other times, this mechanism
has worked with something like English local freedom. In either
case, however, its outer forms have changed very little.

The most important thing about this legislation was its scientific
character, its thoroughly modern aspect, and its well-nigh incredible
achievements in sweeping away the anomalies which had grown
up through the centuries. Thus, the Napoleonic administrative
laws prepared the way for the municipal growth of the nineteenth

426

century, and French urban life has, accordingly, developed under
orderly forms with a system elastic enough to meet changes, and in
accordance with the genius of modern French life.

Prussia was hardly less fortunate in the opening part of the last
century in its great administrative reformers, who created a system
for provincial, municipal, and local government that in the main
has stood the test of time and has served for the exigencies of a
wholly unforeseen growth of industry, population, and urban life.
Saxony and the other German states, meanwhile, had also provided
themselves with reformed systems of municipal and local govern-
ment, different in details, but in a general way similar to the system
of Prussia. Belgium, Spain, Italy, Switzerland, and the Latinic
countries in general, followed sooner or later the model of France in
shaping for themselves uniform codes of administrative law for the
organization of local and municipal corporations. Austria and the
eastern part of Europe have more generally followed the German
model.

The keynote of the German system is to be found in a very highly
organized, well-trained, non-political, permanent civil service. Every
department of municipal administration is in the hands of expert
functionaries, each man holding his place as a life career. At the
head of the municipality is the burgomaster, himself the most highly
trained administrative functionary of all. His position is wholly
different from that of the non-salaried English citizen, who holds
temporarily the honorary rank of Lord Mayor.

In like manner, the headship of the police department, of the legal
department, of the education department, and of the various serv-
ices concerned with the supply of water, the maintenance of the
streets, the sewer system, the public cleansing, the administration
of the health services, and so on, is vested in a permanent profes-
sional expert administrator under whom are many other permanent
and specially trained experts, who hold their places for life on condi-
tion of efficiency and good behavior.

The burgomaster and the head officials of the principal depart-
ments constitute a body known as the council of magistrates. The
citizenship of the community is represented in another body known
as the Gemeindesrath, or common council. This council is popularly
elected, and is a body of great authority. It sits in one chamber, but
is elected upon a plan which recognizes the large taxpayers as en-
titled to much more consideration than those who pay small taxes.
With the development of democracy, these property distinctions will
probably be modified and in the course of time they may be abolished.

Meanwhile, however, admission to the trained civil service is open
upon merit to the very humblest, and promotion in the civil and
municipal services also goes without favor upon merit. The selection

RELATION^ OF MUNICIPAL ADMINISTRATION 427

of the burgomaster and of the other chief functionaries, at those
rare times when vacancies occur, devolves upon the elected council,
which also has general budgetary power and cooperates with the
magistrates' council in matters of municipal policy.

The permanence of the municipal service makes it possible to
carry on with patience and unbroken effect every sort of public im-
provement and also renders it comparatively easy to imbue German
municipal administration with the spirit of scientific progress.
Thus, while from the point of view of French, British, or American
democracy, German municipal government is unpopular and reac-
tionary, it is, nevertheless, in the very forefront of progress as
respects the application of scientific knowledge to the public serv-
ices. It is a municipal government whose standards are prescribed
by the bacteriologist, the electrical and civil engineer, the sociologist,
the financial and legal expert, the trained architect, the botanist,
and the man of technical equipment in a hundred different directions.

It is at least open to question whether or not a community may
not be regarded as governing itself as truly where its civil service
is perfectly organized and dominated by scientific and humane ideas,
though its electorate be restricted and non-democratic, as a com-
munity which, like those of the United States, throws its electorate
open without conditions even to the vagrant, but which denies itself
the benefit of a thoroughly efficient and highly enlightened civil
service.

The United States is the only country which has not worked out
for itself a fairly uniform system of municipal government. There
are in this country to-day more varieties, not merely in the details
of organization, but in the fundamental features of the framework
of municipal government, than in all the countries of Europe taken
together, from Scotland to Bulgaria and Greece.

I cannot deny the opinion that it has been unfortunate for the
best development of civilized life in American cities that there had
not been devised before the middle of the nineteenth century some
simple standard system of organization for American municipal
corporations. Along with many advantages, our federal system
has had some grave disadvantages. To that system undoubtedly
must be attributed many of our difficulties in dealing with the city
problem, and especially those difficulties that arise from defective
legislation.

Our cities are scattered through a large number of states and
derive their forms of administration and their various powers from
as many legislatures. Some of the states have worked out uniform
systems, while others have followed the practice of granting individ-
ual charters to each incorporated town or city. Almost every city
in the country can show an experience of charter change, revision,

428

MUNICIPAL ADMINISTRATION

and renewal, so bewildering and so capricious in frequency of repeal
and in violence of sudden resort from one device to another, totally
different, that it becomes more difficult in many instances to follow
the structural changes of government in a moderate-sized American
town than to grasp the whole administrative history of municipal
corporations for England or for France.

In theory, the municipal corporations are minor divisions or enti-
ties of the state, but in many cases then* relative importance is so
great that they are not held in proper subordination. Under these
circumstances the state lacks power to legislate wisely and on stable
and permanent lines for its growing and assertive municipalities.
On the one hand, the great town disturbs the even tenor of the life
of the commonwealth; on the other hand, the rural commonwealth
fails to understand the needs of the great town, and attempts in
futile and vexatious ways to hamper it and circumscribe its powers.

Thus to meet local or temporary exigencies, rather than to serve
the abiding ends of good administration, there is constant meddling
with charters and change of method and system. All American
cities, however, have some form of an elective municipal council.
In a few instances these councils have power almost as complete as
in England, in most others much less power, and so on to the vanish-
ing-point. Nearly all American cities have been at one time or
another the complete victims of an attempt to separate the so-called
legislative from the executive function, in oversight of the fact that
practically the whole work of a municipal corporation is adminis-
trative, and that the enactment of by-laws is a very minor detail.

Practically everywhere throughout the United States the cities
provide themselves with a mayor elected by the whole voting body.
In many cities the mayor has very small actual power; in many
others he appoints and removes all heads of departments, controls
the police system, and runs a sort of periodic autocracy. In many
American cities, the different departments of administration are
farmed out to boards and commissions. In some places these boards
are elected by the people, in others they are appointed by the mayor.
In still others they are chosen by the municipal council. Yet more
frequently they come into being through ingenious combinations of
all these methods.

It is useless to try to generalize, or to attempt, for purposes of
description, to work out of all our varying forms some average sort
of arrangement that we might call the American system. Yet some
creditable attempts have been made in this direction, and a body of
excellent theoretical, legal, and practical students of the subject,
organized as the National Municipal League, has worked out a so-
called model charter, which is having no slight degree of influence
upon charter-framers and legislatures, as from year to year they go

RELATIONS OF MUNICIPAL ADMINISTRATION 429

on prosecuting this ceaseless American industry of making and un-
making municipal charters.

Most municipal reformers in the United States have, however,
openly or tacitly agreed to give over for the present all very strenuous
attempts to secure their ideals in the matter of charters. They are
working, rather, for good practical results under any sort of mechan-
ism, howrever complicated or arbitrary. They recognize the fact,
nevertheless, that the innumerable so-called checks and balances
and the baffling division and dispersion of authority, far from pre-
venting misgovernment, afford the wrong-doers their best oppor-
tunities.

It has thus far proved impossible to persuade the charter-makers
that the safest and best plan is to abolish nine tenths of the machinery
and provide a simple, direct way by which cities may exercise self-
government as respects the range of power granted them by the state.

The earlier powers to be exercised within municipal limits are
those of a negative and purely protective sort. The police authority
is everywhere recognized as belonging to the higher sovereignty of
the state. It has, however, in nearly all .countries been found con-
venient to turn over to the municipal authorities the organization
and control of the police work. An exception has generally been
made of the great metropolitan cities, in which the whole state has
so much concern, that it makes direct exercise of the police authority,
and declines to admit the municipal corporation to any share in the
maintenance of public order. In some countries, as in England,
police standards and methods are national, while organization and
ordinary control are municipal. In such cases there is national
inspection, and the higher government pays some part of the cost
of maintenance.

In the United States many of the most serious disturbances of
municipal life grow out of the difficulty of denning properly the sphere
of the police administration, and the further difficulty of securing
permanent and non-partisan direction. It is highly important that
a sharp distinction be noted between the evils in American municipal
life that associate themselves with the conduct of the police depart-
ment and the other very different problems of municipal government
that have to do with the raising and expenditure of the corporate
revenue, and the management of water-supply, drainage systems,
cleansing services, streets, parks, schools, and various other lines
of municipal activity. While it is evident that inefficient or
corrupt police administration has a tendency to infect and corrupt
other departments, it has often been strikingly true that alongside
of scandalously bad police administration there has been found
fiscal integrity and efficient management of the health services,
the schools, and various public works.

430 MUNICIPAL ADMINISTRATION

Upon municipal corporations in general, it may be said that the
state has devolved not merely the ordinary protection of life and
property with which the police department is charged, and such
special forms of protection as are illustrated in the fire departments,
but also the newer forms of service that relate to the protection of
the public health, the older sort of regulation that relates to the pre-
servation of public morals, and the local enforcement of a variety of
general statutes. For all these purposes the municipality is in
fact the local agent of the state. There is nothing new in the legal
or theoretical nature of any of these functions, but there is a vast
deal that is new in the manner in which the functions are exercised.

Thus the enormous development of public lighting grows out of
the primitive function of the night watchman. The modern devel-
opment of water-supply is essentially a health protective service.
The same thing may be said of the sewer system, the cleansing of
the streets, and the removal and disposal of garbage and waste.
All these are public functions in the highest sense. In the opinion
of most municipal authorities, the question whether or not street-
illumination, water-supply, sewers and drainage, street-cleaning,
and garbage removal should be exercised as public or as private
functions is no longer open to discussion. None of these services
can be properly rendered for private profit. They relate too essen-
tially to the public welfare. Fortunately, in all these matters,
modern municipal life is making an unexpectedly rapid and fortunate
progress, with results that are shown directly in the reduction of
death-rates, and indirectly in a score of other ways.

Forty or fifty years ago, as I have already said, epidemics were
frequent in most cities of Europe and America. Now they are of
rare occurrence. The cholera, at Hamburg, eleven years ago, re-
sulted in making German municipal government more than ever a
matter for the bacteriologist and the high sanitary and engineering
authorities. The best American cities are advancing to these German
and British standards.

Nothing else has such far-reaching importance in the more recent
life of cities in Great Britain and Europe, and even more obviously
in America, as the physical changes due to electric transit and the
upbuilding of suburban zones. Within the past ten years the ex-
tent of electric street railways in America has increased many-fold.
This movement is doing a hundred times more to relieve the con-
gestion of population in cities and to make possible an effectual
dealing with the evils of overcrowding than has been accomplished
by the direct application of remedies to slum conditions.

Fifteen or twenty years ago the word " slum " was of constant
recurrence in any discussion of the problems of municipal life.
Every city, even the small ones, had its area of overcrowding, of

RELATIONS OF MUNICIPAL ADMINISTRATION 431

unsanitary conditions, of great infant mortality, of epidemic tendency,
of criminal resort, and of degeneracy and decadence. Most people
believed that such slum areas were inevitable and could not be wiped
out. It was observed that the drastic elearing-out of one slum spot
was followed by the rapid creation of another. There has come
about, however, a complete change of opinion on this subject. The
rapid tide of the better class of families to new and sanitary dis-
tricts, opened up by trolley lines, is so relieving the pressure upon
old residence properties in central districts that demolition can
proceed with advantage, and rules against overcrowding can be
enforced with good results.

Along with this tendency to annex the suburbs and expand the
municipal area are to be observed many hopeful accompanying tend-
encies. One finds immense progress in the art of street-making.
Municipal landscape art, as shown in open squares and in smaller
and greater parks, has advanced with magnificent progress since
Mr. Olmsted and his associates laid out Central Park in New York.
Water-supply, sewers, and all that belongs to the functions of good
municipal housekeeping are no longer in doubt. With some mis-
takes, with some extravagance, and with some reaction, the main
victory has, nevertheless, been won all along this line.

The people have grasped the conception of orderliness, beauty,
and sanitary safety in town life, and they will work these ideals out
without fail in all modern industrial countries where there is pro-
sperity enough to keep the forces of civilization alive and energetic.
Thus the opportunities and conditions of the average working-man
or mechanic dwelling in our cities have been completely revolution-
ized within ten or twenty years. The plain man may educate his
children in admirable free schools under municipal control. The
schools have learned to adapt themselves to the needs of the work-
ing-man's family, so that they no longer •unfit for practical life, but
on the contrary contribute to the ability of the boy or the girl to earn
a living in his own town, as well as to be a good citizen and an intelli-
gent member of society. The working-man has the best of water,
the assurance of good health conditions, admirable opportunities
for recreation and instructive amusement, great public libraries
and reading-rooms made accessible to him, and a hundred advan-
tages scarcely dreamed of fifty years ago. Thus evil has been turned
into good, and where once it was seemingly disastrous for men to be
living together under urban conditions in modern industrial com-
munities, it is now, for the great majority, a source of positive and
unquestioned advantage.

I am not unduly optimistic. I do not for a moment ignore the
many and grave difficulties that beset the work of municipal gov-
ernment and the task of social reform in the industrial centers.

432 MUNICIPAL ADMINISTRATION

What I hold is that the problems are now defined, the remedies
are fairly understood, and the work can progress with good courage.
We have, in the United States, made enormous progress since, more
than twenty years ago, Mr. Bryce made the studies which are em-
bodied in the chapters of his American Commonwealth that relate
to our city life. In some respects the very best illustrations of the
triumphs and the difficulties of American urban life are afforded
by this great city of St. Louis that has grown up as the chief center
of the states formed out of the Louisiana Purchase territory. There
have been evils and scandals in its municipal governmental career
that have of late been widely advertised to the world. I have, on
the other hand, known something for years past of other phases
of its municipal life, and I must assert that, in the main, it stands
not only as a creditable, but as a brilliant, example of modern munici-
pal progress. It has at least managed to make a comfortable and
a beautiful dwelling-place for its inhabitants, and to provide for
them those facilities that contribute to the safety and enjoyment
of life.

Here, as elsewhere in America just now, — as in Chicago, San
Francisco, New York, Boston, Philadelphia, and many another city,
— the most important phase of municipal life is the struggle for
a higher type of civic virtue. This is coming about in the gradual
detachment of what we may call " municipal politics " from the
domination of the national and the state politics, which have no
proper place in the direction of the corporate activities of towns and
cities.

In spite of the difficulties that I have mentioned, there is some
tendency to improvement in the structure of municipal government.
There is almost revolutionary improvement and progress in the
application of American prosperity and advanced material civiliza-
tion to the appointments of town life. Finally, there is also unques-
tionable progress in the direction of civic honesty. It need not be
said that with the massing of population in the urban centers it
becomes almost a question of life or death for the state itself that
the citizenship of the populous communities be at least of as high
a grade and standard, as fit for the exercise of the privileges of
democracy, as the citizenship of the rural neighborhoods. But for
the rapidity with which we have received and enfranchised masses
of non-English-speaking immigrants who have for the most part
taken up their homes in our cities, I believe we should already have
brought the standards of civic life in our towns up to the average
of the country at large. As to the future, I have no doubts at all
upon this score.

In British, German, and other European industrial centers, the
greatest difficulties that now have to be faced grow out of the pov-

RELATIONS OF MUNICIPAL ADMINISTRATION 433

erty and degradation of a considerable percentage of the urban
population. The remedies for this condition are not exclusively
in the hands of municipal authorities. They must be worked out
with the progress of economic conditions, and the gradual diffusion
of realized wealth.

From the standpoint of the social and political philosopher, as
well as of the political economist, it must never be forgotten that
the modern city is the creation of those very industrial conditions
that have created the whole mass of modern wealth, that have
elevated the standards of life, and that are certainly destined in their
turn to improve and finally to transform the cities which their own
instrumentalities have created.

PROBLEMS OF MUNICIPAL ADMINISTRATION

BY JANE ADDAMS

[Jane Addams, Head of Hull House Settlement, Chicago, b. Cedarville, Illinois,
September 6, 1860. B.A. Rockford College; LL.D. University of Wisconsin.
President of Hull House Association since 1889. Author of part of Philan-
thropy and Social Progress; Democracy and Social Ethics.]

WE are accustomed to say that the machinery of government
incorporated in the charters of the early American cities, as in the
federal and state constitutions, was worked out by men who were
strongly under the influence of the historians and doctrinaires of
the eighteenth century. The most significant representative of
these men is Thomas Jefferson, whose foresight and genius we
are here to commemorate, and their most telling phrase is the
familiar opening that " all men are created free and equal."

We are only now, however, beginning to suspect that the present
admitted failure in municipal administration, the so-called " shame
of American cities," may be largely due to the inadequacy of those
eighteenth-century ideals, with the breakdown of the machinery
which they provided, and, further, to the weakness inherent in the
historic and doctrinaire method when it attempts to deal with
growing and human institutions.

These men were the legitimate successors of the seventeenth-
century Puritans in their devotion to pure principle, but they had
read poets and philosophers unknown to the Pilgrim fathers, and
represented that first type of humanitarian who loves the people
without really knowing them, which is by no means an impossible
achievement. " The love of those whom a man does not know is
quite as elemental a sentiment as the love of those whom a man
does know," but with this difference, that he expects the people
whom he does not know to forswear altogether the right of going
their own way, and to be convinced of the beauty and value of his
way.

Because their idealism was of the type that is afraid of experience,
these founders of our American cities refused to look at the diffi-
culties and blunders which a self-governing people was sure to
encounter, and insisted that the people would walk only in the paths
of justice and righteousness. It was inevitable, therefore, that they
should have remained quite untouched by that worldly wisdom
which counsels us to know life as it is, and by that very modern
belief that, if the world is ever right at all, it must go right in its
own way.

PROBLEMS OF MUNICIPAL ADMINISTRATION 435

A man of this generation easily discerns the crudeness of that
eighteenth-century conception of essentially unprogressive human
nature, in all the empty dignity of its x" inborn rights of man,"
because he has grown familiar with a more passionate human creed,
with the modern evolutionary conception of the slowly advancing
race whose rights are not " inalienable," but are hard won in the
tragic processes of civilization. Were self-government to be inaugu-
rated by the advanced men of the present moment, as the founders
were doubtless the advanced men of their time, they would make
the most careful research into those early organizations of village
communities, folkmotes, and mirs, those primary cells of both social
and political organization where the people knew no difference
between the two, but quite simply met to consider in common dis-
cussion all that concerned their common life. They would investi-
gate the craft guilds and artels, which combined government with
daily occupation, as did the self-governing university and free town.
They would seek for the connection between the liberty-loving
medieval city and its free creative architecture, that most social of
all the arts.

But our eighteenth-century idealists, unconscious of the com-
pulsions of origins and of the fact that self-government had an
origin of its own, timidly took the English law as their prototype,
" whose very root is in the relation between sovereign and subject,
between lawmaker and those whom the law restrains," and which
has traditionally concerned itself more with the guarding of pre-
rogative and with the rights of property than with the spontaneous
life of the people. They serenely incorporated laws and survivals
which registered the successful struggle of the barons against the
aggression of the sovereign, although the new country lacked both
nobles and kings. Misled by the name of government, they founded
their new cities by an involuntary reference to a lower social state
than that which they actually saw about them. They depended
upon penalties, coercion, compulsion, and remnants of military
codes to hold the community together; and it may be possible to
trace much of the maladministration of our cities to these survivals,
to the fact that our early democracy was a moral romanticism,
rather than a well-grounded belief in social capacity and in the effi-
ciency of the popular will.

It has further happened that, as the machinery, groaning under
the pressure of the new social demand put upon it, has broken down
from time to time, we have mended it by giving more power to
administrative officers, distrusting still further the will of the people.
We are willing to cut off the dislocated part, or tighten the gearing,
but we are afraid to substitute a machine of newer invention and
greater capacity.

436 MUNICIPAL ADMINISTRATION

A little examination will easily show that, in spite of the fine
phrases of the founders, the government became an entity by itself
away from the daily life of the people; not meant to be set off against
them with power to oppress, as in the case of the traditional Euro-
pean governments, but simply because its machinery was so largely
copied from the historic governments which did distrust the people,
that it failed to provide the vehicle for a vital and genuinely organ-
ized expression of the popular will. The founders carefully defined
what was germane to government and that which was quite outside
its realm; whereas the very crux of local self-government, as has
been well said, is involved in the " right locally to determine the
scope of the local government," in response to the local needs as
they arise.

They were anxious to keep the strings in the hands of the good
and professedly public-spirited, because, having staked so much
upon the people, whom they really knew so little, they became eager
that they should appear well, and should not be given enough power
to enable them to betray their weaknesses; as a kind lady may
permit herself to give a tramp five cents, believing that, although
he may spend it for drink, he cannot get very drunk upon so small
a sum.

All might have gone well upon this doctrinaire plan, as it still
does in many country places, if there had not been a phenomenally
rapid growth in cities upon an entirely changed basis. Multitudes
of men were suddenly brought together in response to the nineteenth-
century concentration of industry and commerce — a purely im-
personal tie; whereas the eighteenth-century city attracted the
country people in response to the more normal and slowly formed
ties of domestic service, family affection, and apprenticeship. Added
to this unprecedented growth from industrial causes, we have in
American cities multitudes of immigrants coming in successive
migrations, often breaking social ties which are as old as the human
family, and renouncing customs which may be traced to the habits
of primitive man. Both the country-bred and immigrant city-
dwellers would be ready to adapt themselves to a new and vigorous
civic life founded upon a synthesis of their social needs, but the
framers of our carefully prepared city charters did not provide for
this expanding demand at the points of congestion. They did not
foresee that after the universal franchise has once been granted, social
needs and ideals are bound to enter in as legitimate objects of political
action; while, on the other hand, the only people in a democracy
who can legitimately become the objects of repressive government
are those who are too underdeveloped to use the franchise, or those
who have forfeited their right to full citizenship. We have, there-
fore, a municipal administration in America which is largely reduced

PROBLEMS OF MUNICIPAL ADMINISTRATION 437

to the administration of restrictive measures. The people who come
most directly in contact with its executive officials, who are the legiti-
mate objects of its control, are the vicious, who need to be repressed;
the poor and semi-dependent, who appeal to it in their dire need;
or, from quite the reverse reason, those who are trying to avoid
an undue taxation, resenting the fact that they should be made to
support that which, from the nature of the case, is too barren to
excite their real enthusiasm.

The instinctive protest against this mechanical method of civic
control, with the lack of adjustment between the natural democratic
impulse and the fixed external condition, inevitably produces the
indifferent citizen and the so-called " professional politician; " the
first who, because he is not vicious, feels that the real processes of
government do not concern him, and wishes only to be let alone;
and the other who easily adapts himself to an illegal avoidance of
the external fixed conditions by assuming that those conditions have
been settled by doctrinaires who did not in the least understand
the people, while he, the politician, makes his appeal beyond, those
to the real desires of the people themselves. He is thus not only
the " people's friend," but their interpreter. It is interesting to
note how often simple people refer to " them," meaning the good
and great who govern but do not understand, and to " him,'' mean-
ing the alderman who represents them in these incomprehensible
halls of state, as an ambassador to a foreign country to whose borders
they could not possibly penetrate and whose language they do not
speak.

In addition to this difficulty, inherent in the difference between
the traditional and actual situation, is another, which constantly
arises on the purely administrative side. The traditional govern-
ments which the founders had copied, in proceeding to define the
vicious by fixed standards from the good, and then to legislate
against them, had enforced these restrictive measures by trained
officials, usually with a military background. In a democracy, how-
ever, the officers intrusted with the enforcement of this restrictive
legislation, if not actually elected by the people themselves, are
still the appointments of those thus elected, and are therefore good-
natured men who have made friends by their kindness and social
qualities.

The carrying-out of repressive legislation, the remnant of a mili-
tary state of society, is, in a democracy, at last put into the hands
of men who have attained office because of political " pull," and
the repressive measures must be enforced by those sympathizing
with and belonging to the people against whom the measures operate.
This anomalous situation produces almost inevitably one result:
that the police authorities themselves are turned into allies of vice

438

MUNICIPAL ADMINISTRATION

and crime, as may be illustrated from almost any of the large Ameri-
can cities, in the relation existing between the police force and the
gambling and other illicit life. The officers are often flatly told that
the enforcement of an ordinance which the better element of the
city has insisted upon passing is impossible; that they are only
expected to control the robbery and crime that so often associate
themselves with vice. As Mr. Wilcox has pointed out in The Ameri-
can City, public sentiment itself assumes a certain hypocrisy, and in
the end we have " the abnormal conditions which are created when
vice is protected by the authorities ; " in the very worst cases there
develops a sort of municipal blackmail in which the administration
itself profits by the violation of law. The officer is thoroughly
confused by the human element in the situation, and his very kind-
ness and human understanding are that which leads to his downfall.

There is no doubt that the reasonableness of keeping the saloons
in lower New York open on Sunday was apparent to the policemen
on the East Side force long before it dawned upon the reform ad-
ministration, and yet that the policemen were allowed to connive
at law-breaking was the cause of their corruption and downfall.

In order to meet this situation, there is almost inevitably developed
a politician of the corrupt type so familiar in American cities, who
has become successful because he has made friends with the vicious.
The semi-criminal, who are constantly brought in contact with
administrative government, are naturally much interested in its
operations, and, having much at stake, as a matter of course attend
the primaries and all the other election processes which so quickly
bore the good citizen whose interest in them is a self-imposed duty.
To illustrate: It is a matter of much moment to a gambler whether
there is to be a " wide-open town " or not; it means the success
or failure of his business; it involves not only the pleasure, but the
livelihood, of all his friends. He naturally attends to the election of
the alderman, and to the appointment and retention of the police-
man; he is found at the caucus " every time," and would be much
amused if he were praised for the performance of his civic duty.
But because he and the others who are concerned in semi-illicit
business do attend the primaries, the corrupt politician is nominated
over and over again.

As this type of politician is successful from his alliance with crime,
there also inevitably arises from time to time a so-called reformer,
who is shocked to discover this state of affairs, this easy partnership
between vice and administrative government. He dramatically
uncovers the situation, and arouses great indignation against it
on the part of the good citizen. If this indignation is enough, he
creates a political fervor which constitutes a claim upon public
gratitude. In portraying the evil he is fighting, he does not recog-

PROBLEMS OF MUNICIPAL ADMINISTRATION 439

nize, or at least does not make clear, all the human kindness upon
which it has grown. In his speeches he inevitably offends a popular
audience, who know that the political evil exists in all degrees and
forms of human weakness, but who also know that these evils are by
no means always hideous. They resent his overdrawn pictures of
vice and of the life of the vicious; their sense of fair play and their
deep-rooted desire for charity and justice are all outraged.

If I may illustrate from a personal experience: Some years ago
a famous New York reformer came to Chicago to tell us of his phe-
nomenal success and his trenchant methods of dealing with the
city " gambling-hells," as he chose to call them. He proceeded to
describe the criminals of lower New York in terms and phrases which
struck at least one of his auditors as sheer blasphemy against our
common human nature. I thought of the criminals whom I knew,
of the gambler for whom each Saturday I regularly collected his
weekly wage of $24, keeping $18 for his wife and children, and giving
him $6 on Monday morning. His despairing statement, " The thing
is growing on me, and I can never give it up," was the cry of a man
who, through much tribulation, had at least kept the loyal intention.
I recalled three girls who had come to me with a paltry sum of money
collected from the pawn and sale of their tawdry finery, that one of
their number might be spared a death in the almshouse and have
that wretched comfort during the closing weeks of her outcast life.
I recalled the first murderer whom I had ever known, — a young
man who was singing his baby to sleep, and stopped to lay it in its
cradle before he rushed downstairs into his father's saloon, to scatter
the gang of boys who were teasing the old man by giving him orders
in English which he could not understand, and refusing to pay for
the drinks which they had consumed, but technically had not ordered.

For one short moment I saw the situation from the point of view
of humbler people, who sin often through weakness and passion,
but seldom through hardness of heart; and I felt that such sweeping
condemnations and conclusions as the speaker was pouring forth
could never be accounted for righteousness in a democratic com-
munity.

The policeman who makes terms with vice, and almost inevitably
slides into making gain from vice, merely represents the type of
politician who is living off the weakness of his fellows, as the over-
zealous reformer, who exaggerates vice until the public is scared
and awestruck, represents the type of politician who is living off
the timidity of his fellows. With the lack of civic machinery for
simple democratic expression, for a direct dealing with human nature
as it is, we seem doomed to one type or the other — corrupt ionists
or anti-crime committees. And one sort or the other we shall con-
tinue to have so long as we distrust the very energy of existence, the

440 MUNICIPAL ADMINISTRATION

craving for enjoyment, the pushing of vital forces, the very right
of every citizen to be what he is, without pretense or assumption of
virtues which he does not really admire himself, but which he
imagines to have been set up as a standard somewhere else by the
virtuous whom he does not know. That old Frankenstein, that
ideal man of the eighteenth century, is still haunting us, although
he never existed save in the brain of the doctrinaire.

This dramatic and feverish triumph of the self-seeker, see-sawing
with that of the interested reformer, does more than anything else,
perhaps, to keep the American citizen away from the ideals of genu-
ine evolutionary democracy. Whereas repressive government, from
the nature of the case, has to do with the wicked, who are happily
always in a minority in the community, a normal government
would have to do with the great majority of the population in their
normal relations to each other.

After all, the daring of the so-called " slum politician," when he
ventures his success upon an appeal to human sentiment and gener-
osity, has something fine about it. It often results in an alliance of
the popular politician with the least desirable type of trade-unionist
as the reformer who stands for an honest business administration
becomes allied with the type of business man whose chief concern
it is to guard his treasure and to prevent a rise in taxation.

May I use, in illustration of the last two statements, the great
strike in the Chicago Stock Yards, which occurred a few weeks
ago? The immediate object of the strike was the protection of the
wages of the unskilled men from a cut of one cent per hour, although
of course the unions of skilled men felt that this first invasion of
the wages, increased through the efforts of the unions, would be
but the entering-wedge of an attempt to cut wages in all the trades
represented in the Stock Yards. Owing to the refusal on the part
of the unions to accept the arbitration very tardily offered by the
packers, and to their failure to carry out the terms of the contract
which they made ten days later, the strike in its early stages com-
pletely lost the sympathy of that large part of the public dominated
by ideals of business honor and fair dealing, and of that growing
body of organized labor which is steadily advancing in a regard for
the validity of the contract and cherishing the hope that in time
the trades-unions may universally attain an accredited business
standing.

The leaders, after the first ten days, were therefore forced to
make the most of the purely human appeal which lay in the situa-
tion itself, that thirty thousand men, including the allied trades,
were losing weeks of wages and savings, with a possible chance of
the destruction of their unions, on behalf of the unskilled, the newly
arrhed Poles and Lithuanians who had not yet learned to look out

PROBLEMS OF MUNICIPAL ADMINISTRATION 441

for themselves. Owing to the irregular and limited hours of work
— a condition quite like that prevailing on the London Docks before
the great strike of the dockers — the weekly wage of these unskilled
men was exceptionally low, and the plea was based almost wholly
upon the duty of the strong to the weak. A chivalric call was issued
that the standard of life might be raised to that designated as Ameri-
can, and that this mass of unskilled men might secure an education
for their children. Of course, no other appeal could have been so
strong as this purely human one, which united for weeks thousands
of men of a score of nationalities into that solidarity which comes
only through a self-sacrificing devotion to an absorbing cause.

The strike involved much suffering and many unforeseen compli-
cations. At the end of eight weeks the union leaders made the
best terms possible, which, though the skilled workers were guar-
anteed against reduction in wages, made no provision for the un-
skilled, in whose behalf the strike had been at first undertaken.
Although the hard-pressed union leaders were willing to make this
concession, the local politicians in the mean while had seen the great
value of the human sentiment, which bases its appeal on the need of
the " under dog," and which had successfully united this mass
of skilled men into a new comradeship with those whom they had
lately learned to call compatriots. It was infinitely more valuable
than any merely political cry, and the fact that the final terms of
settlement were submitted to a referendum vote at once gave the
local politicians a chance to avail themselves of this big, loosely
defined sympathy. They did this in so dramatic a manner that
they almost succeeded, solely upon that appeal, in taking the strike
out of the hands of the legitimate officers and using it to further
their own political ends.

The situation would have been a typical one, exemplifying the
real aim of popular government, with its concern for primitive needs,
forced to seek expression outside of the organized channels of gov-
ernment, if the militia could have been called in to support the
situation, and thus have placed government even more dramatically
on the side of the opposition. The comparative lack of violence
on the part of the striking workmen gave no chance for the bringing
in of the militia, much to the disappointment of the politicians, who,
of course, would have been glad to have put the odium of this tra-
ditional opposition of government to the wishes of the people, which
has always been dramatically embodied in the soldier, upon the
political party dominating the state but not the city. It would
have given the city politician an excellent opportunity to show the
concern of himself and his party for the real people, as over against
the attitude of the party dominating the state. But because the
militia were not called his scheme fell through, and the legitimate

442 MUNICIPAL ADMINISTRATION

strike leaders, who, although they passed through much tribulation
because of the political interference, did not eventually lose control.
The situation in the Chicago Stock Yards is an excellent epitome
of the fact that government so often finds itself, not only in oppo-
sition to the expressed will of the people making the demand at the
moment, but apparently against the best instincts of the mass of
the citizens as a whole.

For years the city administrations, one after another, have pro-
tected the money interests invested in the Stock Yards, so that none
of the sanitary ordinances have ever been properly enforced, until
the sickening stench and the scum on the branch of the river known
as " Bubbly Creek " at times make that section of the city unen-
durable. The smoke ordinances are openly ignored, nor did the
city meat inspector ever seriously interfere with business, as a recent
civil-service investigation has demonstrated, while the water-steals
for which the Stock Yards finally became notorious must have been
more or less known to certain officials. But all of this merely cor-
rupted a limited number of inspectors, and although their corrup-
tion was complete and involved the entire administration, it did not
actually touch large numbers of people. During the recent strike,
however, twelve hundred policemen were called upon to patrol the
yards inside and out — actual men possessed of human sensibilities.
There is no doubt that the police inspector of the district thoroughly
represented the alliance of the city hall and the business interests,
and that he did not mean to discover anything which was deroga-
tory to the packers, nor to embarrass them in any way during the
conduct of the strike. But these twelve hundred men themselves
were called upon to face, a very peculiar situation because of the
type of men and women who formed the bulk of the strike-breakers,
and because in the first weeks of the strike these men and women
were kept constantly inside the yards during day and night. In
order to hold them there at all, discipline outside the working hours
was thoroughly relaxed, and the policemen in charge of the yards,
while there ostensibly to enforce law and order, were obliged every
night to connive at prize-fighting, at open gambling, and at the most
flagrant disregard of decency. They were there, not to enforce law
and order as it defines .itself in the minds of the bulk of healthy-
minded citizens, but only to keep the strikers from molesting the
non-union workers, which was certainly commendable, but, after all,
only part of their real duty. They were shocked by the law-break-
ing which they were ordered to protect, and much drawn in sym-
pathy to those whom they were supposed to regard as public enemies.
An investigator who interviewed one hundred policemen found
only one who did not frankly extol the restraint of the strikers as
over against the laxity of the imported men. This, of course, was

PROBLEMS OF MUNICIPAL ADMINISTRATION 443

an extreme case, brought about by the unusual and peculiar type
of the imported strike-breakers, of which there is much trustworthy
evidence, incorporated in affidavits submitted to the mayor of
Chicago.

It was hard for a patriot not to feel jealous of the trades-unions
and of the enthusiasm of those newly arrived citizens. They poured
out their gratitude and affection upon this first big, friendly force
which had offered them help in their desperate struggle in a new
world. This devotion, this comradeship and fine esprit de corps,
should have been won by the government itself from these scared
and untrained citizens. The union was that which had concerned
itself with real life, shelter, a chance to wyork, and bread for their
children. It had come to them in a language they could under-
stand, and through men with interests akin to their own, and it
gave them their first chance to express themselves through a demo-
cratic vote, to register by a ballot their real opinion upon a very
important matter.

They used the referendum vote, the latest and perhaps most clever
device of democratic government, and yet they were using it to
decide a question which the government presupposed to be quite
outside its realm. When they left the old country, the govern-
ment of America held their deepest hopes and represented that
which they believed would obtain for them an opportunity for that
fullness of life which had been denied them in the lands of oppressive
government.

It is a curious commentary on the fact that we have not yet at-
tained self-government, when the real and legitimate objects of
men's desires must still be incorporated in those voluntary groups,
for which the government, when it does its best, can afford only
protection from interference. As the religious revivalist looks with
longing upon the fervor of a single-tax meeting, and as the
orthodox Jew sees his son staying away from Yom Kippur, but to
pour all his religious fervor, his precious zeal for righteousness which
has been gathered through the centuries, into the Socialist Labor
party, so a patriot finds himself exclaiming, like Browning's Andrea
del Sarto: " Ah, but what do they, what do they, to please you
more? "

So timid are American cities in dealing with this perfectly reason-
able subject of wages in its relation to municipal employees that
when they do prescribe a minimum wage for city contract work,
they allow it to fall into the hands of the petty politician and to
become part of a political game, making no effort to give it a digni-
fied treatment in relation to cost of living and to margin of leisure.
In this the English cities have anticipated us, both as to time and
legitimate procedure. Have Americans formed a sort of " impe-

444

MUNICIPAL ADMINISTRATION

rialism of virtue," holding on to the preconceived ideas of self-
government, and insisting that they must fit all the people who come
to our shores, even although we crush the most promising bits of
self-government and self-expression in the process? Is the Ameri-
can's attitude toward self-government like that of his British cousin
toward Anglo-Saxon civilization, save that he goes forth to rule
all the nations of the earth by one pattern whether it fits or not,
while we sit at home and bid them to rule themselves by one set
pattern? — both of us many times ruining the most precious experi-
ments which embody ages of travail and experience.

In the midst of the city, which at moments seems to stand only
for the triumph of the strongest, the successful exploitation of the
weak, the ruthlessness and hidden crime which follow in the wake
of the struggle for mere existence on its lowest terms, there come
daily accretions of simple people, who carry in their hearts the
desire for mere goodness, who regularly (deplete their scanty liveli-
hood in response to a primitive pity, and who, independently of the
religions which they have professed, of the wrongs which they have
suffered, or of the fixed morality which they have been taught, have
an unquenchable desire that charity and simple justice shall regu-
late men's relations.

This disinterestedness, although as yet an intangible ideal, is
taking hold of men's hopes and imaginations in every direction.
Even now we only dimly comprehend the strength and irresistible
power of those " universal and imperious ideals which are formed
in the depths of anonymous life," and which the people insist shall
come to realization, not because they have been tested by logic or
history, but because the mass of men are eager that they should be
tried, should be made a living experience in time and in reality.

In this country it seems to be only the politician at the bottom,
the man nearest the people, who understands this. He often plays
upon it and betrays it, but at least he knows it is there.

This is perhaps easily explained, for, after all, the man in this
century who realizes human equality is not he who repeats the
formula of the eighteenth century, but he who has learned, if I
may quote again from Mr. Wilcox, that the " idea of equality is
an outgrowth of man's primary relations in nature. Birth, growth,
nutrition, reproduction, death, are the great levelers that remind
us of the essential equality of human life. It is with the guaranty
of equal opportunities to play our parts well in these primary pro-
cesses that government is actually concerned," and not merely in the
repression of the vicious nor in guarding the rights of property.
There is no doubt that the rapid growth of the Socialist party in all
crowded centers is largely due to their recognition of those primary
needs and experiences which the well-established governments so

PROBLEMS OF MUNICIPAL ADMINISTRATION 445

stupidly ignore, and also to the fact that they are preaching indus-
trial government to an industrial age which recognizes it as vital
and adapted to its needs. All of that devotion, all of that specu-
lative philosophy concerning the real issues of life could, of course,
easily be turned into a passion for self-government and the develop-
ment of the national life, if we were really democratic from the
modern evolutionary standpoint, and did we but hold our town
meetings upon topics that most concern us.

In point of fact, government ignores industrial questions as the
traditional ostrich hides his head in the sand, for no great strike is
without its political significance, nor without the attempt of political
interference, quite as none of the mammoth business combinations
of manufacturers or distributors are without their lobbyists in the
city council, unless they are fortunate enough to own aldermen
outright. It is merely a question as to whether industry in relation
to government is to be discussed as a matter of .popular interest and
concern at the moment when that relation might be modified and
controlled, or whether we prefer to wait a decade and to read about
it later in the magazines, horrified that such interference of business
with government should have taken place.

Again we see the doctrinaire of the eighteenth century preferring
to hold to his theory of government and ignoring the facts, as over
against the open-minded scientist of the present day who would
scorn to ignore facts because they might disturb his theory.

The two points at which government is developing most rapidly
at the present moment are naturally the two in which it
genuinely exercises its function, — in relation to the vicious and in
relation to the poor and dependent.

The juvenile courts which the large cities are inaugurating are
supplied with probation officers, whose duty it is to encourage the
wavering virtues of the wayward boy, and to keep him out of the
police courts with their consequent penal institutions, — a real
recognition of social obligation. In one of the most successful of
these courts, that of Denver, the judge, who can point to a remark-
able record with the bad boys of the city, plays a veritable game
with them against the police force, he and the boys undertaking to
be " good " without the help of repression, and in spite of the mach-
inations of the police. For instance, if the boys who have been
sentenced to the State Reform School at Golden deliver themselves
without the aid of the sheriff, whose duty it is to take them there,
they not only vindicate their manliness and readiness " to take their
medicine," but they beat the sheriff, who belongs to the penal
machinery, out of his five-dollar fee, over which fact they openly
triumph. A simple example, perhaps, but significant of the atti-
tude of the well-intentioned toward repression government.

446 MUNICIPAL ADMINISTRATION

As the juvenile courts are beginning to take an interest in the
social life of the child, in order to prevent arrest, on the same princi-
ple the reform schools are inaugurating the most advanced education
in agriculture and manual arts. A bewildered foreign parent comes
from time to time to Hull House, asking that his boy be sent to a
school to learn farming, basing his request upon the fact that his
neighbor's boy has been sent to " a nice green country place."
It is carefully explained that the neighbor's boy was bad, and was
arrested and sent away because of his badness, and it is quite pos-
sible sometimes to make clear to the man that the city assumes that
he is looking out for himself and taking care of his own boy; but
it ought to be further possible to make him see that, if he feels that
his son needs the education of a farm school, it lies with him to
agitate the subject and to vote for the candidate who will secure
such schools. He might well look amazed, were this advice ten-
dered him, for these questions have never been presented to him to
vote upon. Because he does not easily discuss the tariff, or other
remote subjects, which the political parties present to him from
time to time, we assume that he is not to be trusted to vote on the
education of his child; and in Chicago, at least, the school board is
not elective. The ancestors of this same immigrant, from the days
of bows and arrows, doubtless taught their children those activities
which seemed valuable to them.

Again, we build enormous city hospitals and almshouses for
the defective and dependent, but for that great mass of people just
beyond the line from which they are constantly recruited we do
practically nothing. We are afraid of the notion of governmental
function which would minister to the primitive needs of the mass
of people, although we are quite ready to care for him whom mis-
fortune or disease has made the exception. It is really the rank
and file, the average citizen, who is ignored by government, while
he works out his real problems through other agencies, and is scolded
for staying at home on election day.

It is comparatively easy to understand the punitive point of
view, which seeks to suppress, or the philanthropic, which seeks
to palliate; but it is much more difficult to formulate that city
government which is adapted to our present normal living. As
over against the survival of the first two, excellent and necessary
as they are, we have the many municipal activities of which Mr.
Shaw has told us, but we have attained them surreptitiously, as it
were, by means of appointed commissions, through boards of health
endowed with exceptional powers, or through the energy of a mayor
who has pushed his executive function beyond the charter limit.
The people themselves have not voted on these measures, and they
have lost both the education and the nourishing of the democratic

PROBLEMS OF MUNICIPAL ADMINISTRATION 447

ideal, which their free discussion would have secured and to which
they were more entitled than to the benefits themselves.

In the department of social economy in this Exposition is an
enormous copy of Charles Booth's monumental survey of the stand-
ard of living for the people of London. From his accompanying
twelve volumes may be deduced the occupations of the 'people,
with their real wages, their family budget, their culture-level, and
to a certain extent their recreations and spiritual life. If one gives
one's self over to a moment of musing on this mass of information,
so huge and so accurate, one is almost instinctively aware that any
radical changes, so much needed in the blackest and the bluest
districts, must largely come from forces outside the life of the people:
enlarged mental life from the educationalist, increased wages from
the business interests, alleviation of suffering from the philanthro-
pists. What vehicle of correction is provided for the people them-
selves? What broad basis has been laid for modification of their
most genuine and pressing needs through their own initiative ? What
device has been invented for conserving, in the interests of the nation,
that kindliness and mutual aid which is the marvel of all charity
workers who know the poor? So conservative an economist as
Marshall has pointed out that, in the fear of crushing " individual
initiative," we every year allow to go to waste untold capacity,
talent, and even genius, among the children of the poor, whose
parents are unable to shelter them from premature labor; or among
the adults, whose vital force is exhausted long before the allotted
span of life. We distrust the instinct to shelter and care for them,
although it is as old and as much at the foundation of human pro-
gress as is individual initiative itself.

The traditional government of East London expresses its activity
in keeping the streets clean, and the district lighted and policed.
It is only during the last quarter of the century that the London
County Council has erected decent houses, public baths, and many
other devices for the purer social life of the people; while American
cities have gone no farther, although they presumably started at
workingmen's representation a hundred years ago, so completely
were the founders misled by the name of government, and the tempta-
tion to substitute the form of political democracy for real self-
government, dealing with advancing social ideals. Even now
London has twenty-eight borough councils in addition to the London
County Council itself, and fifteen hundred direct representatives
of the people, as over against seventy in Chicago, with a population
one half as large. Paris has twenty mayors with corresponding
machinery for local government, as over against New York's con-
centration in one huge city hall, too often corrupt.

In Germany, as the municipal and social-economic exhibits of

448

MUNICIPAL ADMINISTRATION

this Exposition so magnificently show, the government has come
to concern itself with the primitive essential needs of its working-
people. In their behalf the government has forced industry, in
the person of the large manufacturers, to make an alliance with it,
and they are taxed for accident insurance of working-men, for old-
age pensions, and for sick benefits; indeed, a project is being formed
in which they shall bear the large share of insurance against non-
employment, when it has been made clear that non-employment
is the result of financial crisis brought about through the malad-
ministration of finance. And yet industry in Germany has flour-
ished, and this control on behalf of the normal working-man, as he
faces life in the pursuit of his daily vocation, has apparently not
checked its systematic growth nor limited its place in the world's
market.

Almost every Sunday, in the Italian quarter in which I live,
various mutual benefit societies march with fife and drum and
with a brave showing of banners, celebrating their achievement in
having surrounded themselves by at least a thin wall of protection
against disaster, setting up their mutual good will against the day
of misfortune. These parades have all the emblems of patriotism;
indeed, the associations represent the core of patriotism — brothers
standing by each other against hostile forces from without. I assure
you that no Fourth of July celebration, no rejoicing over the birth
of an heir to the Italian throne, equals in heartiness and sincerity
these simple celebrations. Again, one longs to pour into the gov-
ernment of their adopted country all this affection and zeal, this real
patriotism.

Germany affords, perhaps, the best example of this concern of
government for the affairs of the daily living of its wage-earners,
although Belgium and France, with their combination of state
savings-banks, with life-insurance and building-associations, backed
by the state, afford a close second in ingenuity and success. All
this would be impossible in America, because it would be hotly
resented by the American business man, who will not brook any
governmental interference in industrial affairs. Is this due to the
inherited instinct that government is naturally oppressive, and that
its inroads must be checked? Are we in America retaining this
tradition, while Europe is gradually evolving governments logically
fitted to cope with the industrial situation?

Did the founders cling too hard to that which they had won
through persecution, hardship, and finally through a war of revolu-
tion? Did these doctrines seem so precious to them that they were
determined to tie men up to them as long as possible, and allow
them no chance to go on to new devices of government, lest they
slight these that had been so hardly won? Did they estimate, not

PROBLEMS OF MUNICIPAL ADMINISTRATION 449

too highly, but by too exclusive a valuation, that which they had
secured through the shedding of blood?

Man has ever overestimated the spoils of war and tended to lose
his sense of proportion in regard to their value. He has ever sur-
rounded them with a glamour beyond their deserts. This is quite
harmless when the booty is an enemy's sword hung over a household
fire, or a battered flag decorating a city hall; but when the spoil of
war is an idea which is bound on the forehead of the victor till it
cramps his growth, a theory which he cherishes in his bosom until
it grows so large and so near that it afflicts its possessor with a sort
of disease of responsibility for its preservation, it may easily over-
shadow the very people for whose cause the warrior issued forth.

We have not yet apprehended what the scientists call " the doc-
trine of the unspecialized," what the religious man calls " the counsel
of imperfection," and the wise educator calls " the wisdom of the
little child." If successful struggle ends in survival, in blatant
and tangible success, and, as it is popularly supposed to do, in a
certain hardness of heart, with an invincible desire to cling fast to
the booty which has been thus hardly acquired, government \vill
also have to reckon with the many who have been beaten in this
struggle, with the effect upon them of the contest and the defeat;
for, after all, they will always represent the majority of citizens,
and it is with its large majority that self-government must event-
ually deal, whatever else other governments may determine for
themselves.

We are told that mere successful struggle breeds emotion, not
strength; that the hard-pressed races are the emotional races; and
that wherever struggle has long prevailed emotion is the domin-
ant force in fixing social relations. Because of this emotional
necessity all the more does it seem a pity that American municipal
administration has so long confined itself to cold and emotionless
areas, dealing as it must with the immigrants who come to us in
largest numbers from the lands of oppression, and who vote quite
simply for the man who is kind to them. We do much loose talking
in regard to American immigration; we use the phrase " the scum
of Europe," and other unwarranted words, without realizing that
the underdeveloped peasant may be much more valuable to us here
than the more highly developed, but also more highly specialized
toWn-dweller, who may much less readily develop the acquired char-
acteristics which the new environment demands.

To demand protection from these so-called barbarians in our
midst, who are supposed to issue forth from the shallows of the
city and to seize upon the life and treasure of the citizens, as bar-
barians of old came from outside the city walls, is, of course, not to
have read the first lessons of self-government in the light of evolu-

450 MUNICIPAL ADMINISTRATION

tionary science, and to have scarcely apprehended the truth that
it is, after all, from the mass, from the unspecialized, that reforms
proceed.

In spite of the danger of bringing biology bodily over into the
social field, it is well to remember that all biologists agree that
when any growth of new tissue must take place it cannot come
from the highly specialized cell, whose powers are already turned in
one direction, but that it must come from the primitive cell, which
has never perfected any special function and is capable of develop-
ment in any direction.

Professor Weaver, of Columbia, has lately pointed out that " the
cities have traditionally been the cradles of liberty, as they are
to-day the centers of radicalism," and that it is natural that brute
selfishness should first be curbed and social feeling created at the
point of the greatest congestion. If we once admit the human
dynamic character of progress, then we must look to the cities as
the focal points of that progress; and it is not without significance
that the most vigorous effort at governmental reform, as well as
the most generous experiments in ministering to social needs, have,
come from the largest cities. Are we beginning to see the first timid,
forward reach of one of those instinctive movements which carry
forward the goodness of the race?

If we could trust democratic government as over against and
distinct from the older types, — from those which repress, rather
than release, the power of the people, — then we should begin to
know what democracy really is, and our municipal administration
would at last be free to attain Aristotle's ideal of a city, " where
men live a common life for a noble end."

SHORT PAPER

DR. HENRY DICKSON BRUNS, of New Orleans, Louisiana, presented a paper
on " Elements of Improvement in Municipal Government."

WORKS OF REFERENCE RELATING TO POLITICAL

THEORY

(Prepared through courtesy of Professor W. W, Willoughby)

AUSTIN, The Province of Jurisprudence Determined.

BLUNTSCHLI, Allgemeine Staatslehre. (English translation, The Theory of the
State.)

BORNHAK, Allgemeine Staatslehre.

BOSANQUET, The Philosophical Theory of the State.

BRYCE, Studies in History and Jurisprudence.

BURGESS, Political Science and Comparative Constitutional Law.

CARLYLE, A History of Mediaeval Political Theory.

DICEY, Law of the Constitution.

DUGUIT, L'Etat, le droit objectif et la loi positive.

DUNNING, A History of Political Theories, vols. i and n.

GIERKE, Die Staats- und Korporationslehre. (One section translated into Eng-
lish, with an introduction by Maitland, under title " Political Theories of the
Middle Age.")

GREEN, Lectures on the Principles of Political Obligation.

HOLLAND, The Elements of Jurisprudence.

IHERING, Der Zweck im Recht.

JANET, Histoire de la science politique dans ses rapports avec la morale.

JELLINEK, Das Recht des modernen Staates.

Die Lehre von den Staatenverbindungen.
Gesetz und Verordnung.

MERRIAM, American Political Theories.

OSTROGORSKI, Democracy and the Organization of Political Parties.

POLLOCK, History of the Science of Politics.

REHM, Allgemeine Staatslehre.

RITCHIE, Natural Rights.

SCHMIDT, B., Der Staat.

SCHMIDT, R., Allgemeine Staatslehre.

SEELEY, Introduction to Political Science.

SIDGWICK, The Elements of Politics.

The Development of European Polity.

WILLOUGHBY, The Nature of the State.
Social Justice.
The Political Theories of the Ancient World.

WORKS OF REFERENCE RELATING TO THE SECTION
OF DIPLOMACY

(Prepared through courtesy of David Jayne Hitt, LL.D.)

No general bibliography of this subject can be attempted here, but the follow-
ing special indications may be found useful:

I. The classic conception of diplomacy dates from the time of Machiavelli,
whose work II Principe, published in 1532, is an exposition of the theory of a
successful state as conceived by Machiavelli and his Italian contemporaries.
See, in addition to this work, translated by Detmold under the title of The
Prince, London, 1882, for the life of Machiavelli, Villari, Niccolo Machiavelli
e i suoi tempi, Florence, 1877, translated by Linda Villari, London and New
York, 1892; for the diplomacy of his time, De Maul de-la-Clavi ere, La diplomatic
au temps de Machiavel, Paris, 1892; for the literature, expository and critical,
Mohl, Geschichte und Literatur der Staatswissenschaft, Erlangen, 1855; and for
the influence of Machiavelli, Ferrari, Machiavel juge des revolutions de notre temps,
Paris, 1849; Mundt, Machiavelli und der Gang der europdischen Politik, Leipzig,
1853, and Symonds, The Age of the Despots, London, 1902.

The more modern form of the classic conception of diplomacy may be found
in Bielfeld, Institutions politiques, The Hague, 1760; Ancillon, Tableau des
revolutions du systcme politigue de I' Europe, Paris, 1823; De Garden, Traite
complet de diplomatic, Paris, 1833; and Tableau de la diplomatic, Paris, no date.

II. On the relations of diplomacy to history, special references are hardly
practicable, owing partly to the great mass of details and to their technical
character. Some idea of the labor already expended upon the Archives of Ven-
ice, so important for the history of diplomacy, may be obtained from Toderini
and Cecchetti, L'archivio di stato in Venezia nel decennio 1866-1875, Venice,
1876; and of the historical value of the Papal Archives, hitherto imperfectly
explored, from Gachard, Les archives du Vatican, Brussels, 1874, compared with
the use subsequently made of them. The examples cited, De"prez, Les prelimi-
naires de la guerre de cent ans, Paris, 1902, and Pelissier, Louis XII et Ludovic
Sforza, Paris, 1896, published in the Bibliotheque des Ecoles francnises d'Athenes
et de Rome, are intended only to illustrate the class of work lately done, and
still remaining to be done, with these sources.

For the general history of modern diplomacy may be named Stoffela D'Alta
Rupe, Abrege de I'histoire diplomatique de I' Europe, Vienna, 1888; Debidour,
Histoire diplomatique de I' Europe, Paris, 1891; Malet, Histoire diplomatique
de I' Europe aux XV He et XV Hie siecles, Paris, 1894; and Bourgeois, Manuel
historique de politique etrangere, Paris, 1897. The last three contain biblio-
graphies.

III. On the relation of diplomacy to jurisprudence, besides the standard works
on jurisprudence and international law, see Ward, An Enquiry into the Founda-
tion and History of the Law of Nations in Europe, London, 1795; Wheaton,
History of the Law of Nations in Europe and America, New York, 1845, translated
into French, Leipzig and Paris, 1846; Hosack, Rise and Growth of the Law of
Nations, London, 1882; Walker, A History of the Law of Nations, Cambridge,
1899; De la Gue"ronniere, Le droit public et I'Europe moderne, Paris, 1876.

For the International Tribunal at The Hague, see Holls, The Peace Conference
at The Hague, New York, 1900; Foster, Arbitration and The Hague Court, Boston
1904; Descamps, M ('moire sur le fonctionnement du premier tribunal d' arbitrage
constituc au sein de la Cour Permanente de, La Haye, Lou vain, 1903; Penfield,

BIBLIOGRAPHY : SECTION OF DIPLOMACY 453

Some Problems of International Arbitration, address before the Xew York State
Bar Association, January 20, 1904; Dean, Preserving the World's Peace, in
The World's Work for March, 1905.

IV. The literature tearing on the relation of diplomacy to economics is too
varied and voluminous for even a partial citation here, for it includes the entire
theory and history of population, production, commerce, and colonization.
Many interesting facts may be found in Mill, The International Geography, New
York, 1900; and Adams, A Textbook of Commercial Geography, New York, 1901.
Synthetic treatment is much to be desired.

The problem of cosmopolitanism versus nationalism is discussed from many
points of view in Novicow, Die Foderation Europas, Berlin, 1901, and other
works in French and Italian by the same author.

V. The relation of diplomacy to ethics has received practically no specific
treatment, which can proceed only from a moral conception of the state and
the conscience of enlightened peoples.

VI. For a knowledge of the place accorded to diplomacy in modern education,
reference may be made to the programmes of colleges and universities. Among
these, the courses of study offered by the Ecole Libre des Sciences Politiques at
Paris and by the School of Jurisprudence and Diplomacy of The George Wash-
ington University, at Washington, D. C., are the most complete. For the edu-
cational attainments required for admission to the diplomatic service of the
various countries, see their respective official foreign office publications.

WORKS OF REFERENCE RELATING TO THE SECTION OF
COLONIAL ADMINISTRATION

BROSE, M., Die deutsche Koloniallitteratur, published annually at Berlin.

CALDECOTT, A., English Colonization and Empire, London, 1897.

DILKE, SIR C. W., Problems of Greater Britain, London, 1890.

EGERTON, H. E., A Short History of British Colonial Policy, London, 1894.

GIRAULT, A., Principes de colonisation et de legislation coloniales, 2 ed.

GRIFFIN, A. P. C., List of Books relating to Colonization, Library of Congress,
Washington, 1900.

HOOYKAAS, J. C., Repertorium op de Koloniale Litteratuur, 1595-1865, Amster-
dam, 1874-80. Supplement by A. Hartmann, The Hague, 1895.

IRELAND, A., Tropical Colonization, New York, 1900.

JENKYNS, SIR H., British Rule and Jurisdiction beyond the Seas, Oxford, 1902.

KINGSLEY, MABY H., West African Studies, London, 1901.

LOUTER, J. DE, Staats en Administratief Recht van Nederl. India. Hague, 1895.

LEWIS, SIR GEORGE C., On the Government of Dependencies, Oxford, 1891. (Orig-
inally published in 1841, this book is valuable, not only as a most philosoph-
ical discussion, but also as expressing the general attitude toward colonies
during the middle period of the nineteenth century.)

LEROY-BEAULIEU, P., De la Colonisation chez les peuples modernes, Paris, 1902.

LUCAS, C. P., Historical Geography of the British Colonies, Oxford, 1887-1901.

MERIVALE, H., Lectures on Colonization and Colonies, London, 1861.

MORRIS, H. C., The History of Colonization, London, 1897.

MOUREY ET BRUNEL, L'Annee coloniale, published annually in Paris. Contains
a bibliography of French books and articles.

PETIT, ED., Organisation des Colonies Francaises, Paris, 1895.

REINSCH, P. S., Colonial Government, New York, 1902.

Colonial Administration, New York, 1905.

ROSCHER, W., Kolonien Kolonialpolitik und Auswanderung, Leipzig, 1885.

SAUSSURE, L. DE, Psychologic de la colonisation francaise, Paris, 1897.

STRACHEY, SIR J., India, 2 ed., London, 1903.

WILLOUGHBY, A. F., Territories and Dependencies of the United States, N.Y. 1905.

ZIMMERMANN, A., Die europaischen Kolonien, Berlin, 1896-1901.

Colonial Administration, 1800-1900. A useful compilation from writers on colo-
nial politics and from documentary sources, made by the Bureau of Statis-
tics of the Treasury Department, under the direction of O. P. Austin, Washing-
ton, 1901.

Catalogue of the Library of the Royal Colonial Institute, London, 1895; First

Supplement, 1901.

The Statesman's Year-Book; contains brief bibliographies on the various colonies.
The British Parliamentary Papers (Blue Books); contain an annual account of

the administration of the various British colonies. (List published by P. 8.

King & Son, Westminster.)

The Golonial Office List, published annually in London (semi-official).
Statistical Abstract for the Several Colonial and other Possessions of the United

Kingdom.

Administrative reports published in the various colonies.
Annuaire Colonial; appears since 1888, and is now published by the French

Colonial Office.

BIBLIOGRAPHY: COLONIAL ADMINISTRATION 455

Each of the French colonies also publishes an annuaire, a summary of the

administrative organization with lists of officials, e. g. :
L' Annuaire ge"ne"ral commercial et administratif de 1'Indo-Chine francaise,

Paris and Hanoi.

The German Parliamentary papers (Weissbiicher) on colonial affairs.
Deutsches Kolonialblatt and Koloniales Jahrbuch, both published by the German

Colonial Office.

The Seven Colonies of Australia, annual.
The Wealth and Progress of New South Wales, annual.
The New Zealand Official Year-Book, annual.
Kolonial-Verslag, annual, Batavia.

Annual Pveport of the Philippine Commission, Washington.
The Philippine Gazette, Manila.

ADDITIONAL WORKS OF REFERENCE RELATING TO
THE SECTION OF COLONIAL ADMINISTRATION

(Prepared through courtesy of Professor Bernard Moses)

AUSTIN, O. P., Colonial Administration, 1800-1900, Washington, 1901.
DUBOIS, Systemes Coloniaux et peuples Colonisateurs, Paris, 1895.
GAFFAREL, Les Colonies franchises, Paris, 1899.
HERRERO, Politica de Espafia en Ultramar, Madrid, 1890.
LANESSAN, J. L. DE, L'Expansion Coloniale de la France, Paris, 1886.
LEROY-BEAULIEU, P., De la Colonisation chez les peuples modernea, Paris, 1898.
LEWIS, SIR GEORGE, On the Government of Dependencies, Oxford, 1891.
ORGEAS, La Pathologic des races humaines et le probleme de la colonisation,

Paris, 1886.

ROSCHER, W., Kolonien, Kolonialpolitik, und Auswandering, Leipzig, 1885.
ZIMMERMANN, A., Die europaischen Kolonien, Berlin, 1896-1901.
Reports of the United States Philippine Commission, Washington, 1900-1903.

ADDENDA PAGES

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